<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-KSB
(Mark One)
[X]  Annual report under section 13 or 15(d) of the Securities Exchange Act of
     1934 for the fiscal year ended December 31, 2000.

[_]  Transition report under section 13 or 15(d) of the Securities Exchange Act
     of 1934 for the transition period from _____________ to ______________

COMMISSION FILE NUMBER 000-29800

                              Virtgame.com Corp.
                              ------------------
            (Exact name of registrant as specified in its charter)

<TABLE>
      <S>                                            <C>
                       Delaware                                    33-0716247
      ------------------------------------------     --------------------------------------
            (State or other jurisdiction of           (I.R.S. Employer Identification No.)
            incorporation or organization)

               5230 Carroll Canyon Drive
                       Suite 318
                 San Diego, California                             92130-2053
      ------------------------------------------     --------------------------------------
       (Address of principal executive offices)                    (Zip Code)
</TABLE>

        Registrant's telephone number, including area code 858-373-5001
                                                           ------------

Securities registered pursuant to section 12(g) of the Act:

                               (Title of Class)
                                 Common Shares

Check whether the issuer (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  [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[X]

Virtgame.com, Corp.'s revenues for the most recent fiscal year were $ 473,499.

The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant, based upon the closing price of the Common
Stock on the OTC Bulletin Board on March 22, 2001 was approximately $ 3,235,523.
The number of shares outstanding of the registrant's Common Stock, as of March
22, 2001 was 12,942,092.

                      DOCUMENTS INCORPORATED BY REFERENCE

Document of the Registrant                        Form 10-KSB Reference Location
None                                                          N/A
<PAGE>

                               VIRTGAM.COM CORP.

                       Table of contents for Form 10K-SB
                         Year Ended December 31, 2000

<TABLE>
<S>                                                                                                                       <C>
                                                           PART I
                                                           ------
Item 1.      Business

                   Business Developments                                                                                   1
                   Business of Company                                                                                     3
                   Products and Services                                                                                   3
                   Customers                                                                                               4
                   New Industry and Competition                                                                            4
                   Regulation                                                                                              4
                   Employees                                                                                               4
                   Research and Development                                                                                5
                   Proprietary Technology                                                                                  5
                   Marketing and Sales                                                                                     5
Item 2.      Description of Property                                                                                       5
Item 3.      Legal Proceedings                                                                                             5
Item 4.      Submission of Matters to a Vote of Security Holders                                                           5

                                                          PART II
                                                          -------

Item 5.      Market for Common Equity and Related Stockholders Matters                                                     5
Item 6.      Management's Discussion and Analysis or Plan of Operation                                                     6
Item 7.      Audited Financial Statements                                                                                  7
Item 8.      Changes In and Disagreement With Accountants on Accounting and Financial Disclosure                           8

                                                          PART III
                                                          --------

Item 9.      Directors, Executive Officers, Promoters and Control Persons                                                  8
Item 10.     Executive Compensation                                                                                       10
Item 11.     Security Ownership of Certain Beneficial Owners and Management                                               12
Item 12.     Certain Relationships and Related Transactions                                                               12
Item 13.     Exhibits and Reports on Form 8-K                                                                             13
</TABLE>
<PAGE>

                                    PART I
                                    ------

         This Report contains forms of forward-looking statements that are based
on the Company's beliefs as well as assumptions made by and information
currently available to the Company. When used in this Report, the words
"believe," "expect," "anticipate," "estimate" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions, including without limitations,
material risk factors such as inadequate working capital, auditors qualification
as to going concern, recent commencement of operations, lack of market
acceptance to date for the Company's products and services, nominal revenues to
date, continuing losses from operations, future growth of revenue and threat of
regulation of company's business. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results will vary materially from those anticipated, estimated, or
projected and the variations may be material. The Company cautions potential
investors not to place undue reliance on any such forward-looking statements all
of which speak only as of the date made.

Item 1.      Business

Business Developments
---------------------

         Headquartered in San Diego, California, Virtgame.com is an Application
Service Provider (ASP) for the gaming and lottery industries, specializing in
e-BorderControl technology that limits e-commerce to one jurisdiction or
restricts access of users from a specific jurisdiction. The Company started
Internet casino-style gaming operations in September 1997 and discontinued the
gaming operation in year 2000. The company developed its own software such as
baccarat, blackjack, video poker, and pari-mutuel sports wagering for its own
operation. The Company started as an Internet gaming operator in late 1997 until
mid 2000 when it discontinued its gaming operation to focus as an ASP. During
the gaming operation, the Company was only offering its games in certain
international jurisdictions, located in Europe, the Caribbean, Latin America,
the Middle East, Australia, Asia and Africa using a server site and hardware
located in Antigua.

         The Company was formed under the laws of the State of Delaware on
October 24, 1995 under the name MBA Licensing Corp. The Company's initial
operations included the development of CD-ROM and video game cartridges that
incorporated certain patented virtual reality technology. In November 1995, the
Company conducted a private placement of its $.00001 par value common stock
("Common Stock") at $0.25 per share pursuant to Rule 504 under the Securities
Act of 1933 ("1933 Act"). In that offering, the Company sold 1,160,000 shares of
Common Stock in consideration of cash proceeds of $60,000, net of $5,000 of
offering costs, and the cancellation of $225,000 of licensing and consulting
fees due and payable. In May 1996, the Company chose to suspend all operations
relating to the development of the virtual reality CD-ROMs and video game
cartridges in favour of pursuing the development of casino-style gaming
operations over the Internet. On June 20, 1996, the Company changed its
corporate name to Internet Gaming Technologies, Inc. On January 22, 1997, the
Company changed its corporate name to Virtual Gaming Technologies, Inc. and in
August 1999, the Company changed its name to Virtgame.com Corp.

         Pursuant to a Securities Purchase Agreement dated September 5, 1996, as
amended, eLOT, Inc. ("eLOT") agreed to purchase 233,333 shares of Common Stock
at $3.00 per share. In addition, the Company granted eLOT a common stock
purchase warrant entitling eLOT to purchase 200,000 shares of Common Stock at an
exercise price of $3.45 per share. The warrant is immediately exercisable and
expires on March 6, 2002. eLOT was formerly known as eLottery and prior to that
as Unistar Entertainment, Inc.

         Between April 1997 and August 1997, the Company conducted a private
placement of shares of Common Stock, at a price of $2.00 per share, pursuant to
Rule 506 under the 1933 Act. In that offering, the Company sold

                                       1
<PAGE>

1,018,250 shares of Common Stock for the gross proceeds of $2,036,500. Proceeds
from the sale of the shares were applied towards the development and
implementation of the Company's Internet gaming operations and working capital.

         Between January 1998 and December 1998, the Company conducted a private
placement of 1,400,000 shares of Common Stock, at a price of $3.00 per share,
pursuant to Rule 506 under the 1933 Act. In that offering, the Company sold
1,387,238 shares of Common Stock for the gross proceeds of $4,161,703. Proceeds
from the sale of the shares were applied towards the development and
implementation of the Company's Internet gaming operations and working capital.

         Between February 1999 and June 1999, the Company conducted a private
placement of 700,000 shares of Common Stock at an offering price of $3.00 per
share, pursuant to Rule 506 under the 1933 Act. In that offering, the Company
sold a total of 181,358 shares of Common Stock for the gross proceeds of
$544,074. Proceeds from the sale of the shares were applied towards the
development and implementation of the Company's Internet gaming operations and
working capital.

         Between August 1999 and January 2000, the Company conducted a private
placement of 2,100,000 shares of Common Stock at an offering price of $1.50 per
share, pursuant to Rule 506 under the 1933 Act. In that offering, the Company
sold a total of 1,301,600 shares of Common Stock for the gross proceeds of
$1,952,400. Proceeds from the sale of the shares were applied towards the
development and implementation of the Company's Internet gaming operations and
working capital.

         On December 21, 1999, the Company acquired all of the issued and
outstanding common shares of Primeline Technologies, Inc. in consideration of
Virtgame's issuance of 447,208 shares of its common stock to Primeline
stockholders.

         In January 2000, the Company started a private placement of 1,000,000
shares of common Stock, at a price of $1.50 per share, pursuant to rule 506
under the 1933 Act. In that offering, the Company sold a total of 236,667 shares
of Common Stock for the gross proceeds of $355,000. Proceeds from the sale of
the shares were applied towards the development and implementation of the
Company's software development, Internet gaming operations and working capital.

         In April 2000, the Company started a private placement of 1,000,000
shares of common stock, at a price of $0.50 per share, pursuant to rule 506
under the 1933 Act. In that offering, the Company sold a total of 1,020,000
shares of Common Stock for the gross proceeds of $510,000. Proceeds from the
sale of the shares were applied towards the Company's software development and
working capital. There was a finder involved in issuance of these shares and the
finder received 1,000,000 shares of Common Stock in payment of finder's fee. The
total shares issued with relation to this private placement amounted to
2,020,000 shares.

         In October 2000, the Company started a private placement of 1,000,000
shares of common Stock, at a price of $1.00 per share, pursuant to rule 506
under the 1933 Act. At the time of this 10KSB report, 78,800 shares of Common
Stock have been sold for the gross proceeds of $78,800. Proceeds from the sale
of the shares were applied towards the Company's software development and
working capital. There was a finder involved in issuance of these shares and the
finder received 8,856 shares of Common Stock in payment of finder's fee. The
total shares issued with relation to this private placement amounted to 87,656
shares.

         Unless the context otherwise requires, all references to the Company
includes its wholly-owned subsidiaries Internet Gaming Technologies, Inc., a
Nevada corporation, Emerald Riviera Ltd., an Irish corporation, Virtual Gaming
Technologies Argentina, S.A., an Argentinean corporation and Virtual Gaming
Technologies (Antigua) Ltd., an Antiguan corporation. The Company's executive
offices are located at 5230 Carroll Canyon Road, Suite 318, San Diego,
California 92121; telephone number (858) 373-5001.

