UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
SECTION 12(B) OR 12 (G) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
CASINOBUILDERS.COM, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
----------------
NEVADA 880343834
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2110 VICKERS DRIVE, SUITE 100
COLORADO SPRINGS, COLORADO 80918
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
1-800-288-7506
(ISSUER'S TELEPHONE NUMBER)
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of Each Class Name of Each Exchange on
To be so Registered Which Each Class is to be registered
------------------- ------------------------------------
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.001 Per Share
(Title of Class)
-----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. DESCRIPTION OF BUSINESS............................................ 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.......... 11
ITEM 3. DESCRIPTION OF PROPERTY............................................ 13
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS....... 13
ITEM 6. EXECUTIVE COMPENSATION............................................. 16
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... 16
ITEM 8. DESCRIPTION OF SECURITIES.......................................... 16
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS........................................ 18
ITEM 2. LEGAL PROCEEDINGS.................................................. 19
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS...................... 19
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES............................ 20
PART F/S.....................................................................F-1
PART III................................................................ 21
ITEM 1. INDEX TO EXHIBITS............................................. 22
<PAGE>
PART I
Item 1. Description of Business
Business Development. We were incorporated in the State of Nevada on August 23,
1995, as Magic Lantern Group, Inc. On May 13, 1999, we changed our name to
CasinoBuilders.com., Inc.
We have not been involved in any bankruptcy, receivership, or similar
proceeding. We have not been involved in any material reclassification, merger,
consolidation, or purchase or sale of a significant amount of assets not in the
ordinary course of business.
On March 3, 1998, we underwent a forward stock split on a 30:1 basis, increasing
the issued and outstanding number of our shares to 4,890,000. We also cancelled
1,890,000 shares of our common stock resulting in 3,000,000 shares of common
stock issued and outstanding. This cancellation increased the percentage of the
Company owned by the remaining shareholders from 60.24% to 100%. On May 13,
1999, we underwent a forward stock split on a 2:1 basis, resulting in 6,000,000
shares of our common stock issued and outstanding. Our existing Board of
Directors resigned and was replaced with current Board Members, Andy P.
Ruppanner and Steve Randall.
Our original business plan was to provide consulting and management services to
the restaurant, bar, nightclub, and gaming industries in Southern Nevada by
hiring managers from the casino industry and using their expertise to accomplish
these objectives. We were not able to raise sufficient funding to pursue these
objectives and we abandoned our original business plan. From approximately
August 23, 1995 to approximately May 13, 1999 we conducted no business.
Our principal place of business is located in Colorado Springs, Colorado. Since
changing our name, we have focused our efforts on attempting to establish
agreements with companies that provide various products and services connected
with the on-line casino business.
Products and Services
Our products and services consist of the following:
o Reselling of Avatar Casino Software - Avatar Casino Software enables
casino operators to offer their Internet casino customers a
three-dimensional Internet casino environment. Through this software
Internet casino customers assume the appearance of cartoon like
characters and travel throughout the Internet casino to engage in the
following activities:
o Chatting in a lounge
o Chatting while playing casino table games for fun such as black jack,
roulette and Caribbean poker o Chatting and betting while playing
casino table games.
We attempt to resell the Avatar gaming software to the Internet gaming industry.
Lost Boys N.V. located in Amsterdam, The Netherlands developed this software. We
have exclusive world wide marketing rights for the Lost Boys gaming software
platform. Software prices will vary by the client, but will typically be in the
$100,000 to $200,000 range, depending upon the extent of our customization of
the software on behalf of the customer.
3
<PAGE>
o Casino Licensing - We intend to provide, through our agreement with
Cyberluck Curacao N.V., an apparatus to apply for Internet casino
licensing in the Netherlands Antilles. Cyberluck Curacao N.V. is
authorized by the Netherlands Antilles government to designate others
to operate under their license and supervise Internet gaming
enterprises. Cyberluck and the Netherlands Antilles government set
license fees.
o Hosting/Co-Location Services - We intend to provide casino operators,
through our agreement with Conet.N.V. website hosting, e-mail, and
website design services. Our hosting and service fees will vary by
individual client requirements, however, they will typically range from
$1,000 to $7,000 monthly.
o E-Commerce - We intend to provide through our agreement with Global
Cash N.V., an Internet technology "gateway" connecting service, based
in Curacao, Netherlands Antilles. This connection enables Internet
casino customers to establish a gaming account and the Internet casino
to reach external E-commerce sources and merchant accounts for
transaction processing. Global Cash processes credit card transactions
to provide electronic currency credits to customer accounts that can be
redeemed at the Internet casino operator's establishment. Our revenue
from these services will be based on a negotiated percentage of each
transaction.
o Marketing - We intend to provide direct marketing services to assist
the Internet casino operator in advertising, development of marketing
plans, market analysis, target market identification, designing
Internet advertisements, buying Internet and print advertising space,
and monitoring effectiveness of advertisements placed. Our consulting
fees will range from $150 to $400 per hour depending upon the
complexity of the job or requisite skill level required to complete the
job.
o We have an exclusive contract from Fennel Promotions of Atlanta,
Georgia to market a premier "Loyalty Awards Program," called the
"E-Players Club". This program is designed to increase player loyalty
at Internet gaming sites by awarding "points" for dollars wagered. Our
revenue from these services will be based on a negotiated percent of
each transaction.
In September 1999, our president, Mr. Ruppanner began attending casino trade
shows. These marketing efforts have only resulted in one written agreement with
Asian Star Development, Ltd. of Hong Kong, a prospective Internet casino
operator. The agreement provides for Asian Star's purchase of the Avatar gaming
software. Asian Star has paid us consideration of $65,750; a remaining $200,000
balance became due when we completed our customization of this software for
Asian Star. Despite several communications to Asian Star that our customization
of the software was complete and that the remaining $200,000 payment was due,
Asian Star never paid the remaining balance and failed to otherwise respond to
our demands for payment. Accordingly, we considered Asian Star to be in breach
of our contract with them. We have received an offer to license this same
customized software from a European operator in the amount of $135,000. We are
in the process of completing that Agreement. We have received no other revenues.
In addition, we have entered into no other agreements providing for payments to
us that may result in revenues.
4
<PAGE>
From approximately July 1999 to approximately November 1999, our business plans
included: (1) development of an Internet gaming portal called GamblersPortal.com
that would provide an information source for the entire gambling community; and
(2) A management contract with a Panama based casino, wherein we would have
provided management and advertising support services.
We abandoned development of GamblersPortal.com because we had insufficient funds
to establish and/or to develop this website. We abandoned our management
contract with the Panama casino because that casino ceased doing business in
September 1999.
We have had discussions with other companies regarding sale of our exclusive
worldwide marketing agreement with Lost Boys Interactive, sale of the E-Players
Loyalty program, sale of a majority interest to non-U.S. interests, and
relocating our operations to a non-U.S. jurisdiction with non-U.S. shareholder
control. We have not entered into any agreements, letters of intent or
arrangements with any of these companies providing for any such occurrence.
Further negotiations with any such companies are contingent upon the
Commission's clearance of this Form 10-SB.
We provide a demonstration version of our Avatar Casino software at our website
located at www.casinobuilders.com. This site provides information to prospective
Internet casino operators and also enables them to have a hands on experience
with our software. The games are used only to display our products and services
to prospective clients and are not utilized for any actual gambling services.
The software will enable a prospective Internet casino to operate Online Casino
games using our software technology. The software that we provide to the
Internet casino operator enables its customers to download a software program to
enter the virtual Casino, enabling the Internet casino customer to enter the
virtual casino environment and interact with other players and/or play casino
games.
The software will enable an Internet casino to open casino accounts on behalf of
its customers. The software program will accommodate e-commerce providers such
as Global Cash or other providers that the casino operator will select and will
require a customer to provide certain personal and financial information,
including a user name and password. In order to play games and make wagers, a
person must purchase electronic cash by making one or more credit card deposits
into the person's account.
The software will enable an Internet casino operator to offer the following
casino style games:
o Slots
o Blackjack
o Video Poker
o Roulette
o Five Card Stud Poker
o Caribbean Poker
We have incurred cumulative losses of $2,238,000 from our inception of August
23, 1995 to December 31, 1999. In addition, we had working capital and total
capital deficiencies of $237,000 and $79,000, respectively at December 31, 1999.
These conditions raise substantial doubt about our ability to continue as a
going concern. We have been unsuccessful in marketing our services and software.
In addition to our poor financial condition and our failure to successfully
market our products and services, other factors may negatively impact our
operations, including possible cessation of all our operations, as follows:
5
<PAGE>
o Termination of our agreements with Cyberluck Curacao, N.V., Conet N.V.,
Global Cash N.V. or Fennell Promotions
o If any of the services or products offered by Cyberluck Curacao, N.V.,
Conet N.V., Global Cash N.V. or Fennell Promotions are terminated
o Our worsening financial condition necessitates restructuring our existing
debt or raising additional capital through future issuances of debentures,
thereby creating additional obligations that we may not be able to meet
o Internet Gambling is declared illegal be U.S. law or foreign jurisdictions,
causing decreased or no demand for our services.
o Our only officer that devotes full time to our operations, Mr. Ruppanner,
is no longer able to manage our operations Moreover, there is no assurance
that we will be able to accomplish any of our objectives in marketing our
products and services.
