________________________________________________________________________________
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 November 3, 2003
WORLD GAMING PLC
----------------------------------------
(Exact Name as Specified in its Charter)
N/A
----------------------------------
(Translation of Registrant's Name)
47 Castle Street
Reading, England
---------------------------------------------------
(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
----- -----
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
----- -----
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): Not applicable.
________________________________________________________________________________
EXPLANATORY NOTE:
Attached hereto as an exhibit to this Form 6-K are the Registrant's unaudited
consolidated financial statements at and for the three-month and nine-month
periods ended September 30, 2003, and related Management's Discussion and
Analysis of Financial Condition and Results of Operations.
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: November 3, 2003
WORLD GAMING PLC
By: /s/
-----------------------
Name: Anthony Daniel Moran
Title: CEO
EXHIBIT INDEX
Exhibit Description of Exhibit
- ------- ----------------------
1 Registrant's Financial Statements at and for the three months
and nine months ended September 30, 2003.
EXHIBIT 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All dollar amounts in thousands of US dollars, except per share data)
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 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. 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.
1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All dollar amounts in thousands of US dollars, except per share data)
OVERVIEW
World Gaming Plc ("World Gaming" or the "Company") is a holding company
incorporated under the laws of England and Wales that, through its subsidiaries,
is a developer, licensor and supplier of online gaming products, including
casino, sports book and pari-mutuel betting.
Inphinity Interactive Inc., a wholly-owned subsidiary of the Company,
incorporated and operating out of British Columbia, Canada, develops gaming
software and web pages. Starnet Systems International Inc., a wholly-owned
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. Another wholly-owned subsidiary World Gaming Services Inc., also
incorporated and operated out of Antigua, ceased operations as an internet
casino with effect from May 31, 2003. The cessation of these operations did not
have a material impact on the financial results of the Company.
FINANCIAL RESULTS
The following tables set out selected consolidated information from the
statements of operations for the three and nine months ended September 30, 2003
and 2002 and the balance sheets as at September 30, 2003 and at December 31,
2002:
SELECTED STATEMENT OF OPERATIONS INFORMATION
(UNAUDITED)
For the three months For the nine months
ended September 30, ended September 30,
-------------------- --------------------
2003 2002 2003 2002
------- ------- ------- --------
Net Sales .................. $ 2,818 $ 3,558 $10,341 $ 10,734
Gross Profit ............... 2,464 3,217 9,081 9,483
Expenses including interest 2,948 3,989 9,722 14,211
Net (Loss)/Profit .......... (181) (903) 24 (4,754)
SELECTED BALANCE SHEET INFORMATION
September 30, 2003 December 31, 2002
(Unaudited)
------------------ -----------------
Working Capital ....................... $ (3,528) $ (5,581)
Total Assets .......................... 7,982 8,377
Total Loans & Capital Lease Obligations (3,685) (3,804)
Accumulated Deficit ................... (26,658) (26,681)
Total Stockholders' Equity ............ (1,810) (3,545)
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All dollar amounts in thousands of US dollars, except per share data)
Total revenues for the quarter ended September 30, 2003 decreased by $740 (21%)
to $2,818 compared to $3,558 for the same period last year. For the nine months
ended September 30, 2003, total revenues decreased by $393 (4%) to $10,341
compared to $10,734 for the same period last year. Net loss for the quarter
ended September 30, 2003 was $181 or $0.01 per share compared to a net loss of
$903 or $0.03 per share for the corresponding period last year. Net profit for
the nine months ended September 30, 2003 was $24 or $0.01 per share compared to
a net loss of $4,754 or ($0.14) per share for the same period last year.
The Company experienced a 24% percent decrease in royalty revenues during the
quarter ended September 30, 2003. For the nine months ended September 30, 2003,
royalty revenues have increased by 5% when compared to the same period last
year. The lower royalty revenues in the quarter are directly attributable to
higher licensee customer winnings, specifically on the last day of the quarter.
On a like for like basis, our licensees experienced exceptionally strong margins
on sports betting in September 2002 when compared to the margins achieved in
September this year. In addition, licensee revenue was significantly lower in
July due to downtime experienced as a result of the essential upgrade to the
Oracle platform. August 2003 exceeded 2002 revenues on a like for like basis.
