SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ANNUAL Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended June 30,2000
Commission File No. 0-6518
TELnet go 2000, Inc.
2937 East Nisbet Ct.
Phoenix, Arizona 85032
Telephone: (602) 788-5801
State of Incorporation I.R.S. Employer Identification No.
Delaware 87-0280129
Securities Registered Pursuant to Section 12 (b) of this Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
Securities Registered Pursuant to Section 12 (g) of this Act:
Title of Each Class Name of Each Exchange on which Registered
Common Voting Stock, None
Par Value $0.01 Per Share
Indicate by check mark whether the Registrant (1) has filed all
annual, quarterly and other reports required to be filed with the
Commission, and (2) has been subject to the filing requirements
for at least the past ninety days.
YES X NO
The Issuer's Revenue for the most recent fiscal year was $0.00
On June 30, 1999, there were 3,505,272 shares of common stock, .001 par value
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit A. Financial Data Schedule
(for the Quarter Ending June 30, 2000)
Transitional Small Business Disclosure Format
YES X NO
<PAGE>
PART 1.
ITEM 1. DESCRIPTION OF BUSINESS
The name of the Company is TELnet go 2000, Inc, incorporated in the State of
Delaware on 3/6/1972. The name of the Company was changed from Trilogy Gaming
Corporation to TELnet go 2000, Inc effective 1-1-00. The Company has no Parents
or Subsidiaries. The Company's address is 2937 E. Nisbet Ct., Phoenix, Arizona
85032 (602) 788-5801.
The Company is a public Trading company listed with the National Association of
Securities Dealers Automated Quotation ("NASDAQ") System on the Bulletin Board,
as "TELnet go 2000, Inc" with the trading symbol TNET, and formally listed as
"Trilogy Gaming Corporation" with the trading symbol TGGC.
As a reporting company, the Company intends to furnish its shareholders with
annual reports containing financial statements and may distribute other
information from time to time.
All outstanding Common Shares, excluding control persons holding 10% or more of
the common stock of the Company and all restricted shares, are eligible to be
sold in the open market. Sales of substantial amounts of common stock of the
Company in a public market, may have a depressive effect on the market price of
the common stock.
THE COMPANY'S AUTHORIZED CAPITAL
75,000,000 Common non-cumulative voting shares, par value $0.001 per
share, 5,000,000 Preferred non-cumulative voting shares, par value $0.01 per
share 5,000,000 Preferred non-cumulative, non-voting shares, par value
$0.01 per share.
Holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Holders of common stock are
entitled to receive such dividends as may be declared from time to time by
the Board of Directors out of funds legally available therefore after
preferred dividend payments have been paid to the Preferred shares.
THE BUSINESS OF THE COMPANY
SUMMARY OF PATENT LICENSE AGREEMENTS
The Company has from the patent owner, who is the CEO, President and majority
shareholder of the Company, the exclusive license for the United States to
patent #5,158,293, patent #2,128,150 for the trade name "Trilogy" collective
referred to as the Trilogy tab/lotto type game and the TELnet World Lotto
Sweepstakes game. Mr. Mullins granted the exclusive U. S. licensee agreement
to the above to the Company, which licensee states in part that; Pursuant to
the License Agreement, the Company is required to pay Mr. Mullins the
following: 1% Royalties payments due and payable to Mr. Mullins by the end of
each month for all royalties earned by the end of the preceding month along with
an accurate accounting of all sales/revenues covered by the license agreement.
Said minimum royalty payments are due December 31 of each year of the license
agreement and payable to Mr. Mullins or his assigns on or before 30 days
following each said minimum royalty payment due date, (ii) 1,310,00 common
voting shares of Trilogy Gaming Corporation and (iii) 3,690 convertible non-
voting preferred shares issued to Licensor. Said preferred shares shall be
increased or decreased in proportion to the exact number of shares resulting
from any and all stock splits of TGC or its successors common stock until all
said preferred shares and splits there from have been issued to Licensor.
For each 1,000 new common shares issued by the Company, from time to time,
Beginning March 1, 1998, said Preferred shares are convertible at the rate
of "one Preferred share for 1,000 common shares" until all said preferred
shares have been converted. The licensee Agreement renews annually providing
the License is not in default.
Mr. Mullins is the inventor of the "Game with Multiple Incentives and multiple
Levels of Game Play and combination Lottery Game With Time of Entry to Win
Progressive Jackpot" (Patent Pending) Mr. Mullins filed a Patent Application
for said game and licensed the game to the Company, which License states in part
that:
Pursuant to the License Agreement, the Company is required to pay Mr. Mullins
the following: [i] a royalty of one percent (1%) of the gross dollar
amount, of all revenues generated from all game plays (excluding revenues
generated from patent # 5,158,293) and progressive jackpot "drops" generated
directly or indirectly by Licensee, its agents and/or sub-licensees, who use
any part of above stated invention to generate game play and/or multiple
progressive jackpot game plays, or the annual minimum royalty payment of
$50,000, whichever is greater. Royalties are due and payable to Mr. Mullins
by the end of each month for all royalties earned by the end of the preceding
month along with an accurate accounting of all sales/revenues covered by the
license agreement. Said minimum royalty payments are due December 31 of each
year of the license agreement and payable to Licensor or his assigns on or
before 30 days following each said minimum royalty payment due date, and
[ii] 3,500 convertible non-voting preferred shares issued to Mr. Mullins.
Said preferred shares shall be increased or decreased in proportion to the
exact number of shares resulting from any and all stock splits of TGC or its
successors common stock until all said preferred shares and splits there from
have been issued to Licensor. For each 1,000 new common shares issued by the
Company, from time to time, beginning January 2, 2000, said Preferred shares
are convertible at the rate of "one Preferred share for 1,000 common shares"
until all said preferred shares have been converted. The licensee Agreement
renews annually providing the License is not in default.
Both Agreements state:
The Agreement is not a conveyance, assignment or Transfer of any right, title or
interest in or to the invention stated hereto, or Licensors patent rights stated
herein. This License is only a grant of the exclusive limited right to develop,
exploit and market the invention stated herein only to state lotteries, Indian
and Charity gaming entities and no other rights exists whatsoever that are not
stated herein.
Licensee (the Company) is an independent contractor and that it is not an agent
of, nor acting in behalf of Licensor (Mullins) for any purpose or in any manner
whatsoever in the operation of its business during or after the expiration of
this agreement. furthermore, Licensee is not acting under any marketing
direction of Licensor and will formulate its own marketing plan to best meet
its business objectives, subject only to the faithful observance of the
provisions of this agreement. Licensee agrees to indemnify and save harmless
Licensor from and against all claims, demands, damages, actions, and causes of
actions, liability, expenses or cost arising out of any transaction participated
in, or any committed act or omission to act by this License.
The fact licensor is or may be in control of licensee business shall not be
construed as a conflict of interest to this agreement If such a conflict exists
or is implied, Licensee hereby waives any claims of conflict, and hereby
consents to any such conflicts. Licensor shall use its best efforts
representing Licensee. However, Licensee understands and unconditionally
agrees that at all times in the enforcement of this agreement, Licensor
will first represent the best interest of Licensor and Licensors patents
including all other patent rights and interest thereto at all times.
If the above stated consideration is not paid by the Company, the Company shall
be deemed in default of the License Agreement and Mr. Mullins may terminate the
License. There is no expiration date on the 7,190 preferred convertible shares.
CONFLICTS OF INTEREST
Wayne Mullins, the Company's CEO, President and Director, owns the Company's
Trilogy game and Trilogy trademark patents. Mr. Mullins granted the Company the
exclusive U. S. licensee agreement to patent # 5,158,293 "lottery game and
method for playing same" and U. S. patent/Trademark Reg. # 1,533,082 for
the Trilogy mark and the Trilogy Jackpot tab/card table game, patent pending.
