UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
Commission file Number 33-7764-C
INTERACTIVE GAMING & COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter.)
Delaware 23-2838676
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
595 Skippack Pike, Suite 300, Blue Bell, PA 19422
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(215) 540-8185
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by section
13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
As of October 28, 1996, there were 11,572,040 shares
of the Registrant's common stock, par value $0.001 per share,
issued and outstanding.
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INTERACTIVE GAMING & COMMUNICATIONS CORP.
(FORMERLY, SPORTS INTERNATIONAL, LTD.)
CONSOLIDATED BALANCE SHEET
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
AND YEAR ENDED DECEMBER 31, 1995
<CAPTION>
1996 1995
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 182,013 667,766
Restricted cash 200,000 200,000
Accounts receivable, net
of allowance for doubtful
accounts of $ 503,931 in
1996 and $348,794 in 1995 503,931 348,794
Loan receivable 55,758 49,000
Other 10,300 10,300
Total current assets 952,002 1,275,860
PROPERTY, EQUIPMENT, AND
LEASEHOLD IMPROVEMENTS, Net 278,771 205,391
LOAN RECEIVABLE, INTERSPHERE 274,824 138,788
INTANGIBLE ASSETS:
Systems development costs 1,563,217 233,641
Gaming licenses, net of
accumulated amortization
46,417 60,000
Total intangible assets 1,609,634 293,641
OTHER ASSETS 34,458 18,206
Total 3,149,688 $1,931,886
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Customers' credit balances 952,248 $ 877,624
Customers' security deposits 263,525 156,500
Accounts payable and accrued expenses 259,101 393,836
Note payable 400,000 200,000
Shareholders' loans payable - -
Total current liabilities 1,874,874 1,627,960
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value,
25,000,000 shares authorized,
11,572,040 issued and outstanding 11,572 10,942
Additional paid-in capital 1,594,570 335,252
Retained Earnings (331,328) (42,268)
Total stockholders' equity 1,274,814 303,926
Total 3,149,688 $1,931,886
<FN>
See Accompanying Notes to Financial Statements
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INTERACTIVE GAMING & COMMUNICATIONS CORP.
(FORMERLY, SPORTS INTERNATIONAL, LTD.)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
1996 1995 1996 1995
(UNAUDITED) (UNAUDITED)
__________________________ ________________________
<S> <C> <C> <C> <C>
REVENUES:
Net win $ 589,490 $ 543,760 $2,064,325 $ 1,089,379
Membership fees 1,575 8,585 11,675 9,635
Other 2,397 148 17,958 2,130
Total revenues 593,462 552,493 2,093,958 1,101,144
EXPENSES:
Salaries 184,504 100,386 460,830 352,622
Officers' salaries 42,653 28,846 159,228 125,951
Telephone 151,301 72,737 325,990 240,113
Legal and
professional 93,632 56,913 290,393 164,488
Advertising 92,971 73,610 343,403 168,761
Provision for
doubtful accounts 79,884 - 155,137
Travel and related
expenses 47,314 67,128 137,769 148,134
Rent 82,870 31,511 190,376 135,221
Office 44,909 12,489 105,486 44,807
Depreciation and
Amortization 75,030 12,438 111,162 35,556
Repairs and
maintenance 6,936 16,941 16,848 20,338
Services and other
fees 1,500 2,394 11,447 35,840
Relocating expense 28,268 - 28,268 -
Insurance expense 9,422 - 9,422 -
Bank Charges 15,386 - 15,386 -
Interest 7,373 - 14,129 -
Other (34,348) 5,868 7,723 19,102
Total expenses 929,625 481,261 2,383,018 1,490,933
Net income (loss) $(336,163) $71,232 $ (289,060) $(389,789)
Net income (loss)
per common share $ (0.03) $ 0.01 $ (0.02) $ (0.04)
Weighted average
common shares
outstanding 11,572,040 10,379,066 11,572,040 10,379,066
<FN>
See Accompanying Notes to Financial Statements
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INTERACTIVE GAMING & COMMUNICATIONS CORP.
