UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
COMMISSION FILE NUMBER: _______________
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)
60 Nevis Street
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P.O. Box W-645
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St. John's, Antigua
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West Indies
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(Address of principal executive offices and zip code)
(268) 481-1970
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(Issuer's telephone number)
Securities registered or to be registered under Section 12(b) of the Act:
NONE
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant
to section 15(d) of the Act:
Common Stock having a par value of $0.001 per share.
The number of outstanding shares of each of the issuer's classes of
capital or common stock as of April 30, 2001 was
7,500,000 Common Stock.
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: [ ] Yes [X] No
Indicate by check mark which financial statements item the registrant has
elected to follow:
ITEM 17 [X] ITEM 18 [ ]
NET-FORCE SYTEMS, INC.
Table of Contents
FORWARD LOOKING STATEMENTS..................................................3
PART I......................................................................3
ITEM 1. DESCRIPTION OF BUSINESS.........................................3
I. BUSINESS DEVELOPMENT..........................................3
A. NET-FORCE SYSTEMS INC......................................3
B. NET-FORCE SYSTEMS INC. CORPORATE HISTORY...................4
II. BUSINESS OF THE ISSUER........................................4
III. BUSINESS AND MARKETING STRATEGIES.............................6
IV. INDUSTRY OVERVIEW............................................10
A. Global Gaming Industry....................................10
B. Internet Gambling Industry................................12
V. COMPETITION..................................................14
VI. RISKS........................................................15
A. RISKS RELATED TO THE BUSINESS.............................15
B. RISKS RELATED TO THE INDUSTRY.............................17
C. RISKS RELATED TO SECURITIES MARKETS.......................19
VII. REGULATORY BACKGROUND........................................19
VIII. DISCLOSURE...................................................23
ITEM 2. DESCRIPTION OF PROPERTY........................................23
ITEM 3. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.......................24
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..............................................................24
ITEM 5. NATURE OF TRADING MARKET.......................................25
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS........................................................25
ITEM 7. TAXATION.......................................................26
ITEM 8. SELECTED FINANCIAL DATA........................................27
SELECTED FINANCIAL DATA....................................................27
ITEM 9. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATION.........................................28
I. PLAN OF OPERATIONS...........................................28
A. Revenues and Financing....................................28
B. Operations for the Next Twelve Months.....................30
C. Balance Sheet Data........................................31
D. Liquidity and Capital Resources...........................31
E. Material Commitments for Capital Expenditures.............32
F. Material Commitments for Resources........................32
G. Impact of Inflation.......................................32
H. Year 2000 Risks and Compliance............................32
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK.............................................................33
I. QUANTITATIVE INFORMATION ABOUT MARKET RISK...................33
II. QUALITATIVE INFORMATION ABOUT MARKET RISK....................33
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS.........................................................33
I. DIRECTORS AND EXECUTIVE OFFICERS.............................33
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.........................35
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT
OR SUBSIDIARIES.........................................................35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................35
PART II....................................................................35
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.....................35
ITEM 15. DEFAULTS UPON SENIOR SECURITIES................................35
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY
FOR REGISTERED SECURITIES...............................................35
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Annual Report 2001 Page i
NET-FORCE SYTEMS, INC.
PART III...................................................................36
ITEM 17. FINANCIAL STATEMENTS...........................................36
NET FORCE SYSTEMS INC. AUDITED FINANCIAL STATEMENTS,
APRIL 30, 2001........................................................36
ITEM 18. FINANCIAL STATEMENTS...........................................57
PART IV. INDEX TO EXHIBITS................................................57
MATERIAL CONTRACTS.........................................................57
SIGNATURES.................................................................57
EXHIBIT 3.1 Articles of Incorporation of Net-Force
Systems Inc........................................................58
EXHIBIT 3.2 Bylaws of Net-Force Systems Inc........................61
EXHIBIT 3.3 Articles of Incorporation - Net-Force
Entertainment Inc..................................................68
EXHIBIT 3.4 Bylaws of Net-Force Entertainment Inc..................71
EXHIBIT 10.1 Starnet Systems Inc. (formerly Softec
Systems Caribbean Inc), Amendment to Software
License Agreement..................................................78
EXHIBIT 10.2 Government of Antigua and Barbuda
Gaming License.....................................................95
EXHIBIT 10.3 Sales and Marketing License Agreement.................98
EXHIBIT 10.4 Antigua Online Gaming Wagering and
Gaming Reseller Agreement.........................................109
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Annual Report 2001 Page ii
NET-FORCE SYTEMS, INC.
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 annual return, or that are otherwise made by or
on behalf of the Company. For this purpose, any statements contained in the
annual return 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. was incorporated in March 1999 under the laws of Antigua
and Barbuda as Net-Force Systems Inc. Our corporate website can be viewed on the
World Wide Web at www.netforcesystems.com. Netforce Entertainment licenses
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Internet gaming software that offers a variety of casino-style gaming options as
well as an on-line sports wagering service, utilizing the rapidly expanding
medium known as the Internet. Netforce Entertainment Inc. acts as the operating
company for all business activities relating to the online gaming operations.
Netforce Entertainment Inc. has entered into a non-exclusive software agreement
to license proprietary Internet casino software and systems from Starnet Systems
International, a corporation domiciled in Antigua, West Indies. Starnet Systems
International Inc. is a wholly-owned subsidiary of Starnet Communications
International, Inc., a U.S. publicly traded corporation. Included in this
software agreement is a contract between Netforce Entertainment Inc. and EFS
Caribbean Inc., a secure online financial transaction processor, to collect and
process revenues generated from our Internet gaming websites. The agreement with
EFS Caribbean Inc. includes the payment processing fees, terms, and conditions
(see Exhibit 10.1). Headquartered in Antigua, EFS Caribbean, Inc. is a wholly
owned offshore subsidiary of Starnet Communications International Inc. In order
to grow the customer database, Netforce Entertainment Inc. has entered into
marketing agreements (also known as "Partners" or "Affiliates" or "Resellers").
An affiliate or marketing agreement is defined as being an agreement between
Netforce Entertainment Inc. and Internet website operators that have established
customer traffic. Affiliates direct traffic from their websites to Netforce
Entertainments Inc.'s websites in exchange for a monthly commission starting at
25% of the net revenues generated from the affiliate's customer traffic. Special
online tracking software provided by Starnet Systems tracks and accounts for an
affiliate's customer activity on Netforce Entertainment's websites, and
calculates net revenue upon which the commission is based. We currently have
approximately 100 registered partners with marketing agreements in place.
Agreements are consummated online by accepting the `terms and conditions' prior
to completing the online registration form. Any reference to the term `master
agreement' or `master license' should be defined as having a direct software
license agreement with a software provider. We intend to engage in additional
"master" software agreements with other online gaming software providers with
the objective of offering a wide variety of online gaming and wagering products
and services and also reducing our reliance on any single technology provider
and/or software platform.
The Company, including our subsidiary, employs 4 full time persons on a contract
as-needed basis. The individuals are either involved in developing and
implementing a marketing strategy for us or are providing website maintenance
and development and customer support.
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Annual Report 2001 Page 3
NET-FORCE SYTEMS, INC.
B. NET-FORCE SYSTEMS INC. CORPORATE HISTORY
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In March 1999, we filed our 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 December 20, 1999, Mr. Dwight Lewis was
appointed to the Board of Directors.
On March 15, 1999, we 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.
On July 15, 1999, we signed a software licensing agreement with Softec Systems
Caribbean Inc., later known as Starnet Systems International Inc., to launch and
market a turnkey Internet Gaming website. On July 15, 1999, we issued a
promissory note to Mountain High Management Inc. to borrow $495,000 at an
interest rate of 15%. August 5, 1999 marked the date of incorporation of
Netforce Entertainment Inc., wholly owned subsidiary of Net-Force Systems Inc.,
under the laws of Antigua and Barbuda. Netforce Entertainment Inc. acts as the
operating subsidiary for the Internet Gaming web site operations.
The Internet Gaming website www.aogaming.com was initially launched in December
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of 1999 for testing purposes. During the months of January to March of 2000, we
experienced some operating and design difficulties with the web-site and gaming
software that prevented certain customers from depositing funds to play for
real-money. As a result, we re-configured the software and re-designed the
web-site for an official re-launch on April 7, 2000. The site functioned
effectively from that date forward.
On June 1, 2000, the Board of Directors resolved to authorize the redemption of
the common stock, which was issued pursuant to Rule 504 on or about March 15,
1999 and the same was effected shortly thereafter. On the same date, pursuant to
Regulation S, the Board authorized the issuance of 2,500,000 Units comprised of
one (1) $0.001 par value common stock and one (1) warrant that allows the holder
to purchase one (1) share of the Company's $0.001 par value common stock at an
exercise price of $2.00 per share, to be exercised no later than December 31,
2002 after which the warrants would become null and void. Each Unit was offered
at the price of $0.10. This offering was sold out on or about June 30, 2000.
On October 26, 2000, Douglas N. Bolen resigned as Director and secretary of the
Company.
II. BUSINESS OF THE ISSUER
----------------------
Netforce Entertainment Inc. 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 our online gaming operations.
Netforce Entertainment Inc. currently maintains an international gaming website
called Antigua Online Gaming located on the World Wide Web at www.aogaming.com.
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Netforce Entertainment Inc. has entered into agreements with software vendors,
including, Starnet Systems International, Inc. for the rights to use its
proprietary Internet gaming software, and with Electronic Financial Services
Caribbean, Inc. for the use of its electronic financial conversion system in
relation to the processing of credit cards. Electronic Financial Services
Caribbean, Inc. is a wholly owned subsidiary of Starnet Communications
International Inc. (see Exhibit 10.1). For specific terms and fees for payment
processing under Electronic Financial Services Caribbean Inc., see Exhibit 10.1.
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Annual Report 2001 Page 4
NET-FORCE SYTEMS, INC.
Starnet Communications International Inc., a U.S. publicly traded corporation
with operating subsidiaries in Antigua, West Indies, is in the business of
licensing complete, customized Internet gaming systems to third-party offshore
gaming license holders. Starnet Communications International Inc.'s wholly-owned
subsidiary, Starnet Systems International, currently supports in excess of 20
such licensees operating worldwide and has endorsed Net-Force Entertainment as a
master licensee. Domiciled in Antigua, Starnet Systems International Inc.
provides customized software, website 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 Systems International Inc. (See Exhibit 10.1) whereby Starnet Systems
International Inc. 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 an on-going percentage of the gross
revenues from our website. (See Exhibit 10.1).
Starnet Systems International Inc. hosts our offshore subsidiary's websites,
provides and maintains all computer hardware necessary for the operation of the
websites, and provides a complete transaction processing system that allows
players to make real-money deposits for use of the games. The computer hardware
is maintained in Starnet Systems International Inc.'s offices and co-location
facilities located in Antigua.
To ensure the security of funds transfers over the Internet, Netforce
Entertainment, Inc. utilizes the services of Electronic Financial Services
Caribbean, Inc. Electronic Financial Services Caribbean, Inc., also an Antigua
corporation and wholly owned subsidiary of Starnet Systems International Inc.,
is in the business of securely converting electronic funds between financial
institutions and other companies. Through alignments with major banks,
Electronic Financial Services Caribbean Inc. processes conversions of worldwide
currencies into "e-cash." Electronic Financial Service Caribbean Inc. utilizes
Starnet Systems International Inc.'s proprietary STAR-MX encoding and processing
technology to process tens of thousands of Internet credit card transactions per
month.
The Starnet Systems International Inc. software license agreement allows us to
pursue our objective of establishing ourselves as one of the leading providers
of Internet gaming and sports wagering services. Through our subsidiary,
Netforce Entertainment, Inc. we currently offer 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 variety of live
betting lines on all of the world's major sporting events. The initial term of
the master license is one year, renewable indefinitely unless we give 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 us to legally conduct Virtual Casino and Sports Wagering
operations. 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.
Netforce Entertainment Inc. is 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. We display this seal on the Gaming
websites with an associated link to the Antigua and Barbuda Free Trade &
Processing Zone website 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 we have consented to and successfully
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Annual Report 2001 Page 5
NET-FORCE SYTEMS, INC.
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 casino and sportsbook gaming
website is appropriately named Antigua Online Gaming, capitalizing on the
recognized brand identity that Antigua has established as a result of becoming
the hub of the Internet Gaming Industry. The websites' URLs can be found on the
World Wide Web at www.aogaming.com, www.aocasino.com, and www.aosportsbook.com.
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Our policy for the gaming websites we oversee is to accept subscriptions only
from persons over the age of 18 years and believed to reside in jurisdictions
that are not explicitly known to expressly prohibit Internet gaming.
To date, our activities have included the market analysis, website development,
acquisition of a gaming license, obtaining the software license from Starnet
Systems Inc. and developing the general infrastructure necessary to fulfill our
business objectives. The development and testing of our primary gaming website,
www.aogaming.com, was completed and launched on April 7, 2000.
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Through the software license acquired from Starnet Systems, we offer up to 25
virtual casino games and live sportsbook wagering on most of the world's major
sporting events. 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
websites, 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.
III. BUSINESS AND MARKETING STRATEGIES
---------------------------------
We intend to capitalize on the evolving opportunities on the Internet by
developing and marketing Internet casinos and sports wagering websites to small
and medium sized third-party operators at a reduced initial investment. To
capitalize on this lucrative opportunity, Netforce Entertainment Inc., a wholly
owned subsidiary of Netforce Systems Inc., and based in Antigua West Indies, was
established. Netforce Entertainment Inc.'s corporate mission is to deliver
efficient and entertaining online gaming services to a global market of end user
customers. Netforce Entertainment Inc. will provide online gaming software
licensing through third-party marketing agreements. Netforce Entertainment Inc.
will also provide marketing, support, and web-site design capabilities for
online gaming operators. Netforce Entertainment Inc. will utilize the Internet
to deliver these products in a cost-effective, efficient and profitable manner.
Netforce Entertainment Inc. aims to accomplish its objectives by applying the
following Business strategy:
1. Netforce Entertainment Inc. will only enter into primary master
software license agreements with the world's premiere online gaming
software systems providers.
2. To enhance the Company's reach on the Internet and to accelerate
market penetration on the Internet, Netforce Entertainment Inc. will
focus on developing marketing agreements with `affiliates' or
`partners' on an ongoing basis. This will ensure that a constant
stream of Internet `traffic' and customers are driven to Netforce
Entertainments Inc.'s casino web-sites.
3. Accelerated growth through acquisition. The offshore online gaming
industry is currently fragmented and made up of a number of
predominantly smaller private companies offering a variety of gaming
services to a growing global customer base. Expected future industry
consolidation provides an opportunity for Netforce to execute a
strategy of actively seeking acquisitions of these small to
medium-size established Internet gaming websites and operations, and
therefore continually adding to the company's database of active
customers at an accelerated pace. Netforce Entertainment Inc. will
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Annual Report 2001 Page 6
NET-FORCE SYTEMS, INC.
seek to acquire operations that present an opportunity for value
creation through enhanced marketing and operational initiatives and
synergies. This will further enhance the value of the Company's
portfolio of Internet properties.
4. Offer superior 24/7 customer support services to all of the playing
customers that fall under the umbrella of Netforce Entertainment
Inc.'s web site operations. This is essential to maintain and grow the
customer database and to differentiate the Company's product offering
in the market place. Customer service support for the websites is
provided by Starnet Systems International Inc. through Electronic
Financial Services Caribbean Inc. as a condition of the software
agreement. Customer support representatives deliver 24-hour customer
and technical support to deal with casino games problems, deposit and
payment inquiries, system downtime problems, and general questions.
Netforce Entertainment Inc. provides secondary customer support via
e-mail dealing with marketing, special promotions, and customer
retention programs. Customers cannot place wagers over the telephone
with either of the above customer service options.
Our 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 and leveraging our player base through multiple
marketing channels and third-party operators. We believe that this strategy
enables us 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, we believe that we will be able to deliver an entertaining
online gaming experience for players. With our mandate of providing a gaming
experience with unmatched options and 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 user-friendly, innovative
casino-style games and sports wagering services.
We note that the auditor's opinion contains a going concern statement as of the
April 30, 2001 year-end audit (see Independent Auditor's Report, of the Audited
Financial Statements for April 30, 2001, also see note 5 to the financial
statements of the financial statements). Since April 30, 2001, we have taken and
will continue to take the necessary steps to ensure ongoing viability of the
business. Specifically, in order to reduce the total debt burden on the balance
sheet to reduce the financial risk of our company, we intend to enter into a
debt for equity swap agreement with the holder of the promissory note on the due
date of July 13, 2001. In addition, management will focus on both growing the
database of customers in a cost-effective manner by aggressively developing
affiliate agreements to enhance revenue growth. To fuel further growth, we also
plan to raise additional capital through a private placement equity issuance
near the end of the current fiscal year 2002. However, there can be no assurance
of this.
The Company's Services and Products
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We have established websites, located on the Internet at www.aogaming.com,
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www.aocasino.com and www.aosportsbook.com, that offer a comprehensive
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interactive gaming service including a virtual casino and live online sportsbook
wagering service. The websites are accessible to the general public, however
only established customers or players are permitted to play the gaming
opportunities offered for money. Established customers are defined as being
customers who; have agreed to the online terms and conditions by affirming and
submitting, have completed an online application (i.e. the "join" form)
providing complete identity and address information, and have submitted via fax
a photocopy copy of his/her credit card, signature, and identification to the
customer service department of Electronic Financial Services Caribbean Inc. This
procedure both verifies the identity of the customer and reduces risk of credit
card fraud. Customers who wish to try the games for fun are not required to go
through this procedure and are therefore not considered established customers.
Our websites 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 websites are able to subscribe over the Internet by completing an
application appearing on the websites. Part of the application process requires
that the subscriber open an account and make a minimum deposit with the company
of $20.
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NET-FORCE SYTEMS, INC.
Our websites 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 us, it is either accepted or rejected
based on criterion including, but not limited to, age and geographic location of
the player. Upon accessing our Websites, every new customer must review and
accept our online terms and conditions agreement which states that only players
over the age of 18 will be accepted and proof of age and identification will be
required. Our policy is to accept subscriptions only from players over the age
of 18 years and believed to reside in jurisdictions that are not known to
expressly prohibit Internet gaming. To monitor this policy, the online financial
transaction processor for our Websites, Electronic Financial Services Caribbean
Inc., utilizes a staff of customer service personnel who are available 24 hours
per day, 7 days per week, to administer a policy of requiring personal
identification documents (via fax or e-mail scanned copy) from each new customer
who deposits funds using a credit card. This typically includes a faxed
photocopy of front and back of the credit card used for the account along with a
copy of the signature, and a photocopy of both a driver's license and/or a
utility bill, as proof of both identity and address. The customer service
individual is also able to identify the customer's card-issuing bank to confirm
or verify any customer credit card information. Upon acceptance, the approved
player is allowed to download the gaming software over the Internet for
installation on their personal computer. We then provide 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. This policy has proved to be adequate in identifying
and verifying a prospective customer's true identity and address.
Starnet Systems International Inc.'s Internet gaming software currently allows
for acceptance of account applications from all countries except Canada. It is
our policy that in the event that we become aware that any country or
jurisdiction by law expressly prohibits gaming activities over the Internet, we
will block our services from being offered to such countries and/or
jurisdictions. A list of countries from which we have accepted member
subscriptions to date include Australia, France, Germany, United Kingdom, Italy,
Greece, Spain, Mexico, Argentina, Switzerland, United States, Venezuela, The
Netherlands, Singapore, Thailand, New Zealand, Brazil, Panama, Ukraine, Israel,
China, India, Belgium, Austria, Sweden, Finland, and Turkey.
Our website allows the player to review all the terms, rules and conditions
applicable to gaming and other uses at the websites. 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 websites and which are at least favorable or more favorable
than those used by the major casinos in Las Vegas, Nevada.
We completed the process of designing the interfaces between the players and the
Starnet Systems International Inc. software for Antigua Online Casino and
Sportsbook by March 2000. We have beta tested the website for ease of use,
clarity and accuracy prior to officially launching the same on April 7, 2000.
The gaming opportunities offered at the website have been designed, in
conjunction with Starnet Systems International Inc. 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. We include 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 websites also include special
effects such as three-dimensional displays, sounds of cards shuffling, coins
falling from virtual machines and other generally familiar background casino
sounds. In addition to English, we also intend 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.
We intend to conduct continuing development of our websites (and such additional
websites as we deem appropriate with varying themes and languages) and the
products offered thereat in accordance with our players' demonstrated
preferences, demographics, and the evolution of new technologies. Our goal is to
utilize the Starnet Systems International Inc. software and such other software,
which may be identified by us as useful in order to provide the players with
gaming services, which is competitive, innovative and easy to use in the
Internet gaming industry.
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NET-FORCE SYTEMS, INC.
Marketing
- ---------
We believe that international markets will represent a significant portion of
our revenues in the near future since many of the products and services intended
to be offered are not currently available in these markets. Our websites 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 websites.
As of April 30, 2001, our office is located at Marble Hill, P.O. Box W-645, St.
John's, Antigua, British West Indies. From these offices, the Company conducts
all head office administrative activities. Also, from these offices, Netforce
Entertainment Inc. conducts all marketing and customer support activities for
the Internet Gaming sites that we oversee. The marketing program incorporates
the following strategies to target its players:
Strategic Alliances with Major Content and Service Providers. We intend to seek
- -------------------------------------------------------------
to enter into strategic alliances with major Internet content and service
providers in order to enhance our new customer acquisition efforts, increase
purchases by current customers and expand brand recognition. We are striving to
enter into alliances with Internet search engines services that provide for us
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 us. We currently do not
advertise with any major Internet content and/or service providers. However, in
the past, we have placed advertising on Internet sports content sites such as
The Sports Network, Football.com, Basketball.com, and Rotonews.com. We have not
advertised in the past with any Internet Service Providers.
On-Line and Traditional Advertising. We promote our brands through an aggressive
- ------------------------------------
marketing campaign using a combination of on-line and traditional advertising.
We advertise on the websites of major Internet content and service providers,
and targeted gaming-related websites. Our traditional advertising efforts
include print advertising in major magazines and gaming related publications,
and may also include radio advertising and television advertising. We have
advertised in the past in the following publications: High Roller Magazine -
Spring 2000 Special Issue, Time Magazine/Atlantic Edition, April 17, 2000,
Special Advertising Section - World Focus: Antigua and Barbuda, Alaska Airlines
In-Flight Magazine (scheduled flights to Las Vegas), April, June, and August
2000 Issues. We currently have no print advertising placed.
Direct Marketing. We use direct marketing techniques to target new and existing
- -----------------
players with communications and promotions. We send 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. We pay for such banner advertisements on a variety of Web pages and
search engines, and participate in a banner exchange program. Examples of sites
where the company has placed banners for the casino sites it oversees including
www.football.com, www.basketball.com, www.tsn.com, www.rotonews.com,
- ---------------- ------------------ ----------- ----------------
www.rgtonline.com, casino and sports categories on www.about.com,
- ----------------- -------------
www.gambling.net, as well as other gaming portal sites such as Wager Talk,
- ----------------
Wagerline, and Talk Sports. As of the current date, we have no banner
advertising in place. We are focused on developing our webmaster/affiliate
network base to drive Internet traffic and customers to our websites. We intend
to continue to enter into agreements with Webmasters in which Webmasters agree
to place our banner advertisements on their Web pages in exchange for a
commission for each unique player who clicks through banners to our home page or
for a percentage of the profits generated by the Webmaster.
Submissions to Search Engines. Potential players often learn about websites on
- ------------------------------
the Internet from listings on search engines. We have submitted its URL's and a
brief description of its Internet casino gaming and sports wagering websites to
various search engines so that our information is available to potential players
who use search engines to locate Internet gaming sites. Examples of the search
engines that the company's URLs have been submitted to include: www.yahoo.com,
-------------
www.altavista.com , www.lycos.com, www.dmoz.com, www.directhit.com,
- ----------------- ------------- ------------ -----------------
www.euroseek.com, www.excite.com, www.looksmart.com, www.hotbot.com. The
- ---------------- -------------- ----------------- --------------
websites have also been submitted to the following Internet casino directories
including but not limited to www.gamblingregistry.com, www.casinolocator.com,
------------------------ ---------------------
www.casinoseek.com, www.gambling.com, and www.top100casinos.com. These
- ------------------ ---------------- ---------------------
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NET-FORCE SYTEMS, INC.
Directories are centralized search tools for locating Web sites in a particular
industry.
Player Incentive Programs. In order to attract new players, we have 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 website, we institute 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 Websites. We may design related websites such as a site
- --------------------------------
containing tips on how to play certain casino games or a site providing
interesting gaming news. We intend 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 website to attract players to
our Internet gaming and sports wagering websites.
Celebrity Endorsements. We intend to seek out a number of celebrities ranging
- -----------------------
from film and television to sports professionals to endorse a website developed
by us. 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 us.
Distribution of a CD-ROM. We have, in conjunction with World Gaming, produced a
- -------------------------
CD-ROM on which our casino games are contained. When an individual obtains the
CD-ROM, they are able to play all our casino games without the necessity of
wagering real money. This promotional idea is intended to give us the ability to
distribute, to a large number and variety of potential players, quality examples
of the services and products offered at its websites. Once a potential player
plays the games offered for fun, we hope that the potential player may make an
application on our websites and eventually play the same games for money. We
intend 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
-----------------
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). At this time, only the states of Utah and Hawaii prohibit all
forms of 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. Also see VII Regulatory Background).
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
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NET-FORCE SYTEMS, INC.
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.
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. In
discussing the potential worldwide Internet Gaming market, it must be noted that
we have not yet done business with all of the countries and jurisdictions
discussed in the following International Market overview and we may never do
business with more than the countries we have accepted member subscriptions from
to date. For a list of countries from which we currently have registered
members, see "The Companies Products and Services" section. Based on the
Industry data table, the year 2001 projected industry revenue was $2.3 Billion.
Assuming that for the April 30, 2001 year-ended fiscal period our total revenues
will not exceed US$1 million, our current position in the worldwide market is
approximately 0.043 of one percent.
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, games of
chance are morally corrupting and should only be allowed in connection with
charitable purposes.
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).
- --------------------------------------------------------------------------------
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NET-FORCE SYTEMS, INC.
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 Gambling 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.
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NET-FORCE SYTEMS, INC.
The popularity of gaming has transcended beyond the physical boundaries of the
casinos to the borderless and unregulated realm of the Internet. Gambling
websites, 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 websites, 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 websites. Currently, it is estimated that more than 1,000
gambling websites are offered on the Internet, which Management estimates are
owned by approximately 500 operators. With the current licensing of gambling
websites by foreign governments and increased usage of Internet services, this
market will continue to grow. It is estimated that almost 300 million people
have used the Internet as of 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."
According to Datamonitor, the market size estimates for Internet gambling are
that it will grow to more than $10.0 billion by 2002.
The offshore wagering industry is flourishing and, particularly since everyday
sports betting is common in countries such as Great Britain, much of the traffic
is generated by Americans. See Marc Falcone, Bear, Stearns & Co., Gaming
Industry 12 (Mar. 2001). In 2000, an estimated $1.5 billion was wagered on the
Internet, of which approximately $553.3 million was wagered on sporting events,
and those amounts are estimated to have nearly doubled in 2001; the number of
websites that offer wagering is now believed to be 1,200 to 1,400, half of which
have appeared in just the last year. See Falcone, supra, at 6, 48. In Antigua
and Barbuda alone, there are more than 50 on-line sportsbooks in current
operation, see http://www.tbwsport.com/bookmakers/america.html, and more than 50
jurisdictions all over the world license and regulate sports betting websites
and wagering operations. See Mike Brunker, On-Line Gambling Goes Global, MSNBC,
Apr. 10, 2001, at http://www. msnbc.com/news.
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 websites 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 cyber casinos and
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NET-FORCE SYTEMS, INC.
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.
