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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
[ ] 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.)
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SUITE 1404, 1166 ALBERNI STREET,
VANCOUVER, BRITISH COLUMBIA,
CANADA, V6E 3Z3
(Address of Principal Executive Offices)
(604) 694-0300
(Registrant's Telephone Number, Including Area Code)
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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
The number of outstanding shares of the Registrant's Common Stock, par value
$0.001 per share, was 11,104,608 on May 3, 2002.
BINGO.COM, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2002
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION................................................................................26
ITEM 1. Financial Statements.......................................................................26
CONSOLIDATED BALANCE SHEETS.............................................................................26
CONSOLIDATED STATEMENTS OF OPERATIONS...................................................................27
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY.........................................................28
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................................................29
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......34
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk..................................40
PART II - OTHER INFORMATION...................................................................................41
ITEM 1. Legal Proceedings...........................................................................41
ITEM 2. Changes in Securities and Use of Proceeds...................................................41
ITEM 3. Defaults Upon Senior Securities.............................................................41
ITEM 4. Submission of Matters to a Vote of Security Holders.........................................41
ITEM 5. Other Information...........................................................................42
ITEM 6. Exhibits and Reports on Form 8-K............................................................44
SIGNATURES....................................................................................................47
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINGO.COM, INC.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
March 31, 2002 December 31, 2001
-------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 29,610 $ 14,028
Accounts receivable, net of allowance for doubtful
accounts of $nil (2001 - $46,185) 215,426 351,330
Prepaid expenses 8,793 9,178
----------- -----------
253,829 374,536
----------- -----------
Fixed assets 422,120 477,554
Other assets 29,552 27,559
Domain name rights, net 1,160,470 1,257,241
----------- -----------
$ 1,865,971 $ 2,136,890
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 777,238 $ 870,660
Accrued liabilities 183,539 165,076
Unearned revenue 24,475 --
Contract payable - current portion 90,315 184,772
Loan payable 72,963 45,385
Capital leases - current portion 151,685 163,221
----------- -----------
1,300,215 1,429,114
----------- -----------
Debenture payable (note 3) 1,200,000 1,100,000
Capital leases, net of current portion 15,711 25,974
Stockholders' (deficiency):
Common stock - $0.001 par value; authorized 50,000,000 shares;
issued and outstanding: 11,104,608 shares at March 31, 2002
and 10,854,608 shares at December 31, 2001 (notes 4 and 6) 11,105 10,855
Additional paid-in-capital 7,710,076 7,669,826
Accumulated deficit (8,397,474) (8,129,172)
Accumulated other comprehensive income 26,338 30,293
----------- -----------
(649,955) (418,198)
----------- -----------
$ 1,865,971 $ 2,136,890
=========== ===========
Commitments (note 5)
Subsequent events (note 6)
See accompanying notes to consolidated financial statements.
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BINGO.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
2002 2001
------------ ------------
Revenue $ 236,955 $ 582,803
Cost of revenue 157,027 463,890
------------ ------------
Gross profit 79,928 118,913
Operating Expenses:
Sales and marketing 41,228 93,094
General and administrative 112,244 613,317
Interest expense 42,281 3,692
Depreciation and amortization 152,477 170,793
------------ ------------
348,230 880,896
------------ ------------
Net loss $ (268,302) $ (761,983)
============ ============
Net loss per share,
basic and diluted $ (0.02) $ (0.08)
------------ ------------
Weighted average common shares
outstanding, basic and diluted 10,860,226 10,104,608
============ ============
See accompanying notes to consolidated financial statements.
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BINGO.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(EXPRESSED IN U.S. DOLLARS)
THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
Accumulated
other
comprehensive
income
-------------
Foreign
Common Stock Additional Currency Total
------------------------ Paid in Translation Stockholders'
Shares Amount Capital Adjustment Deficit Deficiency
---------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 10,854,608 $ 10,855 $ 7,669,826 $ 30,293 $(8,129,172) $ (418,198)
Issuance of common stock 250,000 250 42,250 -- -- 42,500
Mark-to-market of variable
stock option awards -- -- (2,000) -- -- (2,000)
Comprehensive loss:
Net loss -- -- -- -- (268,302) (268,302)
Foreign currency translation
adjustment -- -- -- (3,955) -- (3,955)
---------- ----------- ----------- ----------- ----------- -----------
(272,257)
---------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2002 11,104,608 $ 11,105 $ 7,710,076 $ 26,338 $(8,397,474) $ (649,955)
========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
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BINGO.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
2002 2001
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Cash flows from operating activities:
Net loss $(268,302) $(761,983)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 152,477 170,793
Stock based compensation costs 40,500 --
Change in operating assets and liabilities:
Accounts receivable 135,905 99,541
Prepaid expenses 385 42,456
Note receivable -- 4,537
Other assets (1,993) (19,682)
Accounts payable and accrued liabilities (74,959) 260,314
Unearned revenue 24,475 --
--------- ---------
Cash provided by (used in) operating activities 8,488 (204,024)
Cash flows from investing activities:
Acquisition of property and equipment (425) (10,675)
Payments on domain name contract payable (94,457) --
--------- ---------
Cash used in investing activities (94,882) (10,675)
Cash flows from financing activities:
Capital lease repayments (21,799) (19,239)
Loan payable 27,578 90,000
Proceeds from debenture debt 100,000 --
--------- ---------
Cash provided by financing activities 105,779 70,761
Net increase (decrease) in cash and cash equivalents 19,385 (143,938)
Effect of exchange rates on cash and cash equivalents (3,803) (3,305)
Cash and cash equivalents at beginning of period 14,028 174,463
--------- ---------
Cash and cash equivalents at end of period $ 29,610 $ 27,220
========= =========
Supplemental disclosure of cash flow information:
Cash interest paid $ 9,700 $ 21,888
========= =========
Non Cash Transactions:
Barter transactions $ -- $ 237,000
Issuance of common stock for services rendered 42,500 --
========= =========
See accompanying notes to consolidated financial statements.
