UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] Annual report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended May 31, 1999.
[ ] Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934.
COMMISSION FILE NUMBER: 33-55254-43
Virtual Gaming Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Nevada 87-0485308
(State of Organization) (I.R.S. Employer I.D. No.)
2580 SEASCAPE GLEN, ESCONDIDO, CA 92026
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (760) 510-0188
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not 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. [ ]
There were no revenues during the initial year of operations as the Company
focused on web site and casino development.
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the Registrant, based upon the closing price of the Common
Stock on the OTC Bulletin Board on April 28, 2000, was approximately
$18,034,254. The number of shares outstanding of the registrant's common
Stock as of April 28 2000 was 2,576,322.
Note: If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense,
the aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this form.
2,576,322 Common Shares, $0.001 Par Value, Issued and Outstanding
Transitional Small Business Disclosure Format: Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant Form 10-KSB Reference Location
None N/A
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Virtual Gaming Enterprises, Inc.
Table of Contents for Form 10-KSB
Year Ended May 31, 1999
PART I
Item 1. Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Common Equity and Related Stockholders Matters
Item 6. Management's Discussion and Analysis of Plan of Operation
Item 7. Audited Financial Statements
Item 8. Changes In and Disagreement With Accountants on Accounting and
Financial Disc
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
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PART I
This Report contains forms of forward-looking statements that are based on
the Company's beliefs as well as assumptions made by and information
currently available to the Company. When used in this report, the words
"believe," "expect," "anticipate," "estimate," and similar expressions are
intended to identify forward-looking statements. Such statements are
subject to certain risks, uncertainties and assumptions, including without
limitations, material risks factors such as inadequate working capital,
auditors qualification as to going concern, recent commencement of
operations, lack of market acceptance to date for the Company's products and
services, nominal revenues to date, continuing losses from operations,
future growth of revenue and threat of regulation of Company's business.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results will vary materially
from these anticipated, estimated, or projected and the variations may be
material. The Company cautions potential investors not to place undue
reliance on any such forward-looking statements all of which speak only as
of the date such statement was made.
Item 1. Business
Virtual Gaming Enterprises, Inc. was incorporated June 1, 1998, under
the laws of the State of Nevada. Mr. Joseph M. Williams acted as President
for approximately two weeks before Mr. Virgil G. Williams assumed the daily
responsibility of President and continues in that capacity to present.
On June 11, 1998, Virtual Gaming Enterprises, Inc. ratified a plan of
Merger with Interbet, Inc. Upon successful completion of the merger, Virtual
Gaming Enterprises, Inc. was named the succeeding entity and the name was
changed to Virtual Gaming Enterprises, Inc. The Company was formed to
purchase, manage, develop, market, and resell casino style Internet games
that will allow players to wager.
Initial business development efforts involved exploring potential
contracts with various Indian tribes. These agreements with Indian Tribes
proved to be too difficult to bring to market. The Company then chose to
purchase developed technologies with existing casino licenses.
The Company purchased Hung-Sai Ltd., an International Business
Corporation, now a fully owned subsidiary of Virtual Gaming Enterprises,
Inc. Hung-Sai is the business of on-line gaming.
The Company, through it's subsidiary, purchased one casino in December
of 1998 called Classic Bet. Classic Bet is a traditional on-line casino that
requires the loading of software on the player's computer. Classic Bet has a
suite of Multimedia games including Black Jack. Promotion of Classic Bet is
done primarily through mass mailing of CD with the games on them. Once the
software suite has been loaded, the player can log in to their secure
account with a user name and password.
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In November of 1999 the Company purchased a Theme Park of 18 games that
are simple, secure and player friendly. Players can choose from Black Jack,
Video Poker, Lil' Baccarat, and/or slot machines. Players have the ability
to register once and play in many different themed casinos. Using at least a
56k modem players can begin playing in less than two minutes. The Company
has eliminated the days of downloading software or waiting for a CD in the
mail. Our players do not install any software. Anyone with Netscape or
Internet Explorer 4.x browsers can easily access and play the Java-based
games. Players can always find a table or slot machine because an unlimited
number of openings are dynamically created for each member who enters the
casino. Players enjoy the same advantages of traditional casinos
conventional gaming software that reshuffles the deck after each hand. The
Company's software plays up to six decks before shuffling.
