-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Id5tZyR5tgvTxrs6Qq73PJ1OKNQpzTfUutE2ewUv8ihgw1WJUC0D7z+GTktqW+B3 XRpGn5ETj8Ds8AURckaDgg== 0001127855-02-000072.txt : 20020414 0001127855-02-000072.hdr.sgml : 20020414 ACCESSION NUMBER: 0001127855-02-000072 CONFORMED SUBMISSION TYPE: 20-F/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020214 FILED AS OF DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NET FORCE SYSTEMS INC CENTRAL INDEX KEY: 0001084201 FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 20-F/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-29031 FILM NUMBER: 02548975 BUSINESS ADDRESS: STREET 1: P O BOX W-645 3RD FLOOR BLDG STREET 2: NEVIS STREET CITY: ST JOHNS ANTIGUA WES STATE: B9 ZIP: 00000 BUSINESS PHONE: 2684811970 MAIL ADDRESS: STREET 1: P O BOX W-645 3RD FLOOR DOLLOR BLDG STREET 2: NEVIS STREET CITY: ST JOHNS ANTIGUA 20-F/A 1 net20fa.txt NET FORCE 20-F/A, AMENDMENT 1 FORM 20-F/A (amendment #1) U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F/A (Mark One) [X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 NET-FORCE SYSTEMS INC. ---------------------- (Name of Registrant in its charter) ANTIGUA and BARBUDA ------------------- (State or other jurisdiction of incorporation or organization) Suite #10-Epicurean, Woods Centre --------------- Friars Hill Road --------------------- St. John's, Antigua ------------ West Indies --------------------- (Address of principal executive offices and zip code) (268) 481-1970 -------------- (Issuer's telephone number) Securities to be registered under Section 12(b) of the Act: NONE ---- Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK ------------ Title of each class to be so registered Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by Section 13 or 15(d) of The Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days: [ ] Yes [X] No Indicate by check mark which financial statements item the registrant has elected to follow: ITEM 17 [X] ITEM 18 [ ] NET-FORCE SYTEMS, INC. Table of Contents FORWARD LOOKING STATEMENTS...................................................3 PART I.......................................................................3 ITEM 1. DESCRIPTION OF BUSINESS..........................................3 I. BUSINESS DEVELOPMENT...........................................3 A. NET-FORCE SYSTEMS INC.......................................3 B. NET-FORCE SYSTEMS INC. CORPORATE HISTORY....................3 II. BUSINESS OF THE ISSUER.........................................4 III. BUSINESS AND MARKETING STRATEGIES..............................6 IV. INDUSTRY OVERVIEW.............................................10 A. Global Gaming Industry.....................................10 B. Internet Entertainment Industry............................12 V. COMPETITION...................................................14 VI. RISKS.........................................................14 A. RISKS RELATED TO THE BUSINESS..............................14 B. RISKS RELATED TO THE INDUSTRY..............................17 C. RISKS RELATED TO SECURITIES MARKETS........................18 VII. REGULATORY BACKGROUND.........................................19 VIII. DISCLOSURE....................................................23 ITEM 2. DESCRIPTION OF PROPERTY.......................................23 ITEM 3. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS......................23 ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................24 ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS....................................25 ITEM 7. TAXATION......................................................25 ITEM 8. SELECTED FINANCIAL DATA.......................................27 SELECTED FINANCIAL DATA.....................................................27 EASTERN CARIBBEAN AND US DOLLAR EXCHANGE RATES..............................27 DIVIDENDS...................................................................27 ITEM 9. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION...............................28 I. PLAN OF OPERATIONS............................................28 A. Revenues and Financing.....................................28 B. Operations for the Next Twelve Months......................30 C. Balance Sheet Data.........................................30 D. Liquidity and Capital Resources............................30 E. Material Commitments for Capital Expenditures..............31 F. Material Commitments for Resources.........................31 G. Impact of Inflation........................................32 H. Year 2000 Risks and Compliance.............................32 ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.............................................32 I. QUANTITATIVE INFORMATION ABOUT MARKET RISK....................32 II. QUALITATIVE INFORMATION ABOUT MARKET RISK.....................32 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS...........................................32 I. DIRECTORS AND EXECUTIVE OFFICERS..............................32 ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS........................35 ITEM 12. OPTIONS OT PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES...............................................35 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................35 PART II.....................................................................36 ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED....................36 Registration Statement Page i NET-FORCE SYTEMS, INC. PART IV.....................................................................36 ITEM 17. FINANCIAL STATEMENTS..........................................36 ITEM 18. FINANCIAL STATEMENTS..........................................36 NET FORCE SYSTEMS INC. UNAUDITED QUARTERLY STATEMENT OCTOBER 31, 2001.......................................................37 NET FORCE SYSTEMS INC. AUDITED FINANCIAL STATEMENTS, APRIL 30, 2001.........................................................50 PART III. INDEX TO EXHIBITS................................................70 SIGNATURES..................................................................70 EXHIBIT 3.1 Articles of Incorporation of Net-Force Systems Inc............................................71 EXHIBIT 3.2 Bylaws of Net-Force Systems Inc........................74 EXHIBIT 3.3 Articles of Incorporation - Net-Force Entertainment Inc......................................81 EXHIBIT 3.4 Bylaws of Net-Force Entertainment Inc..................84 EXHIBIT 10.1 Starnet Systems Inc. (formerly Softec Systems Caribbean Inc), Amendment to Software License Agreement.............................91 EXHIBIT 10.2 Government of Antigua and Barbuda Gaming License........................................108 Registration Statement Page ii NET-FORCE SYTEMS, INC. FORWARD LOOKING STATEMENTS Net-Force Systems Inc. (the "Company" or "Net-Force") cautions readers that certain important factors (including without limitation those set forth in this Form 20-F) may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Form 20-F registration statement, or that are otherwise made by or on behalf of the Company. For this purpose, any statements contained in the registration statement that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "expect", believe", "anticipate", "intend", "could", "estimate" or "continue" or the negative or other variations of comparable terminology, are intended to identify forward-looking statements. PART I ITEM 1. DESCRIPTION OF BUSINESS I. BUSINESS DEVELOPMENT -------------------- A. 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 master 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. Netforce Entertainment Inc. has an agreement in place with EFS Caribbean Inc., a secure online financial transaction processor, to collect and process revenues generated from our Internet gaming websites. 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. B. 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. Registration Statement Page 3 NET-FORCE SYTEMS, INC. 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. 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. II. BUSINESS OF THE ISSUER ---------------------- Netforce Entertainment Inc. was incorporated on August 5, 1999 pursuant to the International Business Corporations Act of Antigua and Barbuda and is based in Antigua. Netforce Entertainment is a wholly owned subsidiary of the Company and acts as the operating entity for our online gaming operations. Netforce Entertainment Inc. currently maintains an international gaming website called Antigua Online Gaming located on the World Wide Web at www.aogaming.com. ---------------- 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 Service Caribbean, Inc. is a wholly owned subsidiary of World Gaming, Plc. 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 Registration Statement Page 4 NET-FORCE SYTEMS, INC. Entertainment Inc., has entered into a software licensing agreement with World Gaming (See Exhibit 6.1) 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 6.1). 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. 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. ---------------- ---------------- -------------------- Registration Statement Page 5 NET-FORCE SYTEMS, INC. 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 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. Included with the software license is the procurement of an initial Internet gaming license, concept development and design of the Web based casino(s), all odds-making rules and regulations, complete graphical user interface with sophisticated visual and sound effects to create a total gaming experience, real time wagering, complete secure electronic funds transfer, retention and analysis of all gaming data, including win/loss, game preferences and monitoring of player activities, administration and complete 24 hour per day, 7 days per week customer support services, ongoing customization of the websites, the monitoring of all funds flow, the hosting of server software, customization and server integration, the provision of credit card processing and other banking services, discussion, liaison and co-operation with testing agencies, regulatory boards, governing bodies and governments and marketing consulting. III. BUSINESS AND MARKETING STRATEGIES ---------------------------------- One of the most lucrative and fastest growing commercial sectors on the Internet is on-line wagering. 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 medium-size established Internet gaming websites and operations, and therefore continually adding to the company's database of active Registration Statement Page 6 NET-FORCE SYTEMS, INC. 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. 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. 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 state 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. The online financial transaction processor for our Websites, EFS Caribbean Inc., administers a policy of reserving the right to require personal identification of each 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, a photocopy of both a driver's license and/or a utility bill, as proof of both identity and address. Upon acceptance, the approved player is allowed to download the gaming software over the Internet for installation on their personal computer. We then provides the player with a Registration Statement Page 7 NET-FORCE SYTEMS, INC. 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. 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. 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 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 its 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 Registration Statement Page 8 NET-FORCE SYTEMS, INC. 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. 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. Direct Marketing. We use direct marketing techniques to target new and existing - ---------------- players with communications and promotions. We send a personalized e-mail newsletter to registered players that includes, recommendations based on demonstrated player preferences and prior usage. Banner Advertisements. Banner advertisements are rectangular graphical/text - --------------------- images that can be positioned in various strategic places on Web pages and search engines on the Internet. When a potential player clicks on the banner advertisement, the player's Web Browser points the player to the advertiser's home page. We pay for such banner advertisements on a variety of Web pages and search engines, and participate in a banner exchange program. Examples of sites where the company has placed banners for the casino sites it oversees including www.football.com, www.basketball.com, www.tsn.com, www.rotonews.com, - ---------------- ------------------ ----------- ---------------- www.rgtonline.com, casino and sports categories on www.about.com, - ----------------- ------------- www.gambling.net, as well as other gaming portal sites such as Wager Talk, - ---------------- Wagerline, and Talk Sports. We also intend 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 Registration Statement Page 9 NET-FORCE SYTEMS, INC. distribute, to a large number and variety of potential players, quality examples of the services and products offered at its websites. Once a potential player plays the games offered for fun, we hope that the potential player may make an application on our websites and eventually play the same games for money. We intend to distribute such CD-ROM's by direct mail-outs, insertions in magazines, distributions through Internet Service Providers to their subscribers and distributions at tradeshows. IV. INDUSTRY OVERVIEW ----------------- A. Global Gaming Industry ---------------------- United States of America - ------------------------ In the U.S., Americans legally wager over $500 billion per year. This level of legalized gambling is the result of rapid expansion in the industry over the past decade. Since 1988, the number of states allowing casino gambling has increased from two, Nevada and New Jersey, to 24, (including those with Native American Casinos) with all but three states having some form of legalized gambling. U.S. casino revenues were projected to be about $24 billion in 1998, reflecting an expected 6% growth from 1997, lower than the double-digit increases earlier in the decade. Gambling in the U.S. has many forms, including casinos, horse and dog racing, government run lotteries, riverboat casinos and Jai Alai, all of which are highly regulated. At the present time, there is no existing regulation of Internet gambling in the U.S. In July 1998, the U.S. Congress defeated a proposed bill (the "Kyl" bill) that would prohibit gambling over the Internet, but exempted certain forms, such as horse and dog racing, and lotteries. In May 1999, the Kyl bill was re-introduced, in a less stringent form (See VII "Government Regulation"). Geographic growth prospects have remained relatively flat over the past two years. With more people employed and improved economic conditions in various parts of the United States, states and localities have fewer incentives to encourage gaming development as a prospective source of taxes, tourism and jobs. Additionally, economic downturns in Asia, and to a lesser extent, South America, have led to significant decreases in "high roller" traffic to North American gaming locations, such as Las Vegas and Atlantic City. In response to the downturn in travelers from this section of its revenue base, the traditional gaming companies in Las Vegas have continued their rapid growth campaign to transform the city from a gaming community into a world wide family resort destination. In recent months Las Vegas in particular has made strides in trying to upgrade the entertainment it offers. Major U.S. casino destinations are competing more for resort and vacation population than the average gambling client. Pari-mutuel, Lottery and Video Gaming - ------------------------------------- Pari-mutuel wagering is currently authorized in 43 states in the United States, all provinces in Canada, and approximately 100 other countries around the world. The 117 racetracks in 35 states in North America have revenues of $4 billion dollars from their racing alone. Video and slot machine gaming constituted one of the fastest-growing sectors in the gaming industry in the 1990s. The installed video slot machine equipment inventory base has expanded from approximately 153,000 devices in 1990 to over 500,000 terminals today. Broadly, the market can be divided between the government systems market (video lottery gaming or VLT) and the casino market (includes traditional land-based facilities, riverboats and Native American Class III properties). The video gaming market is different from the devices used in the traditional casino market. Most video lottery terminals are located in bars, restaurants and convenience stores where gaming is not the principal attraction. The stakes on the devices typically range from $0.25 - $2.50 per play, and payoffs are usually capped between $150 - $1,000 per day. In addition, some venues distribute the payout from these devices in a ticket form, which is redeemable for cash from the operator. There are currently slots or video gaming devices operating in racetracks, bars and restaurants in the following states: Delaware, Louisiana, Iowa, Rhode Island, West Virginia, New Mexico, Montana, Oregon and South Carolina and are widely dispersed in Canada. Although there are no large public gaming operators with significant exposure in track or ambient VLT operations except for Caesars (now owned by Park Place Entertainment) - equipment manufacturers, such as IGT, Alliance Gaming, and Powerhouse Technologies, continues to hold a stake in this potentially growing Registration Statement Page 10 NET-FORCE SYTEMS, INC. market niche. In addition, competition posed by track and ambient VLT operations could affect casino operations in several key markets, including, Atlantic City. In its most recent report on the worldwide lottery industry, International Gaming and Wagering Business reported that total global lottery sales were up significantly (4.5%) in 1998, compared to 1997. For most lotteries, the increase stemmed from a combination of increased sales and the rebounding of local currencies versus the U.S. dollar. In general, most states' lotteries experienced record setting years, in most cases erasing 1997's declines. (International Gaming & Wagering Business, Vol. 20, Num. 5, May 1999). The only region reporting continued declines from 1997 was Asia, which is attributable to the continued weakness in Asian currencies. However, some smaller Asian markets, such as China's Social Welfare Lottery saw sales virtually double, in most cases due to the increase in instant ticket sales. Instant tickets and spiel games (those which Net-Force intends to deliver to its players) once again experienced an increase in market share. Lotto and spiel games exceeded 40% of all lottery sales in 1998. International sales of state lotteries in jurisdictions such as Liechtenstein and South Africa begin promotions revolving around the millennium. While little focus has been made on the Internet market, the AILE/Intertoto recently addressed the issue at a conference held in Washington, D.C. (See www.aile.com). The conference members agreed that a wait and see strategy was the best approach at the present time, with the AILE/Intertoto maintaining a watchful eye to ensure that the Internet industry develop an international legal framework that mirrors that of the current successful system of national laws. International Gaming Markets - ---------------------------- Gaming outside of the U.S. and Canada is a mixture of active markets, large and small resort destinations, and strictly regulated, often state-run, operations. Asia and South Africa provide the most dynamic markets and opportunities for growth, with Latin America and the Caribbean also active in the gaming industry. Western Europe consists mostly of mature, state-controlled markets. The following is an overview of selected foreign markets: Europe - ------ There were a total of 531 European Casinos generating gross Revenues of $5,336,971,600 US as of February 1999 (International Gaming and Wagering Business, 1999 European Casino Report, February 1999). The European Commission last reviewed the issue of gambling in 1991 and found no need for EU-wide regulation. This position has remained in accordance with the many of the EU's member states' positions that gaming, including Internet gambling, should remain an issue for the sovereign state (Cabot, Anthony, THE INTERNET GAMBLING REPORT III, "European Overview," by Steven Philippsohn, (Trace Publications, Las Vegas), 1999, P.211-216). Among the member nations of the EU, views on Internet gambling vary widely. Some states are slowly accepting the idea of interactive gaming. For example, the Dutch government recently allowed telephone betting, while certain European states, notably Finland and Sweden, are allowing providers to offer Internet gambling, but only to their own respective residents. Conversely, the German position on Internet gaming reflects the view taken on traditional forms of gambling. That is, 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. Registration Statement Page 11 NET-FORCE SYTEMS, INC. The path, which European regulation of Internet gambling is taking is more akin to that which the Australian states are taking. The cultural differences between European countries, however, are more marked than between the Australian states. The consequent diversity in attitudes to gambling may slow down the process (Steven Philippsohn, Internet Gambling, European Overview," 1998, p.215). Asia - ---- Large capital projects and debt levels in Australia left many casinos highly exposed to the Asian economic crisis. Stung by a US$150 million drop in revenues from international players, stock prices for Australia's leading casinos are now a fraction of previous levels. The domestic market remains solid, however, and long-term prospects are optimistic. The next year should bring the beginning of a recovery and a more realistic assessment of the international market. Despite the economic crisis, the casino industry in the Philippines is experiencing the strongest expansion in the region, with three new operations having opened in recent years and another scheduled to open in 1999. The Manila market is being reorganized and partially privatized, providing the opportunity for change and market growth. Three publicly traded companies are active in the Philippines casino market: Starwood Hotels & Resorts, Malaysian-based Metroplex and Manila-based Belle Bay Corporation. Taiwan offers the most interesting potential for change. The government took another step toward legislation in 1998 by commissioning a report recommending a tightly regulated industry of casinos in recreational areas. Foreign investment would be permitted up to 40%. Africa and the Middle East - -------------------------- The most significant activity is occurring at opposite ends of the region. South Africa is progressing with the transformation of its casino industry and the opening of a route market for gaming devices. The current estimated size of this market is US$1.5 billion, with the majority of revenues coming from casino gaming operations (US$935 million). The Middle East market is growing in response to the closing of gaming operations in Turkey and limited choices in Northern Europe. With gaming illegal in Israel, further growth in border areas is expected. New operations are expected to grow quickly in Palestine-controlled Jericho to support public demand. In Egypt, across the border from Eilat, major project development is underway in the Taba Heights. Additional operations have also opened recently in North Africa, with more than the planning stages. Latin America - ------------- Gaming in Latin America remains decentralized and difficult for operators. However, for patient companies with deep pockets, the market potential in the region is large, especially in countries such as Argentina and Peru. The level of optimism has been raised in Brazil and Mexico for gaming legislation in the near future. Legislation in Brazil, the most populous country in Latin America, would affect regional markets that target Brazilian players, notable Argentina, Uruguay and Paraguay. Sodak Gaming, International Thunderbird, Starwood, Hilton Hotels (Conrad International), IGT and also very active, especially Recreativos Franco, Cirsa/Unidesa and Leisure & Gaming. Caribbean - --------- Although dominated by small hotel and resort-based casino operations, gaming in the Caribbean is expanding into new areas, as well as growing in established markets. The Bahamas offers the most substantial casinos in the region, followed by Puerto Rico and Aruba. Casinos can also be found on other islands such as St. Maarten, Curacao, and Antigua. B. Internet Entertainment Industry ------------------------------- Internet gambling offers people the opportunity to play virtual sports, horseracing, slot machines and other casino games without the inconvenience of leaving their home. While Internet gambling provides some amount of competition Registration Statement Page 12 NET-FORCE SYTEMS, INC. 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.
