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: September 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 28, 2010: 9,498,063 shares of common stock.
BWI HOLDINGS, INC. AND SUBSIDIARY
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 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 Operations | 4 and 5 |
| | Consolidated Statements of Cash Flows | 6 |
| | Notes to Consolidated Financial Statements | 7 to 11 |
| Item 2. | Management’s Discussion & Analysis or Plan of Operation | 12 |
| 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 | 18 |
| | | |
| Signatures | | 18 |
PART I. FINANCIAL INFORMATION
ITEM I. CONSOLIDATED FINANCIAL STATEMENTS
BWI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(US Dollars)
As Of September 30, 2010 and March 31, 2010
| | | | | | | |
| | | September 30, 2010 (Unaudited) | | | March 31, 2010 (Audited) | |
| | | | | | | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash | | $ | - | | | $ | 796,359 | |
| Accounts receivable, net of allowance of $Nil (March 31, 2010 – $62,634) | | | - | | | | 968,892 | |
| Prepaid expenses | | | - | | | | 133,004 | |
| Equipment held for sale | | | - | | | | 420,781 | |
| Total Current Assets | | | - | | | | 2,319,036 | |
| Long-Term Assets | | | | | | | | |
| Performance bonds | | | - | | | | 29,532 | |
| Property and equipment, net | | | - | | | | 3,475,466 | |
| Goodwill | | | - | | | | 3,144,127 | |
| Total Long-Term Assets | | | - | | | | 6,649,125 | |
| Total Assets | | $ | - | | | $ | 8,968,161 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Revolving bank loan | | $ | - | | | $ | 22,384 | |
| Accounts payable | | | 133,410 | | | | 566,205 | |
| Accrued liabilities | | | - | | | | 127,366 | |
| Liabilities under compromise | | | - | | | | 3,351,887 | |
| Advances from related parties | | | - | | | | 50,167 | |
| Advances from shareholders | | | 864,445 | | | | 482,994 | |
| Current portion of long-term debt | | | - | | | | 39,647 | |
| Current portion of obligations under capital lease | | | - | | | | 459,653 | |
| Total Current Liabilities | | | 997,855 | | | | 5,100,303 | |
| Long-Term Liabilities | | | | | | | | |
| Obligations under capital lease | | | - | | | | 598,577 | |
| Total Long-Term Liabilities | | | - | | | | 598,577 | |
| Total Liabilities | | | 997,855 | | | | 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, 9,498,063 issued and outstanding (March 31, 2010 – 5,498,063) | | | 9,498 | | | | 5,498 | |
| Additional paid-in capital | | | 11,773,078 | | | | 11,737,078 | |
| Accumulated other comprehensive income | | | - | | | | 689,676 | |
| Accumulated deficit | | | (12,780,431 | ) | | | (9,162,971) | |
| Total Stockholders’ (Deficit) Equity | | | (997,855 | ) | | | 3,269,281 | |
| Total Liabilities and Stockholders’ (Deficit) Equity | | $ | - | | | $ | 8,968,161 | |
The accompanying notes are an integral part of these financial statements.
