U. S. Securities and Exchange Commission
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
Commission file number 0-33345
GAMES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 75-2926440
(State of Incorporation) (I.R.S. Employer Identification Number)
425 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
(Address of principal executive office)
(513) 721-3900
(Issuer’s telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or15 (d) of the Exchange Act 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 February 17, 2005 there were 26,385,832 shares of the issuer’s Common Stock, $.001 par value per share, issued with 25,842,332 outstanding.
Transitional Small Business Disclosure Format (check one)
Yes ( )
No (X)
GAMES, INC.
Form 10-QSB Quarterly Report
INDEX
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
OVERVIEW AND RECENT DEVELOPMENTS
LIQUIDITY AND CAPITAL RESOURCES
ITEM 3. CONTROLS AND PROCEDURES
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Games, Inc. and Subsidiary
Condensed Consolidated Balance Sheet
December 31, 2004
(unaudited)
Assets
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Games, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended | Six months ended | ||||||
December 31, | December 31, | ||||||
2004 | 2003 | 2004 | 2003 | ||||
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Revenues | $ 94,340 |
| $ 98,979 |
| $173,919 |
| $190,152 |
Cost of revenues sold | 115,807 |
| 18,145 |
| 214,506 |
| 40,025 |
Gross profit (loss) | (21,467) |
| 80,834 |
| (40,587) |
| 150,127 |
Operating expenses | |||||||
Sales, general and administrative | 553,085 | 455,679 | 1,168,433 | 898,593 | |||
Depreciation of property, equipment | |||||||
and software | 15,398 | 159,711 | 32,100 | 335,817 | |||
Amortization of intangibles | 21,361 | 89,942 | 42,723 | 197,285 | |||
Total operating expenses | 589,844 | 705,332 | 1,243,256 | 1,431,695 | |||
Operating loss | (611,311) |
| (624,498) |
| (1,283,843) |
| (1,281,568) |
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Interest expense | (22,803) |
| (29,883) |
| (36,147) |
| (59,662) |
Net loss | ($634,114) ========== |
| ($654,381) ========== |
| ($1,319,990) ========== |
| ($1,341,230) ========== |
Weighted average common shares |
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outstanding-basic and diluted | 25,655,166 ========== |
| 17,509,902 ========== |
| 24,743,820 ========== |
| 17,024,541 ========== |
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Net loss per share - basic and diluted | ($0.02) ========== |
| ($0.04) ========== |
| ($0.05) ========== |
| ($0.08) ========== |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Games, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
For the six months ended December 31, 2004 and 2003
(unaudited)
2004 | 2003 | |
Net cash flows from operating activities: | ||
Net cash used in operating activities | $(450,711) | $(491,632) |
Cash flows from investing activities: | (621) | (300) |
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Cash flows from financing activities: | ||
Repayments of capital lease obligations | -- | (87,541) |
Borrowings on long-term debt | (30,000) | 140,000 |
Repayments of due to related parties | (6,971) | (60,192) |
Proceeds from issuance of convertible notes | -- | 71,810 |
Proceeds from issuance of stock | 472,000 | 583,500 |
Net cash provided by financing activities | 435,029 | 647,577 |
Net (decrease) increase in cash | (16,303) | 155,645 |
Cash at beginning of period | 33,067 | -- |
Cash at end of period | $ 16,764 | $ 155,645 |
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Cash paid for: | ||
Interest | $ 11,985 | $ 4,342 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Games, Inc. and Subsidiary |
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Condensed Consolidated Statements of Cash Flows – continued |
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(unaudited) | |||||
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| Six months ended |
| Six months ended |
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| December 31, 2004 |
| December 31, 2003 |
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NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Common stock issued to settle litigation | $ -- ======== |
| $ 165,000 ======== | ||
Common stock issued to settle note payable | $ -- ======== |
| $ 1,610 ======== | ||
Common stock issued for services | $ 279,000 ======== | $ 25,350 ======== | |||
Common stock issued for deferred compensation plan | $ 462,500 ======== |
| $ 415,250 ======== | ||
Preferred stock issued for prepaid royalties | $ -- ======== |
| $ 2,000,000 ======== | ||
Preferred stock issued for deposit on acquisition | $ -- ======== |
| $ 1,025,00 ======== | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Games, Inc. and Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Games, Inc. (“Games” or the “Company”) along with its majority owed subsidiary GameBanc, Inc., (“GameBanc”) operates in three allied areas of interactive entertainment: government sponsored lotteries, internet games, and digital greetings.
The accompanying interim condensed consolidated financial statements and notes to the financial statements for the interim periods as of December 31, 2004 and for the six months ended December 31, 2004 and 2003, are unaudited. The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial statements and Item 310(b) of Regulation S-B. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. It is the opinion of management that these statements include all normal recurring adjustments necessary to make the financial position, results of operations, and cash flows not misleading as of December 31, 2004 and for all periods presented.
Operating results for the six month period ended December 31, 2004, are not necessarily indicative of the results that may be expected for the year ending June 30, 2005. The condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Form 10-KSB/A of the Company as of and for the year ended June 30, 2004.
NOTE B – GOING CONCERN UNCERTAINTY
As shown in the accompanying condensed consolidated financial statements, the Company incurred a net loss of $1,319,990 for the six months ended December 31, 2004. Current liabilities of $3,894,427 at December 31, 2004 exceed current assets of $48,182 by $3,846,245. At December 31, 2004, the Company has a stockholders’ deficiency in the amount of $2,401,810.
Management of the Company is developing a plan to license the sale of lottery tickets online and to further develop its internet games web sites. In addition, the Company is seeking to raise equity capital to fund and expand its operations in addition to fund acquisitions.
