UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2009
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 000-51255
WIN GAMING MEDIA, INC.
(Exact name of registrant as specified in its charter)
NEVADA 98-037121
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
103 FOULK ROAD, WILMINGTON, DELAWARE
(Address of principal executive offices)
(972) - 73 - 755-4500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [X] No [_]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes [_] No [_]
Indicate by check mark whether the registrant is large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller reporting company [X]
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
The number of shares outstanding of the registrant's Common Stock, $0.001 par
value, was 32,319,031 as of May 10, 2009.
PAGE
----
PART I - FINANCIAL INFORMATION:
Item 1. Consolidated Balance Sheets (Unaudited) F - 2 - F - 3
Consolidated Statements of Operations (Unaudited) F - 4
Consolidated Statements of Cash Flows (Unaudited) F - 5
Notes to Consolidated Financial Statements (Unaudited) F - 6 - F - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
Item 4T. Controls and Procedures 7
PART II - OTHER INFORMATION:
Item 6. Exhibits 8
SIGNATURES 9
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WIN GAMING MEDIA, INC.
AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2009
IN U.S. DOLLARS
UNAUDITED
INDEX
PAGE
----
CONSOLIDATED BALANCE SHEETS F - 2 - F - 3
CONSOLIDATED STATEMENTS OF OPERATIONS F - 4
CONSOLIDATED STATEMENTS OF CASH FLOWS F - 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F - 6 - F - 11
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
MARCH 31, DECEMBER 31
-------- --------
2009 2008
-------- --------
UNAUDITED
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $340,002 $529,130
Trade receivables 37,697 37,783
Other accounts receivable and prepaid expenses 38,295 99,485
-------- --------
TOTAL current assets 415,994 666,398
-------- --------
SEVERANCE PAY FUND 11,171 11,171
-------- --------
PROPERTY AND EQUIPMENT, NET 2,526 2,736
======== ========
Total assets $429,691 $680,305
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
F - 2
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
MARCH 31, DECEMBER 31
------------ ------------
2009 2008
------------ ------------
UNAUDITED
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Short-term bank credit $ 5,670 $ 7,343
Payables 83,695 91,469
Accrued expenses and other liabilities 236,779 238,254
------------ ------------
TOTAL current liabilities 326,144 337,066
------------ ------------
Call option 219,225 219,225
Accrued Severance pay 37,149 37,149
------------ ------------
TOTAL Long term liabilities 256,374 256,374
------------ ------------
TOTAL liabilities 582,518 593,440
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES - -
INVESTMENT IN AFFILIATED COMPANY 590,331 562,148
STOCKHOLDERS' DEFICIENCY:
Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares at March 31, 2009 and December 31, 2008; Issued and
outstanding: 32,319,031 shares at March 31, 2009 and December 31,2008,
respectively 32,319 32,319
Additional paid-in capital 17,335,708 17,310,892
Accumulated other comprehensive loss (8,047) (8,047)
Accumulated deficit (18,103,138) (17,810,447)
============ ============
TOTAL stockholders' deficiency $ (743,158) $ (475,283)
TOTAL liabilities and stockholders' deficiency $ 429,691 $ 680,305
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
F - 3
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS (EXCEPT SHARE DATA)
THREE MONTHS ENDED
MARCH 31
---------------------------------
2009 2008
------------ ------------
Revenues :
Revenues from software applications $ 31,947 $ 129,234
Revenues from services to affiliated company - 382,254
------------ ------------
Total Revenues 31,947 511,488
------------ ------------
Cost of revenues 159,761 433,427
------------ ------------
Gross profit (loss) (127,814) 78,061
------------ ------------
Operating expenses:
Research and development - 32,611
Selling and marketing - 19,261
General and administrative 98,674 56,039
------------ ------------
Total operating expenses 98,674 107,911
------------ ------------
Operating loss 226,488 29,850
Financial expenses, net 2,857 51,789
------------ ------------
Other income
- 40,350
------------ ------------
Loss before taxes on income 229,345 41,289
Taxes on income 35,163 -
------------ ------------
(264,508) (41,289)
Equity in losses of affiliated company 28,183 460,478
============ ============
Net Loss 292,691 501,767
============ ============
Basic and diluted net loss per share $ 0.01 $ 0.02
============ ============
Weighted average number of shares of Common stock used in
computing basic and diluted net loss per share 32,319,031 32,319,031
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS
THREE MONTHS ENDED
MARCH 31,
---------------------------
2009 2008
--------- ---------
UNAUDITED
