10QSB 1 bgi10qsb1114.txt BGI 10-QSB U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to __________________ Commission File No. 0-10519 -------- BGI, INC. OKLAHOMA 73-1092118 ------------------------- --------------------- (State or Other Jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 13581 Pond Springs Rd. Suite 105 Austin, Texas 78729 - ------------------- (Address of Principal Executive Offices) Issuer's Telephone Number: (512) 335-0065 -------------- Indicate by check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes X No (2) Yes X No --- --- --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-QSB or any amendment to this Form 10-QSB. [ ] Indicated below is the quantity of shares outstanding as of September 30, 2001 of the registrants common stock at Class Number of shares outstanding Common stock, $.001 par value 9,685,165 TABLE OF CONTENTS Page Number Part I: Item 1. Financial Statements 1 --------------------- Item 2. Management's Discussion and Analysis 5 ------------------------------------- Part II: Item 1. Legal Proceedings 6 ----------------- Item 2. Changes in Securities and Use of Proceeds 6 --------------------- -------------------- Item 3. Defaults Upon Senior Securities 6 ------------------------------- Item 4. Submission of Matters to a Vote of Security Holders 6 --------------------------------------------------- Item 5. Other Information 6 ----------------- Item 6. Exhibits and Reports on Form 8-K 6 -------------------------------- PART I Item 1. BGI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS September 30, 2001 December 31, 2001 2001 2000 (Unaudited) (Audited) Current assets: Cash $ 256,610 $ 58,124 Accounts receivable - trade, net 95,742 117,505 Inventories 16,783 86,453 Prepaid expenses - 14,099 --------- -------- Total current assets 369,135 276,181 ------- ------- Property and equipment, at cost - net 1,212,779 684,340 Other assets: Intangible assets - net 39,753 36,121 Deferred financing costs - 34,484 Deposits 18,218 27,741 ------ ------ Total other assets 57,971 98,346 Total assets $ 1,639,885 $ 1,058,867 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable - trade and accrued expenses $ 405,615 $ 403,352 Current maturities of long-term debt 48,685 200,482 Current maturities of capital lease obligations 271,286 277,567 ------- ------- Total current liabilities 725,586 881,401 Long-term debt, less current maturities 61,126 21,814 Capital lease obligations, less current maturities 4,124 190,901 ----- ------- Total liabilities 790,836 1,094,116 ======= ========= Stockholders' equity: Preferred stock, nonvoting; $.001 par; 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, $.001 par; 70,000,000 shares authorized; 9,685,165 and 9,141,142 issued and outstanding 9,685 9,141 Additional paid-in capital 979,659 936,253 Retained earnings (deficit) (140,295) (980,643) -------- -------- Total stockholders' equity (deficit) 849,049 (35,249) Total liabilities and stockholders' equity $ 1,639,885 $ 1,058,867 ======================= ======================
The accompanying notes are an integral part of these financial statements. 1 BGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Revenue: Machine rental $ 1,443,350 $ - $ 2,085,795 $ - Phone card sales 19,071 560,193 452,991 2,108,699 Hall rental and concession income 6,000 82,602 102,199 249,777 Machine sales 13,500 4,995 36,000 40,976 Other revenue 459 8,367 5,464 34,058 --- ----- ----- ------ Total revenue 1,482,380 656,157 2,682,449 2,433,510 --------- ------- --------- --------- Cost of revenue: Phone cards 96,644 243,359 392,258 830,215 Prizes paid - 187,040 113,360 701,405 Hall rental and concession expenses 3,428 47,632 39,663 143,393 Machines sold 12,225 3,875 39,350 27,705 Total cost of revenue 112,297 481,906 584,631 1,702,718 ------- ------- ------- --------- Gross margin 1,370,083 174,251 2,097,819 730,792 General and administrative expenses 618,011 290,088 1,235,142 948,668 Operating income (loss) 752,072 (115,837) 862,677 (217,876) Other income (expense): Gain on sale of asset 33,489 - 79,651 - Interest expense (26,837) (78,981) (101,982) (206,863) ------- ------- -------- -------- Income (loss) before federal income tax 758,724 (194,818) 840,346 (424,739) Federal income tax - - - - Net income (loss) 758,724 (194,818) 840,346 (424,739) Retained earnings (deficit): Beginning (899,018) (550,522) (980,643) (320,601) -------- -------- -------- -------- Ending $ (140,295) $ (745,340) $ (140,295) $ (745,340) =============== ================= =============== ================ Basic income (loss) per common share: Income (loss) applicable to common stockholder $ 0.08 $ (0.02) $ 0.09 $ (0.05) ================ ================= ================ ================ Diluted income (loss) per common share: Income (loss) applicable to common stockholder $ 0.07 $ (0.02) $ 0.08 $ (0.05) ================ ================= ================ ================
The accompanying notes are an integral part of these financial statements. 2 BGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 2001 2000 ---- ---- Operating activities: Net income $ 840,346 $ (424,739) Adjustments to reconcile net income to net cash income: Depreciation and amortization 231,052 278,445 Recovery from bad debts - 87,613 Stock issued for services 43,951 76,433 Deferred financing cost 34,484 39,398 Gain on disposal of property (79,651) - Changes in current assets and liabilities: Accounts receivable 21,760 38,874 Inventories 69,670 45,775 Prepaid expenses 14,099 (6,464) Deposits 9,524 - Accounts payable - trade and accrued expenses 2,265 20,126 ----- ------ Cash provided by operating activities 1,187,500 155,461 --------- ------- Investing activities: Purchase of property and equipment (733,515) (57,757) Increase (decrease) in other assets (16,975) (25,807) Proceeds from sale of equipment 112,000 3,000 ------- ----- Cash provided (used) by investing activities (638,490) (80,564) -------- ------- Financing activities: Payments on long-term debt (157,466) (73,884) Payments on long-term leases (193,058) (98,281) Proceeds from issuance of common stock - 65,000 ------ Cash provided (used) by financing activities (350,524) (107,165) -------- -------- Net increase (decrease) in cash 198,486 (32,268) Cash at beginning of period 58,124 89,636 ------ ------ Cash at end of period $ 256,610 $ 57,368 ==================== ===================== Supplemental disclosures of cash flow information: Interest paid $ 101,982 $ 206,863 Cash flow from non-cash transfer activities Purchases of fixed assets with long-term debt $ 44,982 $ -
The accompanying notes are an integral part of these financial statements. 3 BGI, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation: The financial statements for the nine months ended September 30, 2001 and September 30, 2000 are unaudited. They have however, been prepared from the books and records of the Company in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission. All adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of financial position and operating results for the interim periods have been reflected. These financial statements should be read in conjunction with the Company's most recent Annual Report on Form 10-KSB, which includes audited financial statements for the year ended December 31, 2000. Reclassifications: Certain prior period amounts have been reclassified to conform with this September 30, 2001 presentation. Taxes on income: The Company accounts for income taxes under the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible changes in the tax laws or rates. The Company provides a valuation allowance against its deferred tax assets to the extent that management estimates that it is not "more likely than not" that such deferred tax assets will be realized. However, the company will use portions of NOL tax benefits in this period to offset income tax expense. NOTE 2 - EARNINGS PER SHARE Basic income or loss per common share is computed based on the weighted average number of common shares outstanding during each period. For the periods ended September 30, 2001, diluted income or loss per common share is computed based on the weighted average number of common shares outstanding, after giving effect to the potential issuance of common stock on the exercise of options and warrants and the impact of assumed conversions. The following table provides a reconciliation between basic and diluted shares outstanding:
Three months ended Nine months ended September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Weighted average number of common shares used in basic earnings per share $ 9,685,165 $ 9,004,639 $ 9,555,452 $ 9,323,870 Effect of dilutive securities: Stock options 881,500 881,500 - Warrants 475,000 475,000 - ------- ------- Weighted average number of common shares and dilutive potential common stock used in diluted earnings per share $ 11,041,665 $ 9,004,639 $ 10,911,952 $ 9,323,870 ================== ================= ================ ==================
4 BGI, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) NOTE 3 - RELATED PARTY During the quarter that ended September 30, 2001, Reid Funderburk, Chairman, CEO and Director, and/or other employees of BGI, Inc., assisted in the organization of and /or invested Charity Station locations. The Company does not contract with or have any other direct relationship with any Charity Station location. However, subsequent to September 30, 2001, the Board of Directors voted effective December 31, 2001, in an effort to avoid any perceived conflicts of interest, any and all employees of the Company will no longer be allowed to assist in the organization of and/or invest in Charity Station locations. Item 2 Management's Discussion and Analysis BGI, Inc. and Subsidiaries (the Company) is including the following cautionary statement in this Quarterly Report 10-QSB to make applicable and utilize the safe harbor provision of the Private Securities Litigation Reform Act of 1995 regarding any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such statements. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will be realized. The third quarter of 2001 was significant for the Company as it achieved its goal of converting all available Lucky Strike Phone card machines into Charity Station promotional sweepstakes machines. In addition, the company acquired and deployed additional Charity Station machines in the State of Texas. The heart of the Charity Station promotional sweepstakes is the Las Vegas like video machine that administers the sweepstakes game. The machine is located in a facility with high foot traffic, and the video reels and the rhythmic sounds it emits attracts attention from passers-by. A contributor simply inserts a bill into the dollar bill acceptor of the Charity Station machine that becomes a donation to the non-profit organization that is sponsoring the sweepstakes. After the donation is made, the participant depresses a button on the machine to play the sweepstakes game. The total number of Charity Station machines located in the State of Texas increased by 185 or 74% to 435 by the end of the period. The Company was also successful in diversifying its' revenue flows by supplying machines to 15 new locations, bringing the total to 24 in the State of Texas. The positive results of the third quarter are due to the continued deployment of the Charity Station. The revenue