<PAGE>
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 March 31, 2000
Commission File No. 0-29800
VIRTGAME.COM CORP.
(Name of Small Business Issuer in its charter)
DELAWARE 33-0716247
------------------------------- -----------------------------------
(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
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 858-259-5015
------------
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 March
31, 2000 was 10,850,293.
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VIRTGAME.COM CORP.
TABLE OF CONTENTS FOR FORM 10-QSB
QUARTER ENDED MARCH 31, 2000
Page
Number
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited)
for three months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows (unaudited)
for three months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements (unaudited) 8
ITEM 2. Management's Discussion and Analysis or Plan
of Operations 9
PART 2 - OTHER INFORMATION 12
2
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VIRTGAME.COM CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
ASSETS
March 31, December 31,
2000 1999
(Unaudited) (Audited)
----------- ------------
Current Assets:
Cash and cash equivalents ................. $ 136,582 $ 498,923
Restricted cash ........................... 150,000 150,000
Gaming license ............................ 28,767 53,699
Prepaid expenses and other assets ......... 27,334 32,315
---------- ----------
Total current assets ...................... 342,683 734,937
---------- ----------
Noncurrent assets:
Deposits .................................. 19,529 18,930
Equipment, net ............................ 1,274,312 1,298,231
---------- ----------
Total noncurrent assets ................... 1,293,841 1,317,161
---------- ----------
Total assets .............................. $1,636,524 $2,052,098
========== ==========
3
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VIRTGAME.COM CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable ................................... $ 145,501 $ 126,287
Accrued expenses ................................... 117,075 143,081
Funds held on deposit .............................. 43,211 52,762
Current portion of capital lease obligation ........ 4,648 7,928
Notes payable ...................................... 191,090 198,876
------------ ------------
Total current liabilities .......................... 501,525 528,934
Long Term Liabilities .............................. -- --
Total liabilities .................................. 501,525 528,934
------------ ------------
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; 10,693,292 and 10,369,292
issued in 2000 and 1999, respectively;
157,001and 144,334 issuable
In 2000 and 1999, respectively ................. 108 105
Additional paid-in capital ......................... 15,071,884 14,726,388
Accumulated Deficit ................................ (13,936,993) (13,203,329)
------------ ------------
Total shareholders' equity ......................... 1,134,999 1,523,164
------------ ------------
Total liabilities and shareholders' equity ......... $ 1,636,524 $ 2,052,098
============ ============
</TABLE>
4
<PAGE>
VIRTGAME.COM CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended 31, 2000 and 1999
Three Months Ended March 31,
2000 1999
(Unaudited) (Unaudited)
------------ ------------
Revenue:
Casino Revenue ...................... $ 22,819 $ 111,849
Less promotional discounts .......... (2,835) (14,704)
------------ ------------
Net Gaming Revenue .................. 19,984 97,145
------------ ------------
Operating Expenses:
Salaries and payroll expenses ....... 363,685 358,650
Other operating expenses ............ 381,426 418,764
------------ ------------
Total operating expenses ............ 745,111 777,414
------------ ------------
Loss from Operations ........... (725,127) (680,269)
Financial income (expense):
Interest income ..................... 1,405 1,159
Interest expense .................... (6,232) (8,156)
Unrealized foreign currency loss .... (707) (1,172)
------------ ------------
Total financial income (expense) .... (5,534) (8,169)
------------ ------------
Loss before income taxes ....... (730,661) (688,438)
Income tax expense ......................... 3,003 2,835
------------ ------------
Net Loss ....................... $ (733,664) $ (691,273)
============ ============
Basic and diluted net loss per share ....... $ (.07) $ (.08)
============ ============
Shares used to compute basic and
diluted net loss per share ................. 10,590,751 8,524,229
============ ============
5
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VIRTGAME.COM CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
(Unaudited) (Unaudited)
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ................................................ $(733,664) $(691,273)
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Depreciation ....................................... 77,959 31,199
Issuance of common stock options and warrants
for licensing and consulting fees and compensation -- 6,704
Changes in operating assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other current assets .... 4,981 (1,484)
Gaming license ............................... 24,932 24,384
Increase (decrease) in:
Accounts payable and accrued expenses ........ (6,793) (78,671)
Funds held on deposit ........................ (9,551) 30,035
--------- ---------
Net cash flows used in
operating activities ....................... (642,136) (679,106)
--------- ---------
Cash Flows from Investing Activities:
Increase in deposits ...................................... (599) (50,000)
Purchase of equipment ..................................... (54,039) (19,005)
--------- ---------
Net cash flows used in
investing activities ................... (54,638) (69,005)
--------- ---------
</TABLE>
6
<PAGE>
VIRTGAME.COM CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
