UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
<P>
FORM 10-KSB
<P>
[X] Annual report under section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal
year ended May 31, 2000.
<P>
[ ] Transition report under section 13 or 15(d) of
the Securities Exchange Act of 1934.
<P>
COMMISSION FILE NUMBER: 33-55254-43
<P>
Virtual Gaming Enterprises, Inc.
(Exact name of registrant as specified in its charter)
<P>
<TABLE>
<S> <C> <C>
Nevada 87-0485308
(State of Organization) (I.R.S. Employer I.D. No.)
<P>
2580 SEASCAPE GLEN, ESCONDIDO, CA 92026
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
<P>
Registrant's Telephone Number, Including Area Code:
(760) 510-0188
<P>
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.
<P>
Yes [X] No [ ]
<P>
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.
[ ]
<P>
There were no revenues during the initial year of operations
as the Company focused on web site and casino development.
<P>
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 May 31, 2000, was approximately
$97,380,487. The number of shares outstanding of the
registrant's common Stock as of May 31, 2000 was 8,287,701.
<P>
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.
<P>
2,576,322 Common Shares, $0.001 Par Value, Issued
and Outstanding
<P>
Transitional Small Business Disclosure Format: Yes[ ] No [X]
<P>
DOCUMENTS INCORPORATED BY REFERENCE
<P>
Document of the Registrant Form 10-KSB Reference Location
None N/A
<P>
Virtual Gaming Enterprises, Inc.
<P>
Table of Contents for Form 10-KSB
Year Ended May 31, 2000
<P>
PART I
------
<P>
Item 1. Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security
Holders
<P>
PART II
-------
<P>
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
<P>
PART III
--------
<P>
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
<P>
PART I
------
<P>
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.
<P>
Item 1. Business
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
All deposits are escrowed with a large 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.
<P>
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.
<P>
On March 23rd, 2000, The Company purchased a 10%
interest in www.global-shopping.net, a division of EBB, USA
Inc. for $50,000 in cash. EBB USA is a member of the world's
largest barter service with offices worldwide. The Company
believes there is potential in using "cybercash" for gaming
purposes in its current casinos and sports book.
<P>
<P>
Item 2. Properties
<P>
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.
<P>
Item 3. Legal Proceedings
<P>
On or about June 11, 1999, the United States Securities
and Exchange Commission initiated a proceeding in the United
States District Court, Southern District of California,
against the Company seeking to hold the Company in Civil
Contempt for failure to respond to a Subpoena issued by the
Commission. The Court granted the Commission's request and
issued an Order that sanctioned the Company Ten Thousand
($10,000.00) Dollars per day until such time as it complied
with the Commission's Subpoena.
<P>
Subsequent to the Company's compliance with the
Commission's Subpoena, the Company and the Commission
entered into a Stipulation and Order whereby the Company,
having purged itself of the civil contempt citation, agreed
to pay and did pay Ten Thousand ($10,000.00) Dollars as a
sanction. The Stipulation and Order was signed by the Court
and filed on or about November 18, 1999.
<P>
Virtual Gaming Enterprises, Inc., and its President,
Virgil Williams, in or about May, 2000, submitted Offers of
Settlement to the United States Securities and Exchange
Commission that stemmed from certain matters reviewed by the
Commission.
<P>
The Company, without admitting or denying any
wrongdoing, consented to entry of an Order by the Commission
that:
<P>
A) Orders it 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
thereunder; and
<P>
B) Orders the effectiveness of Virtual Gaming's
Form S-8 be suspended.
<P>
On July 24, 2000, the Company and the Commission agreed
to modify a portion of this Offer of Settlement to reflect
that, "As a result of Virtual Gaming's failure to meet its
reporting obligations, the Form S-8 never became effective."
<P>
Virgil Williams, without admitting or denying any
wrongdoing, consented to entry of an Order by the Commission
that:
<P>
A) Orders him to cease and desist from committing
or causing any violation, and any future violation, of
Section 17(a) of the Securities Act and Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder.
<P>
Both of these Offers of Settlement have yet to be acted
upon by the Commission.
