UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[Fee Required]
For the fiscal year ended DECEMBER 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file Number 33-7764-C
INTERACTIVE GAMING & COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
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DELAWARE 23-2838676
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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4070 BUTLER PIKE, PLYMOUTH MEETING, PA 19462-1510
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area (610) 941-0305
code
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001/PAR VALUE PER SHARE
(Title of class)
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 6, 1999, there were 15,544,903 shares of the Registrant's common
stock outstanding. The aggregate market value of the Registrant's voting
stock held by nonaffiliates of the Registrant was approximately $3,103,360
computed at the closing price for the Registrant's common stock on the NASD
Bulletin Board on July 6, 1999.
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TABLE OF CONTENTS
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PAGE
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PART I
1. Business 1
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Securities Holders 5
PART II
5. Market Price for Registrant's Common Equity and Related
Stockholder Matters 7
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure 40
PART III
10. Directors and Executive Officers of the Registrant 40
11. Executive Compensation 43
12. Security Ownership of Certain Beneficial Owners and Management 44
13. Certain Relationships and Related Transactions 45
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 45
Exhibit 27, Financial Data Schedule (For Electronic Filing
Purposes Only) 46
Signatures 47
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ITEM I. BUSINESS
-----------------
General
History and Organization
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Interactive Gaming & Communications Corp. (formerly, Sports International, Ltd.)
(the "Company") was incorporated in the state of Delaware in June 1986 under the
name of "Entertainment Tonight Video Express Ltd." to develop a market for the
home delivery of video cassette rentals, which effort was abandoned in November
1987. From December 1987 until August 1994, the Company did not conduct any
operations, transactions or business activities. In August 1994, the Company
began negotiations to acquire Sports International, Ltd. (Antigua) and its
business from the stockholders of Sports International, Ltd. (Antigua), and
successfully closed the transaction in October 1994, in accordance with its Plan
of Reorganization.
Plan of Reorganization
- ------------------------
At the Special Meeting of Shareholders held on September 9, 1994, the
shareholders of the Company approved a Plan of Reorganization which required;
(1) the reverse split of one (1) for four (4) shares of the common stock of the
Company; (2) the acquisition of Sports International, Ltd. (Antigua) by the
exchange of Stock and Notes; (3) the election of former officers and directors
of Sports International, Ltd. (Antigua) to the Board of Directors of the
Company, and (4) the amendment of the Company's Certificate of Incorporation
changing the Company's name from Entertainment Tonight Video Express Ltd. to
Sports International, Ltd. Effective March 27, 1996, the Company changed its
name to Interactive Gaming & Communications Corp. to reflect its expanding
operations.
Acquisition - Exchange of Stock and Notes
- -----------------------------------------------
The acquisition of all of the capital stock of Sports International, Ltd.
(Antigua) was completed on October 20, 1994 by the issuance of 4,500,000 common
shares (post split) and an aggregate of $4,000,000 of the Company's Convertible
Notes (the "Notes") to shareholders of Sports International, Ltd. (Antigua).
The Notes were scheduled to mature on December 31, 1996, together with interest
at the prevailing prime rate, accrued quarterly, and were convertible into
common stock at the rate of one share for each $1.00 of outstanding principal
amount and accrued interest. All the shares issued to the Sports International,
Ltd. (Antigua) stockholders and the shares issuable upon
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conversion of the
Notes, together with accrued interest, are "restricted" shares, as such term is
used in Rule 144, promulgated under the Securities Act of 1933, as amended.
These Notes were converted into 4,000,000 shares of common stock effective
December 31, 1994 and the interest thereon was waived in connection with the
conversion.
Nature of Operations
- ----------------------
The Company is a holding company publicly trading on the National Association of
Securities Dealers Automated Over the Counter (OTC) Market Bulletin Board under
the trading symbol "SBET". The Company is comprised of two subsidiaries, Global
Gaming Corp. (Grenada) ("Global") and Intersphere Communications, Ltd. (Grenada)
("Intersphere"). Each of the Company's subsidiaries provides several unique and
proprietary products and services to the emerging Internet, national and
international marketplaces. The Company is responsible for supplying its
subsidiaries with administrative and management assistance, accounting,
consulting and necessary funding to complete projects or initiate endeavors.
As discussed inNote 19 to the financial statements, incorporated herein, the
Company implemented a plan to divest its subsidiaries engaged in international
Internet sports book and casino gaming. Therefore, the consolidated financial
statements include the accounts of Sports International, Ltd. (Grenada)
("Sports") and Global Casinos, Ltd. (Grenada) ("Casinos"), the two subsidiaries
sold on March 18, 1998, as discontinued operations.
Intersphere is a software development, marketing and communications company
specializing in the Internet market. Intersphere developed the LiveAction
Gaming Platform (formerly known as WiseGuy) wagering system, the first sports
wagering system that allows casino sports books to take a wager from a customer
over the Internet. LiveAction Gaming Platform was used by Sports in 1995.
Intersphere's revenues are derived from Web Page Development and Design,
traditional advertising, licensing of the LiveAction Gaming Platform and the
development of other related gaming software products.
Casinos operated one of the world's first Internet Casino and Sports book. By
accessing the Company's Internet site, a betting enthusiast could play and place
wagers on a variety of casino games and sporting events. Casinos operated its
business under a gaming license issued and authorized by the government of
Grenada, before discontinuance of operations.
Global was the exclusive principal international gaming license holder in the
country of Grenada, West Indies. Through this exclusive licensing agreement with
the government of Grenada, Global had the right to operate and issue sub
licenses to qualified gaming companies for operating international casinos or
sports books via the Internet or other telecommunications. Revenues were
derived from annual licensing fees and a percentage of the sub licensees' net
revenues. The company has withdrawn from conducting further licensing activities
in Grenada until both the political and industry environment becomes more
favorable.
Sports operated an international Internet sports book. Sports betting
enthusiasts, once they established an account, could place a wager on just about
any sporting event over the phone or
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the Internet via a personal computer.
Wagers were accepted on all major sporting events in the U.S. and Europe.
Sports operated its business under a gaming license issued and authorized by the
government of Grenada. Sports was the principal source of revenue for the
Company, generally accounting for 70% and 95% of the Company's net revenues for
the years ended December 31, 1997 and 1996, respectively, before discontinuance
of operations.
-
Industry Segments
The gaming industry is comprised of five separate service industries; (1)
traditional pari-mutuel wagering on horse and dog racing; (2) casino and
riverboat gambling; (3) lotteries; (4) charitable organization gambling (Bingo
and Las Vegas Nights); and (5) sports book.
The Company operates in the casino segment via the Internet/Intranet utilizing
proprietary software developed by its subsidiaries and joint venture affiliates.
The Company derives its revenues from licensing, royalties, traditional
advertising and Internet related development and design services.
Marketing
The Company primarily advertises its licenses and services during peak periods
of sporting events (September through April) in gambling related magazines and
newspapers, and will continue this method of advertising in the future. The
success of increased revenues is directly dependent upon the amount of
advertising in both conventional and Internet markets.
Intellectual Property
The Company holds no patents or trademarks for its software.
Government Regulation
The licensing business of the Company is conducted through its wholly owned
subsidiaries, which are legally organized in Grenada and licensed by the
Grenadan government to conduct its business. The company no longer operates any
business, which is regulated by government.
Future Developments
In March 1997, the Company launched its live Internet casino and sportsbook via
its Casino subsidiary and an Internet casino via its Sports subsidiary. The
first entertainment offered to its customers was a slot machine tournament
followed by blackjack and poker games. Sports and Casinos were sold in March
1998.
The Company also has plans to develop an interactive horse racing system for the
Internet World Wide Web to be offered by Intersphere to thoroughbred horse
tracks throughout the world.
Employees
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As of July 1999, the Company had 8 full-time employees: 2 software engineers; 1
graphic designer; 2 marketing personnel; 1 HTML writer; and 2 employees engaged
in service support. The Company also utilizes full-time and part-time
consultants on an as-needed basis. None of the company's employees is
represented by a labor union and the Company believes its relations with its
employees are satisfactory.
Backlog
The nature of the Company's business does not involve any backlog.
Insurance
The Company maintains general liability and workers' compensation insurance,
which covers injury to employees.
Competition
Many segments of the gaming industry are characterized by intense competition,
with a large number of companies and syndicates offering the same wagering or
seeking to develop sports wagering. All of these entities in most instances
have vastly greater resources than the Company.
The Company estimates that there are 20 sports books and 80 on-line casinos
offering similar type services. However, since the majority of these
enterprises are privately owned, and financial information is not publicly
available, the Company is unable to evaluate its position among its competitors.
