UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission File Number: 0-27256
ONLINE GAMING SYSTEMS, LTD.
---------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3858917
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
c/o Advanced Resources Group, LTD, 5 Erie Street, Garfield, NJ 07026
--------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone no., including area code: (973) 253-6131
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [ ] NO [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). YES [ ] NO [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding as of June 26, 2006
----- -------------------------------
Common Stock, $.001 par value 97,315,953
TABLE OF CONTENTS
Heading PART I. FINANCIAL INFORMATION Page
Item 1 Financial Statements .............................................. 2
Consolidated Balance Sheet-June 30, 2003 (Unaudited) .............. 3
Consolidated Statement of Operations-Six Months Ended June 30,
2003(Unaudited) ................................................... 4
Consolidated Statement of Operations-Three Months Ended June 30,
2003(Unaudited) ................................................... 5
Consolidated Statement of Cash Flows-Six Months Ended June 30,
2003(Unaudited)
Notes to Consolidated Financial Statements (Unaudited) ............ 7-9
Item 2 Management's Discussion and Analysis or Plan of Operation ......... 10
Item 3 Controls and Procedures............................................ 11
PART II. OTHER INFORMATION
Item 1 Legal Proceedings ................................................. 12
Item 2 Unregisterd Sales of Equity Securities and Use of Proceeds......... 12
Item 3 Defaults Upon Senior Securities ................................... 12
Item 4 Submission of Matters to a Vote of Securities Holders ............. 12
Item 5 Other Information ................................................. 12
Item 6 Exhibits .......................................................... 12
Signatures ............................................................... 13
PART I
Item 1. Financial Statements
The following unaudited financial Statements for the six-month periods ended
June 30, 2003 and 2002 have been prepared by Online Gaming Systems, Ltd. (the
"Company") and Subsidiary.
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARY
Financial Statements
June 30, 2003
Page 2 of 13
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS:
CURRENT ASSETS:
Cash $ -- $ 8,916
Other Current Assets
-- 21,321
------------ ------------
TOTAL CURRENT ASSETS -- 30,237
------------ ------------
PROPERTY AND EQUIPMENT-Net -- 55,023
------------ ------------
OTHER ASSETS
Deposit -- 18,016
Intangible Assets-Net -- 323,565
------------ ------------
TOTAL ASSETS $ -- $ 426,841
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Cash Overdraft $ -- $ 18,989
Accounts Payable and Accrued Expenses 304,276 366,903
Accrued Interest-Related Party 1,719,496 1,323,878
Advances - Related Party 142,529 187,653
Convertible Notes Payable - Related Party 2,474,907 5,074,907
------------ ------------
TOTAL CURRENT LIABILITIES 4,641,208 6,972,330
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' (DEFICIT):
Convertible Preferred Stock-Par Value $.001 Per Share;
Authorized 10,000,000 Shares, None Issued and Outstanding -- --
Common Stock-Par value $.001 Per Share;
Authorized 200,000,000 Shares, Issued and outstanding-
97,315,953 Shares at June 30, 2003 97,316 96,416
Additional Paid-in Capital 18,764,076 18,710,976
Treasury Stock,1,125,012 Common Shares-At Cost (1,730,485) (1,730,485)
Accumulated (Deficit) (21,772,116) (23,622,396)
------------ ------------
TOTAL STOCKHOLDERS' (DEFICIT) (4,641,208) (6,545,489)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ -- $ 426,841
============ ============
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
Page 3 of 13
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
----------------------------
2003 2002
------------ ------------
REVENUE
Related Party $ -- $ 250,000
Other 146,780 290,233
------------ ------------
TOTAL REVENUE $ 146,780 $ 540,233
COST OF SALES -- --
------------ ------------
GROSS PROFIT 146,780 540,233
OPERATING EXPENSES:
General and Administrative 398,313 1,192,958
Depreciation and Amortization 92,342 174,095
