As filed with the Securities and Exchange Commission on February 8, 2000
Registration No. 000-______
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRANTS OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Venture Tech, Inc.
(Name of Small Business Issuer in its charter)
Idaho 87-0462258
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1055 West 14th Street, Suite 400, North Vancouver, B.C. V7P 3P2
(Address of principal executive officers) (Zip Code)
Issuer's telephone number: (604) 990-9889
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
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Venture Tech, Inc.
FORM 10-SB
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business............................... 3
Item 2. Management's Discussion and Analysis or
Plan of Operation....................................21
Item 3. Description of Property................................27
Item 4. Security Ownership of Certain Beneficial
Owners and Management............................... 27
Item 5. Directors, Executive Officers, Promoters
and Control Persons..................................29
Item 6. Executive Compensation.................................32
Item 7. Certain Relationships and Related Transactions.........33
Item 8. Description of Securities..............................34
PART II
Item 1. Market Price of and Dividends on Registrant's
Common Equity and Other Shareholder Matters..........35
Item 2. Legal Proceedings......................................37
Item 3. Changes in and Disagreements with Accountants..........37
Item 4. Recent Sales of Unregistered Securities................37
Item 5. Indemnification of Directors and Officers..............39
PART F/S
Financial Statements.....................................................F-1
PART III
Item 1. Index to Exhibits......................................S-1
Item 2. Description of Exhibits................................S-1
Signatures...............................................................S-2
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FORM 10-SB
PART I
Item 1. Description of Business
Business Development
Venture Tech, Inc., an Idaho corporation ("Venture Tech" or the
"Company"), is engaged in the acquisition, development and licensing of certain
computer based technology designed to offer a full range of casino-style gaming,
entertainment, information and financial transaction services over the worldwide
Internet. Through its technology agreements and licenses, the Company intends to
establish a series of multi-cultural/multi-ethnic virtual casinos over the
Internet from various locations around the world. A casino is deemed to be
"virtual" when it emulates actual casino- style games of chance offered in
existing land-based casinos, but provides such gaming services via computer
software and hardware instead of actual gaming equipment. The Company further
intends to use its client base of Internet gaming players to market more basic
commodities and services through electronic commerce ("e-commerce").
The Company was organized on July 19, 1948 under the laws of the State
of Idaho as Giant Ledge Mining Company, with the stated purpose of, acquiring,
exploring and developing mineral ore prospects and operating mining and milling
facilities. The Company initially engaged in sporadic mining operations and,
since its inception, has undergone several name changes and business changes. On
October 25, 1999, the Company's shareholders approved a proposal to empower the
Board of Directors to take all necessary action to change the Company's domicile
of incorporation from Idaho to the State of Nevada. As of the date hereof, the
Company has not finalized that change.
During 1988, the Company became engaged in arranging for funding for
medical research, particularly certain cancer research being conducted at the
Harvard School of Dental Medicine. However, none of the projects in which the
Company was involved proved to be economically successful and no commercially
viable products resulted from the research. The Company ultimately assigned or
transferred any potential marketing rights to its research products.
In 1992, the Company was engaged in only minimal activities and the
Board of Directors determined that the Company should become active in seeking
potential operating businesses and business opportunities with the intent to
acquire or merge with such businesses. To better reflect the Company's business,
the Company adopted the name, Venture Tech, Inc.
During 1995, the Company became engaged in the development of certain
computer technology designed to ultimately offer a full range of gaming services
and casino-style games over the worldwide Internet. The Company created two new
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wholly owned subsidiaries, EuroAsian E-Casinos, Inc., a Marshall Islands
corporation ("E- Casinos"), and Cybernet Currency Clearing, Inc., a Nevada
corporation ("CCCI"), for development of certain technologies applicable to the
Internet. E-Casinos was formed as a foreign entity to own and operate full
service gambling casinos on the Internet. CCCI was formed to focus on acting as
an international currency converter of wold currency into "e-cash" or
"e-dollars", which is used as a monetary instrument in many international
business transactions.
On March 4, 1996, the Company entered into a licensing agreement with
CasinoWorld Holdings, Ltd. ("CWH"). Pursuant to the agreement, CWH granted to
the Company a nonexclusive license to use and market CWH's Virtual CasinoWorldTM
software and hardware applications, know-how, trade secrets, copyrights and
trademarks. The Company is obligated to market, finance and contribute one or
more foreign gaming licenses under a separate operating agreement with CWH.
Through August 1998, the Company made approximately $1.3 million in license
payments to CWH in anticipation of receiving a fully operational and reliable
gaming website. In August 1998, the Company determined that CWH would not be
able to adequately provide such a website and operational services and,
accordingly, discontinued its relationship with CWH.
On March 14, 1996, in order to focus its strategy on the gaming and
Internet related service industry, management effected the sale of its wholly
owned subsidiary, Tessier Resources, Ltd. ("Tessier") to Kaniksu Ventures, Inc.,
now known as Ocean Power Corporation (OTC BB: "PWRE"). In exchange for Tessier,
the Company received a $3,000,000 debenture convertible into 2,000,000 shares of
PWRE common stock. The Debenture matured in four (4) years from the date of
issuance, carried no interest, and was convertible into PWRE common stock at the
conversion price of $1.50 per share at any time prior to repayment of the
debenture.
In January of 1999, the Company converted a portion of the Debenture
into 500,000 shares of common stock. In June 1999, pursuant to the pending
merger of PWRE and PTC Holdings, Inc. ("PTC"), the Company was obligated to
convert the balance of the Debenture into 1,500,000 shares of PWRE common stock.
Subsequent to the merger of PTC and PWRE, PWRE effected a one (1) share for ten
(10) shares revers stock split of its common stock. Accordingly, the Company
presently owns 200,000 shares of PWRE common stock, which is on deposit for the
Company's benefit at a brokerage firm. The Company reasonably believes that the
shares, if liquidated, could provide a source of funding for the Company's
future operations.
As additional consideration for the acquisition of Tessier, PWRE agreed
to issue, to eligible shareholders of the Company, shares of PWRE common stock
and rights to purchase additional shares. Under the terms of the original
agreement, prior to the reverse stock split of PWRE shares, each individual
Company shareholder of record as of April 5, 1996, is entitled to five (5)
shares of authorized but previously unissued PWRE common stock for each 100
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shares of Company common Stock owned. Only shareholders owning at least 100
shares of Company Common Stock are eligible for the distribution. Further, each
five shares of PWRE common stock issued to Company shareholders includes ten
(10) rights, each right entitling the holder thereof to purchase one additional
share of PWRE common stock for $2.25 per share for a period of sixty (60) days
following receipt of the PWRE shares and rights. PWRE intends to include the
equivalent shares and rights in a registration statement to be filed by PWRE.
Tessier is in the business of developing and supplying snow and ice
removal technology to the commercial market. Management believed that the
attention required by this subsidiary would have detracted from the Company's
primary business of Internet gaming. Thus, it was believed to be in the best
interest of the Company to divest itself of this subsidiary.
In March 1999, the Company entered into a nonexclusive software license
agreement with Starnet Systems International Inc., formerly Softec Systems
Caribbean Inc. ("SSII"), a wholly owned subsidiary of Starnet Communications
International Inc. ("Starnet" - OTCBB: "SNMM"). Pursuant to the license
agreement, SSII was to provide the Company with a complete turn-key computer
hardware, software and customer support package for the operation of one or more
online casino web sites. As a requirement of the license agreement, the Company
was obligated to establish an Antigua corporation to hold a gaming license and
to conduct operations from that jurisdiction. In July 1999, the Company
established under the authorization of the Government of Antigua and Barbuda,
EuroAsian E-Casinos International Ltd. ("E-Casinos International") as a wholly
owned subsidiary. In July 1999, E-Casinos International was granted an Offshore
Virtual Casino Wagering license by the Free Trade & Processing Zone of Antigua.
