UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission File Number: 0-27256
-------
ONLINE GAMING SYSTEMS, LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0512785
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
3225 McLeod Drive 1st Floor, Las Vegas, Nevada 89121
(Address of principal executive offices)
Registrant's telephone no., including area code: (702) 836 -3042
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding as of November 9, 2001
----------------------------- ----------------------------------
Common Stock, $.001 par value 34,296,268
TABLE OF CONTENTS
Heading Page
- ------- ----
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements..............................................1
Consolidated Balance Sheet - September 30, 2001 (Unaudited).......2-3
Consolidated Statement of Operations - Nine Months Ended
September 30, 2001 and 2000(Unaudited)............................4
Consolidated Statement of Cash Flows - Three Months ended
September 30, 2001 and 2000(Unaudited) ...........................5
Consolidated Statement of Cash Flows - Nine Months ended
September 30, 2001 and 2000(Unaudited)............................6
Notes to Consolidated Financial Statements (Unaudited)............7-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................11-13
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ................................................14
Item 2. Changes In Securities.............................................14
Item 3. Defaults Upon Senior Securities...................................14
Item 4. Submission of Matters to a Vote of Securities Holders ............14
Item 5. Other Information ................................................14
Item 6. Exhibits and Reports on Form 8-K..................................15
Signatures........................................................15
PART 1
Item 1. Financial Statements
The following consolidated unaudited financial Statements for the
period ended September 30, 2001, have been prepared by Online Gaming
Systems, Ltd. (the "Company") and Subsidiaries.
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Financial Statements
September 30, 2001
Page 1 of 17
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF September 30, 2001
Assets:
Current Assets:
Cash $ 34,566
Other Current Assets 26,666
--------
Total Current Assets 61,232
--------
Property and Equipment - Net 203,755
Software Development, Net 80,548
Equipment under Capitalized Lease - Net 73,934
Other Assets 267,374
--------
Total Assets $686,843
========
The Accompanying Notes are an Integral Part
of these Consolidated Financial Statements.
Page 2 of 17
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF September 30, 2001
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 272,467
Accrued Interest - Related Party 629,051
Notes Payable - Officers 213,604
Note Payable 20,000
Convertible Notes Payable - Related Party 6,434,907
Capital Lease Obligations 63,786
------------
Total Current Liabilities 7,633,815
Commitments and Contingencies --
Stockholders' Equity (Deficit):
Convertible Preferred Stock-Par Value $.001 Per Share;
Authorized 10,000,000 Shares, None Issue or Outstanding --
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued - 34,296,268 Shares 34,296
Additional Paid-in Capital 15,060,915
Treasury Stock, 811,767 Common Shares - At Cost (1,730,485)
Accumulated [Deficit] (20,311,698)
------------
Total Stockholders' Equity (Deficit) (6,946,972)
------------
Total Liabilities and Stockholders' Equity (Deficit) $ 686,843
============
The Accompanying Notes are an Integral Part
of these Consolidated Financial Statements.