------------ ------------
TOTAL OPERATING EXPENSES 490,655 1,367,053
------------ ------------
[LOSS] FROM OPERATIONS (343,875) (826,820)
------------ ------------
OTHER [EXPENSES] INCOME:
Interest Expense-Related Party (395,618) (254,608)
Interest Expense -- (2,643)
Settlement of debt -- --
Other Income [Expense] 2,589,774 1,796
------------ ------------
OTHER [EXPENSES] INCOME - NET 2,194,156 (255,455)
------------ ------------
INCOME(LOSS) FROM OPERATIONS BEFORE
INCOME TAX [BENEFIT] EXPENSE 1,850,281 (1,082,275)
INCOME TAX [BENEFIT] EXPENSE -- --
------------ ------------
NET INCOME (LOSS) $ 1,850,281 $ (1.082,275)
============ ============
BASIC AND DILUTED NET [LOSS]
PER SHARE OF COMMON STOCK $ .02 $ (.01)
WEIGHTED AVERAGE SHARES OF COMMON
STOCK OUTSTANDING-BASIC AND DILUTED 96,652,698 95,231,370
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 4 of 13
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30,
------------------------------
2003 2002
------------ ------------
REVENUE
Related Party $ -- $ 250,000
Other 118,744 225,259
------------ ------------
TOTAL REVENUE $ 118,744 $ 475,259
COST OF SALES -- --
------------ ------------
GROSS PROFIT 118,744 475,259
OPERATING EXPENSES:
General and Administrative 164,412 389,601
Depreciation and Amortization 46,171 87,686
------------ ------------
TOTAL OPERATING EXPENSES 210,583 477,287
------------ ------------
INCOME[LOSS] FROM OPERATIONS (91,839) (2,028)
------------ ------------
OTHER [EXPENSES] INCOME:
Interest Expense-Related Party (197,809) (131,547)
Interest Expense -- (2,039)
Settlement of debt -- --
Other Income [Expense] 2,589,774 --
------------ ------------
OTHER [EXPENSES] INCOME - NET 2,391,965 (133,586)
------------ ------------
INCOME[LOSS] FROM OPERATIONS BEFORE
INCOME TAX [BENEFIT] EXPENSE 2,300,126 (135,614)
INCOME TAX [BENEFIT] EXPENSE -- --
------------ ------------
NET INCOME [LOSS] 2,300,126 (135,614)
============ ============
BASIC AND DILUTED NET [LOSS]
PER SHARE OF COMMON STOCK $ 0.02 $ (.00)
WEIGHTED AVERAGE SHARES OF COMMON
STOCK OUTSTANDING-BASIC AND DILUTED 97,052,698 95,635,953
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 5 of 13
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
--------------------------
2003 2002
----------- -----------
OPERATING ACTIVITIES:
[Loss] from Operations $ 1,850,281 $(1,082,275)
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 92,342 174,095
Exchange of assets for cancellation of indebtedness (2,659,188) --
Issuance of common stock for cancellation of indebtedness 54,000 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Note Receivable -- (125,000)
Other Assets 3,707 5,674
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (38,904) (118,823)
Accrued Interest - Related Party 395,618 234,094
----------- -----------
NET CASH - OPERATING ACTIVITIES: (309,558) (912,235)
----------- -----------
INVESTING ACTIVITIES:
Purchase of Patents and Licenses -- --
Purchase of Property, Equipment, and Capitalized Software (35,245) (74,500)
----------- -----------
NET CASH - INVESTING ACTIVITIES (35,245) (74,500)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock -- 4,910
Proceeds from Sale of Treasury Stock -- --
Increase (Decrease) in Loan Payable to Officer -- --
Proceeds from Note Payable -- 25,000
Proceeds from Convertible Note Payable - Related Party 400,000 1,150,000
Repayment of Convertible Note Payable - Related Party -- --
Repayments of Note Payable -- (2,500)
Repayments of Lease Payable -- (23,396)
----------- -----------
NET CASH - FINANCING ACTIVITIES 354,876 904,014
----------- -----------
[DECREASE] INCREASE IN CASH AND CASH EQUIVALENTS 10,073 (82,721)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 10,073 123,097
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ -- $ 40,376
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ -- $ 23,157
Taxes -- --
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
The Company exchanged assets with a book value of $340,812 for $3,000,000
convertible note payable resulting in a non-cash profit of $ 2,659,188
During the six month period ended June 30, 2003, the Company issued 900,000
shares of common stock to a former consultant in exchange for cancellation of
indebtedness.
