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 June 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 (I.R.S. Employer
of 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 August 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 June 30, 1997
and December 31, 1996 3
2. Statement of Operations for the six month
periods ended June 30, 1997 and June 30,
1996 4
3. Statements of Cash Flows for the six month
periods ended June 30, 1997 and June 30,
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
Item 6. Exhibit 27, Financial Data Schedule
(For Electronic Filing Purposes Only) 12
SIGNATURES 13
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INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEET
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND YEAR ENDED DECEMBER 31, 1996
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<S> <C> <C>
JUNE DEC
1997 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 10,158 $ 208,020
Restricted cash 200,000 200,000
Accounts receivable, net of
allowance for doubtful accounts
of $69,054 in 1997 and $61,802
in 1996 368,960 274,108
Note receivable 57,663 56,994
Other 10,562 10,969
Total current assets 647,343 750,091
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, Net 283,694 401,436
INTANGIBLE ASSETS:
Systems development costs - 1,652,149
Gaming and software sub-licenses,
Net of amortization 2,766,685 1,150,804
Gaming licenses, Net of
amortization 4,906 25,000
Total intangible assets 2,771,591 2,827,953
OTHER ASSETS 28,884 28,884
TOTAL $ 3,731,512 $ 4,008,364
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 486,065 $ 400,000
Customers' credit balances 921,919 1,114,698
Customers' security deposits 211,625 146,051
Accounts payable and accrued
expenses 615,418 438,314
Total current liabilities 2,235,027 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 (1,193,512) (738,188)
Total stockholders' equity 1,496,485 1,909,301
TOTAL $ 3,731,512 $ 4,008,364
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1997 AND 1996
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<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
1997 1996 1997 1996
(UNAUDITED)
GROSS HANDLE $11,510,461 $12,032,243 $29,420,808 $24,883,481
LESS CUSTOMER WIN 11,260,957 11,418,037 28,587,720 23,408,646
NET WIN 249,504 614,206 833,088 1,474,835
OTHER REVENUES:
Membership fees 15,565 4,525 56,029 10,100
Other 128,278 7,935 178,992 15,561
Total other revenues 143,843 12,460 235,021 25,661
NET WIN AND OTHER
REVENUES 393,347 626,666 1,068,109 1,500,496
EXPENSES:
Salaries 180,156 155,380 393,009 276,326
Telephone 89,204 126,074 217,469 174,689
Legal and
professional 100,251 70,331 264,016 196,761
Advertising 36,552 140,199 79,164 250,432
Provision for
doubtful accounts (828) 14,945 7,252 75,253
Rent 56,768 53,845 107,567 107,506
Officers' salaries 3,230 63,691 43,615 116,575
Office 46,159 26,601 85,740 60,577
Travel and related
expenses 12,132 40,126 43,788 90,455
Depreciation 24,250 17,608 47,919 33,132
Amortization 73,457 1,500 146,561 3,000
Auto 7,549 - 15,773 -
Insurance 10,116 - 20,810 -
Interest 10,454 1,244 17,887 6,756
Bank charges 5,593 - 12,263 -
Repairs and
maintenance 3,707 2,765 7,760 9,913
Services and
other fees 6,814 21 9,907 9,947
Other (820) 27,579 2,933 42,071
Total expenses 664,744 741,909 1,523,433 1,453,393
Net (loss) income $ (271,937) $ (115,243) $ (455,324) $ 47,103
(Loss) earnings per
common share $ (0.02) $ (0.01) $ (0.03) $ 0.00
Weighted average
common shares
outstanding 13,686,665 10,942,566 13,686,665 10,942,566
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
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JUNE JUNE
1997 1996
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(455,324) $ 47,103
Adjustments to reconcile net
(loss) income to net cash
(used in) provided by
operating activities:
Depreciation and amortization 194,480 36,132
Provision for Doubtful Accounts 7,252 75,253
(Increase) decrease in assets:
Accounts receivable (102,104) (150,506)
Other receivable 407
Increase (decrease) in
liabilities:
Customers' credit balances (192,779) (228,548)
Customers' security deposits 65,574 39,975
Accounts payable and
accrued expenses 177,104 (106,235)
Net cash (used in)
provided by operating
activities (305,390) (286,826)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements (20,376) (88,010)
Purchase of systems development costs - (166,555)
Increase in note and loans receivable (669) (4,857)
Increase in security deposits - (442)
Net cash used in investing activities (21,045) (259,864)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 86,065 -
Proceeds from issuance of common stock 42,508 -
Net cash provided by (used in)
financing activities 128,573 -
(DECREASE) IN CASH (197,862) (546,690)
CASH, BEGINNING 208,020 667,766
CASH, ENDING $ 10,158 $ 121,076
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 June 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
six month period ended June 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").