Technology and Infrastructure
We provide prospective Internet casinos operators and Internet casino operators
with gaming software through our agreement with Lost Boys Interactive. We have
not independently developed and do not intend to develop any technologies,
including gaming software.
Distribution and Marketing
We now have no distribution agreements for distribution of our products and
services. We now have no plan to obtain any such agreements.
We market our products and services through:
o Our Internet website - This website can be found through major search
engines such as Yahoo.com, Excite.Com, and Infoseek.Com. Our website
provides specific information regarding all our products and services,
including a live demonstration of the Avatar casino software. The
website provides general information about us, a downloadable example
of the Avatar casino software enabling users to play the games of
chance for fun, information regarding licensing of Internet casinos,
banking and E-Commerce, marketing, and hosting of casino operators
computers. Also we provide general information about the Internet
gaming industry.
o Conferences and Business shows - These conferences and shows
concentrate in the casino business. We have attended the following
casino conferences over the past year:
o 1999 World Gaming Expo in Las Vegas, Nevada
o 1999 Global Internet Conference in London, England
o 1999 Gaming Online Conference in London, England
o 2000 European Gaming Conference in Amsterdam
o Global Interactive Gaming Summit, Montreal, Canada May 2000
At these conferences industry software venders market their products at
exhibit booths.
6
<PAGE>
o Links to Our Website - We submit our web address to other websites that
provide a listing of various products and services in the Internet
gaming services. When Internet users visit those websites they have the
ability to click on a link then sends them directly to our website.
These websites do not charge us any fees for the listing of our
products and services.
We plan to continue to market our products and services through these various
methods. There is no assurance that any of our marketing strategies will be
successful.
There are no assurances that we will be able to provide any of the foregoing
services. We may not develop any contracts or otherwise secure any business that
would enable us to provide such products services. We may find that our
financial resources are not sufficient to provide such products or services.
To date, we have not provided any services or received any revenue in connection
with the following products and services: o Sale and customization of Avatar
Casino Software developed by Lost Boys N.V., Amsterdam o Casino Licensing
through Cyberluck Curacao, N.V.
o Hosting/Co-Location Services through Conet, N.V. o E-Commerce Services through
our agreement with Global Cash, N.V.
Other than the Asian Star transaction, the only services we have thus far
provided have been marketing services for a French casino operator for which we
received $56,000.
Material Agreements:
Avatar Gaming Software Agreement
On September 28, 1999 we entered into an exclusive licensing agreement with Lost
Boys Interactive, an Amsterdam based software developer. Lost Boys Interactive
granted us exclusive global marketing rights for their Avatar based casino
gaming software platform that includes black jack, roulette and Caribbean poker.
We issued consideration of 250,000 shares to Lost Boys Interactive for these
rights. This agreement is effective until December 2001. We have an exclusive
written contract with Lost Boys Interactive B.V. to re-sell their gaming
platform software. The Company "commissioned" Lost Boys to improve their
existing software platform to its current competitive level. The "commissioning"
was paid for through an exchange by providing Lost Boys with information
pertaining to current technology and market requirements. In the strategic
alliance, Lost Boys is the software developer, and will provide software
technological research and development as well as on-line gaming and
entertainment technology in customized applications for the global market.
CasinoBuilders.com will provide the global marketing and sales function.
Fennell Promotions, Inc. Agreement.
On August 13, 1999, we entered into an agreement with Fennell Promotions, Inc.,
granting us exclusive global marketing rights to Fennell's Supreme Privileges
Awards that we have called our E-Players Club program. This program offers
Internet casino customer points for every dollar waged at their casinos. The
points may be redeemed for air travel, merchandise and sporting events tickets
in which a specified number of points entitle players to certain such awards.
Under the terms of this agreement, we will partner with Fennel to market the
Supreme Privileges Awards Program to the Internet Gaming Industry under the
brand E-Players Club. We provided Fennel with consideration of 40,000 shares of
our common stock.
7
<PAGE>
Future net Holdings, Ltd. Agreement.
On August 31, 1999 we entered into a purchase agreement with Futurenet Holdings,
Ltd. to acquire all the outstanding shares of Cyberluck, Curacao N.V. A $50,000
deposit was made upon execution of the agreement. The agreement also provided
that Futurenet Holdings had the authority to deliver to us all of the
outstanding shares of Conet N.V. and Global Cash N.V. Cyberluck is the holder of
a Master license for Internet gaming in the Netherlands Antilles. In accordance
with the terms of the agreement, we were required to make total payments of $1.5
million in specified payments from September 1999 to October 1999. In the event
we failed to make payments in accordance with the schedule we agreed to, we
would incur a $250,000 penalty. We did make payments totaling $650,000, but not
in accordance with the schedule we agreed to and we incurred a penalty of
$250,000.
As of the end of September 1999, we had made payments to Futurenet in the amount
of $400,000 and incurred a $250,000 penalty towards the purchase price.
In October 1999, we only made one payment of $200,000 to Futurenet of the
required total payment due of $900,000.
On October 31, 1999, we entered into a new agreement with Futurenet Holdings,
Ltd., to acquire all of the outstanding shares of Cyberluck, Curacao Holdings,
Ltd. The acquisition, if consummated, would have provided us with a Netherlands
Antilles exclusive master license whereby we intended to sublicense qualified
applicants to operate Internet gaming casinos in addition to certain computer
equipment and software adapted for such purpose. The purchase price was payable
in installments due as follows:
October 31, 1999 - $650,000 December 1, 1999 - $350,000 February 29, 2000 -
$600,000 July 1, 2000 - $100,000
The initial payment of $650,000 was non-refundable and was paid as follows:
$450,000 was paid through September 30, 1999 and the balance of $200,000 in
October 1999. We were unable to make the scheduled payment of $350,000 due on
December 1, 1999 and accordingly lost the right to consummate the acquisition
with the result that the $650,000 initial payment has been forfeited. Our
financial statements at December 31,1999 give effect to the termination of the
acquisition and the related loss incurred. We issued 750,000 shares valued at
$468,750 to an investment group, contingent on the successful completion of the
acquisition. The acquisition was terminated, thereby requiring that person's
return of the shares. These shares were returned in June 2000.
Internet Growth
E-Commerce Growth
On January 13, 2000, CyberAtlas, an Internet survey company published the
following information contained in articles at HTTP://CYBERATLAS.INTERNET.COM
"The number of Internet users around the world is constantly growing. On January
4, 2000, The Computer Industry Almanac reported that by the year 2002, 490
million people around the world will have Internet access, that is 79.4 per
1,000 people worldwide, and 118 people per 1,000 by year-end 2005. The top 15
countries will account for nearly 82 percent of these worldwide Internet users
(including business, educational, and home Internet users). By the year 2000
there will be 25 countries where over 10 percent of the population will be
Internet users."
8
<PAGE>
"The US has an overwhelming lead in Internet users with more than 110 million
projected for year-end 1999, which is nearly 43 percent of the total 259 million
worldwide Internet users. The US will have one-third of the total Internet users
in 2002, and that number will decline to 27 percent by the end of 2005."
We do not know the percentage of e-commerce attributable to Internet casino
gaming.
Status of any Publicly Announced New Product or Service.
We have no new products or services. All of our products and services derive
from our agreements with third parties.
Competition.
We face intense competition in every facet of our business, as follows:
Internet Gaming Software - The following companies are our competitors in the
area of Internet gaming software:
o MicroGaming Systems, Inc.
o Cryptologic,Inc.
o Boss Media AB
o StarNet
All of these companies have substantially greater assets and resources than we
do. Their ability to market their products is greater. In addition, their
software programs offer a more expansive collection of casino games. These
companies have established distribution networks. In contrast, we are beginning
the marketing of our products and services and have little assets or resources
at this time to compete with companies of this size.
We anticipate that strategic competition will become more intense as new
companies will enter the Internet Gaming Software market. To remain competitive,
we may have to reduce the cost of our products and services, which may
negatively affect our potential profitability or lead to additional losses.
We believe that potential new competitors, including large interactive and
online software companies, media companies, and electronic gaming companies,
such as Sega and Sony, may increase their focus on the interactive wagering
market. The timing of competitive product and services releases and the
similarity of such products or services to our products and services, may result
in significant competition or reduced profit margins and influence competition.
We also anticipate that significant overseas competition will emerge. This may
eventually result in additional competition as these overseas competitors expand
into the United States or as we possibly expand internationally. Specifically,
several well capitalized Australian media and gaming companies are already
developing systems and services similar to us.
Casino Licensing and Hosting Service Provider - Cryptologic, MicroGaming, Boss
Media, StarNet and others offer through third parties licensing and hosting
services, because of their greater marketing resources.
