UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
----------------------------
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission File Number: 000-27339
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BINGO.COM, INC.
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(Exact name of registrant as specified in its charter)
Florida 98-0206369
-------------------------------------------- -------------------------------
(State or Other Jurisdiction of Incorporation) (IRS Employer Identification No.)
4223 Glencoe Avenue, Suite C200, Marina Del Rey, California 90292
-----------------------------------------------------------------
(Address of Principal Executive Offices)
(310) 301-4171
--------------
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As at May 31, 2001, the number
of the Registrant's shares outstanding 10,088,608
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Bingo.com, Inc.
(formerly Progressive General Lumber Corp)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
----------- -----------
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 27,220 $ 174,463
Accounts receivable, net of allowance for doubtful
accounts of $86,949 and $36,949 at March 31, 2001
and December 31, 2000, respectively 169,308 268,849
Note receivable from officer 26,868 31,405
Prepaid expenses 8,672 51,128
----------- -----------
Total current assets 232,068 525,845
----------- -----------
Equipment
Office and computer equipment 464,596 453,921
Software development and website equipment 318,308 318,308
Less: accumulated depreciation (339,354) (265,332)
----------- -----------
443,550 506,897
----------- -----------
Other assets 56,968 37,286
Domain name rights, net 1,548,459 1,645,230
----------- -----------
Total assets $ 2,281,045 $ 2,715,258
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 777,395 $ 517,081
Loan payable 90,000 --
Contract payable - current portion (Note 4) 361,871 270,165
Capital leases - current portion 167,774 166,855
----------- -----------
Total current liabilities 1,397,040 954,101
----------- -----------
Contract payable, net of current portion (Note 4) 184,770 276,476
Capital leases, net of current portion 80,502 100,660
----------- -----------
1,662,312 1,331,237
Commitments and contingencies -- --
Stockholders' equity
Common stock - $0.001 par value; authorized 50,000,000
Shares; issued and outstanding: 10,104,608 shares at
March 31, 2001 December 31, 2000 10,105 10,105
Additional paid-in-capital 7,629,900 7,629,900
Accumulated deficit (7,012,318) (6,250,335)
Accumulated other comprehensive loss (8,954) (5,649)
----------- -----------
618,733 1,384,021
----------- -----------
Total liabilities and stockholders' equity $ 2,281,045 $ 2,715,258
=========== ===========
The accompanying notes are an integral part to these financial statements
2
Bingo.com, Inc.
( formerly Progressive General Lumber Corp )
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended March 31,
------------------------------------------
2001 2000
---------------- ----------------
Revenues $ 582,803 $ 4,280
Cost of revenues 463,890 44,884
---------------- ----------------
Gross profit 118,913 (40,604)
Operating Expenses
Sales and marketing 93,094 100,887
General and administrative 613,317 363,304
Depreciation and amortization 170,793 11,088
---------------- ----------------
Total operating expenses 877,204 475,279
---------------- ----------------
Loss from operations (758,291) (515,883)
Net interest (expense) income (3,692) 21,360
---------------- ----------------
Net loss (761,983) (494,523)
================ ================
Basic and diluted loss per share $ (0.08) $ (0.05)
================ ================
Weighted average basic and diluted
shares outstanding 10,104,608 9,987,168
================ ================
The accompanying notes are an integral part to these financial statements
3
Bingo.com, Inc.
( formerly Progressive General Lumber Corp )
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended March 31,
------------------------------------------
2001 2000
---------------- ----------------
Cash flows from operating activities:
Net loss $ (761,983) $ (494,522)
Adjustments to reconcile net loss to net cash
used in operating activities
Loss from discontinued operations -- (40,555)
Depreciation and amortization 170,793 11,088
Provision for doubtful accounts 50,000 --
Change in operating assets and liabilities:
Accounts receivable 49,541 (11,715)
Note receivable 4,537 --
Prepaid expenses and security deposits 22,774 (61,162)
Accounts payable and accrued liabilities 260,314 (36,082)
---------------- ----------------
Cash used in operating activities (204,024) (632,948)
Cash flows from investing activities:
Acquisition of property and equipment (10,675) (32,087)
---------------- ----------------
Cash used in investing activities (10,675) (32,087)
---------------- ----------------
Cash flows from financing activities:
Capital lease repayments (19,239) (3,866)
Proceeds from note payable 90,000 --
Repayment of loan payable -- (53,912)
Proceeds from issuance of common stock, net -- 242,563
Shares allocated for issue -- (226,563)
---------------- ----------------
Cash provided by (used in) financing activities (41,778)
---------------- ----------------
Net decrease in cash and cash equivalents (143,938) (706,813)
Effect of exchange rates on cash and cash equivalents (232)
Cash and cash equivalents at beginning of period 3,382,529
---------------- ----------------
Cash and cash equivalents at end of period $ 27,220 $ 2,675,484
================ ================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 21,888 $ 476
================ ================
Non Cash Transactions
Issuance of common stock for services rendered $ -- $ 242,563
================ ================
The accompanying notes are an integral part to these financial statements
4
BINGO.COM, INC.
