UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000
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: 0-27256
-------
ONLINE GAMING SYSTEMS, LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0512785
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
3225 McLeod Drive 1st Floor, Las Vegas, Nevada 89121
(Address of principal executive offices)
Registrant's telephone no., including area code: (702)836-3042
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding as of November 15, 2000
------------------------------------ -----------------------------------
Common Stock, $.001 par value 14,669,180
<PAGE>
TABLE OF CONTENTS
Heading Page
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements..............................................2
Consolidated Balance Sheet - September 30, 2000 (Unaudited).......3-4
Consolidated Statement of Income and Comprehensive
Income (Unaudited)................................................5
Consolidated Statement of Cash Flows - Three Months ended
September 30, 2000 (Unaudited) ...................................6-7
Consolidated Statement of Cash Flows - Nine Months ended
September 30, 2000 (Unaudited)....................................8-9
Notes to Consolidated Financial Statements (Unaudited)..........10-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................13-15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings...............................................16
Item 2. Changes In Securities...........................................16
Item 3. Defaults Upon Senior Securities.................................16
Item 4. Submission of Matters to a Vote of Securities Holders ..........16
Item 5. Other Information ..............................................16
Item 6. Exhibits and Reports on Form 8-K................................16
Signatures......................................................17
<PAGE>
PART 1
Item 1. Financial Statements
The following unaudited financial Statements for the period ended
September 30, 2000, have been prepared by Online Gaming Systems, Ltd.
(the "Company") and Subsidiaries.
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Financial Statements
September 30, 2000
Page 2 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF SEPTEMBER 30, 2000
Assets:
Current Assets:
Cash $ 208,720
Investments 265,000
Prepaid Expenses 8,757
Other Current Assets 15,303
-------------
Total Current Assets 497,780
-------------
Property and Equipment - Net 335,815
-------------
Equipment under Capitalized Lease - Net 157,780
-------------
Other Assets
Other Assets 187,264
Investment 1,300,000
-------------
Total Other Assets 1,487,264
-------------
Total Assets $ 2,478,639
=============
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 3 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF SEPTEMBER 30, 2000
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 881,319
Notes Payable - Officers 112,350
Note Payable and Advances 2,217,868
Current Portion of Capital Lease Obligations 83,484
----------------
Total Current Liabilities 3,295,021
Capital Lease Obligations 93,570
----------------
3,388,591
Stockholders' Equity:
Convertible Preferred Stock - Par Value $.001 Per Share;
Authorized 10,000,000 Shares, Issued and Outstanding,
10,610 shares [Liquidation Preference $ 1,061,000] 11
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued - 14,298,180 Share 14,298
Additional Paid-in Capital 14,113,400
Treasury Stock, 968,767 Common Shares - At Cost (1,744,547)
Accumulated Comprehensive Loss (1,607,000)
Accumulated [Deficit] (11,286,114)
Deferred Acquisition Costs (400,000)
----------------
Total Stockholders' Equity (909,952)
-----------------
Total Liabilities and Stockholders' Equity $ 2,478,639
================
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 4 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $ 303,942 $ 113,575 $ 2,231,027 $ 612,075
Cost of Sales 40,292 195,840 186,277 685,780
------------ ---------------- ------------- -----------
Gross Profit [Loss] 263,650 (82,265) 2,044,750 (73,705)
------------ ----------------- ------------- -----------
Operating Expenses:
General and Administrative 1,144,902 1,511,898 3,390,424 4,136,149
Provision for Doubtful Accounts and Notes -- -- -- 1,222,155
Depreciation and Amortization 58,764 88,968 154,045 224,143
------------ ---------------- ------------- -----------
Total Operating Expenses 1,203,666 1,600,866 3,544,469 5,582,447
------------ -------------- ------------- -----------
