-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LFO8I6K9J9iNIPuogStgEEiAXdzxjsi8sB+kvVrKJZK6oukjAUZhZJ8sR7xPiFIU LZo8QingOJBRuVYnCweMGA== 0000799197-99-000003.txt : 19990713 0000799197-99-000003.hdr.sgml : 19990713 ACCESSION NUMBER: 0000799197-99-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERACTIVE GAMING & COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000799197 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 232838676 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-07764-C FILM NUMBER: 99662448 BUSINESS ADDRESS: STREET 1: 4070 BUTTLER PIKE SUITE 300 CITY: PLYMOUTH MEETING STATE: PA ZIP: 19462 BUSINESS PHONE: 6109410305 MAIL ADDRESS: STREET 1: 4070 BUTER PIKE STREET 2: STE 300 CITY: PLYMOUTH MEETING STATE: PA ZIP: 19462 FORMER COMPANY: FORMER CONFORMED NAME: SPORTS INTERNATIONAL LTD DATE OF NAME CHANGE: 19941102 10-K 1 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)
DELAWARE 23-2838676 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
4070 BUTLER PIKE, PLYMOUTH MEETING, PA 19462-1510 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area (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. TABLE OF CONTENTS
PAGE 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
ITEM I. BUSINESS ----------------- General History and Organization - -------------------------- 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 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 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 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, 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 -------------------------------------------------------------- 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. PART II ------- ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ---------------------------------------------------------------------------- MATTERS ------- 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 ---- ---- ---- High Low High Low High Low ---- --- ---- --- ---- --- 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. 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. 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." 1998 1997 1996 ---- ---- ---- (1) INCOME STATEMENT DATA : Revenues $ 325,416 $ 689,663 $ 113,386 Expenses 1,206,542 2,311,493 972,879 Other Income 11,499 ------ Loss from continuing operations before income tax benefit (869,627) (1,621,830) (859,493) Deferred income tax benefit 100,000 0 ------- - Loss from continuing operations (869,627) (1,521,830) (859,493) Income (loss) from discontinued operations (66,579) 18,637 163,573 -------- ------ ------- Loss before extraordinary item (936,206) (1,503,193) (695,920) Extraordinary item: debt forgiveness 864,721 0 0 ------- - - 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) ============== ================= Weighted average Common shares Outstanding 13,701,290 13,682,752 11,512,656 ========== ========== ========== 1998 1997 1996 ---- ---- ---- (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. - ------ ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - -------------- 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 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. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA --------------------------------------------------- Index to Financial Statements and Supplementary Data Page ---- 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. 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
INTERACTIVE GAMING & COMMUNICATIONS CORP. CONSOLIDATED BALANCE SHEET "DECEMBER 31, 1998 AND 1997" 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
INTERACTIVE GAMING & COMMUNICATIONS CORP. CONSOLIDATED STATEMENT OF OPERATIONS "FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996" 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
INTERACTIVE GAMING & COMMUNICATIONS CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY "FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996" 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
INTERACTIVE GAMING & COMMUNICATIONS CORP. CONSOLIDATED STATEMENT OF CASH FLOWS "FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996" 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 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. 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. - ------ 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. - ------ 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. 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. 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 ======= ======== 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 ======== ======== 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 ======= 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% ===== ===== 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. 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) 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. 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. - ------ 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. 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 ============- ======= ======== 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. 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 ====== 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 - ============= =========== ======== ========= 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 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. 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 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% 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. 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 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
EX-27 2 ART. 5 FDS FOR YEAR END 10-K
5 12-MOS DEC-31-1998 DEC-31-1998 5708 0 44934 38000 0 12642 157056 88705 1777274 1324143 0 0 0 13701 363430 1777274 0 325416 0 0 1156794 1130 48618 (869627) 0 (869627) (66579) 864721 0 (71485) 0 0
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