As filed with the Securities and Exchange Commission on August 14, 2000
Registration No. 1-15679
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 2
to
FORM 10-SB/A
GENERAL FORM FOR REGISTRANTS OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Venture Tech, Inc.
(Name of Small Business Issuer in its charter)
Idaho 87-0462258
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1055 West 14th Street, Suite 500, North Vancouver, B.C. V7P 3P2
(Address of principal executive officers) (Zip Code)
Issuer's telephone number: (604) 990-9889
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
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Venture Tech, Inc.
FORM 10-SB
TABLE OF CONTENTS
PAGE
----
PART I
<S> <C> <C>
Item 1. Description of Business............................................................ 3
Item 2. Management's Discussion and Analysis or
Plan of Operation................................................................ 23
Item 3. Description of Property............................................................ 27
Item 4. Security Ownership of Certain Beneficial
Owners and Management............................................................ 28
Item 5. Directors, Executive Officers, Promoters
and Control Persons.............................................................. 30
Item 6. Executive Compensation............................................................. 34
Item 7. Certain Relationships and Related Transactions..................................... 35
Item 8. Description of Securities.......................................................... 36
PART II
Item 1. Market Price of and Dividends on Registrant's
Common Equity and Other Shareholder Matters...................................... 38
Item 2. Legal Proceedings.................................................................. 39
Item 3. Changes in and Disagreements with Accountants...................................... 39
Item 4. Recent Sales of Unregistered Securities............................................ 39
Item 5. Indemnification of Directors and Officers.......................................... 43
PART F/S
Financial Statements................................................................................. F-1
PART III
Item 1. Index to Exhibits.................................................................. S-1
Item 2. Description of Exhibits............................................................ S-1
Signatures........................................................................................... S-2
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FORM 10-SB
PART I
Item 1. Description of Business
Business Development
Venture Tech, Inc., an Idaho corporation ("Venture Tech" or the
"Company"), is engaged in the acquisition, development and licensing of certain
computer based technology designed to offer a full range of casino-style gaming,
entertainment, information and financial transaction services over the worldwide
Internet. Through its technology agreements and licenses, the Company intends to
establish a series of virtual casinos over the Internet from various locations
around the world. The Company will employ various cultural and ethnic themes to
target different cultures around the world. A casino is deemed to be "virtual"
when it emulates actual casino-style games of chance offered in existing
land-based casinos, but provides such gaming services via computer software and
hardware instead of actual gaming equipment and casino sites. The Company's
initial virtual casino, Asia Casino, provides for three different languages on
the website; Chines, Japanese and English. Although the virtual casino is
accessible around the world via the Internet, the Company's marketing will
primarily target Asian countries. The Company further intends to use its client
base of Internet gaming players to market more basic commodities and services
through electronic commerce ("e-commerce").
History
The Company was organized on July 19, 1948 under the laws of the State
of Idaho as Giant Ledge Mining Company, with the stated purpose of, acquiring,
exploring and developing mineral ore prospects and operating mining and milling
facilities. The Company initially engaged in sporadic mining operations and,
since its inception, has undergone several name changes and business changes. On
October 25, 1999, the Company's shareholders approved a proposal to empower the
Board of Directors to take all necessary action to change the Company's domicile
of incorporation from Idaho to the State of Nevada. As of the date hereof, the
Company has not finalized that change.
During 1988, the Company became engaged in arranging for funding for
medical research, particularly certain cancer research being conducted at the
Harvard School of Dental Medicine. However, none of the projects in which the
Company was involved proved to be economically successful and no commercially
viable products resulted from the research. The Company ultimately assigned or
transferred any potential marketing rights to its research products.
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In 1992, the Company was engaged in only minimal activities and the
Board of Directors determined that the Company should become active in seeking
potential operating businesses and business opportunities with the intent to
acquire or merge with such businesses. To better reflect the Company's business,
the Company adopted the name, Venture Tech, Inc.
During 1995, the Company became engaged in the development of certain
computer technology designed to ultimately offer a full range of gaming services
and casino-style games over the worldwide Internet. The Company created two new
wholly owned subsidiaries, EuroAsian E-Casinos, Inc., a Marshall Islands
corporation ("E- Casinos"), and Cybernet Currency Clearing, Inc., a Nevada
corporation ("CCCI"), for development of certain technologies applicable to the
Internet. E-Casinos was formed as a foreign entity to own and operate full
service gambling casinos on the Internet. However, when the Company entered into
a new licensing agreement requiring operations in Antigua, management decided
not to use E-Casinos as originally planned. The subsidiary remains in good
standing and may be used for future operations in the Marshall Islands under
licensing with other third party gaming providers. However, the Company has no
current plans or agreements to do so. CCCI was formed to focus on acting as an
international currency converter of wold currency into "e-cash" or "e-dollars",
which is used as a monetary instrument in many international business
transactions.
On March 4, 1996, the Company entered into a licensing agreement with
CasinoWorld Holdings, Ltd. ("CWH"). Pursuant to the agreement, CWH granted to
the Company a nonexclusive license to use and market CWH's Virtual CasinoWorldTM
software and hardware applications, know-how, trade secrets, copyrights and
trademarks. The Company is obligated to market, finance and contribute one or
more foreign gaming licenses under a separate operating agreement with CWH.
Through August 1998, the Company made approximately $1.3 million in license
payments to CWH in anticipation of receiving a fully operational and reliable
gaming website. In August 1998, the Company determined that CWH would not be
able to adequately provide such a website and operational services and,
accordingly, discontinued its relationship with CWH.
On March 14, 1996, in order to focus its strategy on the gaming and
Internet related service industry, management effected the sale of its wholly
owned subsidiary, Tessier Resources, Ltd. ("Tessier") to Kaniksu Ventures, Inc.,
now known as Ocean Power Corporation ("PWRE"). In exchange for Tessier, the
Company received a $3,000,000 debenture convertible into 2,000,000 shares of
PWRE common stock. The Debenture matured in four (4) years from the date of
issuance, carried no interest, and was convertible into PWRE common stock at the
conversion price of $1.50 per share at any time prior to repayment of the
debenture.
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Tessier, a Manitoba, Canada corporation, is engaged in the development
of an apparatus for removing snow and ice. It was formed in 1996, and is
presently considered, a development stage company. Development of its technology
has been essentially completed, its planned commercial operations have not yet
materially commenced. Tessier is currently seeking licensing agreements to
further the commercial value of its product. At the time of the Company's sale
of Tessier in 1996, Tessier had not generated any revenues from operations and
its principal assets were the intellectual property rights and prototypes.
However, Tessier had invested approximately $250,000 in technology research and
was in the process of finalizing patents on the technology and developing
prototypes. Since 1996, Tessier has built two prototypes and received patents
for its ice removal technology (U.S. patent no. 5,540,004 and Canada patent
no.2126249). On October 6, 1997 PWRE sold Tessier to a private Canadian
corporation.
The Company's sale of Tessier was treated as a related party transaction.
Following the acquisition of Tessier, Craig Bampton, a Vice President and
director of the Company, served as President of the Tessier subsidiary and, as a
provision of the sale of Tessier to PWRE, became a director and President of
PWRE. Mr. Bampton did recuse himself from the final approval of the sale to PWRE
by the Company's Board of Directors and was not a member of PWRE's Board when it
approved the sale, nor did he own any PWRE common stock. Mr. Bampton became a
PWRE director when the transaction was finalized. Presently, Mr.Bampton is a
director of Tessier.
Neither the Company nor PWRE employed a financial adviser for the
transaction nor did the Company consider alternatives to the sale. The net basis
of Tessier's assets was determined to be $158,112 by the Company's independent
auditors and no gain or loss was recognized on the sale. The Company, Tessier
and PWRE were all development stage companies at the time of the transaction.
The Company made a strategic decision to divest itself of the Tessier ice
removal asset and focus instead on the on-line gaming industry. The Company
believed that Tessier's potential for future maximum benefit rested with the
final development and promotion of its Pulverizer technology in a separate
public entity. The negotiated value of the transaction represented the perceived
future value of the technology balanced against the degree of risk associated
with carrying a debt conversion instrument with a development stage company that
had no proven market for is common stock.
During 1999, the Company converted the Debenture into 2,000,000 shares
of PWRE common stock. This amount was reduced to 200,000 shares due to the one
(1) share for ten (10) shares reverse stock split effected by PWRE.
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As additional consideration for the acquisition of Tessier, PWRE agreed
to issue, to eligible shareholders of the Company, shares of PWRE common stock
and rights to purchase additional shares. Under the terms of the original
agreement, prior to the reverse stock split of PWRE shares, each individual
Company shareholder of record as of April 5, 1996, is entitled to five (5)
shares of authorized but previously unissued PWRE common stock for each 100
shares of Company common stock owned. Only shareholders owning at least 100
shares of Company common stock are eligible for the distribution. Further, each
five shares of PWRE common stock issued to Company shareholders includes ten
(10) rights, each right entitling the holder thereof to purchase one additional
share of PWRE common stock for $2.25 per share for a period of sixty (60) days
following receipt of the PWRE shares and rights. PWRE intends to include the
shares and rights issued pursuant to the agreement in a registration statement
under the Securities Act of 1933, as amended, to be filed by PWRE.#4 Based on
6,200,014 qualifying shares of the Company's common stock outstanding as of the
record date of April 5, 1996, 31,000 PWRE dividend shares and 62,000 equivalent
rights are available to the Company's shareholders. These share amounts are
post-split to reflect PWRE's one share for ten shares reverse split effected in
1999. #4 Currently, the Company owns less than one percent of the common stock
of PWRE. The two companies are not involved in any joint projects nor are there
any common employees, officers or directors between the two companies. PWRE
shares are traded on the OTC Bulletin Board and the closing price on August 9,
2000 was $4.00 per share. PWRE has filed a registration statement with the
Commission pursuant to Form 10-SB of the Securities Exchange Act of 1934.
Internet Gaming
In March 1999, the Company entered into a nonexclusive software license
agreement with Starnet Systems International Inc., formerly Softec Systems
Caribbean Inc. ("SSII"), a wholly owned subsidiary of Starnet Communications
International Inc. ("Starnet" - OTCBB: "SNMM"). Pursuant to the license
agreement, SSII was to provide the Company with a complete turn-key computer
hardware, software and customer support package for the operation of one or more
on-line casino websites. As a requirement of the license agreement, the Company
was obligated to establish an Antigua corporation to hold a gaming license and
to conduct operations from that jurisdiction. In July 1999, the Company
established, under the authorization of the Government of Antigua and Barbuda,
EuroAsian E-Casinos International Ltd. ("E-Casinos International") as a wholly
owned subsidiary. In July 1999, E-Casinos International was granted an Offshore
Virtual Casino Wagering license by the Free Trade & Processing Zone of Antigua.
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Given the nature of its software and technology license agreement with
SSII, the Company does not anticipate using its E-Casinos subsidiary,
incorporated in the Marshall Islands, in conjunction with its series of on-line
casino websites created under that agreement. All primary operations will be
conducted from the Antigua corporation, E-Casinos International. However, the
Company expects to enter into similar arrangements with other third party
software development companies to provide gaming services for other series of
on-line casinos. With the rapid change and evolution taking place in Internet
based technology, the Company has decided to not restrict itself to a single
technology platform or approach. The Company intends to limit its risk of
rapidly changing technology by using multiple vendors.
The Company's does not intend to accept wagers from residents of the
United States. The United States Congress has attempted, but failed to pass,
legislation seeking to prohibit on-line gaming within the United States. Because
of possible legislation that could ban or severely restrict on-line gaming
within the United States, many companies in the industry, including Venture
Tech, have elected to operate only in countries that expressly permit on- line
gaming, or have not specifically prohibited on-line gaming.
The Company is currently in the process of changing its domicile of
incorporation from Idaho to the State of Nevada. The Company also anticipates
that it will re-domicile its CCCI subsidiary as an offshore international
business corporation. It is anticipated that CCCI will eventually assume the
merchant account responsibility for the on-line casinos. This involves
coordinating on-line financial transactions required by the casino and with a
banking institution to provide credit card processing for the patrons of the
casino.
Services and Products
In conjunction with the SSII license agreement, the Company established
a website (www.asiacasino.com) to conduct initial gaming operations. The Asia
Casino website and Sportsbook became operational in July of 1999 and began
accepting wagers from various jurisdictions around the world, with the notable
exceptions of the United States and Canada. The Company's current policy is not
to accept wagers from residents of those two countries because of possible
legislation limiting or banning on-line gaming in these countries. Also, the
Company's agreement with SSII prohibits the Company from accepting wagers from
Canadian residents. However, if the laws in the United States and/or Canada are
clarified, or if the Company receives an appropriate opinion from legal counsel,
the Company reserves the right to consider offering its gaming services in the
two countries. Presently, the Company's primary market focus is on Asia, Europe
and the Middle East. In addition, the Company has adopted a policy of not
accepting wagers from individuals less than 18 years old.
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The Company recognizes the potential risk of improper use of its
website by minors or by persons in jurisdiction where such use is not permitted.
There is also the risk that players may be inclined to not pay their gaming
debts. Through its online gaming provider, SSII, the Company employs a
registration process that establishes and confirms the identity of the
prospective player prior to the authorization of gaming activities. This process
is intended to screen out minors and other unauthorized applicants. Once gaming
activities are initiated, the Company uses encryption and password protection
methods to validate the player. In the unlikely event that a minor does gain
access to the system through deceptive means, the Company can invalidate any
winnings generated by the player. It is possible, however, that such a player
could make a claim against paying any gaming losses due to their status as a
minor. In this case the Company may have to authorize a chargeback against such
gaming losses and accept a reduction against gross winnings. The Company
believes that its registration screening system and password protection
mechanism will reasonably deter minors from accessing the system.
#6 Individuals seeking to gamble at the Company's website must place funds
"on-account" with the Company prior to the initiation of any gaming activities
for real money. As a player loses, those funds are debited from their funds
account and transferred to the Company's account. On occasion and for various
reasons, a player may claim that their gaming activities were not authorized and
may request a chargeback on their debited funds. Given that reasonable wagering
limits are placed on all accounts and noting that such chargebacks represent a
minimal problem for the Company and the industry as a whole, the Company may
find it expedient to authorize such a chargeback and not contest the claim. To
date, the Company has experienced only nominal chargebacks. The account holder
would then likely be voided from future play. The online gaming industry has
also effectively employed a "negative credit card database" to help screen out
minors, fraudulent bettors, and other questionable accounts during the
application process.
The SSII license agreement provides for over 20 interactive and
computer generated casino-style games of chance developed in conjunction with
Nevada State Gaming Guidelines. A Sportsbook also offers wagering action on all
the professional sports leagues from Europe and North America. In addition,
capabilities for wagering on pari-mutuel racing, lotteries and bingo are in the
development stage. All gaming operations and transactions are being conducted
from the facilities of SSII located in St. Johns, Antigua.
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The key features of Asia Casino include, but are not limited to the
following:
* The ability to play games in either the English, Chinese
or Japanese languages;
* Traditional Las Vegas games of chance such as Blackjack,
Craps, Roulette, Poker, Baccarat, Pai Gow, Sic Bo and Slots;
over 20 casino games in all are available;
* The Company's licensed Java games use the Java language
to provide easily accessible on-line games to the
Company's website(s). The cross-platform nature of Java
makes it possible to play these games on all major
operating systems, on-line, with virtually no downloading
required. The games are simplified to optimize loading
times. The Company currently has four casino style Java
Games (Videopoker, Blackjack, Caribbean Stud poker, and
Gold Rush slots) for players to wager on, with several
additional Java games projected to be released throughout
2000.
* A Sportsbook which offers wagering action on all the
professional leagues from Europe and North America including
baseball, football, basketball, hockey, English Premier League
Soccer and Italian Series "A"; college basketball and
football; boxing, horse racing and other sporting events from
around the world such as World Cup Soccer, cricket and rugby.
Since the inception of the Company's on-line casino in 1999, all of its
revenues have been derived from the Java games, traditional interactive casino
games and the sportsbook. E-Casinos International receives monthly sales
statements from SSII and a net remittance. The net remittance is the difference
between gaming wins and losses from the casino-style games and sportsbook
offered on the Company's websites. There are no registration, acceptance or
membership fees collected from customers.
Venture Tech is one of ten charter members of the Interactive Gaming
Council ("IGC") that intends to establish standards and a self-regulation
methodology as the on-line gamine industry's trade association. The IGC, a
non-profit organization, was formed in October 1996 with a mission to: (a)
provide a forum to address global issues with respect to on-line gaming; (b)
establish fair and responsible trade guidelines and practices; and (c) be the
public policy advocate and clearinghouse for the on-line gaming industry.
Presently, there are approximately 80 members of the IGC and it is a recognized
representative of the on-line gaming industry. The Company's Chief Operating
Officer has served on the Council's Board of Directors. Members of the IGC have
been asked to testify before Congress and the President's Commission of
Gambling.
Potential Market
The estimated size of the Internet gambling market is naturally
dependent upon the projected growth of the Internet, now estimated to be over
170 million users worldwide. The Asia/Pacific region appears to be the fastest
growing area for Internet adoption. For example, in 1998, Asia had 14.1 million
on-line
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users, which represented 14.8% of the worldwide Internet user base of 81.3
million. By the year 2002, it is projected that Asia will have 60.7 million
Internet users, which will represent 27.5% of the projected worldwide total of
221 million on-line users. (Source: eStats, 1999). China in particular is
expected to experience the fastest growth. Starting from an estimated on-line
population of 2.1 million in 1998, it is projected that China will have 17.3
million on-line by 2001 and 33.6 million on-line by 2003. (Source: Strategis,
1999). Of China's current population of 1.26 billion, the projected 33.6 million
Chinese on-line users will represent less than 3% of its total population. When
compared to current Internet penetration rates such as Australia (23.4%), Hong
Kong (13.4%), Japan (11%) or South Korea (6.7%), the potential for products and
service that are sold via the Internet to Chinese on- line users is exception.
(Source: Nua Internet Services).
The following table illustrates that estimated Internet gaming revenues
worldwide, currently less than $900 million, could increase to a an estimated
$2.3 billion by the end of 2001. Because most companies involved in the Internet
gaming market are private entities, it is difficult to estimate the actual cash
flow of these Internet casinos.
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1997 1998 1999 2000 2001
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Adult Home Internet (in Millions) 46 81 121 145 159
Percentage of Users Conducting On-line
Transactions 15% 18% 21% 24% 27%
Potential Internet Gamblers
(in Millions) 0.9 14.5 25.4 34.8 43.0
Per capita Expenditure (in $ Millions) $ 146 $ 154 $ 155 $ 160 $ 165
Potential Internet Gambling Revenue
(in $ Millions) $1,009 $2,182 $3,922 $5,555 $7,080
Estimated Actual Internet Gambling
Revenue (in $ Millions) $ 0 $ 51 $ 811 $1,520 $2,330
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(Source: Deutsche Bank - Christiansen/Cummings Assoc., 1999) #8 The above table
was compiled with information obtained from Christiansen/Cummings Associates,
Inc., now known as Christiansen Capital Advisors, Inc. ("CCA"), in an April 1999
presentation entitled Internet Gambling: Assessing the Potential and Examining
the Future. CCA is a privately held independent consulting and financial
services firm serving Internet, communications, entertainment, gambling, and
sports industries and government agencies that regulate these activities.