Given the nature of its software and technology license agreement with
SSII, the Company does not anticipate using its E-Casinos subsidiary,
incorporated in the Marshall Islands, in conjunction with its series of online
casino web sites created under that agreement. All primary operations will be
conducted from the Antigua corporation, E-Casinos International. However, the
Company expects to enter into similar arrangements with other third party
software development companies to provide gaming services for other series of
online casinos. With the rapid change and evolution taking place in Internet
based technology, the Company has decided to not restrict itself to a single
technology platform or approach. The Company intends to limit its risk of
rapidly changing technology by using multiple vendors.
In Company is currently in the process of changing its domicile of
incorporation from Idaho to the State of Nevada. The Company also anticipates
that it will re-domicile its CCCI subsidiary as an offshore international
business corporation. It is anticipated that this subsidiary will eventually
assume the merchant account responsibility for the online casinos and perform
online financial transactions required thereof.
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Facilities
From February 1996 through June 1999, the Company conducted its primary
corporate activities from rented facilities in Northern Virginia. The Company
conducted its technical, marketing and promotional activities from leased
facilities in North Vancouver, BC, Canada. In accordance with the trend for
online gaming companies to operate its business outside United States
jurisdictions and the proximity of its software technology licensor in
Vancouver, the Company decided in June 1999 to consolidate all of its business
activities in North Vancouver. Presently, the Company occupies approximately
2,750 square feet of leased office space located at 1055 West 14th Street, North
Vancouver, BC. Pursuant to this consolidation, the Company established Venture
Tech Holdings (Canada) Inc., a British Columbia corporation, as a wholly owned
subsidiary to provide management services to its gaming subsidiaries. The
Company also intends to maintain a corporate liaison office in Northern
Virginia. The Company believes that its current facilities are adequate for its
current needs and anticipates securing additional office space as business
conditions warrant.
Two of the Company's directors, Kenneth Fitzpatrick and Craig Bampton,
primarily use their own independent office space in Santa Barbara, California
and Winnepeg, Canada, respectively, to conduct the business of the Company. The
Company reimburses Messrs. Fitzpatrick and Bampton for "out-of-pocket" expenses
related to the Company's business.
Services and Products
In conjunction with the SSII license agreement, the Company has
established a website (www.asiacasino.com) to conduct initial gaming operations.
The Asia Casino web site and Sportsbook became operational in July of 1999 and
began accepting wagers from various jurisdictions around the world with the
notable exceptions of the United States and Canada. The Company's current policy
is not to accept wagers from residents of those two countries. However, if the
laws in the United States and/or Canada are clarified, or if the Company
receives an appropriate opinion from legal counsel, the Company reserves the
right to consider offering its gaming services in the two countries. Presently,
the Company's primary market focus is on Asia, Europe and the Middle East. In
addition, the Company has adopted a policy of not accepting wagers from
individuals less than 18 years old.
The license agreement provides for over 20 interactive and computer
generated casino-style games of chance developed in conjunction with Nevada
State Gaming Guidelines. A Sportsbook also offers wagering action on all the
professional sports leagues from Europe and North America. In addition,
capabilities for wagering on pari-mutuel racing, lotteries and bingo are in the
development stage. All gaming operations and transactions are being conducted
from the facilities of SSII located in St. Johns, Antigua.
The key features of Asia Casino include, but are not limited to the
following:
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* The ability to play games in either the English, Chinese
or Japanese languages;
* Traditional Las Vegas games of chance such as Blackjack,
Craps, Roulette, Poker, Baccarat, Pai Gow, Sic Bo and Slots;
over 20 casino games in all are available;
* The Company's licensed Java games use the Java language
to provide easily accessible online games to the
Company's website(s). The cross-platform nature of Java
makes it possible to play these games on all major
operating systems, online, with virtually no downloading
required. The games are simplified to optimize loading
times. The Company currently has four casino style Java
Games (Videopoker, Blackjack, Caribbean Stud poker, and
Gold Rush slots) for players to wager on, with several
additional Java games projected to be released throughout
2000.
* A Sportsbook which offers wagering action on all the
professional leagues from Europe and North America including
baseball, football, basketball, hockey, English Premier League
Soccer and Italian Series "A"; college basketball and
football; boxing, horse racing and other sporting events from
around the world such as World Cup Soccer, cricket and rugby.
Venture Tech is a charter member of the Interactive Gaming Council that
intends to establish standards and a self-regulation methodology for the
industry. The Council is the industry's recognized trade association and
advocacy forum. The Company's Chief Operating Officer has served on the
Council's Board of Directors. The Company was also involved in helping to
establish a regulatory model for the online gaming industry.
Potential Market
The estimated size of the Internet gambling market is naturally
dependent upon the projected growth of the Internet, now estimated to be over
170 million users worldwide. The Asia/Pacific region appears to be the fastest
growing area for Internet adoption. For example, in 1998, Asia had 14.1 million
online users, which represented 14.8% of the worldwide Internet user base of
81.3 million. By the year 2002, it is projected that Asia will have 60.7 million
Internet users, which will represent 27.5% of the projected worldwide total of
221 million online users. (Source: eStats, 1999). China in particular is
expected to experience the fastest growth. Starting from an estimated online
population of 2.1 million in 1998, it is projected that China will have 17.3
million online by 2001 and 33.6 million online by 2003. (Source: Strategis,
1999). Of China's current population of 1.26 billion, the projected 33.6 million
Chinese online users will represent less than 3% of its total population. When
compared to current Internet penetration rates such as Australia (23.4%), Hong
Kong (13.4%), Japan (11%) or South Korea (6.7%), the potential for products and
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service that are sold via the Internet to Chinese online users is exception.
(Source: Nua Internet Services).
The following table illustrates that estimated Internet gaming revenues
worldwide, currently less than $900 million, could increase to a an estimated
$2.3 billion by the end of 2001. Because most companies involved in the Internet
gaming market are private entities, it is difficult to estimate the actual cash
flow of these Internet casinos.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Adult Home Internet (in Millions) 46 81 121 145 159
Percentage of Users Conducting Online
Transactions 15% 18% 21% 24% 27%
Potential Internet Gamblers (in Millions) 0.9 14.5 25.4 34.8 43.0
Per capita Expenditure (in $ Millions) $ 146 $ 154 $ 155 $ 160 $ 165
Potential Internet Gambling Revenue
(in $ Millions) $1,009 $2,182 $3,922 $5,555 $7,080
Estimated Actual Internet Gambling Revenue
(in $ Millions) $ 0 $ 51 $ 811 $1,520 $2,330
</TABLE>
(Source: Deutsche Bank - Christiansen/Cummings Assoc., 1999)
The Company's primary gaming web site (www.asiacasino.com) is
accessible by a minimum hardware configuration consisting of: A 486/66
microprocessor personal computer with Windows 95 or greater, 8 MB RAM, 30 MB
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. Prospective players who desire to conduct gaming
operations at Asia Casino are able to subscribe over the Internet by completing
an application appearing at the website. Part of the application process
requires that the subscriber open an account and make a minimum deposit with the
Company to activate the account for real money play. Prospective players are
also able to play for fun, at no cost, for entertainment purposes or to practice
their skills prior to actual wagering.
