UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: June 30, 2010
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 333-145471
(Exact name of registrant as specified in its charter)
| Nevada | | N/A |
| (State or other jurisdiction of | | (I.R.S. Employer Identification No.) |
| incorporation or organization) | | |
3915 61 Avenue South East Calgary, Alberta, Canada T2C 1V5 |
| (Address of principal executive offices) |
(403) 255-2900
(Registrant’s telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of December 23, 2010: 9,498,063 shares of common stock.
BWI HOLDINGS, INC. AND SUBSIDIARY
FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 2010 and 2009
__________________
TABLE OF CONTENTS
___________________
| | | Page |
| | | |
| PART I - FINANCIAL INFORMATION | 2 |
| | | |
| Item 1. | Consolidated Financial Statements | 2 |
| | Consolidated Balance Sheets | 3 |
| | Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income | 4 |
| | Consolidated Statements of Cash Flows | 5 |
| | Notes to Consolidated Financial Statements | 6 to 12 |
| Item 2. | Management’s Discussion & Analysis or Plan of Operation | 13 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
| Item 4. | Controls and Procedures | 15 |
| | | |
| PART II -- OTHER INFORMATION | 17 |
| | | |
| Item 1. | Legal Proceedings | 17 |
| Item 1A. | Rick Factors | 17 |
| Item 2. | Unregistered Sales of Equity securities and Use of Proceeds | 17 |
| Item 3. | Defaults Upon Senior Securities | 17 |
| Item 4. | Removed and Reserved | 17 |
| Item 5 | Other Information | 17 |
| Item 6. | Exhibits | 17 |
| | | |
| Signatures | | 18 |
PART I. FINANCIAL INFORMATION
ITEM I. CONSOLIDATED FINANCIAL STATEMENTS
BWI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(US Dollars)
As of June 30, 2010 and March 31, 2010
| | | June 30, 2010 (Unaudited) | | | March 31, 2010 (Audited) | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash | | $ | - | | | $ | 796,359 | |
| Accounts receivable, net | | | 1,048,292 | | | | 968,892 | |
| Prepaid expenses | | | 127,028 | | | | 133,004 | |
| Equipment held for sale | | | 401,504 | | | | 420,781 | |
| Total Current Assets | | | 1,576,824 | | | | 2,319,036 | |
| Long-Term Assets | | | | | | | | |
| Performance bonds | | | 28,179 | | | | 29,532 | |
| Property and equipment, net | | | 3,100,768 | | | | 3,475,466 | |
| Goodwill | | | - | | | | 3,144,127 | |
| Total Long-Term Assets | | | 3,128,947 | | | | 6,649,125 | |
| Total Assets | | $ | 4,705,771 | | | $ | 8,968,161 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Bank indebtedness | | $ | 154,247 | | | $ | - | |
| Revolving bank loan | | | 21,358 | | | | 22,384 | |
| Accounts payable | | | 820,950 | | | | 566,205 | |
| Accrued liabilities | | | 133,101 | | | | 127,366 | |
| Liabilities under compromise | | | 2,053,635 | | | | 3,351,887 | |
| Advances from related parties | | | 47,869 | | | | 50,167 | |
| Advances from shareholders | | | 546,840 | | | | 482,994 | |
| Current portion of long-term debt | | | 37,830 | | | | 39,647 | |
| Current portion of obligations under capital lease | | | 192,707 | | | | 459,653 | |
| Total Current Liabilities | | | 4,008,537 | | | | 5,100,303 | |
| Long-Term Liabilities | | | | | | | | |
| Obligations under capital lease | | | 816,661 | | | | 598,577 | |
| Total Long-Term Liabilities | | | 816,661 | | | | 598,577 | |
| Total Liabilities | | | 4,825,198 | | | | 5,698,880 | |
| Stockholders’ (Deficit) Equity | | | | | | | | |
| Preferred stock, $0.001 par value, non-voting, 20,000,000 authorized, none issued and outstanding (March 31, 2010 – Nil) | | | - | | | | - | |
| Common stock, $0.001 par value, voting, 100,000,000 authorized, 5,498,063 issued and outstanding (March 31, 2010 – 5,498,063) | | | 54,981 | | | | 54,981 | |
| Additional paid-in capital | | | 11,687,595 | | | | 11,687,595 | |
| Accumulated other comprehensive income | | | 688,217 | | | | 689,676 | |
| Accumulated deficit | | | (12,550,220 | ) | | | (9,162,971 | ) |
| Total Stockholders’ (Deficit) Equity | | | (119,427 | ) | | | 3,269,281 | |
| Going concern | | | | | | | | |
| Commitments, contingencies and subsequent events | | | | | | | | |
| Total Liabilities and Stockholders’ (Deficit) Equity | | $ | 4,705,771 | | | $ | 8,968,161 | |
The accompanying notes are an integral part of these financial statements.
