10QSB/A 1 bgiq3311.txt BGI 10-QSB/A 3-31-01 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB/A [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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. (Name of Small Business Issuer in Its Charter) 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 ____ Indicated below is the number of shares outstanding of the registrant's common stock as of May 11, 2001: Class Number of Shares Outstanding Common Stock, $.001 Par Value 9,533,142 TABLE OF CONTENTS PAGE NUMBER PART I: ITEM 1. FINANCIAL STATEMENTS* 3 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 9 PART II: ITEM 1. LEGAL PROCEEDINGS 10 ITEM 2. CHANGES IN SECURITIES 10 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10 ITEM 5. OTHER INFORMATION 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 *This amended 10-Q is being filed as a result of the following: The audit of the Company's financial statements for the year ended December 31, 2001 produced several adjustments that affected the financial statements for the 2001 quarterly periods which has resulted in the Company restating the financial statements for the affected quarterly periods. See Note 1 of the Notes to Financial Statements. 2 PART I ITEM 1. FINANCIAL STATEMENTS BGI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS MARCH 31, DECEMBER 31, 2001 2000 (Restated) ---------------- ---------------------- Current assets: Cash and cash equivalents $ 43,612 $ 58,124 Accounts receivable - trade, 96,461 117,505 net 39,588 86,453 Inventories Prepaid 8,367 14,099 expenses ---------------- ---------------------- Total current 188,028 276,181 assets --- ---------------- ---------------------- Property and equipment, at cost - 613,921 684,340 net ---------------- ---------------------- Other assets: Intangible assets - - 36,121 net Deferred financing 25,000 34,484 costs 22,691 27,741 Deposits ---------------- ---------------------- Total other 47,691 98,346 assets ---------------- ---------------------- Total $ 849,640 $ 1,058,867 assets ================ ====================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable - trade and accrued $ 343,442 $ 403,352 expenses Current maturities of long-term 173,257 200,482 debt Current maturities of lease 341,644 277,567 obligations ---------------- ---------------------- Total current 858,343 881,401 liabilities Long-term debt, net of current 16,272 21,814 maturities Long-term portion of lease 133,303 190,901 obligations ---------------- ---------------------- Total 1,007,918 1,094,116 liabilities ---------------- ---------------------- Stockholders' equity: Preferred stock, non-voting; $.001 par; 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, $.001 par; 70,000,000 shares authorized; 9,533,142 and 9,141,142 issued and outstanding 9,533 9,141 Additional paid-in capital 957,488 936,253 Retained earnings (deficit) (1,125,299) (980,643) ---------------- ---------------------- Total stockholders' equity (158,278) (35,249) (deficit) ---------------- ---------------------- Total liabilities and stockholders' $ 849,640 $ 1,058,867 equity ================ ======================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 BGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31 (UNAUDITED) 2001 2000 (Restated) ---------------- --------------------- Revenue: Phone card and machine sales $ 356,667 $ 803,573 Machine rental 46,856 - Hall rental 66,523 83,084 Other 868 11,437 ---------------- --------------------- Total revenue 470,914 898,094 ---------------- --------------------- Cost of revenue: Phone cards 131,140 233,834 Machine depreciation 64,498 71,369 Prizes paid 109,982 247,958 Hall rental 36,062 38,860 ---------------- --------------------- Total cost of revenue 341,682 592,021 ---------------- --------------------- Gross margin 129,232 306,073 General and administrative expenses 284,150 294,526 ---------------- --------------------- Operating income (loss) (154,918) 11,547 Gain on sale of assets 41,569 - Interest expense (31,307) (69,593) ---------------- --------------------- Net loss (144,656) (58,046) Retained earnings: Beginning (deficit) $ (980,643) $ (320,601) ================ ===================== Ending (deficit) $ (1,125,299) $ (378,647) ================ ===================== Basic and diluted loss per common share $ ($0.02) $ (0.01) ================ ===================== Weighted average shares outstanding 9,218,150 8,805,863 ================ =====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 BGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31 (UNAUDITED) 2001 2000 (Restated) --------------- ---------------- Operating activities: Net loss $ (144,656) $ (58,046) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 115,232 92,485 Provision for bad debts 14,095 (58,571) (recovery) Gain on the sale of fixed (41,569) - assets Common stock issued for services 21,627 24,303 Deferred financing cost charged to interest 9,484 16,051 Changes in current assets and liabilities: Accounts receivable - trade 21,044 40,295 Inventories 46,865 1,408 Prepaid expenses 5,732 (3,500) Accounts payable - trade and accrued expenses (59,909) (5,581) ---------------- --------------------- Net cash provided from operating activities (12,055) 48,844 ---------------- --------------------- Investing activities: Purchase of property and equipment (11,976) (15,360) Increase (decrease) in other assets 4,900 (4,989) Proceeds from sale of equipment 45,000 3,000 Cash provided (used) by investing activities 37,924 (17,349) ---------------- --------------------- Financing