The Company's websites are controlled through its licensing agreement
with SSII. Physical operations and transactions are conducted by SSII personnel
at SSII's facilities located in St. Johns, Antigua. The Company retains the
right to reasonably audit SSII's activities on its behalf. SSII's network is
connected to the Internet via redundant high-speed fiber, ensuring multiple
backup connections to the Internet. This high performance network infrastructure
ensures reliable and responsive game play for the end users/players. The system
is composed of high speed Sun Microsystems servers and Cisco networking
equipment. Most of the critical system components, such as the game servers and
web servers, are distributed across multiple machines, which protect the gaming
service from failures due to malfunctioning equipment. The highly scalable
nature of SSII's system design makes provisioning for additional capacity
simple. The network monitoring staff tracks the system at all times to maintain
constant awareness of the system's operating parameters. New equipment is
installed when necessary to compensate for increased activity or anticipated
peak demands for popular events.
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SSII uses advanced technologies, such as site identification, data
encryption, and secure servers to provide users with a safe environments to
perform secure transactions, and data transmission over the Internet. Any
transaction made with SSII online is secure and convenient. SSII's system is
protected by the Secure Sockets Layer (SSL) protocol, which encrypts all
information and confirms the identity of the Company's server, before allowing a
transaction to be completed. Data encryption hides sensitive information such as
the customer's name, address, and credit card number. Even if someone manages to
obtain a player's personal information from the transaction process, data
encryption will not allow him or her to either read or use it.
The Company's website is designed to invite prospective players to
register and apply for casino and sportsbook membership. After a membership
application is reviewed, it is either accepted or rejected based on criteria
including, but not limited to, age and geographic location of the customer. The
Company's policy is to accept subscriptions only from persons over the age of 18
and believed to reside in jurisdictions that are not known to expressly prohibit
Internet gaming. Subscriptions will not be accepted from persons believed to be
citizens or residents of the United States or Canada. The Company uses screening
techniques in order to verify that the subscriber resides in a jurisdiction that
is not known to prohibit Internet gaming.
Upon acceptance, the approved customer is then allowed to download the
gaming software over the Internet for installation on their personal computer or
to request a CD with additional graphics, music and video capabilities contained
thereon. The customer is then given a username and password and is thereby able
to access the Company's gaming servers over the Internet through their personal
Internet service provider.
The Company's website allows the subscriber to review all terms, rules
and conditions applicable to gaming and other uses at the site. All gaming
winnings and losses are debited and credited to the customer's account on a
real-time basis. All games are conducted pursuant to house rules and advantages
that are published at the website.
Subscriber's may make deposits to their gaming accounts by way of
credit card or wire payment. Through the Company's licensing agreement with
SSII, EFS Caribbean Inc., a wholly owned subsidiary of Starnet, supplies credit
card transaction services to the Company for an additional fee. The Company
primarily accepts Visa, MasterCard, American Express credit cards over a secure
platform provided through EFS.
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Regulation
Gaming activities are stringently regulated in the United States and
most developed countries. Gaming regulations and supervisory procedures in the
United States and most developed countries are based upon policies that are
concerned with, among other things, (i) prevention of unsavory or unsuitable
persons from having a direct or indirect involvement with gaming; (ii)
establishment and maintenance of responsible accounting practices and
procedures; (iii) maintenance of effective controls over the financial practices
of licensees, including establishment of minimum procedures for internal fiscal
affairs and safeguarding assets and revenues, providing reliable record keeping
and requiring the filing of periodic reports with the governing jurisdictions;
(iv) prevention of cheating and fraudulent practices; and (v) providing a source
of government revenue through taxation and licensing fees.
The Company is subject to applicable laws in the jurisdictions in which
it intends to operate. Some jurisdictions have introduced regulations to attempt
to restrict or prohibit Internet gaming. However, other jurisdictions such as
several Caribbean countries, Latin America and Australia, have taken the
position Internet gaming is legal and/or have adopted or are in the process of
reviewing legislation to regulate Internet gaming in such jurisdictions. As
companies and consumers involved in Internet gaming are located around the
world, there is uncertainty regarding exactly which government has jurisdiction
or authority to regulate or legislate with respect to various aspects of the
industry. Further, it may be difficult to identify or differentiate gaming-
related transactions from other Internet activities and link those transmissions
to specific users, in turn making enforcement of legislation aimed at
restricting Internet gaming activities difficult. However, because online gaming
is a relatively new industry, it is possible that in the future some or all of
these foreign jurisdictions may take action to more severely regulate, or even
prohibit, Internet gaming operations in their jurisdictions. The uncertainty
surrounding the regulation of Internet gaming could have a material adverse
effect on the Company's business, revenues, operating results and financial
condition.
The Company, along with other industry representatives, have adopted a
proactive policy of lobbying international jurisdictions, where appropriate, for
purposes of seeking approval of Internet gambling and the regulation of those
activities on a basis that is favorable to the Company. Pursuant to its position
with the Interactive Gaming Council, the Company's management has met with
representatives of organizations, such as the International Gaming Regulators
Association, to educate regulators and legislators on online gaming and to
advocate an international regulatory framework.
Legislation designed to restrict or prohibit Internet gaming may be
adopted in the future in the United States or other jurisdictions. After
previous similar proposals failed to pass in 1998, Senator Jon Kyl of the United
States Senate introduced in March 1999 a revised proposal intended to prohibit
and criminalize Internet gambling (Internet Gambling Prohibition Act of 1997; S.
474). There can be no assurance whether any such bill will become law.
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Additionally, existing legislation, including United States and federal
statutes, could be construed to prohibit or restrict gaming through the use of
the Internet. The Company's former Chief Operating Officer was invited to
testify before the President's National Gambling Impact Study Commission in
Washington, D.C. on the merits of online gaming regulation and against the Kyl
bill. At the present time, however, it is the Company's policy not to offer its
Internet gaming services to citizens or residents of the United States until
laws pertaining to online gaming are clarified, or the Company receives an
appropriate opinion from legal counsel that such activities are not illegal. The
Company will endeavor to comply with federal and state laws in the United State
in regard to gaming regulation.
Competition
The rapid expansion of the Internet and the potential profitability
associated with the Internet gambling business has attracted an increasing
number of operators. Consequently, the Company presently encounters significant
competition from existing providers of Internet gaming operations and expects to
encounter increasing competition as additional Internet gaming service providers
come on-line. The following table illustrates the growth in Internet gambling.
Online Casinos Lotteries Bingo Sports-books
May 1998 90 39 8 93
May 1999 250+ 64 20 139
Source: Rolling Good Times Online, 1999
The Company estimates that there are over 100 online gaming operators
on the World Wide Web providing Internet gambling with approximately 35 of these
being publicly traded companies. A listing of the various publicly traded
companies can be found on the website www.streetdice.com.
A key factor behind the growth in the number of gambling sites is the
underlying structure of the industry. The nature of the industry is such that
once the initial gaming site has been established, the marginal costs of
modifying the look of the site and registering it under another URL are minimal.
Thus, in theory, the more sites that a company has established, the larger the
percentage of the Internet gambling market attainable. It is not uncommon for
some operators to have multiple sites that are slight modifications from one
another or multiple URLs that lead to the main site.
Many of the Company's present and future competitors have, or may have,
as the case may be, greater capital and other resources than the Company and may
choose to adopt an international marketing plan similar to the Company's. There
can be no assurance that the Company will be able to generate meaningful
revenues or earnings from its Internet gaming operations or otherwise
successfully compete in the future.
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Given the number of operators, the Internet gambling market initially
appears to be highly competitive. However, many of the companies in this
fledgling industry can be characterized as small entities with limited finances
and are without sophisticated marketing strategies. Also, many of these entities
operate with a single technology, focus on primarily on the United States market
and typically have limited contacts and exposure in the international arena.
Management believes that many of these companies will ultimately fail which will
result in only a limited number of dominant operators remaining.
Marketing Strategy
The rapid development of the Internet has created opportunities to
develop new, efficient and secure ways to deliver information and entertainment
to customers. The Company primary focus is to expand its market share of the
Internet gambling market and become a leader in the Internet gaming industry.
