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 September 30, 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 1942
(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 November 12,1997 there were 13,701,290 shares of the
Registrant's common stock, par value $0.001 per share, issued
and outstanding.
<PAGE>
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
1. Balance Sheets as of September 30, 1997
and December 31, 1996 3
2. Statement of Operations for the nine month
periods ended September 30, 1997 and September 4
30, 1996
3. Statements of Cash Flows for the nine month
periods ended September 30, 1997 and September 5
30, 1996
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 1. Legal Proceedings 11
Item 6. Exhibit 27, Financial Data Schedule
(For Electronic Filing Purposes Only) 12
SIGNATURES 13
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEET
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
AND YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
SEP DEC
1997 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 70,173 $ 208,020
Restricted cash 200,000 200,000
Accounts receivable, net of
allowance for doubtful accounts
of $67,998 in 1997 and $61,802
in 1996 335,938 274,108
Note receivable 57,663 56,994
Other 10,562 10,969
Total current assets 674,336 750,091
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, Net 262,948 401,436
INTANGIBLE ASSETS:
Systems development costs - 1,652,149
Gaming and software sub-licenses,
Net of amortization 2,702,693 1,150,804
Gaming licenses,
Net of amortization 4,761 25,000
Total intangible assets 2,707,454 2,827,953
OTHER ASSETS 28,884 28,884
TOTAL $ 3,673,622 $ 4,008,364
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 486,065 $ 400,000
Customers' credit balances 867,948 1,114,698
Customers' security deposits 200,075 146,051
Accounts payable and accrued expenses 576,698 438,314
Total current liabilities 2,130,786 2,099,063
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value,
25,000,000 shares authorized,
13,701,290 issued and outstanding 13,701 13,672
Additional paid-in capital 2,676,296 2,633,817
Deficit (1,147,161) (738,188)
Total stockholders' equity 1,542,836 1,909,301
TOTAL $ 3,673,622 $ 4,008,364
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
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<S> <C> <C> <C> <C>
THREE MONTHS ENDED NINE MONTHS ENDED
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED)
GROSS HANDLE $8,212,588 $13,169,154 $37,633,396 $38,052,635
LESS CUSTOMER WIN 7,842,770 12,579,664 36,430,490 35,988,310
NET WIN 369,818 589,490 1,202,906 2,064,325
OTHER REVENUES:
Membership fees 414 1,575 56,443 11,675
Other 279,681 2,397 458,673 17,958
Total other revenues 280,095 3,972 515,116 29,633
NET WIN AND OTHER
REVENUES 649,913 593,462 1,718,022 2,093,958
EXPENSES:
Salaries 158,969 184,504 551,978 460,830
Telephone 63,834 151,301 281,303 325,990
Legal and professional 82,909 93,632 346,925 290,393
Advertising 49,387 92,971 128,551 343,403
Provision for doubtful
accounts (1,056) 79,884 6,196 155,137
Rent 55,575 82,870 163,142 190,376
Officers' salaries 12,000 42,653 55,615 159,228
Office 14,300 44,909 100,040 105,486
Travel and related
expenses 10,249 47,314 54,037 137,769
Depreciation 23,805 73,530 71,724 106,662
Amortization 62,962 1,500 209,523 4,500
Auto 8,551 - 24,324 -
Insurance 14,867 9,442 35,677 9,442
Interest 9,200 7,373 27,087 14,129
Bank charges 6,968 15,386 19,231 15,386
Repairs and maintenance 3,857 6,936 11,617 16,848
Services and other fees 5,343 1,500 15,250 11,447
Other 21,841 (6,080) 24,774 35,992
Total expenses 603,561 929,625 2,126,994 2,383,018
Net (loss) income $ 46,352 $ (336,163) $ (408,972) $ (289,060)
(Loss) earnings per
common share $ 0.00 $ (0.03) $ (0.03) $ (0.02)
Weighted average
common shares
outstanding 13,686,665 11,572,040 13,701,290 11,572,040
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
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SEP SEP
1997 1996
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(408,972) $ (289,060)
Adjustments to reconcile net
(loss) income to net
cash (used in) provided by
operating activities:
Depreciation and amortization 281,247 111,162
Provision for Doubtful Accounts 6,196 155,137
(Increase) decrease in assets:
Accounts receivable (68,026) (310,274)
Other receivable 407
Increase (decrease) in liabilities:
Customers' credit balances (246,750) 74,624
Customers' security deposits 54,024 107,025
Accounts payable and accrued expenses 138,384 (134,734)
Net cash (used in) provided by
