U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NET-FORCE SYSTEMS INC.
INCORPORATED PURSUANT TO THE LAWS OF ANTIGUA and BARBUDA
PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NO. No.:
NET-FORCE SYSTEMS INC,
Suite #10-Epicurean, Woods Centre, Friars Hill Road,
St. John's, Antigua
West Indies
TEL: (268) 481-1970
With copy to:
STEPP LAW GROUP
SUITE 460-1301 DOVE STREET
NEWPORT BEACH, CALIFORNIA 92660
TEL: (949) 660-9700 FAX: (949) 660-9010
(AGENT FOR SERVICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE UNITS TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission acting pursuant to said Section
8(a), may determine.
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed Amount
Class of Securities Amount maximum maximum aggregate of
To be registered to be registered per unit(1) offering price(2) offering price registration fee
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Common Shares: 17,066,033 $0.10 $ 1,706,603 USD $ 451 USD
(1) Mr. Terry G. Bowering is the President and Chief Executive Officer of Net
Force Systems Inc. Geneva Overseas Holdings Ltd., of which Terry G.
Bowering is beneficial owner, enjoys legal ownership of 6,544,830
securities. JPKT Metro Investment Corporation, of which Terry G. Bowering
is a beneficiary, enjoys legal ownership of 500,000 securities. IFG
Investments Services Inc., of which Daniel MacMullin is beneficial owner,
enjoys legal ownership of 6,027,870 securities.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) and based on a bona fide estimate
of the maximum offering price.
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Preliminary Prospectus
The information in this prospectus is not complete and may be changed. These
shares cannot be offered or sold, until the registration statement filed with
the Securities and Exchange Commission is declared effective by the Securities
and Exchange Commission. Common shares will be offered and sold as soon as the
registration statement is declared effective. This prospectus is not an offer to
sell these securities, and we are not soliciting offers to buy these securities,
in any state where the offer or sale is not permitted.
Subject to completion, dated September 27, 2002
17,066,033 Common Shares
Net Force Systems Inc.
We are registering 17,066,033 shares so that the selling shareholders may offer
those shares for resale at the offering price of $0.10USD. Net Force Systems
Inc. will not receive any proceeds from the sale of shares by the selling
shareholders. There is no guarantee the selling shareholders will sell all or
any portion of their shares being offered.
The common share price was arbitrarily set. This is the initial public offering
and no public market currently exists for our common shares.
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Investing in the Common Shares Involves Risks, See "Risk Factors"
beginning on page 2.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is September 27, 2002.
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TABLE OF CONTENTS
SUMMARY.......................................................................1
THE COMPANY...................................................................1
RISK FACTORS..................................................................1
FORWARD LOOKING STATEMENTS....................................................7
USE OF PROCEEDS...............................................................8
DETERMINATION OF OFFERING PRICE...............................................8
CAPITALIZATION................................................................8
DILUTION......................................................................8
SELLING SECURITY HOLDERS......................................................8
SELECTED CONSOLIDATED FINANCIAL DATA.........................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................................................14
BUSINESS.....................................................................20
INDUSTRY OVERVIEW............................................................29
DESCRIPTION OF PROPERTY......................................................34
MANAGEMENT...................................................................34
PRINCIPAL SHAREHOLDERS.......................................................37
RELATED PARTY TRANSACTIONS...................................................38
DESCRIPTION OF SHARE CAPITAL.................................................38
OWNERSHIP RESTRICTIONS.......................................................39
TRANSFER AGENT AND REGISTRAR.................................................39
SHARES ELIGIBLE FOR FUTURE SALE..............................................40
U.S. RESALE RESTRICTIONS.....................................................40
AUDITORS.....................................................................40
MATERIAL AGREEMENTS AND DOCUMENTS............................................41
ADDITIONAL INFORMATION.......................................................41
TAXATION IN ANTIGUA AND THE UNITED STATES OF AMERICA.........................41
LEGAL MATTERS................................................................42
EXPERTS......................................................................42
WHERE YOU CAN FIND MORE INFORMATION..........................................43
THE COMPANY'S LOCATIONS......................................................43
REPRESENTATIONS..............................................................44
SCHEDULE "A" - Financial Statements..........................................45
PART II......................................................................66
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Registration Statement Page i
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SUMMARY
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You should read the following summary together with the more detailed
information about Net Force Systems Inc. and the common shares being sold in
this offering, including our consolidated financial statements and the related
notes appearing elsewhere in this prospectus.
THE COMPANY
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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. We currently sub-license online
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gaming software and provide marketing and support services for Internet gaming
website operators, through our wholly owned subsidiary, Netforce Entertainment
Inc. Netforce Entertainment licenses 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.
Common Shares for resale: 17,066,033 common shares
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The selling shareholders are offering 17,066,033 common shares which they
beneficially own for resale at $0.10 USD per share. The company will not receive
any of the proceeds from the resale of common shares.
Proposed OTCBB Symbol: NFSPF
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RISK FACTORS
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Investing in Net Force Systems Inc.'s common shares will subject you to risks
inherent in our business. You should carefully consider the following factors as
well as other information contained in this prospectus before deciding to invest
in our units. If any of the risks described below occurs, our business, results
of operations and financial condition could be adversely affected. In such
cases, the price of our common shares could decline, and you may lose part or
all of your investment.
RISKS RELATED TO THE BUSINESS
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Because we are a development stage company, we cannot guarantee our
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profitability.
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The Company was recently formed in the year 2000 and has limited operating
history. Since incorporation, the Company has expended 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 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. Current losses to date for the 12 month period ended April
30, 2002 are $(174,206). Cumulative Losses from inception at March 1, 1999 to
date to April 30, 2002 are $(1,062,662).
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
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Registration Statement Page 1
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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.
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.
If we fail to respond to change our clients may use competitors products and
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services.
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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.
Because we use intellectual property, claims may be asserted against the company
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for infringing intellectual property rights.
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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.
If the trademarks, copyrights and trade secrets we rely on fail others will
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benefit reducing our competitive advantage.
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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.
The Internet and Internet-based casinos are new industries and therefore we do
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not know if they will continue to be accepted by the public in the future.
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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
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Registration Statement Page 2
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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.
Because e-commerce transactions are subject to security risks it may inhibit the
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growth of the industry and the acceptance of our products and services.
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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 World
Gaming 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 World
Gaming's software or website hosting fails, there could be a material adverse
effect on our business, financial condition and the results of operations.
Because Consumer's may lack confidence in how we set our odds our business may
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not be accepted.
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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.
We are subject to competition from other gaming and sports wagering operators
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that are larger and have more resources to compete in the gaming industry and
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that have been operating in the industry for longer.
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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.
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Registration Statement Page 3
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Because we may have to borrow in the future to keep our business operating we
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may not be able to satisfy our debt obligations or to obtain debt financing that
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allows us to remain in business.
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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 outstanding long term indebtedness is
$zero. Total liabilities are $136,813, comprised of $136,813 in current
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liabilities
Because we do not intend to pay any dividends on our common shares, investors
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seeking dividend income or liquidity should not purchase common shares in this
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offering.
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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.
Because we are subject to government regulation we could have our license
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revoked at anytime.
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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.
Because we depend on a small group of qualified people, if we cannot hire and
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retain qualified personnel, we might be forced to discontinue our operations.
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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. Derek C. Ferguson, Internet Technology Consultant, 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.
Because our current or proposed insurance coverage may not be adequate uninsured
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losses may occur.
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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.
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Registration Statement Page 4
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There is no assurance that we can pay our liabilities.
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We have liabilities to affiliated and unaffiliated lenders. As at April 30,
2002, our total amount of liabilities is $136,813. Current liabilities to
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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. Customer account deposits account for $47,002
or 34% of total liabilities. We currently have no long term 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.
Because Net Force and its officers and directors are located in NON-U.S.
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JURISDICTIONS, investors may have no effective recourse against Net Force or its
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management for misconduct and you may not be able to enforce judgments and civil
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liabilities against Net Force and its officers, directors, experts and agents.
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Net Force Systems Inc. has been incorporated under the laws of Antigua and
Barbuda, and our executive offices are located in Antigua. Our directors,
controlling persons and officers, and representatives of the experts named in
this prospectus, are not residents of the Unties States of America, and a
substantial portion of their assets and all of our assets are located outside
the United States. As a result, it may be difficult for investors to effect
service of process within the United States upon us, the directors, controlling
persons, officers and representatives of experts who are not residents of the
United States or to enforce against them judgments of courts of the United
States based upon civil liability under the federal securities laws of the
United States. There is doubt as to the enforceability in Antigua against us or
against any of our directors, controlling persons, officers or representatives
of the experts who are not residents of the United States, in original actions
or in actions for enforcement of judgments of United States courts and of
liabilities based solely upon the federal securities laws of the United States.
RISKS RELATED TO THE INDUSTRY
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Our business is dependent upon the continued acceptance of our e-commerce gaming
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industry by the public.
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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 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
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Registration Statement Page 5
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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.
Because we may not be able to maintain or obtain present and future domain names
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we may not be able to prevent third parties from benefiting from our domain
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names.
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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,
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www.aocasino.com and www.aosportsbook.com domain names and may seek to acquire
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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.
Because laws may change in the future to protect the public there may be a
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requirement to change the manner of how we do business.
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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.
Because we are liable for the content of our website we may be subject to
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regulation and law suits arising from the content.
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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 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.
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Registration Statement Page 6
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Because government regulation may force us to collect and remit taxes we may
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have to modify our system which would be expensive and reduce potential
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profitability.
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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.
Risks Related to Securities Market
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We cannot be certain that additional financing will be available on favorable
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terms when required, or at all.
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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.
The market price for our common stock is likely to be highly volatile and
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subject to wide fluctuations.
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As a result of this volatility some or all of the following can occur: 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.
In the past, following periods of volatility in the market price of their stock,
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many companies have been the subject of securities class action litigation.
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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.
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 F-1) 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 F-1 registration statement, or that are otherwise
made by or on behalf of the Company. For this purpose, any statements contained
in the registration statement that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
- --------------------------------------------------------------------------------
Registration Statement Page 7
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
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.
USE OF PROCEEDS
- ---------------
We will not be receiving any proceeds from this offering as the shares are being
registered for resale by the selling shareholders.
DETERMINATION OF OFFERING PRICE
- -------------------------------
The offering price of the 17,066,033 common shares being offered by the selling
shareholders has been determined arbitrarily and has no relationship to any
established criteria of value, such as book value or earnings per share.
Additionally, because we have no significant operating history and have not
generated any material revenues to date, the price of the common shares is not
based on past earnings, nor is the price of the common shares indicative of
current market value for the assets owned by us.