BWI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations and Comprehensive Loss
(US Dollars)
For The Three Months Ended September 30
(Unaudited)
| | | | 2010 | | | | 2009 | |
| Sales | | $ | 750,113 | | | $ | 2,130,631 | |
| Cost of Sales | | | 578,994 | | | | 1,578,308 | |
| Gross Profit | | | 171,119 | | | | 552,323 | |
| Operating Expenses | | | | | | | | |
| Advertising and promotion | | | - | | | | 27,084 | |
| Automotive | | | 1,522 | | | | 1,147 | |
| Bad debts recovery | | | - | | | | (1,817 | ) |
| Depreciation | | | 79,698 | | | | 210,395 | |
| Insurance | | | 4,474 | | | | 1,616 | |
| Interest and bank charges | | | - | | | | 12,513 | |
| Interest on long-term debt | | | 15,088 | | | | 40,552 | |
| Office | | | 80,846 | | | | 43,650 | |
| Professional fees | | | 24,893 | | | | 9,296 | |
| Rent | | | 12,125 | | | | 111,435 | |
| Repairs and maintenance | | | - | | | | 2,162 | |
| Salaries and benefits | | | 136,890 | | | | 244,390 | |
| Telephone | | | 8,332 | | | | 29,634 | |
| Travel | | | - | | | | 6,745 | |
| Total Operating Expenses | | | 363,868 | | | | 738,802 | |
| Loss From Operations | | | (192,749 | ) | | | (186,479 | ) |
| Gain on sale of equipment | | | - | | | | 25,725 | |
| Loss on net assets included in bankruptcy of Budget Waste Inc. | | | (37,461 | ) | | | - | |
| Reorganization costs | | | - | | | | (117,050 | ) |
| Net Loss | | $ | (230,210 | ) | | $ | (277,804 | ) |
| Foreign currency translation adjustment | | | (688,217 | ) | | | 261,905 | |
| Comprehensive Loss | | $ | (918,427 | ) | | $ | (15,899 | ) |
| Loss Per Weighted Number Of Shares Outstanding – Basic And Diluted | | $ | (0.03 | ) | | $ | (0.05 | ) |
| Weighted Average Number Of Shares Outstanding – Basic And Diluted | | | 7,520,041 | | | | 5,498,063 | |
The accompanying notes are an integral part of these financial statements.
BWI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations and Comprehensive Loss
(US Dollars)
For The Six Months Ended September 30
(Unaudited)
| | | | 2010 | | | | 2009 | |
| Sales | | $ | 2,686,180 | | | $ | 4,227,520 | |
| Cost of Sales | | | 1,999,036 | | | | 3,087,255 | |
| Gross Profit | | | 687,144 | | | | 1,140,265 | |
| Operating Expenses | | | | | | | | |
| Advertising and promotion | | | 4,593 | | | | 36,754 | |
| Automotive | | | 2,754 | | | | 1,147 | |
| Bad debts (recovery) | | | 474 | | | | (1,817 | ) |
| Depreciation | | | 231,802 | | | | 417,053 | |
| Insurance | | | 11,573 | | | | 7,472 | |
| Interest and bank charges | | | 25,392 | | | | 36,574 | |
| Interest on long-term debt | | | 231,615 | | | | 75,121 | |
| Office | | | 177,644 | | | | 74,674 | |
| Professional fees | | | 46,825 | | | | 23,826 | |
| Rent | | | 78,066 | | | | 221,159 | |
| Repairs and maintenance | | | - | | | | 3,126 | |
| Salaries and benefits | | | 360,352 | | | | 501,169 | |
| Telephone | | | 32,664 | | | | 72,014 | |
| Travel | | | - | | | | 17,710 | |
| Total Operating Expenses | | | 1,203,754 | | | | 1,485,982 | |
| Loss From Operations | | | (516,610 | ) | | | (345,717 | ) |
| Gain on sale of equipment | | | 74,670 | | | | 25,725 | |
| Impairment of goodwill | | | (3,138,059 | ) | | | - | |
| Loss on net assets included in bankruptcy of Budget Waste Inc. | | | (37,461 | ) | | | - | |
| Reorganization costs | | | - | | | | (257,053 | ) |
| Net Loss | | $ | (3,617,460 | ) | | $ | (577,045 | ) |
| Foreign currency translation adjustment | | | (689,676 | ) | | | 535,376 | |
| Comprehensive Loss | | $ | (4,307,136 | ) | | $ | (41,669 | ) |
| Loss Per Weighted Number Of Shares Outstanding – Basic And Diluted | | $ | (0.56 | ) | | $ | (0.11 | ) |
| Weighted Average Number Of Shares Outstanding – Basic And Diluted | | | 6,509,052 | | | | 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 Six Months Ended September 30
(Unaudited)
| | | 2010 | | | 2009 | |
| Cash Flows From Operating Activities | | | | | | |