Findings and results of CCA research have been published at such gaming related
industry meetings as the International Conference on Gambling and Risk Taking,
the World Gaming Congress and Expo, the International Gaming Business
Exposition, the Gaming & Resorts Business Development Conference and thee
University of Nevada-Reno's Symposium on National and International Trends in
Commercial Gaming.
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Asiacasino.com Website
The Company's primary gaming website (www.asiacasino.com) is accessible
by a minimum hardware configuration consisting of: A 486/66 microprocessor
personal computer with Windows 95 or greater, 8 MB RAM, 30 MB free hard disk
space, a 14,400 modem and a direct PPP Internet connection. All games are
provided in a Windows- based, menu driven format with "point and click"
interactivity. Prospective players who desire to conduct gaming operations at
Asia Casino are able to subscribe over the Internet by completing an application
appearing at the website. Part of the application process requires that the
subscriber open an account and make a minimum deposit with the Company to
activate the account for real money play. Prospective players are also able to
play for fun, at no cost, for entertainment purposes or to practice their skills
prior to actual wagering.
The Company's websites are controlled through its licensing agreement
with SSII. Physical operations and transactions are conducted by SSII personnel
at SSII's facilities located in St. Johns, Antigua. The Company retains the
right to reasonably audit SSII's activities on its behalf. SSII's network is
connected to the Internet via redundant high-speed fiber, ensuring multiple
backup connections to the Internet. This high performance network infrastructure
ensures reliable and responsive game play for the end users/players. The system
is composed of high speed Sun Microsystems servers and Cisco networking
equipment. Most of the critical system components, such as the game servers and
web servers, are distributed across multiple machines, which protect the gaming
service from failures due to malfunctioning equipment. The highly scalable
nature of SSII's system design makes provisioning for additional capacity
simple. The network monitoring staff tracks the system at all times to maintain
constant awareness of the system's operating parameters. New equipment is
installed when necessary to compensate for increased activity or anticipated
peak demands for popular events.
SSII uses advanced technologies, such as site identification, data
encryption, and secure servers to provide users with a safe environments to
perform secure transactions, and data transmission over the Internet. Any
transaction made with SSII on-line is secure and convenient. SSII's system is
protected by the Secure Sockets Layer (SSL) protocol, which encrypts all
information and confirms the identity of the Company's server, before allowing a
transaction to be completed. Data encryption hides sensitive information such as
the customer's name, address, and credit card number. Even if someone manages to
obtain a player's personal information from the transaction process, data
encryption will not allow him or her to either read or use it.
The Company's website is designed to invite prospective players to
register and apply for casino and sportsbook membership. After a membership
application is reviewed, it is either accepted
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or rejected based on criteria including, but not limited to, age and geographic
location of the customer. The Company's policy is to accept subscriptions only
from persons over the age of 18 and believed to reside in jurisdictions that are
not known to expressly prohibit Internet gaming. Subscriptions will not be
accepted from persons believed to be citizens or residents of the United States
or Canada. The Company uses screening techniques in order to verify that the
subscriber resides in a jurisdiction that is not known to prohibit Internet
gaming.
Upon acceptance, the approved customer is then allowed to download the
gaming software over the Internet for installation on their personal computer or
to request a CD with additional graphics, music and video capabilities contained
thereon. The customer is then given a username and password and is thereby able
to access the Company's gaming servers over the Internet through their personal
Internet service provider.
The Company's website allows the subscriber to review all terms, rules
and conditions applicable to gaming and other uses at the site. All gaming
winnings and losses are debited and credited to the customer's account on a
real-time basis. All games are conducted pursuant to house rules and advantages
that are published at the website.
Subscriber's may make deposits to their gaming accounts by way of
credit card or wire payment. Through the Company's licensing agreement with
SSII, EFS Caribbean Inc., a wholly owned subsidiary of Starnet, supplies credit
card transaction services to the Company for an additional fee. The Company
primarily accepts Visa, MasterCard, American Express credit cards over a secure
platform provided through EFS.
Regulation
Gaming activities are stringently regulated in the United States and
most developed countries. Gaming regulations and supervisory procedures in the
United States and most developed countries are based upon policies that are
concerned with, among other things, (i) prevention of unsavory or unsuitable
persons from having a direct or indirect involvement with gaming; (ii)
establishment and maintenance of responsible accounting practices and
procedures; (iii) maintenance of effective controls over the financial practices
of licensees, including establishment of minimum procedures for internal fiscal
affairs and safeguarding assets and revenues, providing reliable record keeping
and requiring the filing of periodic reports with the governing jurisdictions;
(iv) prevention of cheating and fraudulent practices; and (v) providing a source
of government revenue through taxation and licensing fees.
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The Company is subject to applicable laws in the jurisdictions in which
it intends to operate. Some jurisdictions have introduced regulations to attempt
to restrict or prohibit Internet gaming. However, other jurisdictions such as
several Caribbean countries, Latin America and Australia, have taken the
position Internet gaming is legal and/or have adopted or are in the process of
reviewing legislation to regulate Internet gaming in such jurisdictions. As
companies and consumers involved in Internet gaming are located around the
world, there is uncertainty regarding exactly which government has jurisdiction
or authority to regulate or legislate with respect to various aspects of the
industry. Further, it may be difficult to identify or differentiate gaming-
related transactions from other Internet activities and link those transmissions
to specific users, in turn making enforcement of legislation aimed at
restricting Internet gaming activities difficult. However, because on-line
gaming is a relatively new industry, it is possible that in the future some or
all of these foreign jurisdictions may take action to more severely regulate, or
even prohibit, Internet gaming operations in their jurisdictions. 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.
The Company, along with other industry representatives, have adopted a
proactive policy of lobbying international jurisdictions, where appropriate, for
purposes of seeking approval of Internet gambling and the regulation of those
activities on a basis that is favorable to the Company. Pursuant to its position
with the Interactive Gaming Council, the Company's management has met with
representatives of organizations, such as the International Gaming Regulators
Association, to educate regulators and legislators on- line gaming and to
advocate an international regulatory framework.
Legislation designed to restrict or prohibit Internet gaming may be
adopted in the future in the United States or other jurisdictions. After
previous similar proposals failed to pass in 1998, Senator Jon Kyl of the United
States Senate introduced in March 1999 a revised proposal intended to prohibit
and criminalize Internet gambling (Internet Gambling Prohibition Act of 1997; S.
474). There can be no assurance whether any such bill will become law.
Additionally, existing legislation, including United States and federal
statutes, could be construed to prohibit or restrict gaming through the use of
the Internet. The Company's former Chief Operating Officer was invited to
testify before the President's National Gambling Impact Study Commission in
Washington, D.C. on the merits of on-line gaming regulation and against the Kyl
bill. At the present time, however, it is the Company's policy not to offer its
Internet gaming services to citizens or residents of the United States until
laws pertaining to on-line gaming are clarified, or the Company receives an
appropriate opinion from legal counsel that such activities are not illegal. The
Company will endeavor to comply with federal and state laws in the United State
in regard to gaming regulation.
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Insurance
The Company does not carry liability insurance with respect to the
business risks associated with its on-line gaming business. Presently, the
Company relies on its gaming vendor, SSII, to provide the necessary software and
servers to properly operate the Company's business. Although the Company's
agreement with SSII does not specifically provide for an extension of SSII's
liability insurance to the Company, the agreement does provide for a certain
degree of indemnification resulting from negligent action on SSII's part. The
Company has elected not to purchase separate liability insurance on its gaming
operations due to the prohibitive cost, the difficulty in obtaining such
insurance and the Company's strong belief in the integrity and security of
SSII's systems.
SSII's network is connected to the Internet via redundant high-speed
fiber, ensuring multiple backup connections to the Internet. This high
performance network infrastructure ensures reliable and responsive game play for
the Company and its end users/players. The system is composed of high speed Sun
Microsystems servers and Cisco networking equipment. Most of the critical system
components, such as the game servers and web servers, are distributed across
multiple machines, which protect the gaming service from failures due to
malfunctioning equipment. The highly scalable nature of SSII's system design
makes provisioning for additional capacity simple. Its network monitoring staff
tracks the system at all times to maintain constant awareness of the system's
operating parameters. New equipment is installed when necessary to compensate
for increased activity or anticipated peak demands for popular events.
To date, SSII has adequately provided its services with no material
disruptions or problems. Accordingly, the Company believes that SSII's security
coverage adequately protects the Company's interest and that further liability
insurance coverage by the Company is not currently warranted.
The Internet connection at SSII's network facility in Antigua is
provided by Cable and Wireless PLC and contributes to responsive game play. Each
gaming transaction is stored on an Oracle database that is replicated for
redundancy and backed up daily to prevent data loss and the gaming components
communicate using the Secure Sockets Layer (SSL) to encrypt and protect
sensitive data from potential hackers. In addition to SSII's digital network
serving gaming content, SSII has developed a state of the art proprietary
Electronic Funds Transfer System ("EFS") that provides a high level of security
and integrity of funds wagered.
SSII uses the most advanced technologies, such as site identification,
data encryption, and secure servers to provide users with the safest
environments to perform secure transactions, and data transmission, over the
Internet. Any transaction made with the Company online is completely secure and
convenient.
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SSII's system is protected by the Secure Sockets Layer (SSL) protocol, which
encrypts all information and confirms the identity of the server, before
allowing a transaction to be completed. Data encryption hides sensitive
information such as the customer's name, address, and credit card number. Even
if someone manages to obtain a player's personal information from the
transaction process, data encryption will not allow them to either read or use
it.
The random number generator employed by SSII is known as the "Mersenne
Twister" algorithm. This algorithm is employed to determine the random pattern
in which numbers are generated for casino games. SSII retained Dr. James Ngai
(Ph.D. University of British Columbia), to conduct an independent study of the
algorithm, which resulted in his finding that at a rate of calling 50 random
numbers per second, it will take 10 to the power of 5994.56 days before the
generator will repeat itself. The gaming client application is essentially a
casino graphical interface. Gaming calculations are performed by the game
server, while the client application displays the results and accepts input from
the player for further interaction. Communications between the client and server
are encrypted using the SSL protocol. The SSL prevents hackers from monitoring a
gaming session should they be able to intercept communications. To tamper with
the odds and payouts, a hacker would have to modify the game server or database
system. Both of these systems are protected from external access. The game
server can only be accessed using the gaming client. Learning the client/server
protocol will not aid a hacker in gaining additional winnings from the system,
since he/she would still be limited by the game server's rules and constraints.
The machines that the game server processes run on are only accessible from
SSII's private network. Users cannot connect to these servers using telnet,
rlogin, ssh, X windows, or any other login method. Therefore, it is not possible
for a hacker to tamper with game server code. The database systems are
completely shut off from the Internet and can only be accessed by a limited
number of applications on a closed network, such as the game servers and report
generators. All the information provided to SSII is kept strictly confidential,
and is used only to support the player's relationship with the Company.
SSII has developed a secure network both to preserve the absolute
integrity of the millions of financial transactions executed over their network
as well as to screen out potential website customers who may be residents of the
jurisdictions blocked from using the systems. SSII is in the process of
implementing additional country and address screening. By matching the credit
card number with the customer's country, postal code, and address, SSII is able
to successfully block customers from the jurisdictions blocked from using the
systems. The Company also outlines on its web pages, and within the software
itself, that it does not accept wagers from U.S. or Canadian citizens, nor will
it pay out funds to any address within North America. As an additional security,
SSII
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provides players with a Personal Identification Number (PIN) which is required
before any funds can be withdrawn.
Competition
The rapid expansion of the Internet and the potential profitability
associated with the Internet gambling business has attracted an increasing
number of operators. Consequently, the Company presently encounters significant
competition from existing providers of Internet gaming operations and expects to
encounter increasing competition as additional Internet gaming service providers
come on-line. The following table illustrates the growth in Internet gambling.
<TABLE>
<CAPTION>
On-line Casinos Lotteries Bingo Sports-books
<S> <C> <C> <C> <C>
May 1998 90 39 8 93
May 1999 250+ 64 20 139
April 2000 400+ 66 24 246
</TABLE>
----------
Source: Rolling Good Times Online, 1999 and 2000
#9 The Company estimates that there are over 100 on-line gaming
operators on the World Wide Web providing Internet gambling, with approximately
45 of these being publicly traded companies. Because the Company's gaming
operations specifically target Asia, it believes that its principal competitors
are those on-line casinos operating in this region. Principal competitors
include, but are not specifically limited to the following: (i) 88Fortune
Casino, a privately held casino; (ii) ImperialDragon Casino, a public company
operated by Go Call (www.goca.com); (iii) Joyluckcasino, operated by World
Gaming, a subsidiary of Starnet Communications; and (iv) AsianCasino, a
Cryptologic licensee operated by a private company.
A key factor behind the growth in the number of gambling sites is the
underlying structure of the industry. The nature of the industry is such that
once the initial gaming site has been established, the marginal costs of
modifying the look of the site and registering it under another URL are minimal.
Thus, in theory, the more sites that a company has established, the larger the
percentage of the Internet gambling market attainable. It is not uncommon for
some operators to have multiple sites that are slight modifications from one
another or multiple URLs that lead to the main site.
Many of the Company's present and future competitors have, or may have,
as the case may be, greater capital and other resources than the Company and may
choose to adopt an international marketing plan similar to the Company's. There
can be no assurance that the Company will be able to generate meaningful
revenues or earnings from its Internet gaming operations or otherwise
successfully compete in the future.
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Given the number of operators, the Internet gambling market initially
appears to be highly competitive. However, many of the companies in this
fledgling industry can be characterized as small entities with limited finances
and are without sophisticated marketing strategies. Also, many of these entities
operate with a single technology, focus on primarily on the United States market
and typically have limited contacts and exposure in the international arena.
Management believes that many of these companies will ultimately fail which will
result in only a reasonable number of dominant operators remaining.
Marketing Strategy
The rapid development of the Internet has created opportunities to
develop new, efficient and secure ways to deliver information and entertainment
to customers. The Company primary focus is to expand its market share of the
Internet gambling market and become a leader in the Internet gaming industry.
The key strategic objectives for the Company are:
1. Develop its role as a leading provider of Internet gaming
services;
2. Expand geographically to other markets; and
3. Selectively pursue opportunities that allow it to
leverage its marketing and Internet competencies into
other market segments
E-Casinos International will employ a variety of tactics to achieve
these objectives. These tactics include the following:
* Rapidly expanding its presence in Internet gaming markets:
By increasing the number of gambling websites that it will operate and
the number of its gaming product offerings at these sites, the Company can
expand its reach into the Internet gaming market. The addition of different
language sites targeted at the German, Italian, French, Spanish and Portuguese
and Middle Eastern markets are already in planning and are expected to be
launched in 2001. In addition, a portal site, www.ecasino.com, is available for
access and the Company anticipates that it will provide a mechanism to collect
and funnel traffic into the Company's gaming network.
The Company presently uses three primary forms of marketing to attract
prospective players to its on-line casino; on-line banner ads, print marketing
and direct CD distribution through third parties. The Company has used print
based periodicals, such as the Hong Kong Daily News and Gaming and Leisure
International to promote its websites. The Company believes, however, that
direct CD distribution and targeted Internet banner ads are more effective. To
that end, the Company has placed banner ads on such websites as Hong Kong.com
and Taiwan.com, as well as Internet search engines such as Hotbot.com and
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Asiaco.com. The Company is currently developing its third party strategic
relationships for further direct CD distribution to prospective end users.
The Company has obtained a registered trademark for "E-CASINOS."
Management believes that the trademark will help protect the Company from
conflicting use of the mark or similar marks by prospective competitors seeking
to gain benefit from this highly recognizable association with on-line gaming.
* Aggressively pursue partnership opportunities with other
gaming suppliers and local partners who have specific
geographical expertise to expand the E-Casinos name
internationally:
Recognizing that local presence is essential for the marketing and
promotion of Internet gaming in local markets, the Company intends to form
licensing or joint venture partnerships with native investors in countries
wherever possible. The Company is seeking local partners that can provide the
Company with local regional expertise to establish a distribution channel for
its gaming CDs, identify viable sources for advertising and marketing campaigns,
act as a liaison with government jurisdictions as necessary and provide general
input to the games, graphics and services to be provided on the web site.
Although gambling is an international activity, each region has its own
preferences as to how gaming is promoted and marketed. The Company will rely on
its local partners for the financial and marketing resources to promote the
gaming websites in their respective regions. The Company is currently in
discussions with potential interested partners in Western Europe, although no
final agreements have been reached.
* Provide high quality, innovative and superior products and
services:
Working with its existing suppliers as well as entering into strategic
relationships with alternative suppliers, The Company will focus on delivering
the best Internet gaming services. Rapid adoption of the latest product and
service offerings by its suppliers is a priority for the Company. The Company's
current technology partner (SSII) is planning to launch in the near future new
product offerings such as horse race betting, international lottery tickets and
an interactive bingo game. The Company will, in turn, market these product
offerings to its customer base. To insure against the risk of being overly
dependent upon a single technology, the Company is evaluating alternative
providers of gaming technology.
* Use its expanding customer base to generate ancillary revenue
streams:
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Upon registering at the Company's gaming websites, customers become
part of the Company database and are then eligible for cross-promotional
activities such as merchandise offers or casino "comp" type programs.
* Offer user-friendly Internet gaming:
As Internet gaming is a relatively new form of entertainment, it is
important that the Company provides a complete gaming experience for the
gamblers, many of whom may be new to the Internet. To address these issues, the
Company intends to offer:
(a) State-of-the-art, easy to play Internet games. The
Company's relationship with key software developers to
provide their Internet gaming expertise and casino game
development skills means the Company can provide the best
possible gaming environment. Easy to use graphical
interfaces, state of the art graphics, accessible help
programs and familiar game mechanics will allow gamblers
to understand and play the games.
(b) Credible Internet Gaming. A key factor for the success
of the Company will be the provision of secure,
legitimate and credible casino gambling. Through
participation of the various partners, independent
auditors and its corporate commitment to ethical business
practices, the objective of the Company is to provide a
fair and secure gambling environment for its patrons.
The Company has committed to participate in the
regulatory review processes being established by the
industry to ensure the fairness, quality and legitimacy
of the gaming provided.
Proposed Acquisition of Cyberdome
Part of the Company's long-term strategy is to expand its on- line
business to include more conventional gaming (non-gambling) and other Internet
related activities. Accordingly, the Company entered into a letter of intent in
November 1999 to acquire Cyberdome Entertainment Inc. ("Cyberdome"), a privately
held company located in Ottawa, Ontario, Canada. The Company desires to acquire
Cyberdome subject to the completion of satisfactory due diligence by the Company
and approval by the Boards of Directors of both parties. The Company's due
diligence includes, but is not limited to, the satisfactory review of
Cyberdome's audited financial statements when they become available.
Completion of the acquisition is also contingent upon the Company
finalizing its Form 10-SB Registration Statement. At such time, the parties have
the option to reconsider the existing terms of the letter of intent in relation
to their then current financial and business conditions.
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Under the proposed terms of the letter of intent, the Company intends
to make an offer to Cyberdome shareholders to acquire their shares of Cyberdome
capital stock in exchange for up to 3,000,000 shares of convertible preferred
stock. Said preferred stock shall be convertible into shares of the Company's
common stock at a one- to-one ratio. The preferred stock shall be callable by
the Company for a twenty-four month period following consummation of the
acquisition, pursuant to terms to be negotiated by the parties. Holders of the
preferred shares will have the option of exchanging their shares for Cyberdome
shares on terms to be negotiated. The Company also intends to make an offer to
Cyberdome's secured creditors to convert Cyberdome's indebtedness into shares of
the Company's convertible preferred stock.
