________________________________________________________________________________
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 17, 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
---------------------------------------------------
(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 nine month periods
ended September 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: November 17, 2005
WORLD GAMING PLC
By: /s/ David James Naismith
------------------------
Name: David James Naismith
------------------------
Title: CFO
------------------------
EXHIBIT INDEX
-------------
Exhibit Description of Exhibit
- ------- ----------------------
1 Unaudited consolidated financial statements at and for the
three and nine month periods ended September 30, 2005, and
related Management's Discussion and Analysis of Financial
Condition and Results of Operations
EXHIBIT 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 nine months ended September 30, 2005
and September 30, 2004 and the balance sheets as at September 30, 2005 and at
December 31, 2004:
SELECTED STATEMENT OF OPERATIONS INFORMATION
(UNAUDITED)
For the three For the nine
months ended months ended
----------------------- -----------------------
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
--------- --------- --------- ---------
Net Sales ................... $ 2,529 $ 4,038 $ 7,328 $13,550
Gross Profit ................ 1,871 3,838 5,298 12,760
Expenses including interest
and depreciation ........... 886 2,692 3,189 7,865
Net Income/(Loss) ........... 979 1,146 2,142 4,818
SELECTED BALANCE SHEET INFORMATION
September 30, 2005 December 31, 2004
(unaudited)
------------------ -----------------
Working Capital ......................... $ 20,929 $ 14,866
Total Assets ............................ 27,108 23,379
Total loans and capital lease obligations - -
Accumulated Deficit ..................... (4,212) (6,354)
Total Stockholders' Equity .............. 21,818 16,028
The accompanying notes are an integral part of
these consolidated financial statements.
1
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 September 30, 2005 decreased by 37.4% or
$1,509 to $2,529 compared to $4,038 for the same period last year. For the nine
months ended September 30, 2005 total revenues decreased $6,222 or 45.9% to
$7,328 compared to $13,550 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 plc ("Sportingbet") for use
of the Software (see "Sportingbet Transaction" below).
Royalty revenue from continuing and new licensees increased by 56.6% or $684 to
$1,893 for the quarter ended September 30, 2005 when compared to $1,209 for the
same period last year. For the nine months ended September 30, 2005 revenue from
these licensees increased 59.5% or $2,023 to $5,422 when compared to $3,399 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. For comparative
purposes, in the three and nine months to September 30, 2004, Sportingbet
represented 70.0% and 71.6% of total revenue 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 $636 for the quarter ended September 30, 2005 and $1,906 in
the nine months ended September 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 $1,100 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 September 30, 2005 decreased by
14.6% to $979 or $0.03 per participating ordinary share compared to net income
of $1,146 or $0.03 per participating ordinary share for the same period last
year. For the nine months ended September 30, 2005, net income from operations
decreased by $2,676 to $2,142 or $0.06 per participating ordinary share compared
to net income of $4,818 or $0.11 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 $2,145 to $1,893 for the
quarter ended September 30, 2005 compared to $4,038 for the same period last
year. For the nine months ended September 30, 2005 royalty revenue decreased
$7,628 to $5,422 compared to $13,050 for the same period last year. Excluding
royalties from Sportingbet, revenue from continuing and new licensees grew 56.6%
or $684 for the quarter ended September 30, 2005 and 59.5% or $2,023 for the
nine months ended September 30, 2005 when compared to the same period last year.
The accompanying notes are an integral part of
these consolidated financial statements.
2
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 $636 in the quarter ended September 30, 2005
compared to $nil in the same quarter last year, for the nine months ended
September 30 2005, hosting revenue was $1,906 compared to $nil for the same
period 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 nine months ended September 30,
2004 compared to $nil in the quarter and nine months ended September 30, 2005.
Direct costs associated with this division exceeded fee revenue in every quarter
up to the date of its closure.
The gross margin for the quarter ended September 30, 2005 was 74.0% compared to
95.0% for the same period last year. For the nine months ended September 30,
2005 gross margin was 72.3% compared to 93.5% 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
nine months ended September 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 nine months
ended September 30, 2004, approximately $450 and $1,230 respectively would be
re-allocated from operating expenses to direct cost of sales.