<P>
In a civil proceeding filed in the United States
District Court for the Eastern District of New York in
January 2000, identified by Case Number 00 CIV 0276,
Platinum I.T. Consulting, Inc., and Edward Marian, alleged
that Virtual Gaming Enterprises, Inc., Virgil Williams,
Brenda Williams and others violated Section 12(1) of the
Securities Act, Violated Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder, Breached their Contract(s) with
Plaintiff(s), Fraudulently Induced Plaintiff(s) to purchase
the Company's securities, Converted Plaintiff(s) funds, and
were Unjustly Enriched at Plaintiff's expense. Plaintiffs
sought damages in excess of Five Million ($5,000,000.00)
Dollars.
<P>
The Company deemed it in its best interest to resolve
this matter, as the costs and fees for defense would largely
outweigh the costs of resolution. Accordingly, without
admitting or denying the allegations in the Complaint, the
Company and Virgil and Brenda Williams entered into a
Settlement and Consent Judgment whereby they agreed to
compensate the Plaintiffs in the amount of $170,00.00 within
75 days of the effective date of the Settlement and Consent
Judgment.
<P>
Due to the hospitalization of the Company's President
Virgil Williams, the Company did not make payment as
required under the Settlement and Consent Judgment. As a
result, and by the terms and provisions of the Settlement
and Consent Judgment, the Settlement Obligation has
increased to $250,000.00. The Company expects to remit this
amount to the Plaintiffs, in care of Plaintiffs' Attorney,
in short order.
<P>
On February 14, 2000, the State of Indiana, Office of
the Secretary of State, Securities Division, filed an
Administrative Complaint against Virtual Gaming Enterprises,
Inc., Virgil Williams and others, alleging that all
Respondents sold and/or offered for sale certain securities
in violation of Indiana State Law. On this same date, the
Indiana Securities Division requested and received a Cease
and Desist Order.
<P>
On March 2, 2000, Virtual Gaming Enterprises, Inc., and
Virgil Williams filed their Answer and Affirmative Defenses
to the Administrative Complaint and demanded an immediate
administrative hearing pursuant to the terms and provision
of the Indiana Securities Act that requires a hearing to be
set within 45 days of the Indiana Securities Division.
Virtual Gaming Enterprises, Inc., and Virgil Williams have
and do expressly deny any and all allegations made against
them in the Administrative Complaint.
<P>
Counsel for the Company and Mr. Williams, having not
had a response to the hearing demand, provided the Indiana
Securities Division a second copy of the Answer and
Affirmative Defenses and Demand for Hearing via facsimile on
March 17, 2000. Subsequent to March 17, 2000, Counsel for
the Company made several attempts to contact the Indiana
Securities Division via telephone, leaving messages for the
Deputy Commissioner, Enforcement, who apparently is
responsible for this proceeding. The Indiana Securities
Division has never responded to the Demand for Hearing or
the telephonic inquiries of counsel.
<P>
Finally, in January or February 2000, Virtual Gaming
Enterprises, Inc., was named as a Defendant in a Complaint
for Interpleader filed in the Third Judicial District Court
in and for Salt Lake County, State of Utah, and identified
as Civil No. 000901201. Therein, National Stock Transfer,
Inc., the transfer agent for the Company's Stock, due to
competing demands for certain certificates. This action
remains pending.
<P>
Item 4. Submission of Matters to a Vote of Security
Holders
<P>
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.
<P>
PART II
-------
<P>
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
<P>
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.
<TABLE>
<S> <C> <C> <C>
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
June 30, 2000 1.12 - 16.87
</TABLE>
<P>
During the period reported in this 10-KSB, certain
securities were sold by the company and/or the Company's
President, Virgil Williams. Some of the securities were sold
in Reliance on Regulation S, others were sold in private
transactions by Virgil Williams wherein certain of Mr.
Williams' shares were sold in private transactions and
others were sold in reliance on an exemption from
registration afforded by Regulation D. The Company and Mr.
Williams are currently in the process of compiling these
sales and will report them in an amendment to this Form 10-
KSB.
<P>
Item 6. Management's Discussion and Analysis or Plan of
Operation
<P>
NOTE: REGARDING PROJECTIONS AND FORWARD LOOKING STATEMENTS
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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
<P>
Item 7. Financial Statements
<P>
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.
<P>
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
<P>
There have been no disagreements with the accountants
or the accounting and financial disclosure.
<P>
PART III
--------
<P>
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
Ms. Williams continues her efforts in volunteer work and
working daily in the corporate office.
