SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 
 FORM 20-F (MARK ONE) o
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934ORx
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2005ORo
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934o
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 0-32793 WORLD GAMING PLC 
  England and Wales
(Jurisdiction of Incorporation or Organization)
Minerva House
5 Montague Close
London SE1 9BB
United Kingdom
(Address of Principal Executive Offices) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Ordinary Shares, nominal value £0.002 per share, represented by American
Depositary Shares evidenced by American Depositary Receipts. Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report:
As of December 31, 2005, the Registrant had 55,418,630 ordinary shares issued and outstanding, nominal value £0.002 per share.   Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
      o  Yes      x       NoIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.       o  Yes      x       NoIndicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No  oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See
definition of  accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one)Large accelerated filer    o
    Accelerated filer    x
    Non-accelerated filer    o

Indicate by check mark which financial statement item the registrant has elected to follow.x
   Item 17    o   Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    o Yes    x No




WORLD GAMING PLC ANNUAL REPORT ON FORM 20-F
For the Fiscal Year Ended December 31, 2005 TABLE OF CONTENTS Certain Definitions and Conventions
    1Special Note Regarding Forward-Looking Statements
    1PART I
    
    2Item 1.
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    2Item 2.
    OFFER STATISTICS AND EXPECTED TIMETABLE
    2Item 3.
    KEY INFORMATION
    2Selected Financial Data
    2Risk Factors
    4Item 4.
    INFORMATION ON THE COMPANY
    13History and Development
    13Our Operations
    17Restructuring of Operations
    18Business Strategy
    19Marketing
    19Competitive Environment
    20Intellectual Property
    21Technology
    21Products and Services
    22Gaming Products Under Development
    24Our Licensees
    25Organizational Structure
    26Government Licensing and Regulation and Related Risks
    30Property, Plants and Equipment
    33Item 5.
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    33Change in Fiscal Year
    34Results of Operations
    34Operating Results for Fiscal 2005
    35Operating Results for Fiscal 2004
    36Liquidity and Capital Resources
    38Contractual obligations
    41Payments due by period
    41Trend Information
    42
 ii


Item 6.
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    42Directors and Senior Management
    42Background Information Concerning Directors
    42Background Information Concerning Senior Management and Certain Key Employees
    44Compensation
    45Board Practices
    50Committees of the Board of Directors
    50Employees
    51Share Ownership of Senior Management and Directors
    51Item 7.
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    52Major Shareholders
    52Related Party Transactions
    53Item 8.
    FINANCIAL INFORMATION
    54Consolidated Financial Statements
    54Legal Proceedings
    54Dividend Policy
    55Significant Changes
    55Item 9.
    THE OFFER AND LISTING
    55Nature of Trading Market
    55Registrar, Transfer Agent and Depositary
    57Item 10.
    ADDITIONAL INFORMATION
    57Memorandum of Association and Articles of Association
    57Board Action and Powers
    58Description of Share Capital
    60Exchange Controls and Other Limitations Affecting Security Holders
    67Change of Control
    67Material Contracts
    68Employment and Consulting Agreements
    72United Kingdom Tax Consequences
    74United States Federal Income Tax Consequences
    78Tax Consequences for U.S. Holders
    79Tax Consequences for Non-U.S. holders
    84Taxation of the Company
    85Documents on Display
    85Item 11.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    86Item 12.
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    86
 iii


PART II
    
    87Item 13.
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    87Item 14.
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    87Material Modifications to the Rights of Security Holders
    87Use of Proceeds from Offering
    87Item 15.
    CONTROLS AND PROCEDURES
    87Item 16A.
    AUDIT COMMITTEE FINANCIAL EXPERT
    87Item 16B.
    CODE OF ETHICS
    87Item 16C.
    Principal Accountant Fees and Services
    88Item 16D.
    Exemptions From the Listing Standards for Audit Committees
    88Item 16E.
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    89PART III
    
    90Item 17.
    FINANCIAL STATEMENTS
    90Item 18.
    FINANCIAL STATEMENTS
    90Item 19.
    EXHIBITS
    90
 iv




Certain Definitions and Conventions In this annual report, references to the Company,  Group, World Gaming, we,
us and our refer to World Gaming plc and one or more of its operating subsidiaries as the context may require.  World Gaming plc and its subsidiary WG International Ltd, are holding companies and they conduct their businesses
through their operating subsidiaries.  References to $ and U.S. dollars are to United States currency, any references to £, pounds sterling, pence or p are to U.K. currency,
and any references to CDN are references to Canadian currency.  Percentages and certain amounts contained herein have been rounded for ease of presentation.  Any discrepancies in any table between totals and the sums of amounts listed are
due to rounding. Special Note Regarding Forward-Looking Statements We make certain forward looking statements in this Form 20 F within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to our financial condition, profitability, liquidity, resources, business outlook, proposed acquisitions (if any), market forces, corporate strategies, contractual
commitments, capital requirements and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward looking statements. To comply with the terms of the safe harbor, we note that a variety of factors could
cause our actual results and experience to differ substantially from the anticipated results or other expectations expressed in our forward looking statements. When words and expressions such as: believes, expects,
anticipates, estimates, plans, intends, objectives, goals, aims, projects, forecasts, possible, seeks,
may, could, should, might, likely, enable or similar words or expressions are used in this Form 20 F, as well as statements containing phrases such as in our view,
there can be no assurance, although no assurance can be given or there is no way to anticipate with certainty, forward looking statements are being made. These forward looking statements speak as of the date of
this Form 20 F. The forward-looking statements are not guarantees of future performance and involve risk and uncertainties.  These risks and
uncertainties may affect the operation, performance, development and results of our business and could cause future outcomes to differ materially from those set forth in our forward looking statements.  These statements are based on our current
beliefs as to the outcome and timing of future events, and actual results may differ materially from those projected or implied in the forward looking statements.  Further, some forward-looking statements are based upon assumptions of future events
which may not prove to be accurate. The forward-looking statements involve risks and uncertainties including, but not limited to, the risks and uncertainties referred to under Item 3. Key Information - Risk Factors, and elsewhere
within this Form 20-F and in other of our filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward looking statements as a result of future developments, events and
conditions outside of our control.  New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ significantly from those forecast in any forward looking statements. Given these risks and uncertainties, investors should not overly rely or attach undue weight to our forward looking
statements as an indication of our actual future results. 1




PART I Item 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. Item 2.  OFFER STATISTICS AND EXPECTED TIMETABLE. Not applicable. Item 3.  KEY INFORMATION Selected Financial Data The data below should be read in conjunction with Item 5.Operating and Financial Review and Prospects and our audited
consolidated financial statements and notes relating thereto appearing elsewhere in this annual report, and which have been audited by our independent auditors, HJ & Associates, LLC, as of and for the years ended December 31, 2005, 2004 and
2003, as of and for the eight months ended December 31, 2001 and as of and for the year ended April 30, 2001; and by Baker Tilly, our prior independent auditors, as of and for the year ended December 31, 2002. The data below, except for per share information, is in thousands of U.S. dollars. For the years ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001*  (unaudited)
    
    Eight months ended December 31, 2001
    
    For the year ended April 30, 2001Statement of Operations Data:Net sales
    
    $
    106,471
    
    
    $
    16,288
    
    
    $
    17,698
    
    
    $
    16,777
    
    
    $
    18,175
    
    
    $
    12,107
    
    
    $
    20,153Income (loss) from operations
    
    
    6,340
    
    
    
    5,245
    
    
    
    2,330
    
    
    
    (5,263
    )
    
    
    (16,465
    )
    
    
    (2,371
    )
    
    
    (17,019
    )Income (loss) from continuing operations
    
    
    6,573
    
    
    
    17,370
    
    
    
    2,958
    
    
    
    (5,318
    )
    
    
    (16,277
    )
    
    
    (2,236
    )
    
    
    (16,756
    )Income (loss) from  operations per share
    
    
    0.13
    
    
    
    0.11
    
    
    
    0.05
    
    
    
    (0.16
    )
    
    
    (0.49
    )
    
    
    (0.07
    )
    
    
    (0.52
    )Income (loss) from continuing operations per share
    
    
    0.13
    
    
    
    0.38
    
    
    
    0.07
    
    
    
    (0.16
    )
    
    
    (0.50
    )
    
    
    (0.07
    )
    
    
    (0.52
    )Basic Income (loss)
    
    
    0.13
    
    
    
    0.38
    
    
    
    0.07
    
    
    
    (0.16
    )
    
    
    (0.50
    )
    
    
    (0.07
    )
    
    
    (0.52
    )Basic Income (loss) per share excluding non-voting
    
    
    0.17
    
    
    
    0.53
    
    
    
    0.07
    
    
    
    (0.16
    )
    
    
    (0.50
    )
    
    
    (0.07
    )
    
    
    (0.52
    )
 2


For the years ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001*  (unaudited)
    
    Eight months ended December 31, 2001
    
    For the year ended April 30, 2001Weighted average number of shares (in thousands)
    
    
    55,524
    
    
    
    45,981
    
    
    
    42,932
    
    
    
    34,193
    
    
    
    33,442
    
    
    
    33,997
    
    
    
    32,201Weighted average number of shares (in thousands) excluding non-voting **
    
    
    42,018
    
    
    
    32,475
    
    
    
    42,932
    
    
    
    34,193
    
    
    
    33,442
    
    
    
    33,997
    
    
    
    32,201Diluted earnings per share
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    0.05
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Diluted earnings per share excluding non-voting
    
    $
    0.11
    
    
    $
    0.46
    
    
    $
    0.05
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cash dividends declared per common share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 * In connection with our holding company reorganization on May 17, 2001, we changed our fiscal year end from April 30 to December 31.  Although we have included
financial information for the year ended April 30, 2001 and eight months ended December 31, 2001, we have also included unaudited financial information for the year ended December 31, 2001 for comparative purposes. ** Earnings per share excluding shares with no voting or economic rights refers to the 13,506,204 shares held by Sportingbet PLC and its affiliates that have been
set aside as a result of the transaction with Sportingbet PLC and may be repurchased by us for $1 when we have retained earnings to do so. This transaction had no impact on the earnings per share calculations for periods prior to December 31, 2004.
(See Item 4: Sportingbet Transaction and Item 10: Material Contracts). Selected balance sheet data as at December 31 and April 30 for the years indicated (in thousands of U.S. dollars): As of December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001
    
    As of April 30, 2001Balance Sheet Data:Total assets
    
    $
    110,691
    
    
    $
    23,379
    
    
    $
    12,591
    
    
    $
    8,377
    
    
    $
    12,181
    
    
    $
    20,188Net assets
    
    
    57,085
    
    
    
    16,028
    
    
    
    828
    
    
    
    (3,545
    )
    
    
    1,686
    
    
    
    2,211Debt obligations
    
    
    40,000
    
    
    
    
    
    
    
    2,944
    
    
    
    3,804
    
    
    
    1,083
    
    
    
    2,784Capital stock
    
    
    49,835
    
    
    
    23,654
    
    
    
    25,992
    
    
    
    24,192
    
    
    
    24,188
    
    
    
    22,394
 3




Risk Factors You should carefully consider the following risks in making an investment decision regarding our Company. If any of the following
risks actually occur, our business, financial condition or results of operations may suffer.  As a result, the trading price of our American Depositary Shares and ordinary shares could decline, and you may lose all or part of your investment. This annual report and statements that we may make from time to time may contain forward-looking information.  There can be no
assurance that actual results will not differ materially from our expectations, statements or projections.  Factors that could cause actual results to differ from our expectations, statements or projections include the risks and uncertainties
relating to our business described below. We or our customers may be or become subject to regulation or prohibition of Internet gaming in certain jurisdictions, including
the United States, which could have a significant adverse effect on our business. We and the licensees of our software products are subject to applicable laws in various jurisdictions. As companies and consumers
involved in Internet gaming are located around the globe, including end-users of our product, there is uncertainty regarding exactly which governments may have jurisdiction or authority to regulate or legislate with respect to various aspects of the
Internet gaming industry. There is a risk that criminal and civil proceedings could be initiated in various jurisdictions against us or our licensees and such proceedings could involve substantial litigation expense, penalties, fines, diversion of
the attention of key executives, injunctions or other prohibitions being invoked against the licensee or us. In addition, as electronic commerce develops further, it may generally be the subject of government regulation including taxation which could
impact our financial position. Also, current laws that pre-date or are incompatible with Internet electronic commerce may be enforced in a manner that restricts the electronic commerce market. Any such uncertainty surrounding the regulation of
Internet gaming, proceedings or developments could have a material adverse effect on the Companys business, revenues, operating results and financial condition. Over the past few years, authorities in certain jurisdictions, such as the United States, have taken indirect steps to restrict online
gaming by seeking to prevent or deter banks, payment processors, media providers and other suppliers from transacting with and providing services to online gaming operators, even though many of these online gaming operators are legally licensed in
the jurisdiction in which they operate. The application or enforcement (or threat of enforcement) of restrictive laws or regulations, or a change in sentiment by regulatory authorities or the enactment of new legislation prohibiting or restricting
online gaming or services used by online gaming businesses or the taking of certain indirect steps, may severely and adversely impact the business and financial position of online gaming companies such as the Companys. Presently, there are two pieces of proposed legislation being considered in the U.S. House of Representatives (one introduced by
Congressman Leach and the other by Congressman Goodlatte), with the likelihood of a third being introduced in the U.S. Senate by U.S. Senator Kyl, as an amendment to other proposed legislation presently being considered or, in the future, as proposed
stand-alone legislation. Each of these bills will need, in the ordinary course, to be passed by both Houses of Congress, probably before October 2006 when the 109th Congress is expected to adjourn, ahead of the mid-term 2006 elections. In addition,
the proposed bills offer carve-outs to certain U.S. domestic groups that undertake U.S. domestic gaming activities and the insertion of such carve-outs by special interests in the past undoubtedly had an impact on the failure of such legislation in
the past.  Obviously, we will continue to monitor developments closely. 4




In November 2004,
the World Trade Organisation (WTO) held that the U.S. was in violation of its commitments under international trade laws
by not allowing operators of Internet Gaming services licensed in Antigua and Barbuda to access U.S. markets. The decision was
appealed and the WTO ruled that the U.S. had shown that its laws prohibiting gambling are necessary to protect public morals
or maintain public order but had failed to demonstrate, in light of its laws in respect of on line gambling on horseracing,
that such prohibitions are applied equally to both foreign and domestic providers of on line gambling services for horseracing.
Consequently, the WTO recommended that the U.S. bring its laws into conformity with its obligations under international trade rules.
Pursuant to the report of the arbitrator circulated in August 2005, the U.S. was given until April 3, 2006 to clarify its policies
on Internet gambling and the purported extraterritorial application of its laws. This date has now passed and the U.S. has not taken
action to change the U.S. domestic laws that the WTO panel identified as in violation of the U.S.s General Agreement on Trade
in Service (GATS) commitments. It remains to be seen what effect, if any, will result from this inaction on Internet Gambling policy in
the U.S. In addition to the above risks under United States federal laws, certain states in the U.S. expressly prohibit online gaming and the
prosecuting authorities in several states may argue that online gaming is prohibited by their general gambling laws.  The legal status of various other federal or state laws that prohibit or could be argued to prohibit online gaming is uncertain.  As
a result, we face the risk of federal or state enforcement or other action being taken against us, our licensees or our service providers so as to prevent or seriously impede our ability to offer online gaming services in the United States.  To date,
the position taken by federal and state law enforcement authorities has affected the Companys business in various ways.  Certain U.S. banks, for example, have agreed with state authorities not to participate in the processing of payments for
online gaming and others have been unwilling to do so.  Further, some media companies have been dissuaded from carrying out advertising for online gaming businesses as a result of actual or threatened action by federal and state prosecution
authorities. Furthermore, no guarantee can be given that U.S. authorities will not seek to prosecute offshore gaming operators, or companies, which
promote them, and no prediction can be given as to the success of any such prosecutions.  Any significant restriction on participation in, or marketing or promotion of, online gaming especially in the U.S. would have a significant adverse effect on
our business, financial position and future prospects. The Gambling Bill was introduced to the English Parliament on October 18, 2004 and was given Royal Assent in April 2005.  The process to
implement the Gambling Bill has begun with the first licensing applications likely to become available in late 2006, with the first licenses expected to be granted in 2007.  The Gambling Commission will have sweeping powers over the industry, and
licensed operators will abide by a code of conduct constructed by the Gambling Commission. The commission will also ensure that criminal activity, such as money laundering, is prevented and that players are protected by harm minimization measures. As none of our online global gaming operations are currently run out of the UK, the proposed new licensing system will therefore not
apply to us based on our current operations. However, should we in the future decide to conduct any operations from the UK, these provisions would become relevant and a remote operating license would be required. (See Item 4: Government Licensing
and Regulation and Related Risks). With our acquisition of the business assets of one of our then largest licensees (and a gaming operator), there exists a risk that our
activities will face greater scrutiny in respect of the regulatory risks contained above. 5




Our current business is subject to significant seasonality, which could make it difficult to meet our obligations. Because of the current mix of our products and services, our revenues from licensees decrease significantly during those periods of the
year when United States, or U.S., winter sports, including American professional and college football, are not being played. This substantially reduces our operating cash flow and could make it difficult to meet our commitments. We are addressing
this risk through promotion of non-event reliant gaming products such as multi-player poker and additional casino games. However, there is no guarantee that the gaming market in which we operate will continue to respond favorably to these products or
whether it will mitigate the seasonal impact due to our high reliance of sports betting bettors. We may need additional financing and there is no assurance it can be obtained. We currently have sufficient capital to meet our planned development objectives and positive cash flow. Should these development
objectives change significantly or current revenue streams decline materially, we may require additional financing. There can be no assurance that any such capital or additional financing will be available on terms acceptable to us, or at all. Any
such additional financing, if available, could result in further dilution of the equity interests of existing shareholders as a result of possible further issuance and placement of our ordinary shares. We have been involved in civil and in the past criminal litigation, which has resulted in significant expenses and other
consequences. Many of the lawsuits that may have been seriously threatening to our future have now been settled, however, there are some remaining
lawsuits to which we are party.  If we were to lose these pending lawsuits we could be subject to significant damages, although the aggregate of such damages has been substantially reduced. There can be no assurances that we or our will not be
subject to similar lawsuits or government actions in the future.  (See Item 8. Legal Proceedings). We face significant competition and if we are unable to successfully compete we may lose customers, marketing affiliates and
licensees. The Internet gaming industry involves rapid technological change and is characterized by intense and substantial competition.  Some of
our competitors are well established, substantially larger and have substantially greater resources than we do.  It is also likely that other competitors offering gaming software technology will emerge in the future.  Additionally, we will have to
compete with other companies that have greater market recognition, greater resources and broader distribution capabilities than us.  Increased competition by existing and future competitors could materially and adversely affect our business,
financial condition and results of operations. Internet gaming is a relatively new phenomenon and our success is dependent on the continued popularity of Internet gaming and products
such as online poker. We will need to develop other Internet gaming products and services that will continue to attract and retain a broad range of customers. Our competitors are constantly developing innovations in providing online poker and gaming
products. As a result, we must continue to invest significant resources in research and development in order to enhance our websites, technology and existing products and services and introduce new high-quality products and services that will appeal
to customers. If we are unable to predict user preferences or industry changes, or 6




if we are unable to modify our products and services on a timely basis, we may lose customers and marketing affiliates. Our operating results would also suffer if our
innovations were not responsive to the needs of our customers or are not appropriately timed with market opportunity or are not effectively brought to market. As gaming technology continues to develop, our competitors may be able to offer games that
are, or that are perceived to be, substantially similar to or better than ours. This may force us to compete on bases in addition to quality of gaming products and service and to expend significant resources in order to remain competitive. Our software and hardware systems may face problems if the volume of usage increases which could harm our reputation and thus our
business. The performance of our online services is critical to our reputation and to achieving market acceptance.  An increase in the volume of
usage of online services could strain the capacity of the software or the hardware employed, which could lead to slower response time or system failures, thereby adversely affecting our revenues. Any system failure, including network, software or
hardware failure, that causes interruption or an increase in response time of our online services provided to our licensees could result in decreased usage of our services and, if sustained or repeated, could reduce the attractiveness of our online
services to our clients. The process of managing traffic within large, high traffic Internet online services such as those provided by us is an increasingly
important and complex task.  Our operations are dependent in part upon our ability to protect our operating systems against physical damage from acts of God, power loss, telecommunications failures, physical break-ins and similar events.  The
occurrence of any of these events could result in interruptions, delays or cessation in service to users of our online services, which could have a material adverse effect on our business, financial condition and results of operations.  A large
portion of our network infrastructure is located at a single, leased facility in Antigua, West Indies.  Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, Internet failure,
break-ins, hurricanes and similar events. We do not presently have redundant facilities at a secondary location in the event of an emergency, but we have a variety of backup servers at our primary site to deal with system failures. Services based on sophisticated software and computer systems often encounter development delays and the underlying software may contain
undetected errors (bugs) that could cause system failures when introduced.  We are also dependent upon search engines, web browsers, Internet service providers (ISPs) and online service providers (OSPs) to provide
Internet users access to our web sites.  Our clients may experience difficulties accessing or using our web sites due to system failures or delays unrelated to our systems.  We do not carry business interruption insurance to compensate us for these
types of losses. If we are unable to successfully protect our computer systems from online security risks including collusion, computer automated
players and other fraud, our business could suffer. Despite our implementation of security measures, our network may be vulnerable to unauthorized access, computer viruses, denial of
service attacks and other disruptive problems.  For example, given the content of our web sites, there is an incentive for hackers to penetrate our network security.  A party that is able to circumvent security measures could
misappropriate proprietary information and, perhaps, most critically, cause interruptions in our operations.  ISPs and OSPs have in the past experienced, and may in the future experience, interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.  We have been in the past and may be required in the future to expend significant capital or other resources to protect against the threat of security breaches 7




or to alleviate problems caused by such breaches.  There can be no assurance that any measures implemented will not be circumvented in the future.  Eliminating
computer viruses and alleviating other security problems may require interruptions, delays or cessation of service to clients accessing our web sites, which could have a material adverse effect on our business, results of operations and financial
condition. We are aware that certain customers seek to increase their gaming returns by collusion and fraud.  Collusion between players and the use
of sophisticated computer programmes that play poker automatically (bots) are known methods of Internet gaming fraud. We have implemented detection and prevention controls to minimize the opportunities for fraudulent play, but must
continually monitor and develop their effectiveness to counter innovative techniques. If we fail to detect collusion, bots and other fraud, we could lose the confidence of our customers, thereby causing our business to suffer. We continuously monitor
collusion and bots and regularly close accounts and block access to offenders. If collusion, bots and other forms of fraud are not detected, the affected players may experience increased losses. This could lead to customers becoming dissatisfied with
our Groups sites, which could have a material adverse effect on our business, revenue and financial position. We and our licensees rely on credit cards for a substantial portion of the deposits by our and their customers. Most of our revenues are directly dependent on the amounts of funds deposited by ours or our licensees customers. A substantial
portion of these deposits are made by credit cards. Many U.S. issuing banks of major credit cards (e.g., Visa and MasterCard) have announced that they may decline authorization to U.S. persons who try to use their credit cards for online
gaming. Non-U.S. banks processing online gaming transactions can become targets of U.S. criminal proceedings under the Patriot Act. The
jurisdiction of the United States, under the Patriot Act, now extends to all non-U.S. banks that have correspondent accounts in the United States. The United States can freeze the non-U.S. banks U.S. correspondent account, if that bank is
processing U.S. gaming transactions or holding operating funds or the profits of an operator accepting U.S. wagers, because the U.S. Department of Justice currently views all offshore gaming funds as tainted, and all offshore gaming as illegal. This
creates a serious disincentive to the banks to process online gaming transactions and may adversely impact our revenues. In addition, we are the subject of chargebacks by our customers. Chargebacks occur when customers, card issuers or payment
processors seek to void credit card or other payment transactions. Chargebacks are a cost of most retail based businesses and do not relate just to Internet gaming. Cardholders are supposedly able to reverse card transactions only if there has
been unauthorized use of the card or the services contracted for have not been provided. In our business, players occasionally seek to reverse their real money losses through chargebacks. Should the fraudulent activity behind these
chargebacks remain undetected for a period of time, the chargebacks may have a material impact on our business and revenues. We place great emphasis on control procedures to protect from chargebacks. We also seek to provide our
customers with a variety of alternative payment processing methods to reduce the risk of chargebacks. 8




The market for Internet services is in a state of rapid technological change and we may not be able to keep up. The market for Internet services is characterized by rapid technological developments, frequent new product introductions and evolving
industry standards. The emerging character of these products and services and their rapid evolution will require us to effectively use leading technologies, continue to develop our technological expertise, enhance our current services and continue to
improve the performance, features and reliability of software. In addition, the widespread  adoption  of  new  Internet  technologies  or  standards  could  require  substantial expenditures to modify or adapt our software. We may become the subject of bad publicity from underage or compulsive gambling. We recognize that the attraction of Internet gaming to some minors and players for whom gaming activities assume too great a role in
their lives poses a challenge to the industry in which we operate.  We are committed to market our products to adult participants only and to following responsible gaming best practices and operating procedures at all times. There are examples of individuals bringing a class action against a gaming company as a result of their becoming pathological gamblers.
Although we would resist any such claim, if any such claim were brought against us, our board of directors or employees, whether successful or not, we may incur considerable legal and other costs, managements time and resources may be diverted,
and the resulting dispute may damage our reputation and brand image and have a material adverse effect on our business, revenue and financial position. We must continue to improve and expand our skills and personnel to enhance and expand our business operations, but may not be able
to do so. In order to enhance and expand our business operations, we must continue to improve and expand the expertise of our personnel and must
attract, train and manage qualified managers and employees to oversee and manage our enhanced operations.  There can be no assurance that we will be able to manage effectively the expansion of our operations or that our current personnel, systems,
procedures and controls will be adequate to support operations.  Although management intends to ensure that our internal controls remain adequate to meet the demands of further growth, there can be no assurance that our systems, controls or personnel
will be sufficient to meet these demands.  Inadequacies in these areas could have a material adverse effect on our business, financial condition and results of operations. We have limited intellectual property protection and there is risk that parties may be able to misappropriate our technology. We regard our proprietary software, trade secrets and similar intellectual property as critical to our success.  In that context, we rely
on a combination of copyright and trademark laws, trade secret protection, confidentiality and non-disclosure agreements and other contractual provisions.  There is no guarantee that these efforts will be adequate, or that third parties will not
infringe upon or misappropriate our proprietary rights.  In addition, although we obtain copyright and trademark protection, effective copyright and trademark protection may be unenforceable or limited in certain countries, and the global nature of
the Internet makes it impossible to control the ultimate destination of our web sites.  Since trademark and copyright protections are not self-enforcing, future litigation may be necessary to enforce and protect our secrets and other
intellectual property rights.  We may also be sued for claims of infringement of the rights of others or to determine the scope and validity of the intellectual property rights of others. Such litigation could result in substantial costs.  Any
litigation regarding proprietary rights could be costly and divert managements attention, result in the loss of certain of proprietary rights, require us to seek licenses from third parties and prevent us from selling our services, any one of
which could have a material adverse effect on our business, results of operations and financial condition. 9




We may be held liable for the content of web sites for which we provide content. As a distributor of Internet content, we face potential liability for negligence, copyright, patent, trademark infringement, defamation,
indecency, disparagement and other claims based on the nature and content of the materials that we transmit.  Any imposition of liability that is not covered by insurance, is in excess of insurance coverage or is not covered by an indemnification by
a content provider could have a material adverse effect on our business, results of operations and financial condition. The trading markets for our shares may be illiquid. Potential investors should be aware that the value of shares can go down as well as up. Our ordinary shares represented in the United
States by American Depositary Shares are presently quoted on the National Association of Securities Dealers (NASD) Over-The-Counter Bulletin Board (OTC Bulletin Board). This quotation system generally supports companies
that do not meet the listing requirements of the NASDAQ SmallCap Market.  As a result, investors may find it more difficult to dispose of or to obtain accurate quotations of our shares.   A lack of volume in the trading of our shares could impact
prices for any shareholder wishing to dispose of such shares.  In addition, quotations on the OTC Bulletin Board depend on the willingness of broker-dealers to make a market for the shares. Such quotations have been known to have large spreads
between bid and offer prices.  There can be no assurance that our shares will continue to be quoted on the OTC Bulletin Board or that there will continue to be a market for such shares. With respect to the trading of our ordinary shares on the Alternative Investment Market, or AIM, operated by the London Stock
Exchange,investors should be aware that an investment in a share which is traded on AIM may be less realizable and may carry a higher degree of risk than an investment in a share quoted on the Official List of the London Stock
Exchange. The price which investors may realize upon the sale of their ordinary share holdings, and when such a realization may occur, may be influenced by a large number of factors, some of which are specific to us such as industry trends and others
of which are extraneous such as economic trends. It may be difficult for an investor to sell his or her ordinary shares and he or she may receive less than the amount paid by him or her for them. The ordinary shares may not be suitable for short-term
investment. We may be subject to product liability claims, and we lack product liability insurance. We face an inherent risk of exposure to product liability claims in the event that the products we develop and license contain errors,
bugs or defects.  There can be no assurance that we will avoid significant product liability exposure.  We do not currently have product liability insurance, and there can be no assurance that insurance coverage will be available in the
future on commercially reasonable terms, or at all.  Further, there can be no assurance that such insurance, if obtained, will be adequate to cover potential product liability claims, or that a loss of insurance coverage or the assertion of a product
liability claim or claims would not materially adversely affect our business, financial condition and results of operations. You may be subject to both United States and United Kingdom taxes. We strongly urge you to consult with your tax advisors concerning the consequences of investing in our ordinary shares.  Our ordinary
shares represented by American Depositary Shares are traded in the United States, but we are incorporated under the laws of England and Wales.  In addition we have shares traded on the AIM of the London Stock Exchange, however these shares have not
been and will not be 10




registered under the Securities Act of 1933, or Securities Act, or under the relevant securities laws of any state of the United States or any other jurisdiction.
Subject to certain exceptions, such ordinary shares may not be directly or indirectly offered, sold, resold or otherwise transferred within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S of the
Securities Act), or in any country where to do so may contravene local securities laws or regulations.  A U.S. holder of our American Depositary Shares will be treated as the owner of the underlying ordinary shares for purposes of U.S. and U.K. tax
laws.  Therefore, U.S. federal, state and local tax laws and U.K. tax laws may apply to ownership of our American Depositary Shares and the underlying ordinary shares.  Tax laws of other jurisdictions may also apply. United States civil liabilities may not be enforceable against us. Most of our directors and all of our executive officers named in this annual report are not residents of the United States, and virtually
all of the assets of these non-U.S. persons, and virtually all of our assets are located outside the United States.  As a result, you may be unable to serve summons and complaints within the United States upon these persons.  Similarly, it may not be
possible to enforce in U.S. courts, against these persons or against us, judgments of the U.S. courts based upon civil liability provisions of the U.S. federal or state securities laws.  In addition, it may be difficult for you in original suits or
in suits for the enforcement of judgments of U.S. courts to enforce certain civil liabilities based upon U.S. federal or state securities laws in England against us, our directors, executive officers, or our experts. Our reporting obligations under the U.S. securities laws differ from those of U.S.  issuers, and you may find it difficult to
evaluate our performance quarterly. We are a foreign private issuer for the purposes of reporting to the SEC, and we are not required under the Securities Exchange Act of
1934 to file quarterly reports after the end of each financial quarter. We are exempt from the SEC rules prescribing the solicitation of proxies and content of annual reports and proxy statements to our shareholders.  Additionally, major shareholders
and insiders are not required to report their transactions in our equity capital.  As a result it may not be possible for you to evaluate our financial performance as often as you could for a non-foreign private issuer SEC reporting company.  You may
not become aware of trading activities of our insiders and major shareholders, and may generally be less informed in making a reasonable decision on how to vote your shares. Under English law a vote of the holders of 75% or more of our issued ordinary shares represented at a shareholders meeting is
required to approve certain corporate matters. Under English law, a vote of 75% or more of our issued ordinary shares represented at a shareholders meeting is required to
complete certain corporate matters.  This supermajority requirement may make it more difficult for shareholders to approve certain transactions even though our board of directors recommends and approves such transactions. (See Item 10. Voting
Rights of Ordinary Shares and Shareholder Meeting.) Certain provisions of our Articles of Association and other contractual restrictions to which we are subject may have the effect
of deterring any acquisition or sale of the Company not approved by the board or certain other persons. We have a classified board of directors because our directors must retire by rotation.  This means that (if the retiring
directors are willing to continue to act and are approved by the board and offer themselves for re-election) only approximately one-third of our directors are eligible for election each year (in addition to any directors appointed by the board since
the last annual general meeting). 11




In addition to the shareholders rights not to re-appoint retiring directors who are willing to continue to act and are approved by the
board of directors and to re-appoint directors appointed by the board since the last annual general meeting, shareholders can remove directors by ordinary resolution or the holders of 50% of our issued ordinary shares represented at a shareholders
meeting. We may be subject to tax in a number of jurisdictions, for which no provision has been made. The Group may be subject to tax in a number of jurisdictions, including jurisdictions in which the Companys subsidiaries are
incorporated, or have a branch or agency or permanent establishment or office. The Group may also be subject to tax in jurisdictions where any of its servers or Internet Service Providers or computers or customers or licensees are situated or operate
from. Most laws relating to taxation in most jurisdictions pre-date or are not drafted with the potential of their applying to cross-jurisdictional Internet businesses. Consequently, there is uncertainty as to the jurisdictions in which the
Companys subsidiaries could be subject to tax, the extent to which they could be so subject to tax, and what their overall tax liability in respect of any income, profit or gain could be. Subsequent to the filing date in some jurisdictions, the
Group has completed certain material transactions. There can be no guarantee that these transactions will not give rise to further tax obligations. In late 2004 and early 2005, the Company engaged in certain transactions involving both unrelated
entities (including its business venture with Sportingbet) and internal restructuring of various entities within the Group. These transactions resulted in the transfer of assets and liabilities outside the Group and shifted the ownership of assets
and business operations among companies within the Group. While the Company has worked with its tax advisors to achieve a favorable tax outcome for these transactions, the tax authorities of various jurisdictions may take a different view resulting
in certain material negative consequences for the Company and members of the Group. Significant adverse U.S. federal tax consequences could arise for U.S. Holders under the passive foreign investment company
rules. If we are a passive foreign investment company, or PFIC, a U.S. Holder of our American Depositary Shares or ordinary shares could be
subject to significant adverse U.S. federal tax consequences.  Part or all of our distributions, and gain inherent in our American Depositary Shares or ordinary shares at the time of a disposition thereof, whether or not that disposition is a taxable
event, could be subject to a special set of rules.  In general, those rules would treat the distributions (whether or not they are dividends paid out of our earnings and profits) and any gain inherent in our shares as being realized ratably over the
period the U.S. Holder held, or is treated as having held, the American Depositary Shares or ordinary shares.  Income or gain allocable to prior years would be taxable at the highest effective rates in effect in those years, regardless of the rate
actually applicable to the U.S. Holder.  The income or gain would be treated as ordinary income and could not be offset by any losses available in those years, and the foregoing amount would be subject to an interest charge as if the tax on those
amounts were due in the prior years.  Stock in a PFIC is generally not eligible for a step-up in basis on the death of a U.S. holder. Certain elections can be available to change the tax consequences to U.S. Holders described in the preceding paragraph.  One of those
elections, the qualified electing fund, or QEF, election, however, requires the electing U.S. Holder to include in income each year his share of our ordinary earnings and profits and net capital gain, whether or not distributed to him.
However, a QEF election 12




generally is available to U.S. Holders only if we provide certain information to our U.S. Holders, and we provide no assurance that we will make that information
available.  Another election, a mark-to-market election, requires the electing U.S. Holder to pay U.S. federal income tax as if he sold his American Depositary Shares or ordinary shares at the end of each year, recognizing gains and, subject to
limitations, certain losses.  However, a mark-to-market election is available only if our American Depositary Shares or ordinary shares are marketable stock as specially defined in Treasury regulations.  We believe that our American
Depositary Shares and ordinary share are not marketable stock at this time within the meaning of those Treasury regulations. We have not undertaken any determination of whether we are a PFIC and therefore cannot provide any assurance that we are not.  In
addition, we can provide no assurance that we will make any determination in the future whether we are a PFIC at that time.  In the absence of an analysis of our status as a PFIC performed by us, any assertion by the IRS with respect to a U.S. Holder
that we are a PFIC could be upheld against that U.S. Holder, whether or not we are in fact a PFIC. Accordingly, U.S. Holders should take into account the risk that they may be subject to the rules described in the second preceding
paragraph.  You are urged to read the more detailed rules regarding PFICs set forth in the discussion below in Item 10 under the headings Taxation--United States Federal Income Tax Consequences--Tax Consequences for U.S. Holders--Tax
consequences if we are a passive foreign investment company.  In addition, you are strongly urged to consult your tax adviser regarding the risk that our American Depositary Shares and ordinary shares may be treated as stock in a PFIC,
whether or not we are a PFIC, the unavailability of various elections regarding the tax treatment of stock in PFICs and the tax consequences to you under the PFIC rules with respect to an investment in our American Depositary Shares or ordinary
shares. Item 4.  INFORMATION ON THE COMPANY History and Development World Gaming plc is a public limited company incorporated under the laws of England and Wales, and, as a holding company, we conduct our
business through our operating subsidiaries.  As a result of a holding company reorganization effected in May 2001, which is described below, we became a successor to the business of LVA Holdings, Inc. (formerly Starnet Communications International,
Inc.) which was dissolved with effect on December 28, 2005.  We have a number of other subsidiaries, both dormant and operating and these are outlined in Item 4: Organization Structure. LVA Holdings, Inc., or LVA, was incorporated on June 28, 1996 in the State of Nevada as Creative Sports Marketing Inc., and subsequently
its name was changed to Gelato Brats Inc.  On February 24, 1997, its name was changed to Starnet Communications International, Inc.  In March of 1997, LVA was redomiciled in Delaware and on April 19, 2004 its name was changed to LVA Holdings, Inc. On March 25, 1997, LVA entered into a share purchase agreement with Murray Partners (BVI) Inc. (which we also refer to in this annual
report as Murray Partners), pursuant to which LVA acquired all of the outstanding shares of ESCE Inc. (which we also refer to in this annual report as ESCE), a company incorporated in British Columbia.  In exchange, Murray
Partners received 10,000,000 Class A Common Voting Shares of LVA.  Shares held by Murray Partners were subsequently distributed to its constituent members.  On March 17, 2000, ESCE sold its business and assets that were not related to the Internet
gaming business. On January 1, 2000, LVA transferred its software development business from ESCE to Inphinity Interactive, Inc (which we also refer to in this annual report as Inphinity) and its intellectual property comprising the Gaming
Software to SSII Limited (which we also refer to in this annual report as SSII). The Gaming Software consists of the Companys full suite of online gaming products and management tools. 13




