MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All figures in thousands of US dollars, except per share data)
OVERVIEW
On May 25, 2001, pursuant to an agreement and Plan of Reorganization
executed on May 17, 2001, Starnet Communications International Inc.
("Starnet") became a direct, wholly-owned subsidiary of World Gaming Plc
("World Gaming" or the "Company"), a company organized in England and Wales
for the purpose of facilitating a new holding company structure. As part
of the reorganization, World Gaming established December 31 as its year
end. (See Note 3 to the financial statements for further discussion on the
reorganization).
Starnet Systems International Inc., a subsidiary of the Company
incorporated and operating out of Antigua, licenses its gaming software to
third parties for an initial licensing fee and monthly royalties. Inphinity
Interactive Inc., a wholly-owned subsidiary of the Company develops gaming
software and web pages. The Company's Internet casino, which targets only
customers outside North America, is operated by its subsidiary, World
Gaming Services, Inc., also incorporated and operating out of Antigua. The
following tables set out selected consolidated information from the
statements of operations for the three months and five months ended
September 30, 2001 and September 30, 2000 and the balance sheets as at
September 30, 2001 and at April 30, 2001:
SELECTED STATEMENT OF OPERATIONS INFORMATION
FOR THE THREE FOR THE FIVE
MONTHS ENDED MONTHS ENDED
------------------------------------------------------
September September September September
30, 2001 30, 2000 30, 2001 30, 2000
Net Sales $ 3,300 $ 4,786 $ 5,555 $ 7,647
Gross Profit 2,495 3,320 4,029 5,323
Operating Expenses 4,553 4,976 6,968 7,988
Net Loss (1,919) (1,561) (2,772) (2,516)
SELECTED BALANCE SHEET INFORMATION
At September 30, At April 30,
2001 2001
---------------- --------------
Working Capital $ (1,647) $ (576)
Total Assets 13,404 20,188
Long Term Debt 999 2,784
Accumulated Deficit (21,899) (19,127)
Total Shareholders' Equity 1,624 2,211
Page 1
Total revenues for the quarter ended September 30, 2001 were $3,300
compared to $4,786 for the same period last year, representing a decrease
of 31 per cent. Net loss for the quarter ended September 30, 2001 was
$1,919 or $0.06 per share compared to a net loss of $1,561 or $0.05 per
share for the corresponding period last year. For the five-month period
ended September 30, 2001, revenues were $5,555 compared to $7,647 for the
same period last year, representing a decrease of 27 per cent. Net loss for
the period was $2,772 or $0.08 per share compared to $2,516 or $0.08 per
share last year.
The Company experienced a 15 percent decline in royalty revenues during the
quarter largely as a result of the cancellation of national sporting events
at all levels across North America during the month of September, typically
the strongest month of the quarter. Transaction processing related revenues
were down 45 per cent and 37 per cent respectively for the three and five
month periods to $601 and $1,109 from $1,099 and $1,758 as an increasing
number of licensees, including two major licensees, assumed their own
merchant processing responsibilities. Licensing revenue decreased 72 per
cent for the quarter and 83 per cent for the five month period. The
decrease was primarily due to the Company no longer reselling gaming
licenses. The resale of gaming licenses contributed $317 and $644 to
license revenue for the quarter and year-to-date respectively.
Gross margins were 76 per cent and 73 per cent respectively in the quarter
and year-to-date compared to 69 per cent and 70 per cent in the prior year,
reflecting a more profitable revenue mix. The reduction of revenues from
transaction processing and reselling of gaming licenses played a role in
improving our gross margins as these revenue sources have historically been
low margin revenue.
As a result of the Company's continuing effort to reduce operating costs,
operating expenses decreased 9 per cent to $4,553 during the third quarter
and 13 per cent to $6,968 for the five months ended September 30, 2001.
This is the result of a significant reduction in sales and marketing
expenses. This was partially offset by an increase in development costs as
the Company continued to support the rapid growth of its underlying
business; and an increase in general and administrative expenses as a
result of the Company strengthening its management team during the quarter
and year-to-date.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company had $2,997 in cash and cash equivalents
down from $4,518 at April 30, 2001 and down from $4,603 at June 30, 2001.
