SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
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 March 31,2000
Commission File No. 0-6518
TELnet go 2000, Inc.
2937 East Nisbet Ct.
Phoenix, Arizona 85032
Telephone: (602) 788-5801
State of Incorporation Delaware
I.R.S. Employer Identification No. 87-0280129
Securities Registered Pursuant to Section 12 (b) of this Act:
Title of Each Class None
Name of Each Exchange on Which Registered None
Securities Registered Pursuant to Section 12 (g) of this Act:
Title of Each Class Common Voting Stock, Par Value $0.01 Per Share
Name of Each Exchange on Which Registered None
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 March 31, 1999, there were 3,441,939 shares of common stock,
.001 par value issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit A. Financial Data Schedule (for the Quarter Ending March 31, 2000
Transitional Small Business Disclosure Format YES X NO
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,parvalue $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 ssued to Licensor. Said preferred shares shall be
increased or decreased in roportion 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 ssued 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 licensed to the Company the
game to the Company, which 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.
n 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
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 that would
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 was woefully 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 omplete 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 change 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
xpense 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 removed the tables from the Mohawk Bingo Palace in violation of
the Agreement between St Regis and the Company. The Company was informed of
this decision after the tables were removed 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.
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. At this early
stage, however, we are unable to predict what the ultimate outcome of this
matter will be.
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 26,667
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 year ended December
31,1999 and 1st Quarter ended March 31, 2000. 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
FIRST QUARTER ending MARCH 31, 2000 2.25 0.62
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.
Approximate number of equity securities holders as of March 31, 2000 568
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.
The Company has or may issue the following Warrants to acquire Common Stock of
the Company:
Number of Price per Warrant
Series Shares Common Share Expiration date
A 505,000 $3 June 31, 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
Options. The Company had an option outstanding to a former officer of the
Company to purchase a total of 300,000 shares of common stock at $1.25 per
share. For lack of filling the performance (the consideration to be
given the Company for the option) the board of directors of the company
rescinded this option on March 1, 2000.
ITEM 6. MANAGEMENTS DISCUSSIONS AND ANALYSIS or PLAN OF OPERATIONS.
SUMMARY OF OPERATIONS FOR 2000
MISSION STATEMENT: To Launch the 1st "charity driven" Internet Lottery
Sweepstakes Game, that could build to a $100,000,000 progressive jackpot,
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 often 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.
GENERATING OUR INTERNET MEMBER BASE. Our objective, in addition to word of
mouth, promotions and advertising, is to partner with Internet Publishers that
market banner adds over the internet who have collectively 8,000 web partners,
with each generating to "TELnetgo2000.com" web site, an average of 36 hits per
day, 7 days a week, and with only 15% (5.4 people) per day that become members
and donate $10 to the Charity of their choice and receive 40 FREE sweepstakes
play lines playable on their home computer for a chance to win "instantly" up
to
$100, jackpots of $500, $1,000, $5,000 or a multi million dollar sweepstakes
Progressive Jackpot.
OUR OBJECTIVE INTERNET MEMBER BASE could build our TELnet Lotto Sweepstake
(unless earlier hit) to $100,000,000 in the 15th week of our internet
sweepstakes operations and (unless earlier hit) rebuild it to a $100,000,000
jackpot every 4 to 6 weeks thereafter. (The size of projected sweepstakes
progressive jackpots are dependent on the number of $10 charity contributions
made, which may vary from week to week, and whether or not the progressive
jackpot has been hit during any such week).
1st 12 MONTHS of our projected member base internet sweepstakes operations,
could generate $400,000,000 to our charity partners.
THE later part of 2000 is our anticipated TELnet World Lotto Sweepstakes game
internet launch date.
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 is for one (1) Series A
Preferred Voting Share with revenue sharing rights and convertible rights.
EACH UNIT IS FOR ONE (1) Series A Preferred voting share with revenue sharing
rights and convertible rights.
REVENUE SHARING. Series A Preferred Share shall receive from 25% of the
quarterly earnings of the Company, divided by 5,000 from which 1/5,000th shall
be paid to each issued and outstanding Series A Preferred share holder of
record until 300% of the Unit price has been paid or the Series A share is
converted, whichever occurs first.