                                       2
<PAGE>

Business of Company
-------------------

         Headquartered in San Diego, California, Virtgame is an Application
Service Provider (ASP) for the gaming and lottery industries, specializing in
e-BorderControl technology that limits e-commerce to one jurisdiction or
restricts access of users from a specific jurisdiction. Virtgame has secured
several contracts under its new business as an ASP. The Company in October 2000
received approval from Nevada Gaming Board for a "Nevada only" web based sports
wagering system for Coast Resorts, a Nevada licensed casino operator with four
casinos in Las Vegas.

         Throughout most of the Company's history, its primary business focus
was operation of casino-style gaming over the Internet in jurisdictions with no
ban on Internet gaming. In the third quarter of year 2000, the Company decided
to discontinue operation of its Internet casino and focus on three strategies:

     .   e-BorderControl technologies to help the Company's software solutions
         in offeing e-gaming and e-lottery products within specified
         geographical boundaries for licensed casinos and state lotteries.
     .   Provide e-gaming software solutions to gaming operators through
         licensing and leasing programs.
     .   Develop "Virtgame Checkpoint Network" for States such as Nevada to use
         it as a checkpoint to ensure users are within a jurisdiction, using the
         same technology Virtgame developed for Coast Resorts and approved by
         Nevada Gaming Board in October 2000.

         Virtgame has built comprehensive and scalable Internet lottery, casino
and sports wagering software and applications that are customizable for private
label use. The Company is leveraging its technology and know-how to develop and
provide innovative solutions to licensed land based casinos and lottery
operators around the world.

         From the inception of the new operations as an ASP in the second
quarter of year 2000 through December 31, 2000 the Company has generated
$473,499 of revenue from software license fees. At the time of this 10K-SB
Report, the Company had generated $643,247 in software license fees from
inception of operations as an Application Service Provider to the gaming and
lottery industries.

Products and Services
---------------------

         The Company operated an offshore Internet casino and sports book from
late 1997 to mid 2000 excluding U.S. players. Virtgame discontinued its gaming
operation to focus as an enabler for licensed land based operators to extend
their reach to their customers beyond physical visits. The company is now well
positioned as a gaming ASP to help brick and mortar gaming operators go online.
Virtgame creates customized enterprise-level software and charges customers an
initial set up and a monthly account fee based on number of active players,
which includes upgrades and maintenance to avoid any conflict of interests with
its customers.

         The Company's corporate web site is at www.virtgame.com, its demo
                                                ----------------
sports book software is at www.primelinesports.com, its demo casino is at
                           -----------------------
www.virtfuncasino.com and its demo e-BorderControl tier 1 web site is at
---------------------
www.virtsecure.net identifying jurisdiction of a user.
------------------

         The Company offers an online distribution channel for traditional
bricks-and-mortar gaming companies. Utilizing an Internet e-BorderControl
technology, Virtgame can design and construct private-label online casinos and
sports books available exclusively for online users in Nevada. The Company has
developed an over-the-counter solution that integrates conventional Nevada-style
casino sports books with the Internet/Intranet. The Company has developed
PrimeLine, an over-the-counter sports book that is approved in Nevada and is
operational at a Las Vegas casino and is capable of seamless integration with
the Company's e-BorderControl to offer sports wagering on the Company's
proprietary Nevada Intranet system.

                                       3
<PAGE>

Customers
---------

         The Company's customers are gaming companies and lottery operators, the
Company's list of clients to date include, two U.S. lottery operators, two
Nevada and two Latin American gaming companies.

New Industry and Competition
----------------------------

         The Company enables land based gaming companies to provide interactive
gaming service and virtual casino and sports books. Although the gaming industry
is well established and has recently experienced significant growth and
profitability, gaming on the Internet is a recent development and an unproven
segment of the gaming industry and the Company expects that there will be
intense competition in Internet gaming. The barrier to entry in Internet markets
is generally low.

Regulation
----------

          Gaming activities are stringently regulated in the United States and
most developed countries. As an application Service Provider to the gaming
industry, the Company's policy is not to participate in net win or loss of its
clients.

Employees
---------

         As of the date of this 10-KSB Report, the Company employs 13 people on
a full time basis, 12 of the employees were based in San Diego, California and
one was based in Las Vegas, Nevada.

                                       4
<PAGE>

Research and Development
------------------------

         The Company spent approximately $511,000 in research and development in
2000 all of which were written off during the year. The Company intends to
conduct continuing development and innovation of its products in accordance with
changing consumer preferences, demographics, and the evolution of new
technologies. The Company's development strategy is to leverage its technology
and the technology of other software developers, with the goal of providing
applications that are competitive and innovative in the Internet gaming
industry.

Proprietary Technology
----------------------

         The Company has internally developed proprietary gaming software
applications, based on the Java programming language that allows for interactive
gaming, including simulated casino motion and sound, on a real-time basis. The
Company has developed a proprietary e-BorderControl technology that limits
access of players to one jurisdiction or restricts access of players from
specific jurisdictions.

Marketing and Sales
-------------------

         The Company's primary marketing and sales strategy is to sell its
software to licensed land based casinos and lottery operators around the world.

Item 2.      Description of Property

         The Company's executive offices are located in San Diego, California
and consist of approximately 3,000 square feet for a monthly rent of
approximately $4,200.

Item 3.      Legal Proceedings

         The Company is not a party in any litigation and has no knowledge of
any pending legal proceedings in any court or agency of government, or
government authorities.

Item 4.      Submission of Matters to a Vote of Security Holders

         No matters were submitted during the fourth quarter of fiscal 2000 to a
vote of security holders, through the solicitation of proxies, or otherwise.

                                    PART II
                                    -------

Item 5.      Market for Common Equity and  Related Stockholders Matters

         The Company's Common Stock is listed on the Over the Counter Bulletin
Board under the symbol "VGTI." The following table sets forth the high and low
closing prices of the Company's Common Stock for each calendar quarter since
commencement of trading. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.

                                                 High                  Low
                                          ------------         ------------
Mar 31, 1999                                     4.43                 3.38
June 30, 1999                                    4.87                 2.70
September 30, 1999                               3.72                 1.75
December 31, 1999                                4.12                 1.50

                                       5
<PAGE>

March 31, 2000                                   3.12                 1.38
June 30, 2000                                    1.63                 0.50
September 30, 2000                               1.56                 0.63
December 31, 2000                                1.47                 0.38

         On December 31, 2000, the closing price for the Company's Common Stock
was $ 0.38 per share. As of that date, the Company had 161 stockholders of
record and approximately 841 beneficial holders of stock.

         The Company has not paid any dividends on its Common Stock and
currently intends to retain any future earnings for use in its business;
therefore, the Company does not anticipate paying cash dividends in the
foreseeable future

         During the year the Company sold unregistered shares of its Common
Stock in the following transactions:

A.   In May 2000, the Company issued to one of its officers 625,000 options to
     purchase shares of Common Stock at an exercise price of $0.50 per share,
     which was immediately exercisable upon grant. In May 2000, the Company
     issued to seven of its employees options to purchase an aggregate of
     154,500 shares of Common Stock at an exercise price of $0.50 per share, of
     which options to purchase 107,500 of the options issued to the employees
     were immediately exercisable upon grant, option to purchase 5,000 Common
     Stock vest and become exercisable on December 31, 2000 and 7,500
     Common Stock vest and become exercisable on January 2, 2001 and
     34,500 shares of Common Stock vests and become exercisable on May 25,
     2001. All of the foregoing options have a life of either three or four
     years. There was no underwriter involved in the issuances. The issuances
     were conducted pursuant to Section 4(2) of the 1933 Act.
B.   In March 2000 the Chairman of the Board of Directors exercised option to
     purchase 100,000 shares of Common Stock at an exercise price of $0.10 a
     share.
C.   In October 2000, the Company issued to a consultant warrants to purchase
     37,500 shares of Common Stock at exercise price of $0.83 per share. The
     warrants were issued pursuant to a bonus clause in the Primeline
     Technologies, Inc. purchase agreement. All the foregoing options are
     immediately exercisable and expire on October 24, 2005. There was no
     underwriter involved in the issuances. The issuances were conducted
     pursuant to Section 4(2) of the 1933 Act.
D.   Between January 2000 and March 2000, the Company conducted a private
     placement of 1,000,000 shares of Common Stock at an offering price of $1.50
     per share, pursuant to Rule 506 under the 1933 Act. In that offering, the
     Company sold a total of 236,667 shares of Common Stock for the gross
     proceeds of $355,000. Proceeds from the sale of the shares were applied
     towards the development and implementation of the Company's Internet gaming
     operations and working capital.
E.   Between April 2000 and September 2000, the Company conducted a private
     placement of 1,000,000 shares of Common Stock at an offering price of $0.50
     per share, pursuant to Rule 506 under the 1933 Act. In that offering, the
     Company sold a total of 1,020,000 shares of Common Stock for the gross
     proceeds of $510,000. Proceeds from the sale of the shares were applied
     towards the software development and working capital. There was a finder
     involved in issuance of these shares and the finder received 1,000,000
     shares of Common Stock in payment of finder's fee.
F.   In October 2000, the Company started a private placement of 1,000,000
     shares of common Stock, at a price of $1.00 per share, pursuant to Rule 506
     under the 1933 Act. At the time of this 10KSB report, 78,800 shares of
     Common Stock have been sold for the gross proceeds of $78,800. Proceeds
     from the sale of the shares were applied towards the Company's software
     development and working capital. There was a finder involved in issuance of
     these shares and the finder received 8,856 shares of Common Stock in
     payment of finder's fee. The total shares issued with relation to this
     private placement amounted to 87,656 shares.

Item 6.      Management's Discussion and Analysis or Plan of Operation

         The Company has derived all its revenues from licensing its software to
the gaming and lottery industries.

         Between January 2000 and March 2000, the Company conducted a private
placement of 1,000,000 shares of Common Stock at an offering price of $1.50 per
share, pursuant to Rule 506 under the 1933 Act. In that offering, the Company
sold a total of 236,667 shares of Common Stock for the gross proceeds of
$355,000. Proceeds from the sale of the shares were applied towards the
development and implementation of the Company's Internet gaming operations and
working capital.