BWI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Loss and Comprehensive Loss
(US Dollars)
For The Three Months Ended June 30
(Unaudited)
| | | | 2010 | | | | 2009 | |
| Sales | | $ | 1,936,067 | | | $ | 2,096,889 | |
| Cost of Sales | | | 1,420,042 | | | | 1,508,947 | |
| Gross Profit | | | 516,025 | | | | 587,942 | |
| Operating Expenses | | | | | | | | |
| Advertising and promotion | | | 4,592 | | | | 9,670 | |
| Automotive | | | 1,232 | | | | - | |
| Bad debts | | | 474 | | | | - | |
| Depreciation | | | 152,104 | | | | 206,658 | |
| Insurance | | | 7,099 | | | | 5,856 | |
| Interest and bank charges | | | 25,392 | | | | 24,061 | |
| Interest on long-term debt | | | 216,527 | | | | 34,569 | |
| Office | | | 96,798 | | | | 31,024 | |
| Professional fees | | | 21,932 | | | | 14,530 | |
| Rent | | | 65,941 | | | | 109,724 | |
| Repairs and maintenance | | | - | | | | 964 | |
| Salaries and benefits | | | 223,462 | | | | 256,779 | |
| Telephone | | | 24,332 | | | | 42,380 | |
| Travel | | | - | | | | 10,965 | |
| Total Operating Expenses | | | 839,885 | | | | 747,180 | |
| Loss From Operations | | | (323,860 | ) | | | (159,238 | ) |
| Gain on sale of equipment | | | 74,670 | | | | - | |
| Impairment of goodwill | | | (3,138,059 | ) | | | - | |
| Reorganization costs | | | - | | | | (140,003 | ) |
| Net Loss | | $ | (3,387,249 | ) | | $ | (299,241 | ) |
| Foreign currency translation adjustment | | | (1,459 | ) | | | 273,471 | |
| Comprehensive Loss | | $ | (3,388,708 | ) | | $ | (25,770 | ) |
| Net Loss Per Weighted Number Of Shares Outstanding – Basic And Diluted | | $ | (0.61 | ) | | $ | (0.05 | ) |
| Weighted Average Number Of Shares Outstanding – Basic And Diluted | | | 5,498,063 | | | | 5,498,063 | |
The accompanying notes are an integral part of these financial statements.