Three Months Ended March 31,
2000 1999
(Unaudited) (Unaudited)
--------- ---------
Cash flows from financing activities:
Net proceeds from sale of common stock ........ 345,500 2,755
Proceeds from loans from stockholder .......... -- 400,000
Principal payments under notes payable ........ (7,787) (8,730)
Principal payments under capital lease ........ (3,280) (2,659)
--------- ---------
Net cash flows provided by
financing activities .................. 334,433 391,366
--------- ---------
Net increase (decrease) in cash and cash equivalents (362,341) (356,745)
Cash and cash equivalents at beginning of year ..... 498,923 523,512
--------- ---------
Cash and cash equivalents at March 31, 2000 and 1999 $ 136,582 $ 166,767
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the three month period for:
Interest ...................................... $ 4,239 $ 8,177
========= =========
Income taxes .................................. $ 3,000 $ 2,810
========= =========
Supplemental disclosure of noncash investing and
financing activities:
Unrealized foreign exchange loss .............. $ (707) $ (1,172)
========= =========
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 reflect 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
- -------
The Company has derived all of its revenues from Internet casino-style gaming,
including baccarat, blackjack, video poker, slots, bingo, and a pari-mutuel
sports betting service. The Company's internally developed proprietary software
applications allow for interactive gaming, including simulated casino motion and
sound, on a real-time basis. The Company offers its gaming operations in several
languages in certain international jurisdictions located in Asia, the Caribbean,
Latin America, the Middle East, Australia, Europe and Africa. The Company's
gaming operations are conducted by its wholly-owned subsidiary, Virtual Gaming
Technologies (Antigua) Ltd., pursuant to a non-exclusive license from the
Company and supported by a server site and hardware located in St. Johns,
Antigua, West Indies.
In February 2000 the company signed a letter of intent to merge into eLOT, Inc.
The letter of intent called for the discontinuation of the Company's virtual
casino and sportsbook operations. In anticipation of the merger, the Company
started the process of closing down its casino and sportsbook sites, which
adversely impacted the Company's first quarter's revenues. On April 19, 2000 the
Company announced eLOT had terminated its proposed acquisition of Virtgame.com.
The Company's policy is to accept subscriptions only from persons over the age
of 21 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.
Effective August 3, 1999 the Company changed its name from Virtual Gaming
Technologies, Inc. to Virtgame.Com Corp.
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 181,358 shares of Common Stock for the gross proceeds of $544,074.
Between August 1999 and January 2000, the Company conducted a private placement
of 2,100,000 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.
In February 2000, the Company started 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. As of the date of this 10-QSB report, the Company has sold 306,667 shares
for the gross proceeds of $460,000.
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.
8
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Revenue recognition
- -------------------
Gaming revenue is the net win from gaming activities, which is the difference
between gaming wins and losses. In September 1997, the Company commenced
operations with live gaming activity, initially offering video poker and
blackjack to its customers. In the first quarter of 1998, the Company introduced
video baccarat, and in the second quarter of 1998 introduced an Internet
pari-mutuel sports-betting service.
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 recently issued 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.
Regulation risk
- ---------------
The Company provides its services in jurisdictions that do not prohibit gaming
over the Internet. There can be no assurance that the Company will be able to
comply with future government regulations that will affect gaming operations in
a significant number of international jurisdictions. The United States has laws
prohibiting gaming operations except by licensed persons. Currently, the effect
of these laws on Internet gaming is uncertain. As a result, the Company does not
intend to accept subscribers from the United States.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
- --------------------------------------------------------------------
Plan of Operations
- ------------------
The Company is engaged in the business of offering gaming opportunities over the
Internet. In September 1997, the Company commenced offering Casino style gaming
opportunities over the Internet, including baccarat, blackjack and video poker,
and in April 1998 commenced offering a pari-mutuel sports betting service. As of
April 27, 2000, the Company has conducted limited marketing of its Internet
gaming operations and, consequently, from the inception of gaming operations in
September 1997 through April 27, 2000, the Company generated only $757,968 of
gross revenue from gaming operations. As of April 27, 1999, the Company had
accepted 43,242 subscriptions for its Internet gaming operations and has had
1,386 active players. As of the same date, cash deposits made by customers,
which are used by customers for wagering, from inception of gaming operations
totaled approximately $1,313,670.
The Company has financed its activities to date through the sale of its
securities. In February 1999, the Company started a private placement of 700,000
shares of Common Stock, at a price of $3.00 per share, pursuant to Rule 506
under the 1933 Act. Between February 1999 and June 1999 in that offering, the
Company sold 181,358 shares of Common Stock for the gross proceeds of $544,074.
