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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
dated October 17, 2002
WORLD GAMING PLC
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(Exact Name as Specified in its Charter)
N/A
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(Translation of Registrant's Name)
Station House, Station Road, Barnes Common
London, SW13 0HT, England
Tel: + 44 20 8392 2939 Fax: + 44 20 8392 1000
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(Address of principal executive offices) (Zip code)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
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Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b):
Not applicable.
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Attached hereto as an exhibit to this Form 6-K are the Registrant's unaudited
consolidated financial statements at and for the three-month period ended March
31, 2002, and related Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The document set forth as an exhibit to this Form 6-K is incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused the Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: October 17, 2002
WORLD GAMING PLC
By: /s/ Simon Coulthard
-------------------
Name: Simon Coulthard
Title: Group Financial Director
EXHIBIT INDEX
Exhibit Description of Exhibit
- ------- ----------------------
1 Registrant's Financial Statements for the three months ended
March 31, 2002
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All figures in thousands of US dollars, except per share data)
Overview
World Gaming Plc ("World Gaming" or the "Company") is a UK-based I-gaming
software and e-business services company. The Company is an international
developer, licensor and provider of online gaming products, including casino,
sportsbook and pari-mutuel betting.
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
ended March 31, 2002 and March 31, 2001 and the balance sheets as at March 31,
2002 and at December 31, 2001:
SELECTED STATEMENT OF OPERATIONS INFORMATION
For the three months ended
--------------------------------
March 31, 2002 March 31, 2001
-------------- --------------
Net Sales .................. $ 4,521 $ 4,943
Gross Profit ............... 3,917 3,405
Operating Expenses ......... 4,865 4,956
Net Loss ................... (905) (1,523)
SELECTED BALANCE SHEET INFORMATION
March 31, 2002 December 31, 2001
-------------- -----------------
Working Capital ............ $ (2,814) $ (2,426)
Total Assets ............... 10,083 12,181
Long Term Debt (current and
long-term portion) ....... 935 1,083
Accumulated Deficit ........ (22,268) (21,363)
Total Shareholders' Equity . 816 1,686
Total revenues for the quarter ended March 31, 2002 were $4,521 compared to
$4,943 for the same period last year, representing a decrease of 9 per cent. Net
loss for the quarter ended March 31, 2002 was $905 or $0.03 per share compared
to a net loss of $1,523 or $0.05 per share for the corresponding period last
year.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All figures in thousands of US dollars, except per share data)
The Company experienced a 3 percent decline in royalty revenues during the
quarter largely due to a 13 percent decrease in average royalty rate. The
decrease in average royalty rate was primarily due to an increase in system-wide
revenue contribution (as a percentage of total system wide revenue) from our
largest licensee to 68 per cent for the three months ended March 31, 2002 from
51 per cent for the same period last year. The decrease in average royalty rates
was partially offset by a 23 per cent increase in the number of wagers managed
by our servers and a 38 per cent increase in the average users utilizing our
software. Transaction processing related revenue was down 59 per cent for the
three month periods to $424 from $1,044 as an increasing number of licensees
have assumed their own merchant processing responsibilities. Licensing revenue
increased 515 per cent for the quarter primarily due to a number of licensees
obtaining a gaming license in our alternate gaming jurisdiction.
Gross margins were 87 per cent in the quarter compared to 69 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 2 per cent to $4,865 during the first quarter
compared to $4,956 for the same period last year and 7 percent compared to the
previous quarter. Also during the quarter, the Company incurred a bad debt
expense of $288 due to one of its licensees becoming insolvent. The licensee was
subsequently acquired during the second quarter by another of the Company's
licensees. If not for this expense the Company would have realized a reduction
in operating expenses of 8 percent and 13 percent respectively. The increased
cost in the prior year is primarily due to the restructuring charges incurred in
the quarter ended March 31, 2001. As a result of this restructuring, the Company
has realized lower payroll costs in the operation of its development group.