BWI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(US Dollars)
For The Three Months Ended June 30
(Unaudited)
| | | 2010 | | | 2009 | |
| Cash Flows From Operating Activities | | | | | | |
| Net loss | | $ | (3,387,249 | ) | | $ | (299,241 | ) |
| Adjustments to Reconcile Net Loss to Net Cash (Used in) Provided by Operating Activities | | | | | | | | |
| Depreciation and amortization | | | 152,104 | | | | 206,658 | |
| Gain on sale of equipment | | | (74,670 | ) | | | - | |
| Impairment of goodwill | | | 3,138,059 | | | | - | |
| Changes in operating assets and liabilities | | | | | | | | |
| Accounts receivable | | | (79,400 | ) | | | 352,886 | |
| Prepaid expenses | | | 5,976 | | | | (37,110 | ) |
| Accounts payable, accrued liabilities and accounts payable under compromise | | | (1,037,772 | ) | | | (28,436 | ) |
| Net Cash (Used In) Provided By Operating Activities | | | (1,282,952 | ) | | | 194,757 | |
| Cash Flows From Investing Activities | | | | | | | | |
| Acquisition of property and equipment | | | (73,276 | ) | | | (23,467 | ) |
| Proceeds on disposal of property and equipment | | | 370,540 | | | | - | |
| Net Cash Provided By (Used In) Investing Activities | | | 297,264 | | | | (23,467 | ) |
| Cash Flows From Financing Activities | | | | | | | | |
| Proceeds from bank indebtedness | | | 154,247 | | | | - | |
| Repayment of (proceeds from) obligations under capital lease | | | (48,862 | ) | | | 176,478 | |
| Repayment of advances from related parties | | | - | | | | (59,165 | ) |
| Proceeds from (repayment of) advances from (to) shareholders | | | 88,778 | | | | (315,489 | ) |
| Net Cash Provided By (Used In) Financing Activities | | | 194,163 | | | | (198,176 | ) |
| Effect of Exchange Rate Changes in Cash | | | (4,834 | ) | | | (10,607 | ) |
| Net Decrease in Cash | | | (796,359 | ) | | | (16,279 | ) |
| Cash, Beginning of Period | | | 796,359 | | | | 124,011 | |
| Cash, End of Period | | $ | - | | | $ | 107,732 | |
| | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | |
| Cash Paid During the Period for | | | | | | | | |
| Interest | | $ | 241,919 | | | $ | 34,569 | |
| Income Taxes | | $ | - | | | $ | - | |
| Supplemental Schedule of Noncash Investing and Financing Activities: | | | | | | | | |
| Issuance of common stock for services | | $ | - | | | $ | - | |
The accompanying notes are an integral part of these financial statements.
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three Months Ended June 30, 2010
(Unaudited)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Company Description
Gray Creek Mining, Inc. was incorporated on August 10, 2006 under the laws of the State of Nevada. On November 7, 2008, a Certificate of Amendment was filed with the Nevada Secretary of State changing the name to BWI Holdings, Inc.
These financial statements include the accounts of BWI Holdings, Inc. (A Nevada Corporation) and subsidiary (the "Company" or “BWI”) and its wholly owned subsidiary Budget Waste Inc. (an Alberta Corporation) ("Budget Alberta").
The Company provides non-hazardous waste collection, transfer, recycling and disposal services. Additionally, the Company provides support to the construction industry such as fence rentals, sanitary facility rentals, bin rentals, hydrovac and water hauling. The Company operates primarily, but not exclusively, in Alberta, Canada. The Company evaluates principal operations through four functional departments: Solid Waste, Liquid Waste, Water Hauling, and Septic.
On March 4, 2009, the Company’s subsidiary, Budget Alberta, filed for protection under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) with the Court of the Queen’s Bench, Alberta (Court). In February 2010, Budget Alberta’s creditors voted to accept the Plan of Compromise and Arrangement (the “Plan”) in order to emerge from creditor protection. Budget Alberta was unable to meet its obligations under the Plan, and on August 19, 2010 Budget Alberta was placed into receivership. As of August 19, 2010, the Company is abandoning all claim of ownership to this subsidiary and will continue with other opportunities and possible acquisition candidates.
Basis of Presentation
The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Securities and Exchange Commission, or SEC, Form 10Q and Article 8 of SEC Regulation S-X. They do not include all of the information and footnotes required by generally accepted accounting principles, or GAAP, for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2010. Operating results for the three months ended June 30, 2010 are not necessarily indicative of the results that may be expected for future quarters or the year ending March 31, 2011.