The key strategic objectives for the Company are:
1. Develop its role as a leading provider of Internet gaming
services;
2. Expand geographically to other markets; and
3. Selectively pursue opportunities that allow it to
leverage its marketing and Internet competencies into
other market segments
E-Casinos International will employ a variety of tactics to achieve
these objectives. These tactics include the following:
* Rapidly expanding its presence in Internet gaming markets:
By increasing the number of gambling websites that it will operate and
the number of its gaming product offerings at these sites, the Company can
expand its reach into the Internet gaming market. The addition of different
language sites targeted at the German, Italian, French, Spanish and Portuguese
and Middle Eastern markets are already underway and are expected to be launched
in first quarter 2000. In addition, a portal site, www.ecasino.com, is under
construction and is also expected to be launched in first quarter of 2000. This
will provide a mechanism to collect and funnel traffic into the Company's gaming
network.
The Company presently uses three primary forms of marketing to attract
prospective players to its online casino; online banner ads, print marketing and
direct CD distribution through third parties. The Company has used print based
periodicals, such as the Hong Kong Daily News and Gaming and Leisure
International to promote its websites. The Company believes, however, that
direct CD distribution and targeted Internet banner ads are more effective. To
that end, the Company has placed banner ads on such websites as Hong Kong.com
and Taiwan.com, as well as Internet search engines such as Hotbot.com and
Asiaco.com. The Company is currently developing its third party strategic
relationships for further direct CD distribution to prospective end users.
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The Company has received notice from The United States Patent and
Trademark Office of its approval of "E-CASINOS" as a registered trademark. The
registration covers entertainment services, namely providing on-line casino
style gaming services accessed via a computer network. Management believes that
this trademark registration will help protect the Company from conflicting use
of the mark or similar marks by prospective competitors seeking to gain benefit
from his highly recognizable association with on-line gaming.
* Aggressively pursue partnership opportunities with other
gaming suppliers and local partners who have specific
geographical expertise to expand the E-Casinos name
internationally:
Recognizing that local presence is essential for the marketing and
promotion of Internet gaming in local markets, the Company intends to form
licensing or joint venture partnerships with native investors in countries
wherever possible. Although gambling is an international activity, each region
has its own preferences as to how gaming is promoted and marketed. The Company
will rely on its local partners for the financial and marketing resources to
promote the gaming websites in their respective regions. To this end, the
Company has entered into arrangements with a strategic partner in Hong Kong,
Able Wealth Investments Ltd. The Company is also in discussions with other
interested partners in Western Europe.
* Provide high quality, innovative and superior products and
services:
Working with its existing suppliers as well as entering into strategic
relationships with alternative suppliers, The Company will focus on delivering
the best Internet gaming services. Rapid adoption of the latest product and
service offerings by its suppliers is a priority for the Company. The Company's
current technology partner (SSII) is planning to launch in the near future new
product offerings such as horse race betting, international lottery tickets and
an interactive bingo game. The Company will, in turn, market these product
offerings to its customer base. To insure against the risk of being overly
dependent upon a single technology, the Company is evaluating alternative
providers of gaming technology.
* Use its expanding customer base to generate ancillary revenue
streams:
Upon registering at the Company's gaming websites, customers become
part of the Company database and are then eligible for cross-promotional
activities such as merchandise offers or casino "comp" type programs.
* Offer Internet gaming that is fair, equitable, comprehensive,
easy-to-play, financially secure, state- of-the-art and
credible:
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As Internet gaming is a relatively new form of entertainment, it is
important that the Company provides a complete gaming experience for the
gamblers, many of whom may be new to the Internet. To address these issues, the
Company intends to offer:
(a) State-of-the-art, easy to play Internet games. The Company's
relationship with key software developers to provide their
Internet gaming expertise and casino game development skills
means the Company can provide the best possible gaming
environment. Easy to use graphical interfaces, state of the
art graphics, accessible help programs and familiar game
mechanics will allow gamblers to understand and play the
games.
(b) Credible Internet Gaming. A key factor for the success of the
Company will be the provision of secure, legitimate and
credible casino gambling. Through participation of the various
partners, independent auditors and its corporate commitment to
ethical business practices, the objective of the Company is to
provide a fair and secure gambling environment for its
patrons. The Company has committed to participate in the
regulatory review processes being established by the industry
to ensure the fairness, quality and legitimacy of the gaming
provided.
Funding and Dilutive Instruments
In September 1999, The Company authorized a convertible debenture for
up to $1,000,000 to repay funds advanced to the Company by third parties during
the calendar year. This debenture superceded a previous debenture initiated by
the Company in January of 1999 and $379,458 of previously advanced funds
rolled-over into the superceding debenture. The terms of the resulting debenture
included a 10% per annum interest rate, provides for a two-year conversion
period in which the debenture holder may convert advanced funds into authorized
but unissued shares of the Company's Common Stock at a conversion price of
twenty cents ($0.20) per share. Each such converted share includes the right to
purchase an additional share of authorized but unissued Common Stock at the
twenty cents ($0.20) conversion price for a five-year period from date of
original conversion.
In August 1999, the Company granted 360,000 warrants to a certain
officer of the Company with a conversion price of twenty- eight cents ($0.28)
per share as an employment inducement. The warrants become exercisable over a
two-year period with 45,000 warrants vesting at the end of each quarter over the
two-year period, provided that the individual continues his employment with the
Company.
In June 1999, the Company granted 595,000 warrants to certain
individuals, consultants, Directors and Officers of the Company. These warrants
were granted for services or beneficial contributions to the Company and/or for
the expectation of future contributions to the Company. The warrants were issued
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to 15 individuals. Of the 595,000 warrants, 545,000 were exercisable at
forty-seven cents ($0.47) per share and 50,000 are exercisable at sixty-one
cents ($0.61 per share). All warrants expire June 30, 2002.
In January 1999, the Company granted 825,000 warrants to certain
individuals, consultants, Directors and Officers of the Company. These warrants
were granted for services or beneficial contributions to the company and/or for
the expectation of future contributions to the Company. The warrants were issued
to 11 individuals. All warrants are exercisable at a price of forty-four cents
($0.44) per share and expire January 27, 2002.
In April 1998, the Company authorized a stock conversion agreement for
up to $500,000 to account for funds advanced to the Company by third parties.
The agreement provided for a one-year conversion period where the holder may
convert Company debt from advanced funds into authorized but unissued shares of
the Company's common sock at a conversion price of forty-five cents ($0.45) per
share. Each such converted share includes the right to purchase an additional
share of authorized but unissued Common Stock at the forty-five cents ($0.45)
conversion price for a five-year period from date of original conversion. Prior
to expiration, the holder converted $712,706 of advanced funds into 1,583,791
shares of Common Stock
In December 1997, the Company granted 830,000 warrants to certain
individuals, consultants, Directors and Officers of the Company. These warrants
were granted for services or beneficial contributions to the Company and/or for
the expectation of future contributions to the Company. The warrants were issued
to 25 individuals. 710,000 warrants are exercisable at a price of twenty-five
cents ($0.25) per share and 120,000 warrants are exercisable at $0.50 per share.
All warrants expire December 29, 2001. To date 35,000 warrants have been
converted into common shares.
In December 1997, the Company authorized a private placement in the
form of a stock conversion agreement to account for funds advanced to the
Company to cover its operating requirements. The conversion agreement provided
for the conversion of up to 3,500,000 shares at an exercise price of twenty-two
cents ($0.22 per share), which represented the closing price of the Company's
stock on the date of execution. As of December 31, 1997, 3,495,000 shares were
converted into authorized but unissued shares of the Company's Common Stock.
