________________________________________________________________________________
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 July 29, 2005
WORLD GAMING PLC
----------------------------------------
(Exact Name as Specified in its Charter)
N/A
----------------------------------
(Translation of Registrant's Name)
Jasmine Court
Friars Hill Road
St. Johns, Antigua
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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
----- -----
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 and six month periods
ended June 30, 2005, 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: July 29, 2005
WORLD GAMING PLC
By: /s/ David James Naismith
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Name: David James Naismith
------------------------
Title: CFO
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EXHIBIT INDEX
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Exhibit Description of Exhibit
- ------- ----------------------
1 Unaudited consolidated financial statements at and for the
three and six month periods ended June 30, 2005, and related
Management's Discussion and Analysis of Financial Condition
and Results of Operations
EXHIBIT 1
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 risks 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
(Dollars 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
and joint venture arrangements, is a developer, licensor and supplier of online
gaming products, including casino, sportsbook and pari-mutuel betting.
Interactive Systems Inc., a wholly-owned subsidiary of the Company incorporated
and operating out of Antigua, licenses gaming software to third parties for an
initial licensing fee and monthly royalties. In addition, Interactive Systems
Inc. provides hosting and other systems administrative services to its
licensees. WG Interactive Inc., a wholly-owned subsidiary of the Company,
incorporated and operating out of British Columbia, Canada, provides further
administrative services on behalf of Interactive Systems Inc. such as
development support.
The following tables set out selected consolidated information from the
statements of operations for the three and six months ended June 30, 2005 and
June 30, 2004 and the balance sheets as at June 30, 2005 and at December 31,
2004:
SELECTED STATEMENT OF OPERATIONS INFORMATION
(UNAUDITED)
For the three months ended For the six months ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-------- -------- -------- --------
Net Sales .................. $2,165 $4,148 $4,800 $9,512
Gross Profit ............... 1,487 3,967 3,361 8,832
Expenses including interest
and depreciation .......... 1,181 2,283 2,220 5,173
Net Income/(Loss) .......... 328 1,684 1,163 3,672
SELECTED BALANCE SHEET INFORMATION
June 30, 2005 December 31, 2004
(unaudited)
------------- -----------------
Working Capital .......................... $ 19,931 $ 14,866
Total Assets ............................. 24,642 23,379
Total loans and capital lease obligations - -
Accumulated Deficit ...................... (5,190) (6,354)
Total Shareholders' Equity ............... 20,677 16,028
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(Dollars in thousands of US dollars, except per share data)
Total revenues for the quarter ended June 30, 2005 decreased by 47.8% or $1,983
to $2,165 compared to $4,148 for the same period last year. For the six months
ended June 30, 2005 total revenues decreased $4,712 or 49.5% to $4,800 compared
to $9,512 for the same period last year. The decrease in total revenues is
wholly attributable to the Sportingbet Transaction effective October 1, 2004
where in return for certain consideration and other arrangements, the Company no
longer charges royalties to Sportingbet for use of the Software (see
"Sportingbet Transaction" below). Revenue from continuing and new licensees
increased by 55.5% or $546 to $1,530 for the quarter ended June 30, 2005 when
compared to $984 for the same period last year. For the six months ended June
30, 2005 revenue from these licensees increased 54.7% or $1,248 to $3,530 when
compared to $2,282 for the same period last year.
Key financial aspects of the Sportingbet Transaction having a material effect
for comparative purposes are described below:
o The Company no longer charges royalties to Sportingbet, which
represented 76% and 72% of total revenue for the quarter and six months
ended June 30, 2004 respectively;
o The Company charges Sportingbet hosting fees on a cost plus 10% basis
for its share of usage of the Company's hosting facilities, which
generated revenues of $635 for the quarter ended June 30, 2005 and
$1,270 in the six months ended June 30, 2005. These hosting fees were
not charged to Sportingbet during the corresponding periods in 2004;
o All software development costs previously incurred by the Company are
paid by Sportingbet which on average equalled approximately $1,200 per
quarter in 2004;
o The Company received certain cash and other consideration under the
Sportingbet Transaction described below.