Operating expenses including interest and depreciation decreased 67.1% to $886
during the quarter ended September 30, 2005 compared to $2,692 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
$950 of operating costs in the quarter ended September 30, 2004.
o Re-allocation of all hosting costs to direct cost of sales which would
have otherwise attributed to approximately $450 of operating costs in the
quarter ended September 30, 2005.
o Depreciation charges during the quarter ended September 30, 2005 declined
$169 or 45.4% when compared to the same period last year.
Operating expenses including interest and depreciation in the nine months to
September 30, 2005 decreased 59.4% to $3,189 compared to $7,865 for the same
period last year.
The accompanying notes are an integral part of
these consolidated financial statements.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(Dollars in thousands of US dollars, except per share data)
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005, the Company had $16,596 in cash and cash equivalents up
from $7,944 at December 31, 2004. The increase in the nine months was primarily
due to net income earned in the period, the receipt of the second instalment 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 2,499,000 Great British Pounds ("GBP") 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 September 30, 2005 improved to $20,929 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 increased by $67 from $4,438 at December 31, 2004 to $4,505
at September 30, 2005. The accounts receivable balance primarily consists of
amounts due to the Company in respect of deposits processed on behalf of
licensees during September 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 nine month
period ended September 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 increased by $47 to $391 at September 30, 2005
compared to $344 at December 31, 2004. The increase is due to additional amounts
paid for of prepaid software maintenance in the nine months ended September 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
was received on November 2, 2005.
The accompanying notes are an integral part of
these consolidated financial statements.
4
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 $2,328 to $4,766
in the nine months ended September 30, 2005 compared to $7,094 at December 31,
2004. The reduction relates primarily to the write off of balances attributable
to reserves and deposits described above of $2,234. In addition, amounts managed
for jackpot balances of $553 at September 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 nine months ended September
30, 2005 was $2,584 compared to $4,311 for the same period last year. The
decrease is primarily due to lower net income in the nine months ended September
30, 2005 when compared to the same period last year due to the Sportingbet
Transaction 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 nine months ended September
30, 2005 was $2,434 compared to $1,050 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 final instalment of
consideration of $4,000 was received on November 1, 2005.
Net cash provided by financing activities for the nine months ended September
30, 2005 was $3,637 compared to $1,755 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.
SUBSEQUENT EVENTS
On October 25, 2005 the Group announced that it had entered into a conditional
agreement to acquire certain assets of Real Entertainment Ltd. And the entire
issued capital of DNI Holdings Ltd. (together the "SPORTSBETTING.COM Group"),
which is the Group's largest licensee.
The Acquisition contemplates the Group making a payment to the Vendors of the
SPORTSBETTING.COM GROUP of up to $96 million payable 75 percent in cash and 25
percent in ordinary shares of the Company. At completion of the Acquisition, $54
million will be paid in cash to the Vendors. Up to a further $42 million of both
cash and ordinary shares of the Company will be paid to the Vendors on
prescribed dates in 2006 depending upon the financial performance of the
SPORTSBETTING.COM Group. The cash component of the payment is being financed by:
(i) the proceeds of a Placing, (ii) Debt Facilities and (iii) existing capital
resources. The Placing consists of up to 5,600,000 million placing shares
raising up to (pound)7 million before expenses. With respect to the Debt
Facilities, the Company is conditionally arranging a term loan of $40 million
and a revolving credit facility of up to $10 million. Both the Placing and he
Debt Facilities will be conditional on admission.
The accompanying notes are an integral part of
these consolidated financial statements.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(Dollars in thousands of US dollars, except per share data)
The transaction has an effective date of October 1, 2005. The effective date,
which is earlier than the expected completion date will be the date from which
all revenues and costs from the Acquisition will accrue to the Group. The
SPORTSBETTING.COM Group is to be acquired on a cash-free, debt-free basis as at
the effective date.
Full details of the transaction have been mailed to shareholders in the
Admission Document.
SHAREHOLDERS ARE URGED TO READ THE ADMISSION DOCUMENT IN ITS ENTIRETY BECAUSE IT
CONTAINS IMPORTANT INFORMATION.
"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 was paid on
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;
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;
The accompanying notes are an integral part of
these consolidated financial statements.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(Dollars in thousands of US dollars, except per share data)
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.