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
Page 6 of 13
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2003
Note 1 - Basis of Preparation
The accompanying unaudited consolidated financial statements
of Online Gaming Systems, Ltd and Subsidiary (the " Company")
have been prepared in accordance with Regulation S-B
promulgated by the Securities and Exchange Commission and do
not include all of the information and footnotes required by
generally accepted accounting principles in the United States
for complete financial statements. In the opinion of
management, these interim financial statements include all
adjustments necessary in order to make the financial
statements not misleading. The results of operations for such
interim period are not necessary indicative of results of
operations for a full year. The unaudited financial statements
should be read in conjunction with the audited financial
statements and notes thereto of the Company and management's
discussion and analysis of financial condition and results of
operations included in the Annual Report on Form 10-KSB for
the year ended December 31, 2002.
Note 2 - Significant Accounting Policies
The accounting policies followed by the Company are set forth
in Note 2 to the Company's financial statements in the
December 31, 2002 Form 10-KSB.
Note 3 - Per Share Data
Per share basic data are based on the weighted average number
of common shares outstanding during the respective periods.
The diluted net income per share is based upon the common
stock outstanding during the period and the effect of all
dilutive potential common shares outstanding. The computation
of diluted earnings per share does not assume conversion,
exercise or contingent issuance of securities that would have
an anti-dilutive effect on earnings per share.
Note 4 - Major Customers
Income fees derived from customers are concentrated amongst
numerous customers, with the following contributing more than
10 percent of the Company's revenues during the six-month
period ending June 30, 2003:
Customer A-related party 100%
Page 7 of 13
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2003
Note 5 - Convertible Notes Payable - Related Party
At June 30, 2003, the Company had a $2,474,907 convertible
note payable balance due Hosken Consolidated Investments
["HCI"]. HCI is a South African investment holding company
involved in various technology industries. Terms of the
revised loan agreement provide for an extension of the
maturity to repay all principal outstanding and related
accrued interest at 12% annually by December 31, 2003. Upon
failure of the Company to pay the principal balance by the
maturity date, interest on the principal balance will become
subject to interest at 15% per annum. The notes payable are
secured by substantially all assets of the Company. The
Company recorded interest expense of $ 395,618 and $254,608
for the six months ended June 30, 2003 and June 30, 2002
respectively. As of June 30, 2003, the Company has accrued
$1,719,496 in interest related to the convertible debt
borrowing.
During the quarter ended March 31, 2003, the Company had
advances of $400,000 from HCI in the form of convertible notes
payable. Terms of the conversion feature provide for the
principal balance to be converted into shares of the Company's
common stock at a rate equal to the fair value per share at
the date of conversion.
At June 30, 2003 the Company exchanged all its assets as well
as its wholly owned Australian subsidiary for forgiveness of
$3,000,000 convertible note payable due to HCI.
Note 6 - Capital Stock
During the first quarter 2002, the Chief Financial Officer of
the Company purchased 166,667 shares of the Company's common
stock, for $.06 per share.
During the first quarter 2002, the former Chief Executive
Officer of the Company was issued 561,766 shares of the
Company's common stock, in settlement of a loan amount due to
the former Chief Executive Officer of $34,683.
In January 2002, the Company received a purchase money
mortgage note from a consultant calling for the purchase of
30,000 shares per month for 12 months at a price of $.05 per
share, the closing price on the date when the agreement was
negotiated. On January 2, 2002, the Company issued the initial
30,000 shares of its common stock in exchange for $1,500. On
February 7, 2002, the Company issued another 90,000 shares of
its common stock in exchange for $4,500. In August 2002, the
Company issued another 30,000 shares of its common stock in
exchange for $1,500.
In 2002 a total of 241,251 shares of the Company's common
stock were issued to a previous customer in satisfaction of an
investment made in the Company.
Page 8 of 13
ONLINE GAMIING SYSTEMS, LTD. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2003
During fiscal 2002, the Chief Financial Officer of the Company
purchased 350,000 shares of the Company's common stock at $.06
per share.
In connection with a settlement in fiscal 2002, the Company
issued 541,667 shares of common stock with a fair market value
of $0.06 per shares as consideration for rent in arrears on
its corporate office space. Additionally, the Company issued
25,000 shares of common stock with a fair market value of
$0.06 per share to a consultant for services rendered.
