UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Quarter ended September 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-49723
Money Centers of America, Inc.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 23-2929364
------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
700 South Henderson Road, Suite 325, King of Prussia, PA 19406
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(Address of Principal Executive Offices)
(610) 354-8888
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
As of November 14, 2005, 25,206,978 shares of the registrant's common
stock, par value $0.01 per share, were issued and outstanding.
MONEY CENTERS OF AMERICA, INC.
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
INDEX TO FORM 10-QSB
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 2005
(unaudited) 3
Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 2005
and 2004 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2005 and 2004 (unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-16
Item 2. Management's Discussion and Analysis or Plan or Operation 17
Item 3. Controls and Procedures 26-27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Changes in Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Events 28
Item 6. Exhibits 28-29
Signatures
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MONEY CENTERS OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents $ 456,259
Restricted cash 4,014,124
Accounts receivable 824,165
Prepaid expenses and other current assets 485,990
-------------
Total current assets 5,780,538
Property and equipment, net 702,613
Intangible assets, net 1,232,362
Goodwill 203,124
Deferred financing costs 79,118
-------------
$ 7,997,755
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,107,139
Accrued expenses 152,421
Current portion of capital lease 135,710
Notes payable 685,964
Lines of credit 8,220,590
Due to officer 375,626
Commissions payable 1,208,561
-------------
Total current liabilities 11,886,011
Long-term liabilities:
Capital lease, net of current portion 212,207
-------------
Total long-term liabilities 212,207
Stockholders' Deficit:
Preferred stock; $.001 par value, 20,000,000 shares authorized
0 shares issued and outstanding -
Common stock; $.01 par value, 150,000,000 shares authorized
25,206,978 shares issued and outstanding 252,070
Additional paid-in capital 11,145,728
Accumulated deficit (15,498,261)
-------------
Total Stockholders' Deficit (4,100,463)
-------------
$ 7,997,755
=============
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
3
MONEY CENTERS OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ----------------------------------
2005 2004 2005 2004
---------------- --------------- ---------------- ----------------
Revenues $ 4,547,708 $ 4,767,853 $ 15,348,705 $ 11,538,072
Cost of revenues 3,485,400 4,040,955 12,334,290 9,696,598
---------------- --------------- ---------------- ----------------
Gross profit 1,062,308 726,898 3,014,415 1,841,474
Selling, general and administrative expenses 428,097 561,901 1,700,274 1,886,789
Noncash Compensation 15,666 6,425 92,066 5,298,053
Depreciation and amortization 163,539 454,282 502,264 1,031,390
---------------- --------------- ---------------- ----------------
Operating income (loss) 455,006 (295,710) 719,811 (6,374,759)
Other income (expenses):
Interest income 4,012 - 13,868 -
Interest expense (451,170) (488,029) (1,418,097) (1,117,037)
---------------- --------------- ---------------- ----------------
Total interest expense, net (447,158) (488,029) (1,404,229) (1,117,037)
---------------- --------------- ---------------- ----------------
Other income - - 1,650 170
Other expenses - - (4,462) (548,763)
Total other expense, net ---------------- --------------- ---------------- ----------------
- - (2,812) (548,593)
---------------- --------------- ---------------- ----------------
Net Income (loss) $ 7,848 $ (783,739) $ (687,231) $ (8,040,389)
================ =============== ================ ================
Net income (loss) per common share basic $ 0.00 $ (0.14) $ (0.03) $ (1.60)
================ =============== ================ ================
Net income (loss) per common share diluted $ 0.00 $ (0.14) $ (0.03) $ (1.60)
================ =============== ================ ================
Weighted Average Common Shares Outstanding
-Basic 25,206,978 5,524,530 25,172,534 5,034,197
================ =============== ================ ================
-Diluted 28,470,605 5,524,530 25,172,534 5,034,197
================ =============== ================ ================
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
4
MONEY CENTERS OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Nine months ended
September 30,
------------------------------------
2005 2004
---------------- ----------------
Cash flows from operating activities:
Net loss $ (687,231) $ (8,040,389)
Adjustments used to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 502,264 1,031,390
Inventory write-down - 130,833
Loss on impairment of intangibles - 417,880
Issuance of options to employees - 4,877,050
Issuance of common stock and warrants to consultants 64,791 481,800
Increase (decrease) in:
Accounts payable 42,727 763,703
Accrued expenses (22,546) 108,727
Commissions payable 116,229 926,356
(Increase) decrease in:
Prepaid expenses and other current assets (86,555) 210,407
Accounts receivable (15,999) (850,107)
Inventory - 1,515
---------------- ----------------
Net cash provided by (used in) operating activities (86,320) 59,166
Cash flows from investing activities:
Cash received in acquisition - 27,398
Purchases of property and equipment (411,350) (45,019)
Cash paid for acquisition of intangible assets (467,891) (1,946,430)
---------------- ----------------
Net cash used in investing activities (879,241) (1,964,051)
Cash flows from financing activities:
Decrease (increase) in restricted cash 173,652 (378,604)
Net change in line of credit 56,974 3,194,381
Capital lease obligation 246,560 -
Payments on capital lease obligations (40,153) (13,620)
Increase (decrease) in loans payable (500,000) 2,000,000
Advances to officer (115,529) (25,213)
Increase in notes payable 753,173 201,154
Payments on notes payable (110,004) (1,858,500)
Decrease (increase) in loans receivable 43,000 (58,000)
Increase in dividends payable - 25,000
Sale of common stock, net 479,450 -
Exercise of stock options 1,800 25,000
Dividends - (270,010)
---------------- ----------------
Net cash provided by financing activities 988,923 2,841,588
NET INCREASE IN CASH 23,362 936,703
CASH, beginning of period 432,897 273,397
CASH, end of period 456,259 1,210,100
---------------- ----------------
Supplemental disclosures: $ 889,156 $ 1,483,497
================ ================
Cash paid during the period for interest $ 1,418,097 $ 1,117,037
================ ================
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
5
MONEY CENTERS OF AMERICA, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Money Centers of America Inc. (the "Company"), a Delaware corporation, was
incorporated in October 1997. The Company is a single source provider of cash
access services to the gaming industry. The Company has combined advanced
technology with personalized customer services to deliver ATM, Credit Card
Advance, POS Debit, Check Cashing Services, CreditPlus outsourced marker
services, and merchant card processing.
On January 2, 2004, pursuant to an Amended and Restated Agreement and Plan of
Merger (the "Merger Agreement") by and among the Company, Christopher M.
Wolfington, iGames Entertainment, Inc., a Nevada corporation ("iGames"), Michele
Friedman, Jeremy Stein and Money Centers Acquisition, Inc., a wholly-owned
subsidiary of iGames, Money Centers Acquisition, Inc. was merged with and into
the Company and the Company, as the surviving corporation, became a wholly-owned
subsidiary of iGames (the "Merger"). For accounting purposes, the transaction
was treated as a recapitalization and accounted for as a reverse acquisition.
Therefore, the financial statements reported herein and accompanying notes
thereto reflect the assets, liabilities and operations of the Company as if it
had been the reporting entity since inception. In connection with the Merger,
all of the issued and outstanding shares of capital stock of the Company were
tendered to iGames and iGames issued to the Company stockholders an aggregate of
1,351,640 shares of iGames Series A Convertible Preferred Stock, $.001 par value
per share, and warrants to purchase an aggregate of 2,500,000 shares of iGames
common stock, par value $.004 per share, at an exercise price of $.01 per share.
Each share of Series A Convertible Preferred Stock was entitled to ten votes in
all matters submitted to a vote of iGames shareholders and was convertible at
the option of the holders into ten shares of common stock at any time after the
date on which iGames amended its articles of incorporation to increase the
number of authorized shares of its common stock to at least 125,000,000. In
October 2004 iGames was merged into the Company, and each share of Series A
Convertible Preferred Stock was exchanged for 11.5 shares of the Company's
common stock.
Pursuant to the terms of a Stock Purchase Agreement between iGames, Helene Regen
and Samuel Freshman dated January 6, 2004 (the "Stock Purchase Agreement"),
iGames acquired all of the issued and outstanding shares of capital stock of
Available Money, Inc., a provider of ATM cash access services based in Los
Angeles, California. The purchase price of this transaction was $3,850,000,
$2,000,000 of which was paid in cash at closing and $1,850,000 of which was paid
in cash on April 12, 2004. $2,100,000 of the purchase price was assigned to
contract rights. Acquired contract rights are considered to have a finite life,
pursuant to SFAS 142, to be amortized over the period the asset is expected to
contribute to future cash flows. MCA ("the Company") expects the period to be 1
to 4 years. The contract rights will also be subject to periodic impairment
tests. The remaining $1,750,000 was assigned to Goodwill. As a result of the
July 2005settlement of litigation Equitex, Inc. and Chex Services, Inc. Goodwill
was reduced by $1,500,000 to approximately $250,000.