CAPITALIZATION
- --------------
The following table sets forth our capitalization as of April 30, 2002 on an
actual basis:
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
April 30
2002
----
Shareholders' equity (deficiency):
Common shares; 100,000,000 shares of
$0.001 par value authorized with
contributed surplus;
Shares issued and outstanding:
Actual (17,066,033) $ 1,162,103
Accumulated deficit $(1,062,662)
-----------
Total shareholders Equity 99,441
-----------
DILUTION
- --------
There will be no dilution as this offering is registering for sale shares owned
by existing shareholders only.
SELLING SECURITY HOLDERS
- ------------------------
The following table sets forth the number of shares, which may be offered for
sale from time to time by the selling security holder. The shares offered for
sale constitute all of the shares known to us to be beneficially owned by the
selling security holder.
- --------------------------------------------------------------------------------
Registration Statement Page 8
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
Amount of Shares of Common Stock Amount of Beneficial Ownership
Beneficial Ownership Being Sold Pursuant to Beneficial Ownership After
Prior to this Offering this Prospectus this Offering
Name of Beneficial Owner Number Percent Number Number Percent
- ------------------------ ------ ------- ------ ------ -------
Geneva Overseas Holdings Ltd.(1) 6,544,830 38.35% 6,544,830 0 0%
IFG Investments Services Inc.(2) 6,027,870 35.32% 6,027,870 0 0%
Low Tide Investments Inc.(3) 533,333 3.13% 533,333 0 0%
Atkins Financial Ltd.(4) 500,000 2.93% 500,000 0 0%
Loire International Limited(5) 500,000 2.93% 500,000 0 0%
Multi Asian Venture Ltd.(6) 500,000 2.93% 500,000 0 0%
JPKT Metro Investment
Corporation(1) 500,000 2.93% 500,000 0 0%
Shanghai Ltd.(7) 500,000 2.93% 500,000 0 0%
Solinvest Group Ltd.(8) 500,000 2.93% 500,000 0 0%
CDM Caribbean Digital
Management Inc.(9) 400,000 2.34% 400,000 0 0%
Trevor L. Bowering 200,000 1.17% 200,000 0 0%
Sable Holdings Ltd.(10) 100,000 0.59% 100,000 0 0%
Derek C. Ferguson 50,000 * 50,000 0 0%
Dwight Lewis 50,000 * 50,000 0 0%
Larry Chudak 20,000 * 20,000 0 0%
David Gates 20,000 * 20,000 0 0%
Donald C. Jones 5,000 * 5,000 0 0%
Easter Lily A. Dalmacio 5,000 * 5,000 0 0%
Anthony C. Gibson 5,000 * 5,000 0 0%
Ronald Darvin Jones 5,000 * 5,000 0 0%
Tammy L. Jones 5,000 * 5,000 0 0%
Earl Jones 5,000 * 5,000 0 0%
Sean T. Burns 5,000 * 5,000 0 0%
Shawn W. Erickson 5,000 * 5,000 0 0%
Eddy Damien Granados 5,000 * 5,000 0 0%
Gyneth McAllister 5,000 * 5,000 0 0%
Mark M. Piazza 5,000 * 5,000 0 0%
John David Sorlie 5,000 * 5,000 0 0%
Lawrence R. Busha 5,000 * 5,000 0 0%
Jon Canale 5,000 * 5,000 0 0%
Kenneth M. Gerspatch 5,000 * 5,000 0 0%
Traci Fornoff 5,000 * 5,000 0 0%
Saverio J. Barbera 5,000 * 5,000 0 0%
Ron Dillard 5,000 * 5,000 0 0%
David M. Filburn 5,000 * 5,000 0 0%
Donald Heitz 5,000 * 5,000 0 0%
Randy Baldwin 5,000 * 5,000 0 0%
- --------------------------------------------------------------------------------
Registration Statement Page 9
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
Joseph A. Angelini 5,000 * 5,000 0 0%
Donald Wayne Kipp 5,000 * 5,000 0 0%
Michael James Steele 5,000 * 5,000 0 0%
========== ====
Total shares outstanding: 17,066,033 100%
---------- ----
*Less than 1 %
(1) Terry G. Bowering has voting or investment control over these shares;
(2) Daniel MacMullin has voting or investment control over these shares;
(3) Rusty Catania has voting or investment control over these shares;
(4) Greg S. Hurd has voting or investment control over these shares;
(5) Dwight C. Crozier has voting or investment control over these shares;
(6) Francis Pan has voting or investment control over these shares;
(7) Jean-Claude Roder has voting or investment control over these shares;
(8) M. Dierkes has voting or investment control over these shares;
(9) Dan MacMullin has voting or investment control over these shares;
(10) Douglas N. Bolen has voting or investment control over these shares.
Acquisition of Shares by the Shareholders
- -----------------------------------------
The following table and notes sets forth the date of issuance or transfer date
for the shares, the number of shares held by the shareholder, the regulation the
shares were issued pursuant to and the consideration paid:
Date of Date of
Issuance Transfer No. of Private Placement
Name of Shareholder of Shares of Shares Shares Regulation D-506 Regulation S
- ------------------- -------- --------- ------ -------------------------------
Geneva Overseas Holdings Ltd (1)(5)(6) March 1, 1999 4,400,000 *
JPKT Metro Investment Corporation(1)(5) March 1, 1999 500,000 *
Derek C. Ferguson(4)(6) October 25, 2000 50,000 *
Dwight Lewis(4)(6) October 25, 2000 50,000 *
Atkins Financial Ltd.(1) November 2, 2000 500,000 *
Loire International Limited(1)(9) November 2, 2000 500,000 *
Multi Asian Venture Ltd.(1) November 2, 2000 500,000 *
Shanghai Ltd.(1) November 2, 2000 500,000 *
Solinvest Group Ltd.(1) November 2, 2000 500,000 *
IFG Investments Services Inc.(2) September 15, 2001 6,027,870 *
Geneva Overseas Holdings Ltd.(2) September 15, 2001 2,144,830 *
CDM Caribbean Digital Management Inc.(7) October 5, 2001 400,000 *
Sable Holdings Ltd.(7) October 5, 2001 100,000 *
Trevor L. Bowering(3)(4) October 25, 2001 200,000 *
Low Tide Investments Inc. (2) November 6, 2001 533,333 *
Donald C. Jones(1) February 7, 2002 5,000 *
Easter Lily A. Dalmacio (1) February 7, 2002 5,000 *
Anthony C. Gibson (1) February 7, 2002 5,000 *
- --------------------------------------------------------------------------------
Registration Statement Page 10
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NETFORCE \\//\\ SYSTEMS INC.
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Ronald Darvin Jones(1) February 7, 2002 5,000 *
Tammy L. Jones (1) February 7, 2002 5,000 *
Earl Jones (1) February 7, 2002 5,000 *
Sean T. Burns (1) February 7, 2002 5,000 *
Shawn W. Erickson (1) February 7, 2002 5,000 *
Eddy Damien Granados (1) February 7, 2002 5,000 *
Gyneth McAllister (1) February 7, 2002 5,000 *
Mark M. Piazza(1) February 7, 2002 5,000 *
John David Sorlie (1) February 7, 2002 5,000 *
Lawrence R. Busha (1) February 7, 2002 5,000 *
Jon Canale (1) February 7, 2002 5,000 *
Kenneth M. Gerspatch (1) February 7, 2002 5,000 *
Traci Fornoff (1) February 7, 2002 5,000 *
Saverio J. Barbera (1) February 7, 2002 5,000 *
Ron Dillard (1) February 7, 2002 5,000 *
David M. Filburn (1) February 7, 2002 5,000 *
Donald Heitz (1) February 7, 2002 5,000 *
Randy Baldwin (1) February 7, 2002 5,000 *
Joseph A. Angelini(1) February 7, 2002 5,000 *
Donald Wayne Kipp (1) February 7, 2002 5,000 *
Michael James Steele(1) February 7, 2002 5,000 *
Larry Chudak(1)(8) February 7, 2002 20,000 *
David Gates(1)(8) February 7, 2002 20,000 *
Consideration paid:
(1) Cash Consideration;
(2) Conversion of debt plus accrued interest to equity at a price of $0.10 per
share;
(3) For services rendered or to be rendered for director services;
(4) Directors of the Company.
(5) Founders stock issued for cash at $0.001 per share;
(6) Acquired from Geneva Overseas Holdings Ltd. for director services. Geneva
Overseas Holdings Ltd. had 4,500,000 of founders shares (issued March 1,
1999) at October 25, 2000 and transferred 100,000 shares to the directors;
(7) Acquired from BRF Family Trust in a private transfer. BRF Family Trust was
originally issued a total 500,000 founders shares at $0.001 per share from
the treasury on March 1st, 1999. BRF Family Trust was beneficially owned by
Douglas N. Bolen, director and secretary for the Company from its inception
at March 1st, 1999 to his resignation October 26th, 2000. On October 5th,
2001, BRF Family Trust privately transferred 100,000 shares of Net-Force
Systems Inc. to Sable Holdings Ltd. and 400,000 shares to CDM Caribbean
Digital Management Inc.;
(8) These shareholders are close friends and associates of Trevor L. Bowering,
director;
(9) Originally issued November 2nd, 2000 under incorrect company name, new
certificate issued December 4, 2001.
Material relationships between shareholders and the Company:
1. Geneva Overseas Holdings Ltd. and JPKT Metro Investment Corporation have
Terry G. Bowering, director and officer of the Company, as its beneficial
owner;
2. Terry Bowering and Trevor Bowering are directors and officers of the
Company and brothers;
3. Dwight Lewis and Derek C. Ferguson are directors of the Company;
PLAN OF DISTRIBUTION OF SHARES BY SELLING SECURITY HOLDER.
- ----------------------------------------------------------
The selling security holder may sell our common shares in the over-the-counter
market, or on any securities exchange on which our common shares are or become
listed or traded, in negotiated transactions or otherwise. The shares will not
be sold in an underwritten public offering. The shares may be sold directly or
through brokers or dealers. The methods by which the shares may be sold include:
o Purchases by a broker or dealer as principal and resale by such broker
or dealer for its account;
o Ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o Privately negotiated transactions.
- --------------------------------------------------------------------------------
Registration Statement Page 11
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NETFORCE \\//\\ SYSTEMS INC.
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Brokers and dealers engaged by the selling security holder may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions or
discounts from the selling security holder (or, if any such broker-dealer acts
as agent for the purchaser of such shares, from such purchaser) in the amounts
to be negotiated. Broker-dealers may agree with the selling security holder to
sell a specified number of such shares and, to the extent such broker-dealer is
unable to do so acting as agent for the selling security holder, to purchase as
principal any unsold shares. The selling security holder and any broker-dealers
participating in the distributions of the shares may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933. Any profit on the sale of shares by the selling security holder and any
commissions or discounts given to any such broker-dealer may be deemed to be
underwriting commissions or discounts. The shares may also be sold pursuant to
Rule 144 under the Securities Act of 1933 beginning one year after the shares
were issued.