LVA became a wholly-owned subsidiary through a holding company reorganization completed in May 2001.  The reorganization was structured
as a merger, in accordance with the laws of the State of Delaware, of LVA with WG Reorganization Sub, Inc., our wholly-owned subsidiary, formed for the purposes of the reorganization, with LVA as the surviving company.  The reorganization was
approved by the shareholders of LVA who exchanged their shares of LVA common stock for our American Depositary Shares (ADSs), each representing one ordinary share, on a one-for-one basis.  Each American Depositary Share issued in connection with the
reorganization was evidenced by one American Depositary Receipt (ADR) issued in accordance with a Deposit Agreement with Continental Stock Transfer and Trust Company located in New York, New York, USA. Subsequently, all of LVAs stock was exchanged for shares of WG International Limited, a wholly-owned subsidiary directly owned by
the Company.  The acquisition by WG International Limited was effected by way of a share for share exchange such that the existing shares held by the Company in WG International Limited were subdivided and re-designated as B shares of £0.002
each.  The balance of the authorized share capital was subdivided and re-designated as A shares of £0.002 each, 20,000 of which were issued and allotted to the Company as consideration for the acquisition of LVAs stock. A joint venture agreement (described more fully below) with Sportingbet Plc (which we also refer to in this annual report as
Sportingbet) was entered into effective October 1, 2004 pursuant to which the Gaming Software was transferred to an equally owned exempt liability partnership with Sportingbet called Bullen Road LP, a Cayman Islands partnership.
Initially, SSII was a general partner of the Bullen Road LP holding a 50% as a result of the transaction with Sportingbet. On January 1, 2005 SSIIs interest in Bullen Road LP was transferred to Interactive Systems Inc (which we also refer to in
this annual report as ISI) a wholly owned Antiguan subsidiary of WG International Limited. At the time of the transaction with Sportingbet, the development business and assets of Inphinity was transferred to a wholly owned Sportingbet
subsidiary. The remaining business and assets of Inphinity consisting of administrative functions were transferred to WG Interactive Inc. Since October 1, 2004, the Gaming Software is being jointly developed with Sportingbet.  Accordingly, effective
January 1, 2005 LVA no longer held an interest in any of our operating subsidiaries and remained dormant. LVA was subsequently dissolved with effect December 28, 2005. Effective October 1, 2005 we acquired all of the business and assets of our then largest licensee the SPORTSBETTING.COM group (See Item
4, below: Acquisition of the SPORTSBETTING.COM group). All of these assets were acquired by ISI and certain domain names held owned by the SPORTSBETTING.COM group were purchased through a share purchase of DNI Holdings Limited. DNI
Holdings Limited is currently a wholly owned subsidiary of World Gaming plc. All of the business activities of the SPORTSBETTING.COM group are now carried out through ISI. Through our wholly-owned subsidiaries, we now focus our business on the operation of Internet gaming sites (which we also refer to in
this annual report as Operations or the Operating division). In addition we continue to license and host our software and Internet technologies for gaming applications to licensees (which we also refer to in this annual report
as Licensing or the Licensing division). One of our business strategies is to identify and commercialize leading edge technologies for the online gaming markets. On February 11, 2004, we closed two divisions of the business that detracted from our core software development business and had resulted
in losses for the Company. These divisions provided a customer service solution and performed transaction processing on behalf of some licensees. The affected licensees now source these functions through another supplier. 14




On May 17, 2005, our ordinary shares were admitted to trading on the AIM of the London Stock Exchange.  We raised £2,499,000 before
costs by private placement of 4,760,000 new ordinary shares at a placement price of 52.5 pence per share.  The new ordinary shares issued rank pari passu with the existing ordinary shares including the right to all dividends and distributions
declared, made or paid after the date of their issue (See Item 10:  Private Placement on the AIM of the London Stock Exchange  May 2005). On December 12, 2005 as part of the acquisition of the SPORTSBETTING.COM group, we raised £7,000,000 before costs by private
placement of 5,600,000 new ordinary shares at a placement price of 125 pence per share.  The new ordinary shares issued rank pari passu with the existing ordinary shares including the right to all dividends and distributions declared, made or paid
after the date of their issue (See Item 4, below:  Acquisition of the SPORTSBETTING.COM groupand Item 10:Private Placement on the AIM of the London Stock Exchange  December 2005). Acquisition of the SPORTSBETTING.COM group On October 25, 2005, we announced that we had entered into a conditional agreement to acquire certain assets of Real Entertainment Ltd.
and the entire issued capital of DNI Holdings Ltd. (together the SPORTSBETTING.COM group), which was then our largest licensee. The transaction subsequently completed on December 13, 2005. The original terms of the acquisition were for a maximum consideration of up to $96 million payable 75 percent in cash and 25 percent in
new ordinary shares of the Company. On completion in December, $54 million was paid in cash to the sellers (or vendors) with the outstanding balance depending on the final agreed profit before tax (PBT) for the twelve months ending
December 31, 2005. In March 2006, we agreed with the vendors of the SPORTSBETTING.COM business that the final PBT for the twelve months ended December 31,
2005 was $13.6 million. Under the terms of the acquisition agreement this meant that total consideration of $81.8 million  would be payable, or 6 times the PBT for the period. During the period between completion and agreement of the final PBT, we
had paid a further $10.8 million into escrow.  On agreement of the final PBT we recovered $3.5 million of these escrow funds and $1.2 million was released to the vendors. The remaining $6.1 million remains in escrow subject to warranty covenants and
will be released to the vendors on October 1, 2006 subject to no warranties having been breached. In addition, on agreement of the PBT, we issued $20.4 million in new ordinary shares of the Company issued at 125 pence to the vendors
subject to agreed lock-up arrangements.  $2.0 million of these shares remain in escrow subject to the same warranty covenants mentioned above. Financing of the cash portion of the purchase consideration was through our existing cash reserves, plus a $40 million loan facility
arranged through Barclays PLC (See Item 10: Loan facilities with Barclays plc). The term of the loan is 27 months from the drawdown date of December 12, 2005. Repayments are due quarterly throughout the term of the loan. In
addition, World Gaming has an unutilized revolving facility with Barclays for $5 million. Further cash for the purpose of the acquisition was raised through the placing of 4.8 million new ordinary shares of the Company raising £6 million for the
acquisition before expenses (See Item 10:Private Placement on the AIM of the London Stock Exchange  December 2005). 15




The acquisition had an effective date of October 1, 2005. The effective date, which is earlier than the completion date is the date from
which all of SPORTSBETTING.COMs revenues and costs accrue to World Gaming. The business was acquired on a cash-free, debt-free basis as at the effective date. Sportingbet Transaction Effective October 1, 2004, joint venture arrangements (which we also refer to in this annual report as the Joint Venture
Arrangements or Sportingbet Transaction) with the Companys then most significant licensee, representing approximately 80% of the Companys royalty revenues were entered into between World Gaming and Sportingbet. The
principle terms of the arrangements are as follows: 


The ownership of the intellectual property comprising the Gaming Software was transferred into a new exempt limited partnership, Bullen Road LP, based in the Cayman Islands, which was established under the equal joint ownership of World Gaming
and Sportingbet;
 


In consideration of this transfer, Sportingbet agreed to pay a total of $10 million in cash to World Gaming ($3 million was paid on each of October 12, 2004 and March 1, 2005 and the balance of $4 million is payable on or before November 1,
2005). In addition, the economic value of Sportingbets then 29.6 percent shareholding in the Company was eliminated by the cancellation of all rights of any value attached to the ordinary shares then held by Sportingbet, and a convertible loan
note representing indebtedness of $900,000 owing from World Gaming to Sportingbet was cancelled;
 


Each of World Gaming and Sportingbet has the right to appoint two directors to the four person board of Bullen Road LP which controls the development objectives of Alea Software Ltd, a wholly owned subsidiary of Sportingbet and the developer of
the Gaming Software under the Joint Venture Arrangements;
 


During the period of the Joint Venture Arrangements, Sportingbet is responsible for all of Aleas costs associated with the development and maintenance of the Gaming Software (with a minimum spend of $4.5 million per year in the first 3
years and a minimum of $2.5 million in the fourth year);
 


World Gaming retains the right to determine 30 percent of the development time on the Gaming Software;
 


World Gaming has a worldwide royalty free license allowing it to continue to use and sublicense the Gaming Software. In the event that World Gaming becomes an operator it would pay a 5 percent royalty only on those revenues to Sportingbet;
 


Sportingbet has a worldwide royalty free license to use the Gaming Software. Royalty payments of five percent are due from Sportingbet in the event that they license the Gaming Software to any new licensees;
 


Sportingbet pays its proportion of the hosting costs on the Companys systems and IT (information technology) services at cost plus 10 percent;
 


The Joint Venture Arrangements may be terminated by World Gaming on three months notice. Except in the event of breach by World Gaming, Sportingbet may not terminate the Joint Venture Arrangements for three years. Thereafter, Sportingbet may
terminate on 12 months notice to the Company; and
 16





On any termination of the Joint Venture Arrangements, (a) Sportingbet must pay an additional $3 million to World Gaming (which would be retrospectively reduced by the amount of consideration if the Company sells its rights to the Gaming Software
within 2 years thereafter); and (b) each of World Gaming and Sportingbet will be granted a perpetual, non-exclusive royalty free license to use, sub-license and assign of all of the then intellectual property rights underlying the improved Gaming
Software, and neither party will have the right to any further improvements or developments made by the other party.
 Our corporate office is located at Minerva House, 5 Montague Close, London, England, with operations managed out of our principal
business office in Antigua located at the KFH Building, Liat Rd, Coolidge, Antigua West Indies.   The telephone number is 1 (268) 480-1650. Our Operations We are an operator of Internet gaming websites and a licensor of Internet gaming software systems.  Through various wholly-owned
subsidiaries (See Item 4: Organizational Structure below), we operate our gaming websites and license our software products and online gaming management services to independent licensees. In addition, we host all data transmitted on our
software at our wholly owned hosting facility in Antigua, West Indies. Our gaming systems have been designed to: 


offer our customers and those of our licensees a user-friendly interface, high quality interactive experience and a wide selection of gaming options;
 


provide licensees with the tools to potentially generate financial returns, easy site maintenance and limited administration; and
 


protect gaming customers and licensees through our proprietary fully integrated technology.
 Until October 2004, our fully integrated gaming software and systems were developed by our wholly-owned Vancouver-based subsidiary,
Inphinity Interactive Inc. and our gaming software was owned by our wholly-owned Antigua-based licensing subsidiary, SSII which licensed the software.  Immediately subsequent to the transaction with Sportingbet, SSII held our 50% interest in the
Bullen Road Limited Partnership which was then transferred to ISI on January 1, 2005.  Bullen Road Limited Partnership owns the Gaming Software effective October 1, 2004. Our  two revenue streams are: 1.


Operations, representing revenue derived from our wholly-owned internet gaming websites which include www.SPORTSBETTING.COM, www.Racebook.com and www.Win4Real.com; and
 2.


Royalties and fees, which include royalties paid by our continuing licensees to utilize our proprietary software as well as fees paid to host licensees interactive casinos and sportsbooks on our servers, plus hosting fees charged to
Sportingbet for hosting services provided from our wholly-owned hosting infrastructure.
 17




Our Operations division operates under a gaming license from the Government of Antigua and Barbuda. Similarly, our licensees are required
to establish a license under this jurisdiction so that they may operate on our online gaming systems.  Our first license sale closed in March 1998, and as of December 31, 2005, we had 12 licensees signed and operating. We formerly offered fee-based use of our Electronic Financial Services (which we also refer to in this annual report as EFS)
Internet transaction system until February 11, 2004 when this division was closed. Our current suite of gaming products includes over 17 casino games, a variety of instant play games and a complete live
sports wagering product line, a horse racing pari-mutuel betting system and a third-party supplied multi-player poker product. We are able to customize a new licensees interactive casino to reflect their intended market segment. Restructuring of Operations In March 2000, our subsidiary, ESCE Holdings, completed the sale of substantially all of the assets and undertakings outside of our core
software development business. In January 2001, we terminated the employment of 26 employees at Inphinitys development office in Vancouver, Canada, in order to
reduce expenditure levels and increase operational efficiencies.  The employees affected were in the areas of management, administration, operational support and production. In April 2001, we restructured our operations in St. Johns, Antigua and Vancouver, Canada to decrease our costs by reducing
inefficiencies and eliminating duplicated functions.  Reductions in staff were made throughout the organization and included management and administration, sales, marketing, software development, production and operations.  A total of 29 staff were
terminated, 11 in Antigua and 18 in Canada.  The combined cost of the terminations both in January and April of 2001 was $1,536,000. In June 2002, we closed our Toronto sales office and terminated four employees.  This was done as part of the relocation of our
administrative functions to London. In May 2003, we closed our London office and terminated three staff members. This was done as part of the relocation of our corporate activity to the Antigua office. In February 2004, we closed the transaction processing and customer service divisions in Antigua resulting in the termination of 23
employees. These closures eliminated two non-core business units that the Company could not efficiently administer and which had incurred ongoing losses. The cost of the terminations was $160,000. In October 2004, we entered into Joint Venture Arrangements with Sportingbet, our then largest customer. The arrangements transferred the
Gaming Software to a limited partnership owned equally by Sportingbet and ISI (effective January 1, 2005) and transferred the development activities and associated costs to a wholly-owned Sportingbet subsidiary through the term of the arrangement.
(See Item 4: Sportingbet Transaction and Item 10: Material Contracts) 18




Effective October 1, 2005 we acquired all of the business and assets of our then largest licensee the SPORTSBETTING.COM group (See Item
4: Acqusition of the SPORTSBETTING.COM group). As a result of this acquisition we now offer our Internet gaming services directly to our own database of Internet users in addition to offering these services to licensees who establish then
offer our Internet gaming services to their own database of Internet users. Business Strategy We intend to grow our revenues primarily from our newly acquired Operations division in addition to maintaining growth both from existing
and new licensees. Both our Operating and Licensing divisions continue to experience strong organic growth. We expect that continued marketing efforts and new products and services will continue to support and maximize future growth opportunities. In 2005, we refocused our efforts on licensing the Gaming Software both to additional established Operators and those businesses with
existing Internet traffic or databases who are looking to enter the online gaming market through so-called white-label offerings where we generally provide all services except marketing. Operators are those businesses in the Internet
gaming business that use or may choose to use Gaming Software of, or similar to, that of the Company. These efforts lead to a number of new licensees being launched in the period. Our product and service offerings enable us to provide flexible gaming
solutions to a wide variety of Operators. We have evolved an operating model which focuses on our core skills and we outsource certain other functions to specialist third parties
who can provide high service standards cost effectively. These outsourced services include end user customer service, e-commerce processing for ourselves and certain of our licensees, customer deposits and withdrawals, risk management and fraud
monitoring. We have hosting equipment in a secure leased facility in the licensed gaming jurisdiction of Antigua and Barbuda on whose servers all gaming activity takes place. Our board of directors believes that hosting licensee data is critical to
maintaining system integrity, enables substantial cost control through maintaining a single site and provides security in the event of default by a licensee. In addition, we will continue to examine opportunities which allow us to leverage our existing assets and businesses to further enhance
shareholder value. This may include further acquisitions of existing Internet gaming businesses or strategic alliances where it is considered such alliances will add value and profitability. Marketing Our overall marketing efforts are focused on growing our Operating division through targeting end users so that they may begin betting on
our websites. These marketing efforts include both online advertising, consisting primarily of banner advertising which creates traffic from another website to one of our websites, and offline advertising such as print and radio advertising. In
addition, we further focus our efforts on driving Internet traffic to our websites through brand awareness created by offering free competitions and general information content websites. Our marketing strategy for our Licensing division is to build brand awareness of World Gaming and our products and services.  We
generally achieve this through limited print advertising and attendance at industry trade shows. 19




The underlying marketing strategies used for attracting new licensees focuses on creating an awareness that we offer two basic forms of
license. Under both of these licensing models we can adapt to an Operators specific requirements with a variety of flexible options. 1.

Independent Operator Model. This model is best suited for existing Operators looking to move to a new software platform or those with sufficient operational knowledge wishing to enter the online gaming business. Other than
existing Operators, potential licensees attracted to this option would include affiliate marketing websites. The Independent Operator generally manages the majority of the services itself, including end-user customer services and e-commerce (such as
transaction processing). Marketing including customer acquisition and retention strategies would be entirely the responsibility of the Independent Operator. Under this model, we generally provide the Gaming Software, hosting services, plus management
information systems to establish and monitor the licensees business.
 2.

Full Service Model. This model is aimed at non-gaming websites with an existing database of users who are looking for a white label solution. With the Full Service Model, licensees generally have their own high traffic websites
and have substantial databases but do not have the skills or resources to run an online gaming operation. Such sites may include large media portals and experienced online brands. These Operators would generally perform marketing and customer
acquisition and retention themselves, but outsource the remaining functions of the operation to us.
 Our licensees utilize Internet based marketing activities, such as e-mail broadcasts and affiliate programs, as well as traditional
media, such as print in industry publications.  In addition to potential licensees, we seek strategic partnerships for content as well as other entertainment and media opportunities. Competitive Environment The competition for our products and services comes from two major sources. These are other Operators of Internet gaming websites in
respect of our Operating division and other gaming software companies primarily in respect of our Licensing division. Several of the very largest sports betting Operators have developed their own software, or acquired their software providers, but
this option is not usually cost effective for small to mid size Operators. The competition faced by our Operating division from other Internet gaming operators is generally characterized through competing for
marketing opportunities that are targeting end users. These marketing opportunities are then used to disseminate information about the companys products and services. Where one websites products and services are perceived to be inferior
to another, then the effectiveness of these marketing opportunities is diminished. Nevertheless, provided the marketing opportunity is successful in targeting end users and effective in its message, it is likely that they will lead to growth
opportunities for the operator. There are a number of software and service suppliers to the online gaming market. However, we believe that we maintain a differentiated
product, primarily because such competitors are generally more product specific and do not offer the full range of products and services that we can provide from a single player account. In respect of our Licensing division, our largest competitors for casino and multi-payer poker products  Boss Media, Cryptologic,
and Microgaming  do not offer any complementary products such as sportsbook.  Because these competitors presently focus on delivering limited products, as opposed to a 20




full suite of products as we do, the competition may offer an equivalent or superior single product compared to ours.  However, we believe that we currently have a
competitive advantage by offering complementary products with the flexibility to be packaged as an entire product suite. Other companies compete in the sportsbook product segment, however they are generally not as focused in U.S. sports betting. We also face increased competition from other sportsbooks and casinos.  Primarily U.S. facing sportsbooks such as Sportsbook.com and
BetonSports, already have an online presence and compete for end-users.  This is a direct threat to both our Operating division and our licensees businesses. We expect to compete directly with all the companies discussed above, as well as other established companies that may enter the industry. Intellectual Property The intellectual property relating to the Gaming Software is owned by Bullen Road LP an exempt limited liability partnership formed in
the Cayman Islands of which the Company (through a wholly owned subsidiary) has a 50 percent membership interest and Sportingbet (through a wholly owned  subsidiary)  has  a  50 percent  membership  interest,  pursuant  to  the  Joint  Venture
Arrangements. World Gaming has an unrestricted license to use, sub-license and assign its rights to the Gaming Software and the intellectual property underlying it for all of its current business operations and all currently anticipated developments
of its business operations. Software that is completed  and  in  development  is  protected  through  a  combination  of  non-disclosure  and non-competition  agreements  with  employees,  restricted  and  controlled  use  of  third  party
developers, a check in/check out system for code, and copyright law (though no software is registered). (See Item 4: Sportingbet Transaction and Item 10: Material Contracts) Technology High-Speed Network Our network is connected to the Internet via dual Fast Ethernet connections. This high performance network infrastructure is intended to
ensure reliable and responsive game play for our licensees and their end users/players. Most of the critical system components, such as the game servers and web servers, are distributed across multiple machines, which protect the gaming service from
failures due to malfunctioning equipment.  The highly scalable nature of the design of our system makes provisioning for additional capacity relatively easy.  The network monitoring staff tracks the system at all times to maintain constant awareness
of the systems operating parameters.  New equipment is installed when necessary to compensate for increased activity or anticipated peak demands for popular events. The Internet connection at our network facility in Antigua is provided by an international service provider and contributes to responsive
game play.  Each gaming transaction is stored on a database that is replicated for redundancy and backed up daily to prevent data loss. Our hardware and software platforms are provided by leading suppliers such as Sun Microsystems and Oracle. 21




Security Measures We offer four protective security layers of prevention, protection, and response.  These components, available 24 hours a day, 7 days a
week, 365 days a year consist of: Software.  Our engines are designed to assume that all communication is from hostile clients so that only specific
message types from a known game client are acknowledged.  The software incorporates industry de facto security standards such as industry leading firewall protection, 128 bit encryption and SSL.  The n-tier software
architecture has been designed with security at the forefront and is monitored through real-time System and Game event monitoring and logging. The Gaming Client Application is a casino graphical interface.  The game server performs gaming calculations, while the client
application displays the results and accepts input from the player for further interaction.  Communications between the client and server are encrypted using the SSL protocol.  The SSL prevents hackers from monitoring a gaming session should they be
able to intercept communications. Fraud Detection and Legal Compliance.  Legal compliance and player protection through industry leading financial fraud prevention
and address verification software. Address Verification Services (AVS), a basic fraud detection system offered by the financial industry, is incorporated into our fraud detection solution for players. While no system is 100% secure, we believe that we have the ability to identify attempts and prevent attacks such as Denial of Service
and Invasive hacks into game payout code or customer information.  Specifically, Denial of Service Attacks can be alleviated through our network of close business partnerships with global ISPs and through utilization of hardware
that was acquired in January, 2004 that specifically defuses such attacks.  Using a combination of the aforementioned four layers of security i.e. Software, Fraud Detection, Hardware and Vigilance, we offer security protection that reduces the risks
that would lead to prolonged periods of irregular game play and access to, and manipulation of, the game code. We have implemented a leading software-based Random Number Generator to support our game play payouts utilizing a certain Random Number
Algorithm. The machines on which the game server processes run are only accessible from our private network. The database systems are completely
shut off from the Internet and can only be accessed by a limited number of applications on a closed network, such as the game servers and report generators. Any information provided to us is held as strictly confidential, and is used only to support the players relationship with us and
the licensee. Products and Services Our products and services are offered through our own Internet gaming websites to end users as well as to our licensees so that they may
operate their Internet gaming websites. Our current software product areas include casino gaming, sportsbook wagering, pari-mutuel wagering, virtual games, multi-player poker
and a horse racing product. Virtual games and multi-player poker are provided by third parties. 22




Casino Our casino games can be categorized into two types of platforms: Java and Windows Download software. Our Java games utilize the Java language to provide quick access online games to the licensees web sites. The cross-platform nature
of Java makes it possible to play these games on all major operating systems, online, with virtually no downloading required. The Java games are optimized for quick browser loading times. We currently have 16 Java casino games (Blackjack, Blackjack Super 7s, Baccarat, Bermuda Poker, Free Ride, Pai Gow Poker, Roulette,
Craps, Sic Bo, Red Dog, Battle Royale, two slot machines, and three video poker machines) for players to wager on. More than 17 different casino games are available in the Windows Download version of the casino gaming product line. These games are
provided for players who are willing to take the time required to download and install the games. However, once downloaded, they are easy and convenient to play and offer a more heightened visual and audio experience. The Windows Download games are
also offered by most software licensees via compact disc, which is mailed to players who request this version. The Sportsbook Our Sportsbook product generates revenues based on booking bets that have fixed payouts. These payouts have a commission that provides
revenue for the Sportsbook. There are varying commissions that are dependent on a variety of bet offerings.  These include:  pointspreads, totals, moneylines, prices, straight wagers, parlays, teasers, futures, propositions, buy points, if bets and
others. During 2004, a new version of the Sportsbook software was released focusing on enhanced parlay and teaser bet types as well as upgrading functionality for our operations and those of our licensees. Virtual Games Virtual Games was integrated into our platform and launched in December 2003 on our system featuring two games: Virtual Derby and Super
Hi Lo supplied by a third-party provider. Virtual Derby is an interactive fantasy horse racing game that allows bettors to place wagers on a six-horse field. Bettors can research the standings of jockeys, trainers, horses and track conditions before
placing a win and/or exacta wagers. Super Hi Lo is card game that allows bettors to wager on various card combinations. Bettors have the opportunity to win big by attempting to place a number of cumulative wagers as part of the same game. Pari-mutuel Gaming We fully launched our pari-mutuel horse betting software on July 31, 2001, and upgraded the product in December 2002. The product
has been delivered to over thirty gaming sites. In developing the proprietary, interactive pari-mutuel software, we employed the cross-platform nature of Java, making it possible to
play this game on all major operating systems, online, with virtually no downloading required.  This interface is simplified to optimize loading times. After signing a simulcast distribution agreement with the host raceway, this system links directly to the host tracks pool,
enabling instant access to real-time betting lines and the live host pool. 23




Poker We completed development for integration of a third-party supplied multiplayer poker product in 2004. The addition of poker has increased
the attractiveness of our product offerings in the marketplace. Our Operating division launched the poker product in 2004 and this has shown strong growth. Horse Racing During 2004, we completed development of a new Racing product that offers payout at track odds and enhanced horse betting propositions.
This product features major tracks and offers an increase to the current offerings by our licensees through the direct pari-mutuel product described above. Partners Program Our affiliate program provides a powerful marketing tool by creating an advertising vehicle with no up-front costs. The affiliate program
transforms webmasters into a sales force, as webmasters earn a commission on the sales they make. Webmasters will earn their commission based on the players that they send through their sites. The webmaster is paid only after the casino
has generated revenues from webmasters players. World Gaming Management Console World Gaming Management Console (WGMC) is an integrated application that supports operations management for World Gaming and its
licensees, with an initial focus on customer service support.  WGMC was launched in March 2003. Customer service agents use WGMC to support customers inquiries under a single application model using one technology and security model.
WGMCs expandable framework allows for future releases that can complement other operational areas. Gaming Products Under Development Sportsbook The Sportsbook product will continue to receive upgrades throughout the year. Casino The casino product is currently undergoing a major upgrade which is expected to be completed and launched in the third quarter of 2006.
This upgrade is focused on enhancing game play for end users. WGMC WGMC will continually be upgraded throughout the year to incorporate customer support functionality for new products such as poker. In
addition, regular software upgrades focused on customer service functions are planned based on the feedback from our licensees. Partners Program We have recognized the need to further online marketing efforts with affiliate marketing programs to generate incremental revenues. The
Partners Program has been evaluated in this respect, and it was determined to enhance the product to include greater functionality to meet the licensees marketing expansion efforts. 24




Our Online Gaming Operations It is anticipated that the majority of our future revenue and earnings growth will continue to come from our newly acquired operating
business and further organic or acquisitive growth within our Operating division. Our underlying gaming business including the player database is owned and operated by our Antiguan based subsidiary, Interactive Systems
Inc. Interactive Systems Inc. holds an Internet gaming license under which it operates its Internet gaming business. Our revenues are generated from the net win from a player on our websites as that player uses our Internet gaming software, for example
placing a bet on our sportsbook or casino product offering. Where the player wins as a result of a bet placed on one of our product offerings, that players account with us is credited for the amount of the bet plus their winnings. Where the player
loses as a result of a bet placed on one of our product offerings, an amount equal to the bet placed is withdrawn from the players account and represents revenue to us. The revenue is generally generated through marketing efforts described earlier and these marketing efforts represent a cost to the
business. Further costs include those costs associated with processing the deposit and withdrawal of player funds and customer service in respect of maintaining a relationship with the customer. In addition, related finance and administrative
functions are required. Our Licensees Our Antigua-based licensing subsidiary, Interactive Systems Inc., licenses the Gaming Software as a fully-integrated systems to
prospective licensees.  A one-time license fee provides an installed, fully operational system.  The licensees interactive casino is generally operational within 90-120 days of signing a license agreement.  We receive monthly fees and a royalty
based on the licensees revenues, in exchange for continuing to host and maintain the site.  The licensee must obtain a gaming license from the jurisdiction where the gaming servers are located, which currently is Antigua.  We modify the new
licensees interactive casino to reflect its intended market segment. We never modify the random number generator or the game rules and cannot, therefore, affect the odds on games other than the Sportsbook. We also provide continuous support for
both software and hardware, 24 hours a day and 7 days a week.  We seek a licensee with knowledge of the target market in order to maximize sales potential.  Licensees generally establish their marketing efforts from within their target market and are
generally expected to be capable of sufficient investment to purchase the software license, apply for the gaming license and invest in marketing. Should any licensee become delinquent in payments due to us, we have the technological ability to shut down the
licensees interactive casino(s) remotely. In 2004, the Company set up third-party processing routes for those licensees that choose not to process their own customer deposits and withdrawals. Monthly settlement for these licensees is first paid
to ourselves, after which we then deduct our royalty and settle the balance to licensees. Revenues from licensees is based on a sliding scale from 25 percent to 10 percent of a licensees net revenue (wagers less payouts,
less chargebacks (credit card reversals), house bonuses and other compensation). Our primary cost with regard to continuing license income is the cost of upkeep of hosting facilities and direct site operating costs. Management emphasizes that the licensees are structured operationally so that a licensees prime responsibility, aside from the
ownership of the customer data base and the casino web pages, is to market its gaming site to its respective market. 25




Organizational Structure We are a holding company and conduct our operations worldwide through our operating subsidiaries, which are located in various
jurisdictions as described below in this annual report. (ORGANIZATIONAL STRUCTURE)  Other than where indicated, solid line denotes 100% ownership interest. ------ Dashed box indicates dormant entities. *       Bullen Road LP is an exempt limited partnership formed in the Cayman Islands. As well as the two partners shown above, Gwladys Street Limited, a Company incorporated
in the Cayman Islands, acts as a general partner and is itself owned in equal shares by SSII and Internet Opportunity Entertainment Limited. 26




Further information on the background and purpose of each member of the WG Group is provided below. World Gaming plc World Gaming is incorporated within England and Wales.  World Gaming acts as a holding company and does not carry on any operations
directly.  Its operations are carried out world wide through its operating subsidiaries. World Gamings share capital comprises ordinary shares, which trade on the AIM.  It also has American Depositary Shares quoted on
the OTC Bulletin Board. WG International Limited WG International Limited is incorporated in England and Wales and also does not carry out any operations. The company acts as an
intermediate holding company. DNI Holdings Limited DNI Holdings Limited is incorporated in Antigua and also does not carry out any operations. The company was acquired as part of the
SPORTSBETTING.COM transaction. Upon acquisition, the company held the domain names of the SPORTSBETTING.COM business. These domain names were transferred with immediate effect to Interactive Systems Inc. The process for effecting the actual transfer
of all of the acquired domain names is ongoing. WG Interactive Inc. WG Interactive is a company incorporated in British Columbia, Canada on September 14, 2004. WG Interactive provides a small administration and support function to the Group from sublet premises in Vancouver. Interactive Systems, Inc. ISI is a company incorporated in Antigua.  It was formed in September 2004. ISI carries on the SPORTSBETTING.COM business and licenses customized, fully-integrated Internet gaming systems to independent parties
wishing to enter the online gaming industry. It provides a complete range of services that the operator needs in order to launch an online gaming website.  ISI also carries out hosting activities on behalf of some of its licensees.  It owns equipment
and maintains systems in Antigua that host all data that is processed on the software in accordance with its licensees gaming licenses. ISI holds an Internet gaming license issued by the Directorate of Offshore Gaming in Antigua and Barbuda. Scorecard Media Limited (formerly World Gaming Europe Limited) Scorecard Media Limited is incorporated in England and Wales.  It initially was formed to provide the WG Group with a European-based
company to market the services of its various subsidiaries, however, it has not been used for this or any other purpose. In March 2006, World Gaming Europe Limited changed its name to Scorecard Media Limited with the intention of setting up a
marketing services operation within this entity as a result of the SPORTSBETTING.COM transaction. To date, these services have not been transferred to this entity. 27




WG Support Inc. WG Support Inc. is incorporated in Antigua.  The company is dormant and has never operated. TIC, Inc. TIC is a company incorporated in Antigua.  It was formed in January 2005. TIC is part of a planned reorganization of certain entities within the Group, which reorganization was approved in 2004. Under this
reorganization, TIC became the holding company of the Companys dormant entities that are in the process of being dissolved. LVA Holdings, Inc. LVA is a company incorporated in the state of Nevada and subsequently re-domiciled in the state of Delaware. In April 2004, LVA changed
its name from Starnet Communications International, Inc. to LVA Holdings, Inc. LVA became a subsidiary of World Gaming through a holding company reorganization completed in May 2001.  The reorganization was
structured as a merger of LVA with WG Reorganization Sub, Inc. (a wholly owned subsidiary of World Gaming formed for the purposes of the reorganization).  The merger was carried out in accordance with the laws of Delaware and following the merger,
LVA was the surviving entity and became part of the Group.  The reorganization was approved by the shareholders of LVA who exchanged their LVA common stock for ADRs of World Gaming on a one for one basis.  Subsequently, all of LVAs stock was
exchanged for shares of WG International Limited, effected by way of a share for share exchange. LVA was dissolved in accordance with Delaware law on December 28, 2005 as part of the Companys reorganization of its dormant
subsidiaries approved in 2004. SSII Ltd. SSII is incorporated in St. Johns, Antigua and is the groups main operating entity.  SSII changed its name from Starnet Systems
International, Inc. to SSII Ltd in June, 2004. In 2004, the Company migrated licensing activities from SSII to ISI and SSII is now dormant and the Company is in the process of
liquidating this entity. EFS Caribbean Inc. EFS Caribbean Inc., incorporated in Antigua, was dedicated to the electronic transfer of funds and was established in order to facilitate
local banking relationships for transaction processing. In February 2004, the service offerings of EFS were terminated by the Company as part of certain cost saving measures.  The Company has
agreed contractual arrangements with Sportingbet and Fincorp, a subsidiary of Sportingbet, through which the Company now provides transaction processing services to its licensees. 28




EFS is currently inactive and is not used for any trading activity.  The Company believes that EFS does not have any actual or contingent
liabilities or obligations and the Company is in the process of liquidating this entity. World Gaming Services, Inc. World Gaming Services, Inc. was incorporated in Antigua. World Gaming Services, Inc. ran a full service online gaming operation (www.worldgaming.com) and for this purpose, holds a gaming license
from the Antiguan authorities. World Gaming Services, Inc. ceased its online gaming operations in June 2003 due to the then decision by the Company to focus on its core activities of developing Internet gaming software and working closely with its
licensees.  World Gaming Services, Inc. continued to hold the gaming license for the Companys subsidiary Antiguan operations until October 2005, when Interactive Systems Inc inherited the SPORTSBETTING.COM license as part of that transaction. World Gaming Services, Inc. is currently inactive and is not used for any operations and the Company is in the process of liquidating
this entity. ESCE Holdings Inc. ESCE was incorporated in British Columbia, Canada on May 19, 1995. ESCE was acquired by LVA on March 25, 1997 pursuant to a share
purchase from Murray Partners (BVI) Inc.  In 2004, ESCE changed its name from Starnet Communications Canada, Inc. to ESCE Holdings Inc. On January 1, 2000, ESCE transferred its software development business to Inphinity.  On March 17, 2000, ESCE sold substantially all of
its assets and undertakings comprising the adult entertainment division of ESCE to Chisel Media Inc. ESCE is currently inactive and is not used for any trading activity and the Company is in the process of liquidating this entity. Inphinity Interactive Inc. Inphinity Interactive Inc. was incorporated in British Columbia, Canada on August 19, 1999. Up until the Sportingbet Transaction (See Item 4: Sportingbet Transaction and Item 10: Material Contracts), Inphinity
provided certain services to SSII. Its primary focus was to maintain, design, create and develop software products for the interactive gaming industry. As part of the Sportingbet Transaction, Inphinity transferred its development business to Alea Software Limited (an affiliate of
Sportingbet). Alea now provides development services to SSII through contractual arrangements. Inphinity also transferred its remaining assets (consisting of administration staff and assets) to WG Interactive. Inphinity is currently inactive and is not used for any trading activity and the Company is in the process of liquidating this entity. 29




