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 March 31, 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)
200 East Palmetto Park Road, Suite 200, Boca Raton, Florida 33432
(Address of principal executive offices)
Registrant's telephone no., including area code: (561) 393-6685
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 May 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 - March 31, 2000 (Unaudited)...... 3-4
Consolidated Statement of Income and Comprehensive
Income (Unaudited) ...............................................5-6
Consolidated Statement of Cash Flows - Three Months ended
March 31, 2000 (Unaudited) .................................... 7-8
Notes to Consolidated Financial Statements (Unaudited) ......... 9-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .........................................12
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ................................................13
Item 2. Changes In Securities ............................................ 13
Item 3. Defaults Upon Senior Securities.................................. 13
Item 4. Submission of Matters to a Vote of Securities Holders ........... 13
Item 5. Other Information .................................................13
Item 6. Exhibits and Reports on Form 8-K................................. 13
Signatures ........................................................14
<PAGE>
PART 1
Item 1. Financial Statements
The following unaudited Financial Statements for the period ended
March 31, 2000, have been prepared by Online Gaming Systems, Ltd.
(the "Company") and Subsidiaries.
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Financial Statements
March 31, 2000
2
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 2000
Assets:
Current Assets:
Cash and Cash Equivalents $ 81,387
Accounts Receivable 1,137,120
Investments 662,500
Deferred Tax Asset 123,691
Prepaid Expenses 8,756
Other Current Assets 32,306
-------------
Total Current Assets 2,045,760
-------------
Property and Equipment - Net 350,288
-------------
Equipment under Capitalized Lease - Net 207,556
-------------
Other Assets:
Due from Related Parties 56,069
Other Assets 520,301
Investments 2,500,197
-------------
Total Other Assets 3,076,567
-------------
Total Assets $ 5,680,171
=============
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
3
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C>
Accounts Payable and Accrued Expenses $ 1,286,859
Notes Payable - Officers 16,100
Current Portion of Long Term Debt 218,768
Current Portion of Capital Lease Obligations 99,473
-------------
Total Current Liabilities 1,621,200
Capital Lease Obligations 112,410
-------------
Total Liabilities 1,733,610
-------------
Stockholders' Equity:
Convertible Preferred Stock - Par Value $.001 Per Share;
Authorized 10,000,000 Shares, Issued and Outstanding,
9,000 shares [Liquidation Preference $9,000,000] 90
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued - 14,294,180 Shares 14,294
Additional Paid-in Capital 14,613,325
Treasury Stock, 968,767 Common Shares - At Cost (1,744,547)
Accumulated Comprehensive (Loss) (1,474,500)
Accumulated [Deficit] (7,062,101)
Deferred Acquisition Costs (400,000)
-------------
Total Stockholders' Equity 3,946,561
-------------
Total Liabilities and Stockholders' Equity $ 5,680,171
=============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
4
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
March 31,
---------
2 0 0 0 1 9 9 9
------- -------
<S> <C> <C>
Revenue $ 2,023,733 $ 29,000
Cost of Sales 106,192 268,848
----------- -----------
Gross [Loss] Profit 1,917,541 (239,848)
----------- -----------
Operating Expenses:
Research and Development -- 58,513
General and Administrative 1,296,295 1,103,874
Provision for Doubtful Accounts and Notes -- 325,335
Depreciation and Amortization 61,518 31,439
----------- -----------
Total Operating Expenses 1,357,813 1,519,161
----------- -----------
Income [Loss] from Operations 559,728 (1,759,009)
----------- -----------
Other [Expenses] Income:
Interest Income -- 8,110
Interest Expense (9,351) (16,129)
Other Income [Expense] 1,423,443
----------- -----------
Other [Expenses] Income - Net (9,351) 1,415,424
----------- -----------
[Loss] Income from Continuing Operations Before
Income Tax [Benefit] Expense 550,377 (343,585)
Income Tax [Benefit] Expense -- (123,691)
----------- -----------
Income [Loss] from Continuing Operations 550,377 (219,894)
Discontinued Operations:
[Loss] from Operations of Discontinued Business
Segment [Net of Income Tax [Benefit] of ($0) and ($30,521),
for the three months ended March 31, 2000 and 1999, Respectively] -- (54,261)
----------- -----------
Net [Loss] Income 550,377 (274,155)
Comprehensive (Loss):
Unrealized Holding (Loss) arising during period 397,500 744,243
----------- -----------
Total Comprehensive Income $ 152,877 $ 470,088
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
5
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
March 31,
---------
2 0 0 0 1 9 9 9
------- -------
<S> <C> <C>
Net [Loss] Income $ 550,377 $ (274,155)
Preferred Stock Dividend in Arrears 12,500 12,500
------------ -------------
Net Income [Loss] Available to Common Stockholders $ 537,877 $ (286,655)
============ =============
[Loss] Income Per Common Share:
Continuing Operations $ 0.04 $ (0.02)
------------ -------------
Basic and Diluted Net [Loss] Income Per Share of Common Stock $ 0.04 $ (0.02)
============= =============
Weighed Average Shares of Common Stock Outstanding 13,484,670 12,559,208
============ =============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
6
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
March 31,
---------
2 0 0 0 1 9 9 9
------- -------
Operating Activities:
<S> <C> <C>
Income [Loss] from Continuing Operations $ 550,377 $ (219,894)
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 61,518 251,387
Deferred Tax Asset -- (154,212)
Provision for Doubtful Accounts -- 325,335
Loss on Sale of Assets -- 3,100
Realized Loss on Carrying Value of Investments -- 324
Gain on Sale of Subsidiary -- (1,256,473)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (1,137,120) 1,914
Prepaid Expenses 4,992 (24,377)
Notes Receivable -- 84,975
Other Assets (5,043) 76,815
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 464,366 (241,124)
------------ -----------
Net Cash - Continuing Operations (60,910) (1,152,230)
------------ -----------
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 -- 260,011
------------ -----------
Net Cash - Discontinued Operations -- 262,885
------------ -----------
Net Cash - Operating Activities - Forward (60,910) (889,345)
------------ -----------
Investing Activities - Continuing Operations:
Increase in Due from Related Parties -- (828)
Purchase of Investments -- (187,664)
Purchase of Property, Equipment, and Capitalized Software (22,338) (42,212)
Sale of Investments -- 2,566,858
------------ -----------
Net Cash - Investing Activities - Continuing Operations -
Forward $ (22,338) $ 2,336,154
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
7
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
2 0 0 0 1 9 9 9
------- -------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $ (60,910) $ (889,345)
------------- ------------
Net Cash - Investing Activities - Continuing Operations -
Forwarded (22,338) 2,336,154
-------------- ------------
Investing Activities - Discontinued Operations:
Purchase of Property and Equipment -- (29,715)
------------- ------------
Net Cash Investing Activities - Discontinued Operations -- (29,715)
------------- -------------
Financing Activities - Continuing Operations:
Proceeds from Issuance of Common Stock 250,000 --
Purchase of Treasury Stock -- (966,043)
Increase [Decrease] in Loan Payable to Shareholder 16,100 (130,000)
Proceeds from Note Payable 100,000 --
Payment of Notes Payable (5,850) (100,000)
Payment of Lease Payable (21,740) (7,453)
Decrease in Loan Receivable -- (274,762)
------------- -------------
Net Cash - Financing Activities - Continuing Operations 338,510 (1,478,258)
------------- -------------
Financing Activities - Discontinued Operations:
Proceeds from Long-Term Debt -- 50,000
Payment of Note Payable -- (41,500)
Payment of Lease Payable -- (5,769)
------------- ------------
Net Cash Financing Activities Discontinued Operations -- 2,731
------------- ------------
Net Increase [Decrease] in Cash and Cash Equivalents 255,262 (58,433)
Cash and Cash Equivalents - Beginning of Years (173,875) 67,535
-------------- ------------
Cash and Cash Equivalents - End of Years $ 81,387 $ 9,102
============= ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 8,751 $ 16,128
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Conversion of Preferred Stock into Common Stock $ 455 $ 396
Purchase of Assets under Capital Lease Financing $ -- $ 6,210
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
8
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited)
March 31, 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 three-month period ended
March 31, 2000, are not necessarily indicative of the results of
operations to be reported for the full year ending December 31,
2000.