Mr. Mullins as President, CEO and Director of the Company, will be in the
position to represent both the patent Licensor (Mr. Mullins) and the patent
Licensee (the Company) and his interest will most likely be first to himself
as the Licensor. In the event of a default of the patent license agreement
by the Company, Mr. Mullins will be in a position to make demand upon the
Company to cure the default pursuant to the provisions of the license
Agreement and to terminate the license agreement if the
default is not cured pursuant to the license agreement. Because
of this disclosure by the Company regarding these circumstances surrounding
the Patent Licensor and the Patent Licensee, neither the Company as Patent
Licensee, or any of its shareholders, Officers or Directors, shall have or
make any claim or demand that a conflict of interest existed anytime prior to,
during or after any default demand or upon termination of the patent license
agreement in the event Mr. Mullins, as Patent Licensor, enforced any default
of the license agreement including, but not limited to, termination of the
license Agreement.
INDIAN GAMING ACTIVITIES (Former business activities of the Company)
The primary operations of the Company ending 12/31/1999 were financed by selling
100 Units for 500,000 common shares of the Company's common stock for $2 per
share, for $1,000,000. Each Unit is for $10,000 for 5,000 common shares for $2
per share and (1) one non detachable series A warrant to purchase on or before
6/31/2000, 5,000 common shares for $3 per share and (1) one non detachable
series B warrant to purchase on or before 12/31/2000, 5,000 common shares
for $7 per share. The Units were sold by private placement to accredited
investors only. From the placement of the 100 Units, the Company financed
administration, and the on line game communications operation systems
development and manufacturing of its Trilogy pull tab bingo game tables
for the St Regis Mohawk Tribe pursuant to the St Regis Mohawk 100 Trilogy
table game Agreement.
The Law firm of Snell & Wilmer of Phoenix, AZ has given its legal opinion to the
Company that the Trilogy multiple jackpot game is a Class II game pursuant to
the definitions set forth by the United States Congress to NIGC and has
submitted the Company's Trilogy scratch tab game to the NIGC for Class II
classification or Class II use. The Company cannot state the length of NIGC
classification review process.
The Company entered into an agreement with St Regis Indian Mohawk Tribe for 100
Trilogy Table games that allowed the Company to market its Trilogy game to the
St. Regis license until the NIGC Class II classification could be obtained by
the Company. The St. Regis Tribe was the only operating casino thatwould
take this risk, contemplating that the game and the devise would eventually
be classified as a class II operation.
The Casino Dealer for each Table would handle all the cash including the
payment for the ticket and the use of Casino chips for the payment of
certain winning tickets. The use of the table to dispense the Trilogy
progressive ticket also created many new equipment communication requirements
that had not been tested as of that time. An electronic BINGO scratcher game was
designed on paper and Phoenix Gaming International Inc. of Las Vegas was
assigned the task of creating the table from scratch. The use of the
electronic buttons to the design of the specialty dispensers were all
fabricated as the table was being developed. The actual production of
the table and the bases was a difficult, time consuming and
costly process. The table with the eye catching blue felt and blinking
BINGO lamps was very well received especially at the April, 1999 Indian
Gaming show in Tucson, Arizona. However, the real obstacle to the game design
was the creation and implementation of the communication systems required to run
the game individually and collectively. Each table was really eight
stations, each station had to talk to each other and each table needed to
talk to each other and each casino needed to talk to each other. This
communication system although easily drawn on paper was not a easy task
in the field. A communications company, Cybernet Ventures of Las Vegas,
recommended by Phoenix Gaming to create and install the required computers,
hubs, routers and T-1 communication lines turned out to be unqualified to
complete the communication system. This not only cost a lot of lost time
but was also very costly financially. The Company made all efforts to make
the Trilogy bingo game operational at the St Regis.
During this time, early 1999, the weather in upper New York was the worst it has
been in five years. The snowfall crippled the area causing extensive delays in
the implementation. The implementation at the St. Regis Bingo Palace was laden
with extensive delays due to faulty electric supply and general labor to
complete the required tasks. The implementation was originally scheduled
to be completed by the end of February, 1999. The actual first date that
the game was ready to be kicked off was the end of April, 1999 but this only
included four tables, this chang was the result of the extensive
difficulties with the Company's vendors completely building, testing, and
delivering ten commercially working Trilogy Bingo tables with complete
produced and tested commercially working on site and off site Trilogy game
communication systems.
After much time and expense, it became obvious to the Company that the St. Regis
Mohawk Bingo Place was not ready or familiar with the operating requirements of
casino style table games in a bingo hall environment. Trilogy trained potential
dealers and pit crew personnel including extensive internal controls for both
the game operation and money control. Trilogy even paid for the first
two weeks of this training and potential implementation. In short, the
implementation took an extremely long time and caused great concern for the
St. Regis Tribe.
PGI produced, in part, 9 of the first 11 Trilogy game tables ordered out of the
total 30 tables ordered by the Company of which 9 were sent to the St Regis
Reservation in NY for assembly by PGI. Eight were placed on the floor of the
Mohawk bingo Palace of which PGI, after a considerable amount of time and
expense to TGC, PGI made only 4 of the 8 tables operational in part to
dispense Trilogy game tickets and play the Trilogy tab/bingo game, but
without the wide area communications system which controls the security
of the game and progressive jackpot as specified and paid for by TGC.
During the later stages of the implementation, the St. Regis Tribal Council
changed. The new Tribal Council begin to concentrate on class III gambling and
because of all the delays and alleged confusion, canceled the Trilogy table
contract and elected to removed the tables from the Mohawk Bingo Palace. The
Company was informed of this decision, the tables were removed by the Tribe
during July/August 1999 and placed in a storage facility on the reservation.
Thus today the Company has received 9 non-commercially working tables, of which
7 are in storage on the reservation. Two are in storage in Phoenix, Arizona.
PGI has represented to the Company that certain parts have been ordered from
which there are 20 additional tables in various early stages of assembly.
The Company believes that, because Phoenix Gaming International Inc., (PGI)
including its software programers, sub contractors, and other vendors
(including Industrial Power Coating Inc.) failed to completely produce and
deliver as promised: (a) fully developed, commercially debug and deliver
to the Company, the working Trilogy bingo game software, in-house game
communications software and the wide-area communication software necessary to
commercially operate the Trilogy bingo table game with multiply tables on-line
within a location and on-line from multiply locations to the office of the
Company. (b) failed to produce to the Company as contracted and paid for, 11
fully competed, commercially working Trilogy bingo pull tab table dispensing
devices that store, dispense the game tickets, reads the game ticket
dispensed and electronically plays the game on the tables, monitor the game
via in-house and wide-area encrypted communications software over telephone
lines to various telephone switching hubs and T-lines to the office of the
Company. (c) after many months of field game, table and software designing
and installation by PGI and significant dollars expended by the Company, PGI
was able to only get the game to work on 4 of the 9 tables to work in part,
but without the wide-area communication network software controlling the game
and game security from the site location to the offices of the Company which
is where the control of the game and accounting would rest. As a result
thereof, the Company believes that PGI, directly and indirectly, caused the
Company great financial loss, harm and damages. The Company plans to take
legal action against PGI, its sub contractors and associate contractors and
seek recovery of money paid for software, components, T-1 lines
communications, installations, etc and damages.
Excluding the St Regis Indian Mohawk Tribe, the Company may not get another
commitment from an Indian Gaming entity to market the Trilogy bingo game from
tables until the Trilogy bingo table game is classified by NIGC (National
Indian Gaming Commission) as a Class II game.
Beginning 2000, the Company will not focus marketing its patented game to the
Indian gaming market but will focus its patented game as a Sweepstakes Game over
the Internet.
PRESENT BUSINESS. TELnet GO 2000 holds the exclusive U.S. license to the
patent for our TELnet Lotto Sweepstakes Game, a progressive jackpot for
play over the Internet. Our objective is to partner with non-profit and
charitable organizations and provide them with a secure, innovative new
outlet for fundraising. Our Lotto Sweepstakes Game is a sweepstakes that
will allow charities to enter the global market to promote and encourage
ongoing contributions to their causes.