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(292,691) $(501,767)
Adjustments required to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 210 133,079
Decrease (increase) in trade and other accounts receivable prepaid expenses, and
related parties 61,276 (275,667)
Stock-based compensation 24,816 50,827
Decrease in payables (7,774) (15,508)
Decrease in employees and payroll accruals - (108,295)
Decrease in accrued expenses and other liabilities (1,475) (2,320)
Accrued severance pay, net - 2,119
Equity in losses of affiliated company 28,183 460,478
Gain on sale of property and equipment - (40,350)
--------- ---------
Net cash used in operating activities (187,455) (297,404)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment - 65,000
--------- ---------
Net cash provided by (used in) investing activities - 65,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from shareholders - 101,289
Short-term bank credit, net (1,673) -
--------- ---------
Net cash provided by financing activities (1,673) 101,289
--------- ---------
Effect of exchange rate changes on cash and cash equivalents - (971)
--------- ---------
Decrease in cash and cash equivalents (189,128) (132,086)
Cash and cash equivalents at the beginning of the period 529,130 147,046
--------- ---------
Cash and cash equivalents at the end of the period $ 340,002 $ 14,960
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 9 $ 168
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1: GENERAL
a. Win Gaming Media, Inc. (formerly known as Zone4Play Inc.) ("the
Company") was incorporated under the laws of the State of Nevada on
April 23, 2002 as Old Goat Enterprises, Inc. On February 1, 2004, the
Company acquired Zone4Play, Inc. ("Zone4Play (Delaware))" (see c.
below), which was incorporated under the laws of the State of Delaware
on April 2, 2001, and subsequently changed the Company's name to
Zone4Play, Inc., a Nevada corporation. The Company develops and
markets interactive games applications for Internet, portable devices
and interactive TV platforms. Effective May 1, 2008 the Company
changed its name to Win Gaming Media, Inc., and on June 20, 2008, the
Company's trading symbol was changed to WGMI.OB. On August 6, 2008,
the Company's wholly owned subsidiary Win Gaming Media (Israel) Ltd.
(formerly MixTV Ltd.) sold its entire intellectual property to
Playtech Software Limited.
The Company conducts its operations and business with and through its
subsidiaries (1) Win Gaming Media, Inc. (Delaware) (formerly
Zone4Play(Delaware)), (2) Win Gaming Media Israel Ltd. (formerly MixTV
Ltd.), and (3) Gaming Ventures Plc, a company incorporated in the Isle
of Man (see note 1e). Our other subsidiaries specified herein are
either not active or under dissolution (1) Zone4Play Limited, an
Israeli corporation incorporated in July 2001, which was engaged in
research and development and marketing of our applications, and (2)
Zone4Play (UK) Limited, a United Kingdom corporation, incorporated in
November 2002, which was engaged in marketing of our applications.
We are a company focused on the business of offering technology
servicing the interactive gaming industry through third parties. Our
software provides and supports play-for-fun and play-for-real (i.e.,
play-for-money) interactive games. As a result of the transactions
that are detailed in note 7a and 7b, we currently provide only
software and technology that support fixed odds games. In addition, we
no longer offer any gaming applications development work and are
currently trying to leverage our wholly owned subsidiary Gaming
Ventures plc, that is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, by
either an outright sale or by incorporating new activities which shall
generate revenue.
The Company's shares are currently traded on the OTC Bulletin Board
under the trading symbol WGMI.OB (formerly ZFPI.OB).
b. The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company has suffered losses from operations and negative cash flows
from operations since inception. For the three months ended March 31,
2009 the Company incurred a loss from continuing operations of
$292,691 negative cash flows from operations of $187,455 and has an
accumulated deficit of $18,103,138 as of March 31, 2009.
Despite its negative cash flows, the Company has been able to secure
financing in order to support its operations to date, based on shares
issuances and sale of assets. The consolidated financial statements do
not include any adjustments that may result from the outcome of this
uncertainty. In light of its financial condition, the Company
significantly reduced its expenses, effective October 1, 2008 and is
pursuing other sources of revenues. See Note 6a and Note 6b for
subsequent transactions that were signed with the Company.
c. Concentration of risk that may have a significant impact on the
Company:
The Company derived approximately 100% of its revenues in the three
months ended March 31, 2009 from 2 major customers (see Note 4).