operating activities (243,490) (286,120)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements (22,261) (125,959)
Purchase of systems development costs - (45,000)
Increase in note and loans receivable (669) (142,794)
Capitalization of systems development costs (1,329,576)
Increase in security deposits - (16,252)
Net cash used in investing
activities (22,930) (1,659,581)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 86,065 200,000
Proceeds from issuance of common stock 42,508 1,259,948
Net cash provided by (used in)
financing activities 128,573 1,459,948
(DECREASE) IN CASH (137,847) (485,753)
CASH, BEGINNING 208,020 667,766
CASH, ENDING $ 70,173 $ 182,013
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 September
30, 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
nine month period ended September 30, 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 an
estimated useful life of twelve years.
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").
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's business is conducted through its wholly owned
subsidiaries which are legally organized in Grenada and
licensed by the Grenadan governments to conduct its business.
The subsidiaries' business activities in its Gaming and
Licensing Division 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 that 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. In May of
1997, the Company filed an amended motion to quash the
subpoenas issued from the United States District Court on the
grounds that the laws of Grenada pertaining to secrecy and
confidentiality could be violated by individual compliance.
The Court denied the motion, noting that the subpoenas were
directed to the Company and not to individuals. On July 30,
1997, the Company made a good faith effort to comply with the
subpoenas and delivered relevant documents. Individuals from
the Company under subpoena have been advised that their
scheduled appearances have been continued indefinitely. The
Company intends to cooperate in all aspects of the
investigation based upon the belief that it has nothing to
hide and has done nothing wrong. No assurance can be given
that management's beliefs are correct as to the legality of
its gambling operations or the Company's basis therefore, nor
any assurance be made that the Company will ultimately prevail
in any judicial proceedings.
In April of 1997, the State of Missouri sought an injunction
in its courts seeking to restrict the Company from offering
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Global Casino through the Internet to Missouri residents.
While not admitting personal jurisdiction, the Company through
counsel agreed not to offer these services to Missouri
residents. The Company posted a notice to this effect within
its Internet web site. Subsequently, an investigator employed
by the State of Missouri accessed the Company's web site;
apparently determining that the Company had breached its
agreement with Missouri. Accordingly, in May of 1997, the
State of Missouri indicted the Company and its President,
Michael F. Simone, and filed a judgement in the amount of
$66,050 for statutory "gambling" violations in Missouri. The
Company has been advised by competent legal counsel
experienced in civil, criminal and constitutional matters,
that the Missouri proceedings lack merit because Missouri has
no in personum jurisdiction of the Company or of Mr. Simone.
Once again, no assurance can be given that this view is
judicially correct, nor can assurance be given that the
Company will prevail in these proceedings.
2. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following
at September 30, 1997 and December 31, 1996:
1997 1996
Furniture, fixtures and equipment $475,380 $542,218
Leasehold improvements 29,628 29,628
_________ _________
505,008 571,846
Less accumulated depreciation 242,060 170,410
_________ _________
Total $262,948 $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.)
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
September 30, 1997 and December 31, 1996:
1997 1996
System Development Costs $ - $1,652,149
Gaming and Software Sub-license 2,891,977 1,150,804
Gaming License 40,000 40,000
____________ ___________
2,931,977 2,842,953
Less accumulated amortization 224,523 15,000
___________ ___________
Total $2,707,454 $2,827,953
4. NOTE PAYABLE
On February 24,1997 and April 25, 1997, the Company issued a
promissory note payable to a major shareholder in the amount
of $50,000 and $36,065, respectively. 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
<PAGE>
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.