2. UNAUDITED INTERIM INFORMATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). The accompanying consolidated financial
statements for the interim periods are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the consolidated financial
position and operating results for the periods presented. These consolidated
financial statements should be read in connection with the consolidated
financial statements and related footnotes for the year ended December 31, 2004
and notes thereto contained in the annual report on Form 10-KSB as filed with
the Securities and Exchange Commission. The results of operations for the nine
months ended September 30, 2005 are not necessarily indicative of the results
for the full year ending December 31, 2005.
6
3. LOANS AND NOTES PAYABLE
Notes payable at September 30, 2005 consisted of the following:
2005
---------
$ 82,398
On September 10, 2004, the Company borrowed $210,000 from a
family member of our chief executive officer to pay an advance on
commissions to an unrelated third party. This note is shown net
of debt discount totaling $8,846 for the value of various
warrants issued in connection with the note along with the
corresponding amortization of the note discount of $4,683. The
discount of $8,846 is amortized over 17 months beginning October
1, 2004. The note bears interest at 10% per annum and is payable
monthly. At September 30, 2005, the Company had recorded $710 as
accrued interest payable in connection with this note. The
principal amount of this note is repayable in monthly payments
based on certain amounts received by the Company from the Angel
of the Winds Casino on the 1st day of each month . Per the
contract between the Company and Angel of the Winds Casino, this
note's interest is deductible from the commission that the
Company pays the Casino on a monthly basis. At September 30,
2005, the Company had recorded $710 as accrued interest payable
in connection with this advance.
From September 23, through September 30, 2005 the Company issued 433,566
three promissory notes in the aggregate amount of $600,000 to
three individuals, including the uncle and the brother of its
Chief Executive Officer, in exchange for loans in the same
amount. These notes are shown net of a debt discount totaling
$166,948. Of this total, $17,342 represented a debt discount for
a related note payable totaling $100,000. The $17,342 was
computed pursuant to SFAS No. 123 and related fair value
accounting in connection with the Black-Scholes model. The
remaining $149,606 represented a debt discount in connection with
the beneficial conversion feature on all convertible notes
payable issued during 2005 totaling $600,000. in connection with
the notes issued during 2005, along with the corresponding
amortization of the note discount of $514 the Company had a
remaining debt discount of $166,434. The discount of $166,948 is
amortized over 9 months beginning September 23, 2005. These notes
bear interest at 10% per annum and all principal and interest is
due at maturity between June 22 and June 26, 2006 or earlier at
the option of each holder upon a Change in Control (as defined in
these notes). At September 30, 2005, the Company had recorded
$1,041 as accrued interest payable in connection with these
notes.
Each Note is convertible into shares of the Company's 's common
stock at an exercise price equal to 85% of the average of the
mean of the closing "bid" and "ask" prices of the Company's
common stock for the ten (10) trading days immediately prior to
the date of exercise. At September 30, 2005, there had been no
conversions.
---------
The Company issued a $170,000 note to a former customer in 170,000
exchange for a mutual release and settlement of a disputed
$286,043 in commissions. The note bears interest at 19.75% per
annum. All accrued interest from November 1, 2004 through and
including November 1, 2005 is payable (i) $10,000 on the date the
Company signed the note (ii) the balance of accrued interest due
on November 1, 2005. Continuing on the first day of each month
thereafter to and including May 1, 2007 payments of principal and
interest in the amount of $10,989.32.
---------
$ 685,964
7
4. CAPITAL LEASES
On February 1, 2005 the Company entered into a new capital lease for 6 ATM
machines at the Sandia Casino. The capitalized cost of the ATM machines is
$105,938. The terms of this lease require approximately $30,000 down payment 90
days from installation and the remaining balance of approximately $75,000 will
be financed over 59 months, at 8.211% for $1,500 per month. This note is
collateralized by the equipment.
Between June 15, 2005 and July 31, 2005 the Company entered into a new capital
lease for 5 ATM machines at the Tropicana Casino in Las Vegas. The approximate
capitalized cost of the ATM machines is $88,400. The terms of this lease require
approximately $25,000 down payment 90 days from installation and the remaining
balance of approximately $63,000 will be financed over 59 months, at 8.211% for
approximately $1,330 per month. This note is collateralized by the equipment.
In 2005 the Company entered into a new capital lease for 1 ATM machine at a
software development office located in Boca Raton, Florida. The capitalized cost
of the ATM machines is $18,000. The terms of this lease require approximately
$5,000 down payment 90 days from installation and the remaining balance of
approximately $13,000 will be financed over 59 months, at 8.211% for $266 per
month. This note is collateralized by the equipment.
On July 16, 2005 the Company entered into a new capital lease for 2 ATM machines
at Jerry's Nugget Casino in Las Vegas. The capitalized cost of the ATM machines
is $34,500. The terms of this lease require approximately $10,000 down payment
90 days from installation and the remaining balance of approximately $24,500
will be financed over 59 months, at 8.211% for $530 per month. This note is
collateralized by the equipment.
5. LINES OF CREDIT
Lines of credit at September 30, 2005 consisted of the following:
Line of credit, maximum availability of $7,000,000, maturity date $ 4,014,124
June 30, 2006. Subject to various restrictive covenants, interest
is payable monthly at 17.5% per annum, borrowings are
collateralized by restricted cash and guaranteed by the majority
shareholder of the Company. The Company is required to pay a
monthly facility fee equal to 1/12% of the highest balance of the
line during the month. The line of credit is also collateralized
by all the assets of the Company. At September 30, 2005, the
Company had recorded related accrued interest payable of $62,239
in connection with this line of credit.
Line of credit, interest is payable monthly at 9% per annum, the 388,000
line is unsecured and due on demand.
Lines of credits, non-interest bearing, the lines are unsecured 856,401
and due on demand.
Lines of credits, , the lines are unsecured and due on demand. 327,500
The Company pays a fixed stated amount of interest totaling
$1,000 per month. The payments are recorded and charged to
interest expense.
8
On December 1, 2003, the Company entered into a $250,000 line of 92,201
credit, due on demand with an asset based lender. The Company has
received a one year extension, with renewal subject to the
lender's discretion. This extension expires June 30, 2006.
Beginning June 30, 2005 the Company began reducing this liability
by making monthly payments in the amount of $68,428. This debt
bears interest at the prime rate of interest plus 10%, floating
with daily resets, for the actual number of days that the loan
remains outstanding, provided that the minimum rate on this loan
is 14.5% per annum. At September 30, 2005, the Company had
recorded related accrued interest payable of $2,148_in connection
with this line of credit. The Company prepaid the lender a
facility fee of $25,000 on June 30, 2005 for the next twelve
months. In order to secure the performance of the Company's
obligation under this loan, the Company granted the lender a
continuing lien on and security interest in and to 250,000 newly
issued shares of the Company's common stock. In addition, upon an
event of default under the loan, the Company is obligated to
register the resale of these pledged shares of common stock. Upon
payment in full of all amounts due under the loan, the lender is
obligated to deliver all stock certificates evidencing the
ownership of these shares to the Company for cancellation.
On April 12, 2004, the Company borrowed $2,050,000 from an 2,542,364
asset-based lender to make the second Available Money payment.
The Company has received a one year extension, with renewal
subject to the lender's discretion. This extension expires June
30, 2006. The note bears interest at 17% per annum and once the
$250,000 line of credit is paid off this note will begin to
amortize over 5 years at $68,428 per month. At September 30,
2005, the Company had recorded related accrued interest payable
of $35,514 in connection with this line of credit.The note is
guaranteed by the majority shareholder of the Company and also
collateralized by all the assets of the Company. Unpaid interest
has been added to the balance, increasing the balance of the note
to $2,542,364.
-----------
$ 8,220,590
===========
6. STOCKHOLDERS' DEFICIT
In January 2005, the Company issued 75,000 shares of common stock to its board
of directors for services rendered. The Company valued the shares at the fair
value on the date of issuance which was $.77 per share based on the quoted
closing trading price and recorded non-cash compensation of $57,750.
In January 2005, the Company raised $479,450, net of offering costs of $22,500,
from the sale of 989,314 shares of common stock at $0.51 per share. Offering
costs have been recorded as a reduction of additional paid in capital.
Pursuant to the terms of a common stock offering with registration rights, the
company has accrued penalties in the amount of 120,000 shares. The Company has
valued these shares at $72,598 based on the quoted closing trading price every
two weeks when the penalty accrues. The fair value of the penalty has been
recorded as an accrued expense.
7. STOCK OPTIONS
The company follows fair value accounting and the related provisions of SFAS 123
for all share based payment awards. The fair value of each option or warrant
granted is estimated on the date of grant using the Black-Scholes option pricing
model. The following is a summary of all stock options and warrants granted to
employees and non-employees:
9
In January 2005, the Company issued options to purchase 150,000 shares of our
common stock at an exercise price of $.77 per share, the fair market value at
the date of the issuance, to its board of directors pursuant to the terms of the
directors 2004 and 2005 agreements. These options were issued under our stock
option plan in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof.