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three Months Ended June 30, 2010
(Unaudited)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (Continued)
Basis of Presentation (Continued)
The consolidated financial statements of BWI are presented in accordance with Accounting Standards Codification (“ASC”) 852-10-45, Reorganizations – Overall - Other Presentation Matters. Accordingly, liabilities subject to compromise as of March 31, 2009, which include the expected allowed claims for liabilities incurred prior to our CCAA filing, are presented separately from those liabilities not subject to compromise on our Consolidated Balance Sheet. Liabilities not subject to compromise include all liabilities incurred after the CCAA petition date. All liabilities incurred prior to the petition date are considered liabilities subject to compromise. These amounts represent the Company’s estimates of known or potential pre-petition date claims that are likely to be resolved in connection with the CCAA filings. In addition, those expenses directly attributable to our CCAA activities, including, but not limited to, professional fees, mailings to creditors, and fees payable to the trustee, are presented separately from other operating expenses on our Consolidated Statement of Loss as reorganization expenses.
2. GOING CONCERN
The Company's ability to continue as a going concern is dependent upon achieving profitable operations and upon the continued financial support of its lenders and investors. The outcome of these matters cannot be predicted at this time.
On March 4, 2009, the Company’s subsidiary Budget Alberta entered into credit protection under the provisions of CCAA whereby the Company was granted temporary relief while undergoing restructuring. The Company’s subsidiary was unable to meet its obligations under the Plan and accordingly it entered receivership on August 19, 2010. The Company is abandoning all claim of ownership to this subsidiary. The Company’s continuation as a going concern is dependent upon identifying an appropriate acquisition candidate and obtaining new financing either by debt or by equity.
Management believes the Company’s ability to continue as a going concern is dependent on its ability to raise capital. At present, the Company has no commitments for any additional financing. Management is currently seeking financing through a possible offering of common stock, which will be used to finance new acquisitions.
These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three Months Ended June 30, 2010
(Unaudited)
| 3. | EQUIPMENT HELD FOR SALE |
In order to meet cash flow requirements and planned commitments under the Plan, The Company reviewed its equipment inventory in March 2009 and assessed that there was a large surplus of unused waste bins, specifically small-roll-off bins. Management established that approximately $401,000 ($421,000 at March 31, 2010) carrying value of waste bins will be held for sale, and have therefore presented these items separately as Equipment held for sale on the June 30, 2010 and March 31, 2010 Consolidated Balance Sheets.
4. PROPERTY AND EQUIPMENT
| | | Cost | | | Accumulated Depreciation | | | Net June 30, 2010 (Unaudited) | | | Net March 31, 2010 (Audited) | |
| | | | | | | | | | | | | |
| Equipment | | $ | 475,538 | | | $ | 231,633 | | | $ | 243,905 | | | $ | 269,071 | |
| Waste bins | | | 1,386,636 | | | | 707,173 | | | | 679,463 | | | | 804,114 | |
| Automotive | | | 3,462,856 | | | | 1,977,294 | | | | 1,485,562 | | | | 1,638,832 | |
| Port-A-Potties | | | 414,462 | | | | 212,566 | | | | 201,896 | | | | 222,727 | |
| Office equipment | | | 65,345 | | | | 32,850 | | | | 32,495 | | | | 35,847 | |
| Fencing | | | 584,277 | | | | 279,704 | | | | 304,573 | | | | 337,474 | |
| Computer equipment | | | 72,076 | | | | 52,529 | | | | 19,547 | | | | 20,317 | |
| Leasehold improvements | | | 303,019 | | | | 169,692 | | | | 133,327 | | | | 147,084 | |
| | | $ | 6,764,209 | | | $ | 3,663,441 | | | $ | 3,100,768 | | | $ | 3,475,466 | |
5. GOODWILL
| | | June 30, 2010 (Unaudited) | | | March 31, 2010 (Audited) | |
| Goodwill | | | | | | | | |
| Balance, beginning | | $ | 3,144,127 | | | $ | 2,532,262 | |
| Foreign currency translation | | | (6,068 | ) | | | 611,865 | |
| Impairment | | | (3,138,059 | ) | | | - | |
| Balance, ending | | $ | - | | | $ | 3,144,127 | |
The Company’s subsidiary was unable to meet its obligations under the Plan and accordingly it entered receivership on August 19, 2010. This subsequent event gave evidence to a condition which existed during the current reporting period, and accordingly the Company’s goodwill was determined not to be recoverable. As such, an impairment loss was recognized for the full value of the Company’s goodwill.
