ITEM 2. PROPERTIES
Commencing December 9, 1997, the Company entered into a new four-year lease for its corporate and subsidiary, headquarters in Plymouth Meeting, Pennsylvania. The lease provides for current annualized rent of approximately $49,000.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On February 18, 1997, a search warrant (the "Warrant") was issued, filed in the United States District Court for the Eastern District of Pennsylvania, authorizing the Federal Bureau of Investigation to search the premises of the Company's executive offices and the offices of Intersphere in Blue Bell, Pennsylvania including any and all computer hardware, software, peripheral devices and computer-related documentation on any of such premises. The Warrant lists a variety of items to be obtained based on the assumption that there was a violation of federal laws and that an illegal gambling business was being conducted from its premises in Pennsylvania. Based on the advice of counsel with significant criminal law, trial and appellate experience and comprehensive understanding of the jurisdictional scope of gaming laws, both domestic and international, management does not believe the gaming operations of its subsidiaries violated either the laws of the United States or the Commonwealth of Pennsylvania, since no gaming or gambling operations are conducted there.
In May 1997, the State of Missouri indicted the Company and its President, Michael F. Simone, and filed a judgement in the amount of $66,050 for statutory "gambling" violations in Missouri. The Company has been advised by competent legal counsel experienced in civil, criminal and constitutional matters, that the Missouri proceedings lack merit because Missouri has no in personum jurisdiction of the Company or of Mr. Simone. On September 22, 1998, the company and Simone entered into a plea agreement with the State of Missouri. As part of the agreement the Company was to pay a fine in the amount of $5,000 and an additional $20,000. For the costs to prosecute the case. Simone was fined $2,500. As of December 31, 1998, $15,000 remains unpaid and is included in accounts payable and accrued expenses. According to the plea agreement, if the $20,000 was not paid within sixty days following the date of the plea, the State of Missouri may bring additional criminal charges against the Company. As of May 2000 both the company and Mr. Simone have paid all fines and prosecutorial costs to the State of Missouri and has been accounted for in the Company's financials.
The Company has filed suit against International Gaming to collect payments due under a $4,990,000 note representing payment for the capital stock of Sports International, Inc. and Global Casinos, Inc. (Note 19). International Gaming has filed an Answer and Counterclaim asserting there were material misstatements, misrepresentations and omissions from the warranties and representations provided under the Stock Purchase Agreement between the two Companies. The Company has been advised by competent legal counsel that they will receive a judgment, though collection of the amount owed is still uncertain.
The Company was sued by, among others, Empire Corporation ("Empire"), who claimed the Company improperly terminated an alleged Joint Venture Agreement, appropriated certain funds belonging to Empire under the agreement and otherwise refused to pay monies due to Empire. Empire also asserted claims of fraud and breach of fiduciary duty. An answer, new matter and counterclaim has been filed by the Company asserting that the Agreement had been properly terminated and that funds are due the Company from Empire. Empire claims damages in excess of $160,000 as well as punitive damage in the amount of $1,000,000. The Company's counterclaim seeks damages in excess of $95,000.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On March 18, 1998, a Special Meeting of Shareholders was held to approve the sale of all of the capital stock of Sports and Casinos for $5,000,000. The sale was unanimously approved by the Shareholders.
PART II
ITEM 5.
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
After the Company completed a Plan of Reorganization, its Common Stock resumed trading on the National Association of Securities Dealers Automated Over the Counter Market (OTC) Bulletin Board on December 19, 1994, under the trading symbol "SBET". The following table sets forth high and low closing sales prices (in dollars) for the Company's Common Stock, as reported on the Bulletin Board, since trading resumed.
On May 24, 2000 the last reported sales price for the Common Stock was $0.52.
On May 24, 2000 the Company had approximately 1550 shareholders.
Dilution and Absence of Dividends
The Company has not paid any cash dividends on its common stock in the past and does not anticipate paying any such cash dividends in the foreseeable future. Earnings, if any, will be retained to finance future growth. The Company may issue shares of its common stock in private and/or public offerings to obtain financing, capital, or to acquire other businesses that can improve the performance and growth of the Company. Issuance/sales of substantial amounts of common stock could adversely affect prevailing market prices in the Common Stock of the Company.
Description of the Company's Securities
Common Stock
The authorized capital stock of the Company consists of 75,000,000 shares, $.001 par value ("Common Stock"), of which 23,084,903 shares are issued and outstanding as at May 24, 2000.
Approximately 10,807,369 shares of Common Stock issued in connection with the reverse merger acquisition, conversion of Notes, and for certain services and the gaming license are "restricted" shares, as such term is used in Rule 144 of the Securities Act of 1993, as amended.
The holders of Common Stock are entitled to one vote per share for the election of directors and all other purposes and do not have cumulative voting rights. The holders of Common Stock are entitled to receive dividends when, as, and if declared by the Board of Directors and, in the event of the liquidation by the Company, to receive prorata all assets remaining after payment of debts and expenses. Holders of the Common Stock do not have any pre-emptive or other right to subscribe for or purchase additional shares of capital stock. All the outstanding shares of Common Stock are fully paid and non-assessable.
Sale of Unregistered Common Stock and Common Stock Warrants
Effective June 26, 1996, the Company entered into a stock and warrant purchase agreement with a software developer and issued 375,000 shares of restricted common stock for $750,001 and a common stock purchase warrant for $1,000. The common stock purchase warrant is for 100,000 shares at a purchase price of $1.00 per share and expires on June 30, 2001. The Company's private offering represented 3.3% of the outstanding common stock at June 26, 1996.
On October 11, 1996, the Company issued 254,474 shares of restricted common stock in settlement of accounts payable of $508,947 incurred in the development of the "Virtual Casino" software.
On November 4, 1996, the Company acquired all the outstanding common stock of Intersphere for 1,000,000 restricted shares of previously unissued common stock of the Company. Intersphere developed an exclusive proprietary product known as the WiseGuy Sports Wagering System. Intersphere's revenue is derived from software licensing fees related to its proprietary product, as well as from advertising, marketing and web page design services primarily to Internet based accounts.
