U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
( ) For the quarterly period ended December 31, 1997
( ) Transition report under Section 13 or 15(d) of the
Exchange Act
For the transition period from _____________ to _________
Commission File Number: 0-22443
PlayStar Corporation
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 51-0378588
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
50 Wellington Street East, Top Floor, Toronto, Ontario, Canada M5E 1C8
(Address of Principal Executive Offices)
(416) 360-4531
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes x No____
APPLICABLE ONLY TO CORPORATE ISSUERS
As of February 17, 1998, the Registrant had outstanding 18,071,774 shares
of its Common Stock, par value $0.0001 per share.
Traditional Small Business Disclosure Format (check one):
Yes x No __________
<PAGE>
INDEX
PAGE
Part I. FINANCIAL INFORMATION....................... 3
Item 1. Financial Statements..................... 3
Consolidated Balance Sheets as of December 31,
1997 and June 30, 1997....................... 3
Interim Consolidated Statement of Loss for the
three months and six months ended
December 31, 1996 and 1997 and for the
period from inception (October 3, 1996) to
December 31, 1997............................ 4
Interim Consolidated Statement of Accumulated
Deficit for the three months and six months
ended December 31, 1996 and 1997 and for the
period from inception (October 3, 1996) to
December 31, 1997............................ 5
Interim Consolidated Statement of Cash Flows
for the six months ended December 31, 1996
and 1997 and for the period from inception
(October 3, 1996) to December 31, 1997....... 6
Notes to Consolidated Financial Statements..... 7
Item 2. Management's Discussion and Analysis or
Plan of Operation........................ 8
Part II. OTHER INFORMATION.......................... 12
Item 6. Exhibits........................ 12
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1997
(U.S.$)
ASSETS
DEC 31,1997 JUNE 30, 1997
(Unaudited) (Audited)
CURRENT
Cash and cash equivalents $363,446 $109,138
Accounts receivable - 166
Prepaid expenses 75,000 1,694
---------- -----------
$438,446 $110,998
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $15,326 $56,045
SHAREHOLDERS' EQUITY
CAPITAL STOCK
Authorized
30,000,000 common shares at stated value
$.0001 per share
Issued and outstanding
17,781,774 common shares 1,778 1,581
ADDITIONAL PAID-IN CAPITAL 1,623,797 836,604
DEFICIT, accumulated during the development
stage (1,202,455) (783,232)
423,120 54,953
--------- --------
$438,446 $110,998
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
CONSOLIDATED STATEMENT OF LOSS
(U.S.$)
THREE MONTHS ENDING SIX MONTHS ENDING CUMULATIVE
DEC 31,1997 DEC 31,1996 DEC 31,1997 DEC 31,1996 DEC 31,1997
REVENUE (Unaudited)(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income $ 253 $ - $ 523 $ - $ 3,545
------ ------ ------ ------ -----------
EXPENSES
Development costs 377,203 709,202 386,043 709,202 1,140,570
Professional fees 7,932 1,041 25,666 1,041 40,081
Promotion - - 4,500 - 4,500
General and
administrative 1,646 2,157 3,537 2,157 17,393
Incorporation costs - - - - 3,456
------- ------- ------- ------- ---------
386,781 712,400 419,746 712,400 1,206,000
------- ------- ------- ------- ---------
NET LOSS $(386,528) $ (712,400) $(419,223) (712,400) $(1,202,455)
---------- ----------- -------- --------- -----------
LOSS PER SHARE $ (.02) $ (.04) $ (.02) $ (.04) $ (.06)
------- ------- -------- ------- ----------
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
(U.S.$)
THREE MONTHS ENDING SIX MONTHS ENDING CUMULATIVE
(Note 5)
DEC 31,1997 DEC 31,1996 DEC 31,1997 DEC 31,1996 DEC 31,1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
ACCUMULATED DEFICIT
beginning of period $815,927 $ NIL $ 783,232 $ NIL $ NIL
NET LOSS 386,528 712,400 419,223 712,400 1,202,455
------- ------- ------- ------- ---------
ACCUMULATED DEFICIT
end of period $1,202,455 $712,400 $1,202,455 $712,400 $1,202,455
---------- -------- ---------- -------- ----------
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDING DECEMBER 31, 1997
(U.S.$)
Cumulative
DEC 31,1997 DEC 31,1996 DEC 31,1997