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BINGO.COM, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Three months ended March 31, 2002 and 2001
(Unaudited)
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1. BASIS OF PRESENTATION:
The accompanying unaudited interim financial statements have been prepared in
conformity with generally accepted accounting principles applicable to interim
financial information and with the rules and regulations of the United States
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted, pursuant to such rules and regulations. In the opinion of management,
the unaudited interim financial statements include all adjustments necessary for
the fair presentation of the results of the interim periods presented. These
financial statements should be read in conjunction with Bingo.com, Inc.'s (the
"Company") audited consolidated financial statements and notes thereto for the
year ended December 31, 2001, included in the Company's Annual Report on Form
10-K, filed April 1, 2002 with the Securities and Exchange Commission. The
results of operations for the interim period are not necessarily indicative of
the results of operations for any other interim period or for a full fiscal
year.
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current period.
2. GOING CONCERN:
These unaudited interim consolidated financial statements have been prepared on
the going concern basis, which presumes the realization of assets and the
settlement of liabilities and commitments in the normal course of operations.
The application of the going concern basis is dependent upon the Company
achieving profitable operations to generate sufficient cash flows to fund
continued operations, or, in the absence of adequate cash flows from operations,
obtaining additional financing.
The Company has reported losses in the last three fiscal years, and has an
accumulated deficit of $8,397,474 at March 31, 2002, and, until the quarter
ended March 31, 2002, recurring negative cash flows from operations. Management
continues to review operations in order to identify additional strategies
designed to generate cash flow, improve the Company's financial position, and
enable the timely discharge of the Company's obligations. If management is
unable to identify sources of additional cash flow in the short term, it may be
required to reduce or limit operations.
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BINGO.COM, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Three months ended March 31, 2002 and 2001
(Unaudited)
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3. DEBENTURE PAYABLE:
On April 16, 2001, the Company received a loan from and issued a secured
convertible debenture to Redruth Ventures Inc., a British Virgin Islands
corporation, for $750,000, and to Bingo Inc., an Anguilla corporation, for
$500,000 (collectively, "the Lenders"). Bingo Inc. was not a related party when
the debenture agreement was signed; however, a current director and officer of
the Company is the potential beneficiary of several discretionary trusts that
hold approximately 80% of Bingo Inc.
Under the terms of the debenture interest shall accrue on the outstanding
principal amount of the debenture at a fixed rate of 12% per annum from the
issuance date through April 16, 2003, at which time the interest will become
payable. Thereafter, interest shall accrue and be payable on the first business
day of each succeeding quarter through and including April 16, 2006. All
principal, accrued but unpaid interest and any other amounts due are due and
payable at maturity on April 16, 2006.
The Company has the option to pay all accrued interest in cash, common stock of
the Company, or a combination of both cash and common stock. Any amounts
remaining unpaid on the debenture on the maturity date, whether principal,
interest or other amounts due, shall be paid in full in cash on such date. Any
common stock of the Company delivered to the Lenders in payment of the debenture
will be valued at $0.25 per share.
The Lenders received a total of 12,000,000 common stock purchase warrants at an
exercise price of $0.25 per share exercisable for a period of three years from
the date of the debenture agreement in exchange for the loans. The Lenders have
the right, but not the obligation, to elect to convert any or all of the
outstanding principal amount of the debenture into shares of the Company's
common stock at a conversion price of $0.125 per share until the third
anniversary date of the debenture. The common stock that would be issued upon
conversion of the debenture will be subject to certain resale restrictions, as
defined in Rule 144 of the Securities and Exchange Act of 1933 (the "Exchange
Act"). The debenture is secured by all assets of the Company.