activities: Payments on long-term debt (19,607) (26,139) Payments on long-term leases (20,774) (48,598) Proceeds from issuance of common - 65,000 stock ---------------- --------------------- Cash provided (used) by financing activities (40,381) (9,737) ---------------- --------------------- Net increase (decrease) in cash and cash equivalents (14,512) 21,758 Cash and cash equivalents at beginning of year 58,124 89,636 ---------------- --------------------- Cash and cash equivalents at end of year $ 43,612 $111,394 ================ ===================== Supplemental disclosures of cash flow information: Interest paid $ 31,305 $ 69,593 ================ ===================== Taxes paid $ 2,288 $ 5,169 ================ =====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 5 BGI, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS AND BASIS OF PRESENTATION: BGI, Inc. formerly Bingo & Gaming International, Inc. (Bingo) was formed in 1981and was dormant from 1984 to November 1994. In December 1994, the Company acquired Monitored Investment, Inc. and Affiliates (Monitored Investment, Inc., Red River Bingo, Inc., Tupelo Industries, Inc., and Meridian Enterprises, Inc., hereinafter referred to collectively as "Monitored"). Monitored's principal operations consist of developing, managing and operating charity bingo entertainment centers. Monitored is a commercial lessor of bingo facilities to charity lessees which utilize bingo events as a means of fund raising. The stockholders of Monitored became the controlling stockholders of Bingo in a "reverse acquisition", whereby each of the corporations comprising Monitored became wholly-owned subsidiaries of Bingo. As a result, the merger was accounted for as an "equity restructuring" of Bingo. On September 29, 1999, the shareholders of Bingo & Gaming International, Inc. voted to change its name to BGI, Inc. In October 1997, PrePaid Plus, Inc. ("PPI"), a Texas corporation, was acquired under the purchase method. PPI is a wholly owned subsidiary of BGI, Inc. PPI was formed for the purpose of transacting the prepaid telephone card dispenser operations. PPI began distributing and selling the Lucky Strike Phone Card Dispenser, a video enhanced prepaid phone card dispenser, under an exclusive distribution agreement for five years with two successive five year options to renew with Cyberdyne Systems, Inc. The consolidated financial statements include the accounts of BGI, Inc. and its wholly-owned subsidiaries (the Company). All significant inter-company accounts and transactions have been eliminated in consolidation. RESTATEMENT OF FINANCIAL STATEMENTS: As a result of adjustments discovered during the audit of the Company's financial statements for the year ended December 31, 2001, the Company has restated the quarterly financial statements that were affected by audit adjustments. The adjustments related to the write-off of expenses previously capitalized in connection with an internet project that was later abandoned and the accrual of non-cash compensation expense in connection with a consulting agreement. The affect of the restatement for the three months ended March 31, 2001, is as follows: Three Months Ended March 31, 2001 As Reported Restated -------------- --------------------- Statement of Income Data: Total revenue $ 470,914 470,914 Total cost of revenue 341,682 341,682 Gross margin 129,232 129,232 General and administrative expenses 235,182 284,150 Operating loss (105,950) (154,918) Net loss (95,688) (144,656) Basic and diluted loss per common share (.01) (.02) As of March 31, 2001 As Reported Restated -------------- --------------------- Balance Sheet Data: Total current assets $ 188,028 188,028 Total other assets 78,659 47,691 Total liabilities 989,918 1,007,918 Total stockholder's deficit (109,310) (158,278) 6 BGI, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED GOING CONCERN: The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. Numerous factors could affect the Company's operating results, including, but not limited to, general economic conditions, competition, and changing technologies. A change in any of these factors could have an adverse effect on the Company's consolidated financial position or results of operations. The Company had an operating loss for the year ended December 31, 2000. In addition, the Company's working capital position deteriorated due to a loss from operations. At March 31, 2001, current liabilities exceed current assets by $670,315, and the Company had a deficit retained earnings of $1,125,299. In view of these matters, realization of a major portion of the assets in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which in turn may be dependent upon the success of its future operations. INVENTORIES: Inventories, which consist of phone cards, prepaid vending machines, and small equipment are valued at the lower of cost or market using the first-in, first-out method. CASH EQUIVALENTS: Cash equivalents consist primarily of funds invested in short-term interest-bearing accounts. The Company considers all highly liquid investments purchased with initial maturities of three months or less to be cash equivalents. INTANGIBLE ASSETS: Intangible assets include goodwill, the cost of a non-compete agreement, and development of internet site Goodwill is amortized over five years, the cost of the non-compete agreement is being amortized over two years. PROPERTY, EQUIPMENT AND DEPRECIATION AND AMORTIZATION: Property and equipment are stated at cost, net of accumulated depreciation and amortization. For financial statement purposes, depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the term of the related lease or the useful life of the leasehold improvements. Accelerated depreciation methods are used for tax purposes. Maintenance and repairs are charged to expense as incurred. The cost of betterments and renewals are capitalized. Gains or losses upon disposal of assets are recognized in the period during which the transaction occurs. 