In 1996, the Company issued 1,408,126 shares of its authorized but
unissued common stock to third parties in settlement of debt at one dollar and
seventy cents ($1.70) per share pursuant to a private placement agreement
entered into in June of 1995. The private placement provided for conversion of
debt at one dollar and seventy cents ($1.70) per unit for up to 1,000,000 units.
Each unit consisted of one share of common sock and one warrant entitling the
holder to acquire one additional share of Common Stock at the exercise price of
$1.70.
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In March 1994, the Company issued to Regis Investments Company Limited
("Regis") a convertible debenture in the face amount of $175,000 with an
interest rate of ten percent (10%) per annum (the "Debenture"). The Debenture
was issued by the Company in consideration for monies advanced to the Company by
Regis. The Debenture provides for the holder to convert up to the full face
amount of the Debenture into shares of the Company's authorized but unissued
Common Stock at the conversion price of three cents ($0.03) per share. Each
share issued upon conversion of all or a portion of the Debenture include an "A"
and a "B" share purchase warrant. Each "A" and each "B" share purchase warrant
entitles the holder to acquire one additional share of the Company's authorized
but unissued Common Stock at the conversion price of three cents ($0.03) per
share. Each "A" and each "B" share purchase warrant is valid and may be
converted into Common Stock for a period of two years following issuance. In
1996, 1997, and 1998, 2,300,000 shares, 10,500,000 shares and 4,700,000 shares,
respectively were issued by the Company in consideration of an aggregate of
$525,000.
Over the period of May 1994 through November 1995, the Company granted
1,222,000 warrants to certain individuals, consultants, Directors and Officers
of the Company. These warrants were granted for services or beneficial
contributions provided to the Company and/or for the expectation of future
contributions to the success of the Company. The warrants were issued to thirty
individuals or organizations at exercise prices ranging from $2.50 to $5.75,
which represented the fair market value of the stock at the time of grant, and
for periods ranging from four to five years. The warrants are conditional upon
the Company achieving a listing with the Nasdaq Stock Market. Of the 1,222,000
warrants granted, 637,000 expired on May 31, 1999 and 135,000 were cancelled by
mutual consent of the Company and one of its officers on June 30, 1999. The
remaining 450,000 expire between January and May 2000.
Year 2000 Risks
Currently, many computer systems, hardware and software products are
coded to accept only two digit entries (rather than four digits) in the date
code field and, consequently, cannot distinguish 21st century dates from 20th
century dates. In such case, programs that have time-sensitive logic may
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures. The interactions between
various software and hardware platforms often rely upon the date coding system.
As a result, many companies' software and computer systems may need to be
upgraded or replaced in order to function properly after the turn of the
century. The Company, its customers, and its primary licensor (SSII) are reliant
on computers and related automated systems for daily business operations.
Failure to achieve at least a minimum level of Year 2000 systems compliance by
both the Company and its software technology licensor could have a material
adverse effect on the Company.
The Company has completed its assessment of the Year 2000 issue,
including both technology and non-technology systems, and believes that any
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costs of addressing the issue will not have a material adverse impact on its
financial position. The Company's internal technology systems are relatively new
and use standard off-the-shelf software and hardware from leading industry
vendors, such as Microsoft, Dell Computer, Microsoft and Adobe. The Company does
not anticipate, nor has it experienced, any material Year 2000 compliance issues
and therefore costs associated with Year 2000 compliance are expected to be
minimal. The Company believes that its existing computer systems and software
will not need to be upgraded to mitigate the Year 2000 issues. The Company does
not have any significant non-information technology or systems.
The Company has not incurred any material costs associated with its
assessment of the Year 2000 problem. In the event that Year 2000 issues impact
the Company's accounting operations and other operations aided by its computer
system, the Company believes, as part of a contingency plan to be developed,
that it has adequate personnel to perform those functions manually until such
time that any Year 2000 issues are resolved. Although the Company has not fully
developed a contingency plan, it anticipates having a full plan in place by
early 2000.
The Company does, however, rely heavily on its licensor to provide the
turn-key services necessary to run its business. The Company has been advised by
SSII that it has completed the process of identifying computer systems that
could be affected by the Year 2000 issue as it relates to the Company's licensed
hardware and software platforms, as well as third parties that provide SSII with
goods or services. Three categories, or general areas, have been identified for
review and analysis:
1. Systems Providing Customer Services. Includes hardware and
software systems used to provide services to the Company's
customers in the form of Internet connectivity, e-mail
servers, authentication servers, gaming servers and database
servers. This category also includes hardware in the form of
routers and switches.
2. Third Party Vendors. Those vendors providing critical services
including circuits, hardware, long distance Internet
connectivity and related products to SSII. Also include telco
providers, suppliers of routers, modems, switches and odds
feeds.
3. Critical Internal Systems. Systems that support SSII's
administrative systems for billing and collecting, general
accounting systems, computer networks, and communication
systems. SSII has completed its Year 2000 compliance review
and testing.
In regard to item 1 above, systems providing customers services, SSII's
critical existing systems are no more than two and one-half years old and none
of these systems have Year 2000 problems. These systems have been inventoried
and a systems test has been completed. Many of the critical systems have been
migrated to new hardware and software platforms to increase reliability and
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capacities. All newly acquired hardware systems, operating systems, and software
are required to have vendor certification for Year 2000 compliance.
In regard to item 2 above, third party products and services, SSII's
significant vendors are large public companies such as Sun Microsystems,
Microsoft, Oracle, Silicon Graphics Cisco and Lucent Technologies. These
companies are all under Securities and Exchange Commission mandates to report
their compliance in all publicly filed documents. SSII initiated a compliance
review program with these vendors during the first full quarter of 1999 and will
continue to track progress of all critical vendors for compliance.
Item 3 above, critical internal systems, relates to internal systems
for SSII's company administrative and communications requirements. SSII is in
the process of implementing new billing and billing presentment systems. These
systems are proprietary to SSII any and are required to be Year 2000 compliant.
SSII expects these new systems to be implemented late 1999 to early 2000.
Additionally, SSII has tested the existing systems for Year 2000 compliance. It
has been determined that the existing billing and billing presentment systems
are Year 2000 compliant.
Employees
As of the date hereof, the Company has four full-time employees
functioning in senior management and marketing positions. Because of the nature
of the Company's business at this time, in that it has elected to license and
subcontract primary services, management intends to primarily use consultants
and advisors to provide the other mostly "part-time" services required for its
operations. The Company has entered into a consulting agreement with its former
Chief Operating Officer to supply guidance and advisory services to management
in matters related to the online gaming industry. Management intends to hire
additional qualified employees only as business conditions warrant and as funds
are available.
The Company has entered into certain licensing agreements with third
parties as an initial means of developing its service offerings and,
accordingly, relies upon the work performed by its licensing partners. As the
Company's virtual casinos become more fully developed, it is anticipated that
the Company will hire additional qualified personnel consistent with workload
requirements and as business conditions warrant.
Patents, Trademarks and Licensing Agreements
The Company has received notice from The United States Patent and
Trademark Office of its approval of "E-CASINOS" as a registered trademark. The
certificate of registration (Service Mark Reg. No. 2,018,862) was issued on
October 28, 1997 by the U.S. Patent and Trademark Office. The registration
covers entertainment services, namely providing on-line casino style gaming
services accessed via a computer network. The Company intends to defend
vigorously its trademark in the online gaming industry.
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On March 4, 1996, the Company entered into a licensing agreement with
CWH whereby CWH granted the Company a nonexclusive license to use and market
CWH's Virtual CasinoWorldTM software and hardware applications, know-how, trade
secrets, copyrights and trademarks. The Company is obligated to market, finance
and contribute one or more foreign gaming licenses under a separate operating
agreement with CWH. Through August 1998, the Company made approximately $1.3
million in license payments to CWH in anticipation of receiving a fully
operational and reliable gaming website. In August 1998, the Company determined
that CWH would not be able to adequately provide such a website and operational
services and, accordingly, discontinued its relationship with CWH.
