WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS (EXCEPT SHARE DATA)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
2009 2008 2009 2008
----------- ----------- ----------- -----------
UNAUDITED UNAUDITED
------------------------------- -------------------------------
Revenues :
Revenues from software applications $ 59,734 $ 257,815 $ 27,787 $ 128,581
Revenues from services to affiliated company - 729,175 - 346,921
----------- ----------- ----------- -----------
Total Revenues 59,734 986,990 27,787 475,502
Cost of revenues 265,957 774,096 106,196 340,669
----------- ----------- ----------- -----------
Gross profit (loss) (206,223) 212,894 (78,409) 134,833
Operating expenses:
Research and development - 102,648 - 70,037
Selling and marketing - 23,105 - 3,844
Gain on sale of intellectual property (150,000) - (150,000) -
General and administrative 261,792 46,729 163,118 31,040
----------- ----------- ----------- -----------
Total operating expenses 111,792 172,482 13,118 104,921
----------- ----------- ----------- -----------
Operating (loss) income (318,015) 40,412 (91,527) 29,912
Financial expenses, net 14,480 159,969 11,623 108,180
Other income 1,514,680 - 1,514,680 -
----------- ----------- ----------- -----------
Net income (loss) before taxes on income 1,182,185 (119,557) 1,411,530 (78,268)
Taxes on income (35,163) - - -
----------- ----------- ----------- -----------
1,147,022 (119,557) 1,411,530 (78,268)
Equity in losses of affiliated company 114,046 932,470 85,863 471,992
----------- ----------- ----------- -----------
Net income (loss) from continuing operations 1,032,976 (1,052,027) 1,325,667 (550,260)
Net loss from discontinued operations, net - 30,378 - 30,378
----------- ----------- ----------- -----------
Net income (loss) $ 1,032,976 $(1,082,405) $ 1,325,667 $ (580,638)
Net income attributable to non controlling interest 30,000 - 30,000 -
----------- ----------- ----------- -----------
Net income (loss) attributable to the company $ 1,002,976 $(1,082,405) $ 1,295,667 $ (580,638)
=========== =========== =========== ===========
Basic and diluted net income (loss) per share
from continuing operations $ 0.03 $ (0.03) $ 0.04 $ (0.01)
Basic and diluted net loss per share from
discontinued operations - - - -
----------- ----------- ----------- -----------
Total Basic and diluted net income (loss) per share $ 0.03 $ (0.03) $ 0.04 $ (0.01)
=========== =========== =========== ===========
Weighted average number of shares of Common stock
used in computing basic and diluted net loss per
share 32,319,031 32,319,031 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
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2009 2008 2009 2008
----------- ---------- ----------- ----------
UNAUDITED UNAUDITED
------------------------------ ------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,002,976 $(1,082,405) 1,295,667 $ (580,638)
Adjustments required to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,420 211,086 2,210 78,007
Decrease (increase) in trade and other accounts
receivable prepaid expenses, and related parties 8,041 (616,038) (53,235) (340,371)
Stock-based compensation 45,000 51,960 20,184 1,133
Increase (decrease) in trade payables (14,420) (2,394) (6,646) 13,114
Decrease in employees and payroll accruals - (121,072) - (12,777)
Increase (decrease) in accrued expenses and other
liabilities (24,572) 2,004 (23,097) 4,324
Change in value of convertible debt, net - 40,076 - 40,076
Gain on sale of intellectual property (150,000) (150,000)
Accrued severance pay, net - 2,119 - -
Equity in losses of affiliated company 114,046 997,473 85,863 536,995
Capital gain on sale of property and equipment - (40,350) - -
Impairment of discontinued assets - 27,856 - 27,856
Capital gain from selling IP in affiliated company (1,514,680) - (1,514,680) -
Non controlling interest in subsidiaries 30,000 - 30,000 -
----------- ----------- ----------- -----------
Net cash used in operating activities (501,189) (529,685) (313,734) (232,281)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment - 65,000 - -
Proceeds from sale of intellectual property 150,000 - 150,000 -
----------- ----------- ----------- -----------
Net cash provided by investing activities 150,000 65,000 150,000 -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible debt and warrants, net - 336,574 - 235,285
Short-term bank credit, net (2,981) - (1,308) -
----------- ----------- ----------- -----------
Net cash provided (used in) by financing activities (2,981) 336,574 (1,308) 235,285
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash and cash
equivalents - (971) - -
----------- ----------- ----------- -----------
Decrease in cash and cash equivalents (354,170) (129,082) (165,042) 3,004
Cash and cash equivalents at the beginning of the period 529,130 147,046 340,002 14,960
----------- ----------- ----------- -----------
Cash and cash equivalents at the end of the period $ 174,960 $ 17,964 $ 174,960 $ 17,964
NON-CASH TRANSACTION
Portion of selling fixed assets allocated to related
parties - 65,000 - -
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 28 $ 168 $ 19 $ -
=========== =========== =========== ===========
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. As a result from the
transactions, detailed in Note 1 B and C the Company provides only
software and technology that support fixed odds games. 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.
