U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
(Amendment #1)
(Mark One)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
NET-FORCE SYSTEMS INC.
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(Name of Registrant in its charter)
ANTIGUA and BARBUDA
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(State or other jurisdiction of
incorporation or organization)
#P.O. BOX W-645
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THIRD FLOOR DOLLAR BUILDING
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NEVIS STREET
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ST. JOHN'S, ANTIGUA
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(Address of principal executive offices and zip code)
(268) 481-1970
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(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
NONE
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Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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Title of each class to be so registered
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or 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:
[X] Yes [ ] No
Indicate by check mark which financial statements item the registrant has
elected to follow:
ITEM 17 [X] ITEM 18 [ ]
FORWARD LOOKING STATEMENTS
Net-Force Systems Inc. (the "Company" or "Net-Force") cautions readers that
certain important factors (including without limitation those set forth in this
Form 20-F) may affect the Company's actual results and could cause such results
to differ materially from any forward-looking statements that may be deemed to
have been made in this Form 20-F registration statement, or that are otherwise
made by or on behalf of the Company. For this purpose, any statements contained
in the registration statement that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as "may", "expect", believe", "anticipate", "intend",
"could", "estimate" or "continue" or the negative or other variations of
comparable terminology, are intended to identify forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
I. BUSINESS DEVELOPMENT
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A. NET-FORCE SYSTEMS INC.
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Net-Force Systems Inc. (the "Company") was incorporated in March 1999 under the
laws of Antigua and Barbuda as Net-Force Systems Inc. The company's corporate
Web site can be viewed on the World Wide Web at www.netforcesystems.com. The
Company currently licenses, owns, and operates an electronic website offering a
variety of casino gaming options as well as sports wagering, utilizing the
rapidly expanding medium known as the Internet. On August 5, 1999, a wholly
owned subsidiary called Netforce Entertainment Inc. was incorporated under the
laws of Antigua and Barbuda. Netforce Entertainment Inc. acts as the operating
company for all business activities relating to the online gaming operations.
Netforce Entertainment Inc. licenses proprietary Internet casino software and
systems from Starnet Systems Inc., formerly Softec Systems Caribbean Inc.
("Starnet") and processes and collects revenues generated from the its Internet
gaming Web sites with the assistance of EFS Caribbean Inc. ("EFS"). The Company
oversees the Web sites has implemented a substantial marketing program with
initial advice from Starnet. Starnet and EFS are wholly owned offshore
subsidiaries of Starnet Communications International Inc., which is
headquartered in Antigua.
The Company, including its subsidiaries, employs 6 full time persons. The
majority of these individuals are either involved in developing and implementing
a marketing strategy for the Company or are clerical staff.
B. NET-FORCE SYSTEMS INC. CORPORATE HISTORY
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In March 1999, the Company filed its Articles of Incorporation with the Director
of International Business Corporations, Government of Antigua and Barbuda as
Net-Force Systems Inc., in which, among other things, the Board of Directors was
elected as follows: Terry G. Bowering and Douglas N. Bolen. The authorized
capital of the Company consists of 100,000,000 Common Shares and 50,000,000
Preferred Shares. On March 15, 1999, the Directors, by way of Organizational
Consent of the Directors of the Company, accepted the stock subscriptions and
payment for the number of shares issued to the individuals referred to above at
a price of $0.001 per share. In addition, the Directors appointed Terry G.
Bowering to the office of President, CEO and Chairman of the Board, and Douglas
N. Bolen to the office of Secretary.
On March 15, 1999, the Company accepted subscription agreements from six
entities to acquire securities of the Company pursuant to a Rule 504 offering
under Regulation D. The Board authorized the Company to proceed with the sale of
its shares pursuant to the subscriptions received for the sale of 3,000,000
Common Shares at a price of $0.01 per Common Share. Pacific Stock Transfer
Company was appointed as the Transfer Agent of the Common Shares of the Company.
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II. BUSINESS OF THE ISSUER
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Netforce Entertainment Inc. ("Netforce Entertainment") was incorporated on
August 5, 1999 pursuant to the International Business Corporations Act of
Antigua and Barbuda and is based in Antigua. Netforce Entertainment is a wholly
owned subsidiary of the Company and acts as the operating entity for the
Company's online gaming operations.
Netforce Entertainment Inc. currently owns and maintains an international gaming
Web sites called Antigua Online Sportsbook and Casino located on the World Wide
Web at www.AntiguaOnlineCasino.com and www.AntiguaSportsbook.com. Netforce
Entertainment Inc. has entered into agreements with software vendors, including,
Starnet for the rights to use Starnet's proprietary Internet gaming software,
and EFS for the use of EFS's electronic financial conversion system in relation
to the processing of credit cards. Starnet and EFS are wholly owned subsidiaries
of Starnet Communications International Inc.
Starnet, an Antigua corporation, is in the business of licensing complete,
customized Internet gaming systems to third-party offshore gaming license
holders. Starnet currently supports in excess of 45 such licensee's operating
worldwide and has endorsed Net-Force Entertainment as a licensee. Starnet
provides customized software, Web site development and management on its
network, custom database systems to manage player accounts, and technical
support. Netforce Entertainment Inc., has entered into a software licensing
agreement with Starnet (See Exhibit 6.1) whereby Starnet will licenses certain
Internet casino software to Netforce Entertainment Inc. and has developed the
graphical front end of the gaming site in exchange for a one-time payment and a
percentage of the gross revenues from the Company's Web site (see Exhibit 6.1).
Starnet hosts the Company's offshore subsidiary's Web sites. Starnet also
provides and maintains all hardware necessary for the operation of the Web site
and provides a complete transaction processing system that allows players to
deposit funds for use of the games. The hardware is maintained in Starnet's
offices in Antigua.
Net-Force Entertainment plans to establish merchant accounts with several
international banking institutions for the purpose of accepting credit cards
on-line to facilitate fast and efficient payment for its Internet Gaming
customers world-wide. To ensure the security of funds transfers over the
Internet, the subsidiary utilizes the services of EFS. EFS, also an Antigua
corporation, and wholly-owned subsidiary of Starnet Communications International
Inc., is in the business of securely converting electronic funds between
financial institutions and other companies. Through alignments with major banks,
EFS processes conversions of worldwide currencies into "e-cash." EFS utilizes
Starnet's proprietary STAR-MX encoding and processing technology to process tens
of thousands of Internet credit card transactions per month.
The Starnet license will allow the Company to establish itself as a leading
Internet provider of gaming and sports wagering. Through the Company's
subsidiary, it currently offers via the Internet up to 25 casino style gaming
opportunities, including baccarat, Japanese Pachinko, Chinese Pai Gow Poker,
blackjack and video poker as well as a pari-mutuel sports betting service. The
initial term of the license is one year, renewable indefinitely unless the
Company gives the licensor written notice of termination of the license at least
45 days prior to the end of any one-year period.
On August 5, 1999, Netforce Entertainment Inc. was approved for and received an
official gaming license from the Antigua and Barbuda Free Trade and Processing
Zone enabling it to legally conduct Virtual Casino and Sports Wagering
Operations (see Exhibit 6.2). Antigua is a jurisdiction that has clearly defined
Internet Gaming legislation in place that licenses and regulates Internet Gaming
Operators. Antigua charges license holders an annual license fee to maintain the
gaming license in good standing.
The International Press recognizes Antigua and Barbuda as the leader in the
regulation of the Internet Gaming industry. At a time when the issue of
regulation is being focused upon by the US media, a reputation of this kind is
of great importance to the Company and most especially to the Internet gambler.
Antigua and Barbuda is an independent country that has deemed Internet Gaming to
be a legitimate and legal business activity protected and supported under
enacted legislation on that Caribbean island nation. Of vital importance, Cable
and Wireless (West Indies) Telecommunications Company has established Antigua as
a primary hub to facilitate the Internet Gaming industry for its regional
network of submarine fiber-optic cables laid across the Atlantic and Caribbean
enabling Antigua to offer diversified high quality Internet connections into
North America.
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Net-Force Entertainment Inc. is now fully licensed and regulated by the Antigua
and Barbuda Free Trade & Processing Zone under clearly defined legislation in
that sovereign nation. Netforce Entertainment Inc. has the added distinction of
having acquired the "preferential seal of approval" status from the Antigua and
Barbuda Free Trade and Processing Zone. The Company proudly displays this seal
on the Gaming Web sites with an associated link to the Antigua and Barbuda Free
Trade & Processing Zone Web site so that consumers (players) will be able to
contact the Antigua regulatory authorities with any concerns, complaints and/or
inquiries. This distinction further signifies that the Company has consented to
and successfully undergone intense scrutiny under the legislated due diligence
requirements in Antigua. This mechanism provides the consumer (player) recourse
to register any complaints with the Antigua regulatory body and instills
credibility and confidence in the operator and the industry as a whole in that
particular jurisdiction. Netforce Entertainment's primary gaming Web site is
appropriately named Antigua Online Sportsbook & Casino, capitalizing on the
recognized brand identity that Antigua has established as a result of becoming
the hub of the Internet Gaming Industry. The Web sites' URL's can be found on
the World Wide Web at www.AntiguaOnlineGaming.com, www.AntiguaOnlineCasino.com,
and www.AntiguaSportsbook.com.
The Company's policy is to accept subscriptions only from persons over the age
of 21 years and believed to reside in jurisdictions that are not known to
expressly prohibit Internet gaming.
To date, the Company's activities have included the market analysis, Web site
development, acquisition of a gaming license, obtaining the software license
from Starnet and developing the general infrastructure necessary to fulfill the
Company's business objectives. The development of the Company's primary gaming
Web-site, www.AntiguaOnlineCasino.com, was completed in early December, 1999.
After sufficient testing, the site officially went live as of December 20, 1999
and is operational and is accepting wagers as of December 20, 1999. A
comprehensive marketing program has been implemented to officially launch the
site as of early January 2000.
Through the license acquired from Starnet, the Company offers up to 25 virtual
casino games and live sportsbook wagering on most of the world's major sporting
events. The company also intends to offer twenty-four hour live simulcast and/or
pari-mutuel betting on any of 15 horse and dog racing tracks in North America,
as soon as the product is ready. Starnet anticipates that the development of
this product will be complete and ready to offer online by mid-2000. Included
with the software license is the procurement of an initial Internet gaming
license, concept development and design of the Web based casino(s), all
odds-making rules and regulations, complete graphical user interface with
sophisticated visual and sound effects to create a total gaming experience, real
time wagering, complete secure electronic funds transfer, retention and analysis
of all gaming data, including win/loss, game preferences and monitoring of
player activities, administration and complete 24 hour per day, 7 days per week
customer support services, ongoing customization of the Web sites, the
monitoring of all funds flow, the hosting of server software, customization and
server integration, the provision of credit card processing and other banking
services, discussion, liaison and co-operation with testing agencies, regulatory
boards, governing bodies and governments and marketing consulting.
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III. BUSINESS AND MARKETING STRATEGIES
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The Company intends to capitalize on the evolving opportunities on the Internet
by developing and marketing Internet casinos and sports wagering Web sites. The
Company's business strategy is designed to promote the Net-Force brands and
strive for the industry leadership position by focusing on gaming, providing an
innovative and easy to use concept, acquiring players on an efficient basis,
maximizing player retention and expanding its player base through multiple
marketing channels. The Company believes that this strategy enables it to reduce
reliance on any one source of players, maximize brand awareness and lower
average player acquisition costs. By combining expertise in marketing,
sophisticated computer software systems and a focus on excellent customer
service, the Company believes that it will be able to deliver a unique total
entertainment experience to players. With the Company's mandate of providing a
gaming experience with unmatched options and state-of-the-art technology
allowing for three-dimensional displays and a wide gaming selection, Management
believes players will be provided with a product unparalleled in the
marketplace. Management believes that the Internet is a well suited medium for
the provision of entertainment products and services, especially those related
to casino games.
THE COMPANY'S SERVICES AND PRODUCTS
The Company has established Web sites, located on the Internet at
www.AntiguaOnlineGaming.com, www.AntiguaOnlineCasino.com and
www.AntiguaSportsbook.com, at which it offers a comprehensive interactive gaming
service including a virtual casino and live online sportsbook wagering service.
A pari-mutuel wagering service for horse and dog racing is in the planning
stages and is anticipated to be added to the product line in mid 2000. The Web
sites are accessible to the general public, however only established customers
or players are permitted to play the gaming opportunities offered for money.
The Company's Web sites are accessible by a minimum hardware configuration
consisting of a 486 personal computer with Windows 95 or greater, with 16 Mega
Bites RAM, 20 Mega Bites free hard disk space, a 14,400 modem and a direct PPP
Internet connection. All games are provided in a Windows-based, menu driven
format with "point and click" interactivity. Players who wish to conduct gaming
operations at the Web sites are able to subscribe over the Internet by
completing an application appearing on the Web sites. Part of the application
process requires that the subscriber open an account and make a minimum deposit
with the company of $20.
The Company's Web sites are designed to invite the players to sign up and apply
for a casino and sports book wagering membership. After a player's membership
application is received and reviewed by the Company, it is either accepted or
rejected based on criterion including, but not limited to, age and geographic
location of the player. The Company's policy is to accept subscriptions only
from players over the age of 21 years and believed to reside in jurisdictions
that are not known to expressly prohibit Internet gaming. The Company intends to
use, among other techniques, Internet databases that publish the local addresses
of most Internet domain names in order to verify that the subscriber resides in
a jurisdiction that is not known to expressly prohibit Internet gaming. Upon
acceptance, the approved player is allowed to download the gaming software over
the Internet for installation on their personal computer. The Company then
provides the player with a username and password through which the player is
able to access the computer servers on which the software is hosted, over the
Internet through their Internet service provider.
The Company's Web site allows the player to review all the terms, rules and
conditions applicable to gaming and other uses at the Web sites. All gaming
winnings and losses are debited and credited to the player's account on a
real-time basis. All games are conducted pursuant to house rules and advantages
that are published at the Web sites and which are at least favorable or more
favorable than those used by the major casinos in Las Vegas, Nevada.