On November 4, 1996, the Company also acquired all the outstanding common stock of Global for 1,100,000 restricted shares of previously unissued common stock of the Company. Global owns the exclusive principal master license to conduct gambling operations from the Country of Grenada. The exclusive gambling license is for two six-year terms and allows Global to sell up to four sub-licenses to qualified applicants.
On June 30, 1997, the Company issued 29,250 shares of restricted common stock in settlement of service of $42,000 rendered in the development of the "Virtual Casino" software.
On May 25,1999 the company issued a warrant for 4,000,000 shares of the Company's common stock at a purchase price of $0.01 per share and expires on December 31, 2004. The warrants were issued in connection with the Company's sale Gamblenet Technologies, Ltd. ("Gamblenet") for $2,600,000 consisting of $140,000 in cash and a five year note for $2,500,000.00
On December 30, 1999 the Company issued 7,500,000 shares of restricted common stock pursuant to an agreement entered into on June 22, 1999 with Century Industries, Inc. ("Century"). The agreement calls for certain control block shareholders of Century to sell to the Company 53.26% of Century's issued and outstanding Class A shares in exchange for the Company's common stock. As of May 24, 2000 the deal has not been completed. However, the Company anticipates the finalization of the Century acquisition to take place in the immediate future.
Preferred Stock
In May 1995, the shareholders approved an amendment of the Company's Certificate of Incorporation to authorize the issuance of up to 10,000,000 shares of preferred stock. The amendment permits the Board of Directors to issue from time to time authorized but un-issued shares of preferred stock and to fix and determine the terms, limitations, relative rights and preferences of such shares.
On December 30,1999 the company's Board of Directors, in connection with the Century control block acquisition, have approved the issuance of 1,000,000 shares of Series A Voting Convertible Preferred stock with each share having the equivalent of fifteen (15) common stock votes. The shares may be converted into shares of the Company at 15 shares Common stock for every 1 share Preferred. At December 31, 1999, no preferred stock of the Company had been issued.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented on the following tables for, and as of the end of, each of the years or periods ended for the three year period ended December 31, 1999, are derived from the financial statements of the Company reflecting both income from continuing and discontinued operations. The financial statements for the years ended December 31, 1998 and 1997 have been audited by Parente, Randolph, Orlando, Carey & Associates, LLC. The December 31, 1999 financial statements have been audited by Stefanou & Company, LLP. The 1998 and 1999 Selected Financial Data includes the consolidated reporting of all the Company's subsidiaries included by reference herein.
The selected financial data should be read in conjunction with the accompanying consolidated financial statements of the Company and the notes thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Selected Financial Data:
(1)
Income Statement Data :
Revenues $ 1,199,400 $ 325,416 $ 689,663
Expenses 1,675,305 1,206,542 2,311,493
Other Income 2,533 11,499
Loss from continuing operations before income taxes, discontinued operations and extraordinary item (443,372) (869,627) (1,621,830)
Deferred income tax benefit
100,000
Loss from continuing operations, before discontinued operations and extraordinary item (443,372) (869,627) (1,521,830)
(Loss) income from discontinued operations
(66,579) 18,637
Loss before extraordinary item (443,372) (936,206) (1,503,193)
Extraordinary item: debt forgiveness income, net of related income taxes of $100,000 115,509 864,721
Net loss $ (327,863) $ (71,485) $ (1,503,193)
Basic (loss) earnings per common share:
Continued operations $ (.02) $ (0.06) $ (0.11)
Discontinued operations 0 0
Extraordinary item 0.00 0.06 0
Net (loss) income per share $ (.02) $ 0 $ (0.11)
Weighted average Common shares Outstanding 18,696,615 13,701,290 13,682,752
Selected Financial Data:
Balance Sheet Data:
Working capital (deficit) $( 850,899) $(1,311,501) $( 542,447)
Total assets $1,843,415 $ 1,777,274 $ 3,064,345
Deficit $(2,640,729) $(2,312,866) $(2,241,381)
Stockholders' equity (deficit) $ 802,218 $ 377,131 $ 448,616
(1) See Note B to the consolidated financial statements of this Form 10-K.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Years Ended December 31, 1999 & 1998
In March 1998, the Company sold its two gaming subsidiaries Sports and Casinos. Therefore the Consolidated Statement of Operations for 1998 and 1997 have been restated to reflect the results from the continuing operations. The continuing operations for the Company as restated for those years and as discussed prospectively herein reflect licensing fees, royalties and other revenues earned from traditional advertising sources and Internet related development and design fees. Accordingly, such revenues for 1999 were $1,199,900 as compared to $325,416 for 1998 and $689,663 for 1997. The increase in revenues for 1999 as compared to 1998 resulted from software licensing agreements. Licensing and royalties fees for gaming and software licenses accounted for 65% of the revenues in 1999, 59% of the revenues in 1998, 46% of the revenues in 1997. The remaining revenues were generated from advertising and other Internet related services. Expenses from continuing operations increased from $1,206,542 in 1998 to $1,675,305 in 1999 mainly as a result of ongoing system development and increased charges for depreciation and doubtful accounts in 1999 amounting to $313,496. In addition, in 1999 the Company obtained computer equipment under noncancelable leases.
Liquidity and Capital Resources
The Company's working capital deficit decreased by $2,162,400, from $1,311,501 in 1998 to $850,899 in 1999. The largest component decrease in the working capital deficit was accounts payable and accrued expenses which decreased by $442,125 or 82%. The decrease was a result of trade accounts payables being paid down in 1999.
Further cost reductions and anticipated revenue growth from licensing as described in the Prospective Outlook discussion that follows should contribute to a gradual decrease in the working capital deficit.
