UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
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 33-7764-C
INTERACTIVE GAMING & COMMUNICATIONS CORP._____________
(Exact name of registrant as specified in charter)
Delaware 23-2838676
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
595 Skippack Pike, Suite 100, 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 May 10, 1997, there were 13,672,040 shares of the
Registrant's common stock, par value $0.001 per share, issued and
outstanding.
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INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
1. Balance Sheets as of March 31, 1997
and December 31, 1996 3
2. Statement of Operations for the three month
periods ended March 31, 1997 and March 31,
1996 4
3. Statements of Cash Flows for the three month
periods ended March 31, 1997 and March 31,
1996 5
4. Notes to consolidated financial statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
PART II. OTHER INFORMATION
Item 5. Other Information 11-12
Item 6. Exhibit 27, Financial Data Schedule
(For Electronic Filing Purposes Only) 13
SIGNATURES 14
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEET
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
AND YEAR ENDED DECEMBER 31, 1996
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MARCH DEC
1997 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 34,911 $ 208,020
Restricted cash 200,000 200,000
Accounts receivable, net of
allowance for doubtful accounts
of $69,882 in 1997 and $61,802
in 1996 283,762 274,108
Note receivable 57,663 56,994
Other 10,300 10,969
Total current assets 586,636 750,091
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, Net 295,770 401,436
INTANGIBLE ASSETS:
Systems development costs - 1,652,149
Gaming and software sub-licenses,
Net of amortization 2,828,982 1,150,804
Gaming licenses, Net of amortization 15,105 25,000
Total intangible assets 2,844,087 2,827,953
OTHER ASSETS 28,884 28,884
TOTAL $ 3,755,377 $ 4,008,364
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 450,000 $ 400,000
Customers' credit balances 832,742 1,114,698
Customers' security deposits 222,101 146,051
Accounts payable and accrued expenses 525,160 438,314
Total current liabilities 2,030,003 2,099,063
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value,
25,000,000 shares authorized,
13,672,040 issued and outstanding 13,672 13,672
Additional paid-in capital 2,633,817 2,633,817
Deficit (922,115) (738,188)
Total stockholders' equity 1,725,374 1,909,301
TOTAL $ 3,755,377 $ 4,008,364
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
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MARCH MARCH
1997 1996
(UNAUDITED)
GROSS HANDLE $17,910,347 $12,851,238
LESS CUSTOMER WIN 17,326,763 11,990,599
NET WIN 583,584 860,639
OTHER REVENUES:
Membership fees 40,464 5,575
Other 50,714 7,627
Total other revenues 91,178 13,202
NET WIN AND OTHER REVENUES 674,762 873,841
EXPENSES:
Salaries 212,853 121,061
Telephone 128,265 48,615
Legal and professional 163,765 126,430
Advertising 42,612 109,122
Provision for doubtful accounts 8,080 60,308
Rent 50,799 58,135
Officers' salaries 40,385 52,884
Office 39,581 33,893
Travel and related expenses 31,656 53,329
Depreciation 23,669 15,524
Amortization 73,104 1,500
Auto 8,224 -
Insurance 10,694 -
Interest 7,433 4,133
Bank charges 6,670 -
Repairs and maintenance 4,053 7,148
Services and other fees 3,093 9,108
Other 3,753 8,066
Total expenses 858,689 709,256
Net (loss) income $ (183,927) $ 164,585
(Loss) earnings per common share $ (0.01) $ 0.02
Weighted average common shares
outstanding 13,672,040 10,942,566
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
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MARCH MARCH
1997 1996
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(183,927) $ 164,585
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation and amortization 96,773 17,024
Provision for Doubtful Accounts 8,080 60,308
(Increase) decrease in assets:
Accounts receivable (17,734) (120,616)
Increase (decrease) in liabilities:
Customers' credit balances (281,956) (197,295)
Customers' security deposits 76,050 20,000
Accounts payable and accrued
expenses 86,846 (148,131)
Net cash (used in) provided
by operating activities (215,868) (204,125)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements (7,241) (54,456)
Purchase of systems development costs - (81,138)
Increase in note and loans receivable - (90,921)
Increase in security deposits - (442)
Net cash used in investing
activities (7,241) (226,957)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 50,000 -
Net cash provided by (used in)
financing activities 50,000 -
(DECREASE) INCREASE IN CASH (173,109) (431,082)
CASH, BEGINNING 208,020 667,766
CASH, ENDING $ 34,911 $ 236,684
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 1997
and the related consolidated statement of operations and statement of
cash flows are unaudited and 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 three month period ended March 31, 1997 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 Summary of Accounting Policies and Notes to the
Consolidated Financial Statements included in the Company's annual
report on form 10-K for the year ended December 31, 1996.
In January 1997, the Company began amortizing its Gaming and software
sub-licenses on a straight line method over the estimated twelve year
useful lives.
In February 1997, the FASB issued Statement No.128, "Earnings per
Share", which establishes standards for computing and presenting
earnings per share (EPS). The Company will adopt Statement 128 as of
December 31, 1997 and, based on current circumstances, does not
believe the effect of adoption will be material.
