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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File No. 0-29800
Virtgame.com Corp.
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(Name of Small Business Issuer in its charter)
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<S> <C> <C>
Delaware 33-0716247
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12625 High Bluff Drive
Suite 205A
San Diego, California 92130-2053
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code 858-259-5015
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Virtual Gaming Technologies, Inc.
---------------------------------
(former name)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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 [ ]
The number of shares of common stock, $.00001 par value outstanding as of
September 30, 2000 was 12,810,293.
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VIRTGAME.COM CORP.
Table of contents for Form 10-QSB
Quarter Ended September 30, 2000
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<CAPTION>
Page
Number
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<S> <C>
. Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999 3
(unaudited)
. Consolidated Statements of Operations (unaudited) for nine months and three months ended 5
September 30, 2000 and 1999
. Consolidated Statements of Cash Flows (unaudited) for nine months ended September 30, 2000 6
and 1999
. Notes to Consolidated Financial Statements (unaudited) 7
ITEM 2. Management's Discussion and Analysis or Plan of Operations 9
PART 2 - OTHER INFORMATION 11
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2
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VIRTGAME.COM CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and December 31, 1999
ASSETS
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<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Unaudited)
------------------------- -----------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,078 $ 422,309
Restricted cash 150,000 150,000
Prepaid expenses and other assets 7,734 19,924
Net assets of discontinued operations - 201,359
------------------------- -----------------------
Total current assets 164,812 793,592
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Noncurrent assets:
Deposits 5,927 8,513
Equipment, net 1,126,393 1,180,068
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Total noncurrent assets 1,132,320 1,188,581
------------------------- -----------------------
Total assets $ 1,297,132 $ 1,982,173
========================= =======================
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3
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VIRTGAME.COM CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and December 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Unaudited)
---------------------- ----------------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 335,162 $ 260,133
Current portion of capital lease obligation 5,123 -
Notes payable 201,090 198,876
Net Liabilities of Discontinued Operations 17,966 -
---------------------- ----------------------
Total current liabilities 559,341 459,009
Long Term Liabilities 11,056 -
Total liabilities 570,397 459,009
---------------------- ----------------------
Shareholders' Equity
Preferred stock, $.0001 par value, 10,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.00001 par value; 30,000,000 shares
authorized; 12,810,293 and 10,369,292 shares issued
and outstanding in 2000 and 1999, respectively;
980,000 and 144,334 issuable in 2000 and 1999,
respectively 128 105
Additional paid-in capital 15,566,363 14,726,388
Accumulated Deficit (14,839,756) (13,203,329)
---------------------- ----------------------
Total shareholders' equity 726,735 1,523,164
---------------------- ----------------------
Total liabilities and shareholders' equity $ 1,297,132 $ 1,982,173
====================== ======================
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4
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VIRTGAME.COM CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine and Three Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues: $ 160,538 $ - $ 131,538 $ -
Operating Expenses:
Salaries and payroll expenses 755,595 1,038,547 219,121 508,223
Other operating expenses 758,890 854,210 233,806 306,095
-------------------- ------------------- -------------------- -------------------
Total expenses from continuing
operations before income taxes 1,514,485 1,892,757 452,927 814,318
-------------------- ------------------- -------------------- -------------------
Loss from continuing operations (1,353,947) (1,892,757) (321,389) (814,318)
Financial income (expense):
Interest income 1,595 2,212 187 1,081
Interest expense (19,248) (27,766) (6,813) (8,761)
Other income 4,183 - 1,405 -
-------------------- ------------------- -------------------- -------------------
Total financial income (expense) (13,470) (25,554) (5,221) (7,680)
-------------------- ------------------- -------------------- -------------------
Loss from continuing operations
before income taxes (1,367,417) (1,918,311) (326,610) (821,998)
Income tax expense ( 4,779) (2,880) (535) (18)
-------------------- ------------------- -------------------- -------------------
Loss from continuing operations (1,372,196) (1,921,191) (327,145) (822,016)
Discontinued Operations
Loss from discontinued operations (net
of tax provision of $0) (189,386) (390,072) 1,196 (136,342)
Loss on sale of discontinued operations (74,844) - (7,099) -
-------------------- ------------------- -------------------- -------------------
Net Loss $ (1,636,426) $ (2,311,263) $ (333,048) $ (958,358)
==================== =================== ==================== ===================
Basic and diluted net loss per share:
Loss from continuing operations $ (0.12) $ (0.22) $ (0.03) $ (0.09)