At the November 2002 shareholders meeting, the shareholders
approved an amendment to the Company's articles of
incorporation to increase the number of shares of common stock
which the Company is authorized to issue from 100,000,000 to
200,000,000.
During the first quarter 2002, the Chief Financial Officer of
the Company purchased 166,667 shares of the Company's common
stock, at $.06 per share.
In the second quarter of 2003, the Company issued 900,000
shares of common stock with a market value of $.06 per share
for cancellation of indebtedness.
Note 7 - Subsequent Events
In 2006 the Company's major shareholder Hosken Consolidated
Investments ["HCI"] executed a stock purchase agreement to
sell 77,767,153 (79%) shares of common stock of the Company to
a non-related third party buyer.
Page 9 of 13
Item 2. Management's Discussion and Analysis or Plan of Operation
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
NET REVENUES
The Company's revenues decreased approximately 72% in the six months ended June
30, 2003 over the same period in 2002. Revenues from operations for the six
months ended June 30,2003 were $146,780 as compared with $540,233 for the same
period in 2002. The decrease in revenue was primarily due to decreases in
fee-paying customers and the completion of special project work during the early
part of 2002. The Company ceased operations in May 2003.
OPERATING EXPENSES
Operating expenses decreased by 66,6% or $1,192,958 For the six months ended
June 30, 2003 over the same period in 2002. The decrease was largely due to
downsizing of employees, resulting in reduced payroll costs and reducing certain
operating expenses. We ceased operations in May 2003.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $--- at June 30, 2003. Net cash used from
operations was $309,558, primarily due to a Net Loss for the six months ended
June 30, 2003 of $343,875, a decrease in Accounts Payable of $38,904 and offset
by an increase in accrued interest to a related party of $395,618.
Net cash used in investing activities for the six months ended June 30, 2003 was
$35,245 for payments made for the further development of the Company's software.
Net cash provided from financing activities for the six months ended June 30,
2003, was $354,876. HCI, the Company's largest stockholder funded the finance
activities.
The Company ceased operations in May 2003.
FORWARD - LOOKING STATEMENTS
The matters discussed in Management's Discussion and Analysis and throughout
this report that are forward-looking statements are based on current management
expectations that involve risk and uncertainties.
Potential risks and uncertainties include, without limitation; the impact of
economic conditions generally and in the industry for Internet gaming products
and services; dependence on key customers; continued competitive and pricing
pressures in the industry; open-sourcing of products; rapid product improvement
and technological change; capital and financing availability; and other risks
set forth herein.
Page 10 of 13
Item 3. Controls and Procedures
(a) Explanation of disclosure controls and procedures. The Company's chief
executive officer and its chief financial officer after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15-d-14(c) as of a date within 90 days of the
filing date of the quarterly report (the "Evaluation Date") have concluded that
as of the Evaluation Date, the Company's disclosure controls and procedures were
adequate and effective to ensure that material information relating to the
Company and its consolidated subsidiary would be made known to them by others
within those entities, particularly during the period in which this quarterly
report was being prepared.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
the Company's disclosure controls and procedures subsequent to the Evaluation
Date, nor any significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions. As a result, no corrective
actions were taken.
Page 11 of 13
ONLINE GAMING SYSTEMS, LTD. AND SUBSIDIARY
PART II
Item 1. Legal Proceedings
During the second quarter of 2002, RCS Financial Services, Ltd filed suit
against the Company for repayment of a loan, alleging a remaining balance of
$47,500 plus interest. The Company reached resolution regarding this suit during
the second quarter of 2003, and paid $53,571 for full settlement. There were no
other new legal proceedings filed or threatened involving the Company during the
six-month period ended June 30, 2003.
Item 2. Unregisterd Sales of Equity Securities and Use of Proceeds
This Item is not applicable to the Company.
Item 3. Defaults upon Senior Securities
This Item is no applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits
Exhibits
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32 Certification Pursuant to 18 USC Section 1350, Section 906 of the
Sarbanes-Oxley Act of 2002
Page 12 of 13
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
June 4, 2007
Online Gaming Systems, Ltd.
By: /s/ RICHARD DUNNING
---------------------------------
Richard Dunning
President and
Acting Chief Financial Officer
Page 13 of 13