<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
December 23, 1999
-------------
Date of Report
WOMEN.COM NETWORKS, INC.
----------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-26055 13-4059516
- --------------------------------------------------------------------------------
(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
1820 GATEWAY DRIVE, SUITE 100
SAN MATEO, CALIFORNIA 94404
--------------------------
(Address of principal executive offices)
(650) 378-6500
--------------
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The purpose of this Amendment is to amend Item 7 to provide certain
information with respect to the Acquisition (as defined below), which
information was impracticable to provide at the time the Registrant filed the
Current Report on Form 8-K dated December 23, 1999.
On December 10, 1999, Women.com Networks, Inc. ("Women.com" or "the
Company") acquired substantially all of the assets of World Gaming Corporation
("WGC"), a Pennsylvania corporation for $9.5 million in cash pursuant to an
Agreement and Plan of Merger and Reorganization, dated as of November 15, 1999.
Pursuant to the Agreement and Plan of Merger and Reorganization, WGC was merged
into a wholly-owned subsidiary of Women.com, WG Acquisition Corp., a
Pennsylvania corporation, and, as a result of the Merger, WCG became a
wholly-owned subsidiary of Women.com.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
-----------------------------------------
See Exhibit 99.1 for the Audited Financial Statements of World
Gaming Corporation.
(b) Unaudited Pro Forma Financial Information
-----------------------------------------
Overview
Unaudited Pro Forma Combined Condensed Balance Sheet as of
September 30, 1999
Unaudited Pro Forma Combined Condensed Statement of Operations
for the Year Ended December 31, 1998 and for the Nine Months
Ended September 30, 1999
Notes to the Unaudited Pro Forma Combined Condensed Financial
Statements
2
<PAGE> 3
WOMEN.COM
UNAUDITED PROFORMA FINANCIAL INFORMATION
(overview)
The following unaudited pro forma combined condensed financial statements
give effect to the following transactions.
HEARST HOMEARTS INC AGREEMENT
Effective January 29, 1999, Women.com Networks entered into a joint venture
agreement with Hearst HomeArts Inc. ("HomeArts"), a subsidiary of The Hearst
Corporation. Under the terms of the agreement, Women.com Networks and HomeArts
contributed their businesses to Women.com Networks LLC. Under the terms of the
agreement Women.com Networks and HomeArts each have fifty percent voting
interest, except that, Women.com Networks had the sole authority to initiate an
initial public offering. In addition, senior management of the joint venture is
comprised solely of Women.com Networks management. Given these facts and that
Women.com, on a fully diluted basis owned 53.6% of Women.com Networks LLC,
Women.com was determined to be the accounting acquirer pursuant to Staff
Accounting Bulletin Topic 2-A2. The acquisition has been accounted for using the
purchase method of accounting and accordingly the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities assumed
on the basis of their respective fair values on the acquisition date. The fair
value of net assets acquired was determined by an independent appraiser.
The acquisition has been structured as a tax free exchange of stock,
therefore, the differences between the recognized fair values of acquired
assets, including tangible assets, and their historical tax bases are not
deductible for tax purposes.
Prior to entering into the joint venture agreement with Women.com, The
Hearst Corporation acquired Astronet Inc, an online astrology site. Astronet,
Inc. ("Astronet") was part of the business contributed by HomeArts to Women.com
Networks LLC. The acquisition was accounted for using the purchase method and
the operations of Astronet have been included in the historical financial
statements of HomeArts from December 24, 1998, the date of acquisition. The
total purchase price was approximately $5.0 million of which approximately
$200,000 was allocated to net tangible assets and $4.8 million was allocated to
intangibles and goodwill.
WORLD GAMING CORPORATION ACQUISITION
Effective December 10, 1999 Women.com completed its acquisition of
substantially all of the assets of World Gaming Corporation ("WGC"), a
Pennsylvania corporation for $9.5 million in cash. The transaction was accounted
for using the purchase method; accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based on their fair market values at
the date of acquisition.
3
<PAGE> 4
WOMEN.COM
UNAUDITED PROFORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial
statements of operations for the year ended December 31, 1998 and the nine
months ended September 30, 1999 gives effect to the acquisitions noted above as
if they had occurred on January 1, 1998 and January 1, 1999, respectively for
the unaudited pro forma combined condensed statements of operations, by
combining the results of operations of WGC and HomeArts and Astronet with
results of operations of Women.com for the respective periods. The unaudited pro
forma combined condensed balance sheet gives effect to the acquisition of WGC as
if it had occurred on September 30, 1999.
The unaudited combined condensed pro forma financial information
presented herein should be read in conjunction with the historical financial
statements and related notes of Women.com and HomeArts included in Women.com's
Form S-1, as amended, filed in October 1999, the unaudited historical financial
statements and related notes of Women.com in Women.com's Form 10-Q, filed in
November 1999 and WGC's historical financial statements and related notes
included elsewhere in this Form 8-K/A.
The unaudited pro forma combined statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods presented
and should not be construed as being representative of future operating results.