| Net loss | | $ | (3,617,460 | ) | | $ | (577,045 | ) |
| Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities | | | | | | | | |
| Depreciation and amortization | | | 231,802 | | | | 417,053 | |
| Gain on sale of equipment | | | (74,760 | ) | | | - | |
| Impairment of goodwill | | | 3,138,059 | | | | - | |
| Loss on net assets included in bankruptcy of Budget Waste Inc. | | | 37,461 | | | | - | |
| Changes in operating assets and liabilities | | | | | | | | |
| Accounts receivable | | | (29,380 | ) | | | 248,088 | |
| Prepaid expenses | | | 2,746 | | | | (20,823 | ) |
| Accounts payable, accrued liabilities and accounts payable under compromise | | | (1,036,514 | ) | | | 412,912 | |
| Net Cash (Used In) Provided By Operating Activities | | | (1,348,046 | ) | | | 480,185 | |
| Cash Flows From Investing Activities | | | | | | | | |
| Acquisition of property and equipment | | | (73,276 | ) | | | (23,316 | ) |
| Proceeds on disposal of property and equipment | | | 370,540 | | | | - | |
| Net Cash Provided By (Used In) Investing Activities | | | 297,264 | | | | (23,316 | ) |
| Cash Flows From Financing Activities | | | | | | | | |
| Proceeds from bank indebtedness | | | 209,775 | | | | - | |
| Repayment of obligations under capital lease | | | (33,603 | ) | | | (78,711 | ) |
| Repayment of advances from related parties | | | - | | | | (101,257 | ) |
| Proceeds from (repayment of) advances from (to) shareholders | | | 128,778 | | | | (292,663 | ) |
| Net Cash Provided By (Used In) Financing Activities | | | 304,950 | | | | (472,631 | ) |
| Effect of Exchange Rate Changes in Cash | | | (50,527 | ) | | | (15,762 | ) |
| Net (Decrease) Increase in Cash | | | (796,359 | ) | | | 5,002 | |
| Cash, Beginning of Period | | | 796,359 | | | | 124,011 | |
| Cash, End of Period | | $ | - | | | $ | 129,013 | |
| | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | |
| Cash Paid During the Period for | | | | | | | | |
| Interest | | $ | 257,007 | | | $ | 111,695 | |
| Income Taxes | | $ | - | | | $ | - | |
| Supplemental Schedule of Noncash Investing and Financing Activities: | | | | | | | | |
| Issuance of common stock for settlement of shareholder advance | | $ | 40,000 | | | $ | - | |
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 and Six Months Ended September 30, 2010 and 2009
(Unaudited)
1. ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Organization
Gray Creek Mining, Inc. was incorporated on August 10, 2006 under the laws of the State of Nevada. A Certificate of Amendment was filed with the Nevada Secretary of State, on November 7, 2008, changing the corporation’s name to BWI Holdings, Inc.
Company Description
On March 4, 2009, the Company’s subsidiary, Budget Waste Inc. (“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 has abandoned all claim of ownership to this subsidiary and will continue with other opportunities and possible acquisition candidates.
On August 19, 2010 Budget Alberta was placed into receivership at which time the Company lost de facto control of its subsidiary. Accordingly, as of this date, the Company deconsolidated Budget Alberta and began using the cost method of accounting for the investment as of this date. The impact of the deconsolidation is transacted on the Statement of Operations as a loss on the net assets included in bankruptcy of Budget Waste Inc. of $37,461.
During the period of consolidation up to August 19, 2010, Budget Alberta provided non-hazardous waste collection, transfer, recycling and disposal services. Additionally, Budget Alberta provided support to the construction industry such as fence rentals, sanitary facility rentals, bin rentals, hydrovac and water hauling. It operated primarily, but not exclusively, in Alberta, Canada. The operations of Budget Alberta were evaluated through four functional departments: Solid Waste, Liquid Waste, Water Hauling, and Septic.