Premium Awards Program Software - Cryptologic offers a incentive programs for
its licensees. Similarly, MicroGaming and StarNet offer such programs.
9
<PAGE>
All of these companies have substantially more assets and resources than we do.
All of these companies have extensive marketing resources and distribution
networks. We will face intense competition from all of these companies.
The November 1998 issue of the Casino and Gaming Business Market Research
Handbook predicts that the Internet gaming market could reach $100 to $200
billion in annual revenues by 2005. Our competitors are prepared to meet this
increasing market. Moreover, due to the expected growth of the Internet gaming
market, established land based casinos, such as Trump and Wynn, with assets of
hundreds of millions of dollars may enter the Internet gaming market. We will
face intense competition from companies that are better equipped financially,
technically, and professionally than we are to capture this market.
Sources and Availability of Raw Materials/Names of Principal Suppliers
Our business is not dependent upon the availability of raw materials, nor do we
use suppliers. All of our software products are obtained from Lost Boys
Interactive.
Dependence on one or a Few Major Customers.
We have one pending draft software licensing contract that has not yet been
executed by one potential customer. We do not intend upon becoming dependent
upon one or a few major customers. Our revenues may become dependent upon one or
a few major customers for a certain time period, until such time that we develop
additional customers.
Patents, Trademarks, Licenses, Royalty Agreements
We do not own any patents, copyrights or trademarks. In addition, we are not a
party to any agreements in which we are obligated to pay royalties.
Government Regulation
Jurisdictional regulation of Internet gaming is the process whereby Governments
(jurisdictions) through law and licensing, control the fair and equitable
operation of gaming businesses. Jurisdictional Regulation provides a
confirmation to the Internet gambler, that the games originating from that
jurisdiction are fair, and operated by responsible business people. The Company
continues to support activities that protect both the consumer and the operator
of such businesses.
We do not operate Internet casinos and therefore are not subject to any
government regulation regarding Internet gaming. Nonetheless, because our
business is dependent upon sales of our products and services to Internet
casinos, our revenues may be negatively affected due to regulation of the
Internet gaming business. While we concentrate our marketing efforts upon the
Australian, Caribbean, European and African gaming markets, that permit Internet
gaming, international, federal, state of local laws may be imposed at any time.
The uncertainty surrounding the regulation of Internet gaming could have a
material adverse effect on the Company's business, revenues, operating results
and financial condition. We monitor the changes in any laws regarding Internet
gaming. Should Internet gaming be declared illegal in certain jurisdictions we
contemplate doing business in, and/or there is a materially adverse effect upon
our business due to such declared illegality, we may be forced to change our
business plan.
10
<PAGE>
Our management remains concerned about the continued interest by federal and
state lawmakers to outlaw Internet gambling. If Internet gambling is outlawed,
interest in our products and services will diminish or will be non-existent.
Pending United States Legislation and Other Existing Laws
On November 19, 1999, the United States Senate passed S. 692, called the
Internet Gambling Prohibition Act. On July 17, 1999, the U.S. House of
Representatives failed to pass H.R. 3125, the U.S. House of Representative's
version of the Senate bill S. 692.
Passage of such a gambling prohibition law would prohibit all Internet gambling
sites from soliciting or collecting wagers from bettors in the United States. We
do not now or intend in the future to transact business with any Internet
gambling sites located in the United States or that solicits or collects wagers
from bettors in the United States.
Our policy is to provide our software product only to casino operators who hold
a license or demonstrate that they have a license pending.
Research and Development
We have spent no funds or time on research and development activities. We do not
intend on spending any funds or time on research and development activities. Our
products are derived from third parties.
Environmental Compliance
Our products and services do not involve the emission of any environmental
pollutants, emissions, or waste. Therefore, we do not anticipate being subject
to any environmental compliance matters.
Employees and Labor Relations
We currently have 2 total employees, of which only Mr. Ruppanner is a full time
employee. None of our employees are represented by labor unions. We are not a
party to any collective bargaining agreements or labor union contracts, nor have
we been subjected to any strikes or employment disruptions in our history.
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis of Financial Conditions and Results of
Operation
The following discussion of the financial condition and results of our
operations should be read in conjunction with our financial statements and
related to notes appearing elsewhere in this Form 10-SB. Except for the
historical information contained herein, the discussion in this Form 10-SB
contains forward-looking statements that involve risks, uncertainties and
assumptions. These include statements about our expectations, beliefs,
intentions or strategies for the future, which we indicate by words or phrases
such as "anticipate," "expect," "intend," "plan," "will," "believe" and similar
language. These statements involve known and unknown risks, including those
resulting from economic and market conditions, the regulatory environment in
which we operate, competitive activities, and other business conditions, and are
subject to uncertainties and assumptions set forth elsewhere in this
registration statement. Our actual results may differ materially from results
anticipated in these forward-looking statements. We base our forward-looking
statements on information currently available to us, and we assume no obligation
to update these statements for the Next 12 Months.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At the commencement of our business plan in May of 1999, we assumed two primary
sources of revenue, beginning in the third quarter of 1999, to provide liquidity
and capital resources. The first was capital raised through equity investments
and the second was sales. Approximately $700,000 was raised through equity sales
and $50,000 of that amount went to operations and $650,000 was invested as a
partial payment to acquire three operating Internet infrastructure companies in
Curacao, Netherlands Antilles.
In the first quarter of 2000, we were unable to raise the funds required to
complete the acquisition, and the contract was terminated. We have recorded a
complete loss of our investment in our financial statements. This situation
combined with low stock price caused us to rely solely on sales as a source of
liquidity.
As of the present time, our only source of liquidity is current sales and
consulting fees. There are two potential sales outstanding, which will yield
approximately $200,000 revenue by the end of the third quarter of 2000.
Despite our lack of success in completing sales, we continue to receive
inquiries from potential customers who wish to license our software. We are also
exploring alternative sources of funds and have had informal discussions
including merger with other companies in the entertainment, e-commerce business
sectors and non-U.S. based gaming companies
RESULTS OF OPERATIONS
Our revenues have been far below what we anticipated in our business plan.
Initial sales, which were anticipated in the fourth quarter of 1999, were
delayed due to late development and completion of our Internet gaming software.
One sale, which did occur in that quarter, was defaulted in the first quarter of
2000 for lack of complete payment. We did receive a down payment on the
defaulted contract in the amount of $67,500 which is reported in our financial
statements as revenue.
Due to this significant revenue shortfall we have reduced all operations to a
minimum level until sales revenues arrive. Company management has received no
salary payments since the company's inception, and will continue operating in
that mode until profitability occurs.
12
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At the time of the commencement of trading our stock in 1999, the common stock
began to trade under the symbol CSNO on the OTC Bulletin Board at $5.00. The
stock price fell to the $1.00 range in the third quarter, and to the $.25 range
in the fourth quarter.
In December 1999 we filed our Form10SB. We changed Company counsel in January
2000 and withdrew our Form10SB in February 2000.
In February 2000, the Company's securities were removed from the
Over-The-Counter-Bulletin-Board "OTCBBB" and are now traded on the National
Quotation Bureau's "pink sheets" under the symbol CSNO. Since February 2000,
there has been an extremely limited market for our securities.
During the second quarter of 2000, we have focused on completing
software-licensing sales. We have pending contracts to license software that we
expect will result in approximately $200,000 in revenue.
In the second quarter of 2000 CSNO common stock trading has been very limited
with a current price of $.08.
Item 3. Description of Property
Prior to our business in Internet gaming products and services, we did not own
or lease any real property, but used office space at no charge from our Resident
agent, Incorp Services, Inc. We had only a verbal agreement with the resident
agent in which we paid our own bills relating to long distance telephone calls,
secretarial, photocopying and other expenses. We maintain a corporate office in
Colorado Springs, Colorado and Kirkland, Washington from which we receive
mailing and secretarial services on a month-by-month basis for $50 per month. We
do not have any physical space that we occupy or use at these locations. We have
no lease agreement regarding these locations, but receive monthly invoices.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth each person known to the Company, as of August
14, 2000 to be a beneficial owner of five percent (5%) or more of the Company's
common stock, by the Company's directors individually, and by all of the
Company's directors and executive officers as a group. Except as noted, each
person has sole voting and investment power with respect to the shares shown.
a) Security Ownership of Certain Beneficial Owners
TITLE OF CLASS NAME & ADDRESS OF BENEFICIAL NUMBER OF BENEFICIALLY PERCENTAGE
OWNER OWNED SHARES OWNERSHIP
OF CLASS
-------------- ---------------------------- ----------------------- ---------
COMMON PAUL A. RUPPANNER 2,002,913(1) 10.2%
9.8%
2110 VICKERS DRIVE, SUITE 100
COLORADO SPRINGS, COLORADO 80918
-------------- ---------------------------- ----------------------- ---------
COMMON STEVE RANDALL 1,620,097(2) 8.2%
2110 VICKERS DRIVE, SUITE 100
COLORADO SPRINGS, COLORADO 80918
13
<PAGE>
-------------- ---------------------------- ----------------------- ---------
COMMON BRADERLUX ALR 2,166,666(3) 11.02%
RICHARD BULLOCK
2ND FLOOR-BROADCASTING HOUSE
ROUGE BOULLION
ST. HELIER, JERSEY JE43ZA
-------------- ---------------------------- ----------------------- ---------
COMMON ZZG HOLDINGS 1,337,736 (4) 6.81%
120 STATE AVENUE
536 OLYMPIA WASHINGTON 98501
ZVI Y. ZELIKOWITZ
P.O. BOX 4068
JERUSALUEM, ISRAEL
(1) This amount includes options to purchase 666,666 shares of our common stock
at $0.35 per share which are exercisable as of June 1, 2000. Mr. Ruppanner has
666,666 options which are exercisable on June 1, 2001 and 666,666 which are
exercisable on June 1, 2002. Each option issued to Mr. Ruppanner is exercisable
into one (1) share of common stock, at a price of $.35 per share. We have
included the options which are exercisable as of June 1, 2000. We have not
included the options which cannot yet be exercised within 60 days.