ITEM 2. PROPERTIES
------------------
Commencing December 9, 1997, the Company entered into a new four-year lease for
its corporate and subsidiary, Intersphere, headquarters in Plymouth Meeting,
Pennsylvania. The lease provides for current annualized rent of approximately
$49,000.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
On February 18, 1997, a search warrant (the "Warrant") was issued, filed in the
United States District Court for the Eastern District of Pennsylvania,
authorizing the Federal Bureau of Investigation to search the premises of the
Company's executive offices and the offices of Intersphere in Blue Bell,
Pennsylvania including any and all computer hardware, software,
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peripheral
devices and computer-related documentation on any of such premises. The Warrant
lists a variety of items to be obtained based on the assumption that there was a
violation of federal laws and that an illegal gambling business was being
conducted from its premises in 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 violated either the laws of the United States or the Commonwealth
of Pennsylvania, since no gaming or gambling operations are conducted there.
In May 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. On September 22, 1998, the
company and Simone entered into a plea agreement with the State of Missouri. As
part of the agreement the Company was to pay a fine in the amount of $5,000 and
an additional $20,000. For the costs to prosecute the case. Simone was fined
$2,500. As of December 31, 1998, $15,000 remains unpaid and is included in
accounts payable and accrued expenses. According to the plea agreement, if the
$20,000 was not paid within sixty days following the date of the plea, the State
of Missouri may bring additional criminal charges against the Company.
The Company has filed suit against International Gaming to collect payments due
under a $4,990,000 note representing payment for the capital stock of Sports
International, Inc. and Global Casinos, Inc. (Note 19). International Gaming
has filed an Answer and Counterclaim asserting there were material
misstatements, misrepresentations and omissions from the warranties and
representations provided under the Stock Purchase Agreement between the two
Companies. The Company has been advised by competent legal counsel that they
will receive a judgement, though collection of the amount owed is still
uncertain.
The Company was sued by, among others, Empire Corporation ("Empire"), who
claimed the Company improperly terminated an alleged Joint Venture Agreement,
appropriated certain funds belonging to Empire under the agreement and otherwise
refused to pay monies due to Empire. Empire also asserted claims of fraud and
breach of fiduciary duty. An answer, new matter and counterclaim has been filed
by the Company asserting that the Agreement had been properly terminated and
that funds are due the Company from Empire. Empire claims damages in excess of
$160,000 as well as punitive damage in the amount of $1,000,000. The Company's
counterclaim seeks damages in excess of $95,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
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On March 18, 1998, a Special Meeting of Shareholders was held to approve the
sale of all of the capital stock of Sports and Casinos for $5,000,000. The sale
was unanimously approved by the Shareholders.
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PART II
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ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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MATTERS
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After the Company completed a Plan of Reorganization, its Common Stock resumed
trading on the National Association of Securities Dealers Automated Over the
Counter Market (OTC) Bulletin Board on December 19, 1994, under the trading
symbol "SBET". The following table sets forth high and low closing sales prices
(in dollars) for the Company's Common Stock, as reported on the Bulletin Board,
since trading resumed.
1998 1997 1996
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High Low High Low High Low
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First Quarter .21 .13 1 7/8 1 1 3/16 5/8
Second Quarter .16 .11 1 1/16 5/8 3 3/16 5/8
Third Quarter .44 .13 .50 .34 2 5/8 1
Fourth Quarter .08 .05 5/16 .13 2 7/8
On July 6, 1999 the last reported sales price for the Common Stock was $0.52.
On July 6, 1999 the Company had approximately 550 shareholders.
Dilution and Absence of Dividends
The Company has not paid any cash dividends on its common stock in the past and
does not anticipate paying any such cash dividends in the foreseeable future.
Earnings, if any, will be retained to finance future growth. The Company may
issue shares of its common stock in private and/or public offerings to obtain
financing, capital, or to acquire other businesses that can improve the
performance and growth of the Company. Issuance/sales of substantial amounts of
common stock could adversely affect prevailing market prices in the Common Stock
of the Company.
Description of the Company's Securities
Common Stock
The authorized capital stock of the Company consists of 25,000,000 shares, $.001
par value ("Common Stock"), of which 15,544,903 shares are issued and
outstanding as at July 6, 1999.
Approximately 10,807,369 shares of Common Stock issued in connection with the
reverse merger acquisition, conversion of Notes, and for certain services and
the gaming license are "restricted" shares, as such term is used in Rule 144 of
the Securities Act of 1993, as amended.
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The holders of Common Stock are entitled to one vote per share for the election
of directors and all other purposes and do not have cumulative voting rights.
The holders of Common Stock are entitled to receive dividends when, as, and if
declared by the Board of Directors and, in the event of the liquidation by the
Company, to receive prorata all assets remaining after payment of debts and
expenses. Holders of the Common Stock do not have any pre-emptive or other
right to subscribe for or purchase additional shares of capital stock. All the
outstanding shares of Common Stock are fully paid and non-assessable.
Sale of Unregistered Common Stock and Common Stock Warrants
Effective June 26, 1996, the Company entered into a stock and warrant purchase
agreement with a software developer and issued 375,000 shares of restricted
common stock for $750,001 and a common stock purchase warrant for $1,000. The
common stock purchase warrant is for 100,000 shares at a purchase price of $1.00
per share and expires on June 30, 2001. The Company's private offering
represented 3.3% of the outstanding common stock at June 26, 1996.
On October 11, 1996, the Company issued 254,474 shares of restricted common
stock in settlement of accounts payable of $508,947 incurred in the development
of the "Virtual Casino" software.
On November 4, 1996, the Company acquired all the outstanding common stock of
Intersphere for 1,000,000 restricted shares of previously unissued common stock
of the Company. Intersphere developed an exclusive proprietary product known as
the WiseGuy Sports Wagering System. Intersphere's revenue is derived from
software licensing fees related to its proprietary product, as well as from
advertising, marketing and web page design services primarily to Internet based
accounts.
On November 4, 1996, the Company also acquired all the outstanding common stock
of Global for 1,100,000 restricted shares of previously unissued common stock of
the Company. Global owns the exclusive principal master license to conduct
gambling operations from the Country of Grenada. The exclusive gambling license
is for two six-year terms and allows Global to sell up to four sub-licenses to
qualified applicants.
On June 30, 1997, the Company issued 29,250 shares of restricted common stock in
settlement of service of $42,000 rendered in the development of the "Virtual
Casino" software.
Preferred Stock
In May 1995, the shareholders approved an amendment of the Company's Certificate
of Incorporation to authorize the issuance of up to 10,000,000 shares of
preferred stock. The amendment permits the Board of Directors to issue from time
to time authorized but unissued shares of preferred stock and to fix and
determine the terms, limitations, relative rights and preferences of such
shares. At December 31, 1998, no preferred stock of the Company had been issued.
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ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
The selected financial data presented on the following tables for, and as of the
end of, each of the years or periods ended for the three year period ended
December 31, 1998, are derived from the financial statements of the Company
reflecting both income from continuing and discontinued operations. The
financial statements for the years ended December 31, 1998, 1997 and 1996 have
been audited by Parente, Randolph, Orlando, Carey & Associates, LLC. The 1997
and 1998 Selected Financial Data includes the consolidated reporting of all the
Company's subsidiaries included by reference herein.
The selected financial data should be read in conjunction with the accompanying
consolidated financial statements of the Company and the notes thereto and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
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1998 1997 1996
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(1)
INCOME STATEMENT DATA :
Revenues $ 325,416 $ 689,663 $ 113,386
Expenses 1,206,542 2,311,493 972,879
Other Income 11,499
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Loss from continuing operations
before income tax benefit (869,627) (1,621,830) (859,493)
Deferred income tax benefit 100,000 0
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Loss from continuing operations (869,627) (1,521,830) (859,493)
Income (loss) from discontinued
operations (66,579) 18,637 163,573
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Loss before extraordinary item (936,206) (1,503,193) (695,920)
Extraordinary item: debt
forgiveness 864,721 0 0
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Net loss $ (71,485) $ (1,503,193) $ (695,920)
=========== ============== =============
Basic (loss) earnings
per common share:
Continued operations $ (0.06) $ (0.11) $ (0.07)
Discontinued operations 0 0 0.01
Extraordinary item 0.06
Net (loss) income
per share $ 0 $ (0.11) $ (0.06)
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Weighted average
Common shares
Outstanding 13,701,290 13,682,752 11,512,656
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1998 1997 1996
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(1)
BALANCE SHEET DATA:
Working capital (deficit) $(1,311,501) $( 630,477) $( 294,602)
============ ============ ============
Total assets $ 1,777,274 $ 2,864,345 $ 4,008,364
============ ============ ============
Deficit $(2,312,866) $(2,241,381) $ (738,188)
============ ============ ============
Stockholders' equity (deficit) $ 377,131 $ 448,616 $1,909,301
============ ============ ==========
(1) See Note 14 to the consolidated financial statements of Item 8 of this
Form 10-K for 1996 acquisitions.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
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Results of Operations
Years Ended December 31 1998 & 1997
In March 1998, the Company sold its two gaming subsidiaries Sports and Casinos.