Net income from operations for the quarter ended June 30, 2005 decreased by
80.5% to $328 or $0.01 per participating ordinary share compared to net income
of $1,684 or $0.04 per participating ordinary share for the same period last
year. For the six months ended June 30, 2005, net income from operations
decreased by 68.3% to $1,163 or $0.03 per participating ordinary share compared
to net income of $3,672 or $0.08 per participating ordinary share for the same
period last year. Participating ordinary shares include those shares that have
voting and economic rights and exclude those shares held by Sportingbet in
accordance with the transaction effective October 1, 2004 described below.
Royalty revenue from software licensing decreased 63.1% or $2,618 to $1,530 for
the quarter ended June 30, 2005 compared to $4,148 for the same period last
year. For the six months ended June 30, 2005 royalty revenue decreased 61.2% or
$5,559 to $3,530 compared to $9,089 for the same period last year. Excluding
royalties from Sportingbet, revenue from continuing and new licensees grew 55.5%
or $546 for the quarter ended June 30, 2005 and 54.7% or $1,248 for the six
months ended June 30, 2005 when compared to the same period last year. Pursuant
to the Sportingbet Transaction described below, the Company received hosting
revenues from Sportingbet and Sportingbet funded all software development costs
thus reducing operating costs by 44.0% in the quarter and 55.0% in the six
months ended June 30, 2005 as described below.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(Dollars in thousands of US dollars, except per share data)
Pursuant to terms of the Sportingbet Transaction, the Company received hosting
revenue from Sportingbet of $635 in the quarter ended June 30, 2005 compared to
$nil in the same quarter last year. The hosting revenue is charged on a
percentage of usage basis plus a 10% mark-up for Sportingbet's usage of the
Company's hosting facilities.
In February 2004, the Company closed its transaction processing and customer
service divisions migrating licensees that utilized these services to a third
party supplier. For comparative purposes, $423 of transaction processing fee
revenue was included in total revenues for the six months ended June 30, 2004
compared to $nil in the quarter and six months ended June 30, 2005. Direct costs
associated with this division exceeded fee revenue in every quarter up to the
date of its closure.
For the three months ended June 30, 2005, total gross wagering volumes handled
by the Company's hosting facility increased 33.3% to $1.6 billion when compared
to $1.2 billion in the three months ended June 30, 2004. For the six months
ended June 30, 2005 gross wagering volume increased to $3.6 billion up 38.5%
from $2.6 billion for the same period last year. Growth in wagering volume from
continuing licensees, excluding Sportingbet, was 69.3% for the quarter and 69.8%
for the six months ended June 30, 2005. Management believes that the growth in
wagering volume is attributable to a continued expansion of the market for
internet gaming. In addition, this growth is partially attributable to increased
reliability of the Company's product suite as a result of infrastructure and
support services upgrades. Overall net win experienced by licensees during the
quarter and six months ended June 30, 2005 was consistent with the same period
last year. (Net win for the Company's licensees is the difference between the
amount wagered (bet placed) by a customer and the amount paid back to (won by)
that customer).
The gross margin for the quarter ended June 30, 2005 was 68.7% compared to 95.6%
for the same period last year. For the six months ended June 30, 2005 gross
margin was 70.0% compared to 92.9% for the same period last year. The decrease
resulted from a change in accounting policy as of January 1, 2005 to treat all
hosting costs as direct costs of sales. During the three months and six months
ended June 30, 2004, such direct costs only consisted of certain hosting costs
and direct costs associated with transaction processing. Applying this change in
accounting policy to the three months and six months ended June 30, 2004,
approximately $380 and $780 respectively would be re-allocated from operating
expenses to direct cost of sales.
Operating expenses including interest and depreciation decreased 48.3% to $1,181
during the quarter ended June 30, 2005 compared to $2,283 for the same period
last year.
The decrease occurred primarily due to the following:
o Development costs being funded by Sportingbet as result of the
Transaction described below, effective October 1, 2004 which
represented approximately $700 of operating costs in the quarter ended
June 30, 2004.
o Re-allocation of all hosting costs to direct cost of sales which would
have otherwise attributed to approximately $380 of operating costs in
the quarter ended June 30, 2005.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(Dollars in thousands of US dollars, except per share data)
o Depreciation charges during the quarter ended June 30, 2005 declined
$174 or 49.1% when compared to the same period last year.
