UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 30, 1999
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: 000-26319
Bingo.com, Inc.
(Exact name of registrant as specified in its charter)
Florida Not Applicable
- --------------------------------------- ------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
702-543 Granville Street
Vancouver, B.C. V6C 1X8
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 687-2000
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by section 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
9,916,668 shares of Common Stock, $0.001 par value,
outstanding as of November 10, 1999.
<PAGE>
BINGO.COM, INC.
FORM 10-Q
INDEX
<TABLE>
Page
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<S> <C>
PART 1 - FINANCIAL INFORMATION...........................................................................1
Item 1: Financial Statements............................................................................1
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations..........11
Item 3: Quantitative and Qualitative Disclosures About Market Risk.....................................16
PART II - OTHER INFORMATION.............................................................................17
Item 1. Legal Proceedings..............................................................................17
Item 2. Changes in Securities..........................................................................17
Item 3. Defaults Upon Senior Securities................................................................17
Item 4. Submission of Matters to a Vote of Security Holders............................................17
Item 5. Other Information..............................................................................17
Item 6. Exhibits and Reports on Form 8-K...............................................................18
</TABLE>
i
<PAGE>
PART 1 -- FINANCIAL INFORMATION
Item 1: Financial Statements
Bingo.com Inc.
( formerly Progressive General Lumber Corp )
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
<TABLE>
September 30, December 31,
1999 1998
(unaudited) (audited)
--------------- ---------------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents (Note 3) $ 3,834,922 $ 157,600
Accounts receivable (allowance - nil) 111,043 -
Prepaid expenses 63,074 -
Gaming licence (Note 5) 58,333 -
--------------- ---------------
4,067,372 157,600
--------------- ---------------
Equipment
Office and computer equipment 116,489 -
Gaming equipment 67,542 -
Software development equipment 75,006 -
Less: - accumulated depreciation (39,405) -
--------------- ---------------
219,632 -
--------------- ---------------
Other
Security deposits 72,583 -
Software development (Note 4) 205,468 -
Domain name rights (Note 6) 1,200,405 -
--------------- ---------------
1,478,456 -
Total assets $ 5,765,460 $ 157,600
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable $ 63,656 $ 159,404
Capital leases - current portion 14,918 -
Loan payable 50,000 -
--------------- ---------------
128,574 159,404
Capital leases 12,193 -
--------------- ---------------
140,767 159,404
--------------- ---------------
Stockholders' Equity
Common stock - $0.001 par value (1998 - $1.00 par value)
Authorized: 50,000,000 shares (1998 - 1,500,000)
Issued 9,916,668 shares (1998 - 1,000,000 shares) 9,917 1,000
Additional paid-in capital 7,060,957 4,000
Accumulated deficit (1,445,775) (6,804)
Cumulative translation adjustment (406) -
--------------- ---------------
5,624,693 (1,804)
=============== ===============
$ 5,765,460 $ 157,600
=============== ===============
</TABLE>
Commitments (Note 13)
Related Party Transactions (Note 11)
Subsequent Events (Note 12)
The accompanying notes are an integral part of these financial statements
1
<PAGE>
Bingo.com Inc.
(formerly Progressive General Lumber Corp)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the periods ended
(unaudited)
<TABLE>
Three months ended Nine months ended
September 30 September 30
---------------------------------- ----------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
Expenses
General and administrative 598,217 - 1,096,080 1,904
Marketing and advertising 93,694 - 351,341
---------------- ---------------- ---------------- ---------------
Operating loss (691,911) - (1,447,421) (1,904)
Other income (expense)
Depreciation (35,851) - (39,405) -
Net interest income 28,550 - 47,855 100
---------------- ---------------- ---------------- ---------------
Net loss $ (699,212) $ - $ (1,438,971) $ (1,804)
================ ================ ================ ===============
Basic and dilutive loss per share $ (0.07) $ - $ (0.16) $ -
Weighted average shares 9,916,668 1,000,000 9,062,882 1,000,000
---------------- ---------------- ---------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
Bingo.com Inc.