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 accompanying notes are an integral part of
these consolidated 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)
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 November 2004, the World Trade Organisation ("WTO") found that the US was in
violation of its commitments under international trade rules by not allowing
operators of Internet Gaming services licensed in Antigua and Barbuda to access
US markets. The decision was appealed and, in April 2005, the WTO ruled that the
US had shown that its laws prohibiting gambling are "necessary to protect public
morals or maintain public order" but had failed to demonstrate, in light of its
laws in respect of on-line gambling on horseracing, that such prohibitions are
applied equally to both foreign and domestic providers of on-line gambling
services for horseracing. Consequently, the WTO recommended that the US bring
its legislation into conformity with its obligations under international trade
rules. Pursuant to the report of the arbitrator circulated in August 2005
initiated by Antigua and Barbuda, the US has been given until 3 April 2006 to
clarify its policies on Internet gambling and the purported extraterritorial
application of its laws.
It remains to be seen what legislative proposals will be adopted in the US in
relation to Internet gambling and whether this will lead to a change in US
Internet Gaming policy.
The accompanying notes are an integral part of
these consolidated financial statements.
8
WORLD GAMING PLC AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands of U.S. Dollars)
ASSETS
------
September 30, December 31,
2005 2004
------------- ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ....................... $ 16,596 $ 7,944
Reserves and deposits with credit card processors - 2,234
Accounts receivable, net ........................ 374 587
Accounts receivable from related party .......... 4,131 3,851
Consideration receivable ........................ 4,000 7,000
Prepaid expenses ................................ 391 344
Deferred costs .................................. 203 -
-------- --------
Total Current Assets .......................... 25,695 21,960
Capital Assets, net ............................. 1,413 1,419
-------- --------
TOTAL ASSETS .................................. $ 27,108 $ 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
------------------------------------
September 30, December 31,
2005 2004
------------- ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued liabilities ........ $ 4,766 $ 7,080
Current portion of capital lease obligation ..... - 14
-------- --------
Total Current Liabilities ..................... 4,766 7,094
LONG-TERM LIABILITIES
Deferred provision .............................. 524 257
-------- --------
TOTAL LIABILITIES .................................. 5,290 7,351
-------- --------
STOCKHOLDERS' EQUITY
Capital stock ................................... 27,305 23,654
Accumulated deficit ............................. (4,212) (6,354)
Accumulated other comprehensive loss ............ (1,275) (1,272)
-------- --------
Total Stockholders' Equity .................... 21,818 16,028
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $ 27,108 $ 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 Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
REVENUE
Royalties and fees ...................... $ 2,529 $ 4,038 $ 7,328 $ 13,473
Other ................................... - - - 77
------------ ------------ ------------ ------------
Total Revenue ......................... 2,529 4,038 7,328 13,550
Cost of sales ........................... 658 200 2,030 880
------------ ------------ ------------ ------------
Gross Profit .......................... 1,871 3,838 5,298 12,670
------------ ------------ ------------ ------------
OPERATING EXPENSES
Development, selling, general,
and administrative ...................... 787 2,358 2,849 6,756
Depreciation and amortization ........... 203 372 572 1,124
Interest and bank charges ............... (104) (38) (232) (15)
------------ ------------ ------------ ------------
Total Operating Expenses .............. 886 2,692 3,189 7,865
------------ ------------ ------------ ------------
Net Income/(Loss) From Operations .......... 985 1,146 2,109 4,805
------------ ------------ ------------ ------------
OTHER INCOME
Other income .......................... (6) - 33 13
------------ ------------ ------------ ------------
Total Other Income .................... (6) - 33 13
------------ ------------ ------------ ------------
(Loss)/Profit before income taxes .......... 979 1,146 2,142 4,818
Income taxes ............................... - - - -
------------ ------------ ------------ ------------
NET INCOME/(LOSS) .......................... 979 1,146 2,142 4,818
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE INCOME/(LOSS)
Foreign currency translation .......... 10 6 (3) 136
------------ ------------ ------------ ------------
Total other comprehensive (loss)/income 10 6 (3) 136
------------ ------------ ------------ ------------
Net Comprehensive Income/(Loss) ............ $ 989 $ 1,152 $ 2,139 $ 4,954
============ ============ ============ ============
PROFIT PER SHARE - Basic ................... $ 0.02 $ 0.03 $ 0.04 $ 0.11
============ ============ ============ ============
- Excluding non-voting ................ $ 0.03 $ 0.03 $ 0.06 $ 0.11
