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| BNGOF.OB > SEC Filings for BNGOF.OB > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
The following Management's Discussion and Analysis or Plan of Operation contains forward-looking statements that involve risks and uncertainties, as described below. Bingo.com, Ltd.'s (the "Company", "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 the Management Discussion and Analysis or plan of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
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. Particular attention should be paid to the facts of our limited operating history, the unpredictability of our future revenues, our need for and the availability of capital resources, the evolving nature of our business model, and the risks associated with systems development, management of growth and business expansion. Except as required by law, we undertake 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. Readers should consider the risks more fully described in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission (the "SEC") and should not place undue reliance on any forward-looking statements.
OVERVIEW
We are in the business of developing and operating a bingo based web portal designed to provide a variety of Internet based games played by individuals plus other forms of entertainment, including an online community, chat rooms, contests, sweepstakes, tournaments, and more. Using our bingo.com domain name and incorporating a variety of games and content to attract and retain a large number of subscribers, we have built one of the leading bingo-based portals on the Internet. Our website has attracted millions of visitors of which over 1,950,000 have gone through a detailed sign-up process and become registered users. The levels of Internet traffic have a direct impact on our revenues as, generally, the greater the Internet traffic, the greater the amount of gaming or advertising revenue received.
We generate revenue from players depositing funds into their account on our website and then playing games for money. An additional source of revenue comes from selling advertising on our portal to other companies who wish to advertise their products to our user demographic. We obtained a gaming license and commenced gaming operations from Curacao, Netherlands Antilles in May 2005. During the quarter ended March 31, 2009, the Company was granted a Letter of Intent by the Lotteries and Gaming Authority of Malta, and commenced operating under this Maltese license. This Letter of Intent enables us to advertise in the United Kingdom.
Our website provides players the ability to purchase bingo cards online for cash, with the winner of each bingo game winning a percentage of the total cards purchased for that particular bingo game. In addition, we provide entertainment content to our players in the form of either free-to-play, or pay-to play multiplayer theme bingo games, such as Diamond Daubers, Sunset Hangout, and the like, as well as online sweepstakes and slot machines. We also offer our players other forms of entertainment such as chat rooms and member profiles.
We intend to continue to build on the success of the existing business by offering a greater depth and variety of content that we expect will hold existing subscribers as well as attract new subscribers and allow us to generate more revenue.
We have made a significant investment in the development of our website, purchase of domain name, branding, marketing, and maintaining operations. As a result we have incurred significant losses since inception, and as of June 30, 2009, had an accumulated deficit of $12,774,226.
On September 30, 2006, the United States Senate passed the Unlawful Internet Gambling Enforcement Act 2006 ("UIGEA"), which was signed into law by President Bush, on October 13, 2006. The legislation aimed to prohibit the funding of illegal online gambling to United States citizens and residents. Effective October 12, 2006, in response to the UIGEA we sold our United States player database and related assets to an unrelated company. The asset disposition includes the registered online gaming players, the gaming servers, and the complete database of real money players. The asset disposition price is $1,200,050 payable at a variable rate over the coming months.
During the quarter ended June 30, 2007, we launched our United Kingdom focused website, with games targeted to the United Kingdom audience and the games played in British pounds sterling. Gaming revenue from the Bingo.com website accounted for approximately 97% of our revenue for the quarter ended June 30, 2009. Moving forward we will focus our marketing on attracting additional players from the United Kingdom and other jurisdictions where Internet gambling is regulated and considered legal. In addition we will be launching in various languages and currencies.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which except for lack of all detailed note disclosures, have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to impairment or disposal of long-lived assets, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We consider the following accounting policies to be both those most important to the portrayal of our financial condition and require the most subjective judgment:
- Revenue recognition;
- Impairment of long-lived assets and long-lived assets to be disposed of;
Revenue recognition:
The Company generates the majority of its revenue from gaming revenue. Gaming revenues have been recognized on the basis of total dollars wagered, including bonus wagered, on all games less all winnings payable to players.