F - 6
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 2: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments including
non-recurring adjustments attributable to reorganization and severance and
impairment considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2009 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2009. For further information, reference is made to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2008.
The interim condensed consolidated financial statements incorporate the
financial statements of the Company and all of its subsidiaries. All
significant intercompany balances and transactions have been eliminated on
consolidation.
The significant accounting policies applied in the annual consolidated
financial statements of the Company as of December 31, 2008 contained in
the Company's Annual Report on Form 10-K filed with the SEC on April 8,
2009, have been applied consistently in these unaudited interim condensed
consolidated financial statements.
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
a. The significant accounting policies applied in the annual consolidated
financial statements of the Company as of December 31, 2008 are
applied consistently in these consolidated financial statements.
b. These financial statements should be read in conjunction with the
audited annual financial statements of the Company as of December 31,
2008 and their accompanying notes.
c. Accounting for stock-based compensation Effective January 1, 2006, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 123 (revised 2004) ("SFAS 123R"), "Share-Based Payment,"
and Staff Accounting Bulletin No. 110 ("SAB 110"), which was issued in
March 2005 by the SEC. SFAS 123R addresses the accounting for
share-based payment transactions in which the Company obtains employee
services in exchange for equity instruments of the Company. This
statement requires that employee equity awards be accounted for using
the grant-date fair value method. SAB 110 provides supplemental
implementation guidance on SFAS 123R, including guidance on valuation
methods, classification of compensation expense, income statement
effects, disclosures and other issues.
The following table shows the total stock-based compensation charge
included in the Consolidated Statement of Operations:
THREE MONTHS ENDED
MARCH 31,
----------------------
2009 2008
------- -------
(UNAUDITED) (UNAUDITED)
------- -------
Research and development expenses $ - $29,292
Sales and marketing expenses - 8,498
General and administrative expenses 24,816 13,037
------- -------
Total $24,816 $50,827
======= =======
The fair value for these options was estimated at the grant date using
a Black-Scholes option pricing model as allowed under SFAS 123R.
F - 7
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (CONT.):
A summary of the Company's share option activity to employees and
directors, and related information is as follows:
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
2009 2008
--------------------- ---------------------
UNAUDITED UNAUDITED
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE
--------- --------- --------- ---------
$ $
--------- ---------
Outstanding at the beginning of 7,511,379 0.57 3,950,965 0.98
the year
Granted - - - -
Forfeited - - (324,586) 0.58
--------- --------- ---------
Outstanding at the end of the
quarter 7,511,379 0.57 3,626,379 1.02
========= ========= ========= =========
Options exercisable at the end of
the quarter 6,129,980 0.68 3,532,292 1.00
========= ========= ========= =========
The Company applies EITF 96-18, "Accounting for Equity Instruments
that Are Issued to Other than Employees for Acquiring or in
Conjunction with Selling, Goods or Services" with respect to options
and warrants issued to non-employees.
NOTE 4: SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION
Summary information about geographic areas:
The Company manages its business on the basis of one reportable
segment (see Note 1 for a brief description of the Company's business)
and follows the requirements of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information".
a. The following is a summary of operations within geographic areas,
based on the location of the customers:
THREE MONTHS ENDED
MARCH 31,
------------------------
2009 2008
-------- --------
TOTAL REVENUES
------------------------
Alderney $ - $382,254
Australia - 87,500
United States 31,947 41,734
-------- --------
$ 31,947 $511,488
======== ========
F - 8
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 4: SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION (CONT.):
b. Major customer data as a percentage of total revenues:
THREE MONTHS ENDED
MARCH 31,
------------------
2009 2008
------- -------
Customer A (an affiliate company) - 75%
======= =======
Customer B - 17%
======= =======
Customer C 85% *)
======= =======
Customer D 15% *)
======= =======
*) Represents an amount lower than 10%.
NOTE 5: RECENTLY ADOPTED ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 157, "Fair-Value Measurements," ("SFAS 157") which
defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles and expands disclosures
about fair-value measurements. The Company adopted SFAS 157 effective
January 1, 2008 for all financial assets and liabilities and any other
assets and liabilities that are recognized or disclosed at fair value
on a recurring basis. For nonfinancial assets and liabilities measured
at fair value on a non-recurring basis, SFAS 157 is effective for
financial statements issued for fiscal years beginning after November
15, 2008. The adoption of SFAS 157 for nonfinancial assets and
liabilities measured at fair value on a non-recurring basis on January
1, 2009 did not have a material impact on the Company's condensed
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007),
"Business Combinations," ("SFAS 141R") which replaces SFAS No. 141,
"Business Combinations". SFAS 141R establishes principles and
requirements for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed and any noncontrolling interest
in a business combination at their fair value at acquisition date.