In anticipation of the proposed acquisitions, the Company has advanced
funds to Cyberdome to be used for working capital. As of March 31, 2000, the
Company has advanced a total of $185,757 to Cyberdome pursuant to a secured
demand note which carries interest at the rate of 10%. The note is secured by a
general security agreement with Cyberdome.
Cyberdome is a technology entertainment ("technotainment") company that
operates a 25,000 square fool Virtual Reality Theme Park located in the St.
Laurent Shopping Center, Ottawa, Ontario, Canada. This facility would
potentially provide a base for a network of affiliated Location Based
Entertainment Centers ("LBE's") providing the infrastructure for members to play
multi- player games, either onsite or on-line using the Internet. A typical LBE
would include a full-service restaurant that potentially could obtain up half of
its revenues from food and drink with the balance from amusements.
The Company believes that the acquisition of Cyberdome could be
finalized during the third or fourth quarter of 2000. The Company will not
proceed with the acquisition unless it finalizes its Form 10-SB registration
statement and satisfactorily completes its due diligence investigation,
including review of Cyberdome's audited financial statements. There can be no
assurance that the Company will successfully complete the acquisition.
Year 2000 Risks
The Year 2000 issue results from a computer industry-wide practice of
representing years with only two digits instead of four. Beginning in the year
2000, date code fields need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates (2000 or 1900). As a
result, computer systems and/or software used by many companies needed to be
upgraded to comply with such Year 2000 requirements. Through July 31, 2000, the
Company has not experienced any significant problems associated with the Year
2000 issue nor has it been made aware of or experienced date related problems
with any third-party software. Although it appears that the Year 2000 issue will
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<PAGE>
not have a significant adverse effect on the Company, it continues to monitor
the Year 2000 compliance of its internal systems. Undetected errors in its
internal systems that may be discovered in the future could have a material
adverse effect on its business, operating results or financial condition.
Employees
As of the date hereof, the Company has four full-time employees
functioning in senior management and marketing positions. Because the Company
licenses and subcontracts primary services, it primarily use consultants and
advisors to provide other, mostly "part-time" services, required for its
operations. The Company has entered into a consulting agreement with its former
Chief Operating Officer to supply guidance and advisory services to management
in matters related to the on-line gaming industry. Management intends to hire
additional qualified employees only as business conditions warrant and as funds
are available.
The Company has entered into a certain licensing agreement with SSII as
an initial means of developing its service offerings and, accordingly, relies
upon the work performed by its licensing partner. See "Item 1 Description of
Business - Business Development". As the Company's virtual casinos become more
fully developed, it is anticipated that the Company will hire additional
qualified personnel consistent with workload requirements and as business
conditions warrant.
Trademarks
The Company has received notice from The United States Patent and Trademark
Office of its approval of "E-CASINOS" as a registered trademark. The certificate
of registration (Service Mark Reg. No. 2,018,862) was issued on October 28, 1997
by the U.S. Patent and Trademark Office. The registration covers entertainment
services, namely providing on-line casino style gaming services accessed via a
computer network. This registration will be canceled by the Commissioner of
Patents and Trademarks after six years unless, prior to the end of the sixth
year following the date of registration, the Company files with the U.S. Patent
and Trademark Office an application for renewal. The Company full intends to
maintain its registration and to defend vigorously its trademark in the on-line
gaming industry.
Research and Development
The Company has relied upon the developers of the technology, which it
has acquired or licensed to carry out the research and development related to
the particular technologies. Thus, during the most recent three fiscal years,,
the Company did not expend any material funds directly on research and
development related to the Company's entry into the Internet gaming business.
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<PAGE>
resently, the Company relies on consulting agreements with (i) Silk Road
Communications, Inc., represented by Victor Jung, the Company's Vice President
of Technology, and (ii) Mr. Arthur Rosenberg, a former officer, to monitor and
review its licensed technology, as well as keeping the Company appraised of new
industry developments in the Internet and on-line gaming business. See Item 6 -
Consulting Agreements. The Company expects to continue to license or otherwise
acquire technology in the future, but may expend funds to further any acquired
technology to suit its individual needs. However, management anticipates that in
the future it may expend funds for ongoing research and development of new
products and to enhance existing ones. As of the date hereof, management has
made no estimates as to the extent of any future research and development
expenditures.
Risk Factors Relating to the Company's Business
Because of the nature of the Company's business, it encounters many
risk factors . Each of the factors set forth below could adversely affect the
business, operating results and financial condition of the Company.
Possible Difficulties from Operations in Foreign Countries
Most of the Company's business is being conducted in foreign countries
which may encounter unfavorable economic or political situations. Also, some of
these countries do not have highly developed telecommunications infrastructure
which can result in overloaded lines, slow speed of electronic traffic, and a
potential for break-downs. Thus, because of the nature of the its business,
potential telecommunication problems could have an adverse effect on the
Company.
Failure to Respond to Rapid Technology Change Could Have
Adverse Effect on the Company's Business Results
The Company's business involves operations on the Internet, a fast
growing and rapidly changing industry. Internet technology, commercial
applications and on-line users are constantly evolving. If the Company is unable
to respond to rapid changes involving the Internet and its technology, the
Company's business could be adversely affected.
Potential Technology Failures Could Cause System Interruptions
and Force the Company's Websites to Shut Down
The Company's Internet business is dependent on the efficient and
uninterrupted operation of its computer and communication hardware and software
systems. System interruptions that cause the Company's websites to be
unavailable or that reduce the ability to process transactions could materially
and negatively affect the Company's business, operating results and financial
conditions. Interruptions could result from natural disasters as well as power
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<PAGE>
loss, telecommunications failure and similar events. Although the Company has
experienced occasional short-term interruptions, it has not developed a formal
disaster recovery plan in the event of a prolonged interruption.
On-line Security Breaches Could Cause Business Interruptions
and Have an Adverse Effect on the Company's Operations and
Revenues
Although the Company employs state-of-the-art security systems, on-line
security breaches could negatively impact the Company's on-line business. See
"Insurance" heading above.To protect confidential information, the Company
relies on encryption technology, which transforms information into code designed
to be unreadable by third parties. The Company also employs authentication
technology that uses passwords and other information to prevent unauthorized
persons from accessing a customer's information. If a person circumvents
existing security measures, that person could misappropriate confidential
information about the Company, its customers, or cause interruption in
operations. Security breaches that result in access to confidential information
also could damage the Company's reputation and expose the Company to a risk of
loss and liability. Additionally, the Company may be required to make
significant expenditures and expend considerable effort and time to protect
against security breaches.
Improper Use by Customers or Non Payment Could Reduce Revenues
and Create to Liability for Unauthorized Use
As with most on-line providers, there exists a risk of use by
unauthorized persons or by persons that do not pay for the services or goods
offered. Because the Company offers gaming services on its websites, there are
special considerations. These include the use by unauthorized persons,
particularly by a minor or by a person in a jurisdiction when such use is
prohibited. Improper use or fraudulent activities could cause monetary loss to
the Company and create potential legal liabilities. The Company relies on its
on- line gaming provider, SSII, to employ a registration process that
establishes and confirms the identity of the prospective player. This process is
designed to screen out minors and other undesired applicants prior authorizing
gaming activities. There also is a risk of not being able to collect funds from
a player on the Company's website. The Company requires a potential player on
its website to first place funds "on-account" with the Company prior to the
initiation of any gaming activities for real money. As a player loses, those
funds are debited from their funds account and transferred to the Company's
account. On occasion and for various reasons, a player may claim that their
gaming activities were not authorized and may request a chargeback on their
debited funds. Because the Company places monetary limits on its customers, it
may find it expedient to authorize such a chargeback and not contest the claim
in order to prolong a dispute. In such an event, the account holder would then
likely be voided from future play.
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Legislation Adverse to On-Line Gaming Could Curtail
Development of the Company's Business
Gaming activities are stringently regulated in the United States and
most other developed countries. Because of the Company's gaming activities
offered over the Internet, it is subject to applicable laws in the jurisdictions
in which it operates. Some jurisdictions have introduced regulations to attempt
to restrict or prohibit Internet gaming, and other jurisdictions have adopted,
or are in the process of reviewing, legislation to regulate Internet gaming.
Currently, there is uncertainty regarding exactly which government has
jurisdiction or authority to regulate or legislate with respect to various
aspects of Internet gaming. There is the possibility that some or all
jurisdictions may take action to more severely regulate, or even prohibit,
Internet gaming operations in their jurisdictions. The uncertainty about present
and future regulation of Internet gaming and potential new legislation could
have a material adverse effect on the Company's business, revenues, operating
results and financial condition.
Competition Could Negatively Effect Our Gaming Services
The Internet gaming industry is highly competitive and rapidly
changing. The Company faces such competition on a regional and international
basis in those jurisdictions in which it operates. Additional competitors may
also enter the market and competition may intensify. Some of these competitors
have substantially greater financial resources than the Company. These entities
generally may be able to accept more risk than the Company prudently can manage,
including risks with respect to the creditworthiness of customers and evolving
technology.
Short Operating History Could Lead to a Lack of Profitability
and Lack of Business Growth
The Company has a short operating history and is deemed to be a
development stage company in the early phases of operation. Its likelihood of
success must be considered in light of the many unforeseen costs, expenses,
problems, difficulties and delays frequently associated with new ventures. Also,
there is no assurance that the Company's business ventures will be successful or
that it will be able to attract and retain sufficient customers and clients to
attain its goals. The Company anticipates that its operating expenses will
increase substantially as its business expands and there will be a greater need
to generate significantly more revenues to achieve profitability. There is also
the possibility that the Company will have to secure future funding, either debt
or equity, in order to finance its activities. There can be no assurance that
any such funding will be available to the Company or, that if it is, it will be
available on terms favorable to the Company.
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Concentration of Share Ownership Gives Control of the Company
to a Small Group
The Company's directors, executive officers and other principal
shareholders own approximately 34.5% of the Company's outstanding common stock
as of December 31, 1999. As a result, these persons possess significant
influence over the Company on matters including the election of directors. This
concentration of share ownership may: (i) delay or prevent a change in control
of the Company; (ii) impede a merger, consolidation, takeover, or other business
involving the Company; or (iii) discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the Company.
Difficulties in Future Funding Could Hinder Growth and
Development of the Company's Business
In the past, the Company has financed much of its operations from
borrowing and from the sale of its securities. Since 1994, the Company has
issued 30,354,011 shares of common stock upon the conversion of debentures,
settlement of debt, and exercise of warrants issued in connection with
debentures and settlement of debt. Additionally, the Company has issued stock
purchase warrants to acquire an additional 2,830,000 shares in exchange for
various services and consulting activities. None of these warrants have been
exercised. It is unlikely that these funding sources will be sufficient to
satisfy the Company's future, increasing financing demands. Accordingly, the
Company may have to seek additional funding from other outside sources. There
can be no assurance that outside funding will be available to the Company at the
time and in the amount to satisfy the Company's needs, or, that if such funds
are available, they will be available on terms favorable to the Company. If the
Company issues additional shares of common stock, current shareholders may
experience immediate and substantial dilution in their ownership of Company
shares. In the event the Company issues securities or instruments other than
common stock, it may be required to issue such instruments with greater rights
than that currently possessed by holders of the Company's common stock.
Continuing Losses Creates Concern Whether the Company Will Be
Able to Continue as a Going Concern
The Company has incurred operating losses since its inception and has
not established a source of revenues sufficient to cover its operating costs.
For the years ended December 31, 1999 and 1998, the Company had net operating
losses of $1,133,481 and $681,671, respectively. The Company's management and
independent auditors have included a footnote in the Company's consolidated
financial statements for the periods ended December 31, 1999 and 1998 stating
that because of the Company's continued losses and need for additional funding,
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there is substantial doubt as to whether the Company can continue as a going
concern. See Note 5 to the consolidated financial statements.
Limited Public Market for the Common Stock May Create a Lack
of Liquidity for Shareholders
Presently, the Company's common stock is traded in the over-
the-counter market and included on the OTC Bulletin Board. However, unless this
registration statement becomes effective in a timely manner, there is a risk
that the Company's common stock could be removed from the OTC Bulletin Board. In
this event, the company will have to apply for and be accepted to the "pink
sheet" in order to have its securities quoted and traded by broker- dealers.
This could severely limit the liquidity of the trading market in the Company's
shares and have an adverse effect on the price of the shares. Accordingly, there
can be no assurance that an active trading market in the Company's shares will
be sustained.
Risk Factors and Cautionary Statements
This Registration Statement contains certain forward-looking
statements. The Company wishes to advise readers that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements, including, but
not limited to, the following: the possible success of the Company's websites,
the effect of future legislation on the Internet gaming business, the ability of
the Company to fund its current and future projects and its ability to meet its
cash and working capital needs, and other risks detailed in the Company's
periodic report filings with the Securities and Exchange Commission.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in the Form 10-SB.
Overview
The Company is a development stage company and has incurred losses from
its inception through March 31, 2000. Since 1995, the Company has been engaged
in the development, acquisition and licensing of certain computer based
technology designed to ultimately offer a full range of casino-style gaming,
entertainment, information and financial transaction services over the worldwide
Internet. The Company further intends to leverage its anticipated client base of
Internet gaming players to the more expansive world of electronic commerce
("e-commerce") for purchase of more basic commodities and services.
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In March of 1999, the Company entered into a nonexclusive software
license agreement with Starnet Systems International Inc. ("SSII"), to provide
the Company with a complete turn-key computer hardware, software and customer
support package for the operation of one or more on-line casino websites. In
July 1999, the Company established a corporation to operate said on-line casinos
under the authorization of the Government of Antigua and Barbuda. EuroAsian
E-Casinos International Ltd. ("E-Casinos International") was incorporated as a
wholly owned subsidiary of the Company. Pursuant to this incorporation, the
E-Casinos International was granted an Offshore Virtual Casino Wagering license
in July of 1999 by the Free Trade & Processing Zone of Antigua.
In conjunction with the SSII license agreement, the Company has
established a website (www.asiacasino.com) to conduct initial gaming operations.
The Asia Casino website and Sportsbook became operational in July of 1999 and
began marketing and accepting wagers from various jurisdictions around the world
(primarily targeted to Asia) with the exception of the United States and Canada.
Revenues are derived primarily from the operation of E- Casinos International.
In the past, the Company has not established a source of revenues
sufficient to cover its operating costs and to allow it to continue as a going
concern. The Company intends to seek additional financing through private
placements of its securities, although there can be no assurance that the
Company will be successful in any such funding. The Company anticipates that it
will begin to realize cash flows from its operations during fiscal 2000 and that
it expects to need from $1,000,000 to $2,000,000 of funds for operations and
expansion in 2000, and approximately $2,000,000 in the year 2001. #22 The
Company intends to expand its on-line gaming business into other geographical
areas, as is warranted, through its negotiations with prospective partners in
those areas. As of the date hereof, the Company has no definitive agreement or
plan to expand its gaming business. A primary mitigating factor is the
uncertainty associated with the pending on-line gaming legislation under
consideration in the United States Congress. Prospective partners will be keenly
interested in the United States market and any possible decision may be affected
by the course of action taken by Congress in calendar year 2000. In the interim,
the Company continues to market and promote its gaming operations in Asia,
Management believes that a strategic follow-on to its Internet gaming
business is an initiative to develop and launch a family of websites, each of
which will appeal to a defined target market. Each of the websites is intended
to have a strong revenue model and feature proprietary or unique benefits for
members. Although future sites will be developed as independent business units,
they will have the ability to draw upon the Company's core team of professionals
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in areas such as legal, accounting, finance, investor relations, technical and
marketing. Each prospective site will be developed with the potential for
multiple revenue streams. The Company anticipates that these websites will be
developed in 2000 and beyond, possibly in conjunction with Cyberdome
Entertainment and Aptech Limited, a public technology developer in India. The
number of different community sites built under this strategy will be a function
of available capital from investment and revenue streams from predecessor sites.
A natural first selection of an Internet community would be one related
to the on-line and land based gambling business. As an e-casino operator,
E-Casinos has an insider view of on-line gambling. The Company intends to
leverage this knowledge into a gambler membership website and expects to
establish a website as a center for gambling information, tips, strategies,
tutorials, discounts and reviews. While providing members with a wide variety of
services and benefits, the Company will be able to establish a membership list
of people with a common interest.
There are numerous portals and on-line gambling magazine sites on the
internet which attempt to gather traffic and send it to affiliated sites.
Companies who own casinos operate many of these sites. Very few of them are
building a community of players who will return to the site on an ongoing basis
for unbiased analysis and information about Internet gambling. Revenue will be
earned from casino referrals, e-commerce, advertising, sponsorships and
membership fees. The Company also expects to receive considerable interest from
land based casinos who would pay the Company to offer "gambling junkets" to its
members.
The Company anticipates that its cash needs will not exceed $2,000,000
per year for the foreseeable future with respect to its on-line gambling and
corporate growth strategy. The Company will consider "spinning off" its Internet
community site subsidiaries and divisions as they move past the startup stage.
These entities would then raise their own growth capital in either the public or
private markets.
Unless the Company is able generate revenues and/or raise sufficient
capital to finance its operations in 2000 and 2001, there is substantial doubt
about its ability to continue as a going concern.
Results of Operations
Information is presented for the three month period ended March 31,
2000 and the Company's most recent two fiscal years ended December 31, 1999 and
1998.
Three Month Period Ended March 31, 2000 Compared to the Three Month Period Ended
March 31, 1999.
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The Company first began gaming operations for real money and realized
revenues in the latter half of 1999. For the three month period ended March 31,
2000 ("first quarter of 2000"), the Company had revenues of $52,052. No revenues
were realized in the first quarter of 1999. Cost of sales for the first quarter
of 2000 was $16,904, or 32.5% of revenues, compared to $-0- for the 1999 period,
resulting in a gross margin of $35,148. Cost of sales includes royalties,
payable to Starnet Systems International Inc. ("SSII"), incurred on gambling
activities and bank discount fees incurred by the Company for the acceptance of
credit cards. Cost of sales are expected to remain at this percentage level for
the foreseeable future, but as casino volume increases, the percentage of
royalty payment will likely decrease per a negotiated schedule with SSII.
General and administrative expenses for the first quarter of 2000
increased 88% to $260,566 from $138,260 for the comparable period in 1999. This
increase is primarily attributed to commencement of the Company's on-line casino
in July 1999. Factors contributing to the increase include the addition of staff
and consultants in support of casino operations, an increase in office expense
in support of added personnel, inclusion of amortization expense for the
Company's gaming and software licenses, legal and professional fees, and
promotional expenses related to the acquisition of prospective players for the
Company's website.
Depreciation and amortization for the first quarter of 2000 increased
to $22,088 (146%) compared to the 1999 period. The increase was primarily due to
the recognition in the quarter of software license amortization that was
initiated in the latter half of 1999 with the commencement of on-line gaming
operations. The Company's loss from operations for the first quarter of 2000 was
$247,506 compared to a loss of $147,239 for the 1999 period. The increased loss
is primarily attributed to the increase in general and administrative expenses
due to commencement of the Company's on-line casino.