There can be no assurance that the selling security holder will sell any or all
of the shares.
None of our officers, directors, or other "associated persons" are participating
in the offer or sale of our securities, except to the extent permitted by
Exchange Act Rule 3a4-1. Moreover, we will not represent to any person, and we
have informed the selling security holder that it must not represent to any
person, that the registered shares are being offered on an "all-or-none" basis
or being offered or sold on any other basis whereby all or part of the
consideration paid for any such security will be refunded to the purchaser if
all or some of the securities are not sold.
IFG Investments Services, Inc., Low Tide Investments, Inc. and Shanghai Ltd. and
the other corporate selling shareholders are not affiliates of registered
broker-dealers.
Expenses of the Offering:
- -------------------------
Printing and Engraving Costs $5,000 estimated
Registration Fee to SEC $ 451
Delivery and Postage Charges $ 500 estimated
Edgar - DTCFP $3,000 estimated
Federal Taxes n/a
Trustees n/a
State Taxes and Fees n/a
Transfer Agent Fees n/a
Legal Fees $5,000 estimated
Accounting Fees $5,000 estimated
DESCRIPTION OF SECURITIES TO BE REGISTERED
- ------------------------------------------
The securities to be registered pursuant to this F-1 are all of the outstanding
common stock of Net-Force Systems Inc. Holders of the common stock are entitled
to cast one vote for each share held at all shareholder meetings for all
purposes, except that in the election of Directors, each shareholder of common
stock shall have as many votes for each share held by him or her as there are
directors to be elected and for whose election the shareholder has a right to
vote. There are no preemptive rights associated with the securities and no
cumulative voting is authorized by the Articles of Incorporation or the By-Laws.
The total amount of shares authorized by the Company's Articles of Incorporation
is 150,000,000 being 100,000,000 common shares having a $0.001 par value per
share and 50,000,000 preferred shares having a $0.001 par value per share. There
has been no issuance of any Preferred stock. Dividend, voting, conversion
rights, liquidation rights and other rights of the preferred stock, if any, will
be established by the Board of Directors upon issuance.
The Company has never declared or paid cash dividends on the common stock of the
Company. Management intends to retain all available funds and any future
earnings for use in the operation and expansion of the business and does not
anticipate paying any cash dividends in the foreseeable future.
- --------------------------------------------------------------------------------
Registration Statement Page 12
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NETFORCE \\//\\ SYSTEMS INC.
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TAXES AND TREATIES
- ------------------
There are no stamp duties, income taxes, withholding taxes, registrations taxes,
or other duties or taxes or similar charges imposed in connection with the
issuance or registered ownership of shares in the company. The holder of shares
in the company with respect to their ownership of the shares is exempt from
taxes in Antigua. There is no reciprocal tax treaty between Antigua and the
United States of America. Please review the tax discussion regarding Antigua and
the Unites States of America contained at pages 29 - 31.
LIMITATION ON HOLDING SHARES BY NONRESIDENT OR FOREIGN OWNERS
- -------------------------------------------------------------
There is no limitation on nonresidents or foreign owners to hold or vote the
common shares.
INTEREST OF NAMED EXPERTS AND COUNSEL
- -------------------------------------
No "expert", as that term is defined pursuant to Regulation Section 229.509(a)
of Regulation S-K, or our "counsel", as that term is defined pursuant to
Regulation Section 229.509(b) of Regulation S-K, was hired on a contingent
basis, or will receive a direct or indirect interest in us, or was a promoter,
underwriter, voting trustee, director, officer, or employee of the company, at
any time prior to the filing of this registration statement.
SELECTED CONSOLIDATED FINANCIAL DATA
- ------------------------------------
You should read the selected consolidated financial data set forth below in
conjunction with our consolidated financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The selected consolidated
financial data are derived from our consolidated financial statements that have
been audited by HJ & Associates, LLC, independent auditors, and are included
elsewhere in this prospectus.
- --------------------------------------------------------------------------------
Registration Statement Page 13
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NETFORCE \\//\\ SYSTEMS INC.
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NET-FORCE SYSTEMS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended April 30,
------------------------------------------------------
2002 2001 2000
---------------- ---------------- ----------------
STATEMENT OF OPERATIONS:
- ------------------------
Sales......................................... $ 519,237 $ 318,490 $ 1,399
Cost of sales................................. 282,020 217,769 1,477
General & Administrative expenses............. 275,896 489,278 349,175
Depreciation and amortization expense......... 101,873 18,241 6,428
Total expenses................................ 377,769 507,519 355,603
Loss from operations.......................... (140,552) (406,798) (355,681)
Interest income............................... 198 1,013 3,635
Interest (expense)............................ (34,141) (80,259) (55,690)
Net Loss...................................... (174,206) (484,597) (397,366)
BALANCE SHEET DATA (AT PERIOD END):
- -----------------------------------
Cash.......................................... 68,462 33,292 131,269
Total assets.................................. 236,254 269,194 221,512
Total liabilities............................. 136,813 952,150 589,871
Total stockholders' equity (deficit).......... 99,441 (682,956) (368,359)
STATEMENT OF CASH FLOW DATA:
- ----------------------------
Net cash used by operating activities......... (58,048) (494,797) (349,919)
Net cash used by investing activities......... (282) (1,777) (47,319)
Net cash provided by financing activities..... 93,500 398,597 495,000
Net increase (decrease) in cash............... $ 35,170 $ (97,977) $ 97,762
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
The following discussion should be read in conjunction with our consolidated
financial statements and the related notes appearing at Schedule "A" in this
prospectus.
PLAN OF OPERATIONS
- ------------------
Revenues and Financing
- ----------------------
Our principal source of revenue is generated from our 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
- --------------------------------------------------------------------------------
Registration Statement Page 14
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
new competitors. In order to maintain revenue growth, we intend to expand the
content and to improve the services on the Internet websites on a global basis,
as well as researching and developing other projects that will utilize our
existing facilities and expertise.
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).
Management believes that the reduction of this total debt burden 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 proposed secondary
- --------------------------------------------------------------------------------
Registration Statement Page 15
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
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.
Historical Expenditures. Historical expenditures up to the period ending April
30, 2002 have consisted primarily of monthly expenditures for such costs as
office overhead, office rent, utilities, marketing expenditures, wages, ongoing
web-site design and maintenance, and accounting services. The period consisted
of comparatively less expenditures on organizational/set-up costs such as office
leasehold improvements, security deposits for rent, utilities, and licenses,
financing costs, and legal services.
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$10,000 until fully paid. The payment schedule for the software
commenced on the date of `live' operations, the design and testing of the gaming
website is complete and the first wager. That date was April 7th, 2000.
2. Ongoing royalty payments to World Gaming consisting of a percentage of
----------------------------------------
the net revenue generated on a monthly basis. As detailed in the
software agreement, these payments will begin upon commencement of
live operations of the gaming website. The schedule of royalty
payments payable to World Gaming as detailed in Schedule "A" of the
software agreement is as follows:
*Net Monthly Revenue (US$) 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
- --------------------------------------------------------------------------------
Registration Statement Page 16
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
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 World
Gaming Plc. 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. EFS had increased the rolling reserve to 10% of deposits from 5%
to allow for a slightly increased level of credit card chargebacks
industry-wide.
For the twelve-month period ended April 30, 2002, Net-Force Systems Inc.
recorded sales of $519,237, an increase of 63% as compared to sales of $318,490
for the previous fiscal period ended April 30, 2001. Gross margin for the period
was 46% versus 32% for the previous period due to the reduction in cost of sales
as a percentage of total sales combined with an increase in overall sales. A
reduction in aggressive customer promotion bonuses as well as a reduction in
realized credit card chargebacks contributed to this result.
General and Administrative expenses were for 2002 were $275,896 versus $489,278
in 2001, a decrease of 44% year over year. Due to the reorganization and
elimination of long- term debt and total liabilities on the balance sheet during
the period, interest expense on notes payable decreased from $80,259 in 2001 to
$34,141 for 2002, a 57% decrease. Based on this long-term debt restructure that
took place on September 15, 2001, we expect that interest expense going forward
into fiscal period 2003 will be minimal. The total annual net loss for the
period was ($174,206) versus a total net loss of ($484,597) in period ended
April 30, 2001, representing a decrease (improvement) of 64%.
The above improvements in operating performance are a direct result of our
efforts to substantially reduce overhead expenses such as wages and salaries,
legal expenses, general office overhead, as well as realizing an overall
reduction of one-time expenses and initial setup costs realized during the
fiscal period ended April 30, 2001.
We are concentrating on employing more cost-effective methods of generating
revenue. We continue to develop our affiliate base and rely on this network to
drive traffic and new customer signups. We are also increasingly focused on
customer retention strategies such as weekly internal customer promos, weekly
newsletters providing each week's schedule of sporting events, industry and
sports news, sports scores, and general updates regarding site changes and
soliciting customer feedback to maintain interest and generate customer
referrals.
Our gross margin tends to fluctuate from period to period. There are two primary
factors that influence our cost of sales, which in turn affects the gross margin
from period to period. First, we use deposit bonus credits in promotions in
order to generate new member signups and to encourage customer deposits. Bonus
credits given are typically 10% to 20% of the customer's deposit and will vary
from period to period depending on the promotion and season of the year. Higher
deposit bonus credits result in a higher cost of sales. Second, the credit card
charge back rate varies from period to period which can adversely affect the
gross margin. As a result of more efficient fraud controls undertaken by the
transaction processor, Electronic Financial Services Caribbean Inc., the most
recent financial quarters showed a much lower rate of credit card chargebacks
than the first two quarters of the fiscal year 2002. We fully expect this trend
to continue into the fiscal period 2003.
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Registration Statement Page 17
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
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 player 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.
The tighter controls on administrative expenses cited in A. Revenues and
Financing above, will positively affect future operations by allowing us to
re-invest the additional cashflow into advertising and marketing strategies to
further drive growth and ultimately, profitability. We now have an established
and growing database of "play for real" customers generating growing monthly
revenues from operations during the seasonal peak periods which are typically
during the months of September through to April. Considering current revenues
now generated from operations and reduced overhead, combined with additional
capital resources cited above, we believe that we will remain viable over the
next twelve-month period.
To further enhance revenues, we will continue to shift our focus to
sub-licensing casino and sports wagering software to third-party operators.