The Company has completed the process of designing the interfaces between the
players and the Starnet software for Antigua Online Sportsbook and Casino. The
Company has beta tested the Web site for ease of use, clarity and accuracy prior
to officially launching the same on December 20, 1999. The gaming opportunities
offered at the Web site have been designed, in conjunction with Starnet, to
evoke sights and sounds similar to a Las Vegas style casino. Computer graphics
present the "lobby" of the casino, and consist of several menu items that the
player can choose to enter. The Company includes in these menu choices the
various gaming rooms, including black jack, baccarat, slot machines, roulette
and video poker. In addition, the player has the option to use the sports
betting option to place bets on sports events taking place around the world. The
players use the Windows format of commands to carry out the gaming activities.
The Web sites also include special effects such as three-dimensional displays,
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sounds of cards shuffling, coins falling from virtual machines and other
generally familiar background casino sounds. In addition to English, the Company
also intends to offer players the ability to engage in the proposed gaming
activities in such languages as Spanish, German, Japanese and Chinese or in
whatever languages and/or ethnic identities as Management deems practical in
order to facilitate worldwide expansion of its player base.
The Company intends to conduct continuing development of its Web sites (and such
additional Web sites as the Company deems appropriate with varying themes and
languages) and the products offered thereat in accordance with its players'
demonstrated preferences, demographics, and the evolution of new technologies.
The Company's goal is to utilize the Starnet software and such other software,
which may be identified by the Company as useful to it in order to provide the
players with gaming services, which is competitive, innovative and easy to use
in the Internet gaming industry.
MARKETING
The Company has implemented a comprehensive marketing program in conjunction
with its software provider. The Company has customized various facets of the
marketing program for specific cultures including prospective Asian, European,
South African, South American and Indian players. Starnet combines
state-of-the-art Internet broadcasting capabilities with a fully equipped
multimedia production studio to create an advanced Internet production facility.
The Company believes that international markets will represent a significant
portion of the Company's revenues since many of the products and services
intended to be offered are not currently available in these markets. The
Company's Web sites are intended to contain translations of account registration
forms and playing instructions and the proposed customer service representatives
are intended to be fluent in all languages offered at the Web sites.
The Company has established its offices in St. John's, Antigua, British West
Indies at the third floor, Dollar Building, Nevis Street, P.O. Box 2032, St.
John's, Antigua, British West Indies. From these offices, the Company conducts
all head office administrative activities. From these offices, Netforce
Entertainment Inc. conducts all marketing and administrative operations of the
Internet Gaming operations. From the marketing office, the Company promotes the
Internet casino gaming and sports wagering Web sites. The marketing program
incorporates the following strategies to target its players:
Strategic Alliances with Major Content and Service Providers. The Company
intends to seek to enter into strategic alliances with major Internet content
and service providers in order to enhance its new customer acquisition efforts,
increase purchases by current customers and expand brand recognition. The
Company is striving to enter into alliances with Internet search engines
services that provide for the Company to be the premier online gaming provider
on certain of their sites with the exclusive right to place gaming banner
advertisements and integrated links to the Net-Force sites on certain
gaming-related Web pages. To date, no such alliances have been identified or
entered into by the Company.
On-Line and Traditional Advertising. The Company promotes its brands through an
aggressive marketing campaign using a combination of on-line and traditional
advertising. The Company advertises on the Web sites of major Internet content
and service providers, and targeted gaming-related Web sites. The Company's
traditional advertising efforts include print advertising in major magazines and
gaming related publications, and may also include radio advertising and
television advertising.
Direct Marketing. The Company uses direct marketing techniques to target new and
existing players with communications and promotions. The sends a personalized
e-mail newsletter to registered players that includes recommendations based on
demonstrated player preferences and prior usage.
Banner Advertisements. Banner advertisements are rectangular graphical/text
images that can be positioned in various strategic places on Web pages and
search engines on the Internet. When a potential player clicks on the banner
advertisement, the player's Web Browser points the player to the advertiser's
home page. The Company pays for such banner advertisements on a variety of Web
pages and search engines, and participates in a banner exchange program. The
Company also intends to enter into agreements with Webmasters in which
Webmasters agree to place Company banner advertisements on their Web pages in
exchange for a commission for each unique player who clicks through banners to
the Company's home page or for a percentage of the profits generated by the
Webmaster.
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Submissions to Search Engines. Potential players often learn about Web sites on
the Internet from listings on search engines. The Company has submitted its
URL's and a brief description of its Internet casino gaming and sports wagering
Web sites to various search engines so that the Company's information is
available to potential players who use search engines to locate Internet gaming
sites.
Player Incentive Programs. In order to attract new players, the Company has
instituted an initial balance credit promotion. This program is designed to
attract new players by offering a credit to new player accounts in amounts based
on a percentage of the amount of the initial deposit by the player. To attract
repeat players to the Web site, the Company institutes periodic prizes, cash
draws, special jack pots, competitions and/or a frequent player program where
the player would be rewarded based on the frequency and dollar amount of play.
Development of Related Web Sites. The Company may design related Web sites such
as a site containing tips on how to play certain casino games or a site
providing interesting gaming news. The company intends to design, develop, and
promote a sports information portal site which will feature up-to-date sports
information content including scores, statistics, news, headlines, and odds on
all of the world's major sporting events. This site will be linked to the online
sportsbook to generate traffic with the intention of enhancing revenues. Banner
advertisements would then be placed on all pages of each related Web site to
attract players to the Company's Internet gaming and sports wagering Web sites.
Celebrity Endorsements. The Company intends to seek out a number of celebrities
ranging from film and television to sports professionals to endorse a Web site
developed by the Company. The result of such celebrity endorsement would be to
entice new players to establish accounts based on the endorsement of the chosen
celebrity. To date, no such celebrity endorsements have been confirmed by the
Company.
Distribution of a CD-ROM. The Company has, in conjunction with Starnet, produced
a CD-ROM on which the Company's casino games are contained. When an individual
obtains the CD-ROM, they are able to play all the Company's casino games without
the necessity of wagering real money. This promotional idea is intended to give
the Company the ability to distribute, to a large number and variety of
potential players, quality examples of the services and products offered at its
Web sites. Once a potential player plays the games offered for fun, the
Company's hopes that the potential player may make an application on the
Company's Web sites and eventually play the same games for money. The Company
intends to distribute such CD-ROM's by direct mail-outs, insertions in
magazines, distributions through Internet Service Providers to their subscribers
and distributions at tradeshows.
IV. INDUSTRY OVERVIEW
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A. Global Gaming Industry
UNITED STATES OF AMERICA
In the U.S., Americans legally wager over $500 billion per year. This level of
legalized gambling is the result of rapid expansion in the industry over the
past decade. Since 1988, the number of states allowing casino gambling has
increased from two, Nevada and New Jersey, to 24, (including those with Native
American Casinos) with all but three states having some form of legalized
gambling. U.S. casino revenues were projected to be about $24 billion in 1998,
reflecting an expected 6% growth from 1997, lower than the double-digit
increases earlier in the decade. Gambling in the U.S. has many forms, including
casinos, horse and dog racing, government run lotteries, riverboat casinos and
Jai Alai, all of which are highly regulated. At the present time, there is no
existing regulation of Internet gambling in the U.S. In July 1998, the U.S.
Congress defeated a proposed bill (the "Kyl" bill) that would prohibit gambling
over the Internet, but exempted certain forms, such as horse and dog racing, and
lotteries. In May 1999, the Kyl bill was re-introduced, in a less stringent form
(See VII "Government Regulation").
Geographic growth prospects have remained relatively flat over the past two
years. With more people employed and improved economic conditions in various
parts of the United States, states and localities have fewer incentives to
encourage gaming development as a prospective source of taxes, tourism and jobs.
Additionally, economic downturns in Asia, and to a lesser extent, South America,
have led to significant decreases in "high roller" traffic to North American
gaming locations, such as Las Vegas and Atlantic City. In response to the
downturn in travelers from this section of its revenue base, the traditional
gaming companies in Las Vegas have continued their rapid growth campaign to
transform the city from a gaming community into a world wide family resort
destination. In recent months Las Vegas in particular has made strides in trying
to upgrade the entertainment it offers. Major U.S. casino destinations are
competing more for resort and vacation population than the average gambling
client.
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Pari-mutuel, Lottery and Video Gaming
Pari-mutuel wagering is currently authorized in 43 states in the United States,
all provinces in Canada, and approximately 100 other countries around the world.
The 117 racetracks in 35 states in North America have revenues of $4 billion
dollars from their racing alone.
Video and slot machine gaming constituted one of the fastest-growing sectors in
the gaming industry in the 1990s. The installed video slot machine equipment
inventory base has expanded from approximately 153,000 devices in 1990 to over
500,000 terminals today. Broadly, the market can be divided between the
government systems market (video lottery gaming or VLT) and the casino market
(includes traditional land-based facilities, riverboats and Native American
Class III properties). The video gaming market is different from the devices
used in the traditional casino market. Most video lottery terminals are located
in bars, restaurants and convenience stores where gaming is not the principal
attraction. The stakes on the devices typically range from $0.25 - $2.50 per
play, and payoffs are usually capped between $150 - $1,000 per day. In addition,
some venues distribute the payout from these devices in a ticket form, which is
redeemable for cash from the operator. There are currently slots or video gaming
devices operating in racetracks, bars and restaurants in the following states:
Delaware, Louisiana, Iowa, Rhode Island, West Virginia, New Mexico, Montana,
Oregon and South Carolina and are widely dispersed in Canada.
Although there are no large public gaming operators with significant exposure in
track or ambient VLT operations except for Caesars (now owned by Park Place
Entertainment) - equipment manufacturers, such as IGT, Alliance Gaming, and
Powerhouse Technologies, continue to hold a stake in this potentially growing
market niche. In addition, competition posed by track and ambient VLT operations
could affect casino operations in several key markets, including, Atlantic City.
In its most recent report on the worldwide lottery industry, International
Gaming and Wagering Business reported that total global lottery sales were up
significantly (4.5%) in 1998, compared to 1997. For most lotteries, the increase
stemmed from a combination of increased sales and the rebounding of local
currencies versus the U.S. dollar. In general, most states' lotteries
experienced record setting years, in most cases erasing 1997's declines.
(International Gaming & Wagering Business, Vol. 20, Num. 5, May 1999). The only
region reporting continued declines from 1997 was Asia, which is attributable to
the continued weakness in Asian currencies. However, some smaller Asian markets,
such as China's Social Welfare Lottery saw sales virtually double, in most cases
due to the increase in instant ticket sales. Instant tickets and spiel games
(those which Net-Force intends to deliver to its players) once again experienced
an increase in market share. Lotto and spiel games exceeded 40% of all lottery
sales in 1998. International sales of state lotteries in jurisdictions such as
Liechtenstein and South Africa begin promotions revolving around the millennium.
While little focus has been made on the Internet market, the AILE/Intertoto
recently addressed the issue at a conference held in Washington, D.C. (See
www.aile.com). The conference members agreed that a wait and see strategy was
the best approach at the present time, with the AILE/Intertoto maintaining a
watchful eye to ensure that the Internet industry develop an international legal
framework that mirrors that of the current successful system of national laws.
INTERNATIONAL GAMING MARKETS
Gaming outside of the U.S. and Canada is a mixture of active markets, large and
small resort destinations, and strictly regulated, often state-run, operations.
Asia and South Africa provide the most dynamic markets and opportunities for
growth, with Latin America and the Caribbean also active in the gaming industry.
Western Europe consists mostly of mature, state-controlled markets. The
following is an overview of selected foreign markets:
EUROPE
There were a total of 531 European Casinos generating gross Revenues of
$5,336,971,600 US as of February 1999 (International Gaming and Wagering
Business, 1999 European Casino Report, February 1999).
The European Commission last reviewed the issue of gambling in 1991 and found no
need for EU-wide regulation. This position has remained in accordance with the
many of the EU's member states' positions that gaming, including Internet
gambling, should remain an issue for the sovereign state (Cabot, Anthony, THE
INTERNET GAMBLING REPORT III, "European Overview," by Steven Philippsohn, (Trace
Publications, Las Vegas), 1999, P.211-216). Among the member nations of the EU,
views on Internet gambling vary widely. Some states are slowly accepting the
idea of interactive gaming. For example, the Dutch government recently allowed
telephone betting, while certain European states, notably Finland and Sweden,
are allowing providers to offer Internet gambling, but only to their own
respective residents. Conversely, the German position on Internet gaming
reflects the view taken on traditional forms of gambling. That is, that games of
chance are morally corrupting and should only be allowed in connection with
charitable purposes.
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Countries such as France, Italy, Spain, England and Portugal are merely
monitoring Internet gambling development to see if it becomes a problem. This is
consistent with these nations' actions toward e-commerce in general, of which,
they have no immediate plans to introduce new legislation.
Prospects for growth in Europe are brightest in Scandinavia, Spain and Eastern
Europe. Sweden is setting up its regulatory system for its new casino market,
and state-sanctioned monopolies are being challenged in Norway and Finland in
the casino and machine markets. In Spain, a more relaxed regulatory climate is
emerging, and new casino operations are coming on line. Three Spanish firms
dominate this market: Cirsa/Unidesa, Recreativos Franco and Sega.
Eastern Europe continues to grow and refine is regulatory structures.
Uncertainty and prohibitions against foreign investment, however, hamper
participation by international operators. Casino Austria is a major player,
although its activity there is shrinking.
The path which European regulation of Internet gambling is taking is more akin
to that which the Australian states are taking. The cultural differences between
European countries, however, are more marked than between the Australian states.
The consequent diversity in attitudes to gambling may slow down the process
(Steven Philippsohn, Internet Gambling, European Overview," 1998, p.215).
ASIA
Large capital projects and debt levels in Australia left many casinos highly
exposed to the Asian economic crisis. Stung by a US$150 million drop in revenues
from international players, stock prices for Australia's leading casinos are now
a fraction of previous levels. The domestic market remains solid, however, and
long-term prospects are optimistic. The next year should bring the beginning of
a recovery and a more realistic assessment of the international market.