Management believes that by (i) integrating the Games.com assets, (see Note C) and (ii) obtaining a license to sell lottery tickets online and (iii) if they are successful in obtaining additional equity capital to fund acquisitions, the cash flows would be sufficient to fund operations through the near term. However, there can be no assurance that the Company will
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be successful in its attempts to obtain a license to sell lottery tickets online, integrate the Games.com assets, to generate positive cash flows or raise sufficient capital essential to its survival. To the extent that the Company is unable to generate or raise the necessary operating capital, it will become necessary to curtail operations. Additionally, even if the Company does raise operating capital, there can be no assurance that the net proceeds will be sufficient to enable it to develop its business to a level where it will generate profits and positive cash flows.
These matters, along with those discussed in Note C, raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE C – DEPOSIT ON GAMES.COM ASSETS
On December 31, 2003, Games entered into an Asset Purchase Agreement, Assignment and License Agreement (“Asset Purchase Agreement”) to purchase from Atari, Inc., (“Atari”), (i) the www.Games.com domain name, (“URL”) and certain related assets for a purchase price of $1,125,000 payable in $100,000 cash and 10,250 shares of Series AA Preferred Stock valued at $1,025,000 and in connection therewith entered into a five (5) year royalty agreement which provides initial consideration of 20,000 shares of Series AA Preferred Stock valued at $2,000,000. Furthermore, the Company is committed to additional minimum royalty payments over the five (5) year term of the agreement of $3,000,000 for total consideration of $ 5,000,000, (“Prepaid Royalty”). Royalties are subdivided into two types: (a) royalties against which the Company may recoup against the Prepaid Royalty and (b ) royalties that the Company pays, throughout the five (5) year term of the agreement, beginning with the first dollar of net sales against which the Company may not apply against the Prepaid Royalty. Net sales from Licensed Products, (defined below), modified by the Company, will have an 8% recoupment-eligible royalty and, in addition, a 2% recoupment-ineligible royalty. Net Sales from Atari-provided Licensed Products, the Company shall pay an 18% recoupment-eligible royalty and, in addition, a 2% recoupment-ineligible royalty. The Asset Purchase Agreement in its entirety in the amount of $6,025,000 has been guaranteed by Chicago West Pullman, LLC, a related party (“CWP”).
As part of this transaction, the Company purchased digital licenses and sublicenses with exclusive digital rights with respect to certain formats to a number of games including MONOPOLY, SCRABBLE, RISK, BATTLESHIP, BOGGLE and YAHTZEE and certain Atari games, (collectively “Licensed Products”). When Atari redeems or converts the 10,250 shares of Series AA Preferred Stock, it activates the above mentioned license agreement. Furthermore, the Asset Purchase Agreement allows for the license to be renewed by Games, Inc., for an additional five years including a right of first refusal.
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On May 17, 2004, Atari, Inc., Atari Interactive, Inc. filed in the United States district Court, Southern District of New York an action entitled “Atari, Inc., Atari Interactive, Inc., and Hasbro, Inc. v. Games, Inc., Roger W. Ach, II, and Chicago West Pullman LLC, 04 Civ. 3723(JSR) (“the federal action”). The federal action concerns the enforceability and breach of an Asset Purchase, License and Assignment Agreement between Games, Inc. and Atari, Inc. dated December 31, 2003, as amended (‘the Asset Purchase Agreement”). In the federal action Atari, Inc. has contended that Games, Inc. breached the Asset Purchase agreement by refusing to pay to Atari, Inc. certain consideration. Games, Inc. has contended that Atari breached the asset Purchase Agreement in various ways including, but not limited to, infringing Games, Inc.’s exclusive license for online play of the original classic versions of the Hasbro games, as defined, by allowing several other online websites includingwww.Zone.com,www.Real.com, andwww.Shockwave.com to offer free or subscription based play of the Hasbro games (as defined).
Pursuant to the breach, Games has refused to pay the additional $3 million in advance royalties on these licenses and has refused to redeem 10,250 shares of the Series AA Preferred Stock, until the matter is satisfactorily resolved. On May 3, 2004 Atari issued to Games, Inc. a notice of default regarding the non-payment of the $3,000,000 and non-redemption of the 10,250 shares of Series AA Preferred Stock.
On May 18, 2004, the Court granted a temporary restraining order against the Company and the Company CEO from operating the Games.com site and Licensed Products and scheduled a preliminary injunction hearing prior to which, the Company agreed to the preliminary injunction. The Court signed an order granting the preliminary injunction pending the outcome of the case.
On June 16, 2004, Games served its Answer and Counterclaim (“Counterclaim”) to the complaint. In its Counterclaim, Games alleges that plaintiffs breached the Asset Purchase Agreement and a Settlement Agreement dated March 31, 2004 by, among other things, licensing other web sites to use the Licensed Products that Games claims are part of its exclusive license under the Asset Purchase Agreement.
During September, October and November 2004, the Company and the Atari parties exchanged documents and conducted depositions.
The parties have exchanged documents, and the Judge has ordered that Atari must now produce intra-company and inter-company written communications regarding contracts and negotiations between the Atari parties and third parties between January 1, 2004 and March 31, 2004 regarding online play of the Licensed Products. Management and the Company’s counsel believe that this document production will result in a favorable outcome for the Company.
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On February 17, 2005 Games filed in the United States district Court, Southern District of New York against Atari, Inc., Atari Interactive, Inc. and Hasbro, Inc. and Jamdat Mobile, Inc. case number 05CV2227. Plaintiff Games, Inc. filed an application for a temporary restraining order and preliminary injunction against defendants Atari, Inc., Atari Interactive, Inc., and Hasbro, Inc.