The Company's business activities, operations and net income or loss
are derived solely from its two divisions and four subsidiaries.
The Gaming and Licensing Division includes Sports International, Ltd.
(Grenada) ("Sports"), Global Gaming Corp. (Grenada) ("Global"), and
Global Casinos, Ltd. (Grenada) ("Casinos"). The Advertising/Software
Division includes Intersphere Communications, Ltd. (Grenada)
("Intersphere").
The Company's business is conducted through its wholly owned
subsidiaries which are legally organized in Grenada and
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
licensed by the Grenadan governments to conduct its business. The
subsidiaries' business activities emanating from outside 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.
Presently, the Company's wagering operations are under investigation
by the federal government. The investigation is apparently based on
the assumption that there may be a violation of federal laws if an
illegal gambling business was being conducted from the Company's
corporate offices in Blue Bell, Pennsylvania. Based on the advice of
counsel with significant criminal law, trial and appellate experience
and comprehensive understanding of the jurisdictional scope of gaming
laws, both domestic and international, management does not believe
the gaming operations of its subsidiaries violate either the laws of
the United States or the Commonwealth of Pennsylvania, since no
gaming or gambling operations are conducted in the United States.
Management's belief is based principally on its understanding, as
interpreted by its counsel, that the operations of the Gaming and
Licensing Division are legally authorized in Grenada and, as such,
are beyond the scope and outside the jurisdiction of the United
States regulatory powers and laws relating to gaming activities.
The Company, through counsel, while co-operating fully with the
officials of the United States, has filed a motion to quash the
subpoenas issued from the United States District Court on the grounds
that jurisdiction is lacking and that the Grenadan subsidiaries are
shielded by the secrecy and confidentiality provisions of the laws
of Grenada. Although the Company intends to defend vigorously any
action that may ultimately be brought by the United States in
connection with its investigation, no assurance can be given that
management's beliefs as to the legality of its subsidiaries'
operations, or its basis for such beliefs, are correct and that the
Company will ultimately prevail.
In April,1997, the Attorney General for the State of Missouri filed
a request for an injunction to restrict the Company from offering
the Global Casino over the Internet to Missouri residents. The
Company denied all claims in the lawsuit including jurisdiction and
agreed not to accept applications from Missouri residents pending
the hearing on the preliminary injunction.
Management's 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
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
2. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at
March 31, 1997 and December 31, 1996:
1997 1996
Furniture, fixtures and equipment $460,221 $542,218
Leasehold improvements 29,628 29,628
489,849 571,846
Less accumulated depreciation 194,079 170,410
Total $295,770 $401,436
(NOTE: A reclassification from furniture, fixtures and equipment
as reflected on the Balance Sheet for December 31, 1996 in the amount
of $89,238 was made to Intangible Assets, Gaming and Software
Sub-License for software that began to amortize in January of 1997.)
3. INTANGIBLE ASSETS
As of December 31, 1996, System Development Costs amounting
to
$1,652,149 and Gaming and Software Sub-licenses amounting to
$1,150,804 were not effectively placed in service. Beginning January
1997, the Company began amortizing over estimated useful lives of
twelve years. The Master Gaming License in the amount of $40,000 is
being amortized over a one year period. Intangible Assets consist of
the following as of March 31, 1997 and December 31, 1996:
1997 1996
System Development Costs $ - $1,652,149
Gaming and Software Sub-license 2,892,191 1,150,804
Gaming License 40,000 40,000
2,932,191 2,842,953
Less accumulated amortization 88,104 15,000
Total $2,844,087 $2,827,953
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTE PAYABLE
On February 24,1997, the Company issued a promissory note payable to
a major shareholder in the amount of $50,000. The note bears interest
at 1 1/2% above the national prime as is published from time to time in
the Wall Street Journal.
5. INCOME TAXES
The Company derives all its revenue from its wholly owned Grenadan
subsidiaries. The government of Grenada does not presently impose
income taxes on the Company. Accordingly, no provision for income
taxes has been reflected in the financial statements.
6. CONTINGENCY
Litigation relating to the investigation as discussed in Note 17 to
the consolidated financial statements included in the Company's
latest annual report, and discussed further in Note 1 included by
reference, has not been resolved to date.
Litigation relating to the State of Missouri as discussed in Note 1
included by reference has not been resolved to date.
Although the Company intends to defend vigorously any action that may
be ultimately brought by the United States or the State of Missouri,
no assurance can be given that management's beliefs as to the alleged
criminality of its subsidiaries' operations, or its basis for such
beliefs, are correct and that the Company will prevail.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following is management's discussion and analysis of
certain significant factors which have affected the Company's
financial position and operating results during the periods included
in the accompanying consolidated financial statements.