4
<PAGE> 5
WOMEN.COM
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------
WORLD
GAMING PRO FORMA PRO FORMA
WOMEN.COM CORPORATION ADJUSTMENT COMBINED
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................ $ 40,504 $ 240 $ (9,500)(D) $ 31,244
Accounts receivable, net................................. 5,927 433 -- 6,360
Accounts receivable, related party....................... 1,111 -- -- 1,111
Prepaid and other current assets......................... 6,528 5 -- 6,533
-------- -------- -------- --------
Total current assets....................................... 54,070 678 (9,500) 45,248
Property and equipment, net................................ 5,594 302 -- 5,896
Intangible assets, net..................................... 50,902 -- 8,924 (D) 59,826
Other assets............................................... 2,906 2 -- 2,908
-------- -------- -------- --------
Total Assets............................................... $113,472 $ 982 $ (576) $113,878
======== ======== ======== ========
Liabilities, mandatorily redeemable convertible preferred
stock warrants and stockholders' equity .................
Current liabilities
Accounts payable......................................... $ 5,216 $ 65 $ -- $ 5,281
Accounts payable, related party.......................... 761 136 -- 897
Accrued liabilities...................................... 3,928 169 -- 4,097
Accrued compensation and related benefits................ 1,113 -- -- 1,113
Current portion of capital lease obligation.............. -- 13 -- 13
Deferred revenue......................................... 2,324 -- -- 2,324
-------- -------- -------- --------
Total current liabilities.................................. 13,342 383 -- 13,725
Capital lease obligations, net of current portion.......... -- 23 -- 23
-------- -------- -------- --------
Total liabilities........................................ 13,342 406 -- 13,748
-------- -------- -------- --------
Stockholders' equity:
Common stock........................................... 38 7 (7) (D) 38
Additional paid in capital............................. 178,046 2,641 (2,641)(D) 178,046
Notes receivable from stockholders..................... (44) -- -- (44)
Unearned compensation.................................. (4,221) -- -- (4,221)
Accumulated deficit.................................... (73,689) (2,072) 2,072 (D) (73,689)
-------- -------- -------- --------
Total stockholders' equity............................... 100,130 576 (576) 100,130
-------- -------- -------- --------
Total liabilities, mandatorily redeemable convertible
preferred stock warrants and stockholders'
equity ................................................ $113,472 $ 982 $ (576) $113,878
======== ======== ======== ========
</TABLE>
5
<PAGE> 6
WOMEN.COM
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
PERIOD
JANUARY 1,
1998 THROUGH YEAR ENDED DECEMBER 31, 1998
DECEMBER 23, ------------------------------------------------------------------
1998 WOMEN.COM/
---------- HOMEARTS HOMEARTS
ASTRONET HOMEARTS ADJUSTMENTS PRO FORMA WOMEN.COM ADJUSTMENTS PRO FORMA
-------- -------- ----------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $1,446 $ 2,957 $ -- $ 4,403 $ 7,247 $ -- 11,650
------ -------- ------- -------- -------- -------- ----------
Operating expenses:
Production, product
and technology...... 1,192 8,095 -- 9,287 5,728 -- 15,015
Sales and marketing... 357 8,625 -- 8,982 12,042 -- 21,024
General and
administrative...... 410 970 -- 1,380 1,374 -- 2,754
Stock-based
compensation........ -- -- -- -- 1,170 -- 1,170
Amortization of
acquired
intangibles......... -- -- 1,587(A) 1,587 517 19,723 (B) 21,827
Asset impairment
charge.............. -- -- -- -- -- -- --
------ -------- ------- -------- -------- -------- ----------
Total operating
expenses............ 1,959 17,690 1,587 21,236 20,831 19,723 61,790
------ -------- ------- -------- -------- -------- ----------
Loss from operations.... (513) (14,733) (1,587) (16,833) (13,584) (19,723) (50,140)
Other income, net....... -- -- -- -- 596 -- 596
Interest expense........ -- -- -- -- (57) -- (57)
------ -------- ------- -------- -------- -------- ----------
Net loss................ (513) (14,733) (1,587) (16,833) (13,045) (19,723) (49,601)
Dividend accretion on
mandatorily redeemable
convertible preferred
stock................. -- -- -- -- (570) -- (570)
------ -------- ------- -------- -------- -------- ----------
Net loss attributable to
common stockholders... $ (513) $(14,733) $(1,587) $(16,833) $(13,615) $(19,723) (50,171)
====== ======== ======= ======== ======== ======== ==========
Basic and diluted pro
forma net loss per
share.................
Shares used in computing
pro forma basic and
diluted net loss per
share.................