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (419,223) $ (712,400) $(1,202,455)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Development costs paid through
issuance of stock - 175,000 175,000
Changes in operating assets and
liabilities
- accounts receivable 166 -
- prepaid expenses (73,306) - (75,000)
- accounts payable (40,719) 12,259 15,326
--------- ------- -----------
Net cash used in operating activities(533,082) (525,141) (1,087,129)
CASH FLOW FROM INVESTING ACTIVITIES
Incorporation costs - (2,655) -
------- ------- -------
Net cash used in investing activities - (2,655) -
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common
shares (net of issue costs) 787,390 721,180 1,450,575
Net cash provided from financing
activities 787,390 721,180 1,450,575
NET INCREASE IN CASH & CASH EQUIVALENTS 254,308 193,384 363,446
CASH AND CASH EQUIVALENTS, beginning
of period 109,138 - -
-------- ------- ---------
CASH AND CASH EQUIVALENTS, end
of period $ 363,446 $193,384 $363,446
---------- -------- --------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company paid for development costs in the amount of $175,000 through the
issuance of common shares.
For the purposes of presentation in the statement of cash flows, cash and
marketable securities with original maturities of less than three months, have
been classified as cash and cash equivalents.
The carrying value of these items approximates fair value.
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(U.S.$)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The unaudited consolidated balance sheet as of December 31, 1997 and
unaudited consolidated statements of loss, accumulated deficit, and cash
flows for the three months and six months then ended, together with
cumulative unaudited financial information since inception, October 3,
1996, have been prepared in accordance with generally accepted
accounting principles and include all adjustments, which in the opinion
of management, are necessary to present fairly the results of operations
for the periods then ended. All such adjustments are of a normal
recurring nature. These financial statements should be read in
conjunction with the audited financial statements for the period from
inception, October 3, 1996 to June 30, 1997, and the notes thereto
included in the Company's Form 10-SB, as amended, filed with the
Securities and Exchange Commission. The results for the three months and
six months ended December 31, 1997 are not necessarily indicative of the
results for the entire fiscal year ending June 30, 1998.
b) NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PlayStar
Corporation (the "Company") and its wholly owned subsidiary PlayStar
Limited. All intercompany accounts and transactions have been eliminated
on consolidation.
The Company has been in the development stage since its incorporation on
October 3, 1996. The Company, through its subsidiary, designs, develops
and intends to operate, promote and commercialize an on-line gaming
service operating interactive, software-based games of chance,
accessible world-wide through the Internet.
c) DEVELOPMENT COSTS
Development costs associated with the design, development, operation,
promotion and commercialization are changed to expense in the period
incurred.
d) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
<PAGE>
2. BUSINESS ACQUISITIONS
PLAYSTAR LIMITED
On October 9, 1996, the Corporation acquired 100% of the issued and
outstanding common shares of PlayStar Limited, in exchange for 12,000,000
common shares of the Corporation.
3. SUBSEQUENT EVENTS
In addition to the 1,969,274 shares issued from treasury during the
period, a further 290,000 shares were issued at $0.50 in January 1998.
4. STOCK OPTION PLANS
On October 9, 1996, the Company adopted a stock option plan authorizing
the granting of options to purchase an additional 10,000,000 common
shares.
A total of 4,100,000 options have been granted during the period. Two of
the Company's executive officers were granted stock options totaling
1,570,000 shares, exercisable at $0.05/share until October 9, 2001. No
stock options have been exercised to-date.
5. COMPARABLE FIGURES
Information reported as of December 31, 1996 represents the period from
inception (October 3, 1996) to December 31, 1996.