If the outlook for greater revenues and reduced expenditures does not meet its goals, then the Company will seek joint venture partners or private placement funding to obtain capital to meet current working capital demands. The continuation of the Company in its present form is dependent upon its ability to obtain additional financing, if needed, and the eventual achievement of sustained profitable operations. Although there can be no assurances that the Company will be able to obtain such financing in the future, the Company did demonstrate its ability to obtain such financing in 1996 with its strategic alliances to develop new proprietary products and the sale of Sports and Casinos in 1998. However, there are no assurances that management's future actions will be successful or, if they are not successful, that the Company would be able to continue as a going concern
Year 2000
The "Year 2000 Problem" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19". If not corrected, many computer applications could fail or create erroneous results. The problems created by using abbreviated dates appear in hardware such as microchips, operating systems and other software programs. The Company's Year 2000 ("Y2K") compliance project is intended to determine the readiness of the Company's business for the Year 2000. The Company defines Y2K compliance to mean that the computer code will process all defined future dates properly and give accurate results.
In September 1998, the Company formed a Y2K compliance committee, which includes chief software writing personnel reporting directly to the President. Management of the Company believes that it has an effective program in place to resolve any Y2K issues and that all of its equipment and software are in compliance to address Y2K readiness. However, although management believes that the Company's systems and applications are Y2K compliant, there can be no assurance that the systems of other companies with which it does business will be Y2K compliant on a timely basis.
Government Regulation - Effect on Financing
The licensing business of the Company is conducted through its wholly owned subsidiaries, which are legally organized in Grenada and licensed by the Grenadan government to conduct its business. The company no longer operates any business, which is regulated by government.
Inflation
Inflation has not had a significant impact on the Company's comparative results of operations.
Prospective Outlook
Certain matters discussed in this section contain forward-looking statements, including without limitation, statements containing the Company's future revenue and earnings. These forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those projected.
On February 23, 1999, the Company and Century Industries, Inc. ("Century") entered into a joint effort agreement and formed Gamblenet Technologies, Ltd. ("Gamblenet"). The Company and Century each own 50% of Gamblenet's initially outstanding common shares. In exchange for the Company's 50% interest, the Company licensed certain gaming and software licenses to Gamblenet along with 4,000,000 restricted shares of the Company's Common Stock, which have been reserved for, but have not been issued.
On June 22, 1999, the Company entered into a majority acquisition and parent/subsidiary relationship agreement with Century Industries, Inc. ("Century"). The agreement calls for certain control block shareholders of Century to sell to the Company 53.26% of Century's issued and outstanding shares in exchange for 7,500,000 shares of the Company's common stock. The Company expects to complete the transaction in the immediate future.
The Company will focus its efforts on software development such as pari-mutuel wagering platform for Internet/Intranet horse racing and licensing its proprietary products and exclusive licensing privileges for future revenues. The Company has effectively exited the Internet gaming business involving the acceptance of customers' wagers with the sale of its gaming subsidiaries Sports and Casinos in March 1998 and will be engaged principally in its gaming and entertainment software development business.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1999 AND 1998
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
GLOBESPAN TECHNOLOGIES, INC.
(FORMERLY INTERACTIVE GAMING & COMMUNICATIONS CORP.)
Index to Financial Statements and Supplementary Data
Page
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet
Statement of Operations
Statement of Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements 20 - 31
Financial Statement schedules not included in this Form 10-KSB have been omitted because they are not applicable or are the required information is shown in the financial statements or notes thereto.
Stefanou & Company, LLP
Certified Public Accountants
1360 Beverly Road
Suite 305
McLean, VA 22101-3621
703-448-9200
703-448-3515 (fax)
Philadelphia, PA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Globespan Technology Partners, Inc.
(formerly Interactive Gaming & Communications Corp.)
Plymouth Meeting, Pennsylvania
We have audited the accompanying consolidated balance sheet of Globespan Technology Partners, Inc. (formerly Interactive Gaming & Communications Corp.) and its subsidiaries at December 31, 1999 and the related consolidated statements of losses, stockholders' equity and cash flows for the year ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Interactive Gaming & Communications Corp. as of December 31, 1998 were audited by another auditor whose report May 11, 1999 on those statements included an explanatory paragraph that described the Company had sustained significant operating losses in 1998 and 1997 and had negative working capital at December 31, 1998 and 1997.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1999 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Globespan Technology Partners, Inc. (formerly Interactive Gaming & Communications Corp.) and its subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities in the normal course of business. As discussed in Note B to the financial statements, the Company has negative working capital at December 31, 1999 and negative cash flows from operations for the years ended December 31, 1999 and 1998. The Company will need to seek other financing or generate sufficient cash flows to pay the current liabilities of continuing operations. The Company incurred a loss from continuing operations of $443,372 in 1999 and $ 869,627 in 1998 and there is no assurance that profitable operations will be achieved in the future. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ STEFANOU & COMPANY LLP
Stefanou & Company, LLP
McLean, Virginia
May 23, 2000
GLOBESPAN TECHNOLOGY PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A- SUMMARY OF ACCOUNTING POLICIES
A summary of accounting policies applied in the preparation of the accompanying consolidated financial statements follows.
Basis of Presentation
The consolidated financial statements include the accounts of Globespan Technology Partners, Inc. (formerly Interactive Gaming & Communications Corp.), the "Company" or "Globespan" and its wholly-owned subsidiaries, Global Gaming Corp.(Grenada) ("Global"),and Intersphere Communications, Ltd. (Grenada) ("Intersphere"). Significant intercompany transactions have been eliminated in consolidation.
As discussed in Note J, the Company divested its subsidiaries engaged in international Internet sports book and casino gaming. Therefore, the 1998 consolidated financial statements include the accounts of Sports International, Ltd. (Grenada) ("Sports") and Global Casinos, Ltd. (Grenada) ("Casinos"), the two subsidiaries that were sold on March 18, 1998, as discontinued operations.
Financial Instruments
The carrying amounts of cash, accounts receivable, notes payable, long-term debt, and accounts payable approximate fair value at December 31, 1999.
System Development Costs
The Company capitalizes the cost of developing certain software products it plans to market in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" (Note D). Amortization is computed on an individual product basis and is the greater of: (a) the ratio of current gross revenues for a product to the total amount and anticipated future gross revenues for the product or (b) the straight-line method over the estimated economic life of the product. The Company is using an estimated economic life of ten years.