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------
WOMEN.COM/ WORLD
HOMEARTS GAMING WOMEN.COM
PRO FORMA CORPORATION ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues............ 11,650 33 -- $ 11,683
---------- -------- -------- --------
Operating expenses:
Production, product
and technology...... 15,015 80 -- 15,095
Sales and marketing... 21,024 -- -- 21,024
General and
administrative...... 2,754 75 -- 2,829
Stock-based
compensation........ 1,170 -- -- 1,170
Amortization of
acquired
intangibles......... 21,827 -- 2,975 (C) 24,802
Asset impairment
charge.............. -- 1,000 -- 1,000
---------- -------- -------- --------
Total operating
expenses............ 61,790 1,155 2,975 65,920
---------- -------- -------- --------
Loss from operations.... (50,140) (1,122) (2,975) (54,237)
Other income, net....... 596 (2) -- 594
Interest expense........ (57) (2) -- (59)
---------- -------- -------- --------
Net loss................ (49,601) (1,126) (2,975) (53,702)
Dividend accretion on
mandatorily redeemable
convertible preferred
stock................. (570) -- -- (570)
---------- -------- -------- --------
Net loss attributable to
common stockholders... (50,171) (1,126) (2,975) $(54,272)
========== ======== ======== ========
Basic and diluted pro
forma net loss per
share................. $ (1.71)
========
Shares used in computing
pro forma basic and
diluted net loss per
share................. 29,347 (E)
========
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------
WOMEN.COM/ WORLD
HOMEARTS GAMING
WOMEN.COM HOMEARTS ADJUSTMENTS PRO FORMA CORPORATION ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.......................... $ 16,667 $ 250 $ -- $ 16,917 $1,586 $ -- $ 18,503
--------- -------- --------- ---------- ------ --------- --------
Operating expenses:
Production, product and technology.. 15,291 671 -- 15,962 950 -- 16,912
Sales and marketing................. 26,622 752 -- 27,374 -- -- 27,374
General and administrative.......... 5,780 28 -- 5,808 332 -- 6,140
Stock-based compensation............ 2,392 -- -- 2,392 1,089 -- 3,481
Amortization of acquired
intangibles....................... 14,817 133 1,691 (B) 16,641 -- 2,231 (C) 18,872
-------- -------- --------- ----------- ------- --------- --------
Total operating expenses............ 64,902 1,584 1,691 68,177 2,371 2,231 72,779
-------- -------- --------- ----------- ------- --------- --------
Loss from operations.................. $(48,235) (1,334) (1,691) (51,260) (785) (2,231) (54,276)
Other income, net..................... 838 -- -- 838 4 -- 842
Interest expense...................... (43) -- (1,691) (43) (13) -- (56)
-------- -------- --------- ----------- ------- --------- --------
Net loss.............................. (47,440) (1,334) (1,691) (50,465) (794) (2,231) (53,490)
Dividend accretion on mandatorily
redeemable convertible preferred
stock............................... (295) -- -- (295) -- -- (295)
-------- -------- --------- ----------- ------- --------- --------
Net loss attributable to common
stockholders....................... $(47,735) $ (1,334) $ (1,691) $ (50,760) $ (794) $ (2,231) $(53,785)
======== ======== ========= =========== ======= ========= ========
Basic and diluted pro forma $ (1.56)
net loss per share.................. ========
Shares used in computing pro
forma basic and diluted net
loss per share..................... 34,433 (E)
=======
</TABLE>
7
<PAGE> 8
WOMEN.COM NETWORKS, INC.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
The following adjustments were applied to Women.com's historical financial
statements and those of HomeArts, Astronet and WGC to arrive at the pro forma
financial information.
(A) The HomeArts and Astronet historical financial information for 1998
were adjusted to record the amortization of goodwill related to the
acquisition of Astronet as if the transaction occurred January 1,
1998. Goodwill recorded in relation to the acquisition was $4.8
million and is being amortized on a straight-line basis over three
years following the acquisition.
(B) The pro forma HomeArts and Women.com financial information for 1998
and 1999 were adjusted to record the amortization of intangible
assets and goodwill related to Women.com's acquisition of HomeArts as
if the transaction occurred January 1, 1998 as follows (in
thousands).
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
----------------------------
NINE MONTHS
YEAR ENDED ENDED
AMORTIZATION DECEMBER 31, SEPTEMBER 30,
AMOUNT PERIOD 1998 1999
------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Advertiser base............... $ 4,041 2 years $2,021 1,516
Viewership base............... 8,265 3 years 2,755 2,066
Assembled workforce........... 1,772 5 years 354 266
Goodwill...................... 48,889 3 years 16,296 12,222
</TABLE>
(C) The pro forma Women.com financial information for 1998 and 1999 was
adjusted to record amortization of intangible assets and goodwill
related to Women.com's acquisition of WGC as if the transaction
occurred January 1, 1998 and January 1, 1999, respectively. The
goodwill and other intangibles, primarily viewership base, recorded
in relation to the acquisition was $8.9 million and is being
amortized on a straight-line basis over three years following the
acquisition.
(D) The pro forma Women.com and WGC historical balance sheets as at
September 30, 1999 were adjusted to reflect the cash consideration
paid for the acquisition of WGC by Women.com as if the transaction
occurred at September 30, 1999.
8
<PAGE> 9
(E) Pro forma basic and diluted net loss per share for the year ended
December 31, 1998 and the nine months ended September 30, 1999, is
computed using the weighted average number of common shares
outstanding, including the pro forma effects of the conversion of
Women.com's convertible preferred stock and units effective upon the
consummation of the merger and the roll-up of Women.com Networks LLC
completed on August 4, 1999 as if such conversion occurred on January
1, 1998 or at date of original issuance, if later and the shares
issued in conjunction with the acquisition as if such shares were
outstanding from January 1, 1998, for the year ended December 31,
1998 and for the nine months ended September 30, 1999.
