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 September 30, 2008
[_] 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 of incorporation) (IRS Employer Identification No.)
103 FOULK ROAD, WILMINGTON, DELAWARE
(Address of principal executive offices)
(972) - 3 - 647-1884
(Registrant's telephone number, including area code)
WIN GAMING MEDIA, INC.
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 is large accelerated filer, an
accelerated filer, or a non-accelerated filer. See of "accelerated filer and
large accelerated filer" 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 November 14, 2008.
PAGE
----
PART I - FINANCIAL INFORMATION:
Item 1. Balance Sheet (Unaudited) F-2 - F-3
Statements of Operations and Comprehensive
Income (Loss) (Unaudited) F-4
Statements of Cash Flows (Unaudited) F-5
Notes to Financial Statements (Unaudited) F-6 - F-11
Item 2. Management's Discussion and Analysis And
Results of Operations 3
Item 4T. Controls and Procedures 7
PART II - OTHER INFORMATION:
Item 6. Exhibits 9
SIGNATURES 10
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WIN GAMING MEDIA, INC.
(FORMERLY KNOWN AS: ZONE 4 PLAY, INC)
AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2008
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. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
SEPTEMBER 30, DECEMBER 31
---------- ----------
2008 2007
---------- ----------
UNAUDITED
----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 359,939 $ 147,046
Trade receivables
(net of allowance for doubtful accounts of $405,452) 124,369 117,793
Other accounts receivable, prepaid expenses , and related parties 614,346 131,046
Assets attributed to discontinued operations - 31,506
---------- ----------
TOTAL current assets 1,098,654 427,391
---------- ----------
RELATED PARTIES
(net of allowance for doubtful accounts of $924,742) 39,182 294,526
---------- ----------
SEVERANCE PAY FUND 70,430 78,453
---------- ----------
PROPERTY AND EQUIPMENT, NET 125,536 322,581
---------- ----------
ACQUIRED TECHNOLOGY, NET - 107,309
---------- ----------
Total assets $1,333,802 $1,230,260
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 2
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS
SEPTEMBER 30, DECEMBER 31
------------ ------------
2008 2007
------------ ------------
UNAUDITED
------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Trade payables 83,932 115,968
Employees and payroll accruals 54,027 287,441
Accrued expenses and other liabilities 405,972 188,843
Liabilities attributed to discontinued operations - 25,051
------------ ------------
TOTAL current liabilities 543,931 617,303
------------ ------------
Call option 206,768 206,768
Accrued Severance pay 134,389 140,293
------------ ------------
TOTAL Long term liabilities 341,157 347,061
------------ ------------
TOTAL liabilities 885,088 964,364
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES - -
INVESTMENT IN AFFILIATED COMPANY 977,343 516,355
STOCKHOLDERS' DEFICIENCY :
Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares at September 30, 2008 and December 31, 2007; Issued
and outstanding: 32,319,031 shares at September 30, 2008 and December 31,2007,
respectively 32,319 32,319
Additional paid-in capital 17,296,404 17,060,714
Accumulated other comprehensive loss (8,047) (7,504)
Accumulated deficit (17,849,305) (17,335,988)
============ ============
TOTAL stockholders' deficiency $ (528,629) $ (250,459)
TOTAL liabilities and stockholders' deficiency $ 1,333,802 $ 1,230,260
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
F - 3
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS (EXCEPT SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
UNAUDITED
------------------------------------------------------------------
Revenues:
Revenues from software applications $ 330,371 $ 698,198 $ 72,556 $ 214,328
Revenues from services to affiliated company 729,175 - - -
------------ ------------ ------------ ------------
Total Revenues 1,059,546 698,198 72,556 $ 214,328
------------ ------------ ------------ ------------
Cost of revenues 1,128,463 276,711 354,367 89,423
------------ ------------ ------------ ------------
Gross profit (loss) 68,917 421,487 (281,811) 124,905
------------ ------------ ------------ ------------
Operating expenses:
Research and development 161,849 1,618,437 59,201 341,189
Selling and marketing 29,410 133,296 6,304 20,094
General and administrative 347,314 1,305,014 300,586 702,399
------------ ------------ ------------ ------------
Total operating expenses 538,573 3,056,747 366,091 1,063,682
------------ ------------ ------------ ------------