Transaction processing related revenues increased in the third quarter of 2003
by 153 per cent for the three-month period to $346 from $137 during the same
period last year. Transaction processing revenues decreased 6 percent for the
nine-month period ended September 30, 2003 to $808 from $862 during the same
period last year. During the quarter the Company increased the base rates
charged to those licensees that continue to utilize the Company's processing
gateways. This change in pricing structure has led to full recovery of
processing costs that have risen significantly over the past year. The Company
is currently processing less than 6% of total deposits to our licensee's sites.
There was no new licensing revenue for the quarter as the Company continued to
focus on existing licensees. Any change to the Company's focus on existing
licensees is reliant on continued enhancement of its platform and product suite.
Gross margin decreased in the third quarter to 87.4 per cent compared to 90.4
percent for the same quarter last year. For the nine-month period ended
September 30, 2003 the gross margin was 87.8 percent compared to 88.3 percent
for the same period last year. The reduction in gross margin percentage is
primarily as a result of lower royalty revenue, in particular at the end of the
quarter ended September 30, 2003. In addition, the increase in revenues from
transaction processing due to greater volumes contributed to the lower gross
margin in such quarter, as direct costs as a percentage of these processing
revenue sources are typically higher than those associated with royalty revenue.
Operating expenses including interest decreased 26 per cent to $2,948 during the
third quarter of this year compared to $3,989 for the same period last year. For
the nine-months ended September 30, 2003, operating expenses decreased 32 per
cent to $9,722 from $14,211 for the same period last year. The decrease during
the third quarter was primarily due to the following:
o bad debts in the third quarter were $Nil compared to $223 for the same
period last year. Last year the Company experienced significant
write-offs in failed transaction processing routes. The failure of
these routes typically occurred due to implementation of transaction
chains that lacked transparency. Improved due diligence procedures and
risk sharing with licensees has resulted in a significant reduction in
this cost for the year to date;
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All dollar amounts in thousands of US dollars, except per share data)
o a 45% reduction in corporate overhead, or a reduction of $494 when
compared to the same period last year primarily as a result of
immediate cost management measures implemented in the second and third
quarters of 2003, most significantly in the areas of salary and
communication costs;
o the elimination of the Company's direct sales force and marketing team
which was completed during the third quarter of 2002 and which
accounted for $189 of the costs during the third quarter of 2002.
Concerted efforts in reducing the Company's cost base are continuing
notwithstanding the Company's commitment to continue investing in enhanced
infrastructure and product offerings for its existing licensees.
REGULATORY DEVELOPMENTS
Early in the 108th Congress, U.S. Congressman Jim Leach (R-IA) introduced HR 21,
the Unlawful Internet Gambling Funding Prohibition Act, which was based on
similar legislation that he introduced in the 107th Congress. This legislation
attempts to prohibit Internet gambling by forbidding the use of credit
instruments of United States banks from being used to make bets or wagers over
the Internet. Shortly afterwards, U.S. Senator Jon Kyl (R-AZ) introduced similar
legislation, S. 627, in the U.S. Senate. In June of 2003, HR 21 was reintroduced
as HR 2143 by U.S. Congressman Spencer Bachus (R-AL) without any civil and
criminal sanctions in order to bypass the U.S. House of Representatives
Committee on Judiciary. After a very close vote on an amendment to HR 2143, the
House of Representatives passed that legislation. In late July 2003, the U.S.
Senate's Committee on Banking voted to report an altered version of S. 627. We
continue to monitor this situation since the passage of this legislation could
have a substantial impact on the business of our licensees and ultimately the
Company.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2003, the Company had $2,675 in cash and cash equivalents, up
from $1,753 at December 31, 2002. The increase in cash was primarily as a result
of a $1,500 investment received in April 2003 from Goodison Park Ltd. Cash was
used to settle many of the Company's most urgent financial commitments as
explained below.
The investment by Goodison Park, a wholly owned subsidiary of our largest
licensee, Sportingbet PLC, was made through i.) the purchase of 5,000,000
ordinary shares of World Gaming Plc at $0.12 per share and ii.) an unsecured
convertible loan note due in April 2005 in the principal amount of $900. If the
convertible loan note is converted into ordinary shares, Goodison Park would
then have voting control over 40% of the issued share capital of the Company.
During the third quarter of 2003, the Company's accounts payable balances
increased by $255 but declined by $1,331 during the first nine months of 2003.