(c) Exhibits
--------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
2.1* Agreement and Plan of Merger and
Reorganization, dated as of November 15,
1999, by and among Women.com Networks,
Inc., a Delaware corporation, WG
Acquisition Corp, a Pennsylvania
corporation, World Gaming Corporation, a
Pennsylvania corporation, and the
principal stockholders of World Gaming
Corporation.
23.1 Consent of Smart & Associates, LLP.
99.1 World Gaming Corporation Audited
Financial Statements.
</TABLE>
----------
* Previously filed
9
<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WOMEN.COM NETWORKS, INC.
Date: February 22, 2000 /s/ Michael Perry
----------------------------------
Michael Perry
Chief Financial Officer
10
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
2.1* Agreement and Plan of Merger and Reorganization, dated as
of November 15, 1999, by and among Women.com Networks,
Inc., a Delaware corporation, WG Acquisition Corp, a
Pennsylvania corporation, World Gaming Corporation, a
Pennsylvania corporation, and the principal stockholders
of World Gaming Corporation.
23.1 Consent of Smart & Associates, LLP.
99.1 World Gaming Corporation Audited Financial Statements.
</TABLE>
- ----------
* Previously filed
<PAGE> 1
EXHIBIT 23.1
CONSENT OF SMART & ASSOCIATES, LLP
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-89753) of Women.com Networks, Inc., of our report
dated December 6, 1999 relating to the financial statements of World Gaming
Corporation which appears in the Current Report of Form 8-K/A of Women.com
Networks, Inc. dated December 23, 1999.
/s/ SMART & ASSOCIATES, LLP
- -----------------------------------------
SMART & ASSOCIATES, LLP
Philadelphia, Pennsylvania
February 22, 2000
<PAGE> 1
EXHIBIT 99.1
WORLD GAMING CORPORATION
---------------------
FINANCIAL STATEMENTS
For the nine months ended September 30, 1999
and the year ended December 31, 1998
AND REPORT THEREON
<PAGE> 2
INDEX OF FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants 1
Balance Sheets as of December 31, 1998 and September 30, 1999 2
Statements of Operations for the Year Ended December 31, 1998 and
for the Nine Months Ended September 30, 1999 3
Statements of Changes in Stockholders' Equity (Deficit) for
the Year Ended December 31, 1998 and for the Nine Months
Ended September 30, 1999 4
Statements of Cash Flows for the Year Ended December 31, 1998
and for the Nine Months Ended September 30, 1999 5
Notes to Financial Statements 6
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
World Gaming Corporation
Philadelphia, Pennsylvania
We have audited the accompanying balance sheets of World Gaming as of September
30, 1999 and December 31, 1998 and the related statements of operations,
changes in stockholders' equity (deficit) and cash flows for the nine months
ended September 30, 1999 and the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of World Gaming Corporation at
September 30, 1999 and December 31, 1998, and the results of its operations and
its cash flows for the nine months ended September 30, 1999, and year ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ SMART & ASSOCIATES, LLP
December 6, 1999
1
<PAGE> 4
WORLD GAMING CORPORATION
Balance Sheets
September 30, 1999 and December 31, 1998
------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 240,186 $ 43,774
Accounts receivable 432,698 19,123
Prepaid expenses 5,212 505
----------- -----------
Total current assets 678,096 63,402
----------- -----------
Property and equipment, net 302,065 272,935
Security deposits 1,800 1,800
----------- -----------
Total assets $ 981,961 $ 338,137
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 65,021 $ 36,093
Accrued expenses 168,790 18,426
Loans payable -- related parties 136,000 138,686
Note payable -- 30,000
Capital lease obligations -- current 12,824 2,748
----------- -----------
Total current liabilities 382,635 225,953
Capital lease obligations -- net of current portion 23,525 6,891
----------- -----------
Total liabilities 406,160 232,844
----------- -----------
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, no par; $.001 stated value;
15,000,000 shares authorized; 7,097,187 and
6,887,187 shares, respectively issued and
outstanding 7,097 6,887
Additional paid-in capital 2,640,436 1,376,346
Accumulated deficit (2,071,732) (1,277,940)
----------- -----------
Total stockholders' equity 575,801 105,293
----------- -----------
Total liabilities and stockholders' equity $ 981,961 $ 338,137
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
WORLD GAMING CORPORATION
Statements of Operations
For the nine months ended
September 30, 1999 and the year ended December 31, 1998
<TABLE>
<CAPTION>
January 1, 1999 Year ended
to September 30, December 31,
1999 1998
---------------- ------------
<S> <C> <C>
Revenues, net
Royalty income................................ $1,583,167 $ 10,523
Consulting income............................. 3,050 22,575
---------- -----------
Total revenues, net......................... 1,586,217 33,098
---------- -----------
Other operating expenses........................ 950,380 80,033
General and administrative expenses............. 1,420,809 75,075
Asset impairment charge......................... -- (1,000,000)
---------- -----------
Loss from operations........................ 784,972 1,122,010
---------- -----------
Other income (expense):
Interest income............................... 1,380 736
Interest expense.............................. (13,378) (2,333)
Gain (loss) on disposal of property and
equipment................................... 3,178 (2,493)
---------- -----------
Total other income (expense)................ (8,820) (4,090)
---------- -----------