V. COMPETITION
-----------
The online commerce market is new, rapidly evolving and intensely competitive,
and we expect 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. Management estimates that there are over 1,500 online
gaming and related sites in operation today with potentially thousands more
"affiliate" sites. . However, the majority of these sites do not produce
substantial revenues as compared to the established, brand name sites, whose
operators have invested heavily in their marketing, affiliate, and customer
service programs to continuously increase their customer bases and maximize
customer retention. Some of the more established Internet Gaming sites that
provide similar gaming services as Netforce Entertainment's web sites and that
the Company has identified as its competitors include http://globalinteract.com,
http://www.intertops.com/, http://www.playersonly.com/,
- ------------------------- ---------------------------
http://www.casinoonnet.com/, http://www.goldclubcasino.com/,
- --------------------------- ------------------------------
http://www.intercasino.com/, http://www.englishharbourcasino.com/,
- --------------------------- ------------------------------------
http://www.usacasino.com/, http://www.thesandscasino.com/,
- ------------------------- ------------------------------
http://www.betonsports.com/, http://www.sportingbet.com/, http://www.wwts.com/,
- -------------------------- --------------------------- --------------------
and http://www.poker.com/.
---------------------
In addition, the broader gaming industry is intensely competitive. We 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 websites, which may compete directly with us.
We believe that the principal competitive factors in our 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 our intended and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than us. We are aware that certain of
our proposed competitors have and may continue to adopt more aggressive pricing
or marketing policies and devote substantially more resources to website and
systems development than us. Increased competition may result in reduced
operating margins, loss of market share and a diminished brand franchise.
There can be no assurance that we 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 us since the
revenues derived from the Internet casino gaming and sports wagering websites
depend primarily upon the site's acceptance by the international public, which
cannot be predicted with certainty. To be ultimately successful, we will be
faced with the challenge of marketing our gaming websites to a variety of
foreign cultures. Our websites will compete for consumer acceptance with similar
websites hosted by other companies. As a result, the success of our marketing
efforts is dependent not only on the quality and acceptance of the our virtual
casino games and on-line sports wagering websites, but also on the acceptance of
other competing virtual casino games and websites offered in the marketplace
during the same time period.
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NET-FORCE SYTEMS, INC.
VI. RISKS
-----
A. RISKS RELATED TO THE BUSINESS
-----------------------------
Limited Operating History. We have limited operating history. Since
- --------------------------
incorporation on March 1, 1999, we have expended substantial resources on
technology, license fees, website 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. We officially launched our casino web site operations on
April 7, 2000, therefore we have limited recorded revenues to period-ended April
30, 2000. We anticipate losses will continue to increase from current levels
because we expect 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 websites; the
expansion of service offerings and website content; and development of
relationships with strategic business partners. The recorded loss for the fiscal
period-ended April 30, 2001 was $484,587. Cumulative Losses from inception at
March 1, 1999 to date at April 30, 2001 are $888,456.
There can be no assurance at this time that we will operate profitably or that
we will have adequate working capital to meet our obligations as they become
due. We believe that our success will depend in large part on our ability to (i)
offer aesthetic, interesting and diverse casino-style games on our websites, 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, we intend to invest heavily in site development,
technology and operating infrastructure, as well as marketing and promotion. As
a result, we expect to incur operating losses in the initial stages of our
business and for the foreseeable future.
No Assurance of Profitability. Our business is speculative and dependent upon
- ------------------------------
the acceptance of our websites and the effectiveness of our marketing program.
Our only assets will be the offshore Internet gaming websites, some
administrative office furniture and equipment and the revenues derived from the
websites. There can be no assurance that our Internet gaming and sports wagering
websites will be successful or result in revenue or profit. There is no
assurance that we will earn significant revenues or that investors will not lose
their entire investment.
Failure to Respond to Change. If we face material delays in introducing new
- -----------------------------
services, products and enhancements, customers may forego the use of our
services and use those of competitors. To remain competitive, we must continue
to enhance and improve the functionality and features of the websites. 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 websites, technology and systems may become obsolete. To
develop the websites and technology entails significant technical and business
risks. We 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. We cannot predict whether they will do
so, or whether any future assertions or prosecutions will harm the business. If
we are forced to defend against any infringement claims, whether they are with
or without merit or are determined in our favor, then we 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. We intend 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. We intend 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 we intend to provide its services.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear. Therefore,
we 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.
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NET-FORCE SYTEMS, INC.
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 our
websites will become widely used. If the market fails to develop, develops more
slowly than expected or becomes saturated with competitors or if our services do
not achieve market acceptance, our 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, we 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 Systems International Inc. 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 our reputation and expose us to a risk of loss, litigation
and possible liability. There can be no assurance that our 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 Systems
International Inc. for its software and the hosting of its websites.
Businesses 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 us. A party who is able to circumvent our security measures could
misappropriate confidential information or cause interruptions in our
operations. We 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 our security were to occur, or if Starnet
Systems International Inc.'s software or website hosting fails, there could be a
material adverse effect on our business, financial condition and the results of
operations.
Lack of Consumer Confidence. Concerns that a virtual casino's odds can be easily
- ----------------------------
and arbitrarily manipulated may deter customers from using our website. There
can be no assurance that we will be able to instill customer confidence in and
alleviate negative perceptions about Internet gaming. If our efforts are
unsuccessful, it could have a material adverse effect on our business, financial
condition and the results of operations.
Competition. The market for our Internet gaming and sports wagering services is
- ------------
intensely competitive. Our 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 us. We believe 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 our proposed market. Our 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 we 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 we will not incur debt in
- ---------------------------
the future, that it will have sufficient funds to repay its indebtedness or that
we will not default on our debt, jeopardizing our business viability.
Furthermore, we may not be able to borrow or raise additional capital in the
future to meet our needs or to otherwise provide the capital necessary to
conduct our business. As of the period ended April 30, 2001, the total
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NET-FORCE SYTEMS, INC.
outstanding long term indebtedness is $178,596. Total liabilities are $952,150,
comprised of $773,554 in current liabilities and $178,596 in long term debt.
No Assurance that Dividends Will be Paid. We do not currently anticipate
- -----------------------------------------
declaring and paying dividends to our shareholders in the near future. It is our
current intention to apply net earnings, if any, in the foreseeable future to
increasing our 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 we will ever have sufficient earnings to declare
and pay dividends to the holders of our Common Stock, and in any event, a
decision to declare and pay dividends is at the sole discretion of our 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 us from offering our planned Internet
gaming in certain jurisdictions like Canada. Some jurisdictions may impose
restrictions, licensing requirements or prohibitions on Internet wagering. At
present, we do not anticipate any such restrictions, prohibitions or licensing
requirements in our target markets but no assurance can be made that such
restrictions, prohibitions or licensing requirements will not arise which would
materially adversely effect our business, operating results and financial
condition of the Company. Also see VII, Regulatory Background, for further
discussion on the state of Internet Gaming legislation in the U.S.
Dependence on Key Personnel. Our success is substantially dependent on the
- ----------------------------
performance of our executive officers and key employees. Given our early stage
of development in the Internet gaming business, we are dependent on our ability
to retain and motivate high quality personnel. Although we believe we 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 our services. The loss of one or more of our employees
or our inability to hire and retain other qualified employees could have a
material adverse effect on the Company. Currently, we identify Mr. Terry G.
Bowering, President and Chief Executive Officer, as a key person, as he is
involved in the direction of all aspects of the daily operations of the Company.
Mr. Bowering does not have an employment contract in place, nor is there any key
person insurance on himself. We also depend on Mr. Clint Jendyk, Director of
Website Design and Development, and Mr. Richard Pestes, Internet Marketing
Consultant. We have not entered into any employment or management contracts with
our employees nor do we maintain "key-person" insurance of any kind. (See
"MANAGEMENT").
Uninsured Losses. There is no assurance that we will not incur uninsured
- -----------------
liabilities and losses as a result of the conduct of its proposed business. We
plan to maintain comprehensive liability and property insurance at customary
levels. We will also evaluate the availability and cost of business interruption
insurance. However, should uninsured losses occur, the shareholders could lose
their invested capital.
Liabilities. We have liabilities to affiliated and unaffiliated lenders. As at
- ------------
April 30, 2001, our total amount of liabilities is $952,150. Current liabilities
to unaffiliated lenders (accounts payable) consist of accrued wages payable,
International telephone and Internet service payable to Cable and Wireless
Telecommunications Company, and fees payable to Pannell Kerr Forster for
accounting and auditing services. The promissory note and accrued interest
payable of $576,707 account for 74.6 % of current liabilities. Customer account
deposits account for $73,828 or 9.54 % or of total current liabilities. These
liabilities represent fixed costs, which are required to be paid regardless of
the level of profitability experienced by us. There is no assurance that we will
be able to pay all of our liabilities. Furthermore, we are always subject to the
risk of litigation from players, employees, suppliers or others because of the
nature of our business. Litigation could cause us 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. Our 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
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Annual Report 2001 Page 17
NET-FORCE SYTEMS, INC.
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.
Our 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 websites decreases or
fails to increase as expected or if management spends more than was expected to
attract visitors to the websites.
Inability to Acquire Domain Names. We 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, we may be unable to prevent third parties from
acquiring and using domain names relating to our brand, which could damage our
brand and reputation and take customers away from our websites. We currently
hold the www.aogaming.com, www.aocasino.com and www.aosportsbook.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 we propose to conduct our 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.
In order to comply with new or existing laws regulating online commerce, we may
need to modify the manner in which we propose to do business, which may result
in additional expenses. For instance, we may need to spend time and money
revising the process by which we intend to accept players' wagers to ensure that
each wager complies with applicable laws. We may need to hire additional
personnel to monitor compliance with applicable laws. We may also need to modify
our software to further protect players' personal information.
Liability for Content. As a publisher of online content, we face potential
- ----------------------
liability for defamation, negligence, copyright, patent or trademark
infringement, or other claims based on the nature and content of materials that
we publish or distribute. If we face liability, then our reputation and our
business may suffer. In the past, plaintiffs have brought these types of claims
and sometimes successfully litigated them against online companies. In addition,
we could be exposed to liability with respect to the unauthorized duplication of
content or unauthorized use of other parties' proprietary technology. Although
we intend to carry general liability insurance, such insurance may not cover
claims of these types. We cannot be certain that we will be able to obtain
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Annual Report 2001 Page 18
NET-FORCE SYTEMS, INC.
insurance to cover the claims on reasonable terms or that we 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 we should collect taxes on the winnings earned by
players, the financial position and results of operations could be harmed. If we
become obligated to collect taxes, we will need to update our 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 our websites because they have to pay tax, causing
net sales to decrease. As a result, we may be adversely materially affected.
C. RISKS RELATED TO SECURITIES MARKETS
-----------------------------------
Inability to meet Future Capital Requirements. We cannot be certain that
- ----------------------------------------------
additional financing will be available on favorable terms when required, or at
all. If we raise 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. We expect to require substantial working capital
to fund the business. Since inception, we have experienced negative cash flow
from operations and expect 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, we may need to
raise additional funds.
Volatility of the Common Stock. The market price for our 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 our control: actual or
anticipated variations in the quarterly operating results; announcements of
technological innovations or new services by us or our 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.
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 our 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 we were 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.
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 times 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
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Annual Report 2001 Page 19
NET-FORCE SYTEMS, INC.
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
website, the ISP or the user. The enforcement of anti-Internet gambling laws
through each of the avenues presents interesting social and technological
problems.
In the United States, the ownership and operation of land-based facilities has
traditionally been regulated on a state-by-state basis. According to a recently
published industry report by Bear Stearns, the Federal Government's role in
regulating gambling appears to be changing. Increased Federal interest may not
result in new regulations for the traditional forms of gambling that are easily
subject to police power of the individual states, may result in a redefined role
for the Federal Government in dealing with Internet gaming. The U.S. Department
of Justice currently maintains that, technically, there are no specific U.S.
Federal provisions against placing of bets overt the Internet. However, the
Justice Department also maintains that it is illegal to operate Internet Gaming
Websites and servers from within the United States. We are not physically
located in the United States nor do we house any computer servers or other such
computer hardware within the United States.
The United States Federal Wire Act contains provisions that make it a crime for
anyone engaged in the business of betting or wagering to knowingly use telephone
wires to transmit bets or wagers or information assisting in the placing of bets
or wagers on any sporting event, unless the wagering is legal in the
jurisdiction from which, and into which, the transmission is made. There are
other Federal laws impacting gaming activities, including the Wagering
Paraphernalia Act, the Travel Act, and the Organized Crime Control Act. However,
it remains unresolved whether these laws apply to gaming conducted over the
Internet. All aspects of our operations specifically involve the Internet for
delivery of our online gaming support services. We do not operate a telephone
wagering facility for the purpose of accepting and booking bets on sporting
events.
March 4, 1998 marked the first federal prosecution for gambling on the Internet
as 21 American gambling site operators were charged with conspiring to illegally
transmit bets over the Internet and the telephone. The men were owners or
managers of eight Caribbean and Central American-based companies that accepted
telephone and Internet wagers on sporting events. The individuals were charged
with felonies under the Wire Act, which explicitly prohibits placing sports
wagers over State lines via telephone wire. However, the Wire Act does not
directly identify or address the use of the Internet with its logistical factors
including the question of global borders and jurisdiction as it relates to where
a wager is actually received and/or processed. The common factor in all of the
operators indicted was the fact that all were clearly directly accepting and
booking sports wagers via telephone lines from the U.S. Only one of these
indictments resulted in a trial. Jay Cohen took the matter to trial and was
convicted of seven counts of violating the Wire Act and one count of conspiracy.
Mr. Cohen received a $5,000 fine and a 21-month prison sentence. Mr. Cohen has
appealed this decision.
The following are excerpts from an article by Fred Faust of Rolling Good Times
Online entitled "U.S. Judge Backs Visa and MasterCard in Internet Gambling
---------------------------------------------------------
Ruling", submitted on March 12, 2001. This article highlights an important
- ------
federal ruling:
More than 11 federal cases against the credit card companies and several of the
issuing banks were consolidated and assigned to Judge Stanwood R. Duval Jr. in
New Orleans. The plaintiffs were people who lost money gambling online. If the
casinos had not accepted credit cards, the plaintiffs argued, they wouldn't have
gambled online. On Feb. 23, (2001) Duval dismissed the cases outright, before
they even got to trial. That's an unusually strong step for a judge, but Duval
ruled that the plaintiffs had no grounds to bring these cases. Perhaps more
significantly, he also ruled that Internet casinos do not violate federal law.
"Plaintiffs in these cases are not victims," the judge stated in his ruling. "At
this point in time, Internet casino gambling is not a violation of federal law."
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Annual Report 2001 Page 20
NET-FORCE SYTEMS, INC.
In an opinion shared by many lawyers, Duval ruled that the 1961 federal Wire
Act, under which telephone and Internet bookmaker Jay Cohen was convicted,
applies only to sports betting and "does not prohibit Internet casino gambling."
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:
o 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.
o 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.
o Several types of gambling are exempted. These include fantasy sports
leagues, state lotteries, and certain activities under the Interstate
Horseracing Act of 1978.
o 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:
o 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.
o 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.
o 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.
o 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.
o Other nations, including Sweden, Germany, South Africa, Costa Rica,
Antigua, the Marshall Islands, and Curacao have already begun licensing and
regulatory processes for online casino operators.
o 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).
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NET-FORCE SYTEMS, INC.
The only known federal case against an Internet gambling operator prior to the
March 1998 federal prosecutions 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 website
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.
We are presently of the view that we are not prohibited from offering our
services and accepting wagers from residents 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. We intend 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 us.
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NET-FORCE SYTEMS, INC.
In addition to the aforementioned regulations pertaining specifically to gaming,
we 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 our
customers to third parties. However, the adoption of additional consumer
protection laws could create uncertainty in Web usage and reduce the demand for
our products and services.
We are not certain how our 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 our services or our cost
of doing business may increase as a result of litigation costs or increased
service delivery costs.
In addition, because our services are intended to be made available over the
Internet in multiple foreign countries, other jurisdictions may claim that we
are required to qualify to do business in that foreign country. We intend to
qualify to do business only in Antigua and Barbuda. Our failure to qualify in a
jurisdiction where it is required to do so could subject us to taxes and
penalties. It could also hamper our 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.
Our Internet operations and corporate structure are structured in such a fashion
that we do not directly process wagers and facilitate payments of betting
customers, nor do we accept wagers via the telephone on sporting events.
Further, we do not physically operate within the boundaries of the United
States. Therefore, we are of the view that we are not in violation of or
specifically subject to the Wire Act of 1961. However, this may not preclude the
United States or other jurisdictions from initiating criminal or civil
proceedings against us and these proceedings could involve substantial
litigation expense, penalties, and fines. In addition, these proceedings may
divert the attention of our key executives, and may result in injunctions or
other prohibitions against us. These proceedings could have a material adverse
effect on the business, revenues, operating results, and financial conditions.
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, we intend to be an electronic filer and as
such, all items filed by us 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. We also maintain 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 currently occupies the home office of CEO Terry G. Bowering, located
at Marble Hill, St. John's, Antigua, West Indies. This office houses our
operations including workstations for four individuals engaged in customer
support, production, marketing, website development, and accounting, and
administration functions. All gaming transaction servers website hosting
facilities are physically housed and maintained by Starnet Systems International
Inc.'s co-location facilities in Antigua.
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Annual Report 2001 Page 23
NET-FORCE SYTEMS, INC.
ITEM 3. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
We are 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 annual return. A change
of auditors occurred on October 25, 2000. Our initial auditors, Pannel Kerr
Forster of Antigua, agreed to transfer the audit file to HJ & Associates,
L.L.C., independent auditors, of Salt Lake City, Utah, U.S.A.
EXPERTS
The consolidated financial statements of Net-Force Systems Inc. as at April 30,
2001and April 30, 2000, appearing in this annual return have been audited by HJ
& Associates L.L.C. with head offices in Salt Lake City, Utah, U.S.A.,
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.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding beneficial
ownership of our Common Stock as of April 30, 2001 by (i) each person who is
known to us to own beneficially more than 5% of our outstanding Common Stock,
(ii) each of our 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
- --------------------------------------------------------------------------------
Terry G. Bowering* 4,400,000 58.7%
Marble Hill. beneficial owner (2)
P.O. Box W-645
St. John's, Antigua, West Indies
*Chairman,/President/Chief Executive
Officer
Terry G. Bowering* 500,000 6.7%
C/o High Street & Corn Alley beneficial owner (3)
P.O. Box 1679
St. John's, Antigua, West Indies
Dwight Lewis, Director 50,000 0.7 %
Cassada Gardens
P.O. Box W-386
St. Johns, Antigua West Indies
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Annual Report 2001 Page 24
NET-FORCE SYTEMS, INC.
Douglas N. Bolen 500,000 6.7%
Suite #2103-1188 Quebec Street beneficial owner (4)
Vancouver, B.C.
Canada
Greg Hurd 500,000 6.7%
P.O. Box 612, Times Sq. beneficial owner (5)
Providenciales
Turks and Caicos Islands
Jean-Claude Roder 500,000 6.7%
54 Route Des Acacias beneficial owner (6)
1227 Carouge-Geneva
Switzerland
M. Dierkes 500,000 6.7%
Oscar Espla 14 - Apt. 31 beneficial owner (7)
03580 Alfazdel Pi-Albir (ALC)
Spain
Alfred Peeper 500,000 6.7%
Mensinge 72 beneficial owner (8)
1083 HG Amsterdam
Netherlands
Total shares outstanding 7,500,000 100%
- --------------------------------------------------------------------------------
(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) Geneva Overseas Holdings Ltd., of which Terry G. Bowering is beneficial
owner, enjoys legal ownership of said securities.
(3) JPKT Metro Investment Corporation, of which Terry G. Bowering is beneficial
owner, enjoys legal ownership of said securities.
(4) BRF Family Trust of which Douglas N. Bolen is beneficial owner, enjoys
legal ownership of said securities.
(5) Atkins Financial Ltd., of which Greg Hurd is beneficial owner, enjoys legal
ownership of said securities.
(6) Shanghai Ltd., of which Jean-Claude Roder is beneficial owner, enjoys legal
ownership of said securities
(7) Solinvest Group Ltd., of which M. Dierkes is beneficial owner, enjoys legal
ownership of said securities.
(8) Multiasian Venture Ltd. Hong-Kong, of which Alfred Peeper is beneficial
owner, enjoys legal ownership of said securities.
Note: The table does not reflect the stock options that may be granted to
Employees, Officers, Directors or Consultants nor does it reflect the warrants
offered.
CHANGES IN CONTROL
Management is not aware of any arrangements, which may result in a change of
control of the issuer.
ITEM 5. NATURE OF TRADING MARKET
Our common stock has never been quoted on any exchange or quotation service.
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:
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Annual Report 2001 Page 25
NET-FORCE SYTEMS, INC.
"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.
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Annual Report 2001 Page 26
NET-FORCE SYTEMS, INC.
Section 274, "Withholding tax and report"
(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 April 30, 2001 and April 30, 2000 year-ends. 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 US GAAP. 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 2001 2000 1999
---- ---- ----
Sales 318,490 1,399 -
Gross Profit 100,721 (78) -
Loss from operations (406,798) (355,681) (6,493)
Other Income and Expenses (77,799) (41,685) -
Net Loss (484,597) (397,366) (6,493)
Basic Loss Per Share (0.07) (0.05) (0.00)
Weighted Average Number of Shares 7,171,233 8,500,000 5,899,999
Total Assets 269,194 221,512 33,507
Total Current Liabilities (773,554) 39,181 4,500
Long Term Debt (178,596) 550,690 -
Total Liabilities (952,150) 589,871 4,500
Common Stock 7,500 8,500 8,500
Paid in Capital 198,000 27,000 27,000
Accumulated deficit (888,456) (403,859) -
Total Stockholders Equity (682,956) (368,359) 29,007
Total Liabilities and Shareholders
Deficit 269,194 221,512 33,507
Eastern Caribbean and US Dollar Exchange Rates
- ----------------------------------------------
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Annual Report 2001 Page 27
NET-FORCE SYTEMS, INC.
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 and equipment of a material nature, are transacted in
US Dollars. Normal 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.
ITEM 9. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
I. PLAN OF OPERATIONS
------------------
A. Revenues and Financing
----------------------
Our principal source of revenue is generated from its operating subsidiary,
Netforce Entertainment, Inc. Netforce Entertainment Inc. is a gaming company,
which oversees Internet wagering websites. It is anticipated that the Internet
will continue to become more accessible and that the market opportunities for us
will continue to expand. This tremendous growth will also attract many potential
new competitors. In order to maintain revenue growth, we intend to expand the
content and to improve the services on its Internet websites on a global basis,
as well as researching and developing other projects that will utilize its
existing facilities and expertise.
Analysis of Operations for fiscal period-ended April 30, 2001. The most
significant changes in operations in the twelve-month period-ended April 30,
2001, as compared to the previous fiscal period were realized in the areas of
sales, advertising and marketing expenditures, interest expense, and salaries
and wages. The casino website has now operated for a full year. Given that the
launch of casino website operations with real-money deposits and wagers
officially commenced on April 7, 2000, the most significant change for the
fiscal period-ending April 30, 2001 was the increase in sales from $1,399 in
previous period to $318,490 for twelve-month period-ended April 30, 2001. Income
before expenses for the period was $114,371 compared to $13,927 in previous
fiscal period. We expect to experience a higher cost of sales and therefore
lower margins in the early stages of development of the casino website
operations due to aggressive deposit incentive and bonus credit promotions
designed to generate new customer signups to establish a base of active
customers. As well, aggressive affiliate commissions paid to further generate
new customers also contribute to cost of sales. Advertising and marketing
expenditures combined for fiscal year 2001 increased from $147,283 to $238,384,
a 62% increase. This was due to the fact that the casino website has now
operated for a full year. Interest expense on the promissory note was $78,495
for the period, a 41% increase over the previous period. The promissory note was
issued on July 15, 1999, therefore interest expense in previous fiscal period
was accrued for only nine months of the twelve-month period. Salaries and wages
declined by 52% for the period from $93,616 to $44,814. This decline in salaries
and wages was due to our decision to reduce four clerical staff members during
the period. These reductions in staff did not adversely affect operations.
Professional fees increased from $21,527 to $46,219 for the period, a 115%
increase. We fully expect that professional fees will decline going forward as
legal opinions and expenses, along with consulting fees necessary to organize
and establish the operations in the early stages of development will not be
required in the future. Reported total net loss for the period was $484,597, a
22 % increase over the loss from the previous fiscal period. This increased loss
was due to the fact that substantial resources were necessarily allocated to
launch and establish the casino website in its first full year of operation.
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Annual Report 2001 Page 28
NET-FORCE SYTEMS, INC.
Revenue Generation Process. Revenues for the Company are generated each time a
customer makes a wager on the website. Net monthly revenues are calculated as
the total dollar amount wagered by customers in the virtual casino and/or the
sportsbook wagering website less winnings by customers in the virtual casino
and/or sportsbook wagering website for a given calendar month. The software
royalty fee and transaction processing fees are included in the cost of sales.
Transaction processing fees consist of credit card discount fees of 5.50 % per
deposit, $1.60 per transaction, $5.00 fee for each check processed, and a $25.00
fee to process each credit card chargeback. As well, deposit bonus credits used
to encourage customer deposits are also included in cost of sales. See Exhibit
10.1, Software License Agreement, Section 2.3 Financial Transactions, and
Schedule A.
Netforce Entertainment Inc. does not directly process player deposits and
winnings. Electronic Financial Services Caribbean, Inc., the transaction
processing subsidiary of World Gaming, is under contract to Netforce
Entertainment to process all deposits and credits on behalf of the Company's
gaming websites. Daily online activity reports of all financial transactions are
produced by Electronic Financial Services Caribbean, Inc. 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. Electronic Financial Service Caribbean, Inc.
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).
We have 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 us pursuant to a note payable dated July 13,
1999 payable to Mountain High Management Inc. The loan was unsecured, with
interest at the rate of 15% per annum and was due on July 29, 2001. The Company
received the sum on or about July 13, 1999.
On June 1, 2000, pursuant to Regulation S, the Board authorized the issuance of
2,500,000 Units comprised of one (1) $0.001 par value common stock and one (1)
warrant that allows the holder to purchase one (1) share of the Company's $0.001
par value common stock at an exercise price of $2.00 per share, to be exercised
no later than December 31, 2002 after which the warrants would become null and
void. Each Unit was offered at the price of $0.10. This offering was sold out on
or about June 30, 2000.
Subsequent to the due date of July 13, 2001, the promissory note was acquired
from Mountain High Management Inc. by IFG Investments Inc. On September 15,
2001, Netforce Systems Inc. entered into an agreement with IFG Investments Inc.
to convert the total principal and accrued interest on the note to equity at a
value of $0.10 per share for a total of 6,027,870 shares issued. Related-party
unsecured shareholder loans with an interest rate of 8.0% made by Geneva
Overseas Holdings Ltd. totaled $208,121 as at September 15, 2001. Geneva
Overseas Holdings Ltd. is controlled by the President of Net-Force Systems Inc.,
Terry G. Bowering. On September 15, 2001, Net-Force Systems Inc. entered into an
agreement with Geneva Overseas Holdings Ltd. to convert the principal plus
accrued interest of $214,483 of the loan to equity at a share value of $0.10 per
share for a total of 2,144,830 shares issued. On November 20, 2000, Net-Force
Systems Inc. issued a promissory note for $50,000 with interest rate of 8.0% to
Low Tide Investments Inc. On September 15, 2001, Net-Force Systems Inc.
converted the loan payable plus accrued interest to Low Tide Investments Inc. to
equity at a value of $0.10 per share for a total of 533,333 shares issued. (See
Financial Statements, Note 5 - Material Events).
Payments to be made to World Gaming 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 was 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 called 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
was to have commenced on the date of `live' operations and the design and
- --------------------------------------------------------------------------------
Annual Report 2001 Page 29
NET-FORCE SYTEMS, INC.
testing of the gaming website is complete and the first deposit received. The
date was April 7th, 2000. On September 6, 2000, the balance payable of $90,000
was negotiated and adjusted to zero payable as a result of a compensation
agreement to cover early software configuration difficulties delaying the
planned launch date of the casino website in early 2000. See Exhibit 6.1,
Amendment to Software License Agreement.
2. Ongoing royalty payments to World Gaming consisting of a percentage of
----------------------------------------
the net revenue generated on a monthly basis. As detailed in the
software agreement, these payments will begin upon commencement of
live operations of the gaming website. The schedule of royalty
payments payable to World Gaming as detailed in Schedule "A" of the
software agreement is as follows:
*Net Monthly Revenue (US$) 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.,
wholly owned subsidiary of World Gaming. Electronic Financial Service
Caribbean, Inc. will also facilitate payouts of winnings for the
licensee by processing credits to credit cards and by bank draft.