Bullen Road LP and Gwladys Street Limited Bullen Road LP is an exempt limited partnership formed in the Cayman Islands.  It is a joint venture between the Company and Sportingbet.
Its members are SSII (on behalf of the Company), Internet Opportunity Entertainment Limited, a company incorporated in Antigua and an affiliate of Sportingbet (which we also refer to in this annual report as IOEL), and Gwladys Street
Limited, a company incorporated in the Cayman Islands (which we also refer to in this annual report as the General Partner). As required pursuant to Cayman Islands partnership law, the General Partner acts as the general partner of Bullen Road.  The General
Partner is itself owned in equal shares by SSII and IOEL. Bullen Road was formed as part of the Sportingbet Transaction (See Item 4: Sportingbet Transaction and Item 10: Material
Contracts) and is the vehicle through which the Company and Sportingbet jointly own the proprietary interest in the Gaming Software.  The terms and conditions on which the Company and Sportingbet are to control and run Bullen Road and the General
Partner are set out in a Partnership Agreement. (See Item 19:Exhibits). On January 1, 2005, SSII Ltd transferred its interest in the Bullen Road LP to Interactive Systems Inc., a wholly-owned subsidiary of WG International. Government Licensing and Regulation and Related Risks Our subsidiaries have various connections with the online gaming industry. Until October 2004, Inphinity developed interactive gaming
software under contract with SSII. Subsequent to this date, such development is carried out through the joint venture arrangements (See Item 4: Sportingbet Transaction and Item 10: Material Contracts) with ISI. ISI owns and operates the
Groups gaming operations and infrastructure and licenses online gaming systems to various licensees and provides hosting services. Our operations and those of our licensees are licensed to operate interactive casinos in the country where their
gaming equipment is physically located. Until February 2004, EFS International (Antigua) Inc. and EFS Caribbean Inc. from its offices in Antigua performed various services for our licensees, including financial transaction processing.  ISI, from its
offices in Antigua, now operates the SPORTSBETTING.COM business and performs various services for the licensees, including, but not limited to, providing licensee support and technical support.  The Joint Venture Arrangements provide development
support to ISI. Our operations and those of our licensees are operated from servers maintained by ISI and located in Antigua. A significant debate exists whether the laws of any country other than the country where the computer gaming servers are physically
located have jurisdiction over the operations of ISI or those of its licensees.  In addition, a significant debate exists whether the laws of any country other than the country where the computer gaming servers are physically located has jurisdiction
over the operations of our affiliates, which perform services for the licensees. ISI and its licensees each hold a gaming license in the nation of Antigua and Barbuda.  Our licensees each have the responsibility to
determine from which countries they will accept gaming transactions and ensure that their own gaming license is maintained. Gaming transactions are accepted on servers located in Antigua and are governed by the conditions of those licensees gaming
licenses. No gaming transactions are accepted or recorded by any subsidiary of the Company other than those processed on our servers located in Antigua and licensed by the government of Antigua and Barbuda under our subsidiary, ISI. 30




Historically, gaming activities have been subject to extensive statutory and regulatory control by government authorities, and have been
very dependant and likely significantly affected by any changes in the political climate and economic and regulatory policies of the countries where gaming facilities are located.  These changes may impact our operations in a materially adverse way.
Various laws and regulations could have a direct and material effect on the business, and indirectly could have a material effect on the public demand for our gaming software.  Most countries and jurisdictions within countries have laws or
regulations restricting gaming activities.  For example, in the United States, the Wire Act contains provisions which make it a crime for anyone in the business of gaming to use an interstate or international wire communication line to make wagers or
to transmit information assisting in the placing of wagers. Other United States laws impacting gaming activities include the Interstate Horse Racing Act, the Interstate Wagering Paraphernalia Act, the Travel Act, the Organized Crime Control Act and
the Patriot Act. While we believe that the activities of our subsidiaries do not violate or are not subject to such laws and regulations, because there is
very little clear statutory and case law authority, this conclusion is not free from doubt.  We face the risk of either civil or criminal proceedings brought by governmental or private litigants who disagree with our interpretation of laws and
regulations.  Because there is little guiding authority, there is a risk that we could lose such lawsuits or actions and be subject to significant damages or civil or criminal penalties and fines. Such proceedings could also involve substantial
litigation expense, diversion of the attention of key executives, injunctions or other prohibitions being invoked against our licensees or us and our subsidiaries.  The uncertainty surrounding regulation of the Internet gaming could have a material
adverse effect on our business, revenues, operating results and financial condition. Several countries and governmental authorities, most notably law enforcement agencies in the United States, believe that the laws of
their country restrict, and in some instances prohibit, interactive gaming operators from doing business with residents of their countries and, in some instances, prohibit or restrict residents of their respective countries from doing business with
interactive gaming operators located in a foreign country. Specifically the United States federal law (18 U.S.C. § 1084), commonly referred to as the Wire Act, is a federal statute that purports to make it illegal for a betting or wagering
business to use a wire communication facility to transmit bets or wagers in interstate or foreign commerce. Over the past few years, authorities in certain jurisdictions, such as the United States, have taken indirect steps to restrict online
gaming by seeking to prevent or deter banks, payment processors, media providers and other suppliers from transacting with and providing services to online gaming operators, even though many of these online gaming operators are legally licensed in
the jurisdiction in which they operate. The application or enforcement (or threat of enforcement) of restrictive laws or regulations, or a change in sentiment by regulatory authorities or the enactment of new legislation prohibiting or restricting
online gaming or services used by online gaming businesses or the taking of certain indirect steps, may severely and adversely impact the business and financial position of online gaming companies such as the Companys. Presently, there are two pieces of proposed legislation being considered in the U.S. House of Representatives (one introduced by
Congressman Leach and the other by Congressman Goodlatte), with the likelihood of a third being introduced in the U.S. Senate by U.S. Senator Kyl, as an amendment to other proposed legislation presently being considered or, in the future, as proposed
stand-alone legislation. Each of these bills will need, in the ordinary course, to be passed by both Houses of Congress, 31




probably before October 2006 when the 109th Congress is expected to adjourn, ahead of the mid-term 2006 elections. In addition, the proposed bills offer carve-
outs to certain U.S. domestic groups that undertake U.S. domestic gaming activities and the insertion of such carve-outs by special interests in the past undoubtedly had an impact on the failure of such legislation in the past.  Obviously, we
will continue to monitor developments closely. In November 2004, the World Trade Organisation (WTO) held that the U.S. was in violation of its commitments under
international trade laws by not allowing operators of Internet Gaming services licensed in Antigua and Barbuda to access U.S. markets. The decision was appealed and the WTO ruled that the U.S. had shown that its laws prohibiting gambling are
necessary to protect public morals or maintain public order but had failed to demonstrate, in light of its laws in respect of on-line gambling on horseracing, that such prohibitions are applied equally to both foreign and domestic
providers of on-line gambling services for horseracing. Consequently, the WTO recommended that the U.S. bring its laws into conformity with its obligations under international trade rules. Pursuant to the report of the arbitrator circulated in August
2005, the U.S. was given until 3 April 2006 to clarify its policies on Internet gambling and the purported extraterritorial application of its laws.  This date has now passed and the U.S. has not taken action to change the U.S. domestic laws that the
WTO panel identified as in violation of the U.S.s GATS commitments. It remains to be seen what effect, if any, will result from this inaction on Internet Gambling policy in the U.S. In addition to the above risks under United States federal laws, certain states in the U.S. expressly prohibit online gaming and the
prosecuting authorities in several states may argue that online gaming is prohibited by their general gambling laws.  The legal status of various other federal or state laws that prohibit or could be argued to prohibit online gaming is uncertain.  As
a result, we face the risk of federal or state enforcement or other action being taken against us, our licensees or our service providers so as to prevent or seriously impede our ability to offer online gaming services in the United States.  To date,
the position taken by federal and state law enforcement authorities has affected the Companys business in various ways.  Certain U.S. banks, for example, have agreed with state authorities not to participate in the processing of payments for
online gaming and others have been unwilling to do so.  Further, some media companies have been dissuaded from carrying out advertising for online gaming businesses as a result of actual or threatened action by federal and state prosecution
authorities. Furthermore, no guarantee can be given that U.S. authorities will not seek to prosecute offshore gaming operators, or companies, which
promote them, and no prediction can be given as to the success of any such prosecutions.  Any significant restriction on participation in, or marketing or promotion of, online gaming especially in the U.S. would have a significant adverse effect on
our business, financial position and future prospects. With our acquisition of the business assets of one of our then largest licensees (and a gaming operator), there exists a risk that our
activities will face greater scrutiny in respect of the regulatory risks contained above. If Internet gambling prohibition legislation is introduced and becomes law, it would have an immediate detrimental effect on the industry
and would pose a serious threat to our continued operations. 32




Property, Plants and Equipment United Kingdom Our registered office operates from Minerva House, 5 Montague Close, London. The Company has no physical assets at this location.
Corporate activities are managed from our office in Antigua. Antigua The operations of ISI are located in 2,500 square feet of commercial space at Jasmine Court located at Friars Hill Road, St. Johns,
Antigua, at an annual cost of approximately $49,000 plus utilities.  The lease expires on May 1, 2009. Canada WG Interactive sub-leases approximately 2,500 square feet for its administrative activities at 1401 West 8th Avenue,
Vancouver, Canada. The sub-lease is from Alea Software (See Item 4: Sportingbet Transaction and Item 10: Material Contracts). The sub-lease expires May 31, 2007 and is terminable on three months written notice to the other party.  The
annual cost is approximately $50,000. Equipment During the years ended December 31, 2005, 2004 and 2003, we made capital expenditures of approximately $0.6 million, $1.1 million and
$0.4 million, respectively.  The expenditures were primarily for computer equipment and related items in order to increase our capacity to process transactions and improve overall system reliability. Item 4A. UNRESOLVED STAFF COMMENTS The Company has
received and responded to correspondence from the Division of Corporation Finance of the United States Securities and Exchange
Commission in respect of a limited review of the Companys Form 20-F for fiscal year ended December 31, 2004. In respect of the
review, the accounting reviewer from the SEC has requested further clarification and suggested certain interpretations of U.S.
accounting standards specifically in respect of items disclosed as part of the Sportingbet transaction (See Item 4: Sportingbet
Transaction and Item 10: Material Contracts). These remaining interpretations primarily relate to whether the gain on
disposal arising from the Company entering into the transaction should be classified as extraordinary or part of continuing business
activities and seek further clarification of the 13,506,204 shares that were set aside in the transaction. It is the Companys position that the treatment of both the gain on disposal and the shares that have been set aside is entirely
correct according to interpretation of relevant accounting pronouncements. Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion and analysis in conjunction with Item 3. Selected Financial Data and our
consolidated financial statements and notes thereto set forth elsewhere in this annual report.  In addition to historical information, the following discussion contains certain forward-looking statements that involve known and unknown risks and
uncertainties, such as statements of our plans, objectives, expectations and intentions.  See Special Note Regarding Forward-Looking Statements appearing on page 1 of this annual report.  Currency amounts in thousands of U.S. Dollars,
unless otherwise specified. 33




Change in Fiscal Year On May 17, 2001, we changed our fiscal year end from April 30 to December 31. Results of Operations World Gaming plc is a holding company incorporated under the laws of England and Wales that, through its subsidiaries and joint venture
arrangements, is an Internet gaming operator and developer, licensor and supplier of online gaming products, including casino, sportsbook and pari-mutuel betting. Interactive Systems Inc., a wholly-owned subsidiary of the Company incorporated and operating out of Antigua, operates and licenses
gaming software to third parties for an initial licensing fee and monthly royalties. In addition, Interactive Systems Inc. provides hosting and other systems administrative services to its licensees. Effective October 1, 2005, the Company, through
acquisition, became an Internet gaming operator offering Internet gaming services including casino, sportsbook and pari-mutuel betting direct to its wholly owned database of customers (See Item 4: Acquisition of the SPORTSBETTING.COM
group). WG Interactive Inc., a wholly-owned subsidiary of the Company, incorporated and operating out of British Columbia, Canada, provides further administrative services on behalf of Interactive Systems Inc. such as development support. The following tables set out selected consolidated information from our statements of operations for the twelve months ended December 31,
2005, 2004 and 2003 and the balance sheets as at December 31, 2005, 2004 and 2003: Selected Statement of Operations Information For the years ended December 31,2005
    
    2004
    
    2003Net sales
    
    $
    106,471
    
    
    $
    16,288
    
    
    $
    17,698Gross margins
    
    
    14,414
    
    
    
    14,417
    
    
    
    15,548Operating expenses incl. interest
    
    
    8,074
    
    
    
    9,172
    
    
    
    13,218Profit/(loss) from operations
    
    
    6,340
    
    
    
    5,245
    
    
    
    2,330Net profit/(loss)
    
    
    6,573
    
    
    
    17,370
    
    
    
    2,958
 Selected Balance Sheet Information As at December 31,2005
    
    2004
    
    2003Working Capital
    
    $
    (6,477
    )
    
    $
    14,866
    
    
    $
    (126
    )Total Assets
    
    
    110,691
    
    
    
    23,379
    
    
    
    12,591Long term debt
    
    
    40,000
    
    
    
    
    
    
    
    2,944Accumulated surplus / (deficit)
    
    
    220
    
    
    
    (6,353
    )
    
    
    (23,723
    )Total shareholders equity
    
    
    57,085
    
    
    
    16,028
    
    
    
    828
 34




Operating Results for Fiscal 2005 Total revenues the twelve months ended December 31, 2005 increased $90,183 to $106,471 compared to $16,288 for the same period last year.
The increase in total revenues is wholly attributable to the Sportsbetting.com Transaction effective October 1, 2005 where the Company acquired all of the business and assets of its then largest licensee whose leading brand is SPORTSBETTING.COM. (See
Item 4: Acquisition of the SPORTSBETTING.COM group). The Company maintains two key revenue streams: 1.


Royalties and fees (including hosting fees) which include royalties charged to the Companys continuing licensees plus hosting fees charged to Sportingbet PLC (Sportingbet) for hosting services provided from the Companys
wholly owned hosting facility (See Sportingbet Transaction below); and
 2.


Operations, representing revenue derived from its owned Internet gaming sites acquired through the Sportsbetting.com Transaction.
 Both the Sportsbetting.com Transaction, effective October 1, 2005 and the joint venture transaction with Sportingbet, effective October
1, 2004 have materially changed the composition of revenue streams in the current and comparative periods. Primarily, the Sportsbetting.com Transaction has added a new revenue stream for the fourth quarter and future periods through operations. In
addition, royalty revenue from the SPORTSBETTING.COM group is eliminated in the fourth quarter of 2005 and future periods as a result its acquisition by the Company. The transaction with Sportingbet, effective October 1, 2004 and described below as
the Sportingbet Transaction, eliminated royalty revenue from that date in return for certain consideration and other arrangements. For the twelve months ended December 31, 2005 royalty and fee revenue declined by 42.7% or $6,692 to $8,958. Of this decline in royalty
and fee revenue, $716 was attributable to no longer receiving royalties from the SPORTSBETTING.COM group as a result of its acquisition by the Company and $7,510 was the full year effect for comparative purposes, of no longer receiving royalties from
Sportingbet as a result of the Sportingbet Transaction.  This decline was partially offset by increases of $896 to $3,234 derived from new and continuing licensees. Revenue from operations, representing gross sports and horse racing wagers and net casino and poker win for the year ended December 31,
2005 was $97,513 from the Operating division compared to $nil for the same periods last year. (Net win refers to the difference between the amount wagered (bet placed) by a customer and the amount paid back to (won by) the customer.) For
comparative purposes and prior to the Group owning the SPORTSBETTING.COM group, the underlying growth in the Operating division 50.8% or $79,387 for the twelve months ended December 31, 2005. For the twelve months ended December 31, 2005, gross profit decreased by $3 to $14,414 from $14,417 in the same 12 month period last
year. The change is entirely due to no longer receiving royalties from Sportingbet, mitigated by including gross profit of the Operating division as explained above. For comparative purposes and prior to the Group owning the SPORTSBETTING.COM group,
the underlying gross profit contribution from the Operating division for the year ended December 31, 2005 was $27,064 after deducting $1,954 in customer bonuses and jackpot transfers, representing a 55.1% increase in gross profit for the
SPORTSBETTING.COM group for the 12 month period. For the twelve
months ended December 31, 2005 gross margin percentage was 13.5% compared to 88.5% for the same period last year. The decrease
resulted from a significant change in revenue mix as a result of the SPORTSBETTING.COM Transaction. For comparative purposes, the 35




underlying gross margin percentage for the Operating division for the quarter ended December 31, 2005 was 8.5% compared to 10.1% for the quarter ended December 31,
2004. The lower gross margin percentage in the quarter is attributable to lower than expected win margins on sports in the quarter. The underlying comparative and prior to the Group owning the SPORTSBETTING.COM group, the Operating division gross
margin percentage for the 12 months ended December 31, 2005 was 11.5% compared to 11.2% for the 12 months ended December 31, 2004. Operating expenses including depreciation in the twelve months to December 31, 2005 decreased 12% to $8,074 compared to $9,172 for the
same period last year, primarily as a result of including the cost base of the Operating division in the fourth quarter of 2005 offset by the Company no longer paying for development costs as a result of the Sportingbet Transaction. For the twelve months ended December 31, 2005, net income from operations increased by $1,095 to $6,340 compared to net income from
operations of $5,245 for the same period last year. Other income and
expenses including amortization for the twelve months ended December 31, 2005, increased $295 to $233, representing increases in
loan cost amortization, interest income and interest expense. Net comprehensive
income for the twelve months ended December 31, 2005 decreased by $11,102 to $6,436 compared to $17,538 for the same period last
year. The decrease in net income is entirely attributable to the extraordinary gain relating to the Sportingbet Transaction included
in the twelve months ended December 31, 2004. Participating ordinary shares include those shares that have voting and economic
rights and exclude those shares held by Sportingbet in accordance with the Sportingbet Transaction effective October 1, 2004
described below. Basic earnings per share before loan cost amortization and exceptional items per participating ordinary share for the year ended December
31, 2005 was 16.8 cents (16.8 cents after loan cost amortization and exceptional items) compared to 15.9 cents (53.4 cents after amortization and exceptional items) in the twelve months ended December 31, 2004. Participating ordinary shares include
those shares that have voting and economic rights and exclude those shares held by Sportingbet in accordance with the Sportingbet Transaction effective October 1, 2004. On a fully diluted basis earnings per share before loan cost amortization and exceptional items per participating ordinary share for the
year ended December 31, 2005 was 11.4 cents (11.4 cents after loan cost amortization and exceptional items) compared to 13.9 cents (46.5 cents after amortisation and exceptional items) in 2004. Operating Results for Fiscal 2004 Total revenues for
the year ended December 31, 2004 decreased by 8.0% or $1,410 to $16,288 compared to $17,698 for the same period in the twelve months
ended December 31, 2003. Net income from operations for the year ended December 31, 2004 was $5,245 or $0.11 per participating
ordinary share compared to net income of $2,330 or $0.07 per participating ordinary share in the twelve months ended December 31,
2003. Participating ordinary shares include those shares that have voting and economic rights and exclude those shares held by
Sportingbet in accordance with the transaction effective October 1, 2004 (See Item 4: Sportingbet Transaction and Item 10:
Material Contracts). 36




In 2004, revenue consists of the following elements: 


Royalty income from our licensees for utilization of our proprietary software and hosting facilities, charged as a percentage of those licensees net win;
 


Fee income, representing amounts charged to certain licensees for management of transaction processing activity;
 


Development and Web Page design fees, representing certain amounts charged to licensees for unique development projects; and
 


License fee revenue, representing upfront costs of purchasing a license to utilize our proprietary software.
 Net income for the year ended December 31, 2004 increased by 487.2% or $14,412 to $17,370 compared to $2,958 for the same period in 2003.
The significant increase in net income from the twelve months ended December 31, 2003 relates to an extraordinary gain on disposal of assets attributable to the Sportingbet transaction of $12,187 (2003: $Nil) described below. Royalty revenue from software licensing decreased 4.0% or $629 to $15,227 for the year ended December 31, 2004 compared to $15,856 for
the same period in 2003. The decrease is as a result of the transaction with Sportingbet where, effective October 1, 2004, we no longer received royalty revenues from this customer. For comparative purposes, revenue from continuing licensees
excluding Sportingbet grew 41% to $5,574 for the year ended December 31, 2004 when compared to the year ended December 31, 2003. In February 2004, we closed our transaction processing and customer service divisions migrating licensees that utilized these services to
a third party supplier. For comparative purposes, $1,765 of transaction processing fee revenue was included in total revenues for the year ended December 31, 2003 compared to $423 in the year ended December 31, 2004. Direct costs associated with this
division exceeded fee revenue in every quarter up to the date of its closure. Despite the exclusion of transaction processing fee income since February 2004, revenues continued to grow due to increases in total
wagering volume experienced by licensees. For the twelve months ended December 31, 2004, gross wagering volumes increased 63% to $6.2 billion when compared to $3.8 billion in the prior year. Growth in wagering volume from continuing licensees,
excluding Sportingbet, was 73%. Management believes that the growth in wagering volume was attributable to both a continued expansion of the market for Internet gaming. In addition, the growth was partially attributable to increased reliability of
our product suite as a result of infrastructure and support services upgrades. Overall net win experienced by licensees exceeded last year. Consequently, continuing licensees revenues representing a total of 10 licensees at December 31, 2004
increased 58% over the prior year. The gross margin for the year ended December 31, 2004 was 88.5% compared to 87.9% for the same period in 2003. The increase resulted from
a more profitable revenue mix due to the closure of the transaction processing division in February 2004 and the recovery of hosting fees attributable to Sportingbet for continuing to host their data on our servers in Antigua. Effective October 1,
2004, Sportingbet commenced paying us for its usage of our hosting facility. The payment is on a cost plus 10% basis and amounted to revenue of $621 in the year ended December 31, 2004 compared to $nil for the year ended December 31, 2003. 37




Operating expenses including depreciation decreased 30.6% to $9,172 during the year ended December 31, 2004 compared to $13,218 for the
year ended December 31, 2003.  The decrease occurred primarily due to the following: 

The removal of development costs effective October 1, 2004 as a result of the transaction with Sportingbet. These costs were approximately $1,100 per quarter;
 


Depreciation charges declined $513 or 26.5% when compared to the same period last year; and
 


An 18.8% reduction in other corporate overhead or a reduction of $1,914, when compared to the same period last year.
 Liquidity and Capital Resources At December 31, 2005, we had $7,605 in cash and cash equivalents compared to $7,944 at December 31, 2004. The decrease in the twelve
months was primarily due to net payments made in respect of the acquisition of the SPORTSBETTING.COM group. These payments are described further in cash flows from investing and financing activities below. Working capital at December 31, 2005 declined to a deficit of $6,447 from a surplus of $14,866 at December 31, 2004. The deficit has
arisen due to the short term loan facilities introduced in the fourth quarter of 2005 to fund our acquisition of the SPORTSBETTING.COM group. Consistent with our accounting policies, reserves and deposits held by credit card processors on behalf of our licensees were written off
the Companys balance sheet in the first quarter of 2005. At December 31, 2004, we held as a receivable from transaction processors of $2,234. These amounts relate to reserves and other deposits that were receivable on behalf of the
Companys licensees up to the date of closure of its transaction processing division in February 2004. These funds are held on behalf of licensees and accordingly the associated payable to the licensees in the same amount has also been written
off. Customer deposits of $5,438 as at December 31, 2005 represent customer accounts in respect of the Operating division held by a third
party. An equal balance is held under current liabilities representing the liability due to the customer. Accounts receivable decreased by $275 from $4,438 at December 31, 2004 to $4,163 at December 31, 2005. The accounts receivable balance
primarily consists of amounts due to us in respect of deposits processed on behalf of the Operating division and our licensees during December 2005. The Companys policy is to collect all funds processed in the previous month within 30 days of
month-end of the preceding month. Where applicable, we then collect our royalties from these funds before distributing to the respective licensees. Royalties due from operating licensees who maintain their own transaction processing function are
usually collected within 30 days after the date of invoicing those licensees. Prior to closure of the transaction processing division in February 2004, such amounts would have been disclosed as amounts due from processors. Consideration recoverable of $3,481 as at December 31, 2005 relates to cash payments made into an escrow account in accordance with the
terms of the Sportsbetting.com Transaction. Upon agreement of the final 2005 profit before tax of the SPORTSBETTING.COM group, any overpayments are recoverable at this time. The full balance was recovered in March 2006. 38




Consideration receivable of $7,000 as at December 31, 2004 represented remaining cash consideration payments due from Sportingbet in
respect of the Sportingbet Transaction which took effect October 1, 2004. These payments were received as $3,000 on March 1, 2005 and the balance of $4,000 was received on November 2, 2005. Prepaid expenses and deposits increased by $645 to $989 at December 31, 2005 compared to $344 at December 31, 2004. The increase is
primarily due to prepaid marketing expenditure for the Operating division. It is common that the majority of marketing spent for the Operating division is prepaid, prior to delivery of marketing services. Deferred loan costs of $483 at December 31, 2005 relate to the current portion of loan costs attributable to the loan facilities drawn
down on completion of the Sportsbetting.com Transaction. These amounts are being written off over the term of the loan. Deferred loan costs of $604 relate to deferred costs attributable to periods beyond 12 months from the current balance date. Goodwill of $86,697 represents acquired goodwill as a result of the Sportsbetting.com Transaction. Accounts payable and accrued liabilities balances decreased by $3,450 to $3,630 in the year ended December 31, 2005 compared to $7,080 at
December 31, 2004. The reduction relates primarily to the write-off of balances attributable to reserves and deposits described above of $2,234. In addition, amounts managed for jackpot balances of $567 at December 31, 2005 are included in the
balance together with general accounts payable. Jackpot balances are amounts held on behalf of the Operating division and some of the Companys licensees for its gaming products utilized on their websites. Bank loans of $15,000 at December 31, 2005 represent the current portion of loans payable that were drawn down in December 2005. The
total bank loan facilities including $25,000 attributable to periods beyond 12 months from the current balance date are repayable over 27 months commencing December 2005. Consideration payable of $3,600 at December 31, 2005 relates to the final installment of consideration payable into escrow in respect of
the Sportsbetting.com Transaction. The amount was paid on January 7, 2006. Net cash provided by operating activities for the twelve months ended December 31, 2005 was $5,394 compared to $6,477 for the same period
last year. The decrease is primarily due to higher net income from operations in the twelve months ended December 31, 2005 when compared to the same period last year offset by working capital movements. The increase in net income primarily relates to
the inclusion of the Operating division effective October 1, 2005. Net cash used by investing activities for the twelve months ended December 31, 2005 was $58,846 compared to $1,867 provided by investing
activities for the same period last year. This increase is primarily represented by the cash outflows in respect of the acquisition of the SPORTSBETTING.COM group. Net cash provided by financing activities for the year ended December 31, 2005 was $53,250 compared to ($3,081) used for financing
activities for the same period last year. Cash provided by financing activities was primarily from the issuance of ordinary shares in respect of the bank loan and the placing of shares in respect of the Sportsbetting.com Transaction and the placing
of shares in respect of the Companys initial admission to AIM market of the London Stock Exchange plc in May 2005. 39




Recent accounting pronouncements In December 2004, the FASB issued SFAS No.153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions. The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow
exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, Opinion 29 required that the accounting for an exchange of
a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. Opinion 29 provided an exception to its basic measurement principle
(fair value) for exchanges of similar productive assets. The Board believes that exception required that some nonmonetary exchanges, although commercially substantive, be recorded on a carryover basis. By focusing the exception on exchanges that lack
commercial substance, the Board believes this Statement produces financial reporting that more faithfully represents the economics of the transactions. The Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this Statement shall be applied prospectively. The Company has evaluated the
impact of the adoption of SFAS 153, and does not believe the impact will be significant to the Companys overall results of operations or financial position. In December
2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based Payment". Statement 123(R) will provide investors and other users of
financial statements with more complete and neutral financial information by requiring that the compensation cost relating to
share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the
equity or liability instruments issued. Statement 123(R) covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.
Statement 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in 1995, established as preferable a fair-value-based
method of accounting for share-based payment transactions with employees. Public entities (other than those filing as small business
issuers) will be required to apply Statement 123(R) as of the first interim or annual reporting period that begins after June 15,
2005. The Company adopted Statement 123(R) in January of 2006. In December 2004, the Financial Accounting Standards Board issued two FASB Staff Positions - FSP FAS 109-1, Application of FASB Statement
109 Accounting for Income Taxes to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004. Neither of these affected the Company as it does not participate in the related activities. In March 2005, the
SEC released Staff Accounting Bulletin No. 107, Share-Based Payment (SAB 107), which provides interpretive
guidance related to the interaction between SFAS 123(R) and certain SEC rules and regulations. It also provides the SEC staffs
views regarding valuation of share-based payment arrangements. In April 2005, the SEC amended the compliance dates for SFAS 123(R),
to allow companies to implement the standard at the beginning of their next fiscal year, instead of the next reporting period
beginning after June 15, 2005. The Company adopted SFAS 123(R) effective January 1, 2006. 40




In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN
47). FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. The Interpretation requires recognition of a liability for the fair value of a conditional
asset retirement obligation when incurred if the liabilitys fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.
The provision is effective no later than the end of fiscal years ending after December 15, 2005. The Company will adopt FIN 47 beginning the first quarter of fiscal year 2006 and does not believe the adoption will have a material impact on its
consolidated financial position or results of operations or cash flows. In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error Corrections. This new standard replaces APB
Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and represents another step in the FASBs goal to converge its standards with those issued by the IASB. Among
other changes, Statement 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. Statement 154
also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in
previously issued financial statements should be termed a restatement. The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard
is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. The Company has evaluated the impact of the adoption of Statement 154 and does not believe the impact will be significant to the
Companys overall results of operations or financial position. In February of 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which is intended to
simplify the accounting and improve the financial reporting of certain hybrid financial instruments (i.e., derivatives embedded in other financial instruments). The statement amends SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilitiesa replacement of FASB Statement No. 125. SFAS No. 155 is effective for all financial
instruments issued or acquired after the beginning of an entitys first fiscal year that begins after September 15, 2006.. The Company is currently evaluating the impact SFAS No. 155 will have on its consolidated financial statements, if any. Contractual obligations At December 31, 2005, the Company had the following contractual obligations: Payments due by periodContractual obligations
    
    Total
    
    less than 1 year
    
    1  3 years
    
    3  5 years
    
    more than 5 yearsLong-term debt obligations
    
    
    $40,000
    
    
    
    $15,000
    
    
    
    $25,000
    
    
    
    $
    
    
    
    $Capital (Finance) Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    195
    
    
    
    55
    
    
    
    140
    
    
    
    
    
    
    
    Total
    
    
    $40,195
    
    
    
    $15,055
    
    
    
    $25,140
    
    
    
    $
    
    
    
    $
 41




Trend Information We have not identified any changes in trends in our operations since the end of the financial period ended December 31, 2005. Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Directors and Senior Management The names, positions and ages of our directors and senior management as of May 31, 2006 are as follows: Name
    
    
    Age
    
    
    
    Position
    
    
    
    Date(s) AppointedJames H. Grossman
    
    
    66
    
    
    
    Chairman of the Board and Director
    
    
    
    April 11, 2003A. Daniel Moran
    
    
    38
    
    
    
    Director and Chief Executive   Officer
    
    
    
    April 11, 2003David Naismith
    
    
    32
    
    
    
    Director and Chief Financial Officer
    
    
    
    August 1, 2003Jonathan Moss
    
    
    52
    
    
    
    Sales and Marketing Director
    
    
    
    January 1, 2005, appointed to the board of directors March 1, 2005.Clare Roberts
    
    
    57
    
    
    
    Non-employee director
    
    
    
    October 18, 2000Michael Cumming
    
    
    65
    
    
    
    Non-employee director
    
    
    
    March 1, 2005
 See Item 10  Additional Information  Board Action and Powers for a discussion on the terms and conditions underlying
the appointment to the board of directors. Background Information Concerning Directors James H. Grossman, Chairman of the Board and Director James H. Grossman, who became our Chairman of the Board and a member of our board of directors on April 11, 2003, is an attorney with
experience in the international business, corporate, and venture capital areas and has an active international commercial arbitration practice. Mr. Grossman was of counsel to Reed Smith Crosby Heafey in San Francisco, California and predecessor
entities from January 2000 until August 2003. From 1995 to 1999, he practiced law as a sole practitioner and also acted as a business consultant. In 1992, Mr. Grossman was appointed by then President George H.G. Bush to serve as Chairman of the U.S. Foreign Claims Settlement
Commission, where he actively participated in quasi-judicial international arbitration relating to expropriation of property by foreign governments. Mr. Grossman has served as a Special Representative for the United Nations Development Program,
focusing on the implications upon certain Balkan nations of sanctions imposed on the then former Yugoslavia. Mr. Grossman also was the Chief Negotiator for the U.S. in the tariff reduction acceleration round of the US-Canada Free Trade Agreement,
which was a precursor to the creation of NAFTA. He obtained his undergraduate degree in International Relations/Political Science/History in 1960 from the University 42




of California at Berkeley and a J.D. from Harvard Law School in 1963. Mr. Grossman has also served as a director of Champion Communication Services, Inc., a company
based in Houston, Texas, publicly traded on the OTC Bulletin Board and the Canadian Venture Exchange. Information regarding retirement of directors is disclosed in Item 10: Additional Information. A. Daniel Moran, Director and Chief Executive Officer Daniel Moran, who became our Chief Executive Officer and a member of our board of directors on April 11, 2003, has over 15 years of
international business experience, primarily in the technology and Internet sectors. Most recently, he was the Managing Director for Sportingbet Australia, where his duties included strategic planning and automation of the business process,
overseeing operations, regulatory compliance, government relations and the management of a 50-person staff. Prior to joining Sportingbet in March 2000, Mr. Moran was a consultant in Australia, providing advice to companies seeking to organize
and become licensed to conduct Internet gaming operations in a regulated market. Mr. Moran received a BSc in (Computing Science) from Macquarie  University,  Australia  and  a  Post  Graduate  Diploma  in  Management  from  the Macquarie Graduate
School of Management, Australia. Information regarding retirement of directors is disclosed in Item 10: Additional Information. David Naismith, Director and Chief Financial Officer David Naismith has served as our Chief Financial Officer and a member of our board of directors since August 1, 2003. Mr. Naismith is a
qualified chartered accountant with several years experience in Internet gaming, most recently holding a senior finance role with Sportingbet. Prior to this, Mr. Naismith held regional finance directorships at Sportingbet before assuming
responsibility for these finance divisions globally based in London. Having qualified as a chartered accountant in audit with BDO, Mr. Naismith progressed to transaction support predominately for international media groups, many of whom have U.S.
based parents, working in both Australia, London and within Europe. Mr. Naismiths experience in the online gaming industry includes capital raising, acquisitions and global merchant processing in
several locations including Costa Rica, United Kingdom, Austria and Australia. Mr. Naismith holds a Bachelor of Commerce in finance from Bond University in Australia and is a member of the Institute of Chartered Accountants, where he was ranked in
the top 5 percent of candidates. Information regarding retirement of directors is disclosed in Item 10: Additional Information. Jonathan Moss, Sales and Marketing Director Jonathan Moss has served as our Sales and Marketing Director since January 1, 2005.  Mr. Moss has eight years senior management
experience in the online gaming sector. Immediately prior to his appointment with us, he held the position of Business Development Director at WagerLogic Limited, the licensing and services subsidiary of CryptoLogic Inc., one of the industrys
leading  online gaming software  providers.  Mr. Moss  dealt  with  brand-name  clients  to CryptoLogics casino and poker solutions including Betfair, Littlewoods Gaming, The Ritz Club of London and ukbetting PLC. Mr. Moss has also played a key role in industry lobbying efforts related to the forthcoming UK Gambling Bill and is an experienced
speaker at international e online gaming conferences. Prior to joining WagerLogic, Mr. Moss was the principal of a leading industry consulting group and a director at Access Systems, who brought the worlds first regulated internet casino,
Lasseters.com, to market in 1999. 43