(formerly Progressive General Lumber Corp)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'EQUITY
(unaudited)
<TABLE>
Capital Stock
-----------------------------
Additional Cumulative
Paid in Translation Accumulated
Shares Amount Capital Adjustment Deficit Total
-------------- -------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995, 1996, $ 1,000,000 $ 1,000 $ 4000 $ (5,000) $ -
1997
Loss for the year (1,804) (1,804)
-------------- -------------- ------------- -------------- -------------- --------------
Balance, December 31, 1998 1,000,000 1,000 4,000 (6,804) (1,804)
January, 1999 Private placement 7,500,000 7,500 67,500 75,000
January, 1999 Domain name rights 500,000 500 999,500 1,000,000
February, 1999 Private placement 500,000 500 999,500 1,000,000
May, 1999 Private Placement 416,668 417 4,999,600 5,000,017
Share issuance costs (9,143) (9,143)
Loss for the period (1,438,971) (1,438,971)
Cumulative translation adjustment (406) (406)
-------------- -------------- ------------- -------------- -------------- --------------
$ 9,916,668 $ 9,917 $7,060,957 $ (406) $(1,445,775) $ 5,624,693
============== ============== ============= ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
Bingo.com Inc.
(formerly Progressive General Lumber Corp)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
nine months ended
<TABLE>
September 30, September 30,
1999 1998
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,438,971) $ -
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation 39,405 -
Change in operating assets and liabilities:
Accounts receivable (111,043) -
Prepaid expenses (63,074) -
Gaming licence (58,333) -
Accounts payable (95,748) -
Capital leases - current portion 14,918 -
Loan payable 50,000 -
---------------- ---------------
Net cash ( used ) provided by operating activities (1,662,846) -
---------------- ---------------
Cash flows from investing activities:
Equipment purchases (259,037) -
Security deposits (72,583) -
Software development (205,468) -
Domain name rights (200,405) -
---------------- ---------------
Net cash used in investing activities (737,493) -
Cash flows from financing activities:
Capital leases 12,193 -
Proceeds from issuance of common stock 6,075,017
Share issuance costs (9,143) -
---------------- ---------------
Net cash provided by financing activities 6,078,067 -
---------------- ---------------
Net increase in cash and cash equivalents 3,677,728 -
Effect of exchange rates on cash and cash equivalents (406)
Cash and cash equivalents at beginning of period 157,600 -
Cash and cash equivalents at end of period $ 3,834,922 $ -
================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,824 $ -
Non cash investing and financing activities:
Issuance of common stock for domain name rights $ 1,000,000 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
BINGO.COM, INC.
(Formerly Progressive General Lumber Corp.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
September 30, 1999
- --------------------------------------------------------------------------------
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. The Company currently has no
operations and, in accordance with SFAS #7, is considered a development
stage company. On January 22, 1999, the Company changed its name to
Bingo.com, Inc.
These financial statements have been prepared on the basis that the company
will continue as a going concern. The Company has incurred operating losses
since its incorporation and will likely continue to do so into the near
future. Ongoing operating losses and significant acquisitions, if any, will
likely require additional equity financing. There can be no assurances that
when additional funds are required, if any, would be available to the
Company when required or on terms acceptable to the Company. Such
limitations could have a material adverse effect on the Company's business,
financial condition or operations and these financial statements do not
include any adjustment that could result therefrom.
On July 17, 1998, the State of Florida approved the Company's restated
Articles of Incorporation, which increased its capitalization 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 stock shares from 5,000 shares
to 1,000,000 shares. All common shares and per share data have been
retroactively adjusted to reflect these stock splits.
The accompanying consolidated financial statements are unaudited, but in
the opinion of management, contain all adjustments necessary (consisting
only of normal recurring accruals) to present fairly the financial
information contained therein. These statements do not include all
disclosures required by generally accepted accounting principles and should
be read in conjunction with the audited financial statements of the Company
for the year ended December 31, 1998 and the Company's Form 10 Registration
Statement. The results of operations for the nine months ended September
30, 1999 are not necessarily indicative of the results to be expected for
the full fiscal year ending December 31, 1999.
2. 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)
Enterprises Inc., Bingo.com (Antigua) Inc. and Bingo.com (Wyoming) Inc. All
intercompany balances and transactions have been eliminated upon
consolidation.
Foreign Currency Translation
The Company accounts for foreign currency transactions and translation of
foreign currency financial statements under Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52").
Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transactions dates. Carrying values of
monetary assets and liabilities are translated at the exchange rate at that
date. Non monetary assets and liabilities are translated at the exchange
rate on the original transaction date. Gains and losses from restatement of
foreign currency monetary and non-monetary assets and liabilities are
included in income. Revenues and expenses are translated at the rates of
exchange prevailing on the dates such items are recognized in earnings.
5
<PAGE>
BINGO.COM, INC.