SFAS 141R alters the treatment of acquisition-related costs, business
combinations achieved in stages (referred to as a step acquisition),
the treatment of gains from a bargain purchase, the recognition of
contingencies in business combinations, the treatment of in-process
research and development in a business combination as well as the
treatment of recognizable deferred tax benefits. SFAS 141R is
effective for business combinations closed in fiscal years beginning
after December 15, 2008. As SFAS 141R is applicable to business
acquisitions completed after January 1, 2009 and the Company did not
have any business acquisitions during the quarter ended March 31,
2009, the adoption of SFAS 141R did not have a material impact on the
Company's condensed consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements - an amendment of
Accounting Research Bulletin No. 51," ("SFAS 160"). SFAS 160
establishes accounting and reporting standards for the noncontrolling
interest (minority interest) in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 is effective for financial
statements issued for fiscal years beginning after December 15, 2008.
The Company currently has no minority interests and accordingly the
adoption of SFAS 160 did not have a material impact on its condensed
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133," ("SFAS 161"). SFAS 161 requires enhanced
disclosures about a company's derivative and hedging activities. SFAS
161 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The adoption of SFAS 161 did not
have a material impact on the Company's condensed consolidated
financial statements.
F - 9
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 5: RECENTLY ADOPTED ACCOUNTING STANDARDS (CONT.)
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
"Determination of the Useful Life of Intangible Assets," ("FSP
142-3"). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142,
"Goodwill and Other Intangible Assets" and also requires expanded
disclosure related to the determination of intangible asset useful
lives. FSP 142-3 is effective for fiscal years beginning after
December 15, 2008. The adoption of FSP 142-3 did not have a material
impact on the Company's condensed consolidated financial statements.
In April 2008, the FASB issued EITF 07-05, "Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock,"
("EITF 07-05"). EITF 07-05 provides guidance on determining what types
of instruments or embedded features in an instrument held by a
reporting entity can be considered indexed to its own stock for the
purpose of evaluating the first criteria of the scope exception in
paragraph 11(a) of SFAS No. 133. EITF 07-05 is effective for financial
statements issued for fiscal years beginning after December 15, 2008
and early application is not permitted. The adoption of EITF 07-05 did
not have a material impact on the Company's condensed consolidated
financial statements.
NOTE 6: SUBSEQUENT EVENTS
a. On April 7, 2009, Two Way Gaming Limited, or TWG, 50% owned by us
and 50% owned by Two Way Media Limited, or TWM (we refer to TWG
and TWM as the Sellers), entered into an agreement, or the
Netplay Transfer Agreement, with Netplay TV plc, or Netplay. The
NetPlay Transfer Agreement provides for the transfer by the
Sellers of certain gaming services, known as Challenge Jackpot,
or CJ and the transfer of about 16,000 registered players of
Challenge Jackpot, an interactive game application provided to
Virgin Media Television Limited, or Virgin, their account
balances and the equipment required for running such business.
The consideration for such sale is (pound)2,000,000, of which we
will receive (pound)1,000,000, equivalent to 4,266,667 shares of
Netplay . The consideration is to be paid in newly issued
ordinary shares of Netplay, or the Consideration Shares, no later
than May 15, 2009, together with the assumption by Netplay of the
liabilities expressly referred to in the Netplay Transfer
Agreement as being assumed. The closing of the transaction is
conditioned upon the approval thereof by Netplay's shareholders
which was obtained on May 11, 2009 and other actions yet to be
taken.
In addition, the Sellers and Netplay have agreed that Netplay
will assist the Sellers with the operation of the online casino,
WinnerChannel.com, and a gambling service business which is
marketed and distributed by Teletext Limited under the agreement
between TWM, Teletext Limited and St Minver Limited, or the
Teletext Business. For these services, Netplay will be entitled
to 20% of all net profits, arising from the operation of the
WinnerChannel.com and the Teletext Business and the Sellers will
be entitled to 80% of such profits, to split equally between the
Sellers.