Item 2. Management's Discussion and Analysis or Plan of Operation.
The information contained in this Item 2, Management's Discussion and
Analysis or Plan of Operation, contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Actual results may materially differ from those
projected in the forward looking statements as a result of certain risks and
uncertainties set forth in this report. Although management believes that the
assumptions made and expectations reflected in the forward looking statements
are reasonable, there is no assurance that the underlying assumptions will, in
fact, prove to be correct or that actual future results will not be different
from the expectations expressed in this report.
PlayStar Corporation.
PlayStar Corporation (the "Company") is a development stage company which
provides management, business development, finance and marketing consulting
services to companies which primarily develop Internet-based products and
software, including on-line gaming and electronic commerce applications, and
which, through its subsidiary, PlayStar Limited, a Jersey, Channel Islands
corporation ("PlayStar Limited"), intends to operate, promote and commercialize
<PAGE>
an on-line gaming service which will offer interactive, software-based games of
chance. The Company identifies new software and communications-based
technologies and provides certain management and financial expertise necessary
to successfully market and develop these technologies as commercial products.
The Company also provides business services, including financial transaction
processing and software technology sales, to support the development of these
products. To date, the Company's activities have focused primarily on PlayStar
Limited. The Company expects to generate revenue through management and
technical consulting fees and through software royalties and licenses.
The Company was incorporated in the State of Delaware on October 3, 1996.
During the succeeding months, the Company raised an aggregate of $1,000,000 in
capital through three private placements completed pursuant to Rule 504
promulgated under the Securities Act. The Company recently raised an additional
$1,004,637 through two private placements. On January 19, 1998, the Company
closed an offering to two investors of 1,250,000 shares of the Company's Common
Stock at a price of $.40 per share, resulting in gross proceeds of $500,000. The
shares were issued in reliance on an exemption from registration pursuant to
Section 4(2) under the Securities Act and Regulation D promulgated under the
Securities Act. On January 19, 1998, the Company closed an offering to 12
foreign investors of 1,009,274 shares of the Company's Common Stock at a price
of $.50 per share, resulting in gross proceeds of $504,637. The shares were
issued in reliance on an exemption from registration pursuant to Regulation S
under the Securities Act. This financing has been sufficient to satisfy the
Company's cash requirements through the date hereof. From these proceeds, the
Company has paid approximately $785,000 for technical development services
provided by Dreamplay Research Corp. ("Dreamplay") of Toronto, Ontario and
approximately $375,000 for legal, accounting, public relations and
administrative services. The Company estimates, however, that the total amount
of seed capital required to proceed with current operations and to bring
PlayStar Limited's services to market will be between $12,000,000 and
$15,000,000, including approximately $1,000,000 for research and development,
approximately $5,000,000 for advertising, marketing and promotional efforts, and
approximately $6,000,000 for working capital. To facilitate these activities,
management intends to raise additional capital during the next twelve months
through additional private placements of unregistered shares of its Common Stock
conducted under an exemption provided by the Securities Act or by the rules of
the Securities and Exchange Commission.
To date, the Company has provided consulting services exclusively to its
subsidiary, PlayStar Limited. The Company has also closely supervised the
consulting services provided by Dreamplay to PlayStar Limited. During the next
twelve months, the Company intends to continue providing consulting services to
PlayStar Limited which will enable PlayStar Limited to complete its organization
and develop its products and services. Management also anticipates that the
Company will continue to supervise Dreamplay's efforts to develop PlayStar
Limited's software systems.
Recently, the Company began developing certain financial services to
facilitate Internet commerce. The Company has completed the development and
testing of an electronic cash system and has reached an agreement with a
<PAGE>
registered United States banking institution for the provision of certain
merchant services. As a result of these developments, the Company is currently
able to authenticate and process credit card and other financial transactions
which occur over the Internet. PlayStar Limited recently became the Company's
first customer for such services. Management anticipates that the Company will
also offer these services to other commercial vendors during the first quarter
of 1998.