Gaming and Software Licenses
Through its subsidiaries Global and Intersphere, the Company licenses its gaming operations and sports wagering software. The Company has valued these licensing agreements at their fair value as determined by the present value of anticipated future cash flows. Amortization is provided using the straight-line method over 10 to 12 years and was $ 42,247 in 1999 and $37,702 in 1998, respectively. Accumulated amortization was $182,133.
Common Stock
The Company has from time to time issued restricted common stock, unregistered with the Securities and Exchange Commission. The Company's restricted shares are only limited as to the holders ability to resell the stock into the public trading markets. At December 31, 1999 14,644,201 shares of the total issued and outstanding shares of 23,084,903 were restricted as described above.
Revenue Recognition
Software revenue is recognized when an arrangement exists, installation has occurred, fees are determinable and collection is probable.
Property and Equipment
For financial statement purposes, property and equipment are depreciated using the straight-line method over their estimated useful lives (five years for furniture, fixtures and equipment). . Depreciation and amortization expense for 1999 and 1998 was $ 287,942 and $ 31,770, respectively. An accelerated method of depreciation is used for tax purposes.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 191, "Accounting for Income Taxes." Under the method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets, and liabilities are measured using the enacted tax rates expected to be in effect when the differences are settled.
Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.
Long-Lived Assets
The Company accounts for its long-lived assets under the provision of Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-Lived assets and for Long-Lived Assets to be Disposed of (SFAS 121).
The Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undercounted cash flows. Should an impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset.
Stock Based Compensation
The Company accounts for stock based compensation using the intrinsic value method prescribed in Accounting Principle Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" with respect to options and warrants granted to employees.
Advertising
The Company follows the policy of charging the costs of advertising to expenses incurred. Advertising costs charged to expenses for 1999 and 1998 was $ 27,437 and $ 7,918 respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly actual results could differ from those estimates.
The Company has recognized the value of its gaming and software licensing agreements based on the anticipated future revenues. Additionally, the Company believes that certain capitalized software development costs are also recoverable through anticipated future revenues. These anticipated future revenues are management's best estimates of future cash flows to be derived from these products. The Company's value of these products is based on certain assumptions management has made based on information available at December 31, 1999.
Capitalized software development costs of approximately $ 1,652,000 at December 31, 1999 are still under development and realization will be dependent upon the ability to market the software. It is reasonably possible that these estimates and assumptions may change within one year from the balance sheet date based on changes in operations and revenues.
Concentrations of Credit Risk
Financial instruments and related items which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.
The Company has a broad customer base and it routinely assesses the financial strength of its customers. The Company periodically reviews its trade receivables in determining its allowance for doubtful accounts. The allowances for doubtful accounts was $ 25,551 at December 31, 1999.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standard No. 128, "Earnings Per Share," specifying the computation, presentation and disclosure requirements of earnings per share information. Basic earnings per share has been calculated based upon the weighted average number of common shares outstanding. Stock options and warrant's have been excluded as common stock equivalents in the diluted earnings per share because they are either antidilutive, or their effect is not material. There is no effect on earnings per share information for the years ended December 31, 1999 and 1998 relating to the adoption of this standard.
Comprehensive Income
Statement of Financial Accounting Standards No.130, "Reporting Comprehensive Income" ("SFAS 130"), establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company adopted SFAS 130 during the year ended December 31, 1998 and has no items of comprehensive income to report.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131") in the year ended December 31, 1998. SFAS establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions how to allocate resources and assess performance. The information disclosed herein, materially represents all of the financial information related to the Company's principal operating segment.
The Company adopted Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pension and Other Post Employment Benefits (SFAS 132") in the year ended December 31, 1999. SFAS No. 132 establishes disclosure requirements regarding pension and post employment obligations. SFAS No. 132 does not effect the Company as of December 31, 1999.
In March 1998, Statement of Position No. 98-1 was issued, which specifies the appropriate accounting for costs incurred to develop or obtain computer software for internal use. The new pronouncement provides guidance on which costs should be capitalized, and over what period such costs should be amortized and what disclosures should be made regarding such costs. This pronouncement is effective for fiscal years beginning after December 15, 1998, but earlier application is acceptable. Previously capitalized costs will not be adjusted. The Company believes that it is already in substantial compliance with the accounting requirements as set forth in this new pronouncement, and therefore believes that adoption will not have a material effect on financial condition or operating results.
In April 1998, Statement of Position No. 98-5 was issued which requires that companies expense defined previously capitalized start-up costs including organization costs and expense future start-up costs as incurred. Adoption of this statement does not have an effect on financial condition or operating results.
The Company adopted Statement of Financial Standards No. 133, Accounting for Derivative Instruments and for Hedging Activities ("SFAS No. 133") in the year ended December 31, 1999. SFAS No. 133 requires that certain derivative instruments be recognized in balance sheets at fair value and for changes in fair value to be recognized in operations. Additional guidance is also provided to determine when hedge accounting treatment is appropriate whereby hedging gains and losses are offset by losses and gains related directly to the hedged item. SFAS No. 133's impact on the Company's consolidated financial statements is not expected to be material as the Company has not historically used derivative and hedge instruments.
Reclassifications
Certain balances and amounts in the 1998 financial statements have been reclassified to conform with the 1999 presentation.
NOTE B- BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The accompanying statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements during the years ended December 31, 1999 and 1998, the Company incurred loses from operations of $ 443,372 and $ 869,627, respectively. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.
The Company's existence is dependent upon management's ability to develop profitable operations and resolve it's liquidity problems. Management anticipates the Company will attain profitable status and improve it liquidity through the continued developing, marketing and selling of its products and additional equity investment in the Company.
The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
The Company had a working capital deficiency of $ 850,899 at December 31, 1999 , and negative cash flows from operating activities of $ 198,516 and $58,389 in 1999 and 1998, respectively. The Company continues to seek other financing or generate sufficient cash flows to pay the current liabilities of continuing operations. These factors, among others, indicate the Company's ability to continue in existence is dependent upon favorable governmental regulations, its ability to achieve adequate profitable operations and/or obtain additional debt or equity financing. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts that might be necessary should the Company be unable to continue in existence.