The Company holds a 20% (twenty percent) interest in a Sports Book
business, Vegasbook.com, also licensed and operated exclusively on the
Island of Dominica. Vegas Book maintains an 800 number that allows players
to submit sports wagers by phone using secure passwords and user names.
All deposits are escrowed with the largest Dominican off shore bank
insuring that the player's account remains solely available for their
wagers. Membership is protected from all outside inquiries by the Offshore
Privacy Act of 1995 and sets severe penalties for any release of
information. It has never been easier or safer to bring the excitement of
legitimate casino gaming into the player's home or office.
Network Services are provided through InSatCom, Ltd. InSatCom offers a
high-speed digital data center coupled with a fully redundant private
satellite communication network. Licensed by Cable and Wireless and the
Government of the Commonwealth of Dominica, InSatCom is the first private
network offering encrypted data, Internet web hosting, and reliable video
transmissions from the Caribbean. InSatCom's nine-meter satellite dish is
able to simultaneously broadcast to multiple transponders ensuring a
reliability factor of 99.9%. The threat of unauthorized entry is virtually
eliminated because InSatCom operates its own proprietary software and
hardware. Player's wagers and transactions are encrypted to retain complete
confidentiality.
Item 2. Properties
The Company neither owns nor leases any real property. Virgil G.
Williams, President and a Director of the Company provide office facilities
and related services, without charge. The Company's principal place of
business is located at 2580 Seascape Glen, Escondido, CA 92026.
Item 3. Legal Proceedings
The Company is not currently involved in any litigation. The Company was
the subject of an Administrative Proceeding filed by the securities and
Exchange Commission, file number 33-55254-43 regarding a cease-and-desist
proceeding and stop order proceeding instituted pursuant to Section 8(d) of
the Securities Act of 1933 and Section 21C of the Securities Exchange Act of
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1934. Without admitting or denying the findings of these proceedings the
Company agreed to cease-and-desist from committing or causing any violation,
and any future violation, of Section 13(a) of the Exchange Act and Rules
13a-1 and 13a-13 there under and agreed to the suspension of the Company's
Form S-8.
Item 4. Submission of Matters to a Vote of Security Holders
The only matter submitted to the shareholders of the corporation was the
matter of the Plan of Merger with Interbet, Inc., such plan being effective
as of June 11, 1998. The Merger was approved by a majority vote of
13,136,539 votes in favor of the Merger out of the 25,000,000 total
outstanding at the time of the vote. The Articles of Merger were filed with
the Sate of Nevada pursuant to the provisions of NRS 78-458, the Domestic
and Foreign Corporation Laws.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is listed on the Over the Counter Bulletin Board
under the symbol "VGAM". The following table sets forth the high and low
closing prices of the Company's Common Stock for each calendar quarter since
March 31, 1998. These quotations reflect inter-dealer prices, without retail
mark-up or commissions and may not represent actual transactions.
Date Low High
March 31, 1998 .01 - .10
June 30, 1998 .01 - .10
September 30, 1998 .10 - .87
December 31, 1998 .10 - .87
March 31, 1999 .75 - 2.50
June 30, 1999 3.00 - 5.00
September 30, 1999 5.00 - 9.87
December 31, 1999 8.50 - 10.37
March 31, 2000 15.00 - 18.50
Item 6. Management's Discussion and Analysis or Plan of Operation
NOTE: REGARDING PROJECTIONS AND FORWARD LOOKING STATEMENTS
This statement includes projections of future results and forward
looking statements as that terms is defined in Section 27A of the Securities
Act of 1933 as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
statements that are included in this 10-KSB, including statements of
historical fact, are forward looking statements. Although Management
believes that the expectations reflected in these forward looking statements
are reasonable, it can give no assurance that such expectations will prove
to have been correct. Important factors could cause actual results to differ
materially from the expectations disclosed in this statement, including
without limitation, in conjunction with those forward looking statements
contained in this statement.
Virtual Gaming has taken an "off-line" approach to marketing to the end
users or players. The Company has focused efforts in print, radio, developed
an affiliate program and, instituted countless direct marketing programs.
The Company has chosen not to focus on banner advertisement as our sole
marketing efforts. The Company plans to separate itself from other on-line
casinos with this unique marketing approach.