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three Months Ended June 30, 2010
(Unaudited)
6. LONG-TERM DEBT
| | | June 30, 2010 (Unaudited) | | | March 31, 2010 (Audited) | |
Loan payable to BDC is secured by a general charge over the assets of the Company. It bears interest at 8.25% per annum, and is repayable in monthly principal payments of $2,685 CAD plus interest, maturing on July 23rd, 2010 | | | 39,647 | | | | 39,647 | |
| Less: current portion | | | (39,647 | ) | | | (39,647 | ) |
| Long-term portion | | $ | - | | | $ | - | |
| 7. | OBLIGATIONS UNDER CAPITAL LEASE |
| | | June 30, 2010 (Unaudited) | | | March 31, 2010 (Audited) | |
| Obligations under capital lease | | $ | 1,009,368 | | | $ | 1,058,230 | |
| Less current portion | | | 192,707 | | | | 459,653 | |
| Long-term portion | | $ | 816,661 | | | $ | 598,577 | |
| | | | | | | | | |
| | | | | | | | | |
| Minimum lease payments over the next five years are as follows: | | | | | | | | |
| 2011 (Nine months) | | | | | | $ | 192,707 | |
| 2012 | | | | | | | 283,535 | |
| 2013 | | | | | | | 533,126 | |
| Total | | | | | | $ | 1,009,368 | |
8. COMMITMENTS, CONTINGINCIES AND SUBSEQUENT EVENTS
Commitments
The Company has entered into various operating leases for equipment and premises. Minimum payments over the next five years are as follows:
| 2011(Nine months) | | $ | 42,754 | |
| 2012 | | | 12,637 | |
| Total | | $ | 55,391 | |
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three Months Ended June 30, 2010
(Unaudited)
8. COMMITMENTS, CONTINGINCIES AND SUBSEQUENT EVENTS (Continued)
Litigation
By statement of claim issued January 10, 2008, Budget Alberta sought a declaration confirming an interest in certain leased lands, as well as various corollary relief including judgment in the amount of $220,000 plus costs. By statement of defense and counterclaim issued January 30, 2008, the defendant denied the existence of the claim, and counterclaimed for damages for trespass and wrongful occupation of the subject lands in an unspecified amount. The lawsuit is ongoing and the outcome is not determinable at this time.
Subsequent events
On August 16, 2010, the Company effected a 1:10 reverse stock split of the issued and outstanding shares of common stock. All share and per share amounts used in the Company’s financial statements have been restated to reflect the 1:10 reverse stock split.
On August 19, 2010, the Company's wholly owned subsidiary, Budget Alberta, located in Calgary, Alberta, Canada, was placed into receivership. At that time, de facto control over Budget Alberta was transferred to the Trustee. The Company continues to own 100% of the shares of Budget Alberta but is no longer able to exercise any significant influence or control over its operations. Accordingly, the Company deconsolidated its subsidiary as of that date. The investment in Budget Alberta is being accounted for using the cost method. Furthermore, these events provide evidence of a loss of value that is other than temporary and as such an impairment loss has been recognized for $6,616,865, which represents the full value of the investment.
