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, 1998
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.)
4070 BUTLER PIKE, PLYMOUTH MEETING, PA 19462-1510
_______
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610)941-0305_
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 September 30, 1998 there were 15,628,251 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 September 30, 1998
and December 31, 199 3
2. Statement of Operations for the nine month
periods ended September 30, 1998 and 4
September 30, 1997
3. Statements of Cash Flows for the nine month
periods ended September 30, 1998 5
and September 30, 1997
4. Notes to consolidated financial statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
PART II. OTHER INFORMATION
Item 6. Exhibit 27, Financial Data Schedule
(For Electronic Filing Purposes Only) 11
SIGNATURES 12
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEET
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND YEAR ENDED DECEMBER 31, 1997
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SEPT DEC
1998 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ - $15,250
Accounts receivable, net of allowance
for doubtful accounts of $113,000 in
1998 and 1997 158,481 68,516
Deferred tax asset 100,000 100,000
Net current assets of discontinued
operations - 529,754
Total current assets 258,481 713,520
EQUIPMENT, Net 95,169 100,420
INTANGIBLE ASSETS:
Systems development costs, net 1,652,149 1,449,235
Gaming and software sub-licenses, net 377,021 377,021
Total intangible assets 2,029,170 1,826,256
OTHER ASSETS:
Security deposits 1,118 1,118
Note receivable 5,000,000 -
Total other assets 5,001,118 1,118
NET NONCURRENT ASSETS OF DISCONTINUED
OPERATIONS - 223,031
TOTAL $7,383,938 $2,864,345
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - $286,065
Bank overdraft - 74,109
Accounts payable and accrued expenses 547,445 454,039
Net current liabilities of discontinued
operations - 1,601,516
Total current liabilities 9547,445 2,415,729
DEFERRED REVENUE 5,000,000 -
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 25,000,000 shares
authorized, 15,628,251 and 13,701,290 shares
issued and outstanding in 1998 and 1997,
respectively 15,628 13,701
Additional paid-in capital 1,797,443 2,676,296
Deficit 23,422 (2,241,381)
Total stockholders' equity 1,836,493 448,616
TOTAL $7,383,938 $2,864,345
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
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<S> <C> <C> <C> <C>
SIX MONTHS ENDED NINE MONTHS ENDED
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED)
REVENUES:
Gaming and software
licensing fees, net $68,707 $77,000 $164,556 $1,202,906
Advertising 17,601 3,069 50,670 -
Program and design fee 56,401 23,070 87,434 56,443
Rental income - - - -
Other 7,338 20,740 13,707 458,673
Interest income 32 60 158 -
Total revenues 150,070 123,948 326,525 1,718,022
EXPENSES:
Salaries 166,704 170,969 224,108 607,593
Depreciation and
amortization 124,992 86,767 187,491 281,247
Advertising 648 49,387 2,296 128,551
Legal and professional 56,450 82,909 74,757 346,925
Rent 130,815 55,575 49,415 163,142
Provision for doubtful
accounts - (1,056) - 6,196
Office 29,358 14,300 37,208 100,040
Telephone 24,681 63,834 33,329 281,303
Insurance 17,529 14,867 15,896 35,677
Travel and related
expenses 10,463 10,249 10,659 54,037
Other 1,181 21,841 18,325 24,774
Auto 3,987 8,551 8,770 24,324
Interest 3,532 9,200 3,532 27,087
Bank charges 13,438 6,968 13,985 19,231
Repairs and maintenance 312 3,857 312 11,617
Services and other fees - 5,343 - 15,250
Total expenses 483,890 603,561 680,183 2,126,994
Loss from continuing
operations before
taxes and extraordinary
item (333,811) (479,613) (363,659) (408,972)
Income tax expense _ - (100,000) -
Loss from continuing
operations (333,811) (470,613) (463,699) (408,972)
Income from
discontinued
operations - (72,959) 134,732 71,703
Loss before
extraordinary item (333,811) (552,572) (328,927) (337,269)
Extraordinary item - - 1,656,344 -
Net (loss) income $ (333,811) (552,572) 1,327,417 (337,269)
Basic (loss) earnings per common share:
Continued operations $(0.02) $(0.04) $(0.03) $(0.03)
Discontinued operations - (0.01) 0.01 0.01
- - 0.12 -
Net (loss) income
per share $(0.02) $(0.04) $0.10 $(0.02)
Weighted average common shares
outstanding 13,945,201 13,686,665 13,945,201 13,686,665
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
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SEPT SEPT
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $1,327,417 $(408,972)
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Provision for Doubtful Accounts 6,196
Depreciation and amortization 187,491 281,247
Change in net assets and liabilities of
discontinued operations (1,727,284) -
Deferred income tax benefit 100,000 -
Deferred Revenue 5,000,000 -
(Increase) decrease in assets:
Accounts receivable (82,948) (68,026)
Other assets (5,000,000) 407
Increase in liabilities:
Customers' Credit Balances (248,750)
Customers' Security Deposits 54,024
Accounts payable and accrued expenses 100,378 138,384
Net cash (used in) provided by
operating activities (94,946) (243,490)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment 70,348 (22,261)
Increase in note and loans receivable (669)
Net cash used in investing
activities 70,348 (22,930)
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 7,421 -
Proceeds from notes payable - 86,065
Proceeds from issuance of common stock 1,927 42,508
Net cash provided by
financing activities 9,348 128,573
(DECREASE) INCREASE IN CASH (15,250) (137,847)
CASH, BEGINNING 15,250 208,020
CASH, ENDING $ - $70,173
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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,
1998 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, 1998 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, 1997.