(formerly Progressive General Lumber Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized on January 12, 1987, under the laws of the
State of Florida as Progressive General Lumber Corp. On January 22, 1999,
the Company changed its name to Bingo.com, Inc. The Company provides
online, play-for-free, bingo entertainment via the Internet and operates
in one industry segment.
On July 17, 1998, the State of Florida approved the Company's restated
Articles of Incorporation, which increased its authorized shares from
7,500 common shares to 50,000,000 common shares. The par value was
changed from $1.00 to $0.001. In addition, the Company forward split its
common stock 200:1, thus increasing the number of outstanding common
shares from 5,000 shares to 1,000,000 shares. All common share and per
share data have been retroactively adjusted to reflect the stock split.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States of America, which contemplate continuation of the Company as a
going concern. However, as shown in the accompanying financial
statements, the Company has sustained substantial losses from operations
since inception. In addition, the Company has used, rather than provided,
cash in its operations. As of March 31, 2001, the Company has utilized
substantially all of its available funding.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of
the Company, which in turn is dependent upon the Company's ability to
meet its financing requirements on a continuing basis and to succeed in
its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
Management of the Company has taken steps to revise and reduce its
operating requirements, which it believes will be sufficient to assure
continued operations and implementation of the Company's plans. These
steps include expense reductions in the areas of staffing, marketing and
consulting. The Company is also in the process of attempting to secure
additional capital through debt and equity transactions, which will be
required in order to continue operations.
5
BINGO.COM, INC.
(formerly Progressive General Lumber Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and the accounts of its wholly owned subsidiaries, Bingo.com
(Canada) Inc., Bingo.com (Antigua) Inc. and Bingo.com (Wyoming) Inc.
(collectively, "the Company"). All inter-company balances and
transactions have been eliminated in consolidation.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements contain, in
the opinion of management, all adjustments, which consist only of normal
recurring adjustments, necessary to present fairly the consolidated
financial position of Bingo.com, Inc. at March 31, 2001 and the
consolidated results of operations and cash flows for the three months
ended March 31, 2001 and 2000 in accordance with accounting principles
generally accepted in the United States of America (US GAAP). This
interim consolidated financial information and notes thereto should be
read in conjunction with Bingo.com's Annual Report on Form 10-K for the
year ended December 31, 2000. Bingo.com's consolidated results of
operations and cash flows for the interim periods are not necessarily
reflective of the results to be expected for any other interim period of
the full year. Certain information and footnote disclosures normally
include in the financial statements prepared in accordance with US GAAP
have been omitted in accordance with the rules and regulations of the
SEC.
REVENUE RECOGNITION
The Company contracted with a sales agency to sell advertising on its
website directly to corporate customers or through advertising agencies.
The Company paid an advertising commission to the sales agency for
placing advertisements on its web site. Effective March 23, 2001, the
agreement with Cox Interactive Sales, Inc. was terminated. Advertising
sales are being managed directly by the staff of the Company. Advertising
revenues are recognized as the advertising campaign or impressions and
clicks are made on the website. Accounts receivable are recorded net of
advertising commissions.
The Company bartered portions of the unsold advertising impressions
generated by its web sites, for advertising in media properties owned by
third parties. The Company recorded revenues and costs for such barter
transactions, with no net income or loss recognized. Barter revenue
approximated $237,323 and nil for the quarters ended March 31, 2001 and
2000, respectively.
The Company enters into co-branding contracts with its corporate
customers. The contracts provide the customer with the ability to allow
its registrants or visitors the opportunity to play Bingo for free on the
customer's website. A monthly fee is charged per the contract and set-up
fees are recognized as revenue when the set-up process has been
completed.
6
BINGO.COM, INC.