Page 3 of 17
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months ended Nine Months ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue $ 196,798 $ 303,942 $ 693,937 $ 2,231,027
Cost of Sales -- 40,292 17,142 186,277
------------ ------------ ------------ ------------
Gross Profit 196,798 263,650 676,795 2,044,750
------------ ------------ ------------ ------------
Operating Expenses:
General and Administrative 1,048,271 1,144,902 2,930,995 3,390,424
Depreciation and Amortization 59,984 58,764 185,719 154,045
------------ ------------ ------------ ------------
Total Operating Expenses 1,108,255 1,203,666 3,116,714 3,544,469
------------ ------------ ------------ ------------
[Loss] from Operations (911,457) (940,016) (2,439,919) (1,499,719)
------------ ------------ ------------ ------------
Other [Expenses] Income:
Interest Expense (174,360) (13,326) (461,342) (34,817)
Settlement of debt (200,000)
Other Income [Expense] (183,374) (265,000) (183,732) (1,465,000)
------------ ------------ ------------ ------------
Other [Expenses] Income - Net (357,734) (278,326) (845,074) (1,499,817)
------------ ------------ ------------ ------------
[Loss] from Operations Before
Income Tax [Benefit] Expense (1,269,191) (1,218,342) (3,284,993) (2,999,536)
Income Tax [Benefit] Expense -- -- -- --
------------ ------------ ------------ ------------
[Loss] from Operations (1,269,191) (1,218,342) (3,284,993) (2,999,536)
------------ ------------ ------------ ------------
Net [Loss] (1,269,191) (1,218,342) (3,284,993) (2,999,536)
Comprehensive Gain:
Unrealized Holding [Loss]
arising during period -- -- -- (132,500)
------------ ------------ ------------ ------------
Total Comprehensive [Loss] $ (1,269,191) $ (1,218,342) $ (3,284,993) $ (3,132,036)
============ ============ ------------ ------------
Net [Loss] $ (1,269,191) $ (1,218,342) $ (3,284,993) $ (2,999,536)
Preferred Stock Dividend in Arrears 13,263 -- 38,263
------------ ------------ ------------ ------------
Net [Loss] Available to
Common Stockholders $ (1,269,191) $ (1,231,605) $ (3,284,993) $ (3,037,799)
------------ ------------ ------------ ------------
Basic and Diluted Net [Loss] Income
Per Share of Common Stock $ (0.04) $ (0.09) $ (0.15) $ (0.22)
Weighted Average Shares of Common
Stock Outstanding-Basic and Diluted 33,985,792 14,096,360 22,440,889 14,034,195
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
Page 4 of 17
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 30,
-------------------------------
2001 2000
----------- -----------
Operating Activities:
[Loss] Income from Operations $(1,269,191) $(1,218,342)
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 59,984 58,764
Realized Gain on Settlement of Debt (38,768)
Regulated Loss on Carrying Value of Investments 265,000
Changes in Assets and Liabilities:
[Increase] Decrease in:
Prepaid Expenses
Other Assets (5,810) 28,325
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 212,940 (86,372)
----------- -----------
Net Cash - Operating Activities: (1,040,845) (952,625)
----------- -----------
Investing Activities:
Purchase of Property, Equipment, and Capitalized Software (80,548) (43,493)
----------- -----------
Net Cash - Investing Activities (80,548) (43,493)
----------- -----------
Financing Activities:
Proceeds from Issuance of Common Stock 17,500
Increase in Loan Payable to Officer 7,500
Proceeds from Convertible Note Payable 1,245,000 1,135,000
Proceeds from Note Payable 7,500
Payment of Note Payable (100,000)
Payment of Lease Payable (27,421) (14,711)
----------- -----------
Net Cash - Financing Activities 1,150,079 1,120,289
----------- -----------
[Decrease] Increase in Cash and Cash Equivalents 28,686 124,171
Cash and Cash Equivalents - Beginning of Period 5,880 84,549
----------- -----------
Cash and Cash Equivalents - End of Period $ 34,566 $ 208,720
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 19,603 $ 13,326
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
Page 5 of 17
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
------------------------------
2001 2000
----------- -----------
Operating Activities:
[Loss] Income from Operations $(3,284,993) $(2,999,536)
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 185,719 154,045
Issuance of common stock in exchange for cancellation of indebtedness 200,000
Realized Gain on Settlement of Debt (38,769)
Realized Loss on Carrying Value of Investments 1,465,000
Changes in Assets and Liabilities:
[Increase] Decrease in:
Prepaid Expenses 5,190
Other Assets (17,622) 10,208
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (262,720) (71,414)
----------- -----------
Net Cash - Operating Activities (3,218,385) (1,436,507)
----------- -----------
Investing Activities:
Purchase of Property, Equipment, and Capitalized Software (80,548) (65,829)
Purchase of Patents and Licenses (125,000)
----------- -----------
Net Cash - Investing Activities $ (205,548) $ (65,829)
----------- -----------
Financing Activities:
Proceeds from Issuance of Common Stock 17,500 250,000
Proceeds from sale of Treasury Stock 14,062
Increase in Loan Payable to Officer 91,254 112,350
Proceeds from Note Payable 132,500 --
Payment of Notes Payable (282,500) (5,850)
Payment of Lease Payable (85,888) (56,569)
Proceeds from Convertible Note Payable 3,538,642 1,585,000
----------- -----------
Net Cash - Financing Activities 3,425,570 1,884,931
----------- -----------
Net Increase [Decrease] in Cash and Cash Equivalents 1,637 382,595
Cash and Cash Equivalents - Beginning of Period 32,929 (173,875)
----------- -----------
Cash and Cash Equivalents - End of Period $ 34,566 $ 208,720
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 37,805 $ 34,817
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Conversion of Preferred Stock into Common Stock $ 455
Issuance of 225,000 common stock in exchange for cancellation of indebtedness
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.