(i) Stock options granted to employees - 2005
a. Employee awards - 350,000 stock options (Director)
i. On January 18, 2005, the Company granted 150,000 stock
options to certain members of its board of directors for
services rendered in 2004 and 2005. The option grant was
valued pursuant to SFAS 123 and totaled $57,750.
The Company recognized noncash compensation expense of
$57,750 in the nine months ended September 30, 2005
ii. The weighted average assumptions used by management were as
follows:
Stock price on grant date $0.77
Exercise price on grant date $0.77
Dividend yield 0%
Expected volatility 204.64%
Risk free interest rate 3.%
Expected life of option 10 years
iii. These stock options are issued pursuant to the Company's
Equity Incentive Plan.
In June 2005, the Company issued 200,000 options to purchase common stock to one
of its employees at an exercise price of $.42 per share, pursuant to the terms
of this executive's employment contract. These options vest over 2 years. No
compensation expense was recognized during the nine months ended September 30,
2005 since the Company follows the provisions of APB No. 25.
In June 2005, an employee exercised 30,000 options at $.01 per share. The
Company received proceeds of $300 from the transaction.
In August 2005, 6,250 shares of a previous employee's option with an exercise
price of $.40 expired.
Employee stock option activity for the period ended September 30, 2005
(unaudited) is summarized as follows:
Number of Weighted Average
Shares Exercise Price
----------- ----------------
Outstanding at December 31, 2004 3,161,250 $ .15
Granted 350,000 .57
Exercised (30,000) (.01)
Cancelled (6,250) (.40)
----------- ----------------
Outstanding at September 30, 2005 3,475,000 $ .19
----------- ----------------
10
The following table summarizes the Company's employee stock options outstanding
at September 30, 2005:
Options and
Warrants Outstanding
---------------------------------------------------------
Range of Exercise Weighted Average Weighted Average
Price Number Remaining Life Exercise Price
----------------- -------------------- ---------------- ----------------
.01 2,875,000 8.26-8.32 .01
.42 200,000 8.71 .42
.70-.77 212,500 8.59-9.31 .75
2.00-2.28 187,500 7.67-8.09 2.11
--------------------
3,475,000
====================
All outstanding employee stock options are exercisable at September 30, 2005
except for 150,000 options at $.42, 50,000 of which vest in June 2006 and
100,000 of which vest in June 2007.
The exercise prices of all options granted by the Company equal the market price
at the dates of the grant. No compensation expense has been recognized. Had
compensation cost for the stock option plan been determined based on the fair
value of the options at the grant dates consistent with the method of "SFAS 123,
"Accounting for Stock Based Compensation", the Company's net loss and loss per
share would have been changed to the pro forma amounts indicated below for the
nine months ended September 30, 2005.
8. WARRANTS
In February 2005, the Company's former chief executive officer and an affiliate
exercised 150,000 options at $.01 per share. The Company received proceeds of
$1,500 from the transaction.
On July 21, 2005, as part of a settlement agreement, the Company agreed to
deliver to Fastfunds Financial Corporation, Chex Services, Inc.'s corporate
parent, a contingent warrant to purchase up to 500,000 shares of the Company's
common stock at a purchase price of $0.50 per share. The warrant is not
exercisable until the Company achieves $1,000,000 in net income during a fiscal
year. This warrant has a term of ten years and expires upon a change in control
of the Company.
In September, 2005, the Company issued 15,000 warrants to purchase common stock
to a consultant at an exercise price of $.47 per share, as consideration for
services rendered.
a. Warrants - 2005
i. On September 1, 2005, the Company granted 15,000 warrants to a
consultant per our consulting agreement for services rendered in
September 2005. The warrant grant was valued pursuant to SFAS 123
and totaled $7,041.
The Company recognized noncash compensation expense of $7,041 in
the nine months ended September 30, 2005.
ii. The weighted average assumptions used by management were as
follows:
Stock price on grant date $0.47
Exercise price on grant date $0.47
Dividend yield 0%
Expected volatility 200.25%
Risk free interest rate 4%
Expected life of option 10 years
In September, 2005, the Company borrowed $600,000 from three individuals,
including the uncle and the brother of its Chief Executive Officer evidenced by
convertible notes. The Company issued to one of the lenders warrants to purchase
50,000 shares of its common stock at an exercise price of $.01 per share. (See
Note 3)
11
Warrant activity for the period ended September 30, 2005 is summarized as
follows:
Number of Weighted Average
Shares Exercise Price
--------------- ----------------
Outstanding at December 31, 2004 2,079,438 $ 3.13
Granted 565,000 .46
Exercised (150,000) (.01)
Cancelled - -
--------------- -----------------
Outstanding at September 30, 2005 2,494,438 $ 2.71
--------------- -----------------
The following table summarizes the Company's warrants outstanding at September
30, 2005:
Warrants Outstanding
------------------------------------------------------------------------------
Range of Exercise Weighted Average Weighted Average
Price Number Remaining Life Exercise Price
----------------------- ------------------------- --------------------- ----------------------
.01 265,000 6.98-8.32 .01
.33-.35 125,000 3.95-9.05 .35
.47-.50 515,000 4.81-9.93 .50
1.00 75,000 2.75 1.00
2.40 112,500 3.08-7.50 2.40
4.00-6.00 1,401,938 .25-2.75 4.37
-------------------------
2,494,438
All outstanding warrants are exercisable at September 30, 2005:
NINE MONTHS ENDED
September 30, 2005
---------------------
Net loss as reported $ (687,231)
Add: total stock based
compensation expense determined
under fair value based method, net
of related tax effect (136,355)
---------------------
Pro forma net loss $ (823,586)
Basic loss per share
As reported $ (.03)
Pro forma $ (.03)
---------------------
The above pro forma disclosures may not be representative of the effects on
reported net earnings for future years as options vest over several years and
the Company may continue to grant options to employees.
The fair value of each option and warrant is estimated on the date of grant
using Black-Scholes option-pricing model with the following weighted average
assumptions used for grants:
12
2005
Dividend yield 0%
Expected volatility range 201%
Risk-free interest rat 3.00%
Expected holding periods 10 Years
9. COMMITMENTS
a. LEASE COMMITMENTS
The Company leases office space in Minnesota on a month to month basis for
$738 per month.
In connection with converting all of the Available Money ATM's, the Company
now pays rent to various mall properties where it has ATM machines. These
monthly rents average $45,000 per month.
The Company is party to a 39-month lease agreement pursuant to which it
rents office space in Pennsylvania at a monthly rent of $2,635.
The Company's total rent expense under operating leases was $36,326 and
$33,791 for the nine months ended September 30, 2005 and 2004,
respectively.
Estimated rent expense under operating leases over the next five years is
as follows:
Year Amount
2005 $40,476
2006 $40,476
2007 $40,476
2008 $40,476
2009 $40,476
b. CASINO CONTRACTS
The Company operates at a number of Native American owned gaming
establishments under contracts requiring the Company to pay a rental fee to
operate at the respective gaming locations.
Typically, the fees are earned by the gaming establishment over the life of
the contract based on one of the following scenarios:
i. A dollar amount, as defined by the contract, per transaction
volume processed by the Company.
ii. A percentage of the Company's profits at the respective location.
As of September 30, 2005 the Company has recorded $1,044,473 of accrued
commissions on casino contracts.
Pursuant to the contracts, the Native American owned casinos have not waived
their sovereign immunity.
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c. EMPLOYMENT AGREEMENT
In January 2004, the Company entered into a five-year employment agreement with
its Chairman, President and Chief Executive Officer. In addition to an annual
salary of $350,000 per year (subject to annual increases at the discretion of
the Board of Directors) (the "Base Salary"), the employment agreement provides
for a $200,000 signing bonus, a guaranteed bonus equal to 50% of his Base Salary
in any calendar year (the "Guaranteed Bonus") and a discretionary incentive
bonus of up to 50% of his Base Salary in any calendar year pursuant to a bonus
program to be adopted by the Board of Directors (the "Incentive Bonus").
Pursuant to his employment agreement, the officer is entitled to fringe benefits
including participation in retirement plans, life insurance, hospitalization,
major medical, paid vacation, a leased automobile and expense reimbursement
Money Centers of America, Inc. (the "Company") and the Company's Vice President
- Finance and Chief Financial Officer. entered into an employment agreement
dated June 14, 2005 (the "Employment Agreement") The employment term commences
on June 14, 2005 and continues until the close of business on December 31, 2006,
with automatic annual renewals thereafter unless either party gives notice of
non-renewal at least thirty days prior to automatic renewal. The officer's
annual salary during the term of employment under the Employment Agreement shall
be no less than $120,000. In addition, the officer was granted options to
purchase 200,000 shares of the Company's common stock with an exercise price of
$.42 per share under the Company's Amended and Restated 2003 Stock Incentive
Plan, pursuant to an Award Agreement for Non-Qualified Stock Option dated June
14, 2005 entered into between the Company and the officer. The options have a
term of ten years and are exercisable as follows: (a) 50,000 shall be
exercisable immediately on the date of grant; (b) 50,000 shall be exercisable on
June 1, 2006; and (c) 100,000 shall be exercisable on June 1, 2007
10. CONCENTRATION OF CREDIT RISK
The Company maintains cash in bank accounts that exceed federally insured
limits. At September 30, 2005, the Company had deposits in excess of federally
insured amounts aggregating approximately 3,9 million dollars at various
financial institutions. The Company believes it has its cash deposits at high
quality financial institutions. In addition, the Company maintains a significant
amount of cash at each of the casinos. Management believes that the Company has
controls in place to safeguard these on-hand amounts, and that no significant
credit risk exists with respect to cash.
