SHARE IN PROFITS/LOSSES OF AFFILIATED COMPANY
Share in profits for 2009 were $2,076,828 compared to a share in losses of
$45,793 for 2008. The share in profits is primarily attributable to the Netplay
Transfer Agreement in which we received 4,266,666 Netplay shares valued at
approximately $1.5 million which was recorded as share in profits. In addition,
until December 2009 the investment in TWG was recorded as a liability since we
and TWM are guarantors in equal parts to liabilities of TWG but not to exceed
the sum of (1) exposure to players' balance owed to TWG and (2) balance of
unpaid minimum guarantee fees owed from TWG to Virgin. In December 2009, we
received from Virgin a waiver as agreed in the Settlement Agreement, pursuant to
which Virgin waived and released all claims that Virgin may have towards TWG,
including liability for paying minimum guarantee fees to Virgin. As a result, we
set off our liability towards Virgin and recorded this set off as share in
profits of $562,148.
NET LOSS AND NET LOSS PER SHARE
Net income attributable to us in 2009 changed to $1,813,788 from a net loss of
$474,459 for 2008. Net income per share (basic and diluted) attributable to us
in 2009 changed to $0.06 from a net loss of $0.02 for 2008. The net income in
2009 is primarily attributable to the Netplay Transfer Agreement in which the
Company received 4,266,666 Netplay shares valued at approximately $1.5 million,
gain on sale of intellectual property following the sale of the multiplayer
blackjack tournament software platform by RNG for $250,000, $562,148 share in
profits following the removal of the liability towards Virgin and a decrease in
operating expenses due to the layoff of our employees.
Our weighted average number of shares of common stock used in computing basic
and diluted net loss per share for 2009 and 2008 was 32,319,031.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2009, our total current assets were $424,701 and our total
current liabilities were $122,882. At December 31, 2009, we had working capital
of $1,441,118 compared with working capital of $329,332 on December 31, 2008. As
of December 31, 2009 we had an accumulated deficit of $15,996,659. In 2009 we
financed our operations with a combination of revenues and from proceeds from
the sale of our intellectual property.
Cash and cash equivalents on December 31, 2009 were $352,800, a decrease of
$176,330 from the $529,130 reported at December 31, 2008. Cash balances
decreased in 2009 compared to 2008 results primarily from a $87,332 decrease in
trade payables, a $121,719 decrease of accrued expenses and a $219,225 decrease
in the call option value offset by $563,631 in proceeds from selling marketable
securities.
Operating activities used cash of $734,828 in 2009. Cash used by operating
activities in 2009 resulted primarily from our cost of operations, a $87,332
decrease in trade payables, a $121,719 decrease in accrued expenses and other
liabilities mainly related to paying off our liabilities to vendors.
Investing activities provided cash of $563,631 in 2009 compared to $1,870,960 in
2008. Cash provided by investing activities in the year ended December 31, 2009
resulted from selling marketable securities in the amount of $563,631. Cash
provided by investing activities in the 2008 resulted from the proceeds from the
sale of intellectual property to Playtech and the sale of the majority of our
fixed assets.
Financing activities used cash of $5,133 in 2009. Cash used by financing
activities in 2009 resulted from the reduction of short term bank credit.
Financing activities provided cash of $7,343 in 2008 primarily due to our short
term credit facility.
On March 10, 2008 the Board of Directors of the Issuer (the "Board") approved
the entry of the registrant into a convertible debt transaction with Mr. Citron,
subject to shareholder approval at a special meeting in lieu of an annual
meeting (the "Meeting"). The transaction was documented by a Convertible Loan
Agreement, a Convertible Promissory Note (the "Note"), a Security Agreement and
a Common Stock Purchase Warrant, all of which were dated as of March 6, 2008
(the "Loan Agreement Documents"). Under the Loan Agreement Documents, Mr. Citron
provided the Company with a loan in the principal amount of $500,000, which was
advanced to the Company in 7 installments from February 24, 2008 to July 9,
2008. The Note carried an interest rate of 15% per annum.
18
On April 29, 2008, the holders of a majority of the shares of the Issuer's
common stock represented at the Meeting approved the transaction loan agreement
documents documented by a Convertible Loan Agreement, a Convertible Promissory
Note, a Security Agreement and a Common Stock Purchase Warrant, all of which
were dated as of March 6, 2008. The Common Stock Purchase Warrant ("Warrant") to
purchase up to $500,000 worth of shares of common stock of the registrant,
calculated as $500,000 divided by the conversion price of $0.0595 per share
would permit the purchase of 8,403,361 shares of common stock. In August 2008,
the Board approved a loan from Mr. Citron under similar terms but with no assets
pledged as collateral for an amount of $50,000, thereby entitling Mr. Citron to
an additional warrant to purchase 840,336 shares of common stock of the
registrant at an exercise price of $0.0595 per share (the "Additional Warrant").
On February 25, 2010, the Board issued the Warrant to Mr. Citron pursuant to
which Mr. Citron has the right to purchase 2,941,176 shares of common stock of
the Issuer. In addition, on such date, the Board issued Mr. Citron the
Additional Warrant. The Warrant has an exercise price of $0.0595 per share and a
termination date of 5 years from March 6, 2008. The Additional Warrant has an
exercise price of $0.0595 per share and a termination date of 5 years from
August 13, 2008.
Our main asset currently is marketable securities of Netplay. As a result, we
are exposed to market risk regarding the share price of Netplay in the free
market. As of December 31, 2009, the fair value of these shares was $1,139,299.
OUTLOOK
Our current cash, together with our Netplay shares, should 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 new business activity in the field of
binary options. There is no assurance, however, that such growth may be
achieved.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that are reasonably likely to
have a current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included in Item 15 of this Annual
Report on Form 10-K.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
ITEM 9A(T). CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of December 31, 2009, an evaluation was carried out under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act).
These disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
Based upon that evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that, at December 31, 2009, the design and operation of these
disclosure controls and procedures were not effective at ensuring that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in applicable rules and forms because of certain
material weaknesses identified by our management and discussed below.
19
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system is designed to
provide reasonable assurance to our management and Board of Directors regarding
the preparation and fair presentation of published financial statements. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
Our management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in INTERNAL CONTROL-INTEGRATED FRAMEWORK. Based on our evaluation and
the material weaknesses described below, management concluded that the Company
did not maintain effective internal control over financial reporting as of
December 31, 2009.
Management has identified control deficiencies regarding lack of segregation of
duties. Management believes that these material weaknesses are due to the small
size of the Company's staff.
The ineffectiveness of internal controls as of December 31, 2009 stemmed in
large part from a change of the Company's CFO, discontinued operations and
personnel cutbacks. Although we believe the time to adapt in the next year will
help position us to provide improved internal control functions into the future,
in the interim, these changes caused control deficiencies, which in the
aggregate resulted in a material weakness.
This Annual Report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Our internal control over financial reporting was not subject to
attestation by our registered public accounting firm pursuant to temporary rules
of the SEC that permit us to provide only management's report in this Annual
Report on Form 10-K.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change to our internal control over financial reporting that
occurred during our fourth quarter ended December 31, 2009 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
20
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Effective on July 2, 2009, we appointed Shlomi Zedkia as our Chief Financial
Officer. This appointment was made pursuant to a contract signed between us and
Shvarts-Zedkia &Co., an Israeli company that provides financial services and of
which Mr. Zedkia is a partner. Effective July 2, 2009, Mr. Jacob Bar-Shalom
ceased to act as our CFO. The departure of Mr. Bar-Shalom resulted from the
termination of the agreement between us and C.F.O. - Out Sourcing Services Ltd.,
a company that provided us with financial services, pursuant to which Mr.
Bar-Shalom acted as our CFO.
As of December 31, 2009, our directors and executive officers, their ages,
positions held, and duration of such, are as follows:
NAME AGE POSITION POSITION SINCE
---- --- -------- --------------
Shimon Citron* 55 Director and CEO 2001
Shlomi Zedkia 32 CFO 2009
Adiv Baruch 46 Director 2006
Niv Zilberstein 44 Director 2007
Steve Baker 57 Director 2007
* Mr. Citron held the position of CEO and director since the Company's inception
in 2001 until May 8, 2007. He resumed his position as CEO on June 19, 2008.
The principal occupations and business experience of each director and executive
officer for at least the past five years is as follows:
SHIMON CITRON. Mr. Citron founded us in 2001 and held the positions of Chief
Executive Officer and director since our inception until May 8, 2007 when he
ceased to be Chief Executive Officer. He resumed his position as CEO on June 1,
2008. From 1999 to 2001, Mr. Citron was the founder and President of Gigi Media
Ltd., a private company based in Israel engaged in development of internet
search engines. From 1994 to 1999, he managed his own private investments in a
number of startup companies in Israel. We believe Mr. Citron's qualifications to
sit on our Board of Directors include his years of experience in the financial
markets in Israel and globally, as well as his experience in serving as the CEO
of a publicly traded entity.
SHLOMI ZEDKIA. Mr. Zedkia was appointed as our Chief Financial Officer on July
2, 2009. Since 2008, Mr. Zedkia has served as a partner at Shavrts-Zedkia & Co.,
an accounting firm in Israel. From 2006 to 2008, Mr. Zedkia served as a senior
audit manager at BDO Ziv-Haft where he gained extensive experience in auditing
and preparing annual and quarterly financial statements for public companies
whose shares are traded both on the U.S. and Israel stock exchanges. Mr. Zedkia
is a C.P.A (Isr.) and holds a B.A. degree in business administration and
accounting.
ADIV BARUCH. Mr. Baruch is the President and Chief Executive Officer of Pinpoint
Advance Corp., a blank check company that was formed for the purpose of
operating in the technology sector in Israel or in Europe. In addition, Mr.
Baruch is actively involved as the Chairman of the Israeli Export Institute
Hi-Tech and Telecom Division. Prior to joining Pinpoint Mr. Baruch served as the
President and Chief Executive Officer of BOS Better On-Line Solutions Ltd.
("BOS"), a company engaged in Radio Frequency ID and supply chain solutions to
global enterprises. Prior to joining BOS, Mr. Baruch served as Executive Vice
President of Business Development of Ness Technologies ("Ness"), the largest IT
firm in Israel, and is considered one of the founding members of that company.