                                       6
<PAGE>

         Between April 2000 and September 2000, the Company conducted a private
placement of 1,000,000 shares of Common Stock at an offering price of $0.50 per
share, pursuant to Rule 506 under the 1933 Act. In that offering, the Company
sold a total of 1,020,000 shares of Common Stock for the gross proceeds of
$510,000. Proceeds from the sale of the shares were applied towards the software
development and working capital. There was a finder involved in issuance of
these shares and the finder received 1,000,000 shares of common Stock in payment
of finder's fee.

         In October 2000, the Company started a private placement of 1,000,000
shares of common Stock, at a price of $1.00 per share, pursuant to rule 506
under the 1933 Act. At the time of this 10KSB report, 78,800 shares of Common
Stock have been sold for the gross proceeds of $78,800. Proceeds from the sale
of the shares were applied towards the Company's software development and
working capital. There was a finder involved in issuance of these shares and the
finder received 8,856 shares of Common Stock in payment of finder's fee. The
total shares issued with relation to this private placement amounted to 87,656
shares.

Results of Operations

         Year Ended December 31, 2000 Compared to Year Ended December 31, 1999.
The Company's net revenues increased from $0 to $473,499 for the year ended
December 31, 2000 compared to the prior year period. Operating expenses from
continuing operations decreased by 26.1% for the year ended December 31, 2000 to
$1,820,822 compared to $2,462,746 in the prior year period. The decrease was due
to cost reduction and reduced number of staff. All revenues and expenses related
to operating an Internet casino and sportsbook operations are reflected as
discontinued operations in the Consolidated Statements of Operations for the
year ending December 31, 2000 and December 31, 1999.

         Interest income increased slightly to $6,411 for the year ended
December 31, 2000 compared to $6,387 for the prior year. Interest expense
decreased to $27,422 for the year ended December 31, 2000 compared to $32,589
for the prior year, due to lower average notes payable balances outstanding
during the year.

         Net loss from continuing operations for the year ended December 31,
2000 was $1,373,116 compared to $2,491,530 for the year ending December 31,
1999. The total loss from discontinued operations was $256,995 for the year
ending December 31, 2000 compared to a loss of $559,189 from discontinued
operations in the prior year.

         Net loss for the year ending December 31, 2000 fell 46.5% to
$1,630,111, or $0.14 per share, on 11,920,790 weighted average shares
outstanding, compared with a loss in 1999 of $3,050,719, or $0.34 per share, on
9,024,792 weighted average shares outstanding.

Liquidity and Capital Resources

         The Company had a negative working capital of $323,127 at December 31,
2000. In order to obtain the necessary working capital to fund continued
operations; the Company has undertaken a new private placement offering. The
private placement is for 1,000,000 shares at $1.00 per share with sales
commission of approximately 10% to fund the full scale roll out of its Internet
gambling operations and to fund the continuing losses from operations as the
Company endeavors to build revenues and reach profitable operations. The Shares
are being offered on a straight best effort basis by the Company, which means
that there is no minimum offering amount and no escrow of proceeds. The Company
believes it needs at least the net proceeds of $900,000 from the sale of the
1,000,000 Shares of the Private Placement before it starts generating cash flow
from its operations. If the Company is unable to raise this capital, it will
endeavor to raise the additional required funds through alternative sources, of
which there can be no assurance. Failure to obtain the required funds from any
source would severely impact the Company's financial condition and would
jeopardize the Company's ability to continue as a going concern. The Company's
Independent Auditor's report includes an emphasis of matter as to the Company's
ability to continue as a going concern.

Inflation

          The Company believes that inflation does not have a material effect on
its business.

Item 7.      Financial Statements

         The Independent Auditors' Reports for the years ended December 31, 2000
and 1999 are included in this report commencing on page F-1.

                                       7
<PAGE>

Item 8.      Changes In and Disagreement With Accountants on Accounting and
             Financial Disclosure

         Not applicable.

                                   PART III
                                   --------

Item 9.      Directors, Executive Officers, Promoters and Control Persons

Name                          Age          Position
----                          ---          --------

Leo I. George                 64           Chairman of the Board

Joseph R. Paravia             49           President, Chief Executive Officer
                                           and Director

Bruce Merati                  43           Chief Operating Officer and Chief
                                           Financial Officer

John Van Rhyn                 64           Vice President of Gaming Operations

Dick L. Rottman               63           Director

Scott A. Walker               42           Director


         Mr. George has served as Chairman of the Board of the Company since
September 1999. Since 1995, Mr. George has served as Vice-President for
Regulatory Affairs of WinStar Communications, a provider of wireless
communications services. From 1992 to 1995, Mr. George served as Chairman of
Avant-Garde Telecommunications Corp., a provider of nationwide wireless bypass
services to long distance carriers. From 1989 to 1992, Mr. George served as the
general counsel to the Goeken Group, the founder of MCI. During that time, Mr.
George and John Goeken collaborated to launch Airfone, the first commercial
telephone service with U.S. airline carriers.

         Mr. Paravia has served as President and a director of the Company since
July 1996 and as Chief Executive Officer of the Company since July 1997. Mr.
Paravia has over 20 years of experience in the gaming industry. From October
1995 through May 1996, Mr. Paravia served as the Vice President of the Tropicana
Hotel in Las Vegas, Nevada, where he was responsible for all casino operations.
From 1991 to February 1995, Mr. Paravia served as a member of the Board of
Directors and as Senior Director of Casino Operations for Caesars Palace in Las
Vegas, Nevada, where he was responsible for all casino operations.

         Mr. Merati has served as Chief Financial Officer of the Company since
July 27, 1998 and as Chief Operating Officer of the Company since April 2000.
From July 1997 to July 1998, Mr. Merati served as the Controller of The Weekend
Exercise Company, Inc., an apparel manufacturer. From 1995 to 1997, Mr. Merati
served as the Controller of Airline Interiors, Inc., an airline seat
manufacturer. From 1993 to 1995, Mr. Merati served as the Controller of First
Affiliated Securities, a securities broker-dealer and investment banker. Mr.
Merati is a Certified Public Accountant and a Chartered Accountant in England &
Wales and spent seven years as auditor with the London office of
PricewaterhouseCoopers.

         Mr. Van Rhyn has served as Vice President of Gaming Operations since
June 1997. Mr. Van Rhyn has over 20 years of experience in the gaming industry,
including positions of primary responsibility in the areas of sports book and
racing, finance and accounting, and general casino operations. From 1993 to
1997, Mr. Van Rhyn was a self-employed consultant to the gaming industry. From
1989 to 1992, Mr. Van Rhyn was director of all race, sports book, poker and Keno
operations at the Desert Inn Hotel & Casino in Las Vegas, Nevada. From 1988 to
1989, Mr. Van Rhyn was director of all race, sports book, poker and Keno
operations at the Sands Hotel & Casino in Las Vegas.

         Mr. Rottman has served as director of the Company since April 1998.
Since 1994, Mr. Rottman has served as Chairman of the Board and Chief Executive
Officer of Western Insurance Company. In addition, Mr. Rottman has served as
Chief Executive Officer of Bell United Insurance Company since 1986. Mr. Rottman
served as the Insurance Commissioner for the State of Nevada from 1971 to 1978.

                                       8
<PAGE>

         Mr. Walker has served as a director of the Company since October 1998.
From January 1996 to the present, Mr. Walker has served as a partner and as
General Counsel of MCOM Management Corp. From June 1995 to the present, Mr.
Walker served as a principal of Walker Worldwide Ltd., an international trading
company. From 1986 to 1995, Mr. Walker practiced law with the firm of Walker &
Corsa.

         Compliance With Section 16(a) of the Exchange Act

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires each director and executive officer of the Company, and
each person who owns more than ten percent (10%) of a registered class of the
Company's equity securities to file by specific dates with the Securities and
Exchange Commission (the "SEC") reports of ownership and reports of change of
ownership of equity securities of the Company. Officers, directors, and
10%stockholders are required by the SEC to furnish the Company with copies of
all Section 16(a) forms they file. The Company is required to state in this
report any failure of its directors and executive officers to file by the
relevant due date any of these reports during the Company's fiscal year. To the
Company's knowledge, all Section 16(a) filing requirements were complied with
during the fiscal years ended December 31, 2000 and 1999.

                                       9
<PAGE>

Item 10.     Executive Compensation

         Cash Compensation of Executive Officers. The following table sets forth
the cash compensation paid by the Company to its Chief Executive Officer and to
all other executive officers for services rendered during the fiscal years ended
December 31, 2000, 1999 and 1998.

<TABLE>
<CAPTION>
                                              Annual Compensation                 Long-Term Compensation
                                   -----------------------------------------   ----------------------------
                                                                                             Common Shares
                                                                               Restricted     Underlying
                                                                Other Annual      Stock     Options Granted     All Other Compen-
        Name and Position          Year     Salary    Bonus     Compensation   Awards ($)     (# Shares)             sation
--------------------------------   ----   ---------   -------   ------------   -----------  ---------------     -----------------
<S>                                <C>    <C>         <C>       <C>            <C>          <C>                 <C>
Joseph R. Paravia, President and   2000    $150,000     -0-         -0-            -0-            -0-                  -0-
CEO(1)                             1999    $130,577     -0-         -0-            -0-          500,000                -0-
                                   1998    $133,213     -0-         -0-            -0-            -0-                  -0-


Bruce Merati,                      2000    $100,000     -0-         -0-            -0-          625,000                -0-
Chief Operating Officer            1999    $ 90,000     -0-         -0-            -0-            -0-                  -0-
and Chief Financial                1998    $ 31,875     -0-         -0-            -0-            -0-                  -0-
Officer (2)

John Van Rhyn,                     2000    $  4,200     -0-         -0-            -0-            -0-                  -0-
Vice President - Gaming            1998    $ 43,750     -0-         -0-            -0-            -0-                  -0-
Operations (3)                     1998    $ 46,331     -0-         -0-            -0-          45,000                 -0-
</TABLE>

_______________

(1)      Commencing June 1, 1996, the Company began paying Mr. Paravia a salary
         at the rate of $100,000 per annum. Mr. Paravia's salary was reduced to
         $8,000 per month effective as of November 11, 1997. Mr. Paravia's
         salary was reinstated to $120,000 per annum effective April 25, 1998
         and was increased to $150,000 per annum effective August 1, 1999.