(formerly Progressive General Lumber Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
SOFTWARE DEVELOPMENT
The Company has adopted Statement of Position 98-1 ("SOP 98-1")
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", as its accounting policy for internally developed computer
software costs. Under SOP 98-1, computer software costs incurred in the
preliminary development stage are expensed as incurred. Computer software
costs incurred during the application development stage are capitalized
and amortized over the software's estimated useful life.
DOMAIN NAME
The Company has capitalized the cost of the purchase of the domain name
Bingo.com and is amortizing the cost over five years from the date of
commencement of operations.
GAMING LICENSE
The Company's gaming license represents an annual cost of securing and
maintaining a license to operate online internet bingo in the Country of
Antigua. The annual costs of the license of $100,000 were expensed as
part of the loss from discontinued operations in 1999 as the Company is
no longer operating in Antigua.
NET LOSS PER COMMON SHARE
Basic loss per share includes no dilution and is computed by dividing the
net loss by the weighted average number of commons shares outstanding,
for the period. Diluted loss per share reflects the potential dilution of
securities that could share in the earnings of the Company. Convertible
securities and stock options and warrants are not included in the
calculation of weighted average number of shares because the effect would
be anti-dilutive.
WEBSITE DEVELOPMENT COSTS
In March 2000, EITF 00-2 "Accounting for Web Site Development Costs" was
released. EITF 00-2 provides guidance on how an entity should account for
costs involved in such areas as planning, developing software to operate
the web site, graphics, content, and operating expenses. EITF 00-2 is
effective for web site development costs incurred for fiscal quarters
beginning after June 30, 2000. The Company adopted EITF 00-2 and
development costs incurred subsequent to June 30, 2000, associated with
the Company's Web Site were recorded in accordance with EITF 00-2. All
website development costs for periods subsequent to June 30, 2000 were
expensed as operating costs. No website development costs were
capitalized for the period ended December 31, 2000 and for the quarter
ended March 31, 2001.
7
BINGO.COM, INC.
(formerly Progressive General Lumber Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been
reclassified to conform with the 2001 presentation.
4. DOMAIN NAME RIGHTS AND CONTRACT PAYABLE
The rights to use the domain name Bingo.com were acquired in January of
1999 for $200,000 cash and 500,000 common shares at a deemed price of
$2.00 per share.
In addition, the Company is required to make quarterly payments with a
minimum guarantee of $1,100,000 for the purchase of the domain name.
Commencing July 1, 1999, a payment of $50,000 was due 60 days after the
end of each business quarter, for four consecutive quarters. On July 1,
2000, four more consecutive payments of $75,000 were due 60 days after
the end of each business quarter. On July 1, 2001, four more consecutive
payments of $100,000 are due 60 days after the end of each business
quarter. Domain name rights have been capitalized by the Company based on
the present value of the future minimum payments. The guarantee has been
recorded in the financial statements as contract payable. Payments made
relating to this contract were $58,599 for the three months ended March
31, 2001. As of March 31, 2001 and December 31, 2000, capitalized domain
name rights totaled approximately $1,548,000 and $1,645,000,
respectively, net of accumulated amortization of $387,000 and nil,
respectively.
5. NOTES PAYABLE
In February 2001, the Company entered into a promissory note for $45,000
from an unrelated third party bearing interest at prime plus one percent,
calculated annually, with a maturity date of June 15, 2001.
In March 2001, the Company entered into a promissory note with an
unrelated third party for $45,000 bearing interest at ten percent per
annum with a maturity date of May 15, 2001.
8
BINGO.COM, INC.
(formerly Progressive General Lumber Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. STOCKHOLDERS' EQUITY
1999 Non-Qualified Stock Option Plan
The Company granted 500,000 stock options under its 1999 Non-Qualified
Stock Option Plan (the "1999 Plan) during December 2000 to the Company's
Director, CEO and President. On June 29, 2000, the Company re-priced
options to purchase 800,000 shares of the Company's common stock
previously granted to the person serving as sole Director, CEO and
President and the person serving as the Senior Vice President of the
Company. At March 31, 2001, outstanding employee and director stock
options granted under the 1999 Plan, with various vesting provisions,
were as follows:
Number of Shares Exercise Price Expiration Date
------------------------- --------------------- ----------------------------
600,000 $0.75 July 1, 2004
215,000 3.00 December 1, 2004
200,000 0.75 December 1, 2004
10,000 1.45 December 1, 2004
500,000 0.44 December 13, 2005
-------------------------
1,525,000
=========================
These re-pricings have resulted in variable accounting, which required
the computation and recording of no stock based compensation expense for
the quarter ending March 31, 2001 because the fair market value of the
stock as of March 31, 2001 was below the option exercise price. In
accordance with the Financial & Accounting Standards Board (FASB) FIN 44,
the expense related to these options was based on the difference between
the market value of the stock and the option exercise price in this
reporting period.