(2)This amount includes options to purchase 666,666 shares of our common stock
at $0.35 per share which are exercisable as of June 1, 2000. Mr. Randall has
666,666 options which are exercisable on June 1, 2001 and 666,666 which are
exercisable on June 1, 2002. Each option issued to Mr. Randall is exercisable
into one (1) share of common stock, at a price of $.35 per share. We have
included the options which are exercisable as of June 1, 2000. We have not
included the options which cannot yet be exercised within 60 days.
(3) The beneficial owner of Braderlux ARL became Richard Bullock of Belfast,
Northern Ireland.
(4) ZZG Holdings is the holder of the Company's convertible debentures. These
are convertible into common stock upon the holder's demand. As of September 30,
1999, the Company had issued 334,434 shares for conversion of $150,000 of the
debenture. If the remaining debenture was converted at a similar rate, ZZG
Holdings would control a total of 1,337,736 shares or 6.00% of the
then-outstanding shares
(b) Security Ownership of Directors and Executive Officers
COMMON PAUL A. RUPPANNER 2,002,913(1) 10.2%
9.8% 2110 VICKERS DRIVE, SUITE 100
COLORADO SPRINGS, COLORADO 80918
-------------- ---------------------------- ----------------------- ---------
COMMON STEVE RANDALL 1,620,097(2) 8.2%
2110 VICKERS DRIVE, SUITE 100
COLORADO SPRINGS, COLORADO 80918
-------------- ---------------------------- ----------------------- --------
(1) This amount includes options to purchase 666,666 shares of our common stock
at $0.35 per share which are exercisable as of June 1, 2000. Mr. Ruppanner has
666,666 options which are exercisable on June 1, 2001 and 666,666 which are
exercisable on June 1, 2002. Each option issued to Mr. Ruppanner is exercisable
into one (1) share of common stock, at a price of $.35 per share. We have
included the options which are exercisable as of June 1, 2000. We have not
included the options which cannot yet be exercised within 60 days.
(2) This amount includes options to purchase 666,666 shares of our common stock
at $0.35 per share which are exercisable as of June 1, 2000. Mr. Randall has
666,666 options which are exercisable on June 1, 2001 and 666,666 which are
exercisable on June 1, 2002. Each option issued to Mr. Randall is exercisable
into one (1) share of common stock, at a price of $.35 per share. We have
included the options which are exercisable as of June 1, 2000. We have not
included the options which cannot yet be exercised within 60 days.
There are no arrangements that may result in a change in our control.
Item 5. Directors, Officers, Promoters and Control Persons.
The members of our Board of Directors serve until the next annual meeting of the
stockholders, or until their successors have been elected. Our officers serve at
the pleasure of our Board of Directors.
There are no agreements for any officer or director to resign at the request of
any other person, and none of the officers or directors named below is acting on
behalf of, or at the direction, of any other person.
14
<PAGE>
Information as to our directors and executive officers is as follows:
NAME AGE POSITION TERM OF OFFICE
--------------------------------------------------------------------------------
Paul A. Ruppanner 60 President/Director Annual
2110 Vickers Drive
Suite 100
Colorado Springs, Co
80918
Steven B. Randall 56 Secretary/Treasurer Annual
2110 Vickers Drive Director
Suite 1oo
Colorado Springs, CO
80918
Dr. Claus Wagner/Bartek 63 Director Annual
4092 Lee Highway
Arlington, VA 22207
Paul A. Ruppanner - President/Chairman of the Board of Directors/Director/Chief
Executive Officer 60 years of age. From 1998 to 1999, Mr. Ruppanner was a vice
president of the marketing and sales department of Command Software, an
Anti-Virus software developer. From 1997 to 1998 Mr. Ruppanner were the
president and chief executive officer of Softlock Services, a software developer
in the area of content security on the Internet. From September 1996 to May
1997, Mr. Ruppanner was president and chief operating officer of HotOffice
Technologies, an office network company, providing computer network
infrastructure to small business. From 1994 to 1996 Mr. Ruppanner was a vice
president and general manager of Office Depot. From 1992 to 1994, he was a vice
president of Marketing at Technology Service Solutions. From 1996 to 1996 Mr.
Ruppanner was a general manager, area general manager, vice president of
business development, and director of operations at IBM CORPORATION.
Steven B. Randall - Secretary/Treasurer/Director 56 years of age. Mr. Randall is
retired and participates in our affairs only on a part-time basis. From 1992 to
1999 Mr. Randall was the president of Direct Marketing Concepts, Inc., a
marketing company located in Great Neck, New York. From 1988 to 1990, Mr.
Randall was a director and treasurer of the Water Authority of Great Neck, New
York.
Dr. Claus G. Wagner-Bartak - Director, 63 years of age, has been the director
and chief operating officer of BA Technologies, Inc., a firm involved in the
engineering business. From 1982 to present, Dr. Wager-Bartak has also president
of Energy Dynamics, Inc., a firm involved in the engineering business. Dr.
Wager-Bartak received his Doctoral of Science Degree in Physics, Chemistry and
Radiology in 1969 from the Ludig-Maximilians University in Munich, Germany.
Mr. Ruppanner, Mr. Randall and Dr. Wager-Bartag have served as directors since
May 19, 1999. They serve for indefinite terms. We have no significant employees
other than our officers. There are no family relationships among our directors
or officers.
Investment Company Act.
Although we will be subject to regulation under the Securities Act of 1933 and
the Securities Exchange Act of 1934, we believe that we are not subject to
regulation under the Investment Company Act of 1940 because: (1)we are in the
business of providing Internet gaming products and services and we represent to
the public that are in that business; (2) we are not engaged in the business of
investing or trading in securities; (3) we were not organized as an Investment
Company; (4) we do not and have not previously held ourself out to the public as
being engaged primarily in the business of investing, reinvesting, owning,
holding, or trading in securities; (5) none of our assets are comprised of
common stock from other companies; and (6) we do not offer for sale any
securities to the public or any value, net asset value, or current asset value
attributable to redeemable securities or a portfolio of securities.
15
<PAGE>
Involvement in Certain Legal Proceedings.
There have been no bankruptcies, criminal proceedings, or other legal
proceedings during the past five years which would be material to the evaluation
of the ability or integrity of any director, executive officer, any person
nominated for such positions, any control person or any promoter of the Company.
Item 6. Executive Compensation
SUMMARY COMPENSATION TABLE
----------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NAME AND YEAR SALARY BONUS OTHER ANNUAL RESTRICTED SECURITIES LTIP OTHER
PRINCIPLE POSITION ($) ($) COMPENSATION ($) STOCK AWARD(S) UNDERLYING PAYOUTS ($)
($) OPTIONS (#) ($)
------------------ ---- -------- ------ ---------------- -------------- ----------- -------- ------
ANDY RUPPANNER(1) 1998 0 0 0 0 0 0 0
PRESIDENT, 1999 0 0 0 1,336,427 2,000,000 0 0
2000 0 0 0 0 0 0 0
STEVEN B. RANDALL(2)1998 0 0 0 0 0 0 0
SECRETARY/DIRECTOR 1999 0 0 0 953,431 2,000,000 0 0
2000 0 0 0 0 0 0 0
DR. WAGER-BARTAG(3) 1998 0 0 0 0 0 0 0
DIRECTOR 1999 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
</TABLE>
(1) Mr. Ruppanner has received 1,336,427 shares of our stock in lieu of cash
compensation during 1999.
(2) Mr. Steven B. Randall has received 953,431 shares of our stock in lieu of
cash compensation during 1999. Both officers have agreed to forego cash
compensation until funds are available for such compensation and our Board of
Directors' authorizes such action.
(3) Dr. Wager-Bartag received no compensation for his services. We do not
anticipate paying our officers any cash compensation until our revenues are
sufficient to authorize such payments.
