SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
|X| Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended June 30, 1998
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from __________ to _________
Commission File Number: 000-24929
PLAYSTAR WYOMING HOLDING CORP.
(Name of Small Business Issuer in Its Charter)
Antigua 52-209-8787
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
The Dollar Building, Top Floor, Nevis Street,
St. John's, Antigua, West Indies
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (268) 562-0075
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class: on which Registered:
Ordinary Shares, par value None
$0.0001 per share
Check whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities 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 [ ] No |X|
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
The issuer's revenues for its most recent fiscal year were: $8,049
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of
February 17, 1999 was $8,111,623.44.
The number of ordinary shares outstanding as of February 17, 1999 was
28,592,644.
<PAGE>
PART I
The information set forth in this Report on Form 10-KSB including, without
limitation, that contained in Item 6, Management's Discussion and Analysis and
Plan of Operation, contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results may materially
differ from those projected in the forward-looking statements as a result of
certain risks and uncertainties set forth in this report. Although management
believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual future
results will not be different from the expectations expressed in this report.
Item 1. Description of Business
Subsequent Events
Since June 30, 1998, we completed a reorganization in which PlayStar
Corporation, which was a Delaware corporation and predecessor to PlayStar
Wyoming, merged with and into a wholly owned subsidiary, PlayStar Wyoming
Holding Corp., which was a Wyoming corporation. Immediately after the merger,
PlayStar Wyoming obtained Articles of Continuance from the Director of
International Business Corporations, Antigua, and became an Antigua corporation.
Each share of common stock of PlayStar Delaware was automatically converted into
one outstanding ordinary share of the PlayStar Wyoming. The reorganization was
effective on September 11, 1998. To effectuate the reorganization, PlayStar
Wyoming filed a Form S-4 with the SEC on August 6, 1998 and a Form F-1/SB-2 with
the SEC on August 7, 1998.
On January 2, 1999, PlayStar agreed to acquire, on closing, 40% of the
common stock of Cyberstation & Support, Inc. for Cdn.$ 500,000 ($329,000).
In addition to the above transaction, Players Ltd., a wholly-owned
subsidiary of PlayStar Wyoming, will, on closing, enter into a license agreement
with Cyberstation International Limited which will grant Players an exclusive
irrevocable perpetual royalty-free license to Cyberstation International's
software and intellectual property, presently owned or hereafter to be acquired
or developed, for use in certain designated countries and geographic
territories. In consideration thereof, PlayStar will issue to Cyberstation
International 5,000,000 of its ordinary shares.
Players will also receive, on closing, the following:
1. 50% ownership in the common stock of Net Engine St. Kitts Limited.
2. An option to purchase for $100, at the termination of the management
services agreement (described below), the software programs,
including related source codes, developed by Cyberstation
International for use in marketing, administration, and/or game
playing activities related to casino style gaming on the Internet.
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3. An option to purchase 100% of the common stock of Dreamplay for
$100.
PlayStar, on closing, will enter into a management agreement with
Cyberstation Limited whereby Cyberstation Limited will provide management
services to the operating subsidiaries of PlayStar, which terminates on June 30,
2002. Cyberstation Limited will receive a base management fee of Cdn.$ 160,000
($105,000) per annum and a payment equal to 15% of the pre-tax profits of
Players; and 10% of the pre-tax profits, in excess of certain thresholds as
defined in the management agreement, of PlayStar.
In addition, Cyberstation Limited, upon closing and after the execution of
the management agreement, will be granted three options to acquire an aggregate
of 5,000,000 ordinary shares of PlayStar as follows:
<TABLE>
<CAPTION>
Exercise
No. of Shares Price
------------- --------
<S> <C>
1,000,000 $ .25
2,000,000 .50
2,000,000 1.00
------------
5,000,000
============
</TABLE>
These options vest over a three year period, and only then if the pre-tax
profits of PlayStar, as defined, exceed certain amounts described in the
management agreement.
Description of Business of PlayStar
PlayStar
PlayStar, through its subsidiaries, PlayStar Limited and Antigua Casino,
operates, promotes and commercializes interactive, software-based games of
chance which are offered as an on-line service accessible world-wide on the
Internet. PlayStar Delaware was incorporated in the State of Delaware on October
3, 1996 under the name Global Games Corporation. On October 9, 1996, PlayStar
Delaware acquired all of the issued and outstanding shares of common stock of
PlayStar Limited, incorporated on October 9, 1996. Since the effective time of
the reorganization, PlayStar Wyoming has continued to conduct the business
previously carried on by PlayStar Delaware. Except for PlayStar Wyoming's new
domicile, the activities of PlayStar Wyoming are identical to that of PlayStar
Delaware prior to the effective time of the reorganization. Accordingly,
references in the discussion of the business of PlayStar Wyoming include the
operations of PlayStar Wyoming and PlayStar Delaware.
PlayStar Limited and Antigua Casino
PlayStar Limited owns the software used in an on-line casino system and
licenses, promotes and commercializes the system offering casino operators
interactive, software-based games of chance accessible world-wide through the
Internet. These products can be accessed at www.playstar.com.
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Antigua Casino's Articles of Incorporation enable it to operate an
Internet-based casino. Using the technology developed by PlayStar Limited and
licensed to it, Antigua Casino's casino service, at www.antigua.org, allows
patrons to play interactive games in real time either in "free" mode or in
"live" mode. In "live" mode, patrons wager with chips acquired using electronic
money or "e-cash" that was purchased through credit cards, wire-transfers and
money-orders. Antigua Casino initially offers a selection of casino-style games,
including, but not limited to, blackjack, draw poker, baccarat, roulette and
three different slot machines.
In December 1997, PlayStar Limited, on behalf of Antigua Casino, applied
to the government of Antigua for an electronic casino gaming license. On January
28, 1998, the Antigua government granted approval for the issuance of the
license to Antigua Casino. Antigua Casino began operations of its Internet
casino immediately following the consummation of the reorganization on September
14, 1998.
PlayStar Limited's games are designed to be entertaining and captivating.
Moreover, the games have been adapted to the peculiarities of the Internet. For
example, at times, due to "noise" on telephone lines or other unpredictable
technical glitches, connections between computers may terminate. To respond to
such problems, PlayStar Limited's software keeps track of the precise status of
the game. If a game is interrupted, the patron needs only to return to the
casino website, and the game will be restored to the moment the disconnection
occurred.
PlayStar Limited began testing its games on March 31, 1997 and launched
its on-line service commercially on September 14, 1998.
Antigua Casino does not require patrons to maintain a minimum account
balance or place any restrictions on amounts accumulated through winnings.
Antigua Casino, however, has established a maximum bet limit for new customers.
Antigua Casino may, at its discretion, grant custom wagering and account options
to its regular customers based upon their established profiles. At the present
time, Antigua Casino does not intend to extend credit services to its patrons.
In addition to the foregoing, management has agreed to adhere to the Code of
Conduct of the Interactive Gaming Council, a gaming industry organization of
which PlayStar is a member. Among other things, the Code of Conduct requires
Interactive Gaming Council members to post loss limits and to provide referrals
and direct access to help and counseling organizations as a means to identify
and curtail compulsive gambling. Moreover, Antigua Casino's managers may suspend
a patron's account activity at any time if they suspect or observe compulsive
gambling behavior. Notwithstanding these procedures, however, there can be no
assurance that Antigua Casino will be able to successfully identify or curtail
compulsive gambling by its patrons.
Antigua Casino attracts patrons to its service by providing quality
content through innovative use of animation and graphic design. The Antigua
Casino website has been designed with simplicity and effectiveness in mind.
Patrons are able to browse the website and try any game in "free" mode. When a
patron decides to open an account, Antigua Casino will process certain billing
information, including the patron's name, address and credit card or other
payment information. Once an account is open, patrons may elect to play any of
Antigua Casino games in "live" mode and wager against the patrons' accounts.
Antigua Casino also allows patrons to
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review their accounts and cash-out at any time. Antigua Casino uses a
third-party service that permits it to authenticate and process credit card
transactions which occur over the Internet.
Customers and Marketing
Antigua Casino's target market is individuals located throughout the world
who are current Internet users and at least 18 years of age. According to the
Internet Society, there are currently 60 to 80 million such people world-wide
who regularly access the Internet. Moreover, Internet use is expected to grow by
as much as 80% each year.
Antigua Casino plans to protect all customer data and information with
high-level security systems and password encryption software. Patrons are issued
both an account identification number and a PIN number. Any wagering or patron
functions, such as an account review or a cash-out, requires the correct
identification numbers. Antigua Casino does not require identification numbers
to browse its website or play games in "free" mode.
In order to create an awareness of Antigua Casino's existence among
individuals in the target market, Antigua Casino focuses its marketing efforts
primarily on traditional media advertising, public relations programs, on-line
promotions, business development, third-party relationships and social programs.
Antigua Casino has prepared a marketing and advertising plan which commenced
upon the launch of the on-line casino. Antigua Casino anticipates retaining
marketing consultants to oversee its promotional efforts and advertising needs.
Antigua Casino does not currently intend to limit its marketing and
advertising program to particular jurisdictions. However, Antigua Casino may
exclude the United States or any other jurisdiction from its promotional efforts
if such efforts or activities are determined to be prohibited by applicable law.
Research and Development
Since the inception of PlayStar Wyoming's predecessor in October 1996, its
subsidiaries have expended approximately $1,600,000 on research and development
activities through June 30, 1998. Effective April 1, 1998, PlayStar Limited and
Dreamplay Research Corp. entered into an agreement in which PlayStar Limited
retained Dreamplay to provide PlayStar Limited's gaming software. Pursuant to
the terms of the Dreamplay agreement, Dreamplay has assigned to PlayStar Limited
all right, title and interest in the software designed and developed for
PlayStar Limited. The Dreamplay agreement was terminated during December, 1998.
As of June 30, 1998, PlayStar Limited has paid Dreamplay approximately $860,000
for the provision and installation of gaming software.
PlayStar Limited intends to continue the development of additional casino
games, including, but not limited to, Caribbean poker, pai gow, sic bo and
craps. Additionally, PlayStar Limited believes that other games, more
interactive in nature, will become highly popular in the gaming community in the
future.
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Employees
At June 30, 1998, PlayStar had two full-time employees, one of whom served
as PlayStar Wyoming's President, and the other served as the Managing Director
of Antigua Casino. PlayStar also had one part-time employee who served as
PlayStar Wyoming's Chairman, Chief Executive Officer, Treasurer and Secretary,
respectively. From time to time, PlayStar also retains consultants and
consulting firms which provide PlayStar Wyoming with certain expertise in
financing, developing, marketing and software and telecommunications
technologies.