Despite the economic crisis, the casino industry in the Philippines is
experiencing the strongest expansion in the region, with three new operations
having opened in recent years and another scheduled to open in 1999. The Manila
market is being reorganized and partially privatized, providing the opportunity
for change and market growth. Three publicly traded companies are active in the
Philippines casino market: Starwood Hotels & Resorts, Malaysian-based Metroplex
and Manila-based Belle Bay Corporation. Taiwan offers the most interesting
potential for change. The government took another step toward legislation in
1998 by commissioning a report recommending a tightly regulated industry of
casinos in recreational areas. Foreign investment would be permitted up to 40%.
AFRICA AND THE MIDDLE EAST
The most significant activity is occurring at opposite ends of the region. South
Africa is progressing with the transformation of its casino industry and the
opening of a route market for gaming devices. The current estimated size of this
market is US$1.5 billion, with the majority of revenues coming from casino
gaming operations (US$935 million). The Middle East market is growing in
response to the closing of gaming operations in Turkey and limited choices in
Northern Europe. With gaming illegal in Israel, further growth in border areas
is expected. New operations are expected to grow quickly in Palestine-controlled
Jericho to support public demand. In Egypt, across the border from Eilat, major
project development is underway in the Taba Heights. Additional operations have
also opened recently in North Africa, with more than the planning stages.
LATIN AMERICA
Gaming in Latin America remains decentralized and difficult for operators.
However, for patient companies with deep pockets, the market potential in the
region is large, especially in countries such as Argentina and Peru. The level
of optimism has been raised in Brazil and Mexico for gaming legislation in the
near future. Legislation in Brazil, the most populous country in Latin America,
would affect regional markets that target Brazilian players, notable Argentina,
Uruguay and Paraguay.
Sodak Gaming, International Thunderbird, Starwood, Hilton Hotels (Conrad
International), IGT and also very active, especially Recreativos Franco,
Cirsa/Unidesa and Leisure & Gaming.
CARIBBEAN
Although dominated by small hotel and resort-based casino operations, gaming in
the Caribbean is expanding into new areas, as well as growing in established
markets. The Bahamas offers the most substantial casinos in the region, followed
by Puerto Rico and Aruba. Casinos can also be found on other islands such as St.
Maarten, Curacao, and Antigua.
B. Internet Entertainment Industry
-------------------------------
Internet gambling offers people the opportunity to play virtual sports,
horseracing, slot machines and other casino games without the inconvenience of
leaving their home. While Internet gambling provides some amount of competition
for existing casinos, it is not a substantial threat to the traditional gaming
industry. The social aspect of gaming - the primary reason for the
transformation of the Las Vegas gaming market into a destination leisure market
- - - cannot be replicated in the artificial environment of the Internet. Most
visitors to casinos are motivated by the ambiance of the casinos, not just the
opportunity to gamble. Small markets, however, may incur negative impacts
associated with Internet gambling as these markets have been established
themselves as leisure destinations.
9
The popularity of gaming has transcended beyond the physical boundaries of the
casinos to the borderless and unregulated realm of the Internet. Gambling Web
sites, offering computer users the opportunity to wager on such games as bingo,
sports and horse wagering, poker and roulette, are beginning to thrive on the
Internet. To participate as one of these Web sites, the player needs only to set
up an account, typically supplying credit card information, wire transfers or
E-cash. With a click of the mouse, the player is now able to gamble. Losses are
typically deducted from the players' credit cards or established credit line,
and winnings, upon the request of the player, can be electronically transferred
or mailed to the person. Modern technology has eliminated the physical
requirement of visiting a casino or racetrack before engaging in such games as
slot machines, black jack, roulette and thoroughbred or harness racing. With
Internet gambling, patrons need not leave the comfort of their homes or offices.
ESTIMATED WORLD-WIDE INTERNET GAMBLING REVENUES ($ MILLIONS)
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
# of home users (in millions) 46 81 121 145 159
% users conducting online transactions 15% 18% 21% 24% 27%
Potential Internet Gamblers (in millions) 6.9 14.5 25.4 34.8 43
Per-capita expenditure $146 $154 $155 $160 $160
Potential Internet gambling market $1,009 $2,182 $3,933 $5,555 $7,080
Estimated actual Internet Gambling revenues $300 $651 $811 $1,520 $2,330
Penetration rate 30% 30% 21% 27% 33%
- ----------------
Source: Christian/Cummings Associates, Inc.
The popularity of Internet gambling is increasing as illustrated by the growth
of gaming-related Web sites. Currently, more than 300 gambling websites are
offered on the Internet, which Management estimates are owned by approximately
100 operators. With the current licensing of gambling Web sites by foreign
governments and increased usage of Internet services, this market will continue
to grow. It is estimated that almost 300 million people will use the Internet by
the year 2000. With casino gambling garnering public acceptance as a form of
entertainment and Internet usage increasing, every personal home computer now
has the capacity to become a "cybercasino" Current market size estimates for
Internet gambling are $650 million in 1999, growing to more than $10.0 billion
by 2002 according to Datamonitor.
INTERNATIONAL OUTLOOK ON INTERNET GAMING
While the U.S. is debating whether to prohibit Internet gaming or create
legislation to severely regulate the industry, other countries are viewing it as
a revenue generator. Most Internet gambling Web sites are located in the
Caribbean and South America, along with other sites in Australia, South Africa,
the Netherlands and New Zealand. The Caribbean governments charge Internet
"casino" operators up to $100,000 annually for a license and require operators
to post bonds. In Antigua, the government requires the employment of local
residents and payment of education taxes. The governments of Liechtenstein and
Finland operate their national lottery via the Internet.
Australia and New Zealand have recently decided to legalize Internet gambling,
choosing to regulate and tax the activity as opposed to banning it. The State of
Queensland in Australia passed a law in March 1998, licensing cybercasinos and
sports betting operations. The other Australian states are expected to pass
similar laws. The states of Australia maintain pro-gambling environments -
Australians spend more than $40 billion a year gambling, or $2,000 per person
per year on average ("Aussies Love Their Gambling." LAS VEGAS REVIEW-JOURNAL,
Rohan Sullivan, March 9, 1998). Placing bets over the phone is legal in
Australia, making legalization of Internet gambling a less controversial issue.
To regulate the industry, the governments propose the establishment of gambling
service providers who will check the identity and address of the gambler.
Winnings will then be taxed accordingly, with the taxes forwarded at the
appropriate rate for the state in which the service provider is based.
On May 15, 1998, European gambling regulators from 18 European countries signed
a recommendation on good practices for Internet gambling services. In the
non-binding statement, the countries agreed that European countries should be
free to regulate Internet gambling services. In addition, the countries should
ensure that Internet gambling is not used for money laundering or under-aged
gambling.
10
V. COMPETITION
-----------
The online commerce market is new, rapidly evolving and intensely competitive,
and the Company expects that competition will further intensify in the future.
Barriers to entry are minimal, and current and new competitors can launch new
sites at a relatively low cost. In a search of the Internet by the Company,
there were over 300 online gaming sites as of January 1999. In addition, the
broader gaming industry is intensely competitive.
The Company intends to compete with a variety of companies, including (i) online
vendors of gaming and gaming related products, (ii) online service providers
which offer gaming products directly or cooperation with other retailers, (iii)
traditional providers of gaming products, including specialty gaming providers,
and (iv) other retailers that offer gaming products. Many of these traditional
providers also support dedicated Web sites, which may compete directly with the
Company.
The Company believes that the principal competitive factors in its online market
are brand recognition, selection, variety of value-added services, ease of use,
site content, quality of service, technical expertise and product availability.
Many of the Company's intended and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than the Company. The Company
is aware that certain of its proposed competitors have and may continue to adopt
more aggressive pricing or marketing policies and devote substantially more
resources to Web site and systems development than the Company. Increased
competition may result in reduced operating margins, loss of market share and a
diminished brand franchise.
There can be no assurance that the Company will be able to compete successfully
against intended and future competitors. New technologies and the expansion of
existing technologies may increase the competitive pressures of the Company.
There can be no assurance of the economic success of any marketing effort by the
Company since the revenues derived from the Internet casino gaming and sports
wagering Web sites depend primarily upon the site's acceptance by the
international public, which cannot be predicted with certainty. To be ultimately
successful, the Company will be faced with the challenge of marketing its gaming
Web sites to a variety of foreign cultures. The Company's Web sites will compete
for consumer acceptance with similar Web sites hosted by other companies. As a
result, the success of the Company's marketing efforts is dependent not only on
the quality and acceptance of the Company's virtual casino games and on-line
sports wagering Web sites, but also on the acceptance of other competing virtual
casino games and Web sites offered in the marketplace during the same time
period.
VI. RISKS
-----
A. RISKS RELATED TO THE BUSINESS
No Operating History. The Company was recently formed and has no operating
history. Since incorporation, the Company has expended resources on technology,
license fees, Web site development, hiring of personnel and startup costs. As a
result, losses were incurred since incorporation and management expects to
experience operating losses and negative cash flow for the foreseeable future.
Management anticipates losses will continue to increase from current levels
because the Company expects to incur additional costs and expenses related to:
brand development, marketing and other promotional activities; the addition of
customer service personnel; the continued development of the Web sites; the
expansion of service offerings and Web site content; and development of
relationships with strategic business partners.
There can be no assurance at this time that the Company will operate profitably
or that it will have adequate working capital to meet its obligations as they
become due. The Company believes that its success will depend in large part on
its ability to (i) offer aesthetic, interesting and diverse casino-style games
on its Web sites, as well as sports and pari-mutuel wagering, (ii) attract
players and provide them with outstanding service, (iii) instill consumer
confidence, and (iv) achieve name recognition. Accordingly, the Company intends
to invest heavily in site development, technology and operating infrastructure,
as well as marketing and promotion. As a result, the Company expects to incur
operating losses in the initial stages of its business and for the foreseeable
future.
No Assurance of Profitability. The Company's business is speculative and
dependent upon the acceptance of the Company's Web sites and the effectiveness
of its marketing program. The Company's only assets will be the offshore
Internet gaming Web sites, some administrative office furniture and equipment
and the revenues derived from the Web sites. There can be no assurance that the
Company's Internet gaming and sports wagering Web sites will be successful or
result in revenue or profit. There is no assurance that the Company will earn
significant revenues or that investors will not lose their entire investment.
11
Failure to Respond to Change. If the Company faces material delays in
introducing new services, products and enhancements, customers may forego the
use of the Company's services and use those of competitors. To remain
competitive, the Company must continue to enhance and improve the functionality
and features of the Web sites. The Internet and the online commerce industry are
rapidly changing. If competitors introduce new products and services, or if new
industry standards and practices emerge, the existing Web sites, technology and
systems may become obsolete. To develop the Web sites and technology entails
significant technical and business risks. The Company may use new technologies
ineffectively or may fail to adapt the technology to meet customer requirements
or emerging industry standards.
Intellectual Property Claims. Other parties may assert infringement or unfair
competition claims against the Company. Management cannot predict whether they
will do so, or whether any future assertions or prosecutions will harm the
business. If the Company is forced to defend against any infringement claims,
whether they are with or without merit or are determined in the Company's favor,
then the Company may face costly litigation, diversion of technical and
management personnel, or product shipment delays. Further, the outcome of a
dispute may be that management would need to develop non-infringing technology
or enter into royalty or licensing agreements. Royalty or licensing agreements,
if required, may be unavailable on terms acceptable to management, or at all.
Reliance on Trademarks and Copyrights. The Company intends to take steps to
protect proprietary rights which steps may be inadequate. Management regards
copyrights, service marks, trademarks, trade secrets and similar intellectual
property as critical to its success. The Company intends to rely heavily on
trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to protect
proprietary rights. Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which the Company
intends to provide its services. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, the Company may be unable to prevent
third parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of intended trademarks and other proprietary
rights.
Risks Inherent in a New Industry. Both the Internet and Internet-based casinos
are relatively new industries. The market for Internet and Sports wagering has
only recently begun to develop, is rapidly evolving and is characterized by an
increasing number of market entrants. As is typical in the case of a new and
rapidly evolving industry, demand and market acceptance for recently introduced
services are subject to a high level of uncertainty. There can be no assurance
that gaming and wagering on the Internet will become widespread, or that the
Company's Web sites will become widely used. If the market fails to develop,
develops more slowly than expected or becomes saturated with competitors or if
the Company's services do not achieve market acceptance, the Company's business,
operating results, and the financial condition will be materially adversely
affected. Because of the uncertainty regarding the legality of Internet wagering
in the United States, and the existing or possible prohibitions in other
jurisdictions, the Company will not permit play by Canadian residents, and may
be precluded from offering play to residents of other countries.
Online Commerce Risks - Reliance on Starnet. Concerns over the security of
transactions conducted on the Internet and other on-line services as well as
user's desires for privacy may also inhibit the growth of gaming and wagering on
the Internet. The activities of the Company are expected to involve the storage
and transmission of proprietary information, such as credit card numbers and
other confidential information. Any such security breaches could damage the
Company's reputation and expose the Company to a risk of loss, litigation and
possible liability. There can be no assurance that the Company's security
measures will prevent security breaches or that failure to prevent such security
breaches will not have a material adverse effect on the Company's business,
financial condition and results of operations. The Company is dependent on
Starnet for its software and the hosting of its Web sites. Business on the
Internet are subject to the risk of credit card fraud and other types of theft
and fraud perpetrated by "hackers" and on-line thieves. Credit card companies
may hold merchants fully responsible for any fraudulent purchases made when the
signature cannot be verified. Although credit card companies and others are in
the process of developing anti-theft and anti-fraud protections, and while the
Company itself will continually monitor this problem, at the present time the
risk from such activities could have a material adverse effect on the Company. A
party who is able to circumvent the Company's security measures could
misappropriate confidential information or cause interruptions in the Company's
operations. The Company may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate problems
caused by such breaches. If a compromise of the Company's security were to
occur, or if Starnet's software or Web site hosting fails, there could be a
material adverse effect on the Company's business, financial condition and the
results of operations.
12
Lack of Consumer Confidence. Concerns that a virtual casino's odds can be easily
and arbitrarily manipulated may deter customers from using the Company's Web
site. There can be no assurance that the Company will be able to instill
customer confidence in and alleviate negative perceptions about Internet gaming.
If the Company's efforts are unsuccessful, it could have a material adverse
effect on the Company's business, financial condition and the results of
operations.