In 1997, the Company's business activities, operations and net
income or loss were 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").
In September 1997, the Company adopted a plan to dispose of two of
its subsidiaries, Sports and Casinos. Effective March 18, 1998, the
Company sold Sports and Casinos for debt forgiveness of $1,656,344
and a $5,000,000 note receivable. The interest rate on the note is
1 1/2% above the prime rate. The first eighteen months of the note
only require monthly payments of interest on the unpaid principal
portion. The second eighteen months require payment of interest plus
principal of $27,725 per month.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A balloon payment of $4,490,950 is payable on the thirty-seventh
month. Interest payments and accruals have been suspended through
August 31, 1998 pending the reopening of Sports and Casinos by the
new owners and management team. The stock of Sports and Casinos has
been pledged by the buyer as collateral. The sale resulted in a
pre-tax gain of approximately $6,556,344 in 1998 after considering
costs incurred in connection with the sale and operating results
through the date of disposition. As collection of the $5,000,000 note
is uncertain, the Company will defer the gain on the note and
recognize revenue as principal is collected.
2. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at
September 30, 1998 and December 31, 1997:
1998 1997
Furniture, fixtures and equipment $157,353 $157,353
Less accumulated depreciation 62,184 56,933
Total $ 95,169 $100,420
3. INTANGIBLE ASSETS
Intangible assets include system development costs, gaming and
software sub-licenses and are depreciated over a ten year period
beginning in 1997. Intangible Assets consist of the following as of
September 30, 1998 and December 31, 1997:
1998 1997
System Development Costs $1,652,149 $1,652,149
Gaming and Software Sub-license 377,021 377,021
2,029,170 2,029,170
Less accumulated amortization 305,678 202,914
Total $1,723,492 $1,826,256
<PAGE>
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 derived all its revenue from its wholly owned Grenadan
subsidiaries. The government of Grenada does not presently impose
income taxes on the Company. In 1997, a deferred tax asset of $100,000
was recognized for the future tax consequences attributable to U.S. net
operating loss carryforwards of approximately $300,000, which expire in
2012. In March 1998 the Company realized gain on debt forgiveness
related to its sold subsidiaries and provided for a $100,000 tax
provision thereby utilizing its deferred tax asset.
Reconciliation of the U.S. federal statutory rate to the Company's
effective tax rate on continuing operations follows:
1997 1998
U.S. federal statutory tax rate 34.0% 34.0%
Non-U.S. net operating loss carryforwards (27.8) (21.0)
Net operating loss carryforwards with no
current tax benefit - (13.0)
Effective tax rate on continuing operations 6.2% 0.0%
Income taxes will be recognized on the installment basis for both
financial and income tax purpose on the collection of the $5,000,000
note from the sale of Sports and Casinos. There is about $100,000
basis in the subsidiaries; therefore, principal collection on the note
will be fully taxable.
6. Common Stock Transactions
The Company authorized the issuance of restricted common stock as an
employee stock bonus to certain employees and consultants assisting in
the sale of Sports and Casino in the amount of 1,929,961 and recognized
expense in the amount of $1,927.