In November 1997, the Company's Board of Directors approved a plan of
reorganization whereby the Company would become an Antigua, West Indies
corporation. Subject to the approval of the Company's shareholders, the Company
expects to consummate its reorganization around the end of the first quarter of
1998.
The Company expects to increase its number of employees during the next
twelve months. The Company currently has one full-time employee who serves as
the President, Chief Executive Officer, Chief Financial Officer and Treasurer.
Management anticipates increasing the Company's executive team to include
personnel who will supervise marketing, sales, business development and
international operations. The Company also intends to increase the number of
staff employees as its business may permit or require.
From time to time, the Company retains consultants and consulting firms
which provide the Company with certain expertise in financing, development,
marketing and software and telecommunications technologies. Management intends
to continue utilizing the services and expertise of consultants in specific
areas of the Company's business as necessary.
PlayStar Limited.
PlayStar Limited's initial efforts for its first twelve months centered on
the development of its on-line gaming and financial transaction processing
services. During this period, PlayStar Limited developed its software games and
system test site. In the nine months during which PlayStar Limited operated its
system test site, visitors played more than 2.2 million games and provided
PlayStar Limited with valuable comments and feedback. PlayStar Limited also
began developing its casino management and financial processing systems during
this time. The casino management system recently entered the final stages of
development, and PlayStar Limited has begun alpha testing of the system.
Additionally, PlayStar Limited has begun to incorporate certain electronic cash
processing technology, which it licenses from the Company, into its casino
management system. Management expects that PlayStar Limited will continue to
develop and test these systems through the first quarter of 1998.
In December 1997, PlayStar Limited applied for an electronic casino gaming
license from the Antiguan government. The Company has organized a new
subsidiary, Antigua Casino and Sportsbook Limited, an Antigua corporation
("Antigua Casino"), which will operate the electronic casino from Antigua if the
license is granted. The Company intends to license its gaming technology to both
Antigua Casino and other operators of electronic casinos. Provided that all
regulatory and financial requirements are satisfied, PlayStar Limited intends to
<PAGE>
establish its operations base and begin operation of its on-line casino around
the end of the first quarter of 1998.
The launch of the on-line casino will be a critical factor for PlayStar
Limited's success. Accordingly, management plans to announce the opening of the
casino through selected world media, press conferences and an advertising
campaign. Management is currently negotiating with an established marketing
communications firm and a media buying company to oversee PlayStar Limited's
promotional efforts and advertising needs.
Once PlayStar Limited's services are fully operational, management plans
to employ 5 "Crews", each of which will consist of a Gaming Supervisor, a
Computer Technician and a Customer Assistant. The Gaming Supervisor will be
responsible for overseeing all gaming activity and resolving any concerns
patrons may have. The Computer Technician will maintain and ensure the smooth
operation of play. The Customer Assistant will provide general support and
customer service. Customer Assistants will be responsible for the immediate
handling of players' questions and complaints. Management anticipates that
employee growth will be greatest in this area.
During the next twelve months, PlayStar Limited intends to acquire and
lease computer and telecommunications equipment to facilitate its operations
computer center. The estimated cost of this equipment will be approximately
$1,200,000. Additionally, Dreamplay has purchased approximately $300,000 of
equipment which it intends to install in PlayStar Limited's casino pursuant to
its consulting agreement.
Finally, since PlayStar Limited's revenues depend on casino winnings from
customers, management will endeavor to develop a loyal customer base. PlayStar
Limited's marketing will be directed to establish PlayStar Limited and its
"dancing star" logo as a symbol of integrity, quality and innovation in both the
Internet gaming and interactive entertainment markets. Ultimately, management
foresees that such efforts will establish the "PlayStar" name as a premier brand
in on-line gaming.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter for which this report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PLAYSTAR CORPORATION
Date: February 16, 1998
By: /s/ Julius Patta
Julius Patta
President, Chief Executive
Officer, Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED DECEMBER 31, 1997 FINANCIAL STATEMENTS OF PLAYSTAR CORPORATION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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0
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</TABLE>