Principles of Consolidation
These consolidated financial statements include the accounts of BWI Holdings, Inc. (the "Company" or “BWI”) and its wholly owned subsidiary Budget Waste Inc. (“Budget Alberta”, a company incorporated in and operating primarily in Alberta, Canada) for the period from April 1, 2010 to the date of bankruptcy on August 19, 2010. All significant intercompany balances and transactions have been eliminated upon consolidation.
As of September 30, 2010, the balance sheet presents only the non-consolidated accounts of BWI Holdings, Inc.
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three and Six Months Ended September 30, 2010 and 2009
(Unaudited)
1. ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION (Continued)
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 and six months ended September 30, 2010 are not necessarily indicative of the results that may be expected for future quarters or the year ending March 31, 2011.
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 and Six Months Ended September 30, 2010 and 2009
(Unaudited)
3. LOSS ON INVESTMENT IN BUDGET WASTE INC.
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. The impact of the deconsolidation is transacted on the Statement of Operations as a loss on the net assets included in bankruptcy of Budget Waste Inc. of $37,461.
As of August 19, 2010, the Company has abandoned all claim of ownership to this subsidiary and will continue with other opportunities and possible acquisition candidates.
4. GOODWILL
| | | September 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, Budget Alberta, was placed into receivership on August 19, 2010. Accordingly the Company’s goodwill was determined not to be recoverable. As such, an impairment loss was recognized for the full value of goodwill related to Budget Alberta.
5. CAPITAL STOCK
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.
In August of 2010, the Company issued 4,000,000 shares in settlement of advances to a shareholder of the Company in the amount of $40,000.
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three and Six Months Ended September 30, 2010 and 2009
(Unaudited)
6. 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 receivable at September 30, 2010 and March 31, 2010 | | $ | - | | | $ | - | |
| Included in accounts payable at September 30, 2010 and March 31, 2010 | | | - | | | | 109,004 | |
| Included in obligations under capital lease at September 30, 2010 and March 31, 2010 | | | - | | | | 1,087,748 | |
| Transactions during period of consolidation ended August 19, 2010 and three months ended September 30, 2009: | | | | | | | | |
| Rent | | | 31,859 | | | | 11,669 | |
| Repairs and supplies | | | 66,718 | | | | 89,578 | |
| Loan interest | | | 30,352 | | | | 91,281 | |
BWI HOLDINGS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(US Dollars)
For The Three and Six Months Ended September 30, 2010 and 2009
(Unaudited)
7. SEGMENTED INFORMATION
Budget Alberta evaluated principal operations through four functional departments: Solid Waste, Liquid Waste, Water Hauling, and Septic.
The results of operations for the period April 1, 2010 to August 19, 2010 (date of deconsolidation of Budget Alberta) by functional department is as follows:
| | | Revenue | | | Cost of Sales | | | Gross Profit | | | Depreciation | | | Administration | | Net Loss | |
| Solid Waste | | $ | 1,983,392 | | | $ | 1,576,764 | | | $ | 406,628 | | | $ | 180,292 | | | $ | 3,753,275 | | | $ | (3,564,401 | ) |
| Liquid Services | | | 516,976 | | | | 258,360 | | | | 258,616 | | | | 37,891 | | | | 176,210 | | | | 44,514 | |
| Water Hauling | | | 132,820 | | | | 110,819 | | | | (22,001 | ) | | | 9,735 | | | | 88,832 | | | | (76,566 | ) |
| Septic | | | 52,992 | | | | 53,093 | | | | (101 | ) | | | 3,884 | | | | 17,023 | | | | (21,007 | ) |
| | | $ | 2,686,180 | | | $ | 1,999,036 | | | $ | 687,144 | | | $ | 231,802 | | | $ | 4,035,340 | | | $ | (3,617,460 | ) |
The results of operations for the six months ended September 30, 2009 by functional department is as follows:
| | | Revenue | | | Cost of Sales | | | Gross Profit | | | Depreciation | | | Administration | | Net Income (Loss) | |
| Solid Waste | | $ | 3,049,011 | | | $ | 2,315,689 | | | $ | 733,322 | | | $ | 245,073 | | | $ | 862,885 | | | $ | (498,058 | ) |
| Liquid Services | | | 874,445 | | | | 449,463 | | | | 424,982 | | | | 148,465 | | | | 210,913 | | | | (439,059 | ) |
| Water Hauling | | | 223,706 | | | | 232,187 | | | | (8,481 | ) | | | 17,301 | | | | (315,011 | ) | | | 289,229 | |
| Septic | | | 80,538 | | | | 89,916 | | | | (9,558 | ) | | | 6,215 | | | | (86,016 | ) | | | 70,843 | |
| | | $ | 4,227,520 | | | $ | 3,087,255 | | | $ | 1,140,265 | | | $ | 417,053 | | | $ | 1,300,257 | | | $ | (577,045 | ) |
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.