Item 7. Certain Relationships and Related Transactions
At the time of the contemplated transaction of Global Cash, N.V., Mr. Randall
was a director of Global Cash; N.V. Mr. Randall resigned as a director of Global
Cash, N.V. in approximately July 2000. Global Cash, N.V. was never ultimately
acquired.
Subsequent to the agreement with Futurenet and in connection with that
agreement, Mr. Ruppanner became a director of Conet N.V.
There are no other such relationships and related transactions, except for the
securities transactions with Mr. Ruppanner and Mr. Randall described in Part II,
Item 4 "Recent Sales of Unregistered Securities."
Item 8. Description of Securities
The Company's Articles of Incorporation authorizes the issuance of 50,000,000
shares of common stock, of which 19,650,899 are issued and outstanding as of
August 18, 2000. Of the shares issued and outstanding, a total of 12,823,106 are
restricted pursuant to Rule 144. The shares are non-assessable, without
pre-emptive rights, and do not carry cumulative voting rights. Holders of common
shares are entitled to one vote for each share on all matters to be voted on by
the stockholders. The shares are fully paid, non-assessable, without pre-emptive
16
<PAGE>
rights, and do not carry cumulative voting rights. Holders of common shares are
entitled to share ratably in dividends, if any, as may be declared by the
Company from time-to-time, from funds legally available. In the event of a
liquidation, dissolution, or winding up of the Company, the holders of shares of
common stock are entitled to share on a pro-rata basis all assets remaining
after payment in full of all liabilities.
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has satisfied a one year holding period, under certain circumstances, may
sell within any three-month period a number of shares which does not exceed the
greater of one percent of the then outstanding Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of shares without any
quantity limitation by a person who has satisfied a two-year holding period and
who is not, and has not been for the preceding three months, an affiliate of the
Company.
Management is not aware of any circumstances in which additional shares of any
class or series of the Company's stock would be issued to management or
promoters, or affiliates or associates of either.
DEBENTURES.
In July 1999, we issued a Series A Convertible Debentures in the amount of
$700,000 and received net proceeds of $600,000 after deducting debt issue costs
of $100,000. The debentures are payable with interest at one percent per annum
commencing August 1999 and are due in full on July 16, 2001. The debentures are
convertible at any time into common stock at 75 percent of the closing bid
price, quoted on the day preceding the conversion date, as reported by the NASD
OTC bulletin board. We issued 995,224 shares of our common stock upon conversion
of $300,000 of debentures through December 31,1999. At December 31, 1999, we
incurred debt service costs of $49,500,which were included as interest expense
in our financial statements at such date. The following shares were issued to
the debenture holder in accordance with the conversion option:
August 11, 1999 13,333 shares
August 26, 1999 32,000 shares
August 30, 1999 55,467 shares
September 10, 1999 36,530 shares
October 11, 1999 41,425 shares
November 1, 1999 155,679 shares
November 4, 1999 350,000 shares
December 13, 1999 164,204 shares
January 7, 2000 496,586 shares
January 18, 2000 240,000 shares
March 24,2000 195,804 shares
June 12, 2000 1,475,193 shares
STOCK OPTIONS.
The Company has instituted a stock option plan, which is available to selected
directors, officers, Employees and Consultants of the Company (Participants).
The term of each Option will be ten years from the date of grant or a shorter
term as determined by the Stock Option Committee (the "Committee") except for an
ISO granted to 10% shareholders, in which the term of the option will be five
years. The exercise price will be determined by the Committee and will not to be
less than 100% of the Fair Market Value of the Shares subject to the option on
the date of grant. The Stock Option Committee is comprised of Paul A. Ruppanner,
President & CEO, and Steve Randall, Secretary and Treasurer.
17
<PAGE>
As of the date of this filing, Andy Ruppanner and Steve Randall have each been
granted 2,000,000 options to purchase our common stock. These options are
effective as of September 15, 1999 and expire December 31, 2009. Each option
issued to Mr. Ruppanner is exercisable into one (1) share of common stock, at a
price of $.35 per share. None of the options outstanding have been exercised. Of
the options granted to Ruppanner, 666,666 vested on June 1, 2000. Mr. Ruppanner
has 666,666 options which vest on June 1, 2001 and 666,666 which vest on June 1,
2002. Of the options granted to Randall, 666,666 vested on June 1, 2000. Mr.
Randall has 666,666 options which vest on June 1, 2001 and 666,666 which vest on
June 1, 2002.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
The Company's common stock is quoted on the National Quotation Bureau's Pink
Sheets under the symbol CSNO. It was formerly listed under the symbol MGIL. As
of August 25,2000 the Company traded at a High/Ask price of $.07 and a Low/Bid
price of $.03. The Company has had no prior history of trading.
Effective August 11, 1993, the Securities and Exchange Commission adopted Rule
15g-9, which established the definition of a "penny stock," for purposes
relevant to the Company, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience and objectives of the
person; and (ii) make a reasonable determination that the transactions in penny
stocks are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading, and about commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
18
<PAGE>
The National Association of Securities Dealers, Inc. (the "NASD"), which
administers NASDAQ, has recently made changes in the criteria for initial
listing on the NASDAQ Small Cap market and for continued listing. For initial
listing, a company must have net tangible assets of $4 million, market
capitalization of $50 million or net income of $750,000 in the most recently
completed fiscal year or in two of the last three fiscal years. For initial
listing, the common stock must also have a minimum bid price of $4 per share. In
order to continue to be included on NASDAQ, a company must maintain $2,000,000
in net tangible assets and a $1,000,000 market value of its publicly-traded
securities. In addition, continued inclusion requires two market-makers and a
minimum bid price of $1.00 per share.
Management intends to strongly consider undertaking a transaction with any
merger or acquisition candidate, which will allow the Company's securities to be
traded without the aforesaid limitations. However, there can be no assurances
that, upon a successful merger or acquisition, the Company will qualify its
securities for listing on NASDAQ or some other national exchange, or be able to
maintain the maintenance criteria necessary to insure continued listing. The
failure of the Company to qualify its securities or to meet the relevant
maintenance criteria after such qualification in the future may result in the
discontinuance of the inclusion of the Company's securities on a national
exchange. In such events, trading, if any, in the Company's securities may then
continue in the non-NASDAQ over-the-counter market. As a result, a shareholder
may find it more difficult to dispose of, or to obtain accurate quotations as to
the market value of, the Company's securities.
Stockholders.
There are 100 holders of the Company's Common Stock.
Dividends
The Registrant has not paid any dividends to date, and has no plans to do so in
the immediate future.
Item 2. Legal Proceedings
We are not a party to any material pending legal proceedings. We are not aware
of any pending or threatened legal proceedings, in which are involved.
Item 3. Changes in and Disagreements with Accountants We have had no
disagreements with our auditors.
Item 4. Recent Sales of Unregistered Securities
On May 9, 1997, we sold 100,000 shares of our common stock for $25,000 in
reliance upon Rule 504 of Regulation D.
On May 29, 1999, we issued a total of 500,000 shares of our common stock to Paul
A. Ruppanner for services rendered and we issued 500,000 shares to Steve
Randall. On May 29, 1999 we issued 2,166,666 shares to Braderlux ALR; 1,666,667
shares to Burgandy Holdings, Ltd.; 1,666,667 shares to Artistocrat Group, and
500,000 shares to Riva Investments Ltd. We relied upon Section 4(2) of the
Securities Act of 1933, as amended ("the Act"). We believe Section 4(2) was
available because the transactions did not involve a public offering.
In July 1999, we issued a Series A Convertible Debentures in the amount of
$700,000 and received net proceeds of $600,000 after deducting debt issue costs
of $100,000. The debentures are payable with interest at one percent per annum
commencing August 1999 and are due in full on July 16, 2001. The debentures are
convertible at any time into common stock at 75 percent of the closing bid
price, quoted on the day preceding the conversion date, as reported by the NASD
19
<PAGE>
OTC bulletin board. We issued 995,224 shares of our common stock upon conversion
of $300,000 of debentures through December 31,1999. We relied upon Rule 504 of
Regulation D of the Act. The following shares were issued to the debenture
holder in accordance with the conversion option:
August 11, 1999 13,333 shares
August 26, 1999 32,000 shares
August 30, 1999 55,467 shares
September 10, 1999 36,530 shares
October 11, 1999 41,425 shares
November 1, 1999 155,679 shares
November 4, 1999 350,000 shares
December 13, 1999 164,204 shares
January 7, 2000 496,586 shares
January 18, 2000 240,000 shares
March 24,2000 195,804 shares
June 12, 2000 1,475,193 shares
On August 30, 1999, we issued 40,000 shares of our common stock to Frank Fennell
to offer Supreme Privileges Point System to Internet Gaming Customers and
250,000 shares to Austin Burrell to become chairman of our advisory board which
we later decided to discontinue. We relied upon Section 4(2) of the Act of 1933.
We believe Section 4(2) was available because the transactions did not involve a
public offering.