Netforce Entertainment Inc. will market turn-key Internet Casino and gaming
systems to potential sub-licensees. This complete system will include a
custom-designed themed graphic user interface and gaming web-site, electronic
financial transaction processing and accounting systems, customer service
support, marketing consultation, and offshore administrative services. In
exchange for this package, Netforce Entertainment Inc. will contract with each
sub-licensee for an up-front fee ranging from US$10,000 to US$25,000 combined
with a royalty percentage of the ongoing revenue stream generated by each
web-site. Netforce Entertainment Inc. also anticipates that within the next
twelve months, software provider World Gaming Plc. will release its gaming
software upgrades and additional gaming products such as pari-mutuel horse
racing wagering and enhanced casino game play. These factors will contribute to
further growth in our customer base and our revenue stream.
Balance Sheet Data
- ------------------
At April 30, 2002 At April 30,2001 April 30, 2000
----------------- ---------------- --------------
Total Assets 236,254 269,194 221,512
Shareholders' Equity (deficit) 99,441 (682,956) (368,359)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As at April 30, 2002, available unrestricted cash on hand plus net accounts
receivable due in less than 30 days amounted to $84,085 versus $43,097 for April
30, 2001, an increase of 95%. Current assets less player deposits as at April
30, 2002 were $166,371 and current liabilities less players deposits were
$89,811. 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 2003. 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.
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Registration Statement Page 18
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
During the fiscal period-ended April 30, 2002, 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. Management
believes 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). As a result of the debt restructure and equity issuances during the
period, total liabilities as at April 30, 2002 were $136,813 versus $952,150 as
at April 30, 2001. Current liabilities less player deposits as at April 30, 2002
were $89,811 versus $699,726 as at April 30, 2001, a decrease of approximately
87%. Total stockholders Equity was $99,441 as at April 30, 2002, versus a
deficit of ($682,956) as at April 30, 2001.
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. We negotiated an agreement to have the balance of payments
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
placements of stock issued out of our treasury to individuals or corporations
who have expressed interest in obtaining stock in the Company. During the fiscal
period 2002 we made no major capital expenditures and we have no immediate need
to make any major capital expenditures for the upcoming fiscal year 2003.
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
registration statement.
As stated, the major capital expenditure for software was US$100,000 payable to
Starnet Systems International (formerly Softec Systems). An initial payment of
US$10,000.00 was paid upon execution of the agreement leaving a balance of
US$90,000.00 payable upon completion of the configuration/design of the software
and commencement of live operations. The balance was negotiated to zero as a
result of a compensation agreement with Starnet Systems International.
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Registration Statement Page 19
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
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 World Gaming 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.
IMPACT OF INFLATION
- -------------------
The Company believes that inflation will not materially affect its business.
YEAR 2000 RISKS AND COMPLIANCE
- ------------------------------
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.
BUSINESS
- --------
BUSINESS DEVELOPMENT
- --------------------
Net-Force Systems Inc.
- ----------------------
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. We currently sub-license online
-----------------------
gaming software and provide marketing and support services for Internet gaming
website operators, through our wholly owned subsidiary, Netforce Entertainment
Inc. Netforce Entertainment licenses 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 World Gaming
Plc., a publicly traded corporation domiciled in the United Kingdom and formerly
know as Starnet Systems, Inc. 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). Any reference
to the term `master agreement' or `master license' should be defined as having a
direct software license agreement with a software provider (World Gaming). A
sub-license agreement is defined as being an agreement whereby Netforce
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Registration Statement Page 20
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
Entertainment Inc. acts as licensor of a software provider's (World Gaming)
software to a third-party operator in exchange for an up-front fee plus a
negotiated a revenue sharing agreement. Typically, there are web-site design and
development costs incurred for initial set up and custom-designing a prospective
sub-licensee's casino website. The commission paid to a sub-licensee starts at
50% of net revenue and moves up incrementally as volume increases. There are
currently no sub-licence agreements in place at this time. A marketing agreement
(also known as "Partners" or "Affiliates" or "Resellers") is defined as an
agreement between Netforce Entertainment Inc. and either a webmaster with an
Internet site that has established customer traffic of their own or another
casino site linked to our primary casino site as a partner. There is no up-front
fee charge for a partner. A monthly commission starting at 25% of the net
revenues is paid to these as compensation for sending playing customers to our
sites. Special online tracking software provided by World Gaming accounts for an
affiliate's customer activity and calculates net revenue upon which the
commission is based. We currently have approximately 200 registered partners
with marketing agreements in place. Agreements are consummated online by
accepting the `terms and conditions' prior to completing the online registration
form. We oversee a number of Internet gaming websites under marketing agreements
and we have implemented a substantial marketing program with initial advice from
World Gaming. Headquartered in Antigua, EFS Caribbean, Inc. is a wholly owned
offshore subsidiary of World Gaming Plc. We intend to engage in additional
software agreements with other online gaming software providers with the
objective of offering a wide variety of online gaming and wagering products and
services thus reducing our reliance on any single technology provider and/or
software platform.
The Company, including our subsidiaries, employs 6 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.
Net-Force Systems Inc. Corporate History
- ----------------------------------------
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., now known as World Gaming Plc., 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 on April 7,
----------------
2000.
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Registration Statement Page 21
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
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 Bolen resigned as Director and secretary of the
Company. On August 15, 2001, Mr. Trevor Bowering was appointed to the Board of
Directors. On September 10, 2001, Mr. Derek Ferguson was appointed to the Board
of Directors.
On September 15, 2001, all long-term debt and promissory notes including related
party shareholder loan from Geneva Overseas Holdings Ltd. were converted to
equity for a total of 8,705,993 shares issued at $0.10 per share. (See Financial
Statements, Note 5 - Material Events).
On November 15, 2001, pursuant to a Rule 506 Offering, the Board authorized the
Company to proceed with the sale of its shares pursuant to subscriptions
received at a price of $0.10 per Common share. The Company accepted subscription
agreements from U.S. residents from states including California, Arizona, and
Florida. On January 29, 2002, the offering was closed and the Board resolved to
authorize the issuance of 160,000 Common shares at $0.10 per share.
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.
----------------
Netforce Entertainment Inc. has entered into agreements with software vendors,
including, World Gaming, Plc. 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 World Gaming, Plc. (see Exhibit 10.1). For specific terms and fees
for payment processing under Electronic Financial Services Caribbean Inc., see
Exhibit 10.1.
World Gaming, Plc., a United Kingdom, publicly-traded corporation with operating
subsidiaries in Antigua is in the business of licensing complete, customized
Internet gaming systems to third-party offshore gaming license holders. World
Gaming currently supports in excess of 20 such licensees operating worldwide and
has endorsed Net-Force Entertainment as a master licensee. World Gaming 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 World
Gaming (See Exhibit 10.1) whereby World Gaming 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).
World Gaming hosts our offshore subsidiary's websites. World Gaming also
provides and maintains all hardware necessary for the operation of the websites
and provides a complete transaction processing system that allows players to
deposit funds for use of the games. The hardware is maintained in World Gaming's
offices and co-location facilities located in Antigua.
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Registration Statement Page 22
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
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 World Gaming, is in the business of
securely converting electronic funds between financial institutions and other
companies. Through alignments with major banks, Electronic Financial Service
Caribbean processes conversions of worldwide currencies into "e-cash."
Electronic Financial Service Caribbean utilizes World Gaming's proprietary
STAR-MX encoding and processing technology to process tens of thousands of
Internet credit card transactions per month.
The World Gaming 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.
Net-Force 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
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.
---------------- ---------------- --------------------
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 World
Gaming and developing the general infrastructure necessary to fulfill our
- --------------------------------------------------------------------------------
Registration Statement Page 23
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
business objectives. The development of our primary gaming website,
www.aogaming.com, was initially completed and launched on April 7, 2000.
- ----------------
Through the software license acquired from World Gaming, we offer up to 25
virtual casino games and live sportsbook wagering on most of the world's major
sporting events. We also intend to offer twenty-four hour live simulcast and/or
pari-mutuel betting on horse and dog racing tracks in North America and abroad
by the end of 2002. More specifically, pari-mutuel wagering involves a situation
whereby individuals' combined real money wagers combine to form a `pool'.
Individuals essentially wager against each other as opposed to the house. The
house assumes no risk as it simply takes a small percentage of the betting pool
as compensation for providing the service. The balance of the pooled wagers are
paid out to the winner(s) accordingly. 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.
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
enter into agreements to market the gaming software technology to
third party operators. Netforce Entertainment Inc. intends to
establish a sales department solely responsible for marketing its
turnkey Internet Casino and gaming systems packages to potential
third-party sub-licensee operators. NE will target small to
medium-sized operators and entrepreneurs and high-traffic web-site
operators (`webmasters') that have experience in Internet commerce,
hence increasing their odds of successfully adding to the company's
customer base and income stream. This complete system will include a
custom-designed themed graphic user interface and gaming Web-site,
access to a legitimate Gaming License, transaction processing and
accounting system, customer service support, marketing consultation,
and offshore administrative services. In exchange for this package,
Netforce Entertainment Inc. intends to receive an up-front fee and a
percentage of ongoing revenues.
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
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Registration Statement Page 24
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NETFORCE \\//\\ SYSTEMS INC.
///\\\
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
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 World Gaming 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, 2002 year-end audit (see Independent Auditor's Report, of the Audited
Financial Statements for April 30, 2002, also see note 5 to the financial
statements of the financial statements). Since April 30, 2002, we have taken and
will continue to take the necessary steps to ensure ongoing viability of the
business. Specifically, we have reduced the total debt burden on the balance
sheet. Long-term debt was reduced from $178,596 as at April 30, 2001 to zero as
at April 30, 2002. For the same period, current assets have increased from
$165,622to $166,371while at the same time current liabilities have decreased
from $773,554 to $136,813. These significant changes in the balance sheet
substantially reduce the financial risk for our company. In addition to reducing
the debt burden, management has focused on growing the database of customers to
enhance revenue growth as well as tightening controls on expenses. Revenues for
the annual period ended April 30, 2002 have increased by 55%, as compared to the
same period in the previous year while general and administrative expenses for
the same period have decreased by 43%, as compared to the same period in the
previous year. 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 or by the first quarter of fiscal period 2003. However, there can be
no assurance of this.
THE COMPANY'S SERVICES AND PRODUCTS
- -----------------------------------
We have established websites, located on the Internet at www.aogaming.com,
----------------
www.aocasino.com and www.aosportsbook.com, that offer a comprehensive
- ---------------- --------------------
interactive gaming service including a virtual casino and live online sportsbook
wagering service. A pari-mutuel wagering service for horse and dog racing is in
the planning stages and is anticipated to be added to the product line in late
2002. 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
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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.
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.
World Gaming'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
World Gaming 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 World Gaming, 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
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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 World Gaming 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.