Therefore the Consolidated Statement of Operations for 1998 and 1997 have been
restated to reflect the results from the continuing operations. The continuing
operations for the Company as restated for those years and as discussed
prospectively herein reflect licensing fees, royalties and other revenues earned
from traditional advertising sources and Internet related development and design
fees. Accordingly, such revenues for 1998 were $325,416 as compared to $689,663
for 1997 and $113,386 for 1996. The decrease in revenues for 1998 as compared
to 1997 resulted from the loss of two licensees in 1998 and a decrease in
advertising revenue in 1998. Licensing and royalties fees for gaming and
software licenses accounted for 59% of the revenues in 1998, 46% of the revenues
in 1997, and 5% of the revenues reported for 1996 from continuing operations.
The remaining revenues were generated from advertising and other Internet
related services. Expenses from continuing operations decreased from $2,311,493
in 1997 to $1,206,542 or $1,104,951 in 1998 mainly as a result of a one time
charge in 1997 for $709,301 representing the impairment of a gaming sub-license
and decreased charges for depreciation and doubtful accounts in 1998 amounting
to $248,886. In addition, in 1998 the Company reduced rent by $53,635 and
advertising by $186,303.
Results of operations for the discontinued operations of Sports and Casinos
reflect a loss of $66,579 in 1998 as compared to $18,637 income in 1997. The
decreases in both revenue and expenses resulted from the Company's increased
efforts to sell Sports and Casinos and divest itself from wagering activities.
Years Ended December 31, 1997 & 1996
The increase in revenues from $ 689,663 in 1997 to $ 113,386 in 1996 resulted
from the acquisition of Intersphere and Global in October 1996 which reflected
three months of revenue as compared to twelve months of revenue in 1997.
Licensing and royalties fees for gaming and software licenses accounted for 46%
of the revenues reported for 1997 and 5% of the revenue reported for 1996 from
continuing operations. The remaining revenue was generated from advertising and
other Internet related services.
Expenses from continuing operations increased from $972,879 in 1996 to
$2,311,493 in 1997 mainly as a result of depreciation and amortization,
insurance, interest and other related charges for conducting a full year of
business as primarily a licensing and development company in the gaming and
Internet markets.
Liquidity and Capital Resources
The Company's working capital deficit from continuing operations increased by
$769,054, or 242%, from $542,447 in 1997 to $1,311,501 in 1998. The largest
component increase in the working capital deficit was accounts payable and
accrued expenses which increased by $537,083 or 218%. Of this amount, $257,730
was accrued for shares of stock issued in lieu of salary to the President of the
Company and consulting fees to a consultant. The remaining increase was a
result of trade accounts payable and payroll taxes from the inability of the
Company to generate positive cash flow from operations. In addition, working
capital increased as a result of the
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inability to collect anticipated payments
on the $4,990,000 note from the sale of the Company's former subsidiaries.
The Company has available at December 31, 1998 approximately $421,000 of unused
operating loss carryforwards that may be applied against future taxable income
and that expire in various years from 2011 to 2013.
Under a promissory note payable to Madison Bank, the Company has a $200,000 line
of credit available to fund working capital needs. As of December 31, 1998, the
Company has utilized $131,956 with $69,044 available to fund future short term
needs.
Further cost reductions and anticipated revenue growth from licensing as
described in the Prospective Outlook discussion that follows should contribute
to a gradual decrease in the working capital deficit.
If the outlook for greater revenues and reduced expenditures does not meet its
goals, then the Company will seek joint venture partners or private placement
funding to obtain capital to meet current working capital demands. The
continuation of the Company in its present form is dependent upon its ability to
obtain additional financing, if needed, and the eventual achievement of
sustained profitable operations. Although there can be no assurances that the
Company will be able to obtain such financing in the future, the Company did
demonstrate its ability to obtain such financing in 1996 with its strategic
alliances to develop new proprietary products and the sale of Sports and Casinos
in 1998. However, there are no assurances that management's future actions will
be successful or, if they are not successful, that the Company would be able to
continue as a going concern.
Year 2000
The "Year 2000 Problem" arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs do
not properly recognize a year that begins with "20" instead of the familiar
"19". If not corrected, many computer applications could fail or create
erroneous results. The problems created by using abbreviated dates appear in
hardware such as microchips, operating systems and other software programs. The
Company's Year 2000 ("Y2K") compliance project is intended to determine the
readiness of the Company's business for the Year 2000. The Company defines Y2K
compliance to mean that the computer code will process all defined future dates
properly and give accurate results.
In September 1998, the Company formed a Y2K compliance committee which includes
chief software writing personnel reporting directly to the President.
Management of the Company believes that it has an effective program in place to
resolve any Y2K issues and that all of its equipment and software are in
compliance to address Y2K readiness. However, although management believes that
the Company's systems and applications are Y2K compliant, there can be no
assurance that the systems of other companies with which it does business will
be Y2K compliant on a timely basis.
<PAGE>
Government Regulation - Effect on Financing
The licensing business of the Company is conducted through its wholly owned
subsidiaries, which are legally organized in Grenada and licensed by the
Grenadan government to conduct its business. The company no longer operates any
business, which is regulated by government.
Inflation
Inflation has not had a significant impact on the Company's comparative results
of operations.
Prospective Outlook
Certain matters discussed in this section contain forward-looking statements,
including without limitation, statements containing the Company's future revenue
and earnings. These forward-looking statements involve risks and uncertainties,
which could cause actual results to differ materially from those projected.
On February 23, 1999, the Company and Century Industries, Inc. ("Century")
entered into a joint effort agreement and formed Gamblenet Technologies, Ltd.
("Gamblenet"). The Company and Century each own 50% of Gamblenet's initially
outstanding common shares. In exchange for the Company's 50% interest, the
Company licensed certain gaming and software licenses to Gamblenet along with
4,000,000 restricted shares of the Company's Common Stock, which have been
reserved for, but have not been issued.
On June 22, 1999, the Company entered into a majority acquisition and
parent/subsidiary relationship agreement with Century Industries, Inc.
("Century"). The agreement calls for certain control block shareholders of
Century to sell to the Company 53.26% of Century's issued and outstanding shares
in exchange for 7,500,000 shares of the Company's common stock.
The Company will focus its efforts on software development such as a platform
for Internet horse racing and licensing its proprietary products and exclusive
licensing privileges for future revenues. The Company has effectively exited
the Internet gaming business involving the acceptance of customers' wagers with
the sale of its gaming subsidiaries Sports and Casinos in March 1998 and will be
engaged principally in its gaming and entertainment software development
business.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------
Index to Financial Statements and Supplementary Data
Page
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INDEPENDENT AUDITORS' REPORT 17
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet 18
Statement of Operations 19
Statement of Stockholders' Equity 20
Statement of Cash Flows 21
Notes to Financial Statements 22 - 37
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE 38
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 39
Financial Statement schedules not included in this Form 10-K have been omitted
because they are not applicable or are the required information is shown in the
financial statements or notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
============================
Board of Directors
Interactive Gaming & Communications Corp.