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 2,000 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." Current market size estimates for Internet gambling are $650 million in 1999, growing to more than $10.0 billion by 2002 according to Datamonitor. INTERNATIONAL OUTLOOK ON INTERNET GAMING While the U.S. is debating whether to prohibit Internet gaming or create legislation to severely regulate the industry, other countries are viewing it as a revenue generator. Most Internet gambling 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 Registration Statement Page 13 NET-FORCE SYTEMS, INC. service providers who will check the identity and address of the gambler. Winnings will then be taxed accordingly, with the taxes forwarded at the appropriate rate for the state in which the service provider is based. On May 15, 1998, European gambling regulators from 18 European countries signed a recommendation on good practices for Internet gambling services. In the non-binding statement, the countries agreed that European countries should be free to regulate Internet gambling services. In addition, the countries should ensure that Internet gambling is not used for money laundering or under-aged gambling. V. COMPETITION ----------- The online commerce market is new, rapidly evolving and intensely competitive, and we expect that competition will further intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites at a relatively low cost. Management estimates that there are over 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. VI. RISKS ----- A. RISKS RELATED TO THE BUSINESS ----------------------------- Limited Operating History. The Company was recently formed and has limited - ------------------------- operating history. Since incorporation, the Company has expended resources on technology, license fees, website development, hiring of personnel and startup Registration Statement Page 14 NET-FORCE SYTEMS, INC. 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. There can be no assurance at this time that we will operate profitably or that we will have adequate working capital to meet our obligations as they become due. We believe that our success will depend in large part on our ability to (i) offer aesthetic, interesting and diverse casino-style games on our websites, as well as sports and pari-mutuel wagering, (ii) attract players and provide them with outstanding service, (iii) instill consumer confidence, and (iv) achieve name recognition. Accordingly, we intend to invest heavily in site development, technology and operating infrastructure, as well as marketing and promotion. As a result, we expect to incur operating losses in the initial stages of our business and for the foreseeable future. No Assurance of Profitability. Our business is speculative and dependent upon - ----------------------------- the acceptance of our websites and the effectiveness of our marketing program. Our only assets will be the offshore Internet gaming websites, some administrative office furniture and equipment and the revenues derived from the websites. There can be no assurance that our Internet gaming and sports wagering websites will be successful or result in revenue or profit. There is no assurance that we will earn significant revenues or that investors will not lose their entire investment. Failure to Respond to Change. If we face material delays in introducing new - ---------------------------- services, products and enhancements, customers may forego the use of our services and use those of competitors. To remain competitive, we must continue to enhance and improve the functionality and features of the websites. The Internet and the online commerce industry are rapidly changing. If competitors introduce new products and services, or if new industry standards and practices emerge, the existing websites, technology and systems may become obsolete. To develop the websites and technology entails significant technical and business risks. We may use new technologies ineffectively or may fail to adapt the technology to meet customer requirements or emerging industry standards. Intellectual Property Claims. Other parties may assert infringement or unfair - ---------------------------- competition claims against the Company. We cannot predict whether they will do so, or whether any future assertions or prosecutions will harm the business. If we are forced to defend against any infringement claims, whether they are with or without merit or are determined in our favor, then we may face costly litigation, diversion of technical and management personnel, or product shipment delays. Further, the outcome of a dispute may be that management would need to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to management, or at all. Reliance on Trademarks and Copyrights. We intend to take steps to protect - ------------------------------------- proprietary rights which steps may be inadequate. Management regards copyrights, service marks, trademarks, trade secrets and similar intellectual property as critical to its success. We intend to rely heavily on trademark and copyright law, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect proprietary rights. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which we intend to provide its services. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of intended trademarks and other proprietary rights. Risks Inherent in a New Industry. Both the Internet and Internet-based casinos - -------------------------------- are relatively new industries. The market for Internet and Sports wagering has only recently begun to develop, is rapidly evolving and is characterized by an increasing number of market entrants. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for recently introduced services are subject to a high level of uncertainty. There can be no assurance that gaming and wagering on the Internet will become widespread, or that our websites will become widely used. If the market fails to develop, develops more slowly than expected or becomes saturated with competitors or if our services do not achieve market acceptance, our business, operating results, and the financial condition will be materially adversely affected. Because of the Registration Statement Page 15 NET-FORCE SYTEMS, INC. uncertainty regarding the legality of Internet wagering in the United States, and the existing or possible prohibitions in other jurisdictions, we will not permit play by Canadian residents, and may be precluded from offering play to residents of other countries. Online Commerce Risks - Reliance on World Gaming, Plc. 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. Lack of Consumer Confidence. Concerns that a virtual casino's odds can be easily - --------------------------- and arbitrarily manipulated may deter customers from using our website. There can be no assurance that we will be able to instill customer confidence in and alleviate negative perceptions about Internet gaming. If our efforts are unsuccessful, it could have a material adverse effect on our business, financial condition and the results of operations. Competition. The market for our Internet gaming and sports wagering services is - ----------- intensely competitive. Our principal competitors include other on-line Internet casinos. These competitors have longer operating histories, greater name recognition, larger installed customer bases, and substantially greater financial, technical and marketing resources than us. We believe that the principal factors affecting competition in its proposed market include name recognition, ability to develop aesthetic and diverse casino-style games, customer confidence, ability to respond to changing customer needs, and ease of use. Other than technical expertise and the limited time available to enter the market, there are no significant proprietary or other barriers of entry that could keep potential competitors from developing or acquiring similar tools and providing competing services in our proposed market. Our ability to compete successfully in the on-line casino and sports wagering business will depend in large part on its ability to attract new players and respond effectively to continuing technological changes by developing more sophisticated on-line casino games. There can be no assurance that we will be able to compete successfully in the future, or that future competition will not have a material adverse effect on the business, operating results and financial condition of the Company. Potential for indebtedness. There is no assurance that we will not incur debt in - -------------------------- the future, that it will have sufficient funds to repay its indebtedness or that we will not default on our debt, jeopardizing our business viability. Furthermore, we may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to conduct our business. No Assurance that Dividends Will be Paid. We do not currently anticipate - ---------------------------------------- declaring and paying dividends to our shareholders in the near future. It is our current intention to apply net earnings, if any, in the foreseeable future to increasing our capital base and marketing. Prospective investors seeking or needing dividend income or liquidity should therefore not purchase the Shares. There can be no assurance that we will ever have sufficient earnings to declare and pay dividends to the holders of our Common Stock, and in any event, a decision to declare and pay dividends is at the sole discretion of our Board of Directors. Government Regulation. The wagering and casino industry is subject to extensive - --------------------- government regulation and licensing requirements in certain jurisdictions of the world. Legal uncertainties may preclude us from offering our planned Internet Registration Statement Page 16 NET-FORCE SYTEMS, INC. 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. Dependence on Key Personnel. Our success is substantially dependent on the - --------------------------- performance of our executive officers and key employees. Given our early stage of development in the Internet gaming business, we are dependent on our ability to retain and motivate high quality personnel. Although we believe we will be able to attract, retain and motivate qualified personnel for such purposes, an inability to do so could materially adversely affect the Company's ability to market, sell, and enhance our services. The loss of one or more of our employees or our inability to hire and retain other qualified employees could have a material adverse effect on the Company. Currently, we identify Mr. Terry G. Bowering, President and Chief Executive Officer, as a key person, as he is involved in the direction of all aspects of the daily operations of the Company. Mr. Bowering does not have an employment contract in place, nor is there any key person insurance on himself. We also depend on Mr. 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. (See "MANAGEMENT"). Uninsured Losses. There is no assurance that we will not incur uninsured - ---------------- liabilities and losses as a result of the conduct of its proposed business. We plan to maintain comprehensive liability and property insurance at customary levels. We will also evaluate the availability and cost of business interruption insurance. However, should uninsured losses occur, the shareholders could lose their invested capital. Liabilities. We may have liabilities to affiliated or unaffiliated lenders. - ----------- These liabilities would represent fixed costs, which would be required to be paid regardless of the level of profitability experienced by us. There is no assurance that we will be able to pay all of our liabilities. Furthermore, we are always subject to the risk of litigation from players, employees, suppliers or others because of the nature of our business. Litigation could cause us to incur substantial expenses and, if cases are lost, judgments and awards could add to the Company's costs. B. RISKS RELATED TO THE INDUSTRY ----------------------------- Dependence on increasing use of the Internet. Our future revenues substantially - -------------------------------------------- depend upon the increased acceptance and use of the Internet and other online services as a medium of commerce. Rapid growth in the use of the Internet, the Web and online services is a recent phenomenon. As a result, acceptance and use may not continue to develop at historical rates and a sufficiently broad base of customers may not adopt, and/or continue to use, the Internet and other online services as a medium of commerce and entertainment. Demand and market acceptance for recently introduced services and products over the Internet are subject to a high level of uncertainty and there exist few proven services and products. In addition, the Internet may not be accepted as a viable long-term commercial marketplace for a number of reasons, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. If the Internet continues to experience significant expansion in the number of users, frequency of use or bandwidth requirements, the infrastructure for the Internet may be unable to support the demands placed upon it. In addition, the Internet could lose its viability as a commercial medium due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity, or due to increased governmental regulation. Changes in, or insufficient availability of, telecommunications services to support the Internet also could result in slower response times and adversely affect usage of the Internet generally. Our business, financial condition and results of operations would be seriously harmed if: use of the Internet, the Web and other online services does not continue to increase or increases more slowly than expected; the infrastructure for the Internet, the Web and other online services does not effectively support expansion that may occur; the Internet, the Web and other online services do not become a viable commercial marketplace; or traffic to the websites decreases or Registration Statement Page 17 NET-FORCE SYTEMS, INC. fails to increase as expected or if management spends more than was expected to attract visitors to the websites. Inability to Acquire Domain Names. We may be unable to acquire or maintain Web - --------------------------------- domain names relating to the brand in the jurisdictions in which management may conduct business. As a result, we may be unable to prevent third parties from acquiring and using domain names relating to our brand, which could damage our brand and reputation and take customers away from our websites. We currently hold the www.aogaming.com, www.aocasino.com and www.aosportsbook.com domain ---------------- ---------------- -------------------- names and may seek to acquire additional domain names. Governmental agencies and their designees generally regulate the acquisition and maintenance of domain names. The regulation of domain names in the United States and in foreign countries is subject to change in the near future. The changes in the United States are expected to include a transition from the current system to a system that is controlled by a non-profit corporation and the creation of additional top-level domains. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. Requirements to Change Manner of Business. The adoption or modification of laws - ----------------------------------------- or regulations relating to the Internet could adversely affect the manner in which we propose to conduct our business. In addition, the growth and development of the market for online gaming may lead to more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on the Company. Laws and regulations directly applicable to communications or commerce over the Internet are becoming more prevalent. The United States Congress recently enacted Internet laws regarding children's privacy, copyrights, taxation and the transmission of sexually explicit material. The European Union recently enacted its own privacy regulations. Laws regulating the Internet, however, remain largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel, and taxation apply to the Internet. In order to comply with new or existing laws regulating online commerce, we may need to modify the manner in which we propose to do business, which may result in additional expenses. For instance, we may need to spend time and money revising the process by which we intend to accept players' wagers to ensure that each wager complies with applicable laws. We may need to hire additional personnel to monitor compliance with applicable laws. We may also need to modify our software to further protect players' personal information. Liability for Content. As a publisher of online content, we face potential - --------------------- liability for defamation, negligence, copyright, patent or trademark infringement, or other claims based on the nature and content of materials that we publish or distribute. If we face liability, then our reputation and our business may suffer. In the past, plaintiffs have brought these types of claims and sometimes successfully litigated them against online companies. In addition, we could be exposed to liability with respect to the unauthorized duplication of content or unauthorized use of other parties' proprietary technology. Although we intend to carry general liability insurance, such insurance may not cover claims of these types. We cannot be certain that we will be able to obtain insurance to cover the claims on reasonable terms or that we will be adequate to indemnify the management or the Company for all liability that may be imposed. Any imposition of liability that is not covered by our insurance or is in excess of insurance coverage could harm the business. The Imposition of Taxes. If one or more states or any foreign country - ----------------------- successfully asserts that we should collect taxes on the winnings earned by players, the financial position and results of operations could be harmed. If we become obligated to collect taxes, we will need to update our system that processes wagers and winnings to calculate the appropriate sales tax for each player and to remit the collected sales to the appropriate authorities. These upgrades will increase operating expenses. In addition, players may be discouraged from utilizing our websites because they have to pay tax, causing net sales to decrease. As a result, we may be adversely materially affected. C. RISKS RELATED TO SECURITIES MARKETS ----------------------------------- Inability to meet Future Capital Requirements. We cannot be certain that - --------------------------------------------- additional financing will be available on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-related Registration Statement Page 18 NET-FORCE SYTEMS, INC. or debt securities, the securities may have rights, preferences or privileges senior to those of the rights of the common stock and those stockholders may experience additional dilution. We expect to require substantial working capital to fund the business. Since inception, we have experienced negative cash flow from operations and expect to experience significant negative cash flow from operations for the foreseeable future. Management currently anticipates that the private financing done to date, together with expected revenues, will be sufficient to meet anticipated needs for working capital and capital expenditures through at least the next 12 months. After that, we may need to raise additional funds. Volatility of the Common Stock. The market price for our common stock is likely - ------------------------------ to be highly volatile and subject to wide fluctuations in response to factors including the following, some of which are beyond our control: actual or anticipated variations in the quarterly operating results; announcements of technological innovations or new services by us or our competitors; changes in financial estimates by securities analysts; conditions or trends in the Internet and/or online commerce or gaming industries; changes in the economic performance and/or market valuations of other Internet, online gaming companies; announcements by management or competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; additions or departures of key personnel; release of lock-up or other transfer restrictions on the outstanding shares of common stock or sales of additional shares of common stock; and potential litigation. In addition, the stock market has from time to time experienced extreme price and volume fluctuations. These broad market fluctuations may adversely affect the market price of our common stock. Securities Class Action Lawsuit. In the past, following periods of volatility in - ------------------------------- the market price of their stock, many companies have been the subject of securities class action litigation. If we were sued in a securities class action, it could result in substantial costs and a diversion of management's attention and resources and would cause the stock price to fall. VII. REGULATORY BACKGROUND --------------------- In July 1998, the U.S. Senate voted to largely prohibit gambling on the Internet. Under the legislation, operators of illegal Internet gambling sites could be sentenced to up to four years in jail and fined up to $20,000. Gamblers who illegally bet via the Internet could receive a jail sentence of up to three months and a fine of either $500 or three time the amount of the bet. Some Internet-based "fantasy" or "rotisserie" sports league activities would be exempt from the ban. However, in August 1998 the U.S. House of Representatives overwhelmingly voted down the legislation. On March 23, 1999, Senator Kyl (R-Arz.) submitted Bill S.692 to the Senate for consideration. If passed, this Bill would also serve to effectively outlaw gambling on the Internet in the United States. As of November 1, 1999 the Senate had not voted on this legislation, in part because it is effectively the same legislation that was voted down in 1998, and even if it should pass a Senate vote it is highly questionable as to whether the House of Representatives would view it any differently from the last Internet gaming bill. The move on the part of the federal government to ban Internet gambling is a departure from gambling policy. The federal government has typically left the issue up to the authority of the state governments, resulting in a wide range of attitudes towards gambling. Most states allow some type of gambling whether it be full casinos, card rooms, pari-mutuel tracks or state-operated lotteries. Only two states, Hawaii and Utah, prohibit all forms of gaming. While passage of the act is possible, in one form or another, practical enforcement of the law is a separate matter. The Internet is a global information and communications medium operating without boundaries. Due to the global nature of this medium, no regulatory agency has control over the content of information accessible to users. The inability of governments to regulate materials it deems offensive or illegal results in political and social frustration. Measures to remove offensive materials, such as those classified as containing adult content, have been unsuccessful to date. The same enforcement problems will be encountered with gambling sites. These are three avenues through which law enforcement officials may attack the problem: the gaming website, the ISP or the user. The enforcement of anti-Internet gambling laws through each of the avenues presents interesting social and technological problems. In the United States, the ownership and operation of land-based facilities has traditionally been regulated on a state-by-state basis. According to a recently published industry report by Bear Stearns, the Federal Government's role in Registration Statement Page 19 NET-FORCE SYTEMS, INC. regulating gambling appears to be changing. Increased Federal interest may not result in new regulations for the traditional forms of gambling that are easily subject to police power of the individual states, may result in a redefined role for the Federal Government in dealing with Internet gaming. The U.S. Department of Justice currently maintains that, technically, there are no specific U.S. Federal provisions against placing of bets overt the Internet. However, the Justice Department also maintains that it is illegal to operate Internet Gaming Websites and servers from within the United States. We are not physically located in the United States nor do we house any computer servers or other such computer hardware within the United States. The United States Federal Wire Act contains provisions that make it a crime for anyone engaged in the business of betting or wagering to knowingly use telephone wires to transmit bets or wagers or information assisting in the placing of bets or wagers on any sporting event, unless the wagering is legal in the jurisdiction from which, and into which, the transmission is made. There are other Federal laws impacting gaming activities, including the Wagering Paraphernalia Act, the Travel Act, and the Organized Crime Control Act. However, it remains unresolved whether these laws apply to gaming conducted over the Internet. All aspects of our operations specifically involve the Internet for delivery of our online gaming support services. We do not operate a telephone wagering facility for the purpose of accepting and booking bets on sporting events. March 4, 1998 marked the first federal prosecution for gambling on the Internet as 21 American gambling site operators were charged with conspiring to illegally transmit bets over the Internet and the telephone. The men were owners or managers of eight Caribbean and Central American-based companies that accepted telephone and Internet wagers on sporting events. The individuals were charged with felonies under the Wire Act, which explicitly prohibits placing sports wagers over State lines via telephone wire. However, the Wire Act does not directly identify or address the use of the Internet with its logistical factors including the question of global borders and jurisdiction as it relates to where a wager is actually received and/or processed. Only one of these indictments resulted in a trial. Jay Cohen took the matter to trial and was convicted of seven counts of violating the Wire Act and one count of conspiracy. Mr. Cohen received a $5,000 fine and a 21-month prison sentence. The common factor in all of the operators indicted was the fact that all were clearly directly accepting and booking sports wagers via telephone lines from the U.S. The following are excerpts from an article by Fred Faust of Rolling Good Times Online entitled "U.S. Judge Backs Visa and MasterCard in Internet Gambling --------------------------------------------------------- Ruling", submitted on March 12, 2001. This article highlights an important - ------ federal ruling: More than 11 federal cases against the credit card companies and several of the issuing banks were consolidated and assigned to Judge Stanwood R. Duval Jr. in New Orleans. The plaintiffs were people who lost money gambling online. If the casinos had not accepted credit cards, the plaintiffs argued, they wouldn't have gambled online. On Feb. 23, (2001) Duval dismissed the cases outright, before they even got to trial. That's an unusually strong step for a judge, but Duval ruled that the plaintiffs had no grounds to bring these cases. Perhaps more significantly, he also ruled that Internet casinos do not violate federal law. "Plaintiffs in these cases are not victims," the judge stated in his ruling. "At this point in time, Internet casino gambling is not a violation of federal law." In an opinion shared by many lawyers, Duval ruled that the 1961 federal Wire Act, under which telephone and Internet bookmaker Jay Cohen was convicted, applies only to sports betting and "does not prohibit Internet casino gambling." CURRENT INTERNET GAMBLING ENFORCEMENT Senator Jon Kyl released his proposed "Internet Gambling Prohibition Act" on March 29, 1999. A similar Bill, also proposed by Senator Kyl failed to pass in 1998. The current proposed 28-page Bill attempts to ban most forms of gambling on the Internet within U.S. borders. There is no prohibition on individuals placing bets over the Internet, only "gambling businesses" within U.S. jurisdictions, are proposed to be prohibited. The Bill also outlines several exemptions, some of which are summarized as follows: o The basic proposal states that it shall be unlawful for a person engaged in a gambling business to use the Internet or any other interactive computer service to place, receive, or otherwise make a bet or wager. The significance of the language is that it does not make the act of gambling on the Internet illegal. Only gambling businesses based and operated within U.S. borders are affected. Registration Statement Page 20 NET-FORCE SYTEMS, INC. o Penalties for violators include fines in the amount of total wagers received, or $20,000, whichever is greater, and jail time of up to four years. This is significant and, if approved, will limit new participants. o Several types of gambling are exempted. These include fantasy sports leagues, state lotteries, and certain activities under the Interstate Horseracing Act of 1978. o The Bill provides that interactive computer service providers shall have no liability for hosting illegal gambling businesses. In its proposed format, compliance will be difficult to enforce. Therefore, it seems the Bill will not pass in its current format. Some selected reasons are summarized below as extracted from "Staking VALUE Early", The RESOURCE INDICATOR, Vol. 3, No. 15: o In testimony before the House Justice subcommittee on crime, Deputy Assistant Attorney General Kevin V. DiGregory said the long reach of the Internet into people's homes and across international borders creates special obstacles for law enforcement. It simply will not be enforceable. o Prosecutors will not be able to indict operators of virtual casinos who are based legally in other countries. The Deputy Assistant Attorney General supported this claim by stating that a foreign national who is operating a licensed Internet-based casino in his country will not be violating his country's laws if he solicits or accepts bets from Untied States citizens. o It is nearly impossible to close off an entire category of content, since presently, there is no mechanism to automatically identify and screen out types of content from U.S. Internet consumers. o In Australia, just seconds away in cyberspace, lawmakers are taking the opposite road. Rather than attempting to ban Internet gaming, Australian politicians are attempting to regulate online wagering by developing a seal of approval that will draw players from unregulated cybercasinos and bring new tax revenue to Australia. o Other nations, including Sweden, Germany, South Africa, Costa Rica, Antigua, the Marshall Islands, and Curaco have already begun licensing and regulatory processes for online casino operators. o Even if enacted, Michael Mount, deputy press secretary for Senator Kyl, said the law will do little to stop an operator who is headquartered abroad. "It will be hard to regulate it", he said of the possibility that foreign sites might accept bets from inside of the United States. "There is nothing the [law enforcement] can do if everything is run over there, including the ISP." ("Senate effort to outlaw Internet Gambling may prove futile," Knight-Riddler/Tribune News: Wed, May 12, 1999). The only known federal case against an Internet gambling operator prior to the March 1998 federal prosecutions involved the Interactive Gaming and Communications Corporation in Pennsylvania. The company operated a virtual gambling operation in Grenada, which reportedly handled over $58 million in wagers. In February 1997, FBI agents seized company records and froze company assets. ("Can Lawmakers Control Online Gambling?" New York Times, Peter Lewis, September 22, 1997). The company is also involved in legal issues with the state Attorney General's Office. No formal charges were filed by the Department of Justice, although the company eventually sold its gambling assets to a Canadian-based company. STATES' ROLES IN INTERNET GAMBLING Residents in states prohibiting gambling may circumvent anti-gaming laws by logging into the Internet. Several states have taken the initiative to curtail Internet Gambling within its borders by taking legal action against the website operators. In the following section, measures taken by state offices to prosecute Internet and offshore gambling operations that have transacted business within their state are summarized. Registration Statement Page 21 NET-FORCE SYTEMS, INC. Nevada - In July 1997, Nevada became the first state to pass a law prohibiting, and legalizing, Internet gambling. It is a misdemeanor to place a bet from Nevada over the Internet, regardless of the location of the gambling site. In addition, the law allows for the prosecution of those accepting bets from Nevada residents. However, Senate Bill 318 is also the first statute to expressly allow: "licensed" race and sports books, off-track betting operators and casinos to accept wagers via the Internet (Rose, J. Nelson, Gambling and the Law, "Nevada First State to Expressly Prohibit, and Legalize, Internet Gambling," (Whittier Law School, Los Angeles, CA), May 12, 1999). Minnesota - The Minnesota Attorney General sued Wager Net Web, a Las Vegas-based company that was preparing to offer sports betting over the Internet, for consumer fraud when the company advertised that its service was legal. The company intended the service to be set up and run by another company located outside the U.S. Subsequently, the company filed an appeal with the state court of appeals claiming that the state did not have jurisdiction over the company since it was not based in Minnesota. In December 1997, a Minnesota state court ruled that the Attorney General does indeed have jurisdiction to prosecute Internet gambling companies. (The National Bet, U.S. News Online, Dan McGraw). The state is seeking a court order to stop the advertising and civil penalties of at least $25,000. The case reached the Minnesota State Supreme Court, where on May 8, the same court upheld a lower court's ruling. The court, however, did not address the issue of whether Internet gambling itself is illegal. Wisconsin and Missouri - The Coeur d'Adlene Indian Tribe of Idaho, Unistar Entertainment and Executone Information Systems are being sued by the attorneys general of Wisconsin and Missouri over the operation of a national online lottery. The tribe claims that it has the authorization to operate the lottery under the Indian Gaming Regulatory Act of 1988 since the computer server operating the games is located on the reservation. The states contend that the gambler must be physically present on the reservation when gambling as opposed to using the Internet. The lawsuit seeks injunctions to stop the operation of the gambling sites in Wisconsin, in addition to fines and consumer restitution ("Wisconsin Sues Over Internet Gambling," The Associated Press, The New York Times on the Web, September 16, 1997). Missouri - In May 1998 a Missouri judge upheld a civil lawsuit against Interactive Gaming and Communication Corporation (IGCC) by the state's attorney general. IGCC was found to have violated state consumer protection law, fined $66,000 and ordered to "reject and refuse" all applications by Missouri residents. When the company accepted wagers by undercover agents in Missouri, criminal charges were filed against the company's president. The case is still pending. We are presently of the view that we are not prohibited from offering our services and accepting wagers from residents of almost all jurisdictions in the world. However, Internet gaming is a relatively new activity and some or all of these jurisdictions may take action to more severely regulate or even prohibit Internet gaming operations in their jurisdictions. We intend to adopt a proactive policy of lobbying international jurisdictions, where appropriate, for purposes of seeking approval of Internet gaming and the regulation of those activities on a basis that is favorable to us. In addition to the aforementioned regulations pertaining specifically to gaming, we may become subject to any number of laws and regulations that may be adopted with respect to the Internet in general as the Internet becomes widely used. These laws may cover issues such as user privacy, freedom of expression, pricing, content and quality of services, taxation, advertising, intellectual property rights and information security. Furthermore, the growth of online commerce may prompt calls for more stringent consumer protection laws. Several states have proposed legislation to limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. Management does not contemplate providing personal information regarding our customers to third parties. However, the adoption of additional consumer protection laws could create uncertainty in Web usage and reduce the demand for our products and services. We are not certain how our business may be affected by the application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, taxation, libel, obscenity and export or import matters. The vast majority of these laws were adopted prior to the advent of the Internet. As a result, they do not contemplate or address the unique issues of the Internet and related technologies. Changes in laws that Registration Statement Page 22 NET-FORCE SYTEMS, INC. are intended to address these issues could create uncertainty in the Internet market place. This uncertainty could reduce demand for our services or our cost of doing business may increase as a result of litigation costs or increased service delivery costs. In addition, because our services are intended to be made available over the Internet in multiple foreign countries, other jurisdictions may claim that we are required to qualify to do business in that foreign country. We intend to qualify to do business only in Antigua and Barbuda. Our failure to qualify in a jurisdiction where it is required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in these jurisdictions. The application of laws or regulations from jurisdictions whose laws do not currently apply to the business could have a material adverse effect on the business, results of operations and financial condition. Our Internet operations and corporate structure are structured in such a fashion that we do not directly process wagers and facilitate payments of betting customers, nor do we accept wagers via the telephone on sporting events. Further, we do not physically operate within the boundaries of the United States. Therefore, we are of the view that we are not in violation of or specifically subject to the Wire Act of 1961. However, this may not preclude the United States or other jurisdictions from initiating criminal or civil proceedings against us and these proceedings could involve substantial litigation expense, penalties, and fines. In addition, these proceedings may divert the attention of our key executives, and may result in injunctions or other prohibitions against us. These proceedings could have a material adverse effect on the business, revenues, operating results, and financial conditions. VIII. DISCLOSURE ---------- The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and/or obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, we intend to be an electronic filer and as such, all items filed by us are available through an Internet site maintained by the SEC which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which site is available at http://www.sec.gov. We also maintain an Internet site, which contains information about the Company. This site is available at http://www.netforcesystems.com. - ------------------------------ ITEM 2. DESCRIPTION OF PROPERTY The Company 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. ITEM 3. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS We are not aware of any material legal proceedings involving any director, director nominee, promoter or control person including criminal convictions, pending criminal matters, pending or concluded administrative or civil proceedings limiting one's participation in the securities or banking Registration Statement Page 23 NET-FORCE SYTEMS, INC. industries, or findings of securities or commodities law violations. However, legal bankruptcy proceeding under Canadian law involving Terry Bowering in 1997, concluded with Mr. Bowering receiving a judicial discharge. LEGAL PROCEEDINGS The issuer is not a party to any pending legal proceeding nor is its property the subject of any pending legal proceeding. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS There have been no disagreements on accounting and financial disclosures from the inception of the Company through to the date of this Registration Statement. A change of auditors occurred on October 25, 2000. Our initial auditors, Pannel Kerr Forster of Antigua, agreed to transfer the audit file to HJ & Associates, L.L.C. of Salt Lake City, Utah, U.S.A. EXPERTS The consolidated financial statements of Net-Force Systems Inc. as at October 31, 2001, April 30, 2001and April 30, 2000, appearing in this Registration Statement have been audited by HJ & Associates L.L.C. with head offices in Salt Lake City, Utah, U.S.A., independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables set forth certain information regarding beneficial ownership of our Common Stock as of October 31, 2001 by (i) each person who is known to us to own beneficially more than 5% of our outstanding Common Stock, (ii) each of our directors, (iii) executive officers and (iv) all current directors and executive officers as a group.