Results of Operations
For the three month periods ended March 31, 1997 and 1996,
gross handle, customer wagers, increased by $5,059,109, or 39.4%,
from $12,851,238 in 1996 to $17,910,347 in 1997. The principal
reason for the increase was Internet volume on the site of Sports
and Casinos. However, net win and other revenues decreased by
$199,079, or 22.8%, in 1997 as compared to 1996. This reduction was
due primarily to a decrease in the net win percentage from 6.7% in
1996 to 3.2% in 1997. The net win percentage is a function of the
amount of wagers placed less customer winnings. The decrease is
attributable to a higher volume of wagering over the Internet in
smaller amounts than previously wagered over the telephone. Thus, as
a result of this decrease in net win and an increase of expenses
amounting to $149,433, the Company loss $183,927 for the first three
months of 1997 as compared to income of $164,585 for 1996. The
increase in expenses were attributable, for the most part, to
salaries, telephone and amortization. Salaries increased from
$121,061 in 1996 to $212,853 in 1997 due to the acquisition of its
subsidiaries and increased personnel to manage its Internet operations.
Telephone expense increased by $79,650 in 1997. In order to reduce
telephone costs in the future, the Company has changed carriers and
entered into a fixed cost lease. Amortization increased by $71,604 in
1997 as a result of capitalized system development costs and gaming
sub-sublicenses being placed in service and written off over a twelve
year period.
Liquidity and Capital Resources
As a result of the Company's acquisitions in 1996 and investment in
system development costs, gaming and software sub-licenses, working
capital has been significantly impaired. Current liabilities exceed
current assets by $1,443,367 as of March 31, 1997 as compared to
$1,348,972 as of December 31, 1996. However, the Company believes
that revenues will gradually increase from its subsidiaries in 1997
and provide earnings to assist in reducing working capital deficiencies.
Furthermore, the Company continues to actively seek joint venture
partners and private placement funding to obtain long term financing
to alleviate current working capital deficits.
<PAGE>
Government Regulation - Effect on Financing
The Company's business is legally constituted and organized in Grenada,
West Indies, and a license fee is paid to the Grenadan government to
conduct its business in the Gaming and Licensing Division. The
Company's business activities emanating from the United States
(customers' wagers) may be materially affected by regulations and
actions that may now be in place or will be promulgated in the future
by the various local, state, and/or federal government regulators.
The uncertainty of how the United States and other world governments
will look upon gambling on the Internet may deter major financial
and/or investment companies from participating in any capital venture
with the Company. In this regard, on February 19, 1997, the Company
was served with a warrant to produce all records involving gambling
activities emanating from the United States. The Company has
co-operated with the United States Attorney's office in Philadelphia
in providing such records. However, the Company intends to initiate
legal action on its own behalf to assert and seek judicial approval
of its legal position on the international business of the Internet
and sports wagering. In addition, in April,1997, the Attorney General
for the State of Missouri filed a request for an injunction to restrict
the Company from offering gambling over the Internet to Missouri
residents. The Company denied all claims in the lawsuit including
jurisdiction and agreed not to accept applications from Missouri
residents pending the hearing on the preliminary injunction. The
Company continues to be proactive in the area of Internet gambling and
has encouraged various government organizations to utilize its
expertise in both Internet and legalized gambling operations to assist
their regulatory agencies in creating and maintaining strict
guidelines, rules and controls to effectuate the credibility,
reporting and possible taxation of enterprises organized and licensed
to operate gambling activities.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Notes 1 and 6 of notes to consolidated financial
statements.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
March 31, 1996. The Exhibit filed as part of this report is listed
below.
Exhibit No. Description
27 Financial Data Schedule
<PAGE>
Item 6. Exhibit 27 - Financial Data Schedule
(For Electronic Filing Purposes Only)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<TABLE>
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Cash $ 234,911
Marketable Securities 0
Notes and Accounts Receivable 353,644
Allowances for Doubtful Accounts 69,882
Inventory 0
Total Current Assets 586,636
Property, Plant and Equipment 489,849
Accumulated Depreciation 194,079
Total Assets 3,755,377
Total Current Liabilities 2,030,003
Bonds, Mortgages and Similar Debt 0
Preferred Stock - Mandatory Redemption 0
Preferred Stock - No Mandatory Redemption 0
Common Stock 13,672
Other Stockholders' Equity 1,711,702
Total Liabilities and Stockholders' Equity 3,755,377
Net Sales of Tangible Products 0
Total Revenues 674,762
Cost of Tangible Goods Sold 0
Total Costs and Expenses App. to Sales and Revenues 0
Other Costs and Expenses 843,176
Provision for Doubtful Accounts 8,080
Interest and Amortization of Debt Discount 7,433
Income Before Taxes and Other Items (183,927)
Income Tax Expense 0
Income/Loss Continuing Operations (183,927)
Discontinued Operations 0
Extraordinary Items 0
Cumulative Effect-Changes in Accounting Principles 0
Net Income or Loss (183,927)
Earnings Per Share - Primary (.01)
Earnings Per Share - Fully Diluted (.01)
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERACTIVE GAMING & COMMUNICATION CORP.
Dated: May 15, 1997
By: /s/ MICHAEL F. SIMONE
Michael F. Simone, President
and Chief Executive Officer
By: /s/ FRED MICHINI
Fred Michini, Chief Financial
Officer
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<PERIOD-END> MAR-31-1997
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