The decrease in the quarter resulted from the use of cash in operations net
of the use of previously restricted funds to settle legal matters related
to the restrictions. Cash was also used to purchase new capital equipment
of $49 and repay capital leases of $184.
Working capital at September 30, 2001 decreased to $ (1,647) from $ (576)
at April 30, 2001. Included in working capital is $1,271 related to the
anticipated settlement of the class action lawsuit. This is calculated as
the value of shares expected to be issued for settlement of the suit and no
cash is anticipated to be paid to cover this matter.
The Company also has reserves held by credit card processors totalling
$3,686 which includes $73 relating to discontinued business. A majority of
the funds are held as rolling reserves and are typically released to the
Company after six months. Accounts receivable decreased slightly from
$1,535 at April 30, 2001 to $1,528 at September 30, 2001. Accounts
receivable is comprised of royalty and transaction fees due from operating
licensees that have their own merchant accounts and from new licensees that
were offered an instalment payment plan on the initial licensing fees.
Royalty and transaction fees due from operating licensees are usually
collected prior to the end of the following month. Licensing fees are
usually collected in full prior
Page 2
to recognition of the revenue. At September 30, 2001, accounts receivable
consisted primarily of royalty and transaction fees due from operating
licensees.
Prepaid expenses and deposits increased by $347 to $923 at September 30,
2001 compared to $576 at April 30, 2001. Deferred gaming license costs at
September 30, 2001 were fully amortized. The decrease is the net effect of
prepayments made to the Antiguan Government for the purchase of additional
casino licenses, less the portion allocated to cost of sales during the
period. The casino licenses are held for sale to prospective licensees.
There were no casino licenses available for sale by the Company during the
five months ended September 30, 2001. Deferred revenue which relates to
amounts collected from new licensees not yet live at the end of the month,
increased $277 to $427 at September 30, 2001 from $150 at April 30, 2001.
At September 30, 2001, there were a number of new licensees waiting to go
live on our system from whom deposits were previously collected.
Net cash generated from investing activities for the quarter ended
September 30, 2001 was $3,876 compared to $1,141 used in the same period
last year. Year to date, the amount generated was $3,825 compared to $2,021
used in the same period last year. The increase from investing activities
was primarily due to the release of funds held by the Canadian authorities
as discussed above. The Company did not make any significant capital
purchases during the five months ended September 30, 2001 as a result of
capital purchases in the prior period, consisting of computer equipment for
use in operations to support IT infrastructure and hosting applications.
Net cash generated for financing activities for the three months ended
September 30, 2001 was $141 compared to $995 in the same period last year.
Cash provided year-to-date was $39, down considerably from the same period
last year, as the lower stock price reduced the number of options and
warrants exercised. Also a majority of the cash generated in the prior
period from financing activities was generated from long term debt. The
long-term debt was converted to equity on May 17, 2001.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make certain forward-looking statements in this document within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. To comply with the terms of the safe harbor, we
note that a variety of factors could cause our actual results and
experience to differ substantially from the anticipated results or other
expectations expressed in our forward-looking statements. When words and
expressions such as: "believes," "expects," "anticipates," "estimates,"
"plans," "intends," "objectives," "goals," "aims," "projects," "forecasts,"
"possible," "seeks," "may," "could," "should," "might," "likely," "enable"
or similar words or expressions are used in this document, as well as
statements containing phrases such as "in our view," "there can be no
assurance," "although no assurance can be given" or "there is no way to
anticipate with certainty," forward-looking statements are being made.
These forward-looking statements speak as of the date of this document.
The forward-looking statements are not guarantees of future
performance and involve risk and uncertainties. These risks and
uncertainties may affect the operation, performance, development and
results of our business and could cause future outcomes to differ
materially from those set forth in our forward-looking statements. These
statements are based on our current beliefs as to the outcome and timing of
future events, and actual results may differ materially from those
projected or implied in the forward looking statements. Further, some
forward-looking statements are based upon assumptions of future events
which may not prove to be accurate. The forward-looking statements involve
risks and uncertainties including, without
Page 3
limitation, the risks and uncertainties referred to in our filings with the
Securities and Exchange Commission, including our most recent Form 20-F.