(Formerly Progressive General Lumber Corp.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
September 30, 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Financial statements of the Company's Canadian subsidiary, Bingo.com
(Canada) Enterprises Inc. are translated into U.S. dollars using the
exchange rate at the balance sheet date for assets and liabilities. The
functional currency of Bingo.com (Canada) Enterprises, Inc. is the local
currency, the Canadian dollar. Financial statements of the Company's
Antigua subsidiary are translated into U.S. dollars using a fixed exchange
rate. The functional currency of Bingo.com (Antigua), Inc. is the local
currency, the EC, which is fixed at a rate of 2.67. Translation
adjustments, if necessary, are recorded as a separate component of
Stockholders' Equity.
Stock-based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee is required to
pay for the stock.
Taxes on Income
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events
other than enactments of changes in the tax laws or rates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the year. Actual results could differ from these estimates.
Loss Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128).
Under SFAS 128, basic and diluted earnings per share are to be presented.
Basic earnings per share are computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding in the period. Diluted earnings per share takes into
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares.
6
<PAGE>
BINGO.COM, INC.
(Formerly Progressive General Lumber Corp.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
September 30, 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting standards
("SFAS") No. 130, "Reporting Comprehensive Income". This statement
establishes rules for the reporting of comprehensive income and its
components.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
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 of three years.
Domain Name
The Company has capitalized the cost of the purchase of the domain name
Bingo.com and will amortize the cost over 10 years from the date of
commencement of operations.
Capital Assets
Capital assets will be recorded at cost less accumulated amortization.
Amortization will be provided for annually using the declining balance
method at the following rates:
Office & Equipment 20%
Computer Equipment 30%
Gaming Equipment 30%
Software Development Equipment 30%
Revenue Recognition
The Company will be recognizing revenues as follows:
a) Bingo gaming - as cash is received
b) Banner advertising - revenue is recognized equal to the cash to
be received from banner advertisement, when the buyer has made an
unconditional commitment to pay and the earnings process has been
completed by the rendering of the required services.
7
<PAGE>
BINGO.COM, INC.
(Formerly Progressive General Lumber Corp.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
September 30, 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Advertising Costs
The Company recognizes advertising expenses in accordance with Statement of
Position 98-7, "Reporting on Advertising Costs". As such, the Company
expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used.
3. CASH AND CASH EQUIVALENTS
An amount of $22,352 represents a pledge collateral for a corporate credit
card.
4. SOFTWARE DEVELOPMENT COSTS
Software development costs represent amounts incurred to develop the
Company's portal website and the Company gaming software.
5. GAMING LICENSE
The company's gaming license represents an annual cost of securing and
maintaining a license to operate on online internet bingo in the country of
Antigua. The cost is amortized over 12 months commencing May 1999.
6. DOMAIN NAME RIGHTS
An agreement to purchase the right to use the domain name Bingo.com was
acquired as follows:
- $200,000 cash (paid)
- $500,000 common shares (issued) at a deemed price of $2.00 per
share
In addition, the Company is required to pay quarterly royalties of 4% of
gross revenues with a minimum guarantee of $1,100,000.
---------------------------------------------------------------------------
Domain Name 1999 1998
---------------------------------------------------------------------------
Bingo.com 1,200,000 -
Other 405 -
$1,200,405 -
---------------------------------------------------------------------------
8
<PAGE>
BINGO.COM, INC.
(Formerly Progressive General Lumber Corp.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
September 30, 1999
- --------------------------------------------------------------------------------
7. CAPITAL STOCK
a) In January 1999, the Company issued 7,500,000 shares under a private
placement for $0.01 per share, for total proceeds of $75,000.
b) In February 1999, the Company issued 500,000 units of a private
placement consisting of one common share and one share purchase
warrant for $2.00 per unit for total proceeds of $1,000,000. Each
share purchase warrant entitles the holder to acquire one additional
common share at $2.00 per share until February 11, 2000.
c) In March 1999, the Company issued 416,668 units of a private placement
consisting of one share and one share purchase warrant for $12.00 per
unit for total proceeds of $5,000,017. Each share purchase warrant
entitles the holder to acquire one additional common share at $12.00
per share until April 22, 2000 and at $15.00 per share until April 22,
2001.
8. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO OPERATION, FINANCING AND INVESTING
ACTIVITIES
The Company issued 500,000 common shares at a deemed price of $2.00 for the
purchase of a domain name (Note 6).