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Through strategic partnerships, Virtual Gaming will be in the business
of selling turnkey solutions to prospective casino owners. The Company has
refined the licensing and connectivity issues that a new casino entrepreneur
might find insurmountable. Moreover, the Company has tested, enhanced, and
developed reporting features that a casino operator must have. The Company
has partnered with a creative staff to offer custom themes to what the
prospective casino owner might want.
The Company intends to develop casinos in non-English languages. The
Internet will allow the Company to reach new markets. The Company will then
aggressively market Internationally. The Company should benefit initially
from listings in new search engine technologies outside of the U.S.
The Company should benefit from adding new functionality to the games hosted
in Dominica. The Java-based games will make new features easy and fast to
implement. All changes are made at the server level and can be enjoyed by
the players immediately. The existing software development team is currently
testing new features such as chat rooms, message boards, and the addition of
sound. The Company continues to test and enhance games based on player feedback
Item 7. Financial Statements
See Independent Auditors Report, Balance Sheet, Statement of Operations,
Statement of Stockholders' Equity, Statement of Cash Flows and Notes to
Financial Statements, included herein and made a part of this report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
There have been no disagreements with the accountants or the accounting
and financial disclosure.
7
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PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Virgil G. Williams
Mr. Williams was born in Cameron, Texas on February 10, 1948. His formative
years were spent in North Central and East Texas. Attending private school
in East Texas for primary and secondary schooling, Mr. Williams was heavily
involved in scholastic and athletic programs.
Graduating at the top of his class in 1966, Mr. Williams applied for and was
accepted to Ambassador College in Pasadena, California. Graduating near the
top of his class in 1970, Mr. Williams was offered a position with the
faculty teaching Advanced Speech & Communications courses to selected classes.
Two days following his graduation, Mr. Williams married his current wife of
30 years. Mr. Williams taught classes while completing his post Graduate
work in Education/Speech & Communication in 1974. The Williams' son, Joseph
Matthew was born in September 1971 and their daughter Jacquelyn Renae was
born in May 1976.
Mr. Williams resigned from his position in August 1980 and moved to
Richmond, VA where he formed Consolidated Resources, Ltd. and worked in the
asset management business. Working with assets of clients in excess of 100
Million Dollars, Mr. Williams enjoyed expanding his base of knowledge in
various arenas of finance, which included working with public stock.
Realizing the potential of the public arena, Mr. Williams took a position
with a public Company in San Diego, CA in 1991- 1994. Returning to the
private sector, Mr. Williams continued to work with public companies on a
consulting restructuring basis for the next three years.
Mr. Williams filed for personal bankruptcy on October 20, 1997 and was
discharged on December 30, 1997. In October, 1995, a federal district court
found Mr. Williams liable for securities fraud and ordered him to pay a
joint and several judgment of $26,987,721 in re: Alco International Group,
Inc. This judgment was included in and discharged pursuant to the federal
bankruptcy laws.
Virtual Gaming Enterprises was incorporated in Nevada in June 1998 and Mr.
Williams was named Chairman of the Board and President within the first
month of operation and has continued in that capacity to the present.
Brenda J. Williams
Brenda Williams was born in Wichita, Kansas on February 23, 1949 and resided
in the Wichita area until her graduation from high school in 1967.
Majoring in education at Ambassador College in Pasadena, California, Ms.
Williams held offices in Women's Clubs and was the captain of the track team
for two years. Graduating in 1970, Ms. Williams was married and has remained
so for almost 30 years.
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Working as an office manager for an engineering Company while her husband
was in graduate school, Ms. Williams gave birth to her first child, Joseph
Matthew in September 1971. Her second child, Jacquelyn Renae was born in May
1976.
Ms. Williams has given considerable time to volunteer services in children's
schools and churches. She has also served on library boards and has
continued over the years to work in adult literacy programs on both the East
and West Coasts.
Presently serving as a Director and Secretary/Treasurer of Virtual Gaming
Enterprises, Inc., Ms. Williams has continued her postgraduate work in
psychology at local colleges.
Declaring personal bankruptcy in October 1997, which was discharged in
December 1997, was the result of her efforts involving business transactions
that required the assets shared with her husband.
