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 June 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 August 8, 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 JUNE 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
------------ --------------
JUNE 30, DECEMBER 31
------------ --------------
2008 2007
------------ --------------
UNAUDITED
------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,964 $ 147,046
Trade receivables (net of allowance for doubtful accounts of $405,452) 114,682 117,793
Other accounts receivable, prepaid expenses, and related parties 155,245 131,046
Assets attributed to discontinued operations 3,456 31,506
------------ --------------
TOTAL current assets 291,347 427,391
------------ --------------
RELATED PARTIES 890,098 294,526
------------ --------------
SEVERANCE PAY FUND 70,430 78,453
------------ --------------
PROPERTY AND EQUIPMENT, NET 129,153 322,581
------------ --------------
ACQUIRED TECHNOLOGY, NET - 107,309
------------ --------------
Total assets $ 1,381,028 $ 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
------------ --------------
JUNE 30, DECEMBER 31
------------ --------------
2008 2007
------------ --------------
UNAUDITED
------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Convertible note, net (Note 5) $ 245,396 $ -
Trade payables 113,230 115,968
Employees and payroll accruals 166,368 287,441
Accrued expenses and other liabilities 190,849 188,843
Liabilities attributed to discontinued operations 25,395 25,051
------------ --------------
TOTAL current liabilities 741,238 617,303
------------ --------------
Call option 206,768 206,768
Accrued Severance pay 134,387 140,293
------------ --------------
TOTAL Long term liabilities 341,155 347,061
------------ --------------
TOTAL liabilities 1,082,393 964,364
------------ --------------
COMMITMENTS AND CONTINGENT LIABILITIES - -
INVESTMENT IN AFFILIATED COMPANY 1,448,825 516,352
STOCKHOLDERS' DEFICIENCY:
Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares at June 30, 2008 and December 31, 2007;
Issued and outstanding: 32,319,031 shares at June 30, 2008 and
December 31, 2007, respectively 32,319 32,319
Additional paid-in capital 17,243,928 17,060,714
Accumulated other comprehensive loss (8,047) (7,504)
Accumulated deficit (18,418,390) (17,335,985)
------------ --------------
TOTAL stockholders' deficiency $ (1,150,190) $ (250,459)
TOTAL liabilities and stockholders' deficiency $ 1,381,028 $ 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)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
UNAUDITED UNAUDITED
---------------------------- ----------------------------
Revenues:
Revenues from software applications $ 257,815 $ 483,870 $ 128,581 $ 236,955
Revenues from services to affiliated company 729,175 - 346,921 -
Total Revenues ------------ ------------ ------------ ------------
986,990 483,870 475,502 $ 236,955
Cost of revenues 774,096 253,875 340,669 160,952
------------ ------------ ------------ ------------
Gross profit 212,894 229,995 134,833 76,003
Operating expenses:
Research and development 102,648 1,277,248 70,037 538,211
Selling and marketing 23,105 134,476 3,844 32,330
General and administrative 46,729 556,961 31,040 284,045
------------ ------------ ------------ ------------
Total operating expenses 172,482 1,968,685 104,921 854,586
Operating (loss) income 40,412 (1,738,690) 29,912 (778,583)
Financial expenses, net 159,969 21,613 108,180 16,786
------------ ------------ ------------ ------------
Other income - 38,042 - 14,032
Equity in losses of affiliated company 932,470 - 471,992 -
Minority interests in losses of subsidiaries - 102,184 - 45,813
------------ ------------ ------------ ------------
Net loss from continuing operation (1,052,027) (1,620,077) (550,260) (735,524)
Net loss from discontinued operation, net (30,378) (523,906) (30,378) (250)
Net Loss (1,082,405) (2,143,983) (580,638) (735,774)
============ ============ ============ ============
Basic and diluted net loss per share from continuing
operation $ (0.0326) $ (0.0500) $ (0.0170) $ (0.0227)
Basic and diluted net loss per share from discontinued
operation $ (0.0009) $ (0.0160) $ (0.0009) $ (0.0000)
Total Basic and diluted net loss per share $ (0.0335) $ (0.0660) $ (0.0179) $ (0.0227)
============ ============ ============ ============