This overall decline was due to the utilization of part of the funds received
from the Goodison Park investment in April 2003 to settle many pressing
outstanding payable balances. In addition, accounts receivable increased by $454
during the third quarter of 2003 but declined by $1,733 as at September 30,
2003. This decline is partially due to a concerted approach to collections in
addition to overall lower revenues in the quarter.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(All dollar amounts in thousands of US dollars, except per share data)
Accounts receivable at September 30, 2003 consisted primarily of royalties due
from operating licensees which are normally collected prior to the end of the
following month.
The Company also had reserves held by credit card processors totalling $983 at
September 30, 2003 as compared to $653 at the end of 2002, for an increase of
$330. These funds are held as rolling reserves and are typically released to the
Company after six months. New processing gateways were added in the quarter for
the remaining 6% of deposit volume that the Company processes on behalf of
licensees. These gateways were established to replace failed processing routes
described earlier. Typically new gateways require time to build up a reserve
prior to distributing to merchants. This lead-time has directly contributed to
the increase in reserves at September 30, 2003.
Prepaid expenses and deposits increased by $186 to $416 at September 30, 2003
compared to a balance of $230 at December 31, 2002 primarily due to prepaid
insurance costs and prepaid Oracle software maintenance costs.
Deferred revenue relates to deposits collected on software and gaming licenses
from a new licensee not yet live at September 30, 2003. Deferred revenue
remained unchanged at $127 at September 30, 2003 when compared to the balance at
December 31, 2002. The balance relates to the same licensee.
Working capital deficit at September 30, 2003 improved to $(3,528) from $(5,581)
at December 31, 2002. The primary reason for improvement in the working capital
deficit was the receipt of the $1,500 invested by Goodison Park Ltd.
During the quarter ended June 30, 2003, the Company completed the settlement of
the previously reported class action lawsuit. Expenses in respect of the
settlement of the class action suit together with the supplier-financed Oracle
software upgrade and settlement of certain capital lease obligations gave rise
to non-cash transactions of $2,803 in the nine months ended September 30, 2003.
Net cash used in investing activities for the nine months ended September 30,
2003 was $110 compared to $670 for the comparable prior year period. In
addition, the Company acquired Oracle software to upgrade the Company's gaming
platform in order to provide improved quality of service to its licensee base,
funded through a financing plan provided by the supplier.
Net cash used for financing activities for the nine months ended September 30,
2003 was $820 compared to ($1,497) in the same period last year. Cash received
by financing activities was $1,500 in investment from Goodison Park Ltd in the
quarter ended June 30, 2003. Repayments of certain loan amounts due to
Sportingbet PLC of $1,114 were completed during the nine months ended September
30, 2003.
5
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands of U.S. Dollars)
ASSETS
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ........................ $2,675 $1,753
Reserves and deposits with credit card processors. 983 653
Accounts receivable, net ......................... 1,077 2,810
Prepaid expenses ................................. 416 230
------ ------
Total Current Assets ........................... 5,151 5,446
Capital Assets, net .............................. 2,831 2,931
------ ------
TOTAL ASSETS ................................... $7,982 $8,377
====== ======
The accompanying notes are an integral part of
these consolidated financial statements.