9. INCOME TAXES
Subject to certain restrictions, the Company has certain operating losses
available to reduce taxable income of future years. Future tax benefits
which may arise as a result of these losses and resource deductions have
not been recognized in these financial statements.
The Company has not recorded potential future income tax benefits of $6,804
in operating losses, which expire as follows:
2003 - $5,000
2008 - $1,804
------
$6,804
10. COMPREHENSIVE INCOME
Total comprehensive loss for the year ended December 31, 1998 and the
nine-month period ended September 30, 1999 was $(1,804) and $(1,438,971),
respectively. The only item included in other comprehensive loss is foreign
currency translation adjustments in the amounts of $NIL for the year ended
December 31, 1998 and $406 for the nine month period ending September 30,
1999.
9
<PAGE>
BINGO.COM, INC.
(Formerly Progressive General Lumber Corp.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
September 30, 1999
- --------------------------------------------------------------------------------
11. RELATED PARTY TRANSACTIONS
The Company entered into an employment agreement with Shane Murphy, the
Company's President, Chief Executive Officer, Secretary and Treasurer and
sole Director, effective July 1, 1999. The initial term of the agreement is
three years at a salary rate of $250,000 (Canadian Dollars) or
approximately $167,000 (U.S. Dollars) per year. The Company also granted
Mr. Murphy options to acquire 600,000 shares of the Company's common stock
at a price of $4.75 per share, subject to vesting provisions. In the event
of termination of Mr. Murphy's employment, Mr. Mr. Murphy is entitled to
certain compensation if the contract is terminated prematurely.
The Company provided an interest free loan to Shane Murphy of $70,000. The
loan is repayable over 12 months by 24 semi-monthly installments.
12. SUBSEQUENT EVENT
The Company has entered into an agreement in principle, to license it's
gaming software to an unrelated party (the "Licensee"). The Licensee will
receive a perpetual, non-exclusive, non-transferable right to use the
Company's gaming software in jurisdictions where on line gaming is
permitted by law. On closing, the Licensee will pay the Company $100,000
and ongoing monthly royalties of 50% of Net Monthly Revenues. Net Monthly
Revenue is defined as gross gaming receipts net of winnings, less a maximum
of 5% for credit card processing fees and certain other operating expenses.
The Company anticipates completing the agreement in the fourth quarter.
The Company's Board of Directors has agreed in principle to re-price the
share options granted to Shane Murphy to reflect the current market price.
It is anticipated that the strike price will be adjusted to reflect the
average of the closing price of the Company's common shares over a 10 day
period, yet to be fixed.
13. COMMITMENT
The Company has entered into an agreement and amendments thereto with an
unrelated party to develop the Company's portal website. The Company has
agreed to issue 125,000 common shares in return for the completion of the
project.
10
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Report contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934, as amended. Any statements that express or
involve discussions with respect to predictions, expectations, beliefs, plans,
objectives, assumptions or future events or performance (often, but not always,
using words and phrases such as "expects," "believe," "believes," "plans,"
"anticipate," "anticipates," "is anticipated," or stating that certain actions,
events or results "will," "may," "should," or "can" be taken, occur or be
achieved) are not statements of historical fact and may be "forward-looking
statements." Forward-looking statements are based on expectations, estimates and
projections at the time the statements are made that involve a number of risks
and uncertainties which could cause actual results or events to differ
materially from those anticipated by us. Such factors include, but are not
limited to the following: our limited operating history; history of losses;
risks involving new product development; competition; management of growth and
integration; risks of technological change; our dependence on key personnel,
marketing relationships with third party suppliers; our ability to protect our
intellectual property rights; government regulation of Internet commerce and the
gaming and software industry; economic and political factors; dependence on
continued growth in use of the Internet; risk of technological change; capacity
and systems disruptions; liability for Internet content; uncertainty regarding
infringing intellectual property rights of others; security risks; year 2000
compliance risks and other risks and uncertainties discussed herein and those
detailed in our other Securities and Exchange Commission filings, including our
registration statement on Form 10 filed on August 31, 1999. Investors are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis as of the date hereof. We undertake no obligation
to publicly release the results of any revision to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
General
We currently operate an on-line bingo game and are in the process of developing
an Internet web site focused on worldwide entertainment and lifestyle
interests. We are a development stage company and currently do not generate any
net revenues from our operations.