(FORMERLY, SPORTS INTERNATIONAL, LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED September 30, 1996 AND 1995
<CAPTION>
JUNE JUNE
1996 1995
(UNAUDITED)
__________ __________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (289,060) $(389,789)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and Amortization 111,162 35,556
Provision for doubtful accounts 155,137 -
(Increase) decrease in assets:
Accounts receivable (310,274) (105,526)
Prepaid expenses (10,000)
Increase (decrease) in
liabilities:
Customers' credit balances 74,624 394,202
Customers' security deposits 107,025 68,500
Accounts payable and accrued
expenses (134,734) 1,383
Net cash used in operating
activities (286,120) (5,674)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment,
and leasehold improvements (125,959) 14,756
Purchase of Gaming License (45,000) -
Increase in loans receivable (142,794) (115,264)
Increase in security deposits (16,252)
Refunded security deposits 2,100
Capitalization of systems
development costs (1,329,576) -
Net cash used in investing
activities (1,659,581) (98,408)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 200,000 -
Repayment of note payable (15,000)
Proceeds from issuance of common
stock 1,259,948 -
Net cash provided by (used in)
financing activities 1,459,948 (15,000)
NET DECREASE IN CASH (485,753) (119,082)
CASH, BEGINNING 667,766 450,793
CASH, ENDING $ 182,013 $331,711
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
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INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Note 1. BASIS OF PRESENTATION, REGULATION AND CERTAIN
SIGNIFICANT RISKS AND UNCERTAINTIES:
The Company's financial statements have been presented
on the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in
the normal course of business. The consolidated balance sheet
for the period ended September 30, 1996 and the related
consolidated statement of operations and statement of cash flows
reflect all normal and recurring adjustments that are, in the
opinion of management, necessary for a fair presentation of the
results for the interim period. The results of operations for
the nine month period ended September 30, 1996 are not
necessarily indicative of the operating results for the full year.
Certain information and footnote disclosures normally included
in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. It is suggested that the accompanying consolidated
financial statements be read in conjunction with the financial
statements and notes in the Company's annual report on form
10-K for the year ended December 31, 1995.
The Company's business activities, operations and net income or
loss are derived solely from its subsidiaries Sports
International, Ltd. (Antigua) and Sports International, Ltd.
(Grenada).
The Company's business is conducted through its wholly owned
subsidiaries which are legally organized in both Antigua and
Grenada and licensed by both the Antiguan and Grenadan
governments to conduct its business. The subsidiaries'
business activities emanating from outside Antigua and Grenada
(customers' wagers) may become materially affected by
regulations, laws or statues that may be promulgated by the
various foreign, federal, state and/or local governments or
their respective agencies in the future or the enforcement of
such laws or regulations. To date, the Company has conducted
its business without any interference from the aforementioned
regulatory bodies. There are no assurances that this will
continue.
<PAGE>
Notes to Financial Statements (Continued)
Managements plans in connection with these matters are to
continue to refine its operations, expand sources of revenues,
control expenses, evaluate alternative methods to conduct its
business, and seek available and attractive sources of debt or
equity financing through a combination of a private placement, a
secondary offering, joint venturing and sharing of development
costs, or other resources.
Note 2. RECLASSIFICATION:
Certain amounts for revenue in the 1995 financial statements have
been reclassified to conform with the current year presentation.
The amounts reclassified resulted in a decrease in net wins
amounting to $307,516 and $451,141 for the three and nine month
periods ended September 30, 1995, respectively.
Certain expenses which were reflected in the previous quarter and
year to date "Other" category were reclassified from the "Other"
category line item and given separate classification.
Accordingly, the quarterly results for the "Other" category
reflect a credit of $34,348. The expenses that were reclassified
from this category and the amounts are as follows:
Bank Charges $ 8,201
Insurance 4,644
Legal and Professional 15,000
Rent 8,000
Total $35,845
The balance, $1,497, represents miscellaneous immaterial amounts
classified as "Other" for the third quarter.
Note 3. PRIOR PERIOD ADJUSTMENT:
In 1993, the Company capitalized certain organization costs which
totaled $374,667 during its development stage and prior to the
commencement of operations of Sports International, Ltd. ( Antigua).
In 1995, the Company determined that these costs should have been
expensed, in accordance with generally accepted accounting
principles. The prior period adjustment to properly reflect such
costs as expenses of development stage, resulted in an increase in
net income of $18,375 and $55,725 for the three and nine month
periods ended September 30, 1995, respectively
<PAGE>
Notes to Financial Statements (Continued)
Note 4. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS:
Property, equipment and leasehold improvements consist of the
following at September 30, 1996 and December 31, 1995:
1996 1995
Furniture, fixtures and equipment $383,876 $270,777
Leasehold improvements 25,167 12,307
________ ________
409,043 283,084
Less accumulated depreciation 130,272 77,693
Total $278,771 205,391
Note 5. LOAN RECEIVABLE, INTERSPHERE:
The Company advanced funds to an Internet World Wide Web services
company for the purpose of advertising, marketing, promotion, and
communications in the print and electronic media. The carrying amount
of the advanced funds reported on the balance sheet approximates net
realizable value.
Commencing March 5, 1996, funds advanced bear interest at a minimum of
15% annually or 5% over the New York prime rate, adjusted monthly.
Principal and interest payments have been deferred until January 1, 1997.
The loan is unsecured.