(2)      Commencing July 27, 1998, the Company began paying Mr. Merati a salary
         at the rate of $85,000 per annum Effective August 1, 1999, Mr. Merati's
         salary was increased to $100,000 per annum.

(3)      Commencing June 6, 1997, the Company began paying Mr. Van Rhyn a salary
         at the rate of $70,000 per annum. Mr. Van Rhyn's salary was reduced to
         $3,000 per month effective as of February 9, 1998, and was reinstated
         to $70,000 per annum effective October 9, 1998. Effective February 15,
         2000, Mr. Van Rhyn's salary was reduced to $5,200 per year.

                                       10
<PAGE>

                     Option/SAR Grants in Last Fiscal Year
                               Individual Grants

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                             Number of Securities
                                  Underlying           % of Total Options/SARs
                             Options/SARs Granted      Granted to Employees in    Exercise or Base
          Name                        (#)                    Fiscal Year            Price ($/Sh)       Expiration Date
-------------------------    --------------------      -----------------------    ----------------    -----------------
<S>                          <C>                       <C>                        <C>                 <C>

Joseph Paravia,                     500,000                      0.0%                  $1.625           July 25, 2004
President                           480,000                      0.0%                  $ 0.25         December 31, 2004

Bruce Merati - Chie                 625,000                     80.2%                  $ 0.50            May 25, 2004
Operating and Chief
Financial Officer
</TABLE>

              Aggregated Option/SAR Exercises in Last Fiscal Year
                         and FY-End Option/SAR Values

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                                     Number of
                                                                                    Securities            Value of
                                                                                    Underlying           Unexercised
                                                                                    Unexercised         In-the-Money
                                                                                   Options (SARs        Options (SARs
                                                                                   at FY-End (#)        at FY-End($)
                                Shares Acquired                                    Exercisable/         Exercisable/
          Name                    on Exercise              Value Received          Unexercisable      Unexercisable(1)
-------------------------    --------------------      -----------------------    ----------------    -----------------
<S>                          <C>                       <C>                        <C>                 <C>
Joseph R. Paravia,                                                                   980,000/0           $62,400/$0
  President & CEO

Bruce Merati - Chief                                                                 625,000/0           $     0/$0
Operating and Chief
Financial Officer

John Van Rhyn                                                                         90,000/0           $     0/$0
Vice President - Gaming
  Operations
</TABLE>

     (1) Calculated based upon a last reported sale price of $0.38 per share of
     Common Stock, as reported on the OTC Bulletin Board on December 31, 2000.

         Employment Agreements:

         (a) In September 1999, the Company entered into an employment agreement
     with its Chairman, Leo I. George, pursuant to which Mr. George received
     three-year options to purchase up to 100,000 shares of Common Stock at an
     exercise price of $0.10 per share. These options contain a buy-back
     provision in favour of the Company, which enables the Company to buy-back
     these options and the shares underlying the options at a price of $3.50 per
     share. In addition, Mr. George received three-year options to purchase up
     to 700,000 shares of Common Stock, of which options to purchase 500,000
     shares are fully vested and immediately exercisable and options to purchase
     200,000 shares vest and first become exercisable on September 2, 2000. The
     exercise price for the 500,000 fully vested options is $2.44 per share. The
     exercise price for the 200,000 options that vest on September 2, 2000 shall
     be equal to the fair market value of the Common Stock on that date.
     Finally, in the event the Company obtains debt or equity financing in
     excess of $10,000,000, Mr. George shall be entitled to three-year options
     to purchase up to 200,000 shares of Common Stock at an exercise price equal
     to the fair market value of the Common Stock on the date of grant.

         (b) In November 1999, the Company entered into a two-year employment
     agreement with the Chief Executive Officer of the Company, Joseph R.
     Paravia. The agreement provided for a base salary of $150,000, and an
     annual cash bonus equal to 2% of the Company's annual gross revenues in
     excess of $1 million. The agreement also provides for a cash bonus of
     $100,000 upon the anticipated public offering of the Company and a payment
     of $250,000 upon the sale or merger of the Company.

         Compensation of Directors. All non-officer directors of the Company
     receive an attendance fee of $1,000 per meeting of the Board of Directors.
     All directors receive reimbursement for out-of-pocket expenses in attending
     Board of Directors meetings. From time to time the Company may engage
     certain members of the Board of Directors to perform services on behalf of
     the Company and will compensate such persons for the services which they
     perform.

                                       11
<PAGE>

Item 11.     Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information regarding the
beneficial ownership of the shares of Common Stock as of the date of March 24,
2001 by (i) each person who is known by the Company to be the beneficial owner
of more than five percent (5%) of the issued and outstanding shares of Common
Stock, (ii) each of the Company's directors and executive officers and (iii) all
directors and executive officers as a group.

<TABLE>
<CAPTION>
                 Name and Address                                  Number of Shares                  Percentage Owned
----------------------------------------------------   ----------------------------------------      ------------------
<S>                                                    <C>                                           <C>
Leo I. George(1)(2)(3)                                                                2,982,000            23.0%
Daniel B. Najor (1)(3)                                                                3,462,500            26.8%
Joseph R. Paravia (1)(4)                                                              1,070,000            8.3%
John Van Rhyn (1)(5)                                                                    104,000              (6)
Bruce Merati (1)(7)                                                                     615,000             4.7%
Dick L. Rottman (1)(8)                                                                  100,000              (6)
Scott A. Walker (1)(9)                                                                  707,336             5.5%
All officers and directors                                                            5,578,336            43.1%
as a group
</TABLE>

(1)      Address is 5230 Carroll Canyon Rd., Suite 318, San Diego, California
         92121.

(2)      Includes options granted to Mr. George to purchase 500,000 shares of
         Common Stock at an exercise price of $2.46 per share.

(3)      Includes 2,382,000 shares of Common Stock owned by Daniel Najor for
         which Mr. Najor has granted Mr. George a limited irrevocable proxy to
         vote these shares in connection with certain matters. See "Certain
         Relationships and Related Transactions."

(4)      Includes options granted to Mr. Paravia to purchase 380,000 shares of
         Common Stock at an exercise price of $.25 per share and options to
         purchase 500,000 shares of Common Stock at an exercise price of $1.625
         per share.

(5)      Includes options granted to Mr. Van Rhyn to purchase 45,000 shares at
         $2.00 per share and options to purchase 45,000 shares at $2.875 per
         share.

(6)      Less than one percent.

(7)      Represents options granted to Mr. Merati to purchase 615,000 shares of
         Common Stock at an exercise price of $0.50 per share.

 (8)     Includes options granted to Mr. Rottman to purchase 20,000 shares of
         Common Stock at an exercise price of $4.50 per share and options to
         purchase 50,000 shares of Common Stock at an exercise price of $0.50
         per share. Also includes 30,000 shares of Common Stock owned by Western
         Insurance Company, with which Mr. Rottman is affiliated.

 (9)     Includes 543,836 shares of common stock owned by MCOM Management Corp.,
         with which Mr. Walker is affiliated. Also includes options granted to
         Mr. Walker to purchase 20,000 shares of Common Stock at an exercise
         price of $4.50 per share. Does not include options to purchase 10,000
         shares of Common Stock at an exercise price of $4.50 per share that are
         subject to vesting.

Item 12.     Certain Relationships and Related Transactions

         In September 1999, the Company, Leo I. George and Daniel B. Najor
entered into a Stock Restriction Agreement pursuant to which Mr. Najor agreed to
a restriction on 2,382,000 of his shares ("Restricted Shares") of Common Stock.
Pursuant to that agreement, Mr. Najor is prohibited from selling, pledging or
otherwise transferring or disposing the Restricted Shares without the consent of
the Company. In addition, Mr. Najor granted Mr. George a limited irrevocable
proxy that enables Mr. George to vote the Restricted Shares on any matter
submitted to the stockholders for their approval either at a meeting duly
convened or by a written consent. However, Mr. Najor retains the right to vote
the Restricted Shares in connection with a request for stockholder approval on
any matter concerning the merger or dissolution of the Company or the sale of
substantially all of its assets. The Stock Restriction Agreement and the proxy
terminate on the earlier of: (i) the termination of George's position as
Chairman of the Company, (ii) the sale by Mr. George of any of shares of Common
Stock beneficially owned by him, (iii) the sale of the Common Stock in a
registered public offering, or (iv) September 2, 2001.

                                       12
<PAGE>

Item 13.     Exhibits and Reports on Form 8-K

     a)  Exhibits - The following exhibits were filed on December 10, 1998 as
         exhibits to the Company's 10-SB/A.

     3.1    Certificate of Incorporation of the Company; filed as exhibit to the
            Company's 10-SB/A dated December 21, 1998
     3.2    Bylaws of the Company; filed as exhibit to the Company's 10-SB/A
            dated December 21, 1998
     3.3    Certificate of amendment to Certificate of incorporation of the
            Company; filed on Definitive Information Statement dated July 7,
            1999
     4.1    Specimen of Common Stock Certificate; filed as exhibit to the
            Company's 10-SB/A dated December 21, 1998
     10.1   Securities Purchase Agreement dated September 5, 1996 between the
            Company and Unistar Entertainment, Inc.; filed as exhibit to the
            Company's 10-SB/A dated December 21, 1998
     10.2   Settlement Agreement and Mutual General Release between the Company
            and CasinoWorld Holdings, Ltd, dated February 26, 1997; filed as
            exhibit to the Company's 10-SB/A dated December 21, 1998
     10.3   Settlement Agreement and Mutual General Release between the Company
            and Unistar Entertainment, Inc. dated March 6, 1997; filed as
            exhibit to the Company's 10-SB/A dated December 21, 1998
     10.4   Employment Agreement dated September 1, 1997 between the Company and
            Joseph R. Paravia; filed as exhibit to the Company's 10-SB/A dated
            December 21, 1998
     10.5   Virtual Gaming Technologies, Inc. 1997 Stock Option Plan; filed as
            exhibit to the Company's 10-SB/A dated December 21, 1998
     10.6   Employment agreement dated September 2 1999, between the Company and
            Leo I. George; filed as exhibit to 10-KSB dated March 30, 2000.
     10.7   Employment agreement dated November 2 1999, between the Company and
            Joseph R. Paravia; filed as exhibit to 10-KSB dated March 30, 2000.
     10.8   Securities Acquisition Agreement dated December 20, 1999 between the
            Company and Primeline Technologies, Inc.; filed as exhibit to 10-KSB
            dated March 30, 2000.
     10.9   Software development agreement dated January 20, 2000 between the
            Company and Coast Resort; filed as exhibit to 10-KSB dated March 30,
            2000.
     21.1   List of Subsidiaries; filed as exhibit to the Company's 10-SB/A
            dated December 21, 1998
     b) Reports on Form 8-K. The Company filed a report of Form 8-K on January
        19, 1999 relating to the change of the Registrant's independent auditors
        for the fiscal year ended December 31, 1998. Reports on From 8-K. The
        Company filed a report of From 8-K on March 29,2000 relating to
        acquisition of Primeline Gaming Technologies, Inc.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