Regulation
Possible Legislation in the United States Congress
On July 23, 1998, the Senate passed an appropriations bill containing an
amendment by Senator John Kyl of Arizona, which would prohibit gaming on the
Internet in the United States. The proposed prohibition was not enacted into law
in 1998, but it or a similar bill may be reintroduced shortly. Several similar
bills were also introduced in the House of Representatives in the summer of
1998, and House internet gaming legislation may be reintroduced this year as
well.
If legislation prohibiting gaming on the Internet is enacted into law,
that legislation could have a significant effect on Playstar's online gaming
operations. If a law prohibiting Internet gaming passes, the Company's gaming
subsidiaries, PlayStar Limited and Antigua Casino, might be forced to cease all
marketing and promotional activities in the United States to ensure that no
solicitation of United States citizens occurs. If such legislation prohibits
United States citizens from gaming on the Internet, the Company may be expected
to lose a significant portion of its online gaming customers.
Licensing; Jurisdiction
Antigua Casino must adhere to the legal requirements of each jurisdiction
in which it operates or offers its services or is deemed to operate or offer its
services. Antigua Casino was granted a license to operate its Internet casino by
the Antigua government, under the "Virtual Casino Wagering and Sports Book
Wagering Regulations" promulgated under Section 27 of the Antigua Free Trade and
Processing Zone Act, 1994.
The gaming industry is highly regulated in many parts of the world,
including the United States, where the ownership and operation of land-based
gaming facilities, not including sports wagering, of the type to be conducted by
Antigua Casino have traditionally been regulated on a state-by-state basis with
additional federal regulation of certain criminal activities connected to
gambling. Companies engaged in gaming activities must adhere to the legal
requirements of each jurisdiction in which they operate and offer their
services.
Antigua Casino currently intends to offer its services internationally,
including throughout the United States. Antigua Casino does not currently intend
to seek licenses to operate its Internet casino in any other jurisdiction nor
does Antigua Casino intend to restrict or
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control access to its services based on user citizenship or location. However,
the law of the Internet is not well developed and there can be no assurance that
a jurisdiction in which the user is located will not successfully assert
jurisdiction over the gaming activities of Antigua Casino. This may be an issue
in the United States, as discussed further below, as well as in the other
jurisdictions in which Antigua Casino customers are domiciled. In the event that
it is determined that Antigua Casino is subject to the laws of jurisdictions
other than Antigua, Antigua Casino would have to obtain a license in order to
offer its gaming services to customers within these jurisdictions. There can be
no assurance that any such licenses could be obtained. Moreover, if it is
determined that Antigua Casino is operating gaming operations in a jurisdiction
without a license, Antigua Casino and its officers and directors may become
subject to criminal and civil penalties imposed by such jurisdiction for
violating its laws. The occurrence of any of these events could have a material
adverse effect on the business of PlayStar and, if many jurisdictions were
successful in asserting jurisdiction over Antigua Casino, Antigua Casino could
be forced to cease all gaming operations.
A number of United States federal and state statutes could be construed to
prohibit gaming through use of the Internet. All 50 states currently have
statutes or regulations restricting or even prohibiting gambling activities. In
most states it is illegal for anyone operating a gambling business either to
accept or make a wager, with certain state-by-state statutory exceptions. The
Attorneys General for at least three states, Florida, Minnesota and Texas, have
issued either formal opinions or warnings that certain Internet gaming
activities are illegal in those states. The Attorney General for the state of
Wisconsin has also taken action against Internet gaming companies.
In addition, the Federal Interstate Wire Act contains provisions which may
make it a crime for anyone in the business of gambling to use an interstate or
international telephone line to transmit information in the placing of bets,
unless the betting is legal in the jurisdictions from which and into which the
transmission is made. Other federal laws impacting gaming activities include the
Interstate Wagering Paraphernalia Act, the Travel Act and the Organized Crime
Control Act. As discussed below, in March, 1998, the United States Attorney for
the Southern District of New York filed several criminal complaints against the
owners and managers of six Internet sports betting companies headquartered in
the Caribbean or Central America. Those cases are the first federal prosecutions
of sports betting over the Internet. PlayStar believes the conduct at issue in
those cases differs from its proposed business which involves casino gaming, not
sports betting. Moreover, unlike the defendants in the sports betting
complaints, PlayStar does not plan to maintain marketing offices in the United
States or mail promotional literature from locations in the United States.
A risk exists, however, that federal or state authorities may view
PlayStar as having violated gaming regulations. Those authorities could initiate
civil or criminal proceedings against PlayStar and/or its employees. The results
of such proceedings could include substantial litigation expense, fines,
incarceration of company executives, diversion of the attention of key company
employees, disqualification of PlayStar for licensing in the United States, and
injunctions or other prohibitions preventing PlayStar from engaging in its
anticipated business activities.
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It is uncertain whether the fact that Antigua Casino's on-line gaming
business is legal in Antigua would insulate PlayStar from either civil or
criminal liability under state or federal statutes regulating gambling. Courts
considering whether to exercise personal jurisdiction over a business operating
through the Internet have exercised jurisdiction over defendants who make a
conscious choice to conduct business with the residents of a foreign state. For
example, certain entities engaged in the Internet gaming business have been the
subject of criminal complaints at the state level. In September 1997, the
Minnesota Court of Appeals considered a state civil consumer protection
complaint and concluded that a Belize-based Internet gambling business was
subject to personal jurisdiction in Minnesota because the company conducted
commercial activities in the state over the Internet. See Minnesota v. Granite
Gate Resorts, Inc., 568 N.W.2d 715 (1997), aff'd, 576 N.W.2d 747 (Minn. 1998).
In March 1998, the United States District Court for the Western District of
Texas concluded that a California casino that maintained a website was subject
to jurisdiction in Texas since the site was available in Texas and the casino
accepted business from Texas residents. See Thompson v. Handa-Lopez, Inc., 1998
WL 142300 (W.D. Tex. Mar. 28, 1998).
Further, various regulatory and legislative agencies are conducting
studies of interstate and interactive wagering, including the National Gambling
Impact Study Commission. No assurance can be given that new legislation will not
be adopted which limits, impedes or prohibits either the activities in which
Antigua Casino proposes to engage with respect to actual wagering or the type of
activities associated with such wagering. Any change in either the substance or
the enforcement of the applicable rules and regulations in these areas could
have a material adverse affect on PlayStar's business and prospects. Certain
legislation may be considered in Congress and individual states in this regard.
See discussion of possible federal legislation above.
Prohibition on Wagering Services
In the future, Antigua Casino may seek to offer wagering services on
sporting and/or other events, in addition to its gaming services. However,
Antigua Casino does not intend to offer wagering services at least until the
applicable legal and regulatory environment is clarified, if at all. The use of
the Internet for such wagering services may violate the United States federal
wire statute. Due to the relatively recent existence of wagering over the
Internet, the laws dealing with this application are not well developed.
However, on March 4, 1998, the United States Attorney for the Southern District
of New York indicted 14 owners and managers of six Internet sports wagering
companies headquartered in the Caribbean and Central America. Additional similar
indictments have since been issued. These individuals, all of whom are citizens
of the United States, were charged with conspiracy to transmit bets and wagers
on sporting events via the Internet in violation of the federal wire statute.
The indictments were made in spite of the fact that the companies operated by
the defendants were licensed to conduct wagering operations, including one which
was licensed by the Government of Antigua.
Item 2. Properties
Antigua Casino occupies approximately 1,200 square feet on the top floor
of the Dollar Building, Nevis Street, St. John's, Antigua pursuant to a lease
which expires on March 31, 1999.
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The monthly payments under the lease are approximately $1,480. Management
anticipates renewing this lease for an additional few years. Except for the
foregoing, neither PlayStar nor its subsidiaries presently own or lease any
property or real estate.
Item 3. Legal Proceedings
Neither PlayStar nor any of its subsidiaries is a party to any pending
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market For Common Equity and Related Stockholder Matters
Market Information
On March 19, 1997, the common stock of PlayStar Delaware was approved for
trading on the Nasdaq Over-the-Counter Bulletin Board. Following the
reorganization, PlayStar Wyoming's ordinary shares were approved for trading on
the Nasdaq Over-the-Counter Bulletin Board under the Symbol PSCKF. The following
table sets forth, for the periods indicated, the range of the high and low bid
quotations as reported by the Nasdaq Over-the-Counter Bulletin Board. The bid
quotations set forth below reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not reflect actual transactions:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended June 30, 1997
Third Quarter (from March 19, 1997)......... $2.50 $0.25
Fourth Quarter.............................. $2.50 $1.00
Fiscal Year Ended June 30, 1998
First Quarter............................... $2.9375 $1.00
Second Quarter.............................. $3.125 $0.38
Third Quarter............................... $1.01 $0.42
Fourth Quarter ............................. $0.70 $0.51
</TABLE>
Holders and Dividends
On February 17, 1999, the last reported sales price of PlayStar Wyoming's
ordinary shares as reported by the Nasdaq Over-the-Counter Bulletin Board was
$.51. As of February 17, 1999, there were 81 holders of record of PlayStar
Wyoming's ordinary shares. PlayStar has not declared or paid any cash dividends
on its common stock or ordinary shares, as the case may be, since its inception,
and PlayStar's Board of Directors currently intends to retain all earnings for
use in the business for the foreseeable future. Any future payment of dividends
will depend upon PlayStar's results of operations, financial condition, cash
requirements and other factors deemed relevant by PlayStar's Board of Directors.
Recent Sales of Unregistered Securities
The only securities of that were issued or sold by PlayStar within the
past three years and not initially registered with the Commission under the
Securities Act were those issued on the dates and for the consideration
described below. Any securities of PlayStar Delaware set forth below that were
still issued and outstanding on the effective date of the reorganization were
automatically converted to like securities of PlayStar Wyoming.
On October 9, 1996, PlayStar Delaware, the predecessor to PlayStar
Wyoming, issued 12,000,000 unregistered shares of its common stock to the
shareholders of PlayStar Limited in
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exchange for all of the issued and outstanding shares of PlayStar Limited. These
shareholders consisted of Hemery Nominees Limited, which received 3,000,000
shares beneficially owned by Julius Patta; Hemery Trustees Limited, which
received 3,000,000 shares beneficially owned by Trust f/b/o Allan Bramson, Evan
Bramson and Joanne Bramson; Powerstock Consultants Limited, which received
3,000,000 shares beneficially owned by William Tucker; and Powerstock Limited,
which received 3,000,000 shares in the transaction beneficially owned by Trust
f/b/o Irving Litvack, Michael Leonard Litvack, Lori Lee Litvack, Kari Lynn
Freesman, Jeffrey Eliot Litvack, Andrew David Litvack and Dora Litvack. The
issuance of shares was exempt from registration under the provisions of Section
4(2) of the Securities Act because the exchange of the shares did not involve a
public offering.