The Company had interest expense of $140,015 for the first quarter of
2000 compared to $97 for the same 1999 periods. Interest expense in 2000
resulted from payment of interest on monies advanced to the Company in the form
of a convertible debenture and the issuance of debentures and warrants at less
than market value. The Company recorded $129,795 in interest expense to reflect
the debt conversion / warrant component of the convertible debenture. The
debenture is convertible into shares of the Company's common stock at $0.15 per
share, which amounts to a $0.0375 difference in the price of the stock at
closing on the date of issue. The $129,795 reflects the difference in fair
market value of the stock should the entire debenture and attached warrants be
converted. There were no conversions of the debenture during the first quarter
of 2000.
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During the first quarter 2000, the Company sold certain investment
securities realizing a gain of $547,139. During this same period the Company
also recorded $587,603 in unrealized gain on marketable securities held by the
Company.
The Company's reported a net profit of $750,138 for the first quarter
of 2000 compared to a net loss of $147,336 for the first quarter of 1999. The
2000 profit is attributed to the realized and unrealized gains on marketable
securities held by the Company.
Fiscal Year Ended December 31, 1999 Compared to Fiscal Year Ended
December 31,1998
The Company realized revenues of $29,710 from its on-line gaming
operations during fiscal year ended December 31, 1999. The Company first began
gaming operations for real money in the latter half of 1999. The Company did not
have revenues for fiscal year ended December 31, 1998, as it elected to
terminate its software licensing arrangement with CWH and seek other suitable
licensing arrangements. A new arrangement with SSII was secured in 1999. Cost of
sales for 1999 were $10,232 or 34.4% of revenues compared to $-0- for 1998,
resulting in a gross margin of $ 19,478 for 1999. Cost of sales includes
royalties (payable to SSII) incurred on gambling activities and bank discount
fees incurred by the Company for the acceptance of credit cards. Cost of sales
are expected to remain at this percentage level for the foreseeable future, but
as casino volume increases, the percentage of royalty payment will likely
decrease per a negotiated schedule with SSII.
General and administrative expenses for 1999 increased 69% to
$1,091,453 from $645,754 for the comparable period in 1998. This increase is
primarily attributed to commencement of the Company's on-line casino in July
1999. Factors contributing to the increase include (i) a $39,000 increase in
advertising and promotions, related to the acquisition of prospective players
for the Company's website; (ii) a $67,000 increase in gaming/technology license
amortization; (iii) a $109,000 increase in consulting fees and $59,000 increase
in salaries due to the addition of staff and consultants in support of casino
operations; (iv) a $22,000 increase in office expense in support of added
personnel; and (v) a $25,000 increase in legal and professional fees.
Depreciation and amortization for 1999 increased $25,589 (71%) compared
to the 1998 period. The increase was primarily due to the $25,000 in software
license amortization recorded by the Company in 1999. The balance of the 1999
expense was $36,505 in depreciation of property and equipment that was
consistent with the amount recorded for 1998. The Company also had interest
expense of $434,105 in 1999 compared to $0 for the same 1998 periods. This
interest expense resulted from payment of interest on monies advanced to the
Company in the form of a convertible debenture, and the issuance of debentures
and warrants at less than market value. The Company recorded $400,000 in
interest expense to reflect the debt conversion/warrant component of the
convertible debenture.
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The debenture is convertible into shares of the Company's common stock at $0.20
per share, which amounts to a $0.04 difference in the price of the stock at
closing on the date of issue. The $400,000 reflects the difference in fair
market value of the stock should the entire debenture be converted.
The Company experienced a 66.3% increase in net loss from operations
for its fiscal year ended December 31, 1999 over the comparable period in 1998.
The increase in net loss is primarily attributable to an increase in general and
administrative expenses of $445,700 and, to a lesser extent, an increase in
depreciation and amortization of $25,590. Gross margin of $ 19,478 from the
initiation of gaming operations in 1999 did not materially offset the increase
general and administrative expenses. Also, in 1999 the Company recorded
additional interest expense of $400,000 to reflect the discount of 20% on a
debenture issued in 1999 with attached warrants. This was partially offset by
the unrealized gain of $116,900 on marketable securities held by the Company at
December 31,1999. In 1998, the Company recognized an expense of $1,400,000 for a
loss associated with the write-off of capitalized license fees paid to Casino
World Holdings in 1996 and 1997. No additional interest expense was recorded in
1998 as warrants issued were above or at market prices. Noting the above
factors, the Company's net loss for 1999 decreased 30% to $1,450,698 from
$2,081,671 in 1998.
Net Operating Losses
The Company has accumulated approximately $6,200,000 of net operating
loss carryforwards as of March 31, 2000, that may be offset against future
taxable income through 2020 when the carryforwards expire. The use of these
losses to reduce future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the net operating loss carryforwards.
In the event of certain changes in control of the Company, there will be an
annual limitation on the amount of net operating loss carryforwards which can be
used. No tax benefit has been reported in the financial statements, because the
Company believes there is a 50% or greater chance the carryforwards will expire
unused. Accordingly, the potential tax benefits of the loss carryforwards is
offset by valuation allowance of the same amount.
Liquidity and Capital Resource
Historically, the Company's working capital needs have been satisfied
primarily through the Company's private placement of securities and through
other debt instruments, such as convertible debentures. The Company reasonably
expects to continue to do so in the future. At March 31, 2000, the Company had
working capital of $961,289 compared to $66,869 at December 31, 1999. The
increase is primarily attributed to the Company's minority interest in Ocean
Power Corporation ("Ocean Power"), accounted for at a fair market value of
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$787,500 at March 31, 2000, compared to $275,000 at December 31, 1999. At March
31, 2000, the Company had a note receivable of $185,757 representing an
unsecured note due from an unrelated company. Also at December 31, 1999, the
Company had $443,754 in cash compared to $17,944 at December 31, 1999. The
increase in cash is attributed to the Company's sale of investment securities
owned by it.
As of March 31, 2000, the Company had total assets of $1,591,619 and
total stockholders' equity of $1,039,240 compared with total assets of $552,849
and total stockholders' equity of $159,307 at December 31, 1999. Assets and
stockholders' equity increased in the first quarter of 2000 primarily due to
appreciation of the Company's investment in Ocean Power.
#23 During 1999, the Company converted the Debenture received from the sale of
Tessier, into 200,000 shares of PWRE common stock. At December 31, 1999, the
shares were valued at $1.35 per share, or $275,000. During the first quarter of
2000, the Company sold into the public market, 95,000 PWRE shares at an
approximate average price of $6.50 per share and received net proceeds of
$618,000. As of March 31, 2000, the Company had expended approximately $275,000
of the net proceeds for general operating expenses including, but not limited
to, license fee payments, salaries, consultant fees, professional fees,
marketing, rent and utilities. The Company anticipates that it may sell
additional shares during 2000 and use the proceeds for general operating
expenses.
For the three months ended March 31, 2000, cash used by operating
activities increased to $519,486 compared to $146,497 for the comparable 1999
period. This 255% increase is primarily attributed to a $165,651 reduction in
accounts payable, payment of periodic license fees, advances made to an
unrelated company pursuant to a secured note receivable and an increase in
general and administrative expenses. #26
For the year ended December 31, 1999, cash used by operating activities
increased to $1,081,871 compared to $682,062 for the year ended December 31,
1998. This 59% increase is primarily attributed to the increase in general and
administrative expenses of $445,699 and prepaid expenses associated with the
launch of the Company's casino operations in 1999. At December 31, 1999, the
prepaid expenses were $74,413. This is primarily made up of prepaid license
expense of $58,333 and prepaid interest of $10,833 related to the $120,000 note
to SSII for advanced payment of the Company's Antigua gaming license. The
remainder of thee prepaid expenses are for miscellaneous items such as prepaid
Internet banner ad advertising. #28 #29
During 1999, the Company realized cash from financing activities of
$1,089,064 compared to $721,456 in 1998. The 1999 results are due to proceeds
received from notes payable resulting from the conversion of a convertible
debenture.
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In September 1999, the Company authorized the convertible debenture for up to
$1,000,0000 to repay funds advanced to the Company by Enterprise Capital, Inc.
"Enterprise Capital"), in conjunction with VanAus Investments Ltd. ("VanAus").
Both Enterprise Capital and VanAus are private entities that have advanced funds
to the Company. The debenture was to repay funds advanced to the Company during
1999 and supercedes a previous debenture issued in January 1999, and $379,458 in
previously advanced funds. The debenture carried an interest rate of 10% and
provides for a two year conversion period in which the debenture holder may
convert advanced funds into shares of the Company's common stock at the
conversion price of $.20 per share. Each converted share includes the right to
purchase an additional share of common stock at $.20 per share for a five year
period commencing from the date of original conversion. At the time of the
issuance of the debenture, the market price of the Company's common stock was
$.24 per share.
Enterprise Capital has coordinated with other key investors to advance
funds to the Company, as necessary. In many instances, Enterprise or its
principal owner, Barry Bampton, have introduced the Company to the prospective
investors. These advances are typically converted into restricted shares of the
Company's common stock at the end of each fiscal quarter.
Also during the first quarter of 2000, the Company realized cash from
investing activities of $620,808 compared to cash used of $25,000 in the 1999
period. The 2000 results are due to the sale of marketable securities. In
addition, the Company realized cash from financing activities of $324,488
pursuant to advances made against the issuance of a convertible debenture in
first quarter of 2000 compared to $263,909 in similar advances made during the
comparable 1999 period.
In January 2000, the company authorized a convertible debenture for up
to $500,000 to repay funds advanced to the Company by Enterprise Capital, Inc.
The debenture only applied to funds received by the Company through April 3,
2000. $324,488 of such funds were received by the Company during the qualifying
period. The debenture carries an interest rate of 12% per annum and provides for
a two year conversion period in which the debenture holder may convert advanced
funds into shares of the Company's common stock at $0.15 per share. Each
converted share includes the right to purchase an additional share of common
stock at $0.15 per share for a five year period commencing from the date of
original conversion. No shares have been converted to date.
In September 1999, the Company authorized a convertible debenture for
up to $1,000,0000 to repay funds advanced to the Company by Enterprise Capital,
Inc., in conjunction with VanAus Investments Ltd. The debenture was to repay
funds advanced to the Company during 1999 and supercedes a previous debenture
issued in January 1999, and $379,458 in previously advanced funds. The debenture
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carried an interest rate of 10% and provides for a two year conversion period in
which the debenture holder may convert advanced funds into shares of the
Company's common stock at the conversion price of $.20 per share. Each converted
share includes the right to purchase an additional share of common stock at $.20
per share for a five year period commencing from the date of original
conversion. At December 31, 1999 the Company converted the balance of the
debenture into common stock as well as $80,064 of the attached warrants. There
were no warrant conversions in the quarter ended March 31, 2000 and total shares
issued pursuant to this debenture and attached warrants as of March 31, 2000 are
5,400,320.
In 1999, in connection with the Company's license agreement with SSII,
the Company's subsidiary, E-Casinos International Ltd., was granted a virtual
casino gaming license from the government of Antigua. SSII agreed to advance
funds for the gaming license in return for installment payments totaling
$120,000. As of March 31, 2000, the Company has paid $60,000, leaving a balance
still owed of $60,000. The Company has also paid SSII $70,000 towards its
software technology license, leaving a balance owed of $30,000.
The Company leases its facilities on a quarter to quarter basis and is
not required to obligate itself to a minimum commitment for rental time.
During fiscal year 2000, the Company anticipates meeting its cash and
working capital needs primarily from the proceeds of the sale of its shares
through private placements or similar convertible instruments and revenues
generated from operations.
Effect of Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
Recent Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The adoption of this statement had no
material impact on the Company's financial statements.
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Item 3. Description of Property
The Company does not presently own any real property. From February
1996 through June 1999, the Company conducted its primary corporate activities
from rented facilities in Northern Virginia. The Company conducted its
technical, marketing and promotional activities from leased facilities in North
Vancouver, BC, Canada. In accordance with the trend for on-line gaming companies
to operate its business outside United States jurisdictions and the proximity of
its software technology licensor in Vancouver, the Company decided in June 1999
to consolidate all of its business activities in North Vancouver. The Company
occupies approximately 2,750 square feet of leased office space located at 1055
West 14th Street, North Vancouver, BC. These facilities are leased from
Pulverizer Systems, Inc., a subsidiary of Tessier.
The Company has established Venture Tech Holdings (Canada) Inc., a
British Columbia corporation, as a wholly owned subsidiary to provide management
services to its gaming subsidiaries. The Company believes that it is more
efficient to have the majority of its operations located next to its principal
vendor, SSII, which is also located in Canada. The Company will maintain a
corporate liaison office in Northern Virginia, primarily to serve investors in
the United States and to provide information about the Company upon request.
Two of the Company's directors, Kenneth Fitzpatrick and Craig Bampton,
primarily use their own independent office space located in their homes in Santa
Barbara, California and Winnepeg, Canada, respectively, to conduct the business
of the Company. The Company reimburses Messrs. Fitzpatrick and Bampton for
"out-of-pocket" expenses related to the Company's business. The Company believes
that its current facilities, including the home offices, are adequate for its
current needs and anticipates securing additional office space as business
conditions warrant.
Item 4. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best of the
Company's knowledge, as of December 31, 1999 with respect to each person known
by the Company to own beneficially more than 5% of the outstanding common stock,
each director and all directors and officers as a group.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(1)
-------------------- -------------------- -----------
William D. Baker* 360,000(2) 1.0%
4588 Teviot Place
North, Vancouver, BC,
Canada V7R 4M5
Alyssa J. Bampton* 1,290,900(3) 3.5%
441 New Lance Place
West Vancouver, BC,
Canada V7P 1W4
Barry G. Bampton 1,165,800 3.1%
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Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(1)
-------------------- -------------------- -----------
5295 Gulf Place
West Vancouver, BC,
Canada V7W 2V9
Craig J. Bampton* 1,327,000(4) 3.6%
65 Fletcher Crescent
Winnepeg, Manitoba,
Canada R3T 0K9
G. Michael Cartmel* 735,000(5) 2.0%
302-2170 West Third Ave.
Vancouver, BC,
Canada V6K 1L1
Cybertech Investments Ltd. 3,000,000 8.1%
Brian Lomgpre
East Bay Centre #b-66
Nassau, Bahamas
Kenneth F. Fitzpatrick* 784,000(6) 2.1%
709 Park Lane
Santa Barbara, CA. 93108
Victor Jung 175,000(7) .5%
c/o 1055 West 14th Street
Suite 400
North Vancouver,
B.C. 7P 3P2
Manasia Development Ltd. 2,249,700 6.1%
David Tang
701 United Chinese Bank Bldg.
Des Voeux Road,
Central Hong Kong
Texco Investments 2,272,859 6.1%
Robert Wang
No. 2, Jalan37
Taman Desa Jaya
Kepong, 52100 Kuala Lumpur
Malaysia
VanAus Investments Ltd. 438,000 1.2%
Barry G. Bampton
5295 Gulf Place
West Vancouver, BC,
Canada V7W 2V9
All directors and executive
officers as a group 4,510,700(8) 11.9%
------------------
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, the
Company has been advised that each person above has sole
voting power over the shares indicated above.
(1) Based upon 37,014,165 shares of common stock outstanding on
December 31, 1999, but does not take into consideration stock
options owned by certain officers, directors and/or principal
shareholders entitling the holders to purchase an aggregate of
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1,040,000 shares of common stock and which are currently
exercisable. Therefore, for purposes of the table above,
38,054,165 shares of common stock are deemed to be issued and
outstanding in accordance with Rule 13d-3 adopted by the
Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. Percentage ownership is
calculated separately for each person on the basis of the
actual number of outstanding shares as of December 15, 1999
and assumes the exercise of stock options held by such person
(but not by anyone else) and exercisable within sixty days.
(2) Includes 360,000 shares which may be acquired by Mr. Baker
pursuant to the exercise of warrants and/or stock options
exercisable on a quarterly basis from December 1, 1999 through
September 1, 2000.
(3) Includes 90,000 shares which may be acquired by Ms. Bampton
pursuant to the exercise of warrants and/or stock options
exercisable at various prices and expiring during the period
December 29, 2001 through June 30, 2002.
(4) Includes 130,000 shares which may be acquired by Mr. Bampton
pursuant to the exercise of warrants and/or stock options
exercisable at various prices and expiring during the period
December 29, 2001 through June 30, 2002.
(5) Includes 135,000 shares which may be acquired by Mr. Cartmel
pursuant to the exercise of warrants and/or stock options
exercisable at various prices and expiring during the period
December 29, 2001 through June 30, 2002.
(6) Includes 150,000 shares which may be acquired by Mr.
Fitzpatrick pursuant to the exercise of warrants and/or stock
options exercisable at various prices and expiring during the
period December 29, 2001 through June 30, 2002.
(7) Includes 175,000 shares which may be acquired by Mr. Jung
pursuant to the exercise of warrants and/or stock options
exercisable at various prices and expiring during the period
December 29, 2001 through January 27, 2002
(8) Includes 1,400,000 shares which may be acquired by the
Company's directors or executive officers pursuant to the
exercise of warrants and/or stock options exercisable at
various prices and expiring during the period December 29,
2001 through June 30, 2002.
Item 5. Directors, Executive Officers, Promoters and Control
Persons
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Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Kenneth F. Fitzpatrick 58 President, and Director
Craig J. Bampton 45 Vice President and Director
Chief Financial Officer
G. Michael Cartmel 61 Vice President-Public
Relations and Director
William D. Baker 50 Vice President and Chief
Executive Officer
Victor W. Y. Jung 37 Vice President-Technology
Alyssa J. Bampton 28 Secretary
All directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified. Directors will
be elected at the annual meetings to serve for one year terms. There are no
agreements with respect to the election of directors. The Company has not
compensated its directors for service on the Board of Directors or any committee
thereof. Any non-employee director of the Company shall be reimbursed for
expenses incurred for attendance at meetings of the Board of Directors and any
committee of the Board of Directors. The Executive Committee of the Board of
Directors, to the extent permitted under Idaho law, exercises all of the power
and authority of the Board of Directors in the management of the business and
affairs of the Company between meetings of the Board of Directors. Each
executive officer is appointed by and serves at the discretion of the Board of
Directors.
With the exception of Mr. Fitzpatrick, none of the officers and/or
directors of the Company are currently officers or directors of any other
publicly traded corporation. None of the directors, officers, affiliates or
promoters of the Company have filed any bankruptcy petition, been convicted in
or been the subject of any pending criminal proceedings, or the subject or any
order, judgment, or decree involving the violation of any state or federal
securities laws within the past five years.
The business experience of each of the persons listed above during the
past five years is as follows:
Kenneth F. Fitzpatrick. Mr. Fitzpatrick joined the Company in August
1995 as the President, Chief Executive Officer and Director. Mr. Fitzpatrick has
over 30 years of experience in the investment business. For the past nine years,
Mr. Fitzpatrick has owned and operated the VanSan Group of San Francisco, an
investment banking and corporate financing firm doing business in the United
States and Canada. During the past three years, Mr. Fitzpatrick has been the
only employee of VanSan and it has had only nominal revenues. For the past three
years, Mr. Fitzpatrick has been a Vice President and provided executive level
services to Turbodyne Technologies, Inc., a leading engineering company in the
design and development of charging technology to enhance the performance of
internal combustion engines. Turbodyne is a public company with annual sales of
approximately $50 million in 1999. Mr. Fitzpatrick holds a B.S. degree in
Business from Babson College in Wellsley, Massachusetts.