Mr. Baruch is also a former partner and director of IPEX, which was acquired by
Ness. Mr. Baruch has served in the capacity of founder, executive, and director
for several IT companies and internet start-ups, and was significantly involved
in the M&A process for such companies and in assisting them in their global
expansion. We believe Mr. Baruch's qualifications to sit on our Board of
Directors include his years of experience in the hightech business, as well as
his knowledge and familiarity in corporate finance.
21
NIV ZILBERSTEIN. Mr. Zilberstein is the Chief Executive Officer of Palace
Industries (PI) Ltd. Between 2003 and 2007, Mr. Zilberstein was the Vice
President, Operations & Logistics for Pelephone Communication Ltd.
("Pelephone"), one of Israel's leading wireless communications companies. He is
also a member of Pelephone's executive board. Mr. Zilberstein holds a B.A.
degree in behavioral sciences and human resources management from the College of
Management in Israel and an MBA degree from Bar Ilan University. We believe Mr.
Zilberstein's qualifications to sit on our Board of Directors include his years
of experience working as a highly ranked executive in one of Israel's leading
corporations, as well as his knowledge in the communications world.
STEVE BAKER. Mr. Baker has served as our director since November 2007. Between
March 10, 2008 and June 1, 2008, Mr. Baker also served as our Chief Executive
Officer and Corporate Secretary. Since March 2007, Mr. Baker has been the
Executive in Residence at RHO Canada, a venture capital firm dedicated to
backing leading, early-stage technology-based companies in Canada. Prior to
this, since 2001, he was CEO of CyberWorld Group, a leading marketing and back
office services provider to the internet-gaming industry. Mr. Baker is also the
CEO and founder of Chrysalis-ITS Inc., a pioneer in internet security and
encryption systems and founder and CEO of Emanation Control Limited, a leader in
the intelligence countermeasures sector. Mr. Baker attended Carleton University
in Ottawa, Canada. We believe Mr. Baker's qualifications to sit on our Board of
Directors include his years of experience in online technology, as well as his
knowledge of online marketing and affiliated programs.
FAMILY RELATIONSHIPS
There are no family relationships among any of our directors and executive
officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, requires Company's directors, officers and stockholders who
beneficially own more than 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Exchange Act, collectively referred to
herein as the "Reporting Persons," to file initial statements of beneficial
ownership of securities and statements of changes in beneficial ownership of
securities with respect to the Company's equity securities with the SEC. All
Reporting Persons are required by SEC regulation to furnish us with copies of
all reports that such Reporting Persons file with the SEC pursuant to Section
16(a). Based solely on our review of the copies of such reports and upon written
representations of the Reporting Persons received by us, we believe that all
Section 16(a) filing requirements applicable to such Reporting Persons have been
met.
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
During fiscal 2009, our Audit Committee was comprised of Mr. Adiv Baruch. Using
the NASDAQ stock market listing rules definition of an independent director, our
Board of Directors determined that Mr. Baruch qualifies as an independent
director. Our Board of Directors has determined that Mr. Baruch satisfies the
definition of an "audit committee financial expert" as set forth in Item
407(d)(5) of Regulation S-K. Our Audit Committee held one (1) meeting during
fiscal year 2009.
CODE OF ETHICS
Our Board of Directors has adopted a Code of Business Ethics and Conduct, or
Code of Ethics, applicable to our employees, officers and directors. Our Code of
Ethics can be viewed on our corporate website, www.wingamingmedia.com. Our Code
of Ethics contains written standards designed to deter wrongdoing and to
promote:
o honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships;
22
o full, fair, accurate, timely, and understandable disclosure in reports and
documents filed with the SEC and in other public announcements;
o compliance with applicable governmental laws, rules and regulations;
o the prompt internal reporting of violations of our Code of Ethics to an
appropriate person or persons identified in our Code of Ethics; and
o accountability for adherence to our Code of Ethics.
Each of our officers and directors completed a signed certification to document
his or her understanding of and compliance with our Code of Ethics. We intend to
disclose any amendment to, or waiver from, a provision of our Code of Ethics and
Business Conduct applicable to our Chief Executive Officer, Chief Financial
Officer or principal accounting officer or controller by posting such
information on our website, www.wingamingmedia.com.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE FOR FISCAL 2008 THROUGH 2009
The following Summary Compensation Table sets forth information concerning
compensation during 2009 for services in all capacities awarded to, earned by or
paid to Mr. Citron. No other executive officers who were serving as our
executive officers at the end of 2009 received more than $100,000 in total
compensation in 2009, and there were no individuals for whom disclosure would
have been provided but for the fact that the individual was not serving as an
executive officer at the end of 2009.
23
NAME AND PRINCIPAL
POSITION YEAR SALARY($) BONUS($) OPTION AWARDS($)(1) OTHER COMPENSATION($) (TOTAL($)
-------- ---- --------- -------- ---------------- ----------------- ---------
Shimon Citron,
Chief Executive Officer 2009 120,000 0 0 12,000(2) 132,000
2008 77,000 0 51,200 0 128,200
(1) The dollar value recognized for the stock option awards was determined in
accordance with FASB ASC Topic 718. For information on the determination of the
fair value of each option granted as of the grant date, and of assumptions made
with respect to the value of option awards, see, in this Annual Report on Form
10-K, "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Critical Accounting Policies and Estimates" and "Notes to
Consolidated Financial Statements--Note 10. Share Capital".
(2) Includes $12,000 reimbursed to Mr. Citron in connection with the operation
of an automobile.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2009
The following table presents the outstanding equity awards held as of December
31, 2009 by our Chief Executive Officer. All such awards were stock options.
Number of Securities Underlying
Unexercised Options update
-----------------------
NAME EXERCISABLE UNEXECISABLE EXERCISE PRICE EXPIRATION DATE
------------- --------- ---------- ------ -----------------
Shimon Citron 1,863,000 - $ 1.15 July 31, 2010
500,000 - $0.575 July 31, 2010
611,111 388,889(1) $ 0.06 September 15, 2018
(1) Vests in seven equal quarterly installments beginning on March 15, 2010 and
ending September 14, 2011.
COMPENSATION OF DIRECTORS
We have agreements with each of our directors, pursuant to which we have agreed
to reimburse them for reasonable and necessary expenses incurred in connection
with attendance at meetings of the Board of Directors and other Company
business.
Upon his appointment as one of our directors in 2006, we also agreed to grant
Mr. Adiv Baruch an option to purchase up to 192,261 shares of our common stock
under the terms of our 2004 Global Share Option Plan ("Option") at an exercise
price per share of $1.00. The Option vests in three equal annual installments,
whereby Mr. Baruch has the right to purchase one third of the shares subject to
the Option at the expiration of the first, second and third year respectively
from the date of the agreement, provided that Mr. Baruch remains a member of the
Board of Directors at such time. In the event of a termination of the agreement
for cause at any time, the Option, to the extent not exercised, shall terminate
and be cancelled and non-exercisable.
In April of 2006, in recognition of his services as a director, we granted Mr.
Adiv Baruch an option to purchase up to an additional 200,000 shares of our
common stock at an exercise price of $0.725 per share for a period of 3 years.
24
The following table provides information regarding compensation earned by,
awarded or paid to each person for serving as a non-employee director during the
year ended December 31, 2009.
FEES EARNED OR OPTION
NAME PAID IN CASH AWARDS TOTAL
---- ------ ------- ------
Adiv Baruch (1) $ 0 $ 0 $ 0
Steve Baker(2) $ 0 $ 0 $ 0
Niv Zilberstein(3) $ 0 $ 0 $ 0
(1) Mr. Adiv Baruch had 992,261 options outstanding as of December 31, 2009.
(2) Mr. Steve Baker had 400,000 options outstanding as of December 31, 2009.
(3) Mr. Niv Zilberstein had 400,000 options outstanding as of December 31,
2009.
ENGAGEMENT AGREEMENTS CONCERNING EXECUTIVE OFFICERS
On September 23, 2008, we entered into a consulting agreement ("Agreement") with
Citron Investments Ltd. (the "Consultant"), an Israeli corporation wholly owned
by our director and CEO, Mr. Shimon Citron. Pursuant to the Agreement, we
retained the services of the Consultant to provide the services of Mr. Shimon
Citron as our CEO in a part time capacity. Pursuant to the Agreement, we are
required to pay the Consultant a monthly fee of $10,000, and will reimburse
expenses incurred by the Consultant in connection with one automobile owned and
operated by the Consultant not to exceed $1,000 per month and shall include Mr.
Citron in its liability insurance program for officers and directors. In
addition, under the terms of the Agreement, should our valuation based on the
price per share of our shares as quoted on the stock exchange or on an automatic
quotation system (such as the OTC Bulletin Board) in which our shares are listed
or quoted, during the term of the Agreement, exceed $10,000,000 throughout a
continuous period of at least 30 consecutive days, then the Consultant shall be
entitled to receive from us a special bonus equaling 2% of the average of our
valuation in such 30-day period. The term of the Agreement is 6 months,
effective June 6, 2008 with automatic extension for an undefined period. The
Agreement can be terminated by either party for no reason with a 90-day advance
written notice or for a material breach with a 14-day advance written notice if
such a breach was not cured during the aforesaid 14-day period.
Effective on July 2, 2009, we appointed Shlomi Zedkia as our Chief Financial
Officer. This appointment was made pursuant to a contract signed between us and
Shvarts-Zedkia&Co., an Israeli accounting firm that provides financial services
and in which Mr. Shlomi Zedkia is partner. Therefore, we have no separate
employment agreement with Mr. Shlomi Zedkia.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information, to the best of our
knowledge, as of March 25, 2010 (unless provided herein otherwise), with
respect to holdings of our common stock by (1) each person known by us to be the
beneficial owner of more than 5% of the total number of shares of our common
stock outstanding as of such date; (2) each of our directors; (3) each of our
executive officers; and (4) all of our directors and our current executive
officers as a group. Beneficial ownership consists of a direct interest in the
shares of common stock, except as otherwise indicated.