In August 1999, the Company commenced a private placement of 2,100,00 shares of
Common Stock, at a price of $1.50 per share, pursuant to Rule 506 under the 1933
Act. Between August 1999 and January 2000 in that offering, the Company sold
1,301,600 shares for the gross proceeds of $1,952,400.
In February 2000, the Company started 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. As of the date of this 10-QSB report, the Company has sold 306,667 shares
for the gross proceeds of $460,000.
As of March 31, 2000, the Company had a negative working capital of $158,842 and
stockholders' equity of $1,134,999. The Company's plan of operations for the
next 12 months is to sell and lease its software products.
Comparison of operations to prior year quarter
- ----------------------------------------------
The company's casino revenue decreased 79% to $22,819 for the three months ended
March 31, 2000 compared to $111,849 for the three months ended March 31, 1999.
The decrease was due to a decision made to discontinue Constellation casino to
comply with the terms and conditions of the letter of intent signed with eLOT in
February 2000.
Operating expenses decreased by 4% to $745,111 for the three months ended March
31, 2000 from $777,414 for the prior year quarter. The decrease in operating
expenses was primarily due to lower marketing and advertising costs. Interest
expense decreased to $6,232 for the three months ended March 31, 2000 from
$8,156 for the three months ended March 31, 1999. The decrease was mainly
resulted from a reduction of notes payable.
Net loss from operations for the three months ended March 31, 2000 was $733,665
compared to net loss of $691,273 for the previous quarter.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 2000 the Company had $136,582 in cash and cash equivalents
compared to $498.923 at December 31, 1999. Working capital at March 31, 2000
decreased by $364,845 to negative working capital of $158,842 from $206,003 on
December 31, 1999. The decrease was due to the loss incurred in the quarter. The
Company believes that it will require, at least, an additional $2,000,000 of
capital over the next 12 months in order to fund the full scale roll-out of its
Internet gaming operations and to finance the continuing losses from operations
as the Company endeavors to build revenue and reach profitable operations.
In February 2000, the Company started 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. As of the date of this 10-QSB report, the Company has sold 306,667 shares
for the gross proceeds of $460,000.
10
<PAGE>
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.
Impact of the Year 2000
- -----------------------
The Company utilizes computer software programs and operating systems, including
applications used in operating the gaming services, the Company's proprietary
software, network access, and various administrative and billing functions. To
the extent the Company's software applications contain source codes that are
unable to appropriately interpret the upcoming calendar year 2000, some level of
modification, or even possibly replacement of such applications, may be
necessary.
As of the date of this memorandum, nothing has come to the Company's attention
that would indicate that any of its computer software applications, or those of
its information suppliers and software licensers, are unable to operate
accurately after January 1, 2000. However, the Company has been advised that the
consequences of a Year 2000 failure may not become apparent for several weeks
following January 1, 2000. The Company previously has appointed a Year 2000
Committee to assess the scope of our risks in this regard and adopt appropriate
measures to bring its applications into compliance. To date, the costs
associated with this project have been insignificant. However, no definitive
assurance can be given that all of the Company's systems are Year 2000 compliant
or that the impact of the Company's failure to achieve substantial Year 2000
compliance will not have a material adverse effect on its business, financial
condition or results of operations.
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 on 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.
11
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Inapplicable.
Item 2. Changes in Securities.
----------------------
Inapplicable.
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
Financial Data Schedule - Exhibit 27.1
(b) Reports on Form 8-K
The Company filed a report of Form 8-K on March
29,2000 relating to acquisition of Primeline
Gaming Technologies, Inc.
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: May 1, 2000 /s/ BRUCE MERATI
-----------------------------------
Bruce Merati
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 136,582
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 34,353
<INVENTORY> 0
<CURRENT-ASSETS> 342,683
<PP&E> 1,274,312
<DEPRECIATION> 344,113
<TOTAL-ASSETS> 1,636,524
<CURRENT-LIABILITIES> 501,525
<BONDS> 0
0
0
<COMMON> 108
<OTHER-SE> 1,134,891
<TOTAL-LIABILITY-AND-EQUITY> 1,636,524
<SALES> 22,819
<TOTAL-REVENUES> 22,819
<CGS> 2,835
<TOTAL-COSTS> 2,835
<OTHER-EXPENSES> 745,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,232
<INCOME-PRETAX> (730,661)
<INCOME-TAX> 3,003
<INCOME-CONTINUING> (733,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (733,664)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