Name and Address Amount and Nature Percent of Beneficial Owner of Beneficial Owner (1) of Class - ------------------------------------------------------------------------------------------ Terry G. Bowering 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 24 NET-FORCE SYTEMS, 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 16,906,333 100% - --------------------------------------- (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 Kevin C. Mellor is beneficial owner, enjoys legal ownership of said securities.
Note: The table does not reflect the stock options that may be granted to Employees, Officers, Directors or Consultants nor does it reflect the warrants offered. CHANGES IN CONTROL Management is not aware of any arrangements, which may result in a change of control of the issuer. ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS (a) There are no governmental laws, decrees, or regulations in Antigua and Barbuda under the "Act" that restrict the export or import of capital of the registrant as an exempt corporation under the "Act". Section 280 of The International Business Corporations Act, 1982, Antigua and Barbuda, states the following with respect to exchange controls: "280. The income, profits, gains and other revenues, and the funds and securities of an exempt corporation that are generated, acquired or managed in the course of the international trade or business of the exempt corporation are exempt from the Exchange Control Ordinance; and, unless the exempt corporation is a resident, the income, profits, gains, and other revenues of the exempt corporation are also exempt from that Act." (b) There are no limitations on the right of nonresident or foreign owners to hold or vote the securities to be registered in this filing by the registrant company either under the "Act" or by charter or other constituent document of the registrant. ITEM 7. TAXATION United States security holders of the registrant company are not subject to taxes or withholding provisions. Sections 271- 274 of the International Business Corporations Act, 1982, Antigua and Barbuda, Division G: Special Taxation Provisions detail the relevant tax provisions under the Act. Section 271, "Exempt corporations" states the following: "For the purposes of this Division, an exempt corporation shall mean any corporation formed or continued under this Act." Section 272, "Exemption from tax" states the following: Registration Statement Page 25 NET-FORCE SYTEMS, INC. (1) No income tax, capital gains tax, or other direct tax or impost may be levied in Antigua and Barbuda upon the profits or gains of an exempt corporation, in respect of the international trade and business it carries on from within Antigua and Barbuda. (2) No income tax, capital gains tax, or other direct tax or impost may be levied in Antigua and Barbuda in respect of any securities or assets of an exempt corporation that are beneficially owned by an exempt corporation or by a person who is not a resident. (3) No estate, inheritance, succession or similar tax or impost may be levied in Antigua and Barbuda in respect of any securities or assets of an exempt corporation that are beneficially owned by an exempt corporation or by a person who is not a resident. (4) No tax, duty or other impost may be levied upon the increment in value of the property, or other assets in Antigua and Barbuda or elsewhere of an exempt corporation other than upon such of them as are distributed to residents. Section 273, "No assets transfer tax". (1) No tax, duty or other impost may be levied upon an exempt corporation, its security holders or transferees in respect of the transfer of all or any part of it's securities or other assets to another exempt corporation or to a person who is not a resident. (2) When an exempt corporation or a person who is not a resident transfers securities or assets of an exempt corporation that are held by that exempt corporation, or person to another exempt corporation, or to another person who is not a resident, the transfer is exempt from the payment of any tax, duty, or other impost thereon. (3) No income tax or capital gains tax, and no other direct tax or impost, may be levied or collected in Antigua and Barbuda, in respect of any dividends interests or other returns from any securities, deposits or borrowings of an exempt corporations or any assets managed by the exempt corporation if the dividends, interest or other returns are in respect of securities, deposits, borrowings or assets beneficially owned by another exempt corporation, or a person who is not a resident; but the onus of establishing ownership, lies upon the exempt corporation holding or managing the deposits, borrowings or assets. Section 274, "Withholding tax and report" (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. Registration Statement Page 26 NET-FORCE SYTEMS, INC. ITEM 8. SELECTED FINANCIAL DATA Selected Financial Data Set forth below is certain selected consolidated financial data of the Company for the April 30, 2001 and April 30, 2000 year-ends. The selected financial information is derived from the Company's audited consolidated financial statements for the period. The company's consolidated financial statements are prepared in accordance with US GAAP. The information set forth below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations. SUMMARY OF OPERATIONS (audited) Stated in US Dollars 2001 2000 ------ ------ Sales 318,490 1,399 Gross Profit 100,721 (78) Loss from operations (406,798) (355,681) Other Income and Expenses (77,799) (41,685) Net Loss (484,597) (397,366) Basic Loss Per Share (0.07) (0.05) Weighted Average Number of Shares 7,171,233 8,500,000 Total Assets 269,194 221,512 Total Current Liabilities (773,554) 39,181 Long Term Debt (178,596) 550,690 Total Liabilities (952,150) 589,871 Common Stock 7,500 8,500 Paid in Capital 198,000 27,000 Accumulated deficit (888,456) (403,859) Total Stockholders Equity (682,956) (368,359) Total Liabilities and Shareholders Deficit 269,194 221,512 Eastern Caribbean and US Dollar Exchange Rates - ---------------------------------------------- On March 22, 2000, the company received the following clarification from the Director of Banking & Monetary Operations, Eastern Caribbean Central Bank, Basseterre, St. Kitts, West Indies: "The Eastern Caribbean dollar is pegged to the United States Dollar rate of 2.70. This rate has remained unchanged for several years and therefore is the average exchange rate for the Eastern Caribbean Dollar to the United States Dollar for the past five years." All revenues are received in US Dollars. In addition, all marketing and advertising expenditures and equipment of a material nature, are transacted in US Dollars. Normal monthly office overhead expenses that include office rent, leasehold improvements, utilities, bandwidth charges, and local salaries are conducted in the EC Dollar. Dividends The company has not paid any cash dividends since its inception. The Company does not intend to pay any cash dividends in the foreseeable future, but intends to retain earnings, if any, for use in its business operations. Registration Statement Page 27 NET-FORCE SYTEMS, INC. ITEM 9. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION I. PLAN OF OPERATIONS ------------------ A. Revenues and Financing ---------------------- Our principal source of revenue is generated from its operating subsidiary, Netforce Entertainment, Inc. Netforce Gaming is a gaming company, which oversees Internet wagering websites. It is anticipated that the Internet will continue to become more accessible and that the market opportunities for us will continue to expand. This tremendous growth will also attract many potential new competitors. In order to maintain revenue growth, we intend to expand the content and to improve the services on its Internet websites on a global basis, as well as researching and developing other projects that will utilize its existing facilities and expertise. 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 web-site less winnings by customers in the virtual casino and/or sportsbook wagering web-site less transaction processing fees for a given calendar month. 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 Service 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). Registration Statement Page 28 NET-FORCE SYTEMS, INC. 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 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 October 31st, 2001 have consisted primarily of organizational/set-up costs such as office leasehold improvements and security deposits for rent, utilities, and licenses as well as accounting/auditing and legal services. Monthly expenditures for office overhead included rent, utilities, salaries, and marketing expenditures. 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. 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 5% rolling reserve held which is rolled back to the licensee after 180 days. This reserve is required to offset any credit card chargebacks that may occur. Finally, there is a US$5.00 charge for each bank draft that is processed for payouts of winnings. Registration Statement Page 29 NET-FORCE SYTEMS, INC. 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 to allow for a slightly increased level of credit card chargebacks industry-wide. B. Operations for the Next Twelve Months ------------------------------------- Our primary on-line wagering website, www.aogaming.com, went live on the ---------------- Internet on April 7th, 2000. Since that time, the Web site has gone through several changes, re-designs, and upgrades as management had deemed necessary as a result of evolving customer needs and competitive influences. We intend to hire additional product, marketing, website and graphic design personnel over the next twelve months as is deemed necessary by management. From 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. C. Balance Sheet Data ------------------
At Oct.31,2001 At April 30,2001 April 30, 2000 -------------- ---------------- -------------- Total Assets 294,798 269,184 221,512 Shareholders' Equity (deficit) 154,280 (682,956) (368,359)
D. Liquidity and Capital Resources ------------------------------- Funding for the next year will be derived from current cash resources and expected revenues from ongoing operations. However, to fuel the growth of the company through the funding of marketing expenditures, we may seek further funding in the form of a promissory note combined with the issuance of additional stock from our treasury. The company anticipates revenues from operations will provide sufficient cash flow to supplement existing current cash resources to allow the company to adequately cover all overhead expenses over the balance of the calendar year 2002. 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. During the most recent financial quarter, 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). Registration Statement Page 30 NET-FORCE SYTEMS, INC. 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. E. Material Commitments for Capital Expenditures --------------------------------------------- Material commitments for capital expenditures as of the end of the latest interim period consisted of computer hardware and office furniture and equipment (desks and chairs), and office leasehold improvements. The office and computer hardware specifically included personal computers, printers, fax machines, and backup power supply units, which maintain operation of the electronic office equipment during short power outages. The purpose of these capital expenditure commitments was to establish a corporate and administrative office for the company. From this office, the company conducts web-site design, marketing, customer service support services for the company's websites. The company also manages corporate communications and investor relations from this office. The company maintains access to the Internet, which requires personal computers, communications hardware and software, and backup power supply units. All of the above commitments were settled in full payment from cash resources made available from the initial share issuances and from the proceeds from the promissory note. The details of the note are provided in the financial statements and in the body of the 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. F. Material Commitments for Resources ---------------------------------- As already stated, the only material commitment of resources anticipated over the next year will be marketing expenditures. Being a variable cost, marketing and advertising expenses are controlled by management. There will be no additional material capital expenditures necessary over the next year. Given that the product delivery process utilizes the Internet, overhead expenses are kept at a minimal level, as an increase in customer base and revenues does not necessarily require incremental investment in personnel or equipment. The customer service function and transaction processing system; as well as web-hosting costs are absorbed by 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. Registration Statement Page 31 NET-FORCE SYTEMS, INC. G. Impact of Inflation ------------------- The Company believes that inflation will not materially affect its business. H. 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. ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK I. QUANTITATIVE INFORMATION ABOUT MARKET RISK ------------------------------------------ Not Applicable II. QUALITATIVE INFORMATION ABOUT MARKET RISK ----------------------------------------- Not Applicable ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS I. DIRECTORS AND EXECUTIVE OFFICERS -------------------------------- Terry G. Bowering - ----------------- Chairman, President and Chief Executive Officer - ----------------------------------------------- # 2, Flamboyant Avenue P.O. Box W-645 St. John's, Antigua, West Indies DOB: August 30, 1960 (Age 41) Regina, Saskatchewan, Canada Terry G. Bowering, B.Admin, M.B.A. Mr. Bowering brings over fifteen years of experience in business management. Mr. Bowering has considerable experience in both large corporations and entrepreneurial enterprises and is qualified in the areas of business development, finance, information systems, marketing, and sales. From January 1998 until his resignation June 20, 1999, Mr. Bowering was Vice President, Offshore Operations for Starnet Communications International Inc., a Delaware corporation, which is a fully reporting issuer on the NASD OTC:BB. Described as being the "Microsoft of Internet Gaming", Starnet Communications International, Inc., 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. Registration Statement Page 32 NET-FORCE SYTEMS, INC. Mr. Bowering holds a Bachelor of Administration in Finance from the University of Regina, and a Master of Business Administration with a concentration in Strategic Management from the University of Saskatchewan. Mr. Bowering resides in Antigua, West Indies. Mr. Bowering was appointed to the above positions on March 1, 1999 to serve until his successor has been elected and qualifies. 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 33 NET-FORCE SYTEMS, 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. II. FAMILY RELATIONSHIPS -------------------- Among directors, executive officers or persons nominated or chosen by the Company to become officers or executive officers, a family relationship exists between Chairman and President Mr. Terry G. Bowering and Director Trevor L. Bowering. III. INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- Article VIII of the Company's Articles of Incorporation read as follows: Registration Statement Page 34 NET-FORCE SYTEMS, INC. INDEMNIFICATION. The Corporation shall indemnify any and all of its Directors, officers, employees or agents or former Directors, officers, employees or agents or any person or persons who may have served at its request as a Director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise in which it owns shares of capital stock or of which it is a creditor, to the full extent permitted by law. Said indemnification shall include, but not be limited to, the expenses, including the cost of any judgments, fines, settlements and counsel's fees, actually and necessarily paid or incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeals thereof, to which any such person or his legal representative may be made a party or may be threatened to be made a party by reason of his being or having been a Director, officer, employee or agent as herein provided unless such action, suit or proceeding is a result of the Director, officer, employee or agent's own negligence or illegal action. The foregoing right of indemnification shall not be exclusive of any other rights to which any Directors, officer, employee or agent may be entitled as a matter of law or which he may be lawfully granted. In addition, Section 97 of The Antigua and Barbuda International Business Corporations Act, 1982 indicates that the foregoing provisions shall not eliminate or limit the liability of a director to the corporation or to its shareholders for monetary damages for any breach of the director's duty of care to the corporation or to its shareholders, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, improper corporate distributions, or any transaction from which the director directly or indirectly derived an improper personal benefit. ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS 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. ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES To date, we have not authorized the issuance nor granted any Employee Stock Options pursuant to a Non-Qualified Stock Option Plan to any Officers, Directors, Consultants, or Employees. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS A related party transaction took place between Geneva Overseas Holdings Ltd. and Net-Force Systems Inc. Geneva Overseas Holdings Ltd. is controlled by the President of Net-Force Systems Inc., Mr. Terry G. Bowering. 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. Registration Statement Page 35 NET-FORCE SYTEMS, INC. PART II ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED The securities to be registered pursuant to this Form 20-F are all of the authorized Common Stock of Net-Force Systems Inc. Holders of the Common Stock are entitled to cast one vote for each share held at all shareholder meetings for all purposes, except that in the election of Directors, each shareholder of Common Stock shall have as many votes for each share held by him as there are directors to be elected and for whose election the shareholder has a right to vote. There are no preemptive rights associated with the securities and no cumulative voting is authorized by the Articles of Incorporation or the By-Laws. The total amount of shares authorized by the Company's Articles of Incorporation is 150,000,000. Of these, 100,000,000 are Common Stock and 50,000,000 are Preferred Stock. There has been no issuance of any Preferred stock. Dividend, voting, conversion rights, liquidation rights and other rights of the Preferred Stock, if any, will be established by the Board of Directors upon issuance. The Company has never declared or paid cash dividends on the common stock of the Company. Management intends to retain all available funds and any future earnings for use in the operation and expansion of the business and does not anticipate paying any cash dividends in the foreseeable future. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS There is no public trading market for the common equity shares of the registrant. If the registrant successfully obtains a listing, as is presently intended by management, the common equity shares will be listed upon the OTC Bulletin Board Service. As of January 28, 2002, there are approximately 38 equity holders of record of the Company's Common Stock. As of January 28, 2002, there are 2,500,000 shares of the Company's Common Stock subject to outstanding warrants to purchase or securities convertible into Common Stock of the Company. The number of shares eligible for trading will be all of the Common Stock except that which is owned by management of the Company. The Management of the Company currently owns an aggregate of 13,372,700 shares, which can be sold only in compliance with Rule 144. There have been no cash dividends declared since the inception of the Company its subsidiaries. There are no restrictions that would limit the ability to pay dividends on common equity or that are likely to do so in the future. PART IV ITEM 17. FINANCIAL STATEMENTS N/A ITEM 18. FINANCIAL STATEMENTS i. NET FORCE SYSTEMS INC. UNAUDITED QUARTERLY STATEMENT OCTOBER 31, 2001 ii. NET FORCE SYSTEMS INC. AUDITED FINANCIAL STATEMENTS, APRIL 30, 2001 Registration Statement Page 36 NET FORCE SYSTEMS INC. UNAUDITED QUARTERLY STATEMENT OCTOBER 31, 2001 NET-FORCE SYSTEMS INC. CONSOLIDATED FINANCIAL STATEMENTS October 31, 2001 and April 30, 2001 Registration Statement Page 37
NET-FORCE SYSTEMS INC. Consolidated Balance Sheets ASSETS ------ October 31, April 30, 2001 2001 ------------------ ------------------ (Unaudited) CURRENT ASSETS Cash $ 33,005 $ 33,292 Accounts Receivable, net 39,818 9,805 Reserves and deposits with credit card processors 45,519 30,858 Prepaid expenses 20,000 - ------------------ ------------------ Total Current Assets 138,342 73,955 ------------------ ------------------ PROPERTY AND EQUIPMENT 22,630 26,551 ------------------ ------------------ OTHER ASSETS Player deposits 87,367 73,828 Deposits 4,792 3,193 Gaming license 41,667 91,667 ------------------ ------------------ Total Other Assets 113,826 168,688 ------------------ ------------------ TOTAL ASSETS $ 294,798 $ 269,194 ================== ================== Registration Statement Page 38 NET-FORCE SYSTEMS INC. Consolidated Balance Sheets (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- October 31, April 30, 2001 2001 ------------------ ------------------ (Unaudited) CURRENT LIABILITIES Accounts payable $ 25,432 $ 42,400 Accrued expenses 25,205 24,351 Interest payable - related party 14 4,243 Interest payable - 81,707 Stock subscription payable - 50,000 Player deposits 87,367 73,828 Current portion note payable - related party - 2,025 Current portion note payable - 495,000 ------------------ ------------------ Total Current Liabilities 138,018 773,554 ------------------ ------------------ LONG-TERM DEBT Note payable - related party 2,500 128,596 Note payable - 50,000 ------------------ ------------------ Total Long-Term Debt 2,500 178,596 ------------------ ------------------ Total Liabilities 140,518 952,150 ------------------ ------------------ COMMITMENTS AND CONTINGENCIES 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, 16,906,033 and 7,500,000 shares issued and outstanding, respectively. 16,906 7,500 Additional paid-in capital 1,129,197 198,000 Accumulated deficit (991,823) (888,456) ------------------ ------------------ Total Stockholders' Equity (Deficit) 154,280 (682,956) ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 294,798 $ 269,194 ================== ==================
Registration Statement Page 39