On September 28, 1999 and November 17, 1999, we issued 125,000 shares (Total
250,000 shares) of our common stock to Team Lost Boy BV for the exclusive global
marketing rights of their Avatar gaming platform software. We believe Section
4(2) was available because the transactions did not involve a public offering.
On September 15, 1999, our board of directors granted Mr. Ruppanner and Mr.
Randall, our officers, options to purchase up to 2,000,000 shares each of common
stock at $0.35 per share through December 2009. 666,666 vested on June 1, 2000;
666,666 options vest on June 1, 2001 and 666,666 which vest on June 1, 2002.
Each option is exercisable into one (1) share of common stock, at a price of
$.35 per share. These options are the only outstanding options at December 31,
1999. As of August 13, 2000 none of these options have been exercised. We
believe Section 4(2) was available because the transactions did not involve a
public offering.
On October 11, 1999, we issued the following shares:
Date Amount Name Consideration
10/11/99 19,000 Saundra Rosenblum Purchase URL
10/11/99 25,000 R Garcia Administrative assistance at start-up
10/11/99 25,000 Chanelle Olivier Administrative assistance at start-up
10/11/99 25,000 Charissa Olivier Administrative assistance at start-up
10/11/99 25,000 Colin Ruppanner Administrative assistance at start-up
10/11/99 5,000 Shernalda Raphelia Outsourced employee incentive
10/11/99 5,000 Anthony P.M. Dick Outsourced employee incentive
10/11/99 5,000 Scott Moar Outsourced employee incentive
10/11/99 100,000 Whitehorse Investments Investment Advisory services
Ltd
20
<PAGE>
We believe Section 4(2) was available because the transactions did not involve a
public offering.
During November 1999, we issued 2,263,678 shares of common stock in return for
services. We believe Section 4(2) was available because the transactions did not
involve a public offering. These shares were issued as follows:
Date Amount Name Consideration
11/17/99 836,247 Paul A. Ruppanner Shares in lieu of $200,000 Annual
Salary; and serving as Chairman of Board
11/17/99 549,000 Cactus Consulting Intl. In lieu of fee for providing
financial services
*Pres. of Cactus is Jan Olivier.
11/17/99 100,000 Claus Wagner-Bartak To serve as a Director
11/17/99 125,000 Team Lost Boys NV Balance of incentive to give CSNO
Worldwide Exclusive Marketing rights
11/21/99 50,000 Adam Barnett Partial Payment for Financial Consulting
11/21/99 150,000 Stock Exposure Inc.Payment for Marketing Services
11/29/99 453,431 Steven B. Randall In lieu of salary ($175,000); serving on
Board of Directors.
We believe Section 4(2) was available because the transactions did not involve a
public offering.
On January 2000, we issued shares of our common stock for services rendered as
follows:
Date Amount Name Consideration
1/6/00 82,000 Istrategic LLC Purchase URLs
1/18/00 100,000 Adam Barnett Final Payment for Financial Consulting
We believe Section 4(2) was available because the transactions did not involve a
public offering.
On May 2000, we issued shares of our common stock as follows:
Date Amount Name Consideration
5/31/00 150,000 Henrik Ponteyn Technology Consulting and Trade Show
Assistance
5/31/00 150,000 Dan Luther Full Year Payment for Management
Consulting
We believe Section 4(2) was available because the transactions did not involve a
public offering.
Item 5. Indemnification of Officers and Directors.
The Company's Bylaws provide for indemnification of the Company's directors,
officers, employees and other agents of the Company to the extent and under the
circumstances permitted by the Indiana Business Corporation Law (the "IBCL").
The Company's Bylaws also provide that the Company will have the power to
purchase and maintain insurance covering its directors, officers and employees
against any liability or loss asserted against any of them and incurred by any
of them, whether or not the Company would have the power to indemnify them
against such liability under the IBCL. The Company has a pending application to
obtain directors' and officers' liability insurance.
21
<PAGE>
Section 5.1 of Article V of the Bylaws of the Company provides for
indemnification of directors and officers of the Company to the fullest extent
authorized by the IBCL, and is set forth below: Section 5.1 Right to
Indemnification. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in ay action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of any other corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to any employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is an alleged action or failure to act in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, will be indemnified and
held harmless by the Corporation to the fullest extent authorized by the BCL, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including, without limitation, attorneys' fees, court costs, judgments, fines,
excise taxes or penalties under the Employee Retirement Income Security Act of
1974, as amended, and amounts paid or to be paid in settlement) reasonably
incurred by such indemnities in connection therewith; provided, however, that
except as provided in Section 5.3 with respect to proceedings seeking to enforce
rights to indemnification, the Corporation will indemnify any such indemnities
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such indemnities only if such proceeding (or part thereof) was
authorized by the Board of Directors.
PART III
ITEM 1. INDEX TO EXHIBITS
EXHIBITS DESCRIPTION OF DOCUMENT
3.1 Articles of Incorporation
3.2 Bylaws
3.3 Certificate of Amendment to Articles of Incorporation
10.1 Employee Contract - Ruppanner
10.2 Employee Contract - Randall
10.3 1999 Stock Option and Restricted Stock Plan
10.4 Stock Option Agreement - Ruppanner
10.5 Stock Option Agreement - Randall
10.6 Agreement Lost Boys - The Netherlands
10.7 Financial Consulting Agreement - Portfolio
27.1 Financial Data Schedule - December 31, 1999
27.2 Financial Data Schedule - June 30, 2000
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
By: /s/ Paul A. Ruppanner
Paul A. Ruppanner,
President and Director
Dated August 25, 2000
<PAGE>
CASINOBUILDERS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report................................................ F-2
Balance Sheet............................................................... F-3
Statements of Operations.................................................... F-4
Statement of Stockholders' Equity........................................... F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements........................................ F-7 - F-13
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Casinobuilders.Com, Inc.
We have audited the accompanying balance sheet of Casinobuilders.Com,
Inc. (A Development Stage Company) as of December 31, 1999, and the related
statements of operations, changes in stockholders deficit and cash flows for the
years ended December 31, 1999 and 1998 and for the period from inception (August
23, 1995) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Casinobuilders.Com,
Inc. as of December 31, 1999 and the results of its operations and cash flows
for the years ended December 31, 1999 and 1998 and for the period from inception
(August 23, 1995) to December 31, 1999 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company incurred cumulative losses of $2,238,000 from
inception (August 23, 1995 to December 31, 1999). Additionally, the Company had
working capital and total capital deficiencies of $237,000 and $79,000,
respectively, at December 31, 1999. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
with respect to these matters are also described in Note 2 to the financial
statements. The accompanying financial statements do not include any adjustments
that might result should the Company be unable to continue as a going concern.
As discussed in Note 14, the Company became aware in June 2000 of a
potential claim against the Company involving the Series A Senior Subordinated
Convertible Debentures. There is currently no pending litigation in this matter.
The Company is unable to assess the merits of the potential claim if such action
were brought against the Company, nor is it able to quantify the potential loss,
if any, that might result if such claim was asserted. Accordingly, the financial
statements do not include a provision for loss that might arise from such claim.
/s/Feldman Sherb & Co., P.C.
Feldman Sherb & Co., P.C.
Certified Public Accountants
New York, New York
June 30, 2000
F-2
<PAGE>
CASINOBUILDERS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1999 2000
(Unaudited)
<S> <C> <C>
CASH $ 54,964 $ 9,951
DEPOSITS 468,750 -
INTANGIBLES AND OTHER ASSETS 50,238 58,180
---------------------- -------------------
$ 573,952 $ 68,131
====================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 170,788 $ 167,100
Advance payable - 100,000
Deferred licensing revenues 120,732 -
---------------------- -------------------
TOTAL CURRENT LIABILITIES 291,520 267,100
---------------------- -------------------
DEBENTURES PAYABLE - Due July 2001 361,507 206,000
STOCKHOLDERS' DEFICIT:
Common Stock, $.001 par value, 50,000,000 shares authorized;
17,657,902 and 19,650,899 shares issued and outstanding 17,657 19,650
Additional paid in capital 2,157,957 1,945,614
Deficit accumulated in the development stage (2,254,689) (2,370,233)
---------------------- -------------------
TOTAL STOCKHOLDERS' DEFICIT (79,075) (404,969)
---------------------- -------------------
$ 573,952 $ 68,131
====================== ===================
See notes to financial statements
</TABLE>
F-3
<PAGE>
CASINOBUILDERS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Inception
Year Ended December 31, (August 23, 1995) Six Months Inception
--------------------------- -------------------- Ended (August 23, 1995)
1998 1999 to December 31, 1999 June 30, 2000 to June 30, 2000
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ 123,232 $ 123,232
----------- ------------- -------------------- ---------------- -------------------
COSTS AND EXPENSES:
Cost of services - - - 43,050 43,050
Selling, general and administrative 10,802 1,266,167 1,291,482 154,242 1,445,724
Loss on terminated acquisition - 650,000 650,000 - 650,000
Interest on debentures - 313,207 313,207 41,484 354,691
----------- ------------- -------------------- ---------------- -------------------
10,802 2,229,374 2,254,689 238,776 2,493,465
----------- ------------- -------------------- ---------------- -------------------
NET LOSS $ (10,802)$ (2,229,374)$ (2,254,689) $ (115,544) $ (2,370,233)
============ ============== ===================== ================ ==================
BASIC AND DILUTED
LOSS PER COMMON SHARE $ (0.00)$ (0.19)$ (0.29) $ (0.01) $ (0.27)
============ ============== ===================== ================ ==================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 9,780,000 12,002,764 7,835,253 18,394,759 8,900,113
============ ============== ===================== ================ ==================
</TABLE>
Note: The Company was inactive during the six months ended June 30, 1999.