Virtgame.com Corp.
------------------
(Registrant)


Date:  March 27, 2001           By: /s/     Joseph R. Paravia
                                ------------------------------------------------
                                President, Chief Executive Officer and Director

Date:  March 27, 2001           By: /s/     Bruce Merati
                                ------------------------------------------------
                                Chief Operating Officer and Chief Financial
                                Officer

In accordance the Exchange Act, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

Date:  March 27, 2001           By: /s/     Leo I. George
                                ------------------------------------------------
                                Chairman of the Board

Date:  March 27, 2001           By: /s/     Dick L. Rottman
                                ------------------------------------------------
                                Director

Date:  March 27, 2001           By: /s/     Scott A. Walker
                                ------------------------------------------------
                                Director

                                       13
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES

                       CONSOLIDATED FINANCIAL STATEMENTS
                       AND INDEPENDENT AUDITOR'S REPORT

                For the years ended December 31, 2000 and 1999
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES


                               TABLE OF CONTENTS
                               -----------------


<TABLE>
<S>                                                               <C>
INDEPENDENT AUDITOR'S REPORT...................................           F-1

FINANCIAL STATEMENTS

   Consolidated Balance Sheets.................................    F-2 to F-3

   Consolidated Statements of Operations.......................           F-4

   Consolidated Statements of Shareholders' Equity.............    F-5 to F-6

   Consolidated Statements of Cash Flows.......................    F-7 to F-8

   Notes to Consolidated Financial Statements..................   F-9 to F-21
</TABLE>
<PAGE>

                         INDEPENDENT AUDITOR'S REPORT
                         ----------------------------


To the Board of Directors and Shareholders
Virtgame.com Corp.
San Diego, California

We have audited the consolidated balance sheets of Virtgame.com Corp. and
Subsidiaries (the "Company") as of December 31, 2000 and 1999 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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
Virtgame.com Corp. and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from operations
since inception, has limited operating revenue and limited capital resources.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 8. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


San Diego, California                        PANNELL KERR FORSTER
February 5, 2001                             Certified Public Accountants
                                             A Professional Corporation

                                      F-1
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                          December 31, 2000 and 1999



                                    ASSETS
                                    ------
                                                      2000        1999
                                                   ----------  ----------

Current assets:
    Cash and cash equivalents                      $  123,053  $  422,309
    Unbilled revenues                                  27,925           -
    Prepaid expenses and other current assets          20,964      19,923
    Net assets of discontinued operations              11,010     351,361
                                                   ----------  ----------

    Total current assets                              182,952     793,593
                                                   ----------  ----------

Noncurrent assets:
    Deposits                                            8,466       8,513
    Property and equipment, net                       155,330     228,898
    Capitalized software, net                         985,495     951,170
                                                   ----------  ----------

    Total noncurrent assets                         1,149,291   1,188,581
                                                   ----------  ----------

    Total assets                                   $1,332,243  $1,982,174
                                                   ==========  ==========

  The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-2
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                          December 31, 2000 and 1999


                              LIABILITIES AND SHAREHOLDERS' EQUITY
                              ------------------------------------

<TABLE>
<CAPTION>
                                                                                      2000             1999
                                                                                  ------------   ------------
<S>                                                                               <C>            <C>
Current liabilities:
Accounts payable                                                                  $    198,726   $    126,287
   Accrued expenses                                                                    100,840        133,847
   Current portion of capital lease obligation                                           5,423              -
   Notes payable                                                                       201,090        198,876
                                                                                  ------------   ------------

   Total current liabilities                                                           506,079        459,010

Long-term portion of capital lease obligation                                            9,643              -
                                                                                  ------------   ------------
   Total liabilities                                                                   515,722        459,010
                                                                                  ------------   ------------

Commitments and contingencies (Notes 4, 5, 6 and 8)

Shareholders' equity:
   Preferred stock, $ .00001 par value, 10,000,000 shares
     authorized, none issued or outstanding                                                  -              -
   Common stock, $ .00001 par value, 30,000,000 shares
     authorized, 12,832,092 and 10,369,292 shares issued
     and outstanding in 2000 and 1999, respectively;
     125,857 and 144,334 shares issuable in 2000 and 1999,
     respectively                                                                          130            105
   Additional paid-in capital                                                       15,649,831     14,726,388
   Accumulated deficit                                                             (14,833,440)   (13,203,329)
                                                                                  ------------   ------------

   Total shareholders' equity                                                          816,521      1,523,164
                                                                                  ------------   ------------

   Total liabilities and shareholders' equity                                     $  1,332,243   $  1,982,174
                                                                                  ============   ============
</TABLE>

  The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-3
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                For the years ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                  2000             1999
                                                                               -----------      -----------
<S>                                                                            <C>              <C>
Revenue                                                                        $   473,499      $         -

Operating expenses:
    Salaries and payroll expenses                                                  938,960        1,313,692
    Other operating expenses                                                       881,862        1,149,054
                                                                               -----------      -----------

    Total expenses from continuing operations before income taxes                1,820,822        2,462,746
                                                                               -----------      -----------

        Loss from continuing operations before financial expense                (1,347,323)      (2,462,746)

Financial income (expense):
    Interest income                                                                  6,411            6,387
    Interest expense                                                               (27,422)         (32,589)
    Other income                                                                         -              305
                                                                               -----------      -----------


    Total financial expense                                                        (21,011)         (25,897)
                                                                               -----------      -----------

        Loss from continuing operations before income taxes                     (1,368,334)      (2,488,643)

Income tax expense                                                                  (4,782)          (2,887)
                                                                               -----------      -----------

        Loss from continuing operations                                         (1,373,116)      (2,491,530)
                                                                               -----------      -----------

Discontinued Operations

    Loss from discontinued operations (net of tax provision of $0)                (217,000)        (559,189)

    Loss on sale of discontinued operations                                        (39,995)               -
                                                                               -----------      -----------

        Net loss                                                               $(1,630,111)     $(3,050,719)
                                                                               ===========      ===========

Basic and diluted net loss per share                                           $     (0.14)     $     (0.34)
                                                                               ===========      ===========

Shares used to compute basic and diluted net loss per share                     11,920,790        9,024,792
                                                                               ===========      ===========
</TABLE>

  The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-4
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                For the years ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                          Common Stock
                                                   ---------------------------   Additional         Paid-In        Accumulated
                                                       Shares        Amount        Capital          Deficit           Total
                                                   ----------------------------------------------------------------------------
<S>                                                <C>               <C>         <C>              <C>              <C>
Balance forwarded,
   December 31, 1998                                  8,511,959       $  85      $11,079,550      $(10,152,610)     $   927,025

Issuance of common stock on exercise of employee
   stock option                                           1,500           -            4,305                 -            4,305

Issuances of common stock for cash, net of
   issuance costs: January 1999 through June 1999       181,359           2          435,548                 -          435,550

Issuance of common stock on conversion of notes
   payable (Note 5)                                     100,000           1          299,999                 -          300,000

Issuances of common stock for cash, net of
   issuance costs: August 1999 through December
   1999                                               1,271,600          13        1,752,890                 -        1,752,903

Issuance of common stock on acquisition of
   subsidiary                                           447,208           4          899,996                 -          900,000

Issuance of employee stock options (Note 6)                   -           -          254,100                 -          254,100

Net loss for the year ended December 31, 1999                 -           -                -        (3,050,719)      (3,050,719)
                                                   ----------------------------------------------------------------------------
Balance, December 31, 1999                           10,513,626       $ 105      $14,726,388      $(13,203,329)     $ 1,523,164
                                                   ============================================================================
</TABLE>

  The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-5
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
                For the years ended December 31, 2000 and 1999


<TABLE>
<CAPTION>
                                            Common Stock
                                        ------------------------  Additional    Paid-In   Accumulated
                                            Shares      Amount      Capital     Deficit      Total
                                        --------------------------------------------------------------
<S>                                       <C>           <C>     <C>          <C>          <C>
Balance forwarded,
   December 31, 1999                       10,513,626     $105  $14,726,388  $(13,203,329)  $ 1,523,164

Issuance of common stock
   on exercise of employee
   stock option                               100,000        1        9,999             -        10,000

Issuances of common stock for
   cash, net of issuance costs:
   January 2000 through
      March 2000 (Note 6)                     236,667        3      319,497             -       319,500

Issuances of common stock for
   cash, net of issuance costs:
   April 2000 through
      October 2000 (Note 6)                 2,020,000       20      476,479             -       476,499

Issuances of common stock for
   cash, net of issuance costs:
   October 2000 through
      December 2000 (Note 6)                   87,656        1       75,109             -        75,110

Issuance of stock warrants to
   consultant for services
   rendered (Note 6)                                -        -       42,359             -        42,359

Net loss for the year ended
   December 31, 2000                                -        -            -    (1,630,111)   (1,630,111)
                                        ---------------------------------------------------------------

Balance, December 31, 2000                 12,957,949     $130  $15,649,831  $(14,833,440)  $   816,521
                                        ===============================================================