On March 23, 1999, the Company entered into a nonexclusive software
license agreement with SSII whereby SSII was to provide the Company with a
complete turn-key computer hardware, software and customer support package for
the operation of one or more online casino web sites. Pursuant to the terms of
the license agreement, the Company, in July 1999 the Company established under
the authorization of the Government of Antigua and Barbuda, EuroAsian E-Casinos
International Ltd. ("E-Casinos International"). In July 1999, E-Casinos
International was granted an Offshore Virtual Casino Wagering license by the
Free Trade & Processing Zone of Antigua.
The Company does not anticipate using its E-Casinos subsidiary,
incorporated in the Marshall Islands, in conjunction with its series of online
casino web sites created under that agreement. All primary operations will be
conducted from the Antigua Corporation, E-Casinos International.
Research and Development
The Company has relied upon the developers of the technology, which it
has acquired or licensed to carry out the research and development related to
the particular technologies. Thus, during the most recent three fiscal years and
for the nine month period ended September 30, 1999, the Company did not expend
any material funds directly on research and development related to the Company's
entry into the Internet gaming business.
The Company relies upon its Vice President of Technology and other
consultants hired from time to time to monitor and review its licensed
technology, as well as keeping the Company appraised of new industry
developments in the Internet and online gaming business. The Company expects to
continue to license or otherwise acquire technology in the future, but may
expend funds to further any acquired technology to suit its individual needs.
However, management anticipates that in the future it may expend funds for
ongoing research and development of new products and to enhance existing ones.
As of the date hereof, management has made no estimates as to the extent of any
future research and development expenditures.
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Risk Factors Relating to the Company's Business
Because of the nature of the Company's business, it encounters certain
risk factors. Each of these factors could adversely affect the business,
operating results and financial condition of the Company.
Operations in Foreign Countries
Most of the Company's business is being conducted in foreign countries
which may encounter unfavorable economic or political situations. Also, some of
these countries may not have highly developed telecommunications infrastructure
which can result in overloaded lines, slow speed of electronic traffic, and a
potential for break-downs. Thus, because of the nature of the its business,
potential telecommunication problems could have an adverse effect on the
Company.
Rapid Technology Change
The Company's business involves operations on the Internet, a fast
growing and rapidly changing industry. Internet technology, commercial
applications and online users are constantly evolving. If the Company is unable
to respond to rapid changes involving the Internet and its technology, the
Company's business could be adversely affected.
Technology Failures
The Company's Internet business is dependent on the efficient and
uninterrupted operation of its computer and communication hardware and software
systems. System interruptions that cause the Company's web sites to be
unavailable or that reduce the ability to process transactions could materially
and negatively affect the Company's business, operating results and financial
conditions. Interruptions could result from natural disasters as well as power
loss, telecommunications failure and similar events. Although the Company has
experienced occasional short-term interruptions, it has not developed a formal
disaster recovery plan in the event of a prolonged interruption.
Online Security Breaches
Online security breaches could negatively impact the Company's on-line
business. To protect confidential information, the Company relies on encryption
technology, which transforms information into code designed to be unreadable by
third parties. The Company also employs authentication technology that uses
passwords and other information to prevent unauthorized persons from accessing a
customer's information. If a person circumvents existing security measures, that
person could misappropriate confidential information about the Company, its
customers, or cause interruption in operations. Security breaches that result in
access to confidential information also could damage the Company's reputation
and expose the Company to a risk of loss and liability.
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Additionally, the Company may be required to make significant expenditures and
expend considerable effort and time to protect against security breaches.
Short Operating History - No Assurance of Profitability
The Company has only a short operating history and is deemed to be a
development stage company in the early phases of operation. The Company's
likelihood of success must be considered in light of the many unforeseen costs,
expenses, problems, difficulties and delays frequently associated with new
ventures. Also, there is no assurance that the Company's business ventures will
be successful or that it will be able to attract and retain sufficient customers
and clients to attain its goals. The Company anticipates that its operating
expenses will increase substantially as its business expands and there will be a
greater need to generate significantly more revenues to achieve profitability.
There is also the possibility that the Company will have to secure future
funding, either debt or equity, in order to finance its activities. There can be
no assurance that any such funding will be available to the Company or, that if
it is, it will be available on terms favorable to the Company.
Risk Factors and Cautionary Statements
This Registration Statement contains certain forward-looking
statements. The Company wishes to advise readers that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements, including, but
not limited to, the following: the possible success of the Company's websites,
the ability of the Company to fund its current and future projects and its
ability to meet its cash and working capital needs, and other risks detailed in
the Company's periodic report filings with the Securities and Exchange
Commission.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in the Form 10-SB.
Overview
The Company is a development stage company and has had only minimal
operations for the most recent three years. Since 1995, the Company has been
engaged in the development, acquisition and licensing of certain computer based
technology designed to ultimately offer a full range of casino-style gaming,
entertainment, information and financial transaction services over the worldwide
Internet. The Company further intends to leverage its anticipated client base of
Internet gaming players to the more expansive world of electronic commerce
("e-commerce") for purchase of more basic commodities and services.
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In March of 1999, the Company entered into a nonexclusive software
license agreement with Starnet Systems International Inc. ("SSII"), to provide
the Company with a complete turn-key computer hardware, software and customer
support package for the operation of one or more online casino web sites. In
July 1999, the Company established a corporation to operate said online casinos
under the authorization of the Government of Antigua and Barbuda. EuroAsian
E-Casinos International Ltd. ("E-Casinos International") was incorporated as a
wholly owned subsidiary of the Company. Pursuant to this incorporation, the
E-Casinos International was granted an Offshore Virtual Casino Wagering license
in July of 1999 by the Free Trade & Processing Zone of Antigua.
In conjunction with the SSII license agreement, the Company has
established a website (www.asiacasino.com) to conduct initial gaming operations.
The Asia Casino website and Sportsbook became operational in July of 1999 and
began marketing and accepting wagers from various jurisdictions around the world
(primarily targeted to Asia) with the exception of the United States and Canada.
Results of Operations
Information is presented for the Company's most recent three fiscal
years and the sixth month period ended June 30, 1999.
Three and Nine Months ended September 30, 1999 Compared to Three
and Nine Months Ended September 30, 1998
The Company did not have revenues for the three and nine month periods
ended September 30, 1998 because it had not become fully operational. Revenues
for the three months ended September 30, 1999 ("third quarter of 1999") were
$9,526, which was also the total for the first nine months of 1999. Cost of
sales for the third quarter and first nine months of 1999 were $3,669 compared
to $-0- for the same 1998 periods, resulting in a gross margin of $5,857 for the
1999 periods. General and administrative expenses for the third quarter and
first nine months of 1999 increased 103% to $351,698 and 43% to $721,279,
respectively, when compared to the 1998 corresponding periods. This is primarily
attributed to commencement of the Company's online casino in July 1999. Also
contributing to the increase was rent paid during the first half of 1999 and
increases in marketing and traveling expenses.
Depreciation and amortization for the third quarter and first nine
months of 1999 decreased $20,832 (35%) and $120,83 (68%), respectively, compared
to the 1998 periods. The decrease was primarily due to a $100,000 partial
amortization in 1998 of the Company's software licensing rights with CasinoWorld
Holdings, Ltd.("CWH"). CWH's licensing fee of $2,000,000 was scheduled to be
amortized over a period of 10 years beginning in 1998. However, due to the
Company's subsequent cancellation of the CWH agreement in the latter half 1998,
the Company elected to write-off the unamortized balance at December 31, 1998.