MARKETING
- ---------
We have implemented a comprehensive marketing program in conjunction with our
software provider. We have customized various facets of the marketing program
for specific cultures including prospective Asian, European, South African,
South American and Indian players. World Gaming combines Internet broadcasting
capabilities with a fully equipped multimedia production studio to create an
advanced Internet production facility.
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.
We have established our offices in St. John's, Antigua, British West Indies at
Suite #10, Woods Centre, Friars Hill Road, PO 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.
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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.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.google.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 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
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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.
INDUSTRY OVERVIEW
- -----------------
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. On March 12th, 2002, a U.S. House panel voted to update the
40-year-old law banning interstate betting (the Wire Act of 1961) so that it
would apply to fast-growing Internet gambling sites as well. This bill has
become known as the Goodlatte Bill and contains provisions to deal with, among
other things, the payment systems to offshore operators of Internet Gaming
sites, something that the previous Kyl bills did not address. 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
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, 2002 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:
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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).
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%.
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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.
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.
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.
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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
will 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
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.
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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.
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 2,000 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.
- --------------------------------------------------------------------------------
Registration Statement Page 33
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
DESCRIPTION OF PROPERTY
- -----------------------
The Company occupies 240 square feet of commercial office space at Suite #10,
Friars Hill Road, Woods Centre, 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 World Gaming's co-location
facilities in Antigua. The building in which we leased space is in the heart of
St. John's and is home to several other Technology and Internet based companies.
This arrangement and proximity to other similar companies is expected to lend
itself well to promoting the Company as being in the right area and on the
leading edge of technology. As well, our offices are in close proximity to
banking services, the post office, money transfer services, courier services,
and other essential business service providers and their offices.
The terms of the Woods Centre office lease are as follows: We lease 240 square
feet through to July 31, 2002 at an annual rent of $8,400 USD. Our lease said
space on a month-to-month basis during the term. We have a renewal option
thereafter of up to five years on terms to be negotiated at the time. It is our
intention to renew the lease at the end of the first year for an extended term.
MANAGEMENT
- ----------
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., now World Gaming, 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.
- --------------------------------------------------------------------------------
Registration Statement Page 34
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
Mr. Bowering was appointed to the above positions on March 1, 1999 to serve
until his successor has been elected and qualifies.
Dwight Lewis
- ------------
Director
- --------
Cassada Gardens
P.O. Box W-386
St. John's, Antigua, 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.
Derek C. Ferguson
- -----------------
Director
- --------
512-1238 Seymor St.
Vancouver, B.C., V6B 6J3 Canada
DOB: August 12, 1972 (Age 30)
Vancouver, Canada
Derek C. Ferguson, B.Comm
Mr. Ferguson advises on and oversees technical and systems-related issues and
initiatives for Netforce Systems Inc. Mr. Ferguson is presently a Director and
Chief Operations Officer for eTunnels Inc., a Delaware corporation that delivers
mass-market and corporate virtual private networking solutions over the
Internet.
- --------------------------------------------------------------------------------
Registration Statement Page 35
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
From April 1998 to October of 1999, Mr. Ferguson acquired in-depth experience in
the online gaming industry in his role as Senior Systems Administrator for
Starnet Communications International Inc., an International Internet Technology
company. Starnet is recognized as the world's leading Internet Gaming Software
provider. In addition to providing technical design and maintenance leadership
for the Systems Administration department, Mr. Ferguson redesigned its systems
infrastructure to dramatically improve the reliability and scalability of
Starnet's Internet services. Mr. Ferguson was also Network Manager for I.D.
Internet Direct Ltd., a division of Look Communications Inc., a publicly traded
Canadian company operating in the fields of broadcast distribution services and
Internet solutions. At Internet Direct, Mr. Ferguson directed technical design
and support operations for their national consumer dial and corporate broadband
services, helping to grow the service to 35,000 subscribers. Mr. Ferguson
received his Bachelor of Commerce degree with a concentration in Management and
Information Systems (MIS) from Dalhousie University, Halifax, Canada. Mr.
Ferguson resides in Vancouver, Canada.
Mr. Ferguson was appointed to the position of Director on September 10, 2001 to
serve until his successor has been elected and qualifies.
Trevor L. Bowering
- ------------------
Director
- --------
370 Cedar Meadow Drive
Regina, Saskatchewan, Canada, S4X 3J5
DOB: March 14, 1959 (Age 42)
Regina, Canada
Trevor L. Bowering - Technical Consultant
Mr. Bowering has been employed in the telecommunications field with SaskTel for
over 22 years. With assets of over $1.2 billion, SaskTel has been in operation
for 90 years and provides a full range of hi-tech communication solutions for
more than 454,000 business and residential customers worldwide. SaskTel is a
crown corporation, wholly-owned by the province of Saskatchewan, Canada, and a
world leader in providing the latest technological and software solutions
telecommunications expertise as well as Internet and Interactive services. Mr.
Bowering currently manages SaskTel's Local and Long-distance switching network
including DMS100's, DMS200, STP, DC Power Plants, Operator Services,
Interexchange Carriers (Telus, ATT, Bell, Nexia), 911, Mobility (cellular),
CCS7, and Network Management. He personally oversees a staff of staff of 39
Trunking and Switching Technicians responsible for installing, maintaining and
trouble shooting on a 24/7 basis. SaskTel's entire high-speed Internet system
interfaces to its customers via this Switching equipment. Mr. Bowering and his
staff have been on assignment with SaskTel International in England, Italy,
Spain, Chile, Belgium, and France. Mr. Bowering currently resides in Regina,
Saskatchewan, Canada.
Mr. Bowering was appointed to the position of Director on August 15, 2001 to
serve until his successor has been elected and qualifies.
DIRECTOR AND OFFICERS COMPENSATION
- ----------------------------------
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 a salary of $18,000 during the fiscal year ended April 2000 and in the
fiscal year ended April 2001. 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.
- --------------------------------------------------------------------------------
Registration Statement Page 36
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
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.
DIRECTOR AND OFFICERS COMPENSATION
- ----------------------------------
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 a salary of $18,000 during the fiscal year ended April 2000 and in the
fiscal year ended April 2001. 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.
PRINCIPAL SHAREHOLDERS
- ----------------------
The following table sets forth information about the beneficial ownership of our
outstanding common shares on July 8, 2002 by:
The following tables set forth certain information regarding beneficial
ownership of our common stock as of July 8, 2002 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 6,544,830 40.0%
#2, Flamboyant Ave. beneficial owner (2)
P.O. Box W-645
St. John's, Antigua, West Indies
Chairman,/President/Chief Executive Officer
Terry G. Bowering 500,000 3.1%
C/o High Street & Corn Alley beneficial owner (3)
P.O. Box 1679
St. John's, Antigua, West Indies
IFG Investments Services Inc. 6,027,870 36.8%
Suite #4 - Temple Building beneficial owner (4)
Main & Princess William St.
Charelstown, Nevis, West Indies
Dwight Lewis, Director 50,000 0.30%
Cassada Gardens
P.O. Box W 386
St. Johns, Antigua West Indies
- --------------------------------------------------------------------------------
Registration Statement Page 37
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
Derek C. Ferguson, Director 50,000 0.30%
512-1238 Seymor St.
Vancouver, British Columbia, Canada, V6B 6J3
Trevor Bowering, Director 200,000 1.2%
370 Cedar Meadow Drive
Regina, Sask.
Canada S4X 3J5
All Directors & Executive Officers
And control persons as a Group (5 persons) 13,272,700 81.7%
---------- -----
Total shares outstanding 17,066,033 100%
========== ====
(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 a
beneficiary, enjoys legal ownership of said securities.
(4) IFG Investments Services Inc., of which Daniel MacMullin 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.
RELATED PARTY 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. Geneva Overseas
Holdings Ltd. provided a total of $214,483 in shareholder loans to Net-Force
Systems Inc. On September 15, 2001, Geneva Overseas Holdings Ltd. entered into
an agreement with Net-Force Systems Inc. to convert the principal and accrued
interest at that date on the loans to equity at $0.10 per share. The total
shares issued to Geneva Overseas Holdings Ltd. was 2,144,830. (See Financial
Statements, Note 5 - Material Events).
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.
DESCRIPTION OF SHARE CAPITAL
- ----------------------------
The following description of our authorized share capital is subject to the
detailed provisions of our Memorandum and Articles of Association, copies of
which are available upon request by contacting us at - Net-Force Systems Inc. ,
Suite #10-Epicurean, Woods Centre, Friars Hill Road, St. John's, Antigua, West
Indies, telephone: (268) 481-1970.
The securities to be registered pursuant to this F-1 are all of the outstanding
common stock of Net-Force Systems Inc.
- --------------------------------------------------------------------------------
Registration Statement Page 38
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
Corporate Governance and Share Rights
Pursuant to section 104 of the International Business Corporations Act of
---------------------------------------
Antigua and Barbuda the directors of the corporation must call an annual meeting
of shareholders not later than 18 months after the corporation comes into
existence and subsequently not later than 15 months after holding the last
preceding annual meeting and may at any time call a special meeting of
shareholders. Section 113 states that a quorum of shareholders is present if the
holders of a majority of the shares entitled to vote at the meeting is present
in person or represented by proxy. Holders of the common stock are entitled to
cast one vote for each share held at all shareholder meetings for all purposes,
except that in the election of Directors, each shareholder of common stock shall
have as many votes for each share held by him as there are directors to be
elected and for whose election the shareholder has a right to vote. There are no
preemptive rights associated with the securities and no cumulative voting
is authorized by the Articles of Incorporation or the By-Laws. The holders of
the shares have the right to a dividend when declared by the Board of Directors
and a pro-rata right to the assets of the corporation after payment of all
liabilities and preferences conferred upon any preferred shares upon
liquidation.
Section 67 of the International Business Corporations Act of Antigua and Barbuda
---------------------------------------
provides that the shareholders of a corporation must at the first meeting of the
corporation and at each following annual meeting at which an election of
directors is required, elect directors to hold office for a term expiring not
later than the close of the third annual meeting of the shareholders of the
corporation following the election. Section 93 provides that the directors of
the corporation may designate the offices of the corporation, appoint natural
persons of full capacity as officers, specify their duties and delegate to them
powers to manage the business and affairs of the corporation. The directors also
have the power to remove officers.
The total amount of shares authorized by the Company's Articles of Incorporation
is 150,000,000. Of these, 100,000,000 are common stock and 50,000,000 are
preferred stock. There has been no issuance of any preferred stock. Dividend,
voting, conversion rights, liquidation rights and other rights of the preferred
stock, if any, will be established by the Board of Directors upon issuance.
The Company has never declared or paid cash dividends on the common stock of the
Company. Management intends to retain all available funds and any future
earnings for use in the operation and expansion of the business and does not
anticipate paying any cash dividends in the foreseeable future.