Loss from discontinued operations (0.01) (0.05) - (0.02)
Loss on sale of discontinued operations (0.01) - - -
----------------- ---------------- ----------------- ----------------
Net loss per share (0.14) (0.27) (0.03) (0.11)
================= ================ ================= ================
Shares used to compute basic and
diluted net loss per share 11,490,683 8,701,917 12,537,467 8,975,253
==================== =================== ==================== ===================
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5
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VIRTGAME.COM CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
(Unaudited) (Unaudited)
----------------------- -----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $ (1,372,197) $ (1,921,190)
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Depreciation 202,985 92,716
Changes in operating assets and liabilities:
Decrease (increase) in:
Restricted cash 150,000
Prepaid expenses and other current assets 12,190 20,615
(Decrease) increase in:
Accounts payable and accrued expenses 56,559 (91,248)
----------------------- -----------------------
Net cash flows used in continuing operating activities (1,100,463) (1,749,107)
----------------------- -----------------------
Cash flows used by discontinued operating activities (26,435) (284,158)
----------------------- -----------------------
Cash flows from investing activities:
Increase in deposits 2,586 (49,110)
Purchase of equipment (149,310) (23,763)
----------------------- -----------------------
Net cash flows used in investing activities (146,724) (72,873)
----------------------- -----------------------
Cash flows from financing activities:
Net proceeds from sale of common stock 839,998 1,968,956
Increase in notes payable 2,214 148,876
Increase in capital lease 16,179 -
----------------------- -----------------------
Net cash flows provided by financing activities 858,391 2,117,832
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Net increase (decrease) in cash and cash equivalents (415,231) 11,694
Cash and cash equivalents at beginning of period 422,309 405,963
----------------------- -----------------------
Cash and cash equivalents at end of period $ 7,078 $ 417,657
======================= =======================
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 19,248 27,766
======================= =======================
Income Taxes $ 4,779 $ 2,880
======================= =======================
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6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Basis of Presentation
---------------------
These condensed consolidated financial statements of Virtgame.com Corp. (the
"Company") do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements and
should be read in conjunction with the financial statements and notes thereto
included in the Company's Form 10-KSB for 1999. In the opinion of management,
the financial information set forth in the accompanying condensed consolidated
financial statements reflects all adjustments necessary for a fair statement of
the periods reported, and all such adjustments were of a normal and recurring
nature. Interim results are not necessarily indicative of results for a full
year.
General
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During the previous quarter ended June 30, 2000 Virtgame.com corp. (formerly
Virtual Gaming Technologies, Inc.) closed its Antigua office and discontinued
marketing its casino and sportsbook operations in order to reduce overhead,
focus on the Internet gaming software application business and execute its
business plan as an Application Service Provider ("ASP") for the gaming
industry. As a result of the Company finalizing the plan of closing its offshore
office and discontinuing marketing its casino and sportsbook, all the
operations, assets and liabilities of the casino and sportsbook business have
been reflected in the accompanying consolidated financial statements and
discussions and analysis as discontinued operations.
The Company has also been focusing on developing proprietary "eBorder Control"
technology for its Internet gaming software applications, such as Internet
lottery, casino and sportsbook markets. Virtgame.com has developed two separate
eBorder Control technologies, one on a Macro level, keeping certain
jurisdictions out of its system and the other, on a Micro level, working only
within a certain jurisdiction. The Macro eBorder Control technology uses a
proprietary database developed by Virtgame.com to limit Internet users of
certain jurisdictions from doing e-commerce with specified Web sites. The Micro
eBorder Control technology uses a telephone caller origination identifier system
together with Virtgame's proprietary Active User Verification System (AUVS).
AUVS is a plug-in that uses a dial-up connection to restrict access to a
specified jurisdiction, such as a single state.
During the quarter ending September 30, 2000, Nevada Gaming Control Board
finalized testing the Company's Primeline System installed at Coast Resort in
Las Vegas, Nevada and provided the two companies with a preliminary approval on
October 13th, 2000. The system is strictly accessible by Nevada residents who
become members to wager on Coast Resort's sportsbook. Also, the Company
completed training of the Coast Resort's staff to operate the Primeline
sportsbook system in anticipation of "going live" for a 30 day field trial in
early November, 2000 whereby residents of Nevada can sign-up personally at all
Coast Resorts casinos (the Sun Coast casino, the Gold Coast casino, the Barbary
Coast casino and the Orleans casino) located in Las Vegas, Nevada. At the time
of sign up, Nevada residents are provided with a user ID, a password and
software to enable them to place wagers remotely on Coast Resort's sportsbook
using their personal computers.