Accordingly, no comparative operating results are presented herein.
F-4
<PAGE>
CASINOBUILDERS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the Total
Price per Common Stock, Par Val Paid Development Stockholders'
Date Share Shares Amount Capital Stage Deficit
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception 8/23/95 - $ - $ - $ - $ -
Issuance of shares for cash 10/20/95 0.03 60,000 60 1,440 1,500
------- ------- ------- --------- ---------
BALANCE, DECEMBER 31, 1995 60,000 60 1,440 - 1,500
Issuance of shares for cash 7/3/96 0.37 3,000 3 1,097 1,100
Net Loss (1,922) (1,922)
------- ------- ------- --------- ---------
BALANCE, DECEMBER 31, 1996 63,000 63 2,537 (1,922) 678
Issuance of shares for cash 5/19/97 0.25 100,000 100 24,900 25,000
Net loss - - - (12,591) (12,591)
------- ------- ------- --------- ---------
BALANCE, DECEMBER 31, 1997 163,000 163 27,437 (14,513) 13,087
Forward Split-30:1 3/2/98 4,727,000 4,727 (4,727)
Net loss - - - (10,802) (10,802)
------- ------- ------- --------- ---------
BALANCE, DECEMBER 31, 1998 4,890,000 4,890 22,710 (25,315) 2,285
Shares contributed to treasury and cancelled 5/13/99 (1,890,000) (1,890) 1,890 -
Forward Split- 2-1 5/13/99 3,000,000 3,000 (3,000) -
Beneficial conversion feature - debentures - - 200,000 200,000
Issuance of shares for:
Services 5/17/99 0.0167 1,000,000 1,000 15,700 16,700
Cash 5/27/99 0.0167 6,000,000 6,000 94,000 100,000
Marketing rights and service 9/28/99 0.50 165,000 165 82,301 82,466
Director services 9/28/99 0.50 250,000 250 124,699 124,949
Conversion of debentures 9/10/99 0.55 137,330 137 75,863 76,000
Services - acquisition 10/11/99 0.63 750,000 750 468,000 468,750
Purchase of domain name 10/11/99 0.63 19,000 19 11,856 11,875
Services 10/11/99 0.63 215,000 215 134,160 134,375
Conversion of debentures 10/11/99 0.48 41,425 41 19,959 20,000
Conversion of debentures 11/1/99 0.35 155,679 156 53,845 54,000
Services 11/17/99 0.31 2,063,678 2,064 642,836 644,899
Services 11/21/99 0.32 200,000 200 63,800 64,000
Conversion of debentures 12/13/99 0.30 164,204 164 49,836 50,000
Conversion of debentures 12/20/99 0.20 496,586 496 99,504 100,000
Net loss - - - (2,229,374) (2,229,374)
------------ ------- --------- ----------- ----------
BALANCE, DECEMBER 31, 1999 17,657,902 17,657 2,157,957 (2,254,689) (79,075)
Issuance of shares for:
Services 1/6/00 0.20 100,000 100 19,900 20,000
Trade name 1/6/00 0.20 82,000 82 16,318 16,400
Conversion of debentures 2/8/00 0.17 435,804 436 74,564 75,000
Additional interest on debentures 3/31/00 0.10 350,000 350 34,650 35,000
Conversion of debentures 5/1/00 0.13 137,931 138 17,862 18,000
Conversion of debentures 5/9/00 0.05 750,000 750 35,250 36,000
Conversion of debentures 5/11/00 0.05 279,570 280 12,720 13,000
Services 5/31/00 0.09 300,000 300 26,700 27,000
Conversion of debentures 6/4/00 0.06 307,692 308 17,692 18,000
Return and cancellation of shares issued in
connection with terminated acquisition 6/30/00 0.63 (750,000) (750) (468,000) (468,750)
Net loss (115,544) (115,544)
------------ -------- --------- ----------- ----------
BALANCE, JUNE 30, 2000 (Unaudited) 19,650,899 $ 19,650 $1,945,614 $ (2,370,233) $(404,969)
============ ======== ========= ============ ==========
</TABLE>
See notes to financial statements
F-5
<PAGE>
CASINOBUILDERS.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Inception Six Months Inception
Year Ended December 31, (August 23, 1995) Ended August 23, 1995)
1998 1999 to December 31, 1999 June 30, 2000 to June 30, 2000
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,802) $ (2,229,374) $(2,254,689) $ (115,544) $ (2,370,233)
---------- ------------ ------------ ------------- ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of debt issuance costs - 61,507 61,507 4,493 66,000
Depreciation and amortization 74 4,199 4,446 8,458 12,904
Common stock issued for services - 1,067,389 1,067,389 47,000 1,114,389
Non-cash interest on debentures - 200,000 200,000 36,991 236,991
Changes in assets and liabilities:
Increase (decrease) in
accounts payable and accrued expenses 100 170,097 170,418 (5,679) 164,739
Increase (decrease) in deferred licensing revenues - 120,732 120,732 (120,732) -
Total adjustments 174 1,607,224 1,607,792 (29,469) 1,578,323
---------- ------------ ------------ ------------- ------------
NET CASH USED IN OPERATING ACTIVITIES (10,628) (605,450) (630,197) (145,013) (775,210)
---------- ------------ ------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of intangible and other assets - (42,439) (42,439) - (42,439)
---------- ------------ ------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock - 100,000 127,600 - 127,600
Proceeds from advance - - - 100,000 100,000
Proceeds from sale of debentures - 600,000 600,000 - 600,000
---------- ------------ ------------ ------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 700,000 727,600 100,000 827,600
---------- ------------ ------------ ------------- ------------
NET INCREASE (DECREASE) IN CASH (10,628) 52,111 54,964 (45,013) 9,951
CASH - beginning of period 13,481 2,853 - 54,964 -
---------- ------------ ------------ ------------- ------------
CASH - end of period $ 2,853 $ 54,964 $ 54,964 $ 9,951 $ 9,951
=========== ============ ========== ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
No cash payments were made for income taxes or
interest during each of the above periods.
Non-cash investing and financing activities
Common stock issued for:
Conversion of debentures $ - $ 300,000 $ 300,000 $ 160,000 $ 460,000
=========== ============ ========== =========== ================
Acquisition of intangible assets $ - $ 11,875 $ 11,875 $ 16,400 $ 28,275
=========== ============ ========== =========== ================
</TABLE>
Note: The Company was inactive during the six months ended June 30, 1999.
Accordingly, no comparative statement of cash flows is presented herein.
See notes to financial statements
F-6
<PAGE>
CASINOBUILDERS.COM, INC.
------------------------
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. THE COMPANY
Casinobuilders.Com, Inc. (the "Company"), formerly known as Magic
Lantern Group, Inc., was organized in Nevada in August 1995. The
Company plans to provide consulting, marketing and operational
services to clients offering electronic gaming entertainment through
the Internet. The Company was in the development stage at December 31,
1999.
UNAUDITED FINANCIAL STATEMENTS - The accompanying unaudited
interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments which include normal recurring adjustments necessary to
present fairly the financial position, results of operations and cash
flows for all periods presented have been made. The results of
operations for the six month period ended June 30, 2000 are not
necessarily indicative of the results of operations that may be
expected for the year ending December 31, 2000. These financial
statements should be read in conjunction with the Company's December
31, 1999 financial statements and accompanying notes thereto included
in Form 10-SB.
2. GOING CONCERN
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
incurred cumulative losses of $2,238,000 from inception (August 23,
1995) to December 31, 1999. Additionally, the Company had working
capital and total capital deficiencies of $237,000 and $79,000 at
December 31, 1999. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans
with respect to these matters include restructuring its existing debt,
raising additional capital through future issuances of stock and or
debentures and ultimately developing a viable business. The
accompanying financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going
concern.
F-7
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES
A. USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from
these estimates.
B. LOSS PER SHARE - Basic loss per share was computed using the
weighted average number of shares of outstanding common stock.
Weighted average share and per share amounts were restated to
give retroactive effect to the stock splits occurring in March
1998 and May 1999. Diluted per share amounts when applicable
also include the effect of dilutive common stock equivalents
from the assumed exercise of options and conversion of
debentures.
C. REVENUE RECOGNITION - Revenues are recognized over the term of
the contracts on a straight-line basis.