Craig J. Bampton. Mr. Bampton became the Vice President and a director
of the Company following the acquisition of Tessier Resources, Ltd. ("Tessier")
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in 1994. He became Chief Financial Officer on May 1, 2000, replacing William
Baker. Mr. Bampton has been Vice President of Tessier and President of its
wholly owned subsidiary, Pulverizer Systems, Inc., since 1991. In that capacity,
Mr. Bampton supervised development of technology that resulted in patents being
granted to Tessier for its ice removal apparatus. He also had oversight
responsibility for construction of two prototype models of the apparatus. To
date, Tessier has not realized any revenues. Mr. Bampton served as President and
a director of PTC Group, Inc. a publicly traded corporation now known as Ocean
Power Corporation ("Ocean Power"), from 1996 to 1999. During the time Mr.
Bampton was president of PTC Group, Inc., it had no revenues or no full-time
employees and generally contracted for services with third parties and
consultants. As President, he was instrumental in coordinating the merger with
PTC Holdings, Inc., which is now known as Ocean Power. Ocean Power is presently
involved in the development and operation of seawater desalination systems and
alternative power sources such as hydrogen fuel cells. Prior to joining Tessier,
Mr. Bampton was employed from 1973 to 1991 by Burlington Northern Railways
Manitoba Ltd., where he was an agent /office manager for the Manitoba, Canada
region. Mr. Bampton attended Red River Community College. Mr. Bampton is the
uncle of the Company's Secretary, Alyssa Bampton.
G. Michael Cartmel. Mr. Cartmel became the Vice President of public
relations and a director of the Company in April 1994. His duties include
providing investor relations, support for general operations and assisting in
facility and corporate management. He was also a director of PTC Group, Inc.
(now known as Ocean Power), from 1996 to 1999. Mr. Cartmel has been
self-employed for several years as a consultant to the investment community
providing investor and public relations services to publicly held companies.
From 1991 to the present, Mr. Cartmel has been a principal of BMB Holdings,
Ltd., a provider of investor relations and consulting services. BMB has no other
employees and has not had material revenues for the past five years. Mr. Cartmel
holds a B.A. degree in economics and psychology from the University of British
Columbia.
William D. Baker, C.A. Mr. Baker joined the Company as a consultant in
August 1999 and became Vice President and Chief Financial Officer on September
1, 1999. On May 1, 2000, Mr. Baker relinquished his position as Chief Financial
Officer and became Chief Executive Officer. Mr. Baker has experience in finance
and operations with early stage, high growth technology companies who serve
international markets. He has been C.F.O./C.O.O. for a number of startups
including Cardlink Worldwide, Inc. a private data networking company with
operations in Brazil, PopMedia Ltd. a specialty media company in North America,
and Bynamics Inc., a telecommunications manufacturer with international
operations. His experience includes two years as Vice President for Bytec
Management Corporation., a high technology venture capital firm and several
years, from 1994 to 1999, as Principal Consultant for Willabeth Capital Corp., a
firm which specializes in business
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planning and early stage financing of high growth technology companies.
Willabeth Capital was formed in 1976 and has operated since that time with a
staff that has varied between one and five persons. Mr. Baker is a member of the
Canadian Institute of Chartered Accountants and the Institute of Chartered
Accountants of British Columbia and is a Commerce graduate from McGill
University. Mr. Baker is the founder of Willabeth Capital Corporation, a private
Canadian company that provides management consulting services to early-stage
high growth potential businesses. His assignments have included high technology,
telecommunications, manufacturing and publishing. Since these firms were
primarily early stage development entities, they generally did not have material
revenues during his tenure with the firms. Mr. Baker provided Chief Financial
Officer services to Cardlink Worldwide, Inc., a development stage company with
capitalization of approximately $6 million (US), in 1998 and 1999. Mr. Baker
also provided Chief Operating Officer services to Peaksoft Corporation, a
publicly listed company trading on the Alberta Exchange and the Nasdaq SmallCap
Stock Market, in 1996 and 1997. Sales for fiscal years 1996 and 1997 amounted to
$784,000 (CND) and $1,340,000 (CND), respectively.
Victor W.Y. Jung. Mr. Jung joined the Company in October 1996 as a
consultant providing technology management and guidance as Vice President of
Technology. Mr. Jung became a full time employee in October 1999 and retained
his office of Vice President. Mr. Jung brings ten (10) years of commercial
software development experience to the Company. Mr. Jung was the founder of the
engineering group at EyeTel Communications Inc. that developed the award-winning
DeskTop Communicator video conferencing product. Prior to this, Mr. Jung was the
software manager for MTI, which produces computerized vehicle diagnosis system
for new vehicles such as GM, Chrysler and Ford. Mr. Jung obtained his Bachelor's
Degree in Computing.
Alyssa J. Bampton. Ms. Bampton has worked with the Company on a
part-time basis since April 1994 performing various administrative duties. She
acts as an executive assistant to management and Board members on an
as-needed-basis. She is also responsible for production and coordination of
investor materials and mailings. Additionally, Ms. Bampton oversees and provides
corporate customer service to both the registered and prospective gaming clients
to the Asia Casino website. From 1991 to 1993, she worked as an administrator at
Eyetel Technologies, Inc. handling a variety of duties such as customer service,
public relations, advertising and product promotion for the video
teleconferencing technology being developed and sold for that company. Ms.
Bampton attended Capilano College for two years. Ms. Bampton is the niece of the
Company's Vice President, Craig J. Bampton.
Other Key Persons
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Arthur Rosenberg. Mr. Rosenberg joined the Company in February 1996 as
its Chief Operating Officer and Chief Financial Officer. Pursuant to a
consolidation of the Company's operations in Vancouver, BC, Mr. Rosenberg
resigned on September 30, 1999 and has agreed to provide consulting and advisory
services to the Company on a mutually agreeable basis. Mr. Rosenberg has been a
high-profile individual in the on-line gaming industry and has served on the
board of directors of the Interactive Gaming Council, the trade association for
the industry. Mr. Rosenberg has also been invited to provide testimony on behalf
of the industry at United States government hearings, such as the National
Gambling Impact Study Commission. Since 1992, Mr. Rosenberg has been an
independent corporate consultant offering his clients advice on financial,
strategic, investment and operational matters. From 1992 to 1996, Mr. Rosenberg
was the Chief Operating Officer and Chief Financial Officer of LottoFone
Incorporated, a company located in Alexandria, Virginia seeking to provide
telephone based wagering capabilities to state and international lotteries. Mr.
Rosenberg is a graduate of Northeastern University with a B.A. degree in
chemistry and also earned a M.B.A. in management from Boston College.
The online gaming industry is characterized by independent
entrepreneurial ventures. With the advent of key on-line gaming
software/hardware providers such as SSSI, many entrepreneurial ventures become
the marketing arms of the virtual casinos and allow actual on-line gaming
operations to be conducted by the gaming providers. Consequently, direct
conventional casino operational experience is not critical to the success of the
operation. The Company's management avails of consulting expertise and studies
in both Internet marketing and on-line gaming. Management also routinely attends
on-line gaming industry meetings. In addition, the Company contracts with its
former Chief Operating Officer, Mr. Rosenberg, for consulting services. Mr.
Rosenberg was directly involved in forming the on-line gaming industry
association (Interactive Gaming Council) and has served on its board of
directors. See Item 6 - Consulting Agreements.
Item 6. Executive Compensation
The Company does not have a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or directors. As of
December 31, 1999, no employee of the Company has earned in excess of $100,000
per annum.
The following table sets forth all cash compensation paid by the
Company for services rendered to the Company for the fiscal years ended December
31, 1999 and 1998 to the Company's Chief Executive Officer and former Chief
Operating Officer. No executive officer of the Company has earned a salary
greater than $100,000 annually for the period depicted.
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Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation
Kenneth Fitzpatrick, 1999 $ -0- $ -0- $ -0- $ -0-
President, C.E.O. 1998 -0- -0- -0- -0-
1997 -0- -0- -0- -0-
Arthur Rosenberg,(1) 1999 60,500 -0- 2,700 27,250
C.O.O. and C.F.O 1998 72,000 -0- 4,059 -0-
1997 78,000 -0- 5,437 -0-
---------------
(1) On October 1, 1999, the board of directors granted a severance
payment to Mr. Rosenberg of $25,000 payable in four
installments beginning in November 1999 and ending February
2000. The payments are contingent on sufficient capital
resources being available to the Company so as not to impact
the Company's ongoing operations.
The preceding table does not include any amounts for noncash
compensation, including personal benefits, paid to the Company's C.E.O. or
C.O.O. The Company believes that the value of such noncash benefits and
compensation paid to Messrs. Fitzpatrick and Rosenberg during the periods
presented did not exceed the lesser of $50,000 or 10% 0f the cash compensation
reported for them.
The following table includes those stock purchase warrants
(options) issued by the Company to its C.E.O., C.F.O., C.O.O. and
directors during the last fiscal year. For purposes of calculating
the percent of the total options granted to employees, the
aggregate number issued to all officers, directors and employees is
used.
Option/SAR Grants in Last Fiscal Year
Number of Percent of total
securities options/SARs
underlying granted to
Name and options/SARs employees in Exercise or base Expiration
Principal Position granted(#) fiscal year price ($/Sh.) date
------------------ ------------ ------------- --------------- -----------
Kenneth Fitzpatrick, 50,000 2.8% $ .44 01-27-02
President, C.E.O. 75,000 4.2% $ .47 06-30-02
Arthur Rosenberg, 150,000 8.4% $ .47 06-30-02
C.O.O.
William Baker, 360,000 20.2% $ .28 (1)
C.F.O.
--------------
(1) Pursuant to an employment letter dated August 31, 1999 and
board of director's resolution, Mr. Baker was granted 360,000
four-year term warrants exerciseable on an installment basis
(45,000 warrants per quarter beginning on December 1, 1999 and
ending on September 1, 2001) contingent on his continued
employment with the Company.
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Employment Agreements
As of the date thereof, the Company has not entered into any employment
contracts with any of its employees, officers or directors, nor has the Company
had a bonus, profit sharing, or deferred compensation plan for the benefit of
its employees, officers or directors. Mr. William Baker's (C.F.O.) employment
offer letter from the Company specifies a thirty day notice of termination and
provides for the exercise of warrants (see table above) on an earned basis. Mr.
Rosenberg (C.O.O.) was granted a severance payment of $25,000 to be paid in
installments commencing in November 1999 and ending in February 2000, contingent
on adequate resources being available to the Company. #31
Consulting Agreements
On October 1, 1999, the Company entered into a consulting agreement
with Mr. Rosenberg. The term of the agreement is for one year, but may be
renewed by the mutual consent of the parties. Either party may terminate the
agreement by giving seven days written notice to the other party. Under the
terms of the agreement, Mr. Rosenberg is deemed to be an independent contractor
and performs such services as the Company requires on a week-to- week basis.
These services primarily include advising management on corporate and online
gaming industry matters. Mr. Rosenberg does not have any authority to sign
contracts, notes, obligations, or to make any material purchases on behalf of
the Company without the express written consent of the Company. For the first
month of the agreement, Mr. Rosenberg received cash compensation of $6,707.
Thereafter, Mr. Rosenberg is paid $50.00 for each hour of work performed under
the agreement. Mr. Rosenberg is also reimbursed for out-of-pocket expenses
associated with his duties under the agreement. There are no guaranteed hours
authorized under the agreement.
Item 7. Certain Relationships and Related Transactions
There have been no transactions between the Company and any officer,
director, nominee for election as director, or any shareholder owning greater
than five percent (5%) of the Company's outstanding shares, nor any member of
the above referenced individuals' immediate family, except as set forth below.
During 1999 and 1998, the Company granted warrants to certain officers
and directors. These warrants are set forth below in Part II, Item 4, "Recent
Sales of Unregistered Securities," under the heading "Funding and Dilutive
Instruments,". The warrants were issued in consideration for services rendered,
or expected to be rendered, to the Company. No compensation expense has been
recorded as the option price exceeded the fair market value of the shares when
the options were issued.
In 1994, the Company entered into a recurring monthly consulting
agreement with Barry G. Bampton. His consulting services on behalf of the
Company covered four primary categories:
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(i) financing activities; (ii) identification of technology and business
opportunities; (iii) promotional support; and (iv) liaison to the brokerage
community. The Company was paying Mr. Bampton $12,000 per month for his
services. On June 15, 2000, Mr. Bampton advised the Company that he would no
longer be in a position to provide regular consulting services to the Company
after June 30, 2000.
Among the services provided to the Company, Mr. Bampton introduced the
Company to a variety of domestic and international investors and entities for
private financing of the Company's business operations. These efforts resulted
in the raising of over $6.4 million for the Company since 1994. Mr. Bampton was
also instrumental in locating PWRE as a potential buyer of the Company's Tessier
subsidiary. The subsequent sale of Tessier resulted in the Company owning
200,000 shares of PWRE common stock, of which 95,000 shares have been sold for a
value of over $620,000.
Mr. Bampton was the original source in identifying on-line gaming as a
viable business opportunity for the Company. He assisted in the location of
prospective technology partners for the implementation of the Company's business
strategy (e.g. Startnet Communications and Casino World Holdings). Mr. Bampton
also assisted in uncovering prospective business alliance partners in various
international jurisdictions. Further, he was instrumental in introducing the
Company to several broker-dealers, many of which became market makers in the
Company's common stock.
Mr. Bampton's assisted the Company in developing effective corporate
literature information for dissemination to prospective investors and
institutions. He worked with various media companies to help develop a sizable
investor base through informative mailings and financial media outlets. Mr.
Bampton coordinated the design and production of most of the Company's
promotional materials. Mr. Bampton is the beneficial owner of Enterprise Capital
that has provided funding to the Company for more than five years. He is the
brother of Craig J. Bampton, Vice President and a director of the Company, and
the father of Alyssa J. Bampton, Secretary of the Company.
The Company occupies facilities in Vancouver, B.C. that are leased from
Pulverizer Systems, Inc. ("Pulverizer"), a subsidiary of Tessier. Pulverizer
also provides certain bookkeeping and accounting services to the Company on a
contract basis. Craig J. Bampton, a Vice President and director of the Company,
is also Vice President of Tessier and President of Pulverizer.
Item 8. Description of Securities
Common Stock
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The Company is authorized to issue 100,000,000 shares of common stock,
no par value, of which 37,014,165 shares are issued and outstanding as of March
31, 2000. All shares of common stock have equal rights and privileges with
respect to voting, liquidation and dividend rights. Each share of common stock
entitles the holder thereof to (i) one non-cumulative vote for each share held
of record on all matters submitted to a vote of the stockholders; (ii) to
participate equally and to receive any and all such dividends as may be declared
by the Board of Directors out of funds legally available therefore; and (iii) to
participate pro rata in any distribution of assets available for distribution
upon liquidation of the Company. Stockholders of the Company have no preemptive
rights to acquire additional shares of common stock or any other securities. The
common stock is not subject to redemption and carries no subscription or
conversion rights. All outstanding shares of common stock are fully paid and
non- assessable.
The Company does not have any provisions in its charter or By- Laws
that would delay, defer or prevent a change in control.
PART II
Item 1. Market Price of And Dividends on the Registrant's Common
Equity and Other Shareholder Matters
No shares of the Company's common stock have previously been registered
with the Securities and Exchange Commission (the "Commission") or any state
securities agency or authority. The Company's common stock is traded on the OTC
Bulletin Board under the symbol "VTEH". The following table sets forth, for the
periods indicated the range of quarterly high and low bid prices of the
Company's common stock as obtained from the NASD for the past two years and
through the date set forth for the current year. Price quotations issued by
broker-dealers reflect inter-dealer prices, without retail market mark-up,
mark-down or commission and may not represent actual transactions.#34
High Low
---- ---
1997
First Quarter $13.75 $ 1.50
Second Quarter $ 3.00 $ .55
Third Quarter $ .80 $ .55
Fourth Quarter $ .30 $ .19
1998
First Quarter $ .50 $ .22
Second Quarter $ 1.42 $ .42
Third Quarter $ 1.00 $ .50
Fourth Quarter $ .78 $ .14
1999
First Quarter $ .91 $ .34
Second Quarter $ .98 $ .47
Third Quarter $ .50 $ .23
Fourth Quarter $ .30 $ .17
2000
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First Quarter $ .98 $ .16
Second Quarter $ .58 $ .16
Third Quarter(1) $ .20 $ .13
(1) Through August 9, 2000
The ability of an individual shareholder to trade their shares in a
particular state may be subject to various rules and regulations of that state.
A number of states require that an issuer's securities be registered in their
state or appropriately exempted from registration before the securities are
permitted to trade in that state. Presently, the Company has no plans to
register its securities in any particular state. Further, most likely the
Company's shares will be subject to the provisions of Section 15(g) and Rule
15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security
that has a market price less than $5.00 per share, subject to certain
exceptions. Rule 3a51-1 provides that any equity security is considered to be a
penny stock unless that security is: registered and traded on a national
securities exchange meeting specified criteria set by the Commission; authorized
for quotation on The NASDAQ Stock Market; issued by a registered investment
company; excluded from the definition on the basis of price (at least $5.00 per
share) or the issuer's net tangible assets; or exempted from the definition by
the Commission. If the Company's shares are deemed to be a penny stock, trading
in the shares will be subject to additional sales practice requirements on
broker- dealers who sell penny stocks to persons other than established
customers and accredited investors, generally persons with assets in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with their
spouse.
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such securities and must
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker- dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in the Company's common stock and may affect the
ability of shareholders to sell their shares.
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<PAGE>
As of December 31, 1999, there were approximately 195 holders of record
of the Company's common stock, which figure does not take into account those
shareholders whose certificates are held in the name of broker-dealers or other
nominees.
As of December 31, 1999 the Company has issued and outstanding
37,014,165 shares of common stock. Of this total, 6,919,111 shares were deemed
"restricted securities" as defined by the Act and certificates representing such
shares bear an appropriate restrictive legend.
Of the Company's total outstanding shares, approximately 29,995,054
shares may be sold, transferred or otherwise traded in the public market without
restriction, unless held by an affiliate or controlling shareholder of the
Company. None of these shares have been identified as being held by affiliates.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares of the
Company for at least one year, including any person who may be deemed to be an
"affiliate" of the Company (as the term "affiliate" is defined under the Act),
is entitled to sell, within any three-month period, an amount of shares that
does not exceed the greater of (i) the average weekly trading volume in the
Company's common stock, as reported through the automated quotation system of a
registered securities association, during the four calendar weeks preceding such
sale or (ii) 1% of the shares then outstanding. A person who is not deemed to be
an "affiliate" of the Company and has not been an affiliate for the most recent
three months, and who has held restricted shares for at least two years would be
entitled to sell such shares without regard to the resale limitations of Rule
144.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that it will pay
cash dividends or make distributions in the foreseeable future. The Company
currently intends to retain and invest future earnings to finance its
operations.
Item 2. Legal Proceedings
There are presently no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of its property is
subject and, to the best of its knowledge, no such actions against the Company
are contemplated or threatened. In 1998, the Company took a reserve of $100,000
on its books against any possible litigation arising out of the termination of
its licensing agreement with Casino World Holdings (CWH). Based on a legal
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<PAGE>
opinion, the Company reasonably believes that it would be successful in any
litigation brought by CWH and that any claims that may be brought by CWH are
without merit. The Company may elect to litigate against CWH in the future to
recover its prior investment, but has no immediate plans to do so.
Item 3. Changes in and Disagreements With Accountants
There have been no changes in or disagreements with accountants.
Item 4. Recent Sales of Unregistered Securities
Funding and Dilutive Instruments
In January 2000, the Company authorized a convertible debenture for up
to $500,000 to repay funds advanced to the Company by Enterprise Capital. The
debenture only applied to funds of $324,488 received by the Company through
April 3, 2000. For details of the debenture, see "Item 2 Management's Discussion
and Analysis and Plan of Operation - Liquidity."