Operating expenses including interest and depreciation in the six months to June
30, 2005 decreased 57.1% to $2,220 compared to $5,173 for the same period last
year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2005, the Company had $16,527 in cash and cash equivalents up from
$7,944 at December 31, 2004. The increase in the six months was primarily due to
net income earned in the period, the receipt of the second installment of
consideration of $3,000 from Sportingbet and the Company's admission to the
Alternative Investment Market ("AIM") of the London Stock Exchange where it
raised 2,499 Great British Pounds ("GBP") (or approximately $4,500) from the
placement of 4,760,000 ordinary shares at a placement price of 0.525 GBP on May
17, 2005. Associated costs were 515 GBP contributing net proceeds of 1,984 GBP.
Professional costs paid from proceeds raised includes fees paid to Daniel
Stewart & Co., the Company's nominated advisor in the United Kingdom, of 306 GBP
including commissions and advisory costs.
Working capital at June 30, 2005 improved to $19,931 from $14,866 at December
31, 2004.
Consistent with the Company's accounting policies, reserves and deposits held by
credit card processors on behalf of our licensees were written off the Company's
balance sheet in the first quarter of 2005. At December 31, 2004 the Company
held as a receivable from transaction processors $2,234. These amounts relate to
reserves and other deposits that were receivable on behalf of the Company's
licensees up to the date of closure of its transaction processing division in
February 2004. These funds are held on behalf of licensees and accordingly the
associated payable to the licensees in the same amount has also been written
off.
Accounts receivable decreased by $1,779 from $4,438 at December 31, 2004 to
$2,659 at June 30, 2005. The accounts receivable balance primarily consists of
amounts due to the Company in respect of deposits processed on behalf of
licensees during June 2005. The Company's policy is to collect all funds
processed by the Company's licensees in the previous month within 30 days of
month-end of the preceding month. The Company then collects its royalty from
these funds before distributing to respective licensees. In addition, balances
due from one of our largest licensees were brought current during the six month
period ended June 30, 2005. Royalties due from operating licensees who maintain
their own transaction processing function are usually collected within 30 days
after the date of invoicing those licensees. Prior to closure of the transaction
processing division in February 2004, such amounts would have been disclosed as
amounts due from processors.
Prepaid expenses and deposits decreased by $62 to $282 at June 30, 2005 compared
to $344 at December 31, 2004. The decrease is due to amortisation of prepaid
software maintenance in the six months ended June 30, 2005.
Consideration receivable of $4,000 represents cash payments due from Sportingbet
in respect of the transaction which took effect October 1, 2004. A further
staged payment of $3,000 was received on March 1, 2005 and the balance of $4,000
is receivable no later than November 1, 2005.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(Dollars in thousands of US dollars, except per share data)
Accounts payable and accrued liabilities balances decreased by $3,557 to $3,537
in the six months ended June 30, 2005 compared to $7,094 at December 31, 2004.
The reduction relates to the write off of balances attributable to reserves and
deposits described above of $2,234 and lower amounts receivable in respect of
June 2005 processing net of the Company's royalties due to seasonality of the
business. In addition, amounts managed for jackpot balances of $880 at June 30,
2005 are included in the balance together with general accounts payable. Jackpot
balances are amounts held on behalf of the Company's licensees for its gaming
products utilized on their websites.
Net cash provided by operating activities for the six months ended June 30, 2005
was $1,387 compared to $3,677 for the same period last year. The decrease is
primarily due to lower net income in the six months ended June 30, 2005 and the
removal of receipts from credit card processors in respect of our licensees due
to the closure of this division in February 2004.
Net cash provided by investing activities for the six months ended June 30, 2005
was $2,875 compared to $1,148 used for investing activities for the same period
last year. This increase is primarily represented by second instalment of
consideration received on March 1, 2005 of $3,000 in respect of the Sportingbet
Transaction described below. A further $4,000 is due on November 1, 2005.
Net cash provided by financing activities for the six months ended June 30, 2005
was $4,311 compared to $1,409 used for financing activities for the same period
last year. Cash provided by financing activities was primarily from the issuance
of ordinary shares in respect of share the placing of shares on AIM described
above and options exercised in the period.