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
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
UNAUDITED UNAUDITED
---------------------------- ----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,082,405) $ (2,143,983) $ (580,638) $ (735,774)
Adjustments required to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 211,086 350,510 78,007 177,089
Decrease (increase) in trade and other accounts
receivable prepaid expenses, and related parties (616,038) 443,722 (340,371) 418,525
Stock-based compensation 51,960 242,851 1,133 92,093
Decrease in trade payables (2,394) (277,705) 13,114 (172,420)
Increase (decrease) in employees and payroll accruals (121,072) (141,057) (12,777) (162,919)
Increase (decrease) in accrued expenses and other
liabilities 2,004 (263,823) 4,324 (266,577)
Change in value of convertible debt, net 40,076 - 40,076 -
Accrued severance pay, net 2,119 (36,760) - (29,484)
Equity in losses of affiliated company 997,473 - 536,995
Capital loss (gain) on sale of property and equipment (40,350) 15,735 - 15,735
Impairment of discontinued assets 27,856 - 27,856
Minority interests in losses of subsidiaries - (102,184) - (45,813)
------------ ------------ ------------ ------------
Net cash used in operating activities (529,685) (1,912,694) (232,281) (709,545)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 65,000 - - -
Purchase of property and equipment - (10,935) - -
------------ ------------ ------------ ------------
Net cash provided (used in) investing activities 65,000 (10,935) - -
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares and warrants, net - (6,867) - (6,867)
Issuance of convertible debt and warrants, net 336,574 - 235,285 -
Short-term bank credit, net - (16,750) - (56,699)
------------ ------------ ------------ ------------
Net cash provided by financing activities 336,574 (23,617) 235,285 (63,566)
------------ ------------ ------------ ------------
Effect of exchange rate changes on cash and cash
equivalents (971) (1,380) - (1,759)
------------ ------------ ------------ ------------
Decrease in cash and cash equivalents (129,082) (1,948,626) 3,004 (774,870)
Cash and cash equivalents at the beginning of the period 147,046 3,019,282 14,960 1,845,526
------------ ------------ ------------ ------------
Cash and cash equivalents at the end of the period $ 17,964 $ 1,070,656 $ 17,964 $ 1,070,656
------------ ------------ ------------ ------------
NON-CASH TRANSACTION
Sell of fixed assets to related parties 65,000 - - -
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 168 $ 807 $ - $ 344
============ ============ ============ ============
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) 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 six months ended
June 30, 2008 the Company incurred a negative cash flow from
operations of $529,685 and has accumulated deficit of $18,418,390
as of June 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. Also see Intellectual Property and
Technology Purchase Agreement signed with Playtech (Note 1.f.).
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 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 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. The asset due to services provided by the Company
to TWG is classified as related parties.
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 1:- GENERAL (CONT.)
e. Concentration of risk that may have a significant impact on the
Company:
The Company derived 92% of its revenues from two major customers
(see Note 4b).
f. On August 6, 2008, the Company entered into an agreement with
Playtech Software Limited ("Playtech") for the sale of
substantially all the intellectual property and certain computer
servers and hardware of our wholly owned subsidiary MixTV Ltd,
for consideration of $1,750,000, $1,250,000 of which was received
upon closing and the remaining amount of $500,000 to be deposited
in escrow until the lapse of 3 months from the closing, all in
accordance with the provisions of the Agreement and of an Escrow
Agreement entered in connection therewith. The amount held in
escrow shall be used to satisfy, to the extent possible, any
loss, liability, deficiency, damage, expense or cost, which
Playtech may suffer, sustain or become subject to as a result of
uncertainties which may occur as specified in the Agreement.