Ms. Williams continues her efforts in volunteer work and working daily in
the corporate office.
Item 10. Executive Compensation
Annual Compensation
Name and position Year Salary Bonus Other Annual Compensation
Virgil G. Williams 1998 $24,800. -0-
President & CEO 1999 $165,000.* -0-
Brenda J. Williams 1998 $6,200. -0-
Secretary
& Treasurer 1999 $64,167.* -0-
Long Term Compensation
Restricted Options**/ LTI All Other
Stock SARs ($) Payouts Compensation
Name and position Award(s)($) ($) ($)
Virgil G. Williams 1998 $160,000. -0- -0-
President & CEO 1999 -0- -0- -0-
Brenda J. Williams 1998 $55,000. -0- -0-
Secretary & Treasurer 1999 -0- -0- -0-
*The above figures represent Accrued Salaries for fiscal year ended 5/31/99.
Of the amounts listed, $12,200 was paid to Virgil Williams and $3,050 was
paid to Brenda Williams. The balance remains accrued and due to the officers.
**The above referenced stock options have been duly approved, but have
neither been exercised nor distributed.
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Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information relating to the beneficial
ownership of the Company's common stock by those persons holding
beneficially more than 5% of the Company's common stock. The only holders of
more than 5% of the Company's Common Stock are the directors and executive
officers.
<TABLE>
<S> <C> <C> <C>
Title of Name & Amount and Nature Share Percentage
Class Address of Beneficial Shares of Ownership
Common Brenda J. Williams 20,000 (1) .2%
2580 Sea Scape Glen
Escondido, CA 92026
Common Brenda J. Williams 1,853,333 (2) 18.8%
2580 Sea Scape Glen options4
Escondido, CA 92026
Common Virgil G. Williams 5,333,333 (3) 54.7%
2580 Sea Scape Glen options (4)
Escondido, CA 92026
</TABLE>
(1) These shares were issued pursuant to the Plan of Merger.
(2) Have not been issued, although she has the vested rights to these shares
pursuant to her employment agreement.
(3) Have not been issued, although he has the vested rights to these shares
pursuant to his employment agreement.
(4) Assuming the issuance of these shares, the total outstanding shares would
be 2,576,332, plus 7,180,666 for a total of 9,756,998, the number upon which
the percentage of ownership is figured.
Item 12. Relationships and Related Transactions
As aforesaid, the Company neither owns nor leases any real property.
Office facilities and related services are provided without charge by Virgil
G. Williams, the Company's President. The Company's principal place of
business is located at 2580 Seascape Glen, Escondido, CA 92026. These
accommodations are currently being provided to the Company, without charge,
by Mr. Williams.
No compensation of directors or executive officers has been paid by the
Company to date. The officers and directors of the Company are reimbursed
for out-of-pocket expenses incurred on the Company's behalf. While the
Company anticipated compensating Messrs. Williams and Williams beginning
January 2000, the same has not yet begun to occur.
At this time, there are no additional relationships or related
transactions to be reported.
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Item 13. Exhibits and Reports of Form 10-KSB
Exhibit 2: Plan of acquisition, reorganization, arrangement, liquidation,
or succession
Exhibit 3: Articles of Incorporation (Incorporated
by Reference)
Exhibit 4: Instruments defining the rights of
security holders including indentures (N/A)
Exhibit 9: Voting Trust Agreement (N/A)
Exhibit 10: Material Contracts
Exhibit 11: Statements re: computation of per share
earnings
Exhibit 13: Annual or quarterly reports, Form 10-QSB
Exhibit 16: Letter on change in certifying accountant
(N/A)
Exhibit 18: Letter on change in Accounting Principals
(N/A)
Exhibit 21: Subsidiaries of the registrant
Exhibit 22: Published report regarding matters
submitted to vote (N/A)
Exhibit 23: Counsel of experts and counsel (N/A)
Exhibit 24: Power of Attorney (N/A)
Exhibit 27: Financial Data Schedule
Exhibit 99: Additional Exhibits (N/A)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VIRTUAL GAMING ENTERPRISES, INC.