<P>
Item 10. Executive Compensation
<P>
<TABLE>
Annual Compensation
-------------------
<S> <C> <C> <C> <C>
Name and position Year Salary Bonus Other Annual Compensation
------------------------------------------------------------------------------------
Virgil G. Williams 1998 $ 24,800. -0-
President & CEO 1999 $165,000.* -0-
2000 $198,333. -0-
<P>
Brenda J. Williams 1998 $ 6,200. -0-
Secretary & Treasurer 1999 $ 64,167.* -0-
2000 $ 79,167. -0-
<P>
</TABLE>
<TABLE>
Long Term Compensation
----------------------
<S> <C> <C> <C> <C>
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-
2000 -0- -0- -0-
<P>
Brenda J. Williams 1998 $55,000. -0- -0-
Secretary & Treasurer 1999 -0- -0- -0-
2000 -0- -0- -0-
</TABLE>
*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.
<P>
**The above referenced stock options have been duly
approved, but have neither been exercised nor distributed.
<P>
Item 11. Security Ownership of Certain Beneficial Owners and
Management
<P>
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.
<P>
<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
<P>
Common Brenda J. Williams 1,853,333(2) 18.8%
2580 Sea Scape Glen options(4)
Escondido, CA 92026
<P>
Common Virgil G. Williams 5,333,333(3) 54.7%
2580 Sea Scape Glen options(4)
Escondido, CA 92026
</TABLE>
<P>
(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.
<P>
Item 12. Relationships and Related Transactions
<P>
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.
<P>
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.
<P>
At this time, there are no additional relationships or
related transactions to be reported.
<P>
Item 13. Exhibits and Reports of Form 10-KSB
<P>
Exhibit 2: Plan of acquisition, reorganization,
arrangement, liquidation, or succession
<P>
Exhibit 3: Articles of Incorporation (Incorporated by
Reference)
<P>
Exhibit 4: Instruments defining the rights of security
holders including indentures (N/A)
<P>
Exhibit 9: Voting Trust Agreement (N/A)
<P>
Exhibit 10: Material Contracts
<P>
Exhibit 11: Statements re: computation of per share
earnings
<P>
Exhibit 13: Annual or quarterly reports, Form 10-QSB
<P>
Exhibit 16: Letter on change in certifying accountant
(N/A)
<P>
Exhibit 18: Letter on change in Accounting Principals
(N/A)
<P>
Exhibit 21: Subsidiaries of the registrant
<P>
Exhibit 22: Published report regarding matters submitted
to vote (N/A)
<P>
Exhibit 23: Counsel of experts and counsel (N/A)
<P>
Exhibit 24: Power of Attorney (N/A)
<P>
Exhibit 27: Financial Data Schedule
<P>
Exhibit 99: Additional Exhibits (N/A)
<P>
Item 14. Independent Auditor's Report
<P>
<PAGE>
<P>
Item 7. Financial Information
<P>
VIRTUAL GAMING ENTERPRISES, INC.
<P>
(A Development Stage Enterprise)
<P>
AUDITED FINANCIAL STATEMENTS
<P>
For the Years Ended May 31, 2000 and 1999
<PAGE>
<P>
INDEX TO FINANCIAL STATEMENTS
<P>
<TABLE>
<S> <C>
Independent Auditors' Report ......................................F-2
<P>
Balance Sheets ....................................................F-3
<P>
Statements of Operations ..........................................F-4
<P>
Statements of Stockholders' Equity (Deficiency)....................F-5
<P>
Statements of Cash Flows ..........................................F-6
<P>
Notes to Financial Statements......................................F-7
<P>
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
<P>
The Board of Directors and Stockholders
Virtual Gaming Enterprises, Inc.
Escondido, California
<P>
We have audited the accompanying balance sheets of Virtual
Gaming Enterprises, Inc., a development stage enterprise, as
of May 31, 2000 and 1999 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.
<P>
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.
<P>
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,
2000 and 1999 and the results of its operations and its cash
flows for the years then ended in conformity with generally
accepted accounting principles.
<P>
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.
<P>
/S/Gately & Associates, LLC
Orlando, Florida
August 21, 2000
<P>
F-2
<PAGE>
Virtual Gaming Enterprises, Inc.