Page 6 of 17
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2001
Note 1 - Basis of Preparation
--------------------
The accompanying consolidated unaudited interim financial
statements include all adjustments (consisting only of those
of a normal recurring nature) necessary for a fair statement
of the results for the interim periods. The results of
operations for the nine-month period ended September 30, 2001,
are not necessarily indicative of the results of operations to
be reported for the full year ending December 31, 2001. These
statements should be read in conjunction with the summary of
significant accounting policies and notes contained in the
corporation's annual report on form 10-K for the year ended
December 31, 2000.
Note 2 - Major Customers
---------------
Income fees derived from customers are evenly concentrated
amongst numerous customers.
Note 3 - Convertible Note Payable - Related Party
----------------------------------------
The Company's operating shortfalls have largely been funded
via its largest shareholder, Hosken Consolidated Investment
Limited (HCI). HCI is a South Africa - based investment
holding company that focuses its activities in
telecommunications and information technology, media and
broadcasting, interactive gaming and entertainment and
financial services. During 2000, HCI funded the Company
$2,335,000 in the form of convertible notes. These notes bear
an interest rate of 12 percent, have a maturity date of
December 31, 2000 and are collateralized by substantially all
of the assets of the Company . At December 31, 2000 the
company had not repaid the outstanding principal balance and
interest and was in technical default of the note payable
agreement. HCI has informed the Company that it plans to
convert the notes into equity at a future date, at a price to
be determined.
During the first quarter of 2001, HCI advanced the Company
$1,303,042 in convertible notes and funds, and has stated its
intent on continuing the funding of the Company through the
balance of the year. During the second quarter of 2001, HCI
advanced the company $ 990,000 in convertible notes and in the
third quarter of 2001, HCI advanced the company $ 1,245,000.
Subsequent to the third quarter of 2001, HCI and affiliates
have advanced the Company about $250,000 in convertible notes.
Page 7 of 17
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (continued) (Unaudited)
September 30, 2001
Note 4 - Capital Stock
-------------
During fiscal 2000, the Company issued 375,000 shares of its
common stock in connection for consulting services rendered in
obtaining and negotiating convertible debt financing. The
value of the 375,000 shares was based on the market value per
common share of approximately $2.00 at the date of issuance.
Accordingly, the Company recorded an expense of $750,000 for
the year ended December 31, 2000 associated with these
consulting services.
In February 2000, the Company issued 100,000 shares of its
common stock in exchange for a $150,000 investment [fair value
of common stock at date of issuance] from an individual
investor.
In March 2000, the Company issued 100,000 shares of its common
stock in connection with a $100,000 borrowing obtained from a
customer of the Company. The fair value of the common stock
issued was approximately $100,000.
In April 2000, the Company issued 25,000 shares of its common
stock in exchange for consulting services which has been
recorded as a $ 25,000 expense in fiscal 2000.
In the first quarter 2001 the Company issued 500,000 shares of
its common stock to the Shaar fund to repurchase outstanding
preferred stock.