This case is related to the pending action, “Atari, Inc., Atari Interactive, Inc., and Hasbro, Inc., v. Games, Inc., Roger W. Ach II, Chicago West Pullman, LLC., 04 Civ. 3723 (JRS)”, (“the pending related action”). Both lawsuits concern the rights and obligations of the parties under an Asset Purchase, Assignment and License Agreement Dated December 31, 2003 in which Atari Inc. conveyed to Games, Inc. an exclusive license for on line play via an Internet browser of the original classic versions of certain Hasbro and Atari copyrights and trademarks, including SCRABBLE, YAHTZEE and BOGGLE. Both lawsuits concern the viability of the defenses offered by Atari, Inc., for their use and their transfer of the rights to online play via an internet browser of some of the very games to which Games, Inc. is entitled to an exclusive license, including SCRABBLE, YAHTZEE and BOGGLE.
The Company intends to vigorously prosecute and defend this action, management has indicated that they believe that the Company will ultimately prevail on its claim that Atari, Inc. breached the Asset Purchase Agreement and its defense of Atari’s claims. However there can be no assurance that the Company will be successful in the action with Atari and even if the Company is successful there can be no assurance that the Company will retain the URL Games.com.
Prior to the injunction Games, Inc. began to upgrade graphics, security, chat features and functionality of the www.Games.com site to allow for enhanced play within the current play pattern and to allow for skill-based tournament play for merchandise prizes. If the Company is successful in the action with Atari, the Company plans to launch the upgraded Games.com site immediately.
As a result of the uncertainties of these matters, the assets, which include the Games.com URL and the Licensed Products, have been classified as a long-term assets as “deposit on Games.com assets.”
At December 31, 2004, the deposit on Games.com Assets consisted of the following:
Games.com URL
$1,214,583
Prepaid Royalties
2,000,000
$3,214,583
In addition, as a result of Atari’s demand for redemption of the 10,250 shares of Series AA Preferred Stock, the Company has classified the 10,250 shares of Series AA Preferred Stock as a current liability. As a result of CWP’s guarantee, and in accordance with EITF-0019, the Company recorded the remaining shares as a long-term liability.
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NOTE D – SELECTED SIGNIFICANT ACCOUNTING POLICIES
Revenue Sources
Total revenues for the six months ended December 31, 2004 and 2003 are as follows:
Three months ended December 31, 2004 | Three months ended December 31, 2003 | |||
Revenue Source | Amount | Percent of Total | Amount | Percent of Total |
1. Advertising | $ 47,352 | 50% | $36,414 | 37% |
2. Lottery services | 32,068 | 34% | 50,694 | 51% |
3. Subscriptions and fees | 14,920 | 16% | 11,871 | 12% |
Total | $94,340 | 100% | $98,979 | 100% |
Six months ended December 31, 2004 | Six months ended December 31, 2003 | |||
Revenue Source | Amount | Percent of Total | Amount | Percent of Total |
1. Advertising | $ 78,324 | 45% | $61,819 | 32% |
2. Lottery services | 67,870 | 39% | 106,370 | 56% |
3. Subscriptions and fees | 27,725 | 16% | 21,964 | 12% |
Total | $173,919 | 100% | $190,152 | 100% |
Loss Per Share
The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted.
In accordance with EITF Issue No. 03-6, "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share," the Company uses the two-class method to calculate the effect of the participating Series AA Preferred Stock on the calculation of basic EPS and the if-converted method is used to calculate the effect of the participating Series AA Preferred Stock on diluted EPS. The adoption of EITF Issue No. 03-6 did not require any changes to the Company's calculation of EPS.
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The following equity securities are not reflected in diluted loss per share because their effects would be anti-dilutive:
December 31
2004 | 2003 | |
Options | 3,265,458 | 3,298,600 |
Warrants | -- | -- |
Series AA Preferred Stock | 715,544 | 715,544 |
Series A Preferred Stock | 55,000 | 110,000 |
Convertible notes | 110,000 | 687,700 |
Total | 4,1461,002 | 4,811,844 |
Accordingly, basic and diluted loss per share are identical.
Reclassifications
Certain accounts in the prior years’ financial statements have been reclassified for comparative purposes to conform to the presentation in the current year’s financial statements. These reclassifications had no effect on previously reported net loss.
Stock Based Compensation
SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123.” This Statement amends FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The Company continues to follow the pro-forma disclosures for stock-based compensation as permitted in SFAS 123. The following table illustrates the effect on net loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to sto ck-based employee compensation:
Six months ended | ||
December 31, | ||
2004 | 2003 | |
Net loss as reported | $1,319,990 | $ 1,341,230 |
Less: stock-based employee compensation expense determined under the intrinsic value method | -- | -- |
Add: stock-based employee compensation expense determined under fair value-based methods for all awards | 262,500 | 32,750 |
Pro forma loss | $1,582,490 | $1,373,980 |
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Pro forma loss per share- Basic and diluted | $ (0.05) | $ (0.08) |
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Pro forma Information
The fair value for the fiscal 2005 and 2004 options issued was estimated at the date of grant using a Black-Scholes option-pricing model to be $0.36 and $0.00 respectively per share with the following weighted-average assumptions.
Assumptions | 2005 | 2004 |
Risk-free rate | 4.0% | 4.0% |
Dividend yield | 0.0% | 0.0% |
Volatility factor of the expected market price of the Company's Common Stock | 261.6% | 314.4% |
Average life | 2.4 years | 1.4 years |
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Our employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.
In December 2000 GameBanc extended the expiration date of 286,000 stock options from dates ranging from April 2002 through to January 2005. In December 2000, the Company re-priced options to purchase approximately 1,430,000 shares of our common stock from an exercised price of $10 per share to $1.00 per share. Pursuant to FASB Interpretation No. 44 (“FIN 44”) such options became subject to variable accounting treatment. At December 31, 2004, the fair value of our common stock was less than the exercise price and accordingly the Company recognized no stock based compensation for variable accounting treatment.
