UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- -----------
Commission File Number 1-15679
VENTURE TECH, INC.
(Exact name of small business issuer as specified in its charter)
Idaho 87-0462258
(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 offices)
Registrant's telephone no., including area code: (604) 990-9889
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- ------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding as of June 30, 2000
Common Stock, $.001 par value 37,014,165
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<PAGE>
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements....................................... 3
Balance Sheets -- June 30, 2000 and
December 31, 1999.................................... 4
Statements of Operations -- three and six
months ended June 30, 2000 and 1999.................. 6
Statements of Cash Flows -- three and six
months ended June 30, 2000 and 1999..................13
Notes to Financial Statements .........................15
Item 2. Management's Discussion and Analysis and
Results of Operations..................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................23
Item 2. Changes In Securities and Use of Proceeds..................23
Item 3. Defaults Upon Senior Securities............................23
Item 4. Submission of Matters to a Vote of
Securities Holders.......................................23
Item 5. Other Information..........................................23
Item 6. Exhibits and Reports on Form 8-K...........................23
SIGNATURES.............................................24
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<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period ended June
30, 2000, have been prepared by the Company.
VENTURE TECH, INC.
FINANCIAL STATEMENTS
June 30, 2000 and December 31, 1999
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
---------- ----------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 236,900 $ 17,944
Marketable securities 449,060 275,000
Accounts receivable - net 13,339 15,584
Note receivable -- 27,470
Prepaid expenses 10,000 74,413
License fees - current 37,666 50,000
---------- ----------
Total Current Assets 746,965 460,411
---------- ----------
PROPERTY AND EQUIPMENT 49,686 67,438
---------- ----------
OTHER ASSETS
License fees 12,334 25,000
Note receivable 217,520 --
---------- ----------
Total Other Assets 229,854 25,000
---------- ----------
TOTAL ASSETS $1,026,505 $ 552,849
========== ==========
</TABLE>
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
=========== ===========
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 83,808 $ 213,542
Reserve for legal fees 100,000 100,000
License fee payable 60,000 80,000
Notes payable - related party 365,137 --
----------- -----------
Total Current Liabilities 608,945 393,542
----------- -----------
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 (6,956,926) (7,085,384)
----------- -----------
Total Stockholders' Equity 417,560 159,307
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,026,505 $ 552,849
=========== ===========
</TABLE>
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the For the January 1,
Six Months Ended Three Months Ended 1986 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ------------
REVENUE
<S> <C> <C> <C> <C> <C>
Sales $ 99,805 $ -- $ 47,753 $ -- $ 685,161
Cost of sales 30,908 -- 14,004 -- 41,140
------------ ------------ ------------ ------------ ------------
Gross Margin 68,897 -- 33,749 -- 644,021
------------ ------------ ------------ ------------ ------------
EXPENSES
Research and development -- -- -- -- 50,215
General and administrative 505,394 369,581 244,828 231,321 5,765,621
Depreciation and amortization 44,175 17,958 22,087 8,979 496,425
------------ ------------ ------------ ------------ ------------
Total Expenses 549,569 387,539 266,915 240,300 6,312,261
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (480,672) (387,539) (233,166) (240,300) (5,668,240)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Realized gain on marketable
securities 547,139 -- -- -- 547,139
Unrealized gain (loss) on marketable
securities 205,262 -- (382,341) -- 322,150
Net loss on disposal of asset -- -- -- -- (1,400,000)
Interest expense (153,739) (362,471) (13,724) (362,374) (631,228)
Interest income 8,002 -- 5,933 -- 8,002
Dividend income 2,466 -- 1,618 -- 2,466
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) 609,130 (362,471) (388,514) (362,374) (1,056,308)
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE LOSS FROM
DISCONTINUED OPERATIONS
AND PROVISION FOR INCOME TAX 128,458 (750,010) (621,680) (602,674) (6,819,711)
------------ ------------ ------------ ------------ ------------
LOSS FROM DISCONTINUED
OPERATIONS -- -- -- -- (137,215)
PROVISION FOR INCOME TAX -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 128,458 $ (750,010) $ (621,680) $ (602,674) $ (6,956,926)
============ ============ ============ ============ ============
BASIC INCOME (LOSS) PER SHARE $ 0.00 $ (0.02) $ (0.02) $ (0.02) --