Note 6. SYSTEM DEVELOPMENT COSTS:
The Company has engaged the services of major software developers to
produce and market a Virtual Casino. That is, at completion, its
customers will have the opportunity to play classic casino games on
their personal computers, such as blackjack, craps, roulette, baccarat
and slot machine games, on the Internet World Wide Web, with the Company
managing the wagering.
Costs incurred subsequent to the establishment of technology feasibility
and directly related to the project have been capitalized. Capitalized
project costs were $1,563,217 and $233,641 at September 30, 1996 and
December 31, 1995. At June 30, 1996, the project is on-going.
Accordingly no amortization expense has been recognized.
<PAGE>
Notes to Financial Statements (Continued)
Note 7. GAMING LICENSES:
The Company holds three gaming licenses to do business in Antigua,
Dominican Republic and Grenada. During this quarter, the Company moved
its sportsbook wagering activity to Grenada.
The licenses are being amortized over their useful lives which is
generally one year.
Note 8. NOTE PAYABLE:
On July, 18, 1996, the Company issued a promissory note payable to a
financial institution in the amount of $200,000. The note is
collateralized by the property and assets of the Company together with
1,000,000 shares of the Company's common stock owned by the Company's
President and Chief Executive Officer. The note bears interest at 1 1/2%
above the national prime as is published from time to time in the Wall
Street Journal.
Note 9. INCOME TAXES:
The Company derives all its revenue from its wholly owned subsidiaries,
Sports International, Ltd. (Antigua) and Sports International, Ltd.
(Grenada). The governments of Antigua and Grenada do not presently
impose income taxes on the Company. Accordingly, no provision for
income taxes has been reflected in the financial statements.
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
(FORMERLY, SPORTS INTERNATIONAL, LTD.)
MANAGEMENTS DISCUSSION and ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
September 30, 1996
General
The proliferation of gambling continues throughout the United
States and international jurisdictions. What was not socially
acceptable sixty years ago is now considered entertainment, a leisure
time activity, and is embraced by legislators for the easy-to-collect
tax dollar. Gaming has expanded from land-based casinos to riverboat
casinos, from lotteries to simulcast telephone betting on national horse
racing, from charity bingo and "Nevada Nights" to Indian Reservation
casinos, and from the paper slip of the bookmaker to a telephone call
to either Antigua or Grenada.
During this quarter the Company relocated its sports wagering activities
to the Country of Grenada. The Company acquired an exclusive master
gaming license from Grenada which allows the Company to conduct its
gaming business and sell or franchise sub licenses to other qualified
parties.
The natural progression for the excitement of casino gambling and
telephone sports wagering has led personal computer users to gaming
on the Internet. A recent survey found that more than $550.3 billion
was wagered on all forms of legal games in the United States.
Throughout 1996, wagering on the Internet has gained increased media
attention and exposure. In 1995, there were a handful of gaming related
sites on the Internet. Today there are hundreds. The target for each is
to reach for a small segment of the $550.3 billion industry. The Company
has paved the way from the beginning by being the first ever to accept a
wager over the Internet in early 1995. The trend continues today as the
Company continues to be on the leading edge of development in the
Internet gaming area.
The Company, in the second quarter of 1996, introduced the WiseGuy
Sports Wagering System for beta testing by the public on the Internet.
The WiseGuy Sports Wagering System is a PC based, Internet ready,
sports-book wagering, management and accounting software system.
The system will for a licensing fee be made available to all legal
domestic and off-shore sports wagering companies and will provide full
sports-book wager tracking, account management, accounting, and Internet
access using the World Wide Web. Access to the sports-book system is
accomplished by utilizing any of the popular Web-Browsers such as Netscape,
Prodigy, Compuserve or America OnLine.
Currently, the Wiseguy Sports Wagering System can be accessed at the
corporate World Wide Web site located in Grenada:
<PAGE>
http://www.gamblenet.com.
As of September 30, 1996, the WiseGuy System had more than three thousand
registered people participating in a weekly contest. This beta test
generated nearly $11 million in handle, but the weekly contest did not
involve actual wagers. Actual wagers will be accepted on line during the
fourth quarter.
The Company has engaged leading consultants in the gaming and software
development industry, to develop a proprietary product that will be marketed
to other sports betting, casino and enterprising operations throughout the
world. With this in mind, the Company has begun to market its expertise to
other enterprises in the gaming industry by offering management and consulting
services in developing the Internet marketplace for wagering.
Liquidity and Capital Resources
The Company has entered into an agreement with J&S Limited Partnership, an
affiliate of Cambridge Technology Enterprises, for both platform and software
development involving slot machines and a blackjack program designed to reach
the Internet sometime in the Fall of 1996. The total project cost of $750,000
was funded by issuing 375,000 restricted shares under Rule 144. In addition,
the developer received the right to purchase another 100,000 shares at $1 per
share subject to certain events.