We undertake no obligation to publicly update or revise any forward-looking
statements as a result of future developments, events and conditions
outside of our control. New risk factors emerge from time to time and it
is not possible for us to predict all such risk factors, nor can we assess
the impact of all such risk factors on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
significantly from those forecast in any forward-looking statements. Given
these risks and uncertainties, investors should not overly rely or attach
undue weight to our forward-looking statements as an indication of our
actual future results.
Page 4
WORLD GAMING PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND FIVE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE INFORMATION)
FOR THE THREE MONTHS FOR THE FIVE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
- ------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------
REVENUE:
Royalty and fees $ 3,180 $ 4,361 $ 5,425 $ 6,902
Licensing 120 425 130 745
------------------------- -------------------------
3,300 4,786 5,555 7,647
COST OF SALES 805 1,466 1,526 2,324
------------------------- -------------------------
GROSS MARGIN 2,495 3,320 4,029 5,323
EXPENSES
Sales 301 138 375 212
Marketing 171 719 221 1,190
Development 949 791 1,433 1,591
Operations 1,001 1,159 1,624 1,829
General and administrative 1,551 1,456 2,256 2,050
Depreciation and amortization 580 713 1,059 1,116
------------------------- -------------------------
4,553 4,976 6,968 7,988
------------------------- -------------------------
LOSS FROM OPERATIONS (2,058) (1,656) (2,939) (2,665)
INTEREST INCOME (EXPENSE) (26) 95 (44) 149
OTHER INCOME (EXPENSE) 165 - 211 -
------------------------- -------------------------
NET LOSS $ (1,919) $ (1,561) $ (2,772) $ (2,516)
------------------------- -------------------------
BASIC AND FULLY DILUTED EARNINGS
PER SHARE $ (0.06) $ (0.05) $ (0.08) $ (0.08)
WEIGHTED AVERAGE COMMON SHARES 34,193 32,108 33,893 32,099
Page 5
WORLD GAMING PLC
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 2001
(UNAUDITED)
(IN THOUSANDS OF US DOLLARS)
- ---------------------------------------------------------------------------
SEPTEMBER 30 APRIL 30
2001 2001
- ---------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 2,997 $ 4,518
Restricted cash - 3,925
Reserves with credit card processors 3,686 3,763
Accounts receivable 1,528 1,535
Prepaid expenses and deposits 923 576
Other current assets - 300
-------------------------
9,134 14,617
Capital assets 4,270 5,239
Other long term assets - 332
-------------------------
$ 13,404 $ 20,188
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 5,510 $ 6,182
Accrual for legal claims (note 2) 1,409 5,409
Funds held on deposit 3,435 3,452
Deferred revenue 427 150
Current portion of capital lease obligations 578 677
-------------------------
11,359 15,870
Loans payable (note 4) - 1,500
Capital lease obligations 421 607
-------------------------
11,780 17,977
Shareholders' equity
Capital stock 24,413 22,394
Deferred compensation (294) (38)
Subscription receivable - (310)
Deficit (21,899) (19,127)
Accumulated other comprehensive loss (596) (708)
-------------------------
1,624 2,211
-------------------------
$ 13,404 $ 20,188
=========================
Page 6
WORLD GAMING PLC.