D. INCOME TAXES - Income taxes are accounted for under Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", which is an asset and liability approach that
requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial
statements or tax returns.
E. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of
the assets and liabilities reported in the balance sheet
approximate their fair market value based on the short-term
maturity of these instruments.
F. STOCK-BASED COMPENSATION - The company accounts for stock
transactions in accordance with APB No. 25, "Accounting for
Stock Issued to Employees". In accordance with statement of
Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", the Company adopted
the pro forma disclosure requirements of SFAS 123.
F-8
<PAGE>
4. LOSS ON TERMINATED ACQUISITION
On October 31, 1999, the Company entered into an agreement
with Futurenet Holdings Ltd. ("Futurenet") to acquire all of the
outstanding shares of Cyberluck, Curacao N.V., Conet N.V. and Global
Cash N.V. for $1,700,000. The acquisition, if consummated, would have
provided the Company with a Netherlands Antilles exclusive master
license to operate Internet gaming casinos in addition to certain
computer equipment and software adapted for such purpose. The purchase
price was payable in installments due as follows: $650,000 - October
31, 1999; $350,000 - December 1, 1999; $600,000 - February 29, 2000;
$100,000 - July 1, 2000. The initial payment of $650,000 was
non-refundable and was paid $450,000 through September 30, 1999 and the
balance of $200,000 in October 1999. The Company was unable to make the
scheduled payment of $350,000 due on December 1, 1999 and accordingly
lost the right to consummate the acquisition with the result that the
$650,000 initial payment has been forfeited. The financial statements
at December 31, 1999 give effect to the termination of the acquisition
and to the related loss incurred. The Company issued 750,000 shares
valued at $468,750 to a certain person, contingent on the successful
completion of the acquisition. The acquisition was terminated, thereby
requiring the return of the shares to the Company. Such shares were
returned in June 2000 and cancelled.
5. INTANGIBLES AND OTHER ASSETS
At December 31, 1999, intangibles and other assets consisted of the
following:
Estimated
useful life Amount
---------------- ----------------
Office equipment 5 years $ 3,500
Domain name 5 years 11,875
Software platform 3 years 39,062
----------------
54,437
Less: Accumulated depreciation
and amortization 4,199
----------------
$ 50,238
================
F-9
<PAGE>
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, 1999, accounts payable and accrued expenses consisted
of the following:
Trade payables $ 89,841
Consulting fees 51,504
Professional fees 27,243
Interest on debentures 2,200
-------------------
$ 170,788
===================
7. ADVANCE PAYABLE
The Company received $100,000 in March 2000 as payment in
advance for the issuance of the Company's common stock. As of June 30,
2000, the number of shares to be issued has not been determined.
Accordingly, such funds are reflected in the financial statements as an
"advance payable"
8. DEBENTURES PAYABLE
In July 1999, the Company issued Series A Convertible
Debentures in the amount of $700,000 and received net proceeds of
$600,000 after deducting debt issue costs of $100,000. The debentures
are payable with interest at one percent per annum commencing August
1999 and are due in full on July 16, 2001. The debentures are
convertible at any time into common stock at 75 percent of the closing
bid price, quoted on the day preceding the conversion date, as reported
by the NASD "OTC-Bulletin Board". The discount provided to the
debenture holders represents a beneficial conversion feature which at
the time of issuance amounted to $200,000. Such amount was included in
interest expense in the financial statements at December 31, 1999.
Interest at one percent per annum is accrued monthly and is convertible
into common shares as determined by the agreement. Debt issuance costs
are being amortized over the life of the loan or July 16, 2001,
whichever is sooner. At December 31, 1999 such costs amounted to
$61,507 and were included in the financial statements as interest
expense. Debentures payable at December 31, 1999 of $ 361,507 are net
of unamortized debt issuance costs of $38,493. The Company issued
995,224 shares of common stock upon conversion of $300,000 of
debentures through December 31, 1999. At December 31, 1999 the Company
incurred debt service costs of $49,500, which were included as interest
expense in the financial statements at such date.
F-10
<PAGE>
9. DEFERRED LICENSING REVENUES
On September 15, 1999, the Company signed a contract to
license a Turn-Key Internet Casino for a term of three years expiring
in September 2002. The agreement called for an initial payment of
$65,750 upon signing of the contract and $200,000 within 120 days
thereafter. In January 2000, the customer terminated the agreement and
accordingly forfeited the initial payment. In December 1999, the
Company received an advance of $54,982 for services to be provided in
the year 2000. Such receipts, totalled $120,732 and were included in
the financial statements as deferred licensing revenues at December 31,
1999. The Company recorded the full amount of such revenue as income
earned during the six months ended June 30, 2000.
10. LEASES
Prior to May 1999, the Company neither owned nor leased any
real property. The Company currently utilizes an executive suite in
Colorado Springs, Colorado, which provides mailing and secretarial
services to the Company on a month-to-month basis at $50 per month.
The Company's client support offices are located in Kirkland,
Washington. The Company leases this space on a month-to-month basis at
$500 per month.
Total rent expense for 1999 was $3,283.
11. STOCK SPLIT
On March 3, 1998, the Company declared a forward stock split
on a 30:1 basis. On May 13, 1999, the Company declared a forward stock
split on a 2:1 basis. All share and per- share amounts in the
accompanying financial statements have been restated to give
retroactive effect to the stock splits.
F-11
<PAGE>
12. STOCK OPTIONS
On September 15, 1999, the Company instituted a stock option
and restricted stock plan which is available to selected directors,
officers, employees and consultants of the Company ("Participants").
The term of each option is ten years from the date of grant or
such shorter term as determined by the Stock Option Committee (the
"Committee") except for a grant to a 10% shareholder, for which the
term will be five years. The exercise price will be determined by the
Committee and will not be less than 100% of the fair market value of
the shares subject to the option on the date of grant.
The restricted stock would be granted to Participants for
services rendered at no additional cost to the Participants. The terms,
conditions and restrictions of the stock will be determined by the
committee on the date of grant. On the date the restriction period
terminates, the restricted stock will vest in the Participant.
On September 15, 1999, the board of directors granted Messrs.
Ruppanner and Randall, both officers of the Company options to purchase
up to 2,000,000 shares each of common stock at $0.35 per share through
December 2009, with vesting over a three-year period from the date of
hire. The aforementioned options were the only outstanding options at
December 31, 1999.
Pro forma information regarding net loss and loss per share is
presented below as if the Company had accounted for its employee stock
options under the fair value method of SFAS 123; such pro forma
information is not necessarily representative of the effects on
reported net income for future years due to, among other things: (1)
the vesting period of the stock options and the (2) fair value of
additional stock options in future years.
Had compensation cost for the Company's stock option plan been
determined based upon the fair value at the grant date for awards under
the plan consistent with the methodology prescribed under SFAS 123, the
Company's net loss for the period ended December 31, 1999 would have
been approximately ($2,741,811) or ($0.23) per share. The weighted
average fair value of the options granted during the period ended
December 31, 1999 are estimated as $0.35 on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used
for the period ended December 31, 1999: expected dividend yield of 0%,
expected volatility of 50%, risk free interest rate of 5.7%, and an
estimated life of five years.
F-12
<PAGE>
13. INCOME TAXES
The following is a reconciliation of income taxes and amounts
computed using the U.S. Federal statutory rate and the effective tax
rate for the years ended December 31, 1999 and 1998
1999 1998
------------ ------------
Pre-tax loss $ (2,212,000) $ (10,800)
============
Tax benefit at Federal statutory rate (35%) (774,000) (3,800)
Permanent differences 4,000 -
Tax benefit not recognized 770,000 3,800
------------- ------------
Taxes per financial statements $ - $ -
============= ============
The Company has adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Under this standard,
the Company records as an asset its net operating loss carryforward
("NOL") based upon current tax returns, and establishes a valuation
allowance to the extent of any NOL which will not be utilized in the
foreseeable future. At this time, the Company can not reliably predict
future profitability. Accordingly, the deferred tax asset has been
reduced in its entirety by the valuation allowance. As of December 31,
1999, the Company had net operating loss carry forwards of
approximately $2,234,000 expiring variously through 2019.
A significant portion of these carry forwards may be subject
to limitations on annual utilization due to "equity structure shifts"
or "owner shifts" involving "5 percent stockholders" (as defined in the
Internal Revenue Code), which resulted in more than a 50% change in
ownership.
14. SUBSEQUENT EVENT
In June 2000, the Company issued 1,475,193 shares of its
common stock in accordance with the conversion provisions of its
Series A Subordinated Convertible Debentures. Under the advice of
counsel, these shares were issued with a restrictive legend in
accordance with the Securities Act of 1933. Although there is no
pending litigation, nor threat of litigation in this matter, the
debenture holder may take action against the Company to remove the
restrictive legend from these shares.
The Company is unable to assess the merits of a potential
claim if such demand or action is brought against the Company, nor is
it able to quantify the potential loss, if any, that might result if
such claim is asserted. Accordingly, the financial statements do not
include a provision for loss that might arise from such claim.
F-13