============ ============ ============ ============ ------------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 37,014,165 31,613,845 37,014,165 31,613,845 --
============ ============ ============ ============ ------------
</TABLE>
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<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>
-7-
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<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>
-8-
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<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>
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<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>
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<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>
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<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 -- -- 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)
Issuance of convertible
debenture at less than market
value (Note 12) (unaudited) -- -- 129,795 -- --
Net income for the period
ended June 30, 2000
(unaudited) -- -- -- -- 128,458
----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000
(unaudited) 37,014,165 $ 37,015 $ 7,337,471 $ -- $(6,956,926)
=========== =========== =========== =========== ===========
</TABLE>
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the For the January 1,
Six Months Ended Three Months Ended 1986 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 128,458 $ (750,010) $ (621,680) $ (602,674) $(6,956,926)
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 129,795 350,000 -- 350,000 529,795
Depreciation and amortization 44,176 17,958 22,088 8,979 496,426
Loss on sale of investments -- -- -- -- 20,390
Net loss on disposition of asset -- -- -- -- 1,400,000
Unrealized (gain) loss in marketable
securities (205,262) -- 382,341 -- (322,150)
(Gain) loss on marketable securities (547,140) -- -- -- (547,140)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivables and other assets (123,392) -- (2,279) -- (246,884)
Increase (decrease) in accounts
payable and other current liabilities (149,723) 44,976 15,928 54,116 (36,407)
----------- ----------- ----------- ----------- -----------
Net Cash Used by Operating
Activities (723,088) (337,076) (203,602) (189,579) (5,628,637)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of investments (43,901) -- (43,901) -- (422,214)
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 576,907 (25,000) (43,901) -- (1,623,797)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of convertible debenture -- -- -- -- 175,000
Conversion of debt to equity -- -- -- -- 75,902
Proceeds from notes payable 365,137 379,458 40,649 114,549 6,713,747
Common stock issued for cash -- -- -- -- 515,963
Shareholder assessment -- -- -- -- 8,722
----------- ----------- ----------- ----------- -----------
Net Cash Provided by Financing
Activities $ 365,137 $ 379,458 $ 40,649 $ 114,549 $ 7,489,334
----------- ----------- ----------- ----------- -----------
</TABLE>
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the For the January 1,
Six Months Ended Three Months Ended 1986 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH $ 218,956 $ 17,382 $ (206,854) $ (75,030) $ 236,900
CASH AT BEGINNING OF PERIOD 17,944 53,324 443,754 145,736 --
---------- ---------- ---------- ---------- ----------
CASH AT END OF PERIOD $ 236,900 $ 70,706 $ 236,900 $ 70,706 $ 236,900
========== ========== ========== ========== ==========
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 $ 350,000 $ -- $ -- $ 529,795
</TABLE>
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<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 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 June 30, 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 June 30, 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 June 30, 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 proceeds
of $622,243.
-15-
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
Overview
Venture Tech, Inc. (the "Company"), a development stage company, has
incurred losses from its inception through June 30, 2000. Since 1995, the
Company has 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.
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
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. 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.
Results of Operations
Three Months Ended June 30, 2000 (Second Quarter of 2000") Compared
With The Three Months Ended June 30, 1999 ("Second Quarter of 1999")
The Company began gaming operations for real money and first realized
revenues in July 1999. Accordingly, for the second quarter of 2000 the Company
realized revenues of $47,753. No revenues were recorded in the second quarter of
1999 as operations had yet to commence. Cost of sales for the second quarter of
2000 was $14,004, or 29.3% of revenues, compared to $-0- for the 1999 period,
resulting in a gross margin of $33,749. 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 payments to SSII is likely to decrease per a negotiated schedule with
SSII.