Operating loss (607,490) (2,635,260) (647,662) (938,777)
Financial expenses, net 406,762 57,026 246,793 34,630
------------ ------------ ------------ ------------
Other income 1,690,488 69,592 1,690,488 31,550
------------ ------------ ------------ ------------
676,236 (2,622,694) 796,033 (872,597)
Equity in profit (losses) of affiliated company (1,181,114) - (248,644) -
Minority interests in losses of subsidiaries - 138,374 - (36,190)
------------ ------------ ------------ ------------
Net income (loss) from continuing operation (504,878) (2,484,320) 547,389 (905,667)
Net income (loss) from discontinued operation, net (8,439) (620,250) 21,939 (54,920)
------------ ------------ ------------ ------------
Net Loss (513,317) (3,104,570) 569,328 (960,587)
============ ============ ============ ============
Basic and diluted net income (loss) per share from
continuing operation $ (0.015) $ (0.078) $ 0.017 $ (0.028)
Basic and diluted net loss per share from discontinued
operation $ (0.000) $ (0.019) $ 0.000 $ (0.002)
------------ ------------ ------------ ------------
Total Basic and diluted net loss per share $ (0.015) $ (0.097) $ 0.017 $ (0.030)
============ ============ ============ ============
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. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
UNAUDITED UNAUDITED
---------------------------- ----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (513,317) $(3,104,570) $ 569,328 $ (960,587)
Adjustments required to reconcile net profit (loss) to net
cash used in operating activities:
Depreciation and amortization 205,068 514,114 (6,019) 163,604
Decrease (increase) in trade and other accounts
receivable prepaid expenses, and related parties (385,580) 880,158 165,455 436,436
Stock-based compensation 111,670 313,230 59,710 70,379
Decrease (increase) in trade payables (57,087) (260,716) (54,693) 16,989
Increase (decrease) in employees and payroll accruals (233,415) (241,875) (112,343) (100,818)
Increase (decrease) in accrued expenses and other
liabilities 217,133 (358,197) 215,129 (94,374)
Change in value of convertible debt, net 124,020 - 83,944 -
Accrued severance pay, net 2,119 (112,152) - (75,392)
Equity in losses (profit) of affiliated company 1,181,114 - 248,644 -
Capital loss (gain) on sale of property and equipment (96,189) 24,166 (56,078) 8,431
Capital gain on sale of intellectual property (1,690,488) - (1,690,488) -
Impairment of discontinued assets, net 27,856 - - -
Minority interests in losses of subsidiaries - (138,374) - (36,190)
----------- ----------- ----------- -----------
Net cash used in operating activities (1,107,096) (2,484,216) (577,411) (571,522)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 70,960 - 5,960 -
Proceeds from sale of intellectual property 1,250,000 1,250,000
Purchase of property and equipment - (10,935) - -
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities 1,320,960 (10,935) 1,255,960 -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible note, shares and warrants, net 550,000 (6,867) 213,426 -
Redemption of convertible note (550,000) (550,000)
Short-term bank credit, net - (16,750) - -
----------- ----------- ----------- -----------
Net cash provided by financing activities - (23,617) (336,574) -
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents (971) 11,819 - 13,199
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 212,893 (2,506,949) 341,975 (558,323)
Cash and cash equivalents at the beginning of the period 147,046 3,019,282 17,964 1,070,656
----------- ----------- ----------- -----------
Cash and cash equivalents at the end of the period $ 359,939 $ 512,333 $ 359,939 $ 512,333
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 168 $ 1,212 $ (1,139) $ 849
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 1: GENERAL
a. On May 1, 2008 the company has changed its name to Win Gaming Media.
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 b.
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.
The Company conducts its operations and business with and through its
subsidiaries, (1) Zone4Play (Delaware), (2) Zone4Play Limited, an
Israeli corporation incorporated in July 2001, which is engaged in
research and development and marketing of the applications, (3)
Zone4Play (UK) Limited, a United Kingdom corporation, incorporated in
November 2002, which is engaged in marketing of the applications, (4)
Win Gamin Media (Israel) Ltd (formerly known as MixTV Ltd.), an
Israeli corporation which develops and markets participation TV games
applications., and (5) Gaming Ventures Plc ("Gaming") , a company
incorporated in the Isle of Man .