<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 nine-month period ended September 30, 1998 and 1997 the
statement of operations reflects a decrease in revenues from
continuing operations amounting to $1,401,497.00 or 81%. This decrease
was the result of 1997 revenues in the amount of $1,718,022.00 for
currently discontinued operations. The 1998 revenue in the amount of
$316,525.00 is attributable to software licensing fees, advertising
fees and program design fees. Expenses from continuing operations
decreased by $1,456,809.00 or 68%. This is also the result of 1997
expenses in the amount of $2,126,994.00 for currently discontinued
operations. The decrease in 1998 expenses is a reflection of the
consolidation of management and employees to a more economic and
efficient facility together with a reduction in administrative
personnel. Income from continuing operations increased from
$337,269.00 in 1997 to $1,337,416.00 in 1998. This increase includes
an extraordinary item in the amount of $1,656,334.00.
For the three month periods ended September 30, 1998 and 1997 revenues
from continuing operations increased to $160,364. Revenues from
continuing operations include licensing, advertising, and Internet
related Web design fees. The increase in revenues resulted from the
postponement of certain licensing fees, which the Company anticipates,
will be recovered in future period. Expenses decreased from $603,561 in
1997 to $230,053 in 1998. This decrease resulted from consolidating
management and employees in a more economical and efficient facility
together with a reduction in administrative personnel. Loss from
continuing operations decreased by $409,924 in 1998 or about 85%.
There was no income from discontinued operations for the quarter ended
September 30, 1998 since the gaming subsidiaries were sold during the
first quarter of 1998.
Liquidity and Capital Resources
Current liabilities exceed current assets by $254,017 in 1998 compared
to $1,702,209 in 1997. The reduction in the working capital deficit
resulted from the sale of Sports and Casinos. The Company anticipates
further reductions in future periods as the $5,000,000 note amortizes.
Further capital resources is anticipated with increased licensing
activities and the development and sale of new Internet gaming software.
<PAGE>
Government Regulation - Effect on Financing
In June of 1998, the State of Missouri settled a suit against the
Company and its President, Michael F. Simone, for a $2,000 fine for Mr.
Simone and $25,000 fine for the Company together with a second-degree
misdemeanour plea agreement for each party.
PART II. OTHER INFORMATION
Item 1. Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended September
30, 1998. The Exhibits filed as part of this report is listed below.
Exhibit No. Description
27 Financial Data Schedule
Item 2. Legal Proceedings
The Company has filed suit in the Court of Common Pleas of Montgomery
County, Pennsylvania against International Gaming Corporation to collect
the full amount plus accrued interest on the note issued for the purchase
of the gaming subsidiaries, Sports and Global Casinos. Further action is
contemplated, when appropriate.
Item 3. Y2K Compliance
The Company is compliant with Y2K considerations and all of its equipment
is in compliance.
<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.
Cash $ 0
Marketable Securities 0
Notes and Accounts Receivable 5,188,533
Allowances for Doubtful Accounts 113,000
Inventory 0
Total Current Assets 258,481
Property, Plant and Equipment 157,353
Accumulated Depreciation 62,184
Total Assets 7,383,938
Total Current Liabilities 547,445
Bonds, Mortgages and Similar Debt 0
Preferred Stock / Mandatory Redemption 0
Preferred Stock / No Mandatory Redemption 0
Common Stock 15,628
Other Stockholders' Equity 1,836,493
Total Liabilities and Stockholders' Equity 7,383,938
Net Sales of Tangible Products 0
Total Revenues 316,525
Cost of Tangible Goods Sold 0
Total Costs and Expenses App. to Sales and Revenues 0
Other Costs and Expenses 680,183
Provision for Doubtful Accounts 0
Interest and Amortization of Debt Discount 3,532
Income Before Taxes and Other Items (363,659)
Income Tax Expense 100,000
Income/Loss Continuing Operations (463,659)
Discontinued Operations 134,732
Extraordinary Items 1,656,344
Cumulative Effect-Changes in Accounting Principles 0
Net Income or Loss 1,357,417
Earnings Per Share - Primary 0.10
Earnings Per Share - Fully Diluted 0.10
<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: December 30, 1998
By: /s/ MICHAEL F. SIMONE
Michael F. Simone, President
and Chief Executive Officer
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<ALLOWANCES> 113000
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<PP&E> 157353
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