Advertising revenues have been recognized as the advertising campaign or impressions and clicks are made on the website and when collection of the amounts are reasonably assured. Cash received in advance of the advertising campaigns or impressions and clicks are recorded under unearned revenue.
Impairment of long-lived assets and long-lived assets to be disposed of:
The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" and SFAS No. 142 "Accounting for Goodwill and Other Intangible Assets". As of June 30, 2009, the only long-lived assets reported on the Company's consolidated balance sheet are equipment, intangible assets and domain name rights. These provisions require that long-lived assets and certain identifiable recorded intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount and the fair value less costs to sell.
RESULTS OF OPERATIONS
Total revenue increased to $1,512,116 for the quarter ended June 30, 2009, an increase of 7% from revenue of $1,415,858 for second quarter of 2008 and an increase of 14% from revenue of $1,324,630 in the first quarter of 2009. Gaming Revenue increased to $1,460,149 in the quarter ended June 30, 2009, an increase of 9%, compared to Gaming Revenue of $1,337,441 in the second quarter of 2008 and an increase of 14% from revenue of $1,284,732 in the first quarter of 2009. When measured in Pounds Sterling, presently our depositing currency, the gaming operations provided revenue of Pounds Sterling 957,040, an increase of 41% from gaming revenue of Pounds Sterling 678,108 for the second quarter of the prior year and an increase of 7% from gaming revenue of Pounds Sterling 894,738 in the first quarter of 2009. The increase compared to the second quarter of 2008 and the first quarter of 2009, is due to an increase in the player base. The smaller increase in Gaming Revenue as recorded in US Dollars is due to the weakness of the Pound Sterling in relation to the US Dollar. We earned advertising revenue of $51,967 in the quarter ended June 30, 2009, a 34% decrease from advertising revenue of $78,417 in the second quarter of 2008 and an increase of 30% from advertising revenue of $39,898 in the first quarter of 2009.
Cost of revenue
We recorded cost of revenue of $951,954 during the quarter ended June 30, 2009, an increase of 3% compared to costs of $925,293 for the second quarter of 2008 and an increase of 9% over costs of $870,349 in the first quarter of 2009. The gross margin increased to 37% for the quarter ended June 30, 2009, compared to gross margin of 35% in the second quarter of 2008 and 34% gross margin in the first quarter of 2009. Cost of revenue consists of bonuses granted on deposits made by players, the cost of hosting the website, payment processing fees in relation to deposits from and withdrawals to our players, software license fees, and the domain name purchase payments. The increase in cost of revenue for the quarter ended June 30, 2009, compared to the second quarter of 2008 and the first quarter of 2009, is due to the increase in costs, especially bandwidth and gaming taxation, in relation to our Maltese gaming license. In addition, due to our increase in deposits more deposit bonuses were granted. The awarding of deposit bonuses is required both to be competitive with other bingo-oriented websites and to build a large customer base as quickly as possible.
Sales and marketing expenses
Sales and marketing expenses increased by 18% to $455,501 for the quarter ended June 30, 2009, an increase over expenses of $321,027 in the second quarter of 2008 and an increase of 26% from expenses of $334,245 in the first quarter of 2009. Sales and marketing expenses principally include costs for signup bonuses, marketing, prizes for our players and other bonuses and incentives offered to gaming players. The increase in sales and marketing expenses for the quarter ended June 30, 2009, compared to the second quarter of 2008 and the first quarter of 2009 is due to the increase in marketing especially our Search Engine Optimization to ensure we continue hold a top 3 listing all the search engines (eg Google.co.uk). In addition, we increased our marketing expenditures with affiliates to increase our traffic. This resulted in an increase in affiliates and affiliate commission.
We expect to continue to incur sales and marketing expenses to increase traffic from the United Kingdom and other selected markets and, consequently, deposits to our web portal. These costs will include bonuses and incentives, affiliate commissions, salaries, advertising, and other promotional expenses intended to increase our subscriber base and improve gaming revenue. There can be no assurances that these expenditures will result in increased traffic or significant additional revenue.