CONVERTIBLE RIGHTS. 120 days after the issue date stated on the series A
preferred unit certificate and upon the series A preferred share receiving the
Revenue Sharing Payment, if any, stated below, the series A preferred
share holder of record shall have the right to convert each such preferred
share for the number of common shares stated opposite the revenue share payment
below. Each series A preferred share receiving total revenue payment of 300% of
the unit price, shall cease any further revenue sharing participation, and is
convertible for 100 common shares upon surrender of the series A preferred
share certificate to the company.
Revenue
Payment
$0.00 25% of the market price of the proceeding day's last trade of the
Company's common stock.
$1 50% of the market price of the proceeding day's last trade of the
Company's common stock.
$2,000 75% of the market price of the proceeding day's last trade of the
Company's common stock.
$5,000 300 common shares net share cost $00
$10,000 200 common shares net share cost $00
$15,000 100 common shares net share cost $00
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 conversion ratio of the Preferred shares for common
shares, oversubscribe the offering term or withdrew the offering, with or
without notice.
SHARES OUTSTANDING. Immediately prior to the Offering there were 3,445,272
shares of common stock.
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.
OPERATING BUDGET for 6 months from the sale of 1,000 UNITS:
Operatinng $500,000
Offering exp. $750,000
Web site, game communication, software, hardware, Etc $400,000
Legal & Accounting $100,000
Debt reduction $100,000
Unassigned $150,000
Web Site advertising and Jackpot Seed expense $3,000,000
Total $5,000,000
1st 12 MONTH PROJECTIONS of telNETgo2000.com Internet Sweepstakes operations
are:
Gross Revenues $413,000,000
Operating Expenses (including advertising) $88,000,000
Operating Earnings $325,000,000
Primary ESP (assume at 6.5 Million shares) $5
Share Value (assume at PEPS of 5) $250
UNIT EXIT STRATEGY: 1ST Quarter Projections of our internet operations are
$27,000,000, from which the Company could pay each $5,000 Unit $15,000, at such
time, each Unit holder of record would exit with 300% gain plus 100 common
share bonus or, prior thereto, the preferred share are convertible for common
shares at the ratio stated above and participate in the earning and growth of
the Company.
(There is no promises made that the Company will succeed in selling said 1,000
Units or the projections will occur or are realistic)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS FILED
(A) Financial Statements containing:
* Report of Certified Public Accountants on Schedules as of 3/31/00
* Audited Balance Sheet ending 3/31/00
* Statement of Operations from 12/31/1989 to 3/31/00
* Audited Statement of Changes in Shareholders Equity as of 3/31/00
* Audited Statement of Common Stock issued from 1/1/1989 ending 3/31/00
* Audited Statement of Cash Flows from 1/1/1989 ending 3/31/00
* Notes to Financial Statements ending 3/31/2000(consisting of 16 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 held on 12- 17- 1999,
the following named Directors were elected and 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 .
ITEM 10. EXECUTIVE COMPENSATION AND REMUNERATION
The following table shows the compensation of each executive officer and
significant employee during the fiscal years ended December 31,1996, 1997,
1998, and December 31, 1999.
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 1999 0 $29,000 Royalties
1998 0 $39,000 Royalties
1979 0 $17,750 Royalties
1996 0 $22,276 Royalties
1999 0
Michael Maledon, COO\Secretary 1998 0 62,500 50,000
Secretary\Treasurer 1997 0
Secretary\Treasurer 1996 0
Pursuant to the representations made at the Annual Shareholders Meeting and
Board of Directors Meeting held on November 16, 1998 by the Mike Maledon the
Company's COO and Tommy McLeese, that during the first quarter of 1999, the
COO and Tommy McLeese would have the Trilogy bingo table game fully developed,
produced, tested and commercially operational at the St Regis Mohawk Bingo
Place in the State of NY, as a result of such statements, the shareholders were
induced and approved the Board of Directors to approve the following options
for common stock to be granted to Mike Maledon, the Chief Operating Officer
(COO) of the Company with the option date as of September 1, 1998. Option for:
150,000 common shares at the price of $1.25 per share exercisable for a
period of three years from 3/1/1999 and 150,000 common shares at the price of
$1.25 per share exercisable for a period of three years from 3/1/2000.
The Trilogy Bingo Table Game were not fully developed, produced, tested and
commercially operational at the St Regis Mohawk Bingo Place in the State of NY
as pursuant to representations made by the COO and Tommy McLeese, which was
the inducement to grant the 300,000 share option to the COO. On March1, 2000
the Board of Directors rescinded the 300,000 share stock option to Mr. Maledon
the former COO and Director of the Company for lack of consideration.