In September 1999, the Company authorized a convertible debenture for
up to $1,000,000 to repay funds advanced to the Company by third parties during
the calendar year. This debenture superceded a previous debenture initiated by
the Company in January 1999 and $379,458 of previously advanced funds
rolled-over into the superceding debenture. The terms of the resulting debenture
included a 10% per annum interest rate, provides for a two-year conversion
period in which the debenture holder may convert advanced funds into authorized
but unissued shares of the Company's common stock at a conversion price of
twenty cents ($0.20) per share. Each such converted share includes the right to
purchase an additional share of authorized but unissued common stock at the
twenty cents ($0.20) conversion price for a five-year period from date of
original conversion. The market price of the Company's common stock at the time
the convertible debenture was issued was $0.24 per share.
As of December 31, 1999, the Company had received an aggregate of
$1,084,064 for the issuance of the convertible debentures and exercise of a
portion of the underlying warrants. The funds have been used for general
operating expenses. A total of 5,400,320 shares of common stock have been issued
pursuant to the debentures and warrants to Frankie Fu, Cybertech Investments
Ltd. and Venture Investment Group, Inc. This represents the $1,000,000 debenture
being converted into 5,000,000 shares of common stock and 5,000,000 warrants,
and 400,320 warrants being converted into 400,320 shares of common stock. The
remaining 4,599,680 warrants are held by Enterprise Capital.
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In August 1999, the Company granted 360,000 warrants to William B.
Baker, Vice President and newly appointed Chief Financial Officer of the
Company, with an exercise price of $0.28 per share as an employment inducement.
The warrants become exercisable over a two-year period with 45,000 warrants
vesting at the end of each quarter over the two-year period, provided that the
Mr. Baker continues his employment with the Company. At the time of issuance of
the warrants, the market price of the Company's common stock was $0.28 per
share.
Since 1994, the Company has, from time-to-time, issued stock purchase
warrants to various persons in lieu of cash consideration for services rendered
to the Company. The warrants were deemed restricted securities, as defined by
the Securities Act of 1933, as amended (the "Act"), and were exercisable into
shares of the Company's common stock at the prevailing market price at the time
of issuance. Some of the services provided were by employees who performed
certain day-to-day tasks in the general operation of the Company. Other services
included, but are not limited to, business, gaming and financial consulting,
legal services, promotional and public relations, identification of technologies
potentially beneficial to the Company, and introductions to international
political jurisdictions, prospective business partners and prospective sources
of investment capital and investment banking firms.
In June 1999, the Company granted an aggregate of 595,000 warrants to a
group of 15 persons that had provided various services and performed certain
consulting activities for the Company, including directors and officers. Of the
595,000 warrants, 545,000 "A" warrants are exercisable at forty-seven cents
($0.47) per share and 50,000 "B" warrants are exercisable at sixty- one cents
($0.61 per share). At the time of issuance of the"A" warrants, the market price
of the Company's common stock was $0.47 per share, and at the time of issuance
of the "B Warrants, the price was $0.61 per share. All warrants expire June 30,
2002. The following directors and officers received warrants: Kenneth
Fitzpatrick (75,000 warrants exercisable at $0.47); Craig Bampton (50,000
warrants exercisable at $0.47); G. Michael Cartmel (50,000 warrants exercisable
at $0.47); Alyssa Bampton (25,000 warrants exercisable at $0.47); and Arthur
Rosenberg (150,000 warrants exercisable at $0.47). No warrants have been
exercised as of the date hereof.
In January 1999, the Company granted 825,000 warrants to a group of 11
persons that had provided various services and performed certain consulting
activities for the Company, including directors and officers. All warrants are
exercisable at a price of forty-four cents ($0.44) per share and expire January
27, 2002. At the time of issuance of the warrants, the market price of the
Company's common stock was $0.44 per share. The following directors and officers
received warrants: Kenneth Fitzpatrick (50,000 warrants exercisable at $0.44);
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Craig Bampton (50,000 warrants exercisable at $0.44); G. Michael Cartmel (50,000
warrants exercisable at $0.44); Alyssa Bampton (25,000 warrants exercisable at
$0.44); and Victor Jung (100,000 warrants exercisable at $0.44). No warrants
have been exercised as of the date hereof.
#37 In April 1998, the Company authorized a stock conversion agreement
for up to $500,000 to account for funds advanced to the Company by third
parties, primarily for general expenses and operating capital. A total of 3
persons received shares under the agreement, Enterprise Capital, Barry
Worshoufsky and Texco Investments Limited. The agreement provided for a one-year
conversion period where the holder may convert Company debt from advanced funds
into authorized but unissued shares of the Company's common stock at a
conversion price of forty-five cents ($0.45) per share. Each such converted
share includes the right to purchase an additional share of authorized but
unissued common stock at the forty-five cents ($0.45) conversion price for a
five- year period from date of original conversion. At the time of the
agreement, the market price of the Company's common stock was $0.45 per share.
Prior to expiration, the holders converted the $500,000 debentures into
1,111,111 shares of common stock and 1,111,111 warrants, and then exercised
472,680 warrants into 472,680 shares of common stock at $.45 per share, for an
additional $212,706.
In May and August of 1998, the Company issued an aggregate of 35,000
shares of common stock to Pacific International Securities upon the partial
exercise of warrants at the cash exercise price of $0.25 per share. Also during
1998, the Company issued an aggregate of 4,700,000 shares of common stock to a
total of four persons, Regis Investments Company Limited, Enterprise Capital,
VanAus Investments Ltd. and Chris Gardner, upon the exercise of certain warrants
at the exercise price of $0.03 per share, that were a part of the March 1994
Convertible Debenture.
In December 1997, the Company granted 830,000 warrants to a group of 25
persons that had provided various services and performed certain consulting
activities for the Company, including directors and officers. The warrants were
issued to 25 individuals. Of the 830,000 warrants, 710,000 "A" warrants are
exercisable at a price of twenty-five cents ($0.25) per share and 120,000 "B"
warrants are exercisable at $0.50 per share. All warrants expire December 29,
2001. At the time of issuance of all the warrants, the market price of the
Company's common stock was $0.22 per share. The following directors and officers
received warrants: Kenneth Fitzpatrick (25,000 warrants exercisable at $0.25);
Craig Bampton (30,000 warrants exercisable at $0.25); G. Michael Cartmel (35,000
warrants exercisable at $0.25); Alyssa Bampton (40,000 warrants exercisable at
$0.25); Arthur Rosenberg (120,000 warrants exercisable at $0.50); and Victor
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<PAGE>
Jung (75,000 warrants at $0.25). To date warrants have been converted by one
person into 35,000 shares, resulting in proceeds of $8,750. These funds were
used for general operating expenses.
Also in December 1997, the Company authorized a private placement in
the form of a stock conversion agreement to account for funds advanced to the
Company to cover its operating requirements. The conversion agreement provided
for the conversion of up to 3,500,000 shares at an exercise price of $0.22 per
share, which represented the closing price of the Company's stock on the date of
execution. As of December 31, 1997, an aggregate of 3,495,000 shares were issued
pursuant to the agreement to Seymour holdings, Manasia Development, Ltd. and
Paradon, Ltd.
Also during 1997, the Company issued an aggregate of 10,500,000 shares
of common stock to a total of ten persons. These shares were issued upon the
conversion of a portion of the March 1994 Convertible Debenture (3,533,333
shares), exercise of certain "A" Warrants (5,833,333 shares) and "B" Warrants
(1,133,334 shares) that were a part of that Debenture, all at the price of $0.03
per share.
The Company issued 380,886 shares of common stock in 1995 to Enterprise
Capital and 1,619,114 shares in 1996 to Barry Worshoufsky, a former director of
the Company, in settlement of debt at one dollar and seventy cents ($1.70) per
share. These shares were issued pursuant to a private placement agreement
entered into in June of 1995. The private placement provided for conversion of
debt at one dollar and seventy cents ($1.70) per unit for up to 1,000,000 units.
Each unit consisted of one share of common stock and one warrant entitling the
holder to acquire one additional share of common stock at the exercise price of
$1.70. At the time of the agreement, the market price of the Company's common
stock was $1.70 per share. The Company realized proceeds of $3,400,000 from the
private placement and exercise of warrants. The funds were used primarily to
make payments to Casino World Holdings ($1,300,000) and Alpha Com Data Security
Services, Inc. ($250,000) for software licensing agreements with the Company.
The balance of the funds were used in 1995 and 1996 for general and
administrative expenses including salaries, consultant fees, rent utilities,
office expenses, travel and promotional activities, and legal and other
professional fees associated with the license agreements.
In March 1994, the Company issued to Regis Investments Company Limited
("Regis") a convertible debenture in the face amount of $175,000 with an
interest rate of ten percent (10%) per annum (the "Debenture"). The Debenture
was issued by the Company in consideration for monies advanced to the Company by
Regis. The Debenture provides for the holder to convert up to the full face
amount of the Debenture into shares of the Company's authorized but unissued
common stock at the conversion price of three cents ($0.03) per share. Each
share issued upon conversion of all or a portion of the Debenture include an "A"
-51-
<PAGE>
and a "B" share purchase warrant. Each "A" and each "B" share purchase warrant
entitles the holder to acquire one additional share of the Company's authorized
but unissued common stock at the conversion price of three cents ($0.03) per
share. Each "A" and each "B" share purchase warrant is valid and may be
converted into common stock for a period of two years following issuance. At the
time of issuance of the convertible debenture, there was no established market
price for the Company's common stock. In 1996, 1997, and 1998, 2,300,000 shares,
10,500,000 shares and 4,700,000 shares, respectively were issued by the Company
in consideration of an aggregate of $525,000. The entire debt was converted to
common stock and warrants and all warrants have been exercised. The funds were
used for general and administrative expenses including salaries, consultant
fees, rent utilities, office expenses, travel and promotional activities, legal
and other professional fees.
From May 1994 through November 1995, the Company granted 1,222,000
warrants to certain individuals, directors and officers that had provided
various services and performed certain consulting activities for the Company.
The warrants were issued to thirty individuals or organizations at exercise
prices ranging from $2.50 to $5.75, which represented the fair market value of
the stock at the time of grant, and for periods ranging from four to five years.
The warrants are conditional upon the Company achieving a listing with the
Nasdaq Stock Market. Of the 1,222,000 warrants granted, 637,000 expired on May
31, 1999, 640,000 expired in October and November 1999 and 135,000 were
cancelled by mutual consent of the Company and one of its officers on June 30,
1999. The remaining 120,000 warrants expire in May 2000.
The above issuances were not registered under the Act. Each issuance of
debentures, common stock or warrants, was made in a private, isolated
transactions with either an affiliate of the Company or a person familiar with
the operations of the Company. There was no general solicitation of potential
purchasers, rather, securities were offered only to persons known by directors,
employees or agents of the Company. The Company also made available to
prospective purchasers information about the business, including financial
statements and other information that might be requested. The issued securities
were deemed "restricted" as defined by the Act and all certificates representing
the issued securities bore appropriate restrictive legends. Accordingly, the
issuances were made in transactions not involving a public offering and were
exempt from registration under Section 4(2) of the Act.
Upon conversion of debentures into shares and/or shares and warrants,
the Company relied on Section 3(a)(9) of the Act which exempts from registration
exchanges by an issuer with its existing security holders exclusively. Holders
making the conversions were privy to the same information about the Company as
when they acquired their original securities. Upon making the conversions, the
-52-
<PAGE>
holders were not required to make an additional cash payment or pay a commission
or other remuneration. All securities issued upon conversion were deemed
"restricted" and certificates representing the issued securities bore
restrictive legends. Debenture holders converting their debentures into shares
of common stock were permitted to tack the holding period of the debenture onto
the holding period of the newly acquired common stock.
Item 5. Indemnification of Directors and Officers
As permitted by the provisions of the Idaho General Business
Corporation Law (the "Idaho Code"), the Company has the power to indemnify any
officer or director who, in their capacity as such, is made a party to any suit
or proceeding, whether criminal, administrative or investigative, if such
officer or director acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interests of the Company and, in the case of
any criminal proceeding, the person had no reasonable cause to believe their
conduct was unlawful. An officer or director shall be indemnified against
expenses to the extent they have been successful on the merits or otherwise in
defense of any action, suit or proceeding. Indemnification or advance expenses
to an officer or director is available only to the extent as permitted under
Sections 30-1-850 through 30-1-859 of the Idaho Code. Further, the Idaho Code
permits a corporation to purchase and maintain liability insurance on behalf of
its officers and directors. Presently, the Company does not carry such
insurance.
Transfer Agent
The Company has designated Interstate Transfer Company, 6084 South 900
East, Suite 101, Salt Lake City, Utah 84121, as its transfer agent.
PART F/S
The Company's financial statements for the fiscal years ended December
31, 1999 and 1998 have been examined to the extent indicated in their reports by
Jones, Jensen & Company, independent certified public accountants, and have been
prepared in accordance with generally accepted accounting principles and
pursuant to Regulation S-B as promulgated by the Securities and Exchange
Commission and are included herein in response to Part F/S of this Form 10-SB.
The unaudited financial statements for the three month period ended March 31,
2000 were prepared by the Company.
-53-
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
F-1
<PAGE>
CONTENTS
Independent Auditors' Report..................................... F-3
Consolidated Balance Sheet....................................... F-4
Consolidated Statements of Operations............................ F-6
Consolidated Statements of Stockholders' Equity ................. F-7
Consolidated Statements of Cash Flows............................ F-13
Notes to the Consolidated Financial Statements................... F-15
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
VentureTech, Inc.
(A Development Stage Company)
Vancouver, British Columbia
We have audited the accompanying consolidated balance sheet of VentureTech, Inc.
(a development stage company) as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1999 and 1998 and from inception on January 1, 1986
through December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects the consolidated financial position of
VentureTech, Inc. (a development stage company) as of December 31, 1999 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1999 and 1998 and from inception on January 1, 1986 through
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 5 to the
consolidated financial statements, the Company is a development stage company
with no significant operating results to date and a substantial accumulated
deficit, which together raises substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 5. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Jones, Jensen & Company
--------------------------
Jones, Jensen & Company
Salt Lake City, Utah
April 4, 2000
F-3
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
------
December 31,
1999
--------
CURRENT ASSETS
Cash $ 17,944
Marketable securities (Note 8) 275,000
Accounts receivable - net (Note 2) 15,584
Note receivable (Note 2) 27,470
Prepaid expenses (Note 9) 74,413
License fees - current (Note 9) 50,000
--------
Total Current Assets 460,411
--------
PROPERTY AND EQUIPMENT (Note 2) 67,438
--------
OTHER ASSETS
License fees (Note 9) 25,000
--------
Total Other Assets 25,000
--------
TOTAL ASSETS $552,849
========
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-4
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31,
1999
-----------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 213,542
Reserve for legal fees (Note 9) 100,000
License fee payable (Note 9) 80,000
-----------
Total Current Liabilities 393,542
-----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY
Common stock; 100,000,000 shares authorized of $0.001
par value, 37,014,165 shares issued and outstanding 37,015
Additional paid-in capital 7,207,676
Deficit accumulated during the development stage (7,085,384)
-----------
Total Stockholders' Equity 159,307
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 552,849
===========
Theaccompanying notes are an integral part of these
consolidated inancial statements.