6
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Balance Sheets Continued
(In Thousands of U.S. Dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued liabilities ...... $ 3,867 $ 5,198
Accrual for legal claims ...................... - 1,200
Funds held on deposit ......................... 2,113 1,593
Deferred revenue .............................. 127 127
Current portion of loans payable .............. 1,171 1,558
Current portion of capital lease obligation ... 1,401 1,351
-------- --------
Total Current Liabilities ................... 8,679 11,027
Loans payable .................................... 900 655
Capital lease obligations, less current maturities 213 240
-------- --------
TOTAL LIABILITIES ................................ 9,792 11,922
-------- --------
STOCKHOLDERS' EQUITY
Capital stock ................................. 25,842 24,192
Accumulated deficit ........................... (26,658) (26,681)
Accumulated other comprehensive loss .......... (994) (1,056)
-------- --------
Total Stockholders' Equity ................. (1,810) (3,545)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . $ 7,982 $ 8,377
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
7
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands of U.S. Dollars)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
REVENUE
Royalties and fees ............. $ 2,808 $ 3,387 $ 10,296 $ 10,015
Licensing ...................... - 160 - 658
Other .......................... 10 11 45 61
------------ ------------ ------------ ------------
Total Revenue ................ 2,818 3,558 10,341 10,734
Cost of sales .................. 354 341 1,260 1,251
------------ ------------ ------------ ------------
Gross Profit ................. 2,464 3,217 9,081 9,483
------------ ------------ ------------ ------------
OPERATING EXPENSES
Development, selling, general
and administrative ............. 2,376 3,040 7,573 10,755
Provision for bad debts ........ - 223 584 1,373
Depreciation and amortization .. 546 692 1,510 1,998
Interest and bank charges ...... 26 34 55 85
Recovery on legal settlements .. (274) - (574) -
------------ ------------ ------------ ------------
Total Operating Expenses ..... 2,674 3,989 9,148 14,211
------------ ------------ ------------ ------------
Net Profit/(Loss) From Operations . (210) (772) (67) (4,728)
------------ ------------ ------------ ------------
OTHER INCOME
Other income/(expense) ....... 29 (131) 91 (26)
------------ ------------ ------------ ------------
Total Other Income ........... 29 (131) 91 (26)
------------ ------------ ------------ ------------
(Loss)/Profit before income taxes . (181) (903) 24 (4,754)
Income taxes ...................... - - - -
------------ ------------ ------------ ------------
NET (LOSS)/PROFIT ................. (181) (903) 24 (4,754)
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE LOSS
Foreign currency translation . 468 150 62 (99)
------------ ------------ ------------ ------------
Total other comprehensive loss 468 150 62 (99)
------------ ------------ ------------ ------------
Net Comprehensive Profit/(Loss) ... $ 287 $ (753) $ 86 $ (4,853)
============ ============ ============ ============
LOSS PER SHARE - Basic ............ $ (0.01) $ (0.03) $ 0.01 $ (0.14)
============ ============ ============ ============
- Fully diluted .... $ (0.01) $ (0.03) $ 0.01 $ (0.14)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - Basic ....... 37,114,049 34,193,181 40,011,548 34,193,181
============ ============ ============ ============
- Fully diluted 37,114,049 34,193,181 40,011,548 34,193,181
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
8
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands of U.S. Dollars)
(Unaudited)
For the Nine Months Ended
September 30,
-----------------------
2003 2002
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit/(loss) ........................................... $ 24 $(4,754)
Adjustment to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ............................. 1,510 1,998
Option based compensation expense ......................... - 168
Changes in operating assets and liabilities:
(Increase) decrease in reserves with credit card processors (330) 1,787
Decrease in accounts receivable and employee advances ..... 1,733 310
(Increase) in prepaid expenses and deposits ............... (186) 52
(Increase) decrease in other assets ....................... - 10
Increase (decrease) in accounts payable and accrued
liabilities .............................................. (1,331) (790)
Increase (decrease) in accrual for legal claims ........... (150) -
Increase (decrease) in funds held on deposit .............. 520 (601)
Increase (decrease) in deferred revenue ................... - (129)
------- -------
Net Cash Provided by/(Used for) Operating Activities ...... 1,790 (1,949)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment .......................... (110) (670)
------- -------
Net Cash (Used For) Investing Activities .................. (110) (670)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares ...................................... 600 -
New loan receipts .............................................. 1,002 -
Net Repayment of loans payable ................................. (1,142) -
Proceeds from capital lease obligations and notes payable ...... - 1,919
Principal payments on capital lease obligations ................ (1,280) (422)
------- -------
Net Cash Provided by (Used for) Financing Activities ...... (820) 1,497
------- -------
Effects of exchange rate on cash .......................... $ 62 $ (99)
------- -------
The accompanying notes are an integral part of these consolidated financial statements.
9
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows Continued
(In Thousands of U.S. Dollars)
(Unaudited)
For the Nine Months Ended
September 30,
-----------------------
2003 2002
------- -------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS .............. $ 922 $(1,221)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 1,753 2,206
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 2,675 $ 985
======= =======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR
Interest ...................................................... $ 55 $ 85
Income taxes .................................................. $ - $ -
Other non-cash transactions:
Issue of shares in settlement of class action suit ............. $ 1,050 $ -
Capital assets acquired under financing plan ................... $ 1,002 $ -
Settlement of capital lease obligations ........................ $ 751 $ -
The accompanying notes are an integral part of these consolidated financial statements.
10
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data).
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements at September 30, 2003 and 2002
and for the three and nine months ended September 30, 2003 and 2002 are
unaudited, but include 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. The financial amounts presented in the notes
are in U.S. dollars unless the currency has been otherwise indicated.