25
NAME AND ADDRESS OF BENEFICIAL OWNER (1) AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP (2) PERCENT OF CLASS (3)
5% BENEFICIAL OWNERS
Shimon Citron (4) 9,839,473 25.1%
Pini Gershon 2,706,950 8.4%
Highbridge International LLC 2,359,700 7.3%
Orinda Capital (5)
11 El Sueno, Orinda, CA 94563 4,965,518 14.3%
OTHER DIRECTORS:
Steve Baker (6) 266,666 *
Adiv Baruch (7) 792,261 2.4%
Niv Zilberstein (6) 266,666 *
All directors and current executive officers as
a group (5 persons)(4)(5)(6)(7) 11,165,066 27.6%
* = Less than 1%
(1) Unless otherwise provided, all addresses are c/o Win Gaming Media, Inc. at
the address set forth on the cover page of this Annual Report on Form 10-K.
(2) Except as otherwise indicated, all shares are beneficially owned and sole
investment and voting power is held by the persons named. With respect to
Highbridge International LLC, Mr. Glen R. Dubin controls investment and voting
power.
(3) Applicable percentage of ownership is based on 32,319,031 shares of our
common stock outstanding as of March 25, 2010, plus any common stock equivalents
and options or warrants held by such holder which are presently or will become
exercisable within 60 days thereafter.
(4) Includes options to acquire 666,667 shares of common stock at an exercise
price of $0.06 per share and warrants to acquire 3,781,512 shares of common
stock at an exercise price of $0.0595 per share. Also includes options to
acquire, as the sole shareholder of Citron Investments Ltd., 1,863,000 shares of
common stock at an exercise price of $1.15 per share and 500,000 shares of
common stock at an exercise price of $0.575 per share.
(5) Includes warrants to acquire 2,482,759 shares of common stock at an exercise
price of $ 1.125 per share.
(6) Includes options to acquire 266,666 shares of common stock at an exercise
price of $0.06 per share.
(7) Includes options to acquire 200,000, 192,261 and 400,000 shares of common
stock at exercise prices of $0.73, $1.00 and $0.06 per share, respectively.
26
The following table summarizes certain information regarding our equity
compensation plans as of December 31, 2009:
NUMBER OF
SECURITIES
NUMBER OF WEIGHTED-AVERAGE REMAINING
SECURITIES EXERCISE AVAILABLE FOR
TO BE ISSUED UPON PRICE OF FUTURE ISSUANCE
EXERCISE OF OUTSTANDING UNDER
OUTSTANDING OPTIONS, WARRANTS EQUITY
OPTIONS, WARRANTS AND COMPENSATION
PLAN CATEGORY AND RIGHTS RIGHTS PLANS
--------- --------- --------- ---------
Equity compensation plans approved by
security holders--2004 Global Share Option
Plan 3,788,379 $ 0.39 4,211,621
Total 3,788,379 - 4,211,621
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 23, 2008, we entered into the Agreement with the Consultant, an
Israeli corporation wholly owned by our director and CEO, Mr. Shimon Citron.
Pursuant to the Agreement, we retained the services of the Consultant to provide
the services of Mr. Citron as our CEO in a part time capacity. Pursuant to the
Agreement, we are required to pay the Consultant a monthly fee of $10,000, and
will reimburse expenses incurred by the Consultant in connection with one
automobile owned and operated by the Consultant not to exceed $1,000 per month
and shall include Mr. Citron in its liability insurance program for officers and
directors. In addition, under the terms of the Agreement, should our valuation
based on the price per share of our shares as quoted on the stock exchange or on
an automatic quotation system (such as the OTC Bulletin Board) in which our
shares are listed or quoted, during the term of the Agreement, exceed
$10,000,000 throughout a continuous period of at least 30 consecutive days, then
the Consultant shall be entitled to receive from us a special bonus equaling 2%
of the average of our valuation in such 30-day period. The term of the Agreement
is 6 months, effective June 6, 2008 with automatic extension for an undefined
period. The Agreement can be terminated by either party for no reason with a
90-day advance written notice or for a material breach with a 14-day advance
written notice if such a breach was not cured during the aforesaid 14-day
period.
On April 7, 2009, TWG, 50% owned by us and 50% owned by TWM (we refer to TWG and
TWM as the Sellers), entered into an agreement, or the Netplay Transfer
Agreement, with Netplay TV plc, or Netplay. The Netplay Transfer Agreement
provided for the transfer by the Sellers of certain gaming services, known as
Challenge Jackpot, and the transfer of about 16,000 registered players of
Challenge Jackpot, an interactive game application provided to Virgin, their
account balances and the equipment required for running such business. The
transaction closed on May 21, 2009, following the approval thereof by Netplay's
shareholders on May 11, 2009, the completion of the agreement between Netplay
and Virgin for the assignment of the agreement dated June 2008, between TWG and
Virgin and the payment of GBP 200,000 from TWG to Virgin. At the closing,
Netplay issued 8,533,333 of its ordinary shares to TWG, which shares were
admitted to trading on May 21, 2009 on the London Stock Exchange plc's market
known as AIM. Of these shares, 4,266,666 shares were transferred to us and
deposited with Panmure Gordon & Co to be sold by the latter during the first
year from the closing, as it shall reasonably require with a view to maintaining
an orderly market for the shares of Netplay. Based on the shareholder's
agreement of TWG and in return for Mr. Citron's consent to grant TWG the
unlimited right to use the Winnerchannel.com domain, which Mr. Citron owns, he
was entitled to receive 7.5% of all the proceeds generated from the sale of a
part or all of TWG's assets which is equivalent to 15% of the received shares
allocated to the Company. In 2009, Mr. Citron received from the company
approximately $286,330 in return for his 15% portion of Netplay's shares.
27
DIRECTOR INDEPENDENCE
Using the NASDAQ stock market listing rules definition of an independent
director, our Board of Directors determined that Adiv Baruch and Niv Zilberstein
qualify as independent directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Our Audit Committee retained Ziv Haft, a member of the BDO Network ("BDO") as
our independent registered public accounting firm for the fiscal year ended
December 31, 2009.
The following table summarizes the fees BDO billed for the last two fiscal years
for audit services and other services:
FEE CATEGORY 2009 2008
------- -------
Audit Fees (1) $45,000 $45,000
Audit Related Fees - -
Tax Fees (2) 9,288 -
All Other Fees - -
------- -------
Total Fees $54,288 $45,000
======= =======
(1) Consists of fees for professional services rendered in connection with the
audit of our financial statements for the years ended on December 31, 2009
and December 31, 2008, the reviews of the financial statements included in
each of our Quarterly Reports on Form 10-Q during 2009 and 2008, and fees
for professional services rendered in connection with documents filed,
including the registration statement on Form 20-F for Gaming, with the SEC
during those quarters.
(2) Consists of fees relating to our tax compliance and tax planning.
PRE-APPROVAL POLICIES AND PROCEDURES
None of the audit-related fees billed in fiscal 2009 and 2008 related to
services provided under the de minimis exception to the SEC's audit committee
pre-approval requirements.
The Audit Committee has adopted policies and procedures relating to the approval
of all audit and non-audit services that are to be performed by our independent
registered public accounting firm. This policy generally provides that we will
not engage our independent registered public accounting firm to render audit or
non-audit services unless the service is specifically approved in advance by the
Audit Committee or the engagement is entered into pursuant to one of the
pre-approval procedures described below.
From time to time, the Audit Committee may pre-approve specified types of
services that are expected to be provided to us by our independent registered
public accounting firm during the next 12 months. Any such pre-approval is
detailed as to the particular service or type of services to be provided and is
also generally subject to a maximum dollar amount.
28
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Financial Statements and Financial Statement Schedules filed as part of
this Annual Report on Form 10-K:
PAGE
----
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets, as of December 31, 2009 and 2008 F-2 - F-3
Consolidated Statements of Operations, For the Years Ended
December 31, 2009 and 2008 F-4
Statements of Changes in Equity, For the Years Ended December 31,
2009 and 2008 F-5
Consolidated Statements of Cash Flows, For the Years Ended
December 31, 2009 and 2008 F-6
Notes to Consolidated Financial Statements F-7 - F-23
All other schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions, or are
inapplicable, and therefore have been omitted.
(b) Exhibits
29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Composite copy of the Company's Articles of Incorporation as amended on May
1, 2008 (incorporated by reference to Exhibit 3.1 to our Quarterly Report
on DForm 10-Q filed with the Securities and Exchange Commission on May 28,
2008).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to our Form SB-2 (File No.
333-91356) filed with the Securities and Exchange Commission on June 27,
2002).
10.1 Director Appointment Agreement dated as of January 15, 2006 by and between
Zone 4 Play, Inc. and Adiv Baruch (incorporated by reference to Exhibit
10.1 to our Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 18, 2006).+
10.2 Agreement dated July 31, 2007, by and between the registrant, Zone 4 Play,
Inc. and Zone 4 Play (Israel) Ltd. on one hand, and Mr. Shimon Citron,
Citron Investments Ltd., and Winner Sports 2002 (Israel) Ltd. on the other
hand (incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed with the Securities and Exchange Commission on August 6,
2007).+
10.3 Shareholders' Agreement dated November 6, 2007 by and between Zone 4 Play,
Inc. and Two Way Media Limited (incorporated by reference to Exhibit 10.2
to our Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 14, 2007).
10.4 Termination Agreement dated November 6, 2007 by and among Zone 4 Play,
Inc., Winner.com (UK) Ltd and Two Way Media Limited (incorporated by
reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 14, 2007).
10.5 Convertible Loan Agreement dated as of March 6, 2008 by and between Zone 4
Play Inc. and Shimon Citron (incorporated by reference to Exhibit 10.1 to
our Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 14, 2008).
10.6 2004 Global Share Option Plan of Zone 4 Play, Inc. (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 30, 2004).+
10.7 Amendment to 2004 Global Share Option Plan of Zone 4 Play, Inc.
(incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed with the Securities and Exchange Commission on May 10, 2006).+
10.8 Sample Agreement under the Company's 2004 Global Share Option Plan
(incorporated by reference to Exhibit 10.25 to our Annual Report on Form
10K-SB filed with the Securities and Exchange Commission on April 11,
2006).+
10.9 Intellectual Property and Technology Purchase Agreement dated as of August
6, 2008 between Playtech Software Limited and MIXTV Ltd. (incorporated by
reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q filed on
November 19, 2008).