The Company's shares of common stock are currently traded on the OTC
Bulletin Board under the trading symbol "WGMI.OB"
b. The Company has suffered losses from operations and negative cash
flows from operations since inception. For the nine months ended
September 30, 2008 the Company incurred a negative cash flow from
operations of $1,107,096 and has accumulated deficit of $17,849,305 as
of September 30, 2008. Despite its negative cash flows, the Company
has been able to secure financing in order to support its operation to
date, based on shares issuances and proceeds from the Intellectual
Property and Technology Agreement signed with Playtech (Note 1.d.).
c. According to the agreement between the Company and Zone4Play
(Delaware), the Company issued 10,426,190 shares of common stock to
the former holders of equity interest in Zone4Play (Delaware). The
acquisition has been accounted for as a reverse acquisition, whereby
the Company was treated as the acquiree and Zone4Play (Delaware) as
the acquirer, primarily because Zone4Play (Delaware) shareholders
owned a majority, approximately 58% of the Company's common stock,
upon completion of the acquisition. Immediately prior to the
consummation of the transaction, the Company had no material assets
and liabilities, hence the reverse acquisition is treated as a capital
stock transaction in which Zone4Play (Delaware) is deemed to have
issued the common stock held by the Company shareholders for the net
assets of the Company. The historical financial statements of
Zone4Play (Delaware) became the historical financial statements of the
Company.
d. On November 6, 2007, the Company and Two Way Media Ltd (the "Parties")
have incorporated a new entity in Alderney bearing the name Two Way
Gaming Limited ("TWG")to conduct all gaming activity undertaken by the
Parties on interactive television, mobile telephony, participation
television and the internet. Both companies are equal holders of the
issued shares of TWG. On the same day the Parties agreed to grant to
Winner.com (UK) ltd ("winner") in exchange to the brand name winner an
option to purchase directly from Z4P part of Z4P's shareholding in TWG
equivalent to 7.5% of the TWG's total shares subject to certain
events. The call option was accounted for as a derivative pursuant to
EITF 00-06 "Accounting for Freestanding Derivative Financial
Instruments Indexed to, and Potentially Settled in, the Stock of a
Consolidated Subsidiary". Since the company holds 50% of TWG's issued
shares, it accounts for its investment under the equity method. Until
September 30, 2008 the asset due to services provided by the Company
to TWG was classified as related parties. During the period of three
months ended on September 30, 2008, the company has decided to include
an allowance for doubtful accounts of $924,742 due to the uncertainty
of receiving payments from TWG within the next 12 months.
e. On July 31, 2008 the company has signed an agreement with Playtech
Software Limited ("Playtech") for the sale of all the Intellectual
Property and certain computer servers and hardware of its fully owned
subsidiary MixTV Ltd for consideration of $1,750,000. Out of the
consideration amount, $1,250,000 was received and the additional
amount of $500,000 was put in escrow and released to the Company on
November 7, 2008. Under the agreement, MixTV has terminated the
employment of all of its employees most of which where hired by
Playtech.
f. Concentration of risk that may have a significant impact on the
Company:
The Company derived 85% of its revenues from two major customers (see
Note 4b).
F - 6
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, 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-QSB.
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 nine months ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2008. For further information, reference is made to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2007.
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, 2007 contained in
the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission ("SEC") on April 15, 2008, 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, 2007 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,
2007 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 ("SFAS") No. 123 (revised 2004) ("SFAS 123(R)"),
"Share-Based Payment," and Staff Accounting Bulletin No. 107 ("SAB
107"), which was issued in March 2005 by the SEC. SFAS 123(R)
addresses the accounting for share-based payment transactions in which
the Company obtains employee services in exchange for equity
instruments of the Company.
F - 7
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (CONT.)
This statement requires that employee equity awards be accounted for
using the grant-date fair value method. SAB 107 provides supplemental
implementation guidance on SFAS 123(R), 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:
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2008 2007 2008 2007
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------- -------- -------- --------
Research and development expenses (income) $ 54,925 $ 86,750 $ 24,601 $ 9,191
Sales and marketing expenses 15,585 21,158 7,235 2,389
General and administrative expenses 41,160 205,322 27,874 58,799
-------- -------- -------- --------
Total $111,670 $313,230 $ 59,710 $ 70,379
======== ======== ======== ========
The fair value for these options was estimated at the grant date using
a Black-Scholes option pricing model as allowed Under SFAS 123(R).