(A Development Stage Enterprise)
Balance Sheets
May 31,
<TABLE>
<S> <C> <C>
2000 1999
---------- ----------
ASSETS
CURRENT ASSETS
Cash $ 109,142 $ 0
Advance receivable related party 62,333 14,824
---------- ----------
Total current assets 171,475 14,824
<P>
PROPERTY AND EQUIPMENT
Equipment 5,000 5,000
Less: accumulated depreciation (2,500) (833)
---------- ----------
Total property and equipment 2,500 4,167
<P>
OTHER ASSETS
Intangible assets 3,180,000 60,000
Less: accumulated amortization 0 0
---------- ----------
Net intangibles 3,180,000 60,000
Investment - EBB Venture Capital 50,000 0
Investment - Vegas Book, Ltd 320,000 0
---------- ----------
Total other assets 3,550,000 60,000
Total Assets $3,723,975 $ 78,991
========== ==========
<P>
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)
<P>
CURRENT LIABILITIES
Bank overdraft $ 0 $ 5,251
Accrued salaries payable 204,007 172,967
Short-term notes payable 1,252,000 0
---------- ----------
Total current liabilities 1,456,007 178,218
---------- ----------
Total Liabilities 1,456,007 178,218
<P>
STOCKHOLDERS EQUITY (DEFICIENCY)
Common stock, $0.001 par value,
authorized 25,000,000 shares;
8,287,701 and 2181,822 issued
and outstanding shares 8,288 2,182
Additional paid-in capital 3,393,963 230,310
Deficit accumulated during
the development stage (1,134,283) (331,719)
---------- ----------
Total Stockholders
Equity (Deficiency) 2,267,968 (99,227)
---------- ----------
Total Liabilities and Stockholders
Equity (Deficiency) $3,723,975 $ 78,991
========== ==========
<P>
The accompanying notes are an integral part of the financial statements.
</TABLE>
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
2000 1999 May 31, 2000
------------ ------------ -------------------
Revenues $ 0 $ 0 $ 0
<P>
Expenses
Compensation:
Officers 290,690 219,217 523,860
Other 16,553 9,950 27,673
Consultants 42,060 23,250 70,560
General and
administrative expenses 361,593 35,964 397,690
Depreciation 1,667 833 2,500
Research and development 90,000 22,000 112,000
------------ ------------ -------------------
Total expenses 802,563 311,214 1,134,283
------------ ------------ -------------------
Loss from operations (802,563) (311,214) (1,134,283)
------------ ------------ -------------------
Net loss $ (802,563) $ (311,214) $ (1,134,283)
============ ============ ===================
Basic net loss per
weighted average share $ (0.14) $ (0.14)
============ ============
Weighted average
number of shares 5,834,400 2,181,822
============ ============
<P>
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-4
<P>
<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, 2000
<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
<P>
June 1998 - reverse
merger 10,209,647 (44,079) 44,109 0 30
<P>
February 1999 -
reverse split (22,707,774) (1,819) 1,819 0 0
<P>
Shares issued
for cash 1,679,949 1,680 184,382 0 186,062
<P>
Net loss 0 0 0 (311,214) (311,214)
------------ ------ ---------- ----------- -------------
BALANCE,
May 31, 1999 2,181,822 2,182 230,280 (331,720) (99,228)
<P>
Shares issued
for cash 6,105,879 6,106 3,163,653 0 3,169,759
<P>
Net loss (802,563) (802,563)
------------ ------ ---------- ----------- -------------
BALANCE,
May 31, 2000 8,287,701 $ 8,288 $ 3,393,963 $ (1,134,283) $ 2,267,968
============ ====== ========== =========== =============
<P>
The accompanying notes are an integral part of the financial statements.