NET-FORCE SYSTEMS INC. Consolidated Statements of Operations (Unaudited) For the For the Six Months Ended Three Months Ended October 31, October 31, --------------------------------- --------------------------------- 2001 2000 2001 2000 ---------------- --------------- --------------- ---------------- REVENUE Sales $ 292,544 $ 106,445 $ 169,557 $ 50,932 Cost of sales 187,421 57,564 76,567 4,012 ---------------- --------------- --------------- ---------------- Gross Margin 105,123 48,881 92,990 46,920 ---------------- --------------- --------------- ---------------- EXPENSES General and administrative 120,552 354,339 85,546 200,195 Depreciation and amortization 54,388 3,994 27,206 1,997 ---------------- --------------- --------------- ---------------- Total Expenses 174,940 358,333 112,752 202,192 ---------------- --------------- --------------- ---------------- LOSS FROM OPERATIONS (69,817) (309,452) (19,762) (155,272) ---------------- --------------- --------------- ---------------- OTHER INCOME (EXPENSE) Interest income - 204 - 204 Other income 493 10,687 - 4,257 Interest expense (34,043) (37,126) (11,831) (18,563) ---------------- --------------- --------------- ---------------- Total Other Income (Expense) (33,550) (26,235) (11,831) (14,102) ---------------- --------------- --------------- ---------------- PROVISION FOR INCOME TAX - - - - ---------------- --------------- --------------- ---------------- NET LOSS $ (103,367) $ (335,687) $ (31,593) $ (169,374) ================ =============== =============== ================ BASIC LOSS PER SHARE $ (0.01) $ (0.05) $ (0.00) $ (0.03) ================ =============== =============== ================ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 9,824,516 6,838,798 12,149,031 6,181,319 ================ =============== =============== ================
Registration Statement Page 40
NET-FORCE SYSTEMS, INC. Consolidated Statements of Stockholders' Equity (Deficit) Common Stock Additional ------------------------------ Paid-in Accumulated Shares Amount Capital Deficit -------------- -------------- ------------- ------------- Balance, March 1, 1999 - $ - $ - $ - March 1, 1999, common stock issued to founders for cash at $0.001 per share 5,500,000 5,500 - - April 22, 1999, common stock issued for cash at $0.01 per share 3,000,000 3,000 27,000 - Net loss from inception on March 1, 1999 through April 30, 1999 - - - (6,493) -------------- -------------- ------------- ------------- Balance, April 30, 1999 8,500,000 8,500 27,000 (6,493) Net loss for the year ended April 30, 2000 - - - (397,366) -------------- -------------- ------------- ------------- Balance, April 30, 2000 8,500,000 8,500 27,000 (403,859) July 1, 2000, common stock repurchased and canceled at $0.01 per share (3,000,000) (3,000) (27,000) - September 30, 2000, common stock issued for cash at $0.10 per share 2,000,000 2,000 198,000 - Net loss for the year ended April 30, 2001 - - - (484,597) -------------- -------------- ------------- ------------- Balance, April 30, 2001 7,500,000 $ 7,500 $ 198,000 $ (888,456) -------------- -------------- ------------- ------------- Registration Statement Page 41 NET-FORCE SYSTEMS, INC. Consolidated Statements of Stockholders' Equity (Deficit) (Continued) Common Stock Additional ------------------------------ Paid-in Accumulated Shares Amount Capital Deficit -------------- -------------- ------------- ------------- Balance forward 7,500,000 $ 7,500 $ 198,000 $ (888,456) August 15, 2001, common stock issued for services at $0.10 per share (unaudited) 200,000 200 19,800 - September 15, 2001, common stock issued for debt at $0.10 per share (unaudited) 2,144,830 2,145 212,338 - September 15, 2001, common stock issued for debt at $0.10 per share (unaudited) 6,027,870 6,028 596,759 - September 20, 2001, common stock issued for debt at $0.10 per share (unaudited) 533,333 533 52,800 - October 2, 2001, common stock issued for debt at $0.10 per share (unaudited) 500,000 500 49,500 - Net loss for the six months ended October 31, 2001 (unaudited) - - - (103,367) -------------- -------------- ------------- ------------- Balance, October 31, 2001 (unaudited) 16,906,033 $ 16,906 $ 1,129,197 $ (991,823) ============== ============== ============= =============
Registration Statement Page 42
NET-FORCE SYSTEMS, INC. Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended October 31, -------------------------------------- 2001 2000 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (103,367) $ (335,687) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 54,388 3,994 Stock issued for services 20,000 - Changes in assets and liabilities: (Increase) decrease in accounts receivables and other assets (63,551) (65,061) (Increase) in reserves and deposits (16,261) - Increase (decrease) in accounts payable and other current liabilities (16,111) 44,028 Increase in accrued interest 29,409 37,126 Increase in accrued interest - related party 4,634 - Increase (decrease) in player deposits 13,539 48,368 ------------------ ------------------ Net Cash Used by Operating Activities (77,320) (267,232) ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of fixed assets 333 - Purchase of fixed assets (800) (3,871) ------------------ ------------------ Net Cash Used by Investing Activities (467) (3,871) ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Common stock repurchase - (30,000) Proceeds from notes payable - related party 80,000 60,000 Payment on notes payable - related party (2,500) - Common stock issued for cash - 200,000 ------------------ ------------------ Net Cash Provided by financing Activities 77,500 230,000 ------------------ ------------------ NET INCREASE (DECREASE) IN CASH (287) (41,103) CASH AT BEGINNING OF PERIOD 33,292 131,269 ------------------ ------------------ CASH AT END OF PERIOD $ 33,005 $ 90,166 ================== ================== CASH PAID FOR: Interest $ - $ - Income taxes $ - $ - Registration Statement Page 43 NET-FORCE SYSTEMS, INC. Consolidated Statements of Cash Flows (Continued) (Unaudited) For the Six Months Ended October 31, -------------------------------------- 2001 2000 ------------------ ------------------ NON-CASH FINANCING ACTIVITIES: Issuance of stock for services $ 20,000 $ - Issuance of stock for debt $ 706,116 $ - Issuance of stock for related party debt $ 214,483 $ -
Registration Statement Page 44 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements October 31, 2001 and April 30, 2001 NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim consolidated financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated financial statements be read in conjunction with the Company's most recent audited financial statements and notes thereto included in its April 30, 2001 Annual Report on Form 20-F. Operating results for the six months ended October 31, 2001 are not necessarily indicative of the results that may be expected for the year ending April 30, 2002. NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENT The Company has adopted the provisions of FASB Statement No. 138 "Accounting for Certain Derivative Instruments and Hedging Activities, (an amendment of FASB Statement No. 133.)" Because the Company had adopted the provisions of FASB Statement No. 133, prior to June 15, 2000, this statement is effective for all fiscal quarters beginning after June 15, 2000. The adoption of this principle had no material effect on the company's consolidated financial statements. The Company has adopted the provisions of FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of FASB Statement No. 125.)" This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial-components approach that focuses on control. Under that approach, the transfer of financial assets, the Company recognized the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of this principle had no material effect on the Company's consolidated financial statements. Registration Statement Page 45 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements October 31, 2001 and April 30, 2001 NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENT (Continued) 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. In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, long-lived assets, including goodwill associated with other long-lived assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No.'s 141 and 142 -- In June 2001, the Financial Accounting ------------------------ Standards Board (FASB) adopted Statement of Financial Accounting Standards SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 is effective as to any business combination occurring after June 30, 2001 and certain transition provisions that affect accounting for business combinations prior to June 30, 2001 are effective as of the date that SFAS No. 142 is applied in its entirety, which will be January 1, 2002 for the Company. SFAS No. 142 is effective, generally, in fiscal years beginning after December 15, 2001, which will be the fiscal year ending April 30, 2002 for the Company. SFAS No. 141 provides standards for accounting for business combinations. Among other things, it requires that only the purchase method of accounting be used and that certain intangible assets acquired in a business combination (i.e. those that result from contractual or other legal rights or are separable) be recorded as an asset apart from goodwill. The transition provisions require that an assessment be made of previous business combinations and, if appropriate, reclassifications be made to or from goodwill to adjust the recording of intangible assets such that the criteria for recording intangible assets apart from goodwill is applied to the previous business combinations. Registration Statement Page 46 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements October 31, 2001 and April 30, 2001 NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENT (Continued) 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. 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. NOTE 3 - SUBSEQUENT ACCOUNTING PRONOUNCEMENTS 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. Registration Statement Page 47 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements October 31, 2001 and April 30, 2001 NOTE 3 - SUBSEQUENT ACCOUNTING PRONOUNCEMENTS (Continued) SFAS No. 144 - On October 3, 2001, the Financial Accounting Standards ------------ Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. SFAS 144 supercedes SFAS Statement No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30 (APB 30), "Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business." SFAS 144 develops one accounting model (based on the model in SFAS 121) for long-lived assets that are to be disposed of by sale, as well as addresses the principal implementation issues. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. That requirement eliminates the requirement of APB 30 that discontinued operations be measured at net realizable value or that entities include under "discontinued operations" in the financial statements amounts for operating losses that have not yet occurred. Additionally, FAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. While the Company has not completed the process of determining the effect of this new accounting pronouncement on its consolidated financial statements, the Company currently expects that the effect of SFAS No. 144 on the Company's consolidated financial statements, when it becomes effective, will not be significant. NOTE 4 - GOING CONCERN The Company's consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses from its inception through April 30, 2001 and has a significant working capital deficit. The Company does not have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. It is the intent of the Company to seek additional financing through private placements of its common stock. This will be accomplished through the use of equity issuances. Management believes the funds will more likely than not be successfully raised, but there can be no assurance of this. The Company expects that operations will increase in 2002, and will start to provide cash flows from operations and expansion. The Company expects that it will need $480,000 to $600,000 additional funds for operations and expansion in 2002. Registration Statement Page 48 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements October 31, 2001 and April 30, 2001 NOTE 5 - MATERIAL EVENTS Common Stock ------------ On August 15, 2001, the Company issued 200,000 shares of common stock valued at $0.10 per share, to a director for services and consulting. On September 15, 2001, the Company converted the related party note payable of $208,121 and accrued interest of $6,362 into equity by issuing 2,144,830 shares of common stock at $0.10 per share for a total of $214,483. On September 15, 2001, the Company converted a note payable of $495,000 and accrued interest of $107,783 into equity by issuing 6,027,830 shares of common stock at $0.10 per share for a total of $602,783. On September 15, 2001, the Company converted a note payable of $50,000 and accrued interest of $3,333 into equity by issuing 533,333 shares of common stock at $0.10 per share for a total of $53,333. On October 2, 2001, the Company converted the stock subscription payable of $50,000 into equity by issuing 500,000 shares of common stock at $0.10 per share. 506 regulation D ---------------- On November 15, 2001, the board of directors approved a best efforts private placement equity fundraising under Rule 506 of Regulation D for up to 500,000 shares at $0.10 per share. The Company has raised $-0- as of the date of the audit report. Registration Statement Page 49 NET FORCE SYSTEMS INC. AUDITED FINANCIAL STATEMENTS, APRIL 30, 2001 NET-FORCE SYSTEMS INC. CONSOLIDATED FINANCIAL STATEMENTS April 30, 2001 and 2000 Registration Statement Page 50 C O N T E N T S Independent Auditors' Report................................................ 3 Consolidated Balance Sheet.................................................. 4 Consolidated Statements of Operations....................................... 6 Consolidated Statements of Stockholders' Equity (Deficit)................... 7 Consolidated Statements of Cash Flows....................................... 8 Notes to the Consolidated Financial Statements............................. 10 Registration Statement Page 51 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors Net-Force Systems Inc. Antigua, West Indies We have audited the accompanying consolidated balance sheets of Net-Force Systems Inc. as of April 30, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years ended April 30, 2001, 2000, and from inception on March 1, 1999 through April 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Net-Force Systems Inc. as of April 30, 2001 and 2000, and the consolidated results of their operations and their cash flows for the years ended April 30, 2001, 2000, and from inception on March 1, 1999 through April 30, 1999 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the consolidated financial statements, the Company's recurring losses from operations and working capital deficit raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 5. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. HJ & Associates, LLC Salt Lake City, Utah January 2, 2002 Page 3 Registration Statement Page 52
NET-FORCE SYSTEMS INC. Consolidated Balance Sheets ASSETS ------ April 30, ---------------------------------------- 2001 2000 ------------------ ------------------ CURRENT ASSETS Cash $ 33,292 $ 131,269 Accounts receivable, net 9,805 - Reserves and deposits with credit card processors (Note 8) 30,858 - Prepaid expenses - 34,698 Other current assets - 2,593 ------------------ ------------------ Total Current Assets 73,955 168,560 ------------------ ------------------ PROPERTY AND EQUIPMENT (Note 2) 26,551 40,891 ------------------ ------------------ OTHER ASSETS Player deposits (Note 9) 73,828 - Deposits 3,193 12,061 Gaming license (Note 10) 91,667 - ------------------ ------------------ Total Other Assets 168,688 12,061 ------------------ ------------------ TOTAL ASSETS $ 269,194 $ 221,512 ================== ================== Page 4 Registration Statement Page 53 NET-FORCE SYSTEMS INC. Consolidated Balance Sheets (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- April 30, ---------------------------------------- 2001 2000 ------------------ ------------------ CURRENT LIABILITIES Accounts payable $ 42,400 $ 37,157 Accrued expenses 24,351 - Interest payable - related party 4,243 - Interest payable 81,707 55,690 Stock subscription payable 50,000 - Player deposits (Note 9) 73,828 - Current portion note payable - related party (Note 3) 2,025 2,024 Current portion notes payable (Note 4) 495,000 - ------------------ ------------------ Total Current Liabilities 773,554 94,871 ------------------ ------------------ LONG-TERM DEBT Note payable - related party (Note 3) 128,596 - Notes payable (Note 4) 50,000 495,000 ------------------ ------------------ Total Long-Term Debt 178,596 495,000 ------------------ ------------------ Total Liabilities 952,150 589,871 ------------------ ------------------ COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock: 50,000,000 shares authorized of $0.001 par value, zero issued and outstanding - - Common stock: 100,000,000 shares authorized of $0.001 par value, 7,500,000 and 8,500,000 7,500 8,500 shares issued and outstanding, respectively Additional paid-in capital 198,000 27,000 Accumulated deficit (888,456) (403,859) ------------------ ------------------ Total Stockholders' Equity (Deficit) (682,956) (368,359) ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 269,194 $ 221,512 ================== ==================
The accompanying notes are an integral part of these consolidated financial statements. Page 5 Registration Statement Page 54
NET-FORCE SYSTEMS INC. Consolidated Statements of Operations For the From Years Ended Inception on April 30, March 1, 1999 ------------------------------------- Through April 30, 2001 2000 1999 ------------------ ------------------ ------------------ REVENUE Sales $ 318,490 $ 1,399 $ - Cost of sales 217,769 1,477 - ------------------ ------------------ ------------------ Gross Margin (Deficit) 100,721 (78) - ------------------ ------------------ ------------------ EXPENSES General and administrative 489,278 349,175 6,493 Depreciation and amortization 18,241 6,428 - ------------------ ------------------ ------------------ Total Expenses 507,519 355,603 6,493 ------------------ ------------------ ------------------ LOSS FROM OPERATIONS (406,798) (355,681) (6,493) ------------------ ------------------ ------------------ OTHER INCOME (EXPENSE) Loss on disposal of assets (6,700) - - Gain on sale of assets 491 - - Interest income 1,013 3,635 - Other income 7,656 10,370 - Interest expense (80,259) (55,690) - ------------------ ------------------ ------------------ Total Other Income (Expense) (77,799) (41,685) - ------------------ ------------------ ------------------ PROVISION FOR INCOME TAX - - - ------------------ ------------------ ------------------ NET LOSS $ (484,597) $ (397,366) $ (6,493) ================== ================= ================== BASIC LOSS PER SHARE $ (0.07) $ (0.05) $ (0.01) =================== ================= ================== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,171,233 8,500,000 969,863 ================== ================== ==================
The accompanying notes are an integral part of these consolidated financial statements. Page 6 Registration Statement Page 55
NET-FORCE SYSTEMS INC. Consolidated Statements of Stockholders' Equity (Deficit) Common Stock Additional ------------------------------ Paid-in Accumulated Shares Amount Capital Deficit -------------- -------------- ------------- ------------- Balance, March 1, 1999 - $ - $ - $ - March 1, 1999, common stock issued to founders for cash at $0.001 per share 5,500,000 5,500 - - April 22, 1999, common stock issued for cash at $0.01 per share 3,000,000 3,000 27,000 - Net loss from inception on March 1, 1999 through April 30, 1999 - - - (6,493) -------------- -------------- ------------- ------------- Balance, April 30, 1999 8,500,000 $ 8,500 $ 27,000 $ (6,493) Net loss for the year ended April 30, 2000 - - - (397,366) -------------- -------------- ------------- ------------- Balance, April 30, 2000 8,500,000 8,500 27,000 (403,859) July 1, 2000, common stock repurchased and canceled at $0.01 per share (3,000,000) (3,000) (27,000) - September 30, 2000, common stock issued for cash at $0.10 per share 2,000,000 2,000 198,000 - Net loss for the year ended April 30, 2001 - - - (484,597) -------------- -------------- ------------- ------------- Balance, April 30, 2001 7,500,000 $ 7,500 $ 198,000 $ (888,456) ============== ============== ============= =============
The accompanying notes are an integral part of these consolidated financial statements. Page 7 Registration Statement Page 56
NET-FORCE SYSTEMS INC. Consolidated Statements of Cash Flows For the From Years Ended Inception on April 30, March 1, 1999 ------------------------------------- Through April 30, 2001 2000 1999 ------------------ ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (484,597) $ (397,366) $ (6,493) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 18,241 6,428 - Gain on sale of asset (491) - - Loss on disposal of assets 6,700 - - Changes in assets and liabilities: (Increase) in reserves and deposits (30,858) - - (Increase) in accounts receivables (7,212) (49,352) - Decrease in prepaid expenses 34,698 - - Decrease in other assets (64,960) - - (Increase) in license (100,000) - - Increase in accounts payable 5,243 34,681 4,500 Increase in accrued interest 26,017 55,690 - Increase in accrued interest - related party 4,243 - - Increase in accrued expense 24,351 - - Increase in player deposit 73,828 - - ------------------ ------------------ ------------------ Net Cash (Used) by Operating Activities (494,797) (349,919) (1,993) ------------------ ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (3,704) (47,319) - Proceeds from sale of fixed assets 1,927 - - ------------------ ------------------ ------------------ Net Cash (Used) by Investing Activities (1,777) (47,319) - ------------------ ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable - related party 128,597 - - Proceeds from notes payable 50,000 495,000 - Increase in stock subscription payable 50,000 - - Common stock issued for cash 200,000 - 35,500 Repurchase of and cancellation of common stock (30,000) - - ------------------ ------------------ ------------------ Net Cash Provided by Financing Activities 398,597 495,000 35,500 ------------------ ------------------ ------------------ The accompanying notes are an integral part of these consolidated financial statements. Page 8 Registration Statement Page 57 NET-FORCE SYSTEMS INC. Consolidated Statements of Cash Flows (Continued) For the From Years Ended Inception on April 30, March 1, 1999 ------------------------------------- Through April 30, 2001 2000 1999 ------------------ ------------------ ------------------ NET INCREASE (DECREASE) IN CASH (97,977) 97,762 33,507 CASH AT BEGINNING OF PERIOD 131,269 33,507 - ------------------ ------------------ ------------------ CASH AT END OF PERIOD $ 33,292 $ 131,269 $ 33,507 ================== ================== ================== CASH PAID FOR: Interest $ 50,000 $ - $ - Income taxes $ - $ - $ -
The accompanying notes are an integral part of these consolidated financial statements. Page 9 Registration Statement Page 58 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS The Company was incorporated on March 1, 1999 under the International Business Corporations Act No. 28 of 1982 of the laws of Antigua and Barbuda as Net-Force Systems Inc. The Company will be engaged in all business activities permitted under the International Business Corporations Act of 1982 except International Banking, Trust and Insurance. It will generally carry on the business of an investment and holding company. On August 5, 1999, a wholly-owned subsidiary, Net Force Entertainment Inc. (Entertainment) was incorporated under the International Business Corporations Act No. 28 of 1982 of the laws of Antigua and Barbuda. This subsidiary company will be engaged in all aspect of International betting, gaming, sports betting and bookmaking but with a major emphasis on internet gaming. Entertainment has been granted a gaming license by the Antigua and Barbuda Free Trade & Processing zone and has also entered into a software gaming license with Softec Systems for the operation of an internet casino. The Company commenced operations in April 2000. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES a. Accounting Method The Company's financial statements are prepared using the accrual method of accounting. The Company has elected an April 30 year end. b. Basic Loss Per Share Basic loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.