A summary of the Company's share option activity to employees and
directors, and related information is as follows:
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------
2008 2007
------------------------- ------------------------
UNAUDITED UNAUDITED
------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE
---------- ---------- ---------- ----------
$ $
---------- ----------
Outstanding at the
beginning of the year 3,950,965 0.98 7,653,046 1.01
Granted 2,400,000 0.06 500,000 0.58
Forfeited (324,586) 0.58 (2,225,414) 0.81
---------- ----------
Outstanding at the end of
the quarter 6,026,379 0.82 5,297,632 0.93
========== ========== ========== ==========
Options exercisable at the
end of the quarter 3,532,292 1.00 4,245,779 0.91
========== ========== ========== ==========
The Company applies Emerging Issues Task Force 96-18, "Accounting for
Equity Instruments that Are Issued to Other than Employees for
Acquiring or in Conjunction with Selling, Goods or Services" ("EITF
96-18") with respect to options and warrants issued to non-employees.
F - 8
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, 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:
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2008 2007
---------- ----------
TOTAL REVENUES
----------------------------
Alderney $ 729,175 $ -
Australia 175,000 262,500
United States 155,371 121,368
England - 252,855
Antigua and Barbuda - 60,945
Others - 530
---------- ----------
$1,059,546 $ 698,198
========== ==========
b. Major customer data as a percentage of total revenues:
NINE MONTHS ENDED
SEPTEMBER 30,
----------------
2008 2007
------ ------
Customer A (an affiliate company) 69% 38%
====== ======
Customer B 16% 33%
====== ======
Customer C *) 10%
====== ======
Customer D *) *)
====== ======
*) Represents an amount lower than 10%.
NOTE 5: RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). This Standard
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. The provisions of SFAS No. 157 are effective for the
Company beginning January 1, 2008. The FASB issued a FASB Staff Position
(FSP) to defer the effective date of SFAS No. 157 for one year for all
nonfinancial assets and nonfinancial liabilities, except for those items
that are recognized or disclosed at fair value in the financial statements
on a recurring basis. The adoption of this statement didn't have a material
effect on the Company's consolidated financial statements.
In February 2007, the FASB issued FAS 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." This standard permits entities
to choose to measure many financial assets and financial liabilities at
fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. As applicable to the
Company, this statement will be effective as of the year beginning January
1, 2008.
F - 9
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 5: RECENTLY ISSUED ACCOUNTING STANDARDS (CONT.)
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations."
SFAS No. 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, the goodwill acquired, and any
noncontrolling interest in the acquire. This Statement also establishes
disclosure requirements to enable the evaluation of the nature and
financial effect of the business combination. SFAS No. 141(R) is effective
for fiscal years beginning after December 15, 2008. Earlier adoption is
prohibited. The Company is currently evaluating the potential impact, if
any, of the adoption of FAS 141(R) on its consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements - an amendment of ARB No. 51." SFAS
No. 160 establishes accounting and reporting standards pertaining to
ownership interests in subsidiaries held by parties other than the parent,
the amount of net income attributable to the parent and to the
noncontrolling interest, changes in a parent's ownership interest, and the
valuation of any retained noncontrolling equity investment when a
subsidiary is deconsolidated. This Statement also establishes disclosure
requirements that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. SFAS No. 160 is
effective for fiscal years beginning on or after December 15, 2008. The
Company is currently evaluating the potential impact, if any, of the
adoption of SFAS No. 160 on its consolidated financial statements.
In December 2007, the SEC issued Staff Accounting Bulleting No. 110 ("SAB
110") relating to the use of a "simplified" method in developing an
estimate of the expected term of "plan vanilla" share options. SAB 107
previously allowed the use of the simplified method until December 31,
2007. SAB 110 allows, under certain circumstances, to continue to accept
the use of the simplified method beyond December 31, 2007. The adoption of
SAB 110 has an impact on the consolidated financial statements since the
Company uses the "simplified" method in developing an estimate of the
expected term on its share options.
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). This statement is intended to improve transparency in financial
reporting by requiring enhanced disclosures of an entity's derivative
instruments and hedging activities and their effects on the entity's
financial position, financial performance, and cash flows. SFAS 161 applies
to all derivative instruments within the scope of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) as well as
related hedged items, bifurcated derivatives, and nonderivative instruments
that are designated and qualify as hedging instruments. Entities with
instruments subject to SFAS 161 must provide more robust qualitative
disclosures and expanded quantitative disclosures. SFAS 161 is effective
prospectively for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
permitted. The Company is currently evaluating the disclosure implications
of this statement.