Plymouth Meeting, Pennsylvania:
We have audited the accompanying consolidated balance sheet of Interactive
Gaming & Communications Corp. and its subsidiaries at December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Interactive
Gaming & Communications Corp. and its subsidiaries at December 31, 1998, and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, the realization of
assets and the satisfaction of liabilities in the normal course of business. As
discussed in Note 2 to the financial statements, the Company has negative
working capital at December 31, 1998 and 1997 and negative cash flows from
operations for the years ended December 31, 1998 and 1997. The majority of the
Company's continuing and discontinued operations were financed by cash flows
from its discontinued operations including customers' credit balances and
security deposits, which remained on deposit until customers requested
repayment. These subsidiaries were sold in 1998. The Company will need to seek
other financing or generate sufficient cash flows to pay the current liabilities
of continuing
operations. The Company incurred a loss from continuing operations of $869,627
in 1998 and $1,521,830 in 1997 and there is no assurance that profitable
operations will be achieved in the future. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PARENTE, RANDOLPH, ORLANDO,
CAREY & ASSOCIATES, LLC
Philadelphia, Pennsylvania
May 19, 1999, except for Note 21 as to
which the date is June 22, 1999
<PAGE>
</TABLE>
<TABLE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEET
"DECEMBER 31, 1998 AND 1997"
<S> <C> <C>
1998 1997
ASSETS
CURRENT ASSETS:
Cash " $5,708 " " $215,250 "
"Accounts receivable, net of allowance for
doubtful accounts"
"of $38,000 and $113,000 in 1998 and 1997" " 6,934 " " 68,516 "
Deferred tax asset - " 100,000 "
Net current assets of discontinued operations - " 529,754 "
Total current assets " 12,642 " " 913,520 "
"EQUIPMENT, Net" " 68,351 " " 100,420 "
INTANGIBLE ASSETS:
"Systems development costs, net" " 1,393,547 " " 1,486,938 "
"Gaming and software licenses, net" " 301,616 " " 339,318 "
Total intangible assets " 1,695,163 " " 1,826,256 "
OTHER ASSETS " 1,118 " " 1,118 "
NET NONCURRENT ASSETS OF DISCONTINUED
OPERATIONS - " 223,031 "
TOTAL " $1,777,274 " " $3,064,345 "
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable " $318,021 " " $386,065 "
Bank overdraft - " 74,109 "
Current portion of long-term debt " 15,000 " " 12,000 "
Accounts payable and accrued expenses " 991,122 " " 454,039 "
Net current liabilities of
discontinued operations - " 1,601,516 "
Total current liabilities " 1,324,143 " " 2,527,729 "
LONG-TERM DEBT " 76,000 " " 88,000 "
Total liabilities " 1,400,143 " " 2,615,729 "
STOCKHOLDERS' EQUITY:
"Preferred stock, 10,000,000 shares authorized"
none issued - -
"Common stock, $0.001 par value,
25,000,000 shares"
"authorized, 13,701,290 shares
issued and outstanding" " 13,701 " " 13,701 "
Additional paid-in capital " 2,676,296 " " 2,676,296 "
Deficit " (2,312,866)" " (2,241,381)"
Total stockholders' equity " 377,131 " " 448,616 "
TOTAL " $1,777,274 " " $3,064,345 "
See Notes to Consolidated Financial Statements
<PAGE>
</TABLE>
<TABLE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
"FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996"
<S> <C> <C> <C>
1998 1997 1996
REVENUES " $325,416 " " $689,663 " " $113,386 "
OPERATING EXPENSES:
Salaries " 536,622 " " 437,105 " " 456,400 "
Legal and professional " 203,714 " " 159,587 " " 124,472 "
Depreciation and amortization " 162,862 " " 299,798 " " 15,009 "
Rent " 62,426 " " 116,061 " " 106,840 "
Other " 55,693 " " 38,434 " " 13,054 "
Interest " 48,618 " " 21,908 " " 5,119 "
Telephone " 43,069 " " 52,692 " " 69,585 "
Office " 24,697 " " 59,373 " " 65,101 "
Insurance " 22,737 " " 46,401 " " 23,895 "
Travel and related expenses " 22,474 " " 26,071 " " 42,663 "
Auto " 13,359 " " 22,963 " " 19,270 "
Advertising " 7,981 " " 194,284 " " 19,767 "
Provision for doubtful accounts " 1,130 " " 113,000 " -
Services and other fees 835 " 6,775 " " 1,594 "
Repairs and maintenance 325 " 7,740 " " 10,110 "
Impairment of gaming sub-license - " 709,301 " -
Total operating expenses " 1,206,542 " " 2,311,493 " " 972,879 "
OTHER INCOME " 11,499 " - -
"LOSS FROM CONTINUING OPERATIONS, before income"
"taxes, discontinued operations
and extraordinary item" " (869,627)" " (1,621,830)" " (859,493)"
DEFERRED INCOME TAX BENEFIT - " 100,000 " -
"LOSS FROM CONTINUING OPERATIONS,
before " discontinued operations
and extraordinary item " (869,627)" " (1,521,830)" " (859,493)"
(LOSS) INCOME FROM DISCONTINUED
OPERATIONS " (66,579)" " 18,637 " #REF! " 163,573 "
LOSS BEFORE EXTRAORDINARY ITEM " (936,206)" " (1,503,193)" " (695,920)"
"EXTRAORDINARY ITEM, "
"Debt forgiveness income, net
of related "
"income taxes of $100,000" " 864,721 " - -
NET LOSS " $(71,485)" " $(1,503,193)" " $(695,920)"
BASIC (LOSS) EARNINGS PER COMMON SHARE:
Continued operations $(0.06) $(0.11) $(0.07)
Discontinued operations - - 0.01
Extraordinary item 0.06 - -
Net loss per share $- $(0.11) $(0.06)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING " 13,701,290 " " 13,682,752 " " 11,512,656 "
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
"FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996"
<S> <C> <C> <C> <C> <C>
COMMON STOCK ADDITIONAL STOCK-
SHARES PAID-IN HOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
"BALANCE, DECEMBER
31, 1995" " 10,942,566 " " $10,942 " " $335,252 " " $(42,268)" " $303,926"
Common stock
issued in
private offering " 375,000 " 375 " 749,626 " - " 750,001 "
Warrants issued
in private offering - - " 1,000 " - " 1,000 "
Common stock
issued for
services " 254,474 " 255 " 508,692 " - " 508,947 "
Common stock
issued for
acquisitions " 2,100,000 " " 2,100 " " 1,039,247 " - " 1,041,347 "
Net loss - 1996 - - - " (695,920)" " (695,920)"
"BALANCE,
DECEMBER 31,
1996" " 13,672,040 " " 13,672 " " 2,633,817 " " (738,188)" " 1,909,301
Common stock
issued for
services " 29,250 " 29 " 42,479 " - " 42,508 "
Net loss - 1997 - - - " (1,503,193)" " (1,503,193)"
"BALANCE,
DECEMBER 31,
1997" " 13,701,290 " " 13,701 " " 2,676,296 " " (2,241,381)" " 448,616"
Net loss - 1998 - - - " (71,485)" " (71,485)"
"BALANCE,
DECEMBER 31,
1998" " 13,701,290 " " $13,701 " " $2,676,296 " " $(2,312,866)" " $377,131"
See Notes to Consolidated Financial Statements
<PAGE>
</TABLE>
<TABLE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
"FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996"
<S> <C> <C> <C>
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss " $(71,485)" " $(1,503,193)" " $(695,920)
Adjustments to reconcile net loss
to net cash
(used in) provided by operating
activities:
Depreciation and amortization " 162,862 " " 299,798 " " 15,009 "
Change in net assets and liabilities of
discontinued operations " (848,731)" " 167,841 " " 679,235 "
Deferred income tax expense
(benefit) " 100,000 " " (100,000)" -
Impairment of gaming sub-license - " 709,301 " -
(Increase) decrease in assets:
Accounts receivable " 61,582 " " 20,186 " " (88,702)"
Other assets - " (1,118)" -
"Increase in liabilities,"
Accounts payable and accrued
expenses " 537,383 " " 204,614 " " 249,425 "
Net cash (used in)
provided by operating activities " (58,389)" " (202,571)" " 159,047 "
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment - " (8,474)" " (139,359)"
Decrease in loan receivable _ _ " 138,788 "
Purchase of systems development costs - - " (933,899)"
Purchase of software sub-license - - " (109,457)"
Net cash used in investing
activities - " (8,474)" " (1,043,927)"
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft " (74,109)" " 74,109 " -
Payments of notes payable " (77,044)" - -
Proceeds from notes payable - " 386,065 " " 200,000 "
Proceeds from issuance of common stock - - " 751,001 "
Net cash (used in) provided
by financing activities " (151,153)" " 460,174 " " 951,001 "
(DECREASE) INCREASE IN CASH " (209,542)" " 149,129 " " 66,121 "
"CASH, BEGINNING" " 215,250 " " 66,121 " -
"CASH, ENDING" " $5,708 " " $215,250 " " $66,121 "
"SUPPLEMENTAL CASH FLOW INFORMATION,"
Interest paid " $52,707 " " $21,908 " " $5,119 "
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
"AND FINANCING ACTIVITIES,"
Common stock issued for employee bonuses
and consulting fees $- " $42,508 " $-
Common stock issued for services
(Note 12) $- $- " $508,947 "
Common stock issued for
acquisitions (Note 14) $- $- " $1,041,342 "
See Notes to Consolidated Financial Statements
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
=========================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Interactive Gaming & Communications Corp. (the "Company") is a holding company
publicly trading on the National Association of Securities Dealers Automated
Over the Counter (OTC) Market Bulletin Board under the trading symbol "SBET".
The Company is comprised of two subsidiaries, Global Gaming Corp. (Grenada)
("Global") and Intersphere Communications, Ltd. (Grenada) ("Intersphere"). Each
of the Company's subsidiaries provides several unique and proprietary products
and services to the emerging Internet, national and international marketplaces.
The Company is responsible for supplying its subsidiaries with administrative
and management assistance, accounting, consulting and necessary funding to
complete projects or initiate endeavors.
As discussed in Note 19, the Company implemented a plan to divest its
subsidiaries engaged in international Internet sports book and casino gaming.