General and administrative expenses consist primarily of premises costs for our office, legal and professional fees, and other general corporate and office expenses. General and administrative expenses increased to $157,048 for the second quarter of 2009, an increase of 5% from costs of $149,292 for the second quarter of 2008 and an increase of 39% from costs of $113,083 in the first quarter of 2009. The increase in general and administrative expenses for the quarter ended June 30, 2009, compared to the second quarter of 2008 and the first quarter of 2009, is due to an increase in legal fees in relation to our Maltese gaming license and the costs of developing our social network.
We expect to continue to incur general and administrative expenses to support the business, and there can be no assurances that we will be able to generate sufficient revenue to cover these expenses.
Salaries, wages, consultants and benefits
Salaries, wages, consultants and benefits decreased by 2% to $257,279 for the quarter ended June 30, 2009, compared to salaries, wages, consultants and benefits of $262,648 in the second quarter of 2008 and an increase of 7% over salaries, wages, consultants and benefits of $239,799 in the first quarter of 2009. This decrease compared to the second quarter of 2008 and the increase compared to the first quarter of 2009, is due to fluctuations of the Canadian Dollar in relation to the US Dollar.
Depreciation and amortization
Depreciation and amortization includes depreciation of our equipment, as well as amortization of intangible asset relating to the email list. Equipment is depreciated using the declining balance method over the useful lives of the assets, ranging from three to five years. Depreciation and amortization increased to $17,316 during the quarter ended June 30, 2009, an increase of 22% over costs of $14,228 during the same quarter in the prior year and an increase of 4% from costs of $16,701 in the first quarter of 2009. This increase in depreciation and amortization can be explained due to the acquisition of equipment, especially computers and servers in Malta, to enable us to run the website out of Malta. The intangible asset relating to the email list was fully amortized in 2008.
Stock based Compensation
Stock based compensation decreased to $15,057 during the quarter ended June 30, 2009, a decrease of 22% over stock based compensation of $19,256 during the same quarter in the prior year and an increase of 14% from stock based compensation of $13,250 in the first quarter of 2009. The decrease in stock based compensation compared to the second quarter of 2008, is due to less stock options granted during the quarter ended June 30, 2009. The increase in stock based compensation compared with the first quarter of 2009, is due to stock options granted in the second quarter of 2009.
Profit on sale of US Gaming players
Effective October 12, 2006, the Company, in response to the United States Unlawful Internet Gambling Enforcement Act, sold its United States players and related assets for $1,200,050, to an arms length third party payable by the purchaser at a variable rate over the subsequent months until fully paid. We recognize the profit from the sale of these assets as and when payment is received. During the quarter ended June 30, 2009, we collected $27,500 of the $1,200,050 due, compared to payments received of $18,000 during the same quarter in the prior year and $7,500 in the first quarter of 2009.
Net loss and loss per share
Net loss for the three months ended June 30, 2009, amounted to $266,702, a loss of $0.01 per share, an increase of 12% compared to a net loss of $235,188, a loss of $0.01 per share for the same period in 2008 and an increase in net loss of 8% compared to a net loss of $243,974 or $0.01 per share in the first quarter of 2009. The increase in net loss for the quarter ended June 30, 2009, compared to the second quarter of 2008 and the first quarter of 2009, is due to an increase in expenditure from our Maltese gaming license.
LIQUIDITY AND CAPITAL RESOURCES
We had cash of $848,749 and working capital of $411,987 at June 30, 2009. This compares to cash of $412,002 and working capital of $124,495 at December 31, 2008. During the quarter ended June 30, 2009, we completed private placement offerings of 1.5 million shares at $0.15 per share. Total proceeds of the offerings were $225,000.
During the quarter ended June 30, 2009, we used cash of $209,185 from operating activities compared to using cash of $174,509 in the same period in the prior year and compared to using cash of $139,624 in the first quarter of 2009.
Our future capital requirements will depend on a number of factors, including costs associated with development and marketing of our Web portal, the success and acceptance of gaming operations and the possible acquisition of complementary businesses, products and technologies.
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