CONSOLIDATED STATEMENTS OF CASH FLOW
AS AT SEPTEMBER 30, 2001
(UNAUDITED)
(IN THOUSANDS OF US DOLLARS)
FOR THE THREE MONTHS FOR THE FIVE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
- ------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------
Cash flows from (used in) operating activities:
Net Income (Loss) $ (1,919) $ (1,561) $ (2,772) $ (2,516)
Depreciation 580 713 1,059 1,116
Amortization of deferred compensation 126 - 248 -
Loss (Gain) on disposal of fixed assets 10 - 10 -
Unrealized foreign exchange 184 (272) 113 (51)
Changes in operating assets and liabilities:
Reserves with credit card processors (27) 581 77 (204)
Accounts receivable 548 (982) 50 (1,315)
Prepaid expenses and deposits (346) 172 (58) 48
Other current assets 109 281 300 494
Accounts payable and accrued
liabilities (1,454) 271 (672) (629)
Accrual for legal claims (4,000) (80) (4,000) (86)
Funds held on deposit 420 1,905 (17) 1,467
Deferred revenue 146 87 277 70
- ------------------------------------------------------------------------------------------------
(5,623) 1,115 (5,385) (1,606)
- ------------------------------------------------------------------------------------------------
Cash flows from (used in) investing activities:
Additions to capital assets (49) (976) (100) (1,726)
Transfers from (to) restricted cash 3,925 (165) 3,925 (295)
- ------------------------------------------------------------------------------------------------
3,876 (1,141) 3,825 (2,021)
- ------------------------------------------------------------------------------------------------
Cash flows from (used in) financing activities:
Payments received on long-term receivable - 467 - 474
Proceeds from loan payable - 500 - 1,000
Proceeds from subscription receivable 325 - 325 -
Issue of capital stock - 130 - 192
Repayment of capital lease obligation (184) (102) (286) (241)
- ------------------------------------------------------------------------------------------------
141 995 39 1,425
- ------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (1,606) 969 (1,521) (2,202)
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning
of period 4,603 2,813 4,518 5,984
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,997 $ 3,782 $ 2,997 $ 3,782
- ------------------------------------------------------------------------------------------------
Page 7
WORLD GAMING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(IN THOUSANDS OF US DOLLARS)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in
accordance with such rules and regulations. The information
furnished in the interim condensed consolidated financial
statements includes normal recurring adjustments and reflects all
adjustments, which, in the opinion of management, are necessary
for a fair presentation of such financial statements. Although
management believes the disclosures and information presented are
adequate to make the information not misleading, it is suggested
that these interim condensed consolidated financial statements be
read in conjunction with the Company's most recent audited
financial statements and notes thereto included in its April 30,
2001 Annual Report on Form 20-F. Operating results for the five
months ended September 30, 2001 are not necessarily indicative of
the results that may be expected for the entire year.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
On August 20, 1999, the Royal Canadian Mounted Police (RCMP)
obtained a search warrant and searched the Vancouver, Canada
offices of Starnet Communications Canada, Inc., a subsidiary of
the Company. The basis for the search and continuing
investigation ("the investigation") was the allegation by the
RCMP that the Company and some of its officers, directors and
employees were breaching certain gaming provisions contained in
the Criminal Code of Canada.
On August 25, 1999, the RCMP obtained an ex parte restraint order
pursuant to the provisions of the Criminal Code of Canada. This
order prevents the Company and Starnet Systems International Inc.
from accessing certain funds located in their Canadian bank
accounts. In September 1999, the Company brought an application
to have the restraint order revoked. This application was
unsuccessful. On February 24, 2000, the restraint order was
renewed for a further six months.
On August 17, 2001, the Company reached a settlement with
Canadian authorities whereby a subsidiary of the Company pleaded
guilty to a single charge under the Criminal Code of Canada. The
subsidiary was fined $100 CDN plus $15 CDN victim surcharge. As
well, the Company consented to a forfeiture of restricted cash in
the amount of $3,925 US.
Between October 15, 1999 and December 9, 1999, ten class action
claims were commenced in the United States against the Company
and some of its directors and officers. These class action
lawsuits allege that material misrepresentations regarding the
nature and inherent risks of the Company's business were
knowingly made in filings to the United States Securities and
Exchange Commission, press releases and other public statements.
The amount of the damages claimed is unspecified. These actions
have now been consolidated in a single proceeding.
Page 8
WORLD GAMING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(IN THOUSANDS OF US DOLLARS)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (Continued)
On June 20, 2001, the parties signed a Memorandum of
Understanding (MOU) containing the essential terms of a
settlement between the Company and the Class Action Plaintiffs
(Class). Under the MOU, the Class will receive 1,050,000 shares
of ADRs of World Gaming Plc ("Settlement Shares") with a minimum
value of $1,050,000. If in the 10 trading days preceding the
effective date of the settlement the weighted mean trading price
(as calculated by a formula in the MOU) of the shares of ADRs of
World Gaming is less than $1.00 per share, the Class will receive
additional shares so that the value of the Settlement Shares
equals $1,050,000. Also under the Settlement, the Company will
pay certain administrative expenses, up to $50,000, and certain
expenses incurred by Plaintiffs' Co-Lead Counsel, up to $50,000.