Therefore, the consolidated financial statements include the accounts of Sports
International, Ltd. (Grenada) ("Sports") and Global Casinos, Ltd. (Grenada)
("Casinos"), the two subsidiaries sold on March 18, 1998, as discontinued
operations.
Global was the exclusive principal international gaming license holder in the
country of Grenada, West Indies. Based on the current internet gaming industry
environment and complex issues and responsibility regarding the offering,
managing and supervising sub-licenses of gaming operation in Grenada, Global
suspended any further issuing of sub-licenses for the government of Grenada.
This policy will continue until the industry environment changes and Global can
renegotiate a new and stronger agreement with Grenada. Global has not reapplied
to be the exclusive international gaming license holder in the country of
Grenada.
Intersphere is a software development, marketing and communications company
specializing in the Internet market. Intersphere developed the Wise Guy Sports
Wagering (Wise Guy) system, the first sports wagering system that allows casino
sports books to take a wager from a customer over the Internet. The Wise Guy
system was in development for over a year and in 1997 became operational.
Intersphere's revenues are derived from Web Page Development and Design,
traditional advertising, licensing of the Wise Guy system and the development of
other related software products.
Casinos operated one of the world's first Internet casinos. By accessing the
Company's Internet site, a betting enthusiast could play and place wagers on a
variety of casino games. Casinos operated its business under a gaming license
issued and authorized by the government of Grenada.
<PAGE>
INTERACTIVE GAMING & COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
Sports operated an international Internet sports book. Sports betting
enthusiasts, once they established an account, could place a wager on just about
any sporting event over the phone or the Internet via a personal computer.
Wagers were accepted on all major sporting events in the U.S. and Europe.
Sports operated its business under a gaming license issued and authorized by the
government of Grenada. Sports was the principal source of revenue for the
Company, generally accounting for 70% and 95% of the Company's net revenues for
the years ended December 31, 1997 and 1996, respectively, before discontinuance
of operations.
PRINCIPLES OF CONSOLIDATION
-----------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Global and Intersphere. All intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
------------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
- ----------------------
The carrying amounts of cash, accounts receivable, notes payable, long-term
debt, and accounts payable approximate fair value at December 31, 1998 and 1997.
EQUIPMENT
- ---------
Equipment is recorded at cost. Depreciation is provided on the straight-line
method over the estimated useful lives of the assets and was $31,770 in 1998,
$32,400 in 1997 and $15,009 in 1996.
SOFTWARE REVENUE RECOGNITION
- ------------------------------
Software revenue is recognized when an arrangement exists, installation has
occurred, fees are determinable and collection is probable.
<PAGE>
- ------
SYSTEMS DEVELOPMENT COSTS
- ---------------------------
The Company capitalizes the cost of developing certain software products it
plans to market in accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed" (Note 6). Amortization is computed on an individual product
basis and is the greater of: (a) the ratio of current gross revenues for a
product to the total amount and anticipated future gross revenues for the
product or (b) the straight-line method over the estimated economic life of the
product. The Company is using an estimated economic life of ten years.
GAMING AND SOFTWARE LICENSES
-------------------------------
Through its subsidiaries Global and Intersphere, the Company licenses its gaming
operations and sports wagering software. The Company has valued these licensing
agreements at their fair value as determined by the present value of anticipated
future cash flows. Amortization is provided using the straight-line method over
10 to 12 years and was $37,702 in 1998 and $102,184 in 1997. Accumulated
amortization was $139,886 and $102,184 in 1998 and 1997, respectively.
At December 31, 1997, the Company evaluated the ongoing value assigned to these
gaming and software agreements as required by Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Based on such an evaluation, the Company
determined that a gaming license asset with a carrying value of $709,301, was
impaired due to changes in estimates relating to future sales. The change in
estimates was a result of recent sales of the licenses and delays in development
and marketing of the Company's products which could result in the loss of the
exclusive license agreement. As a result, the Company wrote down its license by
$709,301 to its estimated fair value. Fair value was estimated based on the
estimated future cash flows discounted at a market rate of interest.
Considerable management judgment is necessary to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from such
estimates.
COMMON STOCK
-------------
The Company has from time to time issued restricted common stock, unregistered
with the Securities and Exchange Commission. The Company's restricted shares
are only limited as to the holders ability to resell the stock into the public
trading markets. At December 31, 1998 and 1997, 10,430,312 shares and
10,807,369 shares, respectively, of the total issued and outstanding shares of
13,701,290 were restricted as described above.
<PAGE>
- ------
ADVERTISING COSTS
- ------------------
Costs incurred for advertising are expensed as incurred.
INCOME TAXES
- -------------
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
EARNINGS PER SHARE
- --------------------
In 1997, the Financial Accounting Standard Board issued Statement of Financial
Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options. Additionally, the dilutive effects of options are not included when
losses from continuing operations exist. (Loss) earnings per common share is
computed for 1998, 1997 and 1996 by dividing the net (loss) earnings by the
weighted average number of shares of common stock outstanding.
RECLASSIFICATIONS
- -----------------
Certain balances and amounts in the 1997 and 1996 financial statements have been
reclassified to conform with the 1998 presentation.
<PAGE>
2. BASIS OF PRESENTATION 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 Company had a working capital deficiency of $1,311,501 and $542,447 at
December 31, 1998 and 1997, respectively, and negative cash flows from operating
activities of $58,389 and $202,571 in 1998 and 1997, respectively. The majority
of the Company's continuing and discontinued operations were financed by cash
flows from its discontinued operations including customers' credit balances and
security deposits, which remained on deposit until customers requested
repayment. These subsidiaries were sold in 1998. The Company continues to seek
other financing or generate sufficient cash flows to pay the current liabilities
of continuing operations. Additionally, the Company incurred a loss from
continuing operations of $869,627 in 1998, $1,521,830 in 1997 and $859,493 in
1996 and there is no assurance that profitable operations will be achieved in
the future.
These factors, among others, indicate the Company's ability to continue in
existence is dependent upon favorable governmental regulations, its ability to
achieve adequate profitable operations and/or obtain additional debt or equity
financing. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets amounts that might be
necessary should the Company be unable to continue in existence.
Management anticipates generating revenue and cash flows from its software
licensing agreements. Additionally, management plans to continue to refine its
operations, control expenses, evaluate alternative methods to conduct its
business, and seek available and attractive sources of debt or equity financing
through a combination of a private placement, and sharing of development costs,
or other resources. There can be no assurance that the Company's efforts will
be successful.
<PAGE>
3. SIGNIFICANT ESTIMATES AND CONCENTRATIONS
The Company has recognized the value of its gaming and software licensing
agreements based on the anticipated future revenues. Additionally, the Company
believes that certain capitalized software development costs are also
recoverable through anticipated future revenues. These anticipated future
revenues are management's best estimates of future cash flows to be derived from
these products. The Company's value of these products is based on certain
assumptions management has made based on information available at December 31,
1998. Capitalized software development costs of approximately $718,000 at
December 31, 1998 are still under development and realization will be dependent
upon the ability to market the software. It is reasonably possible that these
estimates and assumptions may change within one year from the balance sheet date
based on changes in operations and revenues.
At December 31, 1997, 16% of the Company's net assets of continuing operations
were located in Grenada. Revenues from foreign customers represented
approximately 59% and 81% of total revenues in 1998 and 1997, respectively.
4. RELATED PARTY TRANSACTIONS
Included in accounts payable and accrued expenses is $57,670 at December 31,
1998 which represents advances from stockholders or officers of the company. No
formal agreements or repayment terms exist.
5. EQUIPMENT
Equipment consists of the following at December 31, 1998 and 1997:
1998 1997
---- ----
Furniture, fixtures and equipment $157,056 $157,353
Less accumulated depreciation 88,705 56,933
---------- ----------
Net $68,351 $100,420
======= ========
<PAGE>
6. SYSTEMS DEVELOPMENT COSTS
In May 1995, the Company signed a definitive letter of intent with a major
software developer to produce and market a "Virtual Casino" by offering its
customers the opportunity to play classic casino games, such as blackjack,
craps, roulette, baccarat and slot machine games, on their personal computers
using the Internet World Wide Web, with the Company managing the wagering.
Additionally in September 1996, the Company entered into a software development
and licensing agreement with another software developer to develop a "Global
Casino" to provide services similar to the above on a state-of-the-art operating
platform.
After the economic and technical feasibility of the projects had been
established, the Company began funding them. Costs incurred subsequent to the
establishment of technological feasibility and directly related to the project
have been capitalized. Capitalized project costs were $1,652,149 at December 31,
1998 and 1997. The "Global Casino" project was completed in 1997 and
amortization expense was $93,390 and $165,214 in 1998 and 1997, respectively.