</TABLE>
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
2000 1999 May 31, 2000
------------ ------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (802,563) $ (311,214) $ (1,134,283)
Adjustments to reconcile net
loss to net cash used
for operating activities:
Depreciation 1,667 833 2,500
Changes in operating
assets and liabilities:
(Increase) decrease advance
receivable - related party (47,509) (14,824) (62,333)
Increase (decrease) accrued
salaries payable 31,040 172,967 204,007
------------ ------------ -------------------
Net cash used by
operating activities (817,365) (152,238) (990,109)
------------ ------------ -------------------
<P>
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property
and equipment (5,000) (5,000) (5,000)
Purchase of investments (340,000) (340,000)
Acquisition of
intangible assets (1,898,001) (60,000) (1,958,001)
------------ ------------ -------------------
Net cash (used) provided by
investing activities (2,238,001) (65,000) (2,303,001)
------------ ------------ -------------------
<P>
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance
of common stock 3,169,759 186,093 3,402,252
------------ ------------ -------------------
Net cash provided by
financing activities 3,169,759 186,093 3,402,252
------------ ------------ -------------------
Net increase
(decrease) in cash 114,393 (31,145) 109,142
CASH, beginning of period (5,251) 25,894 0
------------ ------------ -------------------
<P>
CASH, end of period $ 109,142 $ (5,251) $ 109,142
============ ============ ===================
</TABLE>
<P>
The accompanying notes are an integral part of the financial statements.
[/TABLE]
F-6
<PAGE>
VIRTUAL GAMING ENTERPRISES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
<P>
(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.
<p>
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.
<P>
The following summarize the more significant accounting
and reporting policies and practices of the Company:
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
(2) ADVANCES RECEIVABLE - RELATED PARTIES The Company has
advanced $62,333 to officers of the Company. These advances
are due on demand and carry no stated interest rate.
<P>
(3) STOCKHOLDERS' EQUITY The Company has authorized
25,000,000 shares of $0.001 par value common stock. The
Company had 8,287,701 shares of common stock issued and
outstanding at May 31, 2000. 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
<P>
F-7
<PAGE>
VIRTUAL GAMING ENTERPRISES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
<P>
(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 in cash.
During the Year ended May 31, 2000, the Company issued
6,105,879 shares for $3,169,759.
<P>
(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
$1,103,243, expiring $20,500 at May 31, 2018, $311,200 at
May 31, 2019 and $771,523 at May 31, 2020.
<P>
The amount recorded as deferred tax assets is approximately
$165,500 and $50,000 as of May 31, 2000 and May 31, 1999,
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.
<P>
(5) GOING CONCERN As shown in the accompanying financial
statements, the Company incurred a net loss of $1,103,243
for the period from November 1997 (Inception) through May
31, 2000. 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.
<P>
(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, 2000 are as follows:
<P>
Advance receivable - related party $ 62,333
========
<P>
(7) INTANGIBLE ASSETS During the year ended May 31, 2000,
the Company Entered into agreements for the development of
software that Will provide gaming capabilities on the
internet. The Company has Invested $1,898,001 during the
year for 17 of these programs. The Company plans to lease
and/or manage these sites for a fee. 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.
<P>
(8) COMMITMENTS AND CONTINGENCIES 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.
<P>
(9) LEGAL PROCEDINGS On or about June 11, 1999, the United
States Securities and Exchange Commission initiated a
proceeding in the United States District Court, Southern
District of California, against the Company seeking to hold
the Company in Civil Contempt for failure to respond to a
Subpoena issued by the Commission. The Court granted the
Commission's request and issued an Order that sanctioned the
Company Ten Thousand ($10,000.00) Dollars per day until such
time as it complied with the Commission's Subpoena.
<P>
Subsequent to the Company's compliance with the Commission's
Subpoena, the Company and the Commission entered into a
Stipulation and Order whereby the Company, having purged
itself of the civil contempt citation, agreed to pay and did
pay Ten Thousand ($10,000.00) Dollars as a sanction. The
Stipulation and Order was signed by the Court and filed on
or about November 18, 1999.
<P>
Virtual Gaming Enterprises, Inc., and its President, Virgil
Williams, in or about May, 2000, submitted Offers of
Settlement to the United States Securities and Exchange
Commission that stemmed from certain matters reviewed by the
Commission.
<P>
The Company, without admitting or denying any wrongdoing,
consented to entry of an Order by the Commission that:
<P>
A) Orders it 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
thereunder; and
<P>
B) Orders the effectiveness of Virtual Gaming's
Form S-8 be suspended.
<P>
On July 24, 2000, the Company and the Commission agreed to
modify a portion of this Offer of Settlement to reflect
that, "As a result of Virtual Gaming's failure to meet its
reporting obligations, the Form S-8 never became effective."
<P>
Virgil Williams, without admitting or denying any
wrongdoing, consented to entry of an Order by the Commission
that:
<P>
A) Orders him to cease and desist from committing
or causing any violation, and any future violation, of
Section 17(a) of the Securities Act and Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder.