The Plaintiffs have the right to conduct limited confirmatory
discovery of the Company.
The settlement is conditioned upon the occurrence of several
events. The parties must draft a mutually acceptable Stipulation
of Settlement to be filed with the Court. The Court must give
preliminary approval to the terms of the Settlement. Notice must
be sent to the class members advising them of the terms of the
Settlement and of their right to opt out or object to the terms
of the Settlement. Finally, the Court must approve the
Settlement after holding a hearing on its terms. In addition,
the Settlement is conditioned on the issuance of the ordinary
shares of World Gaming Plc underlying the Settlement Shares. The
Company has the right under the MOU to withdraw from the
Settlement in the event that members of the Class holding more
than 3% of the outstanding shares of ADRs of World Gaming Plc
outstanding as of the date the settlement is filed determine to
opt out of the Settlement.
On September 16, 1999, Las Vegas Casino Inc. ("ALVC") commenced
an action against the Company, a number of its subsidiaries and
various employees of the Company and its subsidiaries. LVC
alleges that the Company breached and wrongfully terminated its
license agreement and misappropriated $15 million from LVC, and
that LVC lost gambling revenues in the amount of $1 billion as a
result of the breach and wrongful termination. LVC had
previously entered into a license agreement with Starnet Systems
International Inc. ("Starnet Systems"). Starnet Systems
terminated the license agreement because of LVC's non-payment of
its royalty fees.
On July 12, 2000, the Supreme Court of British Columbia granted
a stay of the lawsuit as against Starnet Systems only. Should
LVC wish to proceed with its claim against Starnet Systems, it
must do so through the arbitration process provided for in the
software license agreement. LVC has not yet taken any steps to
do so. The Company filed a motion with the Supreme Court of
British Columbia to require LVC to post security for costs sought
against the Company. The court denied the Company's motion of
February 22, 2001, while allowing the Company the opportunity to
reapply as it may wish. At the present time, the Company
believes that these allegations are without merit and management
has been unable to determine the likely outcome.
Page 9
WORLD GAMING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(IN THOUSANDS OF US DOLLARS)
NOTE 3 - CORPORATE REORGANIZATION
On May 25, 2001, pursuant to an Agreement and Plan of
Reorganization executed on May 17, 2001 ("Reorganization
Agreement"), Starnet Communications International Inc.
("Starnet") became a direct, wholly-owned subsidiary of World
Gaming Plc ("World Gaming"), a company organized in England and
Wales for the purpose of facilitating the reorganization of
Starnet into a new holding company structure ("Reorganization").
In the Reorganization, each share of Class A common stock of
Starnet issued and outstanding was converted into one American
Depositary Share of World Gaming ("ADS"), where each ADS
represents one ordinary share of World Gaming. The
Reorganization has effected by merging a newly-formed direct,
wholly-owned Delaware subsidiary of World Gaming with and into
Starnet with Starnet surviving. As part of the reorganization,
World Gaming established December 31 as its year end.
NOTE 4 - LOANS PAYABLE
On May 17, 2001, the holder of the loan payable agreed to convert
the principal balance of $1,500 into 2,000,000 shares of the
Company's common stock. Consequently, the note is deemed to have
been repaid in all respects, and the Company has no further
obligation with respect to the note, including any interest that
may have been payable under the original terms of the note.
NOTE 5 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS NO.'S 141 AND 142 -- In June 2001, the Financial Accounting
Standards Board (FASB) adopted Statement of Financial Accounting
Standards SFAS No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 is
effective as to any business combination occurring after June 30,
2001 and certain transition provisions that affect accounting for
business combinations prior to June 30, 2001 are effective as of
the date that SFAS No. 142 is applied in its entirety, which will
be January 1, 2002 for the Company. SFAS No. 142 is effective,
generally, in fiscal years beginning after December 15, 2001,
which will be the fiscal year ended December 31, 2002 for the
Company.