The Company is 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 1 B and C, 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.
The Company's shares are currently traded on the OTC Bulletin Board
under the trading symbol WGMI.OB (formerly ZFPI.OB).
B. On April 7, 2009, TWG, an affiliate of which the Company is a 50%
shareholder, and Two Way Media ("TWM"), the other 50% shareholder of
TWG (TWG and TWM, the "Sellers"), entered into an agreement (the
"Netplay Transfer Agreement"), with Netplay TV Plc ("Netplay"). The
Netplay Transfer Agreement includes the transfer of Challenge
Jackpot's approximately 16,000 registered players, their account
balances and the equipment to run the business. The consideration for
the sale of the Challenge Jackpot business was (pound)2,000,000, the
vast majority of the consideration was attributable to the database
allowing business continuity for the Challenge Jackpot customers. The
consideration was paid in newly issued ordinary shares of Netplay.
At the closing, Netplay issued 8,533,333 shares of its ordinary shares
to TWG, which shares were admitted to trading on May 21, 2009 on the
London Stock Exchange plc's market known as AIM. Of these shares,
4,266,666 shares have been transferred to the Company and deposited
with Panmure Gordon & Co., to be sold by it during the first year
from the closing, as it shall reasonably require with a view to
maintain an orderly market in the shares of Netplay. In addition, the
Sellers and Netplay have agreed that Netplay will assist the Sellers
with the operation that TWG continue to own, including the online
casino, WinnerChannel.com, and a gambling service business (the
"Teletext Business") which is marketed and distributed by Teletext
Limited.
F - 6
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1: GENERAL (CONT.):
B. (CONT.):
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.
The Sellers and Virgin Media Television Limited, or Virgin, entered
into a Termination and Settlement Agreement under which, on the
closing 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.
In addition, the Sellers and Virgin agreed that, the guarantee for the
unpaid players' balances of TWG will be removed by September 30, 2009
or earlier upon the grant of a gaming license to Netplay. Both the
Company and TWM were liable in equal parts for their above mentioned
guarantees. Currently, the Company's share of 50% in both the minimum
guarantee fees towards Virgin and the sum of the players' balance
matches its prior investment amount in TWG.
As a result from the transaction the Company received from TWG
NetPlay's 4,266,666 shares. The Company recorded the acceptance of the
shares as other income on the closing date. The shares are presented
as available for sale marketable securities and recorded at fair
value.
C. 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, for
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 duration. The transaction closed
on April 16, 2009. Of the total consideration, $150,000 was 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. 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.
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. The selling of the intellectual property by RNG
was recorded as operating income in the amount of $150,000 based on
the cash received until the balance sheet date.
F - 7
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1: GENERAL (CONT.):
D. Concentration of risk that may have a significant impact on the
Company: The Company derived approximately 100% of its revenues in the
six and three months ended June 30, 2009 from 2 major customers (see
Note 4).
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 six and three months ended June 30, 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. The Company accounts for investments in marketable securities in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities".
Management determines the appropriate classification of its
investments at the time of purchase and reevaluates such
determinations at each balance sheet date.
All marketable securities are reported at fair value based on quoted
market and classified as available for-sale. Available for sale
securities are carried at fair value, with the unrealized gains and
losses, reported in "accumulated other comprehensive income (loss)" in
equity.
D. Accounting for stock-based compensation
Effective January 1, 2006, the Company adopted the provisions of SFAS
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.
F - 8
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (CONT.):
D. (CONT.):
The following table shows the total stock-based compensation charge
included in the Consolidated Statement of Operations:
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2009 2008 2009 2008
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------- ------- ------- -------
Research and development expenses (income) $ - $29,144 $ - $ (148)
Sales and marketing expenses - 9,530 - 1,032
General and administrative expenses 45,000 13,286 20,184 249
------- ------- ------- -------
Total $45,000 $51,960 $20,184 $ 1,133
======= ======= ======= =======
The fair value for these options was estimated at the grant date using
a Black-Scholes option pricing model as allowed under SFAS 123R.