[Loss] Income from Operations (940,016) (1,683,131) (1,499,719) (5,656,152)
------------- -------------- ------------- -----------
Other [Expenses] Income:
Interest Income -- 50 -- 30,926
Interest Expense (13,326) (17,187) (34,817) (39,819)
Other Income [Expense] (265,000) (215,818) (1,465,000) (49,172)
------------- -------------- ------------- -----------
Other [Expenses] Income - Net (278,326) (232,955) (1,499,817) (58,065)
------------- ----------------- ------------- -----------
[Loss] from Continuing Operations Before
Income Tax [Benefit] Expense (1,218,342) (1,916,086) (2,999,536) (5,714,217)
Income Tax [Benefit] Expense -- -- -- (123,691)
------------ ---------------- ------------- -----------
[Loss] Income from Continuing Operations (1,218,342) (1,916,086) (2,999,536) (5,590,526)
Discontinued Operations:
[Loss] from Operations of Discontinued
Business Segment [Net of Income Tax
[Benefit] of ($0) and $(30,521), for the nine
months ended September 30, 2000 and 1999,
Respectively] -- -- -- (54,261)
------------ -------------- --------------- ----------
Net [Loss] (1,218,342) (1,916,086) (2,999,536) (5,644,787)
Comprehensive Gain:
Unrealized Holding [Loss] Gain
arising during period -- (1,033,311) (132,500) (981,142)
------------ -------------- --------------- ----------
Total Comprehensive [Loss] $ (1,218,342) $ (2,949,397) $ (3,132,036) $ (6,625,929)
============ ============== ---------------- ----------
Net [Loss] $ (1,218,342) $ (1,916,086) $ (2,999,536) $ (5,644,787)
Preferred Stock Dividend in Arrears 13,263 7,125 38,263 26,750
------------ -------------- --------------- ------------
Net [Loss] Available to
Common Stockholders $ (1,231,605) $ (1,923,211) $ (3,037,799) $ (5,671,537)
----------- -------------- --------------- ------------
[Loss] Per Common Share:
Continuing Operations $ (0.09) $ (0.15) $ (0.22) $ (0.44)
Basic and Diluted Net [Loss] Income
Per Share of Common Stock $ (0.09) $ (0.15) $ (0.22) $ (0.44)
Weighted Average Shares of Common
Stock Outstanding 14,096,360 13,133,795 14,034,195 12,901,162
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 5 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
Septmeber 30,
2 0 0 0 1 9 9 9
------- -------
Operating Activities:
<S> <C> <C>
[Loss] Income from Continuing Operations $ (1,218,342) $ (1,916,086)
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 58,764 284,182
Insurance of Common Stock for Services Rendered -- 140,000
Regulated Loss on Carrying Value of Investments 265,000 --
Loss on Sale of Investments -- 217,889
Changes in Assets and Liabilities:
[Increase] Decrease in:
Prepaid Expenses -- (13,959)
Notes Receivable -- 130,000
Other Assets 28,324 18,114
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (86,372) 51,879
---------------------- ---------------------
Net Cash - Continuing Operations (952,625) (1,087,981)
---------------------- ----------------------
Investing Activities - Continuing Operations:
Purchase of Investments -- (274,669)
Purchase of Property, Equipment, and Capitalized Software (43,493) (5,486)
Sale of Investments -- 573,526
Increase in due from related parties -- (113,000)
Purchase of patents and licenses -- (250,000)
--------------------- ----------------------
Net Cash - Investing Activities - Forward $ (43,493) $ (69,629)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 6 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------
2 0 0 0 1 9 9 9
-------- -------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $ (952,625) $ (1,087,981)
-------------- -------------
Net Cash - Investing Activities - Continuing Operations -
Forwarded (43,493) (69,629)
-------------- -------------
Financing Activities - Continued Operations:
Proceeds from Issuance of Common Stock -- 105
Payment from Notes Receivable -- 1,445,000
Increase in Loan Payable to Officer -- (377,184)
Proceeds from Short Term Borrowings 1,135,000 184,000
Payment of Lease Payable (14,711) (10,789)
Payment of Note Payable -- (88,774)
------------- ------------
Net Cash - Financing Activities 1,120,289 1,152,358
------------- ------------
[Decrease] Increase in Cash and Cash Equivalents 124,171 (5,252)
Cash and Cash Equivalents - Beginning of Period 84,549 (37,357)
------------- -------------
Cash and Cash Equivalents - End of Period $ 208,720 $ (42,609)
============= =============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 13,326 $ 12,576
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Purchase of Assets under Capital Lease Financing $ -- $ 3,894
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