Accumulated amortization was $258,604 and $165,214 in 1998 and 1997,
respectively. As management has made estimates in determining the net
realizable value of system development costs, it is reasonably possible that
these values will change in the near term.
7. ACCOUNTS PAYABLE
Accounts payable and accrued expenses consist of the following at December 31,
1998 and 1997:
1998 1997
---- ----
Accounts payable $585,766 $383,970
Accrued compensation 257,730 -
Payroll taxes payable 147,626 70,069
--------- ----------
Total $991,122 $454,039
======== ========
<PAGE>
8. NOTES PAYABLE
The Company issued a promissory note payable to Madison Bank in the amount of
$100,000. The note is collateralized by 1,000,000 shares of Company stock owned
by the Company's President. The note payable bears interest at a rate of prime
plus 1.5% (9% at December 31, 1998) and is payable on demand. The balance on
this note was $100,000 as of December 31, 1998 and 1997.
In addition, the Company issued another promissory note payable to Madison Bank
in the amount of $200,000. The note is unsecured. The note payable bears
interest at a rate of 8.0% and is payable on demand. The balance on the note
was $131,956 and $200,000 as of December 31, 1998 and 1997.
Note payable, stockholder, for $86,065 at December 31, 1998 and 1997 is payable
on demand, unsecured and bears interest at prime plus 1.5% (9% at December 31,
1998).
9. LONG-TERM DEBT
1998 1997
---- ----
Term note, Madison Bank, collateralized by 1,000,000
shares of company stock owned by the Company's President. The note is payable
in 35 monthly installments
of $1,000 plus interest at 9.5% per annum, with a balloon payment due in
December 2000
$91,000 $100,000
Less current portion 15,000 12,000
-------- ----------
Long-term debt $76,000 $88,000
======= =======
Scheduled repayments as of December 31, 1998 are as follows:
Year ending December 31
- --------------------------
1999 $15,000
2000 76,000
--------
Total $91,000
=======
<PAGE>
10. INCOME TAXES
The deferred tax asset consists of the following at December 31, 1998 and 1997:
1998 1997
---- ----
Net operating loss carryforward $126,000 $100,000
Accrued compensation 77,000 -
---------- ---------------
203,000 100,000
Valuation allowance (203,000) -
-------- ---------------
Net deferred tax asset $ - $100,000
============== ========
A valuation allowance has been recorded since the benefit and utilization of the
deferred tax asset of $203,000 disclosed above will more than likely not be
realized.
The Company has available at December 31, 1998 approximately $421,000 of unused
operating loss carryforwards that may be applied against future taxable income
and that expire in various years from 2011 to 2013.
Prior to 1997, the Company derived its revenue from its wholly owned
subsidiaries, Sports International, Ltd., Intersphere and Global, all of which
are incorporated in Grenada. The government of Grenada does not presently
impose income taxes on the Company.
In 1996, the U.S. tax benefit resulting from net operating loss carryforwards
were offset by an allowance as it was more likely than not that any benefit
would be realized. In 1997, a tax benefit of approximately $100,000 was
recognized to reflect future taxes relating to the forgiveness debt from the
sale of its subsidiaries, which occurred in 1998, with the applicable tax
expense of $100,000 recognized.
Reconciliation of the U.S. federal statutory rate to the Company's effective tax
rate on continuing operations follows:
1998 1997
---- ----
U.S. federal statutory tax rate 34.0% 34.0%
Non-U.S. net operating loss carryforwards (1.0) (27.8)
Net operating loss carryforwards with no
current tax benefit (33.0) -
----- -------
Effective tax rate on continuing operations -% 6.2%
===== =====
<PAGE>
11. COMMITMENTS
Commencing December 9, 1997, the Company entered into a four year lease for its
corporate headquarters in Plymouth Meeting, Pennsylvania. Future minimum rental
payments under the leases are as follows:
Year ending December 31
- --------------------------
1999 $49,000
2000 51,000
2001 54,000
12. COMMON STOCK TRANSACTIONS
On October 11, 1996, the Company issued 254,474 shares of restricted common
stock in settlement of accounts payable of $508,947 incurred in the development
of the "Virtual Casino" software.
On June 30, 1997, the Company issued 29,250 shares of restricted common stock in
settlement of services of $42,508 rendered in the development of the "Virtual
Casino" software.
13. PRIVATE OFFERING OF COMPANY STOCK
Effective June 26, 1996, the Company entered into a stock and warrant purchase
agreement with a software developer and issued 375,000 shares of restricted
common stock for $750,001 and a common stock purchase warrant for $1,000. The
common stock purchase warrant is for 100,000 shares at a purchase price of $1.00
per share and expires on June 30, 2001.
14. ACQUISITIONS
On November 4, 1996, the Company acquired all the outstanding common stock of
Intersphere for 1,000,000 restricted shares of previously unissued common stock
of the Company. Intersphere developed an exclusive proprietary product known as
the WiseGuy Sports Wagering System. Intersphere's revenue is derived from
software licensing fees related to its proprietary product, as well as from
advertising, marketing and web page design services primarily to Internet based
accounts.
<PAGE>
On November 4, 1996, the Company also acquired all the outstanding common stock
of Global for 1,100,000 restricted shares of previously unissued common stock of
the Company. Global owns the exclusive principal master license to conduct
gambling operations from the island of Grenada. The exclusive gambling license
is for two six-year terms and allows Global to sell up to four sub-licenses to
qualified applicants.
Both the Intersphere and Global acquisitions were recorded under the purchase
method of accounting; and, accordingly, the results of operations of Intersphere
and Global for the period from November 4, 1996 to December 31, 1996 are
included in the accompanying consolidated financial statements. The purchase
price of each acquisition was based on the fair market value of the net assets
acquired as follows:
Intersphere Global
----------- ------
Current assets $ 63,056 $ 100
Equipment 60,574 -
Security deposits 15,676 -
Software development 166,293 -
Software license 377,021 -
Gaming license - 773,783
Current liabilities (415,161) -
--------- ----------------
$267,459 $773,783
======== ========
The following unaudited proforma financial information for the Company gives
effect to the Intersphere and Global acquisitions as if they had occurred on
January 1, 1996. These proforma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisitions occurred on the date
indicated, or which may result in the future. The proforma information includes
revenues for Intersphere of $104,149 and net losses of $201,165 for the year
ended December 31, 1996. Prior to January 1, 1996, Intersphere had no
appreciable results of operations. Additionally, Global was a development stage
enterprise as of the acquisition date and had no results of operations in 1996.
The unaudited proforma financial information for 1996 is as follows:
Net win and other revenues $3,002,644
Net loss (897,085)
Weighted average common shares 13,290,464
Outstanding
Loss per common share (0.07)
<PAGE>
15. STOCK OPTION PLANS
In May 1995, the stockholders approved the 1995 Stock Option and Stock Award
Plan (the "Plan") and the 1995 Directors Stock Option Plan (the "Director's
Plan"). The purpose of the Plan is to attract and retain qualified and
competent persons as officers, employees, consultants, agents, and independent
contractors. The purpose of the Director's Plan is to attract and retain
nonemployee directors to the Company's board.
Under the Plan and the Director's Plan, the Company may grant up to 600,000 and
300,000 stock options, respectively. The terms of options granted shall be
determined by the Stock Options Committee appointed by the Board of Directors.
On October 25, 1996, the Company issued 50,000 stock options to a departing
Company officer. The options have an exercise price 33% higher than the fair
market value of the Company's common stock on the date of the grant or $1.25 per
share. The options remain exercisable for a three year period ending October
25, 1999. The fair value of the options at the date of grant was nominal.
Accordingly, no compensation expense related to the options granted has been
recognized by the Company.
During 1998 and 1997, no stock options were awarded.
16. PREFERRED STOCK
In May 1995, the shareholders approved an amendment to the Company's Certificate
of Incorporation to authorize the issuance of up to 10,000,000 shares of
preferred stock. The amendment permits the Board of Directors to issue from time
to time authorized but unissued shares of preferred stock and to fix and
determine the terms, limitations, relative rights and preferences of such
shares. At December 31, 1998 and 1997, no preferred stock had been issued.
17. COMPENSATORY PLANS
On March 18, 1998, the Company authorized the issuance of 1,000,000 shares of
the Company's stock to its President in lieu of salary. In addition they issued
650,000 shares to a consultant in lieu of consulting fees.
The Company applied APB Opinion 25 in accounting for the shares awarded to the
President and FASB Statement No. 123 in accounting for the shares awarded to the
consultant. Accordingly, compensation of $257,730 was charged to operations for
the year ended December 31, 1998.