Pursuant to the terms of the agreement, MixTV will terminate the
employment of all of its employees and Playtech, at its
discretion, may make to certain of those employees employment
offers.
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
months ended June 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:
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
Research and development expenses (income) $ 29,144 $ 77,559 $ (148) $ 19,782
Sales and marketing expenses 9,530 18,769 1,032 7,240
General and administrative expenses 13,286 146,523 249 65,071
----------- ----------- ----------- -----------
Total $ 51,960 $ 242,851 $ 1,133 $ 92,093
=========== =========== =========== ===========
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:
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------
2008 2007
--------------------------- ---------------------------
UNAUDITED UNAUDITED
--------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE
----------- ----------- ----------- -----------
$ $
----------- -----------
Outstanding at the beginning of 3,950,965 0.98 7,653,046 1.01
the year
Granted - - - -
Forfeited (324,586) 0.58 (1,585,414) 0.88
----------- ----------- ----------- -----------
Outstanding at the end of the
quarter 3,626,379 1.02 6,067,632 0.98
=========== =========== =========== ===========
Options exercisable at the end of
the quarter 3,532,292 1.00 3,669,076 0.94
=========== =========== =========== ===========
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:
SIX MONTHS ENDED
JUNE 30,
-----------------------
2008 2007
--------- ----------
TOTAL REVENUES
-----------------------
Alderney $ 729,175 $ -
Australia 175,000 175,000
United States 82,815 77,783
England - 169,611
Antigua and Barbuda - 60,945
Others - 531
--------- ----------
$ 986,990 $ 483,870
========= ==========
b. Major customer data as a percentage of total revenues:
SIX MONTHS ENDED
JUNE 30,
-----------------------
2008 2007
--------- ----------
Customer A (an affiliate company) 74% 36%
========= ==========
Customer B 18% 35%
========= ==========
Customer C *) 16%
========= ==========
Customer D - 12%
========= ==========
Customer E - *)
========= ==========
*) Represents an amount lower than 10%.
NOTE 5: CONVERTIABLE NOTE, NET
Under the Loan Agreement Documents, Mr. Citron has provided us
with a loan in the aggregate principal amount of $500,000, which
is to be advanced to the Company in seven installments of
different amounts commencing February 24, 2008 and ending July 9,
2008. As of June 30, 2008, payments in the aggregate amount of
$336,574 have been transferred to the Company.
In addition, under the Loan Agreement Documents:
The Note is convertible into shares of our common stock at a
conversion price based on $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 matures on March 6, 2009.
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: CONVERTIABLE NOTE, NET (CONT.)
In addition, the company issued 5,656,706 warrants at an exercise
price of $0.0595. The warrants 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.
At issuance date the convertible debt and the warrants were
accounted in accordance with APB 14 "Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants", as amended
("APB 14").The proceeds from the sale of debt with stock purchase
warrants were allocated to the two elements. As a result the
company recorded a discount of $124,020.
The company didn't recorded a beneficial conversion feature, in
accordance with EITF 00-27 "Application of Issue No. 98-5 to
Certain Convertible Instruments" and EITF 98-5 "Accounting for
Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios", since the effective
conversion price of the note was higher than the share price at
the issuance date.
NOTE 6: 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.
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.
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: RECENTLY ISSUED ACCOUNTING STANDARDS (CONT.)
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
non-derivative 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.
NOTE 7: SUBSEQUENT EVENTS
a. On June 29, 2008 the Company has entered into an agreement with CFO
Outsourcing Services Ltd, for rendering CFO services to the company.
b. Intellectual Property and Technology Purchase Agreement signed with
Playtech - see Note 1.f.
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 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, 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 five core solutions to companies that offer
play-for-real gaming, namely:
(i) Participation TV gaming: the provision of services via the interaction of
television broadcasts and mobile text messages, IVR (interactive voice response)
lines or Java interaction.