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BINGO.COM, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Three months ended March 31, 2002 and 2001
(Unaudited)
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3. DEBENTURE PAYABLE (CONTINUED):
Drawdowns of principal under the debentures are scheduled as follows:
Date Drawdown
----------------------------------------------- ----------------------
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
As at March 31, 2002, the Company had drawndown a total of $1,200,000 in
accordance with the terms of the debentures.
4. SHARE CAPITAL:
250,000 shares of common stock were issued during the quarter ended March 31,
2002 to the former Chief Executive Officer of the Company. The agreed value of
$42,500 for these shares was recorded in accrued liabilities at December 31,
2001.
5. COMMITMENTS:
During the quarter ended March 31, 2002, the Company, directly or through its
subsidiaries, completed or amended the following agreements:
(a) Agreement with CYOP Systems Inc. ("CYOP") granting the Company a
license for a software program known as CrediPlay.
The original agreement signed in fiscal 2001 was amended by verbal
agreement during the quarter ended March 31, 2002. Pursuant to the
terms of the original agreement, the license fee payable to CYOP was
25% of the revenue derived from the Skill-Bingo game (as defined in the
agreement) received by the Company, with a minimum monthly fee of
$60,000. The minimum monthly license fee payable of $60,000 was removed
under the
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BINGO.COM, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Three months ended September 30, 2001 and 2000
(Unaudited)
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5. COMMITMENTS (CONTINUED):
terms of the verbal amendment. The service fee payable to CYOP under
the terms of the agreement is 5% of the revenue derived by the Company
from the Skill-Bingo game (as defined in the agreement), with a minimum
monthly service fee of $18,000. The minimum monthly service fee payable
of $18,000 was removed pursuant to the terms of the verbal amendment.
The Company expects to execute a written amendment to this agreement
during the second quarter of 2002, but as of the date of these
financial statements, no such agreement was executed.
(b) Website hosting and management agreement with NextLevel.com Inc.
("NextLevel") for the provision of Website hosting services for the
Company's Website. Pursuant to the terms of the original agreement,
NextLevel provided full Website hosting services for the Company's
Website for a fee of $12,000 per month, for an initial term of one
year. The Company gave notice of termination during the quarter, and
the agreement terminated effective April 15, 2002.
(c) Website hosting, management, and Internet advertising arrangement with
CYOP Systems Inc. The Company is negotiating with CYOP to replace the
NextLevel agreement described above. No formal agreement has been
executed as of the date of these financial statements. However, the
Company is operating under a verbal arrangement, pursuant to which the
Company is paying a commission of 50% of the advertising revenue
generated by the Company's bingo portal to CYOP for these services. The
Company expects to complete an agreement under substantially the same
terms as the current verbal arrangement during the second quarter of
2002.
6. SUBSEQUENT EVENTS:
Subsequent to the quarter end, the Company granted options to purchase a total
of 10,000 shares of the Company's common stock at an exercise price of $0.30 per
share to employees of the Company. The options vest 10% at the grant date, 15%
12 months following the grant date, and 2% per month thereafter. The options
were granted under the terms of the Company's 2001 Stock Option Plan. The market
price for the Company's common stock on the grant date was $0.13.
Subsequent to period end CYOP disputed certain terms of the verbal arrangements
put in place between CYOP and the Company during the quarter ended March 31,
2002. The Company does not expect the outcome of the disputed terms to have a
material effect on the financial position or results of operations of the
Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties, as described below. Bingo.com, Inc.'s (the "Company",
"Bingo.com", "we", or "us") actual results could differ materially from those
anticipated in these forward-looking statements. The following discussion should
be read in conjunction with the unaudited interim consolidated financial
statements and notes thereto included in Part I - Item 1 of this Quarterly
Report, and the audited consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Conditions and Results of
Operations included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.
FORWARD LOOKING STATEMENTS
ALL STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, AS WELL AS STATEMENTS MADE IN PRESS RELEASES
AND ORAL STATEMENTS THAT MAY BE MADE BY US OR BY OFFICERS, DIRECTORS OR
EMPLOYEES ACTING ON OUR BEHALF, THAT ARE NOT STATEMENTS OF HISTORICAL FACT
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT COULD
CAUSE OUR ACTUAL RESULTS TO BE MATERIALLY DIFFERENT FROM HISTORICAL RESULTS OR
FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
READERS SHOULD CONSIDER STATEMENTS THAT INCLUDE THE TERMS "BELIEVE," "BELIEF,"
"EXPECT," "PLAN," "ANTICIPATE," "INTEND" OR THE LIKE TO BE UNCERTAIN AND
FORWARD-LOOKING. IN ADDITION, 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,
CONSTITUTE FORWARD-LOOKING 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, 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. ALL CAUTIONARY STATEMENTS MADE
HEREIN SHOULD BE READ AS BEING APPLICABLE TO ALL FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR. IN THIS CONNECTION, READERS SHOULD CONSIDER THE RISKS MORE
FULLY DESCRIBED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC")
AND SHOULD NOT PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS.