F - 10
WIN GAMING MEDIA, INC. (FORMERLY KNOWN AS: ZONE 4 PLAY, INC.) AND ITS
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS
NOTE 6: SUBSEQUENT EVENTS
On October 28, 2008 MixTV Ltd has changed its name to Win Gaming Media
(Israel) Ltd. Win Gaming Media (Israel) Ltd. an Israeli corporation which
developed and markets participation TV games applications.
F - 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking statements.
Forward-looking statements may 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 that we will finance our operations with the proceeds
from the agreement that we signed with Playtech and that these proceeds should
be sufficient to sustain our operations for the next 12 months, or that we will
concentrate on expanding the TWG venture, or that additional cash will be sought
by pursuing sales of our multi-player Black Jack IP and our mobile gaming
application on a revenue-share basis, 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. 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 under the heading "Risks Related to Our Business" in Part I, Item 1,
"Description of Business" of our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2007. 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.
OUR BUSINESS
We are a software and technology developer and provider to companies that
service the interactive gaming industry, delivering cross-platform systems that
are built for mass participation gaming over mobile devices, TV and the
internet. Our software provides and supports play-for-fun and play-for-real
interactive games. We offer four core solutions to companies that offer
play-for-real gaming, namely:
(i) Interactive TV gaming: the provision of software and technology currently
supporting fixed odds games.
(ii) Mobile gaming: the provision of services on mobile devices, including fixed
odds games, multiplayer games, sports betting services, scratch cards and
exchange betting.
(iii) Multiplayer blackjack tournaments: 24/7 availability of a variety of
blackjack tournaments games based on a peer-to-peer technology allowing users to
compete against each other and not against the "house".
(iv) Online gaming: the provision of fixed odds and casino games over the
internet
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Our technology allows our customers to generate additional revenue from their
existing infrastructure and user base by allowing a subscriber to switch from
one platform, such as Interactive TV, mobile, or internet to another platform
using a single account with the same account balance and user information. In
addition, our technology allows mobile service providers, TV broadcasters and
channels to provide additional content, as well as an increased variety of
services, to their customers.
We enter into license and/or revenue-sharing agreements with our customers under
which the customers use our software and technology to offer games to their
subscribers and pay us a fixed fee and/or a percentage of the net revenues
generated from those games.
On November 6, 2007, we and Two Way Media Ltd (the "Parties") have incorporated
a new entity in Alderney bearing the name Two Way Gaming Limited ("TWG") to
conduct all gaming activity undertaken by the Parties on interactive television,
mobile telephony, participation television and the internet. Both companies are
equal holders of the issued shares of TWG. On the same day the Parties together
with Winner.com (UK) Ltd ("Winner"), agreed to terminate the Interactive Fixed
Odds Betting Services Agreement that was signed between them on February 22,
2005, and the Parties have agreed to grant to Winner an option to purchase
directly from us part of our shareholding in TWG equivalent to 7.5% of the TWG's
total shares subject to certain events. Winner is owned by our current Chief
Executive Officer, Mr. Shimon Citron.
On August 6, 2008, our wholly owned subsidiary Win Gaming Media (Israel) Ltd.,
(formerly MixTV Ltd.), an Israeli corporation ("WGMI"), and Playtech Software
Limited, a British Virgin Islands corporation ("Playtech") entered into an
Intellectual Property and Technology Purchase Agreement (the "Agreement") under
which Playtech agreed to purchase substantially all of the assets of WGMI,
including but not limited to WGMI's intellectual property ("Purchased Assets")
in consideration of a total amount of $1,750,000. As of September 1, 2008 (1)
$1,250,000 of cash had been paid by Playtech to WGMI, (2) the remaining amount
of $500,000 has been deposited in escrow in accordance with the provision of the
Agreement and of an escrow agreement entered in connection therewith and has
been released to us on November 7, 2008, (3) all of the employees of WGMI were
terminated and 7 of them became employees of Playtech and (4) all of the
Purchased Assets were transferred to Playtech. In addition, we and Playtech have
entered into a Software License Agreement, under which Playetch granted us a
non-exclusive license to use the software products included in the Purchased
Assets for the sole purpose of providing support and maintenance services to
TWG, company jointly owned by us and Two-Way Media Ltd.