OWNERSHIP RESTRICTIONS
- ----------------------
There is no law or governmental decree or regulation in Antigua that restricts
the export or import of capital, or affects the remittance of dividends,
interest or other payments to non-resident holders of ordinary shares.
There is no limitation imposed by Antigua law or by the Articles of
Incorporation or other charter documents of the company on the right of a
non-resident to hold or vote ordinary shares.
TRANSFER AGENT AND REGISTRAR
- ----------------------------
The registrar and transfer agent for our common shares is Pacific Stock Transfer
Co. located at Suite # 240 - 500 East Warm Springs Road, Las Vegas, NV 89119.
- --------------------------------------------------------------------------------
Registration Statement Page 39
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
SHARES ELIGIBLE FOR FUTURE SALE
- -------------------------------
Upon completion of the offering, a total of 17,066,033 of our common shares will
be outstanding. The sale of substantial numbers of common shares in the public
market, or the possibility of such a sale, could adversely affect prevailing
market prices for our ordinary shares.
All of the common shares sold in the offering will be freely tradable without
restriction under the U.S. Securities Act, except by "affiliates" as defined in
Rule 144 under the U.S. Securities Act, or "control persons" as defined under
the U.S. Securities Act.
For the reasons set forth below, we believe that the following presently
outstanding common shares will be eligible for resale in the public market in
the United States at the following times:
No. of Shares
-------------
At the date of this prospectus nil
180 days after the date of this prospectus 17,066,033
Later than 180 days after the date of this prospectus
becoming effective nil
U.S. RESALE RESTRICTIONS
- ------------------------
Upon completion of this offering, it is our estimation that some of the ordinary
shares will be held by U.S. residents or others. As a result of the lock-up
agreements and the provisions of Rule 144 under the U.S. Securities Act, such
shares will be available for sale in the public market in the United States as
set forth in the table above, subject in some cases to Rule 144 limitations.
In general, under Rule 144, as in effect on the date of this prospectus, any
person, including any of our affiliates, who has beneficially owned common
shares for at least one year will be entitled to sell, in any three-month
period, a number of shares that, together with sales of any ordinary shares with
which such person's sales must be aggregated, does not exceed the greater of:
o 1% of the then outstanding ordinary shares; and
o The average weekly trading volume of the common shares on the
Over-The-Counter Bulletin Board, governed by NASD, during the four
calendar weeks immediately preceding the date on which such sale is
made.
Sales of restricted securities pursuant to Rule 144 are subject to requirements
relating to manner of sale, notice and availability of current public
information about the company. Persons who are our affiliates must also comply
with the restrictions and requirements of Rule 144, other than the one-year
holding period requirement, in order to sell ordinary shares in the public
market, which are not restricted securities.
AUDITORS
- --------
We have retained the accounting firm of HJ & Associates, L.L.C. of Salt Lake
City, Utah, U.S.A. to be our auditors.
- --------------------------------------------------------------------------------
Registration Statement Page 40
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
MATERIAL AGREEMENTS AND DOCUMENTS
- ---------------------------------
Agreements, the Memorandum and Articles of Association and documents which are
material to this Offering and that are not confidential to the company, all of
which are or will be in effect by the closing date, may be obtained and/or
reviewed at our offices by contacting Mr. Terry Bowering at (268) 481-1970. We
may require a prospective investor's prior execution of confidentiality and
nondisclosure agreements before accessing certain of our documents.
ADDITIONAL INFORMATION
- ----------------------
Our common shares are being offered exclusively through this prospectus. We have
prepared no offering documents other than this prospectus in connection with our
offering of the shares. Nevertheless, potential investors in the shares may
obtain a copy of all non-confidential corporate documents that the company
possesses by contacting, Mr. Terry Bowering directly at (268) 481-1970.
TAXATION IN ANTIGUA AND THE UNITED STATES OF AMERICA
- ----------------------------------------------------
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.
- --------------------------------------------------------------------------------
Registration Statement Page 41
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
(2) When an exempt corporation or a person who is not a resident transfers
securities or assets of an exempt corporation that are held by that exempt
corporation, or person to another exempt corporation, or to another person
who is not a resident, the transfer is exempt from the payment of any tax,
duty, or other impost thereon.
(3) No income tax or capital gains tax, and no other direct tax or impost, may
be levied or collected in Antigua and Barbuda, in respect of any dividends
interests or other returns from any securities, deposits or borrowings of
an exempt corporations or any assets managed by the exempt corporation if
the dividends, interest or other returns are in respect of securities,
deposits, borrowings or assets beneficially owned by another exempt
corporation, or a person who is not a resident; but the onus of
establishing ownership, lies upon the exempt corporation holding or
managing the deposits, borrowings or assets.
Section 274, "Withholding tax and report"
(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.
LEGAL MATTERS
- -------------
Septimus A. Rhudd, No. 6 Temple Street, St. John's, Antigua will pass upon the
legality of the common shares offered by this prospectus. Stepp Law Group,
Newport Beach, California acts as our counsel on United States legal matters
related to this prospectus.
We are not aware of any material legal proceedings against the company. We may
be involved, from time to time, in various legal proceedings and claims incident
to the normal conduct of our business.
EXPERTS
- -------
The consolidated financial statements of the company included in this prospectus
have been audited by HJ & Associates, L.L.C. of Salt Lake City, Utah, U.S.A,
certified public accountants, as indicated in their report with respect thereto,
and are included in this prospectus in reliance upon the authority of HJ &
Associates as experts in auditing and accounting.
- --------------------------------------------------------------------------------
Registration Statement Page 42
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
ENFORCEMENT OF CIVIL LIABILITIES
- --------------------------------
Net Force Systems Inc. has been incorporated under the laws of Antigua and
Barbuda, and our executive offices are located in Antigua. Our directors,
controlling persons and officers, and representatives of the experts named in
this prospectus, are not residents of the Unties States of America, and a
substantial portion of their assets and all of our assets are located outside
the United States. As a result, it may be difficult for investors to effect
service of process within the United States upon us, the directors, controlling
persons, officers and representatives of experts who are not residents of the
United States or to enforce against them judgments of courts of the United
States based upon civil liability under the federal securities laws of the
United States. There is doubt as to the enforceability in Antigua against us or
against any of our directors, controlling persons, officers or representatives
of the experts who are not residents of the United States, in original actions
or in actions for enforcement of judgments of United States courts and of
liabilities based solely upon the federal securities laws of the United States.
WHERE YOU CAN FIND MORE INFORMATION
- -----------------------------------
We have filed with the SEC, 450 Fifth Street N.W., Washington, D.C. 20549, a
registration statement on Form F-1 covering the units being sold in this
offering. We have not included in this prospectus all the information contained
in the registration statement, and you should refer to the registration
statement and our exhibits for further information.
Any statement in this prospectus about any of our contracts or other documents
is not necessarily complete. If the contract or document is filed as an exhibit
to the registration statement, the contract or document is deemed to modify the
description contained in this prospectus. You must review the exhibits
themselves for a complete description of the contract or document.
You may review a copy of the registration statement, including exhibits and
schedules filed with it, at the SEC's public reference facilities in Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC
maintains a website (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, such as the
company, that file electronically with the SEC.
You may read and copy any reports, statements or other information that the
company files with the SEC at the addresses indicated above, and you may also
access them electronically at the web site set forth above. These SEC filings
are also available to the public from commercial document retrieval services.
Prior to this offering, we have not been required to file reports with the SEC.
Following consummation of the offering, we will be required to file reports and
other information with the SEC under the U.S. Securities Exchange Act. As a
foreign private issuer, we are exempt from the rules under the U.S. Securities
Exchange Act prescribing the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the U.S.
Securities Exchange Act. Under the U.S. Securities Exchange Act, we are not
required to publish financial statements as frequently or as promptly as United
States companies.
THE COMPANY'S LOCATIONS
- -----------------------
The company mailing address is Suite #10-Epicurean, Woods Centre, Friars Hill
Road, St. John's, Antigua, West Indies.
- --------------------------------------------------------------------------------
Registration Statement Page 43
\\\///
NETFORCE \\//\\ SYSTEMS INC.
///\\\
REPRESENTATIONS
- ---------------
(begin boldface)
No finder, dealer, sales person or other person has been authorized to give any
information or to make any representation in connection with this Offering other
than those contained in this prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by the
company. This prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date of this prospectus.
(end boldface)
- --------------------------------------------------------------------------------
Registration Statement Page 44
SCHEDULE "A" - Financial Statements
NET-FORCE SYSTEMS INC. AND SUBSIDARY
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2002 and 2001
- --------------------------------------------------------------------------------
Registration Statement Page 45
C O N T E N T S
Independent Auditors' Report............................................. 3
Consolidated Balance Sheets.............................................. 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
- --------------------------------------------------------------------------------
Registration Statement Page 46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Net-Force Systems Inc. and Subsidary
Antigua, West Indies
We have audited the accompanying consolidated balance sheets of Net-Force
Systems Inc. and Subsidary as of April 30, 2002 and 2001 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years ended April 30, 2002, 2001, and 2000. 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. and Subsidary as of April 30, 2002 and 2001, and the
consolidated results of their operations and their cash flows for the years
ended April 30, 2002, 2001, and 2000 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.