Competition. The market for the Company's Internet gaming and sports wagering
services is intensely competitive. The Company's principal competitors include
other on-line Internet casinos. These competitors have longer operating
histories, greater name recognition, larger installed customer bases, and
substantially greater financial, technical and marketing resources than the
Company. The Company believes that the principal factors affecting competition
in its proposed market include name recognition, ability to develop aesthetic
and diverse casino-style games, customer confidence, ability to respond to
changing customer needs, and ease of use. Other than technical expertise and the
limited time available to enter the market, there are no significant proprietary
or other barriers of entry that could keep potential competitors from developing
or acquiring similar tools and providing competing services in the Company's
proposed market. The Company's ability to compete successfully in the on-line
casino and sports wagering business will depend in large part on its ability to
attract new players and respond effectively to continuing technological changes
by developing more sophisticated on-line casino games. There can be no assurance
that the Company will be able to compete successfully in the future, or that
future competition will not have a material adverse effect on the business,
operating results and financial condition of the Company.
Potential for indebtedness. There is no assurance that the Company will not
incur debt in the future, that it will have sufficient funds to repay its
indebtedness or that the Company will not default on its debt, jeopardizing its
business viability. Furthermore, the Company may not be able to borrow or raise
additional capital in the future to meet the Company's needs or to otherwise
provide the capital necessary to conduct its business.
No Assurance that Dividends Will be Paid. The Company does not currently
anticipate declaring and paying dividends to its shareholders in the near
future. It is the Company's current intention to apply net earnings, if any, in
the foreseeable future to increasing its capital base and marketing. Prospective
investors seeking or needing dividend income or liquidity should therefore not
purchase the Shares. There can be no assurance that the Company will ever have
sufficient earnings to declare and pay dividends to the holders of the Company's
Common Stock, and in any event, a decision to declare and pay dividends is at
the sole discretion of the Company's Board of Directors.
Government Regulation. The wagering and casino industry is subject to extensive
government regulation and licensing requirements in certain jurisdictions of the
world. Legal uncertainties may preclude the Company from offering its planned
Internet gaming in certain jurisdictions like Canada. Some jurisdictions may
impose restrictions, licensing requirements or prohibitions on Internet
wagering. At present, the Company does not anticipate any such restrictions,
prohibitions or licensing requirements in its target markets but no assurance
can be made that such restrictions, prohibitions or licensing requirements will
not arise which would materially adversely effect the Company's business,
operating results and financial condition of the Company.
Dependence on Key Personnel. The Company's success is substantially dependent on
the performance of its executive officers and key employees. Given the Company's
early stage of development in the Internet gaming business, the Company is
dependent on its ability to retain and motivate high quality personnel. Although
the Company believes it will be able to attract, retain and motivate qualified
personnel for such purposes, an inability to do so could materially adversely
affect the Company's ability to market, sell, and enhance its services. The loss
of one or more of its employees or the Company's inability to hire and retain
other qualified employees could have a material adverse effect on the Company.
Uninsured Losses. There is no assurance that the Company will not incur
uninsured liabilities and losses as a result of the conduct of its proposed
business. The Company plans to maintain comprehensive liability and property
insurance at customary levels. The Company will also evaluate the availability
and cost of business interruption insurance. However, should uninsured losses
occur, the shareholders could lose their invested capital.
13
Liabilities. The Company may have liabilities to affiliated or unaffiliated
lenders. These liabilities would represent fixed costs which would be required
to be paid regardless of the level of profitability experienced by the Company.
There is no assurance that the Company will be able to pay all of its
liabilities. Furthermore, the Company is always subject to the risk of
litigation from players, employees, suppliers or others because of the nature of
its business. Litigation could cause the Company to incur substantial expenses
and, if cases are lost, judgments and awards could add to the Company's costs.
B. RISKS RELATED TO THE INDUSTRY
Dependence on Increasing use of the Internet. The Company's future revenues
substantially depend upon the increased acceptance and use of the Internet and
other online services as a medium of commerce. Rapid growth in the use of the
Internet, the Web and online services is a recent phenomenon. As a result,
acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of customers may not adopt, and/or continue to use, the
Internet and other online services as a medium of commerce and entertainment.
Demand and market acceptance for recently introduced services and products over
the Internet are subject to a high level of uncertainty and there exist few
proven services and products.
In addition, the Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. If the Internet continues to
experience significant expansion in the number of users, frequency of use or
bandwidth requirements, the infrastructure for the Internet may be unable to
support the demands placed upon it. In addition, the Internet could lose its
viability as a commercial medium due to delays in the development or adoption of
new standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in, or
insufficient availability of, telecommunications services to support the
Internet also could result in slower response times and adversely affect usage
of the Internet generally.
The Company's business, financial condition and results of operations would be
seriously harmed if: use of the Internet, the Web and other online services does
not continue to increase or increases more slowly than expected; the
infrastructure for the Internet, the Web and other online services does not
effectively support expansion that may occur; the Internet, the Web and other
online services do not become a viable commercial marketplace; or traffic to the
Web sites decreases or fails to increase as expected or if management spends
more than was expected to attract visitors to the Web sites.
Inability to Acquire Domain Names. The Company may be unable to acquire or
maintain Web domain names relating to the brand in the jurisdictions in which
management may conduct business. As a result, the Company may be unable to
prevent third parties from acquiring and using domain names relating to the
Company's brand, which could damage its brand and reputation and take customers
away from its Web sites. The Company currently holds the
"www.AntiguaOnlineGaming.com", "www.AntiguaOnlineCasino.com" and
www.AntiguaSportsbook.com domain names and may seek to acquire additional domain
names. Governmental agencies and their designees generally regulate the
acquisition and maintenance of domain names. The regulation of domain names in
the United States and in foreign countries is subject to change in the near
future. The changes in the United States are expected to include a transition
from the current system to a system that is controlled by a non-profit
corporation and the creation of additional top-level domains. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names.
Requirements to Change Manner of Business. The adoption or modification of laws
or regulations relating to the Internet could adversely affect the manner in
which the Company proposes to conduct its business. In addition, the growth and
development of the market for online gaming may lead to more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on the Company. Laws and regulations directly applicable to
communications or commerce over the Internet are becoming more prevalent. The
United States Congress recently enacted Internet laws regarding children's
privacy, copyrights, taxation and the transmission of sexually explicit
material. The European Union recently enacted its own privacy regulations. Laws
regulating the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws such as those governing intellectual property, privacy,
libel, and taxation apply to the Internet.
14
In order to comply with new or existing laws regulating online commerce, the
Company may need to modify the manner in which it proposes to do business, which
may result in additional expenses. For instance, the Company may need to spend
time and money revising the process by which it intends to accept players'
wagers to ensure that each wager complies with applicable laws. The Company may
need to hire additional personnel to monitor compliance with applicable laws.
The Company may also need to modify its software to further protect players'
personal information.
Liability for Content. As a publisher of online content, the Company faces
potential liability for defamation, negligence, copyright, patent or trademark
infringement, or other claims based on the nature and content of materials that
it publishes or distributes. If the Company faces liability, then its reputation
and its business may suffer. In the past, plaintiffs have brought these types of
claims and sometimes successfully litigated them against online companies. In
addition, the Company could be exposed to liability with respect to the
unauthorized duplication of content or unauthorized use of other parties'
proprietary technology. Although the Company intends to carry general liability
insurance, such insurance may not cover claims of these types. The Company
cannot be certain that it will be able to obtain insurance to cover the claims
on reasonable terms or that it will be adequate to indemnify the management or
the Company for all liability that may be imposed. Any imposition of liability
that is not covered by our insurance or is in excess of insurance coverage could
harm the business.
The Imposition of Taxes. If one or more states or any foreign country
successfully asserts that the Company should collect taxes on the winnings
earned by players, the financial position and results of operations could be
harmed. If the Company becomes obligated to collect taxes, it will need to
update its system that processes wagers and winnings to calculate the
appropriate sales tax for each player and to remit the collected sales to the
appropriate authorities. These upgrades will increase operating expenses. In
addition, players may be discouraged from utilizing the Company's Web sites
because they have to pay tax, causing net sales to decrease. As a result, the
Company may be adversely materially affected.
C. RISKS RELATED TO SECURITIES MARKETS
Inability to meet Future Capital Requirements. The Company cannot be certain
that additional financing will be available on favorable terms when required, or
at all. If the Company raises additional funds through the issuance of equity,
equity-related or debt securities, the securities may have rights, preferences
or privileges senior to those of the rights of the common stock and those
stockholders may experience additional dilution. The Company expects to require
substantial working capital to fund the business. Since inception, the Company
has experienced negative cash flow from operations and expects to experience
significant negative cash flow from operations for the foreseeable future.
Management currently anticipates that the private financing done to date,
together with expected revenues, will be sufficient to meet anticipated needs
for working capital and capital expenditures through at least the next 12
months. After that, the Company may need to raise additional funds.
Volatility of the Common Stock. The market price for the Company's common stock
is likely to be highly volatile and subject to wide fluctuations in response to
factors including the following, some of which are beyond the Company's control:
actual or anticipated variations in the quarterly operating results;
announcements of technological innovations or new services by the Company or its
competitors; changes in financial estimates by securities analysts; conditions
or trends in the Internet and/or online commerce or gaming industries; changes
in the economic performance and/or market valuations of other Internet, online
gaming companies; announcements by management or competitors of significant
acquisitions, strategic partnerships, joint ventures or capital commitments;
additions or departures of key personnel; release of lock-up or other transfer
restrictions on the outstanding shares of common stock or sales of additional
shares of common stock; and potential litigation.
15
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations. These broad market fluctuations may adversely affect
the market price of the Company's common stock.
Securities Class Action Lawsuit. In the past, following periods of volatility in
the market price of their stock, many companies have been the subject of
securities class action litigation. If the Company was sued in a securities
class action, it could result in substantial costs and a diversion of
management's attention and resources and would cause the stock price to fall.
Year 2000 Risks. Many existing computer programs use only two digits to identify
a year. These programs were designed and developed without addressing the impact
of the upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. The Company uses software, computer technology and other services
developed and provided by third party suppliers that may fail due to the year
2000 phenomenon. If any one of the systems fails due to the Year 2000 issues,
the business of the Company could be adversely affected. (For a complete
discussion See: "MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS - F.
YEAR 2000 RISKS AND COMPLIANCE")
VII. REGULATORY BACKGROUND
---------------------
In July 1998, the U.S. Senate voted to largely prohibit gambling on the
Internet. Under the legislation, operators of illegal Internet gambling sites
could be sentenced to up to four years in jail and fined up to $20,000. Gamblers
who illegally bet via the Internet could receive a jail sentence of up to three
months and a fine of either $500 or three time the amount of the bet. Some
Internet-based "fantasy" or "rotisserie" sports league activities would be
exempt from the ban. However, in August 1998 the U.S. House of Representatives
overwhelmingly voted down the legislation. On March 23, 1999, Senator Kyl
(R-Arz.) submitted Bill S.692 to the Senate for consideration. If passed, this
Bill would also serve to effectively outlaw gambling on the Internet in the
United States. As of November 1, 1999 the Senate had not voted on this
legislation, in part because it is effectively the same legislation that was
voted down in 1998, and even if it should pass a Senate vote it is highly
questionable as to whether the House of Representatives would view it any
differently from the last Internet gaming bill.
The move on the part of the federal government to ban Internet gambling is a
departure from gambling policy. The federal government has typically left the
issue up to the authority of the state governments, resulting in a wide range of
attitudes towards gambling. Most states allow some type of gambling whether it
be full casinos, card rooms, pari-mutuel tracks or state-operated lotteries.
Only two states, Hawaii and Utah, prohibit all forms of gaming.
While passage of the act is possible, in one form or another, practical
enforcement of the law is a separate matter. The Internet is a global
information and communications medium operating without boundaries. Due to the
global nature of this medium, no regulatory agency has control over the content
of information accessible to users. The inability of governments to regulate
materials it deems offensive or illegal results in political and social
frustration. Measures to remove offensive materials, such as those classified as
containing adult content, have been unsuccessful to date. The same enforcement
problems will be encountered with gambling sites. These are three avenues
through which law enforcement officials may attack the problem: the gaming Web
site, the ISP or the user. The enforcement of anti-Internet gambling laws
through each of the avenues presents interesting social and technological
problems.
16
CURRENT INTERNET GAMBLING ENFORCEMENT
Senator Jon Kyl released his proposed "Internet Gambling Prohibition Act" on
March 29, 1999. A similar Bill, also proposed by Senator Kyl failed to pass in
1998. The current proposed 28 page Bill attempts to ban most forms of gambling
on the Internet within U.S. borders. There is no prohibition on individuals
placing bets over the Internet, only "gambling businesses" within U.S.
jurisdictions, are proposed to be prohibited. The Bill also outlines several
exemptions, some of which are summarized as follows:
- - The basic proposal states that it shall be unlawful for a person engaged
in a gambling business to use the Internet or any other interactive
computer service to place, receive, or otherwise make a bet or wager. The
significance of the language is that it does not make the act of gambling
on the Internet illegal. Only gambling businesses based and operated
within U.S. borders are affected.
- - Penalties for violators include fines in the amount of total wagers
received, or $20,000, whichever is greater, and jail time of up to four
years. This is significant and, if approved, will limit new participants.
- - Several types of gambling are exempted. These include fantasy sports
leagues, state lotteries, and certain activities under the Interstate
Horseracing Act of 1978.
- - The Bill provides that interactive computer service providers shall have
no liability for hosting illegal gambling businesses.
In its proposed format, compliance will be difficult to enforce. Therefore, it
seems the Bill will not pass in its current format. Some selected reasons are
summarized below as extracted from "Staking VALUE Early", The RESOURCE
INDICATOR, Vol. 3, No. 15:
- - In testimony before the House Justice subcommittee on crime, Deputy
Assistant Attorney General Kevin V. DiGregory said the long reach of the
Internet into people's homes and across international borders creates
special obstacles for law enforcement. It simply will not be enforceable.
- - Prosecutors will not be able to indict operators of virtual casinos who
are based legally in other countries. The Deputy Assistant Attorney
General supported this claim by stating that a foreign national who is
operating a licensed Internet-based casino in his country will not be
violating his country's laws if he solicits or accepts bets from Untied
States citizens.