The slower than expected growth in casino-generated revenues is
attributed to the Company's initial focus on the Asian market. As a consequence
of repeated attempts by the United States Congress to prohibit Internet gambling
in the United States, which have been unsuccessful to date, the Company has
elected, in the interim, to focus primarily on international markets and on Asia
-16-
<PAGE>
in particular. The Company's first casino offering, Asia Casino, was launched in
the latter half of 1999 in the English, Japanese, and Chinese languages. The
Company has subsequently redesigned portions of its gaming web site in response
to marketing feedback to improve cultural acceptance. The Company is also
concentrating on using appropriate marketing channels for optimum benefit. In
that regard, the Company has elected to cancel its strategic alliance agreement
with Able Wealth Investments Limited of Hong Kong for lack of productivity.
Also, the Company's gaming software supplier delayed implementation of its new
version of casino software, scheduled for the first quarter of 2000, which would
have made the Company's gaming offerings more appealing and competitive. In
addition, competitors have realized the potential of the Asian market and have
also begun to actively market their gaming services. The Company continues to
evaluate proposals for other international marketing jurisdictions with
prospective strategic partners, but can make no assurances that such agreements
will be forthcoming.
General and administrative expenses for the second quarter of 2000
increased 5.8% to $244,828 from $231,321 for the comparable 1999 period. This
marginal increase is due to the increase in general and marketing expenses
associated with the recurring operations of an online casino in second quarter
2000 versus the Company's aggregate expenses in second quarter 1999 associated
with preparing for the development and launch of its Internet casino.
Depreciation and amortization for the second quarter of 2000 increased
246% to $22,087 compared to the 1999 period. The increase was primarily due to
the recognition 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 second quarter of 2000 was $233,166
compared to a loss of $240,300 for the 1999 period. The decreased loss is
primarily attributed to the recognition of revenues from casino operations in
second quarter of 2000. There were no revenues realized for the second quarter
of 1999, as gaming operations had not yet commenced.
The Company earned interest and dividend income of $7,551 for the
second quarter of 2000 compared to $-0- for the comparable period in 1999. The
2000 interest and dividend income resulted from funds held in the Company's
brokerage and money market accounts. These funds were the result of the sale of
marketable securities by the Company in first quarter 2000. The Company had
interest expense of $13,724 for the second quarter of 2000 compared to $362,374
for the same 1999 period. Interest expense in second quarter of 1999 primarily
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 $350,000 in interest expense to reflect
the debt conversion/warrant component of the convertible debenture. The
debenture was convertible into shares of the Company's common stock at $0.40 per
share, which amounts to a $0.07 difference in the price of the stock at closing
on the date of issue. The $350,00 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 second quarter of 1999.
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<PAGE>
During the second quarter 2000, the Company purchased certain
investment securities and subsequently recorded an unrealized loss at the end of
the quarter on said marketable securities. In addition, the Company also
recorded an unrealized loss on the marketable securities held by the Company as
a result of its conversion of a convertible debenture with Ocean Power
Corporation ("PWRE"). The aggregate amount of unrealized loss totaled $382,341.
The decline in value of the PWRE shares was related to its de-listing from the
OTC Bulletin Board ("OTCBB") pursuant to the new eligibility rules adopted by
National Association of Securities Dealers ("NASD"). PWRE has submitted its
initial Form 10SB registration statement to the Securities and Exchange
Commission ("SEC"). NASD rules require that an issuer have an effective
registration statement before seeking to regain its listing on the OTCBB. PWRE
is currently drafting its amendment #1 in response to SEC comments. The Company
reasonably believes that its PWRE shares will ultimately provided a viable
source of capital for operations in 2000 and beyond.
The Company reported a net loss of $621,680 for the second quarter of
2000 compared to $602,674 for the comparable 1999 period. While the end results
are similar, the two periods each had an extraordinary transaction that
materially affected the bottom line. In the second quarter of 2000, the Company
recorded an unrealized loss on marketable securities of $382,341. In second
quarter of 1999 the Company recorded interest expense of $362,374 on the
issuance of a convertible debenture at less than market value. In addition, in
the second quarter of 2000, the Company recorded a gross margin of $33,749 on
revenues generated from casino operations.