Loss before provision from income taxes......... $ (793,792) $(1,126,100)
Provision for income taxes -- --
---------- -----------
Net loss.................................... $ (793,792) $(1,126,100)
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
WORLD GAMING CORPORATION
Statement of Changes in Stockholders' Equity (Deficit)
For the nine months ended September 30, 1999,
and the year ended December 31, 1998
--------------------
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
--------------------- ----------------------
ISSUED AND ISSUED AND ADDITIONAL TOTAL
OUTSTANDING OUTSTANDING PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- -------- ----------- --------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 5,500,000 $5,500 - $ - $ 49,036 $ (151,840) $ (97,304)
Issuance of common for
software license 1,000,000 1,000 - - 999,000 - 1,000,000
Issuance of 328,750 shares
of preferred stock - - 328,750 328,750 - - 328,750
Issuance costs of
preferred stock offering - - - - (48,977) - (48,977)
Issuance of 5% preferred
stock dividend - - 16,437 16,437 (16,437) - -
Conversion of all preferred
stock to common stock 345,187 345 (345,187) (345,187) 344,842 - -
Issuance of common stock
for consulting services 42,000 42 - - 41,958 - 42,000
Corporation expenses paid by
majority stockholder - - - - 6,924 - 6,924
Net loss - - - - - (1,126,100) (1,126,100)
----------- -------- ----------- --------- ------------ ----------- -----------
Balance at December 31, 1998 6,887,187 6,887 - - 1,376,346 (1,277,940) 105,923
Issuance of common stock to
extinguish note payable 30,000 30 - - 29,970 - 30,000
Exercise of warrants 30,000 30 - - 270 - 300
Issuance of common stock for
employee services 150,000 150 - - 149,850 - 150,000
Distribution of equipment to
majority stockholder - - - - (5,000) - (5,000)
Issuance of compensating options
to employees - - - - 1,089,000 - 1,089,000
Net loss - - - - - (793,792) (793,792)
----------- -------- ----------- --------- ------------ ----------- -------------
Balance at September 30, 1999 7,097,187 $7,097 - $ - $2,640,436 $(2,071,732) $ 575,801
=========== ======== =========== ========= ============ =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 7
WORLD GAMING CORPORATION
Statements of Cash Flows
For the nine months ended September 30, 1999
and the year ended December 31, 1998
Increase (decrease) in cash and cash equivalents
------------
<TABLE>
<CAPTION>
JANUARY 1, 1999 YEAR ENDED
TO SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (793,792) $(1,126,100)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Corporation expenses paid by majority stockholder -- 6,924
Common stock issued in exchange for services -- 42,000
Common stock issued for services 150,000 --
Asset impairment charge -- 1,000,000
Loss (gain) on disposal of property and equipment (3,178) 2,493
Compensation expense from stock options issued 1,089,000 --
Depreciation and amortization 26,989 11,053
Increase in security deposits -- (1,800)
Increase in accounts receivable (413,575) (19,123)
Increase in prepaid expenses (4,707) (373)
Increase (decrease) in accounts payable 28,928 (13,306)
Increase in accrued expenses 150,364 15,458
----------- -----------
Net cash provided by (used in) operating activities 230,029 (82,774)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment and net cash
used in investing activities (24,661) (264,573)
----------- -----------
Cash flows from financing activities:
Proceeds from loans from related parties -- 138,803
Repayments of loans from related parties (3,800) (27,117)
Repayments of capital leases (5,456) (338)
Proceeds from the issuance of preferred stock -- 328,750
Preferred stock issuance costs -- (48,977)
Proceeds from exercise of common stock warrants 300 --
----------- -----------
Net cash provided by (used in) financing activities (8,956) 391,121
----------- -----------
Net increase in cash and cash equivalents 196,412 43,774
Cash and cash equivalents at beginning of period 43,774 --
----------- -----------
Cash and cash equivalents at end of period $ 240,186 $ 43,774
=========== ===========
Schedule of supplemental cash flow information:
Cash paid during the period for interest $ 2,964 $ 317
=========== ===========
Supplemental schedule of noncash investing and financing activities:
Capital leases incurred in connection with the acquisition
certain property and equipment $ 32,166 $ 9,977
Notes incurred in connection with acquisition of
certain property and equipment 1,114 --
Distribution of equipment to majority stockholder 5,000 --
Issuance of common stock to extinguish note payable 30,000 --
Conversion of all preferred stock to common stock -- 345
Issuance of common stock for software license -- 1,000,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
WORLD GAMING CORPORATION
Notes to Financial Statements
September 30, 1999 and December 31, 1998
_____________________
1. Nature of Operations and Summary of Significant Accounting Policies:
This summary of significant accounting policies of World Gaming Corporation
(Corporation) is presented to assist in the understanding of the Corporation's
financial statements. The financial statements and notes are representations of
the Corporation's management who is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.
Nature of Operations:
World Gaming Corporation is an interactive technologies and services
company that markets content that service the interactive
entertainment industry for the Internet. The Corporation markets its
services through co-marketing or "hosting" agreements and strategic
alliances in the entertainment, communications, software content and
technology market sectors.