"SPORTINGBET TRANSACTION"
(Currency in US dollars)
Joint Venture Arrangements, effective October 1, 2004, were entered into on
October 12, 2004 between the Company and Sportingbet. The principle terms of the
arrangements are as follows:
o The ownership of the intellectual property in the Company's gaming
software including it's gaming product suite ("Gaming Software") was
transferred into a new exempt limited partnership, Bullen Road LP,
based in the Cayman Islands, which was established under the equal
joint ownership of SSII Limited, a wholly owned subsidiary of the
Company and Sportingbet;
o In consideration of this transfer, Sportingbet agreed to pay a total of
$10 million in cash to the Company ($3 million was paid on each of
October 12, 2004 and March 1, 2005 and the balance of $4 million is
payable on or before November 1, 2005). In addition, the economic value
of Sportingbet's then 29.6% shareholding in the Company was eliminated
by the cancellation of all rights of any value attached to the ordinary
shares of the Company then held by Sportingbet, and a convertible loan
note representing indebtedness of $900,000 owing from the Company to
Sportingbet was cancelled;
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(Dollars in thousands of US dollars, except per share data)
o Each of the Company and Sportingbet has the right to appoint two
directors to the four person board of Bullen Road LP which controls the
development objectives of Alea Software Ltd, a wholly owned subsidiary
of Sportingbet and the developer of the Gaming Software under the Joint
Venture Arrangements;
o During the period of the Joint Venture Arrangements, Sportingbet is
responsible for all of Alea's costs associated with the development and
maintenance of the Gaming Software (with a minimum spend of $4.5
million per year in the first 3 years and a minimum of $2.5 million in
the fourth year);
o The Company retains the right to determine 30% of the development time
on the Gaming Software through a development plan devised by the Joint
Venture Board consisting of two members of the Company and two members
from Sportingbet;
o The Company has a worldwide royalty free licence allowing it to
continue to use and sublicence the Gaming Software. In the event that
World Gaming becomes an operator it would pay a 5% royalty only on
those revenues to Sportingbet;
o Sportingbet has a worldwide royalty free licence to use the Gaming
Software. Royalty payments of 5% are due from Sportingbet in the event
that they licence the Gaming Software to any new licencees;
o Sportingbet pays its proportion of the hosting costs on the Company's
systems and information technology (IT) services at cost plus 10%;
o The Joint Venture Arrangements may be terminated by the Company on
three months notice. Except in the event of breach by World Gaming,
Sportingbet may not terminate the Joint Venture Arrangements for three
years. Thereafter, Sportingbet may terminate on 12 months notice to the
Company; and
o On termination of the Joint Venture Arrangements, (a) Sportingbet must
pay $3 million to the Company (which would be retrospectively reduced
by the amount of consideration received by the Company if it sells its
rights to the Gaming Software within 2 years); and (b) each of the
Company and Sportingbet will be granted a perpetual, non-exclusive
royalty free licence to use, sub-licence and assign all of the then
intellectual property rights underlying the improved Gaming Software,
and neither party will have the rights to any further improvements or
developments made by the other party. The additional $3 million payable
to the Company upon termination of the Agreements by Sportingbet has
not been included in the Company's financial statements.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(Dollars in thousands of US dollars, except per share data)
REGULATORY DEVELOPMENTS
The licensees of the Company's software products, and the Company itself, are
subject to applicable laws in various jurisdictions. As companies and consumers
involved in Internet gaming are located around the globe, including the
end-users of our licensees, there is uncertainty regarding exactly which
governments have jurisdiction or authority to regulate or legislate with respect
to various aspects of the industry. The uncertainty surrounding the regulation
of Internet gaming could have a material adverse effect on the Company's
business, revenues, operating results, and financial condition. There is a risk
that criminal and civil proceedings could be initiated in various jurisdictions
against the Company's licensees, or, less likely, even the Company, and such
proceedings could involve substantial litigation expense, penalties, fines,
diversion of the attention of key executives, injunctions or other prohibitions
being invoked against the licensee or the Company. Such proceedings could have a
material adverse effect on the Company's business, revenues, operating results
and financial condition. In addition, as electronic commerce develops further,
it may generally be the subject of government regulation including taxation
which could impact the Company's financial position. Also, current laws that
pre-date or are incompatible with Internet electronic commerce may be enforced
in a manner that restricts the electronic commerce market. Any such developments
could have a material adverse effect on the Company's business, revenues,
operating results and financial condition.