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 December 31, 1999 but
excludes shares of common stock underlying options held by any other person.
Percentage of beneficial ownership is based on 3,425,272 shares of common stock
outstanding as of December 31, 1999.
Name of Shares of Percentage If 1,000 units Percentage
beneficial common stock beneficially convert @avg.$4 Beneficial
Owner beneficially Owned per share for Owned
Owned 1,250,000 shares
then beneficially
owned
Wayne Mullins (1)1,265,000 36.9% (3) 3,504,625 50.5%
Tom Burns (2) 7,500 .024% (2) 7,500 .001%
All executive
officers as
a group (2) 1,272,500 37.1% 3,512,125 50.6%
(1) More than ten percent (2)Less than 1 percent. (3)Includes 7,190 shares of
Preferred shares which 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.
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 May 9, 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's internal systems are believed to be Y-2000 compliance. The
Company's designed Trilogy game Internet Hardware /Software will be specified
Y-2000 compliance. However, the failure of our internal systems or material
third-party systems to be Year 2000 compliant would significantly harm our
business. The Company may be affected by Year 2000 issues related to
non-compliant information technology systems or non-information technology
systems operated by us or by third parties. As a result, the Company could
suffer a significant number of business disruptions and inefficiencies for us,
our service and providers and our anticipated internet members and users that
may divert our time and attention and financial and human resources from our
ordinary business activities.
In addition, the Company cannot be certain that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by these
entities to be Year 2000 compliant could result in a systemic failure beyond
our control, such as a prolonged Internet, telecommunications or electrical
failure, that could also prevent the Company from delivering our anticipated
internet services to our customers, decrease the use of the Internet or prevent
users from accessing our Web site which would lead to a decline in our
anticipated revenues.
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 May, 2000.
TELnet go 2000, Inc.
BY
W. Mullins , President
TELNETGO2000, INC.
FORMERLY KNOWN AS
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
MARCH 31, 2000
TABLE OF CONTENTS
Page No.
INDEPENDENT ACCOUNTANTS' REVIEW ......... 1
FINANCIAL STATEMENTS
Balance ......................... 2
Statement of Operations ........... 3
Statement of Changes in Shareholders' Equity 4 - 7
Statement of Cash Flows 8 - 9
Notes to Financial Statements 10 - 18
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
March 31, 2000 and the related statements of operations, changes in
shareholders' equity and cash flows for the three 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
April 15, 2000
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $3,220
TOTAL ASSETS $ 3,220
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 59,786
Accrued royalty payable, Wayne Mullins $ 89,500
TOTAL CURRENT LIABILITIES $149,286
REDEEMABLE PREFERRED STOCK
Non-cumulative, non-voting shares
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 - 3,445,272 share 3,445
Paid in capital in excess of par value of stock 2,479,336
Advance on stock subscription (2,500)
Retained earnings (deficit) (477,376)
Deficit accumulated during the development stage (2,149,043)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (146,066)
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY (DEFICIT) $ 3,220
See Accompanying Notes and Independent Accountants' Review Report.
Page 2
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION OF
DEVELOPMENT)
TO MARCH 31, 2000
(UNAUDITED)
January 1, 1989
(Date of Inception of
Three Months Development)to
Ended March 31,2000 March 31,2000
REVENUE $ 0 $ 0
COSTS AND EXPENSE
Development costs, net (197,073) 1,564,794
Abandonment of assets 0 584,249
TOTAL COSTS AND EXPENSES (197,073) 2,149,043
NET INCOME (LOSS) $ 197,073 $( 2,149,043)
NET (LOSS) PER COMMON SHARE
Basic and diluted $ 0.06
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic 3,441,939
Diluted 4,408,564
See Accompanying Notes and Independent Accountants' Review Report.
Page 3
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1989 (DATE OF INCEPTION
OF DEVELOPMENT) TO MARCH 31, 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
See Accompanying Notes and Independent Accountants' Review Report.
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)
See Accompanying Notes and Independent Accountants' Review Report.
Page 4
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 MARCH 31, 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
See Accompanying Notes and Independent Accountants' Review Report.
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)
See Accompanying Notes and Independent Accountants' Review Report.
Page 5
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 MARCH 31, 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
See Accompanying Notes and Independent Accountants' Review Report.
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)
See Accompanying Notes and Independent Accountants' Review Report.