30
10.10 Software License and Services Agreement dated as of August 6, 2008 between
Playtech Software Limited and Zone 4 Play Inc. (incorporated by reference
to Exhibit 10.2 of our Quarterly Report on Form 10-Q filed on November 19,
2008).
10.11 Amendment to the Software License Agreement and IP Purchase Agreement,
dated September 30, 2009, by and among Playtech Software Limited, Win
Gaming Media, Inc. and Win Gaming Media (Israel) Ltd. (incorporated by
reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q filed on
November 6, 2009).
10.12 Consulting Agreement, dated September 23, 2008, between the registrant and
Citron Investments Ltd. (incorporated by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed on September 25, 2008).+
10.13 Services and License Agreement dated November 18, 2009 by and between
ParagonEX Limited. and WGM Services Ltd. (formerly Giona Trading Ltd.)
(incorporated by reference to Exhibit 10.1 of our Current Report on Form
8-K filed on November 23, 2009).
10.14 Services and License Agreement dated February 24, 2010 by and between
ParagonEX Limited. and B. Option Ltd. (incorporated by reference to Exhibit
10.1 of our Current Report on Form 8-K filed on March 2, 2010).
10.15 Addendum to Services and License Agreement dated February 24, 2010 by and
between ParagonEX Limited, WGM Services Ltd. and B. Option Ltd.
(incorporated by reference to Exhibit 10.2 of our Current Report on Form
8-K filed on March 2, 2010).
10.16 Settlement and Termination Agreement, dated April 6, 2009, by Virgin Media
Television Limited, Two Way Media Limited, Two Way Gaming Limited and Two
Way Media Holdings Limited (incorporated by reference to Exhibit 10.2 of
our Quarterly Report on Form 10-Q filed on May 13, 2009).
10.17 Orderly Market Agreement, dated April 6, 2009, between Win Gaming Media,
Inc., Netplay TV, plc and Panmure Gordon & Co. (incorporated by reference
to Exhibit 10.3 of our Quarterly Report on Form 10-Q filed on May 13,
2009).
21.1* List of Subsidiaries.
23.1* Consent of Ziv Haft, a member of the BDO network.
31.1* Rule 13a-14(a) Certification of Principal Executive Officer.
31.2* Rule 13a-14(a) Certification of Principal Financial Officer.
32.1** Certification of Principal Executive Officer furnished pursuant to 18
U.S.C. Section 1350.
32.2** Certification of Principal Financial Officer furnished pursuant to 18
U.S.C. Section 1350.
* Filed herewith.
** Furnished herewith.
+ Management contract or compensation plan.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WIN GAMING MEDIA, INC.
By: /s/ Shimon Citron
---------------------
Shimon Citron
Chief Executive Officer
Date: March 25, 2010
By: /s/ Zedkia Shlomi
---------------------
Zedkia Shlomi
Chief Financial Officer
Date: March 25, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Shimon Citron Director and Chief Executive Officer
(principal executive officer) March 25, 2010
------------------
Shimon Citron
/s/ Zedkia Shlomi Chief Financial Officer
(principal financial and accounting officer) March 25, 2010
------------------
Zedkia Shlomi
/s/ Steve Baker Director March 25, 2010
------------------
Steve Baker
/s/ Adiv Baruch Director March 25, 2010
------------------
Adiv Baruch
/s/ Niv Zilberstein Director March 25, 2010
------------------
Niv Zilberstein
32
WIN GAMING MEDIA, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009
IN U.S. DOLLARS
INDEX
PAGE
----------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
CONSOLIDATED BALANCE SHEETS F-2-F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
STATEMENTS OF CHANGES IN EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7-F-23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF
WIN GAMING MEDIA, INC.
We have audited the accompanying consolidated balance sheets of Win Gaming
Media Inc. (formerly known as: Zone4Play Inc.) (the "Company") and subsidiaries
as of December 31, 2009 and 2008 and the related consolidated statements of
operations, changes in equity and cash flows for each of the two years then
ended. 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 audit.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
requried to have, nor we we engaged to perform, an audit of its internal control
over financial reporting .Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries as of December 31, 2009 and 2008 and the
related consolidated results of their operations and cash flows for each of the
two years then ended, in conformity with accounting principles generally
accepted in the United States of America.
Tel Aviv, Israel
March 25, 2010
/s/Ziv Haft
Certified Public Accountants (Isr.)
BDO Member Firm
F - 1
WIN GAMING MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
DECEMBER 31,
----------------------------
2009 2008
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 352,800 $ 529,130
Trade receivables - 37,783
Other accounts receivable and prepaid expenses (Note 4) 71,901 99,485
Marketable Securities 1,139,299 -
---------- ----------
TOTAL current assets 1,564,000 666,398
---------- ----------
SEVERANCE PAY FUND - 11,171
---------- ----------
PROPERTY AND EQUIPMENT, NET (Note 5) 283 2,736
========== ==========
Total assets $1,564,283 $ 680,305
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 2
WIN GAMING MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
DECEMBER 31,
---------------------------------
2009 2008
------------ ------------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term bank credit (Note 7) $ 2,210 $ 7,343
Accounts payables 4,137 91,469
Accrued expenses and other liabilities 116,535 238,254
------------ ------------
TOTAL current liabilities 122,882 337,066
LONG TERM LIABILITIES:
Call option (Note 1.e) - 219,225
Accrued Severance pay - 37,149
------------ ------------
TOTAL long term liabilities - 256,374
------------ ------------
TOTAL liabilities 122,882 593,440
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)
INVESTMENT IN AFFILIATED COMPANY (Note 1.e) - 562,148
------------ ------------
EQUITY (DEFICIENCY) (Note 10):
Common stock of $ 0.001 par value:
Authorized: 75,000,000 shares at December 31, 2009 and 2008; Issued and
outstanding: 32,319,031 shares at both December 31, 2009 and 2008 32,319 32,319
Additional paid-in capital 17,377,428 17,310,892
Accumulated other comprehensive income (loss) 28,313 (8,047)
Accumulated deficit (15,996,659) (17,810,447)
------------ ------------
Equity (deficiency) 1,441,401 (475,283)
============ ============
TOTAL liabilities and equity $ 1,564,283 $ 680,305
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F - 3
WIN GAMING MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
YEAR ENDED
DECEMBER 31,
---------------------------------
2009 2008
------------ ------------
Revenues:
Revenues from software applications $ 696,647 $ 365,415
Revenues from services to affiliated company - 729,918
------------ ------------
Total revenues 696,647 1,095,333
------------ ------------
Cost of revenues 493,159 1,335,304
============ ============
Gross profit (loss) 203,488 (239,971)
------------ ------------
Operating expenses:
Research and development - 98,981
Selling and marketing - 37,493
General and administrative 749,693 1,488,202
Gain on sale of intellectual property (Note 1.d) (250,000) (1,742,622)
------------ ------------
TOTAL operating expenses 499,693 (117,946)
------------ ------------
Operating loss (296,205) (122,025)
Financial expenses (income), net (note 12) (83,165) 325,901
------------ ------------
Net income(loss) before taxes on income (213,040) (447,926)
Taxes on income (note 11) - -
------------ ------------
(213,040) (447,926)
------------ ------------
Share in profits (losses) of an affiliated company 2,076,828 (45,793)
------------ ------------
Net income (loss) from continuing operations 1,863,788 (493,719)
Net income from discontinued operation, net - (19,260)
------------ ------------
Net income (loss) 1,863,788 (474,459)
Net income attributable to non controlling interest 50,000 -
------------ ------------
Net income (loss) attributable to the Company 1,813,788 (474,459)
============ ============
Basic and diluted net income (loss) per share from continuing operation $ 0.06 $ (0.02)
Basic and diluted net loss per share from discontinued operation - -
------------ ------------
Total basic and diluted net income (loss) per share $ 0.06 $ (0.02)
============ ============
Weighted average number of common stock used in computing basic and diluted
net loss per share 32,319,031 32,319,031
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F - 4
WIN GAMING MEDIA, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN EQUITY
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
ACCUMULATED TOTAL
SHARE ADDITIONAL OTHER TOTAL STOCKHOLDERS'
COMMON STOCK CAPITAL PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE EQUITY
NUMBER AMOUNT CAPITAL INCOME (LOSS) DEFICIT INCOME (LOSS) (DEFICIENCY)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance as of January 1, 2008 32,319,031 $ 32,319 $ 17,060,714 $ (7,504) $(17,335,988) $ (3,976,910) $ (250,459)
============ ============ ============ ============ ============ ============ ============
Net loss - - - - (474,459) (474,459) (474,459)
Foreign currency translation adjustments - - - (543) - (543) (543)
Issuance cost of provision issued shares and
warrants - - 124,020 - - - 124,020
Stock - based compensation - - 126,158 - - - 126,158
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2008 32,319,031 $ 32,319 $ 17,310,892 $ (8,047) $(17,810,447) $ (4,451,912) $ (475,283)
Net income - - - - 1,813,788 1,813,788 1,813,788
Stock - based compensation 66,536 66,536
Unrealized income on marketable securities - - - 188,250 - 188,250 188,250
Reclassification adjustment to income on marketable
securities - - - (151,890) - (151,890) (151,890)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2009 32,319,031 $ 32,319 $ 17,377,428 $ 28,313 $(15,996,659) $ (2,601,764) $ 1,441,401
============ ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
WIN GAMING MEDIA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
YEAR ENDED
DECEMBER 31,
-------------------------------
2009 2008
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,813,788 $ (474,459)
Adjustments required to reconcile net loss to net cash used in operating
activities:
Realized gain on sale of marketable securities (151,890) -
Decrease in call option value (219,225) 12,457
Depreciation and amortization 2,453 312,377
Decrease (increase) in trade and other accounts receivable prepaid
expenses, and related parties 65,367 111,999
Stock - based compensation 66,536 126,158
Increase (decrease) in trade payables (87,332) (49,550)
Decrease in employees and payroll accruals - (287,441)
Increase (decrease) in accrued expenses and other liabilities (121,719) 49,411
Decrease in related parties - 294,526
Accrued severance pay, net (25,978) (35,862)
Share in losses (profits) of an affiliated company (2,076,828) 110,796
Capital gain on sale of property and equipment - (78,563)
Loss of prepayment of convertible debt - 124,020
Impairment of discontinued assets - 31,506
Gain on sale of IP in affiliated company - (1,742,622)
----------- -----------
Net cash used in operating activities (734,828) (1,495,247)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from selling marketable securities 563,631 -
Proceeds from sale of property and equipment - 120,960
Proceeds from sale of intellectual property - 1,750,000
----------- -----------
Net cash used in investing activities 563,631 1,870, 960
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible debt and warrants, net - 550,000
Redemption of convertible note - (550,000)
Short-term bank credit, net (5,133) 7,343
----------- -----------
Net cash provided (used in) by financing activities (5,133) 7,343
----------- -----------
Effect of exchange rate changes on cash and cash equivalents - (972)
----------- -----------
Increase (decrease) in cash and cash equivalents (176,330) 382,084
Cash and cash equivalents at the beginning of the year 529,130 147,046
----------- -----------
Cash and cash equivalents at the end of the year 352,800 529,130
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 244 $ -
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 6
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 1:- GENERAL:
a. Win Gaming Media, Inc. (the "Company") was incorporated under the laws of
the State of Nevada on April 23, 2002. The Company's shares are currently
traded on the OTC Bulletin Board under the trading symbol WGMI.OB.