Management anticipates generating revenue and cash flows from its software licensing agreements. Additionally, management plans to continue to refine its operations, control expenses, evaluate alternative methods to conduct its business, and seek available and attractive sources of debt or equity financing through a combination of a private placement, and sharing of development costs, or other resources. There can be no assurance that the Company's efforts will be successful. If operations and cash flows continue to improve through these efforts, management believes that the Company can continue to operate. However, no assurance can be given that management's actions will result in profitable operations or the resolution of its liquidity problems.
C- RELATED PARTY TRANSACTIONS
Included in accounts payable and accrued expenses is $55,369 at December 31, 1999 which represents advances from stockholders or officers of the company. No formal agreements or repayment terms exist.
D- SYSTEMS DEVELOPMENT COSTS
In May 1995, the Company signed a definitive letter of intent with a major software developer to produce and market a "Virtual Casino" by offering its customers the opportunity to play classic casino games, such as blackjack, craps, roulette, baccarat and slot machine games, on their personal computers using the Internet World Wide Web, with the Company managing the wagering. Additionally in September 1996, the Company entered into a software development and licensing agreement with another software developer to develop a "Global Casino" to provide services similar to the above on a state-of-the-art operating platform.
After the economic and technical feasibility of the projects had been established, the Company began funding them. Costs incurred subsequent to the establishment of technological feasibility and directly related to the project have been capitalized. Capitalized project costs were $1,652,149 at December 31, 1999. The "Global Casino" project was completed in 1997 and amortization expense was $ 165,215 and $93,390 in 1999 and 1998, respectively. Accumulated amortization was $ 423,819 at December 31, 1999. As management has made estimates in determining the net realizable value of system development costs, it is reasonably possible that these values will change in the near term.
E- LONG TERM DEBT
Long-term debt at December 31, 1999 consists of the following:
Bank loan payable in monthly installments of accrued interest at the bank's prime lending rate plus 1% .The note is unsecured and guaranteed by a Company officer and Director. $ 195,980
Bank loan payable in monthly installments of $ 4,606, plus accrued interest at the bank's prime lending rate plus 1.5% The note is guaranteed by a Company officer and Director and collateralized by 1,000,000 shares of company stock owned by the Company's President.
68,403
Shareholder loan payable in monthly installments of $950 including interest at 9.75 % per annum, unsecured 41,444
Shareholder loan payable in monthly installments of $950 including interest at 9.75 % per annum, unsecured 41,848
Shareholder demand note payable, interest at bank prime lending rate, plus 1.5%, unsecured 86,065
433,740
Less current portion 352,714
Long-term debt $ 81,026
Aggregate maturities of long-term debt as of December 31, 1999 are as follows:
Year ending December 31
$ 15,416
16,986
18,720
20,626
9,278
Total $ 81,026
F- INCOME TAXES
The Company has adopted Financial Accounting Standard number 109 which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.
For income tax reporting purposes, the Company's aggregate unused net operating losses approximate $ 1,900,000 which expire through 2015. The deferred tax asset related to the carryforward is approximately $650,000. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earning history of the Company, it is more likely than not that the benefits will be realized.
Components of deferred tax assets as of December 31, 1999 are as follows:
Non Current:
Net operating loss carryforward $ 650,000
Valuation allowance (650,000)
Net deferred tax asset $ -
G-STOCK OPTION PLANS
The following table summarizes the changes in options outstanding and the related prices for the shares of the Company's common stock issued to a former Officer of the Company .
Number of shares Weighted Average Exercise Price Number of Shares Exercisable
Outstanding at December 31, 1997 50,000 $ 1.25 50,000
Granted - - -
Exercised- - - -
Cancelled - - -
Outstanding at December 31, 1998 50,000 - 50,000
Granted - -
Exercised - - -
Cancelled (50,000) - (50,000)
Outstanding at December 31, 1999 - $ - -
The fair value of the options at the date of grant was nominal. The options were not exercised . Accordingly, no compensation expense related to the options granted has been recognized by the Company.
In June 1996, the Company entered into a stock and warrant purchase agreement with a software developer and issued 375,000 shares of restricted common stock for $750,001 and a common stock purchase warrant for $1,000. The common stock purchase warrant is for 100,000 shares at a purchase price of $1.00 per share and expires on June 30, 2001. The warrant is outstanding at December 31, 1999.
H-COMPENSATORY PLANS
On March 18, 1998, the Company authorized the issuance of 1,000,000 shares of the Company's stock to its President in lieu of salary. In addition they issued 650,000 shares to a consultant in lieu of consulting fees.
The Company applied APB Opinion 25 in accounting for the shares awarded to the President and FASB Statement No. 123 in accounting for the shares awarded to the consultant. Accordingly, compensation of $257,730 was charged to operations for the year ended December 31, 1998.
I-COMMITMENTS
Leases
The Company leases office space in Plymouth Meeting, Pennsylvania. Commitments for minimum rentals under noncancellable operating leases at the end of 1999 are as follows:
$ 51,000
54,000
Rent expense under operating leases was $ 46,088 and $ 62,426 in 1999 and 1998, respectively.
As of December 31, 1999, the Company had computer equipment and software purchased under non-cancelable leases with an original cost of $ 67,393 included in the Company's consolidated balance sheet. Depreciation and amortization of $5,616 has been charged to operations as of December 31, 1999 ..