Page 7 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2 0 0 0 1 9 9 9
------- -------
Operating Activities:
<S> <C> <C>
[Loss] Income from Continuing Operations $ (2,999,536) $ (5,590,526)
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 154,045 800,399
Deferred Tax Asset -- (123,691)
Provision for Doubtful Accounts -- 1,222,155
Loss on Sale of Investments -- 221,637
Realized Loss on Carrying Value of Investments 1,465,000 --
Issuance of Common Stock for Services Rendered -- 140,000
Issuance of Common Stock for Compensation -- 217,312
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable -- 13,716
Prepaid Expenses 5,190 (12,708)
Notes Receivable -- 108,211
Other Assets 10,208 84,764
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (71,414) (54,485)
---------------- --------------
Net Cash - Continuing Operations (1,436,507) (2,973,216)
---------------- --------------
Discontinued Operations:
[Loss] from Discontinued Operations -- (54,261)
Adjustments to Reconcile Net [Loss] to Net Cash Operations:
Depreciation and Amortization -- 38,220
Provision for Doubtful Accounts -- 18,915
Changes in Net Assets and Liabilities -- 238,577
--------------- -------------
Net Cash - Discontinued Operations -- 241,451
--------------- -------------
Net Cash - Operating Activities - Forward (1,436,507) (2,731,765)
---------------- -------------
Investing Activities - Continuing Operations:
Increase in Due from Related Parties -- (113,828)
Purchase of Investments -- (393,092)
Purchase of Property, Equipment, and Capitalized Software (65,829) (71,711)
Sale of Investments -- 3,131,291
Purchase of Patents and License -- (450,000)
-----------------------------------
Net Cash - Investing Activities - Continuing Operations -
Forward $ (65,829) $ 2,102,660
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 8 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
2 0 0 0 1 9 9 9
-------- -------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $ (1,436,507) $ (2,731,765)
------------ --------------
Net Cash - Investing Activities - Continuing Operations -
Forwarded (65,829) 2,102,660
------------- -------------
Investing Activities - Discontinued Operations:
Purchase of Property and Equipment -- (29,715)
Disposition Gain on Sale of Discontinued Operations -- --
------------ -------------
Net Cash Investing Activities - Discontinued Operations -- (29,715)
Financing Activities - Continuing Operations:
Proceeds from Issuance of Common Stock 250,000 105
Proceeds from Issuance of Preferred Stock -- 570,000
Purchase of Treasury Stock -- (975,293)
Proceeds from Notes Receivable -- 1,445,000
[Decrease] Increase in Loan Payable to Officer 112,350 (193,434)
Payment of Notes Payable (5,850) (288,774)
Payment of Lease Payable (56,509) (31,373)
Decrease in Loan Receivable -- (324,286)
Proceeds from Short Term Borrowings 1,585,000 344,000
------------ -------------
Net Cash - Financing Activities 1,884,931 545,945
------------ -------------
Financing Activities - Discontinued Operations:
Proceeds from Long-Term Debt -- 50,000
Payment of Note Payable -- (41,500)
Payment of Lease Payable -- (56,569)
------------ -------------
Net Cash Financing Activities Discontinued Operations -- 2,731
Net Increase [Decrease] in Cash and Cash Equivalents 382,595 (110,144)
Cash and Cash Equivalents - Beginning of Years (173,875) 67,535
------------- -------------
Cash and Cash Equivalents - End of Years $ 208,720 $ (42,609)
============ ==============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 34,817 $ 37,295
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Conversion of Preferred Stock into Common Stock $ 455 $ 649
Purchase of Assets under Capital Lease Financing $ -- $ 77,883
Sale of Subsidiary for Note Receivable $ -- $ 2,400,000
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
Page 9 of 19
<PAGE>
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2000
Note 1 - Basis of Preparation
The accompanying unaudited interim financial statements include all
adjustments (consisting only of those of a normal recurring nature)
necessary for a fair statement of the results for the interim
periods. The results of operations for the nine-month period
September 30, 2000, are not necessarily indicative of the results of
operations to be reported for the full year ending December 31,
2000. These statements should be read in conjunction with the
summary of significant accounting policies and notes contained in
the corporation's annual report on form 10-K for the year ended
December 31, 1999.