F - 10
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 6: SUBSEQUENT EVENTS (CONT.)
a. (Cont.):
The Sellers and Virgin Media Television Limited, or Virgin,
entered into a Termination and Settlement Agreement under which,
on the completion date of the NetPlay Transfer Agreement and
subject to receipt by Virgin from Netplay of an initial payment,
Virgin agreed to terminate the brand license agreement, the
production agreement and all guarantees with TWG in connection
with the operation of the Challenge Jackpot and to irrevocably
waive and release all claims that Virgin may have towards TWG
and, mainly the liability for paying minimum guarantee fees to
Virgin.
b. On April 13, 2009, RNG Gaming Limited ("RNG"), an indirect
80%-owned subsidiary of the Company, entered into an Intellectual
Property and Technology Purchase Agreement (the "Agreement")
under which RNG agreed to sell to an unaffiliated party and a
leading online gaming software provider, substantially all of its
multiplayer Blackjack tournament software platform, including its
related intellectual property, in consideration of a total amount
of $250,000 and a 3% share of buyer's Blackjack revenue (as
defined in the Agreement) each year for the first 3 years from
the date in which the buyer launches full commercial use of the
Blackjack game, and 2% of buyer's Blackjack revenue thereafter
for an unlimited time. The transaction closed on April 16, 2009.
Of the total consideration, $150,000 will be used to offset the
Company's indebtedness to the buyer regarding previous services
that the buyer provided the Company, and the remaining amount of
$100,000 is to be deposited in escrow until the buyer has
confirmed that the software platform has been integrated into and
modified to fit buyer's systems. $50,000 of the $100,000 will be
paid by RNG (guaranteed by the Company) to the Company's joint
venture partner in RNG within 12 months from the date of the
Agreement, even if such amount is not released from the escrow
account. The revenue share is to be divided 80% to a wholly owned
subsidiary of the Company and 20% to the partner. In addition to
the provisions above, RNG (directly or through an affiliate
thereof, including the Company) has an option to enter into a
software license agreement with the buyer for the receipt of a
non-exclusive license to use the software platform included in
the purchased assets, for the sole purpose of providing a "Play
For Fun" services, in consideration of a revenue share of 15%
payable to the buyer and at RNG's request. In addition, RNG and
the buyer will enter into negotiations for the licensing by RNG
of other multiplayer tournament products developed by buyer on
the basis of the software platform included in the purchased
assets for "Play For Fun" services. In the framework of the
Agreement, RNG and the Company agreed not to compete in the
business of software products or other products or services
related to multiplayer Blackjack tournament software platform and
to refrain from soliciting buyer's employees for four years.
Following the closing of the transaction, RNG (and its parent
company, and wholly-owned subsidiary of the Company, Gaming
Ventures Plc) had no material assets.
F - 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements.
Forward-looking statements include our statements regarding our goals, beliefs,
strategies, objectives, plans, including product and service developments,
future financial conditions, results or projections or current expectations. For
example, when we discuss our funding plans and opportunities, including our
expectation to finance our operations we are using a forward looking statement.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of such terms, or
other comparable terminology. These statements are subject to known and unknown
risks, uncertainties, assumptions and other factors that may cause actual
results to be materially different from those contemplated by the
forward-looking statements. The business and operations of Win Gaming Media,
Inc. are subject to substantial risks, which increase the uncertainty inherent
in the forward-looking statements contained in this report. Except as required
by law, we undertake no obligation to release publicly the result of any
revision to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Further information on potential factors that could affect
our business is described in Part I, Item 1A, "Risk Factors" of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008. Readers are
also urged to carefully review and consider the various disclosures we have made
in this report.
OVERVIEW
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
You should read the following discussion of our financial condition and results
of operations together with the unaudited financial statements and the notes to
unaudited financial statements included elsewhere in this report.
We are a company focused on the business of offering technology servicing the
interactive gaming industry through third parties. Our software provides and
supports play-for-fun and play-for-real (i.e., play-for-money) interactive
games.