<PAGE>
18. CONTINGENCY
LITIGATION
- ----------
On February 18, 1997, a search warrant (the "Warrant") was issued, filed in the
United States District Court for the Eastern District of Pennsylvania,
authorizing the Federal Bureau of Investigation to search the premises of the
Company's executive offices and the offices of Intersphere in Blue Bell,
Pennsylvania including any and all computer hardware, software, peripheral
devices and computer-related documentation on any of such premises. The Warrant
lists a variety of items to be obtained based on the assumption that there was a
violation of federal laws and that an illegal gambling business was being
conducted from its premises in 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 there.
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 U.S. criminal laws relating to gaming activities. The
Company, through counsel, while co-operating fully with the officials of the
United States, intends to move to quash the Warrant and subsequent subpoena in
the United States District Court on the grounds that jurisdiction is lacking.
Although the Company intends to defend vigorously any action that may ultimately
be brought by the United States in connection with the Warrant and subpoena, no
assurance can be given that management's beliefs as to the criminality of its
subsidiaries' operations, or its basis for such beliefs, are correct and that
the Company will prevail. In addition, the State of Missouri in April 1997
sought an injunction in its counts 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. On September 22, 1998, the Company and
Simone entered into a plea agreement with the State of Missouri. As part of the
agreement the Company was to pay a fine in the amount of $5,000 and an
additional $20,000 for the costs to prosecute the case. Simone was fined
$2,500. As of December 31, 1998, $15,000 remains unpaid and is included in
accounts payable and accrued expenses. According to the plea agreement, if the
$20,000 was not paid within sixty days following the date of the plea, the State
of Missouri may bring additional criminal charges against the Company.
<PAGE>
- ------
The Company has filed suit against International Gaming to collect payments due
under a $4,990,000 note representing payment for the capital stock of Sports
International, Inc. and Global Casinos, Inc. (Note 19). International Gaming
has filed an Answer and Counterclaim asserting there were material
misstatements, misrepresentations and omissions from the warranties and
representations provided under the Stock Purchase Agreement between the two
Companies. The Company has been advised by competent legal counsel that they
will receive a judgement, though collection of the amount owed is still
uncertain.
The Company was sued by, among others, Empire Corporation ("Empire"), who
claimed the Company improperly terminated an alleged Joint Venture Agreement,
appropriated certain funds belonging to Empire under the agreement and otherwise
refused to pay monies due to Empire. Empire also asserted claims of fraud and
breach of fiduciary duty. An answer, new matter and counterclaim has been filed
by the Company asserting that the Agreement had been properly terminated and
that funds are due the Company from Empire. Empire claims damages in excess of
$160,000 as well as punitive damage in the amount of $1,000,000. The Company's
counterclaim seeks damages in excess of $95,000. In the opinion of management,
the ultimate outcome of this case in unknown.
OTHER LITIGATION
- -----------------
The Company, in the normal course of business, is subject to litigation and is
presently involved as a defendant in several lawsuits. In the opinion of
management, the ultimate outcome of these cases is unknown and any exposure to
liability, if any, cannot be estimated at this time. Consequently, no amount
has been accrued at December 31, 1998.
<PAGE>
19. DISCONTINUED OPERATIONS
In September 1997, the Company adopted a plan to dispose of Sports and Casino
(the "Gaming Divisions"). Effective March 18, 1998, the Company sold the Gaming
Divisions for $5,000,000, which included a $4,990,000 note receivable and debt
forgiveness of $975,664. 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 thirty-seventh month. The stock of the Gaming Divisions has
been pledged by the buyer as collateral. The sale resulted in a pre-tax gain of
approximately $909,000 in 1998 after considering costs incurred in connection
with the sale and operating results through the date of disposition. As
collection of the $4,990,000 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 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 1996
---- ---- ----
Gross handle $1,223,497 $43,995,036 $58,482,731
Less customer win 1,168,189 42,368,097 55,730,479
----------- ------------ ------------
Net win 55,308 1,626,939 2,752,252
Other revenues - -
------------------ --------------------
32,857
--
Net win and other revenues 55,308 1,626,939 2,785,109
Expenses (121,887) 1,608,302 2,621,536
------------ ------------- -------------
Net (loss) income $ (66,579) $18,637 $163,573
============- ======= ========
<PAGE>
20. INVESTMENT IN GAMBLENET TECHNOLOGIES, LTD.
On February 23, 1999, the Company and Century Industries, Inc. ("Century")
entered into a joint effort agreement and formed Gamblenet Technologies, Ltd.
("Gamblenet"). The Company and Century each own 50% of Gamblenet's initially
outstanding common shares. In exchange for the Company's 50% interest, the
Company licensed certain gaming and software licenses to Gamblenet along with
4,000,000 restricted shares of the Company's Common Stock, which have been
reserved for, but have not been issued.
21. ACQUISITION OF CENTURY INDUSTRIES, INC.
On June 22, 1999, the Company entered into a majority acquisition and
parent/subsidiary relationship agreement with Century Industries, Inc.
("Century"). The agreement calls for certain control block shareholders of
Century to sell to the Company 53.26% of Century's issued and outstanding shares
in exchange for 7,500,000 shares of the Company's common stock.
<PAGE>
INDEPENDENT AUDITORS' REPORT
============================
ON FINANCIAL STATEMENT SCHEDULE
===============================
Board of Directors
Interactive Gaming & Communications Corp.
Plymouth Meeting, Pennsylvania:
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
Interactive Gaming & Communications Corp.
Plymouth Meeting, Pennsylvania:
We have audited the basic consolidated financial statements of Interactive
Gaming & Communications Corp. and its subsidiaries at December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998
and have issued our report thereon dated May 19, 1999, except for Note 21 as to
which the date is June 22, 1999, such consolidated financial statements and
report are included elsewhere in this Form 10-K. Our audit also included the
financial statement schedule of Interactive Gaming & Communications Corp.
listed on page 39. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audit. In our opinion, such
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth herein.
PARENTE, RANDOLPH, ORLANDO,
CAREY & ASSOCIATES, LLC
Philadelphia, Pennsylvania
May 19 , 1999, except for Note 21, as to
which the date is June 22, 1999
<PAGE>
======
INTERACTIVE GAMING & COMMUNICATIONS CORP.
=========================================
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
----------------------------------------------------
Balances at Provision
Beginning Charge to Accounts Balances at
of Year Expense Written-Off End of Year
-------- ------- ----------- -------------
For the year ended
December 31, 1998,
Allowance for
doubtful accounts $113,000 $ 1,130 $76,130 $38,000
======== ========== ======= =====
For the year ended
December 31, 1997,
Allowance for
doubtful accounts $ - 0 - $113,000 $ - 0 - $113,000
============= ======== ========== =======
For the year ended
December 31, 1996,
Allowance for
doubtful accounts $ - 0 - $ - 0 - $ - 0 - $ - 0 -
============= =========== ======== =========
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There were no changes or disagreements with accountants on financial disclosure
during this period.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
Executive Officers and Directors
The following table sets forth the name, age, and position of each executive
officer and director of the Company.
Name Age Position Term Expires
---- --- -------- ------------
Michael F. Simone 50 Chairman of the Board, Director, President,
Secretary and Chief Executive Officer 1999 Annual Meeting
Jeffrey D. Erb 29 Director and Secretary 1999 Annual Meeting
All the directors were re-elected to the Board of Directors at the Annual
Meeting of Shareholders on March 18, 1998. The term of office for each director
is one year or until his or her successor is elected and qualified at the
Company's annual meeting of shareholders.
Michael F. Simone is a Company Director, and was President/Treasurer, Organizer
and Owner of 50% of the outstanding shares of Sports International, Ltd.
(Antigua) from inception in November 1992 until the Company acquired all of the
capital stock of Sports International, Ltd. (Antigua) on October 20, 1994. From
1989 to 1992, Mr. Simone was a Vice President of Anchor Savings Bank, heading
one of the bank's real estate lending divisions. He graduated from The
University of Miami in 1972, and holds a BS Degree in Finance.
Jeffrey D. Erb is the Vice President of Intersphere. Mr. Erb is well versed in
all aspects of the World Wide Web and the Internet, as well as design and
management. He has overseen and personally handled much of the layout and
programming of the World Wide Web pages and received international attention and
awards. He is qualified in HTML programming and all aspects of Internet
development. Mr. Erb is an active member of several high tech and Internet
organizations and is a contributing writer in the advertising industry online
magazine "Channel Seven" with his own column "Ad Bytes".
Board Meetings and Committees
Directors who are employees of the Company receive no compensation for services
as directors.
The Company plans to establish an Audit Committee, a Compensation Committee and
an Option Committee, each of which will consist of two directors.
The Audit Committee will review with the Company's independent accountants the
scope and timing of the accountants' audit services and any other services they
are asked to perform, their report on the Company's financial statements
following completion of their audit and the Company's policies and procedures
with respect to internal accounting and financial controls. In addition, the
Audit Committee will be asked to make annual recommendations to the Board of
Directors for the appointment of independent public accountants for the ensuing
year.