Following the sale of our entire gaming software assets (see c,d,e below)
the Company no longer offers any gaming applications development work and
currently the Company's efforts are devoted to the recent launch of our new
business activity in the field of binary options (see f below).
The Company conducts its operations and business with and through its
subsidiaries, (1) Win Gaming Media Inc. (Delaware), (2) Win Gaming Media
Israel Ltd, (3) WGM Services Ltd., a company registered in Cyprus, (4)
Gaming Ventures Plc ("Gaming"), a company incorporated in the Isle of Man,
and (5) B. Option Ltd., an Israeli company ("B. Option"). Gaming has an 80%
equity interest in RNG Gaming Limited ("RNG") which has filed for voluntary
dissolution in 2009 (see e below).
The Company also has 50% equity interest in Two Way Gaming Ltd. ("TWG"), a
company registered in Alderney (see d below).
b. On July 11, 2006, the Company formed Gaming. On August 4, 2006, Gaming
filed with the Securities and Exchange Commission ("SEC") a registration
statement on Form 20-F. As a result, Gaming is a separate reporting entity
with the SEC that has the reporting obligations of a foreign private
issuer, despite it being the Company's wholly owned subsidiary.
c. On August 6, 2008, the Company's wholly owned subsidiary Win Gaming Media
(Israel) Ltd., an Israeli corporation ("WGMI"), and Playtech Software
Limited, a British Virgin Islands corporation ("Playtech") entered into an
Intellectual Property and Technology Purchase Agreement (the "Agreement")
under which Playtech agreed to purchase substantially all of the assets of
WGMI, including but not limited to WGMI's intellectual property ("Purchased
Assets") in consideration of a total amount of $1,750,000 that was recorded
as operating income. (1) $1,750,000 of cash had been paid by Playtech to
WGMI, (2) all of the employees of WGMI were terminated and 7 of them became
employees of Playtech and (3) all of the Purchased Assets were transferred
to Playtech.
d. On April 13, 2009, RNG entered into an Intellectual Property and Technology
Purchase Agreement, (the "Agreement"), under which RNG agreed to sell to an
unaffiliated party and a leading online gaming software provider,
substantially all of its multiplayer Blackjack tournament software
platform, including its related intellectual property, for consideration of
a total amount of $250,000 and a 3% share of the buyer's Blackjack revenue
(as defined in such agreement) each year for the first 3 years from the
date in which the buyer launches full commercial use of the Blackjack game,
and 2% of the buyer's Blackjack revenue thereafter for an unlimited
duration. The total consideration was used to offset the Company's
indebtedness to the buyer.
20% of the total consideration, which is equivalent to $50,000, is
attributed to the 20% minority holder in RNG. In 2009, the Company paid
$30,000 on account and the second installment of $20,000 is scheduled to be
paid during 2010. The amount is recorded as a current liability.
Following the sale of all RNG's assets, RNG has filed for voluntary
dissolution with the Companies' register of Isle of Man.
F - 7
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 1:- GENERAL (CONT.):
e. On April 7, 2009, Two Way Gaming Limited ("TWG"), an affiliate of which the
Company is a 50% shareholder, and Two Way Media ("TWM"), the other 50%
shareholder of TWG (TWG and TWM, the "Sellers"), entered into an agreement
(the "Netplay Transfer Agreement"), with Netplay TV Plc ("Netplay"). The
Netplay Transfer Agreement includes the transfer of Challenge Jackpot's
approximately 16,000 registered players, their account balances and the
equipment to run the business. The consideration for the sale of the
Challenge Jackpot business was (pound)2,000,000. The consideration was paid
in newly issued ordinary shares of Netplay.
At the closing, Netplay issued 8,533,333 shares of its ordinary shares to
TWG, which shares were admitted to trading on May 21, 2009 on the London
Stock Exchange plc's market known as AIM. Of these shares, 4,266,666 shares
(50%) have been transferred to the Company.
At the same time, Sellers and Virgin Media Television Limited ("Virgin")
entered into a Termination and Settlement Agreement under which, on the
closing date of the Netplay Transfer Agreement and subject to receipt by
Virgin from Netplay of an initial payment, Virgin agreed to terminate the
brand license agreement, the production agreement and all guarantees with
TWG in connection with the operation of the Challenge Jackpot and to
irrevocably waive and release all claims that Virgin may have towards TWG
and, mainly the liability for paying minimum guarantee fees to Virgin.
In addition, the guarantee for the unpaid players' balances of TWG was also
removed in December 2009. Both the Company and TWM were liable in equal
parts for their above mentioned guarantees. Prior to the transaction, the
Company's share of 50% in both the minimum guarantee fees towards Virgin
and the sum of the players' balance matches its prior negative investment
amount in TWG. As a result of the termination of the guarantees with
regards to the player's balance and the minimum guarantee fees the Company
recorded its investment in TWG at zero and as a result charged $562,148 to
income.
As a result from the transaction the Company received from TWG 4,266,666
shares of Netplay. The Company recorded the acceptance of the shares as
share in profit from an affiliated company at the closing in the amount of
approximately $1.5 million. The shares are presented as available for sale
marketable securities since there are certain limitations regarding the
amount of shares that could be sold in the free market on a single trading
day. The shares are recorded at fair value.
In addition, one of the Company's main shareholders, a director and its
Chief Executive Officer, Mr. Shimon Citron ("Mr. Citron") had a call option
that would permit him to exercise 15% of the shares allocated to the
Company based on the shareholders' agreement of TWG, and in return for Mr.
Citron's consent to grant TWG unlimited right to use the Winnerchannel.com
domain, which Mr. Citron owns. The call option was recorded at fair value.
In the fourth quarter of 2009 the Company paid in cash to Mr. Citron
$200,000 based on the fair value of the option and removed the call option
liability.
f. The Company has been seeking to enter into new business activities in the
developing and growing market of online financial instruments. Following a
market review of the foreign exchange and binary options industry the
Company has elected to engage in the binary option segment. As a result, on
November 18, 2009, the Company's newly formed wholly owned subsidiary WGM
Services Ltd. (formerly Giona Trading Ltd.), a Cyprus corporation ("WGM"),
signed an agreement with ParagonEX Limited, a British Virgin Islands
corporation ("ParagonEX") (the "November Agreement"), under which ParagonEX
provided to WGM the right to use its web-based platform (the "Software")
which provides online trading of binary options. The Software enables
online traders to invest in a wide range of binary options trading on a
variety of financial markets around the world in real local time.
The consideration for the right to use ParagonEX's platform will be up to
12% of the revenues from end users. Both WGM and B. Option are obligated
together to invest, in marketing activity of the site, a total amount of
$500,000 from the go live date of March 23, 2010; otherwise a fee of
$50,000 is owed to ParagonEX jointly by WGM and B. Option.
F - 8
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 1:- GENERAL (CONT.):
g. Concentration of risk that may have a significant impact on the Company:
The Company derived 100% of its revenues in the year 2009 from 3 major
customers (see Note 9.b).
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States ("U.S. GAAP").
a. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
b. Financial statements in U.S. dollars:
Most of the revenues of the Company and most of its subsidiaries are
generated in U.S. dollars ("dollar"). Company's management believes that
the dollar is the primary currency of the economic environment in which the
Company operates. Thus, the functional and reporting currency of the
Company and certain of its subsidiaries is the dollar.
Accordingly, monetary accounts maintained in currencies other than the
dollar are remeasured into U.S. dollars according to FASB ACS Topic 830
"Foreign currency matters". All transactions gains and losses of the
remeasurement of monetary balance sheet items are reflected in the
consolidated statements of operations as financial income or expenses as
appropriate.
c. Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany transactions and balances, have been
eliminated upon consolidation.
d. Cash equivalents:
Cash equivalents are short-term highly liquid investments that are readily
convertible to cash with original maturities of three months or less.
F - 9
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.):
e. Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method, over the estimated
useful lives of the assets, at the following annual rates:
%
--------------------------
Computers and peripheral equipment 33
Electronic devices 15
f. Severance pay:
The Company's liability for severance pay in respect to its Israeli
employees is calculated pursuant to Israeli severance pay law based on the
most recent salary of the employees multiplied by the number of years of
employment based on undiscounted cash flows as of the balance sheet date.
Israeli employees are entitled to one month's salary for each year of
employment, or a portion thereof. The Company's liability for its employees
is fully provided by monthly deposits with severance pay funds, insurance
policies and by an accrual. The value of these policies is recorded as an
asset in the Company's balance sheet.