During the second quarter of 2001, the Company issued 225,000
shares of common stock in satisfaction of indebtedness to
Wayne Newton, who was previously employed as a promotional
consultant by the Company.
During the second quarter of 2001 HCI converted its 9,000
shares of preferred to common stock, under formula as provided
in the Convertible Preferred Stock Sales Agreement. The
preferred stock converted to 18,610,422 of common stock, which
was issued to affiliates of HCI. HCI and its affiliates own
21,799,857 shares, or about 64 percent of the outstanding
stock of the Company. The Company has now retired all of its
preferred stock.
During the third quarter of 2001, executive management
personnel purchased a total of 291,666 shares of common stock
from the Company at a price of $.06 per share.
Page 8 of 17
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (continued) (Unaudited)
September 30, 2001
Note 5 - Per Share Data
--------------
Per share basic data are based on the weighted average number
of common shares outstanding during the respective periods.
The diluted net income per share is based upon the common
stock outstanding during the period and the effect of all
dilutive potential common shares outstanding. The computation
of diluted earnings per share does not assume conversion,
exercise or contingent issuance of securities that would have
an antidilutive effect on earnings per share.
Note 6 - Business Agreements
-------------------
On January 2000, the company entered into an exclusive
agreement with Inter Global Fund for the worldwide rights for
the sale of its products to Internet based casinos not
attached to a land based casino. This agreement was terminated
during 2000.
On March 30, 2001 the Company executed a formal agreement with
Australian On-Line Casino Ltd. (AOC) and Casino Australia
On-Line Pty Ltd (CAO), its subsidiary for the licensing and
distribution of our products. AOC holds an online casino and
bookmaking license from the Australian Territory of Norfolk
Island. AOC is seeking to establish itself as a global
marketer and supplier of Internet gaming services.
Generally, the Company granted to AOC an exclusive license to
distribute our software products in the Asia Pacific region,
and non-exclusive rights to distribute other products. To
retain this exclusivity in this territory, AOC must meet
minimum sales thresholds, at recommended sales prices approved
by us. We obtained certain non-exclusive rights to distribute
new products that CAO creates.
The agreement calls for $250,000 in cash, plus ongoing
royalties associated with sales revenue, service revenue and
hosting revenue. Additionally, the Company will receive an
option for 5,000,000 shares of AOC stock. AOC is planning a
50,000,000 share offering to raise $10,000,000 (Australian).
The transaction is subject to a number of conditions,
including the successful public offering of AOC, and the
certification of our ICE software by the appropriate
Australian authority. The transaction is expected to be
completed during the third or fourth quarter of this year.
Page 9 of 17
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (continued) (Unaudited)
September 30, 2001
Note 6 - Business Agreements (continued)
-------------------------------
During the second quarter of 2001 the Company announced its
joint venture with Station Casinos, Inc., formed to develop
the technology for the remote play "eSlot" product which is
licensed to Gamecast Live, a Station Casinos subsidiary. In
exchange for a 22.5 percent interest in the joint venture, the
Company is contributing certain assets, including intellectual
property and services.
During the third quarter of 2001, the Company announced its
Marketing and Operations Agreement with UnoDosTres.com to
develop and operate up to three online casinos on the popular
Internet Television Network targeting the Latin American
marketplace.
The agreement calls for OGS to develop and operate, on an
exclusive basis, up to three online casinos (a Play for Fun
and two live casinos) on the Internet Television Network.
UnoDosTres (UDT) will contribute up to $155 million of
bartered television and radio advertising for the promotion
and marketing of the casinos, via its consortium of media and
broadcasting partners throughout the United States, Latin
Ameican and the Iberian Peninsula. The casinos will adhere to
strict restrictions regarding age of eligible gamblers, and
prohibition of wagers from residents of or placed from the
United States, or any jurisdiction that prohibits such
activities. UDT will receive a portion of the net revenue
generated from the gaming sites.
Note 7 - Subsequent Events
-----------------
During the fourth quarter of 2001, executive management
personnel purchased a total of 166,667 shares of common stock
from the Company at a price of $.06 per share.
Note 8 - New Accounting Pronouncements
-----------------------------
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and
Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 be
Page 10 of 17
accounted for using the purchase method of accounting and
prohibits the use of the pooling-of-interests method for such
transactions. SFAS No. 142 applies to all goodwill and
intangible assets acquired in a business combination. Under
the new standard, all goodwill, including goodwill acquired
before initial application of the standard, should not be
amortized but should be tested for impairment at least
annually at the reporting level, as defined in the standard.
Intangible assets other than goodwill should be amortized over
their useful lives and reviewed for impairment in accordance
with SFAS no. 121. The new standard is effective for fiscal
years beginning after December 15, 2001. The Company must
adopt this standard on January 1, 2002. As of July 31, 2001,
the Company had no unamortized goodwill.
In August 2001, the FASB issued Statement of Financial
Accounting Standards No. 144 ("SFAS 144"), "accounting for the
Impairment or Disposal of Long-lived Assets". SFAS 144
superceded Statement of Financial Accounting Standards No.
121, "accounting for the Impairment of Long-lived Assets and
Assets to be Disposed of" and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30,
"reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transaction".
SFAS 144 also amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control
is likely to be temporary. The provision of SFAS 144 will be
effective for fiscal years beginning after December 15, 2001.
The Company has not yet determined the effect SFAS 144 will
have on its financial position or results of operations in
future periods.
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
Result of Operations
--------------------
Three Months Ended September 30, 2001 and 2000
----------------------------------------------
Net Revenues. The Company's revenues decreased approximately 35% in
2001 compared to the same period in 2000. Revenues from operations in
the third quarter 2001 were $196,798 as compared with $303,942 for the
same period in 2000. The decrease in revenues was the result of fewer
sales of its products during the quarter, and the installment nature of
the sales. The majority of the revenue for the quarter emanated from
sales of our gaming devices and related services. We believe that the
market for our products is evolving to established land-based gaming
operators, many of whom are waiting for the legal and regulatory
environment to become more clear. Additionally, the legislation passed
by the government of Australia on new casino licenses may have also
Page 11 of 17
adversely impacted sales of our products. The legislation forbids
Australian citizens from Internet casino gambling, although operators
may run Internet casinos in the country.
Operating Expenses. Operating expenses decreased by 8% or $95,411 in
the third quarter 2001 over the same period in 2000. The decrease was
largely due to the Company streamlining costs and reducing overhead.
Other Expenses. Other expenses were $183,374 in the third quarter of
2001, a decrease of $81,626, or about 31% compared to the same period
in 2000. Included in other expenses are refunds to customers for prior
year sales for $182,500. Management believes that these refunds are the
last of a series of refunds made to customers for obligations of the
Company not satisfactorily fulfilled. Other Expense includes a
settlement of a prior year disputed debt for $30,000, which is offset
by a gain of $38,679 in lieu of a final settlement of a Note Payable.
Nine Months Ended September 30, 2001 and 2000
---------------------------------------------
Net Revenues. The Company's revenues decreased approximately 70% in
2001 over the same period in 2000. Revenues from operations for the
nine months ended September 30, 2001 were $693,937, as compared with
$2,231,027 for the same period in 2000. The decrease in revenues was
attributable to a significant decrease in sales of our software
products. Most of the revenue during the first nine months of 2001
emanated from recurring software royalty fees, and the initial order
for our gaming devices. During the first nine months of 2000, most of
the revenue emanated from the sales of our software products. The
moratorium imposed on new Internet casinos in Australia during 2000
partially accounted for the decrease in sales.
We believe that future revenue will likely emanate more from
traditional land-based gaming operators who are entering the Internet
Gaming business, as opposed to the Internet gaming companies who have
been the major customers over the past few years.
Many of the land-based operators appear to be taking a cautious
approach upon entering the Internet gaming market, waiting for the
legal and regulatory framework to become apparent. Accordingly, we
expect fewer sales of our software products for the foreseeable future,
but to more significant customers demand robust, managed solutions.
