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