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BINGO.COM LTD. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) 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, 2012. 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, 2012, filed with the Securities and Exchange Commission (the "SEC") and should not place undue reliance on any forward-looking statements. Page 17OVERVIEW Bingo.com, Ltd. (the "Company") is in the business of owning and marketing a bingo based entertainment website that provides a variety of Internet games plus other forms of entertainment, including an online community, chat rooms, and more. Located at www.bingo.com, the Company has built one of the leading bingo portals on the Internet. The Bingo.com website has attracted millions of visitors from over 200 countries. The level of Internet traffic that arrives at Bingo.com has a direct impact on our revenues as, generally, the greater the Internet traffic, the greater the amount of gaming or advertising revenue received. The Company generates its main source of revenue from players who deposit funds into their Bingo.com accounts and play games for money. An additional source of revenue comes from selling advertising on the website to other companies who wish to advertise their products to our user demographic. During the year ended December 31, 2010, Bingo.com joined the Unibet International Limited ("Unibet") Partner Program as a network operator of their multi-language and multi-currency bingo and casino system. The Unibet Partner Program provides a complete solution to Bingo.com which includes gambling licenses, multi-language customer support, financial processing capabilities, website technology, bingo games, soft games, casino games and many other services required to operate an online gambling business. Bingo.com players continue to play on the website www.bingo.com but now participate in rooms shared across the entire Unibet Partner Program alongside players from Maria.com, Bingo.se, and other white label partner sites. These combined games increase the gaming liquidity and create one of the largest and most international online gaming systems in operation. Unibet is paid a commission based on a fixed percentage of the gaming revenues generated on the Bingo.com website. Unibet will own, create and run the service offered and it will be the Company's responsibility to drive traffic to the website. Bingo.com continues to own the player data contained within the database of players that register at www.bingo.com. As a member of the Partner Program, Bingo.com is not required to secure or maintain any online gambling licenses of its own as the Company is permitted to offer Internet gambling products to its players pursuant to Unibet's licenses in relevant jurisdictions. Since joining the Unibet Partner Program, we embarked on a cost focused restructure of the Bingo.com organization which has included a significant staff downsizing, the termination of hosting and other operational contracts, the sale of computer hardware, a reduction in office space, the release of both our Maltese and Curacao gaming licenses, and much more. The Bingo.com restructuring program was completed in the quarter ending June 30, 2011. The remaining costs of Bingo.com are now focused behind the marketing function of the organization as we build the Bingo.com brand in our target markets and generate increasing amounts of Internet traffic to create a large base of valuable customers. We intend to expand our business, leveraging the many different languages and currencies supported by Unibet's system, by launching marketing campaigns in jurisdictions which we anticipate will be the most responsive to Bingo.com's online offering. Furthermore, in an attempt to maximize the value of our North American visitors to whom we cannot offer online gambling services, we have commenced the development of an innovative social bingo game that we expect to launch in the second quarter of 2013. The Bingo.com 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. The website is divided into two main sections: (1) the main section is accessible to players from countries where the Company offers its pay-to-play games; and, (2) the second section is focused on a free-to-play offering for the remaining countries. Depending on the pay-to-play or free-to-play section of the website, the Company provides online entertainment content to players consisting of multiplayer bingo games, video poker, casino games and slot machines. Gaming revenue from the Bingo.com website accounted for approximately 99% of our revenue for the quarter ended March 31, 2013. Page 18We have made a significant investment in the development of our website, the purchase of our domain name, branding, marketing, and operations. As a result we have incurred significant losses since inception, and as of March 31, 2013, had an accumulated deficit of $16,437,013. 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 ongoing basis, management evaluates these judgments and estimates, including whether there are any uncertainties as to compliance with the revenue recognition criteria described below, and recoverability of long-lived assets, as well as the assessment as to whether there are contingent assets and liabilities that should be recognized or disclosed for the consolidated financial statements to fairly present the information required to be set forth therein. 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; - Software development 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, less commissions 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: Management evaluates long-lived assets for impairment in accordance with the provisions of ASC 360 Property, Plant and Equipment and ASC 350, Intangibles-Goodwill and Others. These assets comprise mainly property and equipment, other assets and the bingo.com domain name. The impairment review is performed by management, whenever events and circumstances indicate that the assets may be impaired. In performing this review, we estimate the future net cash flows from the assets and compare this amount to the carrying value. If this review indicates the carrying value may not be recoverable, impairment losses are measured and recognized based on the difference between the estimated discounted cash flows over the remaining life of the assets and the