We were incorporated in the state of Florida on January 12, 1987 under the name
"Progressive Lumber Corp." with an authorized amount of 7,500 shares of common
stock at a $1.00 par value per share. On July 17, 1998, we increase our
authorized capital stock to 50 million common shares with $0.001 par value and
concurrently split the existing issued shares on a 200 for 1 basis. On January
13, 1999, we changed our name to Bingo.com, Inc.
We currently have 3 subsidiaries: Bingo.com (Canada) Enterprises, Inc., a
British Columbia corporation; Bingo.com (Antigua), Inc., an Antigua
International Business Corporation, and Bingo.com (Wyoming), Inc., a Wyoming
corporation.
11
<PAGE>
o Bingo.com (Canada) currently serves as the operating company for our
web site and technology development business. We and Bingo.com
(Canada) share our corporate office located at 702 - 543 Granville
Street, Vancouver, BC, V6C 1X8.
o Bingo.com (Antigua) serves as the operating company for our online
gaming business. Bingo.com (Antigua)'s shares are held in trust for us
by three shareholders.
o Bingo.com (Wyoming), Inc. was incorporated to effect a reorganization
of our corporation, under which we planned to continue our corporation
into Antigua and to become an Antigua International Business
Corporation. We have not taken any additional steps to complete the
reorganization. Our management is in the process of re-evaluating the
merits of completing the reorganization and anticipates it will reach
a decision with respect to the reorganization in the next four to six
months.
We did not commence substantive operations until the first quarter of 1999.
During the first three quarters of 1999, we dedicated a significant amount of
our resources to developing the technology to launch our web site and Bingo.com
(Antigua)'s on-line bingo game. In July 1999, our management made a policy
decision that Bingo.com (Antigua) would not accept monetary wagering in
jurisdictions that prohibited online gaming. Bingo.com (Antigua) developed a
blocking strategy to prevent persons in North America from placing wagers its
on-line bingo game. Management adopted the blocking policy in response to
proposed on-line gambling legislation and concerns related to potential adverse
consequences to the company and its shareholders created by the legal
uncertainty of accepting wagers in North America. As part of this decision, our
management determined that it would develop contest or prize based games for the
North American markets.
In late August, Bingo.com (Antigua) began accepting gaming bets from
jurisdictions outside North America and implemented an online banner advertising
program in September 1999. Bingo.com (Antigua)'s on-line bingo game has not
generated any net revenues during the quarter ended September 30, 1999, and
management does not anticipate Bingo.com (Antigua)'s on-line bingo game will
generate any significant revenues during the quarter ending December 31, 1999.
Our decision to block wagers originating in North America and other
jurisdictions that prohibit on-line gaming creates uncertainties with respect to
our ability to generate revenues and/or profits. Regional preferences in gaming
entertainment may limit the appeal of our on-line bingo game to potential users
in markets outside North America. We have focused our recent business
development efforts on other potential revenue generating opportunities,
including developing online games for entertainment that are designed to attract
visitors to our web site and licensing on-line bingo gaming software.
During the quarter, we hired employees and consultants with experience in the
online entertainment industry to assist us in developing "Play-4-Free"
bingo-based games for the North American market. Based on our research, we
believe that entertainment and game-based sites have become increasingly popular
and have growth and revenue opportunity potential. We intend to develop our
Internet presence by offering visitors an opportunity to play our Play-4-Free
games and other games for the chance to win a variety of gifts and prizes. Our
objective is to become a center for online bingo related entertainment and to
increase our site's popularity.
12
<PAGE>
We intend to seek to generate revenues by through selling advertising on our web
site and entering into arrangements with sponsors to post links to their web
sites and promotional campaigns on Bingo.com for fees. In order to accomplish
this goal, our games must attach a sufficient number of visitors and
participants to our web site. In the future, we may also establish affiliate
relationships with other entities in the entertainment industry to direct
traffic to our web site.
We are in the process of developing our Play-4-Free games and anticipate that
these games will be ready for release prior to December 31, 1999. We believe
that Play-4-Free games will allow us to attract visitors to our web site and
allow us to generate revenues from selling banner advertisements and
sponsorships. However, we cannot assure you that we will successfully compete
development of these games or that these games will appeal to players or
increase traffic to our web site or that we will generate material revenues from
the sale of banner advertisement or sponsorship.