Note 2 - Sale of Subsidiary
On March 31, 1999 the Company sold 81% of its interest in its wholly
owned subsidiary, the Eminet Domain, Inc. to Centerline Associates,
Inc., a shareholder of the Company. The sale price was $2,500,000
paid as follows: (i) $10,000 at sale date, (ii) $90,000 in cash
payable at the rate of $14,000 per month commencing on April 15,
1999 and (iii) $2,400,000 by the delivery of a promissory note
collateralized by shares of the Company's stock with interest at the
annual rate of six percent (6%) and payable two years from the
closing date.
However, on December 10, 1999 the parties reformed the agreement to
provide the sale of the company's entire interest in Eminet Domain
in exchange for $2,500,000 in convertible preferred stock in
Atlantic Internet Holdings, Inc. a Florida Holding company.
The sale resulted in a gain of $1,231,751 which is reflected in
other income in 1999. The transaction resulted in the Eminet Domain,
Inc being treated as a discontinued operation. The investment in the
preferred stock has subsequently being written down, the resulting
write down of $1,200,000 is reflected in other (Expense).
Note 3 - Major Customers
Income fees derived from customers are evenly concentrated amongst
numerous customers.
Note 4 - Notes Payable and Advances
During the course of the past 12 months Hosken Consoliated
Investments (a South African Corporation) the company's largest
single shareholder has undertaken to fund the company on an ongoing
basis by the issue of Convertible Debt. This debt is due for
repayment in January 2001. If the company cannot repay the debt then
HCI has the option of converting this debt into equity. The
conversion price will be the lower of 50 cents per share or the
price at which the last equity issues was completed to a part other
than HCI.
Note 5 - Capital Stock
During the first quarter of 1999, 5,000 shares of convertible
preferred stock valued at $500,000 was converted into 395,823 shares
of common stock by virtue of a formula contained in the purchase
agreement which results to the average price per share of common
stock within the conversion period.
During the second quarter of 1999, 2,260 shares of convertible
preferred stock valued at $226,000 was converted into 253,933 shares
of common stock by virtue of a formula contained in the purchase
agreement which results to the average price per share of common
stock within the conversion period.
Page 10 of 19
<PAGE>
In the second quarter of 1999, 5,700 shares of 5% Convertible
Preferred Stock, $.001 par value, were issued to the Shaar Fund for
$570,000. Each share is convertible into common stock by virtue of a
formula contained in the Purchase Agreement which is 78% of the
three day average closing bid price for the corporations common
stock for the twenty five (25) trading days prior to the delivery of
the notice of redemption. The amount of such non-cash discounts
which is analogous to a dividend is $53,451 holders of the above
preferred stock are entitled to; (i) quarterly cumulative dividends
at the rate of 5% per annum of the original issue price of the
preferred stock, (ii) a liquidation preference equal to the sum of
$100 for each outstanding share of the preferred stock.
On April 6, 1999 certain individual employees were issued 110,000
shares of common stock of the company as a signing bonus pertaining
to employment agreements between the company and the individuals.