On October 9, 1996, PlayStar Delaware also adopted a stock option plan
authorizing the grant of options to purchase 10,000,000 shares of its common
stock. As of June 30, 1998, there were 4,148,000 options outstanding and 457,000
shares of PlayStar Delaware's common stock have been issued upon exercise of
such options. The issuance of the options and any shares issuable upon exercise
of such options are exempt from registration pursuant to Rule 701 promulgated
under the Securities Act.
On October 22, 1996, PlayStar Delaware commenced an offering of 1,750,000
unregistered shares of its common stock. This offering was made to five persons
and was fully subscribed and closed on October 24, 1996. These shares were sold
in consideration for services rendered to PlayStar Delaware aggregating $175,000
or $0.10 per share. On January 21, 1997, PlayStar Delaware and one of the
purchasers, Hemery Trustees Limited, agreed to rescind 962,500 of these shares
due to an error made at the time of the original issuance. The offering was not
underwritten, and there were no underwriting discounts or commissions. This sale
was exempt from registration in reliance upon Rule 504 promulgated under the
Securities Act. The aggregate offering price did not exceed $1,000,000, and the
offering was otherwise in compliance with Rules 501 and 502 promulgated under
the Securities Act. These securities were sold to a total of five private
investors.
On October 25, 1996, PlayStar Delaware commenced an offering of 2,062,500
unregistered shares of its common stock. This offering was made to twenty-two
persons and was fully subscribed and closed on November 29, 1996. These shares
were sold at a price of $0.40 per share, for total offering proceeds of
$825,000. The offering was not underwritten, but PlayStar Delaware paid finders
fees aggregating $163,015. This sale was exempt from registration in reliance
upon Rule 504 promulgated under the Securities Act. The aggregate offering price
of the October 25, 1996 Offering, together with the October 22, 1996 Offering,
did not exceed $1,000,000, and the offering was otherwise in compliance with
Rules 501 and 502 promulgated under the Securities Act. These securities were
sold to a total of twenty-two private investors.
On January 22, 1997, PlayStar Delaware commenced an offering of 962,500
unregistered shares of its common stock. This offering was made to two persons
and was fully subscribed and closed on January 22, 1997. These shares were sold
in consideration for services rendered to PlayStar Delaware aggregating $96,250
or $0.10 per share. The offering was not underwritten,
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and there were no underwriting discounts or commissions. This sale was exempt
from registration in reliance upon Rule 504 promulgated under the Securities
Act. The aggregate offering price of the January 22, 1997 Offering, together
with the October 22, 1996 Offering and the October 25, 1996 Offering, did not
exceed $1,000,000, and the offering was otherwise in compliance with Rules 501
and 502 promulgated under the Securities Act. These securities were sold to a
total of two private investors.
In November 1997, PlayStar Delaware closed an offering to two investors of
1,250,000 shares of PlayStar Delaware'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) of the
Securities Act and Regulation D promulgated under the Securities Act. No
underwriter or placement agent was retained in connection with the offering, but
finders fees aggregating $50,000 were paid by PlayStar Delaware. In addition, in
January 1998, an additional 250,000 shares were paid to finders in connection
with the offering.
In November 1997, PlayStar Delaware commenced an offering of shares of
common stock under Regulation S promulgated under the Securities Act. In
December 1997, PlayStar Delaware sold 724,274 shares of common stock at a price
of $0.50 per share, resulting in gross proceeds of $362,137. PlayStar Delaware
paid finders fees of $36,211 in connection with such sale. In January 1998,
PlayStar Delaware sold an additional 285,000 shares of Common Stock at a price
of $0.50 per share resulting in gross proceeds of $142,500. PlayStar Delaware
also paid finders fees of $14,250 in connection with such sale.
In May, June, July and August 1998, PlayStar Delaware sold 8,884,500
shares of common stock to 20 foreign investors, resulting in gross proceeds of
$2,469,700. Of such shares, 7,967,500 shares were sold at a price of $0.2580645,
450,500 shares were sold at a price of $0.40 per share, and 467,000 shares were
sold at a price of $0.50 per share. The shares were issued in reliance on
exemptions from registration pursuant to Regulation S promulgated under the
Securities Act. PlayStar Delaware retained certain placement agents in
connection with the offering who received, (a) an aggregate of $153,765, (b)
929,370 shares of common stock and (c) warrants to purchase 6,500,000 shares of
common stock as fees in connection therewith.
Item 6. Management's Discussion and Analysis or Plan of Operation
PlayStar/PlayStar Wyoming
PlayStar is a holding company which, through its subsidiaries, PlayStar
Limited and Antigua Casino, operates, promotes and commercializes an on-line
gaming service which offers interactive, software-based games of chance. Antigua
Casino conducts PlayStar's Internet gaming business, and PlayStar Limited
licenses gaming technology to Antigua Casino's Internet gaming business. For the
period from inception on October 3, 1996 until June 30, 1998, the cumulative
earned interest income of PlayStar was $11,071 and its accumulated deficit was
$3,090,241.
During 1996 and 1997, PlayStar raised an aggregate of $825,000 in cash
through three private placements completed pursuant to Rule 504 promulgated
under the Securities Act. In
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November and December, 1997, and January, 1998, PlayStar raised an additional
$1,004,637 through two additional private placements completed pursuant to
Section 4(2) of the Securities Act and Regulations D and S promulgated
thereunder. In May, June, July and August, 1998, PlayStar raised an additional
$2,159,700 through additional private placements completed pursuant to
Regulation S promulgated under the Securities Act. In addition, PlayStar had
subscriptions for an additional $310,000 of common stock, subject to the
completion of the reorganization. These financings have been sufficient to
satisfy PlayStar's cash requirements. From these proceeds, Playstar and its
subsidiaries paid approximately $860,000 for products and services provided by
Dreamplay and approximately $477,000 for legal, accounting, public relations and
administrative services through June 30, 1998. After the above financings,
PlayStar had available approximately $1,800,000 in working capital. Of this
amount, PlayStar intends to pay for the majority of its advertising, marketing
and promotional efforts on a performance related commission and/or profit
sharing basis.
Management believes that PlayStar will have sufficient funds to commence
and conduct its operations for at least through, at least, June 30, 1999,
including its investment in Cyberstation and Support, Inc.
PlayStar Limited
PlayStar Limited's initial efforts for its first twelve months centered on
the purchase of on-line gaming and financial transaction processing software.
During this period, PlayStar Limited developed its software games and system
test site. PlayStar Limited's casino management system has completed the final
stages of development, including completion of the beta testing of the system.
PlayStar Limited licenses its gaming technology to Antigua Casino which then
operates the electronic casino.
Antigua Casino
In December 1997, PlayStar Limited, on behalf of Antigua Casino, applied
to the government of Antigua for an electronic casino gaming license. On January
28, 1998, the Antigua government granted approval for the issuance of the
license to Antigua Casino. Antigua Casino began operations of its Internet
casino immediately following the consummation of the reorganization, on
September 14, 1998.
The launch of the on-line casino is a critical factor for Antigua Casino's
success. Accordingly, PlayStar's management anticipates retaining marketing
consultants to oversee its promotional efforts and advertising needs.
During the next twelve months, Antigua Casino intends to acquire and lease
computer and telecommunications equipment to facilitate its computer operations
center. The estimated cost of this equipment will be approximately $200,000.
Dreamplay purchased approximately $190,000 worth of hardware/software that it
provided to Antigua Casino for installation into the electronic casino.
- 13 -
<PAGE>
Finally, since Antigua Casino's revenues depend on customer gaming
activities, PlayStar's management will endeavor to develop a loyal customer
base. Antigua Casino marketing will be directed to establish PlayStar and its
PlayStar-brand products as the mark of quality and innovation in both the
Internet gaming and interactive entertainment markets. Ultimately, PlayStar's
management foresees that such efforts will establish the "PlayStar" name as a
premier brand in on-line gaming.
Year 2000 Compliance
PlayStar uses a significant number of computer software programs and
operating systems in its internal operations. PlayStar has developed many of
these programs internally ensuring that they are Year 2000 compliant. PlayStar
has initiated a review of its other computer hardware and software to ensure
that their computer-related applications are Year 2000 compliant and will not
fail or create erroneous results as a result of the use of two digits in various
program date fields. While the consequences of an incomplete or untimely
resolution of the Year 2000 issue could be expected to have a negative effect on
the future financial results of PlayStar, PlayStar expects that its Year 2000
issues will be satisfactorily resolved well before the year 2000. Certain of
PlayStar's major suppliers have informed PlayStar that such suppliers do not
anticipate problems in business operations due to Year 2000 issues. PlayStar is
currently unable to determine the extent to which Year 2000 issues will affect
its other suppliers or the extent to which it would be vulnerable to the
suppliers' failure to remediate any of their Year 2000 issues.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
This Statement establishes standards for reporting and display of comprehensive
income and its components in financial statements. The Statement is effective
for PlayStar's financial statements commencing the year ending June 30, 1999.
The adoption of this Statement will not have a material effect on PlayStar's
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for the
manner in which a public business enterprise reports certain information about
operating segments and discloses enterprise-wide information about its products
and services, activities in different geographic areas, and its reliance on
major customers. The Statement is effective for PlayStar's financial statements
commencing the year ending June 30, 1999. The adoption of this Statement will
not have a material effect on PlayStar's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999. This statement establishes standards that require
that all derivative instruments be recorded on the balance sheet at their fair
value. This statement is effective for PlayStar's financial statements
- 14 -
<PAGE>
commencing the year ending June 30, 2000. The adoption of this statement will
not have a material effect on PlayStar's financial statements.
Item 7. Financial Statements
The financial statements of PlayStar Wyoming, including the notes thereto,
together with the reports thereon of Mahoney Cohen & Company, CPA, P.C. and
Fruitman Kates, Chartered Accountants, are presented beginning at page F-1.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
(a) Fruitman Kates, Chartered Accountants, the registrant's principal
independent accountant, resigned on September 16, 1998.
Fruitman Kates' report, dated March 18, 1997, contained a qualification as
to accounting principles. The financial statements did not comply with APB No.