For the nine months ended September 30, 2005, approximately 41 % of total
revenues were derived from operations at two full service casinos. An additional
11 % was derived from one ATM contract that has been terminated as part of the
Company's elimination of unprofitable contracts. No other customers represented
more than ten percent of the Company's our total revenues for the nine months
ended September 30, 2005.
11. DUE TO OFFICER
Amounts due to officer are evidenced by notes in the aggregate amount of
$375,626 that bear an interest rate of 10% per annum, payable monthly, and are
due on demand. This consists of $100,000 loaned to the Company by the officer in
fiscal year 2004. This amount also includes monies due the officer in the amount
of $6,771 from 2002, sales commissions due the officer in the amount of $21,029
from 2001, sales commissions due the officer in the amount of $5,000 from fiscal
year 2003, the officer's sign on bonus per his employment agreement in the
amount of $200,000, the officer's 2004 bonus of $175,000. Payments in the amount
of $132,174 paid to the officer have been netted to this note. The officer has
been paid $34,347 in interest on this note during the nine months ended
September 30, 2005.
12. INTEREST EXPENSE
Included in interest expense are monies owed to an unrelated vendor for interest
charges. The interest is based on the amount of cash in the Company's Available
Money ATM machines and network and is calculated on a daily basis. The balance
of this cash funded by the bank in the Company's ATM machines at September 30,
2005 was approximately $10.3 million. The interest rate on the $10.3 million is
5.625% per annum.
13. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has a working capital
deficit of $6,105,473 and an accumulated deficit of $15,498,261 at September 30,
2005 and had a net loss of $687,231 and net cash used in operations of $86,320,
respectively for the nine months ended September 30, 2005. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.
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Management is in the process of implementing its business plan. Additionally,
management is actively seeking additional sources of capital, but no assurance
can be made that capital will be available on reasonable terms. Management
believes the actions it is taking allow the Company to continue as a going
concern. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
14. LITIGATION
On or about October 14, 2004, Lake Street Gaming, LLC ("Lake Street") filed a
Complaint against iGames Entertainment, Inc. and Money Centers of America, Inc.
("MCA") (collectively referred to hereinafter as "iGames") in the United States
District Court for the Eastern District of Pennsylvania, alleging that iGames
breached an Asset Purchase Agreement ("APA") that the parties executed on or
about February 14, 2003. The suit also raises claims for fraudulent
misrepresentation and intentional interference with contractual relations. By
virtue of the APA, Lake Street sold to iGames all of Lake Street's right, title
and interest in a casino game called "Table Slots." Lake Street alleges that it
is entitled to additional compensation for the game that exceeds what was agreed
to. This matter is still in the pleadings stage and iGames has moved to dismiss
the plaintiff's claims for fraudulent misrepresentation and intentional
interference with contractual relations, as well as to strike all claims for
punitive damages. We are vigorously defending this action and believe that Lake
Street's claims lack merit.
Effective July 21, 2005, the Company entered into a Settlement Agreement and
Mutual Release (the "Settlement Agreement") with Chex Services, Inc.("Chex"),
the wholly owned operating subsidiary of FastFunds Financial Corporation and
Equitex, Inc. ("Equitex"), pursuant to which the parties agreed to resolve all
pending litigation between them and release all claims related to such
litigation. The subject litigation is described in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2004. No party to the Settlement
Agreement admitted any wrongdoing or liability related to the litigation. The
litigation was dismissed with prejudice on July 22, 2005.
Under the Settlement Agreement, Equitex and Chex agreed to cancel the Company's
outstanding $2,000,000 principal liability under a $2,000,000 promissory note
from the Company to Chex, dated January 6, 2004, as well as any liability for
accrued but unpaid interest under that promissory note. The Company agreed to
pay Chex $500,000 within 60 days of July 21, 2005. This amount was paid in
September 2005. In addition, the Company, agreed to deliver to Fastfunds
Financial Corporation a ten year warrant to purchase up to 500,000 shares of the
Company's common stock at a purchase price of $0.50 per share. The warrant is
not exercisable until the Company achieves $1,000,000 in net income during a
fiscal year.
In addition, the Company is from time to time during the normal course of its
business operations, subject to various litigation claims and legal disputes.
The Company does not believe that the ultimate disposition of any of these
matters will have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
15. SUBSEQUENT EVENTS
From October 3, through October 19, 2005, the Company issued four promissory
notes in the aggregate amount of $100,000 to three individuals, including its
Chief Financial Officer, in exchange for loans in the same amount. These notes
bear interest at 10% per annum and all principal and interest is due at maturity
between July 3, 2005 and July 19, 2006 or earlier at the option of each holder
upon a Change in Control. "Change in Control" is defined as (i) a consolidation
or merger of the Company with or into any other corporation or corporations or
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any other transaction in which the holders of the Company's outstanding shares
of capital stock immediately before such consolidation or merger do not,
immediately after such consolidation or merger, retain stock representing a
majority of the voting power of the surviving corporation of such consolidation
or merger, (ii) the sale of all or substantially all of the assets of the
Company or (iii) any occurrence as a result of which more than 50% of the voting
capital stock of the Company is held by a person or persons other than a current
holder or current holders of more than 50% of the voting capital stock of the
Company.
In the event that a Note is not repaid in full within ninety (90) days following
the maturity date, additional interest is due and payable in an amount equal to
twenty-five percent (25%) of the unpaid amount. Thereafter, additional interest
accrues each sixty (60) days in an amount equal to twenty-five percent (25%) of
the unpaid amount.
Each Note is convertible into shares of the Company's common stock at an
exercise price equal to 85% of the average of the mean of the closing "bid" and
"ask" prices of the Company's common stock for the ten (10) trading days
immediately prior to the date of exercise.
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CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "would," "expect," "plan," anticipate," believe,"
estimate," continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those included in our Annual Report on Form
10-KSB filed on April 15, 2005. The following discussion should be read in
conjunction with our Consolidated Financial Statements and related Notes thereto
included elsewhere in this report.
Item 2 - Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this report. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties, and assumptions. The actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including but not limited to the risks discussed in this report.
History
We are a single source provider of cash access services to the gaming
industry. We combine advanced technology with personalized customer services to
deliver ATM, Credit Card Advance, POS Debit, Check Cashing Services, CreditPlus
outsourced marker services, and merchant card processing. Our business plan is
to identify fragmented segments of the market to capitalize on merger and
acquisition targets of synergistic companies that support our business model.
We were formed as a Delaware corporation in 1997. Prior to March 2001, we
were a development company focusing on the completion of a Point of Sale ("POS")
transaction management system for the gaming industry. In March 2001, we
commenced operations with the launch of the first version of our POS system at
the Paragon Casino in Marksville, LA
On January 2, 2004, iGames Entertainment, Inc. acquired us pursuant to our
merger with and into a wholly-owned subsidiary of iGames formed for that
purpose. In addition, on January 6, 2004, iGames acquired Available Money, Inc.,
an operator of free-standing ATM machines in casinos. The business operations of
Available Money were combined with our business operations. We currently provide
services at 20 locations across the United States.
Our acquisition by iGames was treated as a recapitalization and accounted
for as a reverse acquisition. Although iGames was the legal acquirer in the
merger, we were the accounting acquirer since our shareholders acquired a
majority ownership interest in iGames. Consequently, our historical financial
information is reflected in the financial statements prior to January 2004. All
significant intercompany transactions and balances have been eliminated. We do
not present pro forma information, as the merger was a recapitalization and not
a business combination.
On October 15, 2004, pursuant to an Agreement and Plan of Merger dated as
of August 10, 2004 (the "Merger Agreement") by and between iGames and us, iGames
was merged with and into us. Pursuant to the Merger Agreement, the holder of
each share of iGames' common stock received one share of our common stock, and
each holder of shares of iGames' Series A Convertible Preferred Stock received
11.5 shares of our common stock. Options and warrants to purchase iGames' common
stock, other than warrants issued as part of the merger consideration in iGames'
January 2004 acquisition of us (the "Merger Warrants"), are deemed options and
warrants to purchase the same number of shares of our common stock with no
change in exercise price. The Merger Warrants were cancelled in exchange for
1.15 shares of our common stock for each share of common stock purchasable
thereunder.