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 September 30, 1997 and 1996,
gross handle, customer wagers, decreased by $4,956,566, or 37.6%,
from $13,169,154 in 1996 to $8,212,588 in 1997. The principal
reason for this decrease was the ongoing investigation into the
Company's Internet activities and a decrease in advertising
expenditures for new customers. However, net win and other
revenues increased by $56,451, or 9.5%, in 1997 as compared to
1996. Although the net win percentage remained relatively the same
as 1996, namely 4.5%. the increase in revenues was due primarily to
the sale of gaming and software licenses amounting to $160,000 in
1997. The net win percentage is a function of the amount of wagers
placed less customer winnings. The increase in revenues from the
sale of gaming and software licenses is indicative of the Company's
change in management goals to license qualified Internet Casino
operators. Thus, as a result of this increase in licensing revenues
and affirmed cost reduction measures in many of its expense
categories, the Company earned $46,352 for this quarter as compared
to a loss of $336,163 for 1996. In general, expenses were reduced
by $323,064 regardless of the Company's current amortization policy
of intangible assets which included a charge of $62,962 for this
period in comparison to a charge of $1,500 for the same period last
year.
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 $1,456,450 as of September 30, 1997 as
compared to $1,348,972 as of December 31, 1996. However, the
Company believes that licensing revenues will gradually increase
<PAGE>
in 1997 and provide earnings to assist in reducing working capital
deficiencies. Furthermore, the Company continues to negotiate with
qualified investors and anticipates a significant change in its
liquidity by the end of the year.
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.
In addition, in April of 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. Legal proceedings are currently ongoing concerning the
indictments and judgement in this action. 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 September 30, 1996. The Exhibits 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>
<S> <C>
Cash $ 270,173
Marketable Securities 0
Notes and Accounts Receivable 403,936
Allowances for Doubtful Accounts 67,998
Inventory 0
Total Current Assets 674,336
Property, Plant and Equipment 505,008
Accumulated Depreciation 242,060
Total Assets 3,673,622
Total Current Liabilities 2,130,786
Bonds, Mortgages and Similar Debt 0
Preferred Stock - Mandatory Redemption 0
Preferred Stock - No Mandatory Redemption 0
Common Stock 13,701
Other Stockholders' Equity 1,529,135
Total Liabilities and Stockholders' Equity 3,673,622
Net Sales of Tangible Products 0
Total Revenues 1,718,022
Cost of Tangible Goods Sold 0
Total Costs and Expenses App. to Sales
and Revenues 0
Other Costs and Expenses 2,093,711
Provision for Doubtful Accounts 6,196
Interest and Amortization of Debt Discount 27,087
Income Before Taxes and Other Items (408,972)
Income Tax Expense 0
Income/Loss Continuing Operations (408,972)
Discontinued Operations 0
Extraordinary Items 0
Cumulative Effect-Changes in
Accounting Principles 0
Net Income or Loss (408,972)
Earnings Per Share - Primary (.03)
Earnings Per Share - Fully Diluted (.03)
</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: November 14, 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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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 270173
<SECURITIES> 0
<RECEIVABLES> 403936
<ALLOWANCES> 67998
<INVENTORY> 0
<CURRENT-ASSETS> 674336
<PP&E> 505008
<DEPRECIATION> 242060
<TOTAL-ASSETS> 3673622
<CURRENT-LIABILITIES> 2130786
<BONDS> 0
0
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<COMMON> 13701
<OTHER-SE> 1529135
<TOTAL-LIABILITY-AND-EQUITY> 3673622
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<CGS> 0
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<OTHER-EXPENSES> 2093711
<LOSS-PROVISION> 6196
<INTEREST-EXPENSE> 27087
<INCOME-PRETAX> (408972)
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<EPS-PRIMARY> (.03)
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</TABLE>