- - It is nearly impossible to close off an entire category of content,
since presently, there is no mechanism to automatically identify and
screen out types of content from U.S. Internet consumers.
- - In Australia, just seconds away in cyberspace, lawmakers are taking the
opposite road. Rather than attempting to ban Internet gaming, Australian
politicians are attempting to regulate online wagering by developing a
seal of approval that will draw players from unregulated cybercasinos and
bring new tax revenue to Australia.
- - Other nations, including Sweden, Germany, South Africa, Costa Rica,
Antigua, the Marshall Islands, and Curaco have already begun licensing and
regulatory processes for online casino operators.
- - Even if enacted, Michael Mount, deputy press secretary for Senator Kyl,
said the law will do little to stop an operator who is headquartered
abroad. "It will be hard to regulate it", he said of the possibility that
foreign sites might accept bets from inside of the United States. "There
is nothing the [law enforcement] can do if everything is run over there,
including the ISP." ("Senate effort to outlaw Internet Gambling may prove
futile," Knight-Riddler/Tribune News: Wed, May 12, 1999).
March 4, 1998 marked the first federal prosecution for gambling on the Internet
as 14 gambling site operators were charged with conspiring to illegally transmit
bets over the Internet and the telephone. ("14 Net gambling operators charged,"
Mike Brunker, MSNBC, March 5, 1998). The men were owners or managers of six
Caribbean and Central American-based companies that advertise sports books over
the Internet or in magazines circulated in the U.S. The charges were a violation
of the Wire Act, which prohibits gambling over telephone lines, as opposed to
the use of the Internet.
17
The only known federal case against an Internet gambling operator prior to this
most recent event involved the Interactive Gaming and Communications Corporation
in Pennsylvania. The company operated a virtual gambling operation in Grenada,
which reportedly handled over $58 million in wagers. In February 1997, FBI
agents seized company records and froze company assets. ("Can Lawmakers Control
Online Gambling?" New York Times, Peter Lewis, September 22, 1997). The company
is also involved in legal issues with the state Attorney General's Office. No
formal charges were filed by the Department of Justice, although the company
eventually sold its gambling assets to a Canadian-based company.
STATES' ROLES IN INTERNET GAMBLING
Residents in states prohibiting gambling may circumvent anti-gaming laws by
logging into the Internet. Several states have taken the initiative to curtail
Internet Gambling within its borders by taking legal action against the Web site
operators. In the following section, measures taken by state offices to
prosecute Internet and offshore gambling operations that have transacted
business within their state are summarized.
Nevada - In July 1997, Nevada became the first state to pass a law prohibiting,
and legalizing, Internet gambling. It is a misdemeanor to place a bet from
Nevada over the Internet, regardless of the location of the gambling site. In
addition, the law allows for the prosecution of those accepting bets from Nevada
residents. However, Senate Bill 318 is also the first statute to expressly
allow:"licensed" race and sports books, off-track betting operators and casinos
to accept wagers via the Internet (Rose, J. Nelson, Gambling and the Law,
"Nevada First State to Expressly Prohibit, and Legalize, Internet Gambling,"
(Whittier Law School, Los Angeles, CA), May 12, 1999).
Minnesota - The Minnesota Attorney General sued Wager Net Web, a Las Vegas-based
company that was preparing to offer sports betting over the Internet, for
consumer fraud when the company advertised that its service was legal. The
company intended the service to be set up and run by another company located
outside the U.S. Subsequently, the company filed an appeal with the state court
of appeals claiming that the state did not have jurisdiction over the company
since it was not based in Minnesota. In December 1997, a Minnesota state court
ruled that the Attorney General does indeed have jurisdiction to prosecute
Internet gambling companies. (The National Bet, U.S. News Online, Dan McGraw).
The state is seeking a court order to stop the advertising and civil penalties
of at least $25,000. The case reached the Minnesota State Supreme Court, where
on May 8, the same court upheld a lower court's ruling. The court, however, did
not address the issue of whether Internet gambling itself is illegal.
Wisconsin and Missouri - The Coeur d'Adlene Indian Tribe of Idaho, Unistar
Entertainment and Executone Information Systems are being sued by the attorneys
general of Wisconsin and Missouri over the operation of a national online
lottery. The tribe claims that it has the authorization to operate the lottery
under the Indian Gaming Regulatory Act of 1988 since the computer server
operating the games is located on the reservation. The states contend that the
gambler must be physically present on the reservation when gambling as opposed
to using the Internet. The lawsuit seeks injunctions to stop the operation of
the gambling sites in Wisconsin, in addition to fines and consumer restitution
("Wisconsin Sues Over Internet Gambling," The Associated Press, The New York
Times on the Web, September 16, 1997).
Missouri - In May 1998 a Missouri judge upheld a civil lawsuit against
Interactive Gaming and Communication Corporation (IGCC) by the state's attorney
general. IGCC was found to have violated state consumer protection law, fined
$66,000 and ordered to "reject and refuse" all applications by Missouri
residents. When the company accepted wagers by undercover agents in Missouri,
criminal charges were filed against the company's president. The case is still
pending.
The Company is presently of the view that it is not prohibited from offering its
services and accepting wagers from resident of almost all jurisdictions in the
world. However, Internet gaming is a relatively new activity and some or all of
these jurisdictions may take action to more severely regulate or even prohibit
Internet gaming operations in their jurisdictions. The Company intends to adopt
a proactive policy of lobbying international jurisdictions, where appropriate,
for purposes of seeking approval of Internet gaming and the regulation of those
activities on a basis that is favorable to the Company.
In addition to the aforementioned regulations pertaining specifically to gaming,
the Company may become subject to any number of laws and regulations that may be
adopted with respect to the Internet in general as the Internet becomes widely
used. These laws may cover issues such as user privacy, freedom of expression,
pricing, content and quality of services, taxation, advertising, intellectual
property rights and information security.
Furthermore, the growth of online commerce may prompt calls for more stringent
consumer protection laws. Several states have proposed legislation to limit the
uses of personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Management does not contemplate providing personal information regarding the
Company's customers to third parties. However, the adoption of additional
consumer protection laws could create uncertainty in Web usage and reduce the
demand for the Company's products and services.
18
Management is not certain how its business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of these laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws that
are intended to address these issues could create uncertainty in the Internet
market place. This uncertainty could reduce demand for the Company's services or
its cost of doing business may increase as a result of litigation costs or
increased service delivery costs.
In addition, because the Company's services are intended to be made available
over the Internet in multiple foreign countries, other jurisdictions may claim
that the Company is required to qualify to do business in that foreign country.
The Company intends to qualify to do business only in Antigua and Barbuda. The
Company's failure to qualify in a jurisdiction where it is required to do so
could subject it to taxes and penalties. It could also hamper the Company's
ability to enforce contracts in these jurisdictions. The application of laws or
regulations from jurisdictions whose laws do not currently apply to the business
could have a material adverse effect on the business, results of operations and
financial condition.
VIII. DISCLOSURE
----------
The public may read and copy any materials filed with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and/or
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. In addition, the Company intends to be an electronic
filer and as such, all items filed by the Company are available through an
Internet site maintained by the SEC which contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC, which site is available at http://www.sec.gov. The
Company also maintains an Internet site which contains information about the
Company. This site is available at http://www.netforcesystems.com.
ITEM 2. DESCRIPTION OF PROPERTY
The Company occupies 1,900 square feet of commercial office space at Third
Floor, Dollar Building, Nevis Street, St. John's, Antigua, West Indies. This
facility houses all of the Company's operations including production, marketing,
Web site development, financial transactions and administration. The only
operation not housed at this location is the computer server on which the
Company's online casino is hosted. The building in which the Company has leased
space is in the heart of St. John's and is home to several other Technology and
Internet based companies. This arrangement and proximity to other similar
companies is expected to lend itself well to promoting the Company as being in
the right area and on the leading edge of technology. As well, the company
offices are in close proximity to banking services, the post office, money
transfer services, courier services, and other essential business service
providers and their offices.
The terms of the Nevis Street commercial lease are as follows: The Company
leases 1,900 square feet through to September 30, 2000 (12 months lease) at an
annual rent of $37,164 USD. The Company has a renewal option thereafter of up to
five years on terms to be negotiated at the time. It is the company's intention
to renew the lease at the end of the first year and exercise its option for a
further five-year term. The Company has obtained an insurance policy as is
required by the terms of the lease.
ITEM 3. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
The Company is not aware of any material legal proceedings involving any
director, director nominee, promoter or control person including criminal
convictions, pending criminal matters, pending or concluded administrative or
civil proceedings limiting one's participation in the securities or banking
industries, or findings of securities or commodities law violations. However,
legal bankruptcy proceeding under Canadian law involving Terry Bowering in 1997,
concluded with Mr. Bowering receiving a judicial discharge.
LEGAL PROCEEDINGS
The issuer is not a party to any pending legal proceeding nor is its property
the subject of any pending legal proceeding.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements on accounting and financial disclosures from
the inception of the Company through to the date of this Registration Statement.
EXPERTS
The consolidated financial statements of Net-Force Systems Inc. as at October
31, 1999, April 30, 1999 and July 31, 1999, appearing in this Registration
Statement have been audited by Pannell Kerr Forster, St. John's, Antigua,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
19
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 1, 2000 by (i) each person
who is known to the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, (ii) each of the Company's directors, (iii) executive
officers and (iv) all current directors and executive officers as a group.
The following tables set forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 1, 2000 by (i) each person
who is known to the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, (ii) each of the Company's directors, (iii) executive
officers and (iv) all current directors and executive officers as a group.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Owner (1) of Class
- -----------------------------------------------------------------------------------------
Douglas N. Bolen 500,000 5.9%
Suite 2103-1188 Quebec St. beneficial owner (2)
Vancouver, British Columbia
Canada, V6A 4B3
Secretary/Director
Terry G. Bowering 4,400,000 51.8%
Marble Hill beneficial owner (3)
P.O. Box W-645
St. John's, Antigua
West Indies
President/Chief Executive Officer
And Director
Terry G. Bowering 500,000 5.9%
C/o High Street & Corn Alley beneficial owner (4)
P.O. Box 1679
St. John's, Antigua
West Indies
Dwight Lewis 50,000 0.5%
Canada Gardens
P.O. Box W - 386
St. Johns, Antigua
West Indies
Derek C. Ferguson 50,000 0.5%
512-1238 Seymor St.
Vancouver, British Columbia
Canada, V6B 6J3
Hendrika Prins 500,000 5.9%
C/O Sagem - JC Roder beneficial owner (5)
35 Rue De Bains
Geneva, Switzerland 120
Alfred Peeper 500,000 5.9%
Hogeweg 76-1 2042 GJ Zandvoort beneficial owner (6)
The Netherlands
Beverly Hunt 500,000
C/O Sagem -JC Roder beneficial owner (7) 5.9%
35 Rue De Bains
Geneva, Switzerland 120
Malcolm K. Becker 500,000
C/o P.O. Box 3140 beneficial owner (8) 5.9%
Roadtown, British Virgin Islands
West Indies
Rosaline M. Whorms 500,000
C/o P.O. Box 1062 beneficial owner (9) 5.9%
1 Capital Place
Roadtown, British Virgin Islands
West Indies
Lynne Tiley 500,000
C/o P.O. Box 3140 beneficial owner (10) 5.9%
Roadtown, British Virgin Islands
West Indies
All Directors & Executive Officers 8,500,000 100%
And control persons as a Group
(10 persons)
- ---------------------------------------
(1) No member of Management has the right to acquire within sixty days
through options, warrants, rights, conversion, privilege or similar
obligations any security of the Company.
(2) The BRF Family Trust, of which Douglas N. Bolen is a beneficiary enjoys
legal ownership of said securities.
(3) Geneva Overseas Holdings Ltd., of which Terry G. Bowering is a
beneficial owner, enjoys legal ownership of said securities.
(4) JPKT Metro Investment Corporation, of which Terry G. Bowering is a
beneficiary, enjoys legal ownership of said securities.
(5) Orientstar Finance Limited, of which Hendrika Prins is a beneficial
owner enjoys legal ownership of said securities.
(6) Eur-Am BV, of which Alfred Peeper is a beneficial owner enjoys legal
ownership of said securities.
(7) Fonds Mondial D'Investissement, of which Beverly Hunt is a beneficial
owner enjoys legal ownership of said securities.
(8) Richland Acceptance Corporation, of which Malcolm K. Becker is a
beneficial owner enjoys legal ownership of said securities.
(9) Altmar Inc., of which Rosaline M. Whorms is a beneficial
owner enjoys legal ownership of said securities.
(10) Sharp, Flint & Blunt, of which Lynne Tiley is a beneficial owner enjoys
legal ownership of said securities.
20
CHANGES IN CONTROL
Management is not aware of any arrangements which may result in a change of
control of the issuer.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
(a) There are no governmental laws, decrees, or regulations in Antigua and
Barbuda under the "Act" that restrict the export or import of capital of the
registrant as an exempt corporation under the "Act". Section 280 of The
International Business Corporations Act, 1982, Antigua and Barbuda, states the
following with respect to exchange controls:
"280. The income, profits, gains and other revenues, and the funds and
securities of an exempt corporation that are generated, acquired or managed in
the course of the international trade or business of the exempt corporation are
exempt from the Exchange Control Ordinance; and, unless the exempt corporation
is a resident, the income, profits, gains, and other revenues of the exempt
corporation are also exempt from that Act."
(b) There are no limitations on the right of nonresident or foreign owners to
hold or vote the securities to be registered in this filing by the registrant
company either under the "Act" or by charter or other constituent document of
the registrant.
ITEM 7. TAXATION
United States security holders of the registrant company are not subject to
taxes or withholding provisions. Sections 271- 274 of the International Business
Corporations Act, 1982, Antigua and Barbuda, Division G: Special Taxation
Provisions detail the relevant tax provisions under the Act.
Section 271, "Exempt corporations" states the following:
"For the purposes of this Division, an exempt corporation shall mean any
corporation formed or continued under this Act."