The Company and the industry as a whole are under threat from certain factions
within the U.S. Congress that seek to ban certain Internet gambling. Whilst
legislation has been introduced in both houses of Congress in recent years, no
Internet gambling bills have been introduced in the current session of Congress,
and thus there are no bills pending. There is no way of knowing if and when such
a bill might be introduced, and the Company continues to monitor this situation
since the passage of this legislation could have a substantial impact on the
business of the Company's licensees and ultimately the Company. If Internet
gambling prohibition legislation is introduced and becomes law, it would have an
immediate detrimental effect on the industry and would pose a serious threat to
the Company's continued operations.
In March 2004, the World Trade Organization held in favour of Antigua and
Barbuda and against the United States of America with regard to unlawful trade
restrictions relating to Internet gaming. The United States appealed the finding
and in April 2005, the WTO Appellate Body held that The United States had made a
commitment under the General Agreement on Trade in Services (GATS) to permit
free trade in gambling services, but can restrict such trade to protect public
morals and public order, if it does so in a non-discriminatory manner. However,
the United Interstate Horse Racing Act (IHRA) is discriminatory because it
permits domestic suppliers to accept wagers on horse races but does not permit
foreign suppliers to do so. The United States must remove the discrimination so
foreign suppliers can provide the same services as domestic suppliers. This can
be done either by permitting foreign suppliers to provide services or barring
domestic suppliers from providing services. In either case, World Gaming could
benefit. If the IHRA is amended to permit foreign suppliers to legally accept
wagers on horse racing over the Internet, it can positively impact World Gaming
by allowing it to offer such services to its licensees. If the United States
decides to ban all interstate remote betting on horse races, it could benefit
World Gaming by eliminating the existing domestic competition. There can be no
assurances, however, that the United States will amend the IHRA, or that if it
does so that such amendment will conform to the WTO Appellate Body holding.
8
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands of U.S. Dollars)
ASSETS
------
June 30, December 31,
2005 2004
----------- ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ........................ $ 16,527 $ 7,944
Reserves and deposits with credit card processors - 2,234
Accounts receivable, net ......................... 1,385 587
Accounts receivable from related party ........... 1,274 3,851
Consideration receivable ......................... 4,000 7,000
Prepaid expenses ................................. 282 344
-------- --------
Total Current Assets ........................... 23,468 21,960
Capital Assets, net .............................. 1,174 1,419
-------- --------
TOTAL ASSETS ................................... $ 24,642 $ 23,379
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
9
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(In Thousands of U.S. Dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30, December 31,
2005 2004
----------- ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued liabilities ......... $ 3,537 $ 7,080
Current portion of capital lease obligation ...... - 14
-------- --------
Total Current Liabilities ...................... 3,537 7,094
LONG - TERM LIABILITIES
Deferred provision ............................... 428 257
-------- --------
TOTAL LIABILITIES .................................. 3,965 7,351
-------- --------
STOCKHOLDERS' EQUITY
Capital stock .................................... 27,142 23,654
Accumulated deficit .............................. (5,190) (6,354)
Accumulated other comprehensive loss ............. (1,275) (1,272)
-------- --------
Total Stockholders' Equity ..................... 20,677 16,028
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 24,642 $ 23,379
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
10
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Statements of Operations and Other Comprehensive Income/(Loss)
(In Thousands of U.S. Dollars, except share amounts)
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
REVENUE
Royalties and fees ............... $ 2,165 $ 4,148 $ 4,800 $ 9,435
Other ............................ - - - 77
------------ ------------ ------------ ------------
Total Revenue .................. 2,165 4,148 4,800 9,512
Cost of sales .................... 678 181 1,439 680
------------ ------------ ------------ ------------
Gross Profit ................... 1,487 3,967 3,361 8,832
------------ ------------ ------------ ------------
OPERATING EXPENSES
Development, selling, general,
and administrative .............. 1,082 1,932 1,978 4,398
Depreciation and amortization .... 181 355 370 752
Interest and bank charges ........ (82) (4) (128) 23
------------ ------------ ------------ ------------
Total Operating Expenses ....... 1,181 2,283 2,220 5,173
------------ ------------ ------------ ------------