By: /s/ Virgil G. Williams
----------------------
President & CEO
Date: May 1, 2000
By: /s/ Brenda J. Williams
----------------------
Secretary & treasurer
Date: May 1, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
By:/s/Virgil G. Willimas President, Chief Executive
Virgil G. Williams Officer and Director May 1, 2000
By:/s/Brenda J. Willimas Secretary, Treasurer
Brenda J. Williams and Director May 1, 2000
12
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Item 7. Financial Information
VIRTUAL GAMING ENTERPRISES, INC.
(A Development Stage Enterprise)
AUDITED FINANCIAL STATEMENTS
For the Years Ended May 31, 1999 and 1998
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Stockholders' Equity (Deficiency). . . . . . . . . . F-5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . F-7
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Virtual Gaming Enterprises, Inc.
Escondido, California
We have audited the accompanying balance sheets of Virtual Gaming
Enterprises, Inc., a development stage enterprise, as of May 31,
1999 and 1998 and the related statements of operations,
stockholders' equity (deficiency) and cash flows for the years 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 financial statements referred to above present
fairly, in all material respects, the financial position of Virtual
Gaming Enterprises, Inc. as of May 31, 1999 and 1998 and the results
of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 5 to the financial statements, the Company has experienced a
loss since inception. The Company's financial position and
operating results raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note 5. The financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
/S/Durland & Company, CPAs, P.A.
Palm Beach, Florida
April 27, 2000
F-2
<PAGE>
Virtual Gaming Enterprises, Inc.
(A Development Stage Enterprise)
Balance Sheets
May 31,
<TABLE>
<S> <C> <C>
1999 1998
---------- ----------
ASSETS
CURRENT ASSETS
Cash $ 0 $ 25,894
Advance receivable related party 14,824 0
---------- ----------
Total current assets 14,824 25,894
PROPERTY AND EQUIPMENT
Equipment 5,000 0
Less: accumulated depreciation (833) 0
---------- ----------
Total property and equipment 4,167 0
OTHER ASSETS
Intangible assets 60,000 0
Less: accumulated amortization 0 0
---------- ----------
Total other assets 60,000 0
---------- ----------
Total Assets $ 78,991 $ 25,894
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank overdraft $ 5,251 $ 0
Accrued salaries payable 172,967 0
---------- ----------
Total current liabilities 178,218 0
---------- ----------
Total Liabilities 178,218 0
STOCKHOLDERS EQUITY (DEFICIENCY)
Common stock, $0.0001 par value,
authorized 25,000,000 shares;
2,181,822 and 13,000,000 issued
and outstanding shares 2,182 46,400
Additional paid-in capital 230,310 0
Deficit accumulated during
the development stage (331,719) (20,506)
---------- ----------
Total Stockholders
Equity (Deficiency) (99,227) 25,894
---------- ----------
Total Liabilities and Stockholders
Equity (Deficiency) $ 78,991 $ 25,894
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Virtual Gaming Enterprises, Inc.
(A Development Stage Enterprise)
Statements of Operations
For the Years and Period Since Inception Ended May 31,
<TABLE>
<S> <C> <C> <C>
Period from
November 1997
(Inception) through
1999 1998 May 31, 1999
------------ ------------ -------------------
Revenues $ 0 $ 0 $ 0
Expenses
Compensation:
Officers 219,217 13,953 60,203
Other 9,950 1,170 11,120
Consultants 23,250 5,250 28,500
General and
administrative expenses 35,964 133 36,097
Depreciation 833 0 833
Research and development 22,000 0 22,000
------------ ------------ -------------------
Total expenses 311,214 20,506 158,753
------------ ------------ -------------------
Loss from operations (311,214) (20,506) (158,753)
------------ ------------ -------------------
Net loss $ (311,214) $ (20,506) $ (158,753)
============ ============ ===================
Basic net loss per
weighted average share $ (0.14) $ (0.01)
============ ============
Weighted average
number of shares 2,181,822 13,136,539
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Virtual Gaming Enterprises, Inc.