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Our business model is to be an innovator and industry leader in cash access
and transfer management systems for the gaming industry. Within the funds
transfer and processing industries there exists niche markets that are capable
of generating substantial operating margins without the requirement to process
billions of dollars in transactions that is the norm for the industry. We
believe there is significant value to having a proprietary position in each
phase of the transaction process in the niche markets where management has a
proven track record. The gaming industry is an example of such a market and is
currently where we derive the majority of our revenues. We have identified other
markets with similar opportunities, however we have not executed any plans to
exploit these markets at this time.
Current Overview
Our core business of providing single source, outsourced cash access
services in the gaming industry was the major source of our revenue and profits
in 2005 and we expect it to continue to be the major source of revenue and
profits in 2006. We have launched several new services in the last 18 months,
such as CreditPlus and the Cash Services Host Program, that have begun to create
new revenue streams and have helped to differentiate our product offering in the
marketplace, and are poised to launch our Transaction Management System.
Our core business generates revenues from transaction fees associated with
each unique service we provide, including ATMs, credit card advances, POS Debit,
check cashing, markers and various other financial instruments. We receive our
fees from either the casino operator or the consumer who is requesting access to
their funds. The pricing of each transaction type is determined by evaluating
risk and costs associated with the transaction in question. Accordingly, our
transaction fees have a profit component built into them. Furthermore,
reimbursement for electronic transactions are guaranteed by the credit or debit
networks and associations that process the transactions as long as procedures
are followed, thereby reducing the period of time that trade accounts receivable
are outstanding to several days.
The January 2004 acquisition of Available Money has started to produce
positive results for us now that litigation related to the acquisition has ended
favorably for us and we have renegotiated or terminated some unprofitable
contracts. Furthermore our ATM conversion is nearly complete, which combined
with our new Transaction Management System processing platform will lower our
operating costs. The combined result is a short term reduction in quarterly
revenue in exchange for sustainable long term profitability.
The Transaction Management System is a an enterprise payment software
solution for the Gaming Industry consisting of a unified transaction gateway
that allows us to initiate, execute and control all transactions executed
through our installed customer base. By channeling all incoming transactions
through the gateway, and transmitting transaction information out to banks, ATM
networks and others from the gateway, we can achieve faster integration and
installation of new accounts. In order to create the Transaction Management
System, we entered into an exclusive gaming industry partnership with Mosaic
Software utilizing Mosaic's Postilion payment processing platform. and our own
proprietary supplementary software for the gaming industry. The Postilion
platform is recognized around the globe as the premier platform for "in-house"
payment solutions and is currently used in various industry sectors
internationally, including financial services, banking, retail, telcomm and
processing.
We met our September goal for installing the back end infrastructure for
utilizing the Transaction Management System for our internal processing needs.
We anticipate that all point of sale transactions from our current contracts
will be processed on our Transaction Management System processing platform by
the second quarter 2006.
In addition, we now offer the Transaction Management System to our
customers as a "turn-key" solution that they can use to process and facilitate
their own transactions without using a vendor. The Transaction Management System
allows a gaming operator to leverage existing infrastructure to internalize the
delivery and operation of cash access services, retail merchant card processing,
automated ticket redemption, and player's club redemptions.
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Operationally, we include all our policies and procedures for every aspect
of our business as part of the Transaction Management System package. This
insures that the "operations" aspect of taking these services in-house is as
solid and dependable as the Postilion Processing Platform.
We will generate revenues from licensing fees and ongoing support fees
rather than providing cash access services. Although our revenues from a
particular casino will be substantially reduced, we will no longer incur the
costs associated with on-site personnel and equipment and interest expense on
the substantial working capital required for vault cash to support our current
services. This will enable us to support a much larger customer base.
The economics of our business are too compelling for gaming operators not
to consider internalizing cash access operations in order to generate additional
revenue and profits, especially when these operations are virtually identical to
a gaming operator's core competencies. Substantially all gaming facilities
provide ATM services, credit card cash advances, debit, and/or check cashing
services to their customers. Historically these services are outsourced and
provided on an exclusive basis for an average of two to five years. Each year,
approximately 400 accounts totaling $300 million in revenue are put out to bid.
Currently there are five major companies, including us, that have proprietary
systems to compete for this business. Although this market has matured from a
pricing perspective, the demand for the services from the end user is still
strong.
Our Transaction Management System is the only "do it yourself" deployment
option on the market. Management plans to roll out its marketing plan for the
Transaction Management System in the first quarter of 2006. In order to market
the Transaction Management System, we have developed an Internal Rate of Return
model to help casinos determine if taking cash access services in-house with the
Transaction Management System makes economic sense. By providing transaction and
commission data we can quickly determine the economic benefit a gaming operator
should anticipate.
Though we feel confident that The Transaction Management System will
differentiate us from our competitors and create new sources of revenue for the
company, there is no guarantee that the market will accept this new deployment
strategy. Regardless of the markets acceptance of this new deployment strategy,
The Transaction Management System enables Money Centers of America to gain
complete control over our cash access booth operations and ATMs. The Transaction
Management System will "drive" the ATMs and teller applications and process all
transactions through our central system allowing for quicker customer
interactions which translate to greater revenue at less cost from our current
book of business. The Transaction Management System permits Money Centers of
America to negotiate network processing contracts based on sound business
decisions versus technology requirements so that the cost per transaction may be
reduced, once again translating to greater revenue potential from our current
book of business. Once all of the properties have been converted to the
Transaction Management System, general operating procedures, field support, and
internal accounting processes will also be streamlined. The costs savings could
be a much as $1.1 million annually.
Our current cost of capital remains high as we have been distracted in our
efforts to recapitalize our balance sheet due to ongoing litigation and our
focused efforts to deploy The Transaction Management System on schedule. Now
that both of these distractions have been removed management considers
recapitalization of our balance sheet a major priority for the remainder of
2005. The success of this recapitalization will reduce the interest rates we pay
on our lines of credit, which will lower our expenses and contribute to our
profitability. Mercantile Capital has been a strong finance partner to the
company, however, the ability to continue our growth is largely dependent on our
ability to identify and secure capital at reasonable rates.
We seek to avoid litigation and to minimize our exposure to potential
claims arising in the normal course of our business. When we are confident that
it is in our best interests to defend these claims and to pursue counterclaims
we believe that we are likely to obtain a favorable result. During the nine
month period ended September 30, 2005, we have incurred approximately $528,696
in legal fees related to two major lawsuits which were settled on favorable
terms to us. As a result, we do not anticipate incurring material additional
legal fees related to these legal proceedings.
Historically, providers of cash access services to the gaming industry had
cash flow margins that were generally higher than those experienced in the funds
transfer and processing industries. Growing competition and the maturing of the
market has resulted in a decline in these margins as companies have begun
marketing their services based on price rather than innovation or value added
services. This trend is highlighted by the number of companies that promote
revenue growth and an increased account base but experience little increase in
net income. This trend is magnified by the fact that the largest participant in
the industry has close to a 65% market share and has begun to forgo margin in
order to retain business. Companies that can adapt to the changing market and
can create innovative products and services stand at the forefront of a new wave
in revenue and profit growth. This is why we are we think the timing is right
for the market to embrace our Transaction Management System.
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Like most maturing markets, the companies that succeed are those that are
capable of reinventing themselves and the markets they serve. We believe that
smaller gaming properties will always look to have cash access services provided
in the traditional manner. However, there are several major trends occurring in
the gaming industry that will have a major impact on our industry and will
determine which companies emerge as industry leaders:
1. Consolidation of major casino companies that will put pressure on
other major casino companies to follow suit and will put pressure on
smaller casino companies to focus on service and value added amenities
in order to compete.
The trend towards consolidation of the major gaming companies has continued
and will make it difficult to continue to offer our services in the traditional
manner. The economics are too compelling for the gaming operators not to
consider internalizing these operations in order to generate additional revenue
and profits to service the debt associated with the consolidation. Our
preparation has continued to position us to capitalize on this trend. We have
prepared for this change and have already begun to offer our systems and
services to customers with our Transaction Management System. Our size makes us
uniquely capable of adapting to this change. Our larger competitors have spent
years trying to conceal the economic benefits of this type of offering because
their large infrastructure is designed to only support an outsourced solution.
2. Ticket In-Ticket Out technology growth exceeding expectations.
The first major casino company to remove coins from the casino floor was
Caesars Palace in Atlantic City, NJ. Since then, slot machine manufacturers have
developed a technology that prints and accepts bar-coded tickets at the slot
machine instead of accepting or dispensing coins. It was originally anticipated
that it would take 10-15 years for the industry to fully adopt this technology.