We are also actively evaluating strategies to increase interest in Bingo.com
(Antigua)'s on-line bingo game and other revenue opportunities, such as
licensing Bingo.com (Antigua)'s on-line bingo game software. We are currently in
the process of entering into our first licensing agreement (subject to
completion of a written agreement), as more fully described in Note 12 to the
Financial Statements, to diversify our revenue base. In the future, we may enter
into additional licensing agreements with third-parties to generate revenues. We
anticipate that licensees of our on-line gaming software will be required to
block North American wagers. We cannot guarantee that we will generate any
significant revenues from licensing Bingo.com (Antigua)'s on-line bingo game
software or that such licensees, if any, will be successful in launching and
operating an on-line bingo gaming web site.
Our limited history and the early stage of development makes it difficult or
impossible to predict our future results. We believe that our prospects should
be considered in light of the risks and difficulties encountered by development
stage companies. We may not be successful in addressing these risks and
difficulties.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
During the three months ended September 30, 1999, launched our web site,
completed the initial development of our on-line bingo game software and
assisted Bingo.com (Antigua) in the launch of its on-line bingo game. In 1998,
we had no active business operations, material transactions or operating
results. As a result, we believe that a comparison of our results for the three
months ended September 30, 1999 to the same period in 1998 is not meaningful.
We had total expenses of $691,911 for the three months ended September 30, 1999,
of which $598,217 was for general and administrative expenses associated with
the start up costs related to our operations. General and administrative
expenses consist primarily of payroll expenses and consultant fees for our
executive staff, accounting and administrative personnel, lease expenses, legal
and professional fees, insurance and other general corporate and office
expenses.
13
<PAGE>
We had marketing and advertising of $93,694 for three months ended September 30,
1999, related to promotion of the launch of Bingo.com (Antigua)'s on-line bingo
game.
We had a net loss of $699,212 or $0.07 per share for the three months ended
September 30, 1999. We expect similar or greater losses into the foreseeable
future as we continue to develop our web site 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 the success of our licensees.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
During the nine months ended September 30, 1999, we implemented the initial
strategies of our business plan, including launching our web site, completing
the initial development of our on-line bingo game software and assisting
Bingo.com (Antigua) in launching its on-line bingo game. In 1998, we had no
active business operations, material transactions or operating results. As a
result, we believe that a comparison of our results for the nine months ended
September 30, 1999 to the same period in 1998 is not meaningful.
Total assets increased from $5,765,460 as of September 30, 1999 compared to
$157,600 at the beginning of the fiscal year. The primary source of this
increase was $7,055,957 raised through the issuance of common stock. We invested
$180,227 in office and computer equipment including software development
equipment. We also invested $205,468 in both gaming software and the North
American contest version of our on-line bingo game. We also acquired our domain
name, Bingo.com, during 1999 for $200,000 in cash and 500,000 shares of our
common stock, which was valued at $2.00 per share. We purchased $54,170 of
capital equipment through long term capital leases over terms ranging from 24 to
60 months. Our working capital position increased by $3,940,602 from a deficit
of $1,804, primarily due to financing activities during 1999, as previously
noted.
We had total expenses of $1,447,421 for the nine months ended September 30,
1999, of which $1,090,080 was for general and administrative expenses associated
with the start up costs related to our operations. General and administrative
expenses consist primarily of payroll expenses and consultant fees for our
executive staff, accounting and administrative personnel, lease expenses, legal
and professional fees, insurance and other general corporate and office
expenses.
We had marketing and advertising of $351,341 for nine months ended September 30,
1999, of which we spent $184,183 on advertising our web site and for banner
advertising to promote the launch of Bingo.com (Antigua)'s on-line bingo game.
The balance of marketing and advertising expenses consisted of payroll expenses
and consultant fees, travel and office expenses.
We had a net loss of $1,438,971 or $0.16 per share for the nine months ended
September 30, 1999. We expect similar or greater losses into the foreseeable
future as we continue to develop our web site 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 the success of our licensees.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We raised an aggregate of $6,075,017 in capital through private placements
during 1999 to finance our operations. We have not generated any net revenue
from our business operations.
As of September 30, 1999, we had cash and cash equivalents of $3,834,992
compared to $157,600 at the beginning of the year. Our working capital position
at September 30, 1999 was $3,938,798. We used $1,662,846 for operating
activities during the nine months ended September 30, 1999 and $737,493 for
investing activities. Our investing activities included $259,037 for the
purchase of office, computer and software development equipment, $72,583 for
long term security deposits to secure our office and capital leases, $205,468
for gaming and entertainment software development and $200,405 as partial
consideration for our domain name.