f
F-5
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Operations
<CAPTION>
From
Inception on
For the Years Ended January 1,
December 31, 1986 Through
--------------------------- December 31,
1999 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
REVENUE
Sales $ 29,710 $ -- $ 585,356
Cost of sales 10,232 -- 10,232
----------- ----------- -----------
Gross Margin 19,478 -- 575,124
----------- ----------- -----------
EXPENSES
Research and development -- -- 50,215
General and administrative 1,091,453 645,754 5,260,227
Depreciation and amortization 61,506 35,917 452,250
----------- ----------- -----------
Total Expenses 1,152,959 681,671 5,762,692
----------- ----------- -----------
LOSS FROM OPERATIONS (1,133,481) (681,671) (5,187,568)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Unrealized gain on marketable securities 116,888 -- 116,888
Net loss on disposal of asset -- (1,400,000) (1,400,000)
Interest expense (434,105) -- (477,489)
----------- ----------- -----------
Total Other Income (Expense) (317,217) (1,400,000) (1,760,601)
----------- ----------- -----------
LOSS BEFORE LOSS FROM
DISCONTINUED OPERATIONS
AND PROVISION FOR INCOME TAX (1,450,698) (2,081,671) (6,948,169)
----------- ----------- -----------
LOSS FROM DISCONTINUED
OPERATIONS -- -- (137,215)
PROVISION FOR INCOME TAX -- -- --
----------- ----------- -----------
NET LOSS $(1,450,698) $(2,081,671) $(7,085,384)
=========== =========== ===========
BASIC LOSS PER SHARE $ (0.04) $ (0.07)
===== =====
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 35,895,870 29,230,096
========== ==========
</TABLE>
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-6
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, January 1, 1986 (inception) 278,692 $ 279 $ (279) $ --
Assessment of existing
shareholders to increase
paid-in capital -- -- 8,722 --
Net loss for the year ended
December 31, 1987 -- -- -- (8,722)
------- ------- ------- -------
Balance, December 31, 1987 278,692 279 8,443 (8,722)
Stock issued to an individual who became an officer and director for services
performed to acquire rights to Harvard Medical Project on July 13, 1988
recorded at predecessor cost of $0.00 per
share 1,188,889 1,189 (1,189) --
Stock issued to Spartan
Medical Corporation to
acquire rights to the Harvard
Medical Project on
November 1, 1988 recorded at
predecessor cost of $0.00 per
share 200,000 200 (200) --
Net loss for the year ended
December 31, 1988 -- -- -- (5,644)
------- ------- ------- -------
Balance, December 31, 1988 1,667,581 $ 1,668 $ 7,054 $ 14,366)
------- ------- ------- -------
</TABLE>
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-7
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance forward 1,667,581 $ 1,668 $ 7,054 $ (14,366)
Stock issued for services
at an average price of
$0.21 per share 61,667 62 12,638 --
Stock issued for cash in
private placements at an
average price of $2.48 98,005 98 242,502 --
Stock offering costs offset
against paid-in capital -- -- (93,687) --
Net loss for the year ended
December 31, 1989 -- -- -- (134,399)
------- ------- ------- -------
Balance, December 31, 1989 1,827,253 1,828 168,507 (148,765)
Stock issued for services
valued at $0.06 per share 19,301 19 1,140 --
Stock issued to an individual
for services valued at
$12.00 per share 1,667 1 19,999 --
Stock issued to individuals
for $3.92 per share 11,933 12 46,788 --
Net loss for the year ended
December 31, 1990 -- -- -- (174,522)
------- ------- ------- -------
Balance, December 31, 1990 1,860,154 $ 1,860 $ 236,434 $(323,287)
</TABLE>
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-8
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance forward 1,860,154 $ 1,860 $ 236,434 $(323,287)
Stock issued to Ballater, Ltd. in
exchange for services recorded
at predecessor cost of $0.00 per share 100,000 100 (100) --
Net loss for the year ended
December 31, 1991 -- -- -- (2,457)
Balance, December 31, 1991 1,960,154 1,960 236,334 (325,744)
Debt converted into additional
paid-in capital by Park Avenue, Inc. -- -- 45,750 --
Debt converted into additional
paid-in capital by stockholder -- -- 12,400 --
Net loss for the year ended
December 31, 1992 -- -- -- (1,981)
Balance, December 31, 1992 1,960,154 1,960 294,484 (327,725)
Common stock issued in settlement
of debt at $0.012 per share 1,500,000 1,500 16,252 --
Net loss for the year ended
December 31, 1993 -- -- -- (15,200)
Balance, December 31, 1993 3,460,154 3,460 310,736 (342,925)
Common stock issued for cash
at $0.50 per share 340,000 340 169,660 --
Stock issuance costs -- -- (67,500) --
Net loss for the year ended
December 31, 1994 -- -- -- (29,190)
Balance, December 31, 1994 3,800,154 $ 3,800 $ 412,896 $(372,115)
</TABLE>
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-9
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock During the
Common Stock Paid-in Subscription Development
Shares Amount Capital Receivable Stage
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance forward 3,800,154 $ 3,800 $ 412,896 $ -- $ (372,115)
Common stock issued to
acquire Tessier Resources Ltd. 3,200,000 3,200 (80,856) -- --
Debt converted into additional
paid-in capital -- -- 10,417 -- --
Common stock issued in
settlement of debt at $1.70
per share 591,774 592 1,005,425 -- --
Net loss for the year ended
December 31, 1995 -- -- -- -- (1,037,235)
--------- --------- --------- --------- ---------
Balance, December 31, 1995 7,591,928 7,592 1,347,882 -- (1,409,350)
Common stock issued in
settlement of debt at $1.70
per share 1,408,126 1,408 2,392,473 -- --
Common stock issued as a
partial conversion of the
convertible debenture at
$0.03 per share 2,300,000 2,300 66,700 -- --
Common stock issued for
cash at $10.00 per share 6,000,000 6,000 59,994,000 (60)000,000 --
Net loss for the year ended
December 31, 1996 -- -- -- -- (1,590,888)
--------- --------- --------- --------- ---------
Balance, December 31, 1996 17,300,054 $ 17,300 $ 63,801,055 $(60,000,000) $ (3,000,238)
---------- --------- ---------- ----------- ---------
</TABLE>
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-10
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock During the
Common Stock Paid-in Subscription Development
Shares Amount Capital Receivable Stage
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 17,300,054 $ 17,300 $ 63,801,055 $(60,000,000) $ (3,000,238)
Common stock issued as a
conversion of the convertible
debenture at $0.03 per share 3,533,333 3,533 102,467 -- --
Common stock issued as a full
exercise of the "A" warrants
associated with the convertible
debenture at $0.03 per share 5,833,333 5,834 169,166 -- --
Common stock issued as a partial
exercise of the "B" warrants
associated with the convertible
debenture at $0.03 per share 1,133,334 1,133 32,867 -- --
Cancellation of stock
subscription receivable (6,000,000) (6,000) (59,994,000) 60,000,000 --
Common stock issued in
settlement of debt
at $0.22 per share 3,495,000 3,495 765,321 -- --
Net loss for the year ended
December 31, 1997 -- -- -- -- (552,777)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 25,295,054 $ 25,295 $ 4,876,876 $ -- $ (3,553,015)
------------ ------------ ------------ ------------ ------------
</TABLE>
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-11
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock During the
Common Stock Paid-in Subscription Development
Shares Amount Capital Receivable Stage
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 25,295,054 $ 25,295 $ 4,876,876 $ -- $ (3,553,015)
Common stock issued as a complete exercise of the "B" warrants associated with
the convertible debenture at $0.03
per share 4,700,000 4,700 136,300 -- --
Common stock issued as a
partial exercise of warrants
for cash at $0.25 per share 35,000 35 8,715 -- --
Common stock issued in
settlement of debt at $0.45
per share 1,583,791 1,585 711,121 -- --
Net loss for the year ended
December 31, 1998 -- -- -- -- (2,081,671)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 31,613,845 31,615 5,733,012 -- (5,634,686)
Issuance of debenture,
convertible at less than
market value (Note 12) -- -- 400,000 -- --
Common stock issued for
conversion of debenture at
$0.20 per share 5,000,000 5,000 995,000 -- --
Common stock issued for
exercise of warrants at
$0.20 per share 400,320 400 79,664 -- --
Net loss for the year ended
December 31, 1999 -- -- -- -- (1,450,698)
--------- --------- --------- --------- ---------
Balance, December 31, 1999 37,014,165 $ 37,015 $ 7,207,676 $ -- $ (7,085,384)
========== ========= ========= ========= ==========
</TABLE>
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-12
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
<CAPTION>
From
Inception on
January 1,
For the Years Ended 1986 Through
December 31, December 31,
1999 1998 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) $(1,450,698) $(2,081,671) $(7,085,384)
Adjustments to reconcile
net (loss) to net cash
used by operating activities:
Common stock issued for services -- -- 34,259
Debentures and warrants issued at
less that market value 400,000 -- 400,000
Depreciation and amortization 61,506 35,917 452,250
Loss on sale of investments -- -- 20,390
Net loss on disposition of asset -- 1,400,000 1,400,000
Unrealized gain in marketable securities (116,888) -- (116,888)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivables and other assets (117,467) -- (123,492)
Increase (decrease) in accounts
payable and other current liabilities 141,676 (36,308) 113,316
----------- ----------- -----------
Net Cash Used by Operating Activities (1,081,871) (682,062) (4,905,549)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments -- -- (378,313)
Sale of investments -- -- 7,110
Purchase of fixed assets (8,573) -- (257,724)
Disposal of fixed assets -- -- 3,223
Purchase of license fees (25,000) -- (1,575,000)
----------- ----------- -----------
Net Cash Used by Investing Activities (33,573) -- (2,200,704)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of convertible debenture -- 175,000
Conversion of debt to equity -- -- 75,902
Proceeds from notes payable 1,080,064 712,706 6,348,610
Common stock issued for cash -- 8,750 515,963
Shareholder assessment -- -- 8,722
----------- ----------- -----------
Net Cash Provided by Financing Activities $ 1,080,064 $ 721,456 $ 7,124,197
----------- ----------- -----------
</TABLE>
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-13
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<CAPTION>
From
Inception on
January 1,
For the Years Ended 1986 Through
December 31, December 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH $ (35,380) $ 39,394 $ 17,944
CASH AT BEGINNING OF PERIOD 53,324 13,930 --
----------- ----------- -----------
CASH AT END OF PERIOD $ 17,944 $ 53,324 $ 17,944
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 6,667 $ -- $ 6,667
Income taxes $ -- $ -- $ --
NON CASH FINANCING ACTIVITIES:
Conversion of debt into additional
paid-in capital $ -- $ -- $ 75,902
Common stock issued in settlement
of debt $ 1,080,064 $ 712,705 $ 5,979,235
Conversion of debenture and warrants
to common stock $ -- $ 141,000 $ 525,526
Debenture and warrants issued at less
than market value $ 400,000 $ -- $ 400,000
</TABLE>
Theaccompanying notes are an integral part of these
consolidated inancial statements.
F-14
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of
VentureTech, Inc. and its wholly-owned subsidiaries.
VentureTech, Inc. (VTI) was incorporated on July 19, 1948 under
the laws of the State of Idaho. VTI has had limited activity since
the mid 1950's and is considered a development stage company
because no significant revenues have been realized and planned
principal operations have not yet commenced. The Company is
engaged in the development, acquisition and licensing of certain
computer based technology designed to ultimately offer a full
range of casino style gaming, entertainment, information and
financial transaction services over the world-wide Internet. The
Company intends to establish a series of multi- themed virtual
casinos over the Internet from authorized locations around the
world.
The Subsidiaries:
Cybernet Currency Clearing, Inc. (CCCI) was incorporated on August
23, 1995 under the laws of the State of Nevada as a foreign
corporation to provide encoding protection for secure Internet
transactions. CCCI is considered a development stage company
because no revenues have been realized and planned principal
operations have not yet begun.
Euro Asian E-Casinos, Inc (E-Casinos) was incorporated on April
18, 1996 in accordance with the Associates Law of the Republic of
the Marshall Islands as a foreign corporation to own and operate
full service gaming casinos on the internationally accessible
Internet. E- Casinos is considered a development stage company
because no revenues have been realized and planned principal
operations have not yet begun.
Euro Asian E-Casinos International, Ltd. (E-Casinos Ltd.) was
incorporated in St. John's Antigua, West Indies to own and operate
full service gaming casinos on the internationally accessible
Internet. E-Casinos Ltd. owns the gaming license issued by the
government of Antigua.
VentureTech Holdings Canada, Ltd. (VHC) was incorporated in July
1999 under the laws of the Province of British Columbia, Canada.
CCCI, E-Casinos, E-Casinos Ltd. and VHC are all wholly-owned by
the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
The accompanying notes are an integral part of these consolidated
financial statements.
F-15
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding during the
period of the financial statements. Fully diluted loss per share
is not presented because of the antidilutive nature of the stock
equivalents.
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
----------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net loss $ (1,450,698) 35,895,870 $ (0.04)
========== ========== ==========
For the Year Ended
December 31, 1998
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net loss $ (2,081,671) 29,230,096 $ (0.07)
========== ========== ==========
</TABLE>
c. Provision for Taxes
At December 31, 1999, the Company has net operating loss
carryforwards of approximately $5,000,000 that may be offset
against future taxable income through 2019. No tax benefit has
been reported in the financial statements, because the Company
believes there is a 50% or greater chance the carryforwards will
expire unused. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same
amount.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
e. Principles of Consolidation
The December 31, 1999 financial statements are consolidated with
CCCI, E-Casinos, E- Casinos, Ltd. and VHC. All significant
intercompany accounts and transactions have been eliminated.
F-16
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Property and Equipment
Office equipment and leasehold improvements are recorded at cost.
Minor additions and renewals are expensed in the year incurred.
Major additions and renewals are capitalized and depreciated over
their estimated useful lives. Depreciation of office equipment and
leasehold improvements is computed using the straight-line method
over the estimated useful lives of the asset of 5 and 10 years,
respectively. Depreciation expense for continuing operations for
the years ended December 31, 1999 and 1998 was $36,305 and
$35,917, respectively.
Property and equipment consists of the following:
December 31,
1999
-----------------
Office equipment $ 169,912
Leasehold improvements 36,491
Accumulated depreciation (138,965)
Net Property and Equipment $ 67,438
=================
g. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
h. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. Management does not expect that the adoption
of this statement will have a material impact on the Company's
financial statements.
F-17
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Revenue Recognition Policy
The Company recognizes as revenue the net winnings from gaming
activities, which is the difference between gaming wins and
losses. The earnings process is complete upon receipt of the net
winnings, and no further obligations exist to the customer.
Cost of sales includes royalties, payable to Softec, incurred on
Casino activity and bank discount fees incurred by the Company for
the acceptance of credit cards.
The formula for net revenue sharing is as follows: (Casino gain
(loss) - adjustment for incentives - charge backs) * 25% royalty
factor to be paid to Softec.
j. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
k. Accounts Receivable
Accounts receivable are shown net of an allowance for doubtful
accounts of $2,462 at December 31, 1999.
l. Long-lived Assets
All long-lived assets are evaluated yearly for impairment per SFAS
121. Any impairment in value is recognized as an expense in the
period when the impairment occurs.
m. Note Receivable
The Company has a note receivable from an unrelated company. The
note is unsecured, due upon demand and bears interest at 10% per
annum. The note includes accrued interest of $266.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, a related party made
advances to the Company totaling $1,048,416. Through December 31,
1999, interest in the amount of $31,648 was accrued on the amounts
advanced. The amounts advanced with accrued interest were
converted to 4,282,025 shares of common stock, at $0.20 per share,
on September 30, 1999 and 1,118,295 shares of common stock at
$0.20 per share on December 31, 1999. These two conversions were
for a $1,000,000 convertible debenture and $80,064 of warrants
attached to the debenture.
F-18
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
In 1998, a related party converted $712,706 of debt into 1,583,791
shares of common stock at $0.45 per share (Note 12).
In 1998, a related party converted $141,000 of the "B" warrants
into 4,700,000 shares of common stock.
In 1997, a related party converted $106,000 of a convertible
debenture, and exercised $175,000 of "A" warrants and $34,000 of
"B" warrants into 10,500,000 shares of common stock (Note 4).
On December 31, 1997, the Company issued 3,495,000 shares of its
common stock in consideration for cash received from a related
party. At the date of issuance, $909,816 was owed and $768,816 was
converted to common stock. At December 31, 1997, an additional
note payable of $141,000 was still owed by the Company. This note
was non-interest bearing and was due upon demand.
On December 31, 1996, the Company issued 159,818 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance $271,691 was owed and converted to common
stock. At December 31, 1996, an additional note payable of
$387,125 was still owed by the Company. This note payable was non-
interest bearing and was due upon demand.
On September 30, 1996, the Company issued 210,050 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance, $357,085 was owed and converted into common
stock.
On July 26, 1996, the Company issued 80,000 shares of its common
stock in consideration of money owed to a related party. At the
date of issuance, $136,000 was owed and converted into common
stock.
On June 30, 1996, the Company issued 419,086 shares of its common
stock in consideration of money owed to a related party. At the
date of the issuance $712,445 was owed and converted to common
stock.
In April, 1996, the Company issued 2,300,000 shares of its common
stock as a partial conversion of the convertible debenture. The
shares were issued at $0.03 per share (Note 4).
On March 31, 1996, the Company issued 539,172 shares of its common
stock in consideration of money owed to a related party. At the
date of issuance $916,660 was owed and converted to common stock
(Note 12).
On December 31, 1995, the Company issued 210,888 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance $358,510 was owed and converted to common
stock (Note 12).
F-19
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
On October 31, 1995, the Company issued 380,886 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance $647,507 was owed and converted to common
stock (Note 12).
The Company has granted 720,000 warrants to officers and directors
of the Company. The warrants were issued at prices ranging from
$0.25 to $5.75 which represented the fair market value of the
stock at the time of grant, and for periods ranging from four to
five years (Note 12).
On May 14, 1994, officers and directors of the Company were issued
stock options to purchase 120,000 shares of the Company's common
stock at $2.50 per share. No compensation expense has been
recorded as the option price exceeded the fair market value of the
shares when the options were issued.
On November 1, 1993, the Company issued 1,500,000 shares of its
common stock in consideration of $17,752 owed to a related party.
NOTE 4 - CONVERTIBLE DEBENTURE - RELATED PARTY
In March of 1994, the Company issued a $175,000 fixed and floating
convertible debenture. The debenture bore interest at 10% per
annum. The debenture was convertible into common stock at a rate
of $0.03 per share. The debenture carried "A" and "B" warrants to
purchase additional shares of the Company's common stock. The
terms of the warrants were also $0.03 per share. In April 1996,
the Company issued 2,300,000 shares of common stock to convert
$69,000 of the debenture. At December 31, 1996, the balance
payable on the debenture was $106,000. In 1997, the Company issued
10,500,000 shares of common stock to convert the balance payable
on the debenture of $106,000 as well the exercise of all of the
"A" warrants for $175,000 and 1,133,334 of the "B" warrants for
$34,000 that accompanied the debentures. In 1998, the Company
issued 4,700,000 shares of common stock to exercise $141,000 of
"B" warrants. No compensation expense was recorded on the issuance
of the warrants because the exercise price exceeded the trading
price at the time of issuance. At December 31, 1998, the balance
payable on the debenture was $-0-.
In January 1999, the Company approved convertible debentures,
totaling no more than $1 million in the aggregate. The debentures
were convertible into "restricted" common stock of the Company at
$0.40 per share with one (1) four-year $0.40 warrant attached.
This authorization was canceled in September 1999 in conjunction
with the Company authorizing a separate convertible debenture for
up to $1 million. This debenture is convertible at $0.20 per share
into "restricted" common stock of the Company with one five-year
$0.20 warrant attached. The Company recorded additional interest
expense of $400,000 to reflect the discount of 20% on the
debenture and the attached warrants. Unconverted balances accrue
10% interest per annum on a quarterly basis and all balances must
be converted within two years of the receipt of the funds by the
Company. On September 30, 1999, $856,405 of the $1 million
authorized had been converted into shares of common stock.
F-20
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 4 - CONVERTIBLE DEBENTURE - RELATED PARTY (Continued)
On December 31, 1999, the Company converted the balance of the
debenture into common stock as well as $80,064 of the attached
warrants. The total shares issued pursuant to this debenture and
the attached warrants as of December 31, 1999 is 5,400,320.
NOTE 5 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
incurred losses from its inception through December 31, 1999. The
Company does not have an established source of revenues sufficient
to cover its operating costs and to allow it to continue as a
going concern. It is the intent of the Company to seek additional
financing through private placements of its common stock. This
will be accomplished through the use of convertible debentures.
Management believes the funds will more likely than not be
successfully raised, but there can be no assurance of this.
Additionally, the Company intends to use the marketable securities
as additional cash flow. The Company expects that operations will
increase in 2000, and will start to provide cash flows from
operations and expansion. The Company expects that it will need
$1,000,000 to $2,000,000 of additional funds for operations and
expansion in 2000. In the first quarter of 2000, the Company sold
95,000 of 200,000 shares of its marketable securities for net
proceeds of $618,600.
NOTE 6 - STOCK TRANSACTIONS
On December 31, 1999, the Company issued 1,118,295 shares of its
common stock as full conversion of the convertible debenture, and
a partial exercise of attached warrants is $0.20 per share (Notes
4 and 12.)
On September 30, 1999, the Company issued 4,282,025 shares of its
common stock as a conversion of a convertible debenture. The
shares were issued at $0.20 per share (Notes 4 and 12).
On December 31, 1998, the Company issued 310,189 shares of common
stock in settlement of debt at $0.45 per share.
On June 30, 1998, the Company issued 1,273,602 shares of common
stock in settlement of debt at $0.45 per share (Note 3).
In 1998, the Company issued 35,000 shares of common stock as an
exercise of warrants at $0.25 per share.
In 1998, the Company issued 4,700,000 shares of common stock as an
exercise of "B" warrants at $0.03 per share (Note 4).
On December 31, 1997, the Company issued 3,495,000 shares of its
common stock in settlement of debt at $0.22 per share (Notes 3 and
12).
F-21
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 6 - STOCK TRANSACTIONS (Continued)
During 1997, the Company issued 10,500,000 shares of common stock
as a conversion of a convertible debenture and exercise of
warrants. The shares were issued at $0.03 per share (Note 4).
On December 31, 1996, the Company issued 159,818 shares of its
common stock in settlement of debt at $1.70 per share (Note 3).
On September 30, 1996, the Company issued 210,050 shares of its
common stock in settlement of debt at $1.70 per share (Note 3).
On July 26, 1996, the Company issued 80,000 shares of its common
stock in settlement of debt at $1.70 per share (Note 3).
On June 30, 1996, the Company issued 419,086 shares of its common
stock in settlement of debt at $1.70 per share (Note 3).
On May 6, 1996, the Company issued 6,000,000 shares of its common
stock to an escrow agent who was to hold the shares until the
Company is paid $60,000,000. This $60,000,000 was recorded as a
stock subscription receivable until it was canceled in 1997.
During April 1996, the Company issued 2,300,000 shares of common
stock as a partial conversion of a convertible debenture. The
shares were issued at $0.03 per share and represented conversion
of $69,000 of the initial $175,000 debenture.
On March 31, 1996, the Company issued 539,172 shares of its common
stock in settlement of debt at $1.70 per share (Note 3).