As stated, actual cost to the company for payment processing include transaction
fees of 5.50 % and a flat fee of US$1.60 per transaction. As well, there is a
monthly 10% rolling reserve held which is rolled back to the licensee after 180
days. This deposit 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 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 as no credit is extended to customers.
Therefore since there are no customer receivables generated of a material
nature, there is no need to establish an allowance for doubtful accounts. Any
accounts receivable carried on the balance sheet consists of monthly net
revenues payable by Electronic Financial Services Caribbean Inc. and Starnet
Systems. Typically net revenue is due and payable at month-end but not actually
paid until the 15th of the following month. As was stated in the previous
paragraph, EFS Caribbean Inc., the credit card transaction processor, maintains
a 10% rolling reserve hold on credit card deposits on behalf of the company.
These reserved funds are released after a 180-day period on a monthly rolling
basis.
B. Operations for the Next Twelve Months
-------------------------------------
Our primary on-line wagering website, www.aogaming.com, went live on the
Internet on April 7th, 2000. Since that time, the Web site has gone through
several changes, re-designs, and upgrades as management had deemed necessary as
a result of evolving customer needs and competitive influences. We intend to
hire additional product, marketing, website and graphic design personnel over
the next twelve months as is deemed necessary by management. From customer
feedback data obtained from the websites during the first twelve to fifteen
months of operations, we plan to make adjustments to the operations as is deemed
necessary by management. We intend to impose tighter controls on administrative
expenses that will positively affect future operations by allowing us to
- --------------------------------------------------------------------------------
Annual Report 2001 Page 30
NET-FORCE SYTEMS, INC.
re-invest the additional cashflow into advertising and marketing strategies to
further drive growth and ultimately, profitability.
Management believes that the reduction of the total debt burden as cited above
combined with existing cash resources and ongoing revenues from operations 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 any proposed
secondary revenues will enable us to meet our financial obligations. As such, we
may solicit and arrange for additional debt financing from private arm's length
lenders in the event existing financing and revenues do not meet our financial
obligations. In addition, we 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 us with sufficient operating capital for a period of approximately
two years.
C. Balance Sheet Data
------------------
At April 30, 2001 April 30, 2000
----------------- --------------
Total Assets 269,184 221,512
Shareholders' Equity (deficit) (682,956) (368,359)
D. Liquidity and Capital Resources
-------------------------------
Funding for the next year will be derived from current cash resources and
expected revenues from ongoing operations. However, to fuel the growth of the
company through the funding of marketing expenditures, we may seek further
funding in the form of a promissory note combined with the issuance of
additional stock from our treasury. The company anticipates revenues from
operations will provide sufficient cash flow to supplement existing current cash
resources to allow the company to adequately cover all overhead expenses over
the balance of the calendar year 2001. Because of the very nature of the
Internet, our 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.
A number of significant events have transpired since April 30, 2001 that have a
positive impact on the liquidity and capital resources of our company. An
agreement was reached whereby the promissory note issued by Netforce Systems,
Inc. to Mountain High Management, Inc. on July 15, 1999, was swapped for equity.
IFG Investments, Inc. reached an agreement with Mountain High Management, Inc.
to purchase the note at a discount. IFG then approached Netforce Systems, Inc.
with a proposal to convert the note to equity. On September 15, 2001, under an
agreement between the company and IFG Investments, Inc., the principal plus
accrued interest on the note was converted to equity at a value of $0.10 per
share. Also on September 15, 2001, Net-Force Systems Inc. entered into an
agreement with Geneva Overseas Holdings Ltd. to convert the principal and
accrued interest of its related party shareholder loan to equity at a share
value of $0.10 per share. In addition, on September 15, 2001, Net-Force Systems
Inc. converted a loan payable to Low Tide Investments Inc. to equity at a value
of $0.10 per share. We believe that these transactions substantially increases
our liquidity and reduces the financial risk for our company by effectively
eliminating the long-term debt on our balance sheet. (See Financial Statements,
note 5-Material Events).
Initially, the software license fee agreement booked on the balance sheet as a
current payable, (net payable = $90,000), was payable in monthly installments of
US$10,000 per month until the balance of $100,000 was fully paid. The first
payment of the balance was to commence 90 days from the date of commencement of
live operations. As stated, on September 6, 2000, we negotiated an agreement to
have the balance of payments due waived as compensation for the failure of its
software provider (Starnet Systems International), to deliver on promised
software upgrades and support services.
As of April 7, 2000, Netforce Entertainment, Inc. launched its primary online
gaming site Antigua Online Gaming at www.aogaming.com. The gaming website has
----------------
grown steadily from that date. However, to continue to grow our gaming websites'
customer traffic, member base, and revenues, we will need to increase our
investment in marketing expenditures. We may therefore find it necessary to
raise additional funds as is deemed necessary by management through private
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Annual Report 2001 Page 31
NET-FORCE SYTEMS, INC.
placements of stock issued out of our treasury 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, which maintain operation of the electronic office
equipment during short power outages.
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 websites. 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 initial
share issuances and from the proceeds from the promissory note. The details of
the note are provided in the financial statements and in the body of the annual
return.
Capital expenditures for software consisted of an initial payment of
US$10,000.00 was paid upon execution of the agreement on July 31, 1999 leaving a
balance of US$90,000.00 payable in monthly installments of $10,000 until the
balance was fully paid. The total commitment for casino gaming software was a
US$100,000 one-time software set-up and configuration fee payable to Starnet
Systems International (formerly Softec Systems). These payments were to commence
upon completion of the configuration/design of the software and commencement of
live operations. On April 7, 2000, the casino Web site operations officially
went `live'. No monthly payments for the software under this arrangement were
made after commencement of operations. On September 6, 2000, the balance payable
was negotiated and adjusted to zero payable as a result of a compensation
agreement to cover early software configuration difficulties delaying the
planned launch date of the casino website in early 2000. See exhibit 10.1,
Amendment to Software License Agreement.
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.
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 incremental investment in personnel or equipment. The
customer service function and transaction processing system; as well as
web-hosting costs are absorbed by Starnet 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 anticipated proceeds from an additional financing. This
additional financing, if necessary, may consist of a combination of equity
financing and issuing a promissory note with a possible convertible equity
component attached.
G. Impact of Inflation
-------------------
The Company believes that inflation will not materially affect its business.
H. Year 2000 Risks and Compliance
------------------------------
- --------------------------------------------------------------------------------
Annual Report 2001 Page 32
NET-FORCE SYTEMS, INC.
The Year 2000 issue did not in any way adversely affect us. We experienced no
negative affects in the three of the potential areas of its computer systems
that it identified as potential for risk; its internal systems, its third-party
providers of computer systems, and the general infrastructure of the Internet.
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
- -----------------
Chairman, President and Chief Executive Officer
- -----------------------------------------------
# 2, Flamboyant Avenue
P.O. Box W-645
St. John's, Antigua, West Indies
DOB: August 30, 1960 (Age 41) Regina, Saskatchewan, Canada
Terry G. Bowering, B.Admin, M.B.A.
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 Communications International,
Inc., 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 World Gaming in Antigua and for establishing
worldwide offshore banking relationships in concert with the corporate
development of World Gaming's subsidiaries, Electronic Financial Services
Caribbean Inc. and its 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.
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 resides
in Antigua, West Indies.
Mr. Bowering was appointed to the above positions on March 1, 1999 to serve
until his successor has been elected and qualifies.
- --------------------------------------------------------------------------------
Annual Report 2001 Page 33
NET-FORCE SYTEMS, INC.
Dwight Lewis
- ------------
Director
- --------
Cassada Gardens
P.O. Box W-386
St. John's, Antigua, West Indies
DOB: May 24, 1961 (Age 40) St. Lucia, West Indies
Dwight Lewis, MA, BSc.
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.
II. FAMILY RELATIONSHIPS
--------------------
Among directors, executive officers or persons nominated or chosen by the
Company to become officers or executive officers, no family relationship exists.
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
- --------------------------------------------------------------------------------
Annual Report 2001 Page 34
NET-FORCE SYTEMS, INC.
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
In the fiscal years ended April 2000 and April 2001, our Chairman, President and
Chief Executive Officer, Terry G. Bowering, received a salary of $52,000 and
$38,000, respectively. Mr. Douglas Bolen, acting as Secretary and Director,
received an annual salary of $18,000 beginning during the fiscal year ended
April 2000 as well as in the fiscal year ended April 2001. Mr. Bolen resigned as
a Director on October 26, 2000. In the current fiscal year, Mr. Bowering is not
receiving a salary but is reimbursed for business travel expenses. Currently, no
other Directors or Officers are receiving a salary. The members of our 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 or contract employees. Employee salaries are set by the Members of the
Board of Directors.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
To date, we have not authorized the issuance nor granted any Employee Stock
Options pursuant to a Non-Qualified Stock Option Plan to any Officers,
Directors, Consultants, or Employees.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A related party transaction took place between Geneva Overseas Holdings Ltd. and
Net-Force Systems Inc. Geneva Overseas Holdings Ltd. is controlled by the
President of Net-Force Systems Inc., Mr. Terry G. Bowering. As of April 30,
2001, Geneva Overseas Holdings Ltd. has provided a total of $178,596 in
shareholder loans to Net-Force Systems Inc. We are not aware of any other
transactions or proposed transactions in respect of which we were or are 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
Not Applicable
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not applicable.
- --------------------------------------------------------------------------------
Annual Report 2001 Page 35
NET-FORCE SYTEMS, INC.
PART III
ITEM 17. FINANCIAL STATEMENTS
i. NET FORCE SYSTEMS INC. AUDITED FINANCIAL STATEMENTS, APRIL 30, 2001
NET FORCE SYSTEMS INC. AUDITED FINANCIAL STATEMENTS, APRIL 30, 2001
NET-FORCE SYSTEMS INC.
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2001 and 2000
- --------------------------------------------------------------------------------
Annual Report 2001 Page 36
NET-FORCE SYTEMS, INC.
C O N T E N T S
Independent Auditors' Report.............................................. 3
Consolidated Balance Sheet................................................ 4
Consolidated Statements of Operations..................................... 6
Consolidated Statements of Stockholders' Equity (Deficit)................. 7
Consolidated Statements of Cash Flows..................................... 8
Notes to the Consolidated Financial Statements........................... 10
F-2
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Annual Report 2001 Page 37
NET-FORCE SYTEMS, INC.
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
Net-Force Systems Inc.
Antigua, West Indies
We have audited the accompanying consolidated balance sheets of Net-Force
Systems Inc. as of April 30, 2001 and 2000 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years ended April 30, 2001, 2000, and from inception on March 1, 1999 through
April 30, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Net-Force Systems Inc. as of April 30, 2001 and 2000, and the consolidated
results of their operations and their cash flows for the years ended April 30,
2001, 2000, and from inception on March 1, 1999 through April 30, 1999 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 5 to the
consolidated financial statements, the Company's recurring losses from
operations and working capital deficit raise substantial doubt about its ability
to continue as a going concern. Management's plans concerning these matters are
also described in Note 5. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
January 2, 2002
F-3
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Annual Report 2001 Page 38
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Consolidated Balance Sheets
ASSETS
April 30,
--------------------------------------
2001 2000
----------------- -----------------
CURRENT ASSETS
Cash $ 33,292 $ 131,269
Accounts receivable, net 9,805 -
Reserves and deposits with credit card
processors (Note 8) 30,858 -
Prepaid expenses - 34,698
Gaming license (Note 10) 91,667 -
Other current assets - 2,593
----------------- -----------------
Total Current Assets 165,622 168,560
----------------- -----------------
PROPERTY AND EQUIPMENT (Note 2) 26,551 40,891
----------------- -----------------
OTHER ASSETS
Player deposits (Note 9) 73,828 -
Deposits 3,193 12,061
----------------- -----------------
Total Other Assets 77,021 12,061
----------------- -----------------
TOTAL ASSETS $ 269,194 $ 221,512
================= =================
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
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Annual Report 2001 Page 39
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
April 30,
--------------------------------------
2001 2000
----------------- -----------------
CURRENT LIABILITIES
Accounts payable $ 42,400 $ 37,157
Accrued expenses 24,351 -
Interest payable - related party 4,243 -
Interest payable 81,707 55,690
Stock subscription payable 50,000 -
Player deposits (Note 9) 73,828 -
Current portion note payable - related party
(Note 3) 2,025 2,024
Current portion notes payable (Note 4) 495,000 -
----------------- -----------------
Total Current Liabilities 773,554 94,871
----------------- -----------------
LONG-TERM DEBT
Note payable - related party (Note 3) 128,596 -
Notes payable (Note 4) 50,000 495,000
----------------- -----------------
Total Long-Term Debt 178,596 495,000
----------------- -----------------
Total Liabilities 952,150 589,871
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 50,000,000 shares
authorized of $0.001 par value,
zero issued and outstanding - -
Common stock: 100,000,000 shares
authorized of $0.001 par value,
7,500,000 and 8,500,000 shares
issued and outstanding, respectively 7,500 8,500
Additional paid-in capital 198,000 27,000
Accumulated deficit (888,456) (403,859)
----------------- -----------------
Total Stockholders' Equity (Deficit) (682,956) (368,359)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 269,194 $ 221,512
================= =================
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
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Annual Report 2001 Page 40
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Consolidated Statements of Operations
For the From
Years Ended Inception on
April 30, March 1, 1999
-------------------------------------- Through April 30,
2001 2000 1999
------------------ ------------------ ------------------
REVENUE
Sales $ 318,490 $ 1,399 $ -
Cost of sales 217,769 1,477 -
------------------ ------------------ ------------------
Gross Margin (Deficit) 100,721 (78) -
------------------ ------------------ ------------------
EXPENSES
General and administrative 489,278 349,175 6,493
Depreciation and amortization 18,241 6,428 -
------------------ ------------------ ------------------
Total Expenses 507,519 355,603 6,493
------------------ ------------------ ------------------
LOSS FROM OPERATIONS (406,798) (355,681) (6,493)
------------------ ------------------ ------------------
OTHER INCOME (EXPENSE)
Loss on abandonment of leasehold improvements (6,700) - -
Gain on sale of assets 491 - -
Interest income 1,013 3,635 -
Other income 7,656 10,370 -
Interest expense (80,259) (55,690) -
------------------ ------------------ ------------------
Total Other Income (Expense) (77,799) (41,685) -
------------------ ------------------ ------------------
PROVISION FOR INCOME TAX - - -
------------------ ------------------ ------------------
NET LOSS $ (484,597) $ (397,366) $ (6,493)
================== ================== ==================
BASIC LOSS PER SHARE $ (0.07) $ (0.05) $ (0.00)
=================== ================== ==================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 7,171,233 8,500,000 5,899,999
================== ================== ==================
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
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Annual Report 2001 Page 41
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional
---------------------------------- Paid-in Accumulated
Shares Amount Capital Deficit
---------------- --------------- -------------- -----------------
Balance, March 1, 1999 - $ - $ - $ -
March 1, 1999, common stock
issued to founders for cash at
$0.001 per share 5,500,000 5,500 - -
April 22, 1999, common stock
issued for cash at $0.01 per
share 3,000,000 3,000 27,000 -
Net loss from inception on
March 1, 1999 through
April 30, 1999 - - - (6,493)
---------------- --------------- -------------- -----------------
Balance, April 30, 1999 8,500,000 $ 8,500 $ 27,000 $ (6,493)
Net loss for the year ended
April 30, 2000 - - - (397,366)
---------------- ---------------- --------------- -----------------
Balance, April 30, 2000 8,500,000 8,500 27,000 (403,859)
July 1, 2000, common stock
repurchased and canceled at
$0.01 per share (3,000,000) (3,000) (27,000) -
September 30, 2000, common
stock issued for cash at $0.10
per share 2,000,000 2,000 198,000 -
Net loss for the year ended
April 30, 2001 - - - (484,597)
---------------- --------------- -------------- -----------------
Balance, April 30, 2001 7,500,000 $ 7,500 $ 198,000 $ (888,456)
================ =============== ============== =================
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
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Annual Report 2001 Page 42
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Consolidated Statements of Cash Flows
For the From
Years Ended Inception on
April 30, March 1, 1999
-------------------------------------- Through April 30,
2001 2000 1999
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (484,597) $ (397,366) $ (6,493)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 18,241 6,428 -
Gain on sale of asset (491) - -
Loss on abandonment of leasehold improvements 6,700 - -
Changes in assets and liabilities:
(Increase) in reserves and deposits (30,858) - -
(Increase) in accounts receivables (7,212) (49,352) -
Decrease in prepaid expenses 34,698 - -
Decrease in other assets (64,960) - -
(Increase) in license (100,000) - -
Increase in accounts payable 5,243 34,681 4,500
Increase in accrued interest 26,017 55,690 -
Increase in accrued interest - related party 4,243 - -
Increase in accrued expense 24,351 - -
Increase in player deposit 73,828 - -
------------------ ------------------ ------------------
Net Cash (Used) by Operating Activities (494,797) (349,919) (1,993)
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (3,704) (47,319) -
Proceeds from sale of fixed assets 1,927 - -
------------------ ------------------ ------------------
Net Cash (Used) by Investing Activities (1,777) (47,319) -
------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related party 128,597 - -
Proceeds from notes payable 50,000 495,000 -
Increase in stock subscription payable 50,000 - -
Common stock issued for cash 200,000 - 35,500
Repurchase of and cancellation of common stock (30,000) - -
------------------ ------------------ ------------------
Net Cash Provided by Financing Activities 398,597 495,000 35,500
------------------ ------------------ ------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
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Annual Report 2001 Page 43
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Consolidated Statements of Cash Flows (Continued)
For the From
Years Ended Inception on
April 30, March 1, 1999
-------------------------------------- Through April 30,
2001 2000 1999
------------------ ------------------ ------------------
NET INCREASE (DECREASE) IN CASH (97,977) 97,762 33,507
CASH AT BEGINNING OF PERIOD 131,269 33,507 -
------------------ ------------------ ------------------
CASH AT END OF PERIOD $ 33,292 $ 131,269 $ 33,507
================== ================== ==================
CASH PAID FOR:
Interest $ 50,000 $ - $ -
Income taxes $ - $ - $ -
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
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Annual Report 2001 Page 44
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
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 as Net-Force Systems Inc.
The Company will be engaged in all business activities permitted under
the International Business Corporations Act of 1982 except
International Banking, Trust and Insurance. It will generally carry on
the business of an investment and holding company.
On August 5, 1999, a wholly-owned subsidiary, Net Force Entertainment
Inc. (Entertainment) was incorporated under the International Business
Corporations Act No. 28 of 1982 of the laws of Antigua and Barbuda.
This subsidiary company will be engaged in all aspect of International
betting, gaming, sports betting and bookmaking but with a major
emphasis on internet gaming.
Entertainment has been granted a gaming license by the Antigua and
Barbuda Free Trade & Processing zone and has also entered into a
software gaming license with Softec Systems for the operation of an
internet casino. The Company commenced operations in April 2000.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected an April 30 year end.
b. Basic Loss Per Share
Basic loss per share has been calculated based on the weighted average
number of shares of common stock outstanding during the period.
For the From
Years Ended Inception on
April 30, March 1, 1999
--------------------------------------- Through April 30,
2001 2000 1999
------------------ ------------------ ------------------
Basic loss per share:
Numerator - net loss $ (484,597) $ (397,366) $ (6,493)
Denominator - weighted
average number of
shares outstanding 7,171,233 8,500,000 5,899,999
------------------ ----------------- -------------------
Loss per share $ (0.07) $ (0.05) $ (0.00)
================== ================== ===================
F-10
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Annual Report 2001 Page 45
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Provision for Taxes
The Company's operations are within the Jurisdiction of St. John's,
Antigua, where there is no corporate income tax.
d. Cash and Cash Equivalents
The Company considers all highly liquid investment with a maturity of
three months or less when purchased to be cash equivalent.
e. Principles of Consolidation
The April 30, 2001 financial statements are consolidated with the
Company and Entertainment. All significant intercompany accounts and
transaction have been eliminated.
f. Property and Equipment
Office equipment and leasehold improvements are recorded at cost.
Minor additions and renewals are expensed in the year incurred. Major
additions and renewals are capitalized and depreciated over their
estimated useful lives. Depreciation of office equipment and leasehold
improvements is computed using the straight-line method over the
estimated useful lives of the asset of 5 and 10 years, respectively.
Vehicles are depreciated over a life of 5 years using the
straight-line method. Software is depreciated over a life of 5 years.
Depreciation expense for continuing operations for the years ended
April 30, 2001, 2000 and 1999 was $9,908, $6,428, and $-0-,
respectively.
Property and equipment consists of the following:
April 30,
--------------------------------
2001 2000
-------------- --------------
Vehicles $ 3,704 $ -
Computer equipment 19,450 19,550
Computer software 10,000 10,000
Office furniture and equipment 6,274 8,101
Leasehold improvements - 9,668
Accumulated depreciation (12,877) (6,428)
------------- --------------
Net Property and Equipment $ 26,551 $ 40,891
============== ==============
F-11
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Annual Report 2001 Page 46
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
h. Recent Accounting Pronouncements
The Company has adopted the provisions of FASB Statement No. 138
Accounting for Certain Derivative Instruments and Hedging Activities,
(an amendment of FASB Statement No. 133.) Because the Company had
adopted the provisions of FASB Statement No. 133, prior to June 15,
2000, this statement is effective for all fiscal quarters beginning
after June 15, 2000. The adoption of this principle had no material
effect on the company's consolidated financial statements.
The Company has adopted the provisions of FASB Statement No. 140
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (a replacement of FASB Statement No.
125.) This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under that
approach, the transfer of financial assets, the Company recognized the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This
statement provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured
borrowings. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
March 31, 2001. This statement is effective for recognition and
reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending
after December 15, 2000. The adoption of this principle had no
material effect on the Company's consolidated financial statements.
The Company had adopted the provisions of FIN 44 Accounting for
Certain Transactions Involving Stock Compensation (an interpretation
of APB Opinion No. 25.) This interpretation is effective July 1, 2000.
FIN 44 clarifies the application of Opinion No. 25 for only certain
issues. It does not address any issues related to the application of
the fair value method in Statement No. 123. Among other issues, FIN 44
clarifies the definition of employee for purposes of applying Opinion
25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or
award, and accounting for an exchange of stock compensation awards in
a business combination. The adoption of this principle had no material
effect on the Company's consolidated financial statements.
F-12
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Annual Report 2001 Page 47
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Subsequent Accounting Pronouncements
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
long-lived assets, including goodwill associated with other long-lived
assets, are evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
SFAS No.'s 141 and 142 -- In June 2001, the Financial Accounting
------------------------
Standards Board (FASB) adopted Statement of Financial Accounting
Standards SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 is effective as to
any business combination occurring after June 30, 2001 and certain
transition provisions that affect accounting for business combinations
prior to June 30, 2001 are effective as of the date that SFAS No. 142
is applied in its entirety, which will be January 1, 2002 for the
Company. SFAS No. 142 is effective, generally, in fiscal years
beginning after December 15, 2001, which will be the fiscal year
ending April 30, 2002 for the Company.
SFAS No. 141 provides standards for accounting for business
combinations. Among other things, it requires that only the purchase
method of accounting be used and that certain intangible assets
acquired in a business combination (i.e. those that result from
contractual or other legal rights or are separable) be recorded as an
asset apart from goodwill. The transition provisions require that an
assessment be made of previous business combinations and, if
appropriate, reclassifications be made to or from goodwill to adjust
the recording of intangible assets such that the criteria for
recording intangible assets apart from goodwill is applied to the
previous business combinations.
SFAS No. 142 provides, among other things, that goodwill and
intangible assets with indeterminate lives shall not be amortized.
Goodwill shall be assigned to a reporting unit and annually assessed
for impairment. Intangible assets with determinate lives shall be
amortized over their estimated useful lives, with the useful lives
reassessed continuously, and shall be assessed for impairment under
the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
Goodwill is also assessed for impairment on an interim basis when
events and circumstances warrant. Upon adoption of SFAS No. 142, the
Company will assess whether an impairment loss should be recognized
and measured by comparing the fair value of the reporting unit to the
carrying value, including goodwill. If the carrying value exceeds fair
value, then the Company will compare the implied fair value of the
goodwill (as defined in SFAS No. 142) to the carrying amount of the
goodwill. If the carrying amount of the goodwill exceeds the implied
fair value, then the goodwill will be adjusted to the implied fair
value.
F-13
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Annual Report 2001 Page 48
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Subsequent Accounting Pronouncements (Continued)
While the Company has not completed the process of determining the
effect of these new accounting pronouncements on its consolidated
financial statements, the Company currently expects that there will be
no reclassification in connection with the transition provisions of
SFAS No. 141 based on clarifications of the transition provisions
issued by the FASB in October 2001. Accordingly, the Company expects
that, after implementation of SFAS No. 142, all intangible assets will
be amortizable and the goodwill will not be amortizable.
SFAS No. 143 -- On August 16, 2001, the FASB issued SFAS No. 143,
------------
Accounting for Asset Retirement Obligations, which is effective for
fiscal years beginning after June 15, 2002. It requires that
obligations associated with the retirement of a tangible long-lived
asset be recorded as a liability when those obligations are incurred,
with the amount of the liability initially measured at fair value.
Upon initially recognizing a liability for an accrued retirement
obligation, an entity must capitalize the cost by recognizing an
increase in the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and
the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or
loss upon settlement. While the Company has not completed the process
of determining the effect of this new accounting pronouncement on its
consolidated financial statements, the Company currently expects that
the effect of SFAS No. 143 on the Company's consolidated financial
statements, when it becomes effective, will not be significant.
SFAS No. 144 On October 3, 2001, the Financial Accounting Standards
------------
Board issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets which is effective for financial statements
issued for fiscal years beginning after December 15, 2001 and,
generally, its provisions are to be applied prospectively. SFAS 144
supercedes SFAS Statement No. 121 (FAS 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles
Board Opinion No. 30 (APB 30), Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business.
SFAS 144 develops one accounting model (based on the model in SFAS
121) for long-lived assets that are to be disposed of by sale, as well
as addresses the principal implementation issues. SFAS 144 requires
that long-lived assets that are to be disposed of by sale be measured
at the lower of book value or fair value less cost to sell. That
requirement eliminates the requirement of APB 30 that discontinued
operations be measured at net realizable value or that entities
include under discontinued operations in the financial statements
amounts for operating losses that have not yet occurred.
F-14
- --------------------------------------------------------------------------------
Annual Report 2001 Page 49
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Subsequent Accounting Pronouncements (Continued)
Additionally, FAS 144 expands the scope of discontinued operations to
include all components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be eliminated
from the ongoing operations of the entity in a disposal transaction.
While the Company has not completed the process of determining the
effect of this new accounting pronouncement on its consolidated
financial statements, the Company currently expects that the effect of
SFAS No. 144 on the Company's consolidated financial statements, when
it becomes effective, will not be significant.
j. Revenue Recognition Policy
The Company recognizes as revenue the net winnings from gaming
activities, which is the difference between gaming winnings and
losses. The earnings process is complete upon receipt of the net
winnings, and no further obligations exist to the customer.
Cost of sales includes royalties, payable to Softec, incurred on
Casino activity and bank discount fees incurred by the Company for the
acceptance of credit cards.
The formula for net revenue sharing is as follows: (Casino gain (loss)
less adjustment for incentives less charge backs) times a royalty
factor to be paid to Softec. The royalty factor used depends on net
monthly revenue. The following table lists the schedule of royalty
payments:
Net Monthly RevenueRoyalty Fee Payable
--------------------------------------
0 to $500,000 25%
$500,001 to $1,000,000 20%
$1,000,001 to $5,000,000 15%
$5,000,001 to $10,000,000 12.5%
$10,000,001 plus 10%
The Company renegotiated the 25% factor down to 15% for the period
from September 2000 through August 2000, after which the factor rose
to 25% again.
k. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising expense for the years ending April
30, 2001, 2000 and 1999 was $174,859, $99,283, and $-0-, respectively.
F-15
- --------------------------------------------------------------------------------
Annual Report 2001 Page 50
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Long-Lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
long-lived assets, including goodwill associated with other long-lived
assets, are evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt SFAS No. 144 and apply the
provisions thereof.
m. Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are
translated into United States dollars at the period end exchange rate.
Non-monetary assets are translated at the historical exchange rate and
all income and expenses are translated at the exchange rates
prevailing during the period.