Mr. Moss previous international business experience includes international careers with Unisys and Motorola, heading computer and
telecommunications business units in Australia and the United States. Mr. Moss holds a BSc Honours Degree in Economics and Psychology from Loughbourogh University and a Postgraduate Degree in Education from York University. Clare Kamau Roberts, Non-employee director Clare Roberts has served as a member of our board of directors since October 18, 2000 and was Chairman of the board from November 20,
2002 to April 11, 2003. He is a former Attorney General and Minister of Justice and Legal Affairs of Antigua and Barbuda from 1994 to 1997. Mr. Roberts has been founder and principal at Roberts & Company, Attorneys at Law, since 1986. He served as a consultant to the
government of Antigua from 1986 to 1990 and preceding that, served as Solicitor General for Antigua and Barbuda as well as Parliamentary Counsel. He is a founding member and director of the National Development Foundation of Antigua and Barbuda and
Vice President of the Antigua Offshore Association. He is presently a director and chairman of ACB Mortgage and Trust Company Limited, a wholly owned subsidiary of Antigua Commercial Bank, the leading bank in Antigua. Mr. Roberts is president of the Inter American Commission on Human Rights, to which he was elected in May 2001. He has served as a
consultant to various government agencies throughout the Caribbean region. Mr. Roberts received a BA and L.L.B. from the University of West Indies, a Legal Education Certificate from the Caribbean Council of
Legal Education, a Diploma in Legislative Drafting from the University of Ottawa in Canada and attended Harvard University for a program of instruction for lawyers in 1995 and 1996. Information regarding retirement of directors is disclosed in Item
10: Additional Information. Michael Cumming, Non-employee director Michael Cumming has served a member of our board of directors since March 1, 2006.  Mr. Cumming has over 35 years of experience in the
field of Private Equity. Prior to his retirement in 1996 he was for 14 years the Managing Director of Barclays Private Equity which he expanded from a London base into a company with nine offices worldwide. Mr. Cumming is currently Chairman of Mercia Fund Management, Matrix Venture Fund VCT PLC, Private & Commercial Finance Group PLC and
UK Smaller Companies Tracker Trust PLC. He is also a non-employee director of Graphite Enterprise Trust PLC and Forelle Estates Holdings Limited. He has degrees from Royal School of Mines, Imperial College, London and the Stanford Graduate School of
Business Administration, Palo Alto, California. Information regarding retirement of directors is disclosed in Item 10: Additional Information. Background Information Concerning Senior Management and Certain Key Employees Paul Botelho, Director of Product Development Paul Botelho joined us in 1999 and is responsible for overseeing product development of our software.  Mr. Botelho has over 12 years of
marketing and product development experience in the gaming and packaged goods industries.  He began his career with the British Columbia Lottery Corporation (BCLC) where he was responsible for mass marketing, brand management and the development of
the BCLCs first Internet presence. 44




Mr. Botelho holds a Bachelor of Applied Science from Simon Fraser University and is a member of the American Marketing Association and
the Canadian Marketing Association. Andrew Cochran, Director of Information Technology Andrew Cochran joined us in September 2001 and has been in the information technology (IT) field since 1993. Mr Cochran has expertise in
designing and managing large scale enterprise networks and systems. As Director of Information Technology, he architects and manages all of our gaming systems and networks for us. Prior to joining, us Mr. Cochran has held many lead roles in the telecommunications industry. At Bell Canada he was responsible for the
design and operation of Bells Sympatico and Advanced Business Internet infrastructure. In Bermuda, he helped Logic Communications establish an island wide DSL service. Previous to these positions he was an independent consultant offering
engineer services to a variety of organizations. Compensation Compensation of Non-Employee Board Members We have entered into agreements with our three non-employee directors as follows:  Messrs. Grossman, Roberts and Cumming each receive an
annual fee of £21,600 per year for acting in their capacity of non-employee directors. James H. Grossman has served as a Director and Chairman of the Board since April 11, 2003. Effective December 15, 2005 his annual fees
for serving as a director are £21,600. Mr. Grossman receives annual remuneration in respect of his services as the Groups Chairman of £107,000. In addition, Mr. Grossman receives an annual housing allowance and certain other
additional benefits where he is required to be relocated. The Company on June 4, 2003 authorized the issuance of options to purchase 150,000 ordinary shares all of which vested only on April 11, 2004 and options to purchase 300,000 ordinary shares
all of which were to vest  on April 11, 2005. The Company on July 1, 2004 authorized the issuance of options to purchase 500,000 ordinary shares all of which were to vest on April 11, 2006. In accordance with Mr Grossman's contract a deemed change of
control took place on the completion of the contract with Sportingbet Plc, effective  October 1, 2004. In accordance with the change of control provisions, all options grants prior to October 1, 2004 vested immediately. The Company on January 3,
2005 authorized the issuance of options to purchase 500,000 ordinary shares all of which vest only on January 3, 2007. Mr. Grossman is entitled under the terms of his service agreement to a deferred bonus of 75% of the total bonuses receivable by him
over three years of service with the Company payable on his third anniversary. Mr. Grossman received his entitlement to this deferred bonus in April 2006. Clare Roberts has served as a member of our board of directors from October 18, 2000. Effective January 1, 2005 his annual compensation
for such service is £21,600. Mr. Roberts has been granted options, of which 100,000 are exercisable and fully vested at an exercise price of $2.13 and 50,000 are exercisable and fully vested at an exercise price of $1.44. In August 2003, Mr.
Roberts relinquished options to purchase 200,000 shares at an exercise price of $0.31 granted in July 2001, all of which were vested, as these options were granted below market value and therefore in breach of the current Option Committee policy. As
consideration for this relinquishment, he was granted options at the then market price of $0.15 to purchase 200,000 shares of which 100,000 were fully vested at the time of the grant and 45




the remaining 100,000 vested in August 2005. The Company on July 1, 2004 authorized the issuance of options to purchase 100,000 ordinary shares all of which vest only
on October 18, 2006.  The Company on January 3, 2005 authorized the issuance of options to purchase 25,000 ordinary shares all of which vest only on January 3, 2007. Michael Cumming was appointed to the board of directors as a non-employee director effective March 1, 2005. His annual compensation is
£21,600. On March 1, 2005 Mr. Cumming was granted options to purchase 100,000 ordinary shares all of which vest only on March 1, 2007. Any directors who are employees receive no cash compensation for serving on our board of directors.  Directors who resigned during the
year were paid pro rata up to when they ceased performing duties for us.  All directors are reimbursed for their reasonable expenses incurred to attend meetings of the board of directors.  We anticipate that our board of directors will hold regularly
scheduled meetings at least quarterly in person and monthly by telephonic conference. Compensation of Our Senior Management The following tables set forth all compensation, in U.S. dollars, we paid to our senior management and directors including stock options
grants during the year ended December 31, 2005 and stock options granted as of May 31, 2006.  All of the options listed in the table below represent options to purchase our ordinary shares or ADRs. Options issued and vesting schedules for
existing directors are set forth in the chart below.  All new options granted to our employees and officers will normally vest over a two or three-year period from the date of the grant. Please see Item 10. Material Contracts for a
description of employment agreements with our senior management. Name and Principal Position
    
    Compensation
($)James H. Grossman, Chairman of the Board and Director
    
    
    255,930A. Daniel Moran, Chief Executive Officer and Director (1)
    
    
    590,337David Naismith, Chief Financial Officer and Director (2)
    
    
    487,078Jonathan Moss, Sales and Marketing Director (3)
    
    
    212,416Clare Roberts, Director
    
    
    38,448Michael Cumming, Director
    
    
    28,836
 46




Shares under
    
    
    
    
    
    
    
    
    
    Shares underoptions at
    
    Granted/
    
    Exercised
    
    options at
    
    ExerciseJanuary 1,
    
    (Lapsed)
    
    during
    
    December 31,
    
    PriceDirectors Options
    
    2005
    
    during 2005
    
    2005
    
    2005
    
    ($)
    
    Exercise periodJames H. Grossman
    
    
    150,000
    
    
    
    
    
    
    
    (150,000
    )
    
    
    
    
    
    
    0.14
    
    
    
    11 Apr 04  11 Apr 11300,000
    
    
    
    
    
    
    
    (100,668
    )
    
    
    199,332
    
    
    
    0.14
    
    
    
    1 Oct 04   11 Apr 11500,000
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    0.35
    
    
    
    1 Oct 04  11 Apr 11500,000
    
    
    
    
    
    
    
    500,000
    
    
    
    0.69
    
    
    
    3 Jan 07  16 May 11A. Daniel Moran (1)
    
    
    1,000,000
    
    
    
    
    
    
    
    (250,668
    )
    
    
    749,332
    
    
    
    0.14
    
    
    
    11 Apr 04  11 Apr 11500,000
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    0.14
    
    
    
    1 Oct 04  11 Apr 11500,000
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    0.35
    
    
    
    1 Oct 04  11 Apr 11500,000
    
    
    
    
    
    
    
    500,000
    
    
    
    0.69
    
    
    
    3 Jan 07  16 May 11David J. Naismith (2)
    
    
    150,000
    
    
    
    
    
    
    
    (150,000
    )
    
    
    
    
    
    
    0.14
    
    
    
    1 Aug 04  16 May 11500,000
    
    
    
    
    
    
    
    (100,664
    )
    
    
    399,336
    
    
    
    0.14
    
    
    
    1 Oct 04  16 May 11500,000
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    0.35
    
    
    
    1 Oct 04  16 May 11500,000
    
    
    
    
    
    
    
    500,000
    
    
    
    0.69
    
    
    
    3 Jan 07  16 May 11Jonathan Moss (3)
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    
    150,000
    
    
    
    0.39
    
    
    
    3 Jan 07  16 May 11
    
    
    
    500,000
    
    
    
    
    
    
    
    500,000
    
    
    
    0.39
    
    
    
    3 Jan 07  16 May 11Clare K. Roberts
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    2.13
    
    
    
    30 Apr 01  1 May 1150,000
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    1.44
    
    
    
    1 Jan 02  1 Jan 09100,000
    
    
    
    
    
    
    
    (48,000
    )
    
    
    52,000
    
    
    
    0.15
    
    
    
    5 Aug 04  16 May 11100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    0.15
    
    
    
    5 Aug 05  16 May 11100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    0.35
    
    
    
    18 Oct 06  16 May 1125,000
    
    
    
    
    
    
    
    25,000
    
    
    
    0.69
    
    
    
    3 Jan 07  16 May 11Michael R. Cumming
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    0.69
    
    
    
    1 Mar 07  16 May 11
 During the year ended December 31, 2005, Messrs. Grossman, Moran and Naismith exercised 250,668, 250,668 and 250,664 share options, respectively, at an exercise price
of $0.14 per ordinary share and Mr. Roberts exercised 48,000 share options at an exercise price of $0.15 per ordinary share. These ordinary shares were subsequently sold through a private placement completed in December 2005.    47




(2)     David Naismiths employment as Chief Financial Officer and a Director with World Gaming plc
commenced on August 1, 2003. Effective January 1, 2006 his annual base compensation is £155,000, with an annual housing
allowance and certain other additional benefits. In addition, the Company on June 4, 2003 authorized the issuance of options to
purchase 150,000 ordinary shares all of which vested on June 4, 2004 and options to purchase 500,000 ordinary shares all of which
vested on August 1, 2005. The Company on July 1, 2004 authorized the issuance of options to purchase 500,000 ordinary shares all of
which were to vest on August 1, 2006. In accordance with Mr. Naismiths contract a deemed change of control took place on
completion of the transaction with Sportingbet Plc. In accordance with the change of control provisions, all option grants prior to
October 1, 2004 vested immediately. The Company on January 3, 2005 authorized the issuance of options to purchase 500,000 ordinary
shares all of which vest only on January 3, 2007. All option grants are at the then market value on the date of grant. Unvested
options will terminate if Mr. Naismiths directorship is terminated for cause. If Mr. Naismith is terminated for another reason
not contemplated by an option agreement then options shall be exercisable for a period of 12 months after the termination period but
only to the extent that it is vested and exercisable on the date of termination period, except as permitted in the sole discretion
of the board. All options granted to Mr. Naismith otherwise have an exercise period of the shorter of 10 years from the date of
grant or at the expiration of the Option Plan in 2011. Mr. Naismith is entitled under the terms of his service agreement to a
deferred bonus of 75% of the total bonuses receivable by him over three years of service with the Company payable on his third
anniversary. Mr. Naismith will only receive his entitlement to this deferred bonus if he is still employed by the Company on such
third year anniversary. (3)     Jonathan Moss employment as Director of Sales and Marketing with World Gaming commenced on January 1, 2005.  His annual base
compensation is £100,000 with certain other additional benefits.  On March 1, 2005, Mr. Moss was appointed to the Board of Directors of World Gaming Plc.  No changes were made to Mr. Moss compensation as a result of this appointment.  The
Company on January 3, 2005 authorized the issuance of options to purchase 650,000 ordinary shares, 500,000 of which vest on January 3, 2007 and 150,000 which may vest on January 3, 2007 subject to certain performance related criteria. Mr. Moss is
entitled under the terms of his service agreement to a deferred bonus of 75% of the total bonuses receivable by him over three years of service with the Company payable on his third anniversary. Mr. Moss will only receive his entitlement to this
deferred bonus if he is still employed by the Company on such third year anniversary. Superannuation contributions of $17,013 and $13,799 (2004: $12,987 and $10,553) have been paid on behalf of A. Daniel Moran and David J.
Naismith respectively for the year ending December 31, 2005 for nominated pension schemes. The Company does not operate a pension scheme or retirement plan. World Gaming plc 2001 Share Option Plan The World Gaming plc 2001 Share Option Plan (the 2001 Plan) provides that eligible persons may acquire options to purchase
ordinary shares or ADRs as determined by our board of directors or the Share Option Committee.  The board currently serves as the Share Option Committee.  The 2001 Plan was adopted by the board on May 17, 2001 and approved by ordinary resolution of
our shareholders on May 17, 2001 in substitution of the LVA Stock Option Plans (1997, 1999 and 1999 (No. 2)), which were terminated in the course of our holding company reorganization and options thereunder were exchanged for new options pursuant to
the 2001 Plan. Number of Ordinary Shares The maximum number of the ordinary shares (or ADRs) with respect to which options may be granted under the 2001 Plan is 15,000,000.  If
any option shall lapse or shall be cancelled, then the shares represented by such option shall become available for new options.  An option may be exercised for an ordinary share or an ADR. Eligibility All employees, officers, directors and all other persons who provide services to us or any of our subsidiaries, as determined by the
board, are eligible to participate in the 2001 Plan. 48




Grant of Options The boardadministers the 2001 Plan and has discretion in awarding share options to the eligible participants.  (See Item 6.
Committees of the Board of Directors). Option Price Options will be granted at exercise prices to be determined by the board, which must be the fair market value of the ordinary shares (or
ADSs) on the date of grant. Fair market value for these purposes means the closing price of our American Depositary Shares, as traded on the OTC Bulletin Board or the other principal U.S. market for our securities, on the business day immediately
preceding the date of grant. Exercise of Options Prior to April 2003, the options granted to directors under the 2001 share option agreement vested and became exercisable as to 25% of
the original number of option shares on the date of grant and a further 25% upon the expiration of each of the following three periods of three months.  Options granted subsequent to April 2003 require a more onerous vesting schedule as determined by
the board. Options granted to our employees and officers and directors normally vest over a two-year period from the date of the grant. The board of directors during 2003 affirmed the requirement that the grant price in respect of all options granted
must represent the closing market price prevailing on the date of such grant.  The exercise of the options for other categories of optionholders may be tied to certain performance conditions.  Options will terminate if an optionholders
employment is terminated for cause, or if an option holder voluntarily resigns without appropriate or agreed notice and termination terms, unless otherwise agreed by the board of directors.  If the employee or officer or director is terminated for
another reason not contemplated by an option agreement then the option shall be exercisable for a period of 12 months after termination but only to the extent that it is vested and exercisable on the date of termination, except as permitted in the
sole discretion of the board of directors.  If an optionholders employment or office or directorship is terminated due to his or her death or disability, the options will remain exercisable for a period of 12 months after termination but only
to the extent that they have vested and are exercisable on the date of termination.  Notwithstanding the foregoing, all options lapse at the end of their respective option periods.  Options are not transferable and may only be exercised by the
persons to whom they are granted, except in the case of the death or disability of the optionholder in which case they would be exercisable by the guardian or personal representative of the optionholder (as the case may be). Issues of Ordinary Shares or ADRs Ordinary shares or ADRs issued upon the exercise of options will rank equally with ordinary shares or ADRs, as applicable, of the same
class, but shall not be entitled to any dividends or other distributions declared prior to the date of the exercise. Variation in Share Capital Options may be adjusted following certain variations in our share capital, including a capitalization or rights issue. Termination of the 2001 Plan No options may be granted under the 2001 Plan after the tenth anniversary of its adoption. 49




Amendments The board of directors may amend the 2001 Plan with respect to minor amendments relating to administrative matters. Material
modifications will require shareholder approval, if such approval is required by applicable law or exchange rules. Additionally, no amendments which would adversely affect the rights of the existing optionholders may be made without their consent. On March 18, 2005, one of our former directors relinquished all rights to purchase 2,200,000 ordinary shares that had fully vested. Board Practices In English companies, when a director ceases to be a director, whether voluntarily or otherwise, we say that the director has
retired.  Our directors are subject to retirement by rotation.  At every one of our annual general meetings, one third of our directors who are subject to retirement by rotation or, if their number is not three or a multiple of three, the
number nearest to one third of our directors, shall retire from office.  If there is only one director who is subject to retirement by rotation, that director shall retire.  Subject to the provisions of the U.K. Companies Act 1985, the directors to
retire by rotation shall be those who have been longest in office since their last appointment or retirement.  As between persons who became or were last reappointed directors on the same day, those to retire shall be determined by lot unless they
otherwise agree among themselves. If a director retires by rotation and he is not reappointed, the retiring director may retain its office until the meeting appoints someone in his place or until the end of the meeting.  However, the director in that
situation shall not be deemed to be reappointed, if the shareholders determine not to fill the vacancy or a resolution to reappoint the director is voted upon and defeated.  Shareholders holding a majority of the Companys ordinary shares may
remove any director from office at any time, with or without cause, subject to the requirements of the U.K. Companies Act of 1985 and our Articles of Association. Committees of the Board of Directors Our board of directors has appointed an audit committee and a compensation committee. The audit committee of the board of directors makes recommendations concerning the engagement of independent public accountants. The
audit committee charter mandates that the audit committee approve all audit, audit-related, tax and other services conducted by our independent accountants. In addition, the  audit committee reviews the plans, results and fees of the audit engagement
with our independent public accountants, and any independence issues with our independent public accountants. The audit committee also reviews the adequacy of our internal accounting controls. The current members of the audit committee are James H.
Grossman, Clare Roberts and Michael Cumming. We do not have an audit committee financial expert serving on our audit committee. The board of directors believes that the
appointment of Mr. Cumming to the board of directors, while not meeting specific financial or accounting officer requirements of an audit committee financial expert as defined in Item 16A of Form 20-F, brings a significant amount of experience and
relevant financial education to the board of directors. Mr. Cumming has over 35 years experience in private equity, most recently as Managing Director of Barclays Private Equity, a major UK banking group. In addition, Mr. Cumming has an MBA from
Stanford Graduate School of Business Administration, Palo Alto, California. The compensation committee of the board of directors determines compensation for our executive officers and key employees and administers
our equity plan. The compensation committee currently consists of Messrs. Grossman, Roberts and Cumming. 50




Employees The number of employees by location as of the dates set forth below is as follows: December 31, 2005
    
    December 31, 2004
    
    December 31, 2003Antigua
    
    
    23
    
    
    
    16
    
    
    
    51Canada
    
    
    19
    
    
    
    17
    
    
    
    41London
    
    
    1
    
    
    
    
    
    
    
    Total
    
    
    43
    
    
    
    33
    
    
    
    92
 Licensing operations take place in our office in Antigua, while limited administrative functions are in Vancouver, Canada. The total
number of our employees as of May 31, 2006 is 45. Our employees are not represented by a union or other collective bargaining organization and we have never experienced a work stoppage.
We believe that our employee relations are good. Share Ownership of Senior Management and Directors The table below sets forth certain information concerning the share ownership of our directors and senior management as of May 31, 2006. Name
    
    Number of ordinary shares or ADSs Owned
    
    Number of ordinary shares or ADSs Which May be Acquired under Share Option Plan
    
    Range of Exercise Prices of Options($)
    
    Range of Expiration Dates of Options
    
    Percentage of ordinary shares or ADSs Beneficially Owned(1)James H. Grossman
    
    
    284,334
    
    
    
    950,000
    
    
    
    $0.35 - $0.69
    
    
    
    4/2011 - 5/2011
    
    
    
    0.51
    %(2)A. Daniel Moran
    
    
    
    
    
    
    2,249,332
    
    
    
    $0.14 - $0.69
    
    
    
    4/2011 - 5/2011
    
    
    
    0
    %David Naismith
    
    
    
    
    
    
    1,399,336
    
    
    
    $0.14 - $0.69
    
    
    
    5/2011
    
    
    
    0
    %Jonathan Moss
    
    
    
    
    
    
    650,000
    
    
    
    $0.39
    
    
    
    5/2011
    
    
    
    0
    %Clare Roberts
    
    
    
    
    
    
    427,000
    
    
    
    $0.15 - $2.13
    
    
    
    1/2004 - 5/2011
    
    
    
    0
    %Michael Cumming
    
    
    
    
    
    
    100,000
    
    
    
    $0.69
    
    
    
    5/2011
    
    
    
    0
    %
   (1)
 (2)      Mr. Grossman purchased 10,000 ADRs on the open market in November 2003 and a further 10,000 ADRs on the open
market in February 2005. Continental Stock and Transfer Company transferred its 2 ordinary shares held in the Company for legal purposes to Mr. Grossman in January 2005. 51




Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Major shareholders The following table contains information regarding the beneficial ownership of our ordinary shares, including our American Depositary
Shares, as of May 31, 2006, for all shareholders known by us to beneficially own 5% or more of our ordinary shares. Name of Beneficial Owner
    
    Number of ordinary shares or ADRs  Beneficially Owned(1)
    
    Percentage of Outstanding ordinary shares or ADRs  Beneficially OwnedOpunosa Investment Inc./Vladhill Properties Inc.(1)
    
    
    9,436,636
    
    
    
    17.0
    %Credit Agricole Cheuvreux (1)
    
    
    4,343,436
    
    
    
    7.8
    %
   (1)
 Name of Beneficial Owner
    
    Number of ordinary shares or ADRs  Beneficially Owned(1)
    
    Percentage of Outstanding ordinary shares or ADRs  Beneficially OwnedCribbage Limited (a wholly-owned subsidiary of Sportingbet, PLC) (2)
    
    
    8,506,204
    (2)
    
    
    (2)Goodison Park Limited (a wholly-owned subsidiary of Sportingbet, PLC) (2)
    
    
    5,000,000
    (2)
    
    
    (2)
   (2) Sportingbet Transacti Material
Contracts)
 Significant Changes in Ownership of Ordinary Shares Prior to the holding company reorganization in 2001, LVA issued 2,000,000 shares of its common stock to AIM Investments Ltd. pursuant to
LVAs agreement with AIM Investments Ltds parent Simpson Bay Ltd. described elsewhere in this report. In 2002, as a result of the issuance of the 52




class action shares, Cribbage Limited, a wholly-owned subsidiary of Sportingbet, acquired 6,506,204 American Depositary Shares. By way of agreement dated July 11,
2003, AIM Investments Ltd. transferred its entire holding of 2,000,000 shares to Cribbage Ltd. With the completion of the financing on April 7, 2003, Goodison Park Limited, another wholly-owned subsidiary of Sportingbet PLC,
acquired 5,000,000 ordinary shares of the Company and the right to acquire up to 7,500,000 additional ordinary shares upon the conversion of a certain convertible loan issued by us to Goodison Park Limited. (See Item 7. Related Party
Transactions). Effective October 1, 2004 the convertible loan note was cancelled together with the underlying right to acquire 7,500,00 shares in the Company. In addition all holdings by the Sportingbet group companies will be transferred to the
Company for a total consideration of $1 when requested to do so by the Company. These shares will be purchased by the Company when there are available distributable profits for $1.00 in aggregate. As at May 31, 2006, the vendors of the SPORTSBETTING.COM business, Opunosa Investment Inc. (See Item 4: Acquisition of the
SPORTSBETTING.COM group) beneficially owned 9,436,636 or 17.0% of the entire issued capital of World Gaming plc. No further shares are due to be issued to Opunosa Limited in respect of this acquisition. Securities and Record Holders in the United States Based on a
Geo-Survey provided by ADP with a record date of May 15, 2006 there were approximately 25,477,033 American Depositary Shares
outstanding. We are informed that, based on the Geo-Survey, that approximately 60% of our ADRs were held by record holders with a
U.S. address, and 40% of our ADRs were held by record holders with addresses outside the United States. As at May 31, 2005, there
are 55,418,630 ordinary shares outstanding. When taken as a whole (ADRS and ordinary shares the percentage of share capital held by
record holders with a US address is approximately 27%. Change of Control We are not aware of any arrangements the operation of which may at any subsequent date result in a change in control of our Company. Related Party Transactions Sportingbet PLC and its affiliates, Goodison Park Limited and Cribbage Limited Subsequent to the transaction described below, Sportingbet and its subsidiaries are no longer related parties to the group. Goodison Park Limited, a wholly-owned subsidiary of Sportingbet, acquired an interest in World Gaming Plc by way of share acquisition and
a convertible loan. Goodison Park purchased 5,000,000 ordinary shares of World Gaming at $0.12 per share or a total of $600,000; and made a convertible loan to the Company (the Convertible Loan) in the principal amount of $900,000. Cribbage Limited, a wholly-owned subsidiary of Sportingbet, acquired an interest in World Gaming Plc in 2002 by way of acquiring
6,506,204 ADRs issued as a result of the Class Action shares from a third party. Additionally, on July 3, 2003, AIM Investments Ltd., transferred its holding of 2,000,000 ADRs to Cribbage Ltd. 53




As a result of the Transaction with Sportingbet, effective October 1, 2004, the Convertible Loan was forgiven in full and the Company may
repurchase shares held by Goodison Park Limited and Cribbage Limited or its affiliates of 13,506,204 for an aggregate payment of $1.00 as soon as it has the retained earnings to do so. All other loan balances were repaid in full during the year. (See
Item 4: Sportingbet Transaction and Item 10: Material Contracts) Pursuant to an Ancillary Services Agreement, some of the Companys licensees receive certain transaction processing and related
services from Sportingbet or its affiliates. The Company therefore receives balances from Sportingbet or its affiliates and pays these onto affected licensees after deducting the royalty due to the Company. Item 8.  FINANCIAL INFORMATION Consolidated Statements and Other Financial Information The consolidated statements and other financial information required by Item 8 of Form 20-F are included in Item 17, commencing on page
F-1, of this Annual Report. Legal Proceedings The following are material existing and pending or recently concluded legal or arbitration proceedings against us and our subsidiaries: Mitchell White On August 6, 1998, Mitchell White commenced an action against ESCE and SSII Limited for breach of his employment agreement and wrongful
termination of him as a director. Mr. White alleges that as a result of his wrongful termination as an employee and director, he was not provided with a severance package in lieu of reasonable notice and he did not receive stock options that he would
have otherwise received. Mr. White claims that his losses are in excess of $1.5 million. Our defense is based, among other things, on the claimants resignation due to recurring drug related problems and is in the process of vigorously defending
this action. The trial of this action was to commence in April 2005, but has been adjourned. A new date for trial has been set for June 2007. In February 2004, SSII Limited commenced a third party claim against a former director, Mr. Jack Carley. It is alleged that Mr. Carley
was responsible for the termination of Mr. Whites employment in 1998. Mr. Carley is also Mr. Whites father-in-law. Thomas A. Kaufmann, Gene C. Geiger and Roy E. Gould Thomas A. Kaufmann (Kaufman), Gene C. Geiger (Geiger) and Roy E. Gould
(Gould) filed a claim in Colorado against LVA Holdings, Inc. (LVA), an indirect subsidiary of the Company.
Kaufmann and Geiger were registered representatives associated with securities broker-dealer Spencer Edwards, Inc. in Englewood,
Colorado, while Gould was a registered representative with a Canadian broker-dealer, United Capital. On July 18, 2005, an SEC
Administrative Law Judge (ALJ) issued an Initial Decision finding that Kaufman, Geiger and Gould had willfully
violated U.S. securities laws. The willful violations of securities laws related to the sale of Reg S shares of
LVA in 1997 and 1998 without registration or exemption from registration which the ALJ ultimately determined to be an illegal breach
of securities laws. Under the ALJs Initial Decision, Kaufman, Geiger and Gould were permanently barred from associating with
any securities broker or dealer. Kaufman and Geiger were each ordered to disgorge $885,738.62. In addition, Geiger was ordered to
pay a civil penalty of $400,000.00, Kaufmann was ordered to pay a civil penalty of $300,000.00. Gould was ordered to disgorge
$13,843,650.79 in ill-gotten profits, but that amount was reduced $1,000,000, and monetary penalties were waived in light of
Goulds demonstrated inability to pay. Kaufman and Geiger have appealed the ALJs findings. Gould has not
appealed, and the findings are final as to Gould. LVA was not named as a respondent in the SEC proceedings. 54




Kaufman, Geiger and Gould (collectively Plaintiffs) have now sued LVA in Colorado looking
to be reimbursed for the fines, penalties and monies ordered disgorged by the ALJ. Their claims are premised on a theory that they
did not know the securities transactions identified above were illegal and were misled by LVA and its agents, which is entirely
inconsistent with the findings of fact as presented by the ALJ. LVA removed the case to the U.S. District Court for the District of
Colorado based on diversity jurisdiction. Discovery is underway and the case will be tried, if trial is required, in 2007. We
believe that the Plaintiffs claims are wholly without merit and intend to vigorously defend this action. Plaintiffs have also
brought a motion seeking to add World Gaming plc as a party, on the grounds that World Gaming plc is liable for LVAs debts. We
believe this motion is without merit and are vigorously opposing the addition of World Gaming plc as a party. Dividend Policy Our Articles of Association provide that dividends are declared by the shareholders upon the recommendation of the board of directors
which has the discretion to make any such recommendation. We have never paid cash dividends on our ordinary shares. We review our dividend policy on a regular basis. Currently, we do not anticipate that any cash dividend on our ordinary shares will
be paid within twelve months of filing this Form 20-F. Significant Changes We have experienced no significant changes since the date of the annual financial statements other than those disclosed in those
financial statements. Item 9.  THE OFFER AND LISTING Trading Markets OTC Bulletin Board Our American Depositary Shares are traded on the OTC Bulletin Board.  Each American Depositary Share represents one ordinary share of our
company.  Price quotations for our American Depositary Shares were reported on the OTC Bulletin Board under the symbol WGMGY beginning on May 29, 2001.  As of May 31, 2006, we had 55,418,630 ordinary shares issued and outstanding, of
which 25,615,048 are represented by American Depositary Shares evidenced by American Depositary Receipts issued by Continental Stock Transfer and Trust Company, as depositary. On October 25, 2005, the National Association of Securities Dealers, or NASD, acting pursuant to NASD Rule 6545, directed its members to
halt trading and quotations in our American Depositary Shares for five business days in the OTC Bulletin Board. We were advised that the NASD took this action based on the trading suspension of our ordinary shares on the Alternative Investment
Market, or AIM, of the London Stock Exchange, which suspension was put in place following our announcement of the conditional purchase agreement to acquire the SPORTSBETTING.COM Group (see the discussion under AIM below in this Item 9).
The NASD trading halt was for five business days and expired on November 1, 2005.  Quotations of our American Depositary Shares on the OTC Bulletin Board, however, could resume only after market makers in our American Depositary Shares satisfied
applicable requirements under the U.S. Securities Exchange Act of 1934, as amended, and NASD Rules.  In particular, market makers were required to comply with SEC Rule 15c2-11 by filing a Form 211 with the NASD. Following the satisfaction of the
foregoing conditions, quotations and trading of our American Depositary Shares resumed on December 7, 2005. 55




The following table sets forth the high and low closing sale prices for our American Depositary Shares on the OTC Bulletin Board, from
the beginning of trading on May 29, 2001 to May 31, 2006 and for LVA, as our predecessor, for periods prior thereto. Such prices do not reflect retail markup, markdown or commissions and may not necessarily represent actual transactions. High
    
    LowFive Most Recent Financial YearsYear ended April 30, 2001
    
    
    4.187
    
    
    
    0.312Eight months ended December 31, 2001
    
    
    2.100
    
    
    
    0.410Year ended December 31, 2002
    
    
    0.975
    
    
    
    0.140Year ended December 31, 2003
    
    
    0.460
    
    
    
    0.110Year ended December 31, 2004
    
    
    0.890
    
    
    
    0.280Year ended December 31, 2005
    
    
    3.54
    
    
    
    0.600Year ended December 31, 2004First Quarter
    
    
    0.890
    
    
    
    0.400Second Quarter
    
    
    0.860
    
    
    
    0.280Third Quarter
    
    
    0.620
    
    
    
    0.300Fourth Quarter
    
    
    0.720
    
    
    
    0.350Year ended December 31, 2005First Quarter
    
    
    1.760
    
    
    
    0.650Second Quarter
    
    
    1.820
    
    
    
    1.040Third Quarter
    
    
    3.420
    
    
    
    1.300Fourth Quarter
    
    
    3.230
    
    
    
    1.250Most Recent Six MonthsDecember 2005
    
    
    3.000
    
    
    
    1.250January 2006
    
    
    2.800
    
    
    
    2.250February 2006
    
    
    2.550
    
    
    
    2.250March 2006
    
    
    2.840
    
    
    
    2.450April 2006
    
    
    3.080
    
    
    
    2.460May 2006
    
    
    2.990
    
    
    
    2.030
 Alternative Investment Market of the London Stock Exchange Our ordinary shares are traded on the Alternative Investment Market of the London Stock Exchange.  Price quotations for our ordinary
shares were reported on the London Stock Exchange under the symbol WGP beginning on May 17, 2005.  As of May 31, 2006, we had 55,418,630 ordinary shares issued and outstanding, of which 29,803,582 trade on the AIM market. The following table sets forth the high and low closing sale prices for our ordinary shares on the AIM, from the beginning of trading on
May 17, 2005 to May 31, 2006. Such prices do not reflect retail markup, markdown or commissions and may not necessarily represent actual transactions. 56




High
    
    LowFive Most Recent Financial YearsYear ended December 31, 2005
    
    
    2.100
    
    
    
    0.650Year ended December 31, 2005First Quarter
    
    
    NA
    
    
    
    NASecond Quarter
    
    
    0.680
    
    
    
    0.970Third Quarter
    
    
    2.100
    
    
    
    0.630Fourth Quarter
    
    
    1.940
    
    
    
    1.300Most Recent Six MonthsDecember 2005
    
    
    1.560
    
    
    
    1.370January 2006
    
    
    1.570
    
    
    
    1.320February 2006
    
    
    1.470
    
    
    
    1.350March 2006
    
    
    1.630
    
    
    
    1.470April 2006
    
    
    1.780
    
    
    
    1.470May 2006
    
    
    1.650
    
    
    
    1.290
 Registrar, Transfer Agent and Depositary Since June 25, 2001, Continental Stock Transfer and Trust Company has acted as our registrar, transfer agent and depositary with respect
to our American Depositary Receipts. Prior to that, our registrar, transfer agent and depositary was Pacific Stock Transfer.  Since May 17, 2005, Capita Registrars has acted as our registrar and transfer agent with respect to our AIM listed ordinary
shares. Item 10. ADDITIONAL INFORMATION Share capital See Item 9.: The Offer and Listing Memorandum of Association and Articles of Association Set forth below is information concerning our equity capital structure and related summary information concerning provisions of our
Memorandum of Association and Articles of Association and applicable English law.  Since it is a summary, it does not contain all of the information that may be important to you, and the summary is qualified in its entirety by reference to the U.K.
Companies Act of 1985, our Memorandum of Association and our Articles of Association.  Our Memorandum of Association was filed as Exhibit 3.1 to Registration Statement on Form F-4 (SEC File No. 333-48280) on October 19, 2000.  Our former Articles of
Association, adopted by special resolution on May 17, 2001, were filed as Exhibit 4.2 to Registration Statement on Form S-8 (SEC File No. 333-70056) on September 24, 2001. A copy of our present Articles of Association, adopted by special resolution
on September 19, 2003 was filed as an exhibit to our Form 20-F for the year ended December 31, 2003. On October 12, 2004 the Company adopted certain changes to its Articles of Association by Special Resolution at an Extraordinary Meeting of
Shareholders. These changes related to matters requiring amendment for its proposed admission to the Alternative Investment Market of the London Stock Exchange and relevant shareholder material including notices and voting material were sent to
shareholders and were included as exhibits to a Report on Foreign Private Issuer on Form 6-K with the SEC on March 4, 2005. We are incorporated under the name World Gaming plc and our Company is incorporated in England and Wales with the registered number
4094204.  Our Memorandum of Association does not include a statedpurpose. 57