25 which requires a company to include in its determination of profit and loss
for a period the effect of stock options granted during the period. The
financial statements, however, were restated as of the period ended June 30,
1997, and the financial statements for the period October 3, 1996 through June
30, 1997 contained an unqualified opinion respecting the financial statements.
The decision to change accountants was not recommended or approved by the
registrant's board of directors or an audit or similar committee of the
registrant's board of directors.
During neither of the registrant's two most recent fiscal years nor any
later interim period was there any disagreement between the registrant and
Fruitman Kates on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
the Fruitman Kates' satisfaction, would have caused it to make reference to the
subject matter of the disagreement in connection with its report.
(b) On September 17, 1998, the registrant engaged Mahoney Cohen &
Company, CPA, P.C. as the principal accountant to audit its financial statements
beginning with the fiscal year ending June 30, 1998.
- 15 -
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The following table sets forth information regarding the sole director and
executive officer of PlayStar Wyoming as of June 30, 1998.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
William F.E. Tucker ............. 65 Chairman, Chief Executive Officer,
Secretary and Treasurer
Julius Patta..................... 31 President
</TABLE>
- --------------------
Julius Patta served as President of PlayStar since the inception of
PlayStar Delaware until September 11, 1998. From inception until April 1, 1998,
he also served as Chief Executive Officer, Chief Financial Officer and
Treasurer. Mr. Patta has fourteen years of international business, finance,
games software and telecommunications technology experience. From April 1996
until September 1996, Mr. Patta was Vice President of Netron Interactive, a
division of Netron, Inc., a Canadian software company. While with Netron
Interactive, Mr. Patta managed corporate sales, third-party relationships,
staff, production development and key projects. From June 1994 until March 1996,
Mr. Patta was Vice President, Research and Development of Netron, Inc. where he
managed product product planning, product development, staff, public relations
and strategic customer sales. From January 1992 until May 1994, Mr. Patta was
Vice President, Consulting Services of Netron, Inc. where he managed business
development and sales, third-party partnering, contract negotiations and key
projects. Prior to joining Netron, Inc., Mr. Patta was the owner and principal
consultant of CASE Consulting Services, which provided high-end information
systems services.
William F.E. Tucker has served as Chairman and Chief Executive Officer,
Treasurer and Secretary of PlayStar since April 1, 1998 and as President since
September 11, 1998. Since 1992, Mr. Tucker has been a private investor. From
1974 to 1992, Mr. Tucker was a principal of Malabar Ltd., the largest Canadian
supplier of manufacturing and rental services to the North American theater
industry.
Item 10. Executive Compensation
Summary Compensation Table
The following table discloses the executive compensation paid to Julius
Patta, the President of PlayStar Delaware from its October 9, 1996 inception
through June 30, 1998. No other executive officer's compensation exceeded
$100,000 during the periods covered below.
- 16 -
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
- ------------------ --------------------------------------------------- ---------------------------
Securities
Name and Fiscal Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
- ------------------ ----- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Julius Patta 1998 $66,000(2) -0- -0- -0- -0-
President(1) 1997 $74,000(3) -0- -0- 1,250,000 -0-
</TABLE>
(1) Mr. Patta resigned on September 11, 1998.
(2) Includes (a) $38,000 paid by PlayStar to Hemery Trustees for which Mr.
Patta was a software consultant and (b) $28,000 paid to Mr. Patta by
Dreamplay, an entity 100% owned by Mr. Patta.
(3) Includes (a) $52,000 paid by PlayStar to Hemery Trustees for which Mr.
Patta was a software consultant and (b) $22,000 paid to Mr. Patta by
Dreamplay, an entity 100% owned by Mr. Patta.
The following table contains information concerning the grant of stock
options to PlayStar Delaware's executive officer named in the Summary
Compensation Table during the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options Granted to
Underlying Employees in Fiscal Exercise or Base Expiration
Name Options Granted Year Price per Share Date
---- --------------- ---- --------------- ----
<S> <C> <C> <C> <C>
Julius Patta - President 1,250,000 100% $0.05 October 9, 2001
Total......................... 1,250,000 100% $0.05 October 9, 2001
</TABLE>
No stock options have been exercised by Mr. Patta to date.
Directors of PlayStar do not receive any stated salary for their services
as directors or members of committees of the Board of Directors, but by
resolution of the Board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Directors of PlayStar may also serve PlayStar in
other capacities as an officer, agent or otherwise, and may receive compensation
for their services in such other capacity.
PlayStar Wyoming is not a party to any employment or consulting agreements
with its executive officer.
- 17 -
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information with respect to the beneficial
ownership of Wyoming's ordinary shares as of February 17, 1999 by (a) each
director of PlayStar Wyoming, (b) each executive officer of PlayStar Wyoming,
(c) all directors and officers of PlayStar Wyoming as a group and (d) each
person known by PlayStar Wyoming to be the beneficial owner of more than five
percent of the ordinary shares of PlayStar Wyoming. All percentages are based on
28,592,644 shares outstanding on February 17, 1999 and, with respect to each
person holding warrants or options to purchase ordinary shares exercisable
within 60 days, the number of ordinary shares that are issuable upon the
exercise thereof.
<TABLE>
<CAPTION>
Beneficial Ownership of Current Percent
Name and Address Ordinary Shares of Class
----------------------- ---------------
<S> <C> <C>
William F.E. Tucker -- Chairman, 3,362,500(1) 11.66%
President and Chief Executive
Officer, Treasurer and Secretary
West Dunes
44 South Road
Paget PG 04
Bermuda
Julius Patta 3,180,500(2) 10.66%
P.O. Box W 612
Woods Centre
Antigua BW1
West Indies
Trust f/b/o Allan Bramson, 3,194,500(3) 11.08%
Evan Bramson and
Joanne Bramson
c/o Hemery Trustees Limited
31 Broad Street
St. Helier
Jersey Channel Islands JE4 8XN
Irving Litvack 2,950,000(4) 10.16%
542 Saint Germain Avenue
Toronto, Ontario, M5M 1X2
Canada
All directors and executive 3,362,500(1) 11.66%
officers as a group
</TABLE>
(1) Includes options to purchase 250,000 ordinary shares of PlayStar Wyoming
exercisable within 60 days.
(2) Includes options to purchase 1,250,000 ordinary shares of PlayStar Wyoming
exercisable within 60 days.
(3) Includes options to purchase 250,000 ordinary shares of PlayStar Wyoming
exercisable within 60 days.
(4) Includes options to purchase 450,000 ordinary shares of PlayStar Wyoming
exercisable within 60 days
- 18 -
<PAGE>
Item 12. Certain Relationships and Related Transactions
On October 9, 1996, PlayStar Wyoming's predecessor, PlayStar Delaware,
issued 12,000,000 unregistered shares of common stock to the stockholders of
PlayStar Limited, in exchange for all of the issued and outstanding shares of
PlayStar Limited. Certain of the beneficial owners of PlayStar Delaware were
stockholders of PlayStar Limited and therefore received shares of common stock
of PlayStar Delaware in the transaction. These beneficial owners include Julius
Patta who received 3,000,000 shares through his beneficial ownership of Hemery
Nominees Limited, Trust f/b/o Allan Bramson, Evan Bramson and Joanne Bramson
which received 3,000,000 shares through its beneficial ownership of Hemery
Trustees Limited, William F.E. Tucker, PlayStar's Chairman, President and Chief
Executive Officer, who received 3,000,000 shares through his beneficial
ownership of Powerstock Consultants Limited and Trust f/b/o Irving Litvack,
Michael Leonard Litvack, Lori Lee Litvack, Kari Lynn Freesman, Jeffrey Eliot
Litvack, Andrew David Litvack and Dora Litvack which received 3,000,000 shares
through its beneficial ownership of Powerstock Limited in the transaction. All
shares of PlayStar Delaware common stock beneficially owned by such persons at
the effective time of the reorganization were converted into the same number of
ordinary shares of PlayStar Wyoming.
PlayStar Limited was a party to a certain Agreement dated April 16, 1997
with Dreamplay Research Corp., an entity which is 100% owned by Mr. Patta, who
served as PlayStar's President until September 11, 1998, and is a party to an
agreement with Dreamplay dated April 1, 1998 which superseded the April 16, 1997
Dreamplay agreement. These agreements with Dreamplay were approved by PlayStar
Limited's disinterested directors and were made in the ordinary course of
business. PlayStar Limited's management believes that these agreements contained
or contain substantially the same terms as those prevailing at the time for
comparable agreements and transactions with other technology development
companies. See "Business - Research and Development" and "Management's
Discussion and Analysis or Plan of Operation - PlayStar/PlayStar Wyoming."
Item 13. Exhibits, List and Reports on Form 8-K
(a) Index to Financial Statements
Reports of Independent Auditors
Financial Statements
Financial Data Schedule (filed electronically herewith)
Exhibits
2.1 Plan and Agreement of Merger of PlayStar Delaware and PlayStar Wyoming
3.1 Articles of Incorporation of PlayStar Wyoming*
3.2 By-Laws of PlayStar Wyoming.*
10.1 PlayStar Corporation 1996 Stock Option Plan.*
- 19 -
<PAGE>
10.2 Agreement dated April 1, 1998 by and between PlayStar Limited and
DreamPlay Research Corp.*
16.1 Letter on change in certifying accountants.**
21.1 Subsidiaries of PlayStar Wyoming.*
23.1 Consent of Fruitman Kates, Chartered Accountants.
27.1 Financial Data Schedule.
- ---------------
* Incorporated by reference from PlayStar Wyoming's Registration Statement
on Form F-1/SB-2, as amended, originally filed with the SEC on August 7,
1998.
** Incorporated by reference from PlayStar Wyoming's Report on Form 8-K/A-1,
filed with the SEC on October 30, 1998.
- 20 -
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION)
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Financial Statements
June 30, 1998
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Index
-----
Page
----
Independent Auditor's Report F-1
Independent Auditor's Report F-2
Consolidated Balance Sheets as of June 30, 1998 and 1997 F-3
Consolidated Statements of Operations for the Year Ended
June 30, 1998 and for the Periods from October 3, 1996
(Inception) to June 30, 1997 and 1998 F-4
Consolidated Statements of Shareholders' Equity for
the Period from October 3, 1996 (Inception) to
June 30, 1997 and the Year Ended June 30, 1998 F-5 to F-7
Consolidated Statements of Cash Flows for the Year
Ended June 30, 1998 and for the Periods from
October 3, 1996 (Inception) to June 30, 1997 and
1998 F-8 to F-9
Notes to Consolidated Financial Statements F-10 to F-22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Playstar Wyoming Holding Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheet of
Playstar Wyoming Holding Corp. (formerly Playstar Corporation) (a Development
Stage Company) and Subsidiaries as of June 30, 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Playstar Wyoming
Holding Corp. and Subsidiaries as of June 30, 1998 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
New York, New York
October 9, 1998, except for
Note 13, as to which the
date is January 2, 1999
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of PLAYSTAR CORPORATION
We have audited the consolidated balance sheet of PLAYSTAR CORPORATION (a
Development Stage Company) and subsidiary, as at June 30, 1997 and the
related consolidated statements of loss, shareholders' equity and cash
flows for the period from inception October 3, 1996 to June 30, 1997.