Page 6
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 MARCH 31, 2000
(UNAUDITED)
Preferred Stock
(Convertible) Common Stock
Shares Amount Shares Amount
ISSUANCE OF COMMON
STOCK FOR CASH 0 $ 0 20,000 $ 20
RECISSION OF OUTSTANDING
STOCK OPTIONS 0 0 0 0
NET INCOME FOR THE
THREE MONTHS ENDED
MARCH 31, 2000 0 0 0 0
BALANCE, MARCH 31, 2000 7,190 $ 72 3,445,272 $3,445
See Accompanying Notes and Independent Accountants' Review Report.
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
0 0 0 0 197,073
$ 2,479,336 $0 $( 2,500) $ (477,376) $( 2,149,043)
See Accompanying Notes and Independent Accountants' Review Report.
Page 7
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
FOR THE PERIOD JANUARY 1, 1989
(DATE OF INCEPTION OF DEVELOPMENT)
TO MARCH 31, 2000
(U January 1, 1989
(Date of Inception of
Three Months Development
Ended March 31, to March 31,
2000 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 197,073 $( 2,149,043)
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
Recission of stock options ( 225,000) (225,000)
Changes in operating assets and liabilities:
Accounts payable ( 20,609) 59,786
Accrued royalty payable, Wayne Mullins 18,500 89,500
NET CASH (USED) BY OPERATING ACTIVITIES (30,036) (606,466)
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
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,000 1,180,644
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $( 20,036) $2,435
See Accompanying Notes and Independent Accountants' Review Report.
Page 8
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
FOR THE PERIOD JANUARY 1, 1989
(DATE OF INCEPTION OFDEVELOPMENT)
TO MARCH 31, 2000
(UNAUDITED)
January 1, 1989
(Date of
Inception of
Three Months Development)
Ended March 31, to March 31,
2000 2000
CASH AND CASH EQUIVALENTS BALANCE AT
BEGINNING OF PERIOD $ 23,256 $ 785
CASH AND CASH EQUIVALENTS BALANCE AT
END OF PERIOD $ 3,220 $ 3,220
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
Recission of stock options $ 225,000 $ 225,000
See Accompanying Notes and Independent Accountants' Review Report.
Page 9
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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.
See Accompanying Notes and Independent Accountants' Review Report.
Page 10
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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.
FAS-7 requires that all development costs be expensed during
the development period. The company expensed $27,927 less
$225,000 recovery of development costs for the three months
ended March 31, 2000 and $2,149,043 from January 1, 1989
(date of inception of development) to March 31, 2000.
NOTE 3 INCOME TAXES
Income before income taxes $ 197,073
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 ssuch assets and liabilities as measured by tax laws.
The net deferred tax assets is: $ 0
See Accompanying Notes and Independent Accountants' Review Report.
Page 11
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 $ 743,000
Valuation allowance 0
Total deferred taxes $ 743,000
A reconciliation of the valuation
allowance is as follows:
Balance at January 1, 2000 $ 812,363
Used for the three months ended March 31, 2000 69,363
Balance at March 31, 2000 $ 743,000
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 March 31, 2000
is computed as follows:
Shares outstanding at March 1, 1998 2,478,647
Shares outstanding at March 31, 2000 3,445,272
Shares eligible for conversion 966,625
C. 1 % royalty with minimum payments of $50,000.
See Accompanying Notes and Independent Accountants' Review Report.
Page 12
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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.
See Accompanying Notes and Independent Accountants' Review Report.
Page 13
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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.
See Accompanying Notes and Independent Accountants' Review Report.
Page 14
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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.
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, 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.
See Accompanying Notes and Independent Accountants' Review Report.
Page 15
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
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
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 $172,066, a shareholders'
deficiency of $172,066, 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 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.
See Accompanying Notes and Independent Accountants' Review Report.
Page 16
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 15 CONTINGENCIES AND UNCERTAINTIES (CONTINUED)
Phoenix Gaming International, Inc. (PGI) (Continued)
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.
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
See Accompanying Notes and Independent Accountants' Review Report.
Page 17
TELNETGO2000, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 15 CONTINGENCIES AND UNCERTAINTIES (CONTINUED)
Threatened Litigation (Continued)
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 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of March 31,
2000 is unaudited. In management's opinion, such
information includes all normal recurring entries
necessary to make the financial information not
misleading.
End of Financial Statements.
See Accompanying Notes and Independent Accountants' Review Report.
Page 18