In addition to the investment in Budget Alberta, as of August 19, 2010, the Company had an outstanding loan receivable from Budget Alberta of $1,060,916. This loan is unsecured, non-interest bearing, and due on demand. By entering receivership, management has determined that there is evidence of an impairment other than temporary and as such an impairment loss has been recognized for the full value of the loan.
As of August 19, 2010, the Company is abandoning all claim of ownership to this subsidiary and will continue with other opportunities and possible acquisition candidates.
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three Months Ended June 30, 2010
(Unaudited)
9. RELATED PARTY TRANSACTIONS
The Company has transactions with various related parties, including the Company’s officers, directors and significant shareholders and companies controlled by shareholders, directors or family members, and a company controlled by the spouse of a shareholder. These transactions are in the normal course of operations and are transacted at the exchange amount agreed to by the related parties.
Included in accounts payable at June 30, 2010 and March 31, 2010 | | $ | 8,599 | | | $ | 5,931 | |
Included in obligations under capital lease at June 30, 2010 and March 31, 2010 | | | 877,510 | | | | 919,989 | |
Transactions during the three months ended June 30, 2010 and June 30, 2009: | | | | | | | | |
| Rent | | | 20,618 | | | | 34,869 | |
| Repairs and supplies | | | 43,178 | | | | 70,285 | |
| Lease payments | | | 19,643 | | | | 16,233 | |
10. SEGMENTED INFORMATION
The Company provides non-hazardous waste collection, transfer, recycling and disposal services. Additionally, the Company provides support to the construction industry such as fence rentals, sanitary facility rentals, bin rentals, hydrovac and water hauling. The Company operates primarily, but not exclusively, in Alberta, Canada. The Company evaluates principal operations through four functional departments: Solid Waste, Liquid Waste, Water Hauling and Septic.
The results of operations for the three months ended June 30, 2010 by functional department is as follows:
| | | Revenue | | | Cost of Sales | | | Gross Profit | | | Depreciation | | | Expenses | | Net Loss | |
| Solid Waste | | $ | 1,429,532 | | | $ | 1,120,075 | | | $ | 309,457 | | | $ | 118,303 | | | $ | 3,551,573 | | | $ | (3,360,419 | ) |
| Liquid Services | | | 372,611 | | | | 183,530 | | | | 189,081 | | | | 24,864 | | | | 124,691 | | | | 39,526 | |
| Water Hauling | | | 95,730 | | | | 78,722 | | | | 17,008 | | | | 6,388 | | | | 62,860 | | | | (52,240 | ) |
| Septic | | | 38,194 | | | | 37,715 | | | | 479 | | | | 2,549 | | | | 12,046 | | | | (14,116 | ) |
| | | $ | 1,936,067 | | | $ | 1,420,042 | | | $ | 516,025 | | | $ | 152,104 | | | $ | 3,,751,170 | | | $ | (3,387,249 | ) |
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three Months Ended June 30, 2010
(Unaudited)
10. SEGMENTED INFORMATION (Continued)
The results of operations for the three months ended June 30, 2009 by functional department is as follows:
| | | Revenue | | Cost of Sales | | | Gross Profit | | Depreciation | | | Expenses | | Net Loss |
| Solid Waste | | $ | 1,510,356 | | | $ | 184,789 | | | $ | 1,325,567 | | | $ | 168,579 | | | $ | 1,438,164 | | | $ | (281,175 | ) |
| Liquid Services | | | 428,947 | | | | 724,094 | | | | (295,147 | ) | | | 27,848 | | | | (279,943 | ) | | | (43,051 | ) |
| Water Hauling | | | 119,985 | | | | 433,744 | | | | (313,759 | ) | | | 7,790 | | | | (341,360 | ) | | | 19,812 | |
| Septic | | | 37,601 | | | | 166,320 | | | | (128,719 | ) | | | 2,441 | | | | (136,335 | ) | | | 5,175 | |
| | | $ | 2,096,889 | | | $ | 1,508,947 | | | $ | 587,942 | | | $ | 206,658 | | | $ | 680,526 | | | $ | (299,241 | ) |
ITEM 2. MANAGEMENT’S DISCUSSION OR PLAN OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto in Item I, and the Company’s 10-K Annual Report and other publicly available financial information. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Our actual results may differ materially from those contained in any forward-looking statements.