The Company's business is conducted through its wholly owned
subsidiaries which are legally organized in Grenada and
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INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 authorised 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
the Global Casino through the Internet to Missouri
residents. While not admitting personal jurisdiction, the
Company through
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 1997 and December 31, 1996:
1997 1996
Furniture, fixtures and equipment $472,321 $542,218
Leasehold improvements 29,628 29,628
501,949 571,846
Less accumulated depreciation 218,255 170,410
Total $283,694 $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
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the amount of $40,000 is being amortized over a one year
period. Intangible Assets consist of the following as of
June 30, 1997 and December 31, 1996:
1997 1996
System Development Costs $ - $1,652,149
Gaming and Software Sub-license 2,893,226 1,150,804
Gaming License 40,000 40,000
2,933,226 2,842,953
Less accumulated amortization 161,635 15,000
Total $2,771,591 $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
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 June 30, 1997 and 1996,
gross handle, customer wagers, decreased by $521,782, or 4.3%,
from $12,032,243 in 1996 to $11,510,461 in 1997. The principal
reason for this decrease was the ongoing investigation into the
Company's Internet activities. In addition to the decrease in gross handle,
net win and other revenues decreased by $233,319, or 37.2%, in
1997 as compared to 1996. This reduction was due primarily to a
decrease in the net win percentage from 5.1% in 1996 to 2.2% 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, the Company loss $271,937
for this quarter as compared to a loss of $115,243 for 1996. In
general, expenses were reduced by $77,165 regardless of the
Company's current amortization policy of intangible assets which
included a charge of $73,457 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 $1,587,684 as of June 30,
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.
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
<PAGE>
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 4. Submission of Matters to a Vote of Security Holders.
The 1997 Annual Meeting of Shareholders of the Company was
held June 30, 1997. At the annual meeting, management's
nominees, Michael F. Simone, Lawrence E. Hirsch, Esquire,
Jeffrey D. Erb and Michael F. Oryl, Jr. were elected to fill
the four positions as directors of the Company. Voting was
as follows: Mr. Simone, 4,480,000 shares for; Ms.
Moscariello, 4,010,000 shares for; Mr. Hirsch, 10,000 shares
for; Mr. Erb, 100,000 shares for; Mr. Oryl, 100,000 shares
for; and no abstentions or broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended June 30, 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>
<S> <C>
Cash $ 210,158
Marketable Securities 0
Notes and Accounts Receivable 495,677
Allowances for Doubtful Accounts 69,054
Inventory 0
Total Current Assets 647,343
Property, Plant and Equipment 501,949
Accumulated Depreciation 218,255
Total Assets 3,731,512
Total Current Liabilities 2,235,027
Bonds, Mortgages and Similar Debt 0
Preferred Stock - Mandatory Redemption 0
Preferred Stock - No Mandatory Redemption 0
Common Stock 13,701
Other Stockholders' Equity 1,482,784
Total Liabilities and Stockholders' Equity 3,731,512
Net Sales of Tangible Products 0
Total Revenues 1,068,109
Cost of Tangible Goods Sold 0
Total Costs and Expenses App. to Sales and Revenues 0
Other Costs and Expenses 1,498,294
Provision for Doubtful Accounts 7,252
Interest and Amortization of Debt Discount 17,887
Income Before Taxes and Other Items (455,324)
Income Tax Expense 0
Income/Loss Continuing Operations (455,324)
Discontinued Operations 0
Extraordinary Items 0
Cumulative Effect-Changes in Accounting Principles 0
Net Income or Loss (455,324)
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 & COMMUNICATIONS CORP.
Dated: August 12, 1997
By: /s/ MICHAEL F. SIMONE
Michael F. Simone, President and Chief Executive Officer
By: /s/ FRED MICHINI
Fred Michini, Chief Financial Officer
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 210158
<SECURITIES> 0
<RECEIVABLES> 495677
<ALLOWANCES> 69054
<INVENTORY> 0
<CURRENT-ASSETS> 647343
<PP&E> 501949
<DEPRECIATION> 218255
<TOTAL-ASSETS> 3731512
<CURRENT-LIABILITIES> 2235027
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0
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<COMMON> 13701
<OTHER-SE> 1482784
<TOTAL-LIABILITY-AND-EQUITY> 3731512
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<CGS> 0
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<OTHER-EXPENSES> 1498294
<LOSS-PROVISION> 7252
<INTEREST-EXPENSE> 17887
<INCOME-PRETAX> (455324)
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