Foreign exchange currency translation adjustments are included in the
stockholders' equity section as other comprehensive income. The
Company operates with East Caribbean Dollars (EC). The exchange rate
between the EC and the United States Dollar (USD) is always constant
at .37453. This constant exchange rate makes it unnecessary to have a
foreign exchange translation adjustment in the stockholder's equity
section.
n. Concentrations of Risk - Foreign Operations
The Company operates in St. John's which has a developing economy.
Hyperinflation and rapid political and legal change, often accompanied
by military insurrection, have been common in this and certain other
emerging markets in which the Company may conduct operations. The
Company may be materially adversely affected by possible political or
economic instability in St John's. The risks include, but are not
limited to terrorism, military repression, expropriation, changing
fiscal regimes, high rates of inflation and the absence of industrial
and economic infrastructure. Changes in development or investment
policies or shifts in the prevailing political climate in St. John's
in which the Company operates could adversely affect the Company's
business. Operations may be affected in varying degrees by government
regulations with respect to development restrictions, price controls,
export controls, income and other taxes, expropriation of property,
maintenance of claims, environmental legislation, labor, welfare,
benefit policies, land use, land claims of local residents, water use
and mine safety. The effect of these factors cannot be accurately
predicted.
o. Reclassifications
Certain prior year amounts have been reclassified to conform to 2001
presentation.
F-16
- --------------------------------------------------------------------------------
Annual Report 2001 Page 51
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 3 - NOTE PAYABLE - RELATED PARTY
Geneva Overseas Holdings Ltd. (A Company April 30,
controlled by the president of the Company) ------------------------------
made advances to the Company totaling 2001 2000
$128,596. These advances have an interest -------------- --------------
rate of 8% annually. This note is unsecured. $ 130,621 $ 2,024
Less Current Portion 2,025 2,024
-------------- --------------
Total Long-Term Debt -Related Party $ 128,596 $ -
============== ==============
The following is a summary of the future maturities of the long-term
debt-related party:
For the
Year Ended
April 30,
------------
2002 $ 2,025
2003 68,596
2004 60,000
2005 -
------------
$ 130,621
============
Interest expense for the years ending April 30, 2001, 2000 and 1999
was $4,243, $-0- and $-0-,respectively.
NOTE 4 - NOTES PAYABLE
April 30,
-------------------------------
Note payable to Mountain High Management Inc. 2001 2000
dated July 13, 1999, accruing interest at 15% -------------- --------------
annually, due on July 29, 2001. This note is
unsecured. $ 495,000 $ 495,000
Note payable to Low Tide Investments, dated November 1, 2001,
accruing interest at 8% annually, due on November 1, 2004. This
note is unsecured. 50,000 -
-------------- --------------
Total Notes Payable 545,000 495,000
Less Current Portion 495,000 -
-------------- --------------
Total Long-Term Debt $ 50,000 $ 495,000
============== ==============
F-17
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Annual Report 2001 Page 52
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 4 - NOTES PAYABLE (Continued)
The following is a summary of the future maturities of the long-term
debt:
For the
Year Ended
April 30,
-----------
2002 $ 495,000
2003 -
2004 50,000
2005 -
--------------
$ 545,000
==============
Interest expense for the years ending April 30, 2001, 2000 and 1999
was $76,016, $55,690, and $-0- respectively.
NOTE 5 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has incurred
losses from its inception through April 30, 2001 and has a significant
working capital deficit. The Company does not have an established
source of revenues sufficient to cover its operating costs and to
allow it to continue as a going concern. It is the intent of the
Company to seek additional financing through private placements of its
common stock. This will be accomplished through the use of equity
issuances. Management believes the funds will more likely than not be
successfully raised, but there can be no assurance of this. The
Company expects that operations will increase in 2002, and will start
to provide cash flows from operations and expansion. The Company
expects that it will need $480,000 to $600,000 additional funds for
operations and expansion in 2002.
NOTE 6 - STOCK TRANSACTIONS
On March 1, 1999, the Company issued 5,500,000 shares of common stock
to founders of the Company for $5,500 of cash. The shares were sold at
the par value of $0.001.
On April 22, 1999, the Company sold 3,000,000 shares of common stock
to related investors for cash of $30,000 at $0.01 per share.
On July 1, 2000, the Company repurchased and canceled 3,000,000 shares
of common stock at $0.01 per share or $30,000 of cash.
On September 30, 2000, the Company issued 2,000,000 shares of common
stock at $0.10 per share for $200,000 of cash.
F-18
- --------------------------------------------------------------------------------
Annual Report 2001 Page 53
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Software Licensing Agreement
In the first quarter of 1999, the Company entered into a software
licensing agreement with Softec Systems Caribbean Inc. (Softec), to
provide online-gaming software and hardware services. The license
agreement calls for a commitment by the Company to spend a minimum of
10% of the previous months net revenue (based on a yearly average) for
ongoing promotion and marketing. The marketing obligation only applies
to the first 365 days of operation. The license agreement also calls
for sharing of net revenues based on a specific formula agreed to by
the Company and Softec. The license agreement may be terminated by the
Company at the end of any one-year term or by Softec at the end of any
one-year term subsequent to the first year of the agreement.
All of the Company's websites and advertising are directly linked to
Softec's software. Softec manages the software as well as the upkeep
and maintenance. The Company is highly dependent, therefore, on
Softec's ability to maintain the software and keep it running. In the
event that the software fails, the Company's business and operations
could be strongly affected.
Private Placement
-----------------
On June 1, 2000, the board of directors approved a Regulation S
Private Placement for 2,500,000 shares of common stock to be sold at
$0.10 per share. Each share sold has an attached warrant exercisable
at $2.00 per share which expires on December 31, 2002. The Company has
received $250,000 and issued 2,500,000 shares pursuant to the Private
Placement.
506 Regulation D
----------------
On July 1, 2000, the board of directors approved a best efforts
private placement equity fundraising under Rule 506 of Regulation D
for up to 2,000,000 shares at $0.50 per share. Each share sold
pursuant to this offering is to have an attached warrant exercisable
at $4.00 per share. Any warrants issued are to expire on December 31,
2002. The Company has not raised any funds from this offering.
NOTE 8 - RESERVES AND DEPOSITS WITH CREDIT CARD PROCESSORS
Reserves and deposits with credit card processors consist of rolling
reserves held by merchant banks and funds for transactions processed
and awaiting transfer to the Company's bank accounts. As of April 30,
2001 and 2000, the balance of these reserves and deposits were $30,858
and $-0-, respectively.
F-19
- --------------------------------------------------------------------------------
Annual Report 2001 Page 54
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and 1999
NOTE 9 - PLAYER DEPOSITS
As of April 30, 2001 and 2000, the Company had $73,828 and $-0-,
respectively, in cash representing funds held on deposit in the form
of e-cash balances. These deposits are non-interest bearing and
repayable on demand. These deposits are actually held by a third party
for the benefit of the Company.
NOTE 10 - GAMING LICENSE
The Company is required to purchase a gaming business license on an
annual basis. The cost of the license is $100,000 and is amortized
over twelve months. Amortization expense for the years ending April
30, 2001, 2000, and 1999 was $8,333, $-0- and $-0-, respectively.
NOTE 11 - SUBSEQUENT EVENTS
Notes Payable - Related Party
-----------------------------
Subsequent to April 30, 2001, the Company borrowed from related
parties an additional $77,500 in two notes payable. These notes bear
an annual interest rate of 8% and are due two years from the note
dates.
Common Stock
------------
On August 15, 2001, the Company issued 200,000 shares of common stock
valued at $0.10 per share, to a director for services and consulting.
On September 15, 2001, the Company converted the related party note
payable of $208,121 and accrued interest of $6,362 into equity by
issuing 2,144,830 shares of common stock at $0.10 per share for a
total of $214,483.
On September 15, 2001, the Company converted a note payable of
$495,000 and accrued interest of $107,783 into equity by issuing
6,027,830 shares of common stock at $0.10 per share for a total of
$602,783.
On September 15, 2001, the Company converted a note payable of $50,000
and accrued interest of $3,333 into equity by issuing 533,333 shares
of common stock at $0.10 per share for a total of $53,333.
On October 2, 2001, the Company issued 500,000 shares of common stock
for the subscription payable of $50,000 at $0.10 per share.
On August 15, 2001, the Company issued 200,000 shares of common stock
valued at $0.10 per share, to a director for services and consulting.
F-20
- --------------------------------------------------------------------------------
Annual Report 2001 Page 55
NET-FORCE SYTEMS, INC.
NET-FORCE SYSTEMS INC.
Notes to the Consolidated Financial Statements
April 30, 2001, 2000 and1999
NOTE 11 - SUBSEQUENT EVENTS (Continued)
506 regulation D
----------------
On November 15, 2001, the board of directors approved a best efforts
private placement equity fundraising under Rule 506 of Regulation D
for up to 500,000 shares at $0.10 per share. The Company has raised
$-0- as of the date of the audit report.
Office lease
------------
On August 1, 2001, the Company signed a one-year lease agreement for
office space. This lease runs through July 3, 2002. The monthly rental
amount is $629. Minimum future lease payments on this lease are as
follows:
For the
Year Ended
April 30, Amount
------------- --------------
2002 $ 5,661
2003 1,887
--------------
TOTAL $ 7,548
==============
F-21
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Annual Report 2001 Page 56
NET-FORCE SYTEMS, INC.
ITEM 18. FINANCIAL STATEMENTS
Not Applicable
PART IV. INDEX TO EXHIBITS
Exhibit 3.1 Articles of Incorporation of Net-Force Systems Inc.
Exhibit 3.2 Bylaws of Net-Force Systems Inc.
Exhibit 3.3 Articles of Incorporation - Net-Force Entertainment Inc.
Exhibit 3.4 Bylaws of Net-Force Entertainment Inc.
Material Contracts
- ------------------
Exhibit 10.1 Starnet Systems Inc. (formerly Softec Systems Caribbean Inc),
Amendment to Software License Agreement
Exhibit 10.2 Government of Antigua and Barbuda Gaming License
Exhibit 10.3 Software and Marketing License Agreement
Exhibit 10.4 Antigua Online Gaming Wagering and Gaming Reseller Agreement
Exhibit 10.5 American International Bank (Lease Agreement)
Exhibit 10.6 Geneva Overseas Holdings Ltd. Debt to Equity Conversion
Agreement
Exhibit 10.7 IFG Investments Services Inc. Debt to Equity Conversion
Agreement
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this annual return to be signed on its behalf by the
undersigned, thereunto duly authorized.
Net-Force Systems Inc.
(Registrant)
Date: April 12, 2002
/s/ "Terry G. Bowering"
----------------------------------------------------
Terry G. Bowering, President, Chairman of the Board,
Chief Executive Officer and Director
Date: April 12, 2002
/s/ "Dwight Lewis"
----------------------------------------------------
Dwight Lewis, Director
- --------------------------------------------------------------------------------
Annual Report 2001 Page 57
NET-FORCE SYTEMS, INC.
EXHIBIT 3.1 Articles of Incorporation of Net-Force Systems Inc.
ANTIGUA AND BARBUDA
The International Business Corporations Act, 1982
No. 28 of 1982 Cap. 222 Vol. 5 of the Revised Laws of Antigua 1992 Edition
A Company Limited by Shares
ARTICLES OF INCORPORATION
OF
NET-FORCE SYSTEMS INC.
ARTICLE 1
---------
NAME
----
The name of the Corporation is
NET-FORCE SYSTEMS INC.
ARTICLE II
----------
REGISTERED OFFICE AND AGENT
---------------------------
The registered agent of the Corporation shall be Hill & Hill whose office is
situate at 36 Long Street, in the City of Saint John in Antigua and Barbuda,
which offices shall also be the registered office of the Corporation.
ARTICLE III
-----------
CAPITAL
-------
1. The Corporation is authorized to issue 100,000,000 bearer or
registered shares of US$0.001 each par value common stock which shall be
designated "Common Shares" and 50,000,000 Preferred Shares of US$0.001 each par
value which shall be designated "Preferred Shares".
2. No pre-emptive rights shall attach to the shares to be issued in
respect of any class.
3. Both classes of shares may be issued in series and the directors shall
have the authority to fix the number of shares in, or to determine the
designation of, and the rights, privileges, restrictions and conditions
attaching to the shares of each series.
4. The Corporation shall have the power to increase or reduce said
capital, and to issue any part of its capital, original or increased, with or
without any preference, priority, or special privilege, or subject to any
postponement of rights, or to any conditions or restrictions, and so that,
unless the conditions of issue shall otherwise expressly declare, every issue of
shares, whether declared to be preference or otherwise shall be subject to the
power herein contained.
ARTICLE IV
----------
BOARD OF DIRECTORS
------------------
The objects for which the Corporation is established are:
a. To conduct any and all business activities permitted by the Laws of
Antigua/Barbuda as an International Business Corporation.
- --------------------------------------------------------------------------------
Annual Report 2001 Page 58
NET-FORCE SYTEMS, INC.
b. To carry on the business of an investment and holding company and for
that purpose to acquire and hold either in the name of the Corporation or in
that of any nominee, shares, stocks, debentures, debenture stock, script bonds,
notes, obligations, investments and securities and warrants or options in
respect of any shares, stocks, debentures, debenture stock, script bonds, notes,
obligations, investments or securities, of all kinds issued in any country in
any part of the world.
c. To acquire and deal with any property, real or personal, to erect
buildings, and generally to do all acts and things which, in the opinion of the
Corporation or the Directors, may be conveniently or profitably, or usefully,
acquired and dealt with, carried on, erected or done by the Corporation in
connection with said property.
d. The Corporation shall not engage in International Banking, Trust,
Insurance, Betting and Book making or any activity which requires a License
under the International Business Corporations Act.
e. To generally have and exercise all powers, rights and privileges
necessary and incident to carrying out properly the objects herein mentioned.
ARTICLE VI
----------
EXISTENCE
---------
The Corporation shall have perpetual existence unless sooner dissolved in
accordance with the Laws of Antigua and Barbuda. The date on which corporate
existence shall begin is the date on which these Articles of Incorporation are
filed with the Director of International Business Corporations of Antigua and
Barbuda.
ARTICLE VII
-----------
LIABILITY OF SHAREHOLDERS
-------------------------
The liability of a shareholder is limited to the amount, if any, unpaid on the
shares held or subscribed to by said shareholder.
ARTICLE VIII
------------
INDEMNIFICATIONS
----------------
The Corporation shall indemnify any and all of its Directors, officers,
employees or agents or former Directors, officers, employees or agents or any
person 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 and Directors, officers, employee or agent may be entitled
as a matter of law or which he may be lawfully granted.
ARTICLE IX
----------
CHARTER CONTINUATION
--------------------
The Corporation is authorized to transfer its charter to any jurisdiction which
permits continuation of a foreign corporation.
- --------------------------------------------------------------------------------
Annual Report 2001 Page 59
NET-FORCE SYTEMS, INC.
ARTICLE X
---------
SECURITIES
----------
No securities of the Corporation will be distributed to the public in Antigua
and Barbuda in contravention of Section 365 of the International Business
Corporations Act, 1982.
ARTICLE XI
----------
INCORPORATORS
-------------
The name and address of the Corporation's incorporators are:
Stacy Richards-Anjo Ethlyn Tonge
C/o Hill & Hill Chambers c/o Hill & Hill Chambers
Long Street, St. John's Long Street, St. John's
Antigua Antigua
"Stacy Richards-Anjo" "Ethlyn Tonge"
- -------------------------------- -----------------------------
DATED this 24th day of February, 1999 at St. John's, Antigua.
- -------------------------------------------------------------
- --------------------------------------------------------------------------------
Annual Report 2001 Page 60
NET-FORCE SYTEMS, INC.
EXHIBIT 3.2 Bylaws of Net-Force Systems Inc.
ANTIGUA AND BARBUDA
The International Business Corporations Act, 1982
No. 28 of 1982 Cap. 222 Vol. 5 of the Revised Laws of Antigua 1992 Edition
A Company Limited by Shares
BY-LAWS
OF
NET-FORCE SYSTEMS INC.
PRELIMINARY
-----------
In these By-Laws, if not inconsistent with the subject or context, the words
hereinafter stated shall bear the meanings opposite to them.
THE CORPORATION The above-named Corporation
THE ACT The International Business Corporations Act, 1982 No. 28
of 1982, and every other Act for the time being in force
concerning corporations and affecting the Corporation.
THESE PRESENTS These By-Laws as originally framed, or as from
time to time amended or altered by special resolution.
THE REGISTER The Register of shareholders to be kept as required
by Section 130 of the Act.
OFFICE The Registered Office for the time being of the
Corporation.
THE BOARD The Board of Directors for the time being of the
Corporation.
ORDINARY RESOLUTION A resolution passed by a majority of the shares entitled
to vote.
1. Shares and Share Capital
------------------------
1.1 Issuance
--------
The issue or allotment of shares shall be under the control of the Board
which may issue the whole or any portion thereof with such referred, deferred,
special or limited rights as it may think fit.
1.2 Alteration of Capital
---------------------
The Corporation may from time to time by ordinary resolution increase the
share capital by such sum to be divided into shares of such amount as the
resolution shall prescribe. The Corporation may by ordinary resolution:
a. Consolidate and divide all or any portion of its share capital into
shares of larger amount than its existing shares;
b. Sub-divide its existing shares, or any of them, into shares of smaller
amount that is fixed by the Articles of Incorporation subject, nevertheless, to
the provisions of the Act;
c. Cancel any shares which, at the date of the passing of the resolution,
have not been taken up or agreed to be taken up by any person.
- --------------------------------------------------------------------------------
Annual Report 2001 Page 61
NET-FORCE SYTEMS, INC.
Subject to the provisions of the Act, the Corporation may by special
resolution reduce its share capital, any capital redemption reserve fund or any
share premium account.
2. Share Certificates and Register
-------------------------------
2.1 Certificates
------------
Certificates representing shares of the Corporation shall be in such form
as shall be determined by the directors. Such certificates shall be signed by a
director. All certificates for shares shall be consecutively numbered or
otherwise identified. Certificates may be issued to bearer or in registered
form. Bearer certificates shall be marked as not transferable to residents of
Antigua and Barbuda.
2.2 Register
--------
The number of shares, the date of issue, the consideration paid, and the
serial number of each bearer or registered certificate shall be entered on the
Register of the Corporation. In the case of registered shares, the name and
address of the holder shall also be entered on said register.
2.3 Lost or Damaged Certificate
---------------------------
In the case of a lost, destroyed or mutilated certificate, a new one may be
issued therefore upon such terms and indemnity to the Corporation as the Board
may prescribe.
3. Transfer of Shares
------------------
3.1 Transfer
--------
Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, and
cancel the old certificate; every such transfer shall be entered on the Register
of the Corporation.
3.2 Record Owner
------------
The Corporation shall be entitled to treat the holder on record of any
registered share as the holder in fact thereof, and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person whether or not it shall have express or other
notice thereof, except as expressly provided by the Act.
4. Fiscal Year
-----------
The fiscal year of the Corporation shall begin on the 1st day of January
each year.
5. Dividends
---------
The Board may from time to time declare, and the Corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
6. Seal
----
The Board may provide a corporate seal which shall be circular in form and
shall have inscribed thereon the name of the Corporation, the place of
incorporation and the year of incorporation.
7. Meetings
--------
7.1 Annual Directors' Meeting
-------------------------
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Annual Report 2001 Page 62
NET-FORCE SYTEMS, INC.
The annual Directors' Meeting of the Corporation shall be held no more than
four (4) months from the date of registration of the Corporation at such place
within Antigua and Barbuda as the Board may determine.
7.2 Annual Shareholders' Meeting
----------------------------
An Annual Shareholders' Meeting of the Corporation shall be held every year
after the incorporation of the Corporation at such time and place within Antigua
and Barbuda as shall from time to time be prescribed by the Board.
7.3 Special Shareholders' Meeting
-----------------------------
The Board may, whenever it thinks fit, convene a Special Shareho9lders'
Meeting. The Board shall also on the requisition of the holders of not less than
one-twentieth (1/20) of the issued share capital of the Corporation proceed to
convene a special Shareholders' Meeting of the Corporation.
7.4 Proceedings
-----------
All business shall be deemed special that is transacted at a Special
Shareholders' Meeting, and also that is transacted at any Annual Shareholders'
Meeting, with the exception of the consideration of the accounts and auditor's
report, if any, the election of directors and the reappointment of any incumbent
auditor.
7.5 Quorum
------
No business shall be transacted at any shareholders' meeting unless a
quorum of shareholders is present at the time when the meeting proceeds to
business. Save as is herein otherwise provided, shareholders present in person
or by proxy representing a majority of the Corporation's shares shall constitute
a quorum.
7.6 Chairman
--------
All meetings shall be chaired by a Director appointed by the Board to act
as Chairman.
7.7 Minutes
-------
Minutes of the proceedings of every Annual Shareholders' Meeting shall be
kept, and shall be signed by the Chairman of the same meeting, or by the
Chairman of the next succeeding meeting, and the same, when so signed, shall be
conclusive evidence of all such proceedings and of the proper election of the
Chairman.
7.8 Votes of Shareholders
---------------------
Subject to any rights or restrictions for the time being attached to any
class or classes of shares, every shareholder shall have one vote for each share
of which he is the holder. All elections for directors shall be decided by
majority vote; all other questions shall be decided by majority vote except as
otherwise required by the Act.
7.9 Informal Action by Shareholder
------------------------------
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof.
7.10 Proxies
-------
Votes may be given either personally or by proxy. The instrument appointing
a proxy shall be in writing under the hand of the appointer or his attorney duly
authorized in writing, or if the appointer is a corporation, either under seal
or under the hand of an officer or attorney duly authorized. A proxy need not be
a shareholder of the Corporation. The instrument appointing a proxy and the
power of attorney or other authority, if any, under which it is signed or a
- --------------------------------------------------------------------------------
Annual Report 2001 Page 63
NET-FORCE SYTEMS, INC.
certified copy of that power of attorney shall be deposited at the office or at
such other place within Antigua as is specified for that purpose in the notice
convening the meeting.
7.11 Notice of Meeting
-----------------
Written or printed notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less that Twenty-One (21) days before the date
of the meeting, either personally by mail or facsimile, to each shareholder on
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the mail, addressed to the shareholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid.
7.12 Waiver of Notice
----------------
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
8. Directors
---------
8.1 Number of Directors
-------------------
Unless and until the Corporation in a General or Special Shareholders'
Meeting shall otherwise determine, the number of Directors shall be five. Each
director shall hold office unless removed as provided in these presents, until
the next Annual Shareholders' Meeting and until his successor shall have been
elected.
8.2 Remuneration of Directors
-------------------------
Each of the Directors shall be paid out of the funds of the Corporation
such remuneration for his services as a director as the Corporation is an Annual
Shareholders' Meeting may from time to time determine. The directors may also be
paid all traveling, hotel and other expenses properly incurred by them in
attending and returning from meetings of the directors or any committee of the
directors or meetings of the Corporation or in connection with the business of
the Corporation.
8.3 Directors with Other Offices and Interests
------------------------------------------
A director may hold any other office or place of profit under the
Corporation and he or any firm of which he is a member may act in a professional
capacity for the Corporation in conjunction with his office of director of the
Corporation for such period and in such terms as to remuneration and otherwise
as the Board may determine. No director or intending director shall be
disqualified by his office from contracting with the Corporation, either with
regard thereto, as a vendor, purchaser or otherwise, nor shall any such
contract, or any contract or arrangement entered into by or on behalf of the
Corporation in which any director so contracting or being so interested be
liable to account to the Corporation for any profit realized by any such
contract or arrangement by reason of such director holding such office, or of
the fiduciary relationship thereby established so long as the director notifies
the Corporation in accordance with the requirements of the Act. To the extent
permitted by the Act, any director may vote as a director or shareholder in
respect of any such contract or arrangement; provided that such director must
disclose his interest in the contract or arrangement, the contract or
arrangement must be entered into by the Corporation in an Annual or Special
Shareholders' Meeting, and before the contract or arrangement is so entered
into, the directors must disclose their interests to the meeting.
8.4 Proceedings of the Board
------------------------
The Board at the request of any Director may meet together for the dispatch
of business, adjourn and otherwise regulate their meetings as it thinks fit.
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Annual Report 2001 Page 64
NET-FORCE SYTEMS, INC.
8.5 Executive Committee
-------------------
The Board at a duly constituted meeting may by a resolution appoint a
committee from among themselves to be known as an executive committee.
This committee may perform such acts in the name of the Board in the same
fashion as if the Board had acted. The limits of the executive committee's acts
shall be prescribed by resolution of the Board. The powers of this committee may
be changed from time to time by subsequent resolution of the Board.
8.6 Quorum
------
The quorum necessary for the transaction of the business of the Board may
be fixed by the Board, and unless so fixed shall be one-half (1/2) of the number
of persons then serving as directors. The quorum of any committee of the Board
shall be fixed by the meeting of the Board appointing such committee and, if not
so fixed, then such quorum shall be fixed by the members of such committee.
8.7 Voting
------
Every question at a meeting of the Board shall (except where otherwise
provided by the Board) shall be determined by a majority of the votes of the
Directors present, every director having one (1) vote.
8.8 Action without a Meeting
------------------------
A resolution may be adopted without any meeting of the Board or of a
committee if evidenced by writing under the hands of all the directors or of all
the members of such committee, and such writing shall be as valid and effectual
as a resolution duly passed at a meeting of the Board or such committee.
8.9 Powers of the Board
-------------------
The business of the Corporation shall be managed by the Board, who may
exercise all such powers of the Corporation as are not by the Act or by these
By-Laws required to be exercised by the Corporation in an Annual Shareholders'
Meeting, subject nevertheless to any regulation of these By-Laws, to the
provisions of the Act as may be prescribed by special resolution of the
Corporation, but no regulation so made by the Corporation shall invalidate any
prior act of the Board which would have been valid if such regulation had not
been made. The general powers given by this by-law shall not be limited or
restricted by any special authority or power given to the Board by any other
By-Law.
8.10 Appointment of Attorney
-----------------------
The Board may from time to time and at any time, by powers of attorney,
appoint any corporation, firm or person to be the attorneys of the Corporation
for the purpose of executing deeds on behalf of the Corporation in or outside
Antigua and Barbuda and for such periods and subject to such conditions as they
may think fit, and any such power of attorney may contain such provisions for
the protection of persons dealing with any such attorney as the Board may think
fit, and may also authorize any such attorney to sub-delegate all or any of the
powers, authorities and discretion vested in him.
8.11 Removal of Director
-------------------
Any director may be removed by a majority vote of the shareholders.
8.12. Resignation of Director
-----------------------
A director may resign at any time by giving written notice to the Board.
Unless otherwise specified in the notice, the resignation shall take effect upon
receipt thereof by the Board and the acceptance of the resignation shall not be
necessary to make it effective.
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Annual Report 2001 Page 65
NET-FORCE SYTEMS, INC.
8.13 Presumption of Assent
---------------------
A director of the Corporation who is present at a meeting of the directors
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the minutes
of the meeting or unless he shall file his written dissent to such action with
the person acting as the Secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
9. Officers
--------
9.1 Number
------
The officers of the Corporation shall be a president, a vice-president, a
secretary and a treasurer, each of whom shall be elected by the directors. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Directors. Any two or more offices may be held by the same
person.
9.2 Election and Term of Office
---------------------------
The officers of the Corporation to be elected by the Board shall be elected
annually at the first meeting of the Board after each Annual Meeting of the
shareholders. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided.
9.3 Removal
-------
Any officer or agent elected or appointed by the Board may be removed by
the Board whenever in their judgment the best interests of the Corporation would
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
9.4 Vacancies
---------
A vacancy in any office because of death, resignation, removal or
disqualification, may be filled by the Board for the unexpired portion of the
term.
9.5 President
---------
The President shall be the principal executive officer of the Corporation
and, subject to the control of the directors, shall in general supervise and
control all of the business affairs of the Corporation. He may sign, with the
secretary or any other proper officer of the Corporation thereunto authorized by
the directors, any deeds, mortgages, bonds, contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the directors or
by these By-Laws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of president and such other duties as may be
prescribed by the directors from time to time.
9.6 Secretary
---------
The secretary shall keep the minutes of the shareholders' and of the
directors' meeting in one or more books provided for that purpose, see that all
notices are duly given in accordance with the provisions of these By-Laws or as
required, and be custodian of the Corporate records.