The Corporation's business is licensing application-specific software
technologies to other content providers. These applications are
focused in the area of online entertainment. Unlike other game
companies, the Corporation's business model is not to build a gaming
destination, but rather to increase the amount of time a visitor
spends at a website, thereby generating more advertising impressions.
As of September 30, 1999, the Company had one operating online game,
"bingo", which offers incentive prizes.
Prior to October 1, 1998, the Corporation was considered a development
stage enterprise and was primarily engaged in raising capital,
financial planning, establishing sources of supply and acquiring
property and equipment. After September 30, 1998, the Corporation
provided an internet game at various websites which generated royalty
income from the sale of advertising on those internet websites.
As described in note 14, the Corporation has entered into an agreement
for the sale of all outstanding shares of the Corporation's common
stock.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
6
<PAGE> 9
WORLD GAMING CORPORATION
Notes to Financial Statements
September 30, 1999 and December 31, 1998
_____________________
1. Nature of Operations and Summary of Significant Accounting Policies
(continued):
Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Corporation considers
all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
Property and Equipment:
Property and equipment are stated at cost. Maintenance, repairs and
minor renewals are expensed as incurred. When assets are retired or
otherwise disposed of, their cost and related accumulated depreciation
are removed from the accounts and the resulting gain or loss is
included in operations. Depreciation and amortization are calculated
on a straight-line basis over the shorter of the lease term or the
estimated useful lives of the assets.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related to differences between the bases of assets and
liabilities for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes are
also recognized for operating losses that are available to offset
future income taxes. Valuation allowances are provided against assets
which are not likely to be realized.
Revenue Recognition:
The Corporation recognizes royalty income, net of discounts and
allowances, from the sale of advertising on the internet websites
which use its applications technology. Consulting revenue represents
revenue received for services performed by the chief financial officer
of the Corporation for a related party.
Stock-Based Compensation:
In 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
which allows an entity to use a fair value-based method for valuing
stock-based compensation cost at the grant date based on the fair
value of the award. Compensation is then recognized over the service
period, which is usually the vesting period. Alternatively, the
statement permits entities to elect accounting for employee stock
options and similar instruments under Accounting Principles Board
Opinion ("APB") 25, "Accounting for Stock Issued to Employees" and its
related interpretations using the intrinsic value method. Entities
that elect to account for stock options using APB 25 are required to
make pro forma disclosures of net income, as if the fair value-based
method of accounting defined in SFAS No. 123 had been applied
7
<PAGE> 10
WORLD GAMING CORPORATION
Notes to Financial Statements, continued
September 30, 1999 and December 31, 1998
-------------------
1. Nature of Operations and Summary of Significant Accounting Policies,
continued:
Stock-Based Compensation, continued:
Stock-based compensation issued to employees is recognized using the intrinsic
value method. For disclosure purposes, pro-form information is provided as if
the fair value method had been applied. Stock issued to non-employees for
services rendered is valued at the fair value of those services.
2. Property and Equipment:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Equipment and furniture under capital lease $ 40,553 $ 10,277
Equipment and furniture 10,201 15,709
Purchased computer software 250,000 250,000
Web site 31,737 7,500
-------- --------
332,491 283,486
Less accumulated amortization and depreciation (30,426) (10,551)
-------- --------
$302,065 $272,935
======== ========
</TABLE>
Depreciation and amortization expense for the nine months ended September 30,
1999 and the year ended December 31, 1998 was $26,989 and $11,053, respectively.
Accumulated amortization on equipment and furniture under capital leases was
$7,617 and $714 at September 30, 1999 and December 31, 1998, respectively.
3. Asset Impairment:
In March, 1998, the Corporation entered into a licensing agreement for a network
infrastructure (e.g. source code) to support future games and software
development. The Corporation exchanged 1,000,000 shares of common stock for the
license agreement which was determined to have a fair value of $1,000,000 based
on the estimated market value of $1.00 per share. Subsequently, management
decided to abandon the license and replace the network infrastructure with
purchased software. Pursuant to SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Corporation
evaluated the recoverability of this license, and the unamortized cost was
written down to a net realizable value of zero.
4. Purchased Computer Software:
In July, 1998, the Corporation signed a $1,000,000 contract with an internet
game developer to develop ten games. The Corporation advanced $250,000 to the
developer, and one internet game was delivered in 1998 with a capitalized cost
of $50,000. Subsequently, the Corporation and developer agreed to the
development of five games in addition to the game delivered in 1998 for the
amount of $250,000. The balance of $750,000 due and the remaining games to be
developed under the original contract were cancelled by mutual agreement of the
parties. (See Note 8)
8
<PAGE> 11
WORLD GAMING CORPORATION
Notes to Financial Statements, continued
September 30, 1999 and December 31, 1998
-------------------
4. Purchased Computer Software, continued:
Amortization of the $50,000 relating to the one software game received in 1998
was $12,500 and $4,167 for the period ended September 30, 1999 and year ended
December 31, 1998. Subsequent to September 30, 1999, the remaining five internet
games under the modified arrangement were received by the Corporation and the
amortization of the $200,000 relating to these games commenced.