Future minimum lease payments required under the capital leases are as follows:
2000 $ 24,768
2001 24,768
2002 16,512
66,048
Less amount representing interest 7,588
Present value of future minimum lease payments 58,460
Less current portion 21,747
Long- term portion $ 36,713
Litigation
On February 18, 1997, a search warrant (the "Warrant") was issued, filed in the United States District Court for the Eastern District of Pennsylvania, authorizing the Federal Bureau of Investigation to search the premises of the Company's executive offices and the offices of Intersphere in Blue Bell, Pennsylvania including any and all computer hardware, software, peripheral devices and computer-related documentation on any of such premises. The Warrant lists a variety of items to be obtained based on the assumption that there was a violation of federal laws and that an illegal gambling business was being conducted from its premises in Pennsylvania. Based on the advice of counsel with significant criminal law, trial and appellate experience and comprehensive understanding of the jurisdictional scope of gaming laws, both domestic and international, management does not believe the gaming operations of its subsidiaries violate either the laws of the United States or the Commonwealth of Pennsylvania, since no gaming or gambling operations are conducted there. Management's belief is based principally on its understanding, as interpreted by its counsel, that the operations of the Gaming and Licensing Division are legally authorised in Grenada and, as such, are beyond the scope and outside the jurisdiction of the U.S. criminal laws relating to gaming activities. The Company, through counsel, while co-operating fully with the officials of the United States, intends to move to quash the Warrant and subsequent subpoena in the United States District Court on the grounds that jurisdiction is lacking. Although the Company intends to defend vigorously any action that may ultimately be brought by the United States in connection with the Warrant and subpoena, no assurance can be given that management's beliefs as to the criminality of its subsidiaries' operations, or its basis for such beliefs, are correct and that the Company will prevail. In addition, the State of Missouri in April 1997 sought an injunction in its counts seeking to restrict the Company from offering the Global Casino through the Internet to Missouri residents. While not admitting personal jurisdiction, the Company through its counsel agreed not to offer these services to Missouri residents. The Company posted a notice to this effect within its Internet web site. Subsequently, an investigator employed by the State of Missouri accessed the Company's web site; apparently determining that the Company had breached its agreement with Missouri. Accordingly, in May of 1997, the State of Missouri indicted the Company and its President, Michael F. Simone, and filed a judgement in the amount of $66,050 for statutory "gambling" violations in Missouri. On September 22, 1998, the Company and Simone entered into a plea agreement with the State of Missouri. As part of the agreement the Company was to pay a fine in the amount of $5,000 and an additional $20,000 for the costs to prosecute the case. Simone was fined $2,500. As of December 31, 1998, $15,000 remains unpaid and is included in accounts payable and accrued expenses. According to the plea agreement, if the $20,000 was not paid within sixty days following the date of the plea, the State of Missouri may bring additional criminal charges against the Company.
The Company has filed suit against International Gaming to collect payments due under a $4,990,000 note representing payment for the capital stock of Sports International, Inc. and Global Casinos, Inc. (Note J). International Gaming has filed an Answer and Counterclaim asserting there were material misstatements, misrepresentations and omissions from the warranties and representations provided under the Stock Purchase Agreement between the two Companies. The Company has been advised by competent legal counsel that they will receive a judgement, though collection of the amount owed is still uncertain.
The Company was sued by, among others, Empire Corporation ("Empire"), who claimed the Company improperly terminated an alleged Joint Venture Agreement, appropriated certain funds belonging to Empire under the agreement and otherwise refused to pay monies due to Empire. Empire also asserted claims of fraud and breach of fiduciary duty. An answer, new matter and counterclaim has been filed by the Company asserting that the Agreement had been properly terminated and that funds are due the Company from Empire. Empire claims damages in excess of $160,000 as well as punitive damage in the amount of $1,000,000. The Company's counterclaim seeks damages in excess of $95,000. In the opinion of management, the ultimate outcome of this case in unknown.
Other litigation
The Company, in the normal course of business, is subject to litigation and is presently involved as a defendant in several lawsuits. In the opinion of management, the ultimate outcome of these cases is unknown and any exposure to liability, if any, cannot be estimated at this time.
Consequently, no amount has been accrued at December 31, 1999.
J-DISCONTINUED OPERATIONS
In March 1998, the Company sold Sports and Casino (the "Gaming Divisions") for $5,000,000, which included a $4,990,000 note receivable and debt forgiveness of $975,664. The interest rate on the note is the prime rate. The first eighteen months of the note only require monthly payments of interest on the unpaid principal portion. The second eighteen months require payment of interest plus principal of $27,725 per month. A balloon payment of $4,490,950 is payable on the thirty-seventh month. The stock of the Gaming Divisions has been pledged by the buyer as collateral. The sale resulted in a pre-tax gain of approximately $909,000 in 1998 after considering costs incurred in connection with the sale and operating results through the date of disposition. As collection of the $4,990,000 note is uncertain, the Company will defer the gain on the note and recognize revenue as principal is collected.
Net current assets from discontinued operations were primarily cash and customer receivables. Net noncurrent assets from discontinued operations were primarily fixed assets. Net current liabilities were customers' credit balances, security deposits and accounts payable and accrued expenses.
The financial statements reflect the operating results and balance sheet items of the discontinued operations separately from continuing operations. Prior years have been restated. Operating results for the discontinued operations for the year ended December 31, 1998 were:
Gross handle $ 1,223,497
Less customer win 1,168,189
Net win 55,308
Other revenues -
Net win and other revenues 55,308
Expenses (121,887)
Net (loss) income $ (66,579)
K- DISPOSITION OF GAMBLENET TECHNOLOGIES, LTD.
In February 1999, the Company and Century Industries, Inc. ("Century") formed Gamblenet Technologies, Ltd. ("Gamblenet"). The Company and Century each owned 50% of Gamblenet's initially outstanding common shares. In exchange for the Company's 50% interest, the Company licensed certain gaming and software licenses to Gamblenet and issued a warrant to purchase 4,000,000 shares of the Company's restricted common stock at the stock's par value of $ .001 per share. The warrant expires December 31, 2004.
In May, 1999, Gamblenet, whose principal assets was the warrant to purchase 4,000,000 shares of the Company's restricted common stock, was sold to an unrelated third party in exchange for $2,628,000, comprised of $ 128,000 in cash and a promissory note in the amount of $ 2,500,000. The note, which bears interest at 6% per annum, matures in May, 2004 with principal payments of $ 500,000 due annually prior thereto. The amount of the promissory note outstanding at December 31, 1999 was $2,008,790 and is shown on the balance sheet as a reduction in stockholders' equity . As of the date of the Company's financial statements, the warrant holder has not exercised its rights to acquire the Company's common stock underlying the warrant.