Section 272, "Exemption from tax" states the following:
(1) No income tax, capital gains tax, or other direct tax or impost may be
levied in Antigua and Barbuda upon the profits or gains of an exempt
corporation, in respect of the international trade and business it carries on
from within Antigua and Barbuda.
(2) No income tax, capital gains tax, or other direct tax or impost may be
levied in Antigua and Barbuda in respect of any securities or assets of an
exempt corporation that are beneficially owned by an exempt corporation or by a
person who is not a resident.
(3) No estate, inheritance, succession or similar tax or impost may be levied in
Antigua and Barbuda in respect of any securities or assets of an exempt
corporation that are beneficially owned by an exempt corporation or by a person
who is not a resident.
(4) No tax, duty or other impost may be levied upon the increment in value of
the property, or other assets in Antigua and Barbuda or elsewhere of an exempt
corporation other than upon such of them as are distributed to residents.
Section 273, "No assets transfer tax".
1) No tax, duty or other impost may be levied upon an exempt
corporation, its security holders or transferees in respect of the transfer of
all or any part of it's securities or other assets to another exempt corporation
or to a person who is not a resident.
(2) When an exempt corporation or a person who is not a resident transfers
securities or assets of an exempt corporation that are held by that exempt
corporation, or person to another exempt corporation, or to another person who
is not a resident, the transfer is exempt from the payment of any tax, duty, or
other impost thereon.
(3) No income tax or capital gains tax, and no other direct tax or impost, may
be levied or collected in Antigua and Barbuda, in respect of any dividends
interests or other returns from any securities, deposits or borrowings of an
exempt corporations or any assets managed by the exempt corporation if the
dividends, interest or other returns are in respect of securities, deposits,
borrowings or assets beneficially owned by another exempt corporation, or a
person who is not a resident; but the onus of establishing ownership, lies upon
the exempt corporation holding or managing the deposits, borrowings or assets.
Section 274, "Withholding tax and report"
21
(1) Notwithstanding, any provision of the Income Tax Ordinance, but subject to
subsection (2), no exempt corporation need withhold any portion of any dividend,
interest or other returns, payable of any person in respect of any borrowings of
the exempt corporation from that person or in respect of securities of the
exempt corporation held by that person.
(2) All dividends interest or other returns attributable to the securities of,
or the management of, assets by an exempt corporation that are payable to a
resident who is known to be a resident, by the exempt corporation or who, with
the exercise of reasonable care by the exempt corporation, could be known by him
to be a resident, must be reported to the Commissioner of Inland Revenue by the
exempt corporation
Section 276 of the Act, "Duration of tax exemption" states the following:
"Any tax exemption provided under this Act, shall continue in effect for a
period of fifty years from the date of incorporation of the exempt corporation."
There is no reciprocal tax treaty in existence between the United States and
Antigua and Barbuda regarding withholding taxes.
ITEM 8. SELECTED FINANCIAL DATA
Selected Financial Data
Set forth below is certain selected consolidated financial data of the Company
for the six months ended of October 31, 1999. The selected financial information
is derived from the Company's audited consolidated financial statements for the
period. The company's consolidated financial statements are prepared in
accordance with International GAAP which is consistent with US GAAP as stated in
note number 2.(a) of the Accounting Policy section of the audited financial
statements prepared by the auditing firm of Pannell Kerr Forster. The
information set forth below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations.
SUMMARY OF OPERATIONS (audited)
Stated in US Dollars
SIX MONTHS ENDED October 31
1999
------
Sales Nil
Net Earnings (Loss) from
Continuing Operations (75,746)
Earnings (Loss per share)
From Continuing Operations ($0.01)
SUMMARY OF BALANCE SHEET (audited)
Stated in US Dollars
SIX MONTHS ENDED October 31
1999
------
Working Capital 448,494
Total Assets 572,817
Total Current Liabilities 99,500
Long Term Debt 513,563
Shareholders Equity (Deficit) (40,246)
22
Eastern Caribbean and US Dollar Exchange Rates
On March 22, 2000, the company received the following clarification from the
Director of Banking & Monetary Operations, Eastern Caribbean Central Bank,
Basseterre, St. Kitts, West Indies:
"The Eastern Caribbean dollar is pegged to the United States Dollar rate of
2.70. This rate has remained unchanged for several years and therefore is the
average exchange rate for the Eastern Caribbean Dollar to the United States
Dollar for the past five years."
All revenues are received in US Dollars. In addition, all marketing and
advertising expenditures as well as equipment expenditures of a material nature,
are transacted in US Dollars. Ordinary monthly office overhead expenses that
include office rent, leasehold improvements, utilities, bandwidth charges, and
local salaries are conducted in the EC Dollar.
Dividends
The company has not paid any cash dividends since its inception. The Company
does not intend to pay any cash dividends in the foreseeable future, but intends
to retain earnings, if any, for use in its business operations.
23
ITEM 9. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
I. PLAN OF OPERATIONS
------------------
A. Revenues and Financing
----------------------
As of the period ended, October 31, 1999, the Company had no revenues. The
gaming site was completed and was live to accept wagers via the Internet, its
principal source of revenue, on December 20, 1999. It is anticipated that the
Internet will continue to become more accessible and that the market
opportunities for the Company will continue to expand. This tremendous growth
will also attract many potential new competitors. In order to maintain revenue
growth, the Company intends to expand the content and to improve the services on
its Internet Web sites, as well as researching and developing other projects
that will utilize its existing facilities and expertise.
Revenue Generation Process. Revenues for the Company are generated each time a
customer makes a wager on the web-site. Net monthly revenues are calculated as
the total dollar amount wagered by customers in the virtual casino and/or the
sportsbook wagering web-site less winnings by customers in the virtual casino
and/or sportsbook wagering web-site less transaction processing fees for a given
calendar month.
Electronic Financial Service Inc. ("EFS"), the transaction processing subsidiary
of Starnet, processes all deposits and credits on behalf of the Company's gaming
web-site. Daily online activity reports of all financial transactions are
produced by EFS. These reports include an account summary and an exposure
report. The account summary details dollar amounts deposited and withdrawn for
each individual customer account for the date queried. The exposure report
provides an actual detailed breakdown of the total dollar amounts wagered (i.e.,
total bets) and total winnings (i.e., payouts to winners of successful wagers)
by each specific casino game played and by each sports wagering type and event.
The net amount (i.e., wagers less payouts) is recognized as revenue. EFS
produces a monthly summary report of total net monthly revenue (i.e., total
dollar amount wagered less winnings) less transaction processing fees less
calculated software licensing fees (i.e., a percentage of net revenues
calculated according to the terms of the Software Licensing Agreement attached
hereto as an Exhibit).
The Company has been funded to date through debt financing from private arm's
length lenders. The Company has secured approximately $495,000 US through debt
financing. The sum was received by the Company pursuant to a note payable dated
July 13, 1999 payable to Mountain High Management Inc. The loan is unsecured,
bears interest at the rate of 15% per annum and is due on July 29, 2001. The
Company received the sum on or about July 13, 1999. Management believes that the
$495,000 plus ongoing revenues from wagers placed will enable the Company to
meet its financial obligations for the next 12 months. No assurance can be given
that revenues from gaming activities and/or proposed secondary revenues will
enable the Company to meet its financial obligations. As such, the Company may
solicit and arrange for additional debt financing from private arm's length
lenders in the event existing financing and revenues do not meet the Company's
financial obligations. In addition, the Company may consider raising additional
equity financing through the sale of common stock of the Company through private
placements to sophisticated investors. The combination of existing financing,
expected revenues from operations and additional debt and/or equity financing is
intended to provide the Company with sufficient operating capital for a period
of approximately two years.
Historical Expenditures. Historical expenditures up to the period ending October
31st, 1999 have consisted primarily of organizational/set-up costs such as
office leasehold improvements and security deposits for rent, utilities, and
licenses as well as accounting/auditing services. Monthly expenditures for
office overhead included rent, utilities, and salaries, all of which commenced
September 1999, during the latest interim period.
24
Payments to be made to Softec Systems for the gaming software are comprised of
the following 2 components:
1. PAYMENT FOR THE SOFTWARE: A ONE-TIME US$100,000 FEE for the
set-up and configuration. This fee includes all future
versions and upgrades of the software at no additional cost.
Actual payments made by Netforce Systems Inc. to Softec Systems to date consist
of a deposit of US$ 10,000.00 upon the signing of the software agreement. This
payment is the first installment of the total US$100,000.00 one-time software
set-up and configuration fee. The balance of payments as detailed in the
software agreement call for the balance of US$90,000 to be paid in monthly
installments @ US$10,000 until fully paid. The payment schedule for the software
will commence on the date of `live' operations, considered to be the date when
the design and testing of the gaming web-site is complete and the first wager is
accepted.
2. ONGOING ROYALTY PAYMENTS TO SOFTEC SYSTEMS consisting of a
percentage of the net revenue generated on a monthly basis. As
detailed in the software agreement, these payments will begin
upon commencement of live operations of the gaming web-site.
The schedule of royalty payments payable to Softec Systems as
detailed in Schedule "A" of the software agreement is as
follows:
*NET MONTHLY REVENUE (US$) ROYALTY FEE PAYABLE
0 to < or = $500,000 25%
$500,000 to < = $1,000,000 20%
$1,000,000 to < = $5,000,000 15%
$5,000,000 < = $10,000,000 12.5%
$10,000,000 plus 10%
*Net Monthly Revenue is calculated as the total dollar amount wagered in the
virtual casino and/or the sportsbook wagering site LESS winnings in the virtual
casino and/or sportsbook wagering site LESS transaction processing fees, for a
given calendar month.
3. PAYMENT PROCESSING AGREEMENT: Section 2.3.1 of the software
agreement states: "Softec shall provide a transaction
processing system that will allow the licensee's customers to
deposit funds for use of the Games (the "Transaction
Processing System")." Deposits are made electronically by Visa
or Mastercard credit cards and by other methods such as bank
wire transfer and bank draft. This transaction processing
system is provided by Electronic Financial Services Caribbean
Inc. (EFS), wholly-owned subsidiary of Starnet. EFS will also
facilitate payouts of winnings for the licensee by processing
credits to credit cards and by bank draft.
Actual cost to the company for payment processing include transaction fees of
5.50% of the gross transactions (`merchant discount rate') and a flat fee of
US$1.60 per transaction. As well, there is a monthly 5% rolling reserve held
which is rolled back to the licensee after 180 days. This reserve is required to
offset any credit card chargebacks that may occur. Finally, there is a US$5.00
charge for each bank draft that is processed for payouts of winnings.
The only significant trends in expenditures in this industry of note, relate to
marketing expenditures and its direct relationship with net revenues generated.
Marketing expenditures are a variable cost, so it is anticipated that as these
expenditures are increased and the marketing program is in full swing, revenues
will respond as a direct result, further enhancing the company's liquidity. It
is important to note that the revenues generated are entirely of a cash nature
with no customer account receivables generated of a material nature and
therefore no need to establish an allowance for doubtfull accounts. As was
stated in the previous paragraph, EFS Caribbean Inc., the credit card
transaction processor, maintains a 5% rolling reserve hold on credit card
deposits on behalf of the company. The statements make no reference to doubtful
accounts and no provision is made by the company for the same, primarily because
web-site operations have not fully commenced as at October 31, 1999 and also
because all revenues will be generated and realized on a cash basis. No credit
is extended to customers.
The sum of $6,548 on the balance sheet represents prepayments for prepaid
expenses and security deposits for office premises lease, utilities deposits,
and International telephone and Internet connection service setup and security
deposits.
25
B. Operations for the Next Twelve Months
-------------------------------------
The company's primary on-line wagering Web-site, www.AntiguaOnlineCasino.com,
went live on the Internet on December 20, 1999. As this site is fully
operational, wagers are being accepted. The company has implemented the
marketing program to officially launch the site in early January 2000. As such,
revenues are expected to commence in the first calendar quarter of 2000.
The Company intends to hire additional product, marketing, computer programming
and graphic design personnel over the next twelve months as is deemed necessary
by management. From player data obtained from the web sites during the first ten
to twelve months of operations, the Company plans to make adjustments to the
operations as is deemed necessary by management.
Operations to date have been predominantly limited to establishing the
infrastructure and other general and administrative expenditures and
organizational costs. As stated, the live operations of the gaming Web-sites
www.AntiguaOnlineCasino.com and www.AntiguaSportsbook.com commenced on December
20,1999, however, the official launch of the sites commenced with the
implementation of the marketing program in early January 2000.
C. Balance Sheet Data
------------------
At Oct. 31, 1999 At April 30, 1999
-------------- ----------------
Working Capital 448,494 33,507
Total Assets 572,817 40,000
Shareholders' Equity (deficit) (40,246) 35,500
D. Liquidity and Capital Resources
-------------------------------
Funding for the next year will be derived from current cash resources and
expected revenues from operations which is anticipated to begin in the fourth
quarter (February, March, April). In addition, if necessary, the company will
seek further funding in the form of an additional promissory note with similar
terms of the existing note. The company anticipates that with the substantial
marketing campaign employed to launch the site, revenues from operations will
add sufficient cash flow to supplement existing current cash resources. This
will allow the company to adequately cover all overhead expenses and planned
capital expenditure commitments over the balance of the calendar year 2000.
Because of the very nature of the Internet, the company operates and delivers
its service with relatively low fixed overhead costs. The material variable cost
factor is marketing expenditures, which in turn drives revenues.
During the period, the issuance of a promissory note in the amount of $495,000
combined with losses from operations netted a total cash balance of $441,946 at
the end of the period. As of October 31, 1999, full operations had not yet
commenced, therefore no income from sales has been recorded.
It is intended that the interest accruing on the promissory note will be paid
upon the maturity date of the note. Payment of the interest at maturity date
(July 2001) will allow the company to channel cash flow to marketing efforts
designed to firmly establish the company's brand name at an early stage in the
company's life. Alternatively, prior to the note's maturity, an agreement may be
negotiated with the holder of the note whereby part or all of the debt plus
accrued interest may be swapped for equity.
The software license fee agreement booked on the balance sheet as a current
payable, (net payable =$90,000), is payable in monthly installments of US$10,000
per month until the balance is fully paid. The first payment of the balance is
to commence 90 days from the date of commencement of live operations.