2000 Stock Option Plan
On September 1, 2000, subject to Shareholder approval, the Company
granted incentive stock options to purchase 95,000 shares of the
Company's common stock to nine full time employees and non-qualified
stock options to purchase 61,000 shares of the Company's common stock to
certain key consultants under the Company's 2000 Stock Option Plan (the
"2000 Plan"). The 2000 Stock Option Plan expired before ratification was
obtained by the shareholders of the Company.
9
BINGO.COM, INC.
(formerly Progressive General Lumber Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. STOCKHOLDERS' EQUITY - Continued
Therefore, for financial reporting purposes, there were no stock options
outstanding as of March 31, 2001 for the 2000 Stock Option Plan. The
following table summarizes information about stock option transactions
for the period ended March 31, 2001 related to the 1999 Stock Option
Plan.
Weighted
average
exercise
Shares price
---------------- ----------------
Options outstanding at December 31, 1998 -- $ --
Granted 1,025,000 3.72
Exercised -- --
Canceled -- --
---------------- ----------------
Options outstanding at December 31, 1999 1,025,000 3.72
Granted - including repriced shares 1,300,000 0.63
Exercised -- --
Canceled - repriced shares (800,000) 3.92
---------------- ----------------
Options outstanding at December 31, 2000 1,525,000 $ 0.96
Granted -- --
Exercised -- --
Canceled -- --
---------------- ----------------
Options outstanding at March 31, 2001 1,525,000 $ 0.96
================ ================
7. RELATED PARTY TRANSACTIONS
In 2000, the Company provided an interest-free loan to the Company's
Sole Officer and Director of $56,484 Canadian dollars ($37,686 US
dollars), repayable over 12 months. As of December 31, 2000 and March
31, 2001, $47,070 and $42,363 Canadian dollars ($31,405 and $26,868 US
dollars), respectively, remained outstanding.
10
BINGO.COM, INC.
(formerly Progressive General Lumber Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. SUBSEQUENT EVENTS
On April 16, 2001, the Company received a loan from and issued a
convertible debenture to Redruth Ventures Inc., a British Virgin Islands
corporation ($750,000), and to Bingo, Inc., an Anguilla corporation
($500,000) ("the Holders"). The Company promises to pay to the Holders,
an amount equal to U.S.$1,250,000, together with simple interest at the
fixed rate per annum of twelve percent (12%), with interest accruing and
payable on the outstanding principal amount of this Debenture. The
Holders of the loan received a total of 12,000,000 common share purchase
warrants, entitling the holders to purchase an aggregate of 12,000,000
shares of the Company's Common Stock at an exercise price of $0.25 per
share exercisable for a period of three years from the date of the
Debenture. The Holders have the right, but not the obligation, to elect
to convert any or all of the principal amount of the Debenture into
shares of the Company's common stock at a conversion price of $0.125 per
share. The Debenture is secured by all assets of the Company. Drawdowns
of principal under this Debenture are scheduled as follows:
U.S. Dollars
----------------
April 16, 2001 $250,000
May 1, 2001 250,000
June 1, 2001 250,000
July 1, 2001 150,000
October 1, 2001 100,000
January 1, 2002 100,000
April 1, 2002 100,000
July 1, 2002 50,000
In April 2001, the original employment agreement with the President, CEO
and Director ("President") of the Company was cancelled and a new
agreement was entered into indicating a salary of $175,000 for the first
year of employment with increases to $200,000 for the second year and
$225,000 for the third year. The agreement also stipulates 750,000 shares
of common stock will be issued to the President. The shares will be held
in escrow for a period of one year. The shares will be released upon the
earlier of (i) the last day of the escrow period or (ii) the date that
employment is terminated, once the escrow period has expired. If
termination occurs prior to the escrow period, then all shares will be
surrendered and gifted back to the Company. The agreement acknowledges
and honors the previous stock option grants totaling 1,100,000 common
stock options under the 1999 Stock Option Plan and the salary advance
without interest. The agreement also includes several covenants not to
compete and specifically refers to assignment, intellectual property
protection, and copyrights in working.