Other than cash and cash equivalents, we have no other sources of liquidity, and
we do not anticipate generating cash from our operations in the near future. We
currently project that available cash balances will be sufficient to fund our
operations for the next 4 to 6 months. We are currently seeking additional
equity financing to implement planned investments in advertising, software
development and personnel, to open an office in the U.S. and to preserve our
working capital. We have not made a final determination regarding the terms and
conditions of an equity placement, nor can we provide any assurance that such
financing will be available on acceptable terms, if at all. Our inability to
raise additional financing would have a material adverse effect on our business
and on our operations.
YEAR 2000 COMPLIANCE
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century (i.e. December 31, 1999 would appear as 12/31/99), assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming will default to 01/01/1900 instead of 01/01/2000 and
calculations using or reporting the date will not be correct and errors will
arise (the "Year 2000 Issue"). To prevent this from occurring, information
systems need to be updated to ensure they recognize dates during and after the
Year 2000.
The potential exists that we and each of our subsidiaries are exposed to a risk
that certain aspects of their businesses will fail or suffer impairment as a
result of internally operated or externally contracted hardware or software
systems and services not being able to correctly "rollover" dates to the new
century.
The risk stems from or reliance on certain hardware, software and services to
carry out the daily operation of our proposed respective businesses. The
exposure may result from, amongst other things, the use of computers, general
software and servers for office purposes and data storage; connections to and
use of the services of Internet Service Providers and telephone companies for
office purposes and customer and investor relations; the software underlying the
operation of the web site and the online bingo gaming operation; and the servers
that 'play and distribute' the online bingo game.
We and our subsidiaries have only been operating and developing our respective
businesses during the last 9 months and the office hardware, administrative
general software, custom developed special purpose software, servers and
services of Internet Service Providers and telephone companies have been
acquired during this period. As a result, and in consultation with the suppliers
of this hardware, software and services, we believe the related systems that we
intend, directly or indirectly, to use in our respective businesses are Year
2000 compliant. Our due diligence also included an evaluation of supplier
provided technology and the implementation of new policies to require our
suppliers to confirm that they have disclosed and will correct Year 2000
compliance issues. Although we are relying primarily on systems developed with
current technology and on systems designed to be Year 2000 compliant, we may
have to replace, upgrade or reprogram certain systems to ensure that all
interfacing technology will be Year 2000 compliant when running jointly.
15
<PAGE>
In the event that we incur expenses associated with resolving Year 2000
compliance issues, we intend to expense the operating costs as they are incurred
and capitalize the capital costs as they are incurred. However, our purchases of
hardware and general and specific purpose software have been relatively recent,
and the more expensive of the hardware and general and specific software items
that we have purchased are covered under warranties that will extend over the
rollover period to January 1, 2000. As a result, we do not expect to incur any
major operating or capital expenditures that would have a material impact on our
financial condition or results of operations.
While we believe that our hardware and general and specific purpose software
applications will be Year 2000 compliant, there can be no assurance until the
Year 2000 occurs, that all systems will function adequately.
We do not currently anticipate any disruption in our or our subsidiaries'
operations as the result of the Year 2000 issue. We do not have any information
concerning the Year 2000 compliance status of our suppliers and customers that
would affect our operations. Any failure of our material systems, our vendors'
material systems or the Internet to be Year 2000 compliant may have a material
adverse effect on our business and results of operations.
In order to protect against the possibility of any material disruption in our or
our subsidiaries' operations as the result of the Year 2000 issue, we have taken
the following precautions:
- developed, initiated and maintained procedures that ensure that the
information stored on the office computer hard drives are backed up on
a regular basis and stored safely
- copies of the source code for the special purpose software are
maintained in secure offsite locations by the developers of the
software
- implemented a policy of acquiring name brand hardware and retained
experienced consultants, upon whose warranties we believe that we can
rely.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Our financial results are quantified in U.S. dollars and a majority of our
obligations and expenditures with respect to our operations are incurred in U.S.
dollars. We anticipate that a significant portion of our revenues will be
derived from the business operations of our wholly-owned subsidiaries, Bingo.com
(Canada), whose primary business operations are conducted in British Columbia,
Canada which conducts its business in Canadian dollars and Bingo.com (Antigua),
which conducts its business in U.S. dollars and its local currency, the EC.
Although we do not believe we currently have any materially significant market
risks relating to our operations resulting from foreign exchange rates, if we
enter into financing or other business arrangements denominated in currency
other than the U.S. dollar, variations in the exchange rate may give rise to
foreign exchange gains or losses that may be significant.