26
As of December 20, 1999, the gaming site www.AntiguaOnlineCasino.com and
www.AntiguaSportsbook.com went live. Given that the on-line advertising program
was not launched until the beginning of January 2000, revenues were not expected
to be significant for the balance of the month of December,1999. Revenues from
sales should commence shortly after the launch of the marketing program for the
online Casino and Sportsbook. The Company anticipates that revenues from wagers
will not initially meet expenses and as such, the Company plans to finance
operations through additional debt financing from arm's length private lenders
until such time as revenues from wagers meet or exceed expenses. Once achieved,
the Company intends to begin repaying the private arm's length lenders. In
addition, the Company may raise additional money as is deemed necessary by
management through private placements of stock issued out of the treasury of the
Company to individuals or corporations who have expressed interest in obtaining
stock in the Company.
E. Material Commitments for Capital Expenditures
---------------------------------------------
Material commitments for capital expenditures as of the end of the latest
interim period consisted of computer hardware and office furniture and equipment
(desks and chairs), and office leasehold improvements. The office and computer
hardware specifically included personal computers, printers, fax machines, and
backup power supply units.
The purpose of these capital expenditure commitments was to establish a
corporate and administrative office for the company. From this office, the
company conducts web-site design, marketing, customer service support services
for the company's web-sites. The company also manages corporate communications
and investor relations from this office. The company maintains access to the
internet which requires personal computers, communications hardware and
software, and backup power supply units. All of the above commitments were
settled in full payment from cash resources made available from the proceeds
from promissory note. The details of the note are provided in the financial
statements and in the body of the registration statement.
The major capital expenditure for software consists of US$100,000 due and
payable to Starnet Systems International (formerly Softec Systems). An initial
payment of US$10,000.00 was paid upon execution of the agreement leaving a
balance of US$90,000.00 payable upon completion of the configuration/design of
the software and commencement of live operations. The balance is due and payable
based on a schedule of monthly payments detailed in the software agreement. The
schedule of payments will commence 90 days from the date of live operations and
will consist of US$10,000 per month for 9 months until the entire amount of
US$90,000.00 is paid. After the 90-day grace period to establish operations, it
is anticipated that these payments will be made from cash flow generated from
ongoing operations on a monthly basis.
The useful life of the software for depreciation purposes was determined by
management to be ten years. New versions and upgrades of the software are
continually being developed so that the company, as a licensee of this software,
will always be utilizing an asset with an extended life. As per the software
agreement with Softec Systems, (please see exhibit 6.1 for the entire software
contract), the term is as follows:
1.6.1 This Agreement shall commence and be deemed effective on the
date when fully executed (the "Effective Date"). This
Agreement is in effect for a period of one-year (the "Term")
and shall be automatically renewed indefinitely with
additional one year terms unless the Licensee gives written
notice of termination of this Agreement at least 45 days prior
to the end of any one year period.
Softec will provide all upgrades of the Licensed Software that
do not require changes to the graphical interface, at no
charge to the Licensee.
2.2.11 All upgrades are to be made available to the Licensee within
30 days of the completion of testing.
Given that all new software upgrades will be provided to the licensee on an
ongoing basis at no additional cost to the licensee under the agreement, the
company will essentially operate almost indefinitely without having to purchase
new software. Therefore, based on the above reasons, it was determined by
management to depreciate the software at least over a ten-year period.
27
F. Material Commitments for Resources
----------------------------------
As already stated, the only material commitment of resources anticipated over
the next year will be marketing expenditures. Being a variable cost, marketing
and advertising expenses are controlled by management. There will be no
additional material capital expenditures necessary over the next year.
The company intends to exercise its option to extend the office lease to an
additional term of five years at the expiry of the current 1-year lease term as
at September 30, 2000. Given that the product delivery process utilizes the
Internet, overhead expenses are kept at a minimal level, as an increase in
customer base and revenues does not necessarily require added investment in
personnel or equipment. The customer service function and transaction processing
system, as well as web hosting costs are absorbed by Softec Systems as outlined
in the software agreement. After the one-time set-up fee is accounted for, the
cost of the software to the company on an ongoing basis is a variable cost
(percentage of monthly net revenues).
Any material commitments of resources and normal monthly operating expenses over
the next year will be funded from a combination of existing cash resources, cash
flow generated from operations anticipated to be in full swing by mid-calendar
year, and anticipated proceeds from an additional financing. This additional
financing, if necessary, will consist of issuing a promissory note to raise
funds based on similar terms of the initial note with interest payable at
maturity and with a possible convertible component.
G. Impact of Inflation
-------------------
The Company believes that inflation will not materially affect its business.
H. Year 2000 Risks and Compliance
------------------------------
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. The Company uses software, computer technology and other services
developed and provided by third party suppliers that may fail due to the year
2000 phenomenon. For example, the Company is dependent on the financial
institutions involved in processing customers' credit card payments for the
Internet services and a third party that hosts the Company's services. The
Company is also dependant on telecommunications vendors and suppliers to
maintain our network and the United States Postal Service and other third party
carriers to deliver orders to customers.
The Company has identified three categories of computer systems, which may be
affected by the Year 2000 issue:
1. Internal Systems. The Company owns and operates computer hardware
on which is loaded licensed software from major software
providers. The Company uses these computers and software programs
for some accounting functions, office administration functions,
word processing functions and internal and external e-mail;
2. Third party Providers of Computer Systems. The Company relies on
various third party providers of computer hardware and software
which third parties provide critical services to the Company
including, service development, Web site development, credit card
processing, website hosting, long distance Internet connectivity,
e-mail providers, and substantially all other systems used by the
Company in respect of the operation of the Web site; and
3. The General Infrastructure. This category includes the integrity
and stability of the Internet in providing the Company's services,
the computer systems of financial institutions and services used
by customers, the utility companies used by the Company and the
customers.
28
In respect of number 1 above, the Company has assessed the year 2000 readiness
of its internal systems. All hardware and software used internally have been
purchased within the previous three months and were purchased from reputable
vendors with assurances therefrom that all such items, alone and in combination
with each other are Year 2000 compliant. Based upon these assurances, the
Company has neither incurred any expenses in relation to this assessment nor has
it developed a remediation plan because it believes that it is not necessary.
In respect of number 2 above, the Company has relied upon third parties for the
provision of substantially all of the systems for the operation of the Web
sites. These systems include software used to provide the Company's Web sites'
search capabilities, customer interaction, and transaction processing functions,
as well as firewall, security monitoring and back-up capabilities. The Company
is currently assessing the Year 2000 readiness of the third party supplied
software, computer technology and other services of the Company's vendors. As
part of the assessment, the Company is in the process of seeking assurances from
these third parties that their software, computer technology and other services
are Year 2000 compliant. At this time, the Company has not yet developed a
contingency plan to address situations that may result if these third parties
are unable to achieve Year 2000 compliance. Such contingency plan will depend on
the results of the Year 2000 review and assessment, the extent of the corrective
actions that have been implemented by the third parties and by the Company and
the status of the distribution systems that the Company intends to establish.
Based upon the results of this assessment, the Company will develop and
implement, if necessary, a remediation plan with respect to the third party
software, third party vendors and computer technology and services that may fail
to be Year 2000 compliant. At this time, the expenses associated with this
assessment and potential remediation plan are expected to be insignificant but
cannot be determined with any degree of accuracy at this time. The failure of
the software and computer technologies of the third parties to be Year 2000
compliant would have an adverse effect on the Company including difficulties in
operating the website effectively or at all, difficulties accepting customers'
wagers, difficulties in developing the services and difficulties conducting
other fundamental parts of the business.
In respect of number 3 above, the Year 2000 readiness of the general
infrastructure necessary to support the Company's operations is difficult to
assess. For example, the Company depends on the integrity and stability of the
Internet to provide the Company's services. The Company also depends on the Year
2000 compliance of the computer systems and financial services used by
consumers. Thus, the infrastructure necessary to support the Company's
operations consists of a network of computers and telecommunications systems
located throughout the world and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the potential
Year 2000 issues that may impact the entire infrastructure. The Company's
ability to assess the reliability of this infrastructure is limited and the
Company relies solely on generally available news reports, surveys and
comparable industry data. Based on these sources, the Company believes that most
entities and individuals that rely significantly on the Internet are reviewing
and attempting to remediate issues relating to Year 2000 compliance, but it is
not possible to predict whether these efforts will be successful in reducing or
eliminating the potential negative impact of Year 2000 issues.
A significant disruption in the ability of consumers to reliable access the
Internet or portions of it or to use their credit cards would have an adverse
effect on demand for the Company's services. In addition, the Company may have
difficulties operating portions or all of its Web sites effectively, taking
customers' wagers, and conducting other fundamental parts of the Company's
business.
29
The costs to address the Year 2000 compliance issues delineated above have not
been determined at this time. The cost of developing and implementing a plan, if
necessary, could be material and the Company may not have enough time to
implement it before the year 2000. Any failure of the Company's material
systems, its suppliers' material systems or the Internet to be year 2000
compliant could include difficulties in operating the Web sites effectively,
taking wagers, providing services or conducting other fundamental parts of the
Company's business, any one of which would have an adverse effect on the
Company.
>From January 1, 2000 to the date of this filing, we have not experienced any
significant problems associated with the Year 2000 issue. Although it appears
that the Year 2000 issue will not have a significant adverse affect on us, we
continue to monitor the Year 2000 compliance of our internal systems. Undetected
errors in our internal systems that may be discovered in the future could have a
material adverse affect on our business, operating results or financial
condition.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
I. QUANTITATIVE INFORMATION ABOUT MARKET RISK
Not Applicable
II. QUALITATIVE INFORMATION ABOUT MARKET RISK
Not Applicable
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
I. DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
TERRY G. BOWERING, PRESIDENT, CHIEF EXECUTIVE OFFICER & CHAIRMAN OF THE BOARD
Marble Hill
P.O. Box W-645
St. John's, Antigua
West Indies
Telephone: (268) 481-1970
DOB: August 30, 1960 (Age 39) Regina, Saskatchewan, Canada
Terry G. Bowering, B.Admin, M.B.A., Director
Mr. Bowering brings over fifteen years of experience in business management. Mr.
Bowering has considerable experience in both large corporations and
entrepreneurial enterprises and is qualified in the areas of business
development, finance, information systems, marketing, and sales. From January
1998 until his resignation June 20, 1999, Mr. Bowering was Vice President,
Offshore Operations for Starnet Communications International Inc., a Delaware
corporation, which is a fully reporting issuer on the NASD OTC:BB. Described as
being the "Microsoft of Internet Gaming", Starnet is one of the world's leading
Internet Gaming Software providers. Mr. Bowering was instrumental in
establishing and developing offshore operations and foreign government relations
for Starnet in Antigua and for establishing worldwide offshore banking
relationships in concert with the corporate development of Starnet's
subsidiaries, Electronic Financial Services Caribbean Inc. (EFS) and the EFS
group of International companies. Mr. Bowering has been interviewed and quoted
in the International press including FOX TV, COMPUTER WORLD MAGAZINE, SHIFT
MAGAZINE, TIME MAGAZINE (Atlantic Edition), and ESPN, specifically on the
subject of offshore Internet Gaming. From 1996 to 1998, Mr. Bowering was an
Investment Advisor, Vancouver office, with Levesque Securities Inc., a major
Canadian brokerage firm. From May 1992 to June 1996, Mr. Bowering was a
financial analyst with the Asset Management Group Dept. of Crown Life Insurance
in Regina, Saskatchewan, Canada. Currently, Mr. Bowering holds a position as a
Director of Denmans.com, Inc., a company which is a retailer of jewelry and
related services via the Internet.
30
Mr. Bowering holds a Bachelor of Administration in Finance from the University
of Regina, and a Master of Business Administration with a concentration in
Strategic Management from the University of Saskatchewan.
Mr. Bowering was appointed to the above positions on March 1, 1999 to serve
until his successor has been elected and qualifies.
DOUGLAS N. BOLEN, CORPORATE COUNSEL, SECRETARY AND DIRECTOR
Suite 2103 - 1188 Quebec Street
Vancouver, British Columbia, Canada
Canada, V6A 4B3
(604) 506-4243
DOB: August 25, 1965 (Age 34) Regina, Saskatchewan, Canada
Douglas N. Bolen, B.A., L.L.B. - Corporate Counsel, Secretary and Director.
Mr. Bolen brings over ten years experience in entrepreneurial enterprise. Mr.
Bolen received a Bachelor of Arts from the University of Regina, Saskatchewan
and his Bachelor of Laws from the University of Saskatchewan. Mr. Bolen is a
member in good standing of the Law Society of Saskatchewan, the Regina Bar
Association and the Canadian Bar Association. From 1992 to 1995, Mr. Bolen was
attending the College of Law at the University of Saskatchewan. Since February
1999, Mr. Bolen has held the positions of Corporate Counsel, Secretary and
Director of Denmans.com, Inc. a Colorado company which is a retailer of jewelry
and related services via the Internet. Denmans.com, Inc. is soon-to-be publicly
traded on the NASD OTC:BB. From 1995 to 1999, Mr. Bolen articled and practiced
law at Balfour Moss, Barristers and Solicitors, a large Regina, Canada based law
firm with a practice concentration in the area of Corporate Commercial law.
Mr. Bolen was appointed to the position of Director on March 1, 1999 to serve
until his successor has been elected and qualifies.
DWIGHT LEWIS, DIRECTOR
Cassada Gardens
P.O. Box W-386
St. John's, Antigua
(268)463-5103
DOB: May 24, 1961 (Age 38) St. Lucia, West Indies
Dwight Lewis, MA, BSc. - Director
Mr. Lewis is presently engaged as a Financial Consultant to Hanson International
Investment Services Ltd., an investment advisory organization. He also is
Managing Director of Mahaut Ltd., a corporation that provides offshore financial
services to its clients. Most recently Mr. Lewis was engaged as a Financial
Consultant and Interim Manager of RYO International Corporation and SAGA
Corporation, which were eventually merged to form International Data Processing.
This corporation owns and operates a number of Internet Casinos based and
licensed in Antigua. On behalf of the corporation's overseas principals, Mr.