9.7 Treasurer
---------
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the directors shall determine. He shall have charge and custody of and be
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Annual Report 2001 Page 66
NET-FORCE SYTEMS, INC.
responsible for all funds and securities of the Corporation; receive and give
receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these By-Laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the Board.
9.8 Salaries
--------
The salaries of the officers shall be fixed from time to time by the Board
and no officer shall be prevented from receiving such salary by reason of the
fact that he is also a director of the Corporation.
10. Accounts
--------
The Board shall cause to be kept such books of account as are necessary to
comply with the provisions of the Act. The books of account shall be kept at the
office or at such other place as the Board thinks fit, and shall always be open
to the inspection of the Board. Any director or shareholder shall have the right
to inspect any account or book or document of the Corporation. The Board shall
from time to time in accordance with the provisions of the Act cause to be
prepared and to be laid before an Annual Shareholders' Meeting such profit and
loss accounts, balance sheets and reports as may be necessary.
11. Auditors
--------
Auditors may be appointed and their duties regulated in accordance with the
provisions of the Act. Subject to the provisions of the Act, all acts done by
any person acting as an auditor shall, as regards all persons dealing in good
faith with the Corporation, be valid, notwithstanding that there was some defect
in his appointment or that he was at the time of his appointment not qualified
for appointment.
12. Liquidation
-----------
If the Corporation shall be wound up (whether the liquidation be voluntary,
under the supervision of or by the Court) the Liquidator may, with the required
authority, divide among the shareholders in specie or kind the whole or any part
of the assets of the Corporation, and whether or not the assets shall consist of
property of one kind or properties of different kinds, and may for such purpose
set such value as he deems fair upon one or more or classes of property, and may
determine how such different classes of shareholders. The Liquidator may, with
the like authority, vest any part of the assets in trustees upon such trusts for
the benefit of shareholders as the Liquidator with the like authority shall
think fit, and the liquidation of the Corporation may be closed and the
Corporation dissolved.
13. Amendments
----------
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by a vote of the shareholders representing a majority of all the shares
issued and outstanding, at any Annual Shareholders' Meeting or at any Special
Shareholders' Meeting when the proposed amendment has been set out in the notice
of such meeting.
14. Initial Directors
-----------------
The initial Board of Directors shall be composed of:
Terry G. Bowering
Douglas N. Bolen
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Annual Report 2001 Page 67
NET-FORCE SYTEMS, INC.
EXHIBIT 3.3 Articles of Incorporation - Net-Force Entertainment Inc.
ORGANISATIONAL MEETING OF NET FORCE ENTERTAINMENT INC. HELD AT THE REGISTERED
OFFICE ON THE 13TH DAY OF AUGUST 1999 AT 11:30 A.M
--------------------------------------------------
Present: Asdak Inc by its Director Alice Roberts
Clovis Grant as Secretary
Alice Roberts called the meeting to order. Alice Roberts acted as Chairman of
the meeting and Clovis Grant acted as Secretary thereof. The persons present
declared their waiver of notice of the time and place of the meeting. The
Chairman stated that a quorum was reached since the sole initial director was
represented.
By-Laws
- -------
The Secretary presented to the meeting the Certificate of Incorporation and Good
Standing and a print of the Articles of Incorporation and By-laws of the Company
as registered with the Executive Director, International Financial Sector
Authority on the 5th August 1999. By motion duly made, seconded and carried it
was resolved that the By-Laws be approved and adopted in the form presented.
Officers
- --------
By motion duly made, seconded and carried it was resolved that the following
persons be appointed officers of the company -
Terry Bowering - President
Douglas Bolen - Secretary
Shares
- ------
By motion duly made, seconded and carried it was resolved that the Board of
Directors be authorized to issue the following shares in the company in the
format attached:
Net Force Systems Inc, St John's, Antigua 100 shares
Banking Arrangements
- --------------------
By motion duly made, seconded and carried it was resolved that
(1) the Company be authorized to open an account or accounts with Swiss American
Bank Ltd, St. John's, Antigua.
(2) the usual banking resolutions required by the Company's bankers for the
operation of accounts by the Company be deemed resolutions duly passed by this
resolution.
(3) all cheques, bills of exchange and other negotiable instruments shall be
signed on behalf of the Company by either Terry Bowering or Douglas Bolen.
There being no further business the meeting ended at 11:45 a.m.
/s/ "Alice Roberts" /s/ "Clovis Grant"
-------------------------- ----------------------------
Alice Roberts Clovis Grant
Chairman of Meeting Secretary of Meeting
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Annual Report 2001 Page 68
NET-FORCE SYTEMS, INC.
ANTIGUA AND BARBUDA
The International Business Corporations Act, Cap 222
A Company Limited By Shares
ARTICLES OF INCORPORATION
OF
NET FORCE ENTERTAINMENT INC.
----------------------------
ARTICLE I
NAME
----
The name of the Company is NET FORCE ENTERTAINMENT INC.
ARTICLE II
REGISTERED OFFICE AND AGENT
---------------------------
The registered agent of the Company shall be Caribbean Management & Trust
Company Limited situate at 60 Nevis Street in the city of Saint John, Antigua,
which office shall also Be the registered office of the Company.
ARTICLE III
CAPITAL
-------
The authorized capital of the Company is US$ 100,000.00 divided into
100,000,000 common Shares of US$0.01 each. The Company shall have the power to
increase or reduce said Capital, and to issue any part of it's capital, original
on increased, with or without any Preference, priority, or special privilege, or
subject to any postponement of rights, or to any Conditions or restrictions; and
so that, unless the conditions of issue shall otherwise Expressly declare, every
issue of shares, whether declared to be preference or otherwise, Shall be
subject to the power herein contained.
ARTICLE IV
BOARD OF DIRECTORS
------------------
The Powers of the Company shall be exercised by the Board of Directors of
the Company. The company shall have a minimum of one and a maximum of four
directors.
ARTICLE V
CORPORATE PURPOSE
-----------------
The object for which the Company is established are:-
(a) To engage only in any International betting, gaming, sportsbetting and
bookmaking Permitted by the laws of Antigua and Barbuda and to accept wagers on
sporting Events taking place in the Caricom region from residents of countries
outside the Caricom region.
(b) To acquire and with any property, real or personal, to erect any buildings,
and do All acts and things, which in the opinion of the Company or the
directors, may be Conveniently or profitably, or usefully, acquired and dealt
with, carried on, erected Or done by the Company in connection with the
property.
(c) To generally have and exercise all powers, rights and privileges necessary
and incident to carry out properly the objects herein mentioned.
(d) With the exception of betting, gaming, sportsbetting, and bookmaking, the
company Shall not engage in International Banking, Trust, or Insurance or any
activity which requires a Licence under the International Business Corporations
Act
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Annual Report 2001 Page 69
NET-FORCE SYTEMS, INC.
ARTICLE VI
EXISTENCE
---------
The Company shall have perpetual existence unless sooner dissolved in
accordance with the Laws of Antigua and Barbuda. The date on which corporate
existence shall begin in the date On which these Articles of Incorporation are
filed with the Director of International Business Corporations of Antigua and
Barbuda.
ARTICLE VII
LIBIALITY OF SHAREHOLDERS
-------------------------
The liability of a shareholder is limited to the amount, if any unpaid on
the shares held or subscribed to by such shareholder.
ARTICLE VIII
INDEMNITIES
-----------
The Company 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 corporation, partnership, joint venture, trust or
other enterprise in which it owns capital stock or of which it is a creditor, to
the full extent permitted by law; and such indemnity shall include, but not be
limited to, the expense, including the cost of any judgements, 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. The foregoing right of indemnity 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 may be lawfully granted.
ARTICLE IX
CHARTER CONTINUATION
--------------------
The Company is authorized to transfer its charter to any jurisdiction which
permits Continuation of a foreign corporation.
ARTICLE X
SECURITIES
----------
No securities of the Company will be distributed to the public in Antigua
and Barbuda.
ARTICLE XI
INCORPORATORS
-------------
The name and address of the Company's incorporators are;-
CLARE K. ROBERTS, Attorney-at-law, 60 Nevis Street, St.John's, Anitgua
CLOVIS GRANT, Attorney's Clerk, 60 Nevis Street, St. John's Antigua.
Dated this "5th" day of "August", 1999 at St. John's Antigua.
/s/ "Clare K. Roberts" /s/ "Clovis Grant"
----------------------------- -----------------------------
Clare K. Roberts Clovis Grant
Attorney-at-Law Attorney's Clerk
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Annual Report 2001 Page 70
NET-FORCE SYTEMS, INC.
EXHIBIT 3.4 Bylaws of Net-Force Entertainment Inc.
ANTIGUA AND BARBUDA
The International Business Corporation Act, Cap 222
A Company Limited By Shares
BY-LAWS
OF
NET FORCE ENTERTAINMENT INC.
----------------------------
PRELIMINARY
-----------
In these and other by-laws of the Company, unless the context otherwise
requires-
"Act" means the International Business Corporation Act, Cap 222, as from
time to time amended any other enactment for the time being in force substituted
therefore;
"Board" means the board of directors for the time being of the Company;
"Company" means the above-named Company;
"ordinary resolution" means a resolution passed by a majority of the shares
entitled to vote;
"office" means the registered office for the time being of the Company; and
"Register" means the register of shareholders to be kept as required by
section 130 of the Act.
Unless the context otherwise requires, words and expressions defined in the Act
have the same meanings when used in these By- Laws in particular,
(a) words importing the singular number include the plural and vice-versa;
(b) words importing gender include the masculine, feminine and neuter
genders; and
(c) words importing a person include an individual, partnership,
association and body corporate and a trustee, executor, administrator and other
personal representative of any person.
I
SHARES AND SHARE CAPITAL
------------------------
1.1 ISSUANCE. The issue or allotment of shares shall be under the control of
the Board which may issue the whole or any portion thereof with such preferred,
deferred, special or limited rights as it may think fit.
1.2 PREEMPTIVE RIGHTS. All new issue of unissued shares of whatever kind shall
be offered To the shareholders in proportion to the normal value of existing
shares held by them, And such offer shall be made by notice specifying the
number of shares to which the shareholder is entitled and limiting a time within
which the offer, if not accepted, will be deemed to be declined; and after the
expiration of such time or on the receipt of an indication from the shareholders
to whom such notice is given that declines to accept the shares so offered, the
Board may dispose of the same in such manner as it deems most beneficial to the
Company.
1.3 ALTERATION OF CAPITAL. The Company may from time to time by ordinary
resolution increase the share capital by such sum to be divided into shares of
such amount as the Resolution shall prescribe. The Company may by ordinary
resolution:
- --------------------------------------------------------------------------------
Annual Report 2001 Page 71
NET-FORCE SYTEMS, INC.
(a) Consolidate and divide all or any portion of its share capital into
shares of Larger amount than it's existing shares;
(b) Sub-divide it's existing shares, or any of them, into shares of
smaller amount Than is fixed by the Articles of Incorporation subject,
nevertheless, to the Provisions of the Act;
(c) Cancel any shares which at the date of the passing of the resolution,
have not Been taken up or agreed to, be taken up by any person.
Subject to the provisions of the Act, the Company may by special resolution
reduce Its share capital, any capital redemption reserve fund or any premium
account.
II
SHARE CERTIFICATES AND REGISTER
-------------------------------
2.1 CERTIFICATES. Certificates representing shares of the Company shall be in
such form as Shall be determined by the directors. Such certificates shall be
signed by a director. All Certificates for shares shall be consecutively
numbered or otherwise identified. Certificates May be issued to bearer or in
registered form. Bearer certificates shall be marked as not Transferable to
residents of Antigua and Barbuda.
2.2 REGISTER. The number of shares, the date of issue, the consideration paid,
and the Serial number of each bearer or registered share certificates shall be
entered on the Register Of the Company. In the case of registered shares, the
name and address of the holder shall Also be entered on said Register.
2.3 LOST OR DAMAGED CERTIFICATE. In the case of a lost, destroyed or mutilated
certificate, a New one may be issued therefor upon such terms and indemnity to
the Company as the Board may prescribe.
III
TRANSFER OF SHARES
------------------
3.1 TRANSFER. Upon surrender to the Company or the transfer agent of the
Company of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Company to issue a new certificate to the person entitled thereto,
and cancel the old certificate; every such transfer shall be entered on the
Register of the Company. 3.2 Record Owner. The Company shall be entitled to
treat the holder of record of any registered share as the holder in fact
thereof, and accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person whether or
not it shall have express or other notice threof, except as expressly provided
by the Act.
IV
FINANCIAL YEAR
--------------
4.1 The financial year of the company shall begin on the 1st day of January
each year.
V
DIVIDENDS
---------
5.1 The Board may from time to time declare, and the Company may pay, dividends
on its outstanding shares in the manner and upon the terms and conditions
provided by law.
VI
SEAL
----
6.1 The board may provide a corporate seal which shall have inscribed thereon
the name of the Company, the place of incorporation and year of incorporation.
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Annual Report 2001 Page 72
NET-FORCE SYTEMS, INC.
VII
MEETINGS
--------
7.1 ANNUAL DIRECTORS' MEETING. The Annual Director's Meeting of the Company
shall be held no more than four months from the date of registration of the
Company and at such place within Antigua And Barbuda as the Board may determine.
7.2 ANNUAL SHAREHOLDERS' MEETING. An annual Shareholders' Meeting of the
Company shall be held every year after the incorporation of the Company at such
time and place within Antigua and Barbuda as shall from time to time be
prescribed by the Board.
7.3 SPECIAL SHAREHOLDERS' MEETING. The Board may, whenever it thinks fit,
convene a Special Shareholders' Meeting. The Board shall also on the requisition
of the holders of not Less than one-twentieth of the issued share capital of the
Company proceed to convene a Special Shareholders' Meeting of the Company.
7.4 PROCEEDINGS. All business shall be deemed special that is transacted at a
Special Shareholders' Meeting, and also that is transacted at any Annual
Shareholders' Meeting, with the exception of the consideration of the accounts
and auditor's report, if any, the election of directors and the re- appointment
of any incumbent auditor.
7.5 QUORUM. No business shall be transacted at any shareholders' meeting unless
a quorum of shareholders is present at the time when the meeting proceeds to
business. Save as is herein otherwise provided, shareholders present in person
or by proxy representing a majority of the Company's shares shall constitute a
quorum.
7.6 CHAIRMAN. All meetings shall be chaired by a Director appointed by the
Board to act as Chairman.
7.7 MINUTES. Minutes of the proceedings of every Annual Shareholders' meeting
shall be kept and shall be signed by the Chairman of the same meeting, or by the
Chairman of the next succeeding meeting, and the same, when so signed, shall be
conclusive evidence of all such proceeding and of the proper election of the
chairman.
7.8 VOTES OF SHAREHOLDERS. Subject to any rights or restrictions for the time
being attached to any class or classes of shares, every shareholder shall have
one vote for each share of which he is the holder. All elections for directors
shall be divided by majority vote; all other question shall be decided by
majority vote except as otherwise required by the Act.
7.9 INFORMAL ACTION BY SHAREHOLDER. Unless otherwise provided by law, any
action required to be taken at a meeting of the shareholders, or any other
action which may be taken at a meeting of the shareholders, may be taken without
a meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof.
7.10 PROXIES. Votes may be given either personally or by proxy. The instrument
appointing a proxy shall be in writing under the hand of the appointee or his
attorney duly authorized in writing, or if the appointee is a corporation either
under seal or under the hand of an officer or attorney duly authorized. A proxy
need not be a shareholder of the Company. The instrument appointing a proxy and
the power of attorney or other authority, if any, under which it is signed or a
certified copy of that power or authority shall be deposited at the office or at
such other place within Antigua and Barbuda as is specified for that purpose in
the notice convening the meeting.
7.10 NOTICE OF MEETING. Written or printed notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than twenty-one
days before the date of the meeting, either personally or by mail, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
company, with postage thereon prepaid.
7.11 WAIVER OF NOTICE. Unless otherwise provided by law, whenever any notice is
required to be given to any shareholder, a waiver thereof in writing, signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
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NET-FORCE SYTEMS, INC.
VIII
DIRECTORS
---------
8.1 NUMBER OF DIRECTORS. Unless and until the Company in a General or Special
Shareholders' Meeting shall otherwise determine, the number of directors shall
be two. Each director shall hold office unless removed as provided in these
presents, until the next Annual Shareholders' Meeting and until his successor
shall have been elected.
8.2 REMUNERATION OF DIRECTORS. Each of the directors shall be paid out of the
funds of the Company such remuneration for his services as a director as the
Company in an Annual Shareholders' Meeting may from time to time determine. The
directors may also be paid travelling, hotel and other expenses properly
incurred by them in attending and returning from meetings of the directors or
any committee of the directors or meetings of the company in connection with the
business of the Company.
8.3 DIRECTORS WITH OTHER OFFICES AND INTERESTS. A director may hold any other
office or place of profit tinder the Company and he or any firm of which he is a
member may act in a professional capacity for the Company in conjunction with
his office of director of the Company for such period and on such terms as to
remuneration and otherwise as the Board may determine. No director or intending
director shall be disqualified by his office from contracting with the Company,
either with regard thereto, or as vendor, purchaser or otherwise, nor shall any
such contract, or any contract or arrangement entered into by or on behalf of
the Company in which any director is in any way interested, be liable to be
avoided, nor shall any director so contracting or being so interested be liable
to account to the Company for any profit realized by way of such contract or
arrangement by reason of such director holding such office, or of the fiduciary
relationship thereby established so long as the director notifies the Company in
accordance with the requirements of the Act. To the extent permitted by the Act,
any director may vote as director or shareholder in respect of any such contract
or arrangement; provided that such director must disclose his interest to his
co-directors, and if all the directors be interested in the contract or
arrangement, the contract or arrangement must be entered into by the Company in
an Annual or Special Shareholders' Meeting, and before the contract or
arrangement is so entered into, the directors must disclose their interests to
the meeting.
8.4 PROCEEDINGS OF THE BOARD. The Board at the request of any director may meet
together for the dispatch of business, adjourn and otherwise regulate their
meetings as it thinks fit.
8.5 EXECUTIVE COMMITTEE. The Board at a duly constituted meeting may by a
resolution appoint a committee from among themselves to be known as an executive
committee. This committee may perform such acts in the name of the Board in the
same fashion as if the Board had acted. The limits of the executive committee's
acts shall be prescribed by resolution of the Board. The powers of this
committee may be changed from time to time by subsequent resolution of the
Board.
8.6 QUORUM. The quorum necessary for the transaction of the business of the
Board may be fixed by the Board, and unless so fixed shall be one-half of the
number of persons then serving as directors. The quorum of any committee of the
Board shall be fixed by the meeting of the Board appointing such committee and,
if not so fixed, then such quorum shall be fixed by the members of such
committee.
8.7 VOTING. Every question at a meeting of the Board shall (except where
otherwise provided by the Board) be determined by a majority of the votes of the
directors present, every director having one vote.
8.8 ACTION WITHOUT A MEETING. A resolution may be adopted without any meeting
of the Board or of a committee if evidenced by writing tinder the hands of all
the directors or of all the members of such committee, and such writing shall be
as valid and effectual as a resolution duly passed at a meeting of the Board or
such committee.
8.9 POWERS OF THE BOARD. The business of the Company shall be managed by, the
Board, who may exercise all such powers of the Company as are not by the Act or
these By-Laws required to be exercised by the Company in an Annual Shareholders'
Meeting, subject nevertheless to any regulations of these By-Laws, to the
provisions of the Act and to such regulations being not inconsistent with the
provisions of the Act as may be prescribed by special resolution of the Company,
but no regulation so made by the Company shall invalidate any prior act of the
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NET-FORCE SYTEMS, INC.
Board which would have been valid if such regulation had not been made. The
general powers given by this By-Law shall not be limited or restricted by any
special authority or power given to the Board by any other By-Law.
8.10 APPOINTMENT OF ATTORNEY. The Board may from time to time and at any time,
by power of attorney, appoint any company, firm or person to be the attorney or
attorneys of the Company for the purpose of executing deeds on behalf of the
Company in or outside Antigua and Barbuda and for such periods and subject to
such conditions as they may think fit, and any such power of attorney may
contain such provisions for the protection of persons dealing with any such
attorney as the Board may think fit, and may also authorize any such attorney to
sub-delegate all or any of the powers, authorities and discretions vested in
him.
8.11 REMOVAL OF DIRECTOR. Any director may be removed by a majority vote of the
shareholders.
8.12 RESIGNATION OF DIRECTOR. A director may resign at any time by giving
written notice to the Board. Unless otherwise specified in the notice, the
resignation shall take effect upon receipt thereof by the Board and the
acceptance of the resignation shall not be necessary to make it effective.
8.13 PRESUMPTION OF ASSENT. A director of the Company who is present at a
meeting of the directors at which action on any company matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall rile his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the secretary of the Company immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favour
of such action.
IX
OFFICERS
--------
9.1 NUMBER. The officers of the Company shall be president, a secretary and a
treasurer, each of whom shall be elected by the directors. Such other officers
and assistant officers as may be deemed necessary may be elected or appointed by
the directors. Any two or more offices may be held by the same person.
9.2 ELECTION AND TERM OF OFFICE. The officers of the Company to be elected by
the Board shall be elected annually at the first meeting of the Board held after
each Annual Meeting of the shareholders. Each officer shall hold office until
his successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.
9.3 REMOVAL. Any officer or agent elected or appointed by the Board may be
removed by the Board whenever in their judgement the best interests of the
Company would be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed.
9.4 VACANCIES. A vacancy in any office because of death, resignation, removal
or disqualification, may be filled by the Board for the unexpired portion of the
term.
9.5 PRESIDENT. The president shall be the principal executive officer of the
Company and, subject to the control of the directors, shall in general supervise
and control all of the business and affairs of the Company. He may sign, with
the secretary or any other proper officer of the Company thereunto authorized by
the directors, any deeds, mortgages, bonds, contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the directors or
by these by-laws to some other officer or agent of the Company, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of president and such other duties as may be
prescribed by the directors from time to time.
9.6 SECRETARY. The secretary shall keep the minutes of the shareholders' and of
the directors' meetings in one or more books provided for that purpose, see that
all notices are duly given in accordance with the provisions of these BY-Laws or
as required, and be custodian of the Company records.
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NET-FORCE SYTEMS, INC.
9.7 TREASURER. If required by the directors, the treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the directors shall determine. He shall have charge and custody of
and be responsible for all funds and securities of the Company; receive and give
receipts for moneys due and payable to the Company from any source whatsoever,
and deposit all such moneys in the name of the Company in such banks, trust
companies or other depositories as shall be selected in accordance with these
By-Laws and in general perform all of the duties as from time to time may be
assigned to him by the President or by the Board.
9.8 SALARIES. The salaries of the officers shall be fixed from time to time by
the Board and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the Company.
X
ACCOUNTS
--------
10.1 The Board shall cause to be kept such books of account as are necessary to
comply with the provisions of the Act. The books of account shall be kept at the
office or at such other place as the Board thinks fit, and shall always be open
to the inspection of the Board. Any director or shareholder shall have the right
to inspect any account or book or document of the Company. The Board shall from
time to time in accordance with the provisions of the Act cause to be prepared
and to be laid before an Annual Shareholders' Meeting such profit and loss
accounts, balance sheets and reports as may be necessary.
XI
AUDITORS
--------
11.1 Auditors may be appointed and their duties regulated in accordance with
the provisions of the Act. Subject to the provisions of the Act, all acts done
by any person acting as an auditor shall, as regards all persons dealing in good
faith with the Company, be valid, notwithstanding that there was some defect in
his appointment or that he was at the time of his appointment not qualified for
appointment.
XII
LIOUIDATION
-----------
12.1 If the Company shall be wound up (whether the liquidation be voluntary,
under the supervision of or by the Court) the liquidator may, with the required
authority, divide among the shareholders in specie or kind the whole or any part
of the assets of the Company, and whether or not the assets shall consist of
property of one kind or properties of different kinds, and may for such purpose
set such value as he deems fair upon one or more or classes of property, and may
determine how such division shall be carried out as between shareholders or
different classes of shareholders. The Liquidator may, with the like authority,
vest any part of the assets in trustees upon such trusts for the benefit of
shareholders as the Liquidator with the like authority shall think fit, and the
liquidation of the Company may be closed and the Company dissolved.
XIII
AMENDMENTS
----------
13.1 These By-Laws may be altered, amended or replaced and new By-Laws may be
Adopted by a vote of the shareholders representing a majority of all the shares
issued and Outstanding, at any, Annual Shareholders' Meeting or at any Special
Shareholders' Meeting When the proposed amendment has been set out in the notice
of such meeting.
XIV
INITIAL DIRECTORS
-----------------
14.1 The initial Board of Directors shall be composed of the following
members;-
ASDAK INC.
NET FORCE ENTERTAINMENT INC
Nevis Street, St.John's, Antigua
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Annual Report 2001 Page 76
NET-FORCE SYTEMS, INC.
RESOLUTION OF SOLE SHAREHOLDER
IT IS RESOLVED THAT
(1) Asdak Inc be removed as a director of the company with immediate effect.
(2) the following persons be appointed as directors of the company with
immediate effect:
Terry G. Bowering
Douglas N. Bolen
Dated the "17th" day of August 1999
NET FORCE SYSTEMS INC
By "Terry G. Bowering"
------------------------------
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Annual Report 2001 Page 77
NET-FORCE SYTEMS, INC.
EXHIBIT 10.1 Starnet Systems Inc. (formerly Softec Systems Caribbean Inc),
Amendment to Software License Agreement
SOFTWARE LICENSE AGREEMENT
THIS AGREEMENT is entered into this 31st day of July 1999,
BETWEEN:
NET-FORCE ENTERTAINMENT INC., with registered offices in St. John's,
Antigua, West Indies;
(hereinafter referred to as the "Licensee")
AND
SOFTEC SYSTEMS CARIBBEAN INC. with offices at 1589 Newgate Street, St.
John's Antigua, West Indies;
(hereinafter referred to as "Softec")
WHEREAS,
A. Softec owns rights to Internet casino software (the "Software");
B. Softec wishes to license the Software to other companies;
C. Softec wishes to provide a complete computer hardware and software package
that the Licensee may use to operate an Internet gaming site; and,
D. The Licensee wishes to license the Software and make use of Softec's
computer hardware in order to operate an Internet gaming site.
NOW THEREFORE, in consideration of the premises and mutual covenants herein set
forth, the parties agree as follows:
1. GENERAL PROVISIONS
- -- ------------------
1.1 DEFINITIONS
"Licensed Software" shall mean a licensed data processing program or micro
program consisting of a series or sequence of signals, or instructions,
statements, or fonts stored on any media in machine readable form, and any
related licensed materials such as, but not limited to, graphics, flow charts,
logic diagrams, manuals, and listing made generally available by Softec for use
in connection with the licensed programs.
The Licensed Software shall consist of not more than 2 casinos, one with an
adult theme (where a license is available), and one with a non-adult theme
(collectively, the "Casino"). The Casino shall have various games of chance
which includes, but are not limited to, blackjack, roulette, pai gow poker,
video poker and slot machine and other games as added from time to time, based
on a theme chosen by the Licensee, a sportsbook web site within the gaming site,
an HTML version of the sportsbook, and a lottery ticket distribution web site.
1.1.2 "Net Monthly Revenue" shall mean, for any given calendar month, the
total amount wagered in the casino, horse track and the sportsbook, less
winnings in the Casino, horse track and the sportsbook, PLUS, total sales of
lottery tickets, less the invoiced cost for purchasing lottery tickets for the
lottery ticket sales, PLUS, any membership fees or additional fees that may be
charged by the Licensee that are not related to currency conversion or
transaction processing.
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NET-FORCE SYTEMS, INC.
1.1.3 "Hardware" shall mean all the necessary computers, routers,
cabling, monitors, hard drives, back-up systems, and other equipment, as
determined by Softec in its absolute discretion, located at its offices in St.
John's Antigua, Vancouver, Canada, or other locations designated by Softec as
may be required in order to properly store, distribute and run the Licensed
Software.
1.1.4 "Games" shall mean the casino style games, sportsbook, lottery, and
pari-mutuel games that are played using the Licensed Software and are available
from time to time.
1.1.5 "Downloadable Software" shall mean the portion of the Licensed
Software that must be resident on a customer's computer in order for the
customer to access and play the Games.