These consolidated financial statements are the responsibility of PLAYSTAR
CORPORATION's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis
for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of PLAYSTAR CORPORATION and
subsidiary, as at June 30, 1997 and the results of their operations and
their cash flows for the period from inception October 3, 1996 to June 30,
1997, in conformity with generally accepted principles in the United
States.
As described in Note 5 to the financial statements, these financial
statements have been revised to correct an error in the method of
determining charges to operations with respect to various stock options
granted by PLAYSTAR CORPORATION.
Toronto, Canada FRUITMAN KATES
June 2, 1998 CHARTERED ACCOUNTANTS
F-2
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
June 30, 1998 and 1997
ASSETS
------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Restated)
(Note 11)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 182,219 $ 109,138
Subscriptions receivable 21,350 --
Prepaid expenses and other
current assets (Note 6) 150,922 1,860
----------- -----------
Total current assets 354,491 110,998
Property and equipment, net (Note 5) 242,410 --
Deferred offering costs 6,795 --
Security deposits 75,000 --
----------- -----------
$ 678,696 $ 110,998
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable - affiliate -
Dreamplay Research Corp. (Note 3) $ 53,702 $ --
Accrued expenses (Note 7) 264,374 56,045
----------- -----------
Total current liabilities 318,076 56,045
Commitments (Note 12)
Shareholders' equity (Note 8):
Preferred stock, $.0001 par value:
Authorized - 1,000,000 shares; none
issued or outstanding at June 30, 1998
and 1997 -- --
Common stock, $.0001 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 19,661,274
shares in 1998 and 15,812,500 shares
in 1997 1,966 1,581
Additional paid-in capital 3,448,895 1,980,104
Deficit accumulated in the development stage (3,090,241) (1,926,732)
----------- -----------
Total shareholders' equity 360,620 54,953
----------- -----------
$ 678,696 $ 110,998
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from Period from
October 3, October 3,
1996 1996
Year (Inception) (Inception)
Ended to to
June 30, June 30, June 30,
1998 1997 1998
------------ ------------ -----------
(Restated) (Restated)
(Note 11) (Note 11)
<S> <C> <C> <C>
Revenue:
Interest income $ 8,049 $ 3,022 $ 11,071
------------ ------------ -----------
Expenses:
Professional fees 628,649 14,415 643,064
Development costs 396,934 1,215,527 1,612,461
Options granted as employee
compensation -- 682,500 682,500
General and administrative 112,551 13,856 126,407
Depreciation and amortization 33,424 -- 33,424
Incorporation costs -- 3,456 3,456
------------ ------------ -----------
Total expenses 1,171,558 1,929,754 3,101,312
------------ ------------ -----------
Net loss $ (1,163,509) $ (1,926,732) $(3,090,241)
============ ============ ===========
Basic loss per share $ (.07) $ (.13)
============ ============
Weighted average number of shares 17,415,461 15,035,880
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
For the Period from October 3, 1996
(Inception) to June 30, 1997 and the
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional in the Total
------------------------ Paid-in Development Shareholders'
Shares Amount Capital Stage Equity
---------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
October 3, 1996 (inception) -- $ -- $ -- $ -- $ --
Common stock issued in
exchange for all of the
issued and outstanding
shares of Playstar Limited
in October 1996 (at $.0001
per share) 12,000,000 1,200 -- -- 1,200
Options granted to employees
and consultants for
development costs and
services -- -- 1,143,500 -- 1,143,500
Issuance of common stock in
October 1996 and January
1997 for development costs
based on fair market value
of services performed 1,750,000 175 174,825 -- 175,000
Issuance of common stock
in November 1996 at $.40
per share in a private
placement offering, less
costs of $163,015 2,062,500 206 661,779 -- 661,985
Net loss, June 30, 1997
(restated) -- -- -- (1,926,732) (1,926,732)
---------- ------ ---------- ----------- -----------
Balance at June 30, 1997
(restated) (carried forward) 15,812,500 $1,581 $1,980,104 $(1,926,732) $ 54,953
---------- ------ ---------- ----------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity (Continued)
For the Period from October 3, 1996
(Inception) to June 30, 1997 and the
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional in the Total
----------------------- Paid-in Development Shareholders'
Shares Amount Capital Stage Equity
---------- ------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997
(restated) (brought forward) 15,812,500 $1,581 $ 1,980,104 $(1,926,732) $ 54,953
Issuance of common stock in
November 1997 in connect-
ion with a private placement
offering at $.40 per share, less
related costs of $50,000 1,250,000 125 449,875 -- 450,000
Issuance of common stock in
December 1997, in a private
placement offering at $.50 per
share, less related costs
of $36,211 724,274 72 325,854 -- 325,926
Issuance of common stock in January
1998, in a private placement
offering at $.50 per share, less
related costs of $14,250 285,000 29 128,221 -- 128,250
Issuance of common stock in
January 1998, as a fee in
connection with the November
1997 private placement offering
(fair market value $.85
per share, $212,500) 250,000 25 (25) -- --
Options granted during December
1997 through April 1998 for the
purchase of 315,000 common
shares to consultants as compen-
sation for development costs,
less unearned portion ($173,409) -- -- 51,530 -- 51,530
---------- ------ ----------- ----------- ----------
Totals carried forward 18,321,774 $1,832 $ 2,935,559 $(1,926,732) $1,010,659
---------- ------ ----------- ----------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity (Concluded)
For the Period from October 3, 1996
(Inception) to June 30, 1997 and the
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional in the Total
----------------------- Paid-in Development Shareholders'
Shares Amount Capital Stage Equity
---------- ------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Totals brought forward 18,321,774 $1,832 $2,935,559 $(1,926,732) $ 1,010,659
Issuance of common stock in
January 1998, in connection
with exercise of stock options
at $.05 per share 30,000 3 1,497 -- 1,500
Issuance of common stock in
February 1998, in connection
with exercise of stock options
at $.05 per share 27,000 2 1,348 -- 1,350
Issuance of common stock in May
1998, at $.50 per share, less
costs of $15,936 437,000 44 202,520 -- 202,564
Issuance of common stock in May
1998, at $.40 per share, less
costs of $14,441 445,500 45 163,714 -- 163,759
Issuance of common stock in May
1998, in connection with
exercise of stock options,
at $.05 per share 400,000 40 19,960 -- 20,000
Current year amortization of cost
of options granted in prior
periods -- -- 45,617 -- 45,617
Options granted in October 1998
to consultants for the purchase
of 300,000 shares of common
stock for services provided
through June 30, 1998 -- -- 78,680 -- 78,680
Net loss, June 30, 1998 -- -- -- (1,163,509) (1,163,509)
---------- ------ ---------- ----------- -----------
Balance at June 30, 1998 19,661,274 $1,966 $3,448,895 $(3,090,241) $ 360,620
========== ====== ========== =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from Period from
October 3, October 3,
1996 1996
Year (Inception) (Inception)
Ended to to
June 30, June 30, June 30,
1998 1997 1998
----------- ----------- -----------
(Restated) (Restated)
(Note 11) (Note 11)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,163,509) $(1,926,732) $(3,090,241)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 33,424 -- 33,424
Development costs paid through
the issuance of common stock
and granting of stock options 175,827 636,000 811,827
Options granted as employee
compensation -- 682,500 682,500
Change in assets and liabilities:
Prepaid expenses and other
current assets (149,062) (1,860) (150,922)
Accounts payable - affiliate -
Dreamplay Research Corp. 53,702 -- 53,702
Accrued expenses 208,329 56,045 264,374
----------- ----------- -----------
Net cash used in operating
activities (841,289) (554,047) (1,395,336)
----------- ----------- -----------
Cash flows from investing activities:
Payments of security deposits (75,000) -- (75,000)
Purchase of computer hardware (275,834) -- (275,834)
----------- ----------- -----------
Cash used in investing activities (350,834) -- (350,834)
----------- ----------- -----------
Totals carried forward $(1,192,123) $ (554,047) $(1,746,170)
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-8
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Concluded)
<TABLE>
<CAPTION>
Period from Period from
October 3, October 3,
1996 1996
Year (Inception) (Inception)
Ended to to
June 30, June 30, June 30,
1998 1997 1998
----------- ----------- -----------
(Restated) (Restated)
(Note 11) (Note 11)
<S> <C> <C> <C>
Totals brought forward $(1,192,123) $(554,047) $(1,746,170)
Cash flows from financing activities:
Net proceeds from issuance of common
shares 1,271,999 663,185 1,935,184
Deferred offering costs (6,795) -- (6,795)
----------- --------- -----------
Net cash provided by financing
activities 1,265,204 663,185 1,928,389
----------- --------- -----------
Net increase in cash and cash equivalents 73,081 109,138 182,219
Cash and cash equivalents, beginning of
period 109,138 -- --
----------- --------- -----------
Cash and cash equivalents, end of year $ 182,219 $ 109,138 $ 182,219
=========== ========= ===========
Supplemental Schedule of Non-Cash Investing and Financing Activities
Common stock issued in connection
with raising of capital $ 212,500 $ -- $ 212,500
=========== ========= ===========
Receivable from shareholders in
connection with exercise of stock
options $ 21,350 $ -- $ 21,350
=========== ========= ===========
</TABLE>
See accompanying notes.
F-9
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 1 - The Company
The consolidated financial statements include the accounts of
Playstar Wyoming Holding Corp. ("Playstar Wyoming") (formerly Playstar
Corporation) and its wholly-owned subsidiaries, Playstar Limited (a Jersey
Island corporation), Players Ltd. (an Antigua corporation) ("Players") and
Antigua Casino and Sports Book Limited (an Antigua corporation) (collectively
"the Company"). All intercompany accounts and transactions have been eliminated
in consolidation.