During the quarter, the Company completed the restructuring of its operations
group of which severance costs were expensed during the quarter. The benefits of
this restructuring will be realized in future quarters.
Liquidity and Capital Resources
At March 31, 2002, the Company had $974 in cash and cash equivalents down from
$2,206 at December 31, 2001. The decrease in the quarter was primarily due to
the use of cash in operations resulting from a net cash loss for the quarter and
a reduction in accounts payable and accrued liabilities. Cash was also used to
purchase new capital equipment of $167 and repay capital leases of $148.
Working capital at March 31, 2002 decreased to $ (2,814) from $ (2,426) at
December 31, 2001. Included in working capital is $1,200 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.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All figures in thousands of US dollars, except per share data)
The Company also has reserves held by credit card processors totaling $2,240.
These funds are held as rolling reserves and are typically released to the
Company after six months. Accounts receivable decreased by 13 per cent from
$2,591 at December 31, 2001 to $2,258 at March 31, 2002. The decrease in
accounts receivable is primarily due to lower royalties of fees generated in
March 2001 when compared to December 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 installment
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 to recognition of the
revenue. At March 31, 2002, accounts receivable consisted primarily of royalty
and transaction fees due from operating licensees.
Prepaid expenses and deposits increased by $152 to $590 at March 31, 2002
compared to $438 at December 31, 2001. Other current assets increased by $139 to
$348 at March 31, 2002 when compared to $209 primarily due to increased
financing costs. Other current assets is comprised primarily of deferred
financing costs related to the Company's current financing effort and deferring
costs associated with establishing a new gaming jurisdiction.
Deferred revenue which relates to amounts collected from new licensees not yet
live at the end of the month, increased slightly to $276 at March 31, 2002 from
$260 at December 31, 2001. At March 31, 2002, there were a number of new
licensees waiting to go live on our system from whom deposits were previously
collected.
Net cash used in investing activities for the quarter ended March 31, 2002 was
$167 compared to $21 provided by the same period last year. The decrease from
investing activities was primarily due to the purchase of capital assets.
Net cash used for financing activities for the three months ended March 31, 2002
was $148 compared to $175 in the same period last year. Cash was used for
principal payments on existing capital lease.
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.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All figures in thousands of US dollars, except per share data)
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 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.
6
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands of U.S. Dollars)
ASSETS
------
March 31, December 31,
2002 2001
----------- ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ......................... $ 974 $ 2,206
Reserves and deposits with credit card processors . 2,240 2,532
Accounts receivable, net .......................... 2,258 2,591
Employee loans and advances-current portion ....... 17 68
Prepaid expenses .................................. 590 438
Other current assets .............................. 348 209
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Total Current Assets ............................ 6,427 8,044
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Capital Assets, net ............................... 3,656 4,133
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OTHER ASSETS
Employee advances-long term portion ............... - 4
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Total Other Assets ............................... - 4
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TOTAL ASSETS .................................... $10,083 $12,181
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The accompanying notes are an integral part of these
consolidated financial statements.