The Company has also reached an agreement with Daleen Technologies, Inc. for
the completion of customized gaming software. The total cost for this software
will approximate $708,000 of which approximately $200,000 has been funded to
date and the balance funded by issuing 254,474 restricted shares under Rule
144.
The Company has a number of proposals out to competitors that have approached
the Company for both licensing and sub-licensing of the Virtual Casino software
and the existing WiseGuy Sports-book software program currently in use.
Results of Operations
1996 versus 1995
For the quarter ended September 30, 1996 and 1995, customer wagers totalled
$13,169,154 in 1996 as compared to $10,648,104 in 1995. Customer wagers
increased in 1996 by $2,521,050 or 24% as compared to 1995. Revenues increased
by $40,969 or 7% in 1996 from $552,493 in 1995 to $593,462. The net hold
decreased from 5.2% of wagers in 1995 to 4.5% in 1996. The resulting increase
in revenues was attributable to more efficient management procedures and
increased customer base. However, the decrease in the net hold percentage was
experienced overall in the sports wagering marketplace due to events beyond
the control of the bookmaker. The Company does anticipate that the fourth
quarter will be more in line with the
<PAGE>
nine month average of 5.5% analyzed below.
The Company experienced a net loss of $336,163 for the third quarter 1996
compared to a net income of $71,232 for the third quarter 1995. This loss is
directly attributable to several events and accounting procedures that were not
necessarily consistent with 1995. The primary event contributing to this
loss was the move from Antigua to Grenada. In addition to incurring
relocating expenses amounting to $28,268, the Company lost approximately
$1 Million in gross handle during the week the move occurred. Furthermore,
the Company purchased its exclusive master gaming license in Grenada for
$40,000, additional computer equipment for $25,000, and leasehold
improvements of approximately $13,000. Although these costs amounting to
nearly $78,000 were capitalized, depreciated and amortized, the effect on cash
flow significantly hindered a profitable quarter. In accordance with
anticipating doubtful accounts, the Company provided an allowance for
doubtful accounts for the quarter and nine months ended September 30, 1996
amounting to $79,884 in 1996 whereas no such provision was made for the same
periods in 1995.
For the nine month periods ended September 30, 1996 and 1995, customer wagers
totaled $38,052,635 in 1996 as compared to $33,138,261 in 1995, an increase
of 15%. Revenues from net wins increased by $974,946 in 1996 or 89% from
$1,089,379 in 1995 to $2,064,325 in 1996. The net hold from customer wagers
increased from 3.3% in 1995 to 5.5% in 1996. Once again, this resulting
increase is due to the Company's enhanced management team and performance
driven results and a wider variety of wagering.
PART II. OTHER INFORMATION
Item 5. Other Information.
(a) The Company executed an agreement with J&S Limited Partnership,
an affiliate of Cambridge Technology Enterprises, to issue and sell 375,000
shares of the previously authorized and unissued Common Stock of the Company
for $750,000 together with a warrant to purchase, on or before June 30,
2006, an additional 100,000 shares of Common Stock for $1,000 at an exercise
price subject to certain events. The Company in turn agreed to pay Cambridge
Advanced Technology Laboratories Corporation (Catlabs) $750,000 and an amount
equal to 50% of the net revenue derived from operation of an electronic
Global Casino for which Catlabs will develop technology and products for use
on the Internet.
(b) The Company executed an agreement with Daleen Technologies, Inc. to issue
254,474 shares of the previously authorized and unissued Common Stock of
the Company for a credit of $508,948 toward the development and finalization of
a proprietary software licensing agreement for products to be utilized for the
operation of an electronic Global Casino on the Internet. The total cost for
this licensing agreement will approximate $708,000 of which $200,000 was paid
in cash.
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
(FORMERLY, SPORTS INTERNATIONAL, LTD.)
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly cause this report to be signed on its
behalf by the undersigned thereunto duly authorized.
INTERACTIVE GAMING & COMMUNICATION CORP.
(FORMERLY, SPORTS INTERNATIONAL, LTD.)
November 8, 1996 Michael F. Simone
Date Michael F. Simone
President
and Chief Executive Officer
November 8, 1996 Fred Michini
Date Fred Michini
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 382013
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<RECEIVABLES> 1007862
<ALLOWANCES> 503931
<INVENTORY> 0
<CURRENT-ASSETS> 952002
<PP&E> 409043
<DEPRECIATION> 130272
<TOTAL-ASSETS> 3149688
<CURRENT-LIABILITIES> 1874874
<BONDS> 0
0
0
<COMMON> 11572
<OTHER-SE> 1263242
<TOTAL-LIABILITY-AND-EQUITY> 3149688
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<CGS> 0
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<OTHER-EXPENSES> 2213752
<LOSS-PROVISION> 155137
<INTEREST-EXPENSE> 14129
<INCOME-PRETAX> (289060)
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