(A Development Stage Enterprise)
Statement of Changes in Stockholders Equity
For the Years and Period Since Inception through May 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Accumulated
Additional During the Total
Number Common Paid-in Development Stockholders'
Of Shares Stock Capital Stage Equity
------------ ------ ---------- ----------- -------------
BEGINNING BALANCE,
November 1997
(Inception) 0 $ 0 $ 0 $ 0 $ 0
Shares issued
for cash 13,000,000 46,400 0 0 46,400
Net loss 0 0 0 (20,506) (20,506)
------------ ------ ---------- ----------- -------------
BALANCE,
May 31, 1998 13,000,000 46,400 0 (20,506) 25,894
June 1998 - reverse
merger 10,209,647 (44,079) 44,109 0 30
February 1999 -
reverse split (22,707,774) (1,819) 1,819 0 0
Shares issued
for cash 1,679,949 1,680 184,382 0 186,062
Net loss 0 0 0 (311,214) (311,214)
------------ ------ ---------- ----------- -------------
ENDING BALANCE,
May 31, 1999 2,181,822 $2,182 $ 230,280 $ (331,720) $ (99,228)
============ ====== ========== =========== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
Virtual Gaming Enterprises, Inc.
(A Development Stage Enterprise)
Statement of Cash Flows
For the Years and Period Since Inception Ended May 31,
<TABLE>
<S> <C> <C> <C>
Period from
November 1997
(Inception) through
1999 1998 May 31, 1999
------------ ------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (311,214) $ (20,506) $ (331,720)
Adjustments to reconcile net
loss to net cash used
for operating activities:
Depreciation 833 0 833
Changes in operating
assets and liabilities:
(Increase) decrease advance
receivable - related party (14,824) 0 (14,824)
Increase (decrease) accrued
salaries payable 172,967 0 172,967
------------ ------------ -------------------
Net cash used by
operating activities (152,238) (20,506) (172,744)
------------ ------------ -------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property
and equipment (5,000) 0 (5,000)
Acquisition of
intangible assets (60,000) 0 (60,000)
------------ ------------ -------------------
Net cash (used) provided by
investing activities (65,000) 0 (65,000)
------------ ------------ -------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance
of common stock 186,093 46,400 232,493
------------ ------------ -------------------
Net cash provided by
financing activities 186,093 46,400 232,493
------------ ------------ -------------------
Net increase
(decrease) in cash (31,145) 25,894 (5,251)
CASH, beginning of period 25,894 0 0
------------ ------------ -------------------
CASH, end of period $ (5,251) $ 25,894 $ (5,251)
============ ============ ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
VIRTUAL GAMING ENTERPRISES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
THE COMPANY Virtual Gaming Enterprises, Inc. is a Nevada
chartered development stage corporation which conducts
business from its headquarters in Escondido, California.
The Company was incorporated on August 9, 1990. The
operating company, now dissolved, was established in
November 1997.
The Company has not yet engaged in its expected operations.
The Company's future operations will be to provide casino
gambling via the Internet. Current activities include
raising additional equity and negotiating with potential key
personnel and facilities. There is no assurance that any
benefit will result from such activities. The Company will
not receive any operating revenues until the commencement of
operations, but will nevertheless continue to incur expenses
until then.
The following summarize the more significant accounting and
reporting policies and practices of the Company:
A) START-UP COSTS Costs of start-up activities, including
organization costs, are expensed as incurred, in accordance
with Statement of Position (SOP) 98-5.
B) NET LOSS PER SHARE Basic is computed by dividing the net
loss by the weighted average number of common shares
outstanding during the period.
C) USE OF ESTIMATES The financial statements have been
prepared in conformity with generally accepted accounting
principles. In preparing the financial statements,
management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities
as of the date of the statements of financial condition and
revenues and expenses for the period then ended. Actual
results may differ significantly from those estimates.
D) PROPERTY AND EQUIPMENT All property and equipment are
recorded at cost and depreciated over their estimated useful
lives, using the straight-line method. Upon sale or
retirement, the costs and related accumulated depreciation
are eliminated from their respective accounts, and the
resulting gain or loss is included in the results of
operations. Repairs and maintenance charges which do not
increase the useful lives of the assets are charged to
operations as incurred. Depreciation expense was $833 and $0
for the periods ended May 31, 1999 and 1998, respectively.
E) SIGNIFICANT ACQUISITION In June 1998, Interbet, Inc.
issued 13,136,539 shares of common stock to acquire all of
the issued and outstanding shares of the common stock of
Virtual Gaming Enterprises, Inc. (VGEI) in a reverse merger,
accounted for as a reorganization of VGEI.