SFAS No. 141 provides standards for accounting for business
combinations. Among other things, it requires that only the
purchase method of accounting be used and that certain intangible
assets acquired in a business combination (i.e. those that result
from contractual or other legal rights or are separable) be
recorded as an asset apart from goodwill. The transition
provisions require that an assessment be made of previous
business combinations and, if appropriate, reclassifications be
made to or from goodwill to adjust the
Page 10
WORLD GAMING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(IN THOUSANDS OF US DOLLARS)
NOTE 5 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
recording of intangible assets such that the criteria for
recording intangible assets apart from goodwill is applied to the
previous business combinations.
SFAS No. 142 provides, among other things, that goodwill and
intangible assets with indeterminate lives shall not be
amortized. Goodwill shall be assigned to a reporting unit and
annually assessed for impairment. Intangible assets with
determinate lives shall be amortized over their estimated useful
lives, with the useful lives reassessed continuously, and shall
be assessed for impairment under the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." Goodwill is also assessed for
impairment on an interim basis when events and circumstances
warrant. Upon adoption of SFAS No. 142, the Company will assess
whether an impairment loss should be recognized and measured by
comparing the fair value of the "reporting unit" to the carrying
value, including goodwill. If the carrying value exceeds fair
value, then the Company will compare the implied fair value of
the goodwill" (as defined in SFAS No. 142) to the carrying amount
of the goodwill. If the carrying amount of the goodwill exceeds
the implied fair value, then the goodwill will be adjusted to the
implied fair value.
While the Company has not completed the process of determining
the effect of these new accounting pronouncements on its
consolidated financial statements, the Company currently expects
that there will be no reclassification in connection with the
transition provisions of SFAS No. 141 based on clarifications of
the transition provisions issued by the FASB in October 2001.
Accordingly, the Company expects that, after implementation of
SFAS No. 142, all intangible assets will be amortizable and the
goodwill will not be amortizable.
SFAS NO. 143 -- On August 16, 2001, the FASB issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," which is effective
for fiscal years beginning after June 15, 2002. It requires that
obligations associated with the retirement of a tangible long-
lived asset be recorded as a liability when those obligations are
incurred, with the amount of the liability initially measured at
fair value. Upon initially recognizing a liability for an
accrued retirement obligation, an entity must capitalize the cost
by recognizing an increase in the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon
settlement. While the Company has not completed the process of
determining the effect of this new accounting pronouncement
Page 11
WORLD GAMING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(IN THOUSANDS OF US DOLLARS)
NOTE 5 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
on its consolidated financial statements, the Company currently
expects that the effect of SFAS No. 143 on the Company's
consolidated financial statements, when it becomes effective,
will not be significant.
SFAS NO. 144 - On October 3, 2001, the Financial Accounting
Standards Board issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which is effective
for financial statements issued for fiscal years beginning after
December 15, 2001 and, generally, its provisions are to be
applied prospectively. SFAS 144 supercedes SFAS Statement No.
121 (FAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144
applies to all long-lived assets (including discontinued
operations) and consequently amends Accounting Principles Board
Opinion No. 30 (APB 30), "Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business."
SFAS 144 develops one accounting model (based on the model in
SFAS 121) for long-lived assets that are to be disposed of by
sale, as well as addresses the principal implementation issues.
SFAS 144 requires that long-lived assets that are to be disposed
of by sale be measured at the lower of book value or fair value
less cost to sell. That requirement eliminates the requirement
of APB 30 that discontinued operations be measured at net
realizable value or that entities include under "discontinued
operations" in the financial statements amounts for operating
losses that have not yet occurred. Additionally, FAS 144 expands
the scope of discontinued operations to include all components of
an entity with operations that (1) can be distinguished from the
rest of the entity and (2) will be eliminated from the ongoing
operations of the entity in a disposal transaction.
While the Company has not completed the process of determining
the effect of this new accounting pronouncement on its
consolidated financial statements, the Company currently expects
that the effect of SFAS No. 144 on the Company's consolidated
financial statements, when it becomes effective, will not be
significant.
Page 12