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. 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 and nine months
ended September 30, 2003 should be read in conjunction with the
Company's annual report on Form 20-F for the fiscal year ended December
31, 2002. The results of operations for the three and nine months ended
September 30, 2003 may not be indicative of the results that may be
expected for the year ending December 31, 2003 because the royalties
and fees are based on gaming activity in each of our products, some of
which have major seasonal fluctuations.
NOTE 3 - INCOME TAXES
No income taxes arise as no taxation charges are levied in the main
operating territory and elsewhere there are losses brought forward from
previous periods.
11
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data).
NOTE 4 - STOCK OPTIONS
On March 12, 1998, the Board of Directors approved a stock option plan,
which authorized the issuance of 3,000,000 options to employees of the
Company and its subsidiaries at an exercise price of $0.74. The options
expire on January 1, 2008. On December 31, 1998, the Board of Directors
authorized the issuance of up to 4,000,000 additional options at an
exercise price to be determined based on the trading price of the
Company's shares on the grant date. On December 23, 1999, the Board of
Directors authorized the issuance of up to 5,000,000 additional options
at an exercise price to be determined based on the trading price of the
Company's shares on the grant date.
On August 5, 2003 the Board of Directors authorized the issuance of up
to 1,500,000 additional options to employees at an exercise price of
$0.15, being the average market price for the three days preceding the
grant date, of which 1,475,000 were issued. Options issued subsequent
to April 11, 2003 to employees generally vest at the conclusion of two
years of service, while options issued to directors vest partially
within 1 year with the remainder vesting at the conclusion of a two
year service period. Options expire ten years after the date granted.
A summary of the Company's stock option activity and related
information follows:
Nine months ended Year ended
September 30, 2003 December 31, 2002
---------------------- ----------------------
Beginning of period ......... 6,942,219 $ 1.49 11,794,862 $ 1.98
Granted ..................... 5,475,000 0.15 675,000 0.89
Exercised ................... - - - -
Forfeited and adjusted ...... (3,260,996) (1.33) (5,527,643) (2.46)
---------- ------ ---------- ------
End of period ............... 9,156,223 $ 0.73 6,942,219 $ 1.49
========== ====== ========== ======
At September 30, 2003 options outstanding were as follows:
Options Outstanding Options Exercisable
------------------------------------- -------------------------------------
Weighted Weighted
Average Weighted Average Weighted
Remaining Average Remaining Average
Range of Exercise Number of Contractual Exercise Number of Contractual Exercise
Prices Options Life (Years) Price Options Life (Years) Price
----------------- --------- ------------ -------- --------- ------------ --------
$0.14 - $1.00 7,062,122 7.2 $ 0.21 1,910,325 4.2 $ 0.29
$1.01 - $1.50 364,803 3.0 $ 1.41 325,053 3.2 $ 1.43
$1.51 - $2.50 938,386 1.8 $ 2.21 938,386 1.8 $ 2.21
$2.51 - $5.99 772,412 5.3 $ 3.23 772,237 5.3 $ 3.23
$6.00 - $11.00 18,500 5.2 $ 8.01 18,500 5.2 $ 8.01
$11.01 - $23.06 - - - - - -
----------------- --------- ------------ -------- --------- ------------ --------
$0.14 - $23.06 9,156,223 6.32 $ 0.73 3,964,501 3.77 $ 1.45
----------------- --------- ------------ -------- --------- ------------ --------
12
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data).
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company has employment contracts with its four principal officers.
The salary and bonus compensation resulting from these contracts are as
follows:
POTENTIAL BONUS
NAME AND PRINCIPAL TERM OF THE BASE (AS A PERCENTAGE
POSITION CONTRACT SALARY OF BASE SALARY)
------------------- ----------- ------- ----------------
A. Daniel Moran, ongoing $189 Up to 50%
Director & CEO
------------------- ----------- ------- ----------------
David Fleming, ongoing CAD$180 Up to 30%
Director & CTO
------------------- ----------- ------- ----------------
David Naismith, ongoing $156 Up to 50%
Director & CFO
------------------- ----------- ------- ----------------
Mark Thompson, ongoing $120 Up to 75%
Operations Director
------------------- ----------- ------- ----------------
James H. Grossman was appointed as a director and Chairman of the Board
on April 11, 2003. His annual compensation for such service and up to
five hours a month of legal services is (pound) 50, plus up to US $2
per month for certain additional legal services.