Net Income/(Loss) From Operations .. 306 1,684 1,141 3,659
------------ ------------ ------------ ------------
OTHER INCOME
Other income ..................... 22 - 22 13
------------ ------------ ------------ ------------
Total Other Income ............. 22 - 22 13
------------ ------------ ------------ ------------
(Loss)/Profit before income taxes .. 328 1,684 1,163 3,672
Income taxes ....................... - - - -
------------ ------------ ------------ ------------
NET INCOME/(LOSS) .................. 328 1,684 1,163 3,672
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE INCOME/(LOSS)
Foreign currency translation ..... 10 (57) (3) 130
------------ ------------ ------------ ------------
Total other comprehensive
(loss)/income ................... 10 (57) (3) 130
------------ ------------ ------------ ------------
Net Comprehensive Income/(Loss) .... $ 338 $ 1,627 $ 1,160 $ 3,802
============ ============ ============ ============
PROFIT PER SHARE - Basic ........... $ 0.01 $ 0.04 $ 0.02 $ 0.08
============ ============ ============ ============
- Excluding non-voting ........... $ 0.01 $ 0.04 $ 0.03 $ 0.08
============ ============ ============ ============
- Fully Diluted ... $ 0.01 $ 0.03 $ 0.02 $ 0.06
============ ============ ============ ============
- Excluding non-voting ........... $ 0.01 $ 0.03 $ 0.03 $ 0.06
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - Basic ........ 47,679,738 45,781,407 47,679,738 45,781,407
============ ============ ============ ============
- Excluding non-voting ........... 34,173,534 45,781,407 34,173,534 45,781,407
============ ============ ============ ============
- Fully Diluted 53,695,109 59,017,790 53,695,109 59,017,790
============ ============ ============ ============
- Excluding non-voting ........... 40,188,905 59,017,790 40,188,905 59,017,790
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
11
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands of U.S. Dollars)
(Unaudited)
For the Six Months Ended
June 30,
-----------------------
2005 2004
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .................................................... $ 328 $ 3,672
Adjustment to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ............................... 370 752
Loss on disposal of fixed assets ............................ - -
Changes in operating assets and liabilities:
(Increase) decrease in reserves with credit card processors . 2,234 2,989
(Increase) decrease in accounts receivable .................. 1,779 (1,604)
(Increase) decrease in prepaid expenses and deposits ........ 62 47
(Increase) decrease in deferred costs ....................... - -
Increase (decrease) in accounts payable and accrued
liabilities ................................................ (3,557) 196
Increase (decrease) in accrual for legal claims ............. - (215)
Increase (decrease) in funds held on deposit ................ - (2,160)
Increase (decrease) in provisions ........................... 171 -
Exchange movements .......................................... - -
-------- --------
Net Cash Provided by Operating Activities ................. 1,387 3,677
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ............................ (125) (1,148)
Consideration received - Sportingbet .......................... 3,000 -
-------- --------
Net Cash Provided by (Used For) Investing Activities ...... 2,875 (1,148)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares, net of costs ......................... 4,325 -
Repayment of loans payable ...................................... - (1,090)
Principal payments on capital lease obligations ................. (14) (319)
-------- --------
Net Cash Provided by (Used for) Financing Activities ...... 4,311 (1,409)
-------- --------
Effects of exchange rate on cash .......................... $ 10 $ 130
-------- --------
The accompanying notes are an integral part of these consolidated financial statements.
12
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(In Thousands of U.S. Dollars)
(Unaudited)
For the Six Months Ended
June 30,
-----------------------
2005 2004
-------- --------
INCREASE/(DECREASE) IN CASH ..................................... $ 8,583 $ 1,250
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................ 7,944 2,657
-------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD ......................... $ 16,527 $ 3,907
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
----------------------------------------------
CASH PAID DURING THE PERIOD FOR
Interest and Bank charges ..................................... $ 128 $ (23)
The accompanying notes are an integral part of these consolidated financial statements.
13
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2005 and December 31, 2004
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements at June 30, 2005 are unaudited for
the purposes of this 6-K filing, 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
thousands of 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 quarter and six months ended June 30, 2005 should be read in
conjunction with the Company's annual report on Form 20-F for the fiscal
year ended December 31, 2004.