The following summarizes the stock option transactions for the Six months ended December 31, 2004:
Weighted | ||||
Average | ||||
Exercise | ||||
Options | Price | |||
Options outstanding at July 1, 2004 | 3,660,500 | 1.38 | ||
Granted | 526,458 | 2.75 | ||
Exercised | -- | |||
Terminated | (921,500) | 2.01 | ||
Options outstanding at December 31, 2004 | 3,265,458 | $1.41 |
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Options Outstanding | Options Exercisable | |||||||
Weighted | ||||||||
Average | Weighted | |||||||
Range of | Remaining | Average | ||||||
Exercise | Number | Contractual | Number | Exercise | ||||
Prices | Outstanding | Life | Exercisable | Price | ||||
$0.47 - $5.00 | 3,265,458 | 2.4 years | 1,904,000 | $1.19 |
New Accounting Pronouncements
In December 2004, the FASB finalized SFAS No. 123R "Share-Based Payment" ("SFAS 123R"), amending SFAS No. 123, effective beginning the Company's third quarter of fiscal 2006. SFAS 123R will require the Company to expense stock options based on grant date fair value in our financial statements. Further, the adoption of SFAS 123R will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements. The effect of expensing stock options on the results of operations using a Black-Scholes option-pricing model is presented in Note 2. The adoption of SFAS 123R will have no effect on the Company's cash flows or financial position, but will have an adverse impact on the Company's financial position and results of operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary Assets - an amendment of APB Opinion No. 29" ("SFAS 153"). This statement amends APB Opinion No. 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS 153 are effective for fiscal year ending June 2006. The adoption of SFAS 153 is not expected to have a material impact on the Company's consolidated financial position, liquidity, or results of operations.
NOTE E - CONVERTIBLE PROMISSORY NOTES
During 2003, the Company issued $110,000 5% and 6% convertible promissory notes (the “Promissory Notes”) in varying amounts due October 31, 2004. The Company is in the process of attempting to extend the terms of these Promissory Notes. A portion of the proceeds raised from the placement has been used to fund the Company's working capital and capital expenditure requirements.
The Promissory Notes including accrued interest are convertible into one (1) share of common stock for each dollar of debt, at the option of the holder, subject to certain adjustments and conditions.
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NOTE F- LITIGATION AND CONTINGENCIES
Atari, Inc., Atari Interactive, Inc., and Hasbro, Inc. v. Games, Inc., Roger W. Ach, II, and Chicago West Pullman LLC
For a description of this litigation see Note C – Deposit on Games.com Assets.
Christopher Hunter v. The Lottery Channel, Inc.
Case Number 3:01CV390, United States District Court, Eastern District of Virginia, Richmond Division Suit filed June 25, 2001.
This is an action by a former employee and manager of Gameland.com site who sued the Company in Virginia District Court for bonus payments under his employment agreement. Mr. Hunter obtained a default judgment against The Lottery Channel, Inc. at a time when the Company was attempting to negotiate and resolve his claims. Currently, approximately $99,000 remains unpaid on this judgment. Such amount is included in accrued litigation settlement and judgments at December 31, 2004.
On August 27, 2003, the Company filed a law suit against Toadgames, Inc. (case number A0304323) a company incorporated by Chris Hunter. The Company alleges Toadgames, Inc. has misappropriated the Company’s trade secrets, including its games, data codes, designs, gameplay, format, scoring systems, instructions, marketing and promotional strategies. Toadgames and the Company have recently entered into settlement discussions.
In the ordinary course of conducting its business, the Company has become subject to additional litigation and claims regarding various matters. There exists a reasonable possibility that the Company will not prevail in all cases. However, sufficient uncertainty exists in these cases to prevent the Company from determining the amount of its liability, if any.
NOTE G – STOCKHOLDERS’ DEFICIENCY
During the six months ended December 31, 2004 Games, Inc. issued 1,142,500 shares of common stock for $472,000 in cash proceeds.
During the six months ended December 31, 2004 Games, Inc. issued 925,000 shares of common stock to the Company’s Executive Deferred Compensation plan in exchange for $462,500 in deferred and accrued salary to the officers of the Company. As of December 31, 2004, 285,000 shares have not been earned and therefore are not reflected as outstanding.
During the six months ended December 31, 2004 Games, Inc. issued 600,000 shares of common stock for various consulting services to the Company with the agreed upon value of the services to be $279,000. These services have been valued in accordance with the estimated fair value of services performed. Accordingly the Company has recorded the cost as deferred compensation and will expense as services are performed.
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No underwriter was engaged in connection with the foregoing sales of securities.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the following discussion and analysis in this Form 10-QSB and other materials filed by the company with the Commission contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements that are not historical facts, are based on management's current projections and estimates and are identified by words such as "expects," "intends," "plans," "projects," "anticipates," "believes," "estimates" and similar words. Statements relating to the future anticipated direction of the industry, plans for future expansion, various business development activities, planned capital expenditures, future funding sources, anticipated sales and potential contracts. Such forward-looking inf ormation involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of Games. These risks and uncertainties include, but are not limited to, those relating to development and expansion activities, dependence on existing management, financing activities, domestic and global economic conditions, changes in federal or state tax laws and market competition factors. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from what is expressed or forecasted in such forward-looking statements.
OVERVIEW AND RECENT DEVELOPMENTS
The Company is a technology company operating in the area of interactive entertainment, primarily focused on Government Sponsored Lotteries and Internet Games.