11
BINGO.COM, INC.
(formerly Progressive General Lumber Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. SUBSEQUENT EVENTS - Continued
On May 31, 2001, the Company's Board of Directors adopted the 2001 Stock
Option Plan (the "2001 Plan"). On June 4, 2001, the Company granted,
subject to shareholder approval, incentive stock options to purchase
280,000 shares of the Company's common stock to nine full-time employees
and non-qualified stock options to purchase 91,000 shares of the
Company's common stock to certain key consultants under the 2001 Plan.
The options were granted at an exercise price of $0.20 per share, which
was at a premium to the fair market value of the Company's common stock
on June 6, 2001, the date of grant. On June 6, 2001, the closing stock
price from the Company's common shares on the OTCBB was $0.16 per share.
The options vest over various periods as to be determined by the Board of
Directors. Vested stock options may not be exercised until the 2001 Plan
is approved by a majority of the Company's shareholders.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and the documents incorporated herein by
reference contain forward-looking statements based on current expectations,
estimates and projections about the Company's industry, management's beliefs and
certain assumptions made by management. All statements, trends, analyses and
other information contained in this report relative to trends in net sales,
gross margin, anticipated expense levels and liquidity and capital resources, as
well as other statements including, but not limited to, words such as
"anticipate," "believe," "plan," "estimate," "expect," "seek," "intend," and
other similar expressions, constitute forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks and uncertainties that are difficult to predict.
Accordingly, actual results may differ materially from those anticipated or
expressed in such statements. Potential risks and uncertainties include, among
others, those set forth in this Item 2. Particular attention should be paid to
the cautionary statements involving the Company's limited operating history, the
unpredictability of its future revenues, the Company's need for and the
availability of capital resources, the evolving nature of its business model,
the intensely competitive market for business-to-business electronic
procurement, and the risks associated with systems development, management of
growth and business expansion. Except as required by law, the Company undertakes
no obligation to update any forward-looking statement, whether as a result of
new information, future events or otherwise. Readers, however, should carefully
review the factors set forth in other reports or documents that the Company
files from time to time with the Securities and Exchange Commission ("SEC").
Bingo.com has incurred significant losses since inception, and as of March 31,
2001 had an accumulated net loss of $6,992,668. Bingo.com has made a significant
investment in its operating the website and to maintain its advantage and to
brand and market their website.
As of the date of this Report, the Company has utilized substantially all of its
available funding. The Company's continuation as a going concern will depend on
its ability to raise additional capital. No
12
assurance can be given that the Company will be able to raise additional funds.
In the absence of such funds, the Company will be required to cease operations.
RESULTS OF OPERATIONS
The quarter ended March 31, 2001 was the beginning of our second year of
generating operating revenues. Initially, our strategy was to develop an online
gaming operation with an initial focus on bingo. Due to adverse changes in North
American gaming laws, in August 1999 our board, decided to prohibit gaming in
jurisdictions with laws that prohibit online gaming. From August 1999 to
December 31, 1999, we revised our business plan and focused on the alternative
of developing our prize-based, play for free games with an emphasis on
entertainment. In December 1999, we launched a beta version of our first play
for free game and our revamped website. In 2000, our board announced the
discontinuance of our Antigua based gaming operation and we applied all of its
resources to our revised business plan. In 1999, we had just begun active
business operations, but as we were still in the development stage, no revenues
were yet being generated. As a result, this should be kept in mind when making
any direct comparisons to the operating results of the quarter ended March 31,
2001 to that ended March 31, 2000.
Balances as of March 31, 2001 compared to December 31, 2000:
Total assets decreased to $2,281,045 as of March 31, 2001 compared to $2,715,258
at the beginning of the fiscal year. In the quarter ended March 31, 2001, we
invested $10,675 in office and computer equipment, including software
development equipment, compared to $32,087 in 1999. Our cash position decreased
by $147,243 from December 31, 2000 and our working capital position decreased to
a deficit of $1,164,972.