RECENT DEVELOPMENTS
On April 7, 2009, Two Way Gaming Limited, or TWG, 50% owned by us and 50% owned
by Two Way Media Limited, or TWM (we refer to TWG and TWM as the Sellers),
entered into an agreement, or the Netplay Transfer Agreement, with Netplay TV
plc, or Netplay. The NetPlay Transfer Agreement provides for the transfer by the
Sellers of certain gaming services, known as Challenge Jackpot, or CJ and the
transfer of about 16,000 registered players of Challenge Jackpot, an interactive
game application provided to Virgin Media Television Limited, or Virgin, their
account balances and the equipment required for running such business. The
consideration for such sale is (pound)2,000,000, of which we will receive
(pound)1,000,000, equivalent to 4,266,667 shares of Netplay. The consideration
is to be paid in newly issued ordinary shares of Netplay, or the Consideration
Shares, no later than May 15, 2009, together with the assumption by Netplay of
the liabilities expressly referred to in the Netplay Transfer Agreement as being
assumed. The closing of the transaction is conditioned upon the approval thereof
by Netplay's shareholders which was obtained on May 11, 2009 and other actions
yet to be taken.
In addition, the Sellers and Netplay have agreed that Netplay will assist the
Sellers with the operation of the online casino, WinnerChannel.com, and a
gambling service business which is marketed and distributed by Teletext Limited
under the agreement between TWM, Teletext Limited and St Minver Limited, or the
Teletext Business. For these services, Netplay will be entitled to 20% of all
net profits, arising from the operation of the WinnerChannel.com and the
Teletext Business and the Sellers will be entitled to 80% of such profits, to
split equally between the Sellers.
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The Sellers and Virgin entered into a Termination and Settlement Agreement under
which, on the completion date of the NetPlay Transfer Agreement and subject to
receipt by Virgin from Netplay of an initial payment, Virgin agreed to terminate
the brand license agreement, the production agreement and all guarantees with
TWG in connection with the operation of the Challenge Jackpot and to irrevocably
waive and release all claims that Virgin may have towards TWG and, mainly the
liability for paying minimum guarantee fees to Virgin.
On April 13, 2009, RNG Gaming Limited, or RNG, our indirect 80%-owned subsidiary
entered into an Intellectual Property and Technology Purchase Agreement under
which RNG agreed to sell to an unaffiliated party and a leading online gaming
software provider, substantially all of its multiplayer Blackjack tournament
software platform, including its related intellectual property, in consideration
of a total amount of $250,000 and a 3% share of buyer's Blackjack revenue (as
defined in such agreement) each year for the first 3 years from the date in
which the buyer launches full commercial use of the Blackjack game, and 2% of
buyer's Blackjack revenue thereafter for an unlimited time. The transaction
closed on April 16, 2009. Of the total consideration, $150,000 was used to
offset our indebtedness to the buyer, and the remaining amount of $100,000 is to
be deposited in escrow until the buyer confirms that the software platform has
been integrated into and modified to fit buyer's systems. $50,000 of the
$100,000 will be paid by RNG (guaranteed by us) to our partner in RNG within 12
months from the date of the agreement, even if such amount is not released from
the escrow account. The revenue share is to be divided 80% to a wholly owned
subsidiary of us and 20% to the partner.
In addition, RNG has an option to enter into a software license agreement with
the buyer for the receipt of a non-exclusive license to use the software
platform included in the purchased assets, for the sole purpose of providing a
"Play For Fun" services, in consideration of a revenue share of 15% payable to
the buyer and at RNG's request, RNG and the buyer will enter into negotiations
for the licensing by RNG of other multiplayer tournament products developed by
buyer on the basis of the software platform included in the purchased assets for
"Play For Fun" services.
As a result of these transactions, we currently provide only software and
technology that support fixed odds games. In addition, we no longer offer any
gaming applications development work and are currently trying to leverage our
wholly owned subsidiary Gaming Ventures plc, that is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, by either an outright sale or by incorporating new
activities which shall generate revenue.
In the course of our operation, we have sustained operating losses and expect
such losses to continue in the foreseeable future. To date, we have not
generated sufficient revenues to achieve profitable operations or positive cash
flow from operations. As of March 31, 2009, we had an accumulated deficit of
$18,103,138. There is no assurance that profitable operations, if ever achieved,
will be sustained on a continuing basis. During the three months ended March 31,
2009, we derived 100% of our revenues from two major customers - Cablevision and
Lodgenet.
GOING CONCERN
We have generated revenues since inception, but they are not currently an
adequate source of cash to fund future operations. Historically we have relied
on private placement issuances of equity and convertible notes.