The Company's principal business owns and or operates a portfolio of online portals focused on the delivery of interactive entertainment and content to consumers. The Company features two community-focused online game sites as well as proprietary games for purchase-and-download, conventional online play, peer-to-peer and tournament game play. The Company also features a digital greetings site and a site and proprietary back-end system for the online facilitation and reporting of state and provincially-sponsored lotteries. Revenues are largely driven by lottery information services, online advertising and subscriptions; however, proprietary content delivery and decremented payment systems will enable software licensing to become a component of the revenue mix along side merchandise and lottery-driven commissions. For more information, please visit the Company's corporate website, www.gamesinc.net, or their portfo lio sites,www.games.org,www.gameland.com,www.skillmoney.com,www.lottery.com andwww.cards.com
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During 2004, the Company had an economic interest with certain rights to operate the leading games and entertainment sitewww.games.com from December 31, 2003 through April 30, 2004 through an Asset Purchase, Assignment and License Agreement, (“Asset Purchase Agreement”), entered into with Atari Inc. on December 31, 2004. On April 29, 2004 the Company notified Atari, Inc. that it was in material breach of the Asset Purchase Agreement in various respects; including, but not limited to the exclusivity provisions of the agreement. Currently, there is a lawsuit between the Company and Atari, Inc. regarding enforcement of the Asset Purchase Agreement. Although the Asset Purchase Agreement provides for exclusive on-line rights to the Licensed Products of Atari, Inc. and Hasbro, Inc., (defined below), Atari, Inc. has entered into a contract with Exent Technologies to develop and distribute “on-line versions 48; of the Licensed Products and offers these games on its own siteswww.atari.com and www.atariondemand.com. Games is prepared to pursue all legal remedies against Atari and its officers to effect its ownership of this property and these exclusive game rights.
As part of this transaction, the Company purchased digital licenses and sublicenses with exclusive digital rights with respect to certain formats to a number of games including MONOPOLY, SCRABBLE, RISK, BATTLESHIP, BOGGLE and YAHTZEE and certain Atari games, (collectively “Licensed Products”).
Prior to the injunction Games, Inc. began to upgrade graphics, security, chat features and functionality of the www.Games.com site to allow for enhanced play within the current play pattern and to allow for skill-based tournament play for merchandise prizes. If the Company is successful in the action with Atari, the Company plans to launch the upgraded Games.com site immediately.
In August 2004 the Company launched its newest website, Games.Org, which currently has over 75 free and tournament-based games, including Yippee!, Chess, Checkers, Crow, Blocks, Pyramid Solitaire, and featuring the LFTS Content including but is not limited to NEW YORK-IN-A-BOX, BIRD-OPOLY, AMERICA IN A BOX, BOOO-OPOLY, and CHRISTMAS-IN-A-BOX. This site also features the Company’s micro payment system Rolls of Quarters™ which can be used to enter skill-based tournaments where players can compete for cash prizes.
On September 27, 2004 the Company entered into a definitive agreement with Late for the Sky Production Company, (“LFTS”), to license and provide Online Access to their many popular game titles listed in Exhibit 1 of the Agreement, (“LFTS Content”). The agreement calls for an advance payment of $5,000 and minimum royalties of $50,000 calculated at 12% until the minimum royalties are achieved and 15% thereafter.
As part of this transaction, the Company purchased the exclusive right and license agreement to develop an on-line version of LFTS boxed games; use, copy, publicly display, perform, distribute, or otherwise make available on or through the Games, Inc. sites. The LFTS Content includes but is not limited to NEW YORK-IN-A-BOX, BIRD-OPOLY, AMERICA IN A BOX, BOOO-OPOLY, and CHRISTMAS-IN-A-BOX.
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The following and prior discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere in this Registration Statement. The statements contained in this report that are not historical facts, including, without limitation, statements containing the words "believes," "anticipates," "estimates," "expects," and words of similar import, constitute "forward-looking statements." Forward-looking statements are made based upon our management's current expectations and beliefs concerning future developments and their potential effects upon us. Our actual results could differ materially from those anticipated for many reasons, including risks faced by us described in this prospectus under "Risk Factors."
RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2003
REVENUE
Revenue of $94,340 for the three months ended December 31, 2004 was $4,639 or approximately 5% less than the same period in the prior year. The Company’s revenues are recognized as earned and tend fluctuate based on contracts negotiated for advertising and services. The decrease is due to fewer contracts lottery services contracts for the period but was offset by increased advertising revenues and increased revenues earned from subscriptions and fees.
COSTS AND EXPENSES
During the three months ended December 31, 2004, the cost of revenues increased by $97,662 to $115,807 or approximately 538% more than the $18,145 for the three months ended December 31, 2003. The cost of revenues increased due to the cost of the minimum royalties required by the Lottery.com Royalty Agreement of $18,000 for the three months ended December 31, 2004, there was no comparable charge in the prior period. The Company also has increased cost of the services pertaining to a services contract the Company entered into for the launch of the Games.com website totaling of $58,635 for the period, the Company had no revenue to offset the additional costs in the period, see Note C.
The Company incurred operating expenses of $589,844 for the three months ended December 31, 2004. This represents a decrease of $115,488 or approximately 16% compared to the operating expenses in the three months ended December 31, 2003 of $705,332. The
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decrease is primarily due to a reduction in depreciation and amortization expense of $212,894, depreciation and amortization expenses were $36,759 compared to $249,653 in the prior period and were reduced due to assets being fully depreciated or amortized. These decreases were offset by an increase of approximately $97,406 in general and admin which relate to increased professional fees and services.
Interest expense decreased from $29,883 to $22,803 or approximately 24% due to reduced debt from the comparable period in the prior year.
RESULTS OF OPERATIONS – SIX MONTHS ENDED DECEMBER 31, 2004 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2003
REVENUE
Revenue of $173,919 for the six months ended December 31, 2004 was $16,233 or approximately 9% less than the same period in the prior year. The decrease is due to fewer lottery services contracts compared to the prior period by $38,500 or approximately 20%, and subscription and fees continue to grow and increased over the prior period by $5,762 or approximately 26%. Advertising revenues also increased by approximately 27% over the prior period by $16,505.
COSTS AND EXPENSES
During the six months ended December 31, 2004, the cost of revenues of $214,506 compared $40,025 at December 31, 2003 was $174,481 or 436% more than the six months ended December 31, 2003 The cost of revenues increased due to the cost of the minimum royalties required by the Lottery.com Royalty Agreement of $36,000 for the six months ended December 31, 2004, there was no comparable charge in the prior period. The Company also has increased cost of the services pertaining to a services contract the Company entered into for the launch of the Games.com website totaling of $117,270 for the period, the Company had no revenue to offset the additional costs in the period, see Note C.