In the second quarter of 1999, 75,000 shares of the company's common
stock were issued to a consultant for services performed.
On July 1, 1999, the Company's largest institutional stockholder,
Hosken Consolidated Investments, a South African corporation (the
investment company for the Mine Workers Union and South African
Clothing Workers Union), consummated its purchase of approximately
1,100,000 shares of the Company's common stock from Norman J.
Hoskin, the Company's Chairman of the Board of Directors, which
represents substantially all of Mr. Hoskin's holdings in the
Company. Mr. Hoskin has resigned his positions as Chairman and
Secretary/Treasurer and will limit his activities as a consultant to
the Company due to his health. With its purchase, HCI share holdings
increases to 2,361,935 shares or approximately 19% of total shares
outstanding.
In the third quarter of 1999, 52,500 shares of the Common Stock were
issued in lieu of expenses paid on behalf of the Company.
In the fourth quarter of 1999, 9,300 shares of 5% Convertible
Preferred Stock, $.001 par value were issued to the Shaar Fund for
$930,000. Each share is convertible into common stock by virtue of a
formula contained in the Purchase Agreement which is 78% of the
three day average closing bid price for the corporations common
stock for the twenty five (25) trading days prior to the delivery of
the notice of redemption. The amount of such non-cash discounts
which is analogous to a dividend is $105,430 holders of the above
preferred stock are entitled to; (i) quarterly cumulative dividends
at the rate 5% per annum of the original issue price of the
preferred stock, (ii) a liquidation preference equal to the sum of
$100 for each outstanding share of the preferred stock.
In the first quarter of 2000, 250,000 share of common stock of the
company were issued to investors.
Page 11 of 19
<PAGE>
Note 6 - Per Share Data
Per share data are based on the weighted average number of common
shares outstanding during the respective periods. The diluted net
income per share is based upon the options issued and outstanding as
well as the assumed conversion of the Company's issued and
outstanding preferred stock.
Note 7 - Business Agreements
On April 6, 1999 the company signed an agreement to purchase the
patent rights, inventions and know-how of Excel Communications, Inc.
The major product expected to be produced is a multi-function
portable gaming device. In consideration, the company issued
seventy-five thousand (75,000) shares of common stock to the
company. The company also entered into an agreement to compensate a
third party for termination of an exclusive manufacturing,
licensing, marketing, and distribution of the invention with the
seller. The third party received two hundred thousand dollars
($200,000) plus a stock option to purchase 50,000 shares of common
stock of the company. In addition, the company entered into
employment agreements with three of the key employees of Excel
Communications, Inc. and granted those individuals options to
purchase Company stock.
On January 2000, the company entered into an exclusive agreement
with Inter Global Fund for the worldwide rights for the sale of its
products to Internet based casinos not attached to a land based
casino.
Note 8 - Subsequent Events
In October 2000, Hosken Consolidated Investments (a South African
Corporation) the company's largest single shareholder purchased from
the Shaar Fund approximately 86% of the Convertible Preferred Stock
currently held by the Shaar Fund for $600,000. The remaining 14% was
satisfied by the payment of $10,000 and the issue of 500,000 shares
in the company at 18 cents per share.
Page 12 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Result of Operations
Three Months Ended September, 2000 and 1999
Net Revenues. The Company's revenues increased approximately 168% in
2000 over the same period in 1999. Revenues from operations in the
third quarter 2000 were $ 303,942, as compared with $ 113,575 for
the same period in 1999. The increase in revenues was the result of
the enhancement and upgrading of its product as well as global
expansion of the company's products. The Company's overseas
distribution outlets namely Australia began generating substantial
revenues and continues to make considerable inroads into the Asia
Pacific market. The large resources allocated to sales and marketing
in 1999 contributed to the revenue growth in 2000.
Cost of Revenues. Cost of revenues decreased 80% in 2000 over the
same period in 1999. The decrease resulted from the decrease in
amortization of capitalized software development costs, which is
reflected in cost of revenues.