Operating Results for the Three Months Ended June 30, 2010
For the three months ended June 30, 2010, the Company reported revenues of $1,936M (“M” representing thousands), compared to $2,097M for the three months ended June 30, 2009. The decrease was caused by the economic recession as it resulted in less construction of residential and commercial properties, which is a core segment of our business.
The gross margin for the three months ended June 30, 2010 of $516M represented 27% of revenue as compared to $588M for the three months ended December 31, 2008 or 28%. This decline of 1% was the result of certain fixed costs that could not be cut as sales declined.
Selling, general and administrative expenses remained constant at $840M for the three months end June 30, 2010 compared to $747M for the three months ended June 30, 2009. During the quarter, decreases to salaries and depreciation were offset by increased interest expenses, resulting in the overall change. Additionally, general administrative and operating expenses decreased due to the Company’s commitment to stronger systems of internal controls and effort to stabilize costs.
The Company experienced net loss from operations of $324M for the three months ended June 30, 2010 compared to a loss of $159M for the three months ended June 30, 2009. This decline arose from a deteriorating gross margin and reduced sales.
The Company recognized an impairment loss on its goodwill of $3,138M during the period as a result of its subsidiary Budget Waste Inc, entering receivership on August 19, 2010. The Company’s goodwill related to the small roll-off operations of its subsidiary.
Liquidity and Capital Resources
Cash used in operating activities was $1,283M for the three months ended June 30, 2010, compared to cash provided by operating activities of $194M for the three months ended June 30, 2010. The decrease was a result of cash paid to our trustee appointed monitor handling our CCAA. This cash was distributed to creditors in accordance with our Plan of Arrangement, as discussed below.
Cash provided by investing activities was $297M for the three months ended June 30, 2010. This was mainly provided by our sale of waste excess waste bins at auctions during the quarter. Our capital expenditures are minimal as we are attempting to sell excess assets as opposed to acquiring new ones.
Cash provided by financing activities was $194M for the three months ended June 30, 2010. We received proceeds from our line of credit and related party advances to help finance our operations.
On March 4, 2009, the Company’s subsidiary, Budget Alberta, filed for protection under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) with the Court of the Queen’s Bench, Alberta (Court). In February 2010, Budget Alberta’s creditors voted to accept the Plan of Compromise and Arrangement (the “Plan”) in order to emerge from creditor protection. Budget Alberta was unable to meet its obligations under the Plan, and on August 19, 2010 Budget Alberta was placed into receivership. As of August 19, 2010, the Company is abandoning all claim of ownership to this subsidiary and will continue with other opportunities and possible acquisition candidates.
The Company's ability to continue as a going concern is dependent upon achieving profitable operations and upon the continued financial support of its lenders and investors. The outcome of these matters cannot be predicted at this time.
On March 4, 2009, the Company’s subsidiary Budget Alberta entered into credit protection under the provisions of CCAA whereby the Company was granted temporary relief while undergoing restructuring. The Company’s subsidiary was unable to meet its obligations under the Plan and accordingly it entered receivership on August 19, 2010. The Company is abandoning all claim of ownership to this subsidiary. The Company’s continuation as a going concern is dependent upon identifying an appropriate acquisition candidate and obtaining new financing either by debt or by equity.
Management believes the Company’s ability to continue as a going concern is dependent on its ability to raise capital. At present, the Company has no commitments for any additional financing. Management is currently seeking financing through a possible offering of common stock, which will be used to finance new acquisitions.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Consolidated Finan cial Statements.