1.1.6 "Master CD" shall mean the compact disc containing the Downloadable
Software that may be used to mass-produce compact discs for delivery to the
Licensee's customers.
1.1.7 "Customer Information" shall mean all data collected and stored on
customers including, without limiting the generality of the foregoing, name,
address, phone and fax number, e-mail address, credit card numbers and
expiration dates or information on other types of payments, amounts wagered and
frequency of wagering.
1.1.8 "Confidential Information" shall mean material in the possession of
Softec which is not generally available to or used by others or the utility or
value of which is not generally known or recognized as standard practice,
including, without limitation, all financial business and personal data relating
to Softec's clients, any non-public information about affiliates, subsidiaries,
consultants and employees of Softec or its affiliates, business and marketing
plans, strategies and methods, studies, charts, plans, tables and compilations
of business industrial information, computer software and computer technology
whether patentable, copyrightable or not, which is acquired or developed by or
on behalf of Softec or its affiliates from time to time.
1.2 RIGHT TO AUDIT
1.2.1 The Licensee shall, within reason, have the right, without prior
notice to Softec to inspect and audit all Softec's business, accounting and
supporting records that are necessary for purposes of determining Softec's
compliance with the terms of this Agreement. Softec shall fully co-operate with
any independent chartered accountants or certified public accountants hired by
the Licensee to conduct any such inspection or audit. If any such inspection or
audit discloses an under statement of less than 3% for any period, Softec shall
pay, within ten days after receipt of the inspection or audit report, the sums
due on account of such understatement with interest calculated at U.S. prime
plus one percent. Further, if such inspection or audit is made necessary by
failure of Softec to furnish invoice reports or any other documentation as
herein required, or if an understatement for any period is determined by such
inspection or audit to be 3% or greater, Softec shall, on demand and in any
event within the said ten days, in addition to paying the sums due on account of
such understatement, also reimburse for the cost of such inspection or audit,
including without limitation, the charges of any independent chartered
accountants or certified public c accountants retained by the Licensee in
connection with such audit or inspection and the reasonable travel expenses,
room, board and compensation of employees of the Licensee.
1.2.2 The Licensee's right to audit records shall only extend to records
that date back no more than two of Softec's fiscal years prior to the date
Softec receives notice of an impending audit.
1.3 INDEMNIFICATION
1.3.1 The Licensee acknowledges and agrees that neither Softec nor any of
its members, shareholders, directors, officers, employees or representatives
will be liable to the Licensee or any of the Licensee's customers for any
special, indirect, consequential, punitive or exemplary damages, or damages for
loss of profits or savings, in connection with this Agreement, the services or
the Hardware or any other information, material or services provided by Softec
to the Licensee under this Agreement. If, despite the foregoing limitations,
Softec or any of its shareholders, directors, officers, employees or
representatives should become liable to the Licensee or any other person (a
"Claimant") in connection with this Agreement, then the maximum aggregate
liability of Softec, its members, shareholders, directors, officers, employees
and representatives for all such things and to all such parties will be limited
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Annual Report 2001 Page 79
NET-FORCE SYTEMS, INC.
to the lesser of the actual amount of loss or damage suffered by the Claimant or
the amount of the Licensee's fees payable by the Licensee to Softec for the six
months prior to the loss.
1.3.2 The Licensee shall indemnify and save harmless Softec and its
members, shareholders, directors, officers, employees, agents, contractors,
representatives, parent company, or subsidiaries (together, the "Indemnified
Parties") from and against all damages, losses, costs and expenses (including
actual legal fees and costs), fines and liabilities incurred by or awarded
asserted or claimed against any of the Indemnified Parties by any licensing or
government agency who licenses, regulates, or otherwise governs the licensing or
use of Internet gambling in connection with the Licensee's activities under this
Agreement, including claims brought by a person using or relying upon any advice
given or publication produced and distributed by the Licensee.
1.3.3 Notwithstanding anything in this Section 1.3, if Softec is found
guilty of fraud in executing its' obligations under this Agreement, the Licensee
shall not be responsible for any indemnification of the Indemnified Parties to
the extent that the fraud has caused there to be damages.
1.4 DISRUPTIONS
1.4.1 The Licensee acknowledges that from time to time, as a result of
Hardware failure, supplier failures, or acts of God, the services provided under
this Agreement by Softec can be temporarily disrupted. The Licensee acknowledges
and agrees that neither Softec nor any of its members, shareholders, directors,
officers, employees or representatives will be liable to the Licensee or any of
the Licensee's customers for any special, indirect, consequential, punitive or
exemplary damages, or damages for loss of profits or savings, in connection with
these temporary disruptions. For the purpose of this section, if the services
provided under this Agreement by Softec are temporarily disrupted for seven days
within any one-month period, the minimum monthly fees as calculated in section
1.7.3 shall be reduced on a pro rata basis.
1.4.2 The Licensee acknowledges that Softec's ability to perform its
obligations under this Agreement are subject to government licensing in whatever
jurisdiction Softec may choose to operate. Softec shall not be held liable for
any damages of any kind whatsoever that may result from changes in government
legislation or policy.
1.5 CONDITIONS OF LICENSE
This license is granted under the following conditions:
1.5.1 The Licensee acknowledges that its rights in and to the Licensed
Software may not be assigned, licensed or otherwise transferred by operation of
law without the prior written consent of Softec. Violation of this section is
grounds for immediate termination of this Agreement.
1.5.2 Copyright and other proprietary rights of Softec protect the
Licensed Software. The Licensee may be held directly responsible for acts
relating to the Licensed Software which are not authorized by this Agreement.
1.5.3 All right, title and interest in and to the Licensed Software, and
any copies thereof, and all documentation, code and logic, which describes
and/or comprises the Licensed Software remains the sole property of Softec.
1.5.4 Softec shall not be responsible for failure of performance of this
Agreement due to causes beyond its control, including, but not limited to, work
stoppages, fires, civil disobedience, riots, rebellions, acts of God, and
similar occurrences.
1.5.5 The sportsbook "format" shall remain standard, and will not be
materially altered from Softec's standard sportsbook facilities. Format shall
refer to the tabular presentation of the sports information making up the
sportsbook look and feel and shall not include the graphics that may be added in
order to personalize it.
1.5.6 The Licensee acknowledges that this is a non-exclusive agreement
and that Softec will license the Licensed Software to as many other parties as
are willing to enter into a licensing agreement with Softec.
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Annual Report 2001 Page 80
NET-FORCE SYTEMS, INC.
1.5.7 The Licensee shall supply to Softec an irrevocable letter of credit
in the amount of $100,000 U.S. An appropriate amount of these funds shall be
released to Softec in the event the Licensee should become unable or unwilling
to pay for any legitimately invoiced amounts. This security shall only be used
to remedy non-payment of legitimate invoices, and cannot be applied by Softec to
any other alleged breaches of this Agreement. This section shall only become
effective upon the Licensee achieving in any one month Net Monthly Revenue of
$1,000,000 or greater.
1.5.8 The Licensee shall be responsible for ensuring that they are
operating the Licensed Software in compliance with any and all applicable state,
provincial, national, and international laws.
1.5.9 The Licensee shall provide Softec with all documentation necessary
to show that the Licensee has obtained any and all necessary licenses in order
to operate an Internet casino and/or Sportsbook in the jurisdiction in which the
Licensee chooses to operate.
1.5.10 It is the policy of Softec to prevent the use of the Licensed
Software for use as a "money laundering" vehicle. The Licensee warrants that
they will undertake all reasonable efforts to prevent persons from using the
Licensed Software for use as a money-laundering vehicle. If it is revealed that
the Licensee is purposely allowing or is willfully blind to money laundering,
Softec may terminate this agreement without notice.
1.5.11 The Licensee shall not accept wagers from persons residing in
Canada and shall implement all measures stipulated by Softec to ensure that
persons residing in Canada are not able to wager utilizing the Licensed
Software.
1.6 TERM AND TERMINATION
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.
1.6.2 Softec may terminate this Agreement by giving written notice to the
Licensee at least six months prior to the end of any one year term provided,
however, Softec shall not give notice of termination in the first year of this
Agreement.
1.6.3 Softec may terminate this Agreement at any time upon five days
notice if the Licensee is more than 30 days in arrears in paying any material
monthly fees due and owing to Softec. The Licensee shall be allowed to cure the
breach during the notice period, thus pre-empting Softec's ability to terminate
this Agreement in accordance with this section. The arrears contemplated in this
section must be of a material amount for this section to be used by Softec. For
the purposes of this section, material shall mean anything greater than 5% of
the previous month's fees.
1.6.4 Softec may terminate this Agreement at any time upon five days
notice if the Licensee becomes bankrupt or insolvent or ceases carrying on
business for any reason.
1.6.5 The Licensee may terminate this Agreement at any time upon five
days notice if Softec becomes bankrupt or insolvent or ceases carrying on
business for any reason.
1.6.6 The Licensee may, inter alia, terminate this Agreement at any time
upon five days notice if Softec is materially in breach of this Agreement for
more than 30 days. Softec shall be allowed to cure the breach during the notice
period, thus pre-empting the Licensee's ability to terminate this Agreement in
accordance with this section.
1.6.7 Softec may terminate this Agreement at any time upon five days
notice if Softec, or any of its principals, officers or Directors becomes the
subject of third party civil or criminal litigation as a result of the
Licensee's operations under this Agreement. The litigation contemplated herein
must be material, and found to be of a serious nature by independent legal
counsel.
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NET-FORCE SYTEMS, INC.
1.6.8 Upon termination of this Agreement, the Licensee shall immediately
return to Softec any and all of Softec's materials which Softec has a
proprietary right in that are in the Licensee's possession and/or in the
possession of the Licensee's agents, servants and employees.
1.6.9 Upon termination of this Agreement, all Customer Information shall
be given to the Licensee and Softec shall not make use of or disclose any
Customer Information to any third party.
1.6.10 Upon termination of this Agreement for any reason, any security
given by the Licensee shall be returned to the Licensee within thirty days of
termination, provided however that if there are any outstanding invoiced amounts
(as per section 1.5.7) against the Licensee, sufficient security shall be
retained in order to pay for those claims.
1.7 REMUNERATION
1.7.1 The Licensee shall pay to Softec a non-refundable one-time fee of
$100,000 U.S. for the development of the graphical front end of the gaming site
and all set-up costs. This payment shall be paid in accordance with the
following schedule:
o $ 10,000 per month for ten months with the first payment being made
three months from the date of the 3 acceptance of the first wager using the
Licensed Software.
1.7.2 The Licensee shall pay to Softec a monthly fee based on a
percentage of the Net Monthly Revenue. The fee shall be paid in accordance with
Schedule A of this Agreement. The fees shall commence when the Licensee accepts
a wager utilizing the Licensed Software.
1.7.3 Notwithstanding any amount due and owing in accordance with
Schedule A of this Agreement, the Licensee shall pay to Softec a minimum of
$25,000 per month. This section shall come into effect 120 days from the
acceptance of the first wager utilizing the Licensed Software.
1.7.4 All monthly payments shall be delivered to Softec by the 15th of
each month in payment for the previous month's activity.
1.8 CONFIDENTIALITY
1.8.1 The Licensee shall not disclose, publish, or disseminate
Confidential Information to anyone other than those of its employees or others
with a need to know, and the Licensee agrees to take reasonable precautions to
prevent any unauthorized use, disclosure, publication, or dissemination of
Confidential Information. The Licensee agrees not to use Confidential
Information otherwise for its own or any third party's benefit without the prior
written approval of an authorized representative of Softec in each instance.
1.8.2 Softec shall not disclose, publish, or disseminate Customer
Information to anyone other than those of its employees with a need to know, and
Softec agrees to take reasonable precautions to prevent any unauthorized use,
disclosure, publication, or dissemination of Customer Information. Softec agrees
not to use Customer Information otherwise for its own or any third party's
benefit without the prior written approval of an authorized representative of
the Licensee in each instance.
1.8.3 All Confidential Information, and any Derivatives thereof whether
created by Softec or the Licensee, remains the property of Softec and no license
or other rights to Confidential information is granted or implied hereby. For
purposes of this Agreement, "Derivatives" shall mean: (a) for copyrightable or
copyrighted material, any translation, abridgement, revision or other form in
which an existing work may be recast, transformed or adapted; (b) for patentable
or patented material, any improvement thereon; and (c) for material which is
protected by trade secret, any new material derived from such existing trade
secret material, including new material which may be protected by copyright,
patent and/or trade secret.
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Annual Report 2001 Page 82
NET-FORCE SYTEMS, INC.
1.8.4 Notwithstanding anything in this Section 1.8, Softec shall be
allowed to use Customer Information for the purpose of fulfilling its reporting
obligations as a public company. Softec shall also be allowed to use Customer
Information in a statistical form so long as it does not identify individuals or
specific companies.
1.8.5 The Licensee shall not disclose the contents of this Agreement to
any third party who is not bound to maintain confidentiality between the
parties. The Licensee acknowledges that disclosure of the terms of this
Agreement to third parties would cause considerable damage to Softec and its
parent company, Starnet Communications International Inc.
2. OBLIGATIONS OF THE LICENSOR
- -- ---------------------------
2.1 HARDWARE
2.1.1 Softec shall supply the Hardware as defined in this Agreement.
2.1.2 Softec shall maintain the Hardware and pay all costs for
maintaining and/or upgrading the Hardware.
2.1.3 Softec shall supply the office space required to house the
Hardware.
2.1.4 The Hardware shall, at all times, remain the property of Softec.
2.1.5 Softec shall supply an appropriate connection to the Internet with
sufficient bandwidth to properly operate the Licensed Software. The Licensee
shall pay for all bandwidth associated only with those customers that are not
playing the Games using real money and for the downloading of the Licensed
Software via the Internet, and for any related marketing via the Internet.
Bandwidth shall be charged to the Licensee at market rates.
2.1.6 Softec shall not be required to maintain a redundant site.
2.1.7 Softec shall make all reasonable efforts to repair and correct any
problems arising under Softec's areas of responsibility that may arise from time
to time which would cause it to be unable to perform its' obligations under this
Agreement (see section 1.5.4).
2.1.8 Softec shall notify the Licensee of any problems that may arise
from time to time and shall keep the Licensee apprised of any efforts undertaken
to rectify the problem.
2.1.9 The Hardware shall be located only in places where Internet
gambling may be operated legally and where the Licensee has obtained all
necessary licenses to conduct online gaming.
2.2 THE LICENSED SOFTWARE
2.2.1 Softec shall install the Licensed Software on the Hardware.
2.2.2 Softec shall allow all of the Licensee's customers and all persons
who seek to be licensee's customers Internet access to the Licensed Software.
2.2.3 Softec shall allow the Licensee's customers to download directly
from the server the Downloadable Software necessary for the Licensee's customer
to play the Games.
2.2.4 Softec shall supply to the Licensee a single Master CD containing
the Downloadable Software.
2.2.5 Softec may from time to time, at its discretion, create additional
games, which can be added to the Licensed Software. If additional games become
available, the Licensee may request to have the additional games added to the
Licensed Software at no additional licensing cost to the Licensee.
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Annual Report 2001 Page 83
NET-FORCE SYTEMS, INC.
2.2.6 Softec may from time to time, at its discretion, translate part or
all of the Games into other languages, which can be added to the Licensed
Software. If additional languages become available, the Licensee may request to
have the additional languages added to the Licensed Software at no cost to the
Licensee.
2.2.7 Notwithstanding anything stated in this section 2.2, any changes
requested by the Licensee to be made to the graphics portion of the Licensed
Software, shall be charged to the Licensee at market rates.
2.2.8 Notwithstanding anything stated in this section 2.2, any changes
made to the Master CD at the Licensee's request will be billed to the Licensee
at market rates, plus a $100.00 U.S. administration fee. Softec retains the
right to refuse to make the requested changes.
2.2.9 Softec shall only be required to provide the Licensed Software in
the English language only.
2.2.10 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.
2.2.12 The Licensee may operate the Casino on as many separate URL's as
the Licensee wants, with no additional licensing fee to be paid.
2.2.13 Softec warrants that the Licensed Software correctly implements
algorithms, which are in accordance with the rules and payouts, which may be
displayed on the screen at any time by the player. Pseudo-random numbers used by
the software for the purposes of choosing game outcomes and shuffling cards are
generated in an unbiased manner.
2.2.14 Notwithstanding anything in this Agreement, the Licensee shall not
operate more than two casinos with different names and/or different graphics.
2.3 FINANCIAL TRANSACTIONS
2.3.1 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"). The Licensee's customers will be able to
deposit funds via the Internet through the use of Visa, Master Card, or American
Express credit cards. Other methods of payment may be made available from time
to time at Softec's discretion, at a cost to the Licensee to be agreed upon at
the time.
2.3.2 Softec shall only be responsible for processing credit card debits
and credits for which the Licensee holds the appropriate merchant number
accounts.
2.3.3 The Licensee shall be responsible for all aspects of collecting and
paying funds, in accordance with this Agreement.
2.3.4 The Licensee shall have no rights whatsoever in the Transaction
Processing System.
2.4 TECHNICAL SUPPORT
2.4.1 Softec shall supply 24-hour technical support for the Licensee's
customers and for the Licensee.
2.4.2 Softec shall make the Technical support available via the Internet
and via toll free telephone lines.
2.4.3 Softec shall determine the number of people acting as technical
support and the number of incoming telephone lines for technical support in its
absolute discretion.
2.4.4 Technical support offered via the telephone shall be in English
language only.
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Annual Report 2001 Page 84
NET-FORCE SYTEMS, INC.
2.5 ACCOUNTING
2.5.1 Softec shall maintain records of all transactions and wagers placed
utilizing the Licensed Software.
2.5.2 The Licensee shall pay a flat fee of $100.00 US plus all reasonable
hourly administration fees and disbursements, including printing, photocopying
and shipping costs, each time accounting information is requested.
Administration fees shall be paid at market prices. No fees are payable for
regular accounting information provided to the Licensee for the purpose of
calculating Net Revenue.
2.5.3 Softec shall supply a complete accounting record, as defined by
Softec from time to time, of the previous month's activity relating to the
Licensed Software within ten working days of the end of each month. The
accounting records shall be delivered either by facsimile or by e-mail.
2.5.4 Softec shall provide daily interim accounting reports, as defined
by Softec from time to time. The daily interim accounting records shall be
delivered either by facsimile or by e-mail.
2.5.5 Softec shall have the right to utilize the accounting information
for statistical and reporting purposes provided specific information about the
Licensee is not disclosed.
2.5.6 Softec shall archive and maintain the accounting information for a
period of 2 fiscal years.
2.5.7 Softec, at its discretion, may destroy any portion of the
accounting information that Softec deems to be no longer relevant.
2.5.8 The Licensee shall be given thirty days written notice prior to the
destruction of any accounting information. The Licensee may choose to archive
information about to be destroyed, at its own facilities.
2.6 CUSTOMER DATA
2.6.1 Softec shall maintain a database containing the Customer
Information.
2.6.2 The Customer Information shall remain the property of the Licensee.
2.6.3 Softec shall provide daily interim Customer Information reports, as
defined by Softec from time to time.
2.6.4 The Licensee shall pay a fee of $100.00 US plus all reasonable
hourly administration fees and disbursements, including printing, photocopying
and shipping costs, each time additional Customer Information is requested.
Administration fees shall be paid out at market prices.
2.6.5 Softec shall have the right to utilize the Customer Information for
any purpose that does not conflict with the Licensee's marketing of the Licensed
Software. Under no circumstances shall Softec utilize the Customer Information
in the marketing of any gaming site being operated by a subsidiary of Starnet
Communications International Inc., Softec's parent company.
2.6.6 Softec shall archive and maintain the Customer Information for a
period of two years.
2.6.7 Softec, in its discretion, may destroy any portion of the Customer
Information that Softec deems to be no longer relevant.
2.6.8 The Licensee shall be given thirty days written notice prior to the
destruction of any Customer Information. The Licensee may choose to archive
information about to be destroyed, at its own facilities.
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Annual Report 2001 Page 85
NET-FORCE SYTEMS, INC.
2.7 THE GAMES
2.7.1 The lottery tickets and play options available in the lottery web
site shall be determined from time to time by Softec in its sole discretion.
2.7.2 Softec shall determine the odds for the casino from time to time.
The Licensee shall be responsible for setting the odds for the sportsbook and
the HTML sportsbook, from time to time, in its sole discretion.
2.7.3 The Licensee shall determine the betting limits for both the casino
sportsbook and the HTML sportsbook, from time to time, in its sole discretion.
The Licensee may choose zero as a betting limit.
2.7.4 The Licensee, in its sole discretion, shall determine the betting
limits for the Games. The Licensee may choose zero as a betting limit.
2.7.5 Softec shall determine the games available in the casino and both
versions of the sportsbook, from time to time, in its sole discretion.
2.7.6 Softec shall determine the lottery tickets available in the casino
as well as the forms of play, from time to time, in its sole discretion.
2.7.7 Softec shall only supply the Games that the Licensee has
appropriate licenses to operate.
3. OBLIGATIONS OF THE LICENSEE
- -- ---------------------------
3.1 LICENSES
3.1.1 The Licensee shall be responsible for obtaining and maintaining all
necessary licenses for the operation of an Internet Casino and an Internet
Sportsbook operation, or whichever the Licensee intends to operate, in a
location where Softec maintains Hardware.
3.1.2 Softec shall recommend a lawyer in Antigua that can assist the
Licensee in obtaining, an Internet casino license as required by the Antigua
Free Trade Zone.
3.2 MERCHANT NUMBERS
3.2.1 The Licensee shall be responsible for obtaining and maintaining
appropriate merchant numbers for the processing of Visa, Master Card American
Express credit cards and any other credit card the Licensee may obtain merchant
numbers for (the "Merchant Numbers").
3.2.2 Notwithstanding that from time to time, Softec may make merchant
numbers available to the Licensee through another subsidiary of Starnet
Communications International Inc. ("SCII"), neither Softec nor SCII, nor any
other subsidiary of SCII shall be responsible for maintaining or continuing to
provide merchant numbers.
3.3 MARKETING
3.3.1 The Licensee shall be responsible for all marketing of the services
offered through the Licensed Software.
3.3.2 The Licensee shall spend on a monthly basis, a minimum of 15% of
the previous month's Net Revenue on marketing and promoting the Licensee's
gaming site.
3.3.3 Softec is not responsible for tracking or maintaining any records
or data with respect to marketing. The Licensee shall be allowed access to the
Hardware for the purpose of tracking and maintaining marketing data.
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Annual Report 2001 Page 86
NET-FORCE SYTEMS, INC.
3.3.4 The Licensee shall be responsible for all aspects of customer
service, including, but not limited to dealing with customer complaints and
paying out winnings, provided that the Licensee has and is using its own credit
card merchant accounts.
3.4 DISTRIBUTION OF SOFTWARE
3.4.1 The Licensee shall be responsible for the production and
distribution of compact discs containing the Downloadable Software.
3.4.2 The Licensee shall not alter the Licensed Software as supplied on
the Master CD in any way.
3.4.3 The Licensee shall ensure that the packaging for the Licensed
Software, as well as any logo imprinted on the compact disk, shall display all
proprietary rights symbols such as Copyright and Trademark, as supplied by
Softec (the "Symbols"). The Symbols shall be of the exact same size and font as
supplied by Softec.
3.5 REGULATORY ISSUES
3.5.1 The Licensee shall be solely responsible for determining which
jurisdictions they choose to market to and receive wagers from.
3.5.2 The Licensee shall be responsible for determining the legality of
accepting wagers in whichever jurisdictions they choose to market to and receive
wagers from.
3.5.3 The Licensee shall indemnify Softec for any reasonable legal costs,
and fines that arise as a result of the Licensee choosing to accept wagers from
any jurisdiction that determines or has determined that Internet wagering is
illegal.
3.6 THE WEB SITE
3.6.1 The Licensee shall construct and maintain the entire web site(s)
where the Downloadable Software is to be made available to the Licensee's
customers (the "Web Sites").
3.6.2 The Licensee shall pay for any and all Uniform Resource Locators
("URL's") that the Licensee deems necessary to properly market the Licensed
Software.
3.6.3 The Licensee shall ensure that the Web Sites shall display a
statement that the software is licensed, as well as all proprietary rights
symbols such as Copyright and Trademark, as supplied by Softec (the "Symbols").
The Symbols shall be of the exact same size and font as supplied by Softec.
3.6.4 The Licensee shall have the right to add as many URL's that are
dedicated solely to the promotion of the Licensee's gaming site as the Licensee
deems necessary.
3.6.5 The Licensee shall have the right to make any changes to the Web
Sites the Licensee feels appropriate. All changes that are effected by Softec
will be charged to the Licensee at market rates.
3.6.6 If requested, Softec shall construct and maintain any and all
additional web sites the Licensee deems necessary for the marketing of the
Licensed Software. All work done to build additional web sites shall be charged
to the Licensee at market rates.
3.6.7 Softec shall not in any way be responsible for the design of the
Web Sites utilized by the Licensee.
3.6.8 The Licensee shall include in their Terms and Conditions of Play
for the Licensed Software the Terms and Conditions that are recommended by
Softec. The Licensee may embellish or add to these Terms and Conditions. If the
Licensee does not implement the minimum required Terms and Conditions, in so far
as the Terms and Conditions would have protected the Licensee, Softec shall not
be responsible to the Licensee, notwithstanding anything in this Agreement.
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Annual Report 2001 Page 87
NET-FORCE SYTEMS, INC.
4. STANDARD CLAUSES
- -- ----------------
4.1 NOTICES
Unless otherwise provided in this Agreement, any notice provided for under
this Agreement shall be in writing and shall be sufficiently given if delivered
personally, or if transmitted by facsimile with an original signed copy
delivered personally within twenty-four hours thereafter, or mailed by prepaid
registered post addressed to Softec at their respective addresses set forth
below or at such other than current address as is specified by notice.
To Softec: Newgate Street
P.O. Box 1589
St. John's, Antigua
West Indies
Attention: General Counsel
Fax: (268) 480-1656
To the Licensee: Hill & Hill legal offices in St.
John's, Antigua
4.2 ENTIRE AGREEMENT AND SCHEDULES
The parties agree that this Agreement and its Schedule, if any, constitute
the complete and exclusive statement of the terms and conditions between the
Licensee and Softec covering the performance hereof and cannot be altered,
amended or modified except in writing executed by an authorized representative
of each party. The Licensee further agrees that any terms and conditions of any
purchaser order or other instrument issued by the Licensee in connection with
this Agreement which are in addition or inconsistent with the terms and
conditions of this Agreement shall not be binding on Softec and shall not apply
to this Agreement.
4.3 GOVERNING LAW AND ARBITRATION
Any dispute in connection with this Agreement shall be settled by
arbitration in accordance with any Arbitration Act agreed upon between the
parties; provided, however, should any dispute arise under this Agreement, the
parties shall endeavor to settle such dispute amicably between themselves. In
the event that the parties fail to agree upon an amicable solution, such dispute
shall be finally determined by arbitration as aforesaid.
4.4 GOOD FAITH
The parties acknowledge to one another that each respectively intends to
perform its obligations as specified in this Agreement in good faith.
4.5 PARTIES TO ACT REASONABLY
The parties agree to act reasonably in exercising any discretion, judgment,
approval or extension of time that may be required to effect the purpose and
intent of this Agreement. Whenever the approval or consent of a party is
required under this Agreement, such consent shall not be unreasonably withheld
or delayed.
4.6 GOVERNING LAW
This agreement and all Schedules shall be governed by and construed in
accordance with the laws of the Country of Antigua, and the Licensee hereby
attorns to the jurisdiction of the courts of Antigua notwithstanding any other
provision expressed or implied in either this agreement or the Schedules.
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Annual Report 2001 Page 88
NET-FORCE SYTEMS, INC.
4.7 TIME TO BE OF THE ESSENCE
Time is of the essence.
4.8 NUMBER AND GENDER
In this Agreement the use of the singular number includes the plural and
vice versa the use of any gender includes all genders, and the word "person"
includes an individual, a trust, a partnership, a body corporate and politic, an
association and any other incorporated or unincorporated organization or entity.
4.9 CAPTIONS
Captions or descriptive words at the commencement of the various sections
are inserted only for convenience and are in no way to be construed as a part of
this Agreement or as a limitation upon the scope of the particular section to
which they refer.