NOTE L-LOSSES PER COMMON SHARE
The following table presents the computation of basic and diluted loss per share:
1999 1998
Net loss available for common shareholders $(327,863) $ (71,485)
Basic and fully diluted loss per share $ (0.02) $ (.00)
Weighted average common shares outstanding 18,696,615 13,701,290
Net loss per share is based upon the weighted average number of shares of common stock outstanding.
M-SUBSEQUENT EVENT
In December, 1999, the Company authorized a series of 1,000,000 shares of the Company's preferred stock as convertible preferred stock ("Series A Voting Convertible Preferred Stock"). After five years, each share of the Preferred Stock is convertible into 15 shares of the Company's Common Stock. In addition, the holders of the preferred stock may not convert their shares to the Company's common stock unless the Company earns $.25 per share on a fully diluted basis for the year ended prior to the conversion; the market value of the Company's common shares has averaged $5.00 per share for 30 days prior to the conversion; and the shares will remain intact as a class, and shall remain restricted as a control block, salable pursuant to SEC rule 144 In the event of liquidation, dissolution, or winding up of the Company, the holders of the Preferred Stock have a liquidation preference of $1.00 per share.
Subsequent to the date of the Company's financial statements, the Company took the steps necessary to issue 1,000,000 shares of convertible preferred stock in exchange for 1,275,000 shares of Globespan Technologies Group, PLC, a company formed under the laws of Ireland.
In June, 1999, the Company issued 7,500,000 shares of its restricted common stock for the purpose of acquiring a controlling interest in certain assets owned by Century Industries, Inc. ("Century"). As of the date of the financial statements the Company had not fully consummated the transaction.
Pursuant to a Share Trust and Lock Up Agreement dated December 30, 1999, beginning in 2000, the Company will accounted for the Century assets acquired as a wholly-owned subsidiary of the Company.
The unaudited pro forma combined financial data is presented for informational purposes only. They are not necessarily indicative of the results of operations or of the financial position which would have occurred had the acquisition been completed during the periods or as of the date for which the pro forma data are presented. They are also not necessarily indicative of the Company's future results of operations or financial position. No adjustment has been included in the pro forma combined financial data for anticipated costs to be incurred upon consummation of the acquisition.
Pro forma per share amounts for the combined company are based on the number of shares outstanding on a fully diluted basis.
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
Pro Forma Combined Statement of Income Data:
Sales $ 6,128,127
Loss from continuing operations (96,568)
Loss from continuing operations per common share $ (0.00)
Weighted average number of common shares 22,595,245
Pro forma combined Balance Sheet Data:
Total assets $ 3,940,361
Total shareholders' equity $ 1,900,698
Book value per common share $ .08
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Board of Directors appointed Stefanou & Company, LLP as its Auditor for 1999 to replace Parante, Randolph Carey & Associates. There were no changes or disagreements with accountants on financial disclosure during this period.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers and Directors
The following table sets forth the name, age, and position of each executive officer and director of the Company.
Name Age Position Term Expires
Michael F. Simone Chairman of the Board, Director, President and Chief Executive Officer 1999 Annual Meeting
Jeffrey D. Erb Director and Secretary 1999 Annual Meeting
All the directors were re-elected to the Board of Directors at the Annual Meeting of Shareholders on March 18, 1998. The term of office for each director is one year or until his or her successor is elected and qualified at the Company's annual meeting of shareholders.
Michael F. Simone is a Company Director, and was President/Treasurer, Organizer and Owner of 50% of the outstanding shares of Sports International, Ltd. (Antigua) from inception in November 1992 until the Company acquired all of the capital stock of Sports International, Ltd. (Antigua) on October 20, 1994. From 1989 to 1992, Mr. Simone was a Vice President of Anchor Savings Bank, heading one of the bank's real estate lending divisions. He graduated from The University of Miami in 1972, and holds a BS Degree in Finance.
Jeffrey D. Erb is the Vice President of Intersphere. Mr. Erb is well versed in all aspects of the World Wide Web and the Internet, as well as design and management. He has overseen and personally handled much of the layout and programming of the World Wide Web pages and received international attention and awards. He is qualified in HTML programming and all aspects of Internet development. Mr. Erb is an active member of several high tech and Internet organizations and is a contributing writer in the advertising industry online magazine "Channel Seven" with his own column "Ad Bytes".
Board Meetings and Committees
Directors who are employees of the Company receive no compensation for services as directors.
The Company plans to establish an Audit Committee, a Compensation Committee and an Option Committee, each of which will consist of two directors.
The Audit Committee will review with the Company's independent accountants the scope and timing of the accountants' audit services and any other services they are asked to perform, their report on the Company's financial statements following completion of their audit and the Company's policies and procedures with respect to internal accounting and financial controls. In addition, the Audit Committee will be asked to make annual recommendations to the Board of Directors for the appointment of independent public accountants for the ensuing year.
The Compensation Committee will review and recommend to the Board of Directors the compensation and benefits of all officers and key employees of the company, and review general policy matters relating to compensation and benefits of employees of the Company.
The Option Committee will determine the number, if any, and terms of any options granted by the Company, except to members of the Committee. Options to the members of the Option Committee must be granted and approved by the majority vote of the Board of Directors.
Limitation of Liability
As a Delaware corporation, the Company is bound by Section 145 of the General Corporation Law of Delaware which allows the indemnification of officers, directors, employees or agents of the Company against liabilities and expenses arising out of actions brought by a third party, provided that the Board of Directors determines that such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to a criminal matter, had no reasonable cause to believe his conduct was unlawful. Such law also permits indemnification against expenses in actions brought by a shareholder on behalf of a corporation or by the corporation itself if the standards of conduct required for indemnification in third party actions are met, and either (1) such person was not adjudged liable to the corporation, or (2) the Delaware Chancery Court or other court in which the action was brought determines that such person is fairly and reasonably entitled to be indemnified. The Company may make advances for expenses incurred in defending a suit upon the receipt of an undertaking by an officer, director, employee or agent to repay such amount if it is ultimately determined that such person is not entitled to be indemnified.