5. Note Payable:
During the period ended September 30, 1999, the holder of a $30,000 note payable
agreed to exchange the note for 30,000 shares of common stock. The exchange was
recorded based on the estimated market value of $1.00 per share of common stock.
6. Capital Lease Obligations:
The Corporation acquired property and equipment under lease agreements which
have been recorded as capitalized lease obligations. The capital lease
obligations are guaranteed by the majority stockholder, require monthly payments
ranging from $37 to $1,030 and expire through July, 2002.
Future scheduled minimum lease payments under capital leases at September 30,
1999 are as follows:
<TABLE>
<CAPTION>
For the years ending December 31,
- ---------------------------------
<S> <C>
1999 $ 4,464
2000 17,846
2001 17,269
2002 5,111
--------
Total minimum lease payments 44,690
Less imputed interest (8,341)
--------
Present value of capitalized lease payments 36,349
Less current portion (12,824)
--------
Long-term capitalized lease obligations $ 23,525
========
</TABLE>
7. Stockholders' Equity:
Convertible Preferred Stock:
During 1998, the Corporation issued 328,750 shares of convertible preferred
stock at par value ($1.00) in a private placement offering. The preferred stock,
which was convertible into common stock on a one-for-one basis, was converted
during 1998. Prior to the conversion, the Corporation issued a 5% preferred
stock dividend (16,437 shares) to the holders of the preferred stock.
9
<PAGE> 12
WORLD GAMING CORPORATION
Notes to Financial Statements, continued
September 30, 1999 and December 31, 1998
---------------
7. Stockholders' Equity, continued:
Stock Purchase Warrants:
At December 31, 1998, the Corporation had outstanding warrants to
purchase 30,000 shares of common stock in connection with services
previously rendered. In September, 1999 the warrants were exercised at
the established exercise price of $.01 per share.
8. Related Party Transactions:
Included in "Loans payable-related parties" is a $136,000 demand loan
payable to one of its stockholders bearing interest at 8% annually.
Interest expense was $8,477 and $1,950 for the period ended September 30,
1999 and the year ended December 31, 1998, respectively.
During 1998, the majority stockholder of the Corporation entered into a
four-year employment agreement to become the Director of Strategic Planning
and Corporate Development and the chief financial officer of the
Corporation agreed to act as the chief financial officer of the company
that is developing internet games for the Corporation (see note 4). The
Corporation's majority stockholder was also granted stock options to
purchase 5% of the related company at $.01 per share with an expiration
date of ten years from the grant date. The foregoing employment
relationships ended and the stock options held by the Corporation's
majority stockholder were exercised upon the sale of the related company
in February 1999.
The Corporation leases office space from the Corporation's majority
stockholder under a lease which expires in 2003. The lease has an option to
renew for an additional five years. Rent expense was $14,895 and $4,965 for
the period ended September 30, 1999 and the year ended December 31, 1998.
The Corporation is also responsible for one-third of the real estate taxes
and expenses of maintaining and operating the facility.
Future minimum lease payments as of September 30, 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C>
For the years ended December 31,
1999....................................$ 4,965
2000.................................... 19,860
2001.................................... 19,860
2002.................................... 19,860
2003.................................... 14,895
-------
$79,440
=======
</TABLE>
10
<PAGE> 13
WORLD GAMING CORPORATION
Notes to Financial Statements, continued
September 30, 1999 and December 31, 1998
__________________
9. Commitments and Contingencies:
The Corporation has a network affiliation agreement with 24/7 Media, Inc.
to sell advertising on the Corporation's web site for the Corporation's
bingo internet game. Additionally, the Corporation has two "hosting"
agreements with Multi-Player Games, Inc. (MPG Net) and Frontier
Publications, Inc. (Frontier). In the agreement with MPGNet, the
Corporation earns royalties consisting of a percentage of the revenue
from the advertising fees generated. The agreement with MPG Net expires
in the year 2001. Frontier, as part of their agreement, provides
marketing for the Corporation's bingo website in return for royalty
payments from the Corporation. The agreement with Frontier expires in the
year 2002. The contract with 24/7 Media, Inc. was terminated on October
31, 1999 by mutual consent of both parties.
The Corporation offers incentive prizes to the internet customers who
play the Corporation's bingo game on the various websites. Rewards are
issued to winners of bingo games and can be redeemed for cash or prizes.
The minimum amount of rewards that must be accumulated for redemption is
1,500 for either cash or a prize worth $10.00. As of September 30, 1999,
there were approximately 17.1 million rewards outstanding that
potentially could be redeemed for cash or prizes. Because the Corporation
has minimal history on which to base its liability for incentive prizes,
the estimated liability ranges from $30,000 to $120,000. Management's
best estimate of the liability is approximately $90,000, which has been
recorded as other operating expenses and included in accrued expenses.