For the From Years Ended Inception on April 30, March 1, 1999 --------------------------------------- Through April 30, 2001 2000 1999 ------------------ ------------------- ------------------ Basic loss per share: Numerator - net loss $ (484,597) $ (397,366) $ (6,493) Denominator - weighted average number of shares outstanding 7,171,233 8,500,000 969,863 ------------------ ------------------- ------------------ Loss per share $ (0.07) $ (0.05) $ (0.01) ================== =================== ==================
Page 10 Registration Statement Page 59 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) c. Provision for Taxes The Company's operations are within the Jurisdiction of St. John's, Antigua, where there is no corporate income tax. d. Cash and Cash Equivalents The Company considers all highly liquid investment with a maturity of three months or less when purchased to be cash equivalent. e. Principles of Consolidation The April 30, 2001 financial statements are consolidated with the Company and Entertainment. All significant intercompany accounts and transaction have been eliminated. f. Property and Equipment Office equipment and leasehold improvements are recorded at cost. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives. Depreciation of office equipment and leasehold improvements is computed using the straight-line method over the estimated useful lives of the asset of 5 and 10 years, respectively. Software is depreciated over a life of 5 years. Depreciation expense for continuing operations for the years ended April 30, 2001, 2000 and 1999 was $9,908, $6,428, and $-0-, respectively. Property and equipment consists of the following:
April 30, --------------------------------------- 2001 2000 ------------------ ------------------ Vehicles $ 3,704 $ - Computer equipment 19,450 19,550 Computer software 10,000 10,000 Office furniture and equipment 6,274 8,101 Leasehold improvements - 9,668 Accumulated depreciation (12,877) (6,428) ------------------ ------------------ Net Property and Equipment $ 26,551 $ 40,891 ================== ==================
Page 11 Registration Statement Page 60 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) g. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. h. Recent Accounting Pronouncements The Company has adopted the provisions of FASB Statement No. 138 "Accounting for Certain Derivative Instruments and Hedging Activities, (an amendment of FASB Statement No. 133.)" Because the Company had adopted the provisions of FASB Statement No. 133, prior to June 15, 2000, this statement is effective for all fiscal quarters beginning after June 15, 2000. The adoption of this principle had no material effect on the company's consolidated financial statements. The Company has adopted the provisions of FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of FASB Statement No. 125.)" This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial-components approach that focuses on control. Under that approach, the transfer of financial assets, the Company recognized the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of this principle had no material effect on the Company's consolidated financial statements. The Company had adopted the provisions of FIN 44 "Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25.)" This interpretation is effective July 1, 2000. FIN 44 clarifies the application of Opinion No. 25 for only certain issues. It does not address any issues related to the application of the fair value method in Statement No. 123. Among other issues, FIN 44 clarifies the definition of employee for purposes of applying Opinion 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and accounting for an exchange of stock compensation awards in a business combination. The adoption of this principle had no material effect on the Company's consolidated financial statements. Page 12 Registration Statement Page 61 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) i. Subsequent Accounting Pronouncements In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, long-lived assets, including goodwill associated with other long-lived assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No.'s 141 and 142 -- In June 2001, the Financial Accounting Standards Board (FASB) adopted Statement of Financial Accounting Standards SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 is effective as to any business combination occurring after June 30, 2001 and certain transition provisions that affect accounting for business combinations prior to June 30, 2001 are effective as of the date that SFAS No. 142 is applied in its entirety, which will be January 1, 2002 for the Company. SFAS No. 142 is effective, generally, in fiscal years beginning after December 15, 2001, which will be the fiscal year ending April 30, 2002 for the Company. SFAS No. 141 provides standards for accounting for business combinations. Among other things, it requires that only the purchase method of accounting be used and that certain intangible assets acquired in a business combination (i.e. those that result from contractual or other legal rights or are separable) be recorded as an asset apart from goodwill. The transition provisions require that an assessment be made of previous business combinations and, if appropriate, reclassifications be made to or from goodwill to adjust the recording of intangible assets such that the criteria for recording intangible assets apart from goodwill is applied to the previous business combinations. SFAS No. 142 provides, among other things, that goodwill and intangible assets with indeterminate lives shall not be amortized. Goodwill shall be assigned to a reporting unit and annually assessed for impairment. Intangible assets with determinate lives shall be amortized over their estimated useful lives, with the useful lives reassessed continuously, and shall be assessed for impairment under the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Goodwill is also assessed for impairment on an interim basis when events and circumstances warrant. Upon adoption of SFAS No. 142, the Company will assess whether an impairment loss should be recognized and measured by comparing the fair value of the "reporting unit" to the carrying value, including goodwill. If the carrying value exceeds fair value, then the Company will compare the implied fair value of the goodwill" (as defined in SFAS No. 142) to the carrying amount of the goodwill. If the carrying amount of the goodwill exceeds the implied fair value, then the goodwill will be adjusted to the implied fair value. Page 13 Registration Statement Page 62 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) i. Subsequent Accounting Pronouncements (Continued) While the Company has not completed the process of determining the effect of these new accounting pronouncements on its consolidated financial statements, the Company currently expects that there will be no reclassification in connection with the transition provisions of SFAS No. 141 based on clarifications of the transition provisions issued by the FASB in October 2001. Accordingly, the Company expects that, after implementation of SFAS No. 142, all intangible assets will be amortizable and the goodwill will not be amortizable. SFAS No. 143 -- On August 16, 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. It requires that obligations associated with the retirement of a tangible long-lived asset be recorded as a liability when those obligations are incurred, with the amount of the liability initially measured at fair value. Upon initially recognizing a liability for an accrued retirement obligation, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. While the Company has not completed the process of determining the effect of this new accounting pronouncement on its consolidated financial statements, the Company currently expects that the effect of SFAS No. 143 on the Company's consolidated financial statements, when it becomes effective, will not be significant. SFAS No. 144 - On October 3, 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. SFAS 144 supercedes SFAS Statement No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30 (APB 30), "Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business." SFAS 144 develops one accounting model (based on the model in SFAS 121) for long-lived assets that are to be disposed of by sale, as well as addresses the principal implementation issues. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. That requirement eliminates the requirement of APB 30 that discontinued operations be measured at net realizable value or that entities include under "discontinued operations" in the financial statements amounts for operating losses that have not yet occurred. Additionally, FAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. Page 14 Registration Statement Page 63 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) i. Subsequent Accounting Pronouncements (Continued) While the Company has not completed the process of determining the effect of this new accounting pronouncement on its consolidated financial statements, the Company currently expects that the effect of SFAS No. 144 on the Company's consolidated financial statements, when it becomes effective, will not be significant. j. Revenue Recognition Policy Net Monthly RevenueRoyalty Fee Payable -------------------------------------- 0 to $500,000 25% $500,001 to $1,000,000 20% $1,000,001 to $5,000,000 15% $5,000,001 to $10,000,000 12.5% $10,000,001 plus 10% The Company renegotiated the 25% factor down to 15% for the period from September 2000 through August 2000, after which the factor rose to 25% again. k. Advertising The Company follows the policy of charging the costs of advertising to expense as incurred. l. Long-Lived Assets In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, long-lived assets, including goodwill associated with other long-lived assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company will adopt SFAS No. 144 and apply the provisions thereof. m. Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translated into United States dollars at the period end exchange rate. Non-monetary assets are translated at the historical exchange rate and all income and expenses are translated at the exchange rates prevailing during the period. Foreign exchange currency translation adjustments are included in the stockholders' equity section as other comprehensive income. The Company operates with East Caribbean Dollars (EC). The exchange rate between the EC and the United States Dollar (USD) is always constant at .37453. This constant exchange rate makes it unnecessary to have a foreign exchange translation adjustment in the stockholder's equity section. Page 15 Registration Statement Page 64 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) n. Concentrations of Risk - Foreign Operations The Company operates in St. John's which has a developing economy. Hyperinflation, volatile exchange rates 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, extreme fluctuations in currency exchange rates, high rates of inflation and the absence of industrial and economic infrastructure. Changes in development or investment policies or shifts in the prevailing political climate in St. John's in which the Company operates could adversely affect the Company's business. Operations may be affected in varying degrees by government regulations with respect to development restrictions, price controls, export controls, income and other taxes, expropriation of property, maintenance of claims, environmental legislation, labor, welfare, benefit policies, land use, land claims of local residents, water use and mine safety. The effect of these factors cannot be accurately predicted. o. Reclassifications Certain prior year amounts have been reclassified to conform to 2001 presentation. NOTE 3 - NOTE PAYABLE - RELATED PARTY
Geneva Overseas Holdings Ltd. (A Company April 30, controlled by the president of the Company) ------------------------------ made advances to the Company totaling 2000 1999 $128,596. These advances have an interest -------------- -------------- rate of 8% annually. This note is unsecured. $ 130,621 $ 2,024 Less Current Portion 2,025 2,024 -------------- -------------- Total Long-Term Debt -Related Party $ 128,596 $ - ============== ==============
The following is a summary of the future maturities of the long-term debt-related party: For the Year Ended April 30, ------------ 2002 $ 2,025 2003 68,596 2004 60,000 2005 - -------------- $ 130,621 ============== Interest expense for the years ending April 30, 2000, 2000 and 1999 was $4,243, $-0- and $-0-,respectively. Page 16 Registration Statement Page 65 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 4 - NOTES PAYABLE
April 30, Note payable to Mountain High Management Inc. ------------------------------ dated July 13, 1999, accruing interest at 15% 2000 1999 annually, due on July 29, 2001. This note is -------------- -------------- unsecured. $ 495,000 $ 495,000 Note payable to Low Tide Investments, dated November 1, 2001, accruing interest at 8% annually, due on November 1, 2004. This note is unsecured. 50,000 - -------------- -------------- Total Notes Payable 545,000 495,000 Less Current Portion 495,000 - -------------- -------------- Total Long-Term Debt $ 50,000 $ 495,000 ============== ==============
The following is a summary of the future maturities of the long-term debt: For the Year Ended April 30, ---------- 2002 $ 495,000 2003 - 2004 50,000 2005 - --------------- $ 545,000 =============== Interest expense for the years ending April 30, 2001, 2000 and 1999 was $76,016, $55,690, and $-0- respectively. NOTE 5 - GOING CONCERN The Company's consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses from its inception through April 30, 2001 and has a significant working capital deficit. The Company does not have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. It is the intent of the Company to seek additional financing through private placements of its common stock. This will be accomplished through the use of equity issuances. Management believes the funds will more likely than not be successfully raised, but there can be no assurance of this. The Company expects that operations will increase in 2002, and will start to provide cash flows from operations and expansion. The Company expects that it will need $480,000 to $600,000 additional funds for operations and expansion in 2002. Page 17 Registration Statement Page 66 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 6 - STOCK TRANSACTIONS On March 1, 1999, the Company issued 5,500,000 shares of common stock to founders of the Company for $5,500 of cash. The shares were sold at the par value of $0.001. On April 22, 1999, the Company sold 3,000,000 shares of common stock to related investors for cash of $30,000 at $0.01 per share. On July 1, 2000, the Company repurchased and canceled 3,000,000 shares of common stock at $0.01 per share or $30,000 of cash. On September 30, 2000, the Company issued 2,000,000 shares of common stock at $0.10 per share for $200,000 of cash. NOTE 7 - COMMITMENTS AND CONTINGENCIES Software Licensing Agreement In the first quarter of 1999, the Company entered into a software licensing agreement with Softec Systems Caribbean Inc. (Softec), to provide online-gaming software and hardware services. The license agreement calls for a commitment by the Company to spend a minimum of 10% of the previous months net revenue (based on a yearly average) for ongoing promotion and marketing. The marketing obligation only applies to the first 365 days of operation. The license agreement also calls for sharing of net revenues based on a specific formula agreed to by the Company and Softec. The license agreement may be terminated by the Company at the end of any one-year term or by softec at the end of any one-year term subsequent to the first year of the agreement. All of the Company's websites and advertising are directly linked to Softec's software. Softec manages the software as well as the upkeep and maintenance. The Company is highly dependent, therefore, on Softec's ability to maintain the software and keep it running. In the event that the software fails, the Company's business and operations could be strongly affected. Private Placement On June 1, 2000, the board of directors approved a Regulation S Private Placement for 2,500,000 shares of common stock to be sold at $0.10 per share. Each share sold has an attached warrant exercisable at $2.00 per share which expires on December 31, 2002. The Company has received $250,000 and issued 2,500,000 shares pursuant to the Private Placement. Page 18 Registration Statement Page 67 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and 1999 NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued) 506 Regulation D ---------------- On July 1, 2000, the board of directors approved a best efforts private placement equity fundraising under Rule 506 of Regulation D for up to 2,000,000 shares at $0.50 per share. Each share sold pursuant to this offering is to have an attached warrant exercisable at $4.00 per share. Any warrants issued are to expire on December 31, 2002. The Company has not raised any funds from this offering. NOTE 8 - RESERVES AND DEPOSITS WITH CREDIT CARD PROCESSORS Reserves and deposits with credit card processors consist of rolling reserves held by merchant banks and funds for transactions processed and awaiting transfer to the Company's bank accounts. As of April 30, 2001 and 2000, the balance of these reserves and deposits were $30,858 and $-0-, respectively. NOTE 9 - PLAYER DEPOSITS As of April 30, 2001 and 2000, the Company had $73,828 and $-0-, respectively, in cash representing funds held on deposit in the form of e-cash balances. These deposits are non-interest bearing and repayable on demand. These deposits are actually held by a third party for the benefit of the Company. NOTE 10 - GAMING LICENSE The Company is required to purchase a gaming business license on an annual basis. The cost of the license is $100,000 and is amortized over twelve months. Amortization expense for the years ending April 30, 2001 2000, and 1999 was $8,333, $-0- and $-0-, respectively. NOTE 11 - SUBSEQUENT EVENTS Notes Payable - Related Party ----------------------------- Subsequent to April 30, 2001, the Company borrowed from related parties an additional $77,500 in two notes payable. These notes bear an annual interest rate of 8% and are due two years from the note dates. Page 19 Registration Statement Page 68 NET-FORCE SYSTEMS INC. Notes to the Consolidated Financial Statements April 30, 2001, 2000 and1999 NOTE 11 - SUBSEQUENT EVENTS (Continued) Common Stock ------------ On August 15, 2001, the Company issued 200,000 shares of common stock valued at $0.10 per share, to a director for services and consulting. On September 15, 2001, the Company converted the related party note payable of $208,121 and accrued interest of $6,362 into equity by issuing 2,144,830 shares of common stock at $0.10 per share for a total of $214,483. On September 15, 2001, the Company converted a note payable of $495,000 and accrued interest of $107,783 into equity by issuing 6,027,830 shares of common stock at $0.10 per share for a total of $602,783. On September 15, 2001, the Company converted a note payable of $50,000 and accrued interest of $3,333 into equity by issuing 533,333 shares of common stock at $0.10 per share for a total of $53,333. On October 2, 2001, the Company issued 500,000 shares of common stock for the subscription payable of $50,000 at $0.10 per share. On August 15, 2001, the Company issued 200,000 shares of common stock valued at $0.10 per share, to a director for services and consulting. 506 regulation D ---------------- On November 15, 2001, the board of directors approved a best efforts private placement equity fundraising under Rule 506 of Regulation D for up to 500,000 shares at $0.10 per share. The Company has raised $-0- as of the date of the audit report. Page 20 Registration Statement Page 69 NET-FORCE SYSTEMS INC. PART III. INDEX TO EXHIBITS Exhibit 3.1 Articles of Incorporation of Net-Force Systems Inc. Exhibit 3.2 Bylaws of Net-Force Systems Inc. Exhibit 3.3 Articles of Incorporation - Net-Force Entertainment Inc. Exhibit 3.4 Bylaws of Net-Force Entertainment Inc. Material Contracts Exhibit 10.1 Starnet Systems Inc. (formerly Softec Systems Caribbean Inc), Amendment to Software License Agreement Exhibit 10.2 Government of Antigua and Barbuda Gaming License SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. Net-Force Systems Inc. (Registrant) Date: January 30, 2002 /s/ "Terry G. Bowering" ---------------------------------------------------- Terry G. Bowering, President, Chairman of the Board, Chief Executive Officer and Director Date: January 30, 2002 /s/ "Dwight Lewis" ---------------------------------------------------- Dwight Lewis, Director Registration Statement Page 70 EX-3.(I) 4 netartofinc.txt NET FORCE 20-F/A, ARTICLES OF INCORPORATION NET-FORCE SYSTEMS INC. ANTIGUA AND BARBUDA The International Business Corporations Act, 1982 No. 28 of 1982 Cap. 222 Vol. 5 of the Revised Laws of Antigua 1992 Edition A Company Limited by Shares ARTICLES OF INCORPORATION OF NET-FORCE SYSTEMS INC. ARTICLE 1 --------- NAME ---- The name of the Corporation is NET-FORCE SYSTEMS INC. ARTICLE II ---------- REGISTERED OFFICE AND AGENT --------------------------- The registered agent of the Corporation shall be Hill & Hill whose office is situate at 36 Long Street, in the City of Saint John in Antigua and Barbuda, which offices shall also be the registered office of the Corporation. ARTICLE III ----------- CAPITAL ------- 1. The Corporation is authorized to issue 100,000,000 bearer or registered shares of US$0.001 each par value common stock which shall be designated "Common Shares" and 50,000,000 Preferred Shares of US$0.001 each par value which shall be designated "Preferred Shares". 2. No pre-emptive rights shall attach to the shares to be issued in respect of any class. 3. Both classes of shares may be issued in series and the directors shall have the authority to fix the number of shares in, or to determine the designation of, and the rights, privileges, restrictions and conditions attaching to the shares of each series. 4. The Corporation shall have the power to increase or reduce said capital, and to issue any part of its capital, original or increased, with or without any preference, priority, or special privilege, or subject to any postponement of rights, or to any conditions or restrictions, and so that, unless the conditions of issue shall otherwise expressly declare, every issue of shares, whether declared to be preference or otherwise shall be subject to the power herein contained. Registration Statement Page 71 NET-FORCE SYSTEMS INC. ARTICLE IV ---------- BOARD OF DIRECTORS ------------------ The objects for which the Corporation is established are: a. To conduct any and all business activities permitted by the Laws of Antigua/Barbuda as an International Business Corporation. b. To carry on the business of an investment and holding company and for that purpose to acquire and hold either in the name of the Corporation or in that of any nominee, shares, stocks, debentures, debenture stock, script bonds, notes, obligations, investments and securities and warrants or options in respect of any shares, stocks, debentures, debenture stock, script bonds, notes, obligations, investments or securities, of all kinds issued in any country in any part of the world. c. To acquire and deal with any property, real or personal, to erect buildings, and generally to do all acts and things which, in the opinion of the Corporation or the Directors, may be conveniently or profitably, or usefully, acquired and dealt with, carried on, erected or done by the Corporation in connection with said property. d. The Corporation shall not engage in International Banking, Trust, Insurance, Betting and Book making or any activity which requires a License under the International Business Corporations Act. e. To generally have and exercise all powers, rights and privileges necessary and incident to carrying out properly the objects herein mentioned. ARTICLE VI ---------- EXISTENCE --------- The Corporation shall have perpetual existence unless sooner dissolved in accordance with the Laws of Antigua and Barbuda. The date on which corporate existence shall begin is the date on which these Articles of Incorporation are filed with the Director of International Business Corporations of Antigua and Barbuda. ARTICLE VII ----------- LIABILITY OF SHAREHOLDERS ------------------------- The liability of a shareholder is limited to the amount, if any, unpaid on the shares held or subscribed to by said shareholder. ARTICLE VIII ------------ INDEMNIFICATIONS ---------------- The Corporation shall indemnify any and all of its Directors, officers, employees or agents or former Directors, officers, employees or agents or any person who may have served at its request as a Director, officer, employee or Registration Statement Page 72 NET-FORCE SYSTEMS INC. agent of another company, partnership, joint venture, trust or other enterprise in which it owns shares of capital stock or of which it is a creditor, to the full extent permitted by law. Said indemnification shall include, but not be limited to, the expenses, including the cost of any judgments, fines, settlements and counsel's fees, actually and necessarily paid or incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeals thereof, to which any such person or his legal representative may be made a party or may be threatened to be made a party by reason of his being or having been a Director, officer, employee or agent as herein provided unless such action, suit or proceeding is a result of the Director, officer, employee or agent's own negligence or illegal action. The foregoing right of indemnification shall not be exclusive of any other rights to which and Directors, officers, employee or agent may be entitled as a matter of law or which he may be lawfully granted. ARTICLE IX ---------- CHARTER CONTINUATION -------------------- The Corporation is authorized to transfer its charter to any jurisdiction which permits continuation of a foreign corporation. ARTICLE X --------- SECURITIES ---------- No securities of the Corporation will be distributed to the public in Antigua and Barbuda in contravention of Section 365 of the International Business Corporations Act, 1982. ARTICLE XI ---------- INCORPORATORS ------------- The name and address of the Corporation's incorporators are: Stacy Richards-Anjo Ethlyn Tonge C/o Hill & Hill Chambers c/o Hill & Hill Chambers Long Street, St. John's Long Street, St. John's Antigua Antigua "Stacy Richards-Anjo" "Ethlyn Tonge" - -------------------------------- ----------------------------- DATED this 24th day of February, 1999 at St. John's, Antigua. - ------------------------------------------------------------- Registration Statement Page 73 EX-3.(II) 5 netbylaws.txt NET FORCE 20-F/A, BYLAWS NET-FORCE SYSTEMS INC. ANTIGUA AND BARBUDA The International Business Corporations Act, 1982 No. 28 of 1982 Cap. 222 Vol. 5 of the Revised Laws of Antigua 1992 Edition A Company Limited by Shares BY-LAWS OF NET-FORCE SYSTEMS INC. PRELIMINARY ----------- In these By-Laws, if not inconsistent with the subject or context, the words hereinafter stated shall bear the meanings opposite to them. THE CORPORATION The above-named Corporation THE ACT The International Business Corporations Act, 1982 No. 28 of 1982, and every other Act for the time being in force concerning corporations and affecting the Corporation. THESE PRESENTS These By-Laws as originally framed, or as from time to time amended or altered by special resolution. THE REGISTER The Register of shareholders to be kept as required by Section 130 of the Act. OFFICE The Registered Office for the time being of the Corporation. THE BOARD The Board of Directors for the time being of the Corporation. ORDINARY RESOLUTION A resolution passed by a majority of the shares entitled to vote. 1. Shares and Share Capital ------------------------ 1.1 Issuance -------- The issue or allotment of shares shall be under the control of the Board which may issue the whole or any portion thereof with such referred, deferred, special or limited rights as it may think fit. 1.2 Alteration of Capital --------------------- The Corporation may from time to time by ordinary resolution increase the share capital by such sum to be divided into shares of such amount as the resolution shall prescribe. The Corporation may by ordinary resolution: a. Consolidate and divide all or any portion of its share capital into shares of larger amount than its existing shares; b. Sub-divide its existing shares, or any of them, into shares of smaller amount that is fixed by the Articles of Incorporation subject, nevertheless, to the provisions of the Act; c. Cancel any shares which, at the date of the passing of the resolution, have not been taken up or agreed to be taken up by any person. Registration Statement Page 74 NET-FORCE SYSTEMS INC. Subject to the provisions of the Act, the Corporation may by special resolution reduce its share capital, any capital redemption reserve fund or any share premium account. 2. Share Certificates and Register ------------------------------- 2.1 Certificates ------------ Certificates representing shares of the Corporation shall be in such form as shall be determined by the directors. Such certificates shall be signed by a director. All certificates for shares shall be consecutively numbered or otherwise identified. Certificates may be issued to bearer or in registered form. Bearer certificates shall be marked as not transferable to residents of Antigua and Barbuda. 2.2 Register -------- The number of shares, the date of issue, the consideration paid, and the serial number of each bearer or registered certificate shall be entered on the Register of the Corporation. In the case of registered shares, the name and address of the holder shall also be entered on said register. 2.3 Lost or Damaged Certificate --------------------------- In the case of a lost, destroyed or mutilated certificate, a new one may be issued therefore upon such terms and indemnity to the Corporation as the Board may prescribe. 