We currently have no material long-term debt obligations. We do not use
financial instruments for trading purposes and we are not a party to any
leverage derivatives. In the event we experience substantial growth in the
future, our business and results of operations may be materially effected by
changes in interest rates and certain other credit risk associated with its
operations.
16
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
On July 28, 1999, we were advised by legal counsel for Pan Pacific
Communications, an advisor to Bingo.com, Inc., that we allegedly breached an
agreement between us and Pan Pacific Communications. Pan Pacific Communications
demanded payment, on or before August 5, 1999, in the amount of $34,820, the
alleged balance owed by us to Pan Pacific Communications, and informed us that
they would commence legal seeking the damages with interest and costs. We
believe the claim is without merit and intend to vigorously defend against any
action brought by Pan Pacific Communications. As of November 10, 1999, we not
aware that any legal action been commenced against us.
To the best of our knowledge, we are not subject to any other active or pending
legal proceedings or claims against us or any of our properties. However, from
time to time, we may become subject to claims and litigation generally
associated with any business venture.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter
covered by this report.
Item 5. Other Information.
Issuance of Common Shares
We did not issue any shares of common stock during the third quarter ended
September 30, 1999.
Stock Options Granted
On September 1, 1999, we approved of the implementation of a Non-Qualified Stock
Option Plan which authorizes the granting of options to acquire up to a maximum
of 1,895,000 common shares of our Company to persons employed or associated with
our Company including without limitation, any employee, director, general
partner, officer, attorney, accountant, consultant or advisor. The Stock Option
Plan is intended to advance the best interests of our Company, providing
additional incentive to those persons who have a substantial responsibility for
its management, affairs and growth by increasing their proprietary interest in
our success, thereby encouraging them to maintain their relationships with our
Company. Further, the availability and offering of Stock Options under the Plan
supports and increases our ability to attract, engage and retain individuals of
exceptional talent upon whom, in large measure, the sustained progress,
17
<PAGE>
growth and profitability of our Company for the shareholders depends. Because we
conduct our operations in British Columbia, Canada, options granted to persons
other than employees are limited to 2% of the aggregate of our issued common
stock.
During the quarter ended September 30, 1999, we issued options under our 1999
Stock Option Plan to Shane Murphy, our CEO and Director. Options to acquire
300,000 shares vest over two years at a rate of 1/24th monthly, beginning July
1, 1999. Options to acquire the balance of 300,000 shares vest on the following
basis:
1. 1/3 following the day the market price of the shares exceeds $20 per
share
2. 1/3 following the day the market price of the shares exceeds $30 per
share
3. 1/3 following the day the market price of the shares exceeds $40 per
share
The exercise price is $4.75 per share for all of the options.
We also granted options to purchase 100,000 shares of our stock to Chris
Sargent, Vice President, Investor Relations. The options expired 30 days
subsequent to his resignation.
All of the options were issued under Section 4 (2) of the 1933 Securities Act.
None of the options were exercised during the quarter ended September 30, 1999.
On November 10, 1999, our Board of Directors approved in principle the
re-pricing of stock options granted to Shane Murphy, our CEO and sole director.
The strike price of the options will be adjusted on a date yet to be determined,
to reflect the current market value of our common stock, and will be based on
the 10 day closing average immediately following the date of re-pricing. We will
account for the re-pricing of these options in accordance with our existing
accounting policies described in Note 2 hereto, and in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Certain Transactions
involving Stock Compensation". The re-pricing is subject to ratification at our
next annual meeting of Stock Holders.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q, period ending September 30, 1999 to
be signed on its behalf by the undersigned duly authorized.
Bingo.com, Inc.
November 15, 1999 /s/ Shane Murphy
- ----------------- ----------------------------------------------
(Date) Shane Murphy, Chief Executive Officer
November 15, 1999 /s/ Shane Murphy
- ----------------- ----------------------------------------------
(Date) Shane Murphy, Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description
- -------------- -----------
27.1 Financial Data Schedule
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,834,922
<SECURITIES> 0
<RECEIVABLES> 111,043
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,067,372
<PP&E> 0
<DEPRECIATION> 39,405
<TOTAL-ASSETS> 5,765,460
<CURRENT-LIABILITIES> 128,574
<BONDS> 0
0
0
<COMMON> 9,917
<OTHER-SE> 7,060,957
<TOTAL-LIABILITY-AND-EQUITY> 5,765,460
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 691,911
<OTHER-EXPENSES> 35,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (699,212)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (699,212)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
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