Private Placement
-----------------
Between February 1999 and June 1999, the Company conducted a private placement
of 700,000 shares of Common Stock at an offering price of $3.00 per share,
pursuant to Rule 506 under the 1933 Act. In that offering, the Company sold a
total of 181,359 shares of Common Stock for the gross proceeds of $544,080.
Between August 1999 and January 2000, the Company conducted a private placement
of 1,400,000 shares of Common Stock, at a price of $1.50 per share, pursuant to
Rule 506 under the 1933 Act. In that offering, the Company sold 1,301,600
shares of Common Stock for the gross proceeds of $1,952,400.
7
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In February and March 2000, the Company conducted a private placement of
1,000,000 shares of Common Stock, at a price of $1.50 per share, pursuant to
Rule 506 under the 1933 Act. In that offering, the Company sold 240,000 shares
of Common Stock for the gross proceeds of $360,000.
In April 2000, the Company started a private placement of 1,000,000 shares of
Common Stock, at a price of $0.50 per share, pursuant to Rule 506 under the 1933
Act. As of September 30, 2000, the Company has sold 980,000 shares for the gross
proceeds of $490,000.
Use of estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue recognition
-------------------
During the quarter ending September 30, 2000 the Company continued generating
revenue as an Internet software provider or Application Software Provider (ASP).
The Company has derived all of its revenues from providing Internet Application
Software services. Prior to the quarter ending June 30,2000, all the Company's
revenues were derived from operating an Internet casino and sportsbook for non-
U.S. residents. These revenues are reflected in the consolidated statements of
operations as discontinued operations.
Loss per common share
---------------------
Basic loss per common share has been computed on the basis of the weighted-
average number of common shares outstanding and issuable under antidilution
provisions during each period presented. Diluted per-share amounts assume the
conversion of potential common stock, such as options and warrants. The common
shares issuable upon exercise of employee stock options and stock warrants have
not been included in the computation of diluted loss per common share because
their inclusion would have had an antidilutive effect.
Software development costs and related accounting pronouncements
----------------------------------------------------------------
Software development costs for internal use software are expensed as incurred.
The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed or
Obtained for Internal Use" in March 1998. SOP 98-1 is not expected to have a
material impact on the Company's financial statements.
The Financial Accounting Standard Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 86, "Accounting for the costs of computer
software to be sold, leased, or otherwise marketed" in August 1985. The Company
applies SFAS No. 86, which specifies that costs incurred internally in creating
a computer software product shall be charged to expense when incurred as
research and development until technological feasibility has been established
for the product. Thereafter, all software production costs shall be capitalized
and amortized over the remaining estimated economic life of the product.
8
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
--------------------------------------------------------------------
Plan of Operations
------------------
During the quarter ending September 30, 2000 the Company continued to reduce
overhead and focus on the Internet gaming software application business and
execute its business plan as an Application Service Provider ("ASP").
The Company has financed its activities to date through the sale of its
securities. In April 2000, the Company started a private placement of 1,000,000
shares of Common Stock, at a price of $0.50 per share, pursuant to Rule 506
under the 1933 Act. As of the quarter ending September 30, 2000, the Company has
sold 980,000 shares for the gross proceeds of $490,000.
As of September 30, 2000, the Company had a negative working capital of $394,529
and stockholders' equity of $726,735. The Company's plan of operations for the
next 12 months is to provide software application services, sell and lease its
software products to distributors of restricted on line content including
Casinos, State and National Lotteries and any other application that requires
controlling and assuring the geographical access point of users.
Comparison of operations to prior year quarter
----------------------------------------------
The company continued generating software application service revenues during
the quarter ending September 30, 2000. Revenues from continuing operations were
$131,538 for the three months ending September 30, 2000 and $160,538 for the
nine months ending September 30, 2000. All revenues earned in operating
Internet casino and sportsbook operations are reflected as discontinued
operations in the Statement of Operations for the three and nine months ending
September 30, 2000 and September 30, 1999.