</TABLE>

  The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-6
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the years ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                           2000            1999
                                                                                       -----------      -----------
<S>                                                                                    <C>              <C>
Cash flows from continuing operating activities:
     Loss from continuing operations                                                   $(1,373,116)     $(2,491,530)
     Adjustments to reconcile loss from continuing operations
       to net cash flows used in continuing operating activities:
          Depreciation                                                                     280,760           80,709
          Loss on sale of assets                                                                 -           38,966
          Issuance of common stock options and warrants for
              licensing and consulting fees and compensation                                42,359          254,100
          Changes in operating assets and liabilities:
              Decrease (increase) in:
                 Unbilled revenues                                                         (27,925)               -
                 Prepaid expenses and other current assets                                  (1,041)          10,078
              (Decrease) increase in:
                 Accounts payable and accrued expenses                                      39,431          (62,060)
                                                                                       -----------      -----------

     Net cash flows used in continuing operating activities                             (1,039,532)      (2,169,737)
                                                                                       -----------      -----------

Cash flows provided by (used in)
     discontinued operating activities                                                      95,613         (273,771)
                                                                                       -----------      -----------

Cash flows from investing activities:
     Decrease in deposits                                                                       47              890
     Proceeds from the sale of assets                                                        3,456                -
     Purchase of equipment                                                                (239,552)         (82,668)
                                                                                       -----------      -----------

     Net cash flows used in investing activities                                          (236,049)         (81,778)
                                                                                       -----------      -----------

Cash flows from financing activities:
     Net proceeds from the issuance of common stock                                        881,109        2,192,758
     Borrowings on notes payable                                                            10,000          475,000
     Payments on notes payable                                                              (7,786)        (126,124)
     Principal payments under capital lease                                                 (2,611)               -
                                                                                       -----------      -----------

     Net cash flows provided by financing activities                                       880,712        2,541,632
                                                                                       -----------      -----------

Net (decrease) increase in cash and cash equivalents                                      (299,256)          16,346

Cash and cash equivalents at beginning of year                                             422,309          405,963
                                                                                       -----------      -----------

Cash and cash equivalents at end of year                                               $   123,053      $   422,309
                                                                                       ===========      ===========
</TABLE>

  The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-7
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                For the years ended December 31, 2000 and 1999



SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:



                                                             2000       1999
                                                            -------   ---------

Cash paid during the year for:

     Interest                                               $ 2,671   $  38,532
                                                            =======   =========

     Income taxes                                           $ 4,782   $   2,887
                                                            =======   =========

Supplemental disclosure of noncash investing and financing activities:

     Foreign exchange loss                                  $(1,584)  $  (5,672)
                                                            =======   =========

     Equipment acquired through capital lease               $17,677   $       -
                                                            =======   =========

     Notes payable converted into shares of common stock    $     -   $ 300,000
                                                            =======   =========


     On December 21, 1999, the Company acquired 100% of the outstanding capital
     stock of Primeline Gaming Technologies, Inc. in return for the issuance of
     447,208 shares of its common stock. The value of the assets and liabilities
     acquired was approximately $912,000 and $12,000, respectively.

The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-8
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------

     Organization and Business

     Virtgame.com Corp. (the "Company") was incorporated in the State of
     Delaware on October 24, 1995, under the name MBA Licensing Corp. On June
     20, 1996, the Board of Directors approved the change of the Company's name
     to Internet Gaming Technologies, Inc., on January 22, 1997, to Virtual
     Gaming Technologies, Inc., and on May 20, 1999, to Virtgame.com Corp.

     Virtgame.com is an application service provider to the gaming and lottery
     industries, offering Internet access confined to a specific jurisdiction or
     restricting access to users from specific jurisdictions through its patent
     pending eBorder Control technology enabling its customers to comply with
     established rules and regulations. Virtgame.com has built scalable Internet
     lottery, casino and sports wagering software and applications that are
     customizable for private label use. The Company offers its technology to
     licensed gaming operators.

     On December 21, 1999, the Company entered into a securities acquisition
     agreement and plan of reorganization (the "Primeline Acquisition") with
     Primeline Gaming Technologies, Inc. ("Primeline"). The Primeline
     Acquisition resulted in the Company acquiring 100% of the outstanding
     capital stock of Primeline in return for the issuance of 447,208 shares of
     its common stock. The Primeline Acquisition has been accounted for as a
     purchase at historical cost.

     Had the Primeline Acquisition occurred on January 1, 1999, proforma net
     capitalized software at December 31, 1999 would have been $771,170, a
     decrease of $180,000, and the proforma net loss and basic and diluted net
     loss per share for the year ended December 31, 1999 would have been
     $(3,230,719) and $(0.34), respectively, an increase of $180,000 and no
     change, respectively. As Primeline was incorporated on October 6, 1999,
     with limited activity for the period from October 6, 1999 (inception) to
     December 31, 1999, amortization of the acquired assets is the only proforma
     adjustment.

     Principles of Consolidation

     The accompanying financial statements consolidate the accounts of the
     Company and its wholly-owned subsidiaries, Emerald Riviera Limited, an
     Irish Corporation, Virtual Gaming Technologies Argentina S.A., an
     Argentinean Corporation, Virtual Gaming Technologies (Antigua) Ltd., an
     Antiguan Corporation, and Primeline Gaming Technologies, Inc., a California
     Corporation. All significant intercompany accounts and transactions have
     been eliminated in consolidation.

                                      F-9
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

     Discontinued Foreign Operations and Concentrations

     During the year ended December 31, 2000, the Company closed its Antigua
     office and discontinued marketing its casino and sportsbook operation. The
     Company's financial statements have been restated to reflect the on-line
     casino and sportsbook activities as discontinued operation for all periods
     presented including gaming revenues of approximately $25,000 and $385,000
     for the years ended December 31, 2000 and 1999, respectively.

     As of December 31, 1999, the Company maintained approximately $420,000 in
     total assets in Antigua, net of inter-company receivables of $840,000.
     Included in total assets in Antigua as of December 31, 1999,was
     approximately $230,000 in cash held in foreign banks. As of December 31,
     1999, approximately 75% of the Company's customers were located in Asia.

     The U.S. Dollar is considered the functional currency for Emerald Riviera
     Limited, Virtual Gaming Technologies Argentina S.A. and Virtual Gaming
     Technologies (Antigua) Ltd. Accordingly, the monetary assets and
     liabilities of these entities have been remeasured using the current rates
     of exchange and nonmonetary assets have been remeasured using the
     appropriate historical rates of exchange.

     Foreign exchange loss arises on the transfer of customers' foreign currency
     credit card deposits into the Company's U.S. Dollar-denominated bank
     accounts during the year and on the translation of the Company's cash held
     in foreign banks to U.S. Dollars at year end.

     Financial Instruments

     The carrying amounts reported in the consolidated balance sheets for cash
     and cash equivalents, prepaid expenses and other current assets, deposits,
     accounts payable, accrued expenses, and funds held on deposit approximate
     fair value due to the immediate short-term maturity of these financial
     instruments.

     The fair value of the Company's capital lease obligation and notes payable
     approximate the carrying amount based on the current rates offered to the
     Company for debt of the same remaining maturities with similar collateral
     requirements.

     Cash and Cash Equivalents

     The Company considers all cash accounts, which are not subject to
     withdrawal restrictions or penalties, and certificates of deposit and money
     market funds purchased with an original maturity of three months or less to
     be cash equivalents.

                                      F-10
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

     The Company maintains its cash accounts at financial institutions located
     in California. Accounts at the financial institutions located in California
     are insured by the Federal Deposit Insurance Corporation (FDIC) up to
     $100,000. At December 31, 2000 and 1999, the Company's uninsured cash
     balances, including cash held in foreign banks and restricted cash, totaled
     $20,612 and $454,011, respectively. The Company has not experienced any
     losses in such accounts and management believes it places its cash on
     deposit with financial institutions which are financially stable.

     Restricted Cash

     The Company was considering an arrangement to offer credit card processing
     services to other Internet-based businesses, and in June 1998, deposited
     $300,000 with a major foreign bank relative to a contemplated arrangement.
     The Company decided not to proceed with the above arrangement and during
     the year ended December 31, 1999, $150,000 of this amount was returned to
     the Company. The remaining $150,000 is classified as a current asset in the
     accompanying consolidated balance sheet as of December 31, 1999. The
     remaining $150,000 was returned to the Company during 2000.

     Property and Equipment

     Property and equipment is recorded at cost. Depreciation is calculated on
     the straight-line basis over the estimated useful life of five years, or
     related lease life, if shorter.

     Revenue Recognition

     The Company recognizes software license fee revenue in accordance with the
     provisions of Statement of Position (SOP) 97-2, "Software Revenue
     Recognition," as amended by SOP 98-9, "Software Revenue Recognition, With
     Respect to Certain Transactions." Software license fees represent revenues
     related to licenses for software delivered to customers for in-house
     applications. Revenues from single-element software license agreements are
     recognized upon shipment of the software. Revenues from software
     arrangements involving multiple elements are allocated to the individual
     elements based on their relative fair values. If services are considered
     essential to the functionality of the software products, both the software
     product revenue and service revenue are recognized using the percentage of
     completion method in accordance with the provisions of SOP 81-1,
     "Accounting for performance of construction type and certain production
     type contracts." Contract revenues are recognized based on labor hours
     incurred to date compared to total estimated labor hours for the contract.
     Contract costs include all direct labor, direct material and indirect costs
     related to contract performance. Selling, general and administrative costs
     are charged to expense as incurred. Provisions for estimated losses on
     uncompleted contracts are recorded in the period in which such losses
     become probable based on the current contract estimates. Hosting fees
     represent revenues from post-contract customer support services where the
     Company's software is resident on a company server and are recognized
     ratably over the hosting period. Event fees are recognized as the events
     take place.

                                      F-11
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

     Stock Based Compensation

     The Financial Accounting Standards Board (FASB) issued Statement of
     Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
     Compensation." This statement encourages, but does not require, companies
     to recognize compensation expense for grants of stock, stock options, and
     other equity instruments based on a fair-value method of accounting.

     Companies that do not choose to adopt the expense recognition rules of SFAS
     No. 123 will continue to apply the existing accounting rules contained in
     Accounting Principles Board Opinion (APB) No. 25, but will be required to
     provide proforma disclosures of the compensation expense determined under
     the fair-value provisions of SFAS No. 123, if material. APB No. 25 requires
     no recognition of compensation expense for most of the stock-based
     compensation arrangements provided by the Company, namely, broad-based
     employee stock purchase plans and option grants where the exercise price is
     equal to the market price at the date of the grant.

     The Company has adopted the disclosure provisions of SFAS No. 123 effective
     January 1, 1996. The Company has opted to follow the accounting provisions
     of APB No. 25 for stock-based compensation and to furnish the pro forma
     disclosures required under SFAS No. 123 (see Note 6).

     Advertising Costs

     The Company charges the cost of advertising to expense as incurred.
     Advertising costs for the year ended December 31, 2000 and 1999, were
     approximately $9,300 and $161,000, respectively.

     Capitalized Software

     Effective January 1, 1999, the Company adopted Statement of Position
     ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
     Obtained for Internal Use." Among other provisions, SOP 98-1 requires that
     entities capitalize certain internal-use software costs once certain
     criteria are met. Under SOP 98-1, overhead, general and administrative and
     training costs are not capitalized. In addition, certain computer software
     costs are capitalized in accordance with SFAS No. 86, "Accounting for the
     Costs of Computer Software to Be Sold, Leased or Otherwise Marketed," and
     are reported at the lower of unamortized cost or net realizable value.
     Capitalized software amortization expense for the years ended December 31,
     2000 and 1999 was approximately $212,000 and $0, respectively. Research and
     development costs expensed for the years ended December 31, 2000 and 1999
     was approximately $511,000 and $706,000, respectively.

                                      F-12
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

     Income Taxes

     The Company accounts for income taxes using the asset and liability method.
     Under the asset and liability method, deferred income taxes are recognized
     for the tax consequences of "temporary differences" by applying enacted
     statutory tax rates applicable to future years to differences between the
     financial statement carrying amounts and the tax bases of existing assets
     and liabilities. Deferred tax assets are reduced by a valuation allowance
     when, in the opinion of management, it is more likely than not that some
     portion or all of the deferred tax assets will not be realized.

     Net Loss Per Share

     Basic net loss per share excludes dilution and is computed by dividing net
     loss by the weighted average number of common shares outstanding during the
     reported periods. Diluted net loss per share reflects the potential
     dilution that could occur if stock options and other commitments to issue
     common stock were exercised. During the years ended December 31, 2000 and
     1999, options and warrants to purchase 3,722,300 and 3,757,300 common
     shares, respectively, were anti-dilutive and have been excluded from the
     weighted average share computation.

     Comprehensive Income

     The Financial Accounting Standards Board (FASB) issued Statement of
     Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
     Income." This statement establishes standards for reporting and display of
     comprehensive income and its components. The Company adopted this statement
     effective January 1, 1998. For the years ended December 31, 2000 and 1999,
     the Company had no items that were required to be recognized as components
     of comprehensive income.

     Use of Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

     Reclassification

     Certain prior year amounts have been reclassified to conform with current
     year presentation with no effect on results of operations or accumulated
     deficit.

                                      F-13
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999

NOTE 2 - PROPERTY AND EQUIPMENT
-------------------------------

     Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
                                                              2000         1999
                                                        ----------   ----------
          <S>                                           <C>          <C>
          Computer hardware                             $  332,269   $  338,302
          Office furniture and equipment                    70,998       70,998
                                                        ----------   ----------
                                                           403,267      409,300

          Less: accumulated depreciation                   247,937      180,402
                                                        ----------   ----------

                                                        $  155,330   $  228,898
                                                        ==========   ==========
</TABLE>

NOTE 3 - CAPITALIZED SOFTWARE
-----------------------------

     Capitalized software consists of the following at December 31:

<TABLE>
<CAPTION>
                                                              2000         1999
                                                        ----------   ----------
          <S>                                           <C>          <C>
          Computer software                             $1,186,378   $  955,673
          Less: accumulated amortization                   200,883        4,503
                                                        ----------   ----------

                                                        $  955,495   $  951,170
                                                        ==========   ==========
</TABLE>

NOTE 4 - COMMITMENTS AND CONTINGENCIES
--------------------------------------

     Operating Leases

     The Company leases its office facilities under a non-cancelable operating
     lease agreement through April 2001. The lease calls for monthly payments of
     approximately $4,200.

     In addition, the Company leases certain office equipment under
     noncancellable operating lease agreements expiring at various times through
     December 2002. The leases call for aggregate monthly payments of
     approximately $2,800.

     Capital Lease

     The Company leases computer equipment under capital lease agreements, with
     imputed interest rates ranging from 13.97% to 27.11%, due in monthly
     installments of approximately $700 through April 2003. The computer
     equipment that collateralizes the leases had a net book value of
     approximately $15,000 at December 31, 2000.

                                      F-14
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999

NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
--------------------------------------

     At December 31, 2000, the annual future minimum lease payments under
     operating and capital leases are as follows:

<TABLE>
<CAPTION>
                                                          Operating    Capital
                                                            Leases      Lease
                                                          ---------   ---------
          <S>                                             <C>         <C>
          2001                                            $  42,064   $   8,372
          2002                                               12,693       8,372
          2003                                                    -       2,791
                                                          ---------   ---------

          Total minimum lease payments                    $  54,757      19,535
                                                          =========

          Less amount representing interest                              (4,469)
                                                                      ---------

          Present value of net minimum lease payments                    15,066

          Less current maturities                                        (5,423)
                                                                      ---------

          Long-term lease obligations                                 $   9,643
                                                                      =========
</TABLE>

     Rental expense for office facilities for the years ended December 31, 2000
     and 1999 totaled approximately $111,000 and $147,000, respectively.

     Employment Agreements

     During September 1999, the Company entered into a two-year employment
     agreement with the Chairman of the Board of Directors. The agreement
     provides for the grant of options to purchase: 100,000 shares of common
     stock at $.10 per share; 500,000 shares of common stock at an exercise
     price equal to the fair market value on the date of the agreement, 200,000
     shares of common stock at an exercise price equal to the fair market value
     on the one-year anniversary date of the agreement; and 300,000 shares at an
     exercise price equal to the fair market value on the date of grant if,
     prior to termination of the agreement, the Company has secured debt or
     equity financing, or a combination thereof, in the aggregate amount of $10
     million, after deducting for all associated costs. Compensation cost in the
     amount of $236,000 has been recognized on the grant of options to purchase
     100,000 shares of common stock at $.10 per share (see Note 6). During March
     2000, the 100,000 options were exercised by the Chairman.

     During November 1999, the Company entered into a two year and nine-month
     employment agreement with the Chief Executive Officer (the "CEO"). The
     agreement provides for a base salary of $150,000, and an annual cash bonus
     equal to 2% of the Company's annual gross revenues in excess of $1 million.
     In conjunction with this agreement, the CEO has agreed not to solicit any
     person employed full-time by the Company during the term of his employment
     and for one year after termination. The agreement also provides for a cash
     bonus of $100,000 upon the anticipated public offering of the Company and a
     payment of $250,000 upon the sale or merger of the Company.

                                      F-15
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999

NOTE 5 - RELATED PARTY TRANSACTIONS
-----------------------------------

     Note Payable to Stockholder and Affiliate

     During the year ended December 31, 1999, the Company received advances of
     $475,000 in the form of notes payable from its then Chairman of the Board
     of Directors and his affiliated company. During the year ended December 31,
     1999, $300,000 of this amount was converted into 100,000 shares of common
     stock. The notes payable are unsecured, due on demand and provide for
     interest at a fixed rate of 12% per annum. The principal balance
     outstanding was $85,000 and $75,000 as of December 31, 2000 and 1999,
     respectively and total interest expense incurred by the Company on these
     related party notes payable for the years ended December 31, 2000 and 1999
     was approximately $10,000 and $17,000, respectively.

     Note Payable - Licensing Agreement

     In May 1996, the Company entered into a nonexclusive licensing agreement
     with CasinoWorld Holdings, Ltd. (CasinoWorld) for the use of certain
     computer software and hardware (the CasinoWorld Agreement). Under the terms
     of the CasinoWorld Agreement, the Company agreed to transfer 385,000 shares
     of its common stock to CasinoWorld as a licensing fee. As additional
     consideration, the Company agreed to pay a royalty in the amount of 33 1/3%
     of net gaming revenue derived through Internet operations. The 385,000
     shares of common stock had been presented as additional shares of common
     stock issued in the consolidated financial statements for the year ended
     December 31, 1996. The shares were actually transferred to CasinoWorld
     through the Company's majority stockholder.

     Effective February 1997, the Company and CasinoWorld agreed to terminate
     the CasinoWorld Agreement. Under the termination agreement, CasinoWorld
     returned to the Company 385,000 shares of the Company's common stock in
     exchange for a $150,000 promissory note and all 385,000 shares were
     retired. The promissory note is unsecured and bears interest at a fixed
     rate of 10%. Principal and interest are due in quarterly installments equal
     to 10% of the Company's net gaming revenue, as defined in the promissory
     note. The Company recorded a charge to operations of $133,711 to reflect
     the effect of the settlement during 1997. All remaining principal and
     accrued interest was due in September 1998. The note was not repaid upon
     maturity and at December 31, 2000, had a balance of $116,090.

                                      F-16
<PAGE>

                              VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999

NOTE 6 - SHAREHOLDERS' EQUITY
-----------------------------

     Stock and Warrants Issued for Services

     During the year ended December 31, 1999, the Company issued warrants to
     purchase 223,300 shares of its common stock as consideration for services
     provided in connection with the Company's stock issuances for cash. All of
     the warrants are immediately exercisable and expire five years from the
     date of issuance. The warrants have been valued at $509,635 and have been
     recorded as an increase and a decrease to additional paid-in capital, with
     no net effect on shareholders' equity.

     During the year ended December 31, 2000, the Company issued warrants to
     purchase 37,500 shares of its common stock as consideration for services
     provided in connection with execution of a software licensing agreement.
     All of the warrants are immediately exercisable and expire five years from
     the date of issuance. The warrants have been valued at $42,359 and have
     been recorded as an increase to additional paid-in capital and consulting
     fees.