Board Action and Powers The Articles of Association provide that unless otherwise determined by ordinary resolution, the board of directors shall consist of not
less than two nor more than 10 members.  Currently, the number of directors is set at 6. Except as noted below, the board of directors may at any time appoint any person to be a director either to fill a vacancy or as an
additional director, provided that the number of directors does not exceed 10. Any person so appointed by the board of directors shall hold office only until the next annual general meeting of shareholders and shall then be eligible for election by
the shareholders, but shall not be taken into account in determining the number of directors who are to retire by rotation at such meeting as set out below. At each annual general meeting of shareholders, one-third of our directors (or, if their number is not a multiple of three, the number
nearest to but not greater than one-third) must retire from office by rotation.  If the number of directors subject to retirement by rotation is fewer than three, one of such directors shall retire.  The directors to retire by rotation shall be in
addition to any director who wishes to retire and not to offer himself for re-election.  The directors to retire by rotation shall include those members who have served the longest on the board of directors. A retiring director is eligible for
immediate re-election. Any provisions of the U.K. Companies Acts of 1985 and 1989 or other United Kingdom statutes applicable to us which would have the effect
of rendering any person ineligible for appointment as a director or liable to vacate office as a director by virtue of his having reached any specified age or of requiring special notice or any other special formality in connection with the
appointment or election of any director over a specified age, do not apply to us. Directors are not required to hold any of our ordinary shares by way of qualification. A director who is not a shareholder shall
nevertheless be entitled to attend and speak at shareholders meetings. Borrowing Powers Subject to the limitations noted below, the directors may exercise all our powers to borrow money and to mortgage or charge our
undertaking, property and uncalled capital or any part or parts thereof, and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of us or of any third party. Compensation and Expenses The compensation of the directors is determined by the board of directors but may not in the aggregate exceed £180,000 per year
(disregarding any compensation payable to directors in their capacity as executives) or such higher amount as may from time to time be determined by an ordinary resolution of our board.  Such compensation shall (unless such resolution otherwise
provides) be divisible among the directors as the board of directors may decide, or, failing agreement,equally, except that any director who holds office for only part of the period with respect to which such compensation is payable is
entitled only to rank in such division for a proportion of compensation related to the period during which he has held office. Any director who is employed, or holds executive office may be paid such extra compensation by way of a fixed sum of money,
or in whole or in part by participating in profits or otherwise, as the board of directors may determine, and such compensation may be in addition to or instead of a fee payable to him for his services as director.  The directors may repay to any
director all reasonable expenses as he may incur in attending and returning from meetings of the directors or of any committee of the directors or shareholders meetings or otherwise in connection with our business. 58




Pensions and Other Benefits The directors shall have the power to pay and agree to pay gratuities, pensions or other retirement benefits, death or disability
benefits to (or to any person in respect of) any director or ex-director and, for the purpose of providing any such gratuities, pensions, or other benefits, to contribute to such scheme or to pay premiums. Interested Director Transactions Subject to certain provisions of the U.K. Companies Act of 1985 designed to enforce fair dealing by directors and prevent their taking
financial advantage, and provided that a director has disclosed to the directors the nature and extent of any interest, a director:      may be party to or otherwise interested in any contract, transaction, or arrangement with us or in
which we are otherwise interested;      may be a director or other officer of or employed by a party to any contract, transaction or
arrangement with or otherwise interested in any corporate body promoted by us or in which we are in any way interested (or any firm of which he is a partner, employee or member); and      may act in a professional capacity for us (other than as auditor) and be compensated therefor and
shall not (unless otherwise agreed by him) be accountable to us for any benefit which he derives from any such contract, transaction or arrangement or from any such office or employment or from any interest in any such corporate body or for such
compensation. No such contract, transaction or arrangement shall be liable to be avoided on the grounds of any such interest or benefit. Except as otherwise provided below, a director shall not vote in respect of any contract or arrangement or any other proposal whatsoever
in which he has any material interest otherwise than by virtue of interests in shares or debentures or other securities of, or otherwise in or through, us. A director shall not be counted in the quorum of a meeting in relation to any resolution on
which he is not entitled to vote.  Provided that a director has disclosed the nature and extent of his interests, a director shall (in the absence of some other material interest than is indicated below) be entitled to vote (and be counted in the
quorum) in respect of any resolution concerning any of the following matters:      the giving of any security, guarantee or indemnity with respect to (a) money lent or obligations
incurred by him or by any other person at the request of or for our benefit of our Company or the benefit of any of our subsidiaries, or (b) a debt or other obligation of our Company or any of our subsidiaries for which he himself has assumed
responsibility in whole or in part under a guarantee or indemnity or by the giving of security;      any proposal concerning an offer of shares or debentures or other securities of or by us or any of
our subsidiaries in which offer he is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which he is to participate; 59




     any proposal concerning any other corporate body in which he is interested, directly or
indirectly, and whether as an officer or shareholder or otherwise, provided that he (together with persons connected with him (within the meaning of Section 346 of the U.K. Companies Act 1985)) does not have any interest (as that term is used in
Sections 198 to 211 of the U.K. Companies Act 1985) in 1% or more of the issued equity share capital of any class of such body corporate (or of any third company through which his interest is derived) or of the voting rights available to members of
the relevant corporate body;      any proposal relating to an arrangement for the benefit of our employees or those of any of our
subsidiaries which does not award him any privilege or benefit not generally awarded to the employees to whom such arrangement relates; and      any proposal concerning insurance which we propose to maintain or purchase for the benefit of
directors or for the benefit of persons who include directors. Indemnification of Directors Our Articles of Association entitles (subject to the provisions of the U.K. Companies Act of 1985 and the U.K. Uncertificated
Securities Regulations 1995) every director, secretary or manager of our Company, to be indemnified by us against liabilities incurred during the discharge of his or her duties including where judgment is given in his or her favor or if the claim is
disposed of where he or she has not been found to have been in material breach of his or her duty. Description of Share Capital General Our authorized share capital is £1,000,000 divided into 500,000,000 ordinary shares of £0.002 nominal value per share. Ordinary Shares As of May 31, 2006, 55,418,630 of our ordinary shares were issued and outstanding and are fully paid or credited as fully paid, each of
which is in registered form. Subject to the Sportingbet Transaction described at Item 4, 13,506,204 ordinary shares, which are excluded from the above total, have no dividend or voting rights and may be re-purchased by the Company for an aggregate
price of $1 when it has retained earnings to do so. No holder of ordinary shares will be required to make additional contributions of capital in respect of those shares in the future.  There are no rights of pre-emption attaching to the ordinary
shares, save as set out below under Issuance of Shares. All rights of Sportingbet and its subsidiaries in respect of its ordinary shares, particularly those rights attached to the Unsecured Convertible Loan Note with Goodison Park Limited
and  Stock Acquisition Agreement with Goodison Park Limited were cancelled effective October 1, 2004.  Furthermore, they are not issued as redeemable shares.  However, it should be noted that we may choose to utilize the power conferred upon us
by Part V Chapter VII of the Companies Act 1985 to issue redeemable shares subject to obtaining an appropriate authority from the shareholders.  Neither the Memorandum of Association, Articles of Association, nor any statutory provision in England
and Wales restrict in any way the ownership of, nor voting rights attaching to, the ordinary shares held by persons resident outside the United Kingdom.  Under the terms of our Articles of Association, we are obliged to give notice of shareholder
meetings to all ordinary shareholders, including those with an address for service outside the United Kingdom. 60




Private Placement on the Alternative Investment Market of the London Stock Exchange  May 2005 Under a Placing Agreement, made between (1) the Company, (2) the directors and (3) Daniel Stewart and dated April 28, 2005 Daniel Stewart
agreed to use reasonable endeavors to procure subscribers for the 4,760,000 Placing Shares. The Placing Shares represented new ordinary shares issued by the Company upon admission of the Companys ordinary shares to AIM (Admission) The obligation of the parties were defined under a placing agreement and were conditional upon, among other things, Admission occurring
not later than 8.30 a.m. on May 17, 2005, or such later time and date (not being later than 8.30 a.m. on May 31, 2005 as may be agreed by Daniel Stewart and the Company. The placing agreement contained certain warranties by the Company and the
directors as to the accuracy of the information contained in the prospectus document and other matters relating to the Group and its businesses and an indemnity in favor of Daniel Stewart from the Company against all losses, costs, charges and
expenses which Daniel Stewart may suffer or incur as a result of the carrying out of its duties under the placing agreement. Under the placing agreement, the Company indemnified Daniel Stewart against all costs and expenses in connection with the
application for Admission. In addition, subject to the placing agreement becoming unconditional, the Company paid Daniel Stewart a fee of £120,000 and a commission of 4 percent of the amount equal to the placing price multiplied by the number of
new ordinary shares placed (the Placing). The Company agreed to issue options to Daniel Stewart equal to 2 percent of the Existing ordinary shares and 4 percent of the Placing Shares exercisable at the Issue Price. In addition to the placing agreement the Company entered into an agreement with Daniel Stewart pursuant to which Daniel Stewart has
agreed to act as nominated adviser and broker to the Company for a fee of £40,000 per annum. This fee has been waived as a result of the SPORTSBETTING.COM transaction below. Under the agreement the Company provides Daniel Stewart with an
indemnity customary in agreements of this kind. The net proceeds of the Placing were approximately £2,029,000. The ordinary shares to be issued or sold in the Placing were not and will not be registered under the Securities Act or under the
relevant securities laws of any state of the United States or any other jurisdiction. Subject to certain exceptions, such ordinary shares may not be directly or indirectly offered, sold, resold or otherwise transferred within the United States or to,
or for the account or benefit of, U.S. persons (as defined in Regulation S), or in any country where to do so may contravene local securities laws or regulations. Such ordinary shares have not been approved or disapproved by the United States
Securities and Exchange Commission, any state securities commission in the United States or any other U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the Placing of the ordinary shares or the
accuracy or adequacy of the Prospectus document. A Report on Foreign Private Issuer on Form 6-K was filed with the SEC on May 17, 2005, containing our Prospectus/AIM Admission document
as filed with AIM and distributed to investors in respect of our application to have our ordinary shares be admitted to trading on AIM. Private Placement on the Alternative Investment Market of the London Stock Exchange  December 2005 In December 2005, the Company raised £7,000,000 through the placing of 5,600,000 new ordinary shares in the Company at a placing
price of 125 pence. Net proceeds of the placing were approximately £6,034,000. 61




The placing was conditional upon the passing of the certain resolutions, completion of the Acquisition of the SPORTSBETTING.COM group and
admission to trading on AIM. Admission became effective and dealings in the enlarged issued share capital commenced on December 13, 2005. The ordinary shares to be issued or sold in the Placing have not been and will not be registered under the Securities Act or under the
relevant securities laws of any state of the United States or any other jurisdiction. Subject to certain exceptions, such ordinary shares may not be directly or indirectly offered, sold, resold or otherwise transferred within the United States or to,
or for the account or benefit of, U.S. persons (as defined in Regulation S), or in any country where to do so may contravene local securities laws or regulations. Such ordinary shares have not been approved or disapproved by the United States
Securities and Exchange Commission, any state securities commission in the United States or any other U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the Placing of the ordinary shares or the
accuracy or adequacy of the Prospectus document. A Report on Foreign Private Issuer on Form 6-K was filed with the SEC on November 28, 2005, containing our Proposed Pacing of new
Ordinary Shares, Acquisition of certain assets of Real Entertainment Ltd and the entire issued capital of DNI Holdings Limited, admission of the enlarged issued share capital to trading on AIM and notice of our Annual General Meeting document as
filed with AIM and distributed to investors in respect of our proposed acquisition of the SPORTSBETTING.COM group and application to have our new ordinary shares be admitted to trading on AIM. Issuance of Shares Subject to any special rights previously conferred on the holders of any issued shares or class of shares, any share of the Company may
be issued with any preferred, deferred, or other special rights. They may also be issued subject to restrictions, including, without limitation, restrictions on dividends, return of capital, voting or otherwise, as an ordinary resolution of a general
meeting of our shareholders may from time to time direct, and failing such direction, as our board of directors may determine. Pursuant to a resolution passed on October 12, 2004, our directors are authorized under Section 80 of the U.K. Companies Act 1985, to
allot shares (or grant any right to subscribe for or convert other securities into shares) up to £1,000,000, and such authorization will expire five years from the date of the resolution. If ordinary shares are to be issued for cash, Section 89 of the U.K. Companies Act 1985 requires, subject to limited exceptions in
respect of employee share schemes, that those shares first be offered to existing holders of shares in proportion to their holdings. However, Section 95 of the U.K. Companies Act 1985 provides that in certain circumstances the directors of a company
may by special resolution be given power to issue shares as if Section 89 did not apply. Pursuant to a special resolution of the Company passed on October 12, 2004, the board of directors are authorized, pursuant to Section 95
of the U.K. Companies Act 1985, to allot equity securities pursuant to the exercise of share options up to an aggregate nominal amount of £30,000 as if Section 89(1) of the Act did not apply to such allotment. Further, pursuant to a special resolution of the Company passed on April 7, 2005, the board of directors are empowered, pursuant to
Section 95 of the U.K. Companies Act 1985, to allot equity securities (as defined in Section 94 of the Act), pursuant to the Section 80 authority (the Authority) above as if Section 89(1) of the Act did not apply to such allotment, such
power  to expire (unless previously revoked, varied or renewed) at the conclusion of our annual general meeting to be held in 2006 or, if earlier, the date fifteen months from the passing of that resolution (save that we may before such 62




expiry make an offer or agreements which would or might require equity securities to be allotted after such expiry) provided that this power shall be limited to: (i)     the allotment of up to 10,000,000 ordinary shares of £0.002 pursuant to a Placing of 4,760,000
ordinary shares to trading on the AIM (which occurred on May 17, 2005); (ii)     the allotment of up to 1,051,504 ordinary shares pursuant to options or warrants to be granted to
Daniel Stewart in respect of its services in connection with the Placing; (iii)     the issue of such shares as may be offered by way of a rights issue or open offer to existing
shareholders; and (iv)     the issue of ordinary shares otherwise than as referred to in (i), (ii) and (iii) above up to an
amount equal to 10 percent of our issued share capital after the issue of shares contemplated by (i) and (ii) above. No allotment of new shares of an amount exceeding 35 percent of our issued ordinary share capital immediately before such allotment (to
be paid in cash or otherwise) shall be made by us without the consent of the holders of over 50 percent of our ordinary shares. Shareholder notices and voting material in respect of April 7, 2005 resolutions were included as exhibits to a Report on Foreign Private
Issuer on Form 6-K filed with the SEC on March 24, 2005. Alteration of Share Capital We may from time to time by ordinary resolution approved by our shareholders at a general meeting:      increase our share capital by the sum, to be divided into shares of those amounts, as the
resolution shall prescribe;      consolidate and divide all or any of our share capital into shares of larger amount than our
existing shares;      cancel any shares which, at the date of the passing of the resolution, have not been taken, or
agreed to be taken, by any person and diminish the amount of our capital by the amount of the shares so canceled; and      subdivide our shares, or any of them, into shares of smaller amount, and so that the resolution
whereby any share is subdivided may determine that the shares resulting from that subdivision may, as compared with the others, have any preferred, or other special rights or be subject to any restrictions. We may purchase or enter into a contract under which we will or may purchase any of our own shares of any class (including any redeemable
shares, if any then exist) on such terms and in such manner as permitted by the law. We may, by special resolution approved by our shareholders at a general meeting, reduce our share capital or any capital redemption
reserve, share premium account, or other undistributable reserve in any way, subject to the rights of the existing shares and English law. 63




Dividend Rights Holders of ordinary shares are entitled to receive those dividends as may be recommended in the discretion of the board of directors and
declared by the shareholders in a general meeting, but no larger dividend may be declared than is recommended by our board of directors.  No unpaid dividend bears interest as against the Company unless otherwise provided by the rights attached to the
shares. Rights in Liquidation In the event of the Companys liquidation, after satisfaction of liabilities to creditors, holders of ordinary shares are entitled
to share pro rata in the net assets of our Company. Notification of Interest in Ordinary Shares Section 198 of the U.K. Companies Act 1985 obliges any person (subject to exception) who acquires an interest of 3% or more of our
ordinary shares to notify the Company of his interest within two business days following the day on which the obligation to notify arises. After the 3% level is exceeded, similar notification must be made if the whole percentage figure increases or
decreases, rounded down to the next whole number. For the purposes of the notification obligation, the interest of a person in the shares means any kind of interest in shares (subject to certain exceptions) including any shares (1) in which his
spouse or his child or stepchild, is interested, (2) in which a corporate body is interested where either (a) that corporate body or its directors are accustomed to act in accordance with that persons directions or instructions, or (b) that
person controls one third or more of the voting power of that corporate body, or (3) in which another party is interested where the person and that other party are parties to a concert party agreement under Section 204 of the U.K.
Companies Act 1985 and any interest in shares is in fact acquired by any one of the parties pursuant to the agreement. A concert party agreement is an agreement which provides for one or more parties to it to acquire interests in shares
of a particular company and imposes obligations or restrictions on any one or more of the parties as to the use, retention or disposal of the interests. In addition, Section 212 of the U.K. Companies Act 1985 enables us, by notice in writing, to require a person whom we know or have
reasonable cause to believe to be, or to have been at any time during the three years immediately preceding the date on which the notice is issued, interested in shares to confirm that fact or (as the case may be) to indicate whether or not that is
the case, and where he holds or has during this relevant time held an interest in the shares, to give further information as may be required relating to his interest and any other interest in the shares of which he is aware. In addition to the restrictions on the rights attaching to shares imposed by the U.K. Companies Act 1985 for noncompliance with Section
212 of that Act, the Articles of Association apply additional restrictions. The restrictions imposed or applied can potentially include disenfranchisement, loss of entitlement to dividends and other payments and restrictions on alienability. Voting Rights of Ordinary Shares and Shareholder Meetings Under English law, there are two types of general meeting of shareholders: annual general meetings and extraordinary general meetings. An
annual general meeting must be held at least once in each calendar year and not later than 15 months from the previous annual general meeting. At the annual general meeting matters such as the election of directors, appointment of auditors and the
fixing of their remuneration, approval of the annual accounts and the directors report and declaration of dividends are considered. Any other general meeting is known as an extraordinary general meeting. 64




The directors may convene an extraordinary general meeting and must convene one if demanded by holders of not less than 10% of the
paidup shares. An annual general meeting and an extraordinary general meeting called to pass a special resolution must be called by at least 21 days notice specifying the place, day and time of the meeting and the general nature of the
business to be transacted. No business may be transacted at any general meeting unless a quorum of two persons entitled to vote on the business to be transacted is present in person or by proxy. At a general meeting, a simple majority of the votes cast is sufficient to pass an ordinary resolution.  A special or extraordinary
resolution is decided on a poll.  A special or extraordinary resolution can only be considered if our shareholders receive at least 21 days prior notice of the meeting at which such resolution will be considered. Subject to the restrictions referred to in the following paragraph, at a meeting of shareholders every holder of shares who (being an
individual) is present in person or (being a corporation) is present by a representative or proxy not being himself a member shall have one vote on a show of hands, and on a poll, every holder of shares present in person or by proxy shall have one
vote for every share held. A special or extraordinary resolution (such as, for example, a resolution amending our Memorandum of Association or Articles of Association or approving a winding-up of the Company) requires approval of the holders of 75%
of our issued ordinary shares represented at a shareholders meeting, in person or by proxy, and voting thereon.  Shareholders are not entitled to cumulative voting rights. A poll can be demanded by:      the chairman of the meeting;      not less than five shareholders present in person or by proxy having the right to vote at the
meeting;      a holder or holders of shares or his or their proxy representing not less than 10% of the total
voting rights of all shareholders having the right to attend and vote at the meeting; or      by a holder or holders of shares or his or their proxy conferring a right to attend and vote at
the meeting on which an aggregate sum has been paid up equal to not less than one tenth of the total sum paid up on all shares conferring that right. A holder of shares shall not be entitled (except as a proxy for another shareholder) to be present or vote at any general meeting:      in respect of any shares held by him in relation to which he or any other person appearing to be
interested in those shares has been served with a notice under Section 212 of the U.K. Companies Act 1985, requiring him to provide information in accordance with that section and containing a statement that upon failure to supply such information
before the expiration period specified in the notice (which may not be less than 28 days) the registered holder of the share is not entitled to vote in respect of those shares, and the person on whom such notice was served fails to supply the
information within the specified period; or      unless all amounts presently payable by him in respect of such shares have been paid. 65




Transfer of Shares Fully paid ordinary shares are issued in registered form and may be freely transferred pursuant to the Articles of Association. The
instrument of transfer of a share may be in any usual form or in any other form of which the directors approve and shall be executed by or on behalf of the transferor and, unless the share is fully paid, by or on behalf of the transferee.  The
directors may restrict the transfer of a share which is not fully paid provided that any such restriction will not prevent dealings in the shares from taking place on an open and proper basis.  Subject to the provisions of English law, the
Companys Articles of Association provide that we may issue shares which may be held, evidenced and transferred through a relevant system in an uncertificated form. The ordinary shares issued or sold in the AIM have not been and will not be registered under the Securities Act or under the relevant
securities laws of any state of the United States or any other jurisdiction.  Subject to certain exceptions, such ordinary shares may not be directly or indirectly offered, sold, resold or otherwise transferred within the United States or to, or for
the account or benefit of, U. S.  persons (as defined in Regulation S), or in any country where to do so may contravene local securities laws or regulations.  Such ordinary shares have not been approved or disapproved by the United States Securities
and Exchange Commission, any state securities commission in the United States or any other U. S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the ordinary shares traded on AIM or the accuracy
or adequacy of any Prospectus documents under which the shares were offered.  Any representation to the contrary is a criminal offence in the United States. Each purchaser of the ordinary shares placed on AIM has agreed that in accordance with Regulation S of the Securities Act of 1933, as
amended (Securities Act), it will not offer or sell the ordinary shares until 40 days after the later of the closing of any Placing (the distribution compliance period), within the United States or to, or for the account or
benefit of, U. S.  persons, and in relation to a sale to any other person, it will have sent to each such purchaser to which it sells ordinary shares during the distribution compliance period a confirmation or other notice setting forth the
restrictions on offers and sales of the ordinary shares within the United States or to, or for the account or benefit of, U. S.  persons.  Each initial purchaser of the Placing Shares is required to certify that the purchaser and any person for whose
account or benefit the  purchaser is acting is located outside the United States and is not a U. S.  person (as defined in Regulation S) and that upon acquiring the ordinary shares it and any such persons will be outside the United States or is
otherwise acquiring the ordinary shares in an offshore transaction in compliance with Rule 903 of Regulation S. No actions have been taken to register or qualify the ordinary shares offered in placings on AIM hereby or otherwise permit a public
offering of the ordinary shares offered hereby in any jurisdiction other than the United Kingdom.  The ordinary shares are being offered outside of the United States pursuant to Regulation S under the Securities Act.  The ordinary shares offered
hereby have not been, and will not be, registered under the Securities Act and may not be offered, sold or resold or otherwise transferred within, or to persons in, the United States except in accordance with an applicable exemption from registration
under the Securities Act. Issuance of American Depositary Shares The terms of our Deposit Agreement with Continental Stock Transfer & Trust Company, as depositary (ADS Depositary),
permits issuance of American Depositary Receipts, or ADRs, evidencing American Depositary Shares, or ADSs, for ordinary shares accepted for deposit by the depositary.  Our ADS Depositary also serves as an initial custodian. 66




The Deposit Agreement provides that every person depositing ordinary shares is deemed to represent to the depositary that 



such shares are validly issued and outstanding;
 



were not acquired in violation of any pre-emptive rights;
 



such person is duly authorized to make such deposit; and
 



such shares are not restricted securities as defined in Rule 144 under the Securities Act unless at  the time of deposit they may be freely transferred under that rule, or have been registered under the Securities Act.
 The ADS Depositary may require a written delivery order listing the persons in whose name an ADR or ADRs evidencing the ADSs representing
such deposited ordinary shares are to be issued. ADRs are issued only in denominations of any whole number of ADSs.  We are obligated to transmit to the depositary a copy of all communications it makes generally available to holders of ordinary
shares or to any securities regulatory authority or stock exchange as public information.  The depositary will make such publication obligations available to the holders.  Our depositary keeps a register for the registration, registration of
transfer, combination or split-up of ADSs at its offices in New York at 2 Broadway, New York, New York 10004, and such register is open for inspection by registered holders of ADSs.  In the registration statement that we filed with the SEC on Form
F-6 (SEC File No. 333-13286) on May 24, 2001, 50,000,000 ADSs, where each ADS represented one ordinary share, were registered.  The Deposit Agreement and a form of ADR have been filed as Exhibit (a) to a registration statement on Form-6 (SEC File No.
333-13286) effective as of May 24, 2001. Voting of ADSs by Proxy The ADS Depositary can appoint more than one person to be its proxy.  The appointment shall set out the number of ordinary shares in
relation to which such proxy has been appointed, and such number shall not exceed the number of the ordinary shares registered in the name of the ADS Depositary.  The appointed proxy may attend general meetings so long as it provides us with written
evidence of its appointment.  At a general meeting, the appointed proxy is entitled to the same rights and has the same obligations with respect to the appointed number of the ordinary shares as if it were a registered owner of such shares, or as if
it were a duly appointed proxy in relation to those ordinary shares. Exchange Controls and Other Limitations Affecting Security Holders There are currently no United Kingdom foreign exchange control restrictions on the payment of dividends or other payments to holders of
ordinary shares or on the conduct of our operations. There are currently no restrictions under our Articles of Association or under English law which limit the rights of non-resident or
foreign owners to freely hold, vote and transfer ordinary shares in the same manner as United Kingdom residents or nationals. Change of Control We have a classified board of directors because our directors must retire by rotation.  This means that (if the retiring
directors are willing to continue to act and are approved by the board and offer themselves for re-election) only approximately one-third of our directors are eligible for election each year (in addition to any directors appointed by the board since
the last annual general meeting). 67




In addition to the shareholders right not to re-appoint retiring directors who are willing to continue to act and are approved by the
board and to re-appoint directors appointed by the board since the last annual general meeting, shareholders can remove directors by ordinary resolution of the holders of 50% of our issued ordinary shares represented at a shareholders meeting. Material Contracts The following is a summary of our material contracts.  We have included the contracts entered into by our operating subsidiaries that we
consider material to our operations. Real Entertainment Ltd. and DNI Holdings Ltd On October 25, 2005, we announced that we had entered into a conditional agreement to acquire certain assets of Real Entertainment Ltd.
and the entire issued capital of DNI Holdings Ltd. (together the SPORTSBETTING.COM group), which was then our largest licensee. The transaction subsequently completed on December 13, 2005. The original terms of the acquisition were for a maximum consideration of up to $96 million payable 75 percent in cash and 25 percent in
new ordinary shares of the Company. On completion in December, $54 million was paid in cash to the sellers (or vendors) with the outstanding balance depending on the final agreed profit before tax (PBT) for the twelve months ending
December 31, 2005. In March 2006, we agreed with the vendors of the SPORTSBETTING.COM business that the final PBT for the twelve months ended December 31,
2005 was $13.6 million. Under the terms of the acquisition agreement this meant that total consideration of $81.8 million would be payable, or 6 times the PBT for the period. During the period between completion and agreement of the final PBT, we had
paid a further $10.8 million into escrow.  On agreement of the final PBT we recovered $3.5 million of these escrow funds and $1.2 million was released to the vendors. The remaining $6.1 million remains in escrow subject to warranty covenants and will
be released to the vendors on October 1, 2006 subject to no warranties having been breached. In addition, on agreement of the PBT, we issued $20.4 million in new ordinary shares of the Company issued at 125 pence to the vendors
subject to agreed lock-up arrangements.  $2.0 million of these shares remain in escrow subject to the same warranty covenants mentioned above. Financing of the cash portion of the purchase consideration was through our existing cash reserves, plus a $40 million loan facility
arranged through Barclays PLC (See Item 10: Loan facilities with Barclays plc). The term of the loan is 27 months from the drawdown date of December 12, 2005. Repayments are due quarterly throughout the term of the loan. In
addition, World Gaming has an unutilized revolving facility with Barclays for $5 million. Further cash for the purpose of the acquisition was raised through the placing of 4.8 million new ordinary shares of the Company raising £6 million for the
acquisition before expenses (See Item 10:Private Placement on the AIM of the London Stock Exchange  December 2005). The acquisition had an effective date of October 1, 2005. The effective date, which is earlier than the completion date is the date from
which all of SPORTSBETTING.COMs revenues and costs accrue to World Gaming. The business was acquired on a cash-free, debt-free basis as at the effective date. 68




A Report on Foreign Private Issuer on Form 6-K was filed with the SEC on November 28, 2005, containing our Proposed Pacing of new
Ordinary Shares, Acquisition of certain assets of Real Entertainment Ltd and the entire issued capital of DNI Holdings Limited, admission of the enlarged issued share capital to trading on AIM and notice of our Annual General Meeting document as
filed with AIM and distributed to investors in respect of our proposed acquisition of the SPORTSBETTING.COM group and application to have our new ordinary shares be admitted to trading on AIM. Loan facilities with Barclays plc In December 2005, the Company entered into a loan facilities agreement with Barclays plc together with various composite guarantee and
debenture agreements and a mortgage of shares agreement over WG International Limited. Facilities totaling $40,000,000.00 were drawn down on December 13, 2005 as partial funding of the cash paid to the vendors of SPORTSBETTING.COM (See Item 4: Acquisition of the SPORTSBETTING.COM group). The Company maintains an unutilized revolving credit facility with Barclays plc of $5,000,000.00. The loan facilities are repayable over a 27 month period concluding in March 2008. Quarterly principal repayments are due commencing
March 31, 2006. The loan is split between Facility A of $25,000,000.00 and Facility B of 15,000,000.00. Interest in respect of Facility A is initially
calculated at a rate of not more than 2.25% above U.S. dollar LIBOR and Facility B is initially calculated at a rate of not more than 2.75% above U.S. dollar LIBOR. Interest is payable in arrears dependant upon the nominated rollover dates for each
of the facilities. Certain covenants have been agreed to as a result of the facilities agreements and an ongoing breach of any of these covenants is
generally deemed to be an event of default. Under certain events of enforcement which generally are represented by events of default by the Company, Barclays plc may enforce its guarantee and debenture agreements over World Gaming plc, WG
International Limited, Interactive Systems Inc. and DNI Holdings Limited to recover the outstanding facilities through its charge over the business and assets of each of these entities. In addition, Barclays plc holds a mortgage of shares over World
Gaming plc and WG International as security over the loan facilities. The Company has agreed to certain information undertakings to be provided to the bank on a regular basis, including, but not limited to
the provision of monthly management accounts, annual budgets and quarterly covenant certifications. Sportingbet Plc and its subsidiaries The Company entered  into  various  agreements  with  Sportingbet  on August 6, 2004  (the Sportingbet Transaction). The
Companys shareholders approved the Sportingbet Transaction at the Companys AGM on October 12, 2004 and the Transaction closed on the same day taking effect from October 1, 2004. In summary, the Transaction consisted of: (i) the Company
transferring its proprietary gaming software (Gaming Software) to Bullen Road LP, an entity jointly owned by Sportingbet and the Company so that Sportingbet and the Company own the Gaming Software in equal shares through Bullen Road LP;
and (ii) the Company selling to Sportingbet the business and assets (the Development Business) relating to development, maintenance and second level support of the Gaming Software which was carried out by Inphinity Interactive Inc.
Contractual arrangements were agreed whereby Sportingbet agreed to continue to provide development and maintenance services to the Company in relation to the Gaming Software at the cost of Sportingbet; and (iii) the parties entering into a deed
formally terminating the Previous Gaming Software license between the parties; and (iv) Sportingbet committing to use the Company to provide hosting services for at least a 3 year period; and (v) Sportingbet relinquished its rights in the 13,506,205
American Depository Receipts Shares in the Company held by Sportingbet or its affiliates (Sportingbet Shares). As a result of these transactions, the Company is no longer receiving royalty fees from Sportingbet but no longer has the cost
base of its Development Business. The Transaction was structured as follows. 69




Internet Opportunity Entertainment Limited (an affiliate of Sportingbet) purchased a 50 percent interest in the Gaming Software from SSII
Limited. Alea Software Limited (an affiliate of Sportingbet)  purchased  the  Development  Business  from  Inphinity  Interactive,  Inc.  The consideration payable by Sportingbet for the 50 percent interest in the Gaming Software and the acquisition
of Development Business was as follows: (i)


$10 million cash, to be paid in installments as specified. Full amount to be paid before November 1, 2005.
 (ii)


Additional consideration valued at $3.3 million payable in kind through the (i) cancellation of all rights in the Sportingbet Shares and an agreement to transfer those shares upon the Companys request and direction for a nominal
consideration of $1; and
 (iii)


the waiver of the $900,000 Convertible Loan Note.
 The full payment of the $10 million is secured by a pledge over Sportingbets partnership interest in Bullen Road LP and share
interest in the Gwladys Street Limited (being the general partner of Bullen Road LP). Both SSII Limited and Internet Opportunity Entertainment Limited contributed their respective 50 percent interest in the Gaming Software
to Bullen Road LP (a newly incorporated exempt liability partnership in the Cayman Islands). Bullen Road LP is a 50:50 joint venture between SSII Limited and Internet Opportunity Entertainment Limited. Bullen Road LP has granted Internet Opportunity Entertainment Limited and SSII Limited a perpetual, royalty free license to use the
Gaming Software. The Company may continue to license the Gaming Software to any third party as it did before the transaction. Sportingbet may use the Gaming Software royalty free for its existing licensees and for the benefit of members of its group.
Sportingbet cannot sublicense the Gaming Software to the Companys licensees. Both parties will make royalty type payments to each other in the following situations: (i)


Sportingbet will pay 5 percent of a licensees net win to the Company for any new white-label marketing partner taken on after closing of the transaction;
 (ii)


the Company will pay 5 percent of licensees net win to Sportingbet if it acquires a controlling interest in a competitor of Sportingbet or enters into a transaction with a competitor which requires the Company or the competitor to
consolidate any or all of each others revenues;
 (iii)


the Company will pay 5 percent of the relevant websites net win if it owns and operates its own gaming website which competes with Sportingbet.
 Where such payments are due, these will continue for the duration of the joint partnership in Bullen Road LP and for a period of three
years from the date of its termination. Inphinity Interactive, Inc. sold its Development Business to Alea Software Limited and Alea Software Limited took on the employees of the
Development Business. 70




Alea Software Limited has entered into a development services contract with Bullen Road LP, the Company and Sportingbet, pursuant to
which Alea Software Limited agrees to continue to provide second level support to the Company and also to continue developing and maintaining the Gaming Software  in  accordance  with  a  plan  agreed  between  the  Company  and  Sportingbet  (the
Development Plan). Sportingbet and the Company shall directly share in the objectives of the Development Plan on a 70/30 basis, respectively. The cost of implementing this Development Plan will be fully funded by Sportingbet. The Company
may purchase additional development time should the need arise at a price of cost 10 plus percent. Other than the Companys input in agreeing the Development Plan, Sportingbet will otherwise have full control over Alea Software Limited,
including implementation of the Development Plan. Sportingbet has agreed to fully fund the operating costs of Alea Software Limited and has committed to spend at least $4.5 million per
year on the operational costs of Alea Software Limited in the first 3 years and a minimum of $2.5 million in the fourth year. The developments to the Gaming Software will be owned by Bullen Road LP and will be licensed back to each of Internet
Opportunity Entertainment Limited and SSII Limited. Sportingbet may not terminate the joint partnership in Bullen Road LP and the services to be provided by Alea Software Limited for the
first 3 years from completion of the transaction. Thereafter, Sportingbet may terminate upon 12 months notice to the Company. However, Sportingbet may terminate at any time if certain events of default occur, such as material breach by the
Company or a material change in control of the Company. The Company may terminate the partnership in Bullen Road LP at any time on 3 months notice to Sportingbet. Upon termination: (a) Sportingbet is required to make a further payment to the Company of $3 million (if the Company then sells the
Gaming Software within 2 years, this additional payment is to be reduced by the consideration received by the Company, up to a maximum of $3 million); (b) The Gaming Software (as updated and improved) will be jointly owned by Sportingbet and the
Company (or their respective affiliates), and both parties will have an unrestricted right to use, sub-license and assign their interest in the software. Neither party will have the rights to any further improvements or developments made by the other
party subsequent to the termination. The parties have entered into the following ancillary arrangements: (i)

Information Technology Services  The Company will provide certain U.S. facing hosting services to Sportingbet on an exclusive basis for the life of the proposed transaction. Such services will be charged on the basis of actual cost plus a
10 percent margin.
 (ii)

Sportingbet Ancillary Services  Sportingbet or its affiliates will continue to provide certain customer and transaction processing services to the Companys existing and future licensees.
 (iii)

European Agency Agreement   Sportingbet will provide the Company through a joint marketing arrangement, with access to Sportingbets technology to allow the Company to market a European gaming solution for the benefit of existing and
future licensees. Under the Framework Agreement, this agreement was supposed to have been completed as at the closing of the Transaction. The agreement has not yet been completed due to some delay in working out the detailed terms. The directors
consider that the agreement is now close to being completed.
 Agreements in respect of the Sportingbet Transaction have been included as exhibits to a Report on Foreign Private Issuer on Form 6-K
filed with the SEC on April 4, 2005. 71




Employment and Consulting Agreements
 James H. Grossman, Chairman James H. Grossman serves as our non-executive Chairman of the Board and as a member of our board of directors under an agreement
effective from April 11, 2003 which we can terminate at-will, although we would be required to pay severance in lieu of notice equal to 12 months fees and all benefits. Mr. Grossman is required to give 12 months notice to terminate the
agreement. Effective December 15, 2005 Mr. Grossmans annual fees for serving as the Groups Chairman are £21,600. Mr. Grossman
receives annual remuneration of £107,000. In addition, Mr. Grossman receives an annual housing allowance and certain other additional benefits where he is required to be relocated. Mr. Grossman may achieve a performance related bonus of 50
percent of his annual salary and he is entitled to a deferred bonus of 75 percent of the aggregate of all bonuses paid to him over the previous 3 years.  Mr. Grossman received his entitlement to this deferred bonus in April 2006. Mr. Grossman is also
entitled to reasonable healthcare benefits including long-term care insurance not to exceed US$550 per month.  Pursuant to the agreement, Mr. Grossman has received share options to purchase ordinary shares at certain exercise prices, these options
are detailed at Item 6: Directors, Senior Management and Employees. The agreement contains provisions restricting Mr. Grossman from competing with us and from soliciting our employees for a period of
twelve months. Such restrictions are seen by the English courts as restraints of trade and will only be enforceable if they only go as far as is reasonably necessary to protect our legitimate business interests. A. Daniel Moran, Chief Executive Officer Daniel Moran serves as our Chief Executive Officer and as a member of our board of directors under an agreement effective from April 11,
2003 which we can terminate at-will, although we would be required to pay severance in lieu of notice equal to 12 months salary and all benefits.  Mr. Moran is required to give 12 months notice to terminate the agreement. Mr. Moran is required to devote the whole of his time, attention and skill to our business and affairs during our normal business hours
and is also required to work such additional hours as are necessary to fulfill his duties under the agreement. Mr. Moran receives an annual salary of £190,000. He is paid an annual housing allowance of $72,000 and certain other additional
benefits, and an allowance of $1,000 per month for school fees. Mr. Moran is also eligible for a performance bonus of up to 50 percent of his annual salary and a deferred bonus of 75 percent of the aggregate of all bonuses paid to him over the
previous 3 years.  Mr. Moran received his entitlement to this deferred bonus in April 2006. He is entitled to pension benefits of 6 percent of basic salary. We are required to provide reasonable healthcare benefits for him and his family including
life insurance and disability insurance for him only. We are also to provide a fully maintained company car.  Pursuant to the agreement, Mr. Moran has received share options to purchase ordinary shares at certain exercise prices, these options are
detailed at Item 6: Directors, Senior Management and Employees. The  agreement contains  post-termination  provisions restricting Mr.  Moran from competing with us and from soliciting our employees for
a period of twelve months. Such restrictions are seen by the English courts as restraints of trade and will only be enforceable if they only go as far as is reasonably necessary to protect the legitimate business interests. 72




David Naismith, Chief Financial Officer
 David Naismith serves as our Chief Financial Officer and as a member of our board of directors under an agreement effective from August
1, 2003 which we can terminate at-will, although we would be required to pay severance in lieu of notice equal to 12 months salary and all benefits. Mr. Naismith is required to give 12 months notice to terminate the agreement. Mr. Naismith is required to devote the whole of his time, attention and skill to our business and affairs during our normal business
hours and is also required to work such additional hours as are necessary to fulfill his duties under the agreement. Mr. Naismith receives an annual salary of £155,000, an annual housing allowance of $48,000 and certain other additional benefits.
Mr. Naismith is also eligible for a performance bonus of up to 50 percent of his annual salary and a deferred bonus of 75 percent of the aggregate of all bonuses paid to him over the previous 3 years.  Mr. Naismith received his entitlement to this
deferred bonus in August 2006. He is entitled to pension benefits of 6 percent of basic salary.  We are required to provide him with reasonable healthcare benefits for him and his family including life insurance and disability insurance for him only.
We also are to provide a fully maintained company car.  Pursuant to the agreement, Mr. Naismith has received share options to purchase ordinary shares at certain exercise prices, these options are detailed at Item 6: Directors, Senior Management
and Employees. The agreement contains post-termination provisions restricting Mr. Naismith from competing with us and from soliciting the our employees
for a period of twelve months. Such restrictions are seen by the English courts as restraints of trade and will only be enforceable if they only go so far as is reasonably necessary to protect our legitimate business interests. Jonathan Moss, Sales and Marketing Director Jonathan Moss serves as our Director of Sales and Marketing under an agreement effective from January 1, 2005 which can be terminated by
either Mr. Moss or us upon 6 months notice of termination. Mr. Moss receives an annual salary of £100,000. He is required to devote the whole of his time, attention and skill to our business
and affairs during our normal business hours and is also required to work such additional hours as are necessary to fulfill his duties under the agreement. We are required to provide reasonable healthcare benefits for him and his family, including
life assurance and disability insurance for him only. Mr. Moss is eligible for a performance bonus of up to 50 percent of his annual salary and a deferred bonus of 75 percent of the aggregate
of all bonuses paid to him over the previous 3 years. Pursuant to the agreement, Mr. Moss has received share options to purchase ordinary shares at certain exercise prices, these options are detailed at Item 6: Directors, Senior Management and
Employees. The agreement contains post-termination restrictions attempting to stop Mr. Moss from competing with us and soliciting our employees for
a period of twelve. Such restrictions are seen by the English courts as restraints of trade and will only be enforceable if they only go as far as is reasonably necessary to protect our legitimate business interests. Clare Roberts, Non-employee Director Clare Roberts serves as a non-employee director on our board of directors under an agreement effective from October 18, 2000 which we can
terminate at-will, although we would be required to pay severance in lieu of notice equal to 3 months fees and all benefits. He is required to give 3 months notice to terminate the agreement. 73




Directors, Senior Management and Employees
 Michael Cumming, Non-employee Director Michael Cumming serves as a non-employee director on our board of directors under an agreement effective from March 1, 2005 which we can
terminate at-will, although we would be required to pay severance in lieu of notice equal to 3 months fees and all benefits. He is required to give 3 months notice to terminate the agreement. Mr. Cumming receives an annual fee of £21,600. Pursuant to the agreement, Mr. Roberts has received share options to purchase
ordinary shares at certain exercise prices, these options are detailed at Item 6: Directors, Senior Management and Employees. Taxation The following discussion sets forth the material U.S. federal income tax consequences and the material U.K. tax consequences of the
ownership and disposition of our American Depositary Shares or ordinary shares by a U.S. Holder.  This summary is for general information purposes only. A U.S. Holder is a beneficial owner of our American Depositary Shares or ordinary shares that is:      a citizen or individual resident of the United States;      a corporation or other entity taxable as a corporation for U.S. federal income tax purposes that is
created or organized in the United States or  under the law of the United States or of any state or the District of  Columbia;      an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of
its source; or      a trust if (1) a court within the United States is able to exercise primary supervision over the
administration of the trust, and one or more United States persons have the authority to control all substantial decisions of the trust, or (2) the trust was in existence on August 20, 1996 and properly elected to continue to be treated as a United
States person. The following discussion addresses only the tax consequences to a U.S. Holder that is a portfolio investor, that is, a U.S. Holder that
does not own at any time, directly or indirectly, American Depositary Shares or ordinary shares representing ten percent or more of the voting power of our stock. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISERS REGARDING YOUR PARTICULAR TAX CONSEQUENCES. United Kingdom Tax Consequences The following discussion sets forth the material U.K. tax consequences of the ownership and disposition of our ordinary shares or
American Depositary Shares by Qualifying U.S. Holders.  A Qualifying U.S. Holder is a U.S. Holder who is a resident of the United States for purposes of the 74




For the purposes of U.K. tax on distributions on ordinary shares, the holders of American Depository Shares are treated as the beneficial
owners of our ordinary shares underlying their American Depository Shares.  For the purposes of this summary it is assumed, and we are of the opinion, that our business is managed and controlled in the United Kingdom. On March 31, 2003, the U.S. and the U.K. exchanged instruments of ratification on a new income tax treaty.  This New Tax Treaty has a
complex set of effective dates.  The New Tax Treaty will generally be effective for tax years commencing after March 31, 2003.  For many companies resident in the U.K., including our Company, this means that the New Tax Treaty became effective for
the tax year commencing on April 1, 2003.  For most U.K. individuals, the New Tax Treaty became effective for the tax year commencing April 6, 2003.  And for U.S. taxpayers who file their taxes based on the calendar year, the New Tax Treaty  became
effective commencing January 1, 2004.  The summary set out addresses the provisions of the New Tax Treaty.  Investors are urged to consult their own tax advisors concerning transactions that occurred prior to the effective dates of the New Tax
Treaty. Distributions on American Depositary Shares or Ordinary Shares An individual shareholder resident in the United Kingdom generally is entitled to a tax credit, referred to as the U.K. tax
credit, in respect of any cash dividend received equal to one-ninth of the dividend. Under the prior law, the payment from the U.K. Inland Revenue to a Qualifying U.S. Holder was reduced by a U.K. withholding tax equal to the lesser of (1) 15
percent of the sum of the dividend and the amount of the U.K. tax credit and (2) the amount of the U.K. tax credit.  Currently, the U.K. does not, in general, impose a dividend withholding tax. A Qualifying U.S. Holder would not be entitled to receive any cash payment in respect of the U.K. tax credit for dividends paid by us,
and U.S. Holders that are not Qualifying U.S. Holders, depending on their personal circumstances, may be liable to U.K. tax in respect of dividends at a rate of up to 32.5 percent. Taxation of Capital Gains of U.S. Holders A U.S. Holder who is neither resident nor ordinarily resident in the United Kingdom for U.K. tax purposes generally will not be subject
to U.K. tax on capital gains realized on the disposition of our American Depositary Shares or ordinary shares. 75




A U.S. Holder who owns his American Depositary Shares or ordinary shares in our Company in connection with any business or otherwise than
as a capital investment, depending on his circumstances, may be subject to U.K. tax on any gain he makes on any disposal of his American Depositary Shares or ordinary shares of our Company at a rate of up to 40 percent, whether or not he is resident
or ordinarily resident in the United Kingdom. Inheritance Tax and Gift Taxes on U.S. Holders Our ordinary shares and almost all of the American Depositary Shares are assets situated in the United Kingdom for the purposes of U.K.
inheritance tax. An individual who is domiciled in the United States and who is not a national of the United Kingdom for purposes of the U.S.-U.K. estate and gift tax treaty, however, generally will not be subject to U.K. inheritance tax in respect
of our American Depositary Shares or ordinary shares on the individuals death or to U.K. gift tax on a gift of World Gaming American Depositary Shares or ordinary shares during the individuals lifetime, provided that any applicable U.S.
federal estate or gift tax liability is paid. In the exceptional case where World Gaming American Depositary Shares or ordinary shares are subject both to U.K. inheritance tax and to U.S. federal estate or gift tax, the U.S.-U.K. estate and gift tax
treaty generally provides for any tax paid to the United Kingdom to be credited against tax payable to the United States or for any tax paid to the United States to be credited against tax payable to the United Kingdom based on priority rules set out
in that treaty. Where, however, the ordinary shares or American Depositary Shares are shares or American Depositary Shares in a company which, when taken with its subsidiaries, exists wholly or mainly for trading purposes, business property relief
from U.K. inheritance tax may be available to reduce or eliminate the tax unless, as in the case of our American Depositary Shares or ordinary shares, they may be deemed quoted on a recognized stock exchange for the purposes of U.K.
domestic inheritance tax, if the shareholding in questions does not carry control. Stamp Duty and Stamp Duty Reserve Tax A transfer for value of our ordinary shares will normally be subject to ad valorem stamp duty or to stamp duty reserve tax. Stamp duty
tax will arise on the execution of an instrument to transfer our ordinary shares.  Stamp duty reserve tax will arise on the entry into an agreement to transfer our ordinary shares, but the charge may be canceled if stamp duty has been paid.  Stamp
duty and stamp duty reserve tax are normally a liability of the purchaser. The rate of stamp duty payable is 0.5 percent of the consideration rounded to the nearest £5, and 0.5 percent of the consideration in the case of stamp duty reserve tax.
There is no charge to U.K. stamp or other duties on the issue by a U.K. incorporated company of shares in itself. There should be no charge to U.K. stamp duty on the transfer of American Depositary Shares of World Gaming, provided the agreement and
the conveyance of transfer, if any, are executed outside the United Kingdom. Taxation of the Company A company that is incorporated in the United Kingdom prima facie is treated as being resident in the United Kingdom for tax purposes.
However, this treatment will not apply if the effective management and control of the company, that is, broadly, the exercise by the board of directors of that company of 76




Taxation of a U.K. Company that Controls Certain Controlled Foreign Companies If any of the subsidiaries of a U.K. resident company are deemed resident in another tax jurisdiction so that that subsidiary is liable
to tax or its profits, other than capital gains, that is less than 75 percent of the tax it would have paid on those profits if liable to tax in the United Kingdom, then unless 90 percent of that subsidiarys profits are paid up as a dividend to
a U.K. resident company, within 18 months of the end of the accounting period in which they are earned or an exemption from these rules applies, those profits will be treated as profits of the U.K. company and taxed accordingly (with credit for
foreign tax calculated in accordance with the applicable U.K. laws).  Therefore, in relevant circumstances, we would be subject to U.K. tax (currently at the rate of 30 percent) on the profits of the overseas subsidiaries, subject to appropriate
credit for the relevant overseas tax in respect of such profits. We have engaged advisors to prepare an application to the United Kingdom tax authorities for a ruling that the profits that are generated by our Antiguan resident companies fall within
an exemption from these rules.  This would mean that the profits would not be treated as profits of the UK parent company until such time as they are formally paid out as dividends. Taxation of Certain Dividends Received by a U.K. Holding Company After the reorganization involving LVA and certain internal restructuring that has occurred in 2004 and 2005, we own WG International
Limited, which in turn owns the entire issued share capital of LVA and certain other operating subsidiaries of our corporate group.  Thus, some of the dividends or other distributions received by WG International Limited and World Gaming will have
passed through its U.S. subsidiary.  And some portion of those dividends may be subjected, in addition to any tax payable in the country of the operating subsidiaries, to U.S. federal income tax, generally at a rate of 34 percent or 35 percent, after
giving credit, subject to limitations, for foreign income tax paid by the operating subsidiary.  A dividend paid by the U.S. subsidiary will be subject to a U.S. withholding tax unless the earnings of the operating subsidiaries qualify the dividend
for an exemption from that tax. Pursuant to the Old Tax Treaty, the 30 percent withholding tax imposed by U.S. federal income tax law would have been reduced to five percent for non-exempt dividends from the U.S. subsidiary to WG International
Limited.  Under the New Tax Treaty, it is possible that WG International Limited would not qualify for the benefits of the treaty, in which case that rate reduction would not apply, and dividends from LVA to WG International Limited would be subject
to a U.S. withholding tax.  We believe, based on the current ownership and trading of our stock, that there is a significant risk that WG International Limited would not qualify for the benefits of the New Tax Treaty.  Alternatively, if WG
International Limited were to qualify for the benefits of the New Tax Treaty, it is possible that U.S. withholding tax on those dividends would be eliminated entirely.  For U.K. corporation tax purposes, the dividend from the U.S. subsidiary will be
subject to U.K. tax payable at effective rates of between 20 percent and 30 percent, depending on 77




United States Federal Income Tax Consequences This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, referred to as the Code, current and
proposed Treasury regulations promulgated thereunder, judicial decisions and published positions of the U.S. Internal Revenue Service, known as the IRS, and other applicable authorities, all as in effect as of the date hereof, and each of
which is subject to change or to differing interpretations, possibly with retroactive effect.  This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular shareholder based on the
shareholders individual circumstances. In particular, this discussion considers only U.S. Holders that will own American Depositary Shares or ordinary shares as capital assets and does not address the potential application of the alternative
minimum tax or the U.S. federal income tax consequences to U.S. Holders that are subject to special treatment, including U.S. Holders that: 


are broker-dealers;


have elected mark-to-market accounting;


are tax-exempt organizations;


are financial institutions or insurance companies or other entities that derive financial services income;


hold American Depositary Shares or ordinary shares as part of a straddle, hedge, conversion transaction or other risk reduction strategy with other investments;


have a functional currency that is not the U.S. dollar; or


are regulated investment companies.
 In addition, this discussion does not consider the tax treatment of persons who hold American Depositary Shares or ordinary shares
through a partnership or other pass-through entity.  This discussion does not address any aspect of state, local or non-U.S. tax laws or any U.S. federal tax laws other than U.S. federal income tax laws. Subject to the limitations described in the next paragraph, the following discussion describes the material U.S. federal income tax
consequences to a U.S. Holder.  In addition, certain material aspects of U.S. federal income tax relevant to a holder other than a U.S. Holder, referred to as a Non-U.S. Holder, are discussed below. 78




Tax Consequences for U.S. Holders
 For U.S. Federal income tax purposes, a holder of an American Depositary Share will be treated as the owner of the ordinary share
underlying the American Depositary Share. Taxation of Dividends Paid on American Depositary Shares or Ordinary Shares A U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on an American
Depositary Share or ordinary share, including any U.K. tax withheld from the amount paid, on the date the distribution is received, to the extent the distribution is paid out of our current and/or accumulated earnings and profits as determined for
U.S. federal income tax purposes. A distribution in excess of earnings and profits will be treated first as a nontaxable return of capital, reducing the U.S. Holders basis in the American Depositary Share or ordinary share and, to the extent in
excess of basis, will be treated as gain from the sale or exchange of the American Depositary Share or ordinary share.  The amount of any distribution paid in any currency other than the U.S. dollar will equal the U.S. dollar value of the other
currency calculated by reference to the exchange rate in effect on the date the distribution is received by the Depositary, in the case of American Depositary Shares, or by the U.S. Holder, in the case of ordinary shares, regardless, in each case, of
whether the other currency is converted into U.S. dollars.  Gain or loss, if any, realized on a sale or other disposition of the other currency will be ordinary income or loss.  Our dividends will not qualify for the dividends received deduction
generally available to corporations. On May 28, 2003, the Jobs and Growth Reconciliation Tax Act of 2003 was enacted.  The 2003 Tax Act reduces the rate of federal income tax
imposed on certain kinds of corporate dividends received by individuals.  The rate reductions, where applicable, limit the maximum rate of federal income tax on such dividends to 15 percent, commencing with dividends paid in tax years beginning after
2002.  The new rules are currently scheduled to expire after the year 2008.  The new rules apply only to qualified dividend income and, if not paid by a U.S. corporation, only to qualified dividend income paid by a qualified foreign
corporation.  It is unclear whether dividends we pay to an individual U.S. Holder would qualify for the rate reductions introduced by the 2003 Tax Act, primarily due to uncertainty as to whether we satisfy the requirements to be a
qualified foreign corporation.  While we appear to satisfy certain threshold tests relating to our eligibility for the benefits of a comprehensive U.S. tax treaty, the 2003 Tax Act specifically denies qualified foreign corporation status
to any corporation that was a passive foreign investment company, or PFIC, in either the taxable year of the dividend distribution or the preceding taxable year.  Therefore, if we are a PFIC in the year we make a dividend distribution, or were a PFIC
in the preceding year, the dividend would not qualify for the reduced rates introduced by the 2003 Tax Act.  See the discussion below in Taxation  United States Federal Income Tax Consequences  Tax Consequences for U.S. Holders
 Tax Consequences if We Are a Passive Foreign Investment Company for a more detailed description of the PFIC rules and their possible application to our operations. Under prior law and the Old Tax Treaty, a portfolio U.S. Holder, as defined above, could elect to be treated as receiving the U.K. tax
credit in respect of certain dividends paid by us.  A U.S. Holder who made that election would be treated (1) as having received additional dividend income equal to the gross amount of the U.K. tax credit unreduced by any U.K. withholding tax and (2)
as having paid U.K. withholding tax in the same amount.  U.S. Holders that were not portfolio U.S. Holders were subject to different rules.  Those rules, and the procedures for making the election described above, are set forth in Revenue Procedure
2000-13. The New Tax Treaty and current laws modify these rules.  The U.K. generally does not impose dividend withholding tax under current law,
and the New Tax Treaty generally eliminates the requirement that the U.S. permit U.S. Holders to claim a credit, based on grossed-up dividend income, for integrated taxes paid by the U.K. company in which they own shares. 79




Taxation on Disposition of Ordinary Shares Subject to the rules applicable to passive foreign investment companies, controlled foreign corporations and foreign investment
companies, discussed below, upon the sale, exchange or other disposition of an American Depositary Share or ordinary share, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference, if any, between the U.S. Holders
basis in the American Depositary Share or ordinary share, which usually is the U.S. Holders cost of the American Depositary Share or ordinary share, and the amount realized on the disposition computed in U.S. dollars.  Capital gain from the
sale, exchange or other disposition of an American Depositary Share or ordinary share held more than one year, including any capital gain recognized on a distribution that exceeds earnings and profits and basis in the American Depositary Share or
ordinary share on which it is paid, is long-term capital gain, and, in the case of a U.S. Holder that is not a corporation, is generally eligible for a maximum 15 percent rate of taxation.  Gain or loss recognized by a U.S. Holder on a sale, exchange
or other disposition of an American Depositary Share or ordinary share generally will be treated as U.S. source income or loss for purposes of the U.S. foreign tax credit limitations. Unless an exception to that general source rule applies, or unless
the U.S. Holder has other foreign source income in the same class or basket that is subject to foreign tax at a rate below the U.S. federal income tax rate on that income, the limitations on the foreign tax credit may prevent the U.S.
Holder from claiming a foreign tax credit for part or all of any U.K. tax paid by the U.S. Holder on the disposition of an American Depositary Share or ordinary share. The deductibility of a capital loss recognized on the sale, exchange or other
disposition of an American Depositary Share or ordinary share is subject to limitations.  An exchange, deposit or withdrawal by a U.S. Holder of ordinary shares in exchange for American Depositary Shares, or vice versa, will not be subject to any
U.S. Federal income tax. Tax Consequences if We Are a Passive Foreign Investment Company In general, we will be a passive foreign investment company, or PFIC, for any taxable year if either (1) 75 percent or more of our gross
income in the taxable year is passive income, or (2) 50 percent or more of the average value, or, if our American Depositary Shares or ordinary shares are not regularly traded on any of certain designated stock exchanges and if we so elect, the
adjusted basis, of our assets in the taxable year produces, or is held for the production of, passive income.  The IRS takes the position that interest on working capital or any other cash is passive income and that the corresponding asset is an
asset that produces or is held for the production of passive income. The PFIC rules can produce unfavorable tax consequences for a U.S. Holder if we are treated as a PFIC for any year while a U.S. Holder owns our American Depositary Shares or
ordinary shares, and if that U.S. Holder does not make, or has not made, a timely election that remains in effect, for the first taxable year the U.S. Holder owns our American Depositary Shares or ordinary shares, and we are a PFIC, either to treat
us as a qualified electing fund or, to mark the holders American Depositary Shares or ordinary shares to market.  As described below, a qualified electing fund election will not be available to a U.S. Holder unless we
provide certain information to U.S. Holders, and we provide no assurance that we will make that information available.  In addition, a mark-to-market election will not be available to a U.S. Holder unless our American Depositary Shares or ordinary
shares held by the U.S. Holder are marketable stock, and at the present time we believe there is a risk that the shares may not so qualify.  If neither of those elections is available to, or, if available, is made by, a U.S. Holder, as
described more fully below, the U.S. Holder will be subject to the adverse tax consequences described in the following paragraph if we 80




are a PFIC.  We have not undertaken a detailed determination of whether we are a PFIC and therefore cannot provide any assurance that we are not.  Therefore, we may be
a PFIC.  Moreover, in the absence of a detailed analysis of our status as a PFIC performed by us, any assertion by the IRS with respect to a U.S. Holder that we are a PFIC might be upheld against that U.S. Holder, whether or not we are in fact a
PFIC. Under the PFIC provisions, in any year in which the U.S. Holder either disposes of an American Depositary Share or ordinary share at a
gain or receives an excess distribution, special rules apply to the taxation of the gain and the excess distribution. For purposes of these rules, excess distributions are the portion of our distributions in any taxable year,
whether or not out of our earnings and profits, that exceed 125 percent of the average of the distributions (whose amount is subject to adjustment to the extent there were excess distributions) that the U.S. Holder received on the American Depositary
Share or ordinary share during the previous three years, or, if shorter, the U.S. Holders holding period for the American Depositary Share or ordinary share on which the distributions are paid. A disposition of an American Depositary Share or
ordinary share, for purposes of these rules, includes many transactions on which gain or loss is not realized under general U.S. federal income tax rules.  The gain or the excess distributions must be allocated ratably to each day the U.S. Holder has
held the American Depositary Share or ordinary share. Amounts allocated to each year are taxable as ordinary income in their entirety and not as capital gain, and amounts allocable to prior years may not be offset by any deductions or losses. Amounts
allocated to each prior year are taxable at the highest rate in effect for that year and are subject to an interest charge at the rates applicable to deficiencies for income tax for those periods. In addition, a U.S. Holders tax basis in an
American Depositary Share or ordinary share that is acquired from a decedent would not receive a step-up to fair market value as of the date of the decedents death but instead would be equal to the decedents basis, if lower. The special PFIC rules described in the preceding paragraph will not apply to a U.S. Holder if the U.S. Holder makes a timely election,
which remains in effect, to treat us as a qualified electing fund, or QEF, for the first taxable year in which the U.S. Holder owns an American Depositary Share or ordinary share and in which we are a PFIC.  A U.S. Holder generally may
make a QEF election only if we provide to the U.S. Holder certain information regarding our earnings and profits and net capital gain and certain other information regarding us.  As indicated above, we provide no assurance that we will make any of
that information available.  A U.S. Holder that has made a valid QEF election is required for each taxable year to include in income a pro rata share of our ordinary earnings as ordinary income and a pro rata share of our net capital gain as long-
term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge.  The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the IRS. A
shareholder makes a QEF election by attaching to a timely filed U.S. federal income tax return a properly completed IRS Form 8621 that reflects the information provided in the PFIC Annual Information Statement supplied by us to the shareholder and by
filing a second copy of that form with the IRS Service Center in Philadelphia, Pennsylvania.  As indicated above, we provide no assurance that we will make any of that information available.  If we do not provide that information, a U.S. Holder will
not be able to make a QEF election, in which case, unless our American Depositary Shares or ordinary shares held by a U.S. Holder are marketable stock or become marketable stock, a U.S. Holder will be subject to the rules
described in the preceding paragraph with respect to our American Depositary Shares or ordinary shares unless if we are a PFIC or unless the U.S. Holder is able to rebut an assertion by the IRS that we are a PFIC.  Without information provided by us
a U.S. Holder may not be able to rebut an assertion by the IRS that we are a PFIC. Even if a QEF election is not made, if we are a PFIC in the hands of a U.S. Holder, that U.S. Holder must file each year a completed IRS
Form 8621 with its U.S. Federal income tax return and file a second copy of that form with the IRS Service Center in Philadelphia, Pennsylvania. The annual Form 81




Even if a QEF election ceases to apply because in a later taxable year we cease to satisfy the tests to be a PFIC, the QEF election will
apply again in any subsequent year in which we again satisfy the tests to be a PFIC, provided that election is available by reason of our provision of necessary information.  Moreover, if you sell all of the American Depositary Shares or ordinary
shares you own and later reacquire other ordinary shares, any QEF election you have made that remains in effect will apply to the shares acquired later, provided that election is available by reason of our provision of necessary information.
Treasury regulations provide that the Commissioner of Internal Revenue has the discretion to invalidate or terminate a QEF election if the U S. Holder or we, or an intermediary, fails to satisfy the requirements for the QEF election.  As noted above,
we provide no assurance that we will make any of the necessary information available. The special PFIC rules described above also will not apply to a U.S. Holder if the U.S. Holder elects to mark the U.S. Holders
American Depositary Shares or ordinary shares to market each year, provided our stock is considered marketable stock within the meaning of the Treasury regulations.  A U.S. Holder that makes this election will recognize as ordinary income
or loss each year an amount equal to the difference, if any, as of the close of the taxable year between the fair market value of the holders American Depositary Shares or ordinary shares and the holders adjusted tax basis in the American
Depositary Shares or ordinary shares.  Losses would be allowed only to the extent of net mark-to-market gain previously included in income by the U.S. Holder under the election for prior taxable years. If the mark-to-market election were made, then
the rules set forth above would not apply for periods covered by the election. In general, the American Depositary Shares or ordinary shares will be marketable stock within the meaning of the Treasury regulations if
they are traded, other than in de minimis quantities, at least 15 days during each calendar quarter on a qualified exchange or other market within the meaning of the Treasury regulations.  A U.S. exchange is a qualified
exchange or other market if such exchange is a national securities exchange registered with the SEC, or the national market system established pursuant to section 11A of the Securities Exchange Act of 1934.  A non-U.S. exchange is a
qualified exchange or other market if the exchange is regulated or supervised by a governmental authority of the country where the market is located and (1) the exchange has trading volume, listing, financial disclosure, surveillance and
other requirements designed to prevent fraudulent and manipulative acts and practices, to remove impediments to and perfect the mechanism of a free and open, fair and orderly market, and to protect investors, and the laws of the country where the
exchange is located and the rules of the exchange ensure that those requirements are actually enforced, and (2) the rules of the exchange effectively promote active trading of listed stocks.  If a non-U.S. exchange has more than one tier or market
level on which stock 82




If a market-to-market election were available or were to become available, and if a U.S. Holder were to make a mark-to-market election,
but does not make that election for the first taxable year in which the U.S. Holder owns an American Depositary Share or ordinary share and in which we are a PFIC, and if the U.S. Holder had not made a valid QEF election for that first such taxable
year, the rules set forth in the sixth preceding paragraph will apply to any distributions on an American Depositary Share or ordinary share in the year of the mark-to-market election, and to any gain recognized on an actual sale of an American
Depositary Share or ordinary share in that year, as well as in any prior year that U.S. Holder owned our American Depositary Shares or ordinary shares, and to any gain recognized in that year pursuant to the mark-to-market election. Unlike the QEF
rules, under which a U.S. Holder is not required to continue to include in income any of our undistributed earnings in any year we do not satisfy the tests to be a PFIC if the U.S. Holder made, or is treated as making, the QEF election in the first
taxable year the U.S. Holder owned our American Depositary Shares or ordinary and we were a PFIC, the mark-to-market rules generally continue to apply to a U.S. Holder who makes the mark-to-market election, even in years we do not satisfy the tests
to be a PFIC. A U.S. Holder who owns American Depositary Shares or ordinary shares during a year we are a PFIC, who did not make a valid and timely QEF
election for the first taxable year in which the U.S. Holder owns an American Depositary Share or ordinary share and in which we are a PFIC, or a valid QEF election in a later year while we continue to satisfy the definition of a PFIC, as described
in the fifth preceding paragraph, and who has not made a valid mark-to-market election generally will remain subject to the rules set forth in the seventh preceding paragraph for all taxable years. In that event, those rules will apply to any gains
on dispositions of American Depositary Shares or ordinary shares and to any excess distributions. It is, however, possible for a U.S. Holder to avoid this once a PFIC, always a PFIC result by electing to treat all of the U.S.
Holders American Depositary Shares or ordinary shares as sold for their fair market value as of the last day of the last taxable year we satisfy the tests to be a PFIC, provided that election is made within three years of the due date,
including extensions, for the U.S. Holders taxable year that includes the last day of the taxable year we satisfy the tests to be a PFIC. If a gain is recognized on that constructive sale, the rules set forth in the seventh preceding paragraph
would apply to that gain. We may be a PFIC for the years 2003, 2004 or 2005.  Many aspects of the taxation of Internet businesses that could be relevant to our
status as a PFIC are subject to considerable uncertainty.  In addition, as noted above, we have not undertaken any determination of whether we are a PFIC and therefore cannot provide any assurance that we are not.  In addition, the tests for
determining PFIC status are applied annually, and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination.  Accordingly, there can be no assurance that, even if we were not a PFIC for the
year 2004, we will not be a PFIC in 2005 or any subsequent year.  Moreover, we provide no assurance that we will make any determination in the future whether we are a PFIC at that time.  Finally, in the absence of an analysis of our status as a PFIC
performed by us, any assertion by the IRS with respect to a U.S. Holder that we are in any particular year a PFIC could be upheld against that U.S. Holder, whether or not we are in fact a PFIC. 83




Controlled foreign corporation rules Special U.S. federal income tax rules apply to certain holders in a foreign corporation classified as a controlled foreign
corporation, or CFC. A foreign corporation will not constitute a CFC unless U.S. shareholders, each of whom owns ten percent or more of its voting power, referred to hereafter as 10% Voting U.S. Shareholders, collectively own more
than 50 percent of the total combined voting power or total value of the corporations stock. Any U.S. person that owns, directly or indirectly through foreign persons, or is considered to own, by application of certain constructive ownership
rules, ten percent or more of the total combined voting power of all classes of stock of a foreign corporation will be considered to be a 10% Voting U.S. Shareholder. For purposes of the special rules that apply on a taxable disposition of stock, the status of the foreign corporation as a CFC or the
status of a U.S. Holder as a 10% Voting U.S. Shareholder at any time within five years prior to the taxable disposition can cause those rules to apply. Based on the current ownership of our American Depositary Shares and ordinary stock, we believe
that we are not a CFC. Foreign personal holding company and personal holding company rules Special U.S. federal income tax rules apply to a holder in a foreign personal holding company, or FPHC, and to the U.S.
source income of a foreign corporation that is a personal holding company. A foreign corporation will not constitute a FPHC unless five or fewer individuals who are U.S. citizens or residents own, directly or constructively, more than 50
percent of the voting power or the value of its shares. A corporation will not constitute a personal holding company, or PHC, unless five or fewer individuals own, directly or constructively, more than 50 percent of the value of its
shares at any time during the last half of its taxable year. Based upon the current ownership of our stock, we believe that we are not a FPHC or PHC. Foreign investment company rules Special rules also apply to treat as ordinary income any gain realized on the sale of shares of a foreign investment company.
We believe that we will conduct our business and obtain controlling interests in subsidiaries so as not to be a foreign investment company. Tax Consequences for Non-U.S. holders Except as described in Information reporting and back-up withholding below, a Non-U.S. Holder of an American Depositary Share
or ordinary share will not be subject to U.S. federal income or withholding tax on any gain recognized on the payment of dividends on, or gain from a disposition of, an American Depositary Share or ordinary share, unless:      the income or gain is effectively connected with the conduct by the Non-U.S. Holder of trade or
business in the United States and, in the case of a resident of a country that has a treaty with the United States, the income is attributable to a permanent establishment or, in the case of an individual, a fixed place of business, in the United
States; 84




     the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to U.S.
expatriates. Information reporting and back-up withholding Under current U.S. federal income tax regulations, dividends we pay on American Depositary Shares or ordinary shares will not be subject
to U.S. information reporting or to backup withholding unless they are paid in the United States through a U.S. or U.S.-related paying agent, including a broker.  If a U.S. Holder furnishes the paying agent with a duly completed and signed IRS Form
W-9, the dividends will not be subject to backup withholding.  Non-U.S. Holders generally are not subject to information reporting or back-up withholding with respect to dividends paid on, or upon the disposition of World Gaming American Depositary
Shares or ordinary shares, provided that the non-U.S. Holder provides a taxpayer identification number, certifies to its foreign status or otherwise establishes an exemption. The amount of any back-up withholding will be allowed as a credit against a U.S. or Non-U.S. Holders U.S. federal income tax
liability and may entitle the holder to a refund, provided certain required information is furnished to the IRS. Taxation of the Company We are subject to U.S. federal income tax only to the extent that we derive U.S. source income that is subject to U.S. withholding tax or
income that is effectively connected with the conduct of trade or business within the United States and is not exempt from U.S. tax under the U.S.-U.K. New Tax Treaty or Old Tax Treaty.  Our indirect U.S. subsidiary will continue to be subject to
U.S. tax on its worldwide income, including dividends, if any, we receive from non-U.S. subsidiaries, and dividends, if any, we pay to WG International Limited may be subject to a U.S. withholding tax, unless the earnings of the operating
subsidiaries qualify the dividends for an exemption from that tax.  Pursuant to the Old Tax Treaty, the 30 percent withholding tax imposed by U.S. Federal income tax law was reduced to five percent for non-exempt dividends from the U.S. subsidiary to
WG International Limited.  Under the New Tax Treaty, it is possible that WG International Limited would not qualify for the benefits of the treaty, in which case that rate reduction would not apply, and dividends from its subsidiaries to WG
International Limited would be subject to a U.S. withholding tax. We believe, based on the current ownership and trading of our stock, that there is a substantial risk that neither WG International Limited nor World Gaming plc will qualify for
benefits under the New Tax Treaty.  Alternatively, if WG International Limited were to qualify for the benefits of the New Tax Treaty, U.S. withholding tax on those dividends could be eliminated entirely.  In addition, if WG International Limited
were not to qualify for the benefits of the New Tax Treaty, other income of WG International or World Gaming plc that is from U.S. sources or that is effectively connected with trade or business conducted in the United States may become subject to
U.S. federal income tax at higher rates. Documents on Display We have filed this Annual Report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended.  Statements made in this annual report as to the contents of any contract, agreement or other document referred to are not necessarily complete.  With 85




We are subject to the informational requirements of the Securities Exchange Act and file reports and other information with the
Securities and Exchange Commission.  Reports and other information which we file with the Securities and Exchange Commission, including this Annual Report on Form 20-F, may be inspected and copied at the public reference room of the SEC at: 100 F
Street, NE, Room 1580, Washington, D.C. 20549.  The public may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0330.  Additionally, copies of this material may also be obtained from the SECs
website at http://www.sec.gov. Item 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our reporting currency is the U.S. dollar.  We are exposed to foreign exchange risk on our net Canadian dollar asset position
(approximately $367,000 CDN or $315,000 U.S. as of December 31, 2005).  The main exposure in this regard is the Canadian dollar weakening against the U.S. dollar, which would cause our net Canadian position to decline after translation to
the U.S. dollar. Exposure arises primarily from the operations of our subsidiaries in Canada which incur certain administrative expenses in Canadian
dollars (approximately $1.4 million CDN or $1.2 million U.S. for the year ending December 31, 2005) but do not derive any sales directly from customers. Subsequent to October 1, 2004 such Canadian dollar denominated expenses have materially decreased
as a result of the Sportingbet Transaction (See Item 4: Sportingbet Transaction and Item 10: Material Contracts). Funding for Inphinity and as of October 1, 2004, WG Interactive, comes from our non-Canadian subsidiaries that derive
their sales in U.S. dollars.  Therefore the ultimate cost of our operations in Canada is dependent on the relative strength of the Canadian dollar to the U.S. dollar.  We have not hedged against this risk. Our net Canadian asset position at December 31, 2005 is summarized as follows (in thousands of U.S. dollars with previous year
comparatives included): 2005
    
    2004Cash and cash equivalents
    
    $
    21
    
    
    $
    20Other current assets
    
    
    51
    
    
    
    33Total current assets
    
    
    72
    
    
    
    53Other assets
    
    
    280
    
    
    
    112Current liabilities
    
    
    (37
    )
    
    
    (73
    )Long-term liabilities
    
    
    
    
    
    
    Net Canadian dollar denominated assets
    
    $
    315
    
    
    $
    92
 Item 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 86




PART II
 Item 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. Item 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Material Modifications to the Rights of Security Holders Under the terms of the Sportingbet agreement (See Item 4: Sportingbet Transaction and Item 10: Material Contracts),
Sportingbet has irrevocably agreed to the waiving of all voting, dividend, rights to transfer, rights to participate (other than the right to attend meetings) and other similar rights attaching to such shares in respect of the 13,506,204 issued
ordinary shares of the Company held by the Sportingbet Plc group of companies. Sportingbet Plc has agreed to transfer these shares to us for a total consideration of $1 when we request that it do so.  Our board of directors has confirmed that we will
purchase these shares when we have available distributable profits. Until this occurs, these shares and the associated share premium attached are treated as non-equity interests. Use of Proceeds from Offering Not applicable. Item 15.  CONTROLS AND PROCEDURES Our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (Exchange Act)), as of the end of the period covered by this Annual Report on Form 20-F.  Based on such evaluation, they have concluded that
as of such date, our disclosure controls and procedures are effective and designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable SEC rules and forms.  There has not been any change in the Companys internal control over financial reporting that occurred during the year ended December 31, 2005 that has materially affected, or
is reasonably likely to affect the Companys internal control over financial reporting. Item 16A.  AUDIT COMMITTEE FINANCIAL EXPERT See Item 6.  Committees of the board of directors. Item 16B.  CODE OF ETHICS In August 2003, our board of directors adopted a Code of Ethics, which is attached hereto as an exhibit to this Form 20-F. 87




Item 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Set out below are fees charged for services provided by the Companys principal accountant for its US GAAP financial statements for
the years ended December 31, 2005 and 2004: 2005
    
    2004Audit fees
    
    
    45,000
    
    
    
    60,500Audit  related fees (1)
    
    
    
    
    
    
    Tax fees (2)
    
    
    7,000
    
    
    
    2,909All other fees (3)
    
    
    4,200
    
    
    
    Total
    
    
    56,200
    
    
    
    63,409
   (1)

Not applicable.
 (2)

The tax fees described in this category relate to assistance provided in the preparation and filing of tax returns for the Company.
 (3)

All other fees described in this category relate to work carried out in respect of responses to the SEC in respect of its review of the Companys 2004 20-F.
 The audit committee is responsible for reviewing and approving any engagement letter with our auditors. This engagement letter is
reviewed annually and sets out expected fees. Any fees greater than 10% of the annual audit fee are generally pre-approved by the audit committee. Item 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. 88




Item 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
 Set out below are purchases made by or on behalf of the Company or any affiliated purchaser of shares or ADRs of the Companys
equity securities: Period
    
    Total number ofshares purchased
    
    Average pricepaid per share
    
    Total number ofshares purchasedas part of publiclyannounced plansor programs
    
    Maximum numberof shares that mayyet be purchasedunder the plans orprogramsJanuary 1, 2005  January 31, 2005
    
    
    
    
    
    
    
    February 1, 2005  February 28, 2005
    
    
    
    
    
    
    
    March 1, 2005  March 31, 2005
    
    
    
    
    
    
    
    April 1 2005 April 30, 2005May 1, 2005 
    
    
    
    
    
    
    
    May 31, 2005June 1, 2005 
    
    
    
    
    
    
    
    June 30, 2005July 1, 2005 
    
    
    
    
    
    
    
    July 31, 2005August 1, 2005  August 31, 2005
    
    
    
    
    
    
    
    September 1, 2005  September 30, 2005
    
    
    
    
    
    
    
    October 1, 2005  October 31, 2005
    
    
    
    
    
    
    
    November 1, 2005  November 30, 2005
    
    
    
    
    
    
    
    December 1, 2005  December 31, 2005
    
    
    
    
    
    
    
    Total
    89




PART III Item 17.  FINANCIAL STATEMENTS Our consolidated financial statements together with the reports of HJ & Associates, LLC with respect to the years ended December 31,
2005, 2004 and 2003,  are filed as part of this annual report. Consolidated Financial Statements PageIndependent Auditors Reports
    F-2Consolidated Balance Sheets
    F-3Consolidated Statements of Operations and Other Comprehensive Income (Loss)
    F-5Consolidated Statements of Stockholders Equity
    F-7Consolidated Statements of Cash Flows
    F-9Notes to Consolidated Financial Statements
    F-11
 Item 18.  FINANCIAL STATEMENTS Our consolidated financial statements have been prepared in accordance with Item 17 hereof. Item 19.  EXHIBITS 1.1
    
    Memorandum of Association of World Gaming plc (incorporated herein by reference from Exhibit 3.1 to a Registration Statement on Form F-4 (SEC File No. 333-48280, dated 10/19/00) filed by World Gaming plc)1.2
    
    Articles of Association of World Gaming plc adopted by special resolution on May 17, 2001 (incorporated herein by reference from Exhibit 4.2 to a Registration Statement on Form S-8 (SEC File No. 333-70056, dated 09/24/01) filed
    by World Gaming plc)1.3
    
    Articles of Association of World Gaming plc adopted by special resolution on June 20, 2002 (incorporated herein by reference from Exhibit 1.3 to the annual report on Form 20-F filed by World Gaming plc on June 30, 2003)2.1
    
    Form of ordinary share certificate of World Gaming plc. (incorporated herein by reference from Exhibit 1 to a Registration Statement on Form 8-A (Sec File No. 000-32793, dated 05/23/01) filed by World Gaming plc)2.2
    
    Form ADR (incorporated herein by reference from Exhibit A to the Form Deposit Agreement  filed as Exhibit (a) to a Registration Statement on Form F-6 (SEC File No.333-13286, dated 05/24/01) filed by World Gaming plc)2.3
    
    Form Deposit Agreement among World Gaming plc and Continental Stock Transfer and Trust Company, as depositary, and others named therein dated as of March 2001 (incorporated herein by reference from Exhibit (a) to a Registration
    Statement on Form F-6 (SEC File No.333-13286, dated 05/24/01) filed by World Gaming plc)2.4
    
    World Gaming 2001 Share Option Plan (incorporated herein by reference from Exhibit 4.3 to a Registration statement on Form S-8 (SEC File No. 333-70056, dated 09/24/01) filed by World Gaming plc)4.1
    
    Agreement and Plan of Reorganization (incorporated herein by reference from Exhibit 2.1 to a report on Form 8-K (SEC File No. 000-29290, dated 06/14/01) filed by Starnet Communications International, Inc.)
 90




4.2
    
    Accord and Satisfaction Agreement with Simpson Bay, Ltd., and AIM Investments Ltd. (incorporated herein by reference from Exhibit 4.5 to the Form 20-F filed by World Gaming plc on 11/1/01)4.3
    
    Unsecured Convertible Note with Goodison Park Limited, dated April 4, 2003 (incorporated herein by reference from Exhibit 4.7 to the annual report on Form 20-F filed by World Gaming plc on June 30, 2003)4.4
    
    Stock Acquisition Agreement with Goodison Park Limited, dated April 4, 2003 (incorporated herein by reference from Exhibit 4.8 to the annual report on Form 20-F filed by World Gaming plc on June 30, 2003)4.5
    
    Contract for Services with James Grossman, dated June 4, 2003 (incorporated herein by reference from Exhibit 4.9 to the annual report on Form 20-F filed by World Gaming plc on June 30, 2003)4.6
    
    Contract of Employment with A. Daniel Moran, dated June 4, 2003 (incorporated herein by reference from Exhibit 4.10 to the annual report on Form 20-F filed by World Gaming plc on June 30, 2003)4.7
    
    Contract of Employment with David Naismith, dated June 4, 2003 (incorporated herein by reference from Exhibit 4.13 to the annual report on Form 20-F filed by World Gaming plc on June 30, 2003)4.8
    
    Contract of Employment with Jonathan Moss, dated January 1, 2005
(incorporated herein by reference from Exhibit 4.36 to the annual report on Form 20-F filed by World Gaming plc on May 24, 2005)4.9
    
    Framework Agreement between World Gaming plc and Sporting bet PLC
(incorporated herein by reference from Exhibit 99.1 to the Report of Foreign Private Issuer on Form 6-K filed by World Gaming plc on April 4, 2005)4.10
    
    Amendment to Framework Agreement between World Gaming plc and Sportingbet PLC
(incorporated herein by reference from Exhibit 99.2 to the Report of Foreign Private Issuer on Form 6-K filed by World Gaming plc on April 4, 2005)4.11
    
    Limited Partnership Agreement among Internet Opportunity Entertainment Limited, Starnet Systems International, Inc., Gwladys Street Limited and Bullen Road, LP. (incorporated herein by reference from Exhibit 99.3 to the Report of
    Foreign Private Issuer on Form 6-K filed by World Gaming plc on April 4, 2005)21.1*
    
    List of Subsidiaries23.1*
    
    Consent of HJ & Associates, LLC31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2*
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200299.1*
    
    Code of Ethics   *Filed herewith. 91


WORLD GAMING PLC AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005 and December 31, 2004


C O N T E N T S  Report of Independent Registered Public Accounting Firm

F-2Consolidated Balance Sheets

F-3Consolidated Statements of Operations and Other Comprehensive Income/(Loss)

F-5Consolidated Statements of Stockholders Equity

F-7Consolidated Statements of Cash Flows

F-9Notes to the Consolidated Financial Statements

F-11
 F-1




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors World Gaming Plc and SubsidiariesLondon, England We have audited the accompanying consolidated
balance sheets of World Gaming Plc and Subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of
operations and other comprehensive income, stockholders equity and cash flows for the years ended December 31, 2005, 2004, and
2003. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An
audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of World Gaming plc and
Subsidiaries as of December 31, 2005 and 2004 and the consolidated results of their operations and other comprehensive income, and
their cash flows for the years ended December 31, 2005, 2004, and 2003, in conformity with United States generally accepted
accounting principles. /s/ HJ & Associates LLC  HJ & Associates LLC Salt Lake City,
Utah, U.S.A. June 14, 2006 F-2




World Gaming Plc and Subsidiaries Consolidated Balance Sheets
 (In thousands of US$)
 December 31, 2005

December 31, 2004ASSETSCurrent assetsCash and cash equivalents

$
7,605


$
7,944Reserves  and deposits with credit card processors (Note 4)






2,234Customer Deposits  (Note 5)


5,438



Accounts receivable, net (Note 6)


4,163



4,438Consideration recoverable  (Note 7)


3,481



Consideration receivable (Note 8)






7,000Prepaid expenses and deposits (Note 9)


989



344Deferred Loan Costs (Note 10)

483


Total Current Assets


22,159



21,960GOODWILL  (Note 11)


86,697



DEFERRED LOAN COSTS  (Note 10)


604



CAPITAL ASSETS, Net (Note 12)

1,231


1,419TOTAL ASSETS

$
110,691


$
23,379
 The accompanying notes are an integral part of these consolidated financial statements. F-3




World Gaming Plc and Subsidiaries Consolidated Balance Sheets (continued)
 (In thousands of US$)
 December 31, 2005

December 31, 2004LIABILITIESCurrent liabilitiesAccounts payable and accrued liabilities (Note 13)

$
3,630


$
7,080Customer Deposits  (Note 14)


5,438



Bank loan  (Note 15)


15,000



Consideration  Payable (Note 16)


3,600



Deferred Provisions  (Note 17)


744



Deferred Loan Costs Payable (Note 18)


194



Current portion of capital lease obligations (Note 19)




14Total Current Liabilities


28,606



7,094Long-term liabilitiesBank loan payable (Note 15)


25,000



Deferred Provisions  (Note 18)




257TOTAL LIABILITIES

53,606


7,351Commitments and Contingencies (Note 22)STOCKHOLDERS EQUITYCapital stock (Note 20)


49,835



23,654Shares to Be Issued (Note 20)


8,440



Surplus / (Deficit)


220



(6,353
)Accumulated other comprehensive loss

(1,410
)

(1,273
)TOTAL STOCKHOLDERS EQUITY

57,085


16,028TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
110,691


$
23,379
 The accompanying notes are an integral part of these consolidated financial statements. F-4




World Gaming Plc and Subsidiaries Consolidated Statements of Operations and Other Comprehensive Income/(Loss)
 (In thousands of US$)
 Year ended December 31, 2005

Year ended December 31, 2004

Year ended December 31, 2003REVENUERoyalties and fees

$
8,958


$
15,650


$
17,621Wagering Receipts


97,513







Licensing










Gateway Development Fees






638



77106,471



16,288



17,698COST OF SALES


92,057



2,150



1,87114,414



14,417



15,548EXPENSESDevelopment, selling, general and administrative


6,886



7,143



10,157Provision for bad debts






203



344Legal


394



406



739Accrued settlement of legal issues










45Depreciation and amortization


794



1,420



1,9338,074



9,172



13,218PROFIT FROM OPERATIONS


6,340



5,245



2,330Interest Income


457







Interest and bank charges


(199
)


(62
)


(203
)Conversion feature on Convertible Debt










(150
)Other Income










981Amortisation  Loan Costs


(25
)






OTHER INCOME / (EXPENSES)


233



(62
)


628PROFIT BEFORE EXTRAORDINARY ITEM AND INCOME TAXES


6,573



5,183



2,958EXTRAORDINARY ITEM Net of zero tax implications (Note 3)






12,187



PROFIT BEFORE INCOME TAXES


6,573



17,370



2,958INCOME TAX EXPENSE (RECOVERY)Current (Note 21)










Deferred (Note 21)










Total Income Taxes










NET PROFIT

$
6,573


$
17,370


$
2,958
 The accompanying notes are an integral part of these consolidated financial statements. F-5




World Gaming Plc and SubsidiariesConsolidated Statements of Operations and Other Comprehensive Income/(Loss) (continued)(In thousands of US$) Year ended December 31, 2005
    
    Year ended December 31, 2004
    
    Year ended December 31, 2003NET PROFIT brought forward
    
    $
    6,573
    
    
    $
    17,370
    
    
    $
    2,958OTHER COMPREHENSIVE INCOMEForeign currency translation
    
    
    (137
    )
    
    
    168
    
    
    
    (385
    )Total Other Comprehensive Loss
    
    
    (137
    )
    
    
    168
    
    
    
    (385
    )NET COMPREHENSIVE INCOME
    
    $
    6,436
    
    
    $
    17,538
    
    
    $
    2,573BASIC PROFIT PER SHARE
    
    $
    0.13
    
    
    $
    0.38
    
    
    $
    0.07-     Excluding non-voting
    
    
    0.17
    
    
    
    0.53
    
    
    
    0.07-     Before extraordinary item
    
    
    0.13
    
    
    
    0.11
    
    
    
    0.07-     Excluding non-voting and before extraordinary item
    
    
    0.17
    
    
    
    0.16
    
    
    
    0.07FULLY DILUTED PROFIT PER SHARE
    
    $
    0.09
    
    
    $
    0.34
    
    
    $
    0.05-     Excluding non-voting
    
    
    0.11
    
    
    
    0.46
    
    
    
    0.05-     Before extraordinary item
    
    
    0.09
    
    
    
    0.10
    
    
    
    0.05-     Excluding non-voting and before extraordinary item
    
    
    0.11
    
    
    
    0.14
    
    
    
    0.05WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    
    
    55,523,833
    
    
    
    45,981,407
    
    
    
    42,932,416FULLY DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    
    
    71,385,197
    
    
    
    50,890,157
    
    
    
    56,402,085
 Earnings per share excluding shares with no
voting or economic rights refers to the 13,506,204 shares held by Sportingbet PLC and its affiliates that have been set aside as a
result of the Transaction with Sportingbet PLC and may be repurchased by the Company for $1 when the Company has retained earnings
to do so. This transaction had no impact on the earnings per share calculations for 2003. The accompanying notes are an integral part of these consolidated financial statements. F-6




World Gaming Plc and Subsidiaries Consolidated Statements of Stockholders Equity
 For the years ended December 31, 2005, 2004, and 2003
 AccumulatedOther
    
    RetainedCommon Stock
    
    Shares to be
    
    Comprehensive
    
    EarningsShares
    
    Amount
    
    Issued
    
    Income (Loss)
    
    (Deficit)Balance, January 1, 2003
    
    
    34,193,181
    
    
    
    24,192
    
    
    
    
    
    
    
    (1,056
    )
    
    
    (26,681
    )Issues of Class Action settlement shares during 2003
    
    
    6,588,226
    
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    New Share issued to Goodison Park Ltd.
    
    
    5,000,000
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    Beneficial conversion feature related to convertible debt
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    Movement in other comprehensive income (loss)  foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (385
    )
    
    
    Net profit for the year ended December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,958Balance, December 31, 2003
    
    
    45,781,407
    
    
    
    25,992
    
    
    
    
    
    
    
    (1,441
    )
    
    
    (23,723
    )Balance, January 1, 2004
    
    
    45,781,407
    
    
    
    25,992
    
    
    
    
    
    
    
    (1,441
    )
    
    
    (23,723
    )Exercise of Stock Options
    
    
    300,000
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    Waiver of rights on Sportingbet shares (note 3)
    
    
    
    
    
    
    (2,400
    )
    
    
    
    
    
    
    
    
    
    
    Movement in other comprehensive income (loss)  foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168
    
    
    
    Net profit for the year ended December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,370Balance, December 31, 2004
    
    
    46,081,407
    
    
    $
    23,654
    
    
    $
    
    
    
    $
    (1,273
    )
    
    $
    (6,353
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-7




World Gaming Plc and Subsidiaries Consolidated Statements of Stockholders Equity
 For the years ended December 31, 2005, 2004, and 2003 (continued)
 AccumulatedOther
    
    RetainedCommon Stock
    
    Shares to be
    
    Comprehensive
    
    EarningsShares
    
    Amount
    
    Issued
    
    Income (Loss)
    
    (Deficit)Balance, January 1, 2005
    
    
    46,081,407
    
    
    $
    23,654
    
    
    $
    
    
    
    $
    (1,273
    )
    
    $
    (6,353
    )Exercise of Stock Options
    
    
    2,757,459
    
    
    
    942
    
    
    
    
    
    
    
    
    
    
    
    Issued in Respect of Share Placings
    
    
    9,560,000
    
    
    
    13,239
    
    
    
    
    
    
    
    
    
    
    
    Issued in  Respect of Acquisitions (Note 24)
    
    
    5,540,166
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    To be Issued in  Respect of Acquisitions
    
    
    
    
    
    
    
    
    
    
    8,440
    
    
    
    
    
    
    
    Movement in other comprehensive income (loss)  foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137
    )
    
    
    Net Profit for the year ended December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,573Balance, December 31, 2005
    
    
    63,939,032
    
    
    $
    49,835
    
    
    $
    8,440
    
    
    $
    (1,410
    )
    
    $
    220
 Pursuant to the terms of the SPORTSBETTING.COM acquisition, on agreement of the final profit before tax (PBT) for the 12 months
ending December 31, 2005, further payment of $8.4m in new ordinary shares of the Company were made to the Vendors and held in escrow
as appropriate. (Note 24). The accompanying notes are an integral part of these consolidated financial statements. F-8




World Gaming Plc and Subsidiaries Consolidated Statements of Cash Flows
 (In thousands of US$)
 Year ended December 31, 2005
    
    Year ended December 31, 2004
    
    Year ended December 31, 2003CASH FLOWS FROM OPERATING ACTIVITIESProfit for the period
    
    $
    6,573
    
    
    $
    17,370
    
    
    $
    2,958Adjustments to reconcile net profit to net cash provided by operating activities:Depreciation
    
    
    794
    
    
    
    1,420
    
    
    
    1,933Amortisation of Loan Costs
    
    
    25
    
    
    
    
    
    
    
    Loss on disposal of fixed assets
    
    
    
    
    
    
    206
    
    
    
    Deferred compensation
    
    
    
    
    
    
    
    
    
    
    Gain on sale
    
    
    
    
    
    
    (12,187
    )
    
    
    Change in current assets and liabilities-Decrease (increase) in reserves with credit card processors
    
    
    2,234
    
    
    
    5,874
    
    
    
    (4,464
    )Decrease (increase) in Customer Deposits
    
    
    (5,438
    )
    
    
    
    
    
    
    Decrease (increase) in accounts receivable
    
    
    275
    
    
    
    (2,975
    )
    
    
    1,272Decrease (increase) in prepaid expenses and  Deposits
    
    
    (645
    )
    
    
    325
    
    
    
    (364
    )Decrease (increase) in other assets
    
    
    
    
    
    
    
    
    
    
    Increase (decrease) in accounts payable and accrued liabilities
    
    
    (4,238
    )
    
    
    (1,739
    )
    
    
    1,246Increase (decrease) in Customer Deposits
    
    
    5,438
    
    
    
    
    
    
    
    Increase (decrease) in legal claims accrual
    
    
    
    
    
    
    
    
    
    
    65Increase (decrease) in funds held on deposit
    
    
    
    
    
    
    (2,160
    )
    
    
    440Increase (decrease) in provisions
    
    
    376
    
    
    
    257
    
    
    
    Exchange movements
    
    
    
    
    
    
    86
    
    
    
    Net Cash Provided by Operating Activities
    
    $
    5,394
    
    
    $
    6,477
    
    
    $
    3,086CASH FLOWS FROM INVESTMENT ACTIVITIESPurchase of capital assets, net
    
    
    (606
    )
    
    
    (1,065
    )
    
    
    (219
    )Acquisition of SPORTSBETTING.COM
    
    
    (65,240
    )
    
    
    
    
    
    
    Proceeds from sale of assets
    
    
    7,000
    
    
    
    6,300
    
    
    
    Payment of costs associated with asset sale
    
    
    
    
    
    
    (968
    )
    
    
    Proceeds allocated to purchase of capital stock rights
    
    
    
    
    
    
    (2,400
    )
    
    
    Net Cash (Used in) Investing Activities
    
    $
    (58,846
    )
    
    $
    1,867
    
    
    $
    (219
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-9




World Gaming Plc and SubsidiariesConsolidated Statements of Cash Flows (continued)(In thousands of US$) Year ended December 31, 2005
    
    Year ended December 31, 2004
    
    Year ended December 31, 2003CASH FLOWS FROM FINANCING ACTIVITIESPayments received on long-term receivable
    
    $
    
    
    
    $
    
    
    
    $
    Proceed from issuance of shares & exercise of options
    
    
    14,181
    
    
    
    62
    
    
    
    600Proceeds from New Loans
    
    
    40,000
    
    
    
    
    
    
    
    1,002Cost of Borrowing
    
    
    (917
    )
    
    
    
    
    
    
    Oracle Note, net
    
    
    
    
    
    
    
    
    
    
    595Repayment of convertible note payable
    
    
    
    
    
    
    (900
    )
    
    
    Net repayments of Loans payable
    
    
    
    
    
    
    (1,596
    )
    
    
    (1,346
    )Principal repayment under capital lease obligations
    
    
    (14
    )
    
    
    (647
    )
    
    
    (1,598
    )Net Cash Provided by (Used in) Financing Activities
    
    
    53,250
    
    
    
    (3,081
    )
    
    
    (747
    )EFFECT OF EXCHANGE RATES ON CASH
    
    
    (137
    )
    
    
    24
    
    
    
    (385
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT DURING THE PERIOD
    
    
    (339
    )
    
    
    5,287
    
    
    
    1,735CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    7,944
    
    
    
    2,657
    
    
    
    922CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    7,605
    
    
    $
    7,944
    
    
    $
    2,657Supplementary cash flow information:Other non-cash financing and investing transactions:Leased assets acquired
    
    $
    
   
    
    $
    
   
    
    $
    1,002Beneficial conversion feature on Note Payable
    
    $
    
   
    
    $
    
   
    
    $
    150Issue of Shares in settlement of class action suit
    
    $
    
   
    
    $
    
   
    
    $
    1,050Settlement of Capital Lease obligations
    
    $
    
   
    
    $
    
   
    
    $
    1,105Convertible loan note forgiven
    
    $
    
   
    
    $
    900
    
    
    $
    Cash paid for:Interest paid
    
    $
    114
    
    
    $
    103
    
    
    $
    203Income taxes paid
    
    $
    
   
    
    $
    
   
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements. F-10




NOTE 1  NATURE OF BUSINESS AND BASIS OF PRESENTATION World Gaming plc is a holding company incorporated under the laws of England and Wales that, through its subsidiaries and joint
venture arrangements, is an Internet gaming operator and developer, licensor and supplier of online gaming products, including
casino, sportsbook and pari-mutuel betting. Interactive Systems Inc., a wholly-owned subsidiary of the Company incorporated and operating out of Antigua, operates and licenses
gaming software to third parties for an initial licensing fee and monthly royalties. In addition, Interactive Systems Inc. provides
hosting and other systems administrative services to its licensees. Effective October 1, 2005, the Company, through acquisition,
became an Internet gaming operator offering Internet gaming services including casino, sportsbook and pari-mutuel betting direct to
its wholly owned database of customers (See Note 24: Acquisitions). WG Interactive Inc., a wholly-owned subsidiary of the Company,
incorporated and operating out of British Columbia, Canada provides further administrative services on behalf of Interactive Systems
Inc. such as development support. NOTE 2  ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles.
A summary of significant accounting policies is set out below: a.


Basis of Presentation
 The consolidated financial statements include the accounts of World Gaming and all its wholly-owned subsidiaries (collectively the
Company) each of which have a 31 December year end. All significant inter-company balances and transactions have been
eliminated. Unless otherwise stated, all amounts are in thousands of US Dollars. World Gaming has 12 subsidiaries which have been
listed below: Subsidiary

Principal Activity

Type ofShares Held

PercentageOwned

Country ofIncorporationWG International Ltd (3)

Holding Company


Ordinary


100%


England & WalesInteractive Systems Inc.(1)

Licensing of Internet Gaming Systems


Ordinary


100%


AntiguaWG Interactive Inc. (1)

Systems Administration


Ordinary


100%


CanadaWorld Gaming Europe Ltd (3)

Dormant


Ordinary


100%


England & WalesSSII Ltd (2)

Dormant


Ordinary


100%


AntiguaEFS Caribbean Inc (2)

Dormant


Ordinary


100%


AntiguaEFS St Kitts Inc (2)

Dormant


Ordinary


100%


AntiguaInphinity Interactive Inc(2)

Dormant


Ordinary


100%


CanadaWorld Gaming Services Inc (2)

Dormant


Ordinary


100%


AntiguaESCE Inc. (2)

Dormant


Ordinary


100%


CanadaTIC Inc (1)

Dormant


Ordinary


100%


AntiguaDNI Holdings Ltd (3)

Intellectual property holding


Ordinary


100%


Antigua
 All of the above companies operate within their country of incorporation and their financial condition and operating results have
been included in these consolidated financial statements. (1)

Shares are owned by WG International Ltd(2)

Shares are owned by TIC  Inc.(3)

Shares are owned by World Gaming Plc
 F-11




WORLD GAMING PLC AND SUBSIDIARIES   NOTE 2  ACCOUNTING POLICIES (CONTINUED) In December 2005, LVA Holdings Ltd, a wholly owned subsidiary of WG International was dissolved. All of the remaining subsidiaries
owned by LVA Holdings Limited at this time were dormant. Ownership of these dormant subsidiaries was transferred to TIC Inc. The shares of DNI Holdings Limited were acquired by WG International Ltd as part of the SPORTSBETTING.COM acquisition described at Note 24. The Company holds a 50 percent interest in Bullen Road LP, a limited partnership between Starnet Systems International Inc
(SSII) and IOE Limited (IOE), a wholly-owned subsidiary of Sportingbet PLC. Bullen Road LP is an exempt
limited partnership formed in the Cayman Islands as a result of the transaction with Sportingbet described at Note 3 and owns the
gaming software operated by the Company. The General Partner is Gwladys Street Limited; a company incorporated in the Cayman Islands
and is jointly owned by SSII and IOE. The Company is not required to make any capital contributions to the partnership beyond the
initial transfer of the proprietary gaming software, which was done in 2004. The net book value of the assets transferred was $nil.
The partnership had no income or expenditure in the period ended December 31, 2004. Accounts have not yet been prepared for the
partnership. Consistent with the accounting treatment of the Intellectual Property prior to its transfer to Bullen Road LLP, the
Companys share of the assets and liabilities of the partnership at December 31, 2005 has not been included in the consolidated
financial statements. The cost and carrying value of the investment at December 31, 2005 was $nil in these consolidated financial
statements. b.


Revenue Recognition
 Turnover for the recently acquired
SPORTSBETTING.COM operations comprised gross sports and horse racing wagers and net casino and poker winnings. Initial license fees of gaming software are
recognized as revenue upon the completion of the license sale transactions. Before the revenues are recognized, deposits from
licensees are recorded as deferred revenue. Gaming and monthly licensing royalty revenues and other fees are recognized over the
period services are provided. Revenues from the resale of Antigua government issued gaming licenses are recognized when collection
is assured. Gaming revenues, which represent less than 1% of total revenues in 2003, were presented net of customer winnings. c.


Capital Assets
 Property and equipment are recorded at cost and are depreciated or amortized using the straight-line method over the estimated useful life of the assets at the
following rates: Furniture and fixtures

3 yearsComputer hardware and equipment

3 yearsComputer software

3 yearsAutomobiles

4 years
 Leasehold improvements are amortized over the
term of the related lease using the straight-line method. Maintenance and repair costs in respect of capital assets is expensed as incurred. Betterments and renewals are recorded at cost and
are depreciated or amortized using the straight-line method over the estimated useful life of the assets as set out above. F-12




WORLD GAMING PLC AND SUBSIDIARIES   NOTE 2  ACCOUNTING POLICIES (CONTINUED) d.


Cash and Cash Equivalents
 For the purposes of the statement of cash flows, cash consist of cash on hand and balances with banks. Cash Equivalents consist of
interest bearing investments in money market instruments. e.


Foreign Currency Translation
 All transactions in currencies other than the United States dollar during the year are translated at the exchange rates on the transaction dates. Monetary assets and
liabilities denominated in a foreign currency are translated at the prevailing year-end rates of exchange. Exchange gains or losses are included in the consolidated statements of operations and other comprehensive income (loss). The financial
statements of all subsidiaries expressed in currencies other than the United States dollar are translated into US dollars. All assets and liabilities are translated at the exchange rate on the balance sheet date and all revenues and expenditures are
translated at the average rate for the year. Translation adjustments are reflected as a separate component of stockholders equity. In accordance with SFAS No. 95, Statement of Cash Flows, the cash flows of the Companys foreign subsidiaries are translated using the weighted
average exchange rates during the respective period.  As a result, amounts in the statement of cash flows related to changes in asset and liabilities will not necessarily agree with the changes in the corresponding balances on the balance sheet which
was translated at the exchange rate at the end of the period.  The effect of exchange rate changes on foreign cash and cash equivalents is reported as a separate element of the statement of cash flows, if significant. f.


Leases
 Leases which transfer substantially all of the benefits and risks of ownership are recorded as the acquisition of assets and incurrence of obligations. Under this
method of accounting, both assets and obligations, including interest thereon, are amortized over the life of the lease. g.


Net Profit Per Common Share
 The Company has adopted Statement of Financial
Accounting Standards No. 128 (FAS 128) regarding the determination and disclosure of profit per share for the
purpose of preparing its consolidated financial statements. The calculations of net profit per common share are based upon
the weighted average number of common shares of the Company outstanding during each year. The adoption of FAS 128 has no impact on
previously reported information. Fully diluted profit per share has been determined with the inclusion of common stock
equivalents. The calculation of the basic profit per ordinary
share is based on a weighted average of 55,523,833 (2004: 45,981,407) (2003: 42,932,416) ordinary shares in issue and a profit on
ordinary activities after taxation of US$6,573 (2004: $17,370) (2003: $2,958)). The calculation of the diluted profit per
ordinary share includes the same earnings figure as used for the basic earnings and a weighted average number of ordinary shares of
71,385,197 (2004: 50,890,157) (2003: 56,402,085). The number of shares includes ordinary shares issued and potential ordinary shares
from options granted and rights to convert loans into ordinary shares. The potential ordinary shares include only in the
money option shares which are those shares where the grant price was below the average share price of the companys
issued ordinary shares in the year. F-13




WORLD GAMING PLC AND SUBSIDIARIES   NOTE 2  ACCOUNTING POLICIES (CONTINUED) Profit per ordinary share before exceptional
items is calculated on profit of $6,573 (2004: $5,183) (2003: $2,958). The weighted average number of ordinary shares used in the
calculations are unchanged from those used in the other basic and diluted earnings figures. Earnings per share excluding shares with no voting or economic rights refers to the 13,506,204 shares held by Sportingbet PLC and
its affiliates that have been set aside as a result of the Transaction with Sportingbet PLC and may be repurchased by the Company
for $1 when the Company has retained earnings to do so. This transaction had no impact on the earnings per share calculations for
2003. h.


Stock Options
 As permitted by FASB Statement 123
Accounting for Stock Based Compensation (SFAS No. 123) as amended by FASB Statement 148 (SFAS No. 148), the Company
elected to measure and record compensation cost relative to employee stock option costs in accordance with Accounting Principles
Board (APB) Opinion 25, Accounting for Stock Issued to Employees, and related interpretations and make
proforma disclosures of net income and earnings per share as if the fair value method of valuing stock options had been applied.
Under APB Opinion 25, compensation cost is recognized for stock options granted to employees when the option price is less than the
market price of the underlying common stock on the date of grant. Had compensation cost for the Companys stock
option plan been determined based on the fair value at the grant date for awards in 2005 and 2004 consistent with the provisions of
SFAS No. 123, the Companys loss and loss per share would have been increased to the pro forma amounts indicated below: Year ended December 31, 2005

Year ended December 31,  2004

Year ended December 31,  2003Net profit/(loss) as reported

$
6,573


$
17,370


$
2,958Pro forma net profit/(loss) under FAS 148

$
3,741


$
16,628


$
2,754Net profit/(loss) per share  basic, as reported

$
0.15


$
0.53


$
0.07Pro forma net profit/(loss) per share excluding non-votingBasic

$
0.09


$
0.51


$
0.06Fully Diluted

$
0.08


$
0.44


$
0.05
 For purposes of pro forma disclosures, the estimated fair value of options granted is amortized to expense over a 2 year period. The fair value of option grants is
estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions. December 31,   2005

December 31,   2004

December 31,   2003Dividend yield


0
%


0
%


0
%Expected volatility


169
%


173
%


146
%Risk-free interest rate


4.400
%


2.530
%


2.377
%Expected lives


2 years



2 years



2 years
 i.


Use of Estimates
 The preparation of consolidated financial statements in conformity with  accounting principles generally accepted in the United States of America requires the
Companys management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to the consolidated financial statements. Actual results may differ from those estimates. F-14




WORLD GAMING PLC AND SUBSIDIARIES   NOTE 2  ACCOUNTING POLICIES (CONTINUED) j.


Recent and Newly Issued Accounting Pronouncements
 In December 2004, the FASB issued SFAS No.153,
Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. The
amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar
productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance.
Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an
equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished.
Opinion 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. The
Board believes that exception required that some nonmonetary exchanges, although commercially substantive, be recorded on a
carryover basis. By focusing the exception on exchanges that lack commercial substance, the Board believes this Statement produces
financial reporting that more faithfully represents the economics of the transactions. The Statement is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this Statement shall be applied
prospectively. The Company has evaluated the impact of the adoption of SFAS 153, and does not believe the impact will be significant
to the Companys overall results of operations or financial position. In December 2004, the FASB issued SFAS No.123
(revised 2004), Share-Based Payment. Statement 123(R) will provide investors and other users of financial statements
with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability
instruments issued. Statement 123(R) covers a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Statement 123(R)
replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees. Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting
for share-based payment transactions with employees. Public entities (other than those filing as small business issuers) will be
required to apply Statement 123(R) as of the first interim or annual reporting period that begins after June 15, 2005. The Company
adopted Statement 123(R) in January of 2006. In December 2004, the Financial Accounting Standards Board issued two FASB Staff Positions - FSP FAS 109-1, Application of FASB Statement 109 Accounting for
Income Taxes to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American
Jobs Creation Act of 2004. Neither of these affected the Company as it does not participate in the related activities. In March 2005, the SEC released Staff Accounting Bulletin No. 107, Share-Based Payment (SAB 107), which
provides interpretive guidance related to the interaction between SFAS 123(R) and certain SEC rules and regulations. It also
provides the SEC staffs views regarding valuation of share-based payment arrangements. In April 2005, the SEC amended the
compliance dates for SFAS 123(R), to allow companies to implement the standard at the beginning of their next fiscal year, instead
of the next reporting period beginning after June 15, 2005. The company adopted SFAS 123(R) effective January 1, 2006. F-15




WORLD GAMING PLC AND SUBSIDIARIES   NOTE 2  ACCOUNTING POLICIES (CONTINUED) In March 2005, the FASB issued FASB
Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 provides
guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity.
The Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred
if the liabilitys fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information
to reasonably estimate the fair value of an asset retirement obligation. The provision is effective no later than the end of fiscal
years ending after December 15, 2005. The Company will adopt FIN 47 beginning the first quarter of fiscal year 2006 and does not
believe the adoption will have a material impact on its consolidated financial position or results of operations or cash flows. In May 2005, the FASB issued FASB Statement No.
154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes,
and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and represents another step in the
FASBs goal to converge its standards with those issued by the IASB. Among other changes, Statement 154 requires that a
voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new
accounting principle, unless it is impracticable to do so. Statement 154 also provides that (1) a change in method of depreciating
or amortizing a long-lived non-financial asset be accounted for as a change in estimate (prospectively) that was effected by a
change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a
restatement. The new standard is effective for accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made
in fiscal years beginning after June 1, 2005. The Company has evaluated the impact of the adoption of Statement 154 and does not
believe the impact will be significant to the Companys overall results of operations or financial position. In February of 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which is intended to simplify the accounting and
improve the financial reporting of certain hybrid financial instruments (i.e., derivatives embedded in other financial instruments). The statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS
No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilitiesa replacement of FASB Statement No. 125. SFAS No. 155 is effective for all financial instruments issued or acquired after the
beginning of an entitys first fiscal year that begins after September 15, 2006. The Company is currently evaluating the impact SFAS No. 155 will have on its consolidated financial statements, if any. k.


Software Development Costs
 The Company applies the provisions of SOP 98-1 Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. F-16




WORLD GAMING PLC AND SUBSIDIARIES   NOTE 2  ACCOUNTING POLICIES (CONTINUED) l.


Goodwill
 In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill associated with other long-lived assets, is
evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Any changes in estimated useful life are recorded prospectively and any impairment adjustments are
recorded as expense in the period the impairment occurs. Such testing requires that each of the Companys reporting units, as
defined in SFAS 142, be identified and that the Companys assets and liabilities, including existing goodwill and intangible
assets, be assigned to those reporting units. The Company has determined that it has two reporting units, and further determined
that the entire goodwill balance is attributable to its Operations Unit. The amount of any impairment considered necessary is
determined by comparing the book value of the net assets in the applicable line of business to fair value using methods such as the
present-value of estimated future cash flows, sale value and other valuation methodologies available. Based on this analysis,
goodwill totaling $86,697,000 ($nil: 2004) does not appear to be impaired as at December 31, 2005. m.


Derivatives
 The Company adopts Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended (SFAS 133). SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair
value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value
will be immediately recognized in earnings. The Hedge contract entered into by the Company refers to a Swap Transaction
as defined under the International Swaps and Derivatives Association Inc. in respect of the Companys loan facilities with
Barclays plc. The Swap Transaction acts as a cap on the USD LIBOR variable rate of 5%. o.


Advertising
 Advertising expense incurred by the Company in marketing its licensing solutions were as follows: 2005: $23,842, 2004: 12,397, 2003:
45,955. p.


Receivables
 Trade receivables are usually collected within 30 days from the date of invoice to our licensees. Where trade receivables are not
collected within 60 days, the amounts are review for allowance for bad debts. Such bad debt allowance is generally applied at 50% of
the statement amount after 90 days from date of invoice and 100% after 180 days from date of invoice. F-17




WORLD GAMING PLC AND SUBSIDIARIES   NOTE 3  EXTRAORDINARY ITEM The gain on the Sportingbet transaction is considered to be extraordinary on the basis that the Companys business as stated in
its filings with the Commission is the licensing of Internet gaming software. The Companys business is not the development of
software for sale to third parties. Rather, the Company develops software for internal use in order to enable its licensees to
conduct internet gaming transactions. Accordingly, the Company is not in the business of selling software. Over the years the Company has generated revenue and conducted operations based on developing and maintaining Internet gaming
software for use by its licensees and providing related support services. The sale of an interest in this software is highly
abnormal and not in the normal course of business. We do note that mere infrequency of occurrence alone does not imply extraordinary
treatment. Accordingly, given all of the facts and circumstances and in consideration of all of the appropriate provisions of APB
30, this transaction has been accounted for as an extraordinary item. Joint Venture Arrangements, effective October 1,
2004, were entered into on October 12, 2004 between the Company and Sportingbet. The principle terms of the arrangements are as
follows: 

The ownership of the Intellectual Property rights of the Gaming Software was transferred into a new exempt limited partnership, Bullen Road LP, based in the Cayman Islands, which was established under the equal joint ownership of SSII
Limited and Sportingbet;
 

In consideration of this transfer, Sportingbet agreed to pay a total of $10 million in cash to the Company ($3 million was paid on each of October 12, 2004 and March 1, 2005 and the balance of $4 million was paid on November 1, 2005).
In addition, the economic value of Sportingbets then 29.6 per cent. shareholding in the Company was eliminated by the cancellation of all rights of any value attached to the Ordinary Shares then held by Sportingbet, and a convertible loan note
representing indebtedness of $900,000 owing from the Company to Sportingbet was cancelled;
 

Each of the Company and Sportingbet has the right to appoint two directors to the four person board of Bullen Road LP which controls the development objectives of Alea Software Ltd, a wholly owned subsidiary of Sportingbet and the
developer of the Gaming Software under the Joint Venture Arrangements;
 

During the period of the Joint Venture Arrangements, Sportingbet is responsible for all of Aleas costs associated with the development and maintenance of the Gaming Software (with a minimum spend of $4.5 million per year in the
first 3 years and a minimum of $2.5 million in the fourth year);
 

The Company retains the right to determine 30 per cent of the development time on the Gaming Software;
 

The Company has a worldwide royalty free license allowing it to continue to use and sublicense the Gaming Software. In the event that World Gaming becomes an operator it would pay a 5 per cent royalty only on those revenues to
Sportingbet;
 

Sportingbet has a worldwide royalty free license to use the Gaming Software. Royalty payments of five per cent. are due from Sportingbet in the event that they license the Gaming Software to any new licensees;
 

Sportingbet pays its proportion of the hosting costs on the Companys systems and IT services at cost 10 per cent;
 

The Joint Venture Arrangements may be terminated by the Company on three months notice. Except in the event of breach by World Gaming, Sportingbet may not terminate the Joint Venture Arrangements for three years. Thereafter,
Sportingbet may terminate on 12 months notice to the Company; and
 F-18




WORLD GAMING PLC AND SUBSIDIARIES   NOTE 3  EXTRAORDINARY ITEM (CONTINUED) 

On termination of the Joint Venture Arrangements, (a) Sportingbet must pay $3 million to the Company (which would be retrospectively reduced by the amount of consideration if the Company sells its rights to the Gaming Software within
2 years); and (b) each of the Company and Sportingbet will be granted a perpetual, non-exclusive royalty free license to use, sub-licence and assign of all of the then intellectual property rights underlying the improved Gaming Software, and neither
party will have the rights to any further improvements or developments made by the other party.
 The gain arising from the transaction has been calculated after charging associated costs as follows: Consideration

$
13,300Legal & Professional costs


(1,043
)Loss on disposal of fixed assets


(70
)$
12,187
 The additional $3 million which would be payable
to the Company upon termination of the agreements by Sportingbet has not been included in these financial statements. NOTE 4  RESERVES WITH CREDIT CARD PROCESSORS Reserves held with transaction processors of $nil  (2004: $2,234) represents deposits and rolling reserves held at merchant banks awaiting clearance and transfer to
the Companys bank accounts. These amounts are receivable on behalf of the Companys licensees. No amount is payable to the licensee in respect of these balances until the amount has been collected from the respective processor. This
division of the Company was closed in February of 2004. There are no further balances accruing in respect of this activity. NOTE 5  CUSTOMER DEPOSITS December 31, 2005

December 31, 2004Customer Deposits

$
5,438


$
$
5,438


$

 Customer Deposits represent customer accounts
held by a third party. An equal balance is held under current liabilities representing the liability owed to the customer. NOTE 6  ACCOUNTS RECEIVABLE December 31, 2005

December 31, 2004Amounts due from licensees

$
3,968


$
4,668Other


195



16Less: allowance for bad debts






(246
)$
4,163


$
4,438
 F-19




WORLD GAMING PLC AND SUBSIDIARIES   NOTE 7  CONSIDERATION RECOVERABLE December 31, 2005

December 31, 2004Amounts held in escrow

$
3,481


$
$
3,481


$

 In March 2006, the Company agreed the final consideration in respect of the SPORTSBETTING.COM acquisition, at which time it became
eligible to recover $3,481,000 of potential consideration from an escrow account held in trust for the Company and sellers. (Refer
Note 24). NOTE 8  CONSIDERATION RECEIVABLE December 31, 2005

December 31, 2004Sportingbet

$



$
7,000$



$
7,000
 Consideration receivable relates to amounts due in respect of the transaction with Sportingbet described at Note 3. The amounts were received as follows:  $3,000 on
March 1, 2005 and $4,000 on November 1, 2005. NOTE 9  PREPAID EXPENSES AND DEPOSITS December 31, 2005

December 31, 2004Rental security deposits

$
25


$
40Insurances


179



143Oracle technical support


190



Other prepayments and deferred costs


594



161$
989


$
344
 NOTE 10  DEFERRED LOAN COSTS December 31, 2005

December 31, 2004Deferred CostsCurrent, Net

$
483


$
Non Current, Net


604



$
   1,087


   $
   
 Deferred Loan costs relate to Loan arrangement
fees incurred. These costs are amortised over the term of the loan. Amortisation expense for the year ended December 31, 2005 was
$25,000. F-20




WORLD GAMING PLC AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2005 and December 31, 2004 NOTE 11  GOODWILL The changes in the carrying amount of goodwill for the year ended December 31, 2005 are as follows: Licensing Segment

Operations Segment

TotalBalance as of January 1, 2005

$



$



$
Goodwill acquired (Note 24)






86,697



86,697Impairment Losses










Balance as of December 31, 2005

$



$
86,697


$
86,697
 Goodwill acquired during the period relates
entirely to the SPORTSBETTING.COM acquisition (Refer Note 24). The terms of the acquisition were for a maximum consideration of $96m
dependent on the agreed profit before tax (PBT) achieved by the SPORTSBETTING.COM Group for the year ended December 31,
2005. The Directors have reviewed the value of goodwill acquired and do not consider that any impairment adjustment is required at
December 2005. Goodwill represents the purchase of the cash flows generated from a group of homogenous inseparable assets with no separate
identifiable fair values. These include primarily, marketing know how, the domain name and the database which cannot be fairly
valued without each other and the surrounding infrastructure. It is not possible for separability criterion to be met in valuing
these assets. Impairment tests on carrying value will be
undertaken at the end of the first full year following the acquisition, and will be undertaken annually thereafter, or earlier if in
the opinion of the Directors circumstances indicate that the carrying value may not be fully recoverable. NOTE 12  CAPITAL ASSETS Capital assets are recorded at cost less accumulated depreciation and consist of the following: DECEMBER 31, 2005 COST

ACCUMULATED DEPRECIATION

NET BOOK VALUEComputer hardware and equipment

$
2,797


$
2,049


$
748Automobiles


134



97



37Leasehold improvements


126



79



47Computer software


1,993



1,594



399$
5,050


$
3,819


$
1,231
 F-21




WORLD GAMING PLC AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2005 and December 31, 2004 NOTE 12  CAPITAL ASSETS (CONTINUED) DECEMBER 31, 2004 COST

ACCUMULATED DEPRECIATION

NET BOOK VALUEComputer hardware and equipment

$
3,511


$
2,942


$
569Automobiles


75



67



8Leasehold improvements


47



6



41Furniture and fixtures


62



62



Computer software


1,970



1,169



801$
5,665


$
4,246


$
1,419
 During the years ended December 31, 2005, 2004, and 2003 the Company recorded depreciation expense of $ 794, $1,420, and $1,933
respectively. NOTE 13  ACCOUNTS PAYABLES AND ACCRUED LIABILITIES December 31, 2005

December 31, 2004Accounts payable

$
1,013


$
523Amounts due to licensees


132



5,684Accrued liabilities


2,485



873$
3,630


$
7,080
 Amounts due to licensees primarily represent funds that are due to licensees from transaction processors, these amounts will be paid as they are collected on the
licensees behalf. NOTE 14  CUSTOMER DEPOSITS December 31, 2005

December 31, 2004Customer Deposits

$
5,438


$
$
5,438


$

 Customer Deposits represent customer accounts in respect of the operating division held by a third party. An equal balance is held under current debtors representing
the liability owed to Group by third party suppliers. F-22




WORLD GAMING PLC AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2005 and December 31, 2004 NOTE 15  BANK LOAN PAYABLE December 31, 2005

December 31, 2004Bank Loan

$
40,000


$
Repayable by installments:Bank Loan Payable:Falling Due within one year


15,000



After more than one year


25,000



$
40,000


$

 On December 13, 2005, the Company entered into a
$40m loan facility arranged through Barclays PLC. The term of the loan is 27 months, with repayments due quarterly throughout the
term of the loan. In respect of the loan facilities with Barclays
PLC, the Company has purchased an interest rate hedge contract against U.S. LIBOR. The hedge contract is based on a U.S. LIBOR rate
of 5%. On the basis that interest on its loan facilities are based on a margin above U.S. LIBOR, the interest rate hedge contract
will act such that the Company shall not be exposed to any increase in interest rates payable where U.S. LIBOR exceeds 5% throughout
the period.  2006
        
        2007
        
        2008
        
        2009
        
        2010Year 1
        
        Year 2
        
        Year 3
        
        Year 4
        
        Year 5
        
        
        
        TotalLoan FacilitiesFacility A
        
        15,000
        
        10,000
        
        
        
        
        
        
        
        
        
        25,000Facility B
        
        
        
        10,000
        
        5,000
        
        
        
        
        
        
        
        15,00015,000
        
        20,000
        
        5,000
        
        
        
        
        
        
        
        40,000 The loan agreement provides that the current due dates of loan repayments may be accelerated by the occurrence of certain events,
such as Change of Control, Trade Sale or the Disposal of Certain Assets. A change of control or trade sale would require mandatory
full repayment of outstanding loan balance. Under the terms of the agreement, a disposal of certain assets would require that the
proceeds of such a disposal be applied to a mandatory prepayment. Certain covenants have been agreed to as a result of the facilities agreements and an ongoing breach of any of these covenants is
generally deemed to be an event of default. Under certain events of enforcement which generally are represented by events of default
by the Company, Barclays plc may enforce its guarantee and debenture agreements over World Gaming plc, WG International Limited,
Interactive Systems Inc. and DNI Holdings Limited to recover the outstanding facilities through its charge over the business and
assets of each of these entities. In addition, Barclays plc holds a mortgage of shares over World Gaming plc and WG International as
security over the loan facilities. In addition, the Group has an unutilized
revolving facility with Barclays for $5m. The revolving facility is available to be utilized by the company dependent upon pre
approval being obtained from Barclays. F-23




WORLD GAMING PLC AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2005 and December 31, 2004 NOTE 16  CONSIDERATION PAYABLE December 31, 2005

December 31, 2004Consideration Payable (Note 24)

$
3,600


$
$
3,600


$

 The consideration payable amount was paid into an escrow account on January 6, 2006 in accordance with terms of the
SPORTSBETTING.COM acquisition (Note 24). NOTE 17  DEFERRED PROVISION December 31,  2005

December 31,  2004Current
$
744


$
Non Current





257$
744


$
257
 The balance at 31 December 2005 represents a provision for deferred bonuses payable to certain directors under the terms of their service agreements. The bonuses are
payable in 2006. NOTE 18  DEFERRED LOAN COSTS PAYABLE December 31,  2005

December 31,  2004Deferred Loan Costs

$
194


$
$
194


$

 Represents costs incurred in arranging loan facility with Barclays Bank PLC. NOTE 19  CAPITAL LEASE OBLIGATIONS The future payments for the 12 months ended December 31, 2005 are: December 31,  2005

December 31,  2004Total minimum lease payments






15Less amounts representing interest at rates varying from 6.0% to18.0%






(1
)Present value of minimum lease payments






14Less: Current portion of capital lease obligations






(14
)Long-term portion of capital lease obligations

$



$

 At December 31, 2004, the Company had entered into capital leases for equipment and automobiles. F-24




WORLD GAMING PLC AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2005 and December 31, 2004 NOTE 20  CAPITAL STOCK Authorized 500,000,000 ordinary shares, par value STG 0.002. (a) The Company had the following shares issued and outstanding: Year  ended December 31, 2005

Year  ended December 31, 2004Outstanding Class A shares, beginning of year


46,081,407


$
23,654



45,781,407


$
25,992Waiver of rights on Sportingbet shares (note 3)














(2,400
)Issued in Respect of Share Placings


9,560,000



13,239







Issued in Respect of Acquisitions


5,540,166



12,000







Exercise of Options


2,757,459



942



300,000



62Outstanding Class A shares, end of year


63,939,032


$
49,835



46,081,407


$
23,654
 Pursuant to the terms of the SPORTSBETTING.COM
acquisition, on agreement of the final profit before tax (PBT) for the 12 months ending December 31, 2005, further payment of $8.4m
in new ordinary shares of the Company were made to the Vendors and held in escrow as appropriate. (Note 24) (b) Stock Options On March 12, 1998, the Board of Directors approved a stock option plan, which authorized the issuance of 3,000,000 options to employees of the Company and its
subsidiaries at an exercise price of $0.74. The options expire on January 1, 2008. On December 31, 1998, the Board of Directors authorized the issuance of up to 4,000,000 additional options at an exercise price to be determined based on the trading
price of the Companys shares on the grant date. On December 23, 1999, the Board of Directors authorized the issuance of up to 5,000,000 additional options at an exercise price to be determined based on the trading price of the Companys
shares on the grant date. On August 5, 2003 the Board of Directors authorized the issuance of up to 1,500,000 additional options to employees at an exercise price of $0.15, being the closing
market price on the grant date, of which 1,475,000 were issued. Options issued subsequent to April 11, 2003 to employees generally vest at the conclusion of two years of service, while options issued to directors vest partially within 1 year with the
remainder vesting at the conclusion of a two year service period. Options expire ten years after the date granted. During the year Messrs. Grossman, Moran and
Naismith exercised 250,668, 250,668 and 250,664 share options respectively at an exercise price of $0.14 per ordinary share. Mr
Roberts exercised 48,000 share options at $0.15 per ordinary share. These ordinary shares were subsequently sold through a private
placement completed in December 2005. James H Grossman exercised 249,332 options on January 4, 2006, of which 199,332 were at $0.14
and 50,000 at $0.35 per ordinary share. F-25




WORLD GAMING PLC AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2005 and December 31, 2004 NOTE 20  CAPITAL STOCK (CONTINUED) A summary of the Companys stock option activity and related information follows: Year ended December 31, 2005

Year ended December 31, 2004Beginning of period


10,934,888



0.63



10,818,724



0.78Granted


4,491,904



0.81



2,550,000



0.37Exercised


(2,757,459
)


(0.34
)


(300,000
)


(0.20
)Forfeited and adjusted


(3,145,933
)


(0.99
)


(2,133,836
)


(1.12
)End of period


9,523,400


$
0.69



10,934,888


$
0.63Weighted average fair value of optionsgranted during the year per share





$
0.63






$
0.29
 The fair value of each option grant is estimated
on the date of the grant using a binomial option-pricing model, with the following weighted average assumptions used for grants in
2004 and 2005, respectively: dividend yield of 0% and 0%; expected volatility of 170% and 169%; risk-free interest rate of 2.53% and
4.40%; expected life of 2.0 years and 2.0 years. At December 31, 2005, options outstanding were as follows: Options Outstanding

Options ExercisableRange of Exercise Prices

Number of Options

Weighted Average Remaining Contractual Life (Years)

Weighted Average Exercise Price

Number of Options

Weighted Average Remaining Contractual Life (Years)

Weighted Average Exercise Price$0.14 - $.50


5,190,000



4.8


$
0.27



4,240,000



4.8


$
0.25$.51 - $1.00


2,851,904



5.3


$
0.77



110,000



3.6


$
0.77$1.10 - $3.00


1,193,079



4.1


$
1.72



548,079



2.7


$
1.86$3.00 - $8.50


288,417



4.4


$
3.29



288,417



4.4


$
3.60$0.14 - $8.50


9,523,400



4.8


$
0.69



5,186,496



4.3


$
0.63
 On 18 March 2005 a former Director of the company relinquished all rights to purchase 2,200,000 ordinary shares in the company that had been fully vested. F-26




WORLD GAMING PLC AND SUBSIDIARIESNotes to Consolidated Financial StatementsDecember 31, 2005 and December 31, 2004 NOTE 21  INCOME TAXES The Groups operations located in Canada are subject to tax to the extent that income is generated in that country. No tax is expected to be payable for any
period up to December 31, 2005 because losses arose  on the development activities to the extent that costs for such activities exceeded the recovery  received from charging other relevant Group Companies for the services provided. The holding
Companys operations in the United Kingdom has losses relating to the costs it incurs consisting primarily of general administrative costs. The US subsidiary has no business activities other than acting as a holding company for a number of group
subsidiaries. It had tax losses carried forward at December 31, 2005 subject to confirmation by the US Internal Revenue Service; There were no significant Group expenses disallowable for tax purposes or depreciation charges materially different from
available tax allowances on fixed assets. There are substantial tax losses available within the Group. Utilization of these losses is contingent upon agreement with the relevant tax authorities.  A deferred tax asset for the benefit of future tax
losses has not been included in these financial statements because of the uncertainty of the amount of losses available and when they will be utilized. The Companys operations located in Antigua, operate under the offshore gaming laws of Antigua and Barbuda and therefore enjoy a 50 year tax holiday, apart from
an annual gaming licensing fee of US $85,000 (2004: $85,000). NOTE 22  COMMITMENTS AND CONTINGENCIES Commitments At December 31, 2005, the Company has entered into commitments for leases for premises. The future committed payments as at December 31, 2005 are: 2006

$
552007


592008


612009


202010


$
195
 Total rental payments made in the year ended
December 31, 2005 was $132,000, (2004: $212,000k) (2003: $363,000k) At December 31, 2005, the Company had employment contracts with its three principal officers. The salary and bonus compensation resulting from these contracts are as
follows: Name and Principal Position


Term of the Contract



Base Salary



Potential Bonus (as a percentage of Base Salary)Daniel Moran, Director & CEO


ongoing



GBP 159 / ($274)



Up to 50%David Naismith,  Director &  CFO


ongoing



GBP 129 / ($222)



Up to 50%Jonathan Moss,  Director Sales & Marketing


ongoing



GBP 100 / ($172)



Up to 50%
 F-27




WORLD GAMING PLC AND SUBSIDIARIES  Notes to Consolidated Financial Statements  December 31, 2005 and December 31, 2004 NOTE 22  COMMITMENTS AND CONTINGENCIES (CONTINUED) James H. Grossman was appointed as a director and
Chairman of the Board on April 11, 2003. His annual compensation for such service is GBP 107,000 ($184,000), an annual housing
allowance of GBP 48,000 ($ 83,000) and GBP 20,000 ($ 34,000) for certain additional legal services. On April 11, 2003 the company entered into an
employment agreement with Mr. Daniel Moran as a Director of the Board and Chief Executive Officer. The agreement provides for an
annual salary of GBP 190,000, ($327,000) an annual housing allowance of $57,000, in addition to other normal executive employment
benefits. On August 1, 2003 the company entered into an
employment agreement with Mr. David Naismith as a Director of the Board and Chief Financial Officer. The agreement provides for an
annual salary of GBP 155,000, ($267,000) an annual housing allowance of $50,000, in addition to other normal executive employment
benefits. On January 1, 2005 the company entered into an
employment agreement with Mr. Jonathan Moss as a Director of Sales and Marketing The agreement provides for an annual salary of GBP
100,000 ($172,000). On 1 March 2005, Mr Moss was appointed as a Director of the Board. No changes were made to Mr Moss
compensation as a result of this appointment. Contingencies On August 6, 1998 Mitchell White commenced an
action against Starnet Communications Canada Inc. (Starnet Canada) for breach of his employment agreement and wrongful
termination of him as a Director. Mr. White alleges that as a result of his wrongful termination as an employee and Director, he was
not provided with a severance package in lieu of reasonable notice and he did not receive stock options that he would have otherwise
received. Mr. White claims that his losses are in excess of $1.5m. The trial is set for June 2007. In February 2004, Starnet Canada
commenced a third party claim against a former Director of Starnet International, Mr. Jack Carley. It is alleged that Mr. Carley was
responsible for the termination of Mr. White in 1998. Mr. Carley is also Mr. Whites father-in-law. Management intends to
vigorously contest the claim by Mr. White and, in doing so, pursue its third party claim against Mr. Carley. The likelihood of
loss, if any, and the costs associated therewith are not determinable at this time. Thomas A. Kaufmann (Kaufman), Gene C. Geiger (Geiger) and Roy E. Gould (Gould) filed a claim in
Colorado against LVA Holdings, Inc. (LVA), an indirect subsidiary of the Company. Kaufmann and Geiger were registered
representatives associated with securities broker-dealer Spencer Edwards, Inc. in Englewood, Colorado, while Gould was a registered
representative with a Canadian broker-dealer, United Capital. On July 18, 2005, an SEC Administrative Law Judge (ALJ)
issued an Initial Decision finding that Kaufman, Geiger and Gould had willfully violated U.S. securities laws. The
willful violations of securities laws related to the sale of Reg S shares of LVA in 1997 and 1998 without registration
or exemption from registration which the ALJ ultimately determined to be an illegal breach of securities laws. Under the ALJs
Initial Decision, Kaufman, Geiger and Gould were permanently barred from associating with any securities broker or dealer. Kaufman
and Geiger were each ordered to disgorge $885,738.62. In addition, Geiger was ordered to pay a civil penalty of $400,000.00,
Kaufmann was ordered to pay a civil penalty of $300,000.00. Gould was ordered to disgorge $13,843,650.79 in ill-gotten profits, but
that amount was reduced $1,000,000, and monetary penalties were waived in light of Goulds demonstrated inability to
pay. Kaufman and Geiger have appealed the ALJs findings. Gould has not appealed, and the findings are final as to Gould.
LVA was not named as a respondent in the SEC proceedings. F-28




WORLD GAMING PLC AND SUBSIDIARIES  Notes to Consolidated Financial Statements  December 31, 2005 and December 31, 2004 NOTE 22  COMMITMENTS AND CONTINGENCIES (CONTINUED) Kaufman, Geiger and Gould (collectively Plaintiffs) have now sued LVA in Colorado looking to be reimbursed for the
fines, penalties and monies ordered disgorged by the ALJ. Their claims are premised on a theory that they did not know the
securities transactions identified above were illegal and were misled by LVA and its agents, which is entirely inconsistent with the
findings of fact as presented by the ALJ. LVA removed the case to the U.S. District Court for the District of Colorado based on
diversity jurisdiction. Discovery is underway and the case will be tried, if trial is required, in 2007. We believe that the
Plaintiffs claims are wholly without merit and intend to vigorously defend this action. Plaintiffs have also brought a motion
seeking to add World Gaming plc as a party, on the grounds that World Gaming plc is liable for LVAs debts. We believe this
motion is without merit and are vigorously opposing the addition of World Gaming plc as a party. NOTE 23  MAJOR CUSTOMERS Pertinent details of the gross sales to major customers during the year ended December 31, 2005 are as follows:  2005
        
        2004CUSTOMERS
        
        GROSSSALES
        
        PERCENTGROSSSALES
        
        GROSSSALES
        
        PERCENTGROSSSALESLicensing and Fees- Customer A
        
        $
        2,725
        
        2.55
        %
        $
        9,651
        
        59
        %- Customer B
        
        $
        3,687
        
        3.46
        %
        $
        3,264
        
        20
        %- Customer C
        
        $
        2,546
        
        2.39
        %
        $
        1,868
        
        11
        %Operations- Customer D
        
        $
        97,513
        
        91.6
        %
        $
        
        
        
        %$
        106,471
        
        100
        %
        $
        14,783
        
        100
        % For the fiscal years ending 2003 and 2004 all Gross Sales related to Licensing and Fees. F-29




WORLD GAMING PLC AND SUBSIDIARIES  Notes to Consolidated Financial Statements  December 31, 2005 and December 31, 2004 NOTE 24  ACQUISITIONS On October 25, 2005 the Group announced that it had entered into a conditional agreement to acquire certain assets of Real Entertainment Ltd. and the entire issued
capital of DNI Holdings Ltd. (together the SPORTSBETTING.COM Group), which was then the Groups largest licensee. The transaction subsequently completed on December 13, 2005. The terms of the acquisition were for a maximum consideration of $96m payable 75 percent in cash and 25 percent in new ordinary shares of the Company. On completion in
December, $54m was paid in cash to the Vendors.  The outstanding consideration was dependent on the agreed profit before tax (PBT) achieved by the SPORTSBETTING.COM Group for the year ended December 31, 2005. In March 2006, the Group and the vendors of the SPORTSBETTING.COM business agreed the final PBT for the twelve months ended 31 December 2005 of $13.6m. Under the
terms of the acquisition agreement this meant that total consideration of $81.8m would be payable, being 6 times the PBT for the period. During the period between completion and agreement of the final PBT, the Group had paid a further $10.8m into
escrow, of which $7.2m was paid in December 2005 and the remainder in January 2006. On agreement of the final PBT the Group recovered $3.5m of these escrow funds and $1.2m was released to the vendors. The remaining $6.1m will remain in escrow subject
to warranty caveats and will be released to the vendors on 1 October 2006 subject to no warranties having been breached. In addition, on agreement of the PBT, the company issued $20.4m in new ordinary shares of the Company issued at £1.25p to the vendor subject to agreed lock-up
arrangements. $12m in new ordinary shares were issued in December 2005 and deposited into escrow. The remaining $8.4m in new ordinary shares were issued in January 2006 and deposited into escrow pending agreement of the PBT.$2.0m of these shares
remain in escrow subject to the same warranty covenants mentioned above. Financing of the cash portion of consideration was through the Groups existing cash reserves, plus a $40m loan facility arranged through Barclays PLC. The term
of the loan is 27 months from the drawdown date of December 13, 2005. Repayments are due quarterly throughout the term of the loan. In addition, the Group has an unutilised revolving facility with Barclays for $5m. Further cash for the purpose of the
Transaction was raised through the Placing of 4.8m new ordinary shares of the Company raising £6m for the Transaction before expenses. The transaction had an effective date of 1 October 2005. The effective date, which is earlier than the completion date is the date from which all of
SPORTSBETTING.COMS revenues and costs accrue to the Group. The business was acquired on a cash-free, debt-free basis as at the effective date. F-30




WORLD GAMING PLC AND SUBSIDIARIES  Notes to Consolidated Financial Statements  December 31, 2005 and December 31, 2004 NOTE 24  ACQUISITIONS (Continued) The goodwill arising on the acquisition of the SPORTSBETTING.COM Group was calculated as follows: Book value on acquisition $000

Fair value  Adjustment $000

Fair value to Group $000Cash deposits

$
100


$



$
100Debtors and prepayments


282







282Creditors


(145
)






(145
)Net assets

$
237


$



$
237Consideration









$
86,934Net assets acquired










237Goodwill arising on acquisition









$
86,697The fair value of consideration as at 13 December 2005 comprised:Cash









$
66,375Shares










12,000Deferred consideration  cash










119Deferred consideration  shares










8,440Consideration (including $5.1m of expenses)









$
86,934
 The summarised consolidated profit & loss accounts of the SPORTSBETTING.COM for the periods prior to the acquisition by the Company are: 1 January 2005 - September 2005 $000

Year Ended 31 December 2004 $000Unaudited

UnauditedGross profit

$
18,799


$
17,276Administrative expenses


(9,359
)


(10,017
)Exceptional costs


(124
)


(1,180
)Profit before tax

$
9,316


$
6,079Taxation






Profit after tax

$
9,315


$
6,079
 There were no other recognised gains or losses in these periods. F-31




WORLD GAMING PLC AND SUBSIDIARIES  Notes to Consolidated Financial Statements  December 31, 2005 and December 31, 2004 NOTE 25  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT  2005AggregateCarryingAmount$000
        
        2004AggregateCarryingAmount$000CurrencyFixed rate liabilities
        
        US $
        
        
        
        14Canadian $
        
        
        
        
        
        14Fixed rate assets
        
        US $
        
        6,172
        
        7,133  2005AggregateCarryingAmount$000
        
        2004AggregateCarryingAmount$000CurrencyInterest free liabilities
        
        US $
        
        
        
        Canadian $
        
        
        
        
        
        Interest free assets
        
        US $
        
        1,295
        
        717Canadian $
        
        84
        
        20East Caribbean $
        
        54
        
        741,433
        
        811  2005AggregateCarryingAmount$000
        
        2004AggregateCarryingAmount$000CurrencyFloating rate liabilities
        
        US $
        
        25,000
        
        15,000
        
        East Caribbean $
        
        
        
        40,000
        
         F-32




WORLD GAMING PLC AND SUBSIDIARIES  Notes to Consolidated Financial Statements  December 31, 2005 and December 31, 2004 NOTE 25  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)  The groups financial instruments comprise borrowings, cash and liquid resources, and various items such as trade debtors and trade creditors that arise directly from its operations. The main risks arising from the groups financial instruments are interest rate, liquidity and foreign exchange risk. Financial instruments such as trade debtors and creditors have been excluded from the disclosures above. It is, and has been throughout the year, the groups policy that no trading in financial instruments be undertaken. The fair values of the groups financial assets and liabilities were not materially different from their book values.  Interest rate/Liquidity risk  Cash balances are placed so as to maximise interest earned while maintaining the liquidity requirements of the business. The Directors regularly review the placing of cash balances. When seeking borrowings, the Directors consider the commercial terms available and consider whether such terms are appropriate to the business.  In respect of the loan facilities with Barclays PLC, the Company has purchased an interest rate hedge contract against U.S. LIBOR. The hedge contract is based on a U.S. LIBOR rate of 5%. On the basis that interest on its loan facilities are based on a margin above U.S. LIBOR, the interest rate hedge contract will act such that the Company shall not be exposed to any increase in interest rates payable where U.S. LIBOR exceeds 5% throughout the period.  Currency Risk Exposure  During the year the Group had minimal currency risk exposure other than that related to translation for accounting purposes.  Maturity of Financial Liabilities  The maturity profile of the Groups financial liabilities at 31 December 2005 is detailed in the notes to these financial statements.  Floating Rate Liabilities  U.S. dollar denominated floating rate liabilities represent borrowings arranged as part of the Sportsbetting acquisition described at note 25. These facilities are secured by fixed and floating charges over the assets of the Company and a subsidiary WG International Limited under a debenture and composite guarantee given by both companies,  are repayable over 27 months commencing from the drawdown date of 13 December 2005.  NOTE 26  SUBSEQUENT EVENTS In March 2006, the Group agreed final consideration of $81.8m with the vendors of the SPORTSBETTING.COM business. This consideration has been paid in accordance with
the terms of the acquisition agreement. On 31 March 2006, the Company repaid $6.0m to Barclays PLC in respect of its loan facilities. F-33




SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form
20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. WORLD GAMING PLC Date: June 29, 2006
    
    By:
    /s/ A. Daniel MoranA. Daniel MoranChief Executive Officer (principal executive officer) and DirectorDate: June 29, 2006
    
    By:
    /s/ David NaismithDavid NaismithChief Financial Officer (principal accounting and financial officer)
  and DirectorDate: June 29, 2006
    
    By:
    /s/ Clare RobertsClare RobertsDirectorDate: June 29, 2006
    
    By:
    /s/ James H. GrossmanJames H. GrossmanChairman of the board and DirectorDate: June 29, 2006
    
    By:
    /s/ Michael CummingMichael CummingDirector