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OVERVIEW
The Company is in the business of developing and operating a bingo based Web
portal designed to provide a variety of free games, pay-to-play skill games, and
other forms of entertainment, including an online community, chat rooms,
contests, sweepstakes, tournaments, and more. The Company envisions becoming the
preeminent bingo-based Web portal on the Internet, using its bingo.com domain
name and incorporating a variety of games and content to attract and retain a
large number of subscribers. The Company's existing Website has attracted over
800,000 registered users; the Company intends to continue to build on this
subscriber base to further develop its online presence.
The Company generates revenue from two principal sources: the free Website,
which is supported by advertising revenue; and the skill Website, built around
the Company's patent pending BiG'r Bingo skill bingo game, which generates
revenue by charging users a small network maintenance fee to play skill based
bingo games.
The free site provides content to our players in the form of free-to-play,
multiplayer theme bingo games, such as Astrology Bingo, Cupid Bingo, and the
like, as well as online video poker, sweepstakes and slot machines. We also
offer our registered players other forms of entertainment such as fortune
telling, chat rooms, and member profiles.
The recently launched skill site, built around the BiG'r Bingo game, offers a
game of skill, where players compete against each other to daub their squares
and be the first to call bingo. We believe that with added features such as
tournaments and handicapping, players will be compelled to play more games,
which will continue to provide revenue growth from this site. In BiG'r Bingo,
100% of the prize pool is paid out to participants. When participants enter a
particular game they are required to pay a designated amount, depending on the
game, into a prize pool, and it is these funds that are paid out to the winner
of the particular game.
We intend to continue to build on the success of the existing free site and the
new skill site by offering a greater depth and variety of content that we expect
will hold subscribers and allow us to generate more revenue through advertising
and network maintenance fees. We also intend to add enhanced content available
to users for a monthly subscription charge in order to further grow our revenue
base. We intend to provide non-North American players with the opportunity to
play traditional bingo for cash. Finally, we intend to provide our free bingo
games, under license, to Websites that complement our business.
References in this document to "Bingo.com," "the Company," "we," "us," and "our"
refer to Bingo.com, Inc. and its subsidiaries.
The Company has incurred significant losses since inception, and as of March 31,
2002 had an accumulated deficit of $8,397,000. Although the Company achieved
positive cash flow from operations during the quarter ended March 31, 2002,
Bingo.com will continue to incur losses until revenue grows sufficiently to
cover ongoing operating costs, including the costs of sales
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and marketing efforts. There can be no assurances that this will occur.
Bingo.com has made a significant investment in the development of the Company's
website, purchase of domain name, branding, marketing, and maintaining
operations.
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 generate sufficient cash flow from operations to cover operating
costs, or to raise additional capital. No assurance can be given that the
Company will be able to generate adequate cash flow to fund ongoing operating
costs or to raise additional funds. In the absence of sufficient cash flow, the
Company may be required to limit operations.
SOURCES OF REVENUE AND REVENUE RECOGNITION
Prior to September 1, 2001, Bingo.com generated the majority of its revenue from
the sale of advertising on its website. Advertising revenue is recognized as the
advertising campaign or impressions and clicks are made on the website. Accounts
receivable are recorded net of advertising commissions.
Effective September 1, 2001, the Company contracted an arms length party,
NextLevel Inc., to manage the sales of advertising on the www.bingo.com Website.
Under the terms of the agreement, NextLevel Inc. paid Bingo.com 50% of all
advertising revenue generated from the Company's Website, subject to a minimum
monthly fee of $112,000. This agreement was terminated at the end of January
2002 (see Part II, Item 5).
Subsequent to January 31, 2002, the Company entered into a verbal arrangement
with CYOP Systems Inc. ("CYOP") to sell advertising on the Company's bingo
portal (see Part II, Item 5). The Company pays a commission of 50% of the
revenue generated from the sale of advertising on the site in exchange for CYOP
serving ads and hosting the Company's Website.
In fiscal 2000, the Company adopted EITF No. 99-17 "Accounting for Advertising
Barter Transactions". EITF 99-17 provides that the Company recognize revenue and
advertising expenses from barter transactions at the fair value only when it has
a historical practice of receiving or paying cash for similar transactions.
Bingo.com barters portions of the unsold advertising impressions generated by
its website in exchange for advertising in media properties owned by third
parties. The Company records revenues and costs for such barter transactions at
the market value of the advertising exchanged, with no net income or loss
recognized. Barter revenue totaled $nil for the three months ended March 31,
2002 and $237,000 for the three months ended March 31, 2001.
RESULTS OF OPERATIONS
REVENUE
Revenue declined to $237,000 for the quarter ended March 31, 2002, a decrease of
59% over revenue of $583,000 for the same period in the prior year. The
reduction in revenue for the first quarter of 2002 can be explained generally by
the downturn in the North American economy and the erosion of the market for
Internet advertising. More specifically, the Company had fewer
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people focused on selling advertising during the quarter ended March 31, 2002,
largely because of the restructuring of the business of the Company that took
place during the third and fourth quarters of 2001.
COST OF REVENUE
Bingo.com recorded cost of revenue of $157,000 during the quarter ended March
31, 2002, a drop of $307,000 or 66% compared to costs of $464,000 for the same
period in the prior year. The gross margin improved to 34% in 2002 from 20% in
the first quarter of the prior year. Cost of revenue consists primarily of
commissions paid on the sale of advertising, as well as license fees on the
BiG'r Bingo game. The change from the prior year can be explained by the fact
that the Company incurred license and service fees in connection with the
licensing of the CrediPlay software that is used to operate the Company's
Skill-Bingo Website, starting in September 2001. In addition, Bingo.com had
lower commission expenses in 2002.
SALES AND MARKETING EXPENSES
Sales and marketing expenses dropped to $41,000 for the quarter ended March 31,
2002, a decrease of $52,000 over 2001 quarter one expenses of $93,000. Sales and
marketing expenses include principally costs for marketing, co-brand advertising
and keyword buys for our game site. The balance of marketing and advertising
expenses consists of payroll, consultant, and travel costs. All of these amounts
decreased in 2002 as a result of changes to the business, particularly as a
result of fewer employees being focused on selling. NextLevel performed sales
activities for the Company starting in late August 2001 until the end of January
2002. From February 2002 sales and marketing activities were performed by CYOP.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll costs for the
Company's executive staff, accounting and administrative personnel, premises
costs for the Company's office, legal and professional fees, and other general
corporate and office expenses. General and administrative expenses decreased to
$112,000 for the first quarter of 2002, a reduction of 82% over costs of
$613,000 for the same period last year. General and administrative expenses
declined from the prior year as a result of changes to the business in late
2001, including moving the Company's offices from California to Vancouver, and
lower executive payroll. Company management also made greater efforts to control
operating costs in order to reduce administrative and other expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization includes depreciation on the Company's fixed
assets, as well as amortization of the Bingo.com domain name. The Company
capitalized the cost of the purchase of the domain name and is amortizing the
cost over five years from the date of commencement of operations. Fixed assets
are depreciated using the declining balance method over the useful
-37-
lives of the assets, ranging from three to five years. Depreciation and
amortization decreased to $152,000 during the quarter ended March 31, 2002, from
$171,000 during the same quarter in the prior year. The changes in depreciation
and amoritzation can be explained by the fact that the average age of the
Company's assets is older in fiscal 2002, resulting in a lower depreciation
base.
INTEREST EXPENSES
Interest expense consists of accrued interest on the convertible debentures and
other debt instruments, such as leases. Interest expense increased to $42,000
for the three months ended March 31, 2002 compared to $4,000 for the same period
in the prior year. The increase is attributable to interest on the debenture
drawdowns. The Company began drawing down the convertible debentures in April
2001, and interest began accruing at that time. There were no such debentures in
the prior year.
NET LOSS AND LOSS PER SHARE
Net loss for the three months ended March 31, 2002 amounted to $268,000, a loss
of $0.02 per share, compared to a loss of $762,000 or $0.08 per share for the
same period in 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company does not currently have an adequate source of reliable, long-term
revenue to fund operations. As a result, Bingo.com is reliant on outside sources
of capital funding. There can be no assurances that the Company will in the
future achieve a consistent and reliable revenue stream adequate to support
continued operations. In addition, there are no assurances that the Company will
be able to secure adequate sources of new capital funding, whether it be in the
form of share capital, debt, or other financing sources.
Bingo.com had cash and cash equivalents of $30,000 and a working capital deficit
of $1,046,000 at March 31, 2002. This compares to cash and cash equivalents of
$14,000 and a working capital deficit of $1,055,000 at December 31, 2001. The
Company continued to incur costs but did not secure adequate new revenue to
cover the costs; however, the Company's efforts to reduce operating costs and
improve the balance sheet are demonstrated in the improved working capital
position at March 31, 2002.
During the three months ended March 31, 2002, Bingo.com generated cash of $8,000
from operating activities compared to using cash of $204,000 in the same period
in the prior year. The significant improvement in cash flow from operating
activities in 2002 demonstrates the effectiveness of the Company's efforts to
reduce operating costs in late 2001 and in 2002.