============ ============ ============ ============
- Fully Diluted ........... $ 0.02 $ 0.02 $ 0.04 $ 0.08
============ ============ ============ ============
- Excluding non-voting ................ $ 0.02 $ 0.02 $ 0.05 $ 0.08
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - Basic ................ 49,049,409 45,857,023 49,049,409 45,927,708
============ ============ ============ ============
- Excluding non-voting ................ 35,543,205 45,857,023 35,543,205 45,927,708
============ ============ ============ ============
- Fully Diluted ........ 55,065,131 60,045,390 55,065,131 60,045,390
============ ============ ============ ============
- Excluding non-voting ................ 41,558,927 60,045,390 41,558,927 60,045,390
============ ============ ============ ============
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 Nine Months Ended
September 30,
-------------------------
2005 2004
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .......................................... $ 2,142 $ 4,818
Adjustment to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ..................... 572 1,124
Loss on disposal of fixed assets .................. - -
Changes in operating assets and liabilities:
(Increase) decrease in reserves with credit card
processors ....................................... 2,234 3,116
(Increase) decrease in accounts receivable ........ (67) (1,828)
(Increase) decrease in prepaid expenses and
deposits ......................................... (47) (762)
(Increase) decrease in deferred costs ............. (203) -
Increase (decrease) in accounts payable and accrued
liabilities ...................................... (2,314) 18
Increase (decrease) in accrual for legal claims ... - (15)
Increase (decrease) in funds held on deposit ...... - (2,160)
Increase (decrease) in provisions ................. 267 -
Exchange movements ................................ - -
------- -------
Net Cash Provided by Operating Activities ....... 2,584 4,311
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment .................. (566) (1,050)
Consideration received - Sportingbet ................ 3,000 -
------- -------
Net Cash Provided by (Used For) Investing
Activities ..................................... 2,434 (1,050)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares, net of costs ............... 3,651 62
Repayment of loans payable ............................ - (1,238)
Principal payments on capital lease obligations ....... (14) (579)
------- -------
Net Cash Provided by (Used for) Financing
Activities ..................................... 3,637 (1,755)
------- -------
Effects of exchange rate on cash ................ $ (2) $ 136
------- -------
INCREASE/(DECREASE) IN CASH $ 8,653 $ 1,642
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,944 2,657
------- -------
CASH AND CASH EQUIVALENTS END OF PERIOD $16,597 $ 4,299
======= =======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
----------------------------------------------
CASH PAID DURING THE PERIOD FOR
Interest and Bank charges $ 232 $ (15)
The accompanying notes are an integral part of
these consolidated financial statements.
12
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
September 30, 2005 and December 31, 2004
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements at September 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 nine months ended September 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.
13
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
September 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:
Nine months ended Year ended
September 30, 2005 December 31, 2004
--------------------- ---------------------
Beginning of period ........ 10,934,888 $ 0.63 10,818,724 $ 0.78
Granted .................... 3,566,904 0.75 2,550,000 0.37
Exercised .................. (1,380,000) 0.32 (300,000) (0.20)
Forfeited and adjusted ..... (2,809,917) 1.00 (2,133,836) (1.12)
---------- ------ ---------- ------
End of period .............. 10,311,875 $ 1.24 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 September 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 6,265,000 5.0 $ 0.25 5,290,000 5.0 $ 0.23
$0.51 - $1.00 2,851,904 5.5 $ 0.77 110,000 3.8 $ 0.60
$1.01 - $3.00 881,554 3.0 $ 1.97 711,554 2.4 $ 1.95
$3.01 - $8.50 288,417 4.6 $ 3.29 288,417 4.6 $ 3.29
- --------------- ---------- ------------ -------- --------- ------------ --------
$0.01 - $8.50 10,286,875 4.9 $ 0.63 6,399,971 4.4 $ 0.57
- --------------- ---------- ------------ -------- --------- ------------ --------
14
WORLD GAMING PLC AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
September 30, 2005 and December 31, 2004
NOTE 5 - COMMITMENTS AND CONTINGENCIES
At September 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.
15
U.S. SECURITIES ACT NOTICE
The ordinary shares to be issued in connection with the Company's proposed
acquisition transaction or the related equity offering have not been and will
not be registered under the U.S. Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered or sold in the United States or to, or
for the account or benefit of, a U.S. person (as such term is defined in
Regulations S under the Securities Act) absent registration or an applicable
exemption from registration under the Securities Act.
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.
16