The Company incurred operating expenses of $1,243,256 for the six months ended December 31, 2004. This represents a decrease of $188,439 or approximately 13% compared to the operating expenses of $1,431,695 during the six months ended December 31, 2003. The decrease was primarily attributed to a reduced depreciation and amortization costs of $74,823
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compared to $533,102 for the period ended December 31, 2003. The reduction of depreciation and amortization the prior period were due to assets being fully depreciated or amortized which resulted in a reduction of expenses of $458,279 or approximately 86%. This was offset by higher general and admin costs relating to professional and investment banking services incurred during the period.
Interest expense decreased from $59,662 to $36,147 or approximately 39% due to decreased debt, principally due to conversion of convertible notes to equity and repayments on note payable in connection with cards.com.
The Company operates in a highly competitive environment that involves a number of risks, some of which are beyond our control. The following statement highlights some of these risks.
LIQUIDITY AND CAPITAL RESOURCES
Our success is highly dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing from related parties as may be required, and ultimately to attain profitability. Management expects to need and be able to attract additional capital for its operations. However, there can be no assurance that management’s plans will be executed as anticipated.
At December 31, 2004, the Company had a cash balance of $16,764. Current liabilities at December 31, 2004 were $3,894,427 with current assets of $48,182. Total assets at December 31, 2004 were $3,492,617 with total liabilities of $5,894,427.
Net cash used by operating activities was $450,712 for the six month period ended December 31, 2004 compared to $491,632 for the six month period ended December 31, 2003, a decrease of $40,920. The cash used by operating activities during the three months ended December 31, 2004 was primarily related to a net loss of $1,319,990. This amount was partially offset by depreciation and amortization of $74,823, amortization of debt discount of $3,062, reduced accounts receivables of $15,671 and increased payables and accrued liabilities of $365,764 and common stock issued for services and deferred compensation in the amount of $624,874. This was offset by a reduction in accrued officer’s salaries in the amount of $214,916.
Cash provided by financing activities of $435,029 for the six months ended December 31, 2004 included proceeds from the issuance of common stock of $472,000 for cash. This was offset by a repayment of debt of $30,000 and repayment to related party of $6,971.
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Our Outstanding Convertible Notes
The Company has $110,000 of 5% and 6% convertible promissory notes (the “Promissory Notes”) in varying amounts that were due October 31, 2004. The Company is in the process of attempting to extend the terms of these Promissory Notes. The underlying Games, Inc. Common Stock has is currently included in Registration Statement No. 333-116713 as the Company’s requirement to register the stock to allow the conversion of these notes at the holder’s option.
Under the Asset Purchase Agreement and License and Royalty Agreement, Games is committed to paying Atari, Inc. (i) $1,025,000 for the redemption of 10,250 shares of Series AA Preferred Stock (ii) $3,000,000 in cash for prepaid royalties and (iii) $2,000,000 if Atari redeems the remaining 20,000 of Series AA Preferred Stock. We are seeking investment from outside the Company to complete this transaction. Chicago West Pullman, LLC has given Atari their guarantee to complete the funding if Games is unsuccessful in finding a suitable investor.
The Company is currently developing and refining its acquisition and expansion strategy. If the Company expands more rapidly than currently anticipated, if its working capital needs exceed its current expectations, or if the Company consummate acquisitions, the Company will need to raise additional capital from equity or debt sources. The Company cannot be sure that it will be able to obtain the additional financings to satisfy its cash requirements or to implement its growth strategy on acceptable terms or at all. The Company’s ability to raise capital in the future may be difficult. If the Company cannot obtain such financings on acceptable terms, its ability to fund its planned business expansion and to fund its on-going operations will be materially adversely affected. If the Company incurs debt, the risks associated with its business and with owning its common stock could increase. If the Company raises capital thr ough the sale of equity securities, the percentage ownership of its stockholders will be diluted. In addition, any new equity securities may have rights, preferences, or privileges senior to those of the Company’s common stock.
Management believes that the Company will need the following cash to fund operations during the next 12 months:
Atari payments [1] | |
Redemption of 10,250 shares of Series AA Preferred Stock | $ 1,025,000 |
Cash payment for Prepaid Royalties | 3,000,000 |
Cash needed to fund operations | 2,500,000 |
Cash needed to fund any potential acquisitions | 6,000,000 |
Total | $12,525,000 |
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[1] The remaining 20,000 shares of Series AA Preferred Stock may require two additional payments of $1,000,000 on December 31, 2004 and 2005 if Atari elects to redeem the shares.
The majority shareholders of the Company have continued to fund the Company over time and are committed to seeing the Company’s business plan come to fruition and as such will continue to support the Company through capital investments until the Company reaches profitability. The Company has focused on attempting to obtain the necessary capital to maintain its operations however; additional financing will be necessary to sustain operations and achieve the Company's business plan. The Company is attempting to obtain such additional financing. Management is also actively seeking one or more strategic investors to complete and acquisition and a strategic line extension in the games business.
However, there can be no assurance that the Company will be successful in its attempts to generate positive cash flows or raise sufficient capital essential to its survival. To the extent that the Company is unable to generate or raise the necessary operating capital, it will become necessary to curtail operations. Additionally, even if the Company does raise operating capital, there can be no assurance that the net proceeds will be sufficient to enable it to develop its business to a level where it will generate profits and positive cash flows.
These matters raise substantial doubt about the Company's ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
ITEM 3. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its "disclosure controls and procedures" pursuant to Securities Exchange Act Rule 13a-14(c). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed by the company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective for these purposes as of the date of the evaluation.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Current Litigation
Games, Inc.