Results of Operations for the Three Months Ended September 30, 2010
On March 4, 2009, the Company’s subsidiary, Budget Waste Inc. (“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.
On August 19, 2010 Budget Alberta was placed into receivership at which time the Company lost de facto control of its subsidiary. Accordingly, as of this date, the Company deconsolidated Budget Alberta and began using the cost method of accounting for the investment as of this date. The impact of the deconsolidation is transacted on the Statement of Operations as a loss on the net assets included in bankruptcy of Budget Waste Inc. of $37,461.
For the three months ended September 30, 2010, the Company reported revenues of $750M (“M” representing thousands), compared to $2,130M for the three months ended September 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. Additionally, because we focused a substantial amount of time ensuring the Company met payments under our Plan of Arrangement, our focus on the business and our cash flows suffered, eventually putting our sole subsidiary into bankruptcy on August 19, 2010.
The gross margin for the three months ended September 30, 2010 of $171M represented 23% of revenue as compared to $552M for the three months ended September 30, 2009 or 26%. This decline of 3% was the result of certain fixed costs that could not be cut as sales declined.
Selling, general and administrative expenses decreased to $363M for the three months ended September 30, 2010 compared to $739M for the three months ended September 30, 2009. This was mainly due to an effort to reduce all costs as we focused a substantial amount of time ensuring the Company met payments under our Plan of Arrangement.
The Company experienced net loss from operations of $193M for the three months ended September 30, 2010 compared to a loss of $186M for the three months ended September 30, 2009. This decline arose from continued deteriorating gross margins and reduced sales.
The Company recognized a loss on the net assets included in bankruptcy of Budget Waste Inc., during the period as a result of its subsidiary entering receivership on August 19, 2010.
Liquidity and Capital Resources
For the six months ended September 30, 2010 there was a cash deficiency from operations of $1,348M primarily due to the Company paying down accounts payable and other liabilities under compromise, as part of the Plan of Arrangement, as discussed below.
Cash provided by investing activities was $297M for the three months ended September 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 $305M for the three months ended September 30, 2010. We received proceeds from our line of credit and related party advances to help finance our operations.
The assets and liabilities on the balance sheet as of September 30, 2010 as shown are those of the unconsolidated BWI. As a result of Budget Alberta entering receivership, the Company is no longer responsible for the liabilities of its subsidiary and no longer has claim to its assets.
The Company's future liquidity requirements will be dependent upon the potential takeover targets identified and are likely to come from new financing either by debt or by equity through private placement transactions.
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
Budget Alberta previously was committed to making payments on approximately 30 operating leases. As a result of Budget Alberta entering receivership, the Company is no longer responsible for these commitments.
The Company has no further off-balance sheet arrangements.
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 September 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
In August of 2010, the Company issued 4,000,000 shares in settlement of advances to a shareholder of the Company in the amount of $40,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. (Removed and Reserved).
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits
| 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 and Principal Financial 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 Executive Officer and 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 28, 2010 | By: | /s/ Jim Can |
| | | Jim Can |
| | | President, Chief Executive Officer and Director |
| | | |
| Date: December 28, 2010 | By: | /s/ Bruce Milroy |
| | | Bruce Milroy |
| | | Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer |