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 enactments of 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 "more likely than not" that such deferred tax assets will be realized. 7 BGI, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED REVENUE RECOGNITION: Phone card and machine sales as well as rental income are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed and determinable and collectibility is reasonably assured. An allowance for doubtful accounts is provided based on periodic reviews of the accounts. ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS: In December 1999, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). This SAB summarizes certain of the Staff's views in applying generally accepted accounting principles in the United States, to revenue recognition in financial statements. The Company's revenue recognition policy is in compliance with SAB 101. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. RESTATEMENT OF HISTROICAL FINANCIAL STATEMENTS See Note 1 of Notes to Financial Statements for a description of certain adjustments to previously issued quarterly financial statements. RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 2001 COMPARED WITH QUARTER ENDED MARCH 31, 2000 Total revenues for the quarter ended March 31, 2001, were $470,914 as compared to $898,094 for the prior quarter ended March 31, 2000. This 47.6% decrease was the result of declines in phone card and machine sales, increased competition in the Company's primary areas of operations and a decrease in the number of machines operating in bingo and other facilities. As previously noted in the Form 10KSB for the year ended December 31, 2000, the Company has converted over half of its 325 existing phone card machines to a new product called "Charity Station" and has placed these converted machines in various locations throughout the State of Texas. Gross margin was $129,232 or 27.4% of total revenue for the quarter ended March 31, 2001 as compared to $306,073 or 34.1% of total revenue for the quarter ended March 31, 2000. The decline in gross margin was consistent with the decline in revenue. The decline in gross margin as a percentage of revenue resulted from revenue decreasing at a faster rate than the cost of hall rental and machine depreciation. General and administrative expenses for the quarter ended March 31, 2001 was $284,150 compared to $294,526 for the quarter ended March 31, 2000. This 3.5% decrease was the result of continuing improvements in expense controls undertaken by management during the fiscal year 2000. The 55.0% or $38,286 decrease in interest expense is a result of the decline in outstanding debt balances for the quarter ended March 31, 2001, as compared to the quarter ended March 31, 2000. As a result of the above, the Company incurred consolidated net losses for the quarter ended March 31, 2001 and 2000 of $144,656 and $58,046, respectively. LIQUIDITY Current assets of $188,028 represented 21.9% of current liabilities of $858,343 as of March 31, 2001, as compared to current assets of $276,181 representing 31.3% of current liabilities in the amount of $881,401 as of December 31, 2000. The Company had cash and cash equivalents of $43,612 as of March 31, 2001 compared to $58,124 as of December 31, 2000. The Company's decreased cash position during the first quarter of 2001 is primarily the result of decreases in the sale of phone cards, machines, and increased competition in the primary areas of operation. Cash used in operating activities was $12,055 for the three months ended March 31, 2001 as compared to cash provided by operating activities of $48,844 in the 2000 quarter. The change is due to increased net loss in the first quarter of 2001 as well as a decrease in accounts payable and an accrued expense, which was partially offset by, decreased inventory balances as the Company reduced phone card inventory. During the three months ended March 31, 2001, the Company had 37,924 of cash provided by investing activities primarily as a result of sale of equipment related to a bingo facility. This compares to cash used in investing activities of $17,349 in 2000 quarter, which was related to purchases of phone card machines. The Company used $40,381 for financing activities during the three months ended march 31, 2001 related to the principal payments on various notes and equipment leases. This compares to cash used in financing activities of $9,737 in the 2000 quarter in which the payments on various notes and equipment leases were offset by $65,000 proceeds from the issuance of common stock. 9 PART II - OTHER INFORMATION 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. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. None (b) No reports on Form 8-K were filed during the quarter for which this report on Form 10-QSB is filed. 10 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 14, 2002 By /s/ Reid Funderburk ------------------- Reid Funderburk Interim Chief Executive Officer Date: May 14, 2002 By:/s/ William Schwartz -------------------- William Schwartz, Chief Financial Officer 11