The deposited funds may be withdrawn only upon the fulfillment of the
obligation pursuant to Israeli severance pay law or labor agreements. The
value of the deposited funds is based on the cash surrendered value of
these policies, and includes immaterial profits.
Severance expenses for the years ended December 31, 2009, and 2008 amounted
to $0 and $62,850, respectively.
g. Accounting for stock-based compensation:
The Company accounts for stock based compensation to employees in
accordance with "Share-Based Payment" accounting standard, which was
adopted effective January 2006. The Company measures and recognizes
compensation expense for share-based awards based on estimated fair values
on the date of grant using the Black-Scholes option-pricing model. This
option pricing model requires that the Company make several estimates,
including the option's expected life and the price volatility of the
underlying stock.
h. Revenue recognition:
The Company is entitled to royalties from revenue sharing arrangements upon
sublicensing of the Company's products to end-users. The Company recognizes
royalties from revenue sharing arrangements during the period based on
reports obtained from its customers through the relevant reporting period
on a monthly basis. The revenues from support services are recognized upon
providing of the service.
F - 10
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.):
i. Income taxes:
Deferred taxes are determined utilizing the "asset and liability" method,
whereby deferred tax asset and liability account balances are determined
based on differences between financial reporting and the tax bases of
assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
The Company provides a valuation allowance, when it's more likely than not
that deferred tax assets will not be realized in the foreseeable future.
j. Concentrations of credit risk:
Financial instruments that potentially subject the Company and its
subsidiaries to concentrations of credit risk consist principally of cash
and cash equivalents. The majority of the Company's cash and cash
equivalents are invested in dollar instruments with major banks in Israel,
the United Kingdom and the United States. Such cash and cash equivalents in
the United States may be in excess of insured limits and are not insured in
other jurisdictions. Management believes that the financial institutions
that hold the Company's investments are financially sound and accordingly,
minimal credit risk exists with respect to these investments.
The Company and its subsidiaries have no off-balance-sheet concentration of
credit risk such as foreign exchange contracts, option contracts or other
foreign currency arrangements.
k. Basic and diluted net income (loss) per share-EPS:
Basic net (income) loss per share is computed based on the weighted average
number of common shares outstanding during each year. Diluted loss per
share is computed based on the weighted average number of common shares
outstanding during each year, plus dilutive potential common shares
considered outstanding during the year. For the year ended December 31,
2009 all the options outstanding have been excluded from the calculation of
diluted EPS because their exercise price was higher than the average market
price of the Company's common stock. For the year ended December 31, 2008
the Company incurred a Net loss and therefore no diluted EPS was presented.
l. Impact of recently issued Accounting Standards:
ADOPTION OF NEW ACCOUNTING STANDARDS
ACCOUNTING STANDARDS CODIFICATION:
In June 2009, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles (the "Codification").
This standard replaces SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, and establishes only two levels of U.S. GAAP,
authoritative and nonauthoritative. The FASB ASC has become the source of
authoritative, nongovernmental U.S. GAAP, except for rules and interpretive
releases of the SEC, which are sources of authoritative U.S. GAAP for SEC
registrants. All other nongrandfathered, non-SEC accounting literature not
included in the Codification will become nonauthoritative. This standard is
effective for financial statements for interim or annual reporting periods
ending after September 15, 2009. The adoption of the Codification changed
the Company's references to U.S. GAAP accounting standards but did not
impact the Company's results of operations, financial position or
liquidity.
F - 11
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.):
l. Impact of recently issued Accounting Standards (Cont.):
ADOPTION OF NEW ACCOUNTING STANDARDS (CONT.):
ACCOUNTING STANDARDS CODIFICATION (CONT.):
PARTICIPATING SECURITIES GRANTED IN SHARE-BASED TRANSACTIONS
Effective January 1, 2009, the Company adopted a new accounting standard
included in ASC 260, Earnings Per Share (formerly FASB Staff Position
("FSP") Emerging Issues Task Force 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities).
The new guidance clarifies that non-vested share-based payment awards that
entitle their holders to receive nonforfeitable dividends or dividend
equivalents before vesting should be considered participating securities
and included in basic earnings per share. The Company's adoption of the new
accounting standard did not have a material effect on previously issued or
current earnings per share.
BUSINESS COMBINATIONS AND NONCONTROLLING INTERESTS
Effective January 1, 2009, the Company adopted a new accounting standard
included in ASC 805, Business Combinations (formerly SFAS No. 141(R),
Business Combinations). The new standard applies to all transactions or
other events in which an entity obtains control of one or more businesses.
Additionally, the new standard requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as
the measurement date for all assets acquired and liabilities assumed; and
requires the acquirer to disclose additional information needed to evaluate
and understand the nature and financial effect of the business combination.
The Company's adoption of this new accounting standard did not have a
material effect on the Company's consolidated financial statements.
Effective January 1, 2009, the Company adopted a new accounting standard
included in ASC 810, Consolidations (formerly SFAS 160, Noncontrolling
Interests in Consolidated Financial Statements). The new accounting
standard establishes accounting and reporting standards for the
noncontrolling interest (or minority interests) in a subsidiary and for the
deconsolidation of a subsidiary by requiring all noncontrolling interests
in subsidiaries be reported in the same way, as equity in the consolidated
financial statements. As such, this guidance has eliminated the diversity
in accounting for transactions between an entity and noncontrolling
interests by requiring they be treated as equity transactions. The
Company's adoption of this new accounting standard did not have a material
effect on the Company's consolidated financial statements.
FAIR VALUE MEASUREMENT AND DISCLOSURE
Effective January 1, 2009, the Company adopted a new accounting standard
included in ASC 820, Fair Value Measurements and Disclosures ("ASC 820")
(formerly FASB FSP No. 157-2, Effective Date of FASB Statement No. 157),
which delayed the effective date for disclosing all non-financial assets
and non-financial liabilities, except for items that are recognized or
disclosed at fair value on a recurring basis (at least annually). This
standard did not have a material effect on the Company's consolidated
financial statements.
F - 12
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.):
l. Impact of recently issued Accounting Standards (Cont.):
ADOPTION OF NEW ACCOUNTING STANDARDS (CONT.):
FAIR VALUE MEASUREMENT AND DISCLOSURE (CONT.):
In April 2009, the FASB issued new guidance for determining when a
transaction is not orderly and for estimating fair value when there has
been a significant decrease in the volume and level of activity for an
asset or liability. The new guidance, which is now part of ASC 820
(formerly FSP 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly), requires disclosure of the
inputs and valuation techniques used, as well as any changes in valuation
techniques and inputs used during the period, to measure fair value in
interim and annual periods. In addition, the presentation of the fair value
hierarchy is required to be presented by major security type as described
in ASC 320, Investments -- Debt and Equity Securities. The provisions of
the new standard were effective for interim periods ending after June 15,
2009. The adoption of the new standard on April 1, 2009 did not have a
material effect on the Company's consolidated financial statements.
In April 2009, the Company adopted a new accounting standard included in
ASC 820, (formerly FSP 107-1 and Accounting Principles Board 28-1, Interim
Disclosures about Fair Value of Financial Instruments). The new standard
requires disclosures of the fair value of financial instruments for interim
reporting periods of publicly traded companies in addition to the annual
disclosure required at year-end. The provisions of the new standard were
effective for the interim periods ending after June 15, 2009. The Company's
adoption of this new accounting standard did not have a material effect on
the Company's consolidated financial statements.
In August 2009, the FASB issued new guidance relating to the accounting for
the fair value measurement of liabilities. The new guidance, which is now
part of ASC 820, provides clarification that in certain circumstances in
which a quoted price in an active market for the identical liability is not
available, a company is required to measure fair value using one or more of
the following valuation techniques: the quoted price of the identical
liability when traded as an asset, the quoted prices for similar
liabilities or similar liabilities when traded as assets, or another
valuation technique that is consistent with the principles of fair value
measurements. The new guidance clarifies that a company is not required to
include an adjustment for restrictions that prevent the transfer of the
liability and if an adjustment is applied to the quoted price used in a
valuation technique, the result is a Level 2 or 3 fair value measurement.
The new guidance is effective for interim and annual periods beginning
after August 27, 2009. The Company's adoption of the new guidance did not
have a material effect on the Company's consolidated financial statements.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2009, the Company adopted a new accounting standard
included in ASC 815, Derivatives and Hedging (formerly SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities, an
amendment of SFAS No. 133). The new accounting standard requires enhanced
disclosures about an entity's derivative and hedging activities and is
effective for fiscal years and interim periods beginning after November 15,
2008. Since the new accounting standard only required additional
disclosure, the adoption did not impact the Company's consolidated
financial statements.
F - 13
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.):
l. Impact of recently issued Accounting Standards (Cont.):
ADOPTION OF NEW ACCOUNTING STANDARDS (CONT.):
OTHER-THAN-TEMPORARY IMPAIRMENTS
In April 2009, the FASB issued new guidance for the accounting for
other-than-temporary impairments. Under the new guidance, which is part of
ASC 320, Investments -- Debt and Equity Securities (formerly FSP 115-2 and
124-2, Recognition and Presentation of Other-Than-Temporary Impairments),
an other-than-temporary impairment is recognized when an entity has the
intent to sell a debt security or when it is more likely than not that an
entity will be required to sell the debt security before its anticipated
recovery in value. The new guidance does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities and is effective for interim and annual reporting periods ending
after June 15, 2009. The Company's adoption of the new guidance did not
have a material effect on the Company's consolidated financial statements.
SUBSEQUENT EVENTS
In May 2009, the FASB issued new guidance for subsequent events. The new
guidance, which is part of ASC 855, Subsequent Events (formerly SFAS No.
165, Subsequent Events) is intended to establish general standards of
accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be
issued. Specifically, this guidance sets forth the period after the balance
sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an
entity should recognize events or transactions occurring after the balance
sheet date in its financial statements, and the disclosures that an entity
should make about events or transactions that occurred after the balance
sheet date. The new guidance is effective for fiscal years and interim
periods ended after June 15, 2009 and will be applied prospectively. The
Company's adoption of the new guidance did not have a material effect on
the Company's consolidated financial statements.