(ii) Interactive TV gaming: the provision of software and technology currently
supporting fixed odds games.
(iii) Mobile gaming: the provision of services on mobile devices, including
fixed odds games, multiplayer games, sports betting services, scratch cards and
exchange betting.
(iv) 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".
(v) 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, internet or participating TV 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.
We devote substantially all of our efforts toward conducting research,
development and marketing of our software. In the course of these activities, 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, 2008, we had an accumulated deficit of $18,390,534. There is no assurance
that profitable operations, if ever achieved, will be sustained on a continuing
basis. During the three months ended June 30, 2008, we derived approximately 92%
of our revenues from two major customers.
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.
Effective June 19, 2008, our board of directors decided to replace Steve Baker
as Chief Executive Officer ("CEO") of the company with Shimon Citron, our
company's founder, current director and former CEO. Mr. Citron has assumed the
position of CEO on a part time basis. Mr. Baker remained a director of the
company.
On June 20, 2008, TWG signed an agreement with Virgin Media TV ("VMTV"), a
leading UK entertainment company, to launch a new TV channel - Challenge
Jackpot. The program will air on VMTV's Virgin1 and Bravo2 channels, extending
its reach to homes with satellite and digital terrestrial television. According
to the agreement TWG shall be entitled to receive revenue share from the
channel's activities.
Effective on July 1, 2008, we appointed Jacob Bar-Shalom as our Chief Financial
Officer. This appointment was made pursuant to a contract signed between us and
C.F.O. - OUT SOURCING SERVICES LTD., an Israeli company that provides financial
services and for which Mr. Bar-Shalom works.
On August 6, 2008, our wholly owned subsidiary MixTV Ltd., an Israeli
corporation ("MixTV"), 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 MixTV, including but not limited to MixTV's
intellectual property ("Purchased Assets") in consideration of a total amount of
$1,750,000, $1,250,000 of which is to be paid upon closing and the remaining
amount of $500,000 to be deposited in escrow in accordance with the provisions
of the Agreement and of an Escrow Agreement entered in connection therewith.
Pursuant to the terms of the Agreements, MixTV will terminate the employment of
all of its employees and Playtech, at its discretion, may make to certain of
those employees employment offers. 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 the registrant and Two-Way Media Ltd.
4
The above mentioned description of our company's business will change once the
transaction between Playtech and MixTV is closed and we cease to provide the
services and own the intellectual property provided and owned by MixTV.
Our shares of common stock are currently traded on the OTC Bulletin Board under
the trading symbol "WGMI.OB".
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2008 COMPARED TO THREE
MONTHS ENDED JUNE 30, 2007 AND SIX MONTHS ENDED JUNE 30, 2008 COMPARED TO SIX
MONTHS ENDED JUNE 30, 2007.
REVENUES AND COST OF REVENUES
Total revenues for the three months ended June 30, 2008 increased by 100% to
$475,502, from $236,955 for the three months ended June 30, 2007. Total revenues
for the six months ended June 30, 2008 increased by 103% to $986,990 from
$483,870 for the six months ended June 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.
Cost of revenues for the three months ended June 30, 2008 increased by 111% to
$340,669 from $160,952 for the three months ended June 30, 2007. Cost of
revenues for the six months ended June 30, 2008 increased by 204% to $774,096
from $253,875. 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.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended June 30, 2008
decreased by 87% to $70,037 from $538,211 for the three months ended June 30,
2007. Research and development expenses for the six months ended June 30, 2008
decreased by 92% to $102,648 from $1,277,248 for the six months ended June 30,
2007. The decreases are primarily attributable to the layoff of employees,
decreased general and administrative expenses allocated to the research and
development department as a result of 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.
