GalaxiWorld Delays Create Legal Woes for GLC

17 July 1998

With much fanfare, Gaming Lottery Corporation took a major turn into the electronic gaming industry. With a history in paper pulltabs and other traditional gaming products, they chucked all that to head into the new world on online gaming. They created and marketed GalaxiWorld whose launch was continually delayed.

Now GLC has announced that it has been served with a statement of claim its software developers, CIT Canada Inc. and Net Objects Inc. alleging that the Company has fundamentally breached their software development agreements and claiming damages in the amount of CDN$11 million.

The Plaintiffs, who were engaged by the Company as software developers of the Company's internet casino, are also seeking an injunction to prevent the Company from using the architecture and specifications developed by the Plaintiffs; an order of the court to turn over any revenue and profit earned by the Company from the Company's internet casino; and an order that the Plaintiffs own all the copyright in the software developed by them. The Company denies all the allegations of the Plaintiffs and intends to defend this action and file counterclaims against the Plaintiffs, according to a release by the company.

In other legal action, Finkelstein, Thompson & Loughran gave notice that a Class Action Complaint was filed July 10, 1998, in the United States District Court for the Middle District of Florida, Jacksonville Division, alleging violations of the Securities Exchange Act of 1934 ("the Exchange Act"). Plaintiffs seek to represent a class of persons who purchased the common stock of Gaming Lottery Corporation (Nasdaq: GLCCF) ("Gaming Lottery" or "the Company") between January 5, 1998, and June 22, 1998, inclusive (the "Class Period").

The Complaint names Gaming Lottery and certain of the Company's officers and directors as defendants, alleging that these parties violated Sections 10(b) and 20(a) of the Exchange Act, as well as SEC Rule 10b-5 promulgated thereunder, by originating a series of materially misleading statements and omissions concerning the Company's ability to successfully launch its Internet Casino by the promised launch date during the Class Period. Specifically, Plaintiffs allege, among other things, that the defendants misrepresented that the Company would be able to launch its "GalaxiWorld" Internet Casino by the promised April 30, 1998 date, when in fact the Company knew or recklessly disregarded the technical difficulties it was facing and the impact that these difficulties would have on the launch. In addition, Plaintiffs allege that after the launch date was missed, Gaming Lottery continued to make misrepresentations concerning the extent of the technical problems and the resulting delay.

"These misrepresentations and omissions had the aggregate effect of artificially inflating the share price of Gaming Lottery's stock, until the truth was revealed at the end of the Class Period. Between June 2 and June 22, 1998, the stock fell from 4 1/8 to close at 9/16 following the Company's revelation of the adverse facts," said a release from the law firm.

In yet another matter, the Canadian Derivatives Clearing Corporation (CDCC) which is the clearing corporation for derivative securities traded on The Montreal Exchange, The Toronto Stock Exchange and The Toronto Futures Exchange. Canadian Derivatives Clearing Corporation (CDCC) has been notified by the Toronto Stock Exchange that Gaming Lottery Corporation ("GLH") has declared a one-for-seven consolidation of its outstanding common shares. The consolidation is effective on Friday, July 10, 1998. CDCC will adjust contracts effective Monday July 13, 1998. Pursuant to Terms of Adjustment Section B-606, all GLH options will be adjusted as follows:

Effective Date: CDCC will adjust contracts as of the opening of business on Monday July 13, 1998.
Option Symbol: GLQ
LEAPS (R) Symbol: none
Number of Contracts: 1 GLQ for every 1 GLH held
Strike Prices: This adjustment will be made for all existing series.
Strike Prices will be adjusted as indicated below:
Existing Strike PriceStrike Price on effective dateNew Strike Price Code
535 /6G
642 /7Y
857 /1X
Multiplier: 14

New Deliverable: 14 common shares of Gaming Lottery Corporation CDCC will not adjust any outstanding escrow receipts. Members who want to maintain margin relief for their entire position are required to deposit additional escrow receipts.