Six Months Ended June 30, 2000 ("First Half of 2000") Compared
With the Six Months Ended June 30, 1999 ("First Half of 1999")
For the first half of 2000, the Company had revenues of $99,805
compared with no revenues for the first half of 1999, reflecting that gaming
operations for real money did not begin until the second half of 1999. Cost of
sales for the first half of 2000 was $30,908, or 31.0%, compared to $-0- for the
same period in 1999, resulting in a gross margin of $68,897 for the six month
period ended June 30, 2000. Revenues between the first and second quarter of
2000 were relatively consistent.
General and administrative expenses for the first half of 2000
increased 36.7% to $505,394 from $396,581 for the comparable 1999 period. This
increase is primarily attributed to the full six months of operation of the
Company's on-line casino in 2000 that commenced operations in the second half of
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.
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<PAGE>
Depreciation and amortization for the first half of 2000 increased 246%
to $44,175 compared to the same 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 half of 2000 was
$480,672 compared to a loss of $387,539 for the 1999 period. The increased loss
is primarily attributed to the increase in amortization and general and
administrative expenses associated with operation of the Internet casino.
The Company earned interest and dividend income of $10,468 for the
first half of 2000 compared to $-0- for the comparable 1999 period. The 2000
interest and dividend income resulted from funds held in the Company's brokerage
and money market accounts. The Company had interest expense of $153,739 for the
first half of 2000 compared to $362,471 for the same 1999 period. Interest
expense in 2000 primarily 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 half of 2000. The 1999 interest expense includes amounts
recorded in second quarter 1999 to reflect the debt conversion/warrant component
of a convertible debenture (previously noted) issued at less than market value.
During the first half of 2000, the Company sold certain investment
securities realizing a gain of $547,139. During this same period, the Company
also recorded $205,262 in unrealized gain on marketable securities held by the
Company. There were no such transactions during the first half of 1999.
The Company recorded a net profit of $128,458 for the first half of
2000 compared to a net loss of $750,010 for the first half of 1999. The 2000
profit is primarily attributed to the realized and unrealized gain on marketable
securities held by the Company.
Net Operating Losses
The Company has accumulated approximately $6,800,000 of net operating
loss carryforwards as of March 30, 2000, that may be offset against future
taxable income through 2021 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.
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<PAGE>
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 June 30, 2000, the Company had
working capital of $138,020 compared to $66,869 at December 31, 1999. The
increase is primarily attributed to the Company's minority interest in PWRE,
accounted for at a fair market value of $426,563 at June 30, 2000, compared to
$275,000 at December 31, 1999. At June 30, 2000, the Company had a note
receivable of $217,520 representing a secured note due from an unrelated
company. Also at June 30, 1999 the Company had $236,900 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 June 30, 2000, the Company had total assets of $1,026,505 and
total stockholders' equity of $417,560 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 half of 2000 primarily due to
appreciation of the Company's investment in PWRE from year end 1999.
For the six months ended June 30, 2000, cash used by operating
activities increased to $723,088 compared to $337,076 for the comparable 1999
period. This 215% increase is primarily attributed to reductions 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.
Also during the first half of 2000, the Company realized cash from
investing activities of $576,907 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 $365,137 in the
first six months of 2000 pursuant to advances made against the issuance of a
convertible debenture in 2000 compared to $379,458 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 were converted in second quarter.
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<PAGE>
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 issued to
repay $379,458 in previously advanced funds advanced to the Company during 1999
and supercedes a previous debenture issued in January 1999. 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 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 June 30, 2000 and total shares
issued pursuant to this debenture and attached warrants as of June 30, 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 June 30, 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.
During the remainder of fiscal year 2000, the Company anticipates
meeting its cash and working capital needs primarily from the private sale of
its shares or 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.
Year 2000
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 30, 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
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.
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Risk Factors and Cautionary Statements
This report 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 SEC.
PART II
Item 1. 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 the opinion
of legal counsel, 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 2. Changes In Securities and Use of Proceeds
This Item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
three month period ended June 30, 2000.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VENTURE TECH, INC.
Date: August 18, 2000 BY: /S/ WILLIAM D. BAKER
-------------------------
William D. Baker
Vice President and Chief
Executive Officer
Date: August 18, 2000 BY: /S/ CRAIG J. BAMPTON
-------------------------------
Craig J. Bampton
Vice President, Chief Financial
Officer, Principal Accounting
Officer and Director
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