ITEM 2. DESCRIPTION OF PROPERTIES
None
ITEM 3 . LEGAL PROCEEDING
None
However; on May 6, 1999, The Company was provided with a draft of a
threatened Complaint which alleges that six proposed plaintiffs were
investors in International Lottery Productions, Ltd. "ILP" (which had 22
total shareholders), a predecessor company to Trilogy. The threatened
complaint further alleges that ILP (incorporated in 1989, went out of
business in 1993, resurrected and merged into Trilogy Gaming Corporation
on March 7, 1996) and certain of its officers and
directors made misrepresentations to the plaintiffs in connection
with their investments in ILP. The threatened complaint also alleges that
certain of the officers and directors of ILP and Trilogy breached their
fiduciary duties to the shareholders of the respective corporations. The
threatened complaint seeks compensatory and punitive damages, and further
seeks to establish a constructive trust over the lottery game operated by
Trilogy and all revenues it generates, in favor of the plaintiffs.
It appears that the main thrust of the allegations of the threatened complaint
are dependent upon the claims that in 1997-8, the 6 incorporators of ILP were
induced to and paid $10,000 each to Wayne Mullins personally for his personal
benefit, for a interest in his patent and for 40,000 common shares of ILP, when
in fact, they each signed and initialed each page of the "Pre-Organizational
Agreement" and the "Organizational Meeting". Both documents set forth all their
rights and risks involved in investing into and forming a new corporation as the
promoters. Each of their $10,000 Capital contributions to form the company
(ILP) were made in payments over a period of time and each payment was made
payable to ILP.
Following our receipt of the Draft Complaint, the Company's legal counsel has
had several conversations with counsel for the potential plaintiffs. It is
uncertain whether the potential plaintiffs will, in fact, file the threatened
Complaint. The Company has entered into a tolling agreement with the plaintiffs
in order to resolve the alleged allegations. The Company has been advised that
good arguments exist that some or all of proposed plaintiff's threatened claims
may contain false and misleading statements and fail to state a cause of action
and, therefore, may be subject to dismissal. On June 27, 2000 the Company
terminated the Tooling Agreement. At this early stage, however, we are unable
to predict what the ultimate outcome of this matter will be.
In June, 2000, the United States Securities and Exchange Commission began an
inquiry on the company. The inquiry further states and advises the Company
that, " Has the Commission determined that anyone has done anything wrong?
This investigation is a non-public, fact finding inquiry. We are trying to
determine whether there have been any violations of the federal securities laws.
The investigation and the subpoena do not mean that we have concluded that you
or anyone else has broken the law. Also the investigation does not mean that we
have a negative opinion of any person, entity or security." The company is
complying and providing the information requested by the SEC. The outcome of
the inquiry is not known as of the date of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY and RELATED SHAREHOLDERS MATTERS.
DECEASE IN AMOUNT OUTSTANDING OF SECURITIES OR INDEBTEDNESS
None.
INCREASE IN AMOUNT OUTSTANDING OF SECURITIES OR INDEBTEDNESS
None.
The following table shows the high and low bid prices for the company's common
stock as reported by the NASDAQ electronic bulletin board (bulletin board
Trilogy Gaming Corporation Ticker Symbol TGGC) for the Quarter ending
December of, 1999 The Company started trading in the fourth quarter of 1998.
HIGH LOW
FIRST QUARTER ending MARCH 31,1999 7.00 4.00
SECOND QUARTER ending JUNE 30,1999 4.75 2.00
THIRD QUARTER ending SEPTEMBER 30,1999 3.25 0.36
FOURTH QUARTER ending DECEMBER 31,1999 2.25 0.37
Pursuant to the December 17, 1999 annual shareholders meeting, the name of the
Company was changed effective January 1, 1999, to telNetgo2000 Inc,. The
Company's new Ticker Symbol is TNET.
FIRST QUARTER ending MARCH 31, 2000 2.25 0.62
SECOND QUARTER ending JUNE 30, 2000 1.37 0.25
Approximate number of equity securities holders as of June 30, 2000: 575
DIVIDENDS: The Company paid no dividends in the years ended December 31, 1997,
1998, 1999.
RECENT SALE OF UNREGISTERED SECURITIES:
The operations of the Company ending 12/31/1999 were financed by selling 100
Units for 500,000 common shares of the Company's common stock for $2 per share,
for $1,000,000. Each Unit is for $10,000 for 5,000 common shares for $2 per
share and (1) one non detachable Series A warrant to purchase on or before
6/31/2000, 5,000 common shares for $3 per share and (1) one non detachable
series B warrant to purchase on or before 12/31/2000, 5,000 common shares
for $7 per share. The Company placed 317,500 shares @ $2.00 each for a
total of $ 635,000 for the year ended 12/31/98, 185,500 shares for $365,000
in the first half of 1999, 12,500 shares for $20,000 and 70,000 shares for
$35,000 during the third quarter ending September 30, 1999. The Units were
sold by private placement to accredited investors only, pursuant to the
"Model Accredited Investor Exemption" published by NASAA, which publication
is available at www.nasaa.org:80/bluesky/guidlines/investorexemption.html.
The Company has or may issue the following Warrants to acquire Common Stock of
the Company:
Series Number of Price per Warrant
Shares Common Share Expiration date
A 505,000 $3 June 30, 2000
B 505,000 $7 December 31, 2000
C 12,500 $3 January 31, 1999
D 12,500 $7 July 31, 2000
E 100,000 $1 June 30, 2000
F 90,000 $1 June 30, 2000
As of the date of this 10-QSB submission, excluding the Series B warrants with
the expiration date of December 31, 2000, none of the Series A through F
warrants were exorcized pursuant to the warrant expiration date.
ITEM 6. MANAGEMENTS DISCUSSIONS AND ANALYSIS or PLAN OF OPERATIONS.
SUMMARY OF OPERATIONS PLAN FOR 2000
MISSION STATEMENT: To Launch the 1st "charity driven" Internet Lottery
Sweepstakes Game, designed to build to a $100,000,000 progressive jackpot,
that could be played and instantly won on home computers word-wide, day and
night, 365 days a year.
SWEEPSTAKES were popularized in the 1960s by magazine publishing companies
to promote magazine subscription sales. Since then, other kinds of companies,
including stores, fast food restaurants, time-share resorts, and even Charitable
Organizations, have used them to promote sales or encourage donations.
CHARITY SWEEPSTAKES organizations sometimes offer sweepstakes in the hope
of offering potential donors an extra incentive to give and thereby
increasing funds raised. Charity sweepstakes operate the same way other
sweepstakes do.
PRIZES offered in a sweepstakes of ten include a first or grand
prize and one or more second, third, fourth, etc., prizes, with decreasing
values. Sweepstakes winners may or may not be pre-selected.
SWEEPSTAKES. The two ingredients of a sweepstakes are the element of chance
(such as in a drawing) and a prize. "Gambling" on the other hand, has the
additional requirement of consideration, or purchase. You are not required
to pay money or purchase anything to enter a sweepstakes. However, a donation
to a worthy cause and be entered into a sweepstakes, not only makes you feel
good inside knowing your donation will benefit others, there's that inter
voice inside each of us that says unselfishly, its the right thing to do.
BUSINESS STRATEGY:
TELnet go 2000, Inc, a development stage company incorporated in the State of
Delaware, is a public trading company (bulletin board) present ticker symbol is
TNET.
OUR PRODUCT "TELnet World Lotto Sweepstakes Game" is Patented.
THE MARKET Gaming revenues for 1997 (US only) exceeded 638 Billion Dollars.
(source, International Gaming & Wagering Business).
THE INTERNET (US only) 100 MILLION PEOPLE, about half of all adult Americans are
using the internet, which is double from 2 years ago. Electronic commerce is a
tidal wave washing over the global economy. Merrill Lynch predicts the number
of worldwide users will grow 21 percent annually, reaching 1.9 billion by 2009.
(Source. [email protected] The Arizona Republic 8-3-00)
MEMBERSHIP BASE. In addition to various planed promotions, advertising, and
word of mouth campaigns, TELnet GO 2000 will target partnering with
Internet publishers that market banner ads over the Internet to build our
sweepstakes charity Membership Base.
HOW TO BUILD A $100 MILLION JACKPOT. Assume when we begin our sweepstakes
Charity fund-raising, we have 8,000 web partners collectively generating an
average of 36 hits per day (288,000) to our www."worldlottosweepstakes.com " and
15 percent of these visitors, (5.4 people), become World Lotto Members and
donate $10 to the charity of their choice, with this formula successfully
in place and working, could by the 15th week, establish the Membership Base of
5Mmillion Members to generate our first $100million World Lotto Sweepstakes
progressive jackpot.