We expect to finance our operations with the proceeds from the agreements for
the sale of our Blackjack tournament software and the sale of our interactive
game application business known as "Challenge Jackpot" to Netplay. Until the
agreement with Netplay closes, there is no assurance that we will be able to
finance our operations for the next 12 months. However, once the agreement with
Netplay is closed, we believe we will be able to sustain our operation for 12
months thereafter.
To control expenses we are managed by CEO, which is engaged on a part time
basis, CFO and COO. All services provided by the foregoing are rendered to us on
an outsourced contractual basis and we have no employees on our payroll.
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RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2008.
REVENUES AND COST OF REVENUES
In the three months ended March 31, 2009, we generate revenues only from our
software applications and we did not generate any income neither from equity
revenues from Win Gaming Media, Inc., Delaware, nor from WGMI, and we did not
recognized revenue from our affiliated company TWG, due to our failure to meet
the criteria in accordance with Statement of Position 97-2, Software Revenue
Recognition, that collectability is probable. As a result our revenues for the
three months ended March 31, 2009 decreased by 94% to $31,947 from $511,488 for
the three months ended March 31, 2008.
Cost of revenues for the three months ended March 31, 2009 decreased by 63% to
$159,761 from $433,427 for the three months ended March 31, 2008. This decrease
is mainly due to the decrease of expenses following the sale of the intellectual
property and technology of our wholly owned subsidiary WGMI which were
accompanied by the transfer and the layoff of all of our employees.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended March 31, 2009
decreased by 100% to $0 from $32,611 for the three months ended March 31, 2008.
The decrease is primarily attributable to the transfer and layoff of employees
following the sale of the intellectual property and technology of WGMI,
decreased general and administrative expenses allocated to the research and
development department as a result of the transfer and lay off of employees, and
decreased stock based compensation due to headcount reduction.
SALES AND MARKETING
Sales and marketing expenses for the three months ended March 31, 2009 decreased
by 100% to $0 from $19,261 for the three months ended March 31, 2008. This
decrease in sales and marketing expenses is primarily attributable to the
transfer and layoff of employees, decreased stock based compensation, decreased
general and administrative expenses allocated to marketing and sales as a result
of the transfer and lay off of employees, and to a decrease of travel expenses.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended March 31, 2009
increased by 76% to $98,674 from $56,039 for the three months ended March 31,
2008. The increase in general and administrative expenses is primarily
attributable to the change in allocating general and administrative expenses.
During the three months ended March 31, 2009 none of the general and
administrative expenses were allocated to other expenses, while during the three
months ended March 31, 2008, some of the general and administrative expenses
were allocated to research and development expenses and to sales and marketing
expenses.
OTHER INCOME
Other income for the three months ended March 31, 2009 decreased to $0 from
$40,350 for the three months ended March 31, 2008. The other income for the
three months ended March 31, 2008 includes capital gain on sales of fixed
assets.
NET LOSS
Net loss from operations for the three months ended March 31, 2009 was $292,691
compared to net loss of $501,767 for the three months ended March 31, 2008. Net
loss per share from operations for the three months ended March 31, 2009 was
$0.01 as compared to a net loss per share of $0.02 for the three months ended
March 31, 2008. The net loss decrease for the three months period ended March
31, 2009 is primarily attributable to a decrease in equity losses from
affiliated company operating expenses, layoff of our employees and decreased
stock based compensation. Our weighted average number of shares of common stock
used in computing basic and diluted net loss per share for both the three months
ended March 31, 2009 and March 31, 2008 was 32,319,031.
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EQUITY LOSSES OF AFFILIATED COMPANY
Equity losses for the three months ended March 31, 2009 decreased by 94% to
$28,183 from $460,478 for the three months ended March 31, 2008. The decrease in
equity losses is primarily attributable to the change in valuation of the
investment to match our share of 50% in the sum of (1) the total liability of
TWG for paying minimum guarantee fees to Virgin and (2) the liability of TWG for
players' balances. The change in the total amount of the said liabilities is
recorded as equity losses.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2009, our total current assets were $415,994 and the total
current liabilities were $326,144. On March 31, 2009, we had an accumulated
deficit of $18,103,138. We finance our operations and plan to continue doing so
with a combination of stock issuances, sale of assets and revenues from
services. We had working capital of $89,850 on March 31, 2009 compared with a
working capital of $329,332 on December 31, 2008. Cash and cash equivalents on
March 31, 2009 were $340,002, a decrease of $189,128 from the $529,130 reported
on December 31, 2008. The decrease in cash is primarily attributable to the cost
of our operations. As a result of the decrease in cash and until the agreement
with Netplay closes, there is no assurance that we will be able to finance our
operations for the next 12 months. However, once the agreement with Netplay is
closed, we believe we will be able to sustain our operation for the next 12
months.