7
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(In Thousands of U.S. Dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, December 31,
2002 2001
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(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued liabilities .......... $ 5,272 $ 5,911
Accrual for legal claims .......................... 1,200 1,200
Funds held on deposit ............................. 1,584 2,041
Deferred revenue .................................. 276 260
Current portion of capital lease obligation ....... 909 1,058
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Total Current Liabilities ....................... 9,241 10,470
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Capital lease obligations, less current maturities.... 26 25
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TOTAL LIABILITIES .................................... 9,267 10,495
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STOCKHOLDERS' EQUITY
Capital stock ..................................... 24,188 24,188
Deferred compensation ............................. (42) (168)
Accumulated deficit ............................... (22,268) (21,363)
Accumulated other comprehensive loss .............. (1,062) (971)
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Total Stockholders' Equity ..................... 816 1,686
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $10,083 $12,181
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
8
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands of U.S. Dollars)
(Unaudited)
For the Three Months Ended
March 31,
-------------------------------
2002 2001
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REVENUE
Royalties and fees ...................... $ 3,991 $ 4,769
Licensing ............................... 480 78
Other ................................... 50 96
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Total Revenue ......................... 4,521 4,943
Cost of sales ........................... 604 1,538
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Gross Profit .......................... 3,917 3,405
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OPERATING EXPENSES
Development, selling, general,
and administrative ................... 4,221 4,309
Depreciation and amortization ........... 644 647
Interest and bank charges ............... 25 -
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Total Operating Expenses .............. 4,890 4,956
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Net Loss From Operations ................... (973) (1,551)
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OTHER INCOME
Other income .......................... 68 28
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Total Other Income .................... 68 28
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Loss before income taxes ................... (905) (1,523)
Income taxes ............................... - -
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NET LOSS ................................... (905) (1,523)
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OTHER COMPREHENSIVE LOSS
Foreign currency translation .......... (91) (391)
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Total other comprehensive loss ........ (91) (391)
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Net Comprehensive Loss ..................... $ (996) $ (1,914)
========== ==========
BASIC LOSS PER SHARE ....................... $ (0.03) $ (0.05)
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ........................ 34,193,181 32,193,181
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
9
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands of U.S. Dollars)
(Unaudited)
For the Three Months
Ended March 31,
--------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................ $ (905) $(1,523)
Adjustment to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ......................... 644 647
Deferred compensation ................................. 126 -
Changes in operating assets and liabilities:
(Increase) decrease in reserves with
credit card processors ............................. 292 (883)
(Increase) in accounts receivable and employee advances 388 1,087
(Increase) in prepaid expenses and deposits ........... (152) (86)
(Increase) decrease in other assets ................... (139) 283
Increase (decrease) in accounts payable and accrued
liabilities ........................................ (639) 252
Increase (decrease) in funds held on deposit .......... (457) 376
Increase (decrease) in deferred revenue ............... 16 77
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Net Cash Used by Operating Activities ............... (826) 230
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment ........ - 46
Purchase of property and equipment ...................... (167) -
Transfer to restricted cash ............................. - (25)
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Net Cash Provided By (Used For) Investing Activities (167) 21
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments on capital lease obligations ......... (148) (175)
------- -------
Net Cash Used by Financing Activities ................. (148) (175)
------- -------
Effects of exchange rate on cash ...................... $ (91) $ (391)
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The accompanying notes are an integral part of these
consolidated financial statements.
10
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(In Thousands of U.S. Dollars)
(Unaudited)
For the Three Months
Ended March 31,
--------------------
2002 2001
------- -------
DECREASE IN CASH ........................................... $(1,232) $ (315)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 2,206 2,484
------- -------
CASH AND CASH EQUIVALENTS END OF PERIOD .................... $ 974 $ 2,169
======= =======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR
Interest ................................................... $ 46 $ -
Income taxes ............................................... $ - $ -
The accompanying notes are an integral part of these
consolidated financial statements.
11
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
March 31, 2002 and December 31, 2001
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements at March 31, 2002 and for the
three months ended March 31, 2002 and 2001 is unaudited, but
includes all adjustments (consisting only of normal recurring
adjustments) which in the opinion of management, are necessary to
state fairly the financial information set forth therein in
accordance with accounting principles generally accepted in the
United States of America.
NOTE 2 - UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited 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 reporting and the instructions to Form 6-K.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared under accounting
principles generally accepted in the United States of America have
been condensed or omitted pursuant to such regulations. These
consolidated financial statements for the three months ended March
31, 2002 should be read in conjunction with the Company's annual
report on Form 20-F for the fiscal year ended December 31, 2001.