On April 11, 2003 the Company entered into an employment agreement with
Mr. Daniel Moran as a Director of the Board and Chief Executive
Officer. The agreement provides for an annual salary of $189, an annual
housing allowance of $25, in addition to other executive employment
benefits.
Mr. David Fleming began employment on September 10, 2001 and he has an
annual salary of CAN$180 in addition to other executive employment
benefits.
On August 1, 2003 the Company entered into an employment agreement with
Mr. David Naismith as a Director of the Board and Chief Financial
Officer. The agreement provides for an annual salary of $156, an annual
housing allowance of $25, in addition to other executive employment
benefits.
Mr. Mark Thompson was appointed to the position of Operations Director
and Managing Director of Starnet Systems on December 1, 2002 on a
salary of $120 with an annual housing allowance of $30 and certain
other additional benefits.
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WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data).
NOTE 5 - COMMITMENTS AND CONTINGENCIES - Continued
On April 9, 2003, Starnet Systems served notice to Sinsational
Intertainment ("Sinsational"), a former licensee of the Company
regarding its outstanding account in the amount of $268 indicating the
Company would terminate the agreement if the long overdue account was
not made current. On April 15, 2003, Sinsational filed a statement of
claim in the courts of Antigua and Barbuda against the Company for an
amount of $6,637. The Company counterclaimed for the outstanding amount
due. On April 16, 2003, Sinsational acknowledged in writing the
termination of its agreement with the Company. On April 16, 2003,
Sinsational commenced an action against the Company and obtained an
injunction preventing Starnet Systems from terminating the hosting
services provided by the Company. On May 12, 2003, at the request of
the Company, the court removed the injunction. On May 15, 2003
Sinsational requested that Starnet Systems cease providing services to
its website. On May 23, 2003 Sinsational filed an amended statement of
claim increasing the amount claimed to $30,870 alleging, among other
things, breach of contract and permanent loss of shareholder value. On
June 19, 2003, Sinsational obtained a new injunction preventing the
Company from dealing with Sinsational's customer data. In June 2003,
Sinsational applied to the International Court of Arbitration and
further amended their claim to $36,442. This matter was settled
subsequent to September 30, 2003 as discussed in Note 6.
In May 2003, the Company entered into a License and Services Agreement
with Oracle. The total value of the agreement is CAN $1,358 inclusive
of technical support. Monthly instalments are due over the term of the
agreement with the last instalment due on December 30, 2004. If at any
time the Company wishes to terminate this agreement prior to December
30, 2004, the entire balance outstanding at the date of termination
becomes payable within 30 days. The company is also committed to
subsequent annual technical support costs of CAN $180 per annum whilst
the license is in operation.
NOTE 6 - SUBSEQUENT EVENTS
On October 23, 2003, the Company agreed, with the principals of
Sinsational Intertainment, to terms of a settlement of the matter
described in Note 5. The terms of this settlement provides for the
agreement by Sinsational Intertainment to terminate all of its claims
against the Company in exchange for which the Company will not further
pursue its claims against Sinsational Intertainment.
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WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data).
NOTE 6 - SUBSEQUENT EVENTS - Continued
On October 29, 2003, the Company as part of its continuing effort to
resolve outstanding issues with certain vendors, agreed to a payment
plan totalling $300 with EMC Corporation, payable as one initial
payment of $100, with the balance payable in equal monthly instalments
over one year. EMC had demanded an amount equal to $1,500 CAD with
which amount the Company did not agree. This matter has now been
resolved.
NOTE 7 - 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 and a
deficit in stockholders' equity. These items raise significant doubt
about its ability to continue as a going concern.
Subsequent to December 31, 2002 the Company has taken significant steps
to deal with these concerns as follows:
1. It 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.
2. It is now focussed primarily on supporting its existing client
base with improved services and product offerings currently being
developed.
3. It has obtained further finance for its investments in
infrastructure and working capital.
4. It has taken steps to reduce its legal exposure through reaching
considered settlements on several material business threatening
legal matters.
Management is of the view that sufficient resources and appropriate
controls are now in place to allow the business strategies to be
developed with a view to returning the Company to profitability and
that there is a reasonable expectation that the Company will be able to
continue in business for the foreseeable future.
15