4.10 NON-ASSIGNABILITY
This Agreement is personal to the Licensee, except as provided in S. 4.11,
and the Licensee may not assign or transfer any of its rights or obligations
under this Agreement without the prior written consent or Softec.
4.11 BENEFIT
This Agreement shall ensure to the benefit of and be binding upon the
Licensee, its successors and assigns. The Licensee may delegate the performance
of any of its obligations hereunder to any corporation which controls, is
controlled by or is under common control with the Licensee.
4.12 WAIVER
No condoning, excusing or waiver by any party hereto of any default, breach
of non-observance by any other party hereto, at any time or times with respect
to any covenants or conditions herein contained, shall operate as a waiver of
that party's rights hereunder with respect to any continuing or subsequent
default, breach or nonobservance, and no waiver shall be inferred from or
implied by any failure to exercise any rights by the party having those rights.
4.13 FURTHER ASSURANCE
Each of the parties hereto hereby covenants and agrees to execute such
further and other documents and instruments and to do such further and other
things as may be necessary to implement and carry out the intent of this
Agreement.
4.14 CUMULATIVE RIGHTS
All rights and remedies of Softec are cumulative and are in addition to and
shall not be deemed to exclude any other rights or remedies allowed by law
except as specifically limited hereby. All rights and remedies may be exercised
concurrently.
4.15 PRIOR AGREEMENTS
Except as specifically provided for herein, this Agreement, including its
Schedules, contains all of the terms agreed upon by the parties with respect to
the subject matter herein and supersedes all prior agreements, arrangements and
understandings with respect thereto, whether oral or written.
- --------------------------------------------------------------------------------
Annual Report 2001 Page 89
NET-FORCE SYTEMS, INC.
4.16 SEVERABILITY
If any part of this Agreement is unenforceable because of any rule of law
or public policy, such unenforceable provision shall be severed from this
Agreement, and this severance shall not affect the remainder of this Agreement.
4.17 NO PARTNERSHIP
Notwithstanding anything in this Agreement, no part of this Agreement, nor
the Agreement as a whole shall be construed as creating a partnership or agency
relationship between the parties. If any part of this Agreement should become
construed as forming a partnership or agency relationship, that part shall be
amended such that no partnership or agency relationship is created, but that
part achieves what it was originally intended to achieve.
4.18 DOLLAR AMOUNTS
All references to money or specific dollar amounts in this Agreement are in
United States Dollars.
4.19 INTERPRETATION
In the interpretation of this Agreement or any provision hereof, no
inference shall be drawn in favor of or against any party by virtue of the fact
that one party or its agents may have drafted this Agreement or such provision.
IN WITNESS WHEREOF the parties have executed this Agreement on the date first
written.
SOFTEC SYSTEMS CARIBBEAN INC.
Per: /s/ "Christopher Zacharias" Per: /s/ "Mark Dohlen"
Name: Christopher H. Zacharias Name: Mark N. Dohlen
Title: In House Counsel Title: CEO
THE LICENSEE: NET-FORCE ENTERTAINMENT INC.
Per: /s/ "Terry Bowering"
Name: Terry G. Bowering
Title: President, Director
- --------------------------------------------------------------------------------
Annual Report 2001 Page 90
NET-FORCE SYTEMS, INC.
SCHEDULE A
- ----------
The Licensee agrees to pay Softec monthly fees according to the following:
THE LICENSEE'S NET MONTHLY FEE PAYABLE
REVENUE (U.S. DOLLARS)
> $0.00 but < or = to $500,000 25%
> $500,000 but < or = to $1,000,000 20%
> $1,000,000 but < or = to $5,000,000 15%
> $5,000,000 to $10,000,000 12.5%
> $10,000,000 plus 10%
The above table should be read with the following understanding: If the
licensee has a Net Monthly Revenue of $550,000, the fee payable is calculated as
follows:
25% on the first $500,000 = $125,000
20% on the next $50,000 = $ 10,000
---------
For a total fee payable = $135,000
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Annual Report 2001 Page 91
NET-FORCE SYTEMS, INC.
SCHEDULE OF MARKET RATES
------------------------
The Market rates as set out in this schedule and referred to in this
Agreement are subject to change without notice to the Licensee.
3D graphics:--------------------------------- $150.00 per hour
Video editing:------------------------------- $100.00 per hour
Graphic design:------------------------------ $75.00 per hour
Programming:--------------------------------- $150.00 per hour
Quality Assurance and testing:--------------- $40.00 per hour
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Annual Report 2001 Page 92
NET-FORCE SYTEMS, INC.
SCHEDULE OF MERCHANT NUMBER TERMS
---------------------------------
o Monthly processing limit: $100,000
o Merchant discount: 5.50%
o Rolling reserve: 5% for 180 days if chargeback are less than 5%
o 25% if chargebacks exceed 5% - but will be subject to review
o Transaction fee: $1.60 per transaction applied to both debit and
credit transactions
o Fraud Screen fee: $0.60 per transaction applied to all sales
transaction regardless of the response, (accept or reject). This
system is essential to keep the chargeback ratio down.
o Settlement: 30 days following the month end (e.g. All September
transactions will be settled by October 30th 1998)
o Chargeback: $25 per chargeback transaction
o Payout processing fee is $5.00 per bank draft.
Softec makes no guarantee as to the availability of the merchant numbers
contemplated in this Schedule. Please refer to section 3.2.2 of this Agreement
for clarification.
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Annual Report 2001 Page 93
NET-FORCE SYTEMS, INC.
AMMENDMENT TO SOFTWARE LICENSE AGREEMENT
Between Softec Systems Caribbean inc. (now Starnet Systems
International Inc., "Starnet") and Net Force entertainment Inc. ("Net Force")
dated July 31, 1999
WHEREAS Net Force entered into a software license agreement with Starnet dated
July 31, 1999 (the "Software License Agreement");
AND WHEREAS Starnet's Licensed software erroneously prevented Net Force from
accepting certain wagers;
AND WHEREAS Starnet now wishes to compensate Net Force for any inconvenience and
costs caused by Starnet;
AND WHEREAS Net Force wishes to provide Starnet with a release for the purposes
of making a full and final compromise and settlement of all claims against
Starnet;
NOW THEREFORE, in consideration of the mutual covenants set out herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Starnet and Net Force agree as follows;
1. Capitalized terms used in this Amendment that are defined in the
Software License Agreement shall have meaning as ascribed thereto in
the Software License Agreement.
2. Starnet hereby waives any further amounts payable by Net Force under
section 1.7.1 of the Software License Agreement.
3. For a period of twelve months, commencing September 1, 2000, Starnet
will reduce the monthly fee payable by Net Force under section 1.7.2
of the Software License Agreement so that the maximum monthly fee for
Net Monthly Revenues below $1,000,000 will be fifteen (15%).
4. Starnet hereby waives the provisions of section 1.7.3 of the Software
License Agreement.
5. Starnet hereby waives any further fees payable to Starnet by Net Force
for its initial Virtual Casino License, issued by the Antiguan Free
Trade Zone, which expires on April 6, 2001.
6. All other provisions, of the Software License Agreement shall remain
in full force and effect.
7. Net Force, its officers, directors, employees, agents, successors,
predecessors, affiliates and assigns, (herein collectively referred to
as the ("Net Force Group") hereby release Starnet and its officers,
directors, employees, agents, successors, predecessors, affiliates and
assigns, (herein collectively referred to as the ("Starnet Group") of
and from any and all actions causes of action, demands and damages
relating to the Licensed Software, howsoever arising, which the Net
Force Group presently has or at any time can, shall or may have
against the Starnet Group.
8. Starnet and Net Force will hold the terms of this Amendment and of the
release contained herein strictly confidential and will not disclose
the same to any person or entity whatsoever, except to its legal or
financial advisors or as required by law.
AGREED TO THIS 6TH DAY OF SEPTEMEBER 2000
/s/ Meldon Ellis
- --------------------------------------
Meldon Ellis
Starnet Systems International Inc.
/s/ Terry Bowering
- --------------------------------------
Terry Bowering
Net Force Entertainment Inc.
- --------------------------------------------------------------------------------
Annual Report 2001 Page 94
NET-FORCE SYTEMS, INC.
EXHIBIT 10.2 Government of Antigua and Barbuda Gaming License
License # 0310A
[FREE TRADE & PROCESSING ZONE LOGO HERE]
ANTIGUA AND BARBUDA
FREE TRADE & PROCESSING ZONE
CERTIFICATE AUTHORIZING THE ESTABLISHMENT
AND OPERATION OF BUSINESS IN THE
FREE TRADE & PROCESSING ZONE
Pursuant to Section 11 of the Free Trade & Processing Zone Act No. 12 of
1994, the Commission certifies that:
NET FORCE ENTERTAINMENT INC.
- ----------------------------
(Name of Business)
which was incorporated under the laws of Antigua & Barbuda on the 5th day of
August 1999, is licensed and authorized to establish and operate
An Offshore Virtual Casino Wagering and Sportsbook Wagering business
- --------------------------------------------------------------------
(Type of Business)
for the period April 7, 2001 to April 6, 2002.
within the Free Trade & Processing Zone in Antigua.
/s/ "Vere Murphy"
-------------------------
Commissioner
/s/ "Charles Fernandez"
-------------------------
Chairman
Dated this 7th day of April 2001 In Antigua and Barbuda License fee remains the
same for a period of five (5) years.
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Annual Report 2001 Page 95
NET-FORCE SYTEMS, INC.
[GOVERNMENT LOGO HERE]
GOVERNMENT OF ANTIGUA AND BARBUDA
Director of Offshore Gaming
Expediter of International Investment
Office of the Prime Minister
Queen Elizabeth Highway,
ST. JOHN'S, ANTIGUA, W.I.
Tel: (268)-462-0773/462-4956
E-mail: mcallisterg@candw.ag
August 5, 1999
Mr. Terence Bowering
President, Manager Director
Net Force Entertainment Inc.
P.O. Box W-645,
St, John's. Antigua
Dear Mr. Bowering,
This letter serves as notification of the approval of the application for
Virtual Casino/Sports Wagering License for Net Force Entertainment Inc., a
company duly incorporated under the laws of Antigua and Barbuda. Your office
will be notified when the License Certificate is available.
I remain,
/s/ "Gyneth A. McAllister"
- ---------------------------
Mrs. Gyneth A. McAllister
- --------------------------------------------------------------------------------
Annual Report 2001 Page 96
NET-FORCE SYTEMS, INC.
License #0138A
[FREE TRADE & PROCESSING ZONE LOGO HERE]
ANTIGUA AND BARBUDA
FREE TRADE & PROCESSING ZONE
CERTIFICATE AUTHORIZING THE ESTABLISHMENT
AND OPERATION OF BUSINESS IN THE
FREE TRADE & PROCESSING ZONE
Pursuant to Section 11 of the Free Trade & Processing Zone Act No. 12 of
1994, the Commission certifies that: NET FORCE ENTERTAINMENT INC.
-----------------------------------------------------------------
(Name of Business)
which was incorporated under the laws of Antigua & Barbuda on the 5th day of
August 1999, is licensed and authorized to establish and operate
An Offshore Virtual Casino Wagering and Sportsbook Wagering business
--------------------------------------------------------------------
(Type of Business)
for the period August 5, 1999 to August 4, 2000.
within the Free Trade & Processing Zone in Antigua.
/s/ "Vere Murphy"
-------------------------
Commissioner
/s/ "Charles Fernandez"
-------------------------
Chairman
Dated this 1st day of September 1999
In Antigua and Barbuda
License fee remains the same for a period
of five (5) years.
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NET-FORCE SYTEMS, INC.
EXHIBIT 10.3 Sales and Marketing License Agreement
Draft dated: [insert month here], [day], [year]
SOFTWARE AND MARKETING LICENSE AGREEMENT
Agreement dated oo.
Between:
Netforce Entertainment Inc.
with registered offices at
P.O. Box 1301, 60 Nevis St.
St. John's, Antigua, W.I.
("Licensor")
and
o o
o o [insert address]
o o
("Licensee")
Whereas:
A. Licensor licenses the casino software;
B. Licensee wishes to the market and promote wagering on Games on the Casino
by prospective customers utilizing software licensed from the Licensor;
C. Licensor has agreed to license the casino software to Licensee in a
non-exclusive agreement, in accordance with the provisions of this
Agreement;
NOW THEREFORE, in consideration of the premises and mutual covenants herein set
forth, the parties agree as follows:
1. Definitions
(a) "Casino" the Internet gaming software offered for licensing by Licensor;
(b) "Royalty" has the meaning attributed thereto in section 6(a);
(c) "Confidential Information" means any information concerning the property,
business or affairs of Licensor including, without limitation, all
information relating to existing and potential customers (including
Customer Information), suppliers, markets, marketing and advertising
arrangements, contracts, products, financial information, technology, trade
secrets, formulae, applications, methodologies and know-how, relating to
any part of the Licensor's business, whether reduced to written form, or
ascertained by inspection or verbal communication or demonstration, or
otherwise made available, but excluding information which was known to the
Licensee prior to the time of disclosure thereof, information which was
generally available to the public or was otherwise part of the public
domain at the time of disclosure; or information which becomes generally
available to the public or otherwise part of the public domain after
disclosure, other than through any act or omission of the Licensee.
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Annual Report 2001 Page 98
NET-FORCE SYTEMS, INC.
(d) "Customer Information" shall mean all data collected or stored respecting
Licensor's customers including, without limiting the generality of the
foregoing, name, address, phone and fax number, e-mail address, credit card
numbers and expiration dates or information on other types of payments,
amounts wagered and frequency of wagering;
(e) "Downloadable Software" shall mean the portion of the Software that must be
resident on a customer's computer in order for the customer to access the
Casino and play the Games;
(f) "Games" shall mean the casino style games, sportsbook, lottery, pari-mutuel
and other games that are played on the Casino using the Software.
(g) "Master CD" shall mean the compact disc containing the Downloadable
Software that may be used to mass-produce compact discs for delivery to the
Operator's customers.
(h) "Net Monthly Revenue" shall mean, with respect to Licensee's Customers, for
any given calendar month:
the total of:
(i) the total amount wagered on Games in the Casino, less winnings on
Games;
(ii) membership or other fees that may be charged to customers by the
Operator that are not related to currency conversion or
transaction processing;
less the total of:
(iii) all taxes, fees or other amounts imposed by any government or
regulatory body;
(iv) any bonus amount or complementary amount credited to Licensee's
Customers.
but shall not include any tax credits or other concessions received by
Operator.
(i) "Licensee's Customers" those customers of the Licensee who make wagers on
Games on an account opened by Licensee;
(j) "Software" shall mean the computer programs and system that enable
customers to access the Casino, play the Games and make wagers on the
Casino, and without limitation includes the Downloadable Software and Java
applets that are used to play the Games.
2. Grant of Software and Marketing License
(a) Licensor grants a non-exclusive non-transferable right and license to
Licensee to market and promote wagering on Games on the Casino to customers
throughout the world (subject to section 5(e)) in accordance with the
provisions of this Agreement. Licensee acknowledges that Licensor will
continue to directly market and promote the wagering on Games on the Casino
software to prospective customers and that it will continue to enter into
licensing and other arrangements with third parties to market and promote
the wagering on Games on the Casino, during the term of this Agreement.
(b) Licensor grants to Licensee the non-exclusive, non-transferable right and
license to distribute to Licensee's Customers, in accordance with the
provisions of this Agreement, any part of the Software that Licensor
designates and provides to Licensee for that purposes, including the
Downloadable Software and Java applets and graphical artwork or text
designated for use by Licensee. Licensee shall not under any circumstances
modify in any way, reverse engineer, disassemble, decompile, or otherwise
attempt to render source code from the Software or Downloadable Software,
or to reproduce or distribute the Software or Downloadable Software in
source code format. Licensee acknowledges and agrees that part or all of
the Software and Downloadable Software is the proprietary property of
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Annual Report 2001 Page 99
NET-FORCE SYTEMS, INC.
Licensor or others that have licensed its use to Licensor, that it embodies
substantial creative rights, confidential and proprietary information,
copyrights, trademarks and trade secrets, all of which shall remain the
exclusive property of Licensor, such party and/or their respective
licensors. Licensee agrees to include such proprietary rights notices,
markings or legends on any advertisements or promotional materials for the
Software or Downloadable Software as Licensor shall reasonably specify from
time to time.
3. Fees Payable by Licensee
(a) Licensee shall pay a one-time non-refundable license fee to Licensor in the
amount of $oo US, upon the signing of this Agreement by Licensor.
(b) Licensee shall pay a monthly standby fee ("Standby Fee") to Licensor in the
amount of $oo US during the term of this Agreement, payable on the first
day of each calendar month, commencing with the second calendar month
following the calendar month during which the first wager is made on the
Casino by one of Licensee's Customers. The Standby Fee shall be prorated
for any period, which is less than a complete calendar month. If the Net
Monthly revenue for a calendar month exceeds $oo US, Licensor will refund
the Standby Fee paid by Licensee to Licensor in respect of such month. The
refund shall be paid at the same time as the Commission for such month is
paid, pursuant to section 6.
4. Presentation of Casino Software by Licensor
(a) Licensor will, at its own expense, offer the Games and the Casino software
in the manner that it determines is appropriate, in its sole discretion,
having regard to the requirements imposed by any software licensing
requirements, the terms of any license issued by a governmental authority
or any governmental requirements, and any legal requirements in any
relevant jurisdiction applicable to operation of the Games, the Casino or
to customers wagering on Games on the Casino. Licensor will in its sole
discretion determine, without notice to Licensee:
(i) the configuration and graphical interface of the Casino and which
Games will be available on the Casino; and
(ii) the transaction processing, banking and other operating
arrangements for the operation of Casino and transactions with
customers and Licensee;
Licensor will provide reasonable notice and information to Licensee of any
resulting change in operation of the Casino; it is understood that the
timing thereof will depend on the circumstances. Licensee acknowledges that
certain aspects of the operation of the Casino and of the Games will be
determined by governmental authorities, Licensor or pursuant to software
license requirements, including the odds for the Games.
(b) Licensor will at its own expense provide to Licensee a copy of the current
version of the Downloadable Software in the form of a single copy of a
version of the Master CD and may also provide access to Java applets for
use by Licensee's Customers on Licensee's website. Licensor will arrange
for the Games to be operated so that customers wagering on Games on the
Casino on an account opened by Licensee can be identified as Licensee's
Customers. Licensor will also provide to Licensee a copy of any revision or
upgrade of the Downloadable Software or Java applet, subject to Licensee
reimbursing Licensor for any fee or charge directly related to Licensee,
imposed on Licensor for doing so. Licensee acknowledges that other parties
or Licensor may own the Software and that Licensee will acquire no rights
in the Software pursuant to this Agreement or otherwise, except as
expressly provided in this Agreement.
(c) Licensor will arrange for Licensee to have access to the database and other
information concerning Licensee's Customers. All Customer Information shall
be the property of Licensor and Licensee will be entitled to use such
information only in accordance with this Agreement.
(d) Licensee acknowledges that there could be interruptions in the operation of
the Casino. Notwithstanding anything in this Agreement, Licensor shall not
be responsible or liable for any loss of income or loss of ability to
- --------------------------------------------------------------------------------
Annual Report 2001 Page 100
NET-FORCE SYTEMS, INC.
produce income, on the part of Licensee, arising from any interruption of
operation of or access to the Casino, for any reason whatsoever, whether
Licensor or a third party is at fault.
5. Obligations of the Licensee
(a) Licensee will, at its own expense, use its best efforts to market and
promote prospective customers to open an account with the licensee's casino
web-site and make wagers on Games on the Casino, in accordance with the
provisions of this Agreement.
(b) Licensee will, at its own expense, implement and maintain a website(s), and
all uniform resource locators related thereto, to promote and market the
Games and Casino, to provide a method for a prospective customer to apply
to open an account with the Licensee and to provide a method for a customer
to download from Licensee's web-site the part of the Software that Operator
designates and provides to Licensee for that purposes, pursuant to section
2(b). Licensee shall remove from each website operated by Licensee any part
of the Software (including Java applets) as directed by Licensor.
(c) Licensee will be solely responsible for its website(s) and for the material
appearing on them. Licensee represents and warrants that it will not use on
the website(s) or otherwise use in its operations any material which is
libelous, unlawful or otherwise unsuitable. Unsuitable material includes
but is not limited to material which target persons under 18 years of age,
displays child pornography or other illegal acts, promotes violence,
promotes discrimination based on race, sex, religion, nationality,
disability, sexual orientation or age, promotes illegal activities,
constitutes false advertising or violates or infringes upon the
intellectual property rights of others.
(d) Licensee shall ensure that such website(s), any promotional material
distributed by Licensee in electronic or other form and any banner
advertising, web links or other arrangements made by Licensee to promote
the Games and Casino will comply with all of Licensor's requirements
including displaying any statement required by Licensor concerning the
Software, the proprietary rights of Licensor or other parties therein and
any use of the names of Licensor or other parties. The application
information for a prospective customer shall meet all of Licensor's
requirements. Licensee shall display on the web sites the Terms and
Conditions of Play that are required by Licensor. All advertising,
marketing and promotion used by License and the content of each web site
shall, at the option of Licensor, be revised or modified as directed by
Licensor.
(e) Licensee will, at its own expense, reproduce and distribute to Licensee's
Customers duplicate copies of each Master CD (and updates thereof) provided
by Licensor to Licensee. Licensee shall ensure that the packaging for the
copies of the Master CD, as well as any logo imprinted on the compact disk,
shall display all proprietary rights symbols such as copyright and
trademark, as required by Licensor.
(f) Licensor acknowledges that governmental authorities impose certain
conditions on the operation of the Games and Casino and the use of the
Software. Licensor may adopt reasonable policies or requirements concerning
the marketing and promotion of the Games and Casino, the acceptance of or
dealing with customers, and other aspects of the operation of the Games and
Casino. Licensee will conduct itself and its operations in strict
compliance with all such policies or requirements of Licensor. Licensee
will conduct all aspects of its operations in strict compliance with all
applicable laws of all relevant jurisdictions. Licensor may adopt policies
that it will not allow Licensee to accept wagers from any person resident
in specific countries and to prevent persons from using the Software,
Games, or the Casino as a money-laundering vehicle. Licensee will comply
with such policies.
(g) Licensee will conduct its business as an independent contractor and will
enter into all arrangements for the purchase of goods and services in
connection with its business operations in its own name and not in the name
of or on behalf of Licensor. Licensee will upon request by Licensor provide
full particulars of each commitment or arrangement made by Licensee for the
purchase of goods or services, including arrangements for banner
advertising, web linking arrangements or other Internet marketing
arrangements. Licensee will provide evidence satisfactory to Licensor that
Licensee has satisfied all of its liabilities therefor. If Licensor, acting
reasonably, determines that Licensee has been delinquent in satisfying such
obligations and that may prejudice the Licensor or the operation or the
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Annual Report 2001 Page 101
NET-FORCE SYTEMS, INC.
Casino, then Licensor may, after providing notice to licensee and providing
that Licensee does not submit evidence of payment to Licensor within 48
hours, make payments of any liabilities of Licensee to third parties, on
behalf of Licensee, and may deduct from any amount payable by Licensor to
Licensee the amount of such payments, plus a reasonable administrative
processing charge therefor.
(h) Licensee may enter into "reseller" arrangements pursuant to which Licensee
may share with a third party ("Reseller") a portion of the Commission,
subject to the approval of Licensor, which shall not be unreasonably
withheld. Licensee will prevent each Reseller from entering into any
similar arrangement with another party, pursuant to which Reseller shares
any revenue arising from the Commission with another party. Licensee may
enter into arrangements with Resellers for the referral of other Resellers
provided that Licensor approves such arrangements.
(i) Licensee will indemnify and save harmless Licensor, its officers,
directors, employees and contractors from all liabilities, losses, expenses
or claims, including legal fees, arising from the operations of Licensee or
from any breach by Licensee of any obligation to Licensor.
(j) Licensor will not be liable to Licensee for any indirect, special, or
consequential damages, including lost profits, whether based upon a claim
or action of contract, warranty, negligence, or other tort or breach of any
statutory duty, indemnity or contribution, or otherwise arising out of this
Agreement, the playing of or wagering on the Games or the use of the
Casino, or any act or omission relating to the Games or Casino or the
marketing and promotion thereof.
(k) Licensee shall pay to Licensor all expenses incurred by Licensor that are
attributable to Licensee's Customers including:
(i) royalty or other payments to third parties in connection with the
use of Software;
(ii) fees for processing of payments for Licensee's Customers;
(iii) a reasonable charge for customer service provided to Licensee's
Customers; and
(iv) a reasonable charge for other expenses arising from services
provided to Licensee's Customers including telephone and
telecommunication expenses.
Licensee acknowledges that Licensor may arrange for telephone numbers and
accounts for customer support access by Licensee's Customers and Licensee
shall pay that all expenses incurred by Licensor in connection therewith.
Such telephone numbers and accounts and accounts shall be the property of
Licensor and Licensor may make use thereof following termination of this
Agreement. Any tax credits or similar concessions in connection with such
accounts shall not be part of Net Monthly Revenue.
(l) The Licensee shall be responsible for obtaining and maintaining all
necessary licenses for the operation of an Internet Gaming business in the
jurisdiction in which the Licensee chooses to operate.
6. Payment of Royalty
(a) Licensee will pay a Royalty ("Royalty") to Licensor for the use of the
casino software, based on the Net Monthly Revenue of the Casino, for each
calendar month, attributable to wagers made on the Casino by Licensee's
Customers, computed in accordance with Schedule A.
(b) The Royalty for a particular month will be payable no later than 31 days
following the end of such month. Licensor will provide a statement showing
the computation of the Royalty.
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Annual Report 2001 Page 102
NET-FORCE SYTEMS, INC.
7. Term and Termination
(a) The term of this Agreement commenced effective on [ ] and shall
continue in effect until [ ]. The term shall be automatically
renewed indefinitely for one year periods unless Licensee gives written
notice to Licensor of termination of this Agreement, at least 90 days prior
to the end of any period. Licensor may terminate this Agreement by giving
written notice to Licensee at least [90 days] months prior to the end of
any term. Provided, however, Licensor shall not give notice of termination
in the first term of this Agreement.
(b) Notwithstanding any other provision of this Agreement this Agreement shall
at the option of Licensor terminate upon the termination of any agreement
for the use by Licensor of the Software.
(c) Licensor may terminate this Agreement at any time upon five days notice if
the Licensee is more than 15 days in arrears in paying the Standby Fee or
is in arrears in paying any third party supplier of goods or services a
material amount. Licensee shall be allowed to cure such breach during the
notice period. For purposes of this section, a material amount shall be an
amount in excess of $5,000 US.
(d) Licensor may terminate this Agreement at any time upon 15 days notice if
the Licensee becomes bankrupt or insolvent or ceases carrying on business
for any reason.
(e) Licensor may terminate this Agreement at any time upon five days notice if
Licensee conducts its operations in a manner which in the opinion of
Licensor, acting reasonably, would result in the termination of any
agreement concerning the Software, the loss of any license issued by a
governmental body concerning the wagering on Games or operation of the
Casino, or otherwise materially prejudices or impairs the conduct by
Licensor of its operations or business.
(f) Upon termination of this Agreement:
(i) Licensee shall immediately return to Licensor any and all of
materials (including Software, Downloadable Software and Java
applets in all forms, graphical or text elements provided by
Licensor and all media containing same,) in which Licensor or
other party has any rights, that are in the possession of
Licensee, his agents, and employees;
(ii) Representative will remove all banners and text links;
(iii) All rights and licenses granted to Licensee under this Agreement
shall terminate.
(g) Upon termination of this agreement Licensor shall pay all amounts due to
Licensee within 90 days of termination of this agreement (or as soon
thereafter as practical having regard to paragraph 6) and Licensee shall
pay Licensor any amounts due to Licensor prior to payment of any balance
due by Licensor.
8. Licensee's Relationship with Customers and Employees/Contractors
(a) Licensee will not during the term of this Agreement and following the
termination of this Agreement directly or indirectly solicit, interfere
with or endeavor to direct or entice away from Licensor any customer of
Licensor, including the Licensee's Customers. This provision shall not
apply to any dealing by Licensee with Licensee's Customers in connection
with accounts with Licensor opened by Licensee, provided that Licensee has
not in any manner used Confidential Information in connection therewith and
otherwise complies with all of the provisions of this Agreement.