As a result, we no longer offer any gaming applications development work and
currently our efforts are devoted toward maintaining and expanding our jointly
owned TWG business in the UK; seeking a revenue-sharing transaction with respect
to our multi-player Black Jack gaming application, and to leverage our wholly
owned subsidiary that is registered with the SEC under the Securities Exchange
Act of 1934, as amended (the "1934 Act") Gaming Ventures Plc, 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 September 30, 2008, we had an accumulated deficit of
$17,849,305. There is no assurance that profitable operations, if ever achieved,
will be sustained on a continuing basis. During the three months ended September
30, 2008, we derived approximately 85% of our revenues from two major customers.
Our shares of common stock are currently traded on the OTC Bulletin Board.
Effective May 1, 2008 our name was changed to Win Gaming Media, Inc., and on
June 20, 2008, our trading symbol was changed to WGMI.OB.
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.
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We expect to finance our operations with the proceeds from the agreement that we
signed with Playtech, all of which has been fully received. These proceeds
should be sufficient to sustain our operations for the next 12 months. In
addition, we generate 85% of our revenues from 2 existing customers -
Cablevision and TWG. To control expenses we are managed by our CEO on a part
time basis. Other services such as the responsibilities of a CFO and COO shall
continue to be rendered to us on an outsourced contractual basis and we will
have no employees on our payroll. We will concentrate on expanding the TWG
venture, in which we hold 50% of the outstanding equity. Additional cash will be
sought by pursuing sales of our multi-player Black Jack IP and our mobile gaming
application on a revenue-share basis. We will also seek to leverage our wholly
owned subsidiary that is registered with the SEC under the 1934 Act, Gaming
Ventures, by either an outright sale or by incorporating new activities which
shall generate revenues.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 2007 AND NINE MONTHS ENDED SEPTEMBER 30, 2008
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2007.
REVENUES AND COST OF REVENUES
Total revenues for the three months ended September 30, 2008 decreased by 66% to
$72,556 from $214,328 for the three months ended September 30, 2007. Total
revenues for the nine months ended September 30, 2008 increased by 51% to
$1,059,546 from $698,198 for the nine months ended September 30, 2007. The
changes in revenues are mainly due to the service agreement with TWG, our
jointly held company with Two Way Media, offset by the termination of the
agreement with Two Way Media and Winner.com (UK) Ltd and from service revenues
that we had in 2007 due to our license agreement with Golden Palace Ltd for the
license of our multiplayer blackjack tournaments which we didn't have in 2008.
Effective July 1, 2008, we started to recognize revenues from TWG on a cash
basis, since that we have suffered from major decrease in our recognized
revenues.
Cost of revenues for the three months ended September 30, 2008 increased by 296%
to $354,367 from $89,423 for the three months ended September 30, 2007. Cost of
revenues for the nine months ended September 30, 2008 increased by 307% to
$1,128,468 from $276,711. These increases in the cost of revenues are
attributable to costs related to our service agreement with TWG, our jointly
held company with Two Way Media, mainly during the first 6 months ended June 30,
2008.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended September 30, 2008
decreased by 82% to $59,201 from $341,189 for the three months ended September
30, 2007. Research and development expenses for the nine months ended September
30, 2008 decreased by 90% to $161,849 from $1,618,437 for the nine months ended
September 30, 2007. The decreases are primarily attributable to the transfer and
layoff of employees, decreased general and administrative expenses allocated to
the research and development department as a result of the transfer and lay off
of employees, allocation of employees to the cost of service due to our service
agreement with Two Way Gaming, and decreased stock based compensation due to
headcount reduction.
SALES AND MARKETING
Sales and marketing expenses for the three months ended September 30, 2008
decreased by 68% to $6,304 from $20,094 for the three months ended September 30,
2007. Sales and marketing expenses for the nine months ended September 30, 2008
decreased by 78% to $29,410 from $133,296 for the nine months ended September
30, 2007. These decreases in sales and marketing expenses are 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.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended September 30,
2008 decreased by 57% to $300,586 from $702,399 for the three months ended
September 30, 2007. General and administrative expenses for the nine months
ended September 30, 2008 decreased by 73% to $347,314 from $1,305,014 for the
nine months ended September 30, 2007. These decreases in general and
administrative expenses are primarily attributable to the layoff of employees;
decreased stock based compensation and decreased general and administrative
expenses. These decreases are offset by an allowance of $924,742 for doubtful
account related to TWG which was accrued during the period of three months ended
September 30, 2008.These general and administrative expenses were also offset by
an allowance of $720,126 made to reduce our share in TWG losses as a result of
changing our revenue recognition policy from TWG to a cash based recognition.