10. Income taxes:
The provision (benefit) for income taxes consisted of the following
components:
<TABLE>
<CAPTION>
January 1, 1999 to Year ended
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Currently payable $ -- $ --
------- ---------
Deferred
Federal (9,000) (386,000)
State (5,000) (143,000)
------- ---------
(14,000) (529,000)
------- ---------
Valuation allowance 14,000 529,000
------- ---------
Provision for income taxes $ -- $ --
======= =========
</TABLE>
11
<PAGE> 14
WORLD GAMING CORPORATION
Notes to Financial Statements, continued
September 30, 1999 and December 31, 1998
----------
10. Income Taxes, continued:
At September 30, 1999, the Corporation had net operating loss
carryforwards for federal and state income tax purposes of approximately
$465,000 that may be offset against future taxable income. If not used,
the carryforwards will expire as follows:
<TABLE>
<CAPTION>
Years ending December 31,: Federal State
-------------------------- -------- --------
<S> <C> <C>
2008.........................................$ -- $257,000
2009......................................... -- 208,000
2018......................................... 257,000 --
2019......................................... 208,000 --
-------- --------
$465,000 $465,000
======== ========
</TABLE>
Pursuant to the subsequent change in ownership of the corporation expected
in December 1999, the net operating losses will be subject to annual
limitations on their utilization.
Significant components of the Corporation's deferred tax assets for
federal and state income tax purposes were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Capitalized computer software license $ 310,400 $ 377,700
Capitalized organization and start-up
expenditures 67,500 79,800
Net operating loss carryforwards 209,100 115,300
--------- ---------
Total deferred tax assets 587,000 572,800
Valuation allowance for deferred tax assets (587,000) (572,800)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
</TABLE>
A valuation allowance was established for all of the deferred tax assets
since realization of the tax benefits is not assured.
11. Stock Based Compensation:
In connection with employment agreements executed in 1999 with certain key
executives, the Corporation granted options to purchase an aggregate of 1.1
million shares of common stock under a non-qualified stock option plan.
The original terms of the awards provided for graded vesting over a
three-year period and an exercise price of $.01 per share. On December 3,
1999, however, the sole director of the Corporation granted immediate
vesting to all option holders without exercise cost and directed the
Corporation's transfer agent to issue the 1.1 million shares. No options
had been exercised at September 30, 1999.
12
<PAGE> 15
WORLD GAMING CORPORATION
Notes to Financial Statements, continued
September 30, 1999 and December 31, 1998
_____________________
11. Stock Based Compensation, continued:
On the date of grant, the estimated market value of the common stock was
determined to be $1.00 per share based on transactions with unrelated third
parties. Accordingly, compensation expense in the amount of $1,089,000 was
recognized using the intrinsic value method prescribed by APB 25. The
minimum value, as defined by FAS 123 for purposes of reporting by
non-public entities under FAS 123, would have resulted in lower
compensation expense than under APB 25; therefore, pro forma information
required by FAS 123 has not been presented.
Also, in conjunction with an employment agreement executed in February,
1999, the Corporation's chief financial officer received 150,000 shares of
common stock as a "signing bonus". Accordingly, compensation expense in the
amount of $150,000 was recognized in the nine months ended September 30,
1999 based on the estimated market value of $1.00 per share.
12. Retirement Plan:
The Corporation sponsors a SIMPLE IRA ("the Plan") under section 408(p) of
the Internal Revenue Code covering all employees who receive at least
$5,000 in compensation. The total amount of each employee's contribution to
the Plan cannot exceed $6,000 for the calendar year. The Corporation's
matching annual contribution to the Plan is an amount equal to the
employee salary reduction contributions up to a limit of 3% of the
employee's compensation. The Corporation may reduce the 3% contribution
limit only under certain regulations as described in the Plan.
Retirement expense for the period ended September 30, 1998 and the year
ended December 31, 1998 was $2,128 and $1,540, respectively, and is
included in other operating expenses.
13. Major Customers:
During the period ended September 30, 1999 and year ended December 31,
1998, one customer accounted for 88% and 100%, respectively, of total
royalty income.
14. Concentrations of Credit Risk:
The Corporation performs ongoing credit evaluations of its customers and
generally does not require collateral. At September 30, 1999, approximately
84% of the Corporation's accounts receivable were due from one customer.
The Corporation maintains its cash accounts with banks and uninsured
financial institution located in the Philadelphia region. The total cash
balances are insured by the FDIC up to $100,000 per bank. The amount of
cash in the uninsured financial institution at September 30, 1999 was
approximately $245,000.
15. Subsequent Events:
Subsequent to September 30, 1999, the Corporation entered into agreements
for:
o The sale of 100% of the Corporation's common stock to Women.com Networks,
Inc. (Women.com). The sale is expected to be consummated in December,
1999.
13
<PAGE> 16
WORLD GAMING CORPORATION
Notes to Financial Statements, continued
September 30, 1999 and December 31, 1998
-------------
15. Subsequent Events, continued:
o Warrants to purchase 276,514 shares of the Corporation's common
stock at an exercise price of $.01 per share in exchange for
services rendered in connection with obtaining a subordinated debt
investment and the release of an exclusivity agreement entered into
prior to the Corporation's negotiations for the sale of the
Corporation to Women.com. The warrants were originally exercisable
upon sale of the Corporation to Women.com. On November 22, 1998 the
warrants become exercisable and were exercised, and an expense was
recognized based on the estimated market value of $1.00 per share.
o In November 1999, the Corporation bought out all of its outstanding
capital lease obligations for equipment and repaid all of the
outstanding loans payable to related parties, including $2,780 of
interest.
14