(b) Licensee will not during the term of this Agreement and for a period of two
(2) years following the termination of this Agreement interfere with,
entice away, or otherwise attempt to obtain the withdrawal of any employee
or independent contractor of Licensor.
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Annual Report 2001 Page 103
NET-FORCE SYTEMS, INC.
9. Licensor's Relationship with Customers and Employees/Contractors
Licensor will not during the term of this Agreement:
(a) use any of the database or other information provided by Licensee pursuant
to this Agreement concerning Licensee's Customers, referred to in section
4(c), to directly or indirectly solicit, interfere with or endeavor to
direct or entice away from Licensee, Licensee's Customers;
(b) interfere with, entice away or otherwise attempt to obtain the withdrawal
of any employee or independent contractor of the Licensee.
10. Regulatory Issues
(a) The Licensee warranties to the Licensor that it will, to the best of its
abilities, conduct its Internet Gaming business in legal jurisdictions. The
Licensee acknowledges that Netforce Entertainment Inc. bears no
responsibility nor provides any specific direction, consultation, or
interpretation as to what specific jurisdictions or target markets may be
considered legal or otherwise for Internet Gaming operators.
(b) The licensee shall be solely responsible for determining which
jurisdictions they choose to market to and from where wagers are received.
(c) The Licensee shall be solely responsible for determining the legality of
accepting wagers from whichever jurisdictions they choose to market to and
from where wagers are received.
(d) The Licensee shall indemnify Netforce Entertainment Inc. for any legal
costs and fines that arise from any legal action taken by a governmental
agency or authority as a result of the Licensee choosing to accept wagers
from any jurisdiction that determines or has determined, or may determine
in the future, that Internet wagering is illegal.
11. Confidentiality
(a) Licensee shall not disclose, publish, or disseminate Confidential
Information or to anyone and Licensee agrees to take reasonable precautions
to prevent any unauthorized use, disclosure, publication, access to or
dissemination thereof. Licensee agrees not to use Confidential Information
for its own or any third party's benefit without the prior written approval
of an authorized representative of the Licensor in each instance.
(b) Licensee shall not disclose the terms or contents of this Agreement to any
third party. Notwithstanding the foregoing, Licensee may make such
disclosure to its professional advisors, who are bound to maintain the
confidentiality thereof, or as required by applicable law, provided that it
provides notice to Licensor of the particulars thereof. Licensee
acknowledges that disclosure of the terms of Agreement to third parties
would cause considerable damage to Licensor with respect to the present or
future dealings it has or may have with any other parties with which it has
or proposes to have a business relationship concerning the marketing or
promotion of the Casino. Accordingly, if Licensee breaches the provisions
of this section, Licensor shall be entitled to terminate this Agreement
forthwith upon notice to Licensee.
12. Notices
Unless otherwise provided in Agreement, any notice provided for under Agreement
shall be in writing and shall be sufficiently given if delivered by courier, if
transmitted by facsimile with an original signed copy delivered within
twenty-four hours thereafter, or mailed by prepaid registered post addressed to
Licensor or Licensee at their respective addresses set forth below or at such
other than current address as is specified by notice.
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Annual Report 2001 Page 104
NET-FORCE SYTEMS, INC.
To Licensor: Suite #10, Woods Centre, P.O. Box W-645
St John's, Antigua, WI
Fax: 268.481.1999
Copy by E-Mail (for information purposes only):
netforce@candw.ag
To Licensee: o o o
Fax: o o o
Copy by E-Mail (for information purposes only):
o o o
Notice shall be deemed to be effective upon delivery, if delivered, upon
facsimile transmission if transmitted by facsimile, or five business days
following mailing, if mailed.
13. Entire Agreement and Schedule
The parties agree that Agreement and its Schedule constitute the complete and
exclusive statement of the terms and conditions between the parties covering the
performance hereof and cannot be altered, amended or modified except in writing
executed by an authorized representative of each party.
14. Arbitration
All disputes arising in connection with this Agreement shall be finally settled
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce by a single arbitrator appointed in accordance with such rules, and the
place of arbitration shall be St. John's, Antigua, West Indies, or as otherwise
agreed by the parties. Provided, however, should any dispute arise under this
Agreement, the parties shall endeavor to settle such dispute amicably between
them. In the event that the parties fail to agree upon an amicable solution,
such dispute shall be determined by arbitration as aforesaid.
15. Parties to Act Reasonably
The parties agree to act reasonably in exercising any discretion, judgment,
approval or extension of time that may be required to effect the purpose and
intent of Agreement. Whenever the approval or consent of a party is required
under Agreement, such consent shall not be unreasonably withheld or delayed.
16. Time to be of the Essence
Time is of the essence.
17. Number and Gender
In this Agreement the use of the singular number includes the plural and vice
versa the use of any gender includes all genders, and the word "person" includes
an individual, a trust, a partnership, a body corporate and politic, an
association and any other incorporated or unincorporated organization or entity.
18. Captions
Captions or descriptive words at the commencement of the various sections are
inserted only for convenience and are in no way to be construed as a part of
Agreement or as a limitation upon the scope of the particular section to which
they refer.
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Annual Report 2001 Page 105
NET-FORCE SYTEMS, INC.
19. Non-assignability
This Agreement is personal to the Licensee and the Licensee may not assign or
transfer any of its rights or obligations under Agreement without the prior
written consent of Licensor.
20. Benefit
This Agreement shall enure to the benefit of and be binding upon the parties and
their respective successors and permitted assigns.
21. Waiver
No condoning, excusing or waiver by any party hereto of any default, breach of
non-observance by any other party hereto, at any time or times with respect to
any covenants or conditions herein contained, shall operate as a waiver of that
party's rights hereunder with respect to any continuing or subsequent default,
breach or nonobservance, and no waiver shall be inferred from or implied by any
failure to exercise any rights by the party having those rights.
22. Further Assurances
Each of the parties hereto hereby covenants and agrees to execute such further
and other documents and instruments and to do such further and other things as
may be necessary to implement and carry out the intent of Agreement.
23. Cumulative Rights
All rights and remedies of Licensor are cumulative and are in addition to and
shall not be deemed to exclude any other rights or remedies allowed by law
except as specifically limited hereby. All rights and remedies may be exercised
concurrently.
24. Prior Agreements
This Agreement, including its Schedules, contains all of the terms agreed upon
by the parties with respect to the subject matter herein and supersedes all
prior agreements, arrangements and understandings with respect thereto, whether
oral or written.
25. Severability
If any part of Agreement is unenforceable because of any rule of law or public
policy, such unenforceable provision shall be severed from Agreement, and this
severance shall not affect the remainder of the Agreement.
26. No Partnership
Notwithstanding anything in this Agreement, no part of this Agreement, nor the
Agreement as a whole shall be construed as creating a partnership or agency
relationship between the parties. If any part of this Agreement should become
construed as forming a partnership or agency relationship, that part shall be
amended such that no partnership or agency relationship is created, but, that
part achieves what it was originally intended to achieve.
27. Dollar Amounts
All references to money or specific dollar amounts in this Agreement are in
United States Dollars.
28. Interpretation
In the interpretation of this Agreement or any provision hereof, no inference
shall be drawn in favor of or against any party by virtue of the fact that one
party or its agents may have drafted this Agreement or such provision.
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Annual Report 2001 Page 106
NET-FORCE SYTEMS, INC.
In witness whereof the parties have executed Agreement.
Netforce Entertainment Inc.
Per:
--------------------------------
President
Witness [ ]
[Licensee ]
Per:
--------------------------------
[Title ]
Witness [ ]
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Annual Report 2001 Page 107
NET-FORCE SYTEMS, INC.
SCHEDULE A
Licensee will pay the Royalty to Licensor, based on the Net Monthly Revenue of
the Licensee's Casino, for each calendar month, attributable to wagers made on
the Casino by Licensee's Customers as follows:
Net Monthly Revenue of Licensee's Customers Royalty Payable To Licensor
as % of Net Monthly Revenue
of Licensee's Customers
- ----------------------------------------------- ----------------------------
0 to $500,000 40%
$500,001 to $1,000,000 35%
$1,000,001 to $5,000,000 30%
$5,000,001 to $10,000,000 27.5%
In excess of $10,000,000 25%
The following transaction costs and fees will be payable by Licensee. Such
costs, fees and the following reserve will be in addition to monthly royalty
fees paid by Licensee:
Expenses incurred by Pursuant to section 5(j)
Operator that are
attributable to Licensee's
Customers
- -------------------------- -----------------------------------------------------------
Merchant costs: Discount rate 6.0%
Reserve (on a rolling
basis): 10% if chargebacks are less than 5% of Commission
25% for 180 days if chargebacks exceed 5% of Commission
Transaction fee: $1.60 per transaction applied to both debit and credit
transactions
Alternative Processors Determined at the discretion of Netforce Entertainment Inc.
Chargeback: $25.00 per chargeback transaction
Payout processing fee: $5.00 per payout
The above costs and fees are subject to change, based on market rates.
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Annual Report 2001 Page 108
NET-FORCE SYTEMS, INC.
EXHIBIT 10.4 Antigua Online Gaming Wagering and Gaming Reseller Agreement
THIS AGREEMENT (the "Agreement") is entered into by and between Antigua Online
Gaming and the Reseller.
RECITALS
- --------
A. Antigua Online Gaming is in the business of producing, marketing and
promoting on-line casino, sports book and lotteries entertainment Services
which are accessed through the use of a personal computer, modem and/or
direct Internet access.
B. Reseller undertakes to have Antigua Online Gaming produce a gaming web site
service for the Reseller web site (the "Service"), and Reseller desires to
market and promote the Service. This Service will be advertised, marketed
and promoted under the name "Antigua Online Gaming".
C. Reseller desires to obtain from Antigua Online Gaming, and Antigua Online
Gaming agrees to grant Reseller the nonexclusive right and license to
advertise, market and promote the Service, in accordance with the following
terms and conditions.
TERMS AND CONDITIONS
- --------------------
1. Grant of Promotion and Distribution License.
1.1
Antigua Online Gaming grants to Reseller the non-exclusive,
non-transferable right and license to advertise, market and promote the
Service, in accordance with the terms and conditions hereof.
1.2
Antigua Online Gaming grants to Reseller the non-exclusive,
non-transferable right and license to distribute to Reseller customers, in
accordance with the terms and conditions herein, the specialized casino and
gaming "Software" (the "Software") which enables access to the Service.
Reseller shall not under any circumstances reverse engineer, disassemble,
decompile, or otherwise attempt to render source code from the "Software",
or to reproduce or distribute the "Software" in source code format.
Reseller acknowledges and agrees that the "Software" is the proprietary
property of Antigua Online Gaming, and that it embodies substantial
creative rights, confidential and proprietary information, copyrights,
trademarks and trade secrets, all of which shall remain the exclusive
property of Antigua Online Gaming and/or its licensors. Reseller agrees to
include such proprietary rights notices, markings or legends on any
advertisements or promotional materials for the "Software" as Antigua
Online Gaming shall reasonably specify from time to time. The notice shall
be as small as possible while still remaining legible to the average
viewer.
1.3
All other rights and licenses not expressly granted to Reseller herein are
reserved by Antigua Online Gaming.
1.4
No payment will be made to reseller for customers who utilize Antigua
Online Gaming's Play for Fun Services.
2. Obligations of Antigua Online Gaming.
2.1
Antigua Online Gaming will provide access to; (a) casino style games (b)
sports book, (c) lottery ticket distribution, (c) Merchant accounts, (d)
credit card authorization, (e) fraud control, for billing; (f) financial
management of receivables including call reports and accounting services,
all in accordance with standard practices and procedures. The choice of
content for the Service, and the choice of persons retained to deliver the
Service's, shall be determined by Antigua Online Gaming in its sole
discretion.
2.2
Antigua Online Gaming shall retain the right to provide the Service in what
ever form Antigua Online Gaming deems appropriate.
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2.3
Antigua Online Gaming shall retain the right to change any part of the
Service at anytime, without notice to Reseller, in whatever manner Antigua
Online Gaming deems appropriate.
2.4
Antigua Online Gaming shall retain the right to cancel any part of the
Service at any time, without notice to Reseller, in whatever manner Antigua
Online Gaming deems appropriate.
2.5
Notwithstanding anything in this Agreement, Antigua Online Gaming shall not
be held responsible or liable for any loss of income or loss of ability to
produce income, on the part of the Reseller, arising from any inability of
Antigua Online Gaming to deliver the Services contemplated in this
Agreement for any reason whatsoever, whether Antigua Online Gaming is at
fault or whether a third party is at fault.
3. Obligations of Reseller.
3.1
Reseller shall use best commercially reasonable efforts to actively and
effectively advertise, market and promote the Service as widely and
aggressively as possible so as to maximize the financial benefit to
Reseller and to Antigua Online Gaming. Reseller shall only engage in
advertising, marketing and promotional efforts which do not violate any law
and which reflect positively upon the business reputation of Antigua Online
Gaming. In particular, Reseller agrees to market the product in a manner
that is consistent with the content and style of the Service. In connection
therewith, Antigua Online Gaming shall have the right to review and approve
(approval shall not be unreasonably withheld) the manner and methods of
advertising, marketing and promotion used by Reseller in connection with
the Service. Approval may be withheld if Antigua Online Gaming determines,
in its sole discretion, that any such activities would tend to reduce the
value of, or would impair Antigua Online Gaming's goodwill and business
reputation, or would expose Antigua Online Gaming to legal liability.
3.2
Notwithstanding any approval by Antigua Online Gaming given in accordance
with section 3.1 of this Agreement, Antigua Online Gaming shall under no
circumstances be held liable for, and Reseller shall indemnify, defend and
hold Antigua Online Gaming harmless against, any and all claims asserted
against Antigua Online Gaming by reason of Reseller's marketing and
promotional efforts undertaken hereunder.
3.3
Reseller shall bear all costs and expenses incurred in connection with the
advertising, marketing and promotion of the Service, including but not
limited to all costs relating to the marketing.
4. Compensation.
4.1
As used herein, "Reseller Percentage" shall mean the percentage paid to
Reseller of the actual net revenue received from a user (the "Customer")
for approved use of the Service. The actual Reseller Percentage shall be
equal to 25 percent (25%) of the Net Monthly Revenue. "Net Monthly Revenue"
shall mean the total amount wagered in the casino and the sportsbook, less
the total amount paid out as winnings in the casino and the sportsbook,
PLUS, total sales of lottery tickets, less the invoiced cost for purchasing
lottery tickets for the lottery ticket sales and less the amount for all
merchant banking fees. "Player Signup" shall mean a unique player signing
up for an account and wagering an amount greater than US$100.
4.2
Antigua Online Gaming shall pay Reseller monthly, in accordance with this
contract for the preceding calendar month. Payment for the preceding month
shall be made prior to the 20th day of each month.
4.3
Current months losses will be carried forward to following months to offset
any commissions payable.
5. Term and Termination.
5.1
This Agreement shall commence and be deemed effective on the date when
accepted by an authorized representative of the Reseller (the "Effective
Date"). This Agreement shall be deemed to be accepted by the Reseller when
the Reseller chooses "YES" to the "Antigua Online Gaming WAGERING AND
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NET-FORCE SYTEMS, INC.
GAMING PARTNERS AGREEMENT" and hits the submit button on the Reseller
Sign-Up page. This Agreement is in effect for a period of one (1) year (the
"Term") with additional one (1) year extensions at Reseller's option. If
Reseller elects to exercise this option, the option as exercised must be
addressed to Antigua Online Gaming in writing, no later than forty five
(45) days prior to the expiration of the Term. In addition, Antigua Online
Gaming, after six months from the Effective Date, shall have the right to
terminate this contract if Reseller fails to generate a minimum of three
hundred (300) "Independent customers" in any given month for the first five
months and five hundred (500) in any given month thereafter. Said,
notification will be sent in writing, at least thirty (30) days prior to
the expiration of the term. Notwithstanding anything in this Agreement
neither party shall have the right to terminate this Agreement within the
first six months of the Agreement.
5.2
Upon termination of this Agreement, Reseller shall immediately return to
Antigua Online Gaming any and all Antigua Online Gaming materials which
Antigua Online Gaming has a proprietary right in that are in Reseller's
possession and/or in the possession of Reseller's agents, servants and
employees.
5.3
Customers using Antigua Online Gaming's facilities and all information
relating to these customers shall remain the property of Antigua Online
Gaming at all times during the operation of this contract and after
termination.
6. Accounting Statements.
6.1
All payments due to Reseller by Antigua Online Gaming shall be made on or
before the twentieth (20) day of each month for the immediately preceding
calendar month and shall be accompanied by a written statement which
specifies the grossrevenues received by Antigua Online Gaming with respect
to the Reseller customers, the number of Reseller Customers wagering and
the calculation of the monies being paid to Reseller. Additionally,
statements may be adjusted by Antigua Online Gaming from time-to-time to
reflect overpayments, consumer chargebacks and/or, credits or underpayments
by Antigua Online Gaming.
6.2
Antigua Online Gaming shall hold back 10% of each months payment due to
Reseller (the "Hold Back Amount"). The Hold Back Amount shall be retained
by WorldGaming for a period of 90 days. If the chargebacks pertaining to
the sales made by Reseller for any given month are less than 10% of the
Reseller Percentage, then Antigua Online Gaming shall pay the difference to
Reseller with the next monthly installment after the 90 day hold back
period. If the chargebacks pertaining to the sales made by Reseller for any
given month are greater than 10% of the gross sales on which commissions
are paid to Reseller, then Antigua Online Gaming shall adjust the payment
due to Reseller in accordance with section 6.1 of this Agreement.
7. Audit Rights.
Reseller may designate a Chartered Accountant to examine the books and
records of Antigua Online Gaming with respect to this Agreement. Said
examination shall be at Reseller's sole cost and expense and may be
conducted no more than once annually during normal business hours and no
sooner than five (5) business days after Reseller gives written notice of
such audit to Antigua Online Gaming. Accounting statements rendered by
Antigua Online Gaming shall be deemed conclusive if not challenged by
Reseller within thirteen (13) months after being rendered.
8. Exclusivity, Non-Competition and Ownership of Service Name.
8.1
Reseller agrees, understands and acknowledges that Antigua Online Gaming
may enter into Agreements of this type with third parties to promote the
Service or a similar version thereof.
8.2
Reseller has not paid consideration for the use of Antigua Online Gaming's
or Antigua Online Gaming licensors' trademarks, logos, copyrights,
tradenames, the Servicename referred to in Recital B, or designations, and
nothing contained in this agreement shall give Reseller any right, title or
interest in or to any of them. Reseller acknowledges that Antigua Online
Gaming and Antigua Online Gaming licensors own and retain all copyrights
and other proprietary rights in all of the foregoing, as well as any
Software supplied by Antigua Online Gaming. Reseller shall not at any time
during or after this agreement, assert or claim any interest in or to, or
do anything which may adversely affect the validity or enforceability of,
any trademark, tradename, copyright, servicemark or logo belonging or
licensed to Antigua Online Gaming (including any act or assistance to any
act which may infringe or lead to the infringement of any copyright in the
"Software"). Without limiting the generality of the foregoing, Reseller
shall not attempt to register, or assist any third party in attempting to
register any trademark, tradename or other proprietary right with any
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NET-FORCE SYTEMS, INC.
governmental agency, federal, provincial, local or otherwise, or with any
other entity or authority, without the express, unequivocal and unambiguous
prior written consent of Antigua Online Gaming. Reseller shall not attach
any additional trademarks, logos or trade designations to the "Software"
and shall ensure that none of the trademarks (or any variation thereof)
appears in any portion of Reseller's name or any name under which Reseller
does business. Reseller shall not affix a trademark, logo or tradename of
Antigua Online Gaming or Antigua Online Gaming Licensors to any non-Antigua
Online Gaming product. Reseller shall not alter, erase, deface or overprint
any proprietary rights notice on anything provided by Antigua Online
Gaming.
9. Confidentiality and Non-Disclosure.
9.1
Reseller and Antigua Online Gaming each agrees that during the course of
this Agreement, each may have access to and become acquainted with
ConfidentialInformation of the other. Reseller and Antigua Online Gaming
each specifically agrees that it shall not misuse, misappropriate or
disclose any such Confidential Information, directly or indirectly, to any
third party or use any such Confidential Information in any way, either
during the Term of this Agreement or at any time thereafter. Reseller and
Antigua Online Gaming each acknowledges and agrees that the sale or
unauthorized use or disclosure of any such Confidential Information
obtained by the other during the Term of this Agreement shall constitute
unfair competition and shall cause the party owning the Confidential
Information to suffer great and irreparable harm. Reseller and Antigua
Online Gaming each further acknowledge and agree that, except as otherwise
provided in this Agreement, all such Confidential Information is and will
remain the sole and exclusive property of the disclosing party. The terms
of this Section shall survive the expiration or termination of this
Agreement.
9.2
For purposes of this section 9, "Confidential Information" means (a)
discoveries, concepts and ideas, whether patentable or not; (b) business or
technical information, including but not limited to product or Service
plans, designs, costs, prices and names, finances, marketing plans,
business opportunities, personnel, research, development, and know-how; (c)
any information designated as "confidential", "proprietary", or "secret" or
which, under the circumstances taken as a whole, would reasonably be deemed
to be confidential, proprietary or secret.
9.3
The obligations of section 9.1 shall not apply to the extent that any
Confidential Information (a) becomes generally available to the public
through no fault of the party to whom it was disclosed; (b) is or has been
disclosed to such party directly or indirectly by a person under no
obligation of non-disclosure to the disclosing party; or (c) is required to
be disclosed under any laws, rules, regulations or governmental orders
provided, however, that the party to whom it was disclosed shall have the
burden of proving any of the foregoing exceptions by conclusive relevant
evidence.
9.4
Notwithstanding anything to the contrary contained herein, the parties
agree that the financial terms and conditions of this Agreement are to
remain strictly confidential, and that neither party will disclose such
financial terms and conditions to any third party without the prior written
consent of the other party. This section shall not apply to disclosures
which are required by law (such as Antigua Online Gaming reporting
requirements), by order of a court with competent jurisdiction, or to each
party's respective attorneys, accountants, and business advisors under a
similar duty of confidentiality.
10. Representations, Warranties and Indemnity.
10.1
Reseller warrants, represents and covenants to Antigua Online Gaming that:
(a) Reseller has the full legal right, power and authority to enter into
and perform this Agreement, and to grant to Antigua Online Gaming the
rights set forth in this Agreement; and (b) Reseller will obtain all
necessary rights, licenses, permissions, business permits, and will comply
with all applicable laws, rulesand regulations in this connection in
offering the Service to end -users.
10.2
Reseller agrees to indemnify and hold Antigua Online Gaming harmless, and
further agrees to defend Antigua Online Gaming through the service of an
attorney chosen and approved by Antigua Online Gaming, from and against any
and all claims, liabilities, causes of action, damages, judgments, costs
and expenses (including reasonable attorney's fees) arising out of or in
any way connected with any breach or alleged breach by Reseller of any
representation, warranty or agreement contained in this section 10, or
elsewhere in this Agreement.
10.3
In no event shall Antigua Online Gaming be liable to the Reseller,
Reseller's customers or any other third party claim for any indirect,
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NET-FORCE SYTEMS, INC.
special, or consequential damages, including lost profits, whether based
upon a claim or action of contract, warranty, negligence, or other tort or
breach of any statutory duty, indemnity or contribution, or otherwise
arising out of this agreement, or the use and promotion of the Service,
and/or any other act or omission relating to the Service in any connection
to the sale or promotion of the Service, even if, in any such case, Antigua
Online Gaming has been advised of the possibility of such damages.
11. No Representation or Guarantee Regarding Profits or Income.
Reseller agrees, understands and acknowledges that the Antigua Online
Gaming, it's parent company, it's sub entities, it's agents, it's officers,
it's directors, it's shareholders, and/or accountants have made no
representation of any nature whatsoever to Reseller and/or "Reseller's
agents, servants and/or employees regarding profits, income, or money which
Reseller may obtain or generate from the Service and/or from entering into
this "Agreement" and/or from marketing and/or promoting any version of this
Service, and/or form any other matter relating to this "Agreement" and/or
to the subject matter of this "Agreement". Any expression by Antigua Online
Gaming in this regard is an expression of opinion only and Reseller agrees
understands and acknowledges that they have not been induced to, and/or
persuaded thereby to, enter into this "Agreement" and that Reseller has
entered in to the Agreement of their own free will and choice, without any
force or duress, and only after thorough, complete, full, and thoughtful
investigation and after obtaining independent advice and counsel from their
accountant, their attorney, and their financial advisors.
12. Assignment.
This Agreement and rights and duties hereunder may not be assigned or
transferred, either in whole or in any part by Reseller without the express
prior written consent of Antigua Online Gaming, which consent shall not be
unreasonably withheld.
13. Binding Effect.
This Agreement and the provisions hereof shall be binding upon and inure to
the benefit of the subsidiaries, affiliates, officers, directors,
employees, agents, families, heirs, beneficiaries, executors,
administrators, personal representatives, successors-in-interest and
assigns of the respective parties hereto, and any entity which acquires
either of the respective parties hereto.
14. Severability.
If it is determined by a court of competent jurisdiction that any provision
contained in this Agreement is illegal or unenforceable, such determination
shall solely affect such illegal or unenforceable provision and shall not
affect the validity or enforceability of the remaining provisions of this
Agreement.
15. Further Acts.
Each party agrees to perform such further acts and to execute and deliver
to the other party any and all further documents which are required to
carry out the purpose and intent of this Agreement or any of the provisions
contained herein.
16. Notices.
Except as otherwise provided herein, all notices, payments, or any other
communications provided for herein shall be in writing or emailed and shall
be given by email or personal delivery, or by mail, certified or
registered, postage prepaid, return receipt requested, sent to the other
party to this Agreement to whom it is given at the address set forth below,
or such other address as either party to this Agreement may direct by
notice given in accordance with the provisions of this Section. All notices
shall be deemed effective upon personal delivery, or seven (7) days
following deposit in the mail, or three (3) days following delivery through
electronic mail (email):
Email: support@starnetsystems.net
17. Dispute Resolution.
17.1.
Agreement to Submit to Binding Arbitration. Except as otherwise provided
below, the parties agree to submit disputes between them relating to this
Agreement and its formation, breach, performance, interpretation and
application to binding arbitration as follows.
17.2.
Notice. Each party will provide written notice to the other party of any
dispute within six (6) months of the date when the dispute first arises or
occurs. If a party fails to provide such notice, recovery on the dispute
will be barred.
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17.3.
Arbitration Rules. Arbitration will be conducted in Antigua, pursuant to
the Arbitration legislation then in effect in the Antigua. Except as
otherwise agreed, the arbitration shall be conducted by a single
arbitrator. The arbitration award will be final and binding and may be
enforced in any court of competent jurisdiction.
17.4.
Costs and Attorneys' Fees. Unless the arbitrator finds that exceptional
circumstances require otherwise, the arbitrator will grant the prevailing
party in arbitration its costs of arbitration and reasonable attorneys'
fees as part of the arbitration award.
17.5.
Exceptions. Neither party will be required to arbitrate any dispute
relating to actual or threatened: (a) unauthorized disclosure of
Confidential Information; or (b) violation of Antigua Online Gaming's
proprietary rights. Either party will be entitled to receive in any court
of competent jurisdiction injunctive or other equitable relief, in addition
to damages, including court costs and fees of attorneys and other
professionals, to remedy any actual or threatened violation of its rights
with respect to which arbitration is not required hereunder.
18. Relationship of the Parties.
This Agreement does not create a partnership or joint venture between the
parties hereto and neither party shall have the power or authority to
obligate or bind the other in any manner whatsoever.
19. Entire Agreement.
This Agreement supersedes all prior negotiations, understandings and
agreements between the parties hereto concerning the subject matter hereof.
This Agreement may not be changed nor modified, nor may any provision
hereof be waived, except in a writing signed by the parties hereto.
20. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of Antigua.
21. Survival of Rights.
Notwithstanding anything to the contrary contained in this Agreement, any
obligations which remain executory after expiration of this Agreement shall
remain in full force and effect until discharged by performance and such
rights as pertain thereto shall remain in full force and effect until their
expiration.
22. Headings.
The headings used in connection with the paragraphs and subparagraphs of
this Agreement are inserted only for purposes of reference. Such headings
shall be not deemed to govern, limit, modify or in any other manner affect
the scope, meaning or intent of the provisions of this Agreement, nor shall
such headings otherwise be given any legal effect.
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