     Stock Issued for Cash

     During the year ended December 31, 1999, the Company issued shares of
     common stock relative to a 700,000 share private placement offering under
     Rule 506 of Regulation D promulgated under the Securities Act of 1933.
     Total net proceeds from the offering at December 31, 1999 were $435,550,
     net of issuance costs of $108,530.

     During the year ended December 31, 1999, the Company also issued shares of
     common stock relative to a 1,400,000 share private placement offering under
     Rule 506 of Regulation D promulgated under the Securities Act of 1933.
     Total net proceeds from the offering at December 31, 1999 were $1,752,903,
     net of issuance costs of $154,500. In conjunction with this offering, the
     Company issued warrants to purchase 30,000 shares of its common stock in
     August 1999. The warrants are immediately exercisable and expire five years
     from the date of issuance.

     During the year ended December 31, 2000, the Company issued shares of
     common stock relative to a 236,667 share private placement offering under
     Rule 506 of Regulation D promulgated under the Securities Act of 1933.
     Total net proceeds from the offering at December 31, 2000 were $319,500,
     net of issuance costs of $35,500.

     During the year ended December 31, 2000, the Company also issued shares of
     common stock relative to a 1,020,000 share private placement offering under
     Rule 506 of Regulation D promulgated under the Securities Act of 1933.
     Total net proceeds from the offering at December 31, 2000 were $476,499,
     net of issuance costs of $33,501 and a finder's fee of 1,000,000 shares of
     the Company's common stock.

                                      F-17
<PAGE>

                               VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999


NOTE 6 - SHAREHOLDERS' EQUITY (Continued)
-----------------------------

     During the year ended December 31, 2000, the Company also issued shares of
     common stock relative to a 78,800 share private placement offering under
     Rule 506 of Regulation D promulgated under the Securities Act of 1933.
     Total net proceeds from the offering at December 31, 2000 were $75,110, net
     of issuance costs of $3,690 and a finder's fee of 8,856 shares of the
     Company's common stock.

     Stock Options

     In 1997, the Company adopted a stock option plan (the "Plan") under which
     options to purchase up to 500,000 shares of common stock may be granted to
     officers, employees or directors of the Company, as well as consultants,
     independent contractors or other service providers of the Company. Both
     "incentive" and "nonqualified" options may be granted under the Plan.
     Incentive options may be granted at an exercise price equal to the fair
     market value of the shares at the date of grant while nonqualified options
     may be granted at an exercise price determined by the Board of Directors.
     Individual option agreements will contain such additional terms as may be
     determined by the Board of Directors at the time of the grant. The Plan
     provides for grants of options with a term of up to 10 years. Incentive
     options must be granted with exercise prices equal to the fair market value
     on the date of grant, except that incentive options granted to persons
     owning stock possessing more than 10% of the total combined voting power of
     all classes of stock of the Company may not be granted at less than 110% of
     the fair market value on the date of grant. During 2000, the Company
     amended the plan to increase the number of options to purchase 5,000,000
     shares of common stock.

     The Company has elected to account for nonqualified grants and grants under
     its Plan following APB No. 25 and related interpretations. Accordingly,
     compensation costs of approximately $42,000 and $254,000 have been
     recognized for nonqualified options for the years ended December 31, 2000
     and 1999, respectively. In November 1999, the Company extended the
     expiration date on options previously granted to the CEO to purchase
     480,000 shares of common stock. The expiration date was extended by five
     years to December 31, 2005. No additional compensation cost has been
     recognized on the extension of the expiration date as there was no change
     in the intrinsic value of the options.

                                      F-18
<PAGE>

                               VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999

NOTE 6 - SHAREHOLDER'S EQUITY (Continued)
-----------------------------

     Stock Options (Continued)

     Under SFAS No.123, the fair value of each option granted during the years
     ended December 31, 2000 and 1999 was estimated on the measurement date
     utilizing the then current fair value of the underlying shares less the
     exercise price discounted over the average expected life of the options of
     three to five years, with an average risk-free interest rate of 5.0% to
     4.4%, price volatility of 1.0 and no dividends. Had compensation cost for
     all awards been determined based on the fair value method as prescribed by
     FASB Statement No.123, reported net (loss) and (loss) per common share
     would have been as follows:


                                                   December 31,    December 31,
                                                       2000            1999
                                                   ------------    ------------

     Net loss:
       As reported                                 $(1,630,111)    $(3,050,719)
       Proforma                                    $(1,953,785)    $(5,636,127)
     Basic and diluted net loss per share:
       As reported                                 $     (0.14)    $     (0.34)
       Proforma                                    $     (0.16)    $     (0.63)

     A summary of the activity of the stock options for the years ended December
     31, 2000 and 1999 is as follows:


                                         Year ended             Year ended
                                      December 31, 2000     December 31, 1999
                                      ---------------------------------------
                                                Weighted             Weighted
                                                 Average              Average
                                                Exercise             Exercise
                                      Shares     Price       Shares    Price
                                   ------------------------------------------
     Outstanding at beginning of
        period                       3,022,000   $ 1.88       932,000   $1.45
     Granted                           779,500     0.50     2,091,500    2.06
     Canceled                         (465,000)    3.14             -       -
     Exercised                        (100,000)    0.10        (1,500)   2.87
     Expired                          (825,500)    2.52             -       -
                                   ------------------------------------------

                                      F-19
<PAGE>

                               VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999


<TABLE>
     <S>                                               <C>            <C>       <C>               <C>
     Outstanding at end of period                        2,411,000     $ 1.32     3,022,000       $1.88
                                                       ===========     ======   ===========       =====

     Exercisable at end of period                        2,369,000     $ 1.24     2,495,000       $1.82
                                                       ===========     ======   ===========       =====

     Weighted-average fair value of options
       granted during the period                                       $ 0.42                     $1.54
                                                                       ======                     =====

     Weighted-average remaining contractual
     life of options outstanding at end of period                      2.7 years                  3.9 years
                                                                       =========                  =========
</TABLE>

                                      F-20
<PAGE>

                               VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999


NOTE 7 - INCOME TAXES
---------------------

     Deferred income taxes reflect the net tax effects of the temporary
     differences between the carrying amounts of assets and liabilities for
     financial reporting and the amounts used for income tax purposes. The tax
     effect of temporary differences consisted of the following as of December
     31:

<TABLE>
<CAPTION>
                                                                         2000            1999
                                                                     -----------      -----------
     <S>                                                             <C>              <C>
     Deferred tax assets:
       Net operating loss carryforwards                              $ 3,477,000      $ 2,819,000
       Compensation element of stock options issued                      917,000          948,000
       Startup costs capitalized for income tax purposes                 197,000          312,000
       Other                                                               7,000           83,000
                                                                     -----------      -----------

          Gross deferred tax assets                                    4,598,000        4,162,000

     Less valuation allowance                                         (4,580,000)      (4,105,000)
                                                                     -----------      -----------

                                                                          18,000           57,000

     Deferred tax liabilities, equipment                                 (18,000)         (57,000)
                                                                     -----------      -----------

                                                                     $         -                -
                                                                     ===========      ===========
</TABLE>

     Realization of deferred tax assets is dependant upon sufficient future
     taxable income during the period that deductible temporary differences and
     carryforward are expected to be available to reduce taxable income. As the
     achievement of required future taxable income is uncertain, the Company
     recorded a valuation allowance. The valuation allowance increased by
     $475,000 from 1999.

     As of December 31, 2000, the Company has net operating loss carryforwards
     for both federal and state income tax purposes. Federal net operating loss
     carryforwards totaling approximately $8,533,000 expire as follows: $194,000
     in 2011, $322,000 in 2012, $3,609,000 in 2018, $2,953,000 in 2019, and
     $1,455,000 in 2020. State net operating loss carryforwards totaling
     approximately $8,529,000 expire as follows: $4,123,000 in 2003, $2,952,000
     in 2004, and $1,454,000 in 2005. Due to Internal Revenue Service
     regulations, the availability of the operating loss carryforwards may be
     limited upon a substantial change in ownership.

                                      F-21
<PAGE>

                               VIRTGAME.COM CORP.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999


NOTE 7 - INCOME TAXES (Continued)
---------------------

     A reconciliation of the effective tax rates with the federal statutory rate
     is as follows as of December 31:

                                                      2000            1999
                                                   ---------      ----------

     Income tax benefit at statutory rate          $ 569,000      $1,068,000
     Change in valuation allowance                  (475,000)       (882,000)
     Nondeductible expenses                          (92,000)       (214,000)
     State income taxes, net                          95,000         175,113
     Other                                          (101,782)       (150,000)
                                                   ---------      ----------

                                                   $  (4,782)     $   (2,887)
                                                   =========      ==========


NOTE 8 - MANAGEMENT'S PLANS FOR FUTURE OPERATIONS AND FINANCING
---------------------------------------------------------------

     The accompanying consolidated financial statements have been prepared
     assuming that the Company will continue as a going concern. However, the
     Company has experienced cumulative losses since its inception of
     approximately $14,833,000, inclusive of noncash charges for capital stock,
     options and warrant issuance-related activity of approximately $4,298,000.
     The cumulative losses have reduced net shareholders' equity to
     approximately $817,000 as of December 31, 2000. At present, the Company's
     working capital may not be sufficient to meet the Company's objectives as
     structured. Although these conditions indicate that the Company may be
     unable to continue as a going concern, management did anticipate that
     considerable losses would be incurred before the Company became self-
     sustaining. The consolidated financial statements do not include any
     adjustments that might result from the outcome of this uncertainty.

     As discussed in Note 1, the Company acquired 100% of the outstanding
     capital stock of Primeline. Primeline has developed software that provides
     an online closed-loop sportsbook system. The software has gained regulatory
     approval from the Nevada Gaming Commission and has been installed at a
     land-based gaming corporation in Nevada.

     Based on current contract negotiations, management believes the Company
     will generate sufficient revenues and cash flows from software licensing
     agreements to meet its current obligations during the year ending December
     31, 2001. To the extent such revenues are not realized, management believes
     it has the ability to raise additional capital to cover its current
     obligations until sufficient software licensing revenues and cash flows can
     be achieved by the Company.

                                      F-22