Depreciation Expense on Property and Equipment
Estimates are used in determining our accumulated amortization for depreciation on property and equipment. We currently use the declining balance based over management’s estimate of the useful lives of the assets to the Company.
We also test our assets for impairment at least annually by way of undiscounted cash flow analysis. We have not encountered any instances of where our fixed assets were impaired. Generally, our fixed assets have represented their useful life to the Company.
Bad Debt Allowance
Estimates are used in determining our allowance for bad debts and are based on our historical collection experience, current trends, credit policy and a review of our accounts receivable by aging category. Our reserve is evaluated and revised on a quarterly basis.
Off-Balance Sheet Arrangements
The Company has approximately 30 operating leases for vehicles and waste bins used in the operations of the Company.
| Approximate Minimum lease payments over the next five years are as follows: | |
| 2011 (Nine months) | | $ | 42,754 | |
| 2012 | | | 12,637 | |
| Total | | $ | 55,391 | |
Inflation and Prevailing Economic Conditions
To date, inflation has not had a significant impact on our operations. Consistent with industry practice, most of our contracts provide for a pass-through of certain costs, including increases in landfill tipping fees and, in some cases, fuel costs. We have implemented a fuel surcharge program, which is designed to recover fuel price fluctuations. We therefore believe we should be able to implement price increases sufficient to offset most cost increases resulting from inflation. However, competitive factors may require us to absorb at least a portion of these cost increases, particularly during periods of high inflation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material changes in the Company’s market risk during the fiscal period ended June 30, 2010. For additional information, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES & CHANGES TO INTERNAL CONTROLS
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our Company, particularly during the period when this report was being prepared.
Additionally, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.
Internal control over financial reporting includes those policies and procedures that:
| (1) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
| (2) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management and directors; and |
| (3) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of the Evaluation Date, based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation under this framework, management concluded that our internal control over financial reporting was not effective as of the Evaluation Date.
Management assessed the effectiveness of the Company's internal control over financial reporting as of Evaluation Date and identified the following material weaknesses:
| - | INSUFFICIENT RESOURCES: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting. |
| - | INADEQUATE SEGREGATION OF DUTIES: We have an inadequate number of personnel to properly implement control procedures. |
| - | LACK OF AUDIT COMMITTEE & OUTSIDE DIRECTORS: We do not have a functioning audit committee and we have only two outside directors serving on the Company's Board of Directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. |
Management is committed to improving its internal controls and will (1) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing outside directors and audit committee members in the future.
Management, including our Chief Executive Officer and Chief Financial Officer, has discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of this material weakness, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company’s wholly owned subsidiary (Budget Waste Inc.) entered into credit protection on March 4, 2009 under the provisions of the Companies’ Credit Arrangement Act (Canada).
On August 19, 2010, The Company's wholly owned subsidiary (Budget Waste Inc.), located in Calgary, Alberta, Canada, was placed into receivership.
As of August 19, 2010, the Company is abandoning all claim of ownership to this subsidiary and will continue with other opportunities and possible acquisition candidates.
Our wholly owned subsidiary, Budget Waste Inc., was involved in various legal proceedings; however as mentioned above we have abandoned all claim of ownership of this subsidiary and all legal claims would be handled by the trustee appointed to Budget Waste Inc.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not have any unregistered sales of equity during the three months ended June 30, 2010.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. (Removed and Reserved).
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits
| Exhibit Number | | Description of Exhibit |
| | | |
| | 31.1 | | Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended |
| | | | |
| | 31.2 | | Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended |
| | | | |
| | 32.1 | | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | | |
| | 32.2 | | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
| BWI HOLDINGS, INC. |
| | | |
| | | |
| Date: December 23, 2010 | By: | /s/ Jim Can |
| | | Jim Can |
| | | President, Chief Executive Officer and Director |
| | | |
| Date: December 23, 2010 | By: | /s/ Bruce Milroy |
| | | Bruce Milroy |
| | | Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer |
