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 June 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)
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 August 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 - June 30, 2000 (Unaudited)........ 3-4
Consolidated Statement of Income and Comprehensive
Income (Unaudited)............................................ 5
Consolidated Statement of Cash Flows - Three Months ended
June 30, 2000 (Unaudited) .................................... 6-7
Consolidated Statement of Cash Flows - Six Months ended
June 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..................................... 13-14
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings............................................. 15
Item 2. Changes In Securities......................................... 15
Item 3. Defaults Upon Senior Securities............................... 15
Item 4. Submission of Matters to a Vote of Securities Holders ........ 15
Item 5. Other Information ............................................ 15
Item 6. Exhibits and Reports on Form 8-K.............................. 15
Signatures.................................................... 16
<PAGE>
PART 1
Item 1. Financial Statements
The following unaudited financial Statements for the
period ended June 30, 2000, have been prepared by Online
Gaming Systems, Ltd. (the "Company") and Subsidiaries.
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Financial Statements
June 30, 2000
Page 2 of 18
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 2000
Assets:
Current Assets:
Cash $ 84,549
Investments 530,000
Prepaid Expenses 8,757
Other Current Assets 33,610
----------
Total Current Assets 656,916
----------
Property and Equipment - Net 318,956
----------
Equipment under Capitalized Lease - Net 185,285
----------
Other Assets
Other Assets 201,908
Investment 1,300,000
----------
Total Other Assets 1,501,908
----------
Total Assets $2,663,065
==========
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 3 of 18
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 2000
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 823,352
Notes Payable - Officers 112,350
Note Payable and Advances 1,082,868
Current Portion of Capital Lease Obligations 83,484
------------
Total Current Liabilities 2,102,054
Capital Lease Obligations 108,281
------------
2,210,335
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 Shares 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] (9,923,432)
Deferred Acquisition Costs (400,000)
------------
Total Stockholders' Equity 452,730
------------
Total Liabilities and Stockholders' Equity $ 2,663,065
============
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 4 of 18
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
------------------ ----------------
June 30, June 30,
-------- -------
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $ 611,956 $ 469,500 $ 1,927,085 $ 498,500
Cost of Sales 37,162 222,327 145,985 549,688
------------ ------------ ------------ ------------
Gross Profit [Loss] 574,794 247,173 1,781,100 (51,188)
------------ ------------ ------------ ------------
Operating Expenses:
General and Administrative 949,236 1,520,377 2,245,522 2,624,251
Provision for Doubtful Accounts and Notes -- 896,820 -- 1,222,155
Depreciation and Amortization 58,763 43,988 95,281 75,427
------------ ------------ ------------ ------------
Total Operating Expenses 1,007,999 2,461,185 2,340,803 3,921,833
------------ ------------ ------------ ------------
[Loss] Income from Operations (433,205) (2,214,012) (559,703) (3,973,021)
------------ ------------ ------------ ------------
Other [Expenses] Income:
Interest Income -- 22,766 -- 30,876
Interest Expense (12,140) (6,503) (21,491) (22,632)
Other Income [Expense] (1,200,000) (25,046) (1,200,000) 1,398,397
------------ ------------ ------------ ------------
Other [Expenses] Income - Net (1,212,140) (8,783) (1,221,491) 1,406,641
------------ ------------ ------------ ------------
[Loss] from Continuing Operations Before
Income Tax [Benefit] Expense (1,645,345) (2,222,795) (1,781,194) (2,566,380)
Income Tax [Benefit] Expense -- -- -- (123,691)
------------ ------------ ------------ ------------
[Loss] Income from Continuing Operations (1,645,345) (2,222,795) (1,781,194) (2,442,689)
Discontinued Operations:
[Loss] from Operations of
Discontinued Business Segment [Net
of Income Tax [Benefit] of ($0) and
$(30,521), for the six months ended
June 30, 2000 and 1999,
Respectively -- -- -- (54,261)
------------ ------------ ------------ ------------
Net [Loss] (1,645,345) (2,222,795) (1,781,194) (2,496,950)
Comprehensive Gain:
Unrealized Holding [Loss] Gain
arising during period (132,500) (692,074) (132,500) 52,169
------------ ------------ ------------ ------------
Total Comprehensive [Loss] $ (1,778,845) $ (2,914,869) $ (1,913,694) $ (2,444,781)
============ ============ ------------ ------------
Net [Loss] $ (1,645,345) $ (2,222,795) $ (1,781,194) $ (2,496,950)
Preferred Stock Dividend in Arrears 12,500 7,125 25,000 19,625
------------ ------------ ------------ ------------
Net [Loss] Available to
Common Stockholders $ (1,657,845) $ (2,229,920) $ (1,806,194) $ (2,516,575)
------------ ------------ ------------ ------------
[Loss] Per Common Share:
Continuing Operations $ (0.12) $ (0.17) $ (0.13) $ (0.20)
Basic and Diluted Net [Loss] Income
Per Share of Common Stock $ (0.12) $ (0.17) $ (0.13) $ (0.20)
Weighted Average Shares of Common
Stock Outstanding 14,096,360 12,984,561 14,003,112 12,784,845
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 5 of 18
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2 0 0 0 1 9 9 9
------- -------
<S> <C> <C>
Operating Activities:
[Loss] Income from Continuing Operations $(1,645,345) $(2,222,795)
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 58,763 264,830
Provision for Doubtful Accounts -- 896,820
Regulated Loss on Carrying Value of Investments 1,200,000 324
Loss on Sale of Subsidiary -- 24,722
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable -- 11,801
Prepaid Expenses (644) 25,627
Notes Receivable -- (106,765)
Restricted Cash -- (10,165)
Other Assets (12,231) --
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (43,263) 134,760
----------- -----------
Net Cash - Continuing Operations (442,720) (980,841)
----------- -----------
Investing Activities - Continuing Operations:
Purchase of Investments -- (200,000)
Purchase of Property, Equipment, and Capitalized Software -- (24,012)
Sale of Investments -- 69,236
----------- -----------
Net Cash - Investing Activities - Forward $ -- $ (154,776)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 6 of 18
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------
2 0 0 0 1 9 9 9
------- -------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $ (442,720) $ (980,841)
----------- -----------
Net Cash - Investing Activities - Continuing Operations -
Forwarded -- (154,776)
----------- -----------
Financing Activities - Continued Operations:
Purchase of Treasury Stock -- (9,250)
Proceeds from Issuance of Common Stock -- 217,369
Proceeds from Issuance of Preferred Stock -- 569,943
Increase in Loan Payable to Officer 16,000 263,750
Proceeds from Short Term Borrowings 450,000 110,000
Payment of Lease Payable (20,118) (13,130)
Decrease in Loan Receivable -- (49,524)
----------- -----------
Net Cash - Financing Activities 445,882 1,089,158
----------- -----------
[Decrease] Increase in Cash and Cash Equivalents 3,162 (46,459)
Cash and Cash Equivalents - Beginning of Period 81,387 9,102
----------- -----------
Cash and Cash Equivalents - End of Period $ 84,549 $ (37,357)
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 12,141 $ 17,214
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Purchase of Assets under Capital Lease Financing $ -- $ 67,778
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
Page 7 of 18
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2 0 0 0 1 9 9 9
------- -------
<S> <C> <C>
Operating Activities:
[Loss] Income from Continuing Operations $(1,781,194) $(2,442,689)
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 95,281 516,217
Deferred Tax Asset -- (123,691)
Provision for Doubtful Accounts -- 1,222,155
Loss on Sale of Assets -- 3,100
Realized Loss on Carrying Value of Investments 1,200,000 648
Gain on Sale of Subsidiary -- (1,231,750)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable -- 13,715
Prepaid Expenses 5,190 1,250
Notes Receivable -- (21,790)
Other Assets (18,116) 66,650
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 14,959 (106,364)
----------- -----------
Net Cash - Continuing Operations (483,880) (2,102,549)
----------- -----------
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 (483,880) (1,861,098)
----------- -----------
Investing Activities - Continuing Operations:
Increase in Due from Related Parties -- (828)
Purchase of Investments -- (318,429)
Purchase of Property, Equipment, and Capitalized Software (22,338) (66,222)
Sale of Investments -- 2,557,770
----------- -----------
Net Cash - Investing Activities - Continuing Operations -
Forward $ (22,338) $ 2,172,291
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
Page 8 of 18
<PAGE>
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
2 0 0 0 1 9 9 9
----------- -----------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $ (483,880) $(1,861,098)
----------- -----------
Net Cash - Investing Activities - Continuing Operations -
Forwarded (22,338) 2,172,291
----------- -----------
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 250,000 217,312
Proceeds from Issuance of Preferred Stock -- 570,000
Purchase of Treasury Stock -- (975,293)
[Decrease] Increase in Loan Payable to Officer 112,350 133,750
Payment of Notes Payable (5,850) (100,000)
Payment of Lease Payable (41,858) (20,584)
Decrease in Loan Receivable -- (324,286)
Proceeds from Short Term Borrowings 450,000 110,000
----------- -----------
Net Cash - Financing Activities 764,642 (389,101)
----------- -----------
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 258,424 (104,892)
Cash and Cash Equivalents - Beginning of Years (173,875) 67,535
----------- -----------
Cash and Cash Equivalents - End of Years $ 84,549 $ (37,357)
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 21,491 $ 24,719
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 $ -- $ 73,989
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 18
<PAGE>
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 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 six-month period ended
June 30, 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.
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 major customers are tabulated as follow:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Customer A (Software System) 150,000 -- 425,000 --
Customer B (Software System) 150,000 -- 225,000 --
Customer C (Software System) 150,000 -- 210,000 --
Customer D (Software System) -- -- 325,000 --
Customer E (Software System) -- -- 120,000 --
Customer F (Software System) -- 247,500 -- 247,500
Customer G (Software System) -- 60,000 -- 60,000
Customer H (Software System) -- 130,000 -- 130,000
</TABLE>
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)(Continued)
June 30, 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 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 ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARIES Notes to
Consolidated Financial Statements (Unaudited)(Continued) June 30,
2000
Page 11 of 18
<PAGE>
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)(Continued)
June 30, 2000
Note 4 - Capital Stock [Continued]
-------------------------
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.
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 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 of 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 the 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.
Page 12 of 18
<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 June 30, 2000 and 1999
-----------------------------------------
Net Revenues. The Company's revenues increased approximately 30% in
2000 over the same period in 1999. Revenues from operations in the
first quarter 2000 were $ 611,956, as compared with $ 469,500 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 increased 83% 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 36% or $ 556,366
in the second 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.
Provision for Doubtful Accounts. Provision for doubtful accounts in
the second quarter 2000 were $ 0 as compared with $ 896,820 for the
same period in 1999. The decrease resulted from management only
recording revenues when monies have been received from a sale.
Other Expense. Other expense increased by $1,200,000 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.
Six Months Ended June 30, 2000 and 1999
---------------------------------------
Net Revenues. The Company's revenues increased approximately 287% in
2000 over the same period in 1999. Revenues from operations for the
six months ended June 30, 2000 were $ 1,927,085, as compared with $
498,500 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 73% for the six months
ended June 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 18
<PAGE>
Operating Expenses. Operating expenses decreased by 16% or $ 358,875
for the six months ended June 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.
Provision for Doubtful Accounts. Provision for doubtful accounts for
the six months ended June 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.
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------------
Results of Operations
---------------------
Result of Operations - Continued
--------------------------------
Six Months Ended June 30, 2000 and 1999
---------------------------------------
Other Income. 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. Other expense increased by $1,200,000 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.
Liquidity and Capital Resources
-------------------------------
Cash, cash equivalents and marketable securities, which consist
primarily of high risk, priced securities totaled $614,549 at June
30, 2000 compared to $2,575,437 at June 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 14 of 18
<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 litigaiton
willnot 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
This Item is no 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 15 of 18
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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.
Date: August 21, 2000
Online Gaming Systems, Ltd.
By: /s/ Gary Ramos
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(Signature)
Gary Ramos/Chief Executive Officer
By: /s/ Peter Lawson
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(Signature)
Peter Lawson, President/
Chief Financial Officer