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OTHER INCOME
Other income for the three and nine months ended September 30, 2008 increased to
$1,690,488 from $31,550 and $69,592 for the three and nine months ended
September 30, 2007, respectively. These increases in other income are
primarily attributable to the capital gain incurred in selling the Purchased
Assets of WGMI to Playtech.
NET INCOME (LOSS)
Net income from continuing operations for the three months ended September 30,
2008 was $547,389 compared to a net loss of $905,667 for the three months ended
September 30, 2007. Net loss from continuing operations for the nine months
ended September 30, 2008 was $504,878 as compared to net loss of $2,484,320 for
the nine months ended September 30, 2007. Net income per share from continuing
operations for the three months ended September 30, 2008 was $0.017_as compared
to a net loss per share of $0.028 for the three months ended September 30, 2007.
Net loss per share for the nine months ended September 30, 2008 was $0.015 as
compared to $0.078 for the nine months ended September 30, 2007. The net loss
decreases for the periods of three and nine months ended September 30, 2008 are
primarily attributable to a decrease in operating expenses due to the layoff of
our employees and decreased stock based compensation and income generated as a
result of the transaction with Playtech. In the period of nine months ended
September 30 2008, we generated $1,181,114 equity losses from our affiliated
company, TWG. The investment is recorded as a liability since we and TWM are
guarantors in equal parts to the affiliated losses. Our weighted average number
of shares of common stock used in computing basic and diluted net loss per share
for the three months ended September 30, 2008 and 2007 was 32,319,031
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2008, total current assets were $1,098,654 and total current
liabilities were $543,931. On September 30, 2008, we had an accumulated deficit
of $17,849,305. We finance our operations and plan to continue doing so with a
combination of stock issuances and revenues from product sales. We had working
capital of $554,723on September 30, 2008 compared with a working capital deficit
of $189,912 on December 31, 2007. Cash and cash equivalents on September 30,
2008 were $359,939, an increase of $212,893 from the $147,046_reported on
December 31, 2007. The increase in cash is primarily attributable to aggregate
proceeds of $1,250,000 received as a result of the agreement that was signed
with Playtech. The remaining amount of $500,000 to be paid to us under this
agreement was deposited in escrow in accordance with the provisions of the
agreement and of an escrow agreement entered in connection therewith and
released to us on November 7, 2008.
Operating activities used cash of $1,107,096 in the nine months ended September
30, 2008. Cash used by operating activities in the nine months ended September
30, 2008 results primarily from a net loss of $513,317, a $233,415 increase in
employees and payroll accruals, offset by a capital gain of $1,786,677 for
selling the Purchased Assets as part of the WGMI Playtech agreement and
$1,181,114 equity losses of affiliated company, offset by $385,580 increase in
accounts receivable and other current assets.
Investing activities provided cash of $1,320,960 in the nine months ended
September 30, 2008. Cash provided by investing activities in the nine months
ended September 30, 2008 results mainly from the sale of computers and software
equipment to Playtech as part of the Playtech -WGMI agreement.
No cash was generated, net from financing activities generated during the nine
months ended September 30, 2008.
On March 10, 2008, our board of directors, or the Board, approved our entry into
a convertible debt transaction with one of our directors, Mr. Shimon Citron, who
has since been appointed as our CEO. The transaction which was subject to
shareholders' approval at a special meeting in lieu of an annual meeting was
approved on April 29, 2008, or the Meeting. The transaction was documented by a
Convertible Loan Agreement, a Convertible Promissory Note, a Security Agreement
and a Common Stock Purchase Warrant, all of which was dated as of March 6, 2008,
and was collectively referred to as the "Loan Agreement Documents." On April 29,
2008, the transaction was approved by the holders of a majority of our common
stock.
6
Under the Loan Agreement Documents, Mr. Citron has provided us with a loan in
the aggregate principal amount of $500,000, which was to be advanced to the
Company in seven installments of different amounts commencing February 24, 2008
and ending July 9, 2008. As of the date hereof, payments in the aggregate amount
of $500,000 have been transferred to the Company. In addition, on August 12
2008, Mr. Citron advanced an additional amount of $50,000 under similar terms to
the terms set in the original Loan Agreement Documents.