The Company also had interest expense of $64,494 and $426,965 for the third
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quarter and first nine months of 1999, respectively, compared to $0 for the same
1998 periods. This interest expense resulted from payment of interest on monies
advanced to the Company in the form of a convertible debenture, and the issuance
of debentures and warrants at less than market value.
The Company's net loss for the third quarter of 1999 was $448,482 or
$0.01 per share, compared to $232,385, or $0.01 per share, for the 1998 period.
The net loss for the first nine months of 1999 was $1,198,492, or $.04 per
share, compared to $681,151 for the 1998 periods. The increases are primarily
due to the recording of interest expense related to conversion of convertible
debentures, and the increases in general and administrative expenses in 1999.
Six Months ended June 30, 1999 Compared to Six Months Ended June 30, 1998
The Company did not have revenues for the six month period ended June
30, 1999 ("first half of 1999") as the Company was awaiting approval of its
gaming license from the Government of Antigua. General and administrative
expenses increased 11.7% from $330,807 in the first half of 1998 to $369,581 for
the first half of 1999. The increase was primarily attributable to the payment
of rent during the first half of 1999 for the Company's expanded use of
facilities in Vancouver, BC, Canada. The remaining increase was attributed to
marketing and traveling expenses incurred in preparation for the launch of the
Company's online casino targeted for third quarter of 1999. Depreciation and
amortization for the first half of 1999 decreased 85% to $17,958 from $117,959
for the similar period in 1998. This difference was primarily due to the
Company's write-off of the unamortized balance of the CWH licensing fee in 1998.
Other material expenses for the first half of 1999 included $362,471 in
expense resulting from payment of interest on monies advanced to the Company in
the form of a convertible debenture. During the first six months of 1999, the
Company recorded $12,375 in interest payments against $379,458 in advances made
to the Company. The Company recorded an additional $350,000 in interest expense
to reflect the debt conversion/warrant component of the convertible debenture.
The debenture is convertible into shares of the Company's common stock at $0.40
per share, which amounts to a $0.07 difference in the price of the stock at
closing on the date of issue. The $350,000 reflects the difference in fair
market value of the stock should the entire debenture be converted. There was no
interest expense recorded for the similar period in 1998.
The Company's net loss for the first half of 1999 was $750,010, or
$0.02 per share, compared to $448,766, or $0.02 per share, for the first half of
1998, an increase of 67%. This increase is primarily due to the recording of
interest expense related to conversion of a convertible debenture, as well as
moderately increased expenses in 1999 offset by the initial recording of
software license amortization in 1998. The Company did not issue any new shares
of its common stock during the first half of 1999.
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Fiscal Year Ended December 31, 1998 Compared To Fiscal Year Ended December 31,
1997
The Company did not have any revenues for its fiscal year ended
December 31, 1998 as it elected to terminate its software licensing arrangement
with CWH and seek other suitable licensing arrangements. For the fiscal year
ended December 31, 1997 ("1997"), the Company did not have any revenues from its
gaming operations, but recognized $412,501 in revenue from a prior consulting
research and development agreement entered into in 1996. The Company incurred a
loss in 1998 of $1,400,000 on the disposal of an asset that represented the
amount paid to CWH to date for its software licensing arrangement. The Company
determined that CWH would not be able to deliver on its agreement and terminated
the relationship in 1998. The $1,400,000 loss includes a $100,000 reserve
against any future legal action that may result from its termination.
General and administrative expense decreased 5% from $677,024 in 1997
to $645,754 in 1998. The decrease was primarily attributed to fiscal year
decreases in corporate promotional expense, legal and professional fees, and
other consulting fees, including those used for capital raising purposes.
Depreciation and amortization decreased 87% from $285,480 in 1997 to $35,917 in
1998 due to the one-time write-off of a $250,000 licensing fee with AlphaCom
Data Security Services Inc. in 1997. In 1997, the Company incurred interest
expense of $2,774, as compared to $0 in 1998.
The Company's net loss for 1998 was $2,081,671, or $0.07 per share, as
compared to $552,777, or $0.03 per share, for 1997. The 277% increase in net
loss for 1998 was attributed to the aforementioned $1,400,000 asset write-off in
1998 with no recognized revenue for the fiscal year, compared to the $250,000
write-off in 1997 combined with recognized revenue of $412,501 from the
Company's consulting agreement. In 1998, the Company issued 6,318,791 shares of
its common stock resulting from an exercise of warrants associated with a
convertible debenture, exercise of general warrants and common stock issued in
settlement of debt. In 1997, the Company issued 13,995,000 shares of its common
stock resulting from an exercise of warrants associated with a convertible
debenture and common stock issued in settlement of debt.
Net Operating Losses
The Company has accumulated approximately $4,500,000 of net operating
loss carryforwards as of September 30, 1999, that may be offset against future
taxable income through 2014 when the carryforwards expire. The use of these
losses to reduce future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the net operating loss carryforwards.
In the event of certain changes in control of the Company, there will be an
annual limitation on the amount of net operating loss carryforwards which can be
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used. No tax benefit has been reported in the financial statements, because the
Company believes there is a 50% or greater chance the carryforwards will expire
unused. Accordingly, the potential tax benefits of the loss carryforward is
offset by valuation allowance of the same amount.
Liquidity and Capital Resource
Historically, the Company's working capital needs have been satisfied
primarily through the Company's private placement of securities and through
other debt instruments, such as convertible debentures. The Company reasonably
expects to continue to do so in the future. At September 30, 1999, the Company
had working capital of $215,319 compared to working capital at December 31, 1998
of a negative $123,541. The increase is primarily attributed to the Company's
minority interest in Ocean Power Corporation ("Ocean Power") accounted for at a
fair market value of $424,961 at September 30, 1999. At September 30, 1999, the
Company had $118,182 in cash compared to $53,324 at December 31, 1998.
As of September 30, 1999, the Company had total assets of $806,424 and
total stockholders' equity of $454,584 compared with total assets of $306,806
and total stockholders' equity of $129,941 at December 31, 1998. Assets and
stockholders' equity increased in the first nine months of 1999 due to the
Company's investment in Ocean Power and its acquisition of the software license
agreement with SSII.
For the first nine months of 1999, the Company realized cash from
financing activities of $913,705 pursuant to a convertible debenture agreement
with a third party. This compares to $624,968 in advances made in the first nine
months of 1998. In 1998, the Company realized cash from financing activities
amounting to $721,456 as compared to $977,816 in 1997. There was no common stock
issued for cash in the first nine months of 1999, compared to $8,750 in 1998 and
$209,000 in 1997.
For the first nine months of 1999, cash used by operating activities
increased to $718,847 compared to $558,888 for the first nine months of 1998.
This increase is primarily attributed to a larger net loss for the 1999 period.
Net cash used by operating activities for 1998 decreased to $682,062 as compared
to $980,464 for 1997. The decrease is attributed to a material decrease in
deferred revenue coupled with a substantial reduction in accounts payables and
current liabilities for the comparable period in 1997.
During the fiscal year 2000, the Company anticipates meeting its cash
and working capital needs primarily from the proceeds of the sale of its shares
through private placements or similar convertible instruments and revenues
generated from operations.
Effect of Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
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Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share" and
Statement of Financial Accounting Standards No. 129 "Disclosures of Information
About an Entity's Capital Structure." SFAS No. 128 provides a different method
of calculating earnings per share than is currently used in accordance with
Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128
provides for the calculation of "Basic" and "Dilutive" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure. SFAS No. 128 and
SFAS No. 129 are effective for financial statements issued for periods ending
after December 15, 1997. Their implementation did not have a material effect on
the financial statements.