Operating activities used cash of $187,455 in the three months ended March 31,
2009. Cash used by operating activities in the three months ended March 31, 2009
results primarily from a net loss of $292,691, a $7,774 decrease in trade
payables, offset by a $61,276 decrease in trade and other accounts receivables
and prepaid expenses and by $28,183 in equity losses of an affiliated company.
We did not use or provided any cash from investing activities in the three
months ended March 31, 2009.
Financing activities used cash of $1,673 in the three months ended March 31,
2009 which is due to the use of short term bank credit.
On March 10, 2008, our board of directors, or the Board, approved the entry of
the Company into a convertible debt transaction with our director, Mr. Shimon
Citron. In fiscal 2008 the loan and interest owed were repaid and as of March
31, 2009 there was no debt related to the loan described above.
OUTLOOK
Our current cash (after giving effect to our sale of assets to Playtech) may not
be sufficient to meet our anticipated requirements for the next 12 months. We
believe that our future growth will depend upon the successful closing of the
Netplay Transfer Agreement, under which we are entitled to receive a
consideration of (pound)1,000,000, equivalent to 4,266,667 of Netplay shares,
the results of the license agreement with Playtech, and the successful closing
of our multi-player blackjack intellectual property agreement under which we are
entitled to receive 80% of a consideration of $250,000 and the possible revenue
share. We will also seek to leverage our wholly owned subsidiary, Gaming
Ventures plc, that is registered with the Securities and Exchange Commission
under the Exchange Act, by either an outright sale or by incorporating new
activities which shall generate revenues. There can be no assurance that
acceptable financing to fund our ongoing operations can be obtained on suitable
terms, if at all. If we are unable to obtain the financing necessary to support
our operations, we may be unable to continue as a going concern. In that event,
we may be forced to cease operations and our stockholders could lose their
entire investment in our company.
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ITEM 4T. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as defined in Rule
13a-15(e) of the Exchange Act. These disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure. Based on that evaluation and the material weakness
described below, management concluded that we did not maintain effective
disclosure controls and procedures as of March 31, 2009. Our management has
identified control deficiencies regarding a lack of segregation of duties, an
insufficient qualification and training of employees, and a need for stronger
internal control environment. Our management believes that these deficiencies,
which in the aggregate constitute a material weakness, are due to the small size
of our staff, exacerbated by the resignations of our CEO and CFO in 2007. The
Board took action to replace these positions during 2008; however, our small
size continues to make it challenging to maintain adequate controls due to the
potential costs of remediating our other deficiencies.
The ineffectiveness of disclosure controls and procedures as of March 31, 2009
stemmed in large part from several significant changes of the Company's
executive officers, discontinued operations and personnel cutbacks. Although we
continue to strive to provide improved disclosure controls and procedures in the
future, in the interim, these changes cause control deficiencies, which in the
aggregate resulted in a material weakness.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There has been no change in our internal control over financial reporting during
the first quarter of 2009 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS.
10.1 Business Sale Agreement, dated April 7, 2009, by Two Way Media Limited, Two
Way Gaming Limited and Netplay TV, plc.
10.2 Settlement and Termination Agreement, dated April 6, 2009, by Virgin Media
Television Limited, Two Way Media Limited, Two Way Gaming Limited and Two
Way Media Holdings Limited.
10.3 Orderly Market Agreement, dated April 6, 2009, between Win Gaming Media,
Inc., Netplay TV, plc and Panmure Gordon & Co.
10.4 Intellectual Property and Technology Purchase Agreement, dated April 13,
2009 (incorporated by reference from our Current Report on Form 8-K filed
with the Securities and Exchange Commission on April 16, 2009).
* 31.1 Rule 13a-14(a) Certification of Principal Executive Officer.
* 31.2 Rule 13a-14(a) Certification of Principal Financial Officer.
** 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350.
** 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350.
----------------
* Filed herewith
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized:
WIN GAMING MEDIA, INC.
Dated: May 13, 2009 By: /s/ Shimon Citron
---------------------
Shimon Citron
Chief Executive Officer
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