Operating Expenses. Operating expenses decreased by 25% or $ 397,200
in the third quarter 2000 over the same period in 1999. The decrease
was largely due to cost cutting efforts, expenses related to product
development and decreased support staffing. The company anticipates
future cost savings due to the company relocating its operation to
Las Vegas, the heart of the gaming industry.
Nine Months Ended September 30, 2000 and 1999
Net Revenues. The Company's revenues increased approximately 265% in
2000 over the same period in 1999. Revenues from operations for the
nine months ended September 30, 2000 were $ 2,231,027 as compared
with $ 612,075 for the same period in 1999. The increase in revenues
was the result of the enhancement and upgrading of its product as
well as global expansion of the company's products. The Company's
overseas distribution outlets namely Australia began generating
substantial revenues and continues to make considerable inroads into
the Asia Pacific market. The large resources allocated to sales and
marketing in 1999 contributed to the revenue growth in 2000.
Cost of Revenues. Cost of revenues decreased 73% for the nine months
ended September 30, 2000 over the same period in 1999. The decrease
resulted from the decrease in amortization of capitalized software
development costs, which is reflected in cost of revenues.
Page 13 of 19
<PAGE>
Operating Expenses. Operating expenses excluding provisions for
doubtful accounts decreased by 19% or $ 815,825 for the nine months
ended September 30, 2000 over the same period in 1999. The decrease
was largely due to cost cutting efforts, expenses related to product
development and decreased support staffing. The company anticipates
future cost savings due to the company relocating and consolidating
its operations to Las Vegas, the heart of the gaming industry.
Provision for Doubtful Accounts. Provision for doubtful accounts for
the nine months ended September 30, 2000 were $ -0- as compared with
$ 1,222,155 for the same period in 1999. The decrease resulted from
management only recording revenues when monies have been received
from a sale.
Page 14 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Result of Operations - Continued
Nine Months Ended September 30, 2000 and 1999
Other Income (Expense). Other income decreased by approximately
$1,133,853 in 2000 over the same period in 1999. A gain on sale of
$1,231,751 resulted from a percentage interest sold of the Company's
wholly owned subsidiary in 1999. A $ 170,000 gain was recognized in
a full and final settlement of a payable. A loss of sale on trading
stock for $221,636 was realized. Other expense increased by
$1,465,000 in 2000 over the same period in 1999. This resulted from
a write down of an investment of convertible preferred stock in the
Company's formally wholly owned subsidiary and a write down of high
risk priced security. This is conversant with the company's policy
of continually reviewing the value of the company's assets.
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities, which consist
primarily of high risk, priced securities totaled $473,720 at
September 30, 2000 compared to $1,020,628 at September 30, 1999. The
decrease in cash, cash equivalents and marketable securities was due
primarily to high risk priced securities decreasing in value and
negative cash flow from operations. Management believes that cash
generated from future operations as well as a firm commitment from
an affiliated company and significant stockholder to fund future
operations will be sufficient to satisfy the Company's current
anticipated cash requirements.
Page 15 of 19
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
Litigation - On October 24 ,2000, the company received a summons to
appear in court versus Actrade. This was a business deal that had
never been followed through upon. The amount due at the time was
$132,000. Our council immediately contacted the company and to this
day they are in negotiations with them on a settlement amount. There
will be no further court action. To management's opinion, this
litigation will not materially affect the company's financial
position, results of operation or cash flows.
Item 2. Changes in Securities
This Item is not applicable to the Company.
Item 3. Defaults upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Form 8-K - July 7, 1999
27 Financial Data Schedule
Page 16 of 19
<PAGE>
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Online Gaming Systems, Ltd.
Date: November 27, 2000 By: /s/ Gary Ramos
----------------------------------
(Signature)
Gary Ramos, President
Chief Executive Officer
By: /s/ Peter Lawson
----------------------------------
(Signature)
Peter Lawson, Chief Financial
Officer
Page 17 of 19
