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, 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.)
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 July 8, 1998 there were 15,628,251 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 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibit 27, Financial Data Schedule
(For Electronic Filing Purposes Only) 14
SIGNATURES 15
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEET
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1998
AND YEAR ENDED DECEMBER 31, 1997
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<S> <C> <C>
MARCH DEC
1998 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $5,204 $15,250
Accounts receivable, net of allowance
for doubtful accounts of $113,000 in
1998 and 1997 90,047 68,516
Deferred tax - 100,000
Net current assets of discontinued
operations - 529,754
Total current assets 95,251 713,520
EQUIPMENT, Net 88,354 100,420
INTANGIBLE ASSETS:
Systems development costs, net 1,407,931 1,449,235
Gaming and software sub-licenses, net 367,596 377,021
Total intangible assets 1,775,527 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 $6,960,250 $2,864,345
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $286,065 $286,065
Bank overdraft 80,155 74,109
Accounts payable and accrued expenses 556,916 454,039
Net current liabilities of discontinued
operations - 1,601,516
Total current liabilities 923,136 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 (775,957) (2,241,381)
Total stockholders' equity 1,037,114 448,616
TOTAL $6,960,250 $2,864,345
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<S> <C> <C>
MARCH MARCH
1998 1998
(UNAUDITED)
REVENUES:
Gaming and software licensing fees, net $20,014 $13,470
Advertising 13,541 -
Program and design fees 46,724 36,645
Rental income 1,162 -
Other - -
Interest income 18 -
Total revenues 81,459 50,115
EXPENSES:
Salaries 99,393 134,346
Depreciation and amortization 62,495 34,172
Advertising 130 4,512
Legal and professional 54,222 114,236
Rent 18,782 26,193
Provision for doubtful accounts - -
Office 10,192 13,875
Telephone 15,840 10,628
Insurance 12,976 10,693
Travel and related expenses 7,128 13,508
Other 6,766 4,211
Auto 3,487 5,600
Interest 3,532 4,832
Bank charges 11,856 -
Repairs and maintenance 312 1,805
Services and other fees - 93
Total expenses 307,111 378,704
Loss from continuing operations
before taxes and extraordinary item (225,652) (328,589)
Income tax expense (100,000) -
Loss from continuing operations (325,652) (328,589)
Income from discontinued operations 134,732 144,662
Loss before extraordinary item (190,920) (183,927)
Extraordinary item 1,656,344 -
Net (loss) income $ 1,465,424 $(183,927)
Basic (loss) earnings per common share:
Continued operations $(0.02) $(0.02)
Discontinued operations 0.01 0.01
0.12 -
Net (loss) income per share $0.11 $(0.01)
Weighted average common shares
outstanding 13,945,201 13,682,752
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
<TABLE>
<S> <C> <C>
MARCH MARCH
1998 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $1,465,424 $(183,927)
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Depreciation and amortization 62,495 34,171
Change in net assets and liabilities of
discontinued operations (1,727,284) (383,940)
Deferred income tax benefit 100,000 -
Deferred Revenue 5,000,000 -
(Increase) decrease in assets:
Accounts receivable (21,531) 74,113
Other assets (5,000,000) -
Increase in liabilities,
Accounts payable and accrued expenses 102,877 243,715
Net cash (used in) provided by
operating activities (18,019) (215,868)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment - (7,241)
Net cash used in investing
activities - (7,241)
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 6,046 -
Proceeds from notes payable - 50,000
Proceeds from issuance of common stock 1,927 -
Net cash provided by
financing activities 7,973 50,000
(DECREASE) INCREASE IN CASH (10,046) (173,109)
CASH, BEGINNING 15,250 208,020
CASH, ENDING $5,204 $34,911
</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,
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 three month period
ended March 31, 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.
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").
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 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. A
balloon payment of $4,490,950 is payable on the
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
thirty-seventh month. 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.
Net current assets from discontinued operations were primarily
cash and customer receivables. Net noncurrent assets from
discontinued operations were primarily fixed assets. Net
current liabilities were customers' credit balances, security
deposits and accounts payable and accrued expenses.
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.
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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.
As a result of these investigations and costs to defend its
position that the business of the Gaming Division pertaining to
customer wagering over the Internet does not violate any
federal, state or local statues, the Company completely divested
itself from these activities with the sale of Sports and Casinos
in March 1998.
2. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at
March 31, 1998 and December 31, 1997:
<PAGE>
1998 1997
Furniture, fixtures and equipment $157,353 $157,353
Less accumulated depreciation 68,999 56,933
Total $88,354 $100,420
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 1997 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 253,643 202,914
Total $1,775,527 $1,826,256
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
11/2% 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. 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
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
<PAGE>
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. 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>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DISCONTINUED OPERATIONS
The financial statements reflect the operating results and
balance sheet items of the discontinued operations separately
from continuing operations. Prior years have been restated.
Operating results for the discontinued operations were:
1998 1997
Gross handle $1,426,568 $17,910,347
Less customer win 1,198,942 17,326,763
Net win 227,626 583,584
Other revenues 11,102 91,178
Net win and other revenues 238,728 674,762
Expenses 103,996 530,100
Net income $134,732 $144,662
8. 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
representing the par value of the stock.
<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, 1998 and 1997 the
statement of operations reflects an increase in revenues from
continuing operations amounting to $31,344 or an increase of
62.5%. Revenues from continuing operations include licensing,
advertising, and Internet related Web design fees. The increase
in revenues resulted from the Company's sale of proprietary
software and licenses. Expenses decreased from $378,704 in 1997
to $307,111 in 1998. This decrease resulted from consolidating
management and employees in a more economical and efficient
facility together with a reduction in administrative personnel.
Income from discontinued operations decreased from $144,662 to
$134,732. The decrease resulted from the transition in selling
its gaming subsidiaries, Sports and Casinos.
Liquidity and Capital Resources
Current liabilities exceed current assets by $827,885 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.
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. However, with the sale of Sports
and Casinos in 1998, the Company is no longer involved with
customers' wagers. But there continues to remain the
uncertainty of how the U.S. and other world governments will
<PAGE>
look upon gambling on the Internet which 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 U.S.
The Company has co-operated with the U.S. Attorney's office in
Philadelphia in providing such records. In addition, the State
of Missouri in April 1997 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 its 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 the
Company will prevail in these proceedings which are under
appeal.
PART II. OTHER INFORMATION
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, 1998. 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 $5,204
Marketable Securities 0
Notes and Accounts Receivable 203,047
Allowances for Doubtful Accounts 113,000
Inventory 0
Total Current Assets 95,251
Property, Plant and Equipment 157,353
Accumulated Depreciation 68,999
Total Assets 6,960,250
Total Current Liabilities 923,136
Bonds, Mortgages and Similar Debt 0
Preferred Stock - Mandatory Redemption 0
Preferred Stock - No Mandatory Redemption 0
Common Stock 15,628
Other Stockholders' Equity 1,021,486
Total Liabilities and Stockholders' Equity 6,960,250
Net Sales of Tangible Products 0
Total Revenues 81,459
Cost of Tangible Goods Sold 0
Total Costs and Expenses App. to Sales
and Revenues 0
Other Costs and Expenses 303,579
Provision for Doubtful Accounts 0
Interest and Amortization of Debt Discount 3,532
Income Before Taxes and Other Items (225,652)
Income Tax Expense 100,000
Income/Loss Continuing Operations (325,652)
Discontinued Operations 134,732
Extraordinary Items 1,656,344
Cumulative Effect-Changes in
Accounting Principles 0
Net Income or Loss 1,465,424
Earnings Per Share - Primary 0.11
Earnings Per Share - Fully Diluted 0.11
</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: July 10, 1998
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>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5204
<SECURITIES> 0
<RECEIVABLES> 203047
<ALLOWANCES> 113000
<INVENTORY> 0
<CURRENT-ASSETS> 95251
<PP&E> 157353
<DEPRECIATION> 68999
<TOTAL-ASSETS> 6960250
<CURRENT-LIABILITIES> 923136
<BONDS> 0
0
0
<COMMON> 15628
<OTHER-SE> 1021486
<TOTAL-LIABILITY-AND-EQUITY> 6960250
<SALES> 0
<TOTAL-REVENUES> 81459
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 303579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3532
<INCOME-PRETAX> (225652)
<INCOME-TAX> 100000
<INCOME-CONTINUING> (325652)
<DISCONTINUED> 134732
<EXTRAORDINARY> 1656344
<CHANGES> 0
<NET-INCOME> (1465424)
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