It appears it may only take half this amount of time. This presents a problem to
casino operators. They now have tens of thousands of bar-coded tickets a day
that need to be redeemed for cash. This has paved the way for self-service
ticket redemption technology so customers do not have to go to the casino cage
in order to redeem their tickets. The initial ticket redemption machines placed
in service have proven to be too big and too expensive. Most casino operators
have to wait until budget season to appropriate the necessary funds in order to
even consider the acquisition of the required equipment. We believe this
functionality will ultimately reside on the ATM machine thus eliminating the
requirement to purchase new equipment and eliminating the need to remove a slot
machine to make room for a stand-alone ticket redemption device. We are
developing technology that will allow ticket-redemption functionality on our
cash access devices. There is still the problem of security with the bar-coded
ticket, which is as good as cash. Many casino operators will refuse to allow
vendors to handle the tickets for security and fraud concerns. This is an
additional economic benefit of our plan to have the casino operator internalize
their cash access services because only the casino's personnel will handle the
tickets in the situations where they are licensing our services. Furthermore, by
utilizing the Transaction Management System to manage ticket redemption services
a gaming operator can further leverage existing resources.
3. Execution of long-term and stable compacts for Indian Casinos in
numerous state jurisdictions has made traditional capital more readily
available paving the way for a new wave of expansion and the resulting
need for new sources of revenue and customer amenities.
Recent shortfalls in state budgets have brought the tribal and state
governments together to execute long-term compacts that meet the financial needs
of both parties. In recent years, California, Arizona, New Mexico and Wisconsin
are just a few examples of this development. The added financial stability for
Indian casinos has made traditional capital more readily available to tribes,
leading many tribes to undertake expansion of casino facilities and operations.
20
In order to support this expansion, Indian casino operators will seek new
sources of revenues and new amenities to attract and retain more quality
customers. One of the most critical customer amenities in casino operations is
the availability of credit. Traditional gaming markets, such as Las Vegas and
Atlantic City, rely on credit issuance for up to 40% of their revenues. These
markets issue credit internally and rely on specialized credit reporting in
their risk management decisions. Significant capital investment in technology is
required for these transactions to be executed efficiently. However, within the
$15 billion dollar Indian Gaming market there are virtually no credit services
currently available. Approximately 26 of 29 states that have approved Indian
Gaming do not allow the Tribes or their respective casinos to issue credit. The
lack of credit play is also due to the lack of a third party credit issuer that
is capable of facilitating the transactions. Our CreditPlus platform allows
Indian casinos to issue credit to players, providing Indian casinos with a guest
amenity that is already widely accepted in traditional jurisdictions. Our
ability to convert this market opportunity into revenue is largely dependent on
the success of our sales efforts in educating casinos in the Indian Gaming
market regarding the advantages of CreditPlus and its compliance with the
regulatory requirements.
Our Cash Services Host Program is a revenue generating service uniquely
aimed at capitalizing on the need for new profitable guest amenities. Where most
guest amenities require additional expenses, this service helps the casino
operator generate more revenues. This service allows customers to facilitate
cash access transactions from the slot machine or gaming table. Our hosts are
available to bring the transaction to the guest, which is viewed as a valuable
customer amenity, while driving more money to the gaming floor for the casino
operator.
Organic growth through sales by internal salespeople is usually the most
efficient and profitable growth strategy in the cash services business. Much of
our historical growth has occurred in this manner. We realize that recognizing
industry trends is no assurance of success. We have also complimented our
internal sales strategy by creating relationships with independent sales
organizations that have established relationships with gaming operators
nationwide. Although our sales commissions will be higher at gaming
establishments entered through this sales channel, we will not be burdened with
the up-front salary, travel and entertainment costs associated with the
traditional internal sales approach. We continue to view strategic acquisitions
as part of our business plan to obtain the critical mass we believe is necessary
to compete effectively in our industry.
This parallel strategy of sales, acquisitions and product development is
capital intensive and presents substantial risk. There is no guarantee that we
will be able to manage all three strategies effectively.
We believe that it is necessary to increase our working capital position so
that we can capitalize on the profitable trends in the industry while
maintaining and servicing our current customer base and integrating acquired
operations such as Available Money. Without sufficient working capital, we would
be forced to utilize working capital to support revenue growth at the expense of
executing on our integration and conversion plans. This would result in
substantially higher operating costs without the assurance of additional
revenues to support such costs.
Critical Accounting Policies
In presenting our financial statements in conformity with accounting
principles generally accepted in the United States, we are required to make
estimates and assumptions that affect the amounts reported therein. Several of
the estimates and assumptions we are required to make relate to matters that are
inherently uncertain as they pertain to future events. However, events that are
outside of our control cannot be predicted and, as such, they cannot be
contemplated in evaluating such estimates and assumptions. If there is a
significant unfavorable change to current conditions, it will likely result in a
material adverse impact to our consolidated results of operations, financial
position and in liquidity. We believe that the estimates and assumptions we used
when preparing our financial statements were the most appropriate at that time.
Presented below are those accounting policies that we believe require subjective
and complex judgments that could potentially affect reported results.
Check Cashing Bad Debt. The principal source of bad debts that we
experience are due to checks presented by casino patrons that are ultimately
returned by the drawer's bank for insufficient funds. We account for these check
cashing bad debts on a cash basis. Fees charged for check cashing are recorded
as income on the date the check is cashed. If a check is returned by the bank on
which it is drawn, we charge the full amount of the check as a bad debt loss. If
the bank subsequently honors the check, we recognize the amount of the check as
a negative bad debt. Based on the quick turnaround of the check being returned
by the bank on which it is drawn and our resubmission to the bank for payment,
we feel this method approximates the allowance method, which is a Generally
Accepted Accounting Principle. This conservative accounting policy may at times
overstate the impact of bad checks on our financial results, and adoption of a
different accounting policy could have a material impact on our reported
results.
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Goodwill and Long-Lived Intangible Assets. The carrying value of goodwill
as well as other long-lived intangible assets such as contracts with casinos is
reviewed if the facts and circumstances suggest that they may be impaired. With
respect to contract rights in particular, which have defined terms, this will
result in an annual adjustment based on the remaining term of the contract. If
this review indicates that the assets will not be recoverable, as determined
based on our discounted estimated cash flows over the remaining amortization
period, then the carrying values of the assets are reduced to their estimated
fair values. Effective January 1, 2002, we adopted Statement of Financial
Accounting Standards No. 142, "Goodwill And Other Intangible Assets" which
eliminates amortization of goodwill and certain other intangible assets and
requires annual testing for impairment. The calculation of fair value includes a
number of estimates and assumptions, including projections of future income and
cash flows, the identification of appropriate market multiples and the choice of
an appropriate discount rate.
Stock Based Compensation. We account for stock based compensation utilizing
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. We have chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess,
if any, of the estimated fair market value of our stock at the date of the grant
over the amount an employee must pay to acquire the stock. We have adopted the
"disclosure only" alternative described in SFAS 123 and SFAS 148 (See New
Accounting Pronouncements), which require pro forma disclosures of net income
and earnings per share as if the fair value method of accounting had been
applied.
Results of Operations
Three Months Ended September 30, 2005 vs. Three Months Ended September 30, 2004
(Unaudited)
Three Months Ended Three Months Ended
September 30, 2005 September 30, 2004
($) ($) Change ($)
------------------- ------------------- -------------
Net Income (Loss) $ 7,848 $ (783,739) $ 791,587
Revenues 4,547,708 4,767,853 (220,145)
Operating Expenses 3,485,400 4,040,955 (555,555)
Gross Profit 1,062,308 726,898 335,410
Selling, General and Administrative Expenses 428,097 561,901 (133,804)
Noncash Compensation 15,666 6,425 9,241
Depreciation and amortization 163,539 454,282 (290,743)
Interest Expense, net $ 447,158 $ 488,029 $ (40,871)
Our net income increased by $791,587 during the three months ended
September 30, 2005, primarily due to an increase in gross profit of
approximately $335,000, a decrease in selling, general and administrative
expenses of approximately $133,000, and a decrease in depreciation and
amortization of approximately $290,000 due to reduced amortization of casino
contracts, reflecting the termination of certain contracts in 2004.
Our revenues decreased by approximately 5% during the three months ended
September 30, 2005 as compared to the three months ended September 30, 2004.
Revenues were reduced by approximately $1,300,000 due to cancellations and
non-renewals from our Available Money portfolio and by approximately $353,000 by
the termination of the Valley View Casino contract. This was offset by
approximately $96,500 in increased revenues from contracts in place at the
22
beginning of the third quarter of 2004 and $1,336,295 in revenues from new
contracts. Our operating expenses decreased during the three months ended
September 30, 2005 by approximately $1,260,000 due to savings from the cancelled
and non-renewed Available Money contracts and approximately $213,000 due to the
Valley View Casino termination, which was offset in part by approximately
$9150,000 in operating expenses from new Money Centers full service business.
Our selling, general and administrative expenses decreased during the three
months ended September 30, 2005 primarily due to our CEO agreeing to forego
compensation due to him under his employment agreement of approximately $50,000.
Legal expenses related to litigation proceedings were lower by approximately
$133,000 as compared to the same quarter last year. Since we have settled our
two major lawsuits we have begun to see legal expenses decrease significantly.