F) PRINCIPLES OF CONSOLIDATION The consolidated financial
statements include the accounts of Virtual Gaming
Enterprises, Inc. (VGEI) and its wholly owned subsidiary and
majority owned subsidiary. Inter-company balances and
transactions have been eliminated.
(2) ADVANCES RECEIVABLE - RELATED PARTIES The Company has advanced
$14,824 to officers of the Company. These advances are due
on demand and carry no stated interest rate.
(3) STOCKHOLDERS' EQUITY The Company has authorized 25,000,000
shares of $0.001 par value common stock. The Company had
2,181,822 shares of common stock issued and outstanding at
May 31, 1999. The Company, in August 1990, issued 1,000,000
shares for $1,000 in cash. In August 1996, the Company
issued 100,000 shares for $50,000 in cash. In December
1997, the Company issued 4,973,108 shares in conjunction
with the acquisition of Interbet, Inc. In June 1998, the
Company issued 2,000,000 shares in exchange for services
valued at $313,200. In June 1998, the Company issued
600,000 shares in settlement of a loan amounting to $93,957.
In June 1998, the Company issued 1,400,000 shares for
$46,400 in cash. In June 1998, the Company
F-7
<PAGE>
VIRTUAL GAMING ENTERPRISES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(3) STOCKHOLDERS' EQUITY (CONTINUED) issued 13,136,539 shares for
the acquisition of Virtual Gaming Enterprises, Inc. In
February 1999, the Company completed a reverse split of its
common stock, leaving 501,873 shares issued and outstanding.
During the fourth quarter of fiscal 1999, the Company
issued 1,679,949 shares for $186,062, net, in cash.
(4) INCOME TAXES Deferred income taxes (benefits) are provided for
certain income and expenses which are recognized in
different periods for tax and financial reporting purposes.
The Company has net operating loss carry-forwards for income
tax purposes of approximately $332,000, expiring $20,500 and
$311,200 at May 31, 2018 and May 31, 2019.
The amount recorded as deferred tax assets is approximately
$3,000 and $50,000 as of May 31, 1999 and May 31, 1998,
respectively, which represents the amount of tax benefit of
the loss carryforward. The Company has established a 100%
valuation allowance against this deferred tax asset, as the
Company has no history of profitable operations.
(5) GOING CONCERN As shown in the accompanying financial statements,
the Company incurred a net loss of $158,700 for the period
from November 1997 (Inception) through May 31, 1999. The
ability of the Company to continue as a going concern is
dependent upon commencing operations and obtaining
additional capital and financing. The financial statements
do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern. The
Company is currently seeking financing to allow it to begin
its planned operations.
(6) RELATED PARTIES As discussed in Note 2, the Company extended an
advance to an officer. Related party balances and amounts
for the period since inception, (November 1997), ended May
31, 1999 are as follows:
Advance receivable - related party $ 14,824
========
(7) INTANGIBLE ASSETS In May 1999, the Company formed Hung Sai,
Ltd., a Nevis Corporation. In May 1999, Hung Sai entered
into a license agreement with a third party to provide an
Internet gateway for future Internet casinos to be located
in St. Kitts, West Indies. This agreement required a
$60,000 initial license fee and future revenue sharing from
the Company's future on-line casinos. The Company expects
to amortize the license fee over a five-year period, once
commercialization has begun.
(8) COMMITMENTS AND CONTINGENCIES
A) CONSULTING AGREEMENTS In June 1998, the Company entered
into consulting agreements with three unrelated companies.
Those agreements are for a five and one-half year period.
Compensation under those agreements is to be determined on a
project-by-project basis.
B) EMPLOYMENT AGREEMENTS In July 1998, the Company entered
into employment agreements with two of its officers. These
agreements have three-year terms expiring June 30, 2001.
The agreements contain base pay amounts of $250,000,
$280,000 and $325,000, combined. These contracts also call
for the issuance of options for 3,000,000 shares of the
Company's common stock, 1,500,000 of which vested on
December 1, 1998, and 150,000 per month beginning June 1,
1999 for a period of ten months.
F-8
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10KSB FOR THE YEAR ENDED MAY 31, 1999.
</LEGEND>
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