/s/ HJ & Associates
HJ & Associates, LLC
Salt Lake City, Utah
June 26, 2002
F-3
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Registration Statement Page 47
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Consolidated Balance Sheets
ASSETS
April 30,
-----------------------------------
2002 2001
---------------- ----------------
CURRENT ASSETS
Cash $ 68,462 $ 33,292
Accounts receivable, net 15,623 9,805
Reserves and deposits with credit card
processors (Note 8) 63,953 30,858
Gaming license (Note 10) 18,333 91,667
---------------- ----------------
Total Current Assets 166,371 165,622
---------------- ----------------
PROPERTY AND EQUIPMENT (Note 2) 18,088 26,551
---------------- ----------------
OTHER ASSETS
Player deposits (Note 9) 47,002 73,828
Deposits 4,793 3,193
---------------- ----------------
Total Other Assets 51,795 77,021
---------------- ----------------
TOTAL ASSETS $ 236,254 $ 269,194
================ ================
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
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Registration Statement Page 48
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
April 30,
-----------------------------------
2002 2001
---------------- ----------------
CURRENT LIABILITIES
Accounts payable $ 62,847 $ 42,400
Accrued expenses 24,352 24,351
Interest payable - related party 112 4,243
Interest payable - 81,707
Stock subscription payable - 50,000
Player deposits (Note 9) 47,002 73,828
Current portion note payable - related party
(Note 3) 2,500 2,025
Current portion notes payable (Note 4) - 495,000
---------------- ----------------
Total Current Liabilities 136,813 773,554
---------------- ----------------
LONG-TERM DEBT
Note payable - related party (Note 3) - 128,596
Notes payable (Note 4) - 50,000
---------------- ----------------
Total Long-Term Debt - 178,596
---------------- ----------------
Total Liabilities 136,813 952,150
---------------- ----------------
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, 17,066,033 and 7,500,000 17,066 7,500
shares issued and outstanding, respectively
Additional paid-in capital 1,145,037 198,000
Accumulated deficit (1,062,662) (888,456)
---------------- ----------------
Total Stockholders' Equity (Deficit) 99,441 (682,956)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 236,254 $ 269,194
================ ================
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
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Registration Statement Page 49
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Consolidated Statements of Operations
For the Years
Ended April 30,
--------------------------------------------------------
2002 2001 2000
---------------- ---------------- ----------------
REVENUE
Sales $ 519,237 $ 318,490 $ 1,399
Cost of sales 282,020 217,769 1,477
---------------- ---------------- ----------------
Gross Margin (Deficit) 237,217 100,721 (78)
---------------- ---------------- ----------------
EXPENSES
General and administrative 275,896 489,278 349,175
Depreciation and amortization 101,873 18,241 6,428
---------------- ---------------- ----------------
Total Expenses 377,769 507,519 355,603
---------------- ---------------- ----------------
LOSS FROM OPERATIONS (140,552) (406,798) (355,681)
---------------- ---------------- ----------------
OTHER INCOME (EXPENSE)
Loss on abandonment of leasehold improvements - (6,700) -
Gain on sale of assets - 491 -
Loss on sale of assets (205) - -
Interest income 198 1,013 3,635
Other income 494 7,656 10,370
Interest expense (34,141) (80,259) (55,690)
---------------- ---------------- ----------------
Total Other Income (Expense) (33,654) (77,799) (41,685)
---------------- ---------------- ----------------
PROVISION FOR INCOME TAX - - -
---------------- ---------------- ----------------
NET LOSS $ (174,206) $ (484,597) $ (397,366)
================ ================ ================
BASIC LOSS PER SHARE $ (0.01) $ (0.07) $ (0.05)
================ ================ ================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 13,375,186 7,171,233 8,500,000
================ ================ ================
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
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Registration Statement Page 50
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional
--------------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
------------ -------------- --------------- ---------------
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)
August 15, 2001, common stock
issued for services at $0.10
per share 200,000 200 19,800 -
September 15, 2001, common stock
issued for conversion of related party
debt at $0.10 per share 2,144,830 2,145 212,338 -
September 15, 2001, common stock
issued for conversion of debt at $0.10
per share 6,027,870 6,028 596,759 -
September 20, 2001, common stock
issued for conversion of debt at $0.10
per share 533,333 533 52,800 -
October 2, 2001, common stock
issued for conversion of debt at
$0.10 per share 500,000 500 49,500 -
January 31, 2002, common stock issued
for cash at $0.10 per share 160,000 160 15,840 -
Net loss for the year ended
April 30, 2002 - - - (174,206)
------------ -------------- --------------- ---------------
Balance, April 30, 2002 17,066,033 $ 17,066 $ 1,145,037 $ (1,062,662)
============ ============== =============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
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Registration Statement Page 51
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Consolidated Statements of Cash Flows
For the Years
Ended April 30,
------------------------------------------------------
2002 2001 2000
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (174,206) $ (484,597) $ (397,366)
Adjustments to reconcile net loss to net cash
used by operating activities:
Common stock issued for services 20,000 - -
Depreciation and amortization 101,873 18,241 6,428
Loss on sale of asset 205 (491) -
Loss on abandonment of leasehold
improvements - 6,700 -
Changes in assets and liabilities:
(Increase) in reserves and deposits (6,269) (30,858) -
(Increase) in accounts receivables (5,818) (7,212) (49,352)
Decrease in prepaid expenses - 34,698 -
(Increase) in other assets (1,600) (64,960) -
(Increase) in license - (100,000) -
Increase in accounts payable 448 5,243 34,681
Increase in accrued interest 29,413 26,017 55,690
Increase in accrued interest - related party 4,732 4,243 -
Increase in accrued expense - 24,351 -
Increase (decrease) in player deposit (26,826) 73,828 -
---------------- ---------------- ----------------
Net Cash Used by Operating Activities (58,048) (494,797) (349,919)
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (800) (3,704) (47,319)
Proceeds from sale of fixed assets 518 1,927 -
---------------- ---------------- ----------------
Net Cash Used by Investing Activities (282) (1,777) (47,319)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable- related party (36,300) - -
Proceeds from notes payable - related party 113,800 128,597 -
Proceeds from notes payable - 50,000 495,000
Increase in stock subscription payable - 50,000 -
Common stock issued for cash 16,000 200,000 -
Repurchase of and cancellation of common stock - (30,000) -
---------------- ---------------- ----------------
Net Cash Provided by Financing Activities $ 93,500 $ 398,597 $ 495,000
---------------- ---------------- ----------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
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Registration Statement Page 52
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Consolidated Statements of Cash Flows (Continued)
For the Years
Ended April 30,
------------------------------------------------------
2002 2001 2000
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH $ 35,170 $ (97,977) $ 97,762
CASH AT BEGINNING OF PERIOD 33,292 131,269 33,507
---------------- ---------------- ----------------
CASH AT END OF PERIOD $ 68,462 $ 33,292 $ 131,269
================ ================ ================
CASH PAID FOR:
Interest $ - $ 50,000 $ -
Income taxes $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Issuance of common stock for services $ 20,000 $ - $ -
Issuance of common stock for conversion of debt $ 706,120 $ - $ -
Issuance of common stock for conversion of
related party debt $ 214,483 $ - $ -
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
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Registration Statement Page 53
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
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 Years
Ended April 30,
------------------------------------------------------
2002 2001 2000
---------------- ---------------- ----------------
Basic loss per share:
Numerator - net loss $ (174,206) $ (484,597) $ (397,366)
Denominator - weighted
average number of
shares outstanding 13,375,186 7,171,233 8,500,000
---------------- ---------------- ----------------
Loss per share $ (0.01) $ (0.07) $ (0.05)
================ ================ ================
F-10
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Registration Statement Page 54
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
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, 2002 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 is computed
using the straight-line method over the estimated useful life of the
asset of 5 years. 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, 2002, 2001 and 2000 was $8,539, $9,908, and $6,428,
respectively.
Property and equipment consists of the following:
April 30,
-----------------------------------
2002 2001
---------------- ----------------
Vehicles $ 3,704 $ 3,704
Computer equipment 18,450 19,450
Computer software 10,000 10,000
Office furniture and equipment 6,741 6,274
Accumulated depreciation (20,807) (12,877)
---------------- ----------------
Net Property and Equipment $ 18,088 $ 26,551
================ ================
F-11
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Registration Statement Page 55
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
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. 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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Registration Statement Page 56
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Recent Accounting Pronouncements (Continued)
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 March 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, 2003 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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Registration Statement Page 57
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Recent 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."
F-14
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Registration Statement Page 58
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Recent Accounting Pronouncements (Continued)
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.
i. 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.
j. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising expense for the years ending April
30, 2002, 2001 and 2000 was $34,681, $174,859 and $99,283,
respectively.
F-15
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Registration Statement Page 59
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. 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.
l. 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.
m. 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.
F-16
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Registration Statement Page 60
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
NOTE 3 - NOTE PAYABLE - RELATED PARTY
2002 2001
---------------- ----------------
Geneva Overseas Holdings Ltd. (A Company
controlled by the president of the Company)
made advances to the Company totaling
$2,500. These advances have an interest
rate of 8% annually. This note is unsecured. $ 2,500 $ 130,621
Less Current Portion 2,500 2,025
---------------- ----------------
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,
-----------------
2003 $ 2,500
2004 -
2005 -
2006 -
--------
$ 2,500
========
Interest expense for the years ending April 30, 2002, 2001 and 2000
was $4,732, $4,243 and $-0-,respectively.
F-17
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Registration Statement Page 61
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
NOTE 4 - NOTES PAYABLE
April 30,
-----------------------------------
2002 2001
-----------------------------------
Note payable to Mountain High Management Inc.
dated July 13, 1999, accruing interest at 15%
annually, due on July 29, 2001. This note is
unsecured. $ - $ 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
Less Current Portion - 495,000
---------------- ----------------
Total Long-Term Debt $ - $ 50,000
================ ================
Interest expense for the years ending April 30, 2002, 2001 and 2000
was $29,409, $76,016, and $55,690, 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, 2002 and has a significant
working capital deficit. The Company does not have an established
source of revenues sufficient to cover its operating costs 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 2003, 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 2003.
F-18
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Registration Statement Page 62
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
NOTE 6 - STOCK TRANSACTIONS
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.
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 $107,787 into equity by issuing
6,027,830 shares of common stock at $0.10 per share for a total of
$602,787.
On September 20, 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 January 31, 2002, the Company issued 160,000 shares of common stock
at $0.10 per share for cash of 16,000.
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
$16,000 as of the date of the audit report.
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.
F-19
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Registration Statement Page 63
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Software Licensing Agreement (Continued)
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,
2002 and 2001, the balance of these reserves and deposits were $63,953
and $30,858, respectively.
NOTE 9 - PLAYER DEPOSITS
As of April 30, 2002 and 2001, the Company had $47,002 and $73,828,
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 $20,000 for 2002 and was
$100,000 in 2001, and is amortized over twelve months. Amortization
expense for the years ending April 30, 2002, 2001, and 2000 was
$93,334 $8,333 and $-0-, respectively.
F-20
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Registration Statement Page 64
NET-FORCE SYSTEMS INC. AND SUBSIDARY
Notes to the Consolidated Financial Statements
April 30, 2002, 2001 and 2000
NOTE 11 - OPERATING LEASE
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
Years ended
April 30, Amount
---------------- ----------
2003 $ 1,887
2004 -
----------
TOTAL $ 1,887
==========
F-21
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Registration Statement Page 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with the Companies law (2000 Revision), sections 130 and 131 of
our Articles of Association provides that the Registrant shall indemnify certain
persons as follows:
Section 130. Every Director (including for the purposes of this Article any
Alternate Director appointed pursuant to the provisions of these Articles),
Managing Director, agent, Secretary, Assistant Secretary, or other officer for
the time being and from time to time of the Company (but not including the
Company's auditor) and the personal representatives of the same shall be
indemnified and secured harmless out of the assets and funds of the Company
against all actions, proceedings, costs, charges, expenses, losses, damages or
liabilities incurred or sustained by him in or about the conduct of the
Company's business or affairs or in the execution or discharge of his duties,
powers, authorities or discretions, including without prejudice to the
generality of the foregoing, any costs, expenses, losses or liabilities incurred
by him in defending (whether successfully or otherwise) any civil proceedings
concerning the Company or its affairs in any court whether in the Cayman Islands
or elsewhere.