3. Transfer of Shares ------------------ 3.1 Transfer -------- Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the Register of the Corporation. 3.2 Record Owner ------------ The Corporation shall be entitled to treat the holder on record of any registered share as the holder in fact thereof, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the Act. 4. Fiscal Year ----------- The fiscal year of the Corporation shall begin on the 1st day of January each year. 5. Dividends --------- The Board may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. 6. Seal ---- The Board may provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the Corporation, the place of incorporation and the year of incorporation. 7. Meetings -------- 7.1 Annual Directors' Meeting ------------------------- Registration Statement Page 75 NET-FORCE SYSTEMS INC. The annual Directors' Meeting of the Corporation shall be held no more than four (4) months from the date of registration of the Corporation at such place within Antigua and Barbuda as the Board may determine. 7.2 Annual Shareholders' Meeting ---------------------------- An Annual Shareholders' Meeting of the Corporation shall be held every year after the incorporation of the Corporation at such time and place within Antigua and Barbuda as shall from time to time be prescribed by the Board. 7.3 Special Shareholders' Meeting ----------------------------- The Board may, whenever it thinks fit, convene a Special Shareho9lders' Meeting. The Board shall also on the requisition of the holders of not less than one-twentieth (1/20) of the issued share capital of the Corporation proceed to convene a special Shareholders' Meeting of the Corporation. 7.4 Proceedings ----------- All business shall be deemed special that is transacted at a Special Shareholders' Meeting, and also that is transacted at any Annual Shareholders' Meeting, with the exception of the consideration of the accounts and auditor's report, if any, the election of directors and the reappointment of any incumbent auditor. 7.5 Quorum ------ No business shall be transacted at any shareholders' meeting unless a quorum of shareholders is present at the time when the meeting proceeds to business. Save as is herein otherwise provided, shareholders present in person or by proxy representing a majority of the Corporation's shares shall constitute a quorum. 7.6 Chairman -------- All meetings shall be chaired by a Director appointed by the Board to act as Chairman. 7.7 Minutes ------- Minutes of the proceedings of every Annual Shareholders' Meeting shall be kept, and shall be signed by the Chairman of the same meeting, or by the Chairman of the next succeeding meeting, and the same, when so signed, shall be conclusive evidence of all such proceedings and of the proper election of the Chairman. 7.8 Votes of Shareholders --------------------- Subject to any rights or restrictions for the time being attached to any class or classes of shares, every shareholder shall have one vote for each share of which he is the holder. All elections for directors shall be decided by majority vote; all other questions shall be decided by majority vote except as otherwise required by the Act. 7.9 Informal Action by Shareholder ------------------------------ Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. 7.10 Proxies ------- Votes may be given either personally or by proxy. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorized in writing, or if the appointer is a corporation, either under seal or under the hand of an officer or attorney duly authorized. A proxy need not be a shareholder of the Corporation. The instrument appointing a proxy and the Registration Statement Page 76 NET-FORCE SYSTEMS INC. power of attorney or other authority, if any, under which it is signed or a certified copy of that power of attorney shall be deposited at the office or at such other place within Antigua as is specified for that purpose in the notice convening the meeting. 7.11 Notice of Meeting ----------------- Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less that Twenty-One (21) days before the date of the meeting, either personally by mail or facsimile, to each shareholder on record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. 7.12 Waiver of Notice ---------------- Unless otherwise provided by law, whenever any notice is required to be given to any shareholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. 8. Directors --------- 8.1 Number of Directors ------------------- Unless and until the Corporation in a General or Special Shareholders' Meeting shall otherwise determine, the number of Directors shall be five. Each director shall hold office unless removed as provided in these presents, until the next Annual Shareholders' Meeting and until his successor shall have been elected. 8.2 Remuneration of Directors ------------------------- Each of the Directors shall be paid out of the funds of the Corporation such remuneration for his services as a director as the Corporation is an Annual Shareholders' Meeting may from time to time determine. The directors may also be paid all traveling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or meetings of the Corporation or in connection with the business of the Corporation. 8.3 Directors with Other Offices and Interests ------------------------------------------ A director may hold any other office or place of profit under the Corporation and he or any firm of which he is a member may act in a professional capacity for the Corporation in conjunction with his office of director of the Corporation for such period and in such terms as to remuneration and otherwise as the Board may determine. No director or intending director shall be disqualified by his office from contracting with the Corporation, either with regard thereto, as a vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the Corporation in which any director so contracting or being so interested be liable to account to the Corporation for any profit realized by any such contract or arrangement by reason of such director holding such office, or of the fiduciary relationship thereby established so long as the director notifies the Corporation in accordance with the requirements of the Act. To the extent permitted by the Act, any director may vote as a director or shareholder in respect of any such contract or arrangement; provided that such director must disclose his interest in the contract or arrangement, the contract or arrangement must be entered into by the Corporation in an Annual or Special Shareholders' Meeting, and before the contract or arrangement is so entered into, the directors must disclose their interests to the meeting. 8.4 Proceedings of the Board ------------------------ The Board at the request of any Director may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as it thinks fit. 8.5 Executive Committee ------------------- Registration Statement Page 77 NET-FORCE SYSTEMS INC. The Board at a duly constituted meeting may by a resolution appoint a committee from among themselves to be known as an executive committee. This committee may perform such acts in the name of the Board in the same fashion as if the Board had acted. The limits of the executive committee's acts shall be prescribed by resolution of the Board. The powers of this committee may be changed from time to time by subsequent resolution of the Board. 8.6 Quorum ------ The quorum necessary for the transaction of the business of the Board may be fixed by the Board, and unless so fixed shall be one-half (1/2) of the number of persons then serving as directors. The quorum of any committee of the Board shall be fixed by the meeting of the Board appointing such committee and, if not so fixed, then such quorum shall be fixed by the members of such committee. 8.7 Voting ------ Every question at a meeting of the Board shall (except where otherwise provided by the Board) shall be determined by a majority of the votes of the Directors present, every director having one (1) vote. 8.8 Action without a Meeting ------------------------ A resolution may be adopted without any meeting of the Board or of a committee if evidenced by writing under the hands of all the directors or of all the members of such committee, and such writing shall be as valid and effectual as a resolution duly passed at a meeting of the Board or such committee. 8.9 Powers of the Board ------------------- The business of the Corporation shall be managed by the Board, who may exercise all such powers of the Corporation as are not by the Act or by these By-Laws required to be exercised by the Corporation in an Annual Shareholders' Meeting, subject nevertheless to any regulation of these By-Laws, to the provisions of the Act as may be prescribed by special resolution of the Corporation, but no regulation so made by the Corporation shall invalidate any prior act of the Board which would have been valid if such regulation had not been made. The general powers given by this by-law shall not be limited or restricted by any special authority or power given to the Board by any other By-Law. 8.10 Appointment of Attorney ----------------------- The Board may from time to time and at any time, by powers of attorney, appoint any corporation, firm or person to be the attorneys of the Corporation for the purpose of executing deeds on behalf of the Corporation in or outside Antigua and Barbuda and for such periods and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection of persons dealing with any such attorney as the Board may think fit, and may also authorize any such attorney to sub-delegate all or any of the powers, authorities and discretion vested in him. 8.11 Removal of Director ------------------- Any director may be removed by a majority vote of the shareholders. 8.12. Resignation of Director ----------------------- A director may resign at any time by giving written notice to the Board. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Board and the acceptance of the resignation shall not be necessary to make it effective. 8.13 Presumption of Assent --------------------- Registration Statement Page 78 NET-FORCE SYSTEMS INC. A director of the Corporation who is present at a meeting of the directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. 9. Officers -------- 9.1 Number ------ The officers of the Corporation shall be a president, a vice-president, a secretary and a treasurer, each of whom shall be elected by the directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Directors. Any two or more offices may be held by the same person. 9.2 Election and Term of Office --------------------------- The officers of the Corporation to be elected by the Board shall be elected annually at the first meeting of the Board after each Annual Meeting of the shareholders. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. 9.3 Removal ------- Any officer or agent elected or appointed by the Board may be removed by the Board whenever in their judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. 9.4 Vacancies --------- A vacancy in any office because of death, resignation, removal or disqualification, may be filled by the Board for the unexpired portion of the term. 9.5 President --------- The President shall be the principal executive officer of the Corporation and, subject to the control of the directors, shall in general supervise and control all of the business affairs of the Corporation. He may sign, with the secretary or any other proper officer of the Corporation thereunto authorized by the directors, any deeds, mortgages, bonds, contracts, or other instruments which the directors have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the directors or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the directors from time to time. 9.6 Secretary --------- The secretary shall keep the minutes of the shareholders' and of the directors' meeting in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these By-Laws or as required, and be custodian of the Corporate records. 9.7 Treasurer --------- If required by the directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the directors shall determine. He shall have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such Registration Statement Page 79 NET-FORCE SYSTEMS INC. banks, trust companies or other depositories as shall be selected in accordance with these By-Laws and in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the Board. 9.8 Salaries -------- The salaries of the officers shall be fixed from time to time by the Board and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. 10. Accounts -------- The Board shall cause to be kept such books of account as are necessary to comply with the provisions of the Act. The books of account shall be kept at the office or at such other place as the Board thinks fit, and shall always be open to the inspection of the Board. Any director or shareholder shall have the right to inspect any account or book or document of the Corporation. The Board shall from time to time in accordance with the provisions of the Act cause to be prepared and to be laid before an Annual Shareholders' Meeting such profit and loss accounts, balance sheets and reports as may be necessary. 11. Auditors -------- Auditors may be appointed and their duties regulated in accordance with the provisions of the Act. Subject to the provisions of the Act, all acts done by any person acting as an auditor shall, as regards all persons dealing in good faith with the Corporation, be valid, notwithstanding that there was some defect in his appointment or that he was at the time of his appointment not qualified for appointment. 12. Liquidation ----------- If the Corporation shall be wound up (whether the liquidation be voluntary, under the supervision of or by the Court) the Liquidator may, with the required authority, divide among the shareholders in specie or kind the whole or any part of the assets of the Corporation, and whether or not the assets shall consist of property of one kind or properties of different kinds, and may for such purpose set such value as he deems fair upon one or more or classes of property, and may determine how such different classes of shareholders. The Liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of shareholders as the Liquidator with the like authority shall think fit, and the liquidation of the Corporation may be closed and the Corporation dissolved. 13. Amendments ---------- These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by a vote of the shareholders representing a majority of all the shares issued and outstanding, at any Annual Shareholders' Meeting or at any Special Shareholders' Meeting when the proposed amendment has been set out in the notice of such meeting. 14. Initial Directors ----------------- The initial Board of Directors shall be composed of: Terry G. Bowering Douglas N. Bolen Registration Statement Page 80 EX-3.3 6 netartofincnfe.txt NET FORCE 20-F/A, ART OF INC NET FORCE ENTERTAIN NET-FORCE SYSTEMS INC. ORGANISATIONAL MEETING OF NET FORCE ENTERTAINMENT INC. HELD AT THE REGISTERED OFFICE ON THE 13TH DAY OF AUGUST 1999 AT 11:30 A.M -------------------------------------------------- Present: Asdak Inc by its Director Alice Roberts Clovis Grant as Secretary Alice Roberts called the meeting to order. Alice Roberts acted as Chairman of the meeting and Clovis Grant acted as Secretary thereof. The persons present declared their waiver of notice of the time and place of the meeting. The Chairman stated that a quorum was reached since the sole initial director was represented. By-Laws - ------- The Secretary presented to the meeting the Certificate of Incorporation and Good Standing and a print of the Articles of Incorporation and By-laws of the Company as registered with the Executive Director, International Financial Sector Authority on the 5th August 1999. By motion duly made, seconded and carried it was resolved that the By-Laws be approved and adopted in the form presented. Officers - -------- By motion duly made, seconded and carried it was resolved that the following persons be appointed officers of the company - Terry Bowering - President Douglas Bolen - Secretary Shares - ------ By motion duly made, seconded and carried it was resolved that the Board of Directors be authorized to issue the following shares in the company in the format attached: Net Force Systems Inc, St John's, Antigua 100 shares Banking Arrangements - -------------------- By motion duly made, seconded and carried it was resolved that (1) the Company be authorized to open an account or accounts with Swiss American Bank Ltd, St. John's, Antigua. (2) the usual banking resolutions required by the Company's bankers for the operation of accounts by the Company be deemed resolutions duly passed by this resolution. (3) all cheques, bills of exchange and other negotiable instruments shall be signed on behalf of the Company by either Terry Bowering or Douglas Bolen. There being no further business the meeting ended at 11:45 a.m. /s/ "Alice Roberts" /s/ "Clovis Grant" -------------------------- ---------------------------- Alice Roberts Clovis Grant Chairman of Meeting Secretary of Meeting Registration Statement Page 81 NET-FORCE SYSTEMS INC. ANTIGUA AND BARBUDA The International Business Corporations Act, Cap 222 A Company Limited By Shares ARTICLES OF INCORPORATION OF NET FORCE ENTERTAINMENT INC. ---------------------------- ARTICLE I NAME ---- The name of the Company is NET FORCE ENTERTAINMENT INC. ARTICLE II REGISTERED OFFICE AND AGENT --------------------------- The registered agent of the Company shall be Caribbean Management & Trust Company Limited situate at 60 Nevis Street in the city of Saint John, Antigua, which office shall also Be the registered office of the Company. ARTICLE III CAPITAL ------- The authorized capital of the Company is US$ 100,000.00 divided into 100,000,000 common Shares of US$0.01 each. The Company shall have the power to increase or reduce said Capital, and to issue any part of it's capital, original on increased, with or without any Preference, priority, or special privilege, or subject to any postponement of rights, or to any Conditions or restrictions; and so that, unless the conditions of issue shall otherwise Expressly declare, every issue of shares, whether declared to be preference or otherwise, Shall be subject to the power herein contained. ARTICLE IV BOARD OF DIRECTORS ------------------ The Powers of the Company shall be exercised by the Board of Directors of the Company. The company shall have a minimum of one and a maximum of four directors. ARTICLE V CORPORATE PURPOSE ----------------- The object for which the Company is established are:- (a) To engage only in any International betting, gaming, sportsbetting and bookmaking Permitted by the laws of Antigua and Barbuda and to accept wagers on sporting Events taking place in the Caricom region from residents of countries outside the Caricom region. (b) To acquire and with any property, real or personal, to erect any buildings, and do All acts and things, which in the opinion of the Company or the directors, may be Conveniently or profitably, or usefully, acquired and dealt with, carried on, erected Or done by the Company in connection with the property. (c) To generally have and exercise all powers, rights and privileges necessary and incident to carry out properly the objects herein mentioned. (d) With the exception of betting, gaming, sportsbetting, and bookmaking, the company Shall not engage in International Banking, Trust, or Insurance or any activity which requires a Licence under the International Business Corporations Act Registration Statement Page 82 NET-FORCE SYSTEMS INC. ARTICLE VI EXISTENCE --------- The Company shall have perpetual existence unless sooner dissolved in accordance with the Laws of Antigua and Barbuda. The date on which corporate existence shall begin in the date On which these Articles of Incorporation are filed with the Director of International Business Corporations of Antigua and Barbuda. ARTICLE VII LIBIALITY OF SHAREHOLDERS ------------------------- The liability of a shareholder is limited to the amount, if any unpaid on the shares held or subscribed to by such shareholder. ARTICLE VIII INDEMNITIES ----------- The Company shall indemnify any and all of its Directors, Officers, employees or agents or Former Directors, officers, employees or agents or any person or persons who may have Served at its request as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise in which it owns capital stock or of which it is a creditor, to the full extent permitted by law; and such indemnity shall include, but not be limited to, the expense, including the cost of any judgements, fines, settlements and counsel's fees, actually and necessarily paid or incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeals thereof, to which any such person or his legal representative may be made a party or may be threatened to be made a party by reason of his being or having been a Director, officer, employee or agent as herein provided. The foregoing right of indemnity shall not be exclusive of any other rights to which any Directors, officer, employee or agent may be entitled as a matter of law or which may be lawfully granted. ARTICLE IX CHARTER CONTINUATION -------------------- The Company is authorized to transfer its charter to any jurisdiction which permits Continuation of a foreign corporation. ARTICLE X SECURITIES ---------- No securities of the Company will be distributed to the public in Antigua and Barbuda. ARTICLE XI INCORPORATORS ------------- The name and address of the Company's incorporators are;- CLARE K. ROBERTS, Attorney-at-law, 60 Nevis Street, St.John's, Anitgua CLOVIS GRANT, Attorney's Clerk, 60 Nevis Street, St. John's Antigua. Dated this "5th" day of "August", 1999 at St. John's Antigua. /s/ "Clare K. Roberts" /s/ "Clovis Grant" ----------------------------- ----------------------------- Clare K. Roberts Clovis Grant Attorney-at-Law Attorney's Clerk Registration Statement Page 83 EX-3.4 7 netbylawsnfe.txt NET FORCE 20-F/A, BYLAWS NET FORCE ENTERTAINMENT NET-FORCE SYSTEMS INC. ANTIGUA AND BARBUDA The International Business Corporation Act, Cap 222 A Company Limited By Shares BY-LAWS OF NET FORCE ENTERTAINMENT INC. ---------------------------- PRELIMINARY ----------- In these and other by-laws of the Company, unless the context otherwise requires- "Act" means the International Business Corporation Act, Cap 222, as from time to time amended any other enactment for the time being in force substituted therefore; "Board" means the board of directors for the time being of the Company; "Company" means the above-named Company; "ordinary resolution" means a resolution passed by a majority of the shares entitled to vote; "office" means the registered office for the time being of the Company; and "Register" means the register of shareholders to be kept as required by section 130 of the Act. Unless the context otherwise requires, words and expressions defined in the Act have the same meanings when used in these By- Laws in particular, (a) words importing the singular number include the plural and vice-versa; (b) words importing gender include the masculine, feminine and neuter genders; and (c) words importing a person include an individual, partnership, association and body corporate and a trustee, executor, administrator and other personal representative of any person. I SHARES AND SHARE CAPITAL ------------------------ 1.1 ISSUANCE. The issue or allotment of shares shall be under the control of the Board which may issue the whole or any portion thereof with such preferred, deferred, special or limited rights as it may think fit. 1.2 PREEMPTIVE RIGHTS. All new issue of unissued shares of whatever kind shall be offered To the shareholders in proportion to the normal value of existing shares held by them, And such offer shall be made by notice specifying the number of shares to which the shareholder is entitled and limiting a time within which the offer, if not accepted, will be deemed to be declined; and after the expiration of such time or on the receipt of an indication from the shareholders to whom such notice is given that declines to accept the shares so offered, the Board may dispose of the same in such manner as it deems most beneficial to the Company. 1.3 ALTERATION OF CAPITAL. The Company may from time to time by ordinary resolution increase the share capital by such sum to be divided into shares of such amount as the Resolution shall prescribe. The Company may by ordinary resolution: Registration Statement Page 84 NET-FORCE SYSTEMS INC. (a) Consolidate and divide all or any portion of its share capital into shares of Larger amount than it's existing shares; (b) Sub-divide it's existing shares, or any of them, into shares of smaller amount Than is fixed by the Articles of Incorporation subject, nevertheless, to the Provisions of the Act; (c) Cancel any shares which at the date of the passing of the resolution, have not Been taken up or agreed to, be taken up by any person. Subject to the provisions of the Act, the Company may by special resolution reduce Its share capital, any capital redemption reserve fund or any premium account. II SHARE CERTIFICATES AND REGISTER ------------------------------- 2.1 CERTIFICATES. Certificates representing shares of the Company shall be in such form as Shall be determined by the directors. Such certificates shall be signed by a director. All Certificates for shares shall be consecutively numbered or otherwise identified. Certificates May be issued to bearer or in registered form. Bearer certificates shall be marked as not Transferable to residents of Antigua and Barbuda. 2.2 REGISTER. The number of shares, the date of issue, the consideration paid, and the Serial number of each bearer or registered share certificates shall be entered on the Register Of the Company. In the case of registered shares, the name and address of the holder shall Also be entered on said Register. 2.3 LOST OR DAMAGED CERTIFICATE. In the case of a lost, destroyed or mutilated certificate, a New one may be issued therefor upon such terms and indemnity to the Company as the Board may prescribe. III TRANSFER OF SHARES ------------------ 3.1 TRANSFER. Upon surrender to the Company or the transfer agent of the Company of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Company to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the Register of the Company. 3.2 Record Owner. The Company shall be entitled to treat the holder of record of any registered share as the holder in fact thereof, and accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice threof, except as expressly provided by the Act. IV FINANCIAL YEAR -------------- 4.1 The financial year of the company shall begin on the 1st day of January each year. V DIVIDENDS --------- 5.1 The Board may from time to time declare, and the Company may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. VI SEAL ---- 6.1 The board may provide a corporate seal which shall have inscribed thereon the name of the Company, the place of incorporation and year of incorporation. Registration Statement Page 85 NET-FORCE SYSTEMS INC. VII MEETINGS -------- 7.1 ANNUAL DIRECTORS' MEETING. The Annual Director's Meeting of the Company shall be held no more than four months from the date of registration of the Company and at such place within Antigua And Barbuda as the Board may determine. 7.2 ANNUAL SHAREHOLDERS' MEETING. An annual Shareholders' Meeting of the Company shall be held every year after the incorporation of the Company at such time and place within Antigua and Barbuda as shall from time to time be prescribed by the Board. 7.3 SPECIAL SHAREHOLDERS' MEETING. The Board may, whenever it thinks fit, convene a Special Shareholders' Meeting. The Board shall also on the requisition of the holders of not Less than one-twentieth of the issued share capital of the Company proceed to convene a Special Shareholders' Meeting of the Company. 7.4 PROCEEDINGS. All business shall be deemed special that is transacted at a Special Shareholders' Meeting, and also that is transacted at any Annual Shareholders' Meeting, with the exception of the consideration of the accounts and auditor's report, if any, the election of directors and the re- appointment of any incumbent auditor. 7.5 QUORUM. No business shall be transacted at any shareholders' meeting unless a quorum of shareholders is present at the time when the meeting proceeds to business. Save as is herein otherwise provided, shareholders present in person or by proxy representing a majority of the Company's shares shall constitute a quorum. 7.6 CHAIRMAN. All meetings shall be chaired by a Director appointed by the Board to act as Chairman. 7.7 MINUTES. Minutes of the proceedings of every Annual Shareholders' meeting shall be kept and shall be signed by the Chairman of the same meeting, or by the Chairman of the next succeeding meeting, and the same, when so signed, shall be conclusive evidence of all such proceeding and of the proper election of the chairman. 7.8 VOTES OF SHAREHOLDERS. Subject to any rights or restrictions for the time being attached to any class or classes of shares, every shareholder shall have one vote for each share of which he is the holder. All elections for directors shall be divided by majority vote; all other question shall be decided by majority vote except as otherwise required by the Act. 7.9 INFORMAL ACTION BY SHAREHOLDER. Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. 7.10 PROXIES. Votes may be given either personally or by proxy. The instrument appointing a proxy shall be in writing under the hand of the appointee or his attorney duly authorized in writing, or if the appointee is a corporation either under seal or under the hand of an officer or attorney duly authorized. A proxy need not be a shareholder of the Company. The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority shall be deposited at the office or at such other place within Antigua and Barbuda as is specified for that purpose in the notice convening the meeting. 7.10 NOTICE OF MEETING. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than twenty-one days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at his address as it appears on the stock transfer books of the company, with postage thereon prepaid. 7.11 WAIVER OF NOTICE. Unless otherwise provided by law, whenever any notice is required to be given to any shareholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Registration Statement Page 86 NET-FORCE SYSTEMS INC. VIII DIRECTORS --------- 8.1 NUMBER OF DIRECTORS. Unless and until the Company in a General or Special Shareholders' Meeting shall otherwise determine, the number of directors shall be two. Each director shall hold office unless removed as provided in these presents, until the next Annual Shareholders' Meeting and until his successor shall have been elected. 8.2 REMUNERATION OF DIRECTORS. Each of the directors shall be paid out of the funds of the Company such remuneration for his services as a director as the Company in an Annual Shareholders' Meeting may from time to time determine. The directors may also be paid travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or meetings of the company in connection with the business of the Company. 8.3 DIRECTORS WITH OTHER OFFICES AND INTERESTS. A director may hold any other office or place of profit tinder the Company and he or any firm of which he is a member may act in a professional capacity for the Company in conjunction with his office of director of the Company for such period and on such terms as to remuneration and otherwise as the Board may determine. No director or intending director shall be disqualified by his office from contracting with the Company, either with regard thereto, or as vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the Company in which any director is in any way interested, be liable to be avoided, nor shall any director so contracting or being so interested be liable to account to the Company for any profit realized by way of such contract or arrangement by reason of such director holding such office, or of the fiduciary relationship thereby established so long as the director notifies the Company in accordance with the requirements of the Act. To the extent permitted by the Act, any director may vote as director or shareholder in respect of any such contract or arrangement; provided that such director must disclose his interest to his co-directors, and if all the directors be interested in the contract or arrangement, the contract or arrangement must be entered into by the Company in an Annual or Special Shareholders' Meeting, and before the contract or arrangement is so entered into, the directors must disclose their interests to the meeting. 8.4 PROCEEDINGS OF THE BOARD. The Board at the request of any director may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as it thinks fit. 8.5 EXECUTIVE COMMITTEE. The Board at a duly constituted meeting may by a resolution appoint a committee from among themselves to be known as an executive committee. This committee may perform such acts in the name of the Board in the same fashion as if the Board had acted. The limits of the executive committee's acts shall be prescribed by resolution of the Board. The powers of this committee may be changed from time to time by subsequent resolution of the Board. 8.6 QUORUM. The quorum necessary for the transaction of the business of the Board may be fixed by the Board, and unless so fixed shall be one-half of the number of persons then serving as directors. The quorum of any committee of the Board shall be fixed by the meeting of the Board appointing such committee and, if not so fixed, then such quorum shall be fixed by the members of such committee. 8.7 VOTING. Every question at a meeting of the Board shall (except where otherwise provided by the Board) be determined by a majority of the votes of the directors present, every director having one vote. 8.8 ACTION WITHOUT A MEETING. A resolution may be adopted without any meeting of the Board or of a committee if evidenced by writing tinder the hands of all the directors or of all the members of such committee, and such writing shall be as valid and effectual as a resolution duly passed at a meeting of the Board or such committee. 8.9 POWERS OF THE BOARD. The business of the Company shall be managed by, the Board, who may exercise all such powers of the Company as are not by the Act or these By-Laws required to be exercised by the Company in an Annual Shareholders' Meeting, subject nevertheless to any regulations of these By-Laws, to the provisions of the Act and to such regulations being not inconsistent with the provisions of the Act as may be prescribed by special resolution of the Company, but no regulation so made by the Company shall invalidate any prior act of the Registration Statement Page 87 NET-FORCE SYSTEMS INC. Board which would have been valid if such regulation had not been made. The general powers given by this By-Law shall not be limited or restricted by any special authority or power given to the Board by any other By-Law. 8.10 APPOINTMENT OF ATTORNEY. The Board may from time to time and at any time, by power of attorney, appoint any company, firm or person to be the attorney or attorneys of the Company for the purpose of executing deeds on behalf of the Company in or outside Antigua and Barbuda and for such periods and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection of persons dealing with any such attorney as the Board may think fit, and may also authorize any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. 8.11 REMOVAL OF DIRECTOR. Any director may be removed by a majority vote of the shareholders. 8.12 RESIGNATION OF DIRECTOR. A director may resign at any time by giving written notice to the Board. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Board and the acceptance of the resignation shall not be necessary to make it effective. 8.13 PRESUMPTION OF ASSENT. A director of the Company who is present at a meeting of the directors at which action on any company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall rile his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Company immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favour of such action. IX OFFICERS -------- 9.1 NUMBER. The officers of the Company shall be president, a secretary and a treasurer, each of whom shall be elected by the directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the directors. Any two or more offices may be held by the same person. 9.2 ELECTION AND TERM OF OFFICE. The officers of the Company to be elected by the Board shall be elected annually at the first meeting of the Board held after each Annual Meeting of the shareholders. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. 9.3 REMOVAL. Any officer or agent elected or appointed by the Board may be removed by the Board whenever in their judgement the best interests of the Company would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. 9.4 VACANCIES. A vacancy in any office because of death, resignation, removal or disqualification, may be filled by the Board for the unexpired portion of the term. 9.5 PRESIDENT. The president shall be the principal executive officer of the Company and, subject to the control of the directors, shall in general supervise and control all of the business and affairs of the Company. He may sign, with the secretary or any other proper officer of the Company thereunto authorized by the directors, any deeds, mortgages, bonds, contracts, or other instruments which the directors have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the directors or by these by-laws to some other officer or agent of the Company, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the directors from time to time. 9.6 SECRETARY. The secretary shall keep the minutes of the shareholders' and of the directors' meetings in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these BY-Laws or as required, and be custodian of the Company records. Registration Statement Page 88 NET-FORCE SYSTEMS INC. 9.7 TREASURER. If required by the directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the directors shall determine. He shall have charge and custody of and be responsible for all funds and securities of the Company; receive and give receipts for moneys due and payable to the Company from any source whatsoever, and deposit all such moneys in the name of the Company in such banks, trust companies or other depositories as shall be selected in accordance with these By-Laws and in general perform all of the duties as from time to time may be assigned to him by the President or by the Board. 9.8 SALARIES. The salaries of the officers shall be fixed from time to time by the Board and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Company. X ACCOUNTS -------- 10.1 The Board shall cause to be kept such books of account as are necessary to comply with the provisions of the Act. The books of account shall be kept at the office or at such other place as the Board thinks fit, and shall always be open to the inspection of the Board. Any director or shareholder shall have the right to inspect any account or book or document of the Company. The Board shall from time to time in accordance with the provisions of the Act cause to be prepared and to be laid before an Annual Shareholders' Meeting such profit and loss accounts, balance sheets and reports as may be necessary. XI AUDITORS -------- 11.1 Auditors may be appointed and their duties regulated in accordance with the provisions of the Act. Subject to the provisions of the Act, all acts done by any person acting as an auditor shall, as regards all persons dealing in good faith with the Company, be valid, notwithstanding that there was some defect in his appointment or that he was at the time of his appointment not qualified for appointment. XII LIOUIDATION ----------- 12.1 If the Company shall be wound up (whether the liquidation be voluntary, under the supervision of or by the Court) the liquidator may, with the required authority, divide among the shareholders in specie or kind the whole or any part of the assets of the Company, and whether or not the assets shall consist of property of one kind or properties of different kinds, and may for such purpose set such value as he deems fair upon one or more or classes of property, and may determine how such division shall be carried out as between shareholders or different classes of shareholders. The Liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of shareholders as the Liquidator with the like authority shall think fit, and the liquidation of the Company may be closed and the Company dissolved. XIII AMENDMENTS ---------- 13.1 These By-Laws may be altered, amended or replaced and new By-Laws may be Adopted by a vote of the shareholders representing a majority of all the shares issued and Outstanding, at any, Annual Shareholders' Meeting or at any Special Shareholders' Meeting When the proposed amendment has been set out in the notice of such meeting. XIV INITIAL DIRECTORS ----------------- 14.1 The initial Board of Directors shall be composed of the following members;- ASDAK INC. NET FORCE ENTERTAINMENT INC Nevis Street, St.John's, Antigua Registration Statement Page 89 NET-FORCE SYSTEMS INC. RESOLUTION OF SOLE SHAREHOLDER IT IS RESOLVED THAT (1) Asdak Inc be removed as a director of the company with immediate effect. (2) the following persons be appointed as directors of the company with immediate effect: Terry G. Bowering Douglas N. Bolen Dated the "17th" day of August 1999 NET FORCE SYSTEMS INC By "Terry G. Bowering" ------------------------------ Registration Statement Page 90 EX-10.1 8 netsoftwarelicagree.txt NET FORCE 20-F/A, SOFTWARE LICENSE AGREEMENT NET-FORCE SYSTEMS INC. SOFTWARE LICENSE AGREEMENT THIS AGREEMENT is entered into this 31st day of July 1999, BETWEEN: NET-FORCE ENTERTAINMENT INC., with registered offices in St. John's, Antigua, West Indies; (hereinafter referred to as the "Licensee") AND SOFTEC SYSTEMS CARIBBEAN INC. with offices at 1589 Newgate Street, St. John's Antigua, West Indies; (hereinafter referred to as "Softec") WHEREAS, A. Softec owns rights to Internet casino software (the "Software"); B. Softec wishes to license the Software to other companies; C. Softec wishes to provide a complete computer hardware and software package that the Licensee may use to operate an Internet gaming site; and, D. The Licensee wishes to license the Software and make use of Softec's computer hardware in order to operate an Internet gaming site. NOW THEREFORE, in consideration of the premises and mutual covenants herein set forth, the parties agree as follows: 1. GENERAL PROVISIONS - -- ------------------ 1.1 DEFINITIONS "Licensed Software" shall mean a licensed data processing program or micro program consisting of a series or sequence of signals, or instructions, statements, or fonts stored on any media in machine readable form, and any related licensed materials such as, but not limited to, graphics, flow charts, logic diagrams, manuals, and listing made generally available by Softec for use in connection with the licensed programs. The Licensed Software shall consist of not more than 2 casinos, one with an adult theme (where a license is available), and one with a non-adult theme (collectively, the "Casino"). The Casino shall have various games of chance which includes, but are not limited to, blackjack, roulette, pai gow poker, video poker and slot machine and other games as added from time to time, based on a theme chosen by the Licensee, a sportsbook web site within the gaming site, an HTML version of the sportsbook, and a lottery ticket distribution web site. 1.1.2 "Net Monthly Revenue" shall mean, for any given calendar month, the total amount wagered in the casino, horse track and the sportsbook, less winnings in the Casino, horse track and the sportsbook, PLUS, total sales of lottery tickets, less the invoiced cost for purchasing lottery tickets for the Registration Statement Page 91 NET-FORCE SYSTEMS INC. lottery ticket sales, PLUS, any membership fees or additional fees that may be charged by the Licensee that are not related to currency conversion or transaction processing. 1.1.3 "Hardware" shall mean all the necessary computers, routers, cabling, monitors, hard drives, back-up systems, and other equipment, as determined by Softec in its absolute discretion, located at its offices in St. John's Antigua, Vancouver, Canada, or other locations designated by Softec as may be required in order to properly store, distribute and run the Licensed Software. 1.1.4 "Games" shall mean the casino style games, sportsbook, lottery, and pari-mutuel games that are played using the Licensed Software and are available from time to time. 1.1.5 "Downloadable Software" shall mean the portion of the Licensed Software that must be resident on a customer's computer in order for the customer to access and play the Games. 1.1.6 "Master CD" shall mean the compact disc containing the Downloadable Software that may be used to mass-produce compact discs for delivery to the Licensee's customers. 1.1.7 "Customer Information" shall mean all data collected and stored on customers including, without limiting the generality of the foregoing, name, address, phone and fax number, e-mail address, credit card numbers and expiration dates or information on other types of payments, amounts wagered and frequency of wagering. 1.1.8 "Confidential Information" shall mean material in the possession of Softec which is not generally available to or used by others or the utility or value of which is not generally known or recognized as standard practice, including, without limitation, all financial business and personal data relating to Softec's clients, any non-public information about affiliates, subsidiaries, consultants and employees of Softec or its affiliates, business and marketing plans, strategies and methods, studies, charts, plans, tables and compilations of business industrial information, computer software and computer technology whether patentable, copyrightable or not, which is acquired or developed by or on behalf of Softec or its affiliates from time to time. 1.2 RIGHT TO AUDIT 1.2.1 The Licensee shall, within reason, have the right, without prior notice to Softec to inspect and audit all Softec's business, accounting and supporting records that are necessary for purposes of determining Softec's compliance with the terms of this Agreement. Softec shall fully co-operate with any independent chartered accountants or certified public accountants hired by the Licensee to conduct any such inspection or audit. If any such inspection or audit discloses an under statement of less than 3% for any period, Softec shall pay, within ten days after receipt of the inspection or audit report, the sums due on account of such understatement with interest calculated at U.S. prime plus one percent. Further, if such inspection or audit is made necessary by failure of Softec to furnish invoice reports or any other documentation as herein required, or if an understatement for any period is determined by such inspection or audit to be 3% or greater, Softec shall, on demand and in any event within the said ten days, in addition to paying the sums due on account of such understatement, also reimburse for the cost of such inspection or audit, including without limitation, the charges of any independent chartered accountants or certified public c accountants retained by the Licensee in connection with such audit or inspection and the reasonable travel expenses, room, board and compensation of employees of the Licensee. 1.2.2 The Licensee's right to audit records shall only extend to records that date back no more than two of Softec's fiscal years prior to the date Softec receives notice of an impending audit. 1.3 INDEMNIFICATION 1.3.1 The Licensee acknowledges and agrees that neither Softec nor any of its members, shareholders, directors, officers, employees or representatives will be liable to the Licensee or any of the Licensee's customers for any special, indirect, consequential, punitive or exemplary damages, or damages for loss of profits or savings, in connection with this Agreement, the services or the Hardware or any other information, material or services provided by Softec to the Licensee under this Agreement. If, despite the foregoing limitations, Registration Statement Page 92 NET-FORCE SYSTEMS INC. Softec or any of its shareholders, directors, officers, employees or representatives should become liable to the Licensee or any other person (a "Claimant") in connection with this Agreement, then the maximum aggregate liability of Softec, its members, shareholders, directors, officers, employees and representatives for all such things and to all such parties will be limited to the lesser of the actual amount of loss or damage suffered by the Claimant or the amount of the Licensee's fees payable by the Licensee to Softec for the six months prior to the loss. 1.3.2 The Licensee shall indemnify and save harmless Softec and its members, shareholders, directors, officers, employees, agents, contractors, representatives, parent company, or subsidiaries (together, the "Indemnified Parties") from and against all damages, losses, costs and expenses (including actual legal fees and costs), fines and liabilities incurred by or awarded asserted or claimed against any of the Indemnified Parties by any licensing or government agency who licenses, regulates, or otherwise governs the licensing or use of Internet gambling in connection with the Licensee's activities under this Agreement, including claims brought by a person using or relying upon any advice given or publication produced and distributed by the Licensee. 1.3.3 Notwithstanding anything in this Section 1.3, if Softec is found guilty of fraud in executing its' obligations under this Agreement, the Licensee shall not be responsible for any indemnification of the Indemnified Parties to the extent that the fraud has caused there to be damages. 1.4 DISRUPTIONS 1.4.1 The Licensee acknowledges that from time to time, as a result of Hardware failure, supplier failures, or acts of God, the services provided under this Agreement by Softec can be temporarily disrupted. The Licensee acknowledges and agrees that neither Softec nor any of its members, shareholders, directors, officers, employees or representatives will be liable to the Licensee or any of the Licensee's customers for any special, indirect, consequential, punitive or exemplary damages, or damages for loss of profits or savings, in connection with these temporary disruptions. For the purpose of this section, if the services provided under this Agreement by Softec are temporarily disrupted for seven days within any one-month period, the minimum monthly fees as calculated in section 1.7.3 shall be reduced on a pro rata basis. 1.4.2 The Licensee acknowledges that Softec's ability to perform its obligations under this Agreement are subject to government licensing in whatever jurisdiction Softec may choose to operate. Softec shall not be held liable for any damages of any kind whatsoever that may result from changes in government legislation or policy. 1.5 CONDITIONS OF LICENSE This license is granted under the following conditions: 1.5.1 The Licensee acknowledges that its rights in and to the Licensed Software may not be assigned, licensed or otherwise transferred by operation of law without the prior written consent of Softec. Violation of this section is grounds for immediate termination of this Agreement. 1.5.2 Copyright and other proprietary rights of Softec protect the Licensed Software. The Licensee may be held directly responsible for acts relating to the Licensed Software which are not authorized by this Agreement. 1.5.3 All right, title and interest in and to the Licensed Software, and any copies thereof, and all documentation, code and logic, which describes and/or comprises the Licensed Software remains the sole property of Softec. 1.5.4 Softec shall not be responsible for failure of performance of this Agreement due to causes beyond its control, including, but not limited to, work stoppages, fires, civil disobedience, riots, rebellions, acts of God, and similar occurrences. 1.5.5 The sportsbook "format" shall remain standard, and will not be materially altered from Softec's standard sportsbook facilities. Format shall refer to the tabular presentation of the sports information making up the sportsbook look and feel and shall not include the graphics that may be added in order to personalize it. Registration Statement Page 93 NET-FORCE SYSTEMS INC. 1.5.6 The Licensee acknowledges that this is a non-exclusive agreement and that Softec will license the Licensed Software to as many other parties as are willing to enter into a licensing agreement with Softec. 1.5.7 The Licensee shall supply to Softec an irrevocable letter of credit in the amount of $100,000 U.S. An appropriate amount of these funds shall be released to Softec in the event the Licensee should become unable or unwilling to pay for any legitimately invoiced amounts. This security shall only be used to remedy non-payment of legitimate invoices, and cannot be applied by Softec to any other alleged breaches of this Agreement. This section shall only become effective upon the Licensee achieving in any one month Net Monthly Revenue of $1,000,000 or greater. 1.5.8 The Licensee shall be responsible for ensuring that they are operating the Licensed Software in compliance with any and all applicable state, provincial, national, and international laws. 1.5.9 The Licensee shall provide Softec with all documentation necessary to show that the Licensee has obtained any and all necessary licenses in order to operate an Internet casino and/or Sportsbook in the jurisdiction in which the Licensee chooses to operate. 1.5.10 It is the policy of Softec to prevent the use of the Licensed Software for use as a "money laundering" vehicle. The Licensee warrants that they will undertake all reasonable efforts to prevent persons from using the Licensed Software for use as a money-laundering vehicle. If it is revealed that the Licensee is purposely allowing or is willfully blind to money laundering, Softec may terminate this agreement without notice. 1.5.11 The Licensee shall not accept wagers from persons residing in Canada and shall implement all measures stipulated by Softec to ensure that persons residing in Canada are not able to wager utilizing the Licensed Software. 1.6 TERM AND TERMINATION 1.6.1 This Agreement shall commence and be deemed effective on the date when fully executed (the "Effective Date"). This Agreement is in effect for a period of one-year (the "Term") and shall be automatically renewed indefinitely with additional one year terms unless the Licensee gives written notice of termination of this Agreement at least 45 days prior to the end of any one year period. 1.6.2 Softec may terminate this Agreement by giving written notice to the Licensee at least six months prior to the end of any one year term provided, however, Softec shall not give notice of termination in the first year of this Agreement. 1.6.3 Softec may terminate this Agreement at any time upon five days notice if the Licensee is more than 30 days in arrears in paying any material monthly fees due and owing to Softec. The Licensee shall be allowed to cure the breach during the notice period, thus pre-empting Softec's ability to terminate this Agreement in accordance with this section. The arrears contemplated in this section must be of a material amount for this section to be used by Softec. For the purposes of this section, material shall mean anything greater than 5% of the previous month's fees. 1.6.4 Softec may terminate this Agreement at any time upon five days notice if the Licensee becomes bankrupt or insolvent or ceases carrying on business for any reason. 1.6.5 The Licensee may terminate this Agreement at any time upon five days notice if Softec becomes bankrupt or insolvent or ceases carrying on business for any reason. 1.6.6 The Licensee may, inter alia, terminate this Agreement at any time upon five days notice if Softec is materially in breach of this Agreement for more than 30 days. Softec shall be allowed to cure the breach during the notice period, thus pre-empting the Licensee's ability to terminate this Agreement in accordance with this section. 1.6.7 Softec may terminate this Agreement at any time upon five days notice if Softec, or any of its principals, officers or Directors becomes the subject of third party civil or criminal litigation as a result of the Registration Statement Page 94 NET-FORCE SYSTEMS INC. Licensee's operations under this Agreement. The litigation contemplated herein must be material, and found to be of a serious nature by independent legal counsel. 1.6.8 Upon termination of this Agreement, the Licensee shall immediately return to Softec any and all of Softec's materials which Softec has a proprietary right in that are in the Licensee's possession and/or in the possession of the Licensee's agents, servants and employees. 1.6.9 Upon termination of this Agreement, all Customer Information shall be given to the Licensee and Softec shall not make use of or disclose any Customer Information to any third party. 1.6.10 Upon termination of this Agreement for any reason, any security given by the Licensee shall be returned to the Licensee within thirty days of termination, provided however that if there are any outstanding invoiced amounts (as per section 1.5.7) against the Licensee, sufficient security shall be retained in order to pay for those claims. 1.7 REMUNERATION 1.7.1 The Licensee shall pay to Softec a non-refundable one-time fee of $100,000 U.S. for the development of the graphical front end of the gaming site and all set-up costs. This payment shall be paid in accordance with the following schedule: o $ 10,000 per month for ten months with the first payment being made three months from the date of the 3 acceptance of the first wager using the Licensed Software. 1.7.2 The Licensee shall pay to Softec a monthly fee based on a percentage of the Net Monthly Revenue. The fee shall be paid in accordance with Schedule A of this Agreement. The fees shall commence when the Licensee accepts a wager utilizing the Licensed Software. 1.7.3 Notwithstanding any amount due and owing in accordance with Schedule A of this Agreement, the Licensee shall pay to Softec a minimum of $25,000 per month. This section shall come into effect 120 days from the acceptance of the first wager utilizing the Licensed Software. 1.7.4 All monthly payments shall be delivered to Softec by the 15th of each month in payment for the previous month's activity. 1.8 CONFIDENTIALITY 1.8.1 The Licensee shall not disclose, publish, or disseminate Confidential Information to anyone other than those of its employees or others with a need to know, and the Licensee agrees to take reasonable precautions to prevent any unauthorized use, disclosure, publication, or dissemination of Confidential Information. The Licensee agrees not to use Confidential Information otherwise for its own or any third party's benefit without the prior written approval of an authorized representative of Softec in each instance. 1.8.2 Softec shall not disclose, publish, or disseminate Customer Information to anyone other than those of its employees with a need to know, and Softec agrees to take reasonable precautions to prevent any unauthorized use, disclosure, publication, or dissemination of Customer Information. Softec agrees not to use Customer Information otherwise for its own or any third party's benefit without the prior written approval of an authorized representative of the Licensee in each instance. 1.8.3 All Confidential Information, and any Derivatives thereof whether created by Softec or the Licensee, remains the property of Softec and no license or other rights to Confidential information is granted or implied hereby. For purposes of this Agreement, "Derivatives" shall mean: (a) for copyrightable or copyrighted material, any translation, abridgement, revision or other form in which an existing work may be recast, transformed or adapted; (b) for patentable or patented material, any improvement thereon; and (c) for material which is protected by trade secret, any new material derived from such existing trade secret material, including new material which may be protected by copyright, patent and/or trade secret. Registration Statement Page 95 NET-FORCE SYSTEMS INC. 1.8.4 Notwithstanding anything in this Section 1.8, Softec shall be allowed to use Customer Information for the purpose of fulfilling its reporting obligations as a public company. Softec shall also be allowed to use Customer Information in a statistical form so long as it does not identify individuals or specific companies. 