On December 31, 1995, the Company issued 210,888 shares of its
common stock in settlement of debt at $1.70 per share (Note 3).
On October 31, 1995, the Company issued 380,886 shares of its
common stock in settlement of debt at $1.70 per share (Note 3).
During 1994, the Company issued 340,000 shares of its common stock
for cash, at $0.50 per share. The Company incurred costs of
$67,500 in connection with the stock offering which were offset to
additional paid-in capital.
In November 1993, the Company issued 1,500,000 shares of its
common stock in settlement of debt at $0.012 per share (Note 3).
F-22
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 7 - DISCONTINUED OPERATIONS
On March 14, 1996 the Company sold its subsidiary, Tessier
Resources, LTD. (Tessier) to a public shell corporation controlled
by some of the Company's shareholders, Ocean Power (formerly PTC
Group, Inc.). The consolidated financial statements have been
restated to reflect this transaction as discontinued operations.
Tessier had no revenues and no income tax benefit was attributed
to the sale. (Note 8)
NOTE 8 - MARKETABLE SECURITIES
The investment represents a minor ownership interest in Ocean
Power of less than 1% at December 31, 1999 from the sale of
Tessier Resources, Ltd., whereby Ocean Power gave the Company a
convertible debenture with a face value of $3,000,000 in exchange
for all of the issued and outstanding stock of Tessier Resources,
Ltd. The debenture would have matured in four years if it were not
converted. The debenture is convertible at any time before
repayment into an aggregate of 2,000,000 shares of authorized but
previously unissued shares of Ocean Power common stock at a
conversion price of $1.50 per share. The investment was recorded
at its predecessor cost of $158,112, because the sale of Tessier
was to a related party. Accordingly, no gain on the sale was
recorded. The investment is being carried at its fair market value
in accordance with SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." As the investment is
considered "trading", unrealized gains and losses on the
investment are recognized as components of income. At December 31,
1999, the Company has converted all of the debenture into
2,000,000 shares of Ocean Power common stock and has deposited
those shares with a brokerage house. In August 1999, Ocean Power
effected a 1-for-10 reverse stock split. At December 31,1999, the
200,000 shares of Ocean Power common stock held by the Company
carried an aggregate fair market value of $275,000, or $1.375 per
share. The investment is presented as a current asset.
NOTE 9 - LICENSE FEES
The fees are amounts paid for software licenses and the rights to
use the software related to the Company's conduct of its Internet
related gaming.
December 31,
1999
----------
Softec Systems Caribbean, Inc. $ 100,000
Accumulated amortization (25,000)
Current portion (50,000)
Long-Term Portion $ 25,000
==========
The Company has also prepaid $58,333 in license fees which are
included in prepaid expenses.
F-23
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 9 - LICENSE FEES (Continued)
In August of 1998, Casino World Holdings, Ltd. (CWH) ceased to
supply necessary services related to its license and operating
agreements with the Company. The Company has subsequently
questioned CWH's ability to provide an online interactive gaming
system and support services as originally outlined in the
aforementioned agreements. Consequently, the Company, in its best
judgment, has elected to write-off the unamortized portion of its
paid investment in the license agreement a well as the remaining
unpaid balance of $700,000. The Company has subsequently entered
into a similar licensing agreement with another third party to
provide its required gaming software and transaction processing.
As practicable, the Company may seek to reclaim a portion or all
of its investment in CWH through appropriate legal action. Based
upon consultation with its attorney, the Company has accrued
$100,000 as the estimated cost of settling this liability.
The Company, through its subsidiary, E-Casinos Ltd., has entered
into an agreement with Softec Systems Caribbean, Inc. (Softec)
which will provide software and operating services relating to
Internet gaming. Under the terms of the agreement, E-Casinos Ltd.
is required to pay a non-refundable one-time license fee of
$100,000. Payment of this fee is to be made in accordance with the
following schedule:
o $25,000 upon signing the agreement.
o $5,000 thirty-days from the acceptance of the first wager
using the licensed software, and
o $10,000 per month, for seven consecutive months, with the
first payment being made 60-days from the acceptance of the
first wager using the licensed software.
The license fee will be amortized over a 2-year period. The
Company began amortizing the license fee in July 1999.
Amortization of the license fee for the nine months ended
September 30, 1999 was $12,500. At December 31, 1999, the Company
currently owes $70,000 for the license fee under the terms of the
agreement.
Through its subsidiary, E-Casinos Ltd., the Company paid an annual
non-refundable fee of $100,000 to the government of Antigua for a
gaming license. As the gaming license was granted on July 22,
1999, it will be amortized over a one-year period beginning August
1, 1999 Softec. Amortization of the gaming license for the year
ended December 31, 1999 was $41,667. Funds to pay for the gaming
license were advanced to the Company by Softec (Note 10).
F-24
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 10 - NOTES PAYABLE
In conjunction with the startup of E-Casinos Ltd., the Company
was required to pay a yearly non-refundable fee of $100,000 to
the government of Antigua for a gaming license. The funds for the
gaming license were advanced to the Company by Softec. Under the
terms of the note, the Company is obligated to repay Softec in
twelve monthly installments of $10,000. The note payable has an
effective interest rate of 20%. Through December 31, 1999, the
Company had made payments totaling $40,000 on the note. As of
December 31, 1999, the remaining balance outstanding on the note
was $80,000.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Software Licensing Agreement
----------------------------
In the first quarter of 1999, the Company entered into a software
licensing agreement with Softec Systems Caribbean Inc., to
provide online-gaming software and hardware services. The license
agreement calls for a commitment by the company to spend a
minimum of 10% of the previous months net revenue (based on a
yearly average) for ongoing promotion and marketing. The
marketing obligation only applies to the first 365 days of
operation. The license agreement also calls for sharing of net
revenues based on a specific formula agreed to by the Company and
licensor. As the license agreement may be terminated by the
Company at the end of any one-year term or by the licensor at the
end of any one-year term subsequent to the first year of the
agreement, the License Agreement is amortized over a two-year
period.
Consultants
-----------
The Company currently pays a shareholder $12,000 a month for
advisory services provided by the shareholder to the Company.
NOTE 12 - DILUTIVE INSTRUMENTS
In August 1999, the Company granted 360,000 warrants to an
officer of the Company at $0.28 per share. No compensation
expense was recorded at the time of issuance as the exercise
price was equal to the trading price at the time of issuance. The
warrants become exercisable over a two-year period with 45,000
warrants vesting at the end of each quarter over the two-year
period provided the individual continues his employment with the
Company.
F-25
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 12 - DILUTIVE INSTRUMENTS (Continued)
In June 1999, the Company granted 595,000 warrants to certain
individuals, consultants, Directors and Officers of the Company.
These warrants were granted for services or beneficial
contributions to the Company and/or for the expectation of future
contributions to the success of the Company. The warrants were
issued to 15 individuals. Of the 595,000 warrants, 545,000 are
exercisable at $0.47 per share and 50,000 are exercisable at
$0.61 per share. No compensation expense was recorded on the
issuance of warrants because the exercise price was either equal
to or exceeded the trading price at the time of issue. All
warrants expire June 30, 2002.
In January 1999, the Company approved one or more convertible
debentures, totaling no more than $1 million in the aggregate.
The debentures were convertible into "restricted" common stock of
the Company at $0.40 per share with one (1) four-year $0.40
warrant attached. This authorization was canceled in September
1999 in conjunction with the Company authorizing a separate
convertible debenture for up to $1 million. This debenture is
convertible at $0.20 per share into "restricted" common stock of
the Company with one (1) five-year $0.20 warrant attached. The
Company recorded additional interest expense of $400,000 to
reflect the discount on the debenture and attached warrants.
Unconverted balances accrue 10% interest per annum on a quarterly
basis and all balances must be converted within two years of the
receipt of the funds by the Company.
At December 31, 1999, the Company converted the balance of the
debenture into common stock as well as $80,064 of the attached
warrants. Total shares issued pursuant to this debenture and
attached warrants as of December 31, 1999 is 5,400,320.
In April 1998, the Company approved a private placement for
1,111,111 shares of its common stock with accompanying 1,111,111
warrants at $0.45 per share and warrants. All of the 1,111,111
shares and 472,680 shares from the exercise of warrants have been
issued.
In 1998, the Company converted warrants for 35,000 shares of its
common stock at $0.25 per share.
F-26
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 12 - DILUTIVE INSTRUMENTS (Continued)
In December 1997, the Company granted 830,000 warrants to
officers and shareholders of which 710,000 are exercisable at
$0.25 per share and 120,000 are exercisable at $0.50 per share.
No compensation expense was recorded on the issuance of warrants
because the exercise price exceeded the trading price at the time
of issuance. Additionally, the Company has reserved 100,000
warrants for future issuance. All warrants expire December 29,
2001.
In December 1997, the Company approved a private placement for
3,500,000 shares at $0.22 per share. All but 5,000 shares were
issued pursuant to this private placement at December 31, 1997.
In March 1996, the Company authorized 1,000,000 stock options for
possible future allocation to an individual and his associates
for their services in raising funds and completing projects for
the Company. Issuance of these stock options are at the
discretion of the Company's Board of Directors. The options are
exercisable at $6.00 per share which represented the fair market
value of the stock at the time of grant, with no time limit
associated with the allocation. These stock options were canceled
by the Company on July 23, 1999.
In June 1995 the Company initiated a private placement for
1,000,000 shares of its common stock with accompanying 1,000,000
warrants at $1.70 per share and warrant. Of the 2,000,000 shares
which have been issued pursuant to this private placement,
591,774 shares were issued in 1995, while 1,408,126 shares were
issued in 1996.
Over the period of May 1994 through November 1995, the Company
granted 1,532,000 warrants to certain individuals, consultants,
Directors and Officers of the Company. These warrants were
granted for services or beneficial contributions provided to the
Company and/or for the expectation of future contributions to the
success of the Company. The warrants were issued to thirty
individuals or organizations at exercise prices ranging from
$2.50 to $5.75, which represented the fair market value of the
stock at the time of grant, and for periods ranging from four to
five years. The warrants will be issued to these individuals or
organizations pursuant to a warrant agreement with the Company.
The Company intends to register the shares underlying these
warrants at a time deemed suitable by management. The warrants
are conditional upon the Company achieving a listing with the
NASDAQ stock exchange. Of the 1,532,000 warrants granted, 637,000
expired on May 31, 1999, 640,000 expired in October and November
1999, and 135,000 were canceled by mutual consent of the Company
and one of its officers on September 30, 1999. The remaining
120,000 expires on May 18, 2000.
F-27
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 12 - DILUTIVE INSTRUMENTS (Continued)
The following is a schedule of outstanding warrants as of
December 31, 1999:
<TABLE>
<CAPTION>
Expiration Exercise Warrants Warrants
Date of Issue Date Price Issued Outstanding
------------- ---- ----- ------ -----------
<S> <C> <C> <C> <C> <C>
May 18, 1994 May 18, 2000 $ 2.50 120,000 120,000
December 29, 1997 December 29, 2001 0.25 710,000 675,000
December 29, 1997 December 29, 2001 0.50 120,000 120,000
September 1, 1999 September 1, 2004 0.20 5,000,000 4,599,680
June 3, 1999 June 3, 2002 0.61 50,000 50,000
June 30, 1999 June 30, 2002 0.47 545,000 545,000
August 31, 1999 -- 0.28 360,000 360,000
------- -------
6,905,000 6,469,680
========= =========
</TABLE>
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), requires the Company to provide proforma
information regarding net income and net stock awards had been
determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates the fair value
of each stock award at the grant date by using the Black-Scholes
option pricing model with the following weighted average
assumptions used for grants, respectively; dividend yield of zero
percent for all years; expected volatility of 32 percent for all
years; risk-free interest rates of 8.0 percent and expected lives
of 4 years.
Under the accounting provisions of SFAS No. 123, the Company's
net income would have been unchanged during the year ended
December 31, 1999.
NOTE 13 - SUBSEQUENT EVENT
In the first quarter of 2000, the Company sold 90,000 shares of
its marketable securities for net proceeds of $618,600. The sales
resulted in a realized gain of $547,139. At March 31, 2000, the
remaining marketable securities were valued at $787,500.
F-28
<PAGE>
VENTURE TECH, INC.
FINANCIAL STATEMENTS
March 31, 2000 and December 31, 1999
F-29
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
2000 1999
------------ -----------
(Unaudited)
CURRENT ASSETS
Cash $ 443,754 $ 17,944
Marketable securities 787,500 275,000
Accounts receivable - net 12,824 15,584
Note receivable 185,757 27,470
Prepaid expenses 40,000 74,413
License fees - current 43,833 50,000
---------- ----------
Total Current Assets 1,513,668 460,411
---------- ----------
PROPERTY AND EQUIPMENT 59,284 67,438
---------- ----------
OTHER ASSETS
License fees 18,667 25,000
---------- ----------
Total Other Assets 18,667 25,000
---------- ----------
TOTAL ASSETS $1,591,619 $ 552,849
========== ==========
F-30
<PAGE>
<TABLE>
<CAPTION>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, December 31,
2000 1999
----------- -----------
Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 67,891 $ 213,542
Reserve for legal fees 100,000 100,000
License fee payable 60,000 80,000
Notes payable - related party 324,488 --
----------- -----------
Total Current Liabilities 552,379 393,542
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock; 100,000,000 shares authorized of $0.001
par value, 37,014,165 shares issued and outstanding 37,015 37,015
Additional paid-in capital 7,337,471 7,207,676
Deficit accumulated during the development stage (6,335,246) (7,085,384)
----------- -----------
Total Stockholders' Equity 1,039,240 159,307
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,591,619 $ 552,849
=========== ===========
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception on
January 1,
For the Three Months Ended 1986 Through
March 31, March 31,
-------------------------
2000 1999 2000
------------ ----------- -----------
REVENUE
<S> <C> <C> <C>
Sales $ 52,052 $ -- $ 637,408
Cost of sales 16,904 -- 27,136
----------- ----------- -----------
Gross Margin 35,148 -- 610,272
----------- ----------- -----------
EXPENSES
Research and development -- -- 50,215
General and administrative 260,566 138,260 5,520,793
Depreciation and amortization 22,088 8,979 474,338
----------- ----------- -----------
Total Expenses 282,654 147,239 6,045,346
----------- ----------- -----------
LOSS FROM OPERATIONS (247,506) (147,239) (5,435,074)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Realized gain on marketable securities 547,139 -- 547,139
Unrealized gain on marketable securities 587,603 -- 704,491
Net loss on disposal of asset -- -- (1,400,000)
Interest expense (140,015) (97) (617,504)
Interest income 2,069 -- 2,069
Dividend income 848 -- 848
----------- ----------- -----------
Total Other Income (Expense) 997,644 (97) (762,957)
----------- ----------- -----------
INCOME (LOSS) BEFORE LOSS FROM
DISCONTINUED OPERATIONS
AND PROVISION FOR INCOME TAX 750,138 (147,336) (6,198,031)
----------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS -- -- (137,215)
PROVISION FOR INCOME TAX -- -- --
----------- ----------- -----------
NET INCOME (LOSS) $ 750,138 $ (147,336) $(6,335,246)
=========== =========== ===========
BASIC INCOME (LOSS) PER SHARE $ 0.02 $ (0.00)
========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 37,014,165 31,613,845
========== ============
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
For the Three Months Ended Inception on
March 31, January 1,
------------------------- 1986 Through
March 31,
2000 1999 2000
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 750,138 $(147,336) $ (6,335,246)
Adjustments to reconcile net (loss) to net cash
used by operating activities:
Common stock issued for services -- -- 34,259
Debentures and warrants issued at
less than market value 129,795 -- 529,795
Depreciation and amortization 22,088 8,979 474,338
Loss on sale of investments -- -- 20,390
Net loss on disposition of asset -- -- 1,400,000
Unrealized gain in marketable securities (587,603) -- (704,491)
Gain on marketable securities (547,140) -- (547,140)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivables and other assets (121,113) -- (244,605)
Increase (decrease) in accounts
payable and other current liabilities (165,651) (8,140) (52,335)
----------- ----------- ----------
Net Cash Used by Operating Activities (519,486) (146,497) (5,425,035)
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments -- -- (378,313)
Sale of investments 622,243 -- 629,353
Purchase of fixed assets (1,435) -- (259,159)
Disposal of fixed assets -- -- 3,223
Purchase of license fees -- (25,000) (1,575,000)
----------- ----------- ----------
Net Cash Provided (Used) by Investing
Activities 620,808 (25,000) (1,579,896)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of convertible debenture -- 175,000
Conversion of debt to equity -- -- 75,902
Proceeds from notes payable 324,488 263,909 6,673,098
Common stock issued for cash -- -- 515,963
Shareholder assessment -- -- 8,722
----------- ----------- ----------
Net Cash Provided by Financing Activities $ 324,488 $ 263,909 $ 7,448,685
----------- ----------- -----------
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
For the Three Months Ended Inception on
March 31, January 1,
------------------------- 1986 Through
March 31,
2000 1999 2000
------------ ----------- -----------
<S> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH $ 425,810 $ 92,412 $ 443,754
CASH AT BEGINNING OF PERIOD 17,944 53,324 --
------------ ----------- -----------
CASH AT END OF PERIOD $ 443,754 $ 145,736 $ 443,754
============= =========-= ===========
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ -- $ -- $ 6,667
Income taxes $ -- $ -- $ --
NON CASH FINANCING ACTIVITIES:
Conversion of debt into additional paid-in capital $ -- $ -- $ 75,902
Common stock issued in settlement of debt $ -- $ -- $5,979,235
Conversion of debenture and warrants to
common stock $ -- $ -- $ 525,526
Debenture and warrants issued at less than
market value $ 129,795 $ -- $ 529,795
</TABLE>
F-34
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows at March 31, 2000 and 1999
and for all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December
31, 1999 audited consolidated financial statements. The result of
operations for periods ended March 31, 2000 and 1999 are not
necessarily indicative of the operating results for the full
years.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
incurred losses from its inception through March 31, 2000. The
Company does not have an established source of revenues sufficient
to cover its operating costs and to allow it to continue as a
going concern. It is the intent of the Company to seek additional
financing through private placements of its common stock. This
will be accomplished through the use of convertible debentures.
Management believes the funds will more likely than not be
successfully raised, but there can be no assurance of this.
Additionally, the Company intends to use the marketable securities
as additional cash flow. The Company expects that operations will
increase in 2000, and will start to provide cash flows from
operations and expansion. The Company expects that it will need
$1,000,000 to $2,000,000 of additional funds for operations and
expansion in 2000. In the first quarter of 2000, the Company sold
95,000 of 200,000 shares of its marketable securities for net
proceeds of $622,243.
F-35
<PAGE>
PART III
Item 1. Index to Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
3.1* Articles of Incorporation and Amendments of Registrant
3.2* By-Laws of Registrant
4.* See Exhibit No. 3.1, Articles of Incorporation
Article V and amendments thereto
10.1* Software License Agreement with Softec Systems
10.2 Art Rosenberg Consulting Agreement
10.3 Silk Road Consulting Agreement (Victor Yung)
21.1* Subsidiaries of Venture Tech, Inc.
27. Financial Data Schedule
----------------
* Previously filed
2. Description of Exhibits
See Item I above.
54
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of
1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly organized.
Venture Tech, INC.
(Registrant)
Date: August 14, 2000 By: /s/ William D. Baker
-------------------------------
William D. Baker
Vice President, C.E.O.
55