Quarter Ended March 31, 2001 Compared to the Quarter Ended March 31, 2000:
Of the $877,204 of total expenses for operations for the quarter ended March 31,
2001, $613,317 was for general and administrative expenses associated with our
operations. General and administrative expenses consist primarily of payroll and
consultant costs for the Company's executive staff, accounting and
administrative personnel, premises costs, legal and professional fees for
preparation and review of our registration statement, insurance and other
general corporate and office expenses. We recorded $170,793 for amortization of
capital assets and the value of the domain name in the first quarter of 2001,
compared to $11,088 in 2000.
Sales and marketing expenses were $93,094 for the quarter ended March 31, 2001
and was $100,887 for the quarter ended March 31, 2000. We incurred $15,639 in
2001 on co-brand advertising and for key word buys for our gaming site. The
balance of marketing and advertising expenses consists of payroll and
consultant's costs, travel and office costs.
We had a net loss of $761,983 or $.08 per share for the quarter ended March 31,
2001, compared to a loss of $494,523 or $.05 per share for the quarter ended
March 31, 2000. 2001 included net interest expense of $3,692 and 2000 included
net interest income of $21,360 earned on our surplus cash balances. We expect
continued losses in the foreseeable future as we continue to expand and develop
our website and the technologies related to new games.
Revenue generation and operating income are dependent upon the utilization of
significant cash resources for advertising and promotion, new games, and our
future successes at attracting prize sponsors and advertising customers.
13
LIQUIDITY AND CAPITAL RESOURCES
We did not issue any shares in the first quarter of 2001, but did obtain $90,000
in short-term loans. We did not lease any additional capital assets; however, we
paid $19,239 under contractual terms for previously existing leases. In the
quarter ended March 31, 2001, we generated revenue of $582,803 from our sales
operations, compared to $4,280 of sales generated in the first quarter of 2000.
As at March 31, 2001, we had cash and cash equivalents of $27,220 versus
$428,256 at March 31, 2000. Our working capital position at March 31, 2001 was a
deficit of $1,164,972 compared to a positive working capital position of
$2,745,982 at March 31, 2000. In 2001, we used $204,024 for operating activities
in the first quarter, and $10,675 for investing activities, compared to 2000
uses of $632,948 and $32,087, respectively. We did not make any payments in the
first quarter of 2001 and in the first quarter of 2000 for our domain name
purchase.
Subsequent to March 31, 2001, we negotiated a debt financing (debenture) for
$1,250,000. The initial installment was received in April of 2001 and the second
installment in May of 2001. We expect that the proceeds received from this
financing of $500,000 to date, in conjunction with the cash flow generated from
operations, will be sufficient to maintain and grow our operations as intended.
The Holders of the debenture received a total of 12,000,000 common share
purchase warrants, entitling the holders to purchase an aggregate of 12,000,000
shares of the Company's common stock at an exercise price of $0.25 per share
exercisable for a period of three years from the date of the Debenture. The
Holders have the right, but not the obligation, to elect to convert any or all
of the principal amount of the debenture into shares of the Company's common
stock at a conversion price of $0.125 per share. The debenture is secured by all
assets of the Company.
RISK RELATED TO THE COMPANY'S BUSINESS
Need For Additional Capital
The Company has recorded substantial operating losses and, as of March 31, 2001,
has an accumulated deficit of approximately $7 million. Although the Company
believes that cash funds will provide operating capital until December 31, 2002,
the Company anticipates that it will require additional funding before it can
finance its operations and growth wholly on internally generated funds.
Large Operating Losses Expected to Continue
As discussed above, the Company has accumulated substantial net losses through
March 31, 2001. Since inception, the Company has not had material revenues, and
has recognized substantially half of its revenues from barter transactions.
Although the Company has significantly reduced ongoing expenses, there is no
assurance that the Company will achieve positive cash flow and operating
profitability within the limits of its available capital.
Dependence on Sales and Marketing Relationships for Growth
The Company's business model includes generating sales through its alliance and
affiliate programs. Consequently, the Company will depend, in part, on sales and
marketing strategic relationships for growth. The Company has established and
plans to continue to establish sales and marketing strategic relationships with
large organizations as part of our growth strategy. Such relationships may not
contribute to increased use of the Company's services, help the Company add new
clients, or increase the Company's revenue. The Company may not be able to enter
into new relationships or renew existing
14
relationships on favorable terms, if at all. In addition, the Company may not be
able to recover the costs and the expenses associated with these programs.