5
SALES AND MARKETING
Sales and marketing expenses for the three months ended June 30, 2008 decreased
by 88% to $3,844 from $32,330 for the three months ended June 30, 2007. Sales
and marketing expenses for the six months ended June 30, 2008 decreased by 83 %
to $23,105 from $134,476 for the six months ended June 30, 2007. These decreases
in sales and marketing expenses are primarily attributable to the layoff of
employees, decreased stock based compensation, decreased general and
administrative expenses allocated to marketing and sales as a result of lay off
of employees, and to a decrease of travel.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended June 30, 2008
decrease by 89% to $31,040 from $284,045 for the three months ended June 30,
2007. General and administrative expenses for the six months ended June 30, 2008
decreased by 91% to $46,729 from $556,961 for the six months ended June 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.
NET LOSS
Net loss from continuing operations for the three months ended June 30, 2008 was
$550,260 compared to net loss of $735,524 for the three months ended June 30,
2007. Net loss from continuing operations for the six months ended June 30, 2008
was $1,052,027 as compared to net loss of $1,620,077 for the six months ended
June 30, 2007. Net loss per share from continuing operations for the three
months ended June 30, 2008 was $0.017 as compared to $0.0227 for the three
months ended June 30, 2007. Net loss per share for the six months ended June 30,
2008 was $0.0326 as compared to $0.050 for the six months ended June 30, 2007.
The net loss decreases for the periods of three and six months ended June 30,
2008 are primarily attributable to a decrease in operating expenses due to the
layoff of our employees and decreased stock based compensation. In the period of
six months ended June 30 2008, we generated $932,470 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 June 30, 2008 and 2007 was 32,319,031
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2008, total current assets were $291,347 and total current
liabilities were $741,238 On June 30, 2008, we had a working capital deficit of
$449,891 and an accumulated deficit of $18,418,390. We finance our operations
and plan to continue doing so with a combination of stock issuances and revenues
from product sales. In addition, we recently incurred convertible debt as
described further below to help finance our operations. We had working capital
deficit of $449,891 on June 30, 2008 compared with a working capital deficit of
$189,912 on December 31, 2007. Cash and cash equivalents on June 30, 2008 were
$17,964, a decrease of $129,082 from the $147,046 reported on December 31, 2007.
The decrease in cash is primarily attributable to the net loss in the six months
ended June 30, 2008.
Operating activities used cash of $529,685 in the six months ended June 30,
2008. Cash used by operating activities in the six months ended June 30, 2008
results primarily from a net loss of $1,082,405, a $616,038 increase in accounts
receivable and other current assets, offset by a $51,960 of stock based
compensation, $211,086 of depreciation and amortization, and $997,470 equity
losses of affiliated company.
Investing activities provided cash of $65,000 in the six months ended June 30,
2008. Cash provided by investing activities in the six months ended June 30,
2008 results from the sale of computers and software equipment.
Financing activities generated a cash amount of $336,574 during the six months
ended June 30, 2008. Cash provided by financing activities for the six month
period ended June 30, 2008 results primarily from the convertible loan received
from shareholder.
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
shareholder 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 is 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, 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.
o 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 6, 2008, our wholly owned subsidiary MixTV and Playtech entered into
an Intellectual Property and Technology Purchase Agreement (the "Agreement")
under which Playtech agreed to purchase substantially all of the assets of
MixTV, including but not limited to MixTV's intellectual property in
consideration of a total amount of $1,750,000, $1,250,000 of which is to be paid
upon closing and the remaining amount of $500,000 to be deposited in escrow in
accordance with the provisions of the Agreement and of an escrow agreement
entered in connection therewith.
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 Securities Exchange Act of 1934,
Gaming Ventures, 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 Securities Exchange Act of 1934, as amended. 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,
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 June 30, 2008
stemmed in large part from several significant changes of the Company's
executive officers, discontinued operations and personnel cutback. 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 second 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.
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: August 14, 2008 By: /s/ Shimon Citron
---------------------
Shimon Citron
Chief Executive Officer
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