The Financial Accounting Standards Board has also issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributors to
owners. Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that displays with the
same prominence as other financial statements. SFAS No. 131 supersedes SFAS No.
14 "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards on the way that public companies report financial
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosure
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Adoption of these statements had no material
effect on the Company's financial statements.
The FASB has also issued SFAS No 132. "Employers' Disclosures about
Pensions and other Postretirement Benefits," which standardizes the disclosure
requirements for pensions and other Postretirement benefits and requires
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<PAGE>
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis. SFAS No. 132 is effective
for years beginning after December 15, 1997 and requires comparative information
for earlier years to be restated, unless such information is not readily
available. Adoption of this statement did not have a material impact on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management believes the adoption of this
statement will have no material impact on the Company's financial statements.
Item 3. Description of Property
The Company does not presently own any real property. A description of
its facilities in included in Item 1 above.
Item 4. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best of the
Company's knowledge, as of December 15, 1999 with respect to each person known
by the Company to own beneficially more than 5% of the outstanding Common Stock,
each director and all directors and officers as a group.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(1)
- - - - - - - - - - - - -------------------- -------------------- -----------
William D. Baker* 360,000(2) 1.0%
4588 Teviot Place
North, Vancouver, BC,
Canada V7R 4M5
Alyssa J. Bampton* 1,290,900(3) 3.6%
441 New Lance Place
West Vancouver, BC,
Canada V7P 1W4
Barry G. Bampton 1,165,800 3.2%
5295 Gulf Place
West Vancouver, BC,
Canada V7W 2V9
Craig J. Bampton* 1,327,000(4) 3.7%
65 Fletcher Crescent
Winnepeg, Manitoba,
Canada R3T 0K9
G. Michael Cartmel* 735,000(5) 2.0%
302-2170 West Third Ave.
Vancouver, BC,
Canada V6K 1L1
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Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(1)
- - - - - - - - - - - - -------------------- -------------------- -----------
Cybertech Investments Ltd. 3,000,000 8.3%
Brian Lomgpre
East Bay Centre #b-66
Nassau, Bahamas
Kenneth F. Fitzpatrick* 784,000(6) 2.1%
709 Park Lane
Santa Barbara, CA. 93108
Manasia Development Ltd. 2,249,700 6.3%
David Tang
701 United Chinese Bank Bldg.
Des Voeux Road,
Central Hong Kong
Texco Investments 2,272,859 6.3%
Robert Wang
No. 2, Jalan37
Taman Desa Jaya
Kepong, 52100 Kuala Lumpur
Malaysia
VanAus Investments Ltd. 438,000 1.2%
Barry G. Bampton
5295 Gulf Place
West Vancouver, BC,
Canada V7W 2V9
All directors and executive
officers as a group (5) 4,335,700 11.8%
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, the
Company has been advised that each person above has sole
voting power over the shares indicated above.
(1) Based upon 35,895,870 shares of Common Stock outstanding on
December 15, 1999, but does not take into consideration stock
options owned by certain officers, directors and/or principal
shareholders entitling the holders to purchase an aggregate of
865,000 shares of common stock and which are currently
exercisable. Therefore, for purposes of the table above,
36,760,870 shares of common stock are deemed to be issued and
outstanding in accordance with Rule 13d-3 adopted by the
Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. Percentage ownership is
calculated separately for each person on the basis of the
actual number of outstanding shares as of December 15, 1999
and assumes the exercise of stock options held by such person
(but not by anyone else) and exercisable within sixty days.
(2) Includes 360,000 shares which may be acquired by Mr. Baker
pursuant to the exercise of warrants and/or stock options
exercisable on a quarterly basis from 12/01/99 through
09/01/2000.
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<PAGE>
(3) Includes 90,000 shares which may be acquired by Ms. Bampton
pursuant to the exercise of warrants and/or stock options
exercisable at various prices and expiring during the period
12/29/2001 through 06/30/2002.
(4) Includes 130,000 shares which may be acquired by Mr. Bampton
pursuant to the exercise of warrants and/or stock options
exercisable at various prices and expiring during the period
12/29/2001 through 06/30/2002.
(5) Includes 135,000 shares which may be acquired by Mr. Cartmel
pursuant to the exercise of warrants and/or stock options
exercisable at various prices and expiring during the period
12/29/2001 through 06/30/2002.
(6) Includes 150,000 shares which may be acquired by Mr.
Fitzpatrick pursuant to the exercise of warrants and/or stock
options exercisable at various prices and expiring during the
period 12/29/2001 through 06/30/2002.
(7) Includes 865,000 shares which may be acquired by the Company's
directors or executive officers pursuant to the exercise of
warrants and/or stock options exercisable at various prices
and expiring during the period 12/29/2001 through 06/30/2002.
Item 5. Directors, Executive Officers, Promoters and Control
Persons
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Kenneth F. Fitzpatrick 58 President, Chief Executive
Officer and Director
Craig J. Bampton 45 Vice President and Director
G. Michael Cartmel 61 Vice President-Public
Relations and Director
William D. Baker 50 Vice President and Chief
Financial Officer
Victor W. Y. Jung 37 Vice President-Technology
Alyssa J. Bampton 28 Secretary
All directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified. Directors will
be elected at the annual meetings to serve for one year terms. There are no
agreements with respect to the election of directors. The Company has not
compensated its directors for service on the Board of Directors or any committee
thereof. Any non-employee director of the Company shall be reimbursed for
expenses incurred for attendance at meetings of the Board of Directors and any
committee of the Board of Directors. The Executive Committee of the Board of
Directors, to the extent permitted under Idaho law, exercises all of the power
and authority of the Board of Directors in the management of the business and
affairs of the Company between meetings of the Board of Directors. Each
executive officer is appointed by and serves at the discretion of the Board of
Directors.
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<PAGE>
None of the officers and/or directors of the Company are currently
officers or directors of any other publicly traded corporation, nor have any of
the directors and/or officers, nor have any of the affiliates or promoters of
the Company filed any bankruptcy petition, been convicted in or been the subject
of any pending criminal proceedings, or the subject or any order, judgment, or
decree involving the violation of any state or federal securities laws within
the past five years.
The business experience of each of the persons listed above during the
past five years is as follows:
Kenneth F. Fitzpatrick. Mr. Fitzpatrick joined the Company in August
1995 as the President, Chief Executive Officer and Director. Mr. Fitzpatrick has
over 30 years of experience in the investment business. For the past nine years,
Mr. Fitzpatrick has owned and operated the VanSan Group of San Francisco, an
investment banking and corporate financing firm doing business in the United
States and Canada. Mr. Fitzpatrick holds a B.S. degree in Business from Babson
College in Wellsley, Massachusetts.
Craig J. Bampton. Mr. Bampton became the Vice President and a director
of the Company following the acquisition of Tessier Resources, Ltd. ("Tessier")
in 1994. Mr. Bampton has been the Vice President of Tessier and President of its
wholly owned subsidiary, Pulverizer Systems, Inc., since 1991. He served as
President and a director of PTC Group, Inc. a publicly traded corporation now
known as Ocean Power Corporation, from 1996 to 1999. Prior to joining Tessier,
Mr. Bampton was employed from 1973 to 1991 by Burlington Northern Railways
Manitoba Ltd., where he was an agent /office manager for the Manitoba, Canada
region. Mr. Bampton attended Red River Community College. Mr. Bampton is the
uncle of the Company's Secretary, Alyssa Bampton.
G. Michael Cartmel. Mr. Cartmel became the Vice President of public
relations and a director of the Company in April 1994. He was also a director of
PTC Group, Inc., from 1996 to 1999. Mr. Cartmel has been self-employed for
several years as a consultant to the investment community providing investor and
public relations services to publicly held companies