Atari, Inc., Atari Interactive, Inc., and Hasbro, Inc. v. Games, Inc., Roger W. Ach, II, and Chicago West Pullman LLC
In early January 2004, the Company and Atari, Inc. (“Atari”) executed an Asset Purchase, Assignment and License Agreement (“the Asset Purchase Agreement”), the subjects of which are the purchase by the Company of the www.games.com domain name (“the URL”) and the grant to the Company of an exclusive five-year license for online play of the original classic versions of certain Hasbro, Inc. (“Hasbro”) games including MONOPOLY, SCRABBLE, RISK, BATTLESHIP, BOGGLE and YAHTZEE, and for online play of certain formats of certain Atari games. The Asset Purchase Agreement provides the Company with the right to renew the exclusive license for an additional five years.
The consideration for the Asset Purchase Agreement was the Company’s payment of $100,000 cash and 10,250 shares of Series AA Preferred Stock (valued at $1,025,000) and a schedule for royalty payments over a five-year period. More specifically, as to the royalty structure, the Asset Purchase Agreement provides that, initially, the Company pay consideration of 20,000 shares of Series AA Preferred Stock (valued at $2,000,000), and, thereafter, the Company pay additional minimum royalty payments in the amount of $3,000,000 over the term of the Asset Purchase Agreement (“Prepaid Royalty”). Royalties are divided into two groups: royalties that the Company may recoup against the Prepaid Royalty and royalties that may not be so recouped.
Chicago West Pullman, LLC, (“CWP”), a related party, guaranteed the obligations of the Company under the Asset Purchase Agreement.
On January 12, 2004, the Company made the $100,000 cash payment and delivered 30,250 shares of Series AA Preferred Stock.
After execution of the Asset Purchase Agreement, the Company became concerned that Atari would not exercise good faith in the performance of its contractual obligations. Despite the language and practicalities of the Asset Purchase Agreement, Atari: failed to maintain the operation of www.games.com in an appropriate manner; mishandled the placement of advertising on the aforesaid website; failed to provide games with updated or new versions of the games that could be used by the Company in the interim until the Company developed its own versions of the games; failed to arrange a meeting among representatives of the Company, Atari and Hasbro in order to establish an approval process for the new www.games.com website. Even worse, during the ensuing lawsuit, discussed below, the Company learned that, in early 2004, Atari planned the launch of the web site Atari On Demand, featuring play of the original classic versi ons of the identical games covered by the Company’s exclusive license!
In March 2004, the parties’ attorneys exchanged letters, claiming breaches of contract by the other party.
Consequently, the parties executed a document entitled “Settlement Agreement and Mutual Release (“the Settlement Agreement”). Pursuant to the Settlement Agreement, the Company and Atari agreed to mutually reciprocal releases as to any and all actions, causes of actions or obligations and “any other claim . . . (whether such claims are asserted or are unasserted,
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known or unknown, claimed or suspected . . .) arising out of or pertaining to any . . . matter of any kind pertaining to a breach of [the party’s] obligations under the Asset [Purchase] Agreement that occurred on or prior to [March 31, 2004].” Pursuant to the Settlement Agreement, the new transfer or closing date was April 30, 2004.
In April 2004, once again, it became apparent that Atari had no intention of honoring its contractual obligations. Both Yahoo Games On Demand and Atari On Demand offered subscriptions for online play of games that were covered by the Company’s exclusive license - and Atari declared unequivocally that this infringing activity was permissible under the Asset Purchase Agreement.
Accordingly, in April 2004, the attorneys for the Company and Atari exchanged letters, claiming that the other party had breached the Asset Purchase Agreement. On May 17, 2004, while the Company and Atari were still discussing a resolution of their dispute, Atari, Atari Interactive, Inc. (“Atari Interactive”) and Hasbro filed in the United States District Court, Southern District of New York an action entitled “Atari, Inc., Atari Interactive, inc., and Hasbro, Inc. v. Games, Inc., Roger W. Ach, II, and Chicago-West Pullman LLC,” 04 Civ. 3723 (JSR)(“the federal action”).
On May 18, 2004, the Court granted a temporary restraining order against the Company, the Company’s CEO and CWP from operating the www.games.com website and the exclusively licensed games. Thereafter, the Company consented to the entry of a preliminary injunction pending discovery in the federal action.
On June 16, 2004, the Company served its Answer and Counterclaim, stating that Atari had breached the Asset Purchase Agreement in various ways, including allowing other web sites to feature the games that Atari had exclusively licensed to the Company. The Answer denied the essential allegations of the Complaint and interposed various defenses, including unclean hands, breach of the implied obligation of good faith and an fair dealing contained in the Asset Purchase Agreement, and breach of the implied obligation of good faith and fair dealing contained in the Settlement Agreement, breach of contract regarding the Asset Purchase Agreement; breach of contract regarding the Settlement Agreement.
The Counterclaim states five claims for relief, to wit: breach of the Asset Purchase Agreement, breach of the Settlement Agreement, breach of the implied obligation of good faith and fair dealing under the Asset Purchase Agreement, breach of the implied obligation of good faith and fair dealing under the Settlement Agreement, and unfair competition.
On September 7, 2004, Atari, Atari Interactive, Inc. and Hasbro consented to a restraint preventing them from disposing of any assets that are covered by the Asset Purchase Agreement.
During September, October and November 2004, the Company and the Atari parties exchanged documents and conducted depositions.
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The Company believes that this discovery demonstrates that Atari committed purposeful breaches of trust in violation of the Asset Purchase Agreement. In fact, the Company has prepared and submitted to the Honorable Jed S. Rakoff a CD-ROM proving that Atari’s use of the relevant games on Atari On Demand violates the Company’s exclusive license because the game play is effectuated through use of a web browser–specifically Internet Explorer. The CD-ROM also refutes the other excuses ventured by Atari for its purposeful wrongdoing. On January 12, 2005, in open court, Judge Rakoff stated that the CD-ROM (with certain changes) will be admitted into evidence in connection with the pending motions. The CD-ROM (in its current form) is available for review on the website site.