The Company's Certificate of Incorporation provides that directors and officers of the Company are indemnified to the fullest extent permitted by law and states that no director or officer shall have any personal liability to the Company or its stockholders for any monetary damages for breach of fiduciary duty as a director except for liability resulting from (i) breach of the duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Delaware corporation law (relating to unlawful dividends or redemptions), or (iv) for any transaction from which such director or officer derived an improper personal benefit. The indemnification is against all expenses arising from the lawsuit or action unless the director or officer is finally adjudged to be liable for gross negligence, recklessness or willful misconduct in the performance of his duty to the Company (unless the Delaware Chancery Court determines that in view of the circumstances of the case, the person is entitled to indemnity as determined by the court). Expenses are paid or reimbursed as incurred in advance of final disposition upon receipt of an unsecured contractual written undertaking that such amount must be repaid if it is determined that the person is not entitled to the indemnity.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers, or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
The Company does not currently maintain any directors' and officers' liability insurance.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Compensation Table
Employee Agreements and Benefits
The Company does not have any employment contracts, retirement, pension, profit sharing, with or covering its officers, directors, consultants, and employees. During 1996, the Company established a medical insurance plan for its officers and employees.
Stock Option and Stock Award Plan
In May 1995, the stockholders approved the 1995 Stock Option and Stock Award Plan (the "Plan) and the 1995 Directors Stock Option Plan (the "Director's Plan"). The purpose of the Plan is to attract and retain qualified and competent persons as officers, employees, consultants, agents, and independent contractors. The purpose of the Director'' Plan is to attract and retain nonemployee directors to the Company'' board.
Under the Plan and the Director's Plan, the Company may grant up to 600,000 and 300,000 stock options, respectively. The terms of the options granted shall be determined by the Stock options Committee appointed by the Board of Directors. At December 31, 1995, no stock options had been awarded under either plan. On October 25, 1996, pursuant with a Director's voluntary resignation, the Company authorized the purchase of 50,000 shares of stock at an exercise price 33% higher than the fair market value of the Company's common stock on the date of the grant or $1.25 per share with an exercise deadline of October 25, 1999.
On March 18, 1998, the Company authorized the issuance of 1,000,000 shares of the Company's stock to its President in lieu of salary. In addition they issued 650,000 shares to a consultant in lieu of consulting fees.
The Company applied APB Opinion 25 in accounting for the shares awarded to the President and FASB Statement No. 123 in accounting for the shares awarded to the consultant. Accordingly, compensation of $257,730 was charged to operations for the year ended December 31, 1998.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders
The table below sets forth information as to each person owning of record or who was known by the Company to own beneficially more than 5% of the 23,084,903 shares of issued and outstanding Common Stock of the Company as of December 31, 1998 and information as to the ownership of the Company's Common Stock by each of its directors and executive officers and by the directors and executive officers as a group. Except as otherwise indicated, all shares are owned directly, and the persons named in the table have sole voting and investment power with respect to shares shown as beneficially owned by them.
Name and Address of Beneficial Owner Nature of Ownership Number of Shares Owned Percent
Michael F. Simone
188 Jericho Valley Drive
Wrightstown, PA 18940 Common Stock, Direct 4,487,713 19.4%
Rina Moscariello
994 Derring Lane
Bryn Mawr, PA 19110 Common Stock, Direct 1,360,000 5.89%
All Executive Officers and Directors, as a Group (1 Persons)
5,847,713 25.29%
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no other material relationships or transactions that qualify for disclosure under this caption.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statement Schedules
The consolidated financial statements and related schedules filed as part of this Form 10-Ksb are included in Part II, Item 8.
Reports on Form 8-K
On March 8, 1999, the Company reported that it entered into a joint effort agreement with Century Industries, Inc. ("Century") and formed Gamblenet Technologies, Ltd. ("Gamblenet"). The Company and Century each own 50% of Gamblenet's initially outstanding common shares. In exchange for the Company's 50% interest, the Company licensed certain gaming and software licenses to Gamblenet along with 4,000,000 restricted shares of the Company's Common Stock, which have been reserved for, but have not been issued.
EXHIBIT 27, FINANCIAL DATA SCHEDULE (FOR ELECTRONIC FILING PURPOSES ONLY)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
Cash $ 47,301
Marketable Securities
Notes and Accounts Receivable 15,258
Allowances for Doubtful Accounts 25,550
Inventory
Total Current Assets 72,559
Property, Plant and Equipment 391,251
Accumulated Depreciation 166,666
Total Assets 1,843,415
Total Current Liabilities 923,458
Bonds, Mortgages and Similar Debt
Preferred Stock - Mandatory Redemption
Preferred Stock - No Mandatory Redemption
Common Stock 23,085
Other Stockholders' Equity 802,218
Total Liabilities and Stockholders' Equity 1,843,415
Net Sales of Tangible Products
Total Revenues 1,199,400
Cost of Tangible Goods Sold
Total Costs and Expenses App. to Sales and Revenues
Other Costs and Expenses 1,675,305
Provision for Doubtful Accounts 25,550
Interest and Amortization of Debt Discount 37,000
Income/Loss Before Taxes and Other Items (327,863)
Income Tax Expense/Benefit
Income/Loss Continuing Operations (443,372)
Discontinued Operations
Extraordinary Items 115,509
Cumulative Effect-Changes in Accounting Principles
Net Income or Loss (327,863)
Earnings Per Share - Primary
Earnings Per Share - Fully Diluted
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GLOBESPAN TECHNOLOGY PARTNERS, INC.
Dated: July 8, 1999
By:
/s/ Michael F. Simone
Michael F. Simone, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on this 8th day of July 1999.
GLOBESPAN TECHNOLOGY PARTNERS, INC.
By:
/s/ Michael F. Simone
Michael F. Simone, Director, President, and Chief Executive Officer
By:
/s/ Jeffrey Erb
Jeffrey Erb, Director and Secretary