On June 30, 1998, effective September 4, 1998, pursuant to a Merger
Agreement, and an Application for Certificate of Transfer, the Company's board
of directors and holders of more than two-thirds of the outstanding shares of
its common stock approved the reorganization of Playstar Corporation pursuant to
which Playstar Corporation was merged with and into Playstar Wyoming Holding
Corp., a newly formed Wyoming corporation which became the surviving entity (the
"Merger"). Subsequently, pursuant to a Wyoming statutory continuation procedure,
Playstar Wyoming became an Antigua corporation ("Playstar Antigua"). In
accordance with the terms of the merger, each outstanding share of Playstar
Corporation's common stock was automatically converted into one outstanding
share of Playstar Wyoming common stock and subsequently, in connection with the
statutory continuation procedure referred to above, automatically converted into
one ordinary share, par value $.0001 of Playstar Antigua.
The Company, through its subsidiaries, 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. The Company has been in the development stage since its incorporation
on October 3, 1996.
Basis of Presentation and Management's Plans
Since its inception in 1996, the Company has been primarily engaged
in the development of its software-based games of chance, and their ability to
be played along the Internet, market testing its intended service, and raising
capital. As a consequence, there has not been any significant operating revenue
generated by the utilization of the Company's services and/or products through
June 30, 1998.
The Company has experienced negative cash flows from operations
since its inception and has an accumulated deficit of $3,090,241 at June 30,
1998. The Company has funded its activities to date primarily from equity
financings. The Company will continue to require substantial funds to continue
development of activities and to commence sales and marketing
F-10
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 1 - The Company (Continued)
Basis of Presentation and Management's Plans (Continued)
efforts. The Company's capital requirements will depend on many factors,
including the problems, delays, expenses and complications frequently
encountered by development stage companies; the progress of the Company's beta
testing activities; the progress of and costs associated with the Company's
future research, marketing or other funding arrangements; the availability of
qualified personnel; the success of the Company's sales and marketing programs;
and changes in economic, regulatory or competitive conditions of the Company's
planned business.
Additionally, as more fully discussed in Note 10, the Company's
online gaming operations could be significantly impacted by legislation
introduced in the last Congress that will likely be reintroduced in the current
Congress. That legislation proposes to make it illegal for anyone living in the
United States to wager or gamble on the Internet. Management is not presently
able to determine the effects, if any, that the passage of such legislation, if
reintroduced and enacted into law, would have on the Company's future results of
its online gaming operations.
During July, August and September 1998, the Company completed the
sale of 8,002,000 shares of its common stock, realizing net proceeds of
approximately $1,939,000 after the payment of approximately $134,000 for fees
and commissions in connection with the sale of such shares. Based on the
Company's presently planned expenditures and activities for the fiscal year
ending June 30, 1999 and notwithstanding the uncertainty referred to in the
previous paragraphs, management believes that such funds will enable the Company
to continue to meet its obligations as they become due through at least July 1,
1999.
Note 2 - Summary of Significant Accounting Policies
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 the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-11
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies (Continued)
Foreign Currency Translation
The accounts of Antigua Casino are translated using a fixed exchange
rate for assets, liabilities and results of operations. The local currency for
Antigua Casino is the functional currency. Assets, liabilities and revenue and
expenses of Antigua Casino are all translated at the current conversion rate as
the Antigua currency is, in effect, "linked" to the U.S. dollar and the exchange
rate does not fluctuate.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement requires that changes in comprehensive
income be shown in a financial statement that is displayed with the same
prominence as other financial statements. The statement will be effective for
annual periods beginning after December 15, 1997 and the Company will adopt its
provisions in fiscal 1999. Reclassification for earlier periods is required for
comparative purposes. Because the statement requires only additional disclosure,
the Company does not expect the statement to have a material impact on its
financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." This
statement includes requirements to report selected segment information quarterly
and entity-wide disclosures about products and services, major customers, and
the material countries in which the entity holds assets and reports revenue. The
statement will be effective for annual periods beginning after December 15, 1997
and the Company will adopt its provisions in fiscal 1999. Reclassification for
earlier periods is required, unless impracticable, for comparative purposes.
However, because the statement requires only additional disclosure, the Company
does not expect the statement to have a material impact on its financial
statements or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for
all fiscal periods beginning after June 15, 1999. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether the derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction.
F-12
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 2 Summary of Significant Accounting Policies (Continued)
New Accounting Pronouncements (Continued)
Management of the Company anticipates that due to its limited use of derivative
instruments, the adoption of SFAS No. 133 will not have a material impact on the
Company's financial position or results of operations.
Advertising and Promotion Costs
Advertising and promotion costs are charged to operations during the
period in which they are incurred. For the period October 3, 1996 (inception)
through June 30, 1997 and the year ended June 30, 1998, such costs were nominal.
Computation of Net Loss per Common Share
The Company adopted SFAS No. 128, "Earnings per Share". This
statement requires that the Company report basic and diluted earnings (loss) per
share for all periods reported. Basic net income (loss) per share is calculated
by dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, consisting of dilutive common stock options using the treasury
stock method.
For all periods presented, common stock options are not included in
the computation as they would be anti-dilutive. In the event that the Company
was to report net income in future periods, these options, aggregating 4,148,000
at June 30, 1998, could have a dilutive effect on future earnings per share
calculations in those periods.
Cash Equivalents
The Company considers highly liquid investments with original
maturities of three months or less to be cash equivalents. At June 30, 1998, all
cash and cash equivalents were held at financial institutions outside of the
United States.
F-13
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 3 - Related Party Transactions
From inception, the Company has retained the services of Dreamplay
Research Corp. ("Dreamplay"), a Canadian corporation that is wholly-owned by one
of the Company's significant shareholders, and through September 1998 was the
Company's president and through March 1998 a member of its board of directors.
Dreamplay has (from inception) provided software and system integration
consultation services in connection with the Company's efforts to build out its
web-site and to develop Internet gaming applications. Additionally, Dreamplay
has acted as the Company's principal purchaser of related hardware and vendor
supplied software applications.
The agreement between the Company and Dreamplay dated April 1998,
ended in December 1998 (see Note 13). Dreamplay worked exclusively for the
Company and was reimbursed for all of its operating expenses plus a profit in
developing the Company's software and providing other services.
The following table summarizes transactions between the Company and
Dreamplay for the year ended June 30, 1998 and for the period from October 3,
1996 (inception) to June 30, 1997:
<TABLE>
<CAPTION>
Period from
October 3, 1996
Year Ended (Inception) to
June 30, 1998 June 30, 1997
------------- ---------------
<S> <C> <C>
Charges to Playstar for research and
development $ 387,409 $435,000
Charges to Playstar for purchases of computer
hardware and software 256,778 --
Due to Dreamplay for issuance costs paid on
Playstar's behalf 6,004 --
Credit issued against research and development
costs (171,489) --
--------- --------
Total $ 478,702 $435,000
========= ========
Amounts paid to Dreamplay $ 425,000 $435,000
========= ========
</TABLE>
F-14
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 3 - Related Party Transactions (Continued)
Through June 30, 1998, Dreamplay has been compensated for its
out-of-pocket costs and expenses, plus a mark-up between 5% and 10%, depending
on the nature of the work performed. At June 30, 1998, approximately $54,000 was
owed to Dreamplay.
Note 4 - Business Acquisition
Playstar Limited
On October 9, 1996, the Company acquired 100% of the issued and
outstanding common shares of Playstar Limited, a Jersey Island corporation
("Limited"), in exchange for the issuance to Limited's shareholders of
12,000,000 of the Company's common shares. The business combination has been
accounted for as an "as if pooling of interests", since both the Company and
Limited were entities under common control. Accordingly, the assets and
liabilities of the combining companies are recorded at their historical cost and
results of operations include the results of both entities for all periods
presented.
Note 5 - Property and Equipment
Computer equipment, software and peripherals costing $275,834 are
being depreciated using the straight-line method over five and seven years using
the half-year convention. At June 30, 1998, the book value of these assets is
net of $33,424 of accumulated depreciation.
Note 6 - Prepaid Expenses and Other Current Assets
At June 30, prepaid expenses and other current assets consist of the
following:
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
Antigua casino license (one-year operating
license beginning September 14, 1998) (a) $100,000 $ --
Prepaid support and maintenance 26,905 --
Other prepaid expenses 24,017 1,860
-------- ------
$150,922 $1,860
======== ======
</TABLE>
(a) The license to operate an Antigua casino must be renewed
annually at a cost of $100,000 per year for each of the next four years.
F-15
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 7 - Accrued Expenses
At June 30, accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Accrued professional fees $250,612 $56,045
Other accrued expenses 13,762 --
-------- -------
$264,374 $56,045
======== =======
</TABLE>
Note 8 - Shareholders' Equity
Common Stock
On October 9, 1996, the Company issued 12,000,000 shares of its
common stock to the shareholders of Playstar Limited in exchange for all of the
issued and outstanding shares of Playstar Limited.
On October 22, 1996, the Company issued 1,750,000 shares of its
common stock. These shares were issued in consideration for services rendered to
the Company with an estimated fair value aggregating $175,000 or $0.10 per
share. This sale was exempt from registration in reliance upon Rule 504
promulgated under the Securities Act of 1933 ("Securities Act") ("Rule 504"). On
January 21, 1997, the Company and one of the purchasers agreed to rescind the
purchase of 962,500 of these shares which were subsequently re-issued to another
party in January 1997 in consideration for services valued as above. The shares
issued are exempt from registration in reliance upon Rule 504 promulgated under
the Securities Act.
On October 25, 1996, the Company commenced an offering of 2,062,500
shares of its common stock. This offering was fully subscribed and closed on
November 29, 1996. These shares were issued at a price of $0.40 per share, for
gross offering proceeds of $825,000. The Company paid finders fees aggregating
$163,015. This sale was exempt from registration in reliance upon Rule 504
promulgated under the Securities Act.
In November 1997, the Company completed an offering of 1,250,000
shares of its common stock at a price of $.40 per share, resulting in gross
proceeds of $500,000. The shares were issued in reliance upon an exemption from
registration pursuant to Section 4(2) of the
F-16
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 8 - Shareholders' Equity (Continued)
Common Stock (Continued)
Securities Act and Regulation D promulgated under the Securities Act. Finders
fees aggregating $50,000 were paid by the Company. In addition, in January 1998,
an additional 250,000 shares were issued to finders as compensation for their
assistance in connection with the sale of the 1,250,000 shares.
In November 1997, the Company commenced an offering of shares of
common stock under Regulation S promulgated under the Securities Act. In
December 1997, the Company sold 724,274 shares of common stock at a price of
$0.50 per share, resulting in gross proceeds of $362,137. The Company paid
finders fees of $36,211 in connection with such sale. In January 1998, the
Company sold an additional 285,000 shares of common stock at a price of $0.50
per share resulting in gross proceeds of $142,500. The Company paid finders fees
of $14,250 in connection with such sale.