Operating Expenses. Operating expenses decreased by 12% or $427,755 for
the nine months ended September 30, 2001 over the same period in 2000.
The decrease was largely due to cost cutting efforts, decreased support
staffing and the Company relocating and consolidating certain of its
operations to Las Vegas during the third quarter of 2000. These
decreases were partially offset by additional resources allocated to
further development of our software products.
Other Expense. Included in other expense is a settlement of a $200,000
prior debt. During the second quarter of 2001, the Company issued
225,000 shares of common stock in exchange for cancellation of the
debt. Also included in other expenses are refunds to
Page 12 of 17
customers for prior year sales for $ 182,500. Management believes that
these refunds are the last of a series of refunds already made to
customers for obligations of the Company not satisfactorily fulfilled.
These other expenses were partially offset by settlements made with
long outstanding Accounts Payables.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents totaled $34,566 at September 30, 2001. Net
cash used from operations was $3,218,385 primarily due to a Net Loss
for the nine months ended September 30, 2001 of $3,284,993.
Net cash used in investing activities for the nine months ended
September 30,2001, was $205,548 for the purchase of patents and
licenses and payments made for the further development of the Company's
software.
Net cash provided from financing activities for the nine months ended
September 30, 2001, was $3,425,570. HCI, the Company's largest
stockholder funded the finance Company operations with the issuance of
approximately $3,500,000 in convertible debt.
Management believes that cash generated from future operations and
continuing participation of HCI will be sufficient to satisfy the
Company's current anticipated cash requirements.
Forward-Looking Statements
--------------------------
The matters discussed in Management's Discussion and Analysis and
throughout this report that are forward-looking statements are based on
current management expectations that involve risk and uncertainties.
Potential risks and uncertainties include, without limitation; the
impact of economic conditions generally and in the industry for
Internet gaming products and services; dependence on key customers;
continued competitive and pricing pressures in the industry;
open-sourcing of products; rapid product improvement and technological
change; capital and financing availability; and other risks set forth
herein.
Page 13 of 17
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
During the second quarter of 2001, the Company engaged in
mediation proceedings with Home Broadband Network, Inc. During
1998, we acquired the assets of Axxsys International in
exchange for 200,000 shares of stock. Axxsys and its
affiliates filed suit subsequently against Atlantic
International Entertainment seeking injunctive relief based on
numerous allegations, the essence of which was that the
200,000 shares of Atlantic stock was not adequate
consideration for the transfer of the Axxsys assets. Axxsys
now does business as Home Broadband Network. The Company was
formerly Atlantic International Entertainment. The mediation
effort was not successful, and a non-jury trial is expected to
be scheduled sometime during the fourth quarter of this year.
The Company has sued a former employee (Cobrero) for failure
to perform duties and for inducing the Company to pay him for
software he did not deliver. The employee has counter sued,
seeking approximately $30,000 in medical expenses, with the
Company failing to provide "COBRA" notice. This case will be
scheduled for a non-jury trial during the first quarter of
2002.
During the second quarter of 2001 a former employee (Iamunno)
threatened to bring suit against the Company for repayment of
loans totaling about $134,000, as provided for in his
termination letter with the Company. The petitioner also
asserts he is owed monies regarding a previous acquisition
made by the Company. The Company has counter-demanded set-off
expenses, and damages related to his conduct during and after
his employment with the Company. The arbitration is scheduled
for November 29, 2001.
Item 2. Changes in Securities
This Item is not applicable to the Company.
Item 3. Defaults upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Page 14 of 17
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable
(b) Form 8-K - July 7, 1999
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Online Gaming Systems, Ltd.
Date: November 13, 2001 By: /s/ GARY RAMOS
------------------------------------
(Signature)
Gary Ramos
President / Chief Executive Officer
By: /s/ LAWRENCE P. TOMBARI
------------------------------------
(Signature)
Lawrence P. Tombari
Chief Financial Officer
Page 15 of 17