Lewis was responsible for establishing these operations from conception to live
operation, having dealt with all aspects of the company's operations and
providing ongoing management and supervisory services.
From 1992 to 1997, Mr. Lewis was employed with the Bank of Antigua Ltd. as a
Senior Manager dealing with management of the investment portfolio and general
supervision of all bank operations. From 1988 to 1992, Mr. Lewis was employed
with the Eastern Caribbean Central Bank, located in St. Kitts, as a Senior Bank
Examiner. This entailed general supervision of commercial banking activities in
all member banks of the Eastern Caribbean Central Bank. From 1986 to 1988, Mr.
Lewis worked as a Budget Analyst with the Ministry of Finance, Government of St.
Lucia, and with Barclays Bank, St. Lucia, from 1980 to 1983.
Mr. Lewis graduated from the University of West Indies, Cave Hill Campus,
Barbados, with a Bachelor of Science Degree in Economics and Management. Mr.
Lewis also attended the University of Sheffield, Management School, England,
where he obtained an MA in Banking and International Finance. Mr. Lewis resides
in Antigua, West Indies.
Mr. Lewis was appointed to the position of Director on December 20, 1999 to
serve until his successor has been elected and qualifies.
31
II. FAMILY RELATIONSHIPS
--------------------
There are no family relationships among directors, executive officers or persons
nominated or chosen by the Company to become officers or executive officers.
III. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Article VIII of the Company's Articles of Incorporation read as follows:
INDEMNIFICATION. The Corporation shall indemnify any and all of its Directors,
officers, employees or agents or former Directors, officers, employees or agents
or any person or persons who may have served at its request as a Director,
officer, employee or agent of another company, partnership, joint venture, trust
or other enterprise in which it owns shares of capital stock or of which it is a
creditor, to the full extent permitted by law. Said indemnification shall
include, but not be limited to, the expenses, including the cost of any
judgments, fines, settlements and counsel's fees, actually and necessarily paid
or incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, and any appeals thereof, to which any
such person or his legal representative may be made a party or may be threatened
to be made a party by reason of his being or having been a Director, officer,
employee or agent as herein provided unless such action, suit or proceeding is a
result of the Director, officer, employee or agent's own negligence or illegal
action. The foregoing right of indemnification shall not be exclusive of any
other rights to which any Directors, officer, employee or agent may be entitled
as a matter of law or which he may be lawfully granted.
In addition, Section 97 of The Antigua and Barbuda International Business
Corporations Act, 1982 indicates that the foregoing provisions shall not
eliminate or limit the liability of a director to the corporation or to its
shareholders for monetary damages for any breach of the director's duty of care
to the corporation or to its shareholders, acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, improper
corporate distributions, or any transaction from which the director directly or
indirectly derived an improper personal benefit.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The Company did not pay any compensation to its chief executive officer, any
other executive officer nor to any senior employees during its first fiscal year
ended April 1999 nor in the first quarter ended July 31, 1999. Currently, the
executive officers receiving salary from the Company are Terry Bowering,
President, Chairman of the Board, Chief Operating Officer, who is receiving a
salary of $90,000 per year and Douglas N. Bolen, Corporate Counsel,
Secretary/Treasurer, who is receiving a salary of $18,000 per year.
The members of the Company's Board are reimbursed for actual expenses incurred
in attending Board meetings. There are no other arrangements for compensation to
the Board of Directors' members.
There are no written employment contracts or agreements with any executive
officers. Employee salaries are set by the Members of the Board of Directors.
ITEM 12. OPTIONS OT PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The Company has authorized the issuance of 1,000,000 Employee Stock Options
pursuant to a Non-Qualified Stock Option Plan. To date, no such options have
been granted by the Stock Option Committee to Officers, Directors, Consultants,
or Employees.
32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is not aware of any transactions or proposed transactions in respect
of which the Company was or is to be a party, in which any director, executive
officer, nominee for election as a director, 5% security holder, member of the
immediate family of any of the previously named persons had a direct or indirect
interest in the transaction.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
The securities to be registered pursuant to this Form 20-F are all of the
authorized Common Stock of Net-Force Systems Inc. Holders of the Common Stock
are entitled to cast one vote for each share held at all shareholder meetings
for all purposes, except that in the election of Directors, each shareholder of
Common Stock shall have as many votes for each share held by him as there are
directors to be elected and for whose election the shareholder has a right to
vote. There are no preemptive rights associated with the securities and no
cumulative voting is authorized by the Articles of Incorporation or the By-Laws.
The total amount of shares authorized by the Company's Articles of Incorporation
is 150,000,000. Of these, 100,000,000 are Common Stock and 50,000,000 are
Preferred Stock. There has been no issuance of any Preferred stock. Dividend,
voting, conversion rights, liquidation rights and other rights of the Preferred
Stock, if any, will be established by the Board of Directors upon issuance.
The Company has never declared or paid cash dividends on the common stock of the
Company. Management intends to retain all available funds and any future
earnings for use in the operation and expansion of the business and does not
anticipate paying any cash dividends in the foreseeable future.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
There is no public trading market for the common equity shares of the
registrant. If the registrant successfully obtains a listing, as is presently
intended by management, the common equity shares will be listed upon the OTC
Bulletin Board Service. As of January 1, 2000, there are approximately 12 equity
holders of record of the Company's Common Stock. As of January 1, 2000, there
are no shares of the Company's Common Stock subject to outstanding options or
warrants to purchase or securities convertible into Common Stock of the Company.
The number of shares eligible for trading will be all of the Common Stock except
that which is owned by management of the Company. The Management of the Company
currently owns an aggregate of 5,500,000 shares which can be sold only in
compliance with Rule 144. There have been no cash dividends declared since the
inception of the Company nor its subsidiaries. There are no restrictions that
would limit the ability to pay dividends on common equity or that are likely to
do so in the future.
PART IV
ITEM 17. FINANCIAL STATEMENTS
N/A
ITEM 18. FINANCIAL STATEMENTS
i. NET-FORCE SYSTEMS INC. AUDITED FINANCIAL STATEMENTS, OCTOBER 31, 1999.
33
NET-FORCE SYSTEMS INC.
FINANCIAL STATEMENTS
FOR THE PERIOD ENDED OCTOBER 31, 1999
C O N T E N T S PAGE
--------------- ----
AUDITORS' REPORT 1
BALANCE SHEET 2
INCOME STATEMENT 3
NOTES TO THE FINANCIAL STATEMENT 4 - 6
34
PAGE 1
AUDITORS' REPORT TO THE MEMBERS OF
NET-FORCE SYSTEMS INC.
We have examined the Balance Sheet of Net-Force Systems Inc. as at
October 31, 1999 and Statements of Income for the six months then ended. These
Financial Statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on the Financial Statements based on our
audit.
We conducted our audit in accordance with International Auditing
Standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance that 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.
In our opinion, the Financial Statement referred to above present
fairly, in all material respects, the financial position of Net-Force Systems
Inc. as at October 31, 1999 and the results of its operations and Changes in
Financial Position for the period then ended in accordance with International
Auditing Standards.
PANNELL KERR FORSTER
/S/ "Pannell Kerr Forster"
ANTIGUA:
NOVEMBER 22, 1999 CHARTERED ACCOUNTANTS
- ----------------- ---------------------
NET-FORCE SYSTEMS INC. PAGE 2
----------------------
BALANCE SHEET AT OCTOBER 31, 1999
(EXPRESSED IN UNITED STATES DOLLARS)
Notes OCTOBER 31
1999
--------- ------------
CURRENT ASSETS
Cash at bank 3 441,946
Prepayments 6,548
------------
448,494
FIXED ASSETS 4 124,323
------------
TOTAL ASSETS $ 572,817
============
FINANCED BY:-
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accruals 5 97,500
Promissory notes 6 513,563
Shareholders' advance 2,000
------------
613,063
------------
SHAREHOLDERS' EQUITY
Share capital 7 8,500
Share premium 27,000
------------
35,500
Retained Earnings (deficit) - Page 3 ( 75,746)
------------
( 40,246)
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 572,817
============
APPROVED ON BEHALF OF THE BOARD:
/s/ "Terry G. Bowering" : DIRECTOR
THE ATTACHED NOTES FORM PART OF THESE FINANCIAL STATEMENTS.
PAGE 3
NET-FORCE SYSTEMS INC.
----------------------
INCOME AND RETAINED EARNINGS (DEFICIT) STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999
(EXPRESSED IN UNITED STATES DOLLARS)
OCTOBER 31
1999
------------
INCOME -
------------
EXPENDITURE
Payroll and related costs 22,131
Rent 1,793
Telephone 1,155
Travelling 7,841
Office and general 3,887
Legal fees 7,947
Audit 7,500
Interest on promissory notes 18,563
Bank Charges 309
Exchange difference 624
Depreciation 3,996
------------
75,746
------------
LOSS FOR THE PERIOD - Page 2 $( 75,746)
============
PAGE 4
NET-FORCE SYSTEMS INC.
----------------------
NOTES TO THE FINANCIAL STATEMENTS
AT OCTOBER 31, 1999
(EXPRESSED IN UNITED STATES DOLLARS)
1. INCORPORATION AND PRINCIPAL ACTIVITIES
The Company was incorporated on March 1, 1999 under the International
Business Corporations Act. No. 28 of 1982 of the laws of Antigua and
Barbuda.
The Company will be engaged in all business activities permitted under
the International Business Corporations Act. 1982 except International
Banking, Trust and Insurance. It will generally carry on the business
of an investment and holding company. To date, the company has not
commenced trading.
On August 5, 1999, a wholly owned subsidiary - Net Force Entertainment
Inc. was incorporated under the International Business Corporations Act
of the laws of Antigua and Barbuda. This subsidiary Company will be
engaged in all aspects of International betting, gaming, sports betting
and bookmaking but with a major emphasis on internet gaming.
Net Force Entertainment Inc. has been granted a gaming licence by the
Antigua and Barbuda Free Trade & Processing Zone and has also entered
into a software gaming licence with Softec Systems for the operation of
an internet casino. The Company has not yet commenced trading.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Accounting Policy
The accounting policies used in the preparation and audit of
these financial statements are in accordance with
International Accounting Standards which are consistent with
United States Generally Accepted Accounting Principles and
regulations thereto.
b) Currency Translation
The Company maintains an office in Antigua where some of it
transactions are conducted in the local Currency - Eastern
Caribbean Dollar. However, the law requires that the reporting
currency be US Dollars.
Foreign currency transactions during the period have been
converted at the pegged exchange rates of US$1 to 2.70 Eastern
Caribbean Currency Foreign currency assets and liabilities in
Eastern Caribbean Currency at the period end and have been
translated at the pegged rate of US$1 to EC$2.70.
c) Fixed Assets
Fixed assets are stated at cost and are being depreciated on
the straight line basis over the estimated useful lives of the
assets at the following rates:-
Leasehold Improvements 20%
Computer Software 10%
Computer Equipment 25%
Office Furniture and Equipment 15%
PAGE 5
NET-FORCE SYSTEMS INC.
----------------------
NOTES TO THE FINANCIAL STATEMENTS
AT OCTOBER 31, 1999
(CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
3. CASH AT BANK OCTOBER 31 MAY 1
1999 1999
------------- -------------
Swiss American Bank Ltd. 434,612 33,507
Swiss American National Bank of Antigua Ltd. 7,334 -
------------- -------------
$ 441,946 $ 33,507
============= =============
4. FIXED ASSETS ACCUMULATED N.B.V. N.B.V.
COST DEPRECIATION 10/31/99 01/05/99
---------- ------------ ----------- ----------
Leasehold Improvements 9,668 ( 483) 9,185 -
Computer Software 100,000 ( 2,500) 97,500 -
Computer Equipment 12,550 ( 784) 11,766 -
Office Furniture and Equipment 6,101 ( 229) 5,872 -
---------- ------------ ----------- ----------
$ 128,319 $( 3,996) $ 124,323 $ -
========== ============ =========== ==========
5. ACCOUNTS PAYABLE AND ACCRUALS OCTOBER 31 MAY 1
1999 1999
------------- -------------
Softec Systems - Software licence 90,000 -
Accounts Payable & Accruals 7,500 2,500
------------- -------------
$ 97,500 $ 2,500
============= =============
The gaming software was bought from Softec Systems which sold the software
along with a gaming licence issued by the Antigua and Barbuda Free Trade
and Processing Zone.
6. PROMISSORY NOTE OCTOBER 31 MAY 1
1999 1999
------------- -------------
Principal 495,000 -
Interest payable 18,563 -
------------- -------------
$ 513,563 $ -
============= =============
The above promissory note was issued for funds injected into the Company
and is due and payable on demand. It bears interest at the rate of 15% per
annum on the principal sum.
PAGE 6
NET-FORCE SYSTEMS INC.
----------------------
NOTES TO THE FINANCIAL STATEMENTS
AT OCTOBER 31, 1999
(CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
7. SHARE CAPITAL OCTOBER 31 MAY 1
1999 1999
------------- -------------
Authorised
----------
100,000,000 Common Shares of US$0.001 par value 100,000 100,000
50,000,000 Preferred Shares of US$0.001 par value 50,000 50,000
------------- -------------
$ 150,000 $ 150,000
============= =============
Issued and Fully Paid
8,500,000 Common Shares of US$0.001 par value $ 8,500 $ 8,500
============= =============
PART III. INDEX TO EXHIBITS
2. (i) Articles of Incorporation of Net-Force Systems Inc.
(ii) Bylaws of Net-Force Systems Inc.
(iii) Articles of Incorporation - Net-Force Entertainment Inc.
(iv) Bylaws of Net-Force Entertainment Inc.
6. Material Contracts
(i) Starnet Systems Inc. (formerly Softec Systems Caribbean Inc)
(ii) Government of Antigua and Barbuda Gaming License
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Net-Force Systems Inc.
(Registrant)
Date: May 17, 2000
/s/ "Terry G. Bowering"
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Terry G. Bowering, President, Chairman of the Board, Chief Executive
Officer and Director
Date: May 17, 2000
/s/ "Douglas N. Bolen"
-----------------------------------------------------------------------
Douglas N. Bolen, Corporate Counsel, Secretary and Director