Operating expenses from continuing operations decreased by 44% to $452,927 for
the three months ended September 30, 2000 compared to $814,318 of operating
expenses for continued operations during the prior year quarter, and decreased
by 20% to $1,514,485 for the nine month period September 30, 2000 from
$1,892,757 for the prior year nine month period. The decrease in operating
expenses was primarily due to reduced number of employees. Interest expense
decreased to $6,813 for the three months ended September 30, 2000 from $8,761
for the prior three months and decreased to $19,248 for the nine months ended
September 30, 2000 from $27,766 for the nine months ended September 30, 1999.
The decrease mainly resulted from a reduction of notes payable.
Net loss from continuing operations for the three months ended September 30,
2000 was $327,145 and for the nine months ended September 30, 2000 was
$1,372,196 compared to net loss from continuing operations of $822,016 for the
three months and $1,921,191 for the nine months ending September 30, 1999.
Liquidity and Capital Resources
-------------------------------
As of September 30, 2000 the Company had $7,078 in cash and cash equivalents
compared to $498,923, including cash and cash equivalent of $76,614 included in
net assets of discontinued operations, at December 31, 1999. Working capital at
September 30, 2000 decreased by $729,112 to negative working capital of $394,529
from $334,583 on December 31, 1999. The decrease was due to the loss incurred
in the period. The Company believes that it will require, at least, an
additional $1,000,000 of capital over the next 12 months in order to fund its
Internet gaming software development and to finance the continuing losses from
operations as the Company endeavors to build revenue and reach profitable
operations. Thereby, in October 2000, the
9
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Company started a private placement of 1,000,000 shares of Common Stock, at a
price of $1.00 per share, pursuant to Rule 506 under the 1933 Act.
In April 2000, the Company started a private placement of 1,000,000 shares of
Common Stock, at a price of $0.50 per share, pursuant to Rule 506 under the 1933
Act. As of September 30, 2000, the Company has sold 980,000 shares for the gross
proceeds of $490,000.
In February and March 2000, the Company conducted a private placement of
1,000,000 shares of Common Stock, at a price of $1.50 per share, pursuant to
Rule 506 under the 1933 Act. In that offering, the Company sold 240,000 shares
of Common Stock for the gross proceeds of $360,000.
There can be no assurance that the Company will be able to obtain sufficient
additional capital, either through the present private placement or otherwise,
in order to fund the Company's working capital requirements in a timely manner.
The report of the Company's independent accountants for the fiscal year ended
December 31, 1999 states that due to recurring losses from operations, the
absence of significant operating revenues and the Company's limited capital
resources, there is substantial doubt about the Company's ability to continue as
a going concern.
Forward Looking Statements
--------------------------
This Quarterly Report contains forward-looking statements that are based on the
Company's beliefs as well as assumptions made by and information currently
available to the Company. When used in this Quarterly Report, the words
"believe," "endeavor," "expect," "anticipate," "estimate," "intends," and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions described
in the Company's 1998 Annual Report on Form 10-KSB, including, without
limitation, the Company's recent commencement of commercial operations; the
absence of commercial acceptance of the Company's services and products by its
potential customers; the absence of meaningful revenues as of the date of this
registration statement; the Company's present financial condition and the risks
and the availability of additional capital as and when required; the going
concern opinion included in the report of the Company's independent accountants
for the Company's fiscal year 1998; the risks and uncertainties of regulation of
Internet gaming by the international community; the risks and uncertainties
concerning technological changes; increased competition; and general economic
conditions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, or projected. The Company cautions
potential investors not to place undue reliance on any such forward-looking
statements all of which speak only as of the date made.
10
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Inapplicable.
Item 2. Changes in Securities.
----------------------
In April 2000, the Company started a private placement of 1,000,000
shares of Common Stock, at a price of $0.50 per share. As of
September 30, 2000, the Company has sold 980,000 shares for the gross
proceeds of $490,000. The shares were issued pursuant to Rule 506
under the Securities Act of 1933, as amended. There was a finder
involved in some of the issuances and the finder received 980,000
shares of Common Stock in payment of finder's fees. The total shares
issued with relation to this private placement amounted to 1,960,000
shares.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information.
-----------------
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
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Financial Data Schedule - Exhibit 27.1
(b) Reports on Form 8-K
--- -------------------
Inapplicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Virtgame.com Corp.
(Registrant)
Date: November 3, 2000 /s/ BRUCE MERATI
-----------------
Bruce Merati
Chief Financial Officer
11