ACCOUNTING STANDARDS NOT YET EFFECTIVE
ACCOUNTING FOR THE TRANSFERS OF FINANCIAL ASSETS
In June 2009, the FASB issued new guidance relating to the accounting for
transfers of financial assets. The new guidance, which was issued as SFAS
No. 166, Accounting for Transfers of Financial Assets, an amendment to SFAS
No. 140, was adopted into Codification in December 2009 through the
issuance of Accounting Standards Updated ("ASU") 2009-16. The new standard
eliminates the concept of a "qualifying special-purpose entity," changes
the requirements for derecognizing financial assets, and requires
additional disclosures in order to enhance information reported to users of
financial statements by providing greater transparency about transfers of
financial assets, including securitization transactions, and an entity's
continuing involvement in and exposure to the risks related to transferred
financial assets. The new guidance is effective for fiscal years beginning
after November 15, 2009. The Company will adopt the new guidance in 2010
and is evaluating the impact it will have to the Company's consolidated
financial statements.
F - 14
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.):
l. Impact of recently issued Accounting Standards (Cont.):
ACCOUNTING STANDARDS NOT YET EFFECTIVE (CONT.):
ACCOUNTING FOR VARIABLE INTEREST ENTITIES (CONT.):
In June 2009, the FASB issued revised guidance on the accounting for
variable interest entities. The revised guidance, which was issued as SFAS
No. 167, Amending FASB Interpretation No. 46(R), was adopted into
Codification in December 2009 through the issuance of ASU 2009-17. The
revised guidance amends FASB Interpretation No. 46(R), Consolidation of
Variable Interest Entities, in determining whether an enterprise has a
controlling financial interest in a variable interest entity. This
determination identifies the primary beneficiary of a variable interest
entity as the enterprise that has both the power to direct the activities
of a variable interest entity that most significantly impacts the entity's
economic performance, and the obligation to absorb losses or the right to
receive benefits of the entity that could potentially be significant to the
variable interest entity. The revised guidance requires ongoing
reassessments of whether an enterprise is the primary beneficiary and
eliminates the quantitative approach previously required for determining
the primary beneficiary. The Company does not expect that the provisions of
the new guidance will have a material effect on its consolidated financial
statements.
REVENUE RECOGNITION
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements. The new standard changes the requirements for establishing
separate units of accounting in a multiple element arrangement and requires
the allocation of arrangement consideration to each deliverable based on
the relative selling price. The selling price for each deliverable is based
on vendor-specific objective evidence ("VSOE") if available, third-party
evidence if VSOE is not available, or estimated selling price if neither
VSOE or third-party evidence is available. ASU 2009-13 is effective for
revenue arrangements entered into in fiscal years beginning on or after
June 15, 2010. The Company does not expect that the provisions of the new
guidance will have a material effect on its consolidated financial
statements.
NOTE 3 - FAIR VALUE MEASUREMENT:
a. Fair value of financial instruments:
The Company measures fair value and discloses fair value measurements for
financial assets and liabilities. Fair value is based on the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. On
January 1, 2009 the Company adopted a newly issued accounting standard for
fair value measurement of all non-financial assets and liabilities as well.
The adoption did not have a significant effect on the Company's financial
statements.
In April 2009, the FASB issued additional guidance on factors to consider
when estimating fair value consequent to a significant decrease in market
activity for a financial asset. As applicable for the Company, this
guidance became effective for interim and annual periods starting April 1,
2009, and did not have a material impact on the Company's consolidated
financial statements.
The accounting standard establishes a fair value hierarchy that prioritizes
observable and unobservable inputs used to measure fair value into three
broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible
at the measurement date for assets or liabilities. The fair value hierarchy
gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active
markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is
available. The fair value hierarchy gives the lowest priority to Level 3
inputs.
F - 15
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 3 - FAIR VALUE MEASUREMENT (CONT.):
b. The Company's financial assets measured at fair value or a recurring basis,
consisted of the following types of instruments as of December 31, 2009:
FAIR VALUE MEASUREMENTS USING INPUT TYPE
------------------------------------------------------
LEVEL (1) LEVEL (2) LEVEL (3) TOTAL
----------- ----------- ---------- -----------
Cash and cash equivalents $ 352,800 $ - $ - $ 352,800
Marketable securities 1,139,299 - - 1,139,299
----------- ----------- ---------- -----------
$ 1,492,099 $ - $ - $ 1,492,099
=========== =========== ========== ===========
As of December 31, 2008 the Company had a call option derivative liability in
the amount of $219,225 categorized in Level 3. The call option was realized in
2009.
NOTE 4:- OTHER ACCOUNTS RECEIVABLE, PREPAID EXPENSES AND RELATED PARTIES:
DECEMBER 31,
----------------------
2009 2008
------- -------
Government authorities $ 5,289 $34,643
Prepaid expenses 66,612 64,842
------- -------
$71,901 $99,485
======= =======
NOTE 5:- PROPERTY AND EQUIPMENT, NET:
DECEMBER 31,
--------------------
2009 2008
------ ------
Cost:
Computers and peripheral equipment $4,108 $4,108
------ ------
4,108 4,108
------ ------
Accumulated depreciation:
Computers and peripheral equipment 3,825 1,372
------ ------
3,825 1,372
------ ------
Depreciated cost $ 283 $2,736
====== ======
Depreciation expenses were $2,453 and $205,068 for the years ended December 31,
2009 and 2008, respectively.
NOTE 6:- ACQUIRED TECHNOLOGY, NET:
Acquired technology from the acquisition of the business from Win Gaming Media
(Israel) in April 2005 was fully depreciated as of December 31, 2008.
Depreciation expenses were $0 and $107,309 for the years ended December 31, 2009
and 2008, respectively.
F - 16
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 7:- SHORT-TERM BANK CREDIT:
INTEREST RATE DECEMBER 31,
-------------------------- ----------------------------
2009 2008 2009 2008
------------ ------------- ------------- -------------
%
--------------------------
Short-term bank credit linked to New Israeli Shekel
(NIS) (overdraft) 9.0-10.0 7.0-8.0 $ 2,210 $ 7,343
============= =============
Total authorized credit lines $ 15,000 $ 15,000
============= =============
NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES:
Lease commitments:
The Company leases its facilities under a new lease agreement in Israel, which
was signed in September 9, 2008 and will expire in August 31, 2010. Future
minimum commitments under non-cancelable operating leases as of December 31,
2009 are as follows:
RENTAL OF
YEAR ENDING DECEMBER 31, PREMISES
------------------------------------------------------------ ---------------
2010 $ 67,113
---------------
$ 67,113
===============
Total rent and other attendant expenses for the years ended December 31, 2009
and 2008 were approximately $26,341 and $57,969, respectively.
NOTE 9:- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS:
a. Summary information about geographic areas:
The Company manages its business on the basis of one operating segment (see
Note 1 for a brief description of the Company's business).
The following is a summary of revenues within geographic areas, based on
customer's location:
YEAR ENDED DECEMBER 31,
----------------------------
2009 2008
---------- ----------
Alderney $ - $ 729,918
United Kingdom 585,183 34,643
United States 111,464 155,772
Australia - 175,000
---------- ----------
$ 696,647 $1,095,333
========== ==========
F - 17
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 9:- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONT.):
b. Major customer data as percentage of total revenues:
2009 2008 2007
---- ---- ----
Customer A 13% 16% 31%
Customer B - 3% 12% 22%
Customer C 84% - -
Customer D (related party) - 67% 26%
NOTE 10:- SHARE CAPITAL:
a. Shareholders' rights:
The shares of common stock confer upon the holders the right to elect the
directors and to receive notice to participate and vote in the stockholders
meetings of the Company, and the right to receive dividends, if and when
declared.
b. Dividends:
In the event that cash dividends are declared in the future, such dividends
will be paid in U.S. dollars. The Company does not intend to pay cash
dividends in the foreseeable future.
c. Stock option plans:
1. On November 23, 2004, the Company adopted the 2004 Global Share Option
Plan (the "2004 Global Share Option Plan"). The 2004 Global Share
Option Plan is intended to provide incentives to employees, directors
and consultants by providing them with opportunities to purchase
shares of the Company's common stock. Under the terms of the 2004
Global Share Option Plan, it is effective as of November 23, 2004 and
terminates at the end of ten years from such date. The Company has
reserved 5,000,000 authorized but unissued shares of common stock to
be issued under the 2004 Global Share Option Plan. On May 4, 2006, our
board of directors approved an amendment to our 2004 Global Share
Option Plan under which the number of shares reserved by us for the
purpose of the Plan was increased from 5,000,000 to 8,000,000.
The exercise price of the options granted under the plans may not be
less than the nominal value of the shares into which such options are
exercised. The options vest primarily over three years. Any options
that are forfeited or not exercised before expiration become available
for future grants.
2. On August 8, 2008, the Company granted to employees 1,310,000 fully
vested options at an exercise price of $0.06 under the terms of the
Company's option plan. The fair value of the options on grant date
totaled $67,072.
F - 18
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 10:- SHARE CAPITAL (CONT.):
c. Stock option plans (Cont.):
3. On September 15, 2008, the Company granted to the members of the board
of directors, an option, under the terms of the Company's option plan,
to purchase an aggregate of 2,400,000 shares of common stock of the
Company at an exercise price of $0.06 per share. Each director's right
to exercise such option will vest in 12 equal quarterly installments
during a period of three years commencing in August 6, 2008, provided
that the Company's agreement with such director does not terminate
earlier. The fair value of the options on grant date totaled $122,888.
4. A summary of the Company's share option activity to employees,
directors and service providers and related information is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2009 2008
-------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE
--------- --------- --------- ---------
$ $
--------- ---------
Outstanding at the beginning of the year 7,511,379 0.69 3,950,965 0.98
Granted - - 3,710,000 0.06
Forfeited - - 149,586 -
--------- --------- --------- ---------
Outstanding at the end of the year 7,511,379 0.69 7,511,379 0.57
========= ========= ========= =========
Options exercisable at the end of the year 6,578,046 0.64 5,927,749 0.69
========= ========= ========= =========
Weighted-average fair value of options
granted during the year $ - $ 0.01
========= =========
5. The fair value of each option granted is estimated on the date of
grant, using the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yield of 0% for all years:
expected volatility: 2008 - 110% risk-free interest rate: 2008 - 4.0%
expected life: 2008 - 6.5 years. Expected forfeiture for options
granted to directors and managers: 2008 - 0%. There is no intrinsic
value for option outstanding and exercisable in 2008 and 2009 as the
market price of the share was lower than the exercise price.