In May 1998, the Company sold 437,000 shares of its common stock at
$0.50 per share and 445,500 shares of its common stock at $0.40 per share in
reliance upon exemptions from registration pursuant to Regulation S of the
Securities Act. Costs incurred in connection with each were $15,936 and $14,441,
respectively.
Private Placement of Common Stock Subsequent to June 30, 1998
During July, August and September 1998, through a private placement
offering, the Company issued 8,002,000 shares of its common stock at prices
ranging from $.2580645 to $.50 per share, realizing total net proceeds of
approximately $1,939,000. Additionally, the Company granted 929,370 shares as
issuance costs and 6,500,000 of warrants to purchase shares of the Company's
common stock. These warrants were granted to investors, in addition to the
shares they purchased, and as payment for issuance costs. The warrants are
exercisable as follows: 5,300,000 warrants at $.80 per share, 1,000,000 warrants
at $1.25 per share, 100,000 warrants at $1.00 per share, and 100,000 warrants at
$.50 per share. All of the warrants expire in May 2000.
F-17
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 8 - Shareholders' Equity (Continued)
Stock Options
On October 9, 1996, the Company adopted a stock option plan
authorizing the granting of options to purchase up to 10,000,000 common shares.
The stock option plan permits the granting of options to officers and employees
of, as well as consultants to, the Company and its subsidiaries. Generally, the
terms of the option are to be set by the Company's board of directors.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires
entities to recognize as compensation expense over the vesting period the fair
value of stock-based awards on the date of grant. Alternatively, SFAS No. 123
allows entities to continue to apply the provisions of APB No. 25 and provide
pro forma net income and pro forma income (loss) per share disclosures for
employee stock option grants made from 1995 forward as if the fair-value-based
method, defined in SFAS No. 123, had been applied.
The Company has elected to adopt the disclosure-only provision of
SFAS No. 123, and as described above, will continue to apply APB No. 25 to
account for stock options. Had compensation expense been determined as provided
in SFAS No. 123, the pro forma effect would have been:
<TABLE>
<CAPTION>
Year Ended Period Ended Cumulative,
June 30, 1998 June 30, 1997 June 30, 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss - as reported $(1,163,509) $(1,926,732) $(3,090,241)
Net loss - pro forma (1,183,752) (2,001,807) (3,185,559)
Loss per share - as reported (.07) (.13)
Loss per share - pro forma (.07) (.13)
</TABLE>
F-18
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 8 - Shareholders' Equity (Continued)
Stock Options (Continued)
The fair value of each option granted subsequent to 1996 is
estimated on the date of the grant using the Black-Scholes option pricing model
with the following assumptions used for the grants in 1997 and 1998: dividend
yield of 0%, expected volatility of 142%; risk-free interest rate of 6% and
expected lives of 5 years.
The table below summarizes the activity in the plan for the year
ended June 30, 1998 and the period October 3, 1996 (inception) to June 30, 1997:
<TABLE>
<CAPTION>
Period from
Year Ended October 3, 1996 (Inception)
June 30, 1998 to June 30, 1997
------------------------- ---------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 4,100,000 $ .05 -- $ --
Granted 865,000 .46 4,100,000 .05
Exercised (457,000) .05 -- --
Cancelled (360,000) .05 -- --
Outstanding at the end of period 4,148,000 .14 4,100,000 .05
Options exercisable at the end of period 4,148,000 .14 4,100,000 .05
Weighted-average fair value of options
granted during the period -- .45 -- .05
Weighted-average remaining contractual
rights (months) -- 86.00 -- 57.00
</TABLE>
Exercise prices for options outstanding as of June 30, 1998 ranged
from $.05 to $.76.
F-19
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 8 - Shareholders' Equity (Continued)
Stock Options (Continued)
Additional stock option information is presented below:
<TABLE>
<CAPTION>
Period from
October 3, 1996
Year Ended (Inception) to
June 30, 1998 June 30, 1997
--------- ---------
<S> <C> <C>
Options granted:
Employees 250,000 2,270,000
Consultants 615,000 1,830,000
--------- ---------
865,000 4,100,000
========= =========
Options cancelled:
Employees 10,000 --
Consultants 350,000 --
--------- ---------
360,000 --
========= =========
Options exercised:
Employees 30,000 --
Consultants 427,000 --
--------- ---------
457,000 --
========= =========
Options outstanding:
Employees 2,480,000 2,270,000
Consultants 1,668,000 1,830,000
--------- ---------
4,148,000 4,100,000
========= =========
</TABLE>
F-20
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 9 - Income Taxes
The following table reconciles the provision for income taxes with
the federal statutory rate for the periods presented:
<TABLE>
<CAPTION>
Period from
October 3, 1996
Year Ended (Inception) to
June 30, 1998 June 30, 1997
--------- ---------
<S> <C> <C>
Federal income tax benefit at statutory rate $(395,000) $(655,000)
Valuation allowance 395,000 655,000
--------- ---------
Provision for income taxes $ -- $ --
========= =========
</TABLE>
Deferred tax liabilities and assets are determined based on the
difference between financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which differences are expected
to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
The components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- ---------
<S> <C> <C>
Asset:
Net operating loss carryforwards $ 1,050,000 $ 655,000
Less: Deferred tax asset valuation allowance (1,050,000) (655,000)
----------- ---------
$ -- $ --
=========== =========
</TABLE>
The Company's net operating loss carryforwards of approximately
$3,090,000 expire through the year 2013. The valuation allowance increased by
$395,000 during the year ended June 30, 1998.
Management of the Company believes that the reorganization
consummated in September 1998 will be, in part, a taxable transaction to the
Company in which a portion of the gain realized on the transaction for federal
income tax purposes will be potentially subject to United States federal income
taxes. However, based on the appraised fair market value of the assets of the
Company as of June 30, 1998, and the availability of deductions for, and the net
operating loss carryforward to, the taxable year that will include the
reorganization, the Company believes a reasonable position can be taken that the
United States federal income tax imposed on it as a result of the consummation
of the reorganization will not be material. Nevertheless, there is a risk that
it may be ultimately determined that any gain realized by the Company upon the
consummation of the reorganization would be taxable in full for United States
federal income tax purposes.
F-21
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 10 - Possible Legislation in the United States Congress
On July 23, 1998, the Senate passed an appropriations bill
containing an amendment by Senator John Kyl of Arizona, which would prohibit
gaming on the Internet in the United States. The proposed prohibition was not
enacted into law in 1998, but it or a similar bill may be reintroduced shortly.
Several similar bills were also introduced in the House of Representatives in
the summer of 1998, and House Internet gaming legislation may be reintroduced
this year as well.
If legislation prohibiting gaming on the Internet is enacted into
law, that legislation could have a significant effect on Playstar's online
gaming operations. If a law prohibiting Internet gaming passes, the Company's
gaming subsidiaries (Limited and Casino) might be forced to cease all marketing
and promotional activities in the United States to ensure that no solicitation
of United States citizens occurs. If such legislation prohibits United States
citizens from gaming on the Internet, the Company may be expected to lose a
significant portion of its online gaming customers.
Note 11 - Restatement of 1997 Financial Information
The financial statements as of June 30, 1997 and for the period
October 3, 1996 (inception) to June 30, 1997 have been restated to comply with
the requirements of APB No. 25 and SFAS 123 as disclosed in Note 8.
The effect of the correction with respect to the recording of stock
options granted to employees and consultants during the period has been to
increase development costs charged to operations by $461,000, and to increase
employee compensation charged to operations by $682,500.
In total, the effect of the restatement has been to charge
operations with $1,143,500 ($.08 per share).
F-22
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 12 - Commitments
Leases
The Company entered into two one-year leases for office space in
Antigua. These leases commenced on May 1, 1998 and have fixed monthly rental
payments of $4,500. Approximately $14,000 in rent charges is included in rent
expense for the year ended June 30, 1998.
Note 13 - Subsequent Events
On January 2, 1999, the Company agreed to acquire, on closing, 40%
of the common stock of Cyberstation & Support, Inc. for Cdn.$ 500,000
($329,000).
In addition to the above transaction, Players will, on closing,
enter into a license agreement with Cyberstation International Limited ("CI")
which will grant Players an exclusive irrevocable perpetual royalty-free license
to CI's software and intellectual property, presently owned or hereafter to be
acquired or developed, for use in certain designated countries and geographic
territories. In consideration thereof, the Company will issue to CI 5,000,000 of
its ordinary shares.
Players will also receive, on closing, the following:
1. 50% ownership in the common stock of Net Engine St. Kitts
Limited.
2. An option to purchase for $100, at the termination of the
management services agreement (described below), the software
programs, including related source codes, developed by CI for
use in marketing, administration, and/or game playing
activities related to casino style gaming on the Internet.
3. An option to purchase 100% of the common stock of Dreamplay
for $100.
The Company, on closing, will enter into a management agreement
("Agreement") with Cyberstation Limited ("Cyberstation") whereby Cyberstation
will provide management services to the operating subsidiaries of the Company,
which terminates on June 30, 2002. Cyberstation will receive a base management
fee of Cdn.$ 160,000 ($105,000) per annum and a payment equal to 15% of the
pre-tax profits of Players; and 10% of the pre-tax profits, in excess of certain
thresholds as defined in the Agreement, of the Company.
F-23
<PAGE>
PLAYSTAR WYOMING HOLDING CORP.
(FORMERLY PLAYSTAR CORPORATION) AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 13 - Subsequent Events (Continued)
In addition, Cyberstation, upon closing and after the execution of
the Agreement, will be granted three options ("Options") to acquire an aggregate
of 5,000,000 ordinary shares of the Company as follows:
<TABLE>
<CAPTION>
Exercise
No. of Shares Price
------------- --------
<S> <C>
1,000,000 $ .25
2,000,000 .50
2,000,000 1.00
---------
5,000,000
=========
</TABLE>
The Options vest over a three year period, and only then if the
pre-tax profits of the Company, as defined, exceed certain amounts described in
the Agreement.
F-24
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form 10-KSB and authorized this
annual report to be signed on its behalf by the undersigned, in the city of St.
John's, Island of Antigua, on February 22, 1999.
PLAYSTAR WYOMING HOLDING CORP.