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During the quarter ended March 31, 2002, Bingo.com received proceeds of $100,000
from the secured convertible debenture issued by the Company in April 2001. The
funds were used to fund working capital requirements and make payments on the
domain name contract payable. The debenture bears interest at a rate of 12% per
year and is due in April 2006. The Company has an additional $50,000 available
under its $1.25 million debenture facility.
RISK RELATED TO THE COMPANY'S BUSINESS
NEED FOR ADDITIONAL CAPITAL
The Company has recorded substantial operating losses and, as of March 31, 2002,
has an accumulated deficit of approximately $8,397,000. The Company does not
currently have adequate cash flow or existing revenue to provide operating
capital until December 31, 2002. The Company is currently looking for new
sources of revenue that it expects will help fund Bingo.com's business for the
remainder of fiscal 2002. There can be no assurances that this will be achieved.
HISTORY OF LARGE OPERATING LOSSES
Since inception, the Company has not had adequate revenue to support operations,
and has recognized substantially half of its revenues from barter transactions.
The Company has significantly reduced ongoing operating expenses. However, there
can be no assurance that the Company will achieve positive cash flow and
operating profitability.
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 as a result of this volatility. The
uncertainty that results from such volatility can itself depress the market
price of the Company's stock.
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DEPENDENCE UPON, AND RISKS RELATED TO, THE INTERNET
While management believes that acceptance and use of the Internet will continue
to increase at 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.
As of March 31, 2002, Bingo.com had not entered into or acquired financial
instruments that have material market risk. The Company has no financial
instruments for trading purposes, or derivative or other financial instruments
with off balance sheet risk. The majority of financial assets and liabilities
are due within the next twelve months and are classified as current assets or
liabilities in the consolidated balance sheet included in this report. The
exception is the secured convertible debenture. The fair value of the debenture
payable cannot be determined because the Company would not likely be able to
secure similar financing on similar terms at a market rate of interest, if at
all. As a result, the financial statement carrying amount of the debenture
payable at March 31, 2002 reflects the market value to the Company for the debt.
To March 31, 2002, substantially all revenues have been realized or incurred in
United States dollars while the majority of costs are incurred in Canadian
dollars. To date, the Company has not entered into foreign currency contracts to
hedge against foreign currency risks between the Canadian dollar or other
foreign currencies and our reporting currency, the United States dollar.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than described below, 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, 2002. Management of the Company is currently not aware of any
other 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.
On July 6, 2001, Roger W. Ach, II, filed a complaint in the Court of Common
Pleas, Hamilton County, Ohio against the Company in connection with a promissory
note issued by the Company. Mr. Ach alleges that on or about May 16, 2001 the
Company borrowed the sum of $45,000 and executed and delivered to him a
promissory note and that the Company owes him the amount of the Note together
with interest from March 16, 2001 at the rate of prime plus 1%. Mr. Ach demands
judgment against the Company in the sum of $45,000, plus interest and costs.
On October 5, 2001, the Company filed an Answer, Counterclaim and third party
complaint in defense of the proceedings commenced, among other things, denying
the allegation that any moneys are due to Mr. Ach and counterclaiming against
him and bringing a third party complaint against the Lottery Channel, Inc. for
payment of outstanding invoices of $39,168 plus interest, costs and attorney
fees.
The Company believes that Mr. Ach's complaint is without merit and intends to
vigorously defend these proceedings and believes it is not likely to produce an
outcome which would have a material adverse effect on the Company's consolidated
financial position or results of operations.
During the quarter ended March 31, 2002 the Company and Mr. Ach agreed to defer
the complaint and counterclaim for 90 days and are now in the process of
attempting to settle the matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
See Notes to Consolidated Financial Statements included elsewhere in this report
for a discussion of changes in securities and use of proceeds.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the shareholders during the period.
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ITEM 5. OTHER INFORMATION
NEW AGREEMENTS
The Company entered into the following agreements and arrangements during the
quarter ended March 31, 2002:
SITE MANAGEMENT, MARKETING AND INTERNET ADVERTISING SERVICES
During the quarter ended March 31, 2002 the Company began negotiating a
replacement to the site management, marketing and internet advertising services
agreement between Bingo.com and Nextlevel Inc, the details of which were
disclosed in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2001. The Company is negotiating with CYOP Systems
Inc. a Barbados incorporated company ("CYOP"), but, as of the date of this
report, has not executed a formal agreement. However, the Company and CYOP are
operating under the terms of a verbal arrangement that Bingo.com expects will be
substantially the same as the final written agreement.
Under the terms of the verbal arrangement in place as of the date of this
report, CYOP is providing Website management, marketing and Internet advertising
services for the Company in exchange for a commission equal to 50% of the
revenue generated by the Company's www.bingo.com Web portal. Although the
Company expects this arrangement to continue under the same or substantially
similar terms once a formal agreement is executed, there can be no assurances
that this will be the case. There is a risk that the terms of the final
agreement may be less favorable for the Company and the Company may be liable to
CYOP for higher fees.