A summary of the Company's share option activity to employees and
directors, and related information is as follows:
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------
2009 2008
------------------------ ------------------------
UNAUDITED UNAUDITED
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE
--------- --------- --------- ---------
$ $
--------- ---------
Outstanding at the beginning of
the year 7,511,379 0.57 3,950,965 0.98
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
========= ========= ========= =========
F - 9
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
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:
SIX MONTHS ENDED
JUNE 30,
-----------------------
2009 2008
-------- --------
TOTAL REVENUES
-----------------------
Alderney $ - $729,175
Australia - 175,000
United States 59,734 82,815
-------- --------
$ 59,734 $986,990
======== ========
B. Major customer data as a percentage of total revenues:
SIX MONTHS ENDED
JUNE 30,
------------------
2009 2008
-------- --------
Customer A (an affiliate company) - 74%
======== ========
Customer B - 18%
======== ========
Customer C 92% *)
======== ========
Customer D 8% -
======== ========
*) Represents an amount lower than 10%.
F - 10
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 5: RECENTLY ADOPTED ACCOUNTING STANDARDS
Recently Issued Accounting Standards: In June 2009, the Financial
Accounting Standards Board ("FASB") issued .SFAS No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 168 establishes the FASB Accounting
Standards Codification ("Codification") as the single source of
authoritative U.S. generally accepted accounting principles (U.S. GAAP)
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws
are also sources of authoritative U.S. GAAP for SEC registrants. SFAS No.
168 and the Codification are effective for financial statements issued for
interim and annual periods ending after September 15, 2009. As the
Codification does not change current GAAP, the Company does not expect the
adoption of SFAS No. 168 will affect the Company's consolidated financial
position, results of operations or cash flows.
On May 28, 2009, the FASB issued SFAS No. 165-Subsequent Events ("SFAS No.
165"). SFAS No. 165 provides guidance on management's assessment of
subsequent events and requires additional disclosure about the timing of
management's assessment of subsequent events. SFAS No. 165 does not
significantly change the accounting requirements for the reporting of
subsequent events. SFAS No. 165 is effective for interim or annual
financial periods ending after June 15, 2009. The Company adopted SFAS No.
165 as of June 30, 2009 and the adoption of this standard did not
materially impact the Company's financial position, results of operations,
changes in net assets or disclosures in the financial statements.
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 and growth plans and opportunities,
including our expectation that our cash, together with our Netplay shares,
should be sufficient to meet our anticipated requirements for the next 12
months, 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., or the Company, 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
transaction closed on May 21, 2009, following the approval thereof by Netplay's
shareholders on May 11, 2009, the completion of the agreement between Netplay
and Virgin for the assignment of the agreement dated June 2008, between TWG and
Virgin and the payment of UK(pound) 200,000 from TWG to Virgin. At the closing,
Netplay issued 8,533,333 shares of its ordinary shares to TWG, which shares were
admitted to trading on May 21, 2009 on the London Stock Exchange plc's market
known as AIM. Of these shares, 4,266,666 shares have been transferred to us and
deposited with Panmure Gordon & Co., to be sold by the latter during the first
year from the closing, as it shall reasonably require with a view to maintaining
an orderly market in the shares of Netplay.
3
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, or the Teletext Business, which is marketed and
distributed by Teletext Limited under an agreement between TWM, Teletext Limited
and St Minver Limited. 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.
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, for
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 duration. 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 our company) 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 June 30, 2009, we had an accumulated deficit of
$16,807,471. There is no assurance that profitable operations, if ever achieved,
will be sustained on a continuing basis. During the six and three months ended
June 30, 2009, we derived 100% of our revenues from two major customers -
Cablevision and Lodgenet.
To control expenses we are managed by a Chief Executive Officer, who is engaged
on a part time basis and an external Chief Financial Officer. All services
provided by the foregoing are rendered to us on an outsourced contractual basis
and we have no employees on our payroll.
4
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO SIX
AND THREE MONTHS ENDED JUNE 30, 2008.
REVENUES AND COST OF REVENUES
In the six and three months ended June 30, 2009, we generated revenues only from
our software applications. We did not generate any income from equity revenues
from Win Gaming Media, Inc., Delaware, or from our wholly-owned subsidiary, Win
Gaming Media (Israel) Ltd., formerly known as MixTV Ltd. Further, we did not
recognize 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 June 30, 2009 decreased by 94.1% to $27,787 from $475,502 for
the three months ended June 30, 2008. Total revenues for the six months ended
June 30, 2009 decreased by 93.8% to $59,734 from $986,990 for the six months
ended June 30, 2008.
Cost of revenues for the three months ended June 30, 2009 decreased by 68.9% to
$106,196 from $340,669 for the three months ended June 30, 2008. Cost of
revenues for the six months ended June 30, 2009 decreased by 65.6% to $265,957
from $774,096 for the six months ended June 30, 2009. 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 June 30, 2009
decreased by 100% to $0 from $70,037 for the three months ended June 30, 2008.
Research and development expenses for the six months ended June 30, 2009
decreased by 100% to $0 from $102,648 for the six months ended June 30, 2008.