On February 17, 2005 Games filed in the United States district Court, Southern District of New York against Atari, Inc., Atari Interactive, Inc. and Hasbro, Inc. and Jamdat Mobile, Inc. Plaintiff Games, Inc. filed an application for a temporary restraining order and preliminary injunction against defendants Atari, Inc., Atari Interactive, Inc., and Hasbro, Inc.
This case is related to the pending action, “Atari, Inc., Atari Interactive, Inc., and Hasbro, Inc., v. Games, Inc., Roger W. Ach II, Chicago West Pullman, LLC., 04 Civ. 3723 (JRS)”, (“the pending related action”). Both lawsuits concern the rights and obligations of the parties under an Asset Purchase, Assignment and License Agreement Dated December 31, 2003 in which Atari Inc. conveyed to Games, Inc. an exclusive license for on line play via an Internet browser of the original classic versions of certain Hasbro and Atari copyrights and trademarks, including SCRABBLE, YAHTZEE and BOGGLE. Both lawsuits concern the viability of the defenses offered by Atari, Inc., for their use and their transfer of the rights to online play via an internet browser of some of the very games to which Games, Inc. is entitled to an exclusive license, including SCRABBLE, YAHTZEE and BOGGLE.
The Company intends to vigorously prosecute and defend this action, Management has indicated that they believe that the Company will ultimately prevail on its claim that Atari breached the Asset Purchase Agreement and its defense of Atari’s claims. However, there is no guarantee that the Company will be successful in the federal action.
Prior to the injunction, the Company overhauled and rebuilt www.Games.com site; to upgrade graphics, security, chat features and functionality of the www.Games.com site to allow for enhanced play within the current play pattern and to allow for skill-based tournament play for merchandise prizes. If the Company is successful in the federal action, the Company plans to launch the upgraded Games.com site immediately.
Christopher Hunter v. The Lottery Channel, Inc.
Case Number 3:01CV390, United States District Court, Eastern District of Virginia, Richmond Division Suit filed June 25, 2001.
This is an action by a former employee and manager of Gameland.com site who sued the Company in Virginia District Court for bonus payments under his employment agreement. Mr. Hunter obtained a default judgment against The Lottery Channel, Inc. at a time when the
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Company was attempting to negotiate and resolve his claims. Currently, approximately $99,000 remains unpaid on this judgment. Such amount is included in accrued litigation settlement and judgments at December 31, 2004.
On August 27, 2003, the Company filed a law suit against Toadgames, Inc. (case number A0304323) a company incorporated by Chris Hunter. The Company alleges Toadgames, Inc. has misappropriated the Company’s trade secrets, including its games, data codes, designs, gameplay, format, scoring systems, instructions, marketing and promotional strategies. Toadgames and the Company have recently entered into settlement discussions.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company issued the following securities during the six months ended December 31, 2004. The proceeds were used for operating and acquisition purposes:
During the six months ended December 31, 2004 Games, Inc. issued 1,142,500 shares of common stock for $472,000 in cash proceeds. No sales commissions were paid in connection with this transaction. The shares were issued in reliance upon the exemption from registration provided by Section 4 (2) of the Securities Act.
During the six months ended December 31, 2004 Games, Inc. issued 925,000 shares of common stock to the Company’s Executive Deferred Compensation plan in exchange for $462,500 in deferred and accrued salary to the officers of the Company. As of December 31, 2004, 285,000 shares are not outstanding until they are earned by the Executive. No sales commissions were paid in connection with this transaction. The shares were issued in reliance upon the exemption from registration provided by Section 4 (2) of the Securities Act.
During the six months ended December 31, 2004, Games, Inc. issued 325,000 shares of common stock for consulting services to the Company with a fair value of $163,000. No sales commissions were paid in connection with this transaction. The shares were issued in reliance upon the exemption from registration provided by Section 4 (2) of the Securities Act.
No underwriter was engaged in connection with the foregoing sales of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 5. OTHER INFORMATION
Exhibit 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None
(B) REPORTS ON FORM 8-K
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GAMES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by each of the undersigned thereunto duly authorized, who certify to their knowledge that this report fully complies with the requirements of Section 13(a) or 15(d) of that Act and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the registrant as of and for the period ended December 31, 2004.
GAMES, INC.
By: /s/ Roger W. Ach, II
Roger W. Ach, II
Chief Executive Officer
By: /s/ Myles S. Cairns
Myles S. Cairns
Chief Financial Officer
Date: February 17, 2005
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Exhibit 31.1
Certifications
I, Roger W. Ach, II, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Games, Inc. and Subsidiary;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
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6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 17, 2005
/s/ Roger W. Ach, II
Roger W. Ach, II
Chief Executive Officer
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Exhibit 31.2
I, Myles S. Cairns, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Games, Inc. and Subsidiary;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
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6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 17, 2005
/s/ Myles S. Cairns
Myles S. Cairns
Chief Financial Officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of Games, Inc. and Subsidiary (the "Company") Quarterly Report on Form 10-QSB for the period ending December 31, 2004 with the Securities and Exchange Commission on the date hereof (the "Report"), I, Roger W. Ach, II, Chief Executive Officer of the Company, certify, pursuant to the 18 U.S.C. (SS) 1350, as adopted pursuant to (SS) 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Roger W. Ach, II
Roger W. Ach, II
Chief Executive Officer
February 17, 2005
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Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of Games, Inc. and Subsidiary (the "Company") Quarterly Report on Form 10-QSB for the period ending December 31, 2004 with the Securities and Exchange Commission on the date hereof (the "Report"), I, Myles S. Cairns, Chief Financial Officer of the Company, certify, pursuant to the 18 U.S.C. (SS) 1350, as adopted pursuant to (SS) 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Myles S. Cairns
Myles S. Cairns
Chief Financial Officer
February 17, 2005
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