assets' carrying value. Changes in our future net cash flow estimates may impact our assessment as to whether a particular long-lived asset has been impaired. Software Development Costs: Software development costs incurred in the research and development of new software products and enhancements to existing software products for external use are expensed as incurred until technological feasibility has been established. After technological feasibility is established, any software development costs are capitalized and amortized on a straight-line basis over the estimated economic life of the related product. The Company performs an annual review of the estimated economic life and the recoverability Page 19of such capitalized software costs. If a determination is made that capitalized amounts are not recoverable based on the estimated cash flows to be generated from the applicable software, any remaining capitalized amounts are written off. Page 20 RESULTS OF OPERATIONS Revenue Total revenue for the quarter ended March 31, 2013, was $590,199, an increase of 45% from revenue of $406,307 for the first quarter of 2012 and an increase of 7% from revenue of $554,031, in the fourth quarter of 2012. Gaming Revenue was $582,760, an increase of 51% in the quarter ended March 31, 2013, compared to Gaming Revenue of $386,925 in the first quarter of 2012 and an 6% increase from revenue of $549,104 in the fourth quarter of 2012. This increase compared to the first and fourth quarter of 2012 is due to an increase in players as a result of increased marketing. We earned advertising revenue of $7,439 in the quarter ended March 31, 2013, a decrease of 62% from advertising revenue of $19,382 in the first quarter of 2012 and an increase of 51% from advertising revenue of $4,927 in the fourth quarter of 2012. Sales and marketing expenses Sales and marketing expenses were $868,789 for the quarter ended March 31, 2013, an increase of 191% over expenses of $298,339 in the first quarter of 2012 and an increase of 107% from expenses of $419,954 in the fourth quarter of 2012. Sales and marketing expenses principally include costs for television marketing, Search Engine Optimization expenses, prizes for our players and other bonuses and incentives offered to gaming players. The increase in sales and marketing expenses for the quarter ended March 31, 2013, compared to the first and fourth quarter of 2012 is due to a larger media budget in the first quarter of fiscal 2013 to drive additional players to the website and to expand into new European markets. We expect to continue to incur sales and marketing expenses to increase traffic and, consequently, deposits to our web portal. These costs will include affiliate commissions, salaries, advertising media purchases, 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 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 $78,910 for the first quarter of 2013, an increase of 19% from costs of $66,242 for the first quarter of 2012 and an increase of 57% from costs of $50,155 in the fourth quarter of 2012. General and administrative expenses have increased in comparison to the prior year due to an increase in rental costs. 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 to $72,746 for the quarter ended March 31, 2013, a decrease of 29% compared to salaries, wages, consultants and benefits of $103,107 in the first quarter of 2012 and an increase of 49%, over salaries, wages, consultants and benefits of $48,933 in the fourth quarter of 2012. The majority of the Company's salaries, wages, consultants and benefits are incurred in Canadian Dollars. This decrease compared to the first quarter of 2012 and the increase compared to the fourth quarter of 2012, is due to the capitalization of salaries of staff involved in the development of the Company's new social media game, Trophy Bingo. Page 21Depreciation and amortization Equipment is depreciated using the declining balance method over the useful lives of the assets, ranging from three to five years. Depreciation and amortization decreased to $807 during the quarter ended March 31, 2013, a decrease of 32% over costs of $1,180 during the same quarter in the prior year and a decrease of 32% from costs of $1,192 in the fourth quarter of 2012. This decrease in depreciation and amortization compared to the first and fourth quarter of fiscal 2012, is due to the aging of the Company's equipment and the disposal of obsolete equipment. Stock based Compensation During the year ended December 31, 2006, the Company adopted ASC 718, Compensation-Stock Compensation, which requires us to expense stock options granted. Stock based compensation decreased to $nil during the quarter ended March 31, 2013, a decrease over stock based compensation of $60,005 in the same quarter in the prior year, and stock based compensation of $nil during the fourth quarter of fiscal 2012. This decrease in stock based compensation during the quarter ended March 31, 2013, is due to the extension of the terms of the options expiring in 2012. There were no stock options granted during the quarter ended March 31, 2013. Net loss and loss per share Net loss for the three months ended March 31, 2013, amounted to $471,189, a loss of $0.01 per share, an increase in net loss compared to net loss of $84,935, a loss of $0.00 per share for the same period in 2012 and a decrease in net income compared to a net income of $38,606 or income of $0.00 per share in the fourth quarter of 2012. The increase in net loss for the quarter ended March 31, 2013, compared to the first and fourth quarter of 2012, is due to the increase in marketing as a result of the increased marketing campaign. LIQUIDITY AND CAPITAL RESOURCES We had cash of $550,997 and positive working capital of $920,435 at March 31, 2013. This compares to cash of $876,004 and positive working capital of $1,640,713 at December 31, 2012. During the quarter ended March 31, 2013, we used cash of ($73,632) in operating activities compared to using cash of ($113,317) in the same period in the prior year and compared to using cash of ($318,887) in the fourth quarter of 2012. Our future capital requirements will depend on a number of factors, including costs associated with the marketing of our Web portal, the success and acceptance of gaming operations and the possible acquisition of complementary businesses, or development of new products and technologies. |