CREDIPLAY SOFTWARE LICENSE AND SUPPORT AGREEMENT
As previously disclosed, effective September 1, 2001, the Company entered into
an agreement (the "Software Agreement") with CYOP, with respect to the grant of
a license for a software program known as CrediPlay.
Pursuant to the terms of the Software Agreement, the license fee payable to CYOP
was 25% of the Network Maintenance Fees derived from the Skill-Bingo game (as
defined in the agreement) by Bingo.com, with a minimum monthly fee payable to
CYOP of $60,000. The service fee payable to CYOP under the terms of the
agreement was 5% of Network Maintenance Fees received by Bingo.com from the
Skill-Bingo game, with a minimum monthly fee payable to CYOP of $18,000,
including all hosting duties.
During the quarter ended March 31, 2002 the Company came to a verbal arrangement
with CYOP whereby the minimum monthly license fee and the minimum monthly
service fee stipulations of the Software Agreement were removed effective
January 31, 2002. Under the terms of the verbal arrangement, the Company is
liable for fees totaling 30% of the Network Maintenance Fees generated by the
Skill-Bingo game from February 1, 2002. Although the Company expects a final
executed agreement to be under substantially the same or similar terms once it
is complete, there can be no assurances that this will be the case, and the
Company may be liable for higher license and service fees.
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MANAGEMENT CONSULTING AGREEMENT WITH T.M. WILLIAMS (ROW), LTD.
As previously disclosed, the Company entered into a management consulting
agreement with T.M. Williams (Row), Ltd., an Anguilla incorporated company and
Mr. Williams dated August 20, 2001 (the "Williams Agreement"), in connection
with the provision of services by Mr. Williams as President and Chief Executive
Officer of the Company.
The Williams Agreement was amended on February 28, 2002 such that the Company
will pay to T.M. Williams (Row) Ltd. 10% of the operating profit of the Company,
as defined in the amendment, to a maximum of $25,000 per month. There is no
minimum monthly fee stipulated in the Williams Agreement.
OTHER MATTERS
Subsequent to the quarter ended March 31, 2002, Jeremy Black, the Company's
Chief Financial Officer, resigned from Bingo.com to pursue other interests.
There were no disagreements between the Company and Mr. Black about financial
accounting or reporting matters. The Company is in discussions with a
replacement Chief Financial Officer, and expects to announce an appointment
soon.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following instruments are included as exhibits to this Report. Exhibits
incorporated by reference are so indicated.
EXHIBIT NUMBER DESCRIPTION
- --------------- ------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation of Progressive Lumber Corp. effective January 12, 1987. (a)
- --------------- ------------------------------------------------------------------------------------------------------
3.2 Articles of Amendment to Progressive Lumber Corp. filed on July 17, 1998. (a)
- --------------- ------------------------------------------------------------------------------------------------------
3.3 Articles of Amendment to Progressive Lumber Corp. effective January 22, 1999. (a)
- --------------- ------------------------------------------------------------------------------------------------------
3.4 Bylaws of Bingo.com, Inc., as amended at the Annual General Meeting of Stockholders held May 2001 (e)
- --------------- ------------------------------------------------------------------------------------------------------
4.1 $1,250,000.00 Secured Convertible Debenture between the Company, Redruth Ventures Inc, and Bingo
Inc. dated April 16, 2001. (d)
- --------------- ------------------------------------------------------------------------------------------------------
4.2 Common Stock Purchase Warrant between the Company and Redruth Ventures Inc. a British Virgin Islands
corporation dated April 16, 2001. (d)
- --------------- ------------------------------------------------------------------------------------------------------
4.3 Common Stock Purchase Warrant between the Company and Bingo, Inc. dated April 16, 2001.(d)
- --------------- ------------------------------------------------------------------------------------------------------
10.1 Form of Stock Subscription Agreement dated December 1998. (a)
- --------------- ------------------------------------------------------------------------------------------------------
10.2 Asset Purchase Agreement by and between Bingo, Inc. and Progressive Lumber, Corp. dated January 18,
1999. (a)
- --------------- ------------------------------------------------------------------------------------------------------