Success Depends on Key Personnel; No "Key Man" Life Insurance
Future performance depends on the continued service of key personnel, and the
ability to attract, train, and retain additional technical, marketing, customer
support, and management personnel. The loss of one or more key employees could
negatively impact the Company, and there is no "key man" life insurance in force
at this time. Competition for qualified personnel is intense, and there can be
no assurance that the Company will retain key employees, or attract and retain
other needed personnel.
RISKS RELATED TO THE INTERNET AND E-COMMERCE
Volatility in Stock Price
The stock market and especially the stock prices of Internet related companies
have been very volatile. This volatility may not be related to the operating
performance of the companies. The broad market volatility and industry
volatility may reduce the price of the Company's stock without regard to the
Company's operating performance. The market price of the company's stock could
significantly decrease at any time due to this volatility. The uncertainty that
results from such volatility can itself depress the market price of the
Company's stock.
Dependence Upon, and Risks Related To, the Internet
The use of the Company's website on the increased acceptance and use of the
Internet as a medium of communication. While management believes that acceptance
and use of the Internet will continue to increase at very rapid rates and that
additional hits to the site will be made, there can be no assurances that such
increase will continue to develop, or that use of the Internet as a means of
communication and entertainment will continue or increase. If growth in the use
of the Internet does not continue, there may not be an increase in the number of
hits to the Company's website at the rates or for the purposes management has
assumed. This could, in turn, adversely impact the Company and the results of
its business operations. Further, even if acceptance and use of the Internet
does increase rapidly, but the technology underlying the Internet and other
necessary technology and related infrastructure does not effectively support
that growth, the Company's future would be negatively impacted.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We currently have instruments sensitive to market risk relating to exposure in
changing interest rates and market prices. We do not enter into financial
instruments for trading or speculative purposes and do not currently utilize
derivative financial instruments. Our operations are conducted primarily in the
United States and as such are not subject to material foreign currency exchange
rate risk.
The fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the short term nature of the majority of our
investment portfolio.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently a party to any legal proceeding, and was not a
party to any legal proceeding during the fiscal period ended March 31, 2001.
Management of the Company is currently not aware of any legal proceedings
proposed to be initiated against the Company. However, from time to time, the
Company may become subject to claims and litigation generally associated with
any business venture.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits
- ------------------------------------------------------------ ----------------------------------------------------------
4.1 $1,250,000.00 Convertible Debenture
- ------------------------------------------------------------ ----------------------------------------------------------
4.2 Common Stock Purchase Warrant (Redruth Ventures Inc. a
British Virgin Islands corporation ("RRV") and Bingo, Inc.
- ------------------------------------------------------------ ----------------------------------------------------------
4.3 Common Stock Purchase Warrant (Redruth Ventures Inc. a
British Virgin Islands corporation ("RRV") and Bingo, Inc.
- ------------------------------------------------------------ ----------------------------------------------------------
Reports on Form 8-K.
During the quarter covered by this report, the Company filed the following
reports on Form 8-K.
Form 8-K filed on April 6, 2001, reporting the termination of the proposed
acquisition of acquisition of The Lottery Channel Inc. and the execution of a
letter of intent proposing a financing arrangement with Bounceback
Technologies.Com, Inc.
Form 8-K filed on May 3, 2001, reporting the reporting the termination of the
letter of intent proposing a financing arrangement with Bounceback
Technologies.Com, Inc., and reporting the execution of a definitive financing
arrangement between the Company, Redruth Ventures Inc. a British Virgin Islands
corporation ("RRV") and Bingo, Inc an Anguillia corporation ("BI") (collectively
the "Holders").
16
*SIGNATURES*
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
BINGO.COM, INC.
-------------------------------------
(Registrant)
Date: June 22, 2001 /S/ Shane Murphy
-------------------------------------
Shane Murphy, Chairman of the Board,
Chief Executive Officer, President,
Treasurer and Secretary (Principal
Executive and Accounting Officer)
17
Exhibit Index
- ------------------------------------------------------------ ----------------------------------------------------------
4.1 $1,250,000.00 Convertible Debenture
- ------------------------------------------------------------ ----------------------------------------------------------
4.2 Common Stock Purchase Warrant (Redruth Ventures Inc. a
British Virgin Islands corporation ("RRV") and Bingo, Inc.
- ------------------------------------------------------------ ----------------------------------------------------------
4.3 Common Stock Purchase Warrant (Redruth Ventures Inc. a
British Virgin Islands corporation ("RRV") and Bingo, Inc.
- ------------------------------------------------------------ ----------------------------------------------------------