<P>
Both of these Offers of Settlement have yet to be acted upon
by the Commission.
<P>
In a civil proceeding filed in the United States
District Court for the Eastern District of New York in
January 2000, identified by Case Number 00 CIV 0276,
Platinum I.T. Consulting, Inc., and Edward Marian, alleged
that Virtual Gaming Enterprises, Inc., Virgil Williams,
Brenda Williams and others violated Section 12(1) of the
Securities Act, Violated Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder, Breached their Contract(s) with
Plaintiff(s), Fraudulently Induced Plaintiff(s) to purchase
the Company's securities, Converted Plaintiff(s) funds, and
were Unjustly Enriched at Plaintiff's expense. Plaintiffs
sought damages in excess of Five Million ($5,000,000.00)
Dollars.
<P>
The Company deemed it in its best interest to resolve this
matter, as the costs and fees for defense would largely
outweigh the costs of resolution. Accordingly, without
admitting or denying the allegations in the Complaint, the
Company and Virgil and Brenda Williams entered into a
Settlement and Consent Judgment whereby they agreed to
compensate the Plaintiffs in the amount of $170,00.00 within
75 days of the effective date of the Settlement and Consent
Judgment.
<P>
Due to the hospitalization of the Company's President Virgil
Williams, the Company did not make payment as required under
the Settlement and Consent Judgment. As a result, and by the
terms and provisions of the Settlement and Consent Judgment,
the Settlement Obligation has increased to $250,000.00. The
Company expects to remit this amount to the Plaintiffs, in
care of Plaintiffs' Attorney, in short order.
<P>
On February 14, 2000, the State of Indiana, Office of the
Secretary of State, Securities Division, filed an
Administrative Complaint against Virtual Gaming Enterprises,
Inc., Virgil Williams and others, alleging that all
Respondents sold and/or offered for sale certain securities
in violation of Indiana State Law. On this same date, the
Indiana Securities Division requested and received a Cease
and Desist Order.
<P>
On March 2, 2000, Virtual Gaming Enterprises, Inc., and
Virgil Williams filed their Answer and Affirmative Defenses
to the Administrative Complaint and demanded an immediate
administrative hearing pursuant to the terms and provision
of the Indiana Securities Act that requires a hearing to be
set within 45 days of the Indiana Securities Division.
Virtual Gaming Enterprises, Inc., and Virgil Williams have
and do expressly deny any and all allegations made against
them in the Administrative Complaint.
<P>
Counsel for the Company and Mr. Williams, having not had a
response to the hearing demand, provided the Indiana
Securities Division a second copy of the Answer and
Affirmative Defenses and Demand for Hearing via facsimile on
March 17, 2000. Subsequent to March 17, 2000, Counsel for
the Company made several attempts to contact the Indiana
Securities Division via telephone, leaving messages for the
Deputy Commissioner, Enforcement, who apparently is
responsible for this proceeding. The Indiana Securities
Division has never responded to the Demand for Hearing or
the telephonic inquiries of counsel.
<P>
Finally, in January or February 2000, Virtual Gaming
Enterprises, Inc., was named as a Defendant in a Complaint
for Interpleader filed in the Third Judicial District Court
in and for Salt Lake County, State of Utah, and identified
as Civil No. 000901201. Therein, National Stock Transfer,
Inc., the transfer agent for the Company's Stock, due to
competing demands for certain certificates. This action
remains pending.
<P>
10. SHORT-TERM LIABILITIES The Company entered into 17
agreements whereby they have invested funds with
International Business Assoc. Corp. to develop the software
for internet gaming sites. The agreements mature on April
1, 2003 and accrue interest at a rate of 10%. Each
agreement calls for a quarterly payment of $14,153. The
principal and accrued interest, at the option of the holder,
become immediately due if a quarterly payment is 10 days
late. As of May 31, 2000 the Company entered into an
informal agreement for prepayment of these notes as funds
become available.
<P>
F-8
<PAGE>
<P>
SIGNATURES
<P>
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has
duly caused this 10-KSB report to be signed on its behalf
by the undersigned thereunto duly authorized.
<P>
VIRTUAL GAMING ENTERPRISES, INC.
(Registrant)
<P>
Date: September 14, 2000 /s/ Virgil G. Williams
-------------------------
Virgil G. Williams
President
<P>