In addition, under the Loan Agreement Documents:
o We issued a Secured Promissory Note to Mr. Citron, which Note is
convertible into shares of our common stock at a per-share conversion price
equal to the average closing price of our common stock for the five trading
days preceding the date on which the first monthly installment if advanced
by Mr. Citron. The first advance occurred on February 24, 2008. The
conversion price based on the foregoing formula is $0.0595 per share of
common stock. The Note will accrue interest at a rate of 15% per annum.
Payment of principal and interest by us will be payable in cash, or at the
election of Mr. Citron in shares of Common Stock valued at $0.0595. The
Note also contains customary events of default, including receivership or
bankruptcy proceedings, judgments in access of $100,000, and certain
trading and SEC suspensions. The Note matures on March 6, 2009.
We entered a Security Agreement to secure the performance by us of our
obligations under the Loan Agreement Documents. We granted to Mr. Citron a first
ranking priority security interest in substantially all of our assets.
o We agreed to file within 60 days of conversion of the Note a registration
statement with the SEC, and to use our best efforts to register for resale
the shares issued to Mr. Citron under the Note and a Warrant granted to Mr.
Citron. Under the Warrant agreement, Mr. Citron is entitled to purchase
from us up to 8,403,361 shares of common stock at a per share price of
$0.0595. This warrant may be exercised until 5 years from the issuance
date. Mr. Citron will have the option for one year from the effective date
of such registration statement to purchase up to an additional $500,000
worth of Common Stock and Warrants at a price of $0.0595 per share.
On August 22, 2008, we issued Mr. Citron a notice of redemption (the "Notice")
pursuant to which we paid Mr. Citron the full principal amount of the loan
described above, together with the other advances of $50,000 and together with
accrued but unpaid interest thereon within 30 days from the date of the Notice.
OUTLOOK
Our current cash (after giving effect to our sale of assets to Playtech) will be
sufficient to meet our anticipated requirements for the next 12 months. We
believe that our future growth will depend upon the success of our TWG venture
and the results of the license agreement with Playtech. As part of our efforts
to broaden our cash basis and generate additional revenues, we will pursue sales
of our multi-player Black Jack IP and our mobile gaming application on a
revenue-share basis. We will also seek to leverage our wholly owned subsidiary
that is registered with the SEC under the 1934 Act, Gaming Ventures Plc, by
either an outright sale or by incorporating new activities which shall generate
revenues.
ITEM 4T. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES - We maintain a system of
disclosure controls and procedures that are designed for the purposes of
ensuring that information required to be disclosed in our Securities and
Exchange Commission ("SEC") reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO") as appropriate to allow timely decisions regarding required disclosures.
7
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 CEO and CFO,
of the effectiveness of our disclosure controls and procedures as defined in
Rule 13a-15(e) of the 1934 Act. Based on that evaluation and the material
weakness described below, management concluded that we did not maintain
effective disclosure controls and procedures as of September 30, 2008. Our
management has identified control deficiencies regarding: 1) lack of segregation
of duties; 2) qualification and training of employees and, 3) the 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
Chief Financial Officer in 2007. The Board of Directors took action to replace
these positions; however, our small size may continue to make it challenging to
maintain adequate controls in the future, such as segregation of duties, due to
the potential costs of such remediation.
The ineffectiveness of disclosure controls and procedures as of September 30,
2008 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 into
the future, in the interim, these changes caused control deficiencies, which in
the aggregate resulted in a material weakness.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING - Except for the hiring of
our new CFO, there has been no change in our internal control over financial
reporting during the third quarter of 2008 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 Intellectual Property and Technology Purchase Agreement dated as of August
6, 2008
10.2 License Agreement dated as of August 6, 2008
10.3 Consulting Agreement, dated September 23, 2008, between the registrant and
Citron Investments Ltd. (incorporated by reference to exhibit 10.1 of our
Current Report on Form 8-K filed on September 25, 2008)
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14
(a)/15d-14(a) under the Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14
(a)/15d-14(a) under the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. 1350.
32.2 Certification of Chief Financial Officer and Principal Financial Officer
Pursuant to 18 U.S.C. 1350.
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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: November 19, 2008 By: /s/ Shimon Citron
---------------------
Shimon Citron
Chief Executive Officer
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