The decreases are primarily attributable to the transfer and layoff of employees
following the sale of the intellectual property and technology of WGMI, no
general and administrative expenses currently being allocated to the research
and development department as a result of the transfer and lay off of employees,
and no stock based compensation due to headcount reduction.
SALES AND MARKETING
Sales and marketing expenses for the three months ended June 30, 2009 decreased
by 100% to $0 from $3,844 for the three months ended June 30, 2008. Sales and
marketing expenses for the six months ended June 30, 2009 decreased by 100% to
$0 from $23,105 for the six months ended June 30, 2009. The decreases in sales
and marketing expenses are primarily attributable to the transfer and layoff of
employees, no stock based compensation, no general and administrative expenses
currently being 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 June 30, 2009
increased by 425% to $163,118 from $31,040 for the three months ended June 30,
2008. General and administrative expenses for the six months ended June 30, 2009
increased by 460% to $261,792 from $46,729 for the six months ended June 30,
2008. The increases in general and administrative expenses are primarily
attributable to the change in allocating general and administrative expenses.
During the three and the six months ended June 30, 2009 none of the general and
administrative expenses were allocated to other expenses, while during the three
and the six months ended June 30, 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 and six months ended June 30, 2009 increased by 100%
to $1,514,680 from $0 for the three and the six months ended June 30, 2008. The
other income for the three and the six months ended June 30, 2009 is due to the
acceptance of 4,266,666 Netplay shares, valued and recorded at $1.5 million.
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NET INCOME
Net income attributable to the company for the three months ended June 30, 2009
was $1,295,667 compared to a net loss of $580,638 for the three months ended
June 30, 2008. Net income attributable to the company for the six months ended
June 30, 2009 was $1,002,976 compared to a net loss of $1,082,405. Net income
per share from operations for the three months ended June 30, 2009 was $0.04 as
compared to a net loss per share of $0.01 for the three months ended June 30,
2008. Net income per share from operations for the six months ended June 30,
2009 was $0.03 as compared to a net loss of $0.03 for the six months ended June
30, 2008. The net income for the three and the six month periods ended June 30,
2009 is primarily attributable to the Netplay transfer agreement in which the
Company received 4,266,666 Netplay shares valued at $1.5 million. Our weighted
average number of shares of common stock used in computing basic and diluted net
income per share for the three and six months ended June 30, 2009 and net loss
per share for the three and six months ended June 30, 2008 was 32,319,031.
EQUITY LOSSES OF AFFILIATED COMPANY
Equity losses for the three months ended June 30, 2009 decreased by 81.8% to
$85,863 from $471,992 for the three months ended June 30, 2008. Equity losses
for the six months ended June 30, 2009 decreased by 87.8% to $114,046 from
$932,470 for the six months ended June 30, 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 June 30, 2009, our total current assets were $304,187 and the total
current liabilities were $295,094. On June 30, 2009, we had an accumulated
deficit of $16,807,471. We currently finance our operations through sale of
assets and revenues from services. We had working capital of $9,093 on June 30,
2009 compared with a working capital of $329,332 on December 31, 2008. Cash and
cash equivalents on June 30, 2009 were $174,960, a decrease of $354,170 from the
$529,130 reported on December 31, 2008. The decrease in cash is primarily
attributable to our cost of operation. As a result of the proceeds received from
the sale of our CJ gaming service to Netplay and the closing of the agreement
with Netplay, we expect to be able to finance our operations for the next 12
months assuming a market for the sale of our Netplay shares will continue to
exist.
Operating activities used cash of $501,189 in the six months ended June 30,
2009. Cash used by operating activities in the six months ended June 30, 2009
results primarily from a loss of operation of $318,015, a $14,420 decrease in
trade payables, a $24,572 decrease in accrued expenses and other liabilities
offset by $114,046 in equity losses of an affiliated company.
Investing activity provided in the six months ended June 30, 2009 amounted to
$150,000 resulted from the BJ operation conducted in RNG.
Financing activities used cash of $2,981 in the six months ended June 30, 2009
which is due to the use of short-term bank credit.
OUTLOOK
Our current cash, together with our Netplay shares, should be sufficient to meet
our anticipated requirements for the next 12 months. We are currently evaluating
various business opportunities that can be integrated into our company and help
it grow. We are also seeking 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 is no assurance that our efforts
will be successful.
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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 June 30, 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, which makes it challenging to maintain adequate controls.
The ineffectiveness of disclosure controls and procedures as of June 30, 2009
stemmed in large part from several significant changes in 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 have caused 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 second 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.
*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: August 14, 2009 By: /s/ Shimon Citron
---------------------
Shimon Citron
Chief Executive Officer
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