6. The expected volatility is based on the historical volatility of the
Company's stock. The risk-free interest rate assumption is based on
observed interest rates appropriate for the expected term of the stock
options granted. The Company used the simplified method to compute the
expected option term. The dividend yield assumption reflects the
expected dividend yield based on historical dividends. Pre-vesting
forfeiture rates were estimated based on pre-vesting forfeiture
experience.
F - 19
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 10:- SHARE CAPITAL (CONT.):
c. Stock option plans (Cont.):
The options outstanding as of December 31, 2009, have been classified by
ranges of exercise price, as follows:
OPTIONS WEIGHTED OPTIONS
OUTSTANDING AVERAGE EXERCISABLE WEIGHTED AVERAGE
AS OF REMAINING WEIGHTED AS OF EXERCISE PRICE
DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, OF OPTIONS
EXERCISE PRICE 2009 LIFE (YEARS) EXERCISE PRICE 2009 EXERCISABLE
----------------- ------------------ ------------------ ------------------ ------------------- -------------------
$ $ $
----------------- ------------------ -------------------
$0.0575 500,000 0.58 $0.0575 500,000 $0.0575
0.06 3,510,000 6.55 0.06 2,576,667 0.06
0.73 200,000 6.25 0.73 200,000 0.73
1 961,305 1.60 1 961,305 1.00
1.15 2,340,074 1.08 1.15 2,340,074 1.15
------------------ -------------------
7,511,379 6,578,046
================== ===================
NOTE 11:- INCOME TAXES:
a. Profit (loss) before taxes on income:
YEAR ENDED DECEMBER 31,
-------------------------------
2009 2008
----------- -----------
Domestic $ 1,066,208 $ (633,029)
Foreign 235,432 185,103
----------- -----------
$ 1,301,640 $ (447,926)
=========== ===========
b. Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company and its subsidiaries' deferred tax
assets are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
2009 2008
----------- -----------
Operating loss carryforward $ 2,723,000 $ 3,338,500
Temporary differences - 18,731
----------- -----------
Deferred tax asset before valuation allowance 2,723,000 3,357,231
Valuation allowance (2,723,000) (3,357,231)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
On December 31, 2009, the Company and its subsidiaries have provided
valuation allowances of $ 2,723,000 in respect of deferred tax assets
resulting from tax loss carryforwards and other temporary differences.
Management currently believes that since the Company and its subsidiaries
have a history of losses it is more likely than not that the deferred tax
regarding the loss carryforwards and other temporary differences will not
be realized in the foreseeable future. The change in valuation allowance
was $634,231 in 2009.
F - 20
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 11:- INCOME TAXES (CONT.):
c. Net operating losses carryforwards:
The U.S. subsidiaries have accumulated losses for tax purposes as of
December 31, 2009, in the amount of $ 7,780,000 which may be carried
forward and offset against taxable income, and which expires during the
years 2022 through 2025.
d. Theoretical tax:
The main reconciling items between the statutory tax rate of the Company
and the effective tax rate are the non-recognition of the benefits from
accumulated net operating losses carry forward among the various
subsidiaries worldwide due to the uncertainty of the realization of such
tax benefits.
e. Tax rates on Israeli subsidiaries:
On July 14, 2009, the Law for Economic Efficiency (Legislative Amendments
for Implementation of the Economic Plan for the years 2009 and 2010), 2009,
was passed by the Israel Knesset, which provided, among other things, an
additional gradual reduction in the Company Tax rate to 18% in 2016 and
thereafter. Pursuant to the said Amendments, the Company Tax rates
applicable in the 2009 tax year and thereafter are as follows: in the 2009
tax year - 26%, in the 2010 tax year - 25%, in the 2011 tax year - 24%, in
the 2012 tax year - 23%, in the 2013 tax year - 22%, in the 2014 tax year -
21%, in the 2015 tax year - 20% and in the 2016 tax year and thereafter the
applicable Company Tax rate will be 18%.
f. Income taxes on non-Israeli subsidiaries:
Non-Israeli subsidiaries are taxed according to the tax laws in their
respective country of residence.
Israeli income taxes and foreign withholding taxes were not provided for on
undistributed earnings of the Company's foreign subsidiaries. The Company
intends to reinvest these earnings indefinitely in its foreign
subsidiaries. If these earnings were distributed to Israel in the form of
dividends or otherwise, the Company would be subject to additional Israeli
income taxes (subject to an adjustment for foreign tax credits) and foreign
withholding taxes.
F - 21
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 12:- FINANCIAL EXPENSES
YEAR ENDED DECEMBER 31,
---------------------------
2009 2008
--------- ---------
Financial (Income) expenses:
Interest, bank charges and fees, net 19,915 31,642
Change in value of written call options 67,105 12,457
Foreign currency translation differences (17,692) 99,227
Relaized gain on marketable securities. (152,493) -
Change in value of convertible debt - 124,020
Interest and other expenses on convertible debt - 58,555
--------- ---------
$ (83,165) $ 325,901
========= =========
NOTE 13:- RELATED PARTIES TRANSACTIONS
a. On March 10, 2008 the board of directors of the Issuer (the "Board")
approved the entry of the registrant into a convertible debt transaction
with Mr. Citron, subject to shareholder approval at a special meeting in
lieu of an annual meeting (the "Meeting"). On April 29, 2008, the holders
of a majority of the shares of the Issuer's common stock represented at the
Meeting approved the transaction loan agreement documents documented by a
Convertible Loan Agreement, a Convertible Promissory Note, a Security
Agreement and a Common Stock Purchase Warrant, all of which were dated as
of March 6, 2008. The Common Stock Purchase Warrant to purchase up to
$500,000 worth of shares of common stock of the registrant, calculated as
$500,000 divided by the conversion price of $0.0595 per share would permit
the purchase of 8,403,361 shares of common stock.
b. In August 2008, the Board approved a loan from Mr. Citron under similar
terms but with no assets pledged as collateral for an amount of $50,000,
thereby entitling Mr. Citron to an additional warrant to purchase 840,336
shares of common stock of the registrant at an exercise price of $0.0595
per share. The loan accrued interest at a rate of 15% per annum. Payment of
the principal and interest paid in cash in 2008.
c. On September 23, 2008, we entered into a consulting agreement ("Agreement")
with Citron Investments Ltd. (the "Consultant"), an Israeli corporation
wholly owned by our director and CEO, Mr. Shimon Citron. Pursuant to the
Agreement, we retained the services of the Consultant to provide the
services of Mr. Shimon Citron as our CEO in a part time capacity. Pursuant
to the Agreement, we are required to pay the Consultant a monthly fee of
$10,000, and will reimburse expenses incurred by the Consultant in
connection with one automobile owned and operated by the Consultant not to
exceed $1,000 per month and shall include Mr. Citron in its liability
insurance program for officers and directors. In addition, under the terms
of the Agreement, should our valuation based on the price per share of our
shares as quoted on the stock exchange or on an automatic quotation system
(such as the OTC Bulletin Board) in which our shares are listed or quoted,
during the term of this Agreement, exceed $10,000,000 throughout a
continuous period of at least 30 consecutive days, then the Consultant
shall be entitled to receive from us a special bonus equaling 2% of the
average of our valuation in such 30-day period. The term of the Agreement
is 6 months, effective June 6, 2008 with automatic extension for an
undefined period. The Agreement can be terminated by either party for no
reason with a 90-day advance written notice or for a material breach with a
14-day advance written notice if such a breach was not cured during the
aforesaid 14-day period.
d. On April 7, 2009, TWG, 50% owned by us and 50% owned by TWM (we refer to
TWG and TWM as the Sellers), entered into an agreement, or the Netplay
Transfer Agreement, with Netplay TV plc, or Netplay. The Netplay Transfer
Agreement provided for the transfer by the Sellers of certain gaming
services, known as Challenge Jackpot, and the transfer of about 16,000
registered players of Challenge Jackpot, an interactive game application
provided to Virgin, their account balances and the equipment required for
running such business. The transaction closed on May 21, 2009, following
the approval thereof by Netplay's shareholders on May 11, 2009, the
completion of the agreement between Netplay and Virgin for the assignment
of the agreement dated June 2008, between TWG and Virgin and the payment of
GBP 200,000 from TWG to Virgin. At the closing, Netplay issued 8,533,333 of
its ordinary shares to TWG, which shares were admitted to trading on May
21, 2009 on the London Stock Exchange plc's market known as AIM. Of these
shares, 4,266,666 shares were transferred to us and deposited with Panmure
Gordon & Co to be sold by the latter during the first year from the
closing, as it shall reasonably require with a view to maintaining an
orderly market for the shares of Netplay. Based on the shareholder's
agreement of TWG and in return for Shimon Citron's, our Chief Executive
Officer ("Mr. Citron"), consent to grant TWG the unlimited right to use the
Winnerchannel.com domain, which Mr. Citron owns, he was entitled to receive
7.5% of all the proceeds generated from the sale of a part or all of TWG's
assets which is equivalent to 15% of the received shares allocated to the
Company. In 2009, Mr.Citron received from the company a total of $286,330
in return for his 15% portion of Netplay's shares.
F - 22
WIN GAMING MEDIA INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS, EXCEPT SHARE DATA
NOTE 14:- SUBSEQUENT EVENTS:
On February 24, 2010, the Company's additional newly formed wholly owned
subsidiary, B. Option Ltd., and ParagonEX, entered into an agreement (the
"Agreement") under which ParagonEX provided to B. Option the right to use
its Software. The Agreement includes similar terms to the November
Agreement (see Note 1.f). The Agreement relates solely to marketing the
Software in the Israeli market, and the user interface is in Hebrew.
F - 23