Section 131. No such Director, Alternate Director, Managing Director, agent,
Secretary, Assistant Secretary or other officer of the Company (but not
including the Company's auditor) shall be liable (i) for the acts, receipts,
neglects, defaults or omissions of any other such director or officer or agent
of the Company or (ii) by reason of his having joined in any receipt for money
not received by him personally or (iii) for any loss on account of defect of
title to any property of the Company or (iv) on account of the insufficiency of
any security in or upon which any money of the Company shall be invested or (v)
for any loss incurred through any bank, broker or other agent or (vi) for any
loss occasioned by any negligence, default, breach of duty, breach of trust,
error of judgement or oversight on his part or (vii) for any loss, damage or
misfortune whatsoever which may happen in or arise from the execution or
discharge of the duties, powers authorities, or discretions of his office or in
relation thereto, unless the same shall happen through his own dishonesty.
A policy of directors' and officers' liability insurance has been applied for by
the Registrant which insures directors and officers of the Registrant and its
subsidiaries against liability incurred by, arising from or against them for
certain of their acts, errors or omissions.
Reference is made to Item 17 for the undertakings of the Registrant with respect
to indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act").
RECENT SALES OF UNREGISTERED SECURITIES
(a) Securities issued and sold:
1. On March 1, 1999, the registrant filed its Articles of Incorporation with
the Director of International Business Corporations, Government of Antigua and
Barbuda as Net-Force Systems Inc. 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 a total of 5,500,000 shares
issued to the following entities at a price of $0.001 per share: 4,500,000
shares issued to Geneva Overseas Holdings Ltd., beneficially owned by Terry G.
Bowering, 500,000 shares issued to JPKT Metro Investment Corporation,
beneficially owned by Terry G. Bowering, and 500,000 shares issued to BRF Family
Trust, beneficially owned by Douglas N. Bolen. Total proceeds from these share
issuances amounted to $5,500 USD.
2. On March 15, 1999, the registrant 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 a total of
- --------------------------------------------------------------------------------
Registration Statement Page 66
3,000,000 Common Shares at a price of $0.01 per Common Share for total gross
offering proceeds of $30,000 USD. Net-Force Systems Inc. issued 500,000 shares
each to the following six corporate entities: Orienstar Finance Limited, Fonds
Mondial D'Investissment, Eur-Am BV, Richland Acceptance Corporation, Altmar
Inc., and Sharp, Flint & Blunt.
3. 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 of the Securities Act of 1933, 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 for total gross
offering proceeds of $250,000 USD. Net-Force Systems Inc. issued 500,000 shares
each to the following five corporate entities: Atkins Financial Ltd., Loire
International Limited, Multi-Asian Venture Ltd., Shanghai Ltd., and Solinvest
Group Ltd.
4. On August 15, 2001, in consideration for consulting services rendered and
as compensation for acceptance of an appointment to the Board of Directors of
the registrant, Mr. Trevor L. Bowering was issued 200,000 shares at a value of
$0.10 USD per share for total consideration of $20,000 USD.
5. On September 15, 2001, all long-term debt and promissory notes including a
related party shareholder loan from Geneva Overseas Holdings Ltd. were converted
to equity for a total of 8,706,033 shares issued at $0.10 per share. The total
value of the loans consisted of principal and accrued interest calculated as at
September 15, 2001. In settlement of a related party shareholder loan, Geneva
Overseas Holdings Ltd. was issued 2,144,830 shares for total equity holdings to
date of 6,544,830 shares. IFG Investments Services Inc. was issued 6,027,870
shares in settlement of the principal and accrued interest on the promissory
note it held as at the above date. Low Tide Investments Inc. was issued 533,333
shares in settlement of principal and accrued interest on the promissory note it
held as at the above date.
6. On November 15, 2001, pursuant to a Rule 506 Offering, the Board authorized
the Company to proceed with the sale of its shares pursuant to subscriptions
received at a price of $0.10 per Common share. The Company accepted subscription
agreements from U.S. residents from states including California, Arizona, and
Florida. On January 29, 2002, the offering was closed and the Board resolved to
authorize the issuance of 160,000 Common shares at $0.10 per share for total
gross offering proceeds of $16,000 USD.
Amount of Beneficial
Amount of Shares of Common Stock Ownership
Beneficial Ownership Being Sold Pursuant to Beneficial Ownership After
Prior to this Offering (1) this Prospectus (2) this Offering
Name of Beneficial Owner Number Percent Number Number Percent
- ------------------------ ------ ------- ------ ------ -------
Geneva Overseas Holdings Ltd. 6,544,830 38.35% 6,544,830 0 0%
IFG Investments Services Inc. 6,027,870 35.32% 6,027,870 0 0%
Low Tide Investments Inc. 533,333 3.13% 533,333 0 0%
Atkins Financial Ltd. 500,000 2.93% 500,000 0 0%
Loire International Limited 500,000 2.93% 500,000 0 0%
Multi Asian Venture Ltd. 500,000 2.93% 500,000 0 0%
JPKT Metro Investment
Corporation 500,000 2.93% 500,000 0 0%
Shanghai Ltd. 500,000 2.93% 500,000 0 0%
Solinvest Group Ltd. 500,000 2.93% 500,000 0 0%
CDM Caribbean Digital
Management Inc. 400,000 2.34% 400,000 0 0%
Trevor L. Bowering 200,000 1.17% 200,000 0 0%
- --------------------------------------------------------------------------------
Registration Statement Page 67
Sable Holdings Ltd. 100,000 0.59% 100,000 0 0%
Derek C. Ferguson 50,000 * 50,000 0 0%
Dwight Lewis 50,000 * 50,000 0 0%
Larry Chudak 20,000 * 20,000 0 0%
David Gates 20,000 * 20,000 0 0%
Donald C. Jones 5,000 * 5,000 0 0%
Easter Lily A. Dalmacio 5,000 * 5,000 0 0%
Anthony C. Gibson 5,000 * 5,000 0 0%
Ronald Darvin Jones 5,000 * 5,000 0 0%
Tammy L. Jones 5,000 * 5,000 0 0%
Earl Jones 5,000 * 5,000 0 0%
Sean T. Burns 5,000 * 5,000 0 0%
Shawn W. Erickson 5,000 * 5,000 0 0%
Eddy Damien Granados 5,000 * 5,000 0 0%
Gyneth McAllister 5,000 * 5,000 0 0%
Mark M. Piazza 5,000 * 5,000 0 0%
John David Sorlie 5,000 * 5,000 0 0%
Lawrence R. Busha 5,000 * 5,000 0 0%
Jon Canale 5,000 * 5,000 0 0%
Kenneth M. Gerspatch 5,000 * 5,000 0 0%
Traci Fornoff 5,000 * 5,000 0 0%
Saverio J. Barbera 5,000 * 5,000 0 0%
Ron Dillard 5,000 * 5,000 0 0%
David M. Filburn 5,000 * 5,000 0 0%
Donald Heitz 5,000 * 5,000 0 0%
Randy Baldwin 5,000 * 5,000 0 0%
Joseph A. Angelini 5,000 * 5,000 0 0%
Donald Wayne Kipp 5,000 * 5,000 0 0%
Michael James Steele 5,000 * 5,000 0 0%
========== ======
Total shares outstanding: 17,066,033 100%
---------- ------
*Less than 1 %
(b) Underwriters and Other Purchasers.
Not applicable
(c) Consideration.
See (a) above.
(d) Exemption from Registration Claimed.
See (a) above.
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Registration Statement Page 68
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
The following exhibits are attached hereto:
Exhibit
Number Title
3.1 Articles of Incorporation - Net-Force Entertainment Inc
3.2 Our Certificate of Incorporation
3.3 Bylaws of Net-Force Entertainment Inc.
4.1 Specimen ordinary share certificate
5.1 Opinion of Antugian lawyer get name to the legality of the securities
offered herby
10.1 Starnet Systems Inc. (formerly Softec Systems Caribbean Inc) Amendment to
Software License Agreement
10.2 Government of Antigua and Barbuda Gaming License
10.3 Software and Marketing License Agreement
10.4 Antigua Online Gaming Wagering and Gaming Reseller Agreement
10.5 IFG Investments Services Inc. Debt to Equity Conversion Agreement
10.6 American International Bank (Lease Agreement)
10.7 Geneva Overseas Holdings Ltd. Debt to Equity Conversion Agreement
23.1 Consent of HJ & Associates, L.L.C. of Salt Lake City, Utah, U.S.A.
(included in 5.1)
24.1 Power of Attorney (Contained on the signature pages of this Registration
Statement)
B. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in our consolidated financial statements and related notes
attached to the prospectus.
UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
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Registration Statement Page 69
(3) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(5) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(6) The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters, if any, during the
subscription period, the amount of unsubscribed securities to be purchased by
the underwriters, if any, and the terms of any subsequent reoffering thereof. If
any public offering by the underwriters, if any, is to be made on terms
differing from those set forth on the cover page of the prospectus, a
post-effective amendment will be filed to set forth the terms of such offering.
(7) The undersigned registrant hereby undertakes to provide to the underwriter,
if any, at the closing specified in the underwriting agreements, if any,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Registration Letter
to be signed on its behalf by the undersigned, thereunto duly authorized, this
27th, day of May 2002.
(Seal) Net-Force Systems Inc.,
an Antigua and Barbuda company
Per: (Signed by Terry G. Bowering)
------------------------------------------
Terry G. Bowering
President, Chief Executive Officer and Director
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Registration Statement Page 70
POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of Net-Force
Systems Inc. whose signature appears below constitutes and appoints Terry G.
Bowering, his true and lawful attorney-in-fact and agents, with full and several
power of substitution, for him and in his name, place and stead, in any and all
capacities, to execute any or all amendments, including post-effective
amendments, and supplements to this Registration Statement and any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b) increasing the number of securities for which registration is sought, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agents or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by or on behalf of the following persons in the
capacities indicated on May 27, 2002:
(Signed by Terry G. Bowering)
-----------------------------------------------------
Mr. Terry G. Bowering - President, Chief Executive Officer, Director
(Signed by Dwight Lewis)
-----------------------------------------------------
Mr. Dwight Lewis - Director
(Signed by Derek C. Ferguson)
-----------------------------------------------------
Mr. Derek C. Ferguson - Director
(Signed by Trevor L. Bowering)
-----------------------------------------------------
Mr. Trevor L. Bowering - Director
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Registration Statement Page 71
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling shareholders are offering to sell, and
seeking offers to buy, their common shares, only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common shares.
Until a date, which is 25 days after the date of this prospectus, all dealers
that buy, sell or trade our common shares, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
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Registration Statement Page 72