By: /s/ William F.E. Tucker
--------------------------
William F.E. Tucker
President
In accordance with the requirements of the Securities Exchange Act of
1934, this annual report has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William F.E. Tucker Chairman and Chief Executive Officer, February 22, 1999
- ----------------------- Secretary and Treasurer (Principal Executive,
William F.E. Tucker Principal Accounting and Principal Financial
Officer)
</TABLE>
F-25
Exhibit 2.1
PLAN AND AGREEMENT OF MERGER
OF
PLAYSTAR CORPORATION ("PlayStar-DE")
(a Delaware corporation)
AND
PLAYSTAR WYOMING HOLDING CORP. ("PlayStar-WY")
(a Wyoming corporation)
PLAN AND AGREEMENT OF MERGER entered into as of June 30, 1998 by
PlayStar-DE, a business corporation of the State of Delaware, and approved by
resolution adopted by its Board of Directors on said date, and entered into on
June 30, 1998 by PlayStar-WY, a business corporation of the State of Wyoming,
and approved by resolution adopted by its Board of Directors on said date.
WHEREAS, PlayStar-DE is a business corporation of the State of
Delaware with its registered office therein located at c/o United Corporate
Services, Inc., 15 East North Street, Dover, DE 19901; and
WHEREAS, the total number of shares of stock which PlayStar-DE has
authority to issue is 30,000,000, all of which are of one class and with a par
value of $.0001 per share (each, a "PlayStar-DE" Share); and
WHEREAS, PlayStar-WY is a business corporation of the State of
Wyoming with its registered office therein located at c/o CT Corporation, 1720
Carey Avenue, Suite 200, Cheyenne, WY 82001; and
WHEREAS, the total number of shares of stock which PlayStar-WY has
authority to issue is 50,000,000 shares of common stock, each with a par value
of $0.0001 (each, a "PlayStar-WY Share"), and 1,000,000 shares of series
preferred stock, each with a par value of $0.0001; and
WHEREAS, the General Corporation Law of the State of Delaware
permits a merger of a business corporation of the State of Delaware with and
into a business corporation of another jurisdiction; and
<PAGE>
WHEREAS, the Wyoming Business Corporation Act permits the merger of
a business corporation of another jurisdiction with and into a business
corporation of the State of Wyoming; and
WHEREAS, PlayStar-DE and PlayStar-WY and the respective Boards of
Directors thereof deem it advisable and to the advantage, welfare, and best
interests of said corporations and their respective stockholders to merge
PlayStar-DE with and into PlayStar-WY pursuant to the provisions of the General
Corporation Law of the State of Delaware and pursuant to the provisions of the
Wyoming Business Corporation Act upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly entered into by
PlayStar-DE and approved by a resolution adopted by its Board of Directors and
further approved by its shareholders and being thereunto duly entered into by
PlayStar-WY and approved by a resolution adopted by its Board of Directors and
further approved by its shareholders, the Plan and Agreement of Merger and the
terms and conditions thereof and the mode of carrying the same into effect,
together with any provisions required or permitted to be set forth therein, are
hereby determined and agreed upon as hereinafter in this Plan and Agreement set
forth.
1. PlayStar-DE and PlayStar-WY shall, pursuant to the provisions of the
General Corporation Law of the State of Delaware and the provisions of the
Wyoming Business Corporation Act, be merged with and into a single corporation,
to wit, PlayStar-WY, which shall be the surviving corporation from and after the
effective time of the merger, and which is sometimes hereinafter referred to as
the "surviving corporation", and which shall continue to exist as said surviving
corporation under its present name pursuant to the provisions of the Wyoming
Business Corporation Act. The separate existence of PlayStar-DE, which is
sometimes hereinafter referred to as the "terminating corporation", shall cease
at said effective time in accordance with the provisions of the General
Corporation Law of the State of Delaware.
2. Annexed hereto and made a part hereof is a copy of the Articles of
Incorporation, as amended, of the surviving corporation as the same shall be in
force and effect at the effective time in the State of Wyoming of the merger
herein provided for; and said Articles of Incorporation shall continue to be the
Articles of Incorporation of said surviving corporation until amended and
changed pursuant to the provisions of the Wyoming Business Corporation Act.
3. The present by-laws of the surviving corporation will be the by-laws of
said surviving corporation and will continue in full force and effect until
changed, altered or amended as therein provided and in the manner prescribed by
the provisions of the Wyoming Business Corporation Act.
4. The directors and officers in office of the surviving corporation at the
effective time of the merger shall be the members of the first Board of
Directors and the first officers of the surviving corporation, all of whom shall
hold their directorships and offices until the election and
<PAGE>
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the by-laws of the surviving corporation.
5. Each issued share of the terminating corporation shall, at the effective
time of the merger, be converted into one share of the surviving corporation.
The issued shares of the surviving corporation shall not be converted or
exchanged in any manner, but each said share which is issued as of the effective
date of the merger shall continue to represent one issued share of the surviving
corporation.
6. (a) At the effective time of the merger, each outstanding option to
purchase PlayStar-DE Shares (a "Stock Option"), whether vested or unvested,
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Stock Option, the same number of
PlayStar-WY Shares as the holder of such Stock Option would have been entitled
to receive pursuant to the merger had such holder exercised such option in full
immediately prior to the effective time of the merger (not taking into account
whether or not such option was in fact exercisable). In the case of any Stock
Option to which Section 421 of the Internal Revenue Code of 1986 (the "Code")
applies by reason of its qualification under any of Sections 422-423 of the Code
("qualified stock options"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall comply with Section 424(a) of the Code.
(b) As soon as practicable after the effective time of the merger,
PlayStar-WY shall deliver to each holder of an outstanding Stock Option, an
appropriate notice setting forth such holder's rights pursuant thereto and such
Stock Option shall continue in effect on the same terms and conditions.
PlayStar-WY shall comply with the terms of all such Stock Options and ensure, to
the extent required by, and subject to the provisions of, any such PlayStar-DE
Stock Option Plan that Stock Options which qualified as qualified stock options
prior to the effective time of the merger continue to qualify as qualified stock
options after the effective time of the merger. PlayStar-WY shall take all
corporate action necessary to reserve for issuance a sufficient number of
PlayStar-WY Shares for delivery pursuant to the terms set forth in this Section
6.
7. If appraisal rights are available under the Delaware General Corporation
Law ("DGCL") to holders of PlayStar-DE Shares in connection with the merger, any
issued and outstanding PlayStar-DE Shares which have not been voted for approval
of this Agreement and the transactions contemplated hereby and with respect to
which appraisal shall have been properly demanded in accordance with Section 262
of the DGCL ("Dissenting Shares") shall not be converted into the right to
receive consideration for the merger and the holders thereof shall have only
such rights as are provided in such Section 262 of the DGCL unless and until the
holder of any such PlayStar-DE Shares withdraws his demand for such appraisal in
accordance with Section 262(k) of the DGCL or otherwise loses his right to such
appraisal. If a holder of Dissenting Shares shall properly withdraw his demand
for appraisal or shall otherwise lose his right to such appraisal, then as of
the effective time of the merger or the occurrence of such event, whichever last
occurs, such holder's Dissenting Shares shall cease to be Dissenting Shares and
shall be converted into and represent the right to receive consideration for the
merger. Prior to the effective time of the merger, PlayStar-DE shall give
PlayStar-WY prompt notice of any
<PAGE>
written demand for appraisal or withdrawals of demands for appraisal received by
PlayStar-DE and, except with the prior written consent of PlayStar-WY, shall not
settle or offer to settle any such demands.
8. In the event that this Plan and Agreement of Merger shall have been fully
approved and adopted upon behalf of the terminating corporation in accordance
with the provisions of the General Corporation Law of the State of Delaware and
upon behalf of the surviving corporation in accordance with the provisions of
the Wyoming Business Corporation Act, the said corporations agree that they will
cause to be executed and filed and recorded any document or documents prescribed
by the laws of the State of Delaware and by the laws of the State of Wyoming,
and that they will cause to be performed all necessary acts within the State of
Delaware and the State of Wyoming and elsewhere to effectuate the merger herein
provided for.
9. The Board of Directors and the proper officers of the terminating
corporation and of the surviving corporation are hereby authorized, empowered,
and directed to do any and all acts and things, and to make, execute, deliver,
file, and record any and all instruments, papers, and documents which shall be
or become necessary, proper, or convenient to carry out or put into effect any
of the provisions of this Plan and Agreement of Merger or of the merger herein
provided for.
10. The surviving corporation does hereby agree that it may be served with
process in the State of Delaware in any proceeding for enforcement of any
obligation of the terminating corporation, as well as for enforcement of any
obligation of the surviving corporation arising from the merger herein provided
for, including any suit or other proceeding to enforce the right of any
stockholder of the terminating corporation as and when determined in appraisal
proceedings pursuant to the provisions of Section 262 of the General Corporation
Law of the State of Delaware; does hereby irrevocably appoint the Secretary of
State of the State of Delaware as its agent to accept service of process in any
such suit or other proceedings; and does hereby specify the following address
without the State of Delaware to which a copy of such process shall be mailed by
the Secretary of State of the State of Delaware:
60 Nevis Street, 2nd Floor
St. John's, Antigua BWI
West Indies
<PAGE>
IN WITNESS WHEREOF, this Plan and Agreement of Merger is hereby
executed upon behalf of each of the constituent corporations parties thereto.
Executed As of June 30, 1998.
PLAYSTAR CORPORATION
(a Delaware corporation)
By: /s/ Julius Patta
-----------------------
Julius Patta
President
PLAYSTAR WYOMING
HOLDING CORP. (a Wyoming
corporation)
By: /s/ William F.E. Tucker
-----------------------
William F.E. Tucker
Chairman and Chief
Executive Officer
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
PlayStar Wyoming Holding Corp.
We consent to the inclusion in the PlayStar Wyoming Holding Corp. Annual Report
on Form 10-KSB for the year ended June 30, 1998 of our report dated June 2,
1998, on our audit of the financial statements of PlayStar Corporation as of and
for the period ended June 30, 1997
/s/ FRUITMAN KATES
FRUITMAN KATES
Toronto, Ontario
February 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
PLAYSTAR WYOMING HOLDING CORP.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM AUDITED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 182,219
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 354,491
<PP&E> 275,834
<DEPRECIATION> 33,424
<TOTAL-ASSETS> 678,696
<CURRENT-LIABILITIES> 318,076
<BONDS> 0
0
0
<COMMON> 1,966
<OTHER-SE> 358,654
<TOTAL-LIABILITY-AND-EQUITY> 678,696
<SALES> 0
<TOTAL-REVENUES> 8,049
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,171,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,163,509)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,163,509)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,163,509)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