The results of operations for the three months ended March 31,
2002, may not be indicative of the results that may be expected for
the year ending December 31, 2002.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company had employment contracts with its two principal
officers. The salary and bonus compensation resulting from these
contracts are as follows:
Potential Bonus
Name and Principle Position Term of the Base Salary (as a percentage
Contract ($) of Base Salary)
- -------------------------------- ----------- ----------- ----------------
Michael Aymong, President & CEO 2 years 350 Up to 100%
Rodney Davis, CFO and acting COO 2 years 150 Up to 50%
- -------------------------------- ----------- ----------- ----------------
As previously disclosed, Michael Aymong's employment with the
Company began April 9, 2001. Mr. Aymong's contract provided for
various other benefits and payments, including options to purchase
equity securities in the Company. Stock options issued to Mr.
Aymong prior to his termination remain outstanding and continue to
vest until April 2003. No release agreement
12
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
March 31, 2002 and December 31, 2001
NOTE 3 - COMMITMENTS AND CONTINGENCIES (Cont'd)
has been entered into with Mr. Aymong at this time. Mr. Aymong
resigned on June 19, 2002.
Mr. Rodney Davis's employment with the Company began on July 7,
2001. As part of his remuneration package, Mr. Davis was entitled
to and received various options to acquire equity securities of the
Company. Mr. Davis resigned on June 20, 2002. A release agreement
signed by Mr. Davis includes payment of six months base salary,
bonus accrual, severance bonus, and accrued vacation pay. Options
granted to Mr. Davis will continue to vest until November 2002.
The Company is in the process of negotiating the terms of an
employment agreement with a new CEO.
The Company signed an employment agreement with a new group finance
director in August 2002, providing for annual base compensation of
75 UK Pound Sterling (approximately $113 US) in addition to other
normal executive employment benefits. The agreement calls for a
probationary period of three months. A share option package will be
agreed upon before the end of the probationary period.
Additionally, the Company has entered into several other employment
contracts with key employees and consultants through November 27,
2002.
In June 2002, the Company vacated offices in Toronto. The Company
continues to be liable for the lease payments for the duration of
the lease term.
In June 2002, the Company moved into new office space in Antigua.
The new lease agreement is for a one-year period and calls for
monthly lease payments of $9. The Company satisfied all terms under
the previous lease.
In August 2002, the Company moved into new office space in London.
The new lease agreement is for a one-year period commencing August
12, 2002 and calls for quarterly lease payments of 5 UK Pound
Sterling (approximately $8 US). The agreement also provides the
Company with an option to extend for two terms of one year each
until August 12, 2006 subject to annual increases in lease payments
in line with the UK Retail Price Index.
13
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
March 31, 2002 and December 31, 2001
NOTE 4 - SUBSEQUENT EVENT
During March 2002, two members of the Company's board of directors
resigned including the chairman of the board. In June 2002, the
Company's chief executive officer and acting chairman of the board,
along with the chief financial officer resigned. Additionally, an
interim chief executive officer served from June 2002 to July 2002
before resigning. A new chief executive officer and group finance
director have been appointed.
During August 2002, the Company signed a loan agreement whereby the
Company could borrow up to $1.5 million ($1,500 in thousands).
Pursuant the terms of the agreement, the Company has received $1.5
million ($1,500 in thousands). The loan bears interest at the rate
of 2% above LIBOR with interest accruing daily. The terms of the
agreement call for repayment of 75% of the loan no later than March
31, 2003, with interest accrued to that date and full amount of the
loan, and accrued interest, repaid no later than September 30,
2003.
NOTE 5- GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going
concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.
However, the Company has accumulated significant losses and has
negative working capital. All of these items raise substantial
doubt about its ability to continue as a going concern. The Company
has implemented measures to greatly reduce operating costs. Among
these measures are efforts to eliminate non-value-added expenses
through the consolidation of operations at one primary location and
a significant reduction in the company's work force. The Company is
also converting its sales staff from a direct sales force to a
business development group which will focus primarily on developing
the Company's existing client base. In addition to these measures,
the Company intends to continue to seek out additional financing.
14