1.8.5 The Licensee shall not disclose the contents of this Agreement to any third party who is not bound to maintain confidentiality between the parties. The Licensee acknowledges that disclosure of the terms of this Agreement to third parties would cause considerable damage to Softec and its parent company, Starnet Communications International Inc. 2. OBLIGATIONS OF THE LICENSOR - -- --------------------------- 2.1 HARDWARE 2.1.1 Softec shall supply the Hardware as defined in this Agreement. 2.1.2 Softec shall maintain the Hardware and pay all costs for maintaining and/or upgrading the Hardware. 2.1.3 Softec shall supply the office space required to house the Hardware. 2.1.4 The Hardware shall, at all times, remain the property of Softec. 2.1.5 Softec shall supply an appropriate connection to the Internet with sufficient bandwidth to properly operate the Licensed Software. The Licensee shall pay for all bandwidth associated only with those customers that are not playing the Games using real money and for the downloading of the Licensed Software via the Internet, and for any related marketing via the Internet. Bandwidth shall be charged to the Licensee at market rates. 2.1.6 Softec shall not be required to maintain a redundant site. 2.1.7 Softec shall make all reasonable efforts to repair and correct any problems arising under Softec's areas of responsibility that may arise from time to time which would cause it to be unable to perform its' obligations under this Agreement (see section 1.5.4). 2.1.8 Softec shall notify the Licensee of any problems that may arise from time to time and shall keep the Licensee apprised of any efforts undertaken to rectify the problem. 2.1.9 The Hardware shall be located only in places where Internet gambling may be operated legally and where the Licensee has obtained all necessary licenses to conduct online gaming. 2.2 THE LICENSED SOFTWARE 2.2.1 Softec shall install the Licensed Software on the Hardware. 2.2.2 Softec shall allow all of the Licensee's customers and all persons who seek to be licensee's customers Internet access to the Licensed Software. 2.2.3 Softec shall allow the Licensee's customers to download directly from the server the Downloadable Software necessary for the Licensee's customer to play the Games. 2.2.4 Softec shall supply to the Licensee a single Master CD containing the Downloadable Software. 2.2.5 Softec may from time to time, at its discretion, create additional games, which can be added to the Licensed Software. If additional games become available, the Licensee may request to have the additional games added to the Licensed Software at no additional licensing cost to the Licensee. Registration Statement Page 96 NET-FORCE SYSTEMS INC. 2.2.6 Softec may from time to time, at its discretion, translate part or all of the Games into other languages, which can be added to the Licensed Software. If additional languages become available, the Licensee may request to have the additional languages added to the Licensed Software at no cost to the Licensee. 2.2.7 Notwithstanding anything stated in this section 2.2, any changes requested by the Licensee to be made to the graphics portion of the Licensed Software, shall be charged to the Licensee at market rates. 2.2.8 Notwithstanding anything stated in this section 2.2, any changes made to the Master CD at the Licensee's request will be billed to the Licensee at market rates, plus a $100.00 U.S. administration fee. Softec retains the right to refuse to make the requested changes. 2.2.9 Softec shall only be required to provide the Licensed Software in the English language only. 2.2.10 Softec will provide all upgrades of the Licensed Software that do not require changes to the graphical interface, at no charge to the Licensee. 2.2.11 All upgrades are to be made available to the Licensee within 30 days of the completion of testing. 2.2.12 The Licensee may operate the Casino on as many separate URL's as the Licensee wants, with no additional licensing fee to be paid. 2.2.13 Softec warrants that the Licensed Software correctly implements algorithms, which are in accordance with the rules and payouts, which may be displayed on the screen at any time by the player. Pseudo-random numbers used by the software for the purposes of choosing game outcomes and shuffling cards are generated in an unbiased manner. 2.2.14 Notwithstanding anything in this Agreement, the Licensee shall not operate more than two casinos with different names and/or different graphics. 2.3 FINANCIAL TRANSACTIONS 2.3.1 Softec shall provide a transaction processing system that will allow the Licensee's customers to deposit funds for use of the Games (the "Transaction Processing System"). The Licensee's customers will be able to deposit funds via the Internet through the use of Visa, Master Card, or American Express credit cards. Other methods of payment may be made available from time to time at Softec's discretion, at a cost to the Licensee to be agreed upon at the time. 2.3.2 Softec shall only be responsible for processing credit card debits and credits for which the Licensee holds the appropriate merchant number accounts. 2.3.3 The Licensee shall be responsible for all aspects of collecting and paying funds, in accordance with this Agreement. 2.3.4 The Licensee shall have no rights whatsoever in the Transaction Processing System. 2.4 TECHNICAL SUPPORT 2.4.1 Softec shall supply 24-hour technical support for the Licensee's customers and for the Licensee. 2.4.2 Softec shall make the Technical support available via the Internet and via toll free telephone lines. 2.4.3 Softec shall determine the number of people acting as technical support and the number of incoming telephone lines for technical support in its absolute discretion. 2.4.4 Technical support offered via the telephone shall be in English language only. Registration Statement Page 97 NET-FORCE SYSTEMS INC. 2.5 ACCOUNTING 2.5.1 Softec shall maintain records of all transactions and wagers placed utilizing the Licensed Software. 2.5.2 The Licensee shall pay a flat fee of $100.00 US plus all reasonable hourly administration fees and disbursements, including printing, photocopying and shipping costs, each time accounting information is requested. Administration fees shall be paid at market prices. No fees are payable for regular accounting information provided to the Licensee for the purpose of calculating Net Revenue. 2.5.3 Softec shall supply a complete accounting record, as defined by Softec from time to time, of the previous month's activity relating to the Licensed Software within ten working days of the end of each month. The accounting records shall be delivered either by facsimile or by e-mail. 2.5.4 Softec shall provide daily interim accounting reports, as defined by Softec from time to time. The daily interim accounting records shall be delivered either by facsimile or by e-mail. 2.5.5 Softec shall have the right to utilize the accounting information for statistical and reporting purposes provided specific information about the Licensee is not disclosed. 2.5.6 Softec shall archive and maintain the accounting information for a period of 2 fiscal years. 2.5.7 Softec, at its discretion, may destroy any portion of the accounting information that Softec deems to be no longer relevant. 2.5.8 The Licensee shall be given thirty days written notice prior to the destruction of any accounting information. The Licensee may choose to archive information about to be destroyed, at its own facilities. 2.6 CUSTOMER DATA 2.6.1 Softec shall maintain a database containing the Customer Information. 2.6.2 The Customer Information shall remain the property of the Licensee. 2.6.3 Softec shall provide daily interim Customer Information reports, as defined by Softec from time to time. 2.6.4 The Licensee shall pay a fee of $100.00 US plus all reasonable hourly administration fees and disbursements, including printing, photocopying and shipping costs, each time additional Customer Information is requested. Administration fees shall be paid out at market prices. 2.6.5 Softec shall have the right to utilize the Customer Information for any purpose that does not conflict with the Licensee's marketing of the Licensed Software. Under no circumstances shall Softec utilize the Customer Information in the marketing of any gaming site being operated by a subsidiary of Starnet Communications International Inc., Softec's parent company. 2.6.6 Softec shall archive and maintain the Customer Information for a period of two years. 2.6.7 Softec, in its discretion, may destroy any portion of the Customer Information that Softec deems to be no longer relevant. 2.6.8 The Licensee shall be given thirty days written notice prior to the destruction of any Customer Information. The Licensee may choose to archive information about to be destroyed, at its own facilities. Registration Statement Page 98 NET-FORCE SYSTEMS INC. 2.7 THE GAMES 2.7.1 The lottery tickets and play options available in the lottery web site shall be determined from time to time by Softec in its sole discretion. 2.7.2 Softec shall determine the odds for the casino from time to time. The Licensee shall be responsible for setting the odds for the sportsbook and the HTML sportsbook, from time to time, in its sole discretion. 2.7.3 The Licensee shall determine the betting limits for both the casino sportsbook and the HTML sportsbook, from time to time, in its sole discretion. The Licensee may choose zero as a betting limit. 2.7.4 The Licensee, in its sole discretion, shall determine the betting limits for the Games. The Licensee may choose zero as a betting limit. 2.7.5 Softec shall determine the games available in the casino and both versions of the sportsbook, from time to time, in its sole discretion. 2.7.6 Softec shall determine the lottery tickets available in the casino as well as the forms of play, from time to time, in its sole discretion. 2.7.7 Softec shall only supply the Games that the Licensee has appropriate licenses to operate. 3. OBLIGATIONS OF THE LICENSEE - -- --------------------------- 3.1 LICENSES 3.1.1 The Licensee shall be responsible for obtaining and maintaining all necessary licenses for the operation of an Internet Casino and an Internet Sportsbook operation, or whichever the Licensee intends to operate, in a location where Softec maintains Hardware. 3.1.2 Softec shall recommend a lawyer in Antigua that can assist the Licensee in obtaining, an Internet casino license as required by the Antigua Free Trade Zone. 3.2 MERCHANT NUMBERS 3.2.1 The Licensee shall be responsible for obtaining and maintaining appropriate merchant numbers for the processing of Visa, Master Card American Express credit cards and any other credit card the Licensee may obtain merchant numbers for (the "Merchant Numbers"). 3.2.2 Notwithstanding that from time to time, Softec may make merchant numbers available to the Licensee through another subsidiary of Starnet Communications International Inc. ("SCII"), neither Softec nor SCII, nor any other subsidiary of SCII shall be responsible for maintaining or continuing to provide merchant numbers. 3.3 MARKETING 3.3.1 The Licensee shall be responsible for all marketing of the services offered through the Licensed Software. 3.3.2 The Licensee shall spend on a monthly basis, a minimum of 15% of the previous month's Net Revenue on marketing and promoting the Licensee's gaming site. 3.3.3 Softec is not responsible for tracking or maintaining any records or data with respect to marketing. The Licensee shall be allowed access to the Hardware for the purpose of tracking and maintaining marketing data. Registration Statement Page 99 NET-FORCE SYSTEMS INC. 3.3.4 The Licensee shall be responsible for all aspects of customer service, including, but not limited to dealing with customer complaints and paying out winnings, provided that the Licensee has and is using its own credit card merchant accounts. 3.4 DISTRIBUTION OF SOFTWARE 3.4.1 The Licensee shall be responsible for the production and distribution of compact discs containing the Downloadable Software. 3.4.2 The Licensee shall not alter the Licensed Software as supplied on the Master CD in any way. 3.4.3 The Licensee shall ensure that the packaging for the Licensed Software, as well as any logo imprinted on the compact disk, shall display all proprietary rights symbols such as Copyright and Trademark, as supplied by Softec (the "Symbols"). The Symbols shall be of the exact same size and font as supplied by Softec. 3.5 REGULATORY ISSUES 3.5.1 The Licensee shall be solely responsible for determining which jurisdictions they choose to market to and receive wagers from. 3.5.2 The Licensee shall be responsible for determining the legality of accepting wagers in whichever jurisdictions they choose to market to and receive wagers from. 3.5.3 The Licensee shall indemnify Softec for any reasonable legal costs, and fines that arise as a result of the Licensee choosing to accept wagers from any jurisdiction that determines or has determined that Internet wagering is illegal. 3.6 THE WEB SITE 3.6.1 The Licensee shall construct and maintain the entire web site(s) where the Downloadable Software is to be made available to the Licensee's customers (the "Web Sites"). 3.6.2 The Licensee shall pay for any and all Uniform Resource Locators ("URL's") that the Licensee deems necessary to properly market the Licensed Software. 3.6.3 The Licensee shall ensure that the Web Sites shall display a statement that the software is licensed, as well as all proprietary rights symbols such as Copyright and Trademark, as supplied by Softec (the "Symbols"). The Symbols shall be of the exact same size and font as supplied by Softec. 3.6.4 The Licensee shall have the right to add as many URL's that are dedicated solely to the promotion of the Licensee's gaming site as the Licensee deems necessary. 3.6.5 The Licensee shall have the right to make any changes to the Web Sites the Licensee feels appropriate. All changes that are effected by Softec will be charged to the Licensee at market rates. 3.6.6 If requested, Softec shall construct and maintain any and all additional web sites the Licensee deems necessary for the marketing of the Licensed Software. All work done to build additional web sites shall be charged to the Licensee at market rates. 3.6.7 Softec shall not in any way be responsible for the design of the Web Sites utilized by the Licensee. 3.6.8 The Licensee shall include in their Terms and Conditions of Play for the Licensed Software the Terms and Conditions that are recommended by Softec. The Licensee may embellish or add to these Terms and Conditions. If the Licensee does not implement the minimum required Terms and Conditions, in so far as the Terms and Conditions would have protected the Licensee, Softec shall not be responsible to the Licensee, notwithstanding anything in this Agreement. Registration Statement Page 100 NET-FORCE SYSTEMS INC. 4. STANDARD CLAUSES - -- ---------------- 4.1 NOTICES Unless otherwise provided in this Agreement, any notice provided for under this Agreement shall be in writing and shall be sufficiently given if delivered personally, or if transmitted by facsimile with an original signed copy delivered personally within twenty-four hours thereafter, or mailed by prepaid registered post addressed to Softec at their respective addresses set forth below or at such other than current address as is specified by notice. To Softec: Newgate Street P.O. Box 1589 St. John's, Antigua West Indies Attention: General Counsel Fax: (268) 480-1656 To the Licensee: Hill & Hill legal offices in St. John's, Antigua 4.2 ENTIRE AGREEMENT AND SCHEDULES The parties agree that this Agreement and its Schedule, if any, constitute the complete and exclusive statement of the terms and conditions between the Licensee and Softec covering the performance hereof and cannot be altered, amended or modified except in writing executed by an authorized representative of each party. The Licensee further agrees that any terms and conditions of any purchaser order or other instrument issued by the Licensee in connection with this Agreement which are in addition or inconsistent with the terms and conditions of this Agreement shall not be binding on Softec and shall not apply to this Agreement. 4.3 GOVERNING LAW AND ARBITRATION Any dispute in connection with this Agreement shall be settled by arbitration in accordance with any Arbitration Act agreed upon between the parties; provided, however, should any dispute arise under this Agreement, the parties shall endeavor to settle such dispute amicably between themselves. In the event that the parties fail to agree upon an amicable solution, such dispute shall be finally determined by arbitration as aforesaid. 4.4 GOOD FAITH The parties acknowledge to one another that each respectively intends to perform its obligations as specified in this Agreement in good faith. 4.5 PARTIES TO ACT REASONABLY The parties agree to act reasonably in exercising any discretion, judgment, approval or extension of time that may be required to effect the purpose and intent of this Agreement. Whenever the approval or consent of a party is required under this Agreement, such consent shall not be unreasonably withheld or delayed. 4.6 GOVERNING LAW This agreement and all Schedules shall be governed by and construed in accordance with the laws of the Country of Antigua, and the Licensee hereby attorns to the jurisdiction of the courts of Antigua notwithstanding any other provision expressed or implied in either this agreement or the Schedules. Registration Statement Page 101 NET-FORCE SYSTEMS INC. 4.7 TIME TO BE OF THE ESSENCE Time is of the essence. 4.8 NUMBER AND GENDER In this Agreement the use of the singular number includes the plural and vice versa the use of any gender includes all genders, and the word "person" includes an individual, a trust, a partnership, a body corporate and politic, an association and any other incorporated or unincorporated organization or entity. 4.9 CAPTIONS Captions or descriptive words at the commencement of the various sections are inserted only for convenience and are in no way to be construed as a part of this Agreement or as a limitation upon the scope of the particular section to which they refer. 4.10 NON-ASSIGNABILITY This Agreement is personal to the Licensee, except as provided in S. 4.11, and the Licensee may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent or Softec. 4.11 BENEFIT This Agreement shall ensure to the benefit of and be binding upon the Licensee, its successors and assigns. The Licensee may delegate the performance of any of its obligations hereunder to any corporation which controls, is controlled by or is under common control with the Licensee. 4.12 WAIVER No condoning, excusing or waiver by any party hereto of any default, breach of non-observance by any other party hereto, at any time or times with respect to any covenants or conditions herein contained, shall operate as a waiver of that party's rights hereunder with respect to any continuing or subsequent default, breach or nonobservance, and no waiver shall be inferred from or implied by any failure to exercise any rights by the party having those rights. 4.13 FURTHER ASSURANCE Each of the parties hereto hereby covenants and agrees to execute such further and other documents and instruments and to do such further and other things as may be necessary to implement and carry out the intent of this Agreement. 4.14 CUMULATIVE RIGHTS All rights and remedies of Softec are cumulative and are in addition to and shall not be deemed to exclude any other rights or remedies allowed by law except as specifically limited hereby. All rights and remedies may be exercised concurrently. 4.15 PRIOR AGREEMENTS Except as specifically provided for herein, this Agreement, including its Schedules, contains all of the terms agreed upon by the parties with respect to the subject matter herein and supersedes all prior agreements, arrangements and understandings with respect thereto, whether oral or written. Registration Statement Page 102 NET-FORCE SYSTEMS INC. 4.16 SEVERABILITY If any part of this Agreement is unenforceable because of any rule of law or public policy, such unenforceable provision shall be severed from this Agreement, and this severance shall not affect the remainder of this Agreement. 4.17 NO PARTNERSHIP Notwithstanding anything in this Agreement, no part of this Agreement, nor the Agreement as a whole shall be construed as creating a partnership or agency relationship between the parties. If any part of this Agreement should become construed as forming a partnership or agency relationship, that part shall be amended such that no partnership or agency relationship is created, but that part achieves what it was originally intended to achieve. 4.18 DOLLAR AMOUNTS All references to money or specific dollar amounts in this Agreement are in United States Dollars. 4.19 INTERPRETATION In the interpretation of this Agreement or any provision hereof, no inference shall be drawn in favor of or against any party by virtue of the fact that one party or its agents may have drafted this Agreement or such provision. IN WITNESS WHEREOF the parties have executed this Agreement on the date first written. SOFTEC SYSTEMS CARIBBEAN INC. Per: /s/ "Christopher Zacharias" Per: /s/ "Mark Dohlen" Name: Christopher H. Zacharias Name: Mark N. Dohlen Title: In House Counsel Title: CEO THE LICENSEE: NET-FORCE ENTERTAINMENT INC. Per: /s/ "Terry Bowering" Name: Terry G. Bowering Title: President, Director Registration Statement Page 103 NET-FORCE SYSTEMS INC. SCHEDULE A - ---------- The Licensee agrees to pay Softec monthly fees according to the following: THE LICENSEE'S NET MONTHLY FEE PAYABLE REVENUE (U.S. DOLLARS) > $0.00 but < or = to $500,000 25% > $500,000 but < or = to $1,000,000 20% > $1,000,000 but < or = to $5,000,000 15% > $5,000,000 to $10,000,000 12.5% > $10,000,000 plus 10% The above table should be read with the following understanding: If the licensee has a Net Monthly Revenue of $550,000, the fee payable is calculated as follows: 25% on the first $500,000 = $125,000 20% on the next $50,000 = $ 10,000 --------- For a total fee payable = $135,000 Registration Statement Page 104 NET-FORCE SYSTEMS INC. SCHEDULE OF MARKET RATES ------------------------ The Market rates as set out in this schedule and referred to in this Agreement are subject to change without notice to the Licensee. 3D graphics:--------------------------------- $150.00 per hour Video editing:------------------------------- $100.00 per hour Graphic design:------------------------------ $75.00 per hour Programming:--------------------------------- $150.00 per hour Quality Assurance and testing:--------------- $40.00 per hour Registration Statement Page 105 NET-FORCE SYSTEMS INC. SCHEDULE OF MERCHANT NUMBER TERMS --------------------------------- o Monthly processing limit: $100,000 o Merchant discount: 5.50% o Rolling reserve: 5% for 180 days if chargeback are less than 5% o 25% if chargebacks exceed 5% - but will be subject to review o Transaction fee: $1.60 per transaction applied to both debit and credit transactions o Fraud Screen fee: $0.60 per transaction applied to all sales transaction regardless of the response, (accept or reject). This system is essential to keep the chargeback ratio down. o Settlement: 30 days following the month end (e.g. All September transactions will be settled by October 30th 1998) o Chargeback: $25 per chargeback transaction o Payout processing fee is $5.00 per bank draft. Softec makes no guarantee as to the availability of the merchant numbers contemplated in this Schedule. Please refer to section 3.2.2 of this Agreement for clarification. Registration Statement Page 106 NET-FORCE SYSTEMS INC. AMMENDMENT TO SOFTWARE LICENSE AGREEMENT Between Softec Systems Caribbean inc. (now Starnet Systems International Inc., "Starnet") and Net Force entertainment Inc. ("Net Force") dated July 31, 1999 WHEREAS Net Force entered into a software license agreement with Starnet dated July 31, 1999 (the "Software License Agreement"); AND WHEREAS Starnet's Licensed software erroneously prevented Net Force from accepting certain wagers; AND WHEREAS Starnet now wishes to compensate Net Force for any inconvenience and costs caused by Starnet; AND WHEREAS Net Force wishes to provide Starnet with a release for the purposes of making a full and final compromise and settlement of all claims against Starnet; NOW THEREFORE, in consideration of the mutual covenants set out herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Starnet and Net Force agree as follows; 1. Capitalized terms used in this Amendment that are defined in the Software License Agreement shall have meaning as ascribed thereto in the Software License Agreement. 2. Starnet hereby waives any further amounts payable by Net Force under section 1.7.1 of the Software License Agreement. 3. For a period of twelve months, commencing September 1, 2000, Starnet will reduce the monthly fee payable by Net Force under section 1.7.2 of the Software License Agreement so that the maximum monthly fee for Net Monthly Revenues below $1,000,000 will be fifteen (15%). 4. Starnet hereby waives the provisions of section 1.7.3 of the Software License Agreement. 5. Starnet hereby waives any further fees payable to Starnet by Net Force for its initial Virtual Casino License, issued by the Antiguan Free Trade Zone, which expires on April 6, 2001. 6. All other provisions, of the Software License Agreement shall remain in full force and effect. 7. Net Force, its officers, directors, employees, agents, successors, predecessors, affiliates and assigns, (herein collectively referred to as the ("Net Force Group") hereby release Starnet and its officers, directors, employees, agents, successors, predecessors, affiliates and assigns, (herein collectively referred to as the ("Starnet Group") of and from any and all actions causes of action, demands and damages relating to the Licensed Software, howsoever arising, which the Net Force Group presently has or at any time can, shall or may have against the Starnet Group. 8. Starnet and Net Force will hold the terms of this Amendment and of the release contained herein strictly confidential and will not disclose the same to any person or entity whatsoever, except to its legal or financial advisors or as required by law. AGREED TO THIS 6TH DAY OF SEPTEMEBER 2000 /s/ Meldon Ellis - -------------------------------------- Meldon Ellis Starnet Systems International Inc. /s/ Terry Bowering - -------------------------------------- Terry Bowering Net Force Entertainment Inc. Registration Statement Page 107 EX-10.2 9 netgaminglicense.txt NET FORCE 20-F/A, GAMING LICENSE NET-FORCE SYSTEMS INC. License # 0310A [FREE TRADE & PROCESSING ZONE LOGO HERE] ANTIGUA AND BARBUDA FREE TRADE & PROCESSING ZONE CERTIFICATE AUTHORIZING THE ESTABLISHMENT AND OPERATION OF BUSINESS IN THE FREE TRADE & PROCESSING ZONE Pursuant to Section 11 of the Free Trade & Processing Zone Act No. 12 of 1994, the Commission certifies that: NET FORCE ENTERTAINMENT INC. - ---------------------------- (Name of Business) which was incorporated under the laws of Antigua & Barbuda on the 5th day of August 1999, is licensed and authorized to establish and operate An Offshore Virtual Casino Wagering and Sportsbook Wagering business - -------------------------------------------------------------------- (Type of Business) for the period April 7, 2001 to April 6, 2002. within the Free Trade & Processing Zone in Antigua. /s/ "Vere Murphy" ------------------------- Commissioner /s/ "Charles Fernandez" ------------------------- Chairman Dated this 7th day of April 2001 In Antigua and Barbuda License fee remains the same for a period of five (5) years. Registration Statement Page 108 NET-FORCE SYSTEMS INC. [GOVERNMENT LOGO HERE] GOVERNMENT OF ANTIGUA AND BARBUDA Director of Offshore Gaming Expediter of International Investment Office of the Prime Minister Queen Elizabeth Highway, ST. JOHN'S, ANTIGUA, W.I. Tel: (268)-462-0773/462-4956 E-mail: mcallisterg@candw.ag August 5, 1999 Mr. Terence Bowering President, Manager Director Net Force Entertainment Inc. P.O. Box W-645, St, John's. Antigua Dear Mr. Bowering, This letter serves as notification of the approval of the application for Virtual Casino/Sports Wagering License for Net Force Entertainment Inc., a company duly incorporated under the laws of Antigua and Barbuda. Your office will be notified when the License Certificate is available. I remain, /s/ "Gyneth A. McAllister" - --------------------------- Mrs. Gyneth A. McAllister Registration Statement Page 109 NET-FORCE SYSTEMS INC. License #0138A [FREE TRADE & PROCESSING ZONE LOGO HERE] ANTIGUA AND BARBUDA FREE TRADE & PROCESSING ZONE CERTIFICATE AUTHORIZING THE ESTABLISHMENT AND OPERATION OF BUSINESS IN THE FREE TRADE & PROCESSING ZONE Pursuant to Section 11 of the Free Trade & Processing Zone Act No. 12 of 1994, the Commission certifies that: NET FORCE ENTERTAINMENT INC. ----------------------------------------------------------------- (Name of Business) which was incorporated under the laws of Antigua & Barbuda on the 5th day of August 1999, is licensed and authorized to establish and operate An Offshore Virtual Casino Wagering and Sportsbook Wagering business -------------------------------------------------------------------- (Type of Business) for the period August 5, 1999 to August 4, 2000. within the Free Trade & Processing Zone in Antigua. /s/ "Vere Murphy" ------------------------- Commissioner /s/ "Charles Fernandez" ------------------------- Chairman Dated this 1st day of September 1999 In Antigua and Barbuda License fee remains the same for a period of five (5) years. Registration Statement Page 110 -----END PRIVACY-ENHANCED MESSAGE-----