The size of projected progressive jackpots are dependent on the number of
members each making $10 charitable contributions, and on whether or not
the progressive jackpot has been hit during any week all of which may vary
from week to week. Our 1st Goal is 5 million members worldwide.
FORECASTED 1st 12 MONTHS of projected "Internet Member Base" for our Internet
sweepstakes operations, with this above formula in place and successfully
working, is to generate $5 million a week to our charity partners and $5 million
a week to the Company. (These are assumptions of our forecasted marketing
goals and not intended as statements of attainment, happenings or facts).
THE 4th Quarter of 2000 or 1st Quarter of 2001 is our anticipated World Lotto
Sweepstakes game internet launch target date. However, with unexpected delays
and obstacles, this launch target date could be delayed for some time
or indefinitely.
The Company has and may continue to conceive and review several different plans
for raising operating capital to pursue the Company's proposed Internet World
Lotto Sweepstakes operations. After discussions of some of our financial
structural plans and analyzing the feedback of certain Preferred stock/revenue
sharing/convertible terms outlined in those plans, lacked common shares in the
unit structure, therefore the most likely plan the Company plans to pursue is
outlined as follows:
TO LAUNCH OUR INTERNET SWEEPSTAKES, THE COMPANY WILL OFFER ONE THOUSAND
(1,000) UNITS FOR $5,000 PER UNIT FOR $5,000,000.
EACH UNIT ($5,000) SHALL CONSISTS OF:
1,000 SERIES A PREFERRED voting shares PRICE $4.90 PER SHARE ($4,900)
2,000 COMMON VOTING SHARES PRICE $0.05 PER SHARE ($100)
SERIES A PREFERRED SHARES have Preferential Revenue Sharing Rights over the
Common Shares and are Convertible:
REVENUE SHARING RIGHTS. 25% of quarterly earnings of the Company after all cost
of operations' shall be divided equally among all issued and outstanding
Preferred voting shares and paid equally to each issued and outstanding
Preferred share holder of record until the Series A Preferred voting shares
stated on the Series A Preferred certificate has been paid (pursuant to the
Revenue Sharing Term) $5, at which time the Preferred Shares (pursuant to the
Convertible Rights) are convertible into Common Stock.
REVENUE SHARING TERM. At such time that each holder ("Holder") of 1,000 Series
A Preferred shares stated on the Series A Preferred Certificate (One Unit) has
been paid $5 per share for a total of 100% of the UNIT Price ($5,000), all
voting rights are terminated and no further shared revenue or dividends shall be
distributed by the company to holders of Series A Preferred shares.
CONVERTIBLE RIGHTS. After such time said $5 per share for said total of $5,000
has been paid, and upon surrender to the Company of the Series A Preferred share
certificate for a value not to exceed $5000, each holder of the 1,000 Series A
Preferred shares stated thereon, shall have the right to convert the 1000 Series
A Preferred Shares (I UNIT) to shares of the Company's Common Stock using the
following formula: The number of shares shall be determined by dividing the
original certificate value of $5000 by the number derived by taking 50% of the
average of the previous 5 days "last Trade" price of the Company's common stock
quoted on the OTC Bulletin Board. (Example: if the 5 day averaged price was $1,
50% would be 50 cents, then 1,000 Common shares at UNIT price of $5,000 divide
by 50 cents, would convert for 2,500 common shares).
The Company, prior to accepting in writing a subscription agreement for the
UNITS offered, may at its option at any time, change the price of the UNITS to
the public, change the price of the common shares, the conversion ratio of the
Preferred shares for common shares, oversubscribe the offering term or withdrew
the offering, with or without notice.
REGISTRATION RIGHTS. Purchasers of Units may "piggy back" on all registration
statements filed by the Company ending 12-31-2003.
SUBSCRIPTIONS will be accepted from "accredited investors" only, as defined
under the 1933 Securities Act.
FORECASTED OPERATING BUDGET:
From the sale of 1,000 UNITS, we expect to use the net proceeds
approximately as follows:
Offering exp. $500,000
Non accountable expenses of up to 5% $250,000
Develop World Lotto Sweepstake .com web site, game
communication, software, hardware, etc $1,000,000
Marketing & advertising expense in order to develop our
"World Lotto Sweepstakes.com " Brand $2,000,000
Accrued Royalty Payments and accounts payable (see financial
statements) 185,000
Working Capital $1,065,000
Total $5,000,000
NOTE. As of the date of the filing of this 10-QSB submission, the Company has
not sold any UNITS for Series A Preferred shares with revenue sharing and
convertible rights with or without common shares.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS FILED
(A) Financial Statements containing:
* Report of Certified Public Accountants on Schedules as of
6/30/00
* Reviewed Balance Sheet ending 6/30/00
(a) Statement of Operations from 12/31/1989 to 6/30/00
* Reviewed Statement of Changes in Shareholders Equity as of 6/30/00
* Reviewed Statement of Common Stock issued from 1/1/1989 ending 6/30/00
* Reviewed Statement of Cash Flows from 1/1/1989 ending 6/30/00
* Notes to Financial Statements ending 6/30/2000 (consisting of 18 Notes)
(B) No reports on Form 8-K have been filed during any quarter from 10-1-1977 to
3-31-2000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVES OFFICERS, PROMOTERS AND CONTROL PERSONS.
At the Annual Meeting of the Shareholders of the Company and Directors meeting
held on 12- 17- 1999;
Wayne Mullins was elected Director, President and CEO of the Company. Mr.
Mullins accepted the nominations and shall hold office until his successor shall
have been elected and qualified.
Tom Burns was elected Director, Secretary/Treasurer and Vice President of
Marketing of the Company . Mr. Burns accepted the nominations and shall hold
office until his successor shall have been elected and qualified.
Mr. Maledon was elected a Director of the Company. Mr. Maledon declined to
accept his election to the Board.
At the special meeting of the Directors held on June 21, 2000, Mr. JR Steward
was elected to the Board of Directors, Executive Vice President and
Chief Operating Officer of the Company. Mr. Steward accepted the
nominations and shall hold office until his successor shall have been
elected and qualified.
At the special meeting of the Directors held on June 26, 2000, Mr. John Crockett
was elected Chief Systems Officer of the Company. Mr. Crockett accepted the
nominations and shall hold office until his successor shall have been elected
and qualified. Wayne Mullins age 63. CEO/President and Director. He is a
former Insurance Executive and inventor holding several patents. The United
States Patent Office granted Mr. Mullins the registered trademark Trilogy
(and a patent for his Trilogy "Lotto game and method for playing same".
Mr. Mullins has licensed his patent, registered trademark and patent pending
to the Company.
Tomas L, Burns age 59, Vice President of marketing and Director. He is a
former: Vice President of Operations of MicroAge, Senior Vice President of
Marketing of America West Airlines, Director of International Sales of
Continental Airlines, Manager of Sales for UTA French Airlines.
John Randall Steward, Executive Vice President, COO, Director. Age 57.
Mr. Steward is former President & CEO of Kingston Industries, President of
NationsNet, Inc., Vice President Marketing & Programming of Wireless
Entertainment Systems, Inc., Vice President Marketing & Programming of
Heritage Communications, Inc., Who's Who in Cable Television, Who's Who in
American Business.
John Crockett, Chief Systems Officer. Age 43. Mr. Crockett is former
President of Crockett and Associates, former President of NetValue Corporation,
former Data Processing Controller and Manager of Non-Main frame Systems for
PSC, Inc.
ITEM 10. EXECUTIVE COMPENSATION AND REMUNERATION
The following table shows the compensation of each executive officer and
significant employee commitments as of 8/1/99 for the 6 Months ending
June/30/2000.
Name year, salary, Bonus, Restricted Securities all other
Principal Position Stock Underlying Compensation.
YEAR Salary Awards Options, Warrants
or other compensation
W Mullins
(ending June 30, 2000) 0 0 $50,000
Royalties due 6/30/2000
Tom Burns
(ending June30, 2000) 0 0 0
JR Steward
(ending June 30, 2000) 0 0 0
John Crockett
(ending June 30, 2000) 0 0 0
The following table shows the compensation of each executive officer and
significant employee during the fiscal years ended December 31,1996, 1997,
1998, 1999 and 6 Months ending June 30, 2000.