10.3 Escrow Agreement by and among Bingo.com, Inc., Bingo, Inc. and Clark, Wilson dated January 27, 1999.
(a)
- --------------- ------------------------------------------------------------------------------------------------------
10.4 Registrant Name Change Agreement by and among Network Solutions, Bingo, Inc. and Bingo.com, Inc.
dated January 1999. (a)
- --------------- ------------------------------------------------------------------------------------------------------
10.5 Lease Agreement by and between Harwood Corporation and Bingo.com (Canada) Enterprises Inc. & 559262
B.C. Ltd. commencing February 1, 1999. (b)
- --------------- ------------------------------------------------------------------------------------------------------
10.6 Development Agreement by and between Stratford Internet Technologies Inc. and Bingo.com, Inc. dated
February 17, 1999. (a)
- --------------- ------------------------------------------------------------------------------------------------------
10.7 Private Placement Subscription Agreement by and between Bingo.com, Inc and Dotcom Fund, S.A. dated
February 11, 1999. (a)
- --------------- ------------------------------------------------------------------------------------------------------
10.8 Share Purchase Warrant issued to Dotcom Fund, S.A. dated February 12, 1999. (a)
- --------------- ------------------------------------------------------------------------------------------------------
10.9 Application and Agreement for Merchant Services by and between State Communications Ltd. and Global
Payment Services dated April 21, 1999. (b)
- --------------- ------------------------------------------------------------------------------------------------------
10.10 Subscription Agreement by and between Bingo.com, Inc and Goldberg Equity Fund
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dated April 23, 1999. (a)
- --------------- ------------------------------------------------------------------------------------------------------
10.11 Share Purchase Warrant issued to Goldberg Equity Fund dated April 23, 1999. (a)
- --------------- ------------------------------------------------------------------------------------------------------
10.12 Declaration of Trust made by Douglas Albert Lorne McLeod dated May 1999. (a)
- --------------- ------------------------------------------------------------------------------------------------------
10.13 Employment Agreement by and between Bingo.com, Inc. and Shane Murphy dated June 17, 1999, effective
July 1, 1999. (b)
- --------------- ------------------------------------------------------------------------------------------------------
10.14 Agent Agreement by and between Bingo.com, Inc. and Access World, Inc. dated April 6, 1999. (b)
- --------------- ------------------------------------------------------------------------------------------------------
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- --------------- ------------------------------------------------------------------------------------------------------
10.15 Employment Agreement dated April 16, 2001, between the Company and Shane Murphy. (e)
- --------------- ------------------------------------------------------------------------------------------------------
10.16 Termination Agreement dated August 17, 2001, between the Company and Shane Murphy. (f)
- --------------- ------------------------------------------------------------------------------------------------------
10.17 Consulting Agreement dated August 20, 2001, between the Company T.M. Williams (Row), Ltd., and T.M.
Williams. (f)
- --------------- ------------------------------------------------------------------------------------------------------
10.18 Asset Purchase & Assignment Agreement dated September 18, 2001 between the Company and FYRC Inc. (g)
- --------------- ------------------------------------------------------------------------------------------------------
10.19 Website Hosting & Management Agreement dated September 1, 2001 between the Company and NextLevel.com
Inc. (g)
- --------------- ------------------------------------------------------------------------------------------------------
10.20 Agreement for Site Management, Marketing and Internet Advertising Services dated September 1, 2001
between the Company and NextLevel Inc. (g)
- --------------- ------------------------------------------------------------------------------------------------------
10.21 Software License, Technical Support, And Operation Of Customer Service & Data Centre Agreement dated
September 1, 2001 between Bingo.Com (Canada) Enterprises Inc., and CYOP Systems Inc. (g)
- --------------- ------------------------------------------------------------------------------------------------------
10.22 Software Development Agreement For Skill-Bingo dated May 1, 2001 between Bingo.Com (Canada)
Enterprises Inc., and Moshpit Entertainment Inc. (g)
- --------------- ------------------------------------------------------------------------------------------------------
10.23 Amended Consulting Agreement dated February 28, 2002, between the Company T.M. Williams (Row), Ltd.,
and T.M. Williams
- --------------- ------------------------------------------------------------------------------------------------------
- ----------------------------
(a) Previously filed with the Registrant's registration statement on Form 10 on
June 9, 1999.
(b) Previously filed with the Registrant's amended registration statement on
Form 10 on August 31, 1999.
(c) Previously filed with the Registrant's Schedule 14A Definitive Proxy
Statement on June 12, 2001.
(d) Previously filed with the Company's quarterly report on Form 10-Q for the
period ended March 31, 2001, on June 25, 2001.
(e) Previously filed with the Company's quarterly report on Form 10-Q for the
period ended June 30, 2001, on August 20, 2001.
(f) Previously filed with the Company's current report on Form 8-K reporting
events as at August 20, 2001, filed on August 27, 2001.
(g) Previously filed with the Company's quarterly report on Form 10-Q for the
period ended September 30, 2001, on November 14, 2001.
REPORTS ON FORM 8-K.
The Company did not file any Reports on Form 8-K during the quarter ended March
31, 2002.
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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: May 14, 2002 /S/ Tryon Williams
---------------------- -------------------------------------------
Tryon Williams, Chairman of the Board, Chief
Executive Officer, President and Secretary
(Principal Executive and Accounting Officer)
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