The Compensation Committee will review and recommend to the Board of Directors
the compensation and benefits of all officers and key employees of the company,
and review general policy matters relating to compensation and benefits of
employees of the Company.
The Option Committee will determine the number, if any, and terms of any options
granted by the Company, except to members of the Committee. Options to the
members of the Option Committee must be granted and approved by the majority
vote of the Board of Directors.
Limitation of Liability
As a Delaware corporation, the Company is bound by Section 145 of the General
Corporation Law of Delaware which allows the indemnification of officers,
directors, employees or agents of the Company against liabilities and expenses
arising out of actions brought by a third party, provided that the Board of
Directors determines that such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to a criminal matter, had no reasonable cause to
believe his conduct was unlawful. Such law also permits indemnification against
expenses in actions brought by a shareholder on behalf of a corporation or by
the corporation itself if the standards of conduct required for indemnification
in third party actions are met, and either (1) such person was not adjudged
liable to the corporation, or (2) the Delaware Chancery Court or other court in
which the action was brought determines that such person is fairly and
reasonably entitled to be indemnified. The Company may make advances for
expenses incurred in defending a suit upon the receipt of an undertaking by an
officer, director, employee or agent to repay such amount if it is ultimately
determined that such person is not entitled to be indemnified.
The Company's Certificate of Incorporation provides that directors and officers
of the Company
<PAGE>
are indemnified to the fullest extent permitted by law and states
that no director or officer shall have any personal liability to the Company or
its stockholders for any monetary damages for breach of fiduciary duty as a
director except for liability resulting from (i) breach of the duty of loyalty
to the Company or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of Delaware corporation law (relating to unlawful dividends or
redemptions), or (iv) for any transaction from which such director or officer
derived an improper personal benefit. The indemnification is against all
expenses arising from the lawsuit or action unless the director or officer is
finally adjudged to be liable for gross negligence, recklessness or willful
misconduct in the performance of his duty to the Company (unless the Delaware
Chancery Court determines that in view of the circumstances of the case, the
person is entitled to indemnity as determined by the court). Expenses are paid
or reimbursed as incurred in advance of final disposition upon receipt of an
unsecured contractual written undertaking that such amount must be repaid if it
is determined that the person is not entitled to the indemnity.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to directors,
officers, or persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
The Company does not currently maintain any directors' and officers' liability
insurance.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
Summary of Compensation Table
Annual Compensation
-------------------
Other Stock
Name and Principal Position Salary Bonus
--------------------------- ------ -----
Michael F. Simone, Chairman, President, and Chief Executive Officer
1998 $ - $ - $156,200
1997 30,800 - -
1996 144,230 - -
1995 105,750 - -
1994 150,000 - -
1993 24,000 - -
Jeffrey D.Erb, Director and Secretary
1998 49,399 - -
1997 44,923 - -
Employee Agreements and Benefits
The Company does not have any employment contracts, retirement, pension, profit
sharing, with or covering its officers, directors, consultants, and employees.
During 1996, the Company established a medical insurance plan for its officers
and employees.
Stock Option and Stock Award Plan
In May 1995, the stockholders approved the 1995 Stock Option and Stock Award
Plan (the "Plan) and the 1995 Directors Stock Option Plan (the "Director's
Plan"). The purpose of the Plan is to attract and retain qualified and
competent persons as officers, employees, consultants, agents, and independent
contractors. The purpose of the Director'' Plan is to attract and retain
nonemployee directors to the Company'' board.
Under the Plan and the Director's Plan, the Company may grant up to 600,000 and
300,000 stock options, respectively. The terms of the options granted shall be
determined by the Stock options Committee appointed by the Board of Directors.
At December 31, 1995, no stock options had been awarded under either plan. On
October 25, 1996, pursuant with a Director's voluntary
<PAGE>
resignation, the Company
authorized the purchase of 50,000 shares of stock at an exercise price 33%
higher than the fair market value of the Company's common stock on the date of
the grant or $1.25 per share with an exercise deadline of October 25, 1999.
On March 18, 1998, the Company authorized the issuance of 1,000,000 shares of
the Company's stock to its President in lieu of salary. In addition they issued
650,000 shares to a consultant in lieu of consulting fees.
The Company applied APB Opinion 25 in accounting for the shares awarded to the
President and FASB Statement No. 123 in accounting for the shares awarded to the
consultant. Accordingly, compensation of $257,730 was charged to operations for
the year ended December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
Principal Shareholders
The table below sets forth information as to each person owning of record or who
was known by the Company to own beneficially more than 5% of the 13,701,290
shares of issued and outstanding Common Stock of the Company as of December 31,
1998 and information as to the ownership of the Company's Common Stock by each
of its directors and executive officers and by the directors and executive
officers as a group. Except as otherwise indicated, all shares are owned
directly, and the persons named in the table have sole voting and investment
power with respect to shares shown as beneficially owned by them.
Name and Address of Beneficial Owner Nature of Ownership Number of
Shares Owned
Percent
-------
Michael F. Simone Common Stock, Direct 4,071,213 29.7%
188 Jericho Valley Drive
Wrightstown, PA 18940
Rina Moscariello Common Stock, Direct 3,360,000 24.5%
994 Derring Lane
Bryn Mawr, PA 19110
All Executive Officers and Directors, as a Group (2 Persons)
4,171,213 30.4%
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
There are no other material relationships or transactions that qualify for
disclosure under this caption.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------
Financial Statement Schedules
The consolidated financial statements and related schedules filed as part of
this Form 10-K are included in Part II, Item 8.
Reports on Form 8-K
On March 8, 1999, the Company reported that it entered into a joint effort
agreement with Century Industries, Inc. ("Century") and formed Gamblenet
Technologies, Ltd. ("Gamblenet"). The Company and Century each own 50% of
Gamblenet's initially outstanding common shares. In exchange for the Company's
50% interest, the Company licensed certain gaming and software licenses to
Gamblenet along with 4,000,000 restricted shares of the Company's Common Stock,
which have been reserved for, but have not been issued.
<PAGE>
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 $ 5,708
- ----------------------------------------
Marketable Securities 0
- ------------------------------------------------
Notes and Accounts Receivable 44,934
Allowances for Doubtful Accounts 38,000
Inventory 0
Total Current Assets 12,642
Property, Plant and Equipment 157,056
Accumulated Depreciation 88,705
Total Assets 1,777,274
Total Current Liabilities 1,324,143
Bonds, Mortgages and Similar Debt 0
Preferred Stock - Mandatory Redemption 0
Preferred Stock - No Mandatory Redemption 0
Common Stock 13,701
Other Stockholders' Equity 363,430
Total Liabilities and Stockholders' Equity 1,777,274
Net Sales of Tangible Products 0
Total Revenues 325,416
Cost of Tangible Goods Sold 0
Total Costs and Expenses App. to Sales and Revenues 0
Other Costs and Expenses 1,156,794
Provision for Doubtful Accounts 1,130
Interest and Amortization of Debt Discount 48,618
Income/Loss Before Taxes and Other Items (869,627)
Income Tax Expense/Benefit 0
Income/Loss Continuing Operations (869,627)
Discontinued Operations (66,579)
Extraordinary Items 864,721
Cumulative Effect-Changes in Accounting Principles 0
Net Income or Loss (71,485)
Earnings Per Share - Primary 0
Earnings Per Share - Fully Diluted 0
<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: July 8, 1999
By: /s/ Michael F. Simone
------------------------
Michael F. Simone, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 8th day of July 1999.
INTERACTIVE GAMING & COMMUNICATIONS CORP.
By: /s/ Michael F. Simone
------------------------
Michael F. Simone, Director, President, and Chief Executive Officer
By: /s/ Jeffrey Erb
-----------------
Jeffrey Erb, Director and Secretary
</TABLE>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5708
<SECURITIES> 0
<RECEIVABLES> 44934
<ALLOWANCES> 38000
<INVENTORY> 0
<CURRENT-ASSETS> 12642
<PP&E> 157056
<DEPRECIATION> 88705
<TOTAL-ASSETS> 1777274
<CURRENT-LIABILITIES> 1324143
<BONDS> 0
0
0
<COMMON> 13701
<OTHER-SE> 363430
<TOTAL-LIABILITY-AND-EQUITY> 1777274
<SALES> 0
<TOTAL-REVENUES> 325416
<CGS> 0
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<OTHER-EXPENSES> 1156794
<LOSS-PROVISION> 1130
<INTEREST-EXPENSE> 48618
<INCOME-PRETAX> (869627)
<INCOME-TAX> 0
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<DISCONTINUED> (66579)
<EXTRAORDINARY> 864721
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</TABLE>