Name and year salary, Bonus, Restricted Securities all other Principal Position
Stock Underlying Compensation
YEAR Salary Award(s) Options or other Compensation
Wayne Mullins, President\ CEO
2000 0 ending 6/30/00 $6,600 Royalties
1999 0 $29,000 Royalties
1998 0 $39,000 Royalties
1997 0 $17,750 Royalties
1996 0 $22,276 Royalties
1999 0
Michael Maledon, COO\Secretary
1998 0 12,500 50,000
Secretary\Treasurer 1997
0
Secretary\Treasurer 1996
0
The Registrant has no annuity, pension or retirement benefits proposed to be
paid to any of its officers or directors. There is no existing plan
for the payment of such benefits.
ITEM 11. PRINCIPAL SECURITY HOLDERS AND SECURITY HOLDERS OF MANAGEMENT.
Voting Securities owned of record or beneficially in excess of ten percent (10%)
of the issued and outstanding stock of Registrant. Unless indicated otherwise
below, the address for each listed director and officer is PO BOX 30310,
Phoenix, Arizona 85046. Except as indicated by footnote, the persons named
in the table have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them. The number of shares of
common stock outstanding used in calculating the percentage for each listed
person includes the shares of common stock underlying options held by that
person that are exercisable within 60 days of July 30, 2000 but excludes
shares of common stock underlying options held by any other person.
Percentage of beneficial ownership is based on 3,505,272 shares of common
stock outstanding as of July 30, 2000.
Name of Shares of Percentage
If 1,026
preferred
shares
convert
for
Percentag
e
Beneficial common Stock
beneficially
common, 4,531,272 shares would be beneficially
Owner beneficially owned owned
out, at which time beneficially owned owned
Wayne
Mullins
(1)
1,290,000
36%
(3)
2,316,000
51%
Tom Burns
(2)
22,500
.02
4%
(2)
22,500
.00
5%
All executive officers as
a group
(2
persons)
1,312,500
37.
4%
2,3
38,500
51.
6%
(1) More than ten percent. (2) Less than 1 percent. (3) Includes 7,190 shares
of Preferred shares are convertible into 7,190,000 shares of Common Stock at the
rate of one share for each one new share issues by the Company. As of June 30,
2000, shares are eligible to convert are 1, 026 preferred for 1,026,000 common
shares.
INSIDER SALE OF STOCK. In September of 1998 Wayne Mullins, President of the
Company, deposited to his broker account 50,000 (4%) of his 1,265,000 shares
with the intent to sale pursuant to Rule 144, Broker Transaction sale of his
securities. Mr Mullins has withdrew 45,000 of those shares from his broker
account and as of August 15, 2000, Mr. Mullins has not sold any of the 50,000
shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A). No Director, Officer or person holding an excess of ten percent (10%) of
the outstanding securities of the Registrant, or any relative or spouse of
any such persons or relative or spouse of such person, had any interest in
any transactions or presently proposed transactions to which the Registrant
was a party, except Registrants patent licensor Wayne Mullins, who is a
Director and Officer of Registrant.
(B). No Director or Officer of the Registrant or associate of any such Director
or Officer has been indebted to the Registrant from 12/ 31/ 1997 to 3/31/ 2000.
(C). There were no transactions since the beginning of the Registrant's last
fiscal year (December 31, 1999), and are presently no proposed transactions
wherein any retirement, saving or other similar plan will be
provided by the Registrant to any person.
ITEM 13. YEAR 2000 COMPLIANCE
The Company did not experienced any Y-2000 problems or difficulties, on any
operating systems or programs that operates or has developed.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-Q
None.
At the annual shareholders meeting and Directors held on December 17, 1999, the
shareholders and Directors approved to change the name of the corporation from
Trilogy Gaming Corporation to TELnet go 2000, Inc effective 1-1-2000.
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
Dated this 10th Day of August, 2000.
TELnet go 2000, Inc.
By:/s/ W. Mullins
W. Mullins , President
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 2000
TABLE OF CONTENTS
Page No.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statement of Changes in Shareholders' Equity 4 - 7
Statements of Cash Flows 8 - 9
Notes to Financial Statements 10 - 19
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders
telNETgo2000, Inc.
Phoenix, Arizona
We have reviewed the accompanying balance sheet of telNETgo2000, Inc.
as of June 30, 2000 and the related statements of operations, changes
in shareholders' equity and cash flows for the six months then ended,
in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
All information included in these financial statements
is the representation of the management of telNETgo2000, Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially
less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting principles.
As discussed in Note 14, certain conditions indicate that the company
may be unable to continue as a going concern. The accompanying
financial statements do not include any adjustments to the financial
statements that might be necessary should the company be unable to
continue as a going concern.
Moffitt & Company, P.C.
Scottsdale, Arizona
July 15, 2000
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 2000
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 122
TOTAL ASSETS $ 122
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 68,847
Accrued royalty payable,
Wayne Mullins 114,500
Loan payable, Wayne Mullins 2,000
---------
TOTAL CURRENT LIABILITIES $ 185,347
REDEEMABLE PREFERRED STOCK
Non-cumulative, non-voting shares 0
Par value $0.01 per share
Authorized 5,000,000 shares
Issued and outstanding - 6 shares 0
CONTINGENCIES AND UNCERTAINTIES 0
SHAREHOLDERS' EQUITY (DEFICIT)
Capital stock
Preferred stock, convertible,
non-cumulative voting shares
Par value $0.01 per share
Authorized 5,000,000 shares
Issued and outstanding - 7,190 shares 72
Common stock
Par value $0.001 per share
Authorized 75,000,000 non-
cumulative voting shares
Issued and outstanding -
3,505,272 shares 3,505
Paid in capital in excess of par
value of stock 2,531,276
Advance on stock subscription (2,500)
Retained earnings (deficit) (477,376)
Deficit accumulated during the
development stage (2,240,202)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (185,225)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 122
See Accompanying Notes and Independent Accountants' Review Report.
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION OF DEVELOPMENT)
TO JUNE 30, 2000
(UNAUDITED)
January 1, 1989
(Date of
Inception of
Three Months Six Months Development)
Ended June 30, Ended June 30, to June 30,
2000 2000 2000
REVENUE $ 0 $ 0 $ 0
COSTS AND EXPENSES
Development costs, net 91,159 (105,914) 1,655,953
Abandonment of assets 0 0 584,249
TOTAL COSTS AND EXPENSES 91,159 (105,914) 2,240,202
NET INCOME (LOSS) $ (91,159) $ 105,914 $ (2,240,202)
NET (LOSS) PER COMMON SHARE
Basic and diluted $ ( .03) $ .03
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
Basic 3,441,939 3,441,939
Diluted 4,408,564 4,408,564
See Accompanying Notes and Independent Accountants' Review Report.
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION
OF DEVELOPMENT) TO JUNE 30, 2000
(UNAUDITED)
Preferred Stock
(Convertible) Common Stock
Shares Amount Shares Amount
BALANCE, JANUARY 1, 1989
(DATE OF INCEPTION OF
DEVELOPMENT) 0 $ 0 49,985,211 $ 1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31,1989 0 0 0 0
BALANCE, DECEMBER 31, 1989
0 0 49,985,211 1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1990
0 0 0 0
BALANCE, DECEMBER 31, 1990
0 0 49,985,211 1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1991
0 0 0 0
BALANCE, DECEMBER 31, 1991
0 0 49,985,211 1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1992
0 0 0 0
BALANCE, DECEMBER 31, 1992
0 0 49,985,211 1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1993
0 0 0 0
BALANCE, DECEMBER 31, 1993
0 0 49,985,211 1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1994
0 0 0 0
BALANCE, DECEMBER 31, 1994
0 0 49,985,211 1,979
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1995
0 0 0 0
BALANCE, DECEMBER 31, 1995
0 $ 0 49,985,211 $ 1,979
<PAGE>
Paid in Deficit
Capital Accumulated
in Excess Advance Stock Retained During the
of Par on Stock Subscription Earnings Development
Value of Stock Subscription Receivable (Deficit) Stage
$ 1,003,753 $ 0 $ 0 $(447,376) $ 0
0 0 0 0 (47,037)
1,003,753 0 0 (447,376) (47,037)
0 0 0 0 (160,296)
1,003,753 0 0 (447,376) (207,333)
0 0 0 0 (111,886)
1,003,753 0 0 (447,376) (319,219)
0 0 0 0 (37,250)
1,003,753 0 0 (447,376) (356,469)
0 0 0 0 (52,882)
1,003,753 0 0 (447,376) (409,351)
0 0 0 0 (39,250)
1,003,753 0 0 ( 447,376) ( 448,601)
0 0 0 0 ( 27,075)
$ 1,003,753 $ 0 $ 0 $ ( 447,376) $( 475,676)
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION
OF DEVELOPMENT) TO JUNE 30, 2000
(UNAUDITED)
Preferred Stock
(Convertible) Common Stock
Shares Amount Shares Amount
BALANCE AFTER REVERSE
STOCK SPLIT - MARCH 1, 1996
0 $ 0 494,684 $ 0
MERGER OF INTERNATIONAL
LOTTERY PRODUCTIONS LTD.
0 0 1,596,893 0
ISSUANCE OF COMMON
STOCK FOR
Cash 0 0 118,000 118
Royalties 0 0 78,750 0
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1996
0 0 0 0
BALANCE, DECEMBER 31, 1996
0 0 2,288,327 2,097
ISSUANCE OF PREFERRED
STOCK FOR CASH 3,690 37 0 0
ISSUANCE OF COMMON
STOCK FOR
Services rendered 0 0 6,200 62
Cash 0 0 15,000 150
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1997
0 0 0 0
BALANCE, DECEMBER 31, 1997
3,690 $ 37 2,309,527 $ 2,309
<PAGE>
Paid in Deficit
Capital Accumulated
in Excess Advance Stock Retained During the
of Par on Stock Subscription Earnings Development
Value of Stock Subscription Receivable (Deficit) Stage
$ 0 $ 0 $ 0 $ 0 $ 0
0 0 0 0 0
147,382 0 0 0 0
0 0 0 0 0
0 0 0 0 ( 167,434)
1,151,135 0 0 ( 477,376) ( 643,110)
0 0 0 0 0
7,688 0 0 0 0
34,850 0 0 0 0
0 0 0 0 ( 74,748)
$ 1,193,673 $ 0 $ 0 $( 477,376) $ ( 717,858)
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1989 (DATE OF INCEPTION
OF DEVELOPMENT) TO JUNE 30, 2000
(UNAUDITED)
Preferred Stock
(Convertible) Common Stock
Shares Amount Shares Amount
ISSUANCE OF COMMON
STOCK FOR Cash,
net of commission
paid 0 $ 0 386,500 $ 387
Services rendered 0 0 50,000 50
Directors' fee 0 0 105,000 105
CORRECTION OF ISSUED
SHARES 0 0 ( 900) ( 1)
OUTSTANDING STOCK
OPTIONS 0 0 0 0
ADVANCE ON STOCK
SUBSCRIPTION 0 0 0 0
NET LOSS FOR THE YEAR
ENDED DECEMBER 31,1998
0 0 0 0
BALANCE, DECEMBER 31, 1998
3,690 37 2,850,127 2,850
CORRECTION OF ISSUED
SHARES 0 0 ( 355) 0
ISSUANCE OF PREFERRED
STOCK FOR PENDING
PATENT 3,500 35 0 0
ISSUANCE OF COMMON
STOCK FOR CASH, NET OF
COMMISSIONS PAID 0 0 452,500 452
ISSUANCE OF COMMON STOCK
FOR ADVANCE ON STOCK
SUBSCRIPTION 0 0 8,000 8
ISSUANCE OF COMMON
STOCK FOR
DIRECTORS' FEE 0 0 115,000 115
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1999
0 0 0 0
BALANCE,
DECEMBER 31, 1999 7,190 $ 72 3,425,272 $ 3,425
<PAGE>
Paid in Deficit
Capital Accumulated
in Excess Advance Stock Retained During the
of Par on Stock Subscription Earnings Development
Value of Stock Subscription Receivable (Deficit) Stage
$ 627,464 $ 0 $ 0 $ 0 $ 0
62,450 0 0 0 0
209,895 0 0 0 0
0 0 0 0 0
225,000 0 0 0 0
0 7,500 0 0 0
0 0 0 0 ( 913,893)
2,318,482 7,500 0 (477,376) (1,631,751)
0 0 0 0 0
0 0 0 0 0
367,348 0 0 0 0
7,492 ( 7,500) ( 2,500) 0 0
1,034 0 0 0 0
0 0 0 0 ( 714,365)
$ 2,694,356 $ 0 $ (2,500) $ ( 477,376) $(2,346,116)
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1989 (DATE OF INCEPTION
OF DEVELOPMENT) TO JUNE 30, 2000
(UNAUDITED)
Preferred Stock
(Convertible) Common Stock
Shares Amount Shares Amount
ISSUANCE OF COMMON
STOCK FOR CASH 0 $ 0 20,000 $ 20
RECISSION OF OUT-
STANDING STOCK
OPTIONS 0 0 0 0
FAIR MARKET VALUE OF
SERVICES PERFORMED 0 0 0 0
JUNE 20, 2000 ISSUED STOCK
FOR SERVICES 0 0 60,000 60
LESS COST OF FINANCING
STOCK ISSUED 0 0 0 0
NET INCOME FOR THE
SIX MONTHS ENDED
JUNE 30, 2000 0 0 0 0
BALANCE, JUNE 30, 2000
7,190 $ 72 3,505,272 $ 3,505
<PAGE>
Paid in Deficit
Capital Accumulated
in Excess Advance Stock Retained During the
of Par on Stock Subscription Earnings Development
Value of Stock Subscription Receivable (Deficit) Stage
$ 9,980 $ 0 $ 0 $ 0 $ 0
( 225,000) 0 0 0 0
52,000 0 0 0 0
14,940 0 0 0 0
( 15,000) 0 0 0 0
0 0 0 0 105,914
$ 2,531,276 $ 0 $ (2,500) $(477,376) $( 2,240,202)
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION OF DEVELOPMENT)
TO JUNE 30, 2000
(UNAUDITED)
January 1, 1989
(Date of
Inception of
Six Months Development)
Ended June 30, to June 30,
2000 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 105,914 $ (2,240,202)
Adjustments to reconcile net
income (loss) to net cash (used)
by operating activities:
Capital and stock issued for
expenses and services 0 506,434
Merger of International Lottery
Productions Ltd. 0 527,608
Abandonment of property and
equipment and equipment lease
security deposits 0 584,249
Fair market value of services
performed 52,000 52,000
Recission of stock options ( 225,000) ( 225,000)
Changes in operating assets
and liabilities:
Accounts payable ( 11,548) 68,847
Accrued royalty payable,
Wayne Mullins 43,500 114,500
NET CASH (USED) BY OPERATING
ACTIVITIES ( 35,134) ( 611,564)
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction in process for
gaming tables and computers 0 ( 571,743)
NET CASH (USED) BY INVESTING
ACTIVITIES 0 ( 571,743)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
company stock 10,000 1,185,650
Equipment lease security
deposits 0 ( 12,506)
Advance on stock subscription 0 7,500
Loan from Wayne Mullin 2,000 2,000
NET CASH PROVIDED BY FINANCING
ACTIVITIES 12,000 1,182,644
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS $ ( 23,134) $ ( 663)
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION OF DEVELOPMENT)
TO JUNE 30, 2000
(UNAUDITED)
January 1, 1989
(Date of
Inception of
Six Months Development)
Ended June 30, to June 30,
2000 2000
CASH AND CASH EQUIVALENTS BALANCE AT
BEGINNING OF PERIOD $ 23,256 $ 785
CASH AND CASH EQUIVALENTS BALANCE AT
END OF PERIOD $ 122 $ 122
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ 0 $ 0
Taxes paid $ 0 $ 0
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of company stock
for expenses and services $ 0 $ 506,434
Issuance of company stock for merger of
International Lottery
Productions Ltd. $ 0 $ 527,608
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
telNetgo2000, Inc. was incorporated in the State of Delaware for the
primary business purpose of selling its Trilogy scratch tab/lotto
type tickets on consignment and administering the progressive
jackpots and communication systems. In 1999, the company began
developing products to sell electronic sweepstake tickets over the
internet.
Accounting Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the company considers
all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income
and between the tax bases of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or
settled as prescribed in FASB Statement No. 109, Accounting for
Income Taxes. As changes in tax laws or rate are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
Net Income (Loss) Per Share
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares outstanding during
the period. In accordance with FASB 128, potentially dilutive
warrants and options that would have an anti-dilutive effect on
net loss per share are excluded.
Long Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that
the carry amount of the asset in question may not be recoverable.
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long Lived Assets (Continued)
In 1999, the company expensed the following:
Gaming tables $ 571,239
Cybernet lease 12,506
Office equipment 504
$ 584,249
NOTE 2 DEVELOPMENT STAGE OPERATIONS
As of June 30, 2000, the company was in the development stage of
operations. According to the Financial Accounting Standards Board of
the Financial Accounting Foundation, a development stage company is
defined as a company that devotes most of its activities to
establishing a new business activity. In addition, planned principle
activities have not commenced, or have commenced and have not yet
produced significant revenue.
The company expensed $119,086 less $225,000 recovery of development
costs for the six months ended June 30, 2000 and $2,240,202 from
January 1, 1989 (date of inception of development) to June 30, 2000.
NOTE 3 INCOME TAXES
Income before income taxes $ 105,914
The provision for income taxes is estimated as follows:
Currently payable $ 0
Deferred $ 0
A reconciliation of the provision for income taxes
compared with the amounts at the U.S. Federal
Statutory rates is as follows:
Tax at U.S. Federal Statutory income tax rates $ 0
Deferred income tax assets and liabilities reflect the
impact of temporary differences between amounts
of assets and liabilities for financial reporting
purposes and the basis of such assets and liabilities
as measured by tax laws. The net deferred tax assets
is: $ 0
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 3 INCOME TAXES (CONTINUED)
Temporary differences and carry forwards that gave rise to
deferred tax assets and liabilities included the following:
Deferred Tax Asset
Deferred tax from development costs $ 757,000
Valuation allowance 757,000
Total deferred taxes $ 0
A reconciliation of the valuation allowance is as follows:
Balance at January 1, 2000 $ 812,363
Used for the six months ended June
30, 2000 55,363
Balance at June 30, 2000 $ 757,000
NOTE 4 LICENSING AGREEMENT WITH RELATED PARTY
The company has two licensing agreements with the company's
Chief Executive Officer for the exclusive right to use the
officer's patents and trade marks for the Trilogy Lotto game and
the Electronic Sweepstake tickets.
The first agreement provides:
A. 1,310,000 common voting shares of stock
B. 3,690 shares of convertible preferred shares,
convertible at the rate of 1 convertible preferred share
for 1,000 common shares beginning March 1, 1998 for each
1,000 new shares issued by the company. The shares
eligible for conversion at June 30, 2000 is computed as
follows:
Shares outstanding at March 1, 1998 2,478,647
Shares outstanding at June 30, 2000 3,505,272
Shares eligible for conversion 1,026,625
C. 1 % royalty with minimum payments of $50,000.
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 4 LICENSING AGREEMENT WITH RELATED PARTY (CONTINUED)
The second agreement provides:
A. 3,500 shares of convertible preferred shares,
convertible at the rate of 1 convertible preferred share
for 1,000 common shares beginning January 2, 2000 for each
1,000 new shares issued by the company.
B. 1 % royalty with minimum payments of $50,000.
NOTE 5 BEARER ROYALTY CERTIFICATES
The company has issued 61 five year Trilogy Lotto royalty
interests. The royalty units will receive a 6% minimum royalty
payment for two years plus a five year royalty of .01% of pre tax
income. Payments begin the first year the company receives gross
profits and royalty earnings payments from each state lottery
marketing the Trilogy Lotto game.
NOTE 6 CONVERTIBLE PREFERRED STOCK
As part of the licensing agreements described in footnote number
4, the Chief Executive Officer received 7,190 shares of
convertible, non-cumulative voting preferred shares of stock.
These shares are convertible at the rate of one preferred share
for 1,000 common shares for a total of 7,190,000 common shares.
There is no expiration date on this option.
NOTE 7 REDEEMABLE PREFERRED STOCK
Regulation S-X of the Securities and Exchange Commission states
that preferred stock subject to mandatory redemption requirements
must be presented separately in the balance sheet and not be
included in the shareholders' equity section. The non-cumulative,
non-voting shares have a redemption value of $10,000 each payable
from 25% of the company's quarterly pre-tax earnings as a
preferred stock dividend. When the preferred stock dividends paid
under this formula equals $10,000 per unit, the preferred unit
shares will be terminated on the books of the company.
At June 30, 2000, the company was contingently liable to redeem
$60,000 of preferred stock from 25% of pre-tax earnings.
NOTE 8 INCENTIVE QUALIFIED EMPLOYEE STOCK OPTION PLAN
The company has adopted an incentive qualified employee stock
option plan. The plan is designed for key employees and will be
administered by the Compensation Committee of the Board of
Directors and/or the company's Chief Executive officer. The plan
will provide that employee options granted by the company are
vested in the employee after services have been performed or
after one year of full time employment and may be exercised
after the options are vested and prior to the termination date of
the vested option. The options are exercisable for $1.25 per
share and each option shall be vested for services performed for
the company or after one year as a full time employee of the
company.
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 8 INCENTIVE QUALIFIED EMPLOYEE STOCK OPTION PLAN (CONTINUED)
A summary of the stock options outstanding is as follows:
Shares
Balance at January 1, 2000 300,000
Board of director's recission
of options to previous Chief Operation Officer 300,000
Balance at June 30, 2000 0
NOTE 9 EXECUTIVE EMPLOYMENT AGREEMENTS
On December 17, 1999, the stockholders authorized the Board of
Directors to enter an annual employment agreement with Wayne
Mullins with the following terms:
A. Reimburse Wayne Mullins for all corporation
expenses paid by him personally.
B. Provide a company vehicle and insurance
with a monthly cost not exceeding $800 per month.
C. Medical insurance coverage.
D. When the company has $1,000,000 capital on
hand or the company begins to generate monthly sales of
$25,000, whichever occur first, Mr. Mullins' one year
employee agreement shall then be for a seven year term
with an annual base salary of $104,000 together with an
annual bonus of $10,000 for each $1,000,000 pre tax
earnings generated to the company during a calendar year
during the term of the employment agreement. Any
increase in the base salary or bonus, if any, after the
first year will be determined by the company's Board of
Directors or the company's management committee or by a
majority vote of the shareholders.
The shareholders approve and instruct the directors to approve
that, beginning upon the company having $1,000,000 capital on
hand or the company begins to generate monthly sales of $25,000,
whichever occur first, the company's Chief Executive Officer may
enter into employment contracts of more than one year but not
exceeding five years. Each employment agreement shall provide
in part that, the annual base salary not exceed $104,000 without
Board of Director approval. Any increase in the base salary, if
any, after the first year will be determined by the company's
Board of Directors or the company's Chief Executive Officer or
the company's management committee. All expenses incurred in
the performance with the duties as an officer, employee,
consultant and director of the company may be paid or reimbursed
by the company. The employee may be provided with a vehicle
with full insurance coverage or up to $600 monthly auto and
insurance allowance, and reasonable medical and dental
plan/benefits. The employee may receive annual bonus of up to $5,000.
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 9 EXECUTIVE EMPLOYMENT AGREEMENTS (CONTINUED)
for each $1,000,000 pre tax earnings generated to the company
during each calendar year of employment and options for common
stock, not exceeding 100,000 restricted common shares to any one
person, exercisable over a period of three years from the grant
date of the option, at the price per share of (a) prior to the
end of the 1st year, 30% of the market value of the shares or
$5.00 per share, whichever is greater, or (b) prior to the end
of the 2nd year, 40% of the market value of the shares or $10.00
per share, whichever is greater, or (c) prior to the end of the
3rd year, 50% of the market value of the shares of $20.00 per
share, whichever is greater.
At June 30, 2000, the company recorded, as additional paid in
capital, the fair market value of services performed in the
amount of $52,000.
NOTE 10 DIRECTORS' COMPENSATION
The stockholders approved the following compensation for the
directors of the company:
A. Issuance of common stock
5,000 shares to each director for each full
year of service from November 1, 1995 to November 1,
1998 and 10,000 shares for each full year from November 16, 1998.
and
B. Bonus
An annual director bonus of up to 1,000 common shares for each
$1,000,000 of pre tax earnings generated to the company during each of the
company's fiscal year the director served on the Board of Directors of the
company.
NOTE 11 PUBLIC OFFERING
The Board of Directors have the authority, prior to November 30,
2000, to register with the Securities and Exchange Commission a
public offering for up to 10,000,000 common shares of the
company's common stock and warrants at a price per share to be
determined by and at the discretion of the Chief Executive
Officer and Secretary of the company.
NOTE 12 EXECUTIVE BONUSES
The shareholders approve that, the Board of Directors and the
Chief Executive Officer and Secretary of the company are
authorized and instructed that; The Chief Executive Officer,
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 12 EXECUTIVE BONUSES (CONTINUED)
Chief Operating Officer, Chief Financial Officer, Vice
Presidents of Marketing, Vice President of Communications, Vice
President of Administration and Vice President of Communication
Systems for each full year as a full time salaried employee and
officer of the company, shall each receive an annual bonus of up
to 10,000 common shares of the company for each $1,000,000 of
pre tax earnings generated to the company during the company's
fiscal year.
NOTE 13 WARRANTS TO ACQUIRE COMMON STOCK
The company has issued the following warrants:
Number Price Per Expiration
of Shares Shares Date
Series A warrants 505,000 $ 3.00 June 30, 2000
Series B warrants 505,000 7.00 December 31, 2000
Series C warrants 12,500 3.00 June 30, 2000
Series D warrants 12,500 7.00 December 31, 2000
Series E warrants 100,000 1.00 June 30, 2000
Series F warrants 90,000 1.00 June 30, 2000
Warrant No. 2000-01 40,000 5 day averages June 1, 2003
NOTE 14 GOING CONCERN
These financial statements are presented on the basis that the
company is a going concern. Going concern contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business over a reasonable length of time. The
accompanying financial statement shows that current liabilities
exceed current assets by $185,225, a shareholders' deficiency of
$185,225, and the company has no contracts for the sale of its
products.
The company is developing a new product and is seeking
additional financing to fund this project.
NOTE 15 CONTINGENCIES AND UNCERTAINTIES
Phoenix Gaming International, Inc. (PGI)
PGI is owned by a former director of the company. PGI issued
a purchase order to the company for 30 gaming tables for the
company's contract with the St. Regis Mohawk Indian Tribe of New
York. The company paid approximately $280,000 of the $300,000
contract. Nine of eleven initially ordered tables were received
of which four were partially operational
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 15 CONTINGENCIES AND UNCERTAINTIES (CONTINUED)
Phoenix Gaming International, Inc. (PGI) (Continued)
to dispense lotto tickets, but without software completely
written, tested, and commercially working for the Trilogy game on-
site and off-site communication systems. Twenty additional tables
have not been completely manufactured and delivered to the company.
PGI stated that the company owes them $186,000 plus another
$350,000 to subcontractors.
The company believes that PGI and its software programers,
subcontractors and other vendors including Industrial Power
Coating, Inc, which is owned by a former director of the company,
failed to completely produce and deliver the fully developed
and commercially acceptable commercially working Trilogy Bingo
Game tables and software. As a result, the company believes that
PGI, directly and indirectly, caused the company great financial
loss, harm and damages. The company's position is that it
overpaid the vendors and will not pay any of the alleged
payables. The company plans to take legal action against PGI, its
subcontractors and associate contractors and seek recovery of
money paid for software, components, T-1 lines/communications,
installations, etc. and damages.
Employment Contract to Michael Maledon
In 1998, the stockholders approved an employment contract for
Michael Maledon. The contract was never consumated or signed.
(Delaware law requires that all employment contracts in excess of
one year must be in writing). In 1999, the stockholders
retroactively rescinded the 1998 agreement. Michael Maledon
states that the company owes him $197,283 of salary and expenses.
The company's position is that a contract was never entered into
and no funds are due.
The company has not accrued any liabilities for these contingencies and
uncertainties.
Threatened Litigation
On May 6, 1999, the company was provided with a draft of a
threatened complaint which alleges that the proposed plaintiffs
were investors in International Lottery Productions, Ltd. ("ILP"),
a predecessor company to Trilogy. The threatened complaint
further alleges that ILP (incorporated in 1989, went out of
business in 1993, resurrected and merged into Trilogy Gaming
Corporation on March 7, 1996) and certain of its officers and
directors made misrepresentations to the plaintiffs in connection
with their investments in ILP. The threatened complaint also
alleges that certain of the officers and directors of ILP and
Trilogy breached their fiduciary duties to the shareholders of the
respective corporations. The threatened complaint seeks
compensatory and punitive damages, and further seeks to establish
a constructive trust over the lottery game operated by Trilogy and
all revenues it generates, in favor of the plaintiffs.
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 15 CONTINGENCIES AND UNCERTAINTIES (CONTINUED)
Threatened Litigation (Continued)
It appears that the main thrust of the allegations of the
threatened complaint are dependent upon the claims that in 1997-8
the six incorporators of ILP were induced to and paid $10,000 each
to Wayne Mullins personally for his personal benefit, for a
interest in his patent and for 40,000 common shares of ILP, when
in fact, they each signed and initialed each page of the
"Pre-Organizational Agreement" and the "Organizational
Meeting". Both documents set forth all their rights and risks
involved in investing into and forming a new corporation as the
promoters. Each of their $10,000 capital contributions to
form the company (ILP) were made over a period of time and each
payment was made payable to ILP.
Following receipt of the Draft complaint, the company's legal
counsel has had several conversations with counsel for the
potential plaintiffs. It is uncertain whether the potential
plaintiffs will, in fact, file the threatened complaint. The
company has entered into a tolling agreement with the plaintiffs
in order to resolve the alleged allegations. The company has been
advised that good arguments exist that some or all of proposed
plaintiffs' threatened claims may contain false and misleading
statements and fail to state a course of action and, therefore,
may be subject to dismissal. At this early stage, however, it is
impossible to predict what the ultimate outcome of this matter
will be.
NOTE 16 PRIVATE PLACEMENT SITE HOSTING AGREEMENTS
On June 1, 2000, the company entered into an accredited
investor site with NVST.com, Inc. NVST.com, Inc. has a data base
of 1,000+ listed accredited investors that they match with
companies listed with NVST who are seeking capital by private
placements and other investments.
The company's registration agreement with NVST requires that
the company must pay a fee of $995 and issued warrants for 40,000
shares of its company stock. The warrants expire on June 1, 2003
and can be exercised at a price based on the last five day trades
and 120 days from June 1, 2000.
On June 20, 2000, the company entered into an internet site
hosting agreement with Premiere Equities Inc. for the purpose of
selling, on a best efforts bases, 1,000 units of convertible
preferred stock at $5,000 per unit. The company's costs for this
agreement are:
1. Signing fee for contract and web designing to accommodate the
electronic subscription of units to the private placement - 30,000
unrestricted common shares of the company. An individual stockholder,
not an officer, director or affiliate, paid the 30,000 share obligation for the
company to complete the agreement.The company reimbursed the shareholder with
two restricted shares for each one
<PAGE>
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 16 PRIVATE PLACEMENT SITE HOSTING AGREEMENTS (CONTINUED)
unrestricted share given by the shareholder. The company
valued the 60,000 shares issued at 0.25 cents per share.
2. Subscription transfer fee - $500 per unit
NOTE 17 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of June 30, 2000 is
unaudited. In management's opinion, such information includes
all normal recurring entries necessary to make the financial
information not misleading.
NOTE 18 UNITED STATES SECURITIES AND EXCHANGE COMMISSION INQUIRY
In June, 2000, the United States Securities and Exchange
Commission began an inquiry on the company. The company is
complying and providing the information requested by the SEC.
The outcome of the inquiry is not known as of the date of this
report.