However in an effort to increase sales and strengthen our management team we had
an increase in trade show expenses of $25,000 and seminars $12,000.
Nine Months Ended September 30, 2005 vs. Nine Months Ended September 30, 2004
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
($) ($) Change ($)
------------------- ------------------- --------------
Net Income (Loss) $ (687,231) $ (8,040,389) $ (7,353,158)
Revenues 15,348,705 11,538,072 3,810,633
Operating Expenses 12,334,290 9,696,598 2,637,692
Gross Profit 3,014,415 1,841,474 1,172,941
Selling, General and Administrative Expenses 1,700,274 1,886,789 (186,515)
Noncash Compensation 92,066 5,298,053 (5,205,987)
Depreciation and amortization 502,264 1,031,390 (529,126)
Interest expense, net 1,404,229 1,117,037 287,192
Other income (expenses) $ (2,812) $ (548,593) $ (545,781)
Our net loss decreased by $7,353,158 during the nine months ended September
30, 2005 primarily due to a decrease in noncash compensation of approximately
$5,200,000 reflecting one-time charges for noncash compensation during 2004 that
were not repeated in 2005, an increase in gross profit of approximately
$1,173,000, due to our success in lowering various operating expenses, a
decrease in depreciation and amortization of approximately $529,000 due to
reduced amortization of casino contracts reflecting the termination of certain
contracts in 2004. Other expenses decreased due to the fact that there were no
impairments of intangible assets or write-offs of obsolete inventory in 2005.
Our revenues increased by approximately 33% during the nine months ended
September 30, 2005 as compared to the nine months ended September 30, 2004.
Approximately $311,000 of this increase represented increased volume under
contracts in place at the beginning of 2004 and $3,732,311 represented revenues
from new contracts. Approximately $1,990,000 of the increase in revenue was due
to the recognition in our financial statements of gross revenues rather than net
revenues from the Available Money portfolio in 2005 following a change of ATM
processors. These increases were offset by the loss of approximately $2,025,000
in revenues due to cancellations and non-renewals from our Available Money
portfolio and approximately $210,815 in revenues from the Valley View Casino.
Our operating expenses increased during the nine months ended September 30, 2005
due to a $158,000 increase in bad debt expense primarily resulting from having
additional full service casinos with check cashing, commissions paid to casinos
increased by approximately $200,000 although as a percentage of revenue, the
commissions stayed relatively level as compared to the same period in 2004. In
addition, approximately $2,075,000 of various other expenses increased due to
the recognition in our financial statements of all operating expenses from the
Available Money portfolio in 2005 following a change in ATM processors.
Our selling, general and administrative expenses decreased slightly during
the nine months ended September 30, 2005 primarily due to decreased legal
expenses related to pending litigation and reduced insurance expenses. Otherwise
the remaining selling, general and administrative expenses have remained
relatively the same as compared to the quarter ended September 30, 2004. The
23
Company has settled our two major lawsuits and have experienced a significant
decrease in legal expenses beginning in the middle of the third quarter of 2005.
Our depreciation and amortization expenses decreased during the nine months
ended September 30, 2005 primarily due to the elimination of amortization that
otherwise would have been realized on contracts that terminated in 2004.
Our interest expense increased $287,192 during the nine months ended
September 30, 2005 mostly due to an increase in the use of capital for our new
full service casinos and increased variable interest rates on our credit
facilities that have increased our cost of capital.
Our other expenses decreased $544,301 during the nine months ended
September 30, 2005 due to the fact that we had one time write offs in 2004 in
the amount of $548,763 for loss on impairment of intangibles and obsolete
inventory.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements during the fiscal quarter
ended June 30, 2005 that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that is material to our investors.
Changes in Financial Position, Liquidity and Capital Resources (Unaudited)
Nine Months Nine Months
Ended September Ended
30, 2005 ($) September 30,
2004 ($) Change ($)
--------------- ------------- -------------
Net Cash Provided by (Used in) Operating Activities $ (86,320) $ 59,166 $ (145,486)
Net Cash Used in Investing Activities (879,241) (1,964,051) (1,084,810)
Net Cash Provided by Financing Activities $ 988,923 $ 2,841,588 $ (1,852,665)
Net cash provided by operations decreased by $145,486, primarily due to a
$100,000 deposit we made with a casino to secure more favorable financing from
the casino as opposed to our main lender.
Net cash used in investing activities decreased by $1,084,810 during the
nine months ended September 30, 2005 due to the fact that we did not make any
acquisitions in the first half of 2005 and acquired Available Money in the first
quarter of 2004. We have used cash in 2005 to purchase some of the Available
Money ATM's and to complete the Transaction Management System.
Net cash provided by financing activities decreased by $1,852,665 during
the nine months ended September 30, 2005 primarily because we had no need for
acquisition financing.
Our available cash equivalent balance at September 30, 2005 was
approximately $456,259 and was approximately $562,355 at October 31, 2005.
A significant portion of our existing indebtedness is associated with our
vault cash line of credit of $7,000,000 with Mercantile Capital, L.P., which we
use to provide vault cash for our casino operations. Vault cash is not working
capital but rather the money necessary to fund the float, or money in transit,
that exists when customers utilize our services but we have yet to be reimbursed
from the Debit, Credit Card Cash Advance, or ATM networks for executing the
transactions. Although these funds are generally reimbursed within 24-48 hours,
a significant amount of cash is required to fund our operations due to the
magnitude of our transaction volume. Our vault cash loan accrues interest at the
base commercial lending rate of Wilmington Trust Company of Pennsylvania plus
10.75% per annum on the outstanding principal balance, with a minimum rate of
15% per annum, and has a maturity date of June 30, 2006. Our obligation to repay
this loan is secured by a first priority lien on all of our assets. The
outstanding balance on our vault cash line of credit fluctuates significantly
from day to day based on activity and collections, especially over weekends.
Vault cash for our ATM operations at locations where we do not provide full cash
access services (primarily Available Money customers) is provided by our ATM
processing provider under the terms of the ATM processing agreement, at a cost
equal to the ATM processor's cost of funds, which currently is Prime minus 5/8%.
24
We incurred $3,850,000 of debt associated with the acquisition of Available
Money. $2,000,000 of this indebtedness was a loan provided by Chex Services,
Inc. As a result of the settlement of our lawsuit with Equitex, Inc. and Chex
Services, Inc. related to our terminated acquisition of Chex Services, Equitex
and Chex Services agreed to cancel our outstanding $2,000,000 principal
liability as well as any liability for accrued but unpaid interest under that
promissory note and we agreed to pay Chex $500,000 within 60 days of July 21,
2005. We paid this amount in September 2005. In order to fund the payment to
Chex Services, Inc., in September 2005 we borrowed $600,000 from individuals,
including the uncle and the brother of our Chief Executive Officer, pursuant to
convertible notes that bear interest at 10% per annum and mature in June 2006.
Each Note is convertible into shares of our common stock at an exercise price
equal to 85% of the trading price at the time of exercise.
The remaining $1,850,000 of this indebtedness is part of a $2,050,000
bridge loan provided by Mercantile Capital, L.P. This bridge loan was accruing
interest until June 30, 2005 when it was converted into a 5 year amortizating
loan subject to annual renewal at the lender's discretion. Our obligation to
repay this loan is secured by a first priority lien on all of our assets. We
still intend to refinance this obligation in 2005 and are making every effort to
do so. We paid a facility fee of $41,000 in connection with this loan.
On December 1, 2003, we obtained a $250,000 line of credit from Mercantile
Capital, L.P., due on demand. This debt bears interest at the prime rate of
interest plus 10%, floating, provided that the minimum rate on this loan is
14.5% per annum. As of June 30, 2005, this loan was also converted to a 5 year
amortizing loan with annual renewals at the lender's discretion. The Company
paid a $25,000 facility fee on June 30, 2005 when the loan began to be
amortized. This loan is secured by 250,000 shares of the Company's common stock.
On September 10, 2004, we borrowed $210,000 from the father of our chief
executive officer to pay an advance on commissions to a new casino customer.
This loan bears interest at 10% per annum, payable monthly. The principal amount
of this loan is repayable in monthly payments payable on the 1st day of each
month commencing with the second month following the month in which we commence
operations at Angel of the Winds Casino, and continuing on the 1st day of each
month thereafter, provided that, upon any merger of our company, sale of
substantially all of our assets or change in majority ownership of our voting
capital stock, the lender has the right to accelerate this loan and demand
repayment of all outstanding principal and all unpaid accrued interest thereon.
We currently are making $5,000 principal payments per month. The principal
balance outstanding as of August 15, 2005 is $95,000. In addition, we issued the
lender warrants to purchase 50,000 shares of our common stock at an exercise
price of $.33 per share. In the event that the principal amount of this loan
plus all accrued interest thereon is paid in full on or before March 1, 2006,
then we shall have the right to cancel warrants to purchase 25,000 shares.