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 which it
has as one of its subsidiaries, The Eminet Domain.
The sale resulted in a gain of $1,256,743 which is reflected in
other income. The transaction resulted in the Eminet Domain, Inc
being treated as a discontinued operation.
Note 3 - Major Customers
Income fees derived from major customers are tabulated as follow:
Three Months Ended
March 31,
2000 1999
(Unaudited)
Customer A (Software System) 425,000 --
Customer B (Software System) 225,000 --
Customer C (Software System) 210,000 --
Customer D (Software System) 325,000 --
Customer E (Software System) 120,000 --
Customer F (Software System) 375,000 --
9
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
March 31, 2000
Note 4 - 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.
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 Industries, 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.
10
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
March 31, 2000
Note 4 - Capital Stock - Continued
-------------------------
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 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.
In the first quarter of 2000, 250,000 share of common stock of the
company were issued to investors.
Note 5 - 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 6 - Business Agreements
-------------------
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.
11
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations Recent Developments
Result of Operations
---------------------
Three Months Ended March 31, 2000 and 1999
------------------------------------------
Net Revenues. The Company's revenues increased approximately 98% in
2000 over the same period in 1999. Revenues from operations in the
first quarter 2000 were $ 2,023,733 as compared with $ 29,000 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. The large resources allocated to sales and marketing in
1999 contributed to the revenue growth in the first quarter 2000.
Cost of Revenues. Cost of revenues decreased 60% in 2000 over the
same period in 1999. The decrease resulted from capitalized software
development costs, being written off in 1999. The Company expects
amortization of development costs to be consistent going forward.
Operating Expenses. Operating expenses increased by 17% or $ 192,621
in the first quarter 2000 over the same period in 1999. The increase
was largely due to global expansion efforts and increased support
staffing.
Provision for Doubtful Accounts. Provision for doubtful accounts in
the first quarter 2000 were $ -0- as compared with $ 325,335 for the
same period in 1999. The decrease resulted from management only
recording revenues when more than 50% of monies have been received
from a sale.
Other Income. Other income decreased by approximately $1,400,000 in
2000 over the same period in 1999. In 1999 a gain on sale of
$1,256,743 resulted from a percentage interest sold of the Company's
wholly owned subsidiary. A $170,000 gain was recognized in a full
and final settlement of a payable in 1999 as well.
Liquidity and Capital Resources
-------------------------------
Cash, cash equivalents and marketable securities, which consist
primarily of high risk, priced securities totaled $743,887 at March
31, 2000 compared to $3,384,029 at March 31, 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 in 1999. Management believes that cash
generated from current and future operations will be sufficient to
satisfy the Company's currently anticipated cash requirements.
12
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
Litigation - The Company is party to litigation arising from the
normal course of business. In management's' opinion, this litigation
will not materially affect the Company's financial position, results
of operations or cash flows.
Item 2. Changes in Securities
This Item is not applicable to the Company.
Item 3. Defaults upon Senior Securities
There are not defaults.
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
27 Financial Data Schedule
13
<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: May 16, 2000 By: /s/ Richard A. Iamunno
------------------------------------------
(Signature)
Richard A. Iamunno, President
And Chief Executive Officer
Date: May 16, 2000 By: /s/ Peter Lawson
-----------------------------------------
(Signature)
Peter Lawson, Chief Financial Officer
And Chief Operating Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ONLINE
GAMING SYSTEMS, LTD.'S FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 81,387
<SECURITIES> 662,500
<RECEIVABLES> 1,137,120
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,045,760
<PP&E> 608,848
<DEPRECIATION> (258,560)
<TOTAL-ASSETS> 5,680,171
<CURRENT-LIABILITIES> 1,621,200
<BONDS> 0
<COMMON> 14,294
0
90
<OTHER-SE> 3,932,177
<TOTAL-LIABILITY-AND-EQUITY> 5,680,171
<SALES> 2,023,733
<TOTAL-REVENUES> 2,023,733
<CGS> 106,192
<TOTAL-COSTS> 1,357,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,351
<INCOME-PRETAX> 550,577
<INCOME-TAX> 0
<INCOME-CONTINUING> 550,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 550,377
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