NOTE 3 - INCOME TAXES
No income taxes arise as no taxation charges are levied in the main
operating territory and elsewhere as there are losses brought forward from
previous periods.
NOTE 4 - STOCK OPTIONS
On March 12, 1998, the Board of Directors approved a Stock Option Plan
("the 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.
14
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2005 and December 31, 2004
NOTE 4 - STOCK OPTIONS (continued)
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
closing market price on the date of grant, of which 1,475,000 were issued.
All subsequent option issues have been issued in accordance with the Stock
Option Plan at the discretion of the Stock Option Committee, provided that:
1.) the aggregate option grants shall not exceed the maximum allowable
under the Plan, 2.) the exercise price is not less than the market value of
the Company's trading shares on the date of the grant, and 3.) the option
period does not exceed expiry of the Plan date. Options for continuing
directors, employees and consultants expire the sooner of ten years after
the date granted or the expiry date of the Plan.
A summary of the Company's stock option activity and related information
follows:
Six months ended Year ended
June 30, 2005 December 31, 2004
--------------------- ---------------------
Beginning of period ......... 10,934,888 $ 0.63 10,818,724 $ 0.78
Granted ..................... 3,421,904 0.70 2,550,000 0.37
Exercised ................... (650,000) (0.17) (300,000) (0.20)
Forfeited and adjusted ...... (2,757,017) (0.97) (2,133,836) (1.12)
---------- ------ ---------- ------
End of period ............... 10,949,775 $ 0.59 10,934,888 $ 0.63
---------- ------ ---------- ------
In March 2005, a former director of the Company relinquished all rights to
purchase 2,200,000 ordinary shares in the Company that had fully vested.
At June 30, 2005 options outstanding were as follows:
Options Outstanding Options Exercisable
------------------------------------ -----------------------------------
Weighted Weighted
Average Weighted Average Weighted
Remaining Average Remaining Average
Range of Number of Contractual Exercise Number of Contractual Exercise
Exercise Prices Options Life (Years) Price Options Life (Years) Price
- --------------- ---------- ------------ -------- --------- ------------ --------
$0.01 - $0.50 7,015,000 5.4 $ 0.24 4,990,000 5.2 $ 0.23
$0.51 - $1.00 2,816,904 5.8 $ 0.77 110,000 4.1 $ 0.60
$1.01 - $3.00 788,454 2.7 $ 1.91 763,454 2.6 $ 1.92
$3.01 - $8.50 329,417 4.3 $ 3.27 329,417 4.3 $ 3.27
- --------------- ---------- ------------ -------- --------- ------------ --------
$0.01 - $8.50 10,949,775 5.3 $ 0.59 6,192,871 4.6 $ 0.61
- --------------- ---------- ------------ -------- --------- ------------ --------
15
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2005 and December 31, 2004
NOTE 5 - COMMITMENTS AND CONTINGENCIES
At June 30, 2005, the Company had employment contracts with its three
principal officers. The salary and bonus compensation resulting from these
contracts are as follows:
Potential Bonus
Name and Term of the Base (as a percentage
Principal Position Contract Salary of Base Salary)
------------------- ----------- ------- ----------------
A. Daniel Moran, ongoing GBP 159 Up to 50%
Director & CEO
David Naismith, ongoing GBP 129 Up to 50%
Director & CFO
Jonathan Moss ongoing GBP 100 Up to 50%
Director of Sales
and Marketing
On April 11, 2003 the Company entered into an employment agreement with Mr.
Daniel Moran as a Director on the Board of Directors and Chief Executive
Officer. The agreement provides for an annual salary of GBP 159, an annual
housing allowance of $72, in addition to other normal executive employment
benefits.
On August 1, 2003 the Company entered into an employment agreement with Mr.
David Naismith as a Director on the Board of Directors and Chief Financial
Officer. The agreement provides for an annual salary of GBP 129, an annual
housing allowance of $48, in addition to other normal executive employment
benefits.
On January 1, 2005 the Company entered into an employment agreement with
Mr. Jonathan Moss as Director of Sales and Marketing. The agreement
provides for an annual salary of GBP 100 in addition to other normal
executive employment benefits. On March 1 2005, Mr. Moss was appointed a
Director on the Board of Directors. No change in Mr. Moss's remuneration
occurred as a result of this appointment.
16