Though we anticipate our operating profits will be sufficient to meet our
current obligations under our credit facilities, if we become unable to satisfy
these obligations, then our business may be adversely affected as Mercantile
Capital will have the right to sell our assets to satisfy any outstanding
indebtedness under our line of credit loan or our term loan that we are unable
to repay.
We also have a substantial amount of accounts payable and accrued expenses.
To the extent that we are unable to satisfy these obligations as they come due,
we risk the loss of services from our vendors and possible lawsuits seeking
collection of amounts due.
In addition, we have an existing obligation to redeem 37,500 shares of our
common stock from an existing stockholder at an aggregate price of $41,250. This
obligation arose in connection with iGames' purchase of certain gaming software
products for 75,000 shares of our common stock. In order to complete this
transaction under these terms, our former management granted this stockholder
the option to have 37,500 shares of his stock redeemed. This stockholder has
elected to exercise this redemption option.
We are also in the process of replacing all of the former Available Money
ATMs with new ATMs that will be processed on more favorable economic terms. We
had originally entered into a capital lease agreement to acquire 71 ATMs and
related equipment necessary to complete this conversion. We have reduced the
number of ATM's we will acquire to approximately 35. We have converted
approximately 20 of these ATM's to date. The remaining capital lease agreement
will require us to incur an upfront charge of approximately $90,000 and monthly
rental expense of approximately $4,600 over the remaining 59 months of the lease
term.
25
Our goal is to change the way our customers view cash access services by
transforming the way casinos find, serve and retain their customers. We will
strive to assist our customers by continuing to grow and improve everything we
do. We require significant capital to meet these objectives. Our capital
requirements are as follows:
o Equipment: Each new account requires hardware at the location level
and some additions to network infrastructure at our central server
farm.
o Vault Cash: All contracts in which we provide full service money
centers and ATM accounts for which we are responsible for cash
replenishment require vault cash. Vault cash is the money necessary to
fund the float that exists when we pay money to patrons but have yet
to be reimbursed from the Debit, Credit Card Cash Advance, or ATM
networks for executing the transactions.
o Acquisition Financing: We presently have no cash for use in completing
additional acquisitions. To the extent that we cannot complete
acquisitions through the use of our equity securities, we will need to
obtain additional indebtedness or seller financing in order to
complete such acquisitions.
o Working Capital: We will require substantial working capital to pay
the costs associated with our expanding employee base and to service
our growing base of customers.
o Technology Development: We will continue to incur development costs
related to the design and development of our new products and related
technology. We presently do not have an internal staff of engineers or
software development experts and have outsourced this function to
IntuiCode, LLC, a company operated by Jeremy Stein, a member of our
board of directors.
We are actively seeking various sources of growth capital and strategic
partnerships that will assist us in achieving our business objectives. We are
also exploring various potential financing options and other sources of working
capital. There is no assurance that we will succeed in finding additional
sources of capital on favorable terms or at all. To the extent that we cannot
find additional sources of capital, we may be delayed in fully implementing our
business plan.
We do not pay and do not intend to pay dividends on our common stock. We
believe it to be in the best interest of our stockholders to invest all
available cash in the expansion of our business.
Due to our accumulated deficit of $14,811,030 as of December 31, 2004 and
our net losses and cash used in operations of $11,841,753 and $907,217,
respectively, for the year ended December 31, 2004, our independent auditors
have raised substantial doubt about our ability to continue as a going concern.
While we believe that our present plan of operations will be profitable and will
generate positive cash flow, there is no assurance that we will generate net
income or positive cash flow for the remainder of 2005 or at any time in the
future.
Item 3 - Controls and Procedures
Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of September 30, 2005 (the "Evaluation Date"), and,
based on their evaluation, our chief executive officer and chief financial
officer have concluded that these controls and procedures were effective as of
the Evaluation Date. There were no significant changes in our internal controls
or in other factors that could significantly affect these controls during the
quarter ended September 30, 2005.
Disclosure controls and procedures (as defined in the Exchange Act Rules
13a-14(c) and 15d-14(c)) are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act is accumulated and
communicated to management to allow timely decisions regarding required
disclosure.
26
The Certifying Officers have also indicated that there were no significant
changes in our internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation, and there were
no corrective actions with regard to significant deficiencies and material
weaknesses.
Our management, including each of the Certifying Officers, does not expect
that our disclosure controls or our internal controls will prevent all error and
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. In addition, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within a company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by management
override of the control. The design of any systems of controls also is based in
part upon certain assumptions about the likelihood of future events, and their
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of these inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
27
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
On or about October 14, 2004, Lake Street Gaming, LLC ("Lake Street") filed a
Complaint against iGames Entertainment, Inc. and Money Centers of America, Inc.
("MCA") (collectively referred to hereinafter as "iGames") in the United States
District Court for the Eastern District of Pennsylvania, alleging that iGames
breached an Asset Purchase Agreement ("APA") that the parties executed on or
about February 14, 2003. The suit also raises claims for fraudulent
misrepresentation and intentional interference with contractual relations. By
virtue of the APA, Lake Street sold to iGames all of Lake Street's right, title
and interest in a casino game called "Table Slots." Lake Street alleges that it
is entitled to additional compensation for the game that exceeds what was agreed
to. This matter is still in the pleadings stage and iGames has moved to dismiss
the plaintiff's claims for fraudulent misrepresentation and intentional
interference with contractual relations, as well as to strike all claims for
punitive damages. We are vigorously defending this action and believe that Lake
Street's claims lack merit.
In addition, we are, from time to time during the normal course of our business
operations, subject to various litigation claims and legal disputes. We do not
believe that the ultimate disposition of any of these matters will have a
material adverse effect on our consolidated financial position, results of
operations or liquidity.
Item 2 - Changes in Securities and Use of Proceeds
Pursuant to the terms of a common stock offering with registration rights,
the company has accrued penalties in the amount of 120,000 shares. The company
has valued these shares at $72,598.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submissions of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits
3.1 Money Centers of America, Inc. Amended and Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3.1 of the Current
Report on Form 8-K filed on October 19, 2004).
3.2 Money Centers of America, Inc. Amended and Restated Bylaws
(incorporated by reference to Exhibit 3.2 of the Current Report on
Form 8-K filed on October 19, 2004).
4.1 Form of Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 of Form 10-KSB filed on April 15, 2005).
10.1 Amended and Restated 2003 Stock Incentive Plan (incorporated by
reference to Exhibit 10.2 of Form 10-KSB filed on July 13, 2004)
10.2 Employment Agreement dated as of January 2, 2004 by and between iGames
Entertainment, Inc. and Christopher M. Wolfington (incorporated by
reference to Exhibit 10.1 of Form 10-KSB filed on July 13, 2004).
28
10.3 Loan and Security Agreement by and between iGames Entertainment, Inc.
and Mercantile Capital, L.P. dated November 26, 2003 (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-QSB for
the fiscal quarter ended December 31, 2003 filed on February 17,
2004).
10.4 Demand Note payable to the order of Mercantile Capital, L.P. in the
principal amount of $250,000 dated November 26, 2003 (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-QSB for
the fiscal quarter ended December 31, 2003 filed on February 17,
2004).
10.5 Amended and Restated Agreement and Plan of Merger By and Among Money
Centers of America, Inc., Christopher M. Wolfington, iGames
Entertainment, Inc., Michele Friedman, Jeremy Stein and Money Centers
Acquisition, Inc., dated as of December 23, 2003 (incorporated by
reference to Exhibit 2.1 of Current Report on Form 8-K filed on
January 20, 2004).
10.6 Software Development Agreement effective September 1, 2004 by and
between Money Centers of America, Inc. and Intuicode LLC.
(Incorporated by reference to Exhibit 10.8 to the Registration
Statement on Form SB-2 filed on February 14, 2004 (File No.
333-122819).
10.7 Employment Agreement dated as of June 14, 2005 by and between Money
Centers of America, Inc. and Jason P. Walsh (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K filed on June 17,
2005).
14 Code of Ethics (incorporated by reference to Exhibit 14 of Form 10-KSB
filed on July 13, 2004).
31.1 Certification dated November 14, 2005 pursuant to Exchange Act Rule
13a-14(a) or 15d-14(a) of the Principal Executive Officer as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by
Christopher M. Wolfington, Chief Executive Officer.
31.2 Certification dated November 14, 2005 pursuant to Exchange Act Rule
13a-14(a) or 15d-14(a) of the Principal financial Officer as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Jason P.
Walsh, Chief Financial Officer.
32.1 Certification dated November 14, 2005 pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, made by Christopher M. Wolfington, Chief Executive Officer and
Jason P. Walsh, Chief Financial Officer.
29
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
MONEY CENTERS OF AMERICA, INC.
Date: November 14, 2005 By: /s/ Christopher M. Wolfington
-----------------------------------
Christopher M. Wolfington
Chief Executive Officer
(principal financial officer)
By: /s/ Jason P. Walsh
-----------------------------------
Jason P. Walsh
Chief Financial Officer
(principal accounting officer)
30