and margins brought by the Charity Station far exceed those of the phone card machines. The Charity Station is proving to be quite successful and continuing the deployment of these machines will be the focus of the Company's efforts in the fourth quarter and beyond. Despite various local interpretations of the sweepstakes law in the 255 Texas counties, the Company believes it can place machines in approximately 190 counties. Currently the Company has machines operating in 9 counties. The Company is also exploring opportunities in other states where it believes sweepstakes law may allow the Charity Station machine to be operated. Results of Operations Three Months Ended September 30, 2001 Compared with the Three Months Ended September 30, 2000 Total Revenue for the three months ended September 30, 2001 amounted to $1,482,380 compared to $656,157 for the three months ended September 30, 2000. The 125.9% increase was due to the installation of 185 new Charity Station machines and the conversion of the existing Lucky Strike phone card machines into Charity Station machines. Charity Station rental revenue accounted for $1,443,350 of the total revenue for the three months ended September 30, 2001 as compared to no Charity Station rental revenue during the comparable period of 2000. Hall rental and concession income decreased from $82,602 for the period ending September 30, 2000 to $6,000 for the three months ending September 30, 2001. The Company no longer has any interest Bingo Hall locations. Cost of Sales was $112,297 for three months ended September 30,2001 compared to $481,906 for three months ended September 30, 2000. This 76.7% decrease in cost of sales was due to the conversion of phone card machines to the new Charity Stations and the elimination of the cost associated with the actual phone cards. Gross Margin for the three months ended September 30, 2001, was $1,370,083 as compared to $174,251 for the three months ended September 30, 2000. This can again be attributed to the conversion of the phone card machines and the elimination of the cost associated with the actual phone cards. 5 Results of Operations - continued General and administrative expense was $618,011 for the three months ended September 30, 2001 compared to $290,288 for the three months ended September 30, 2000. The increase in terms of dollars spent was due to $158,000 for consultant fees for the development of a new business plan that included exploration of opportunities in other states and the addition of new employees. As a percentage of revenue, general and administrative costs decrease by over 2.5% for the period ending September 30, 2001 as compared to the same period ending September 30, 2000. The Company fully intends to aggressively manage expenses in light of its growth in an effort to continually drive value and return. Nine Months Ended September 30, 2001 Compared with the Nine Months Ended September 30, 2000. Total revenue for the nine months ended September 30, 2001, were $2,682,449 compared with $2,433,510 for the nine months ended September 30, 2000. This 10.2% increase is due to the success and the increased revenue from the Charity Station machines. Phone card revenues for the nine months ended September 30, 2001 decreased to $452,991 from $2,108,699 for the nine months ended September 30, 2000. Cost of sales decreased from $1,702,718 for the nine months ended September 30, 2000 to $584,631 for the nine months ended September 30, 2001. Cost of sales decreased as a direct result of the lower number of phone card machines versus the increasing number of Charity Station which have lower cost of sales. Gross margin was $2,097,819 for the nine months ended September 30, 2001 as compared to $730,792 for the nine months ended September 30, 2000. The 187.1% increase was due to the new Charity Station machines having very little cost associated with them as compared with the costs associated with the phone card machines. General and administrative expenses for the nine months ended September 30, 2001, were $1,235,142 compared to $948,668 for the nine months ended September 30, 2000. The increase was due to efforts to support the continued deployment of machines as well as infrastructure to service the larger installed base of machines. Ensuring that general and administrative expenses are controlled will continue to be a priority as the company grows. Liquidity Current assets of $369,135 as of September 30, 2001, represented 50.9% of current liabilities of $725,586 as compared to current assets of $276,181 at December 31, 2000, which represented 31.3% of current liabilities of $881,401. The Company's cash position improved for the nine months ended September 30, 2001, due to an increase in net income. Inventory decreased due to decreasing phone card revenues and related costs. As of September 30, 2001, the Company is current on all accounts payable, notes and leases. PART II Item 1. Legal Proceedings. None Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. Thomas Murphy, President, resigned effective 7/31/2001. Robert Chappell, Secretary/Treasurer resigned effective May 31, 2001. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit Annual Report on Form 10-KSB for the year ended December 31, filed April 15, 2000** **This document and related exhibits have been previously filed with the Securities and Exchange Commission and by this reference are incorporated herein. 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. BGI, INC. Date: 11/14/01 By S/S Reid Funderburk, CEO Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Date: 11/14/01 By S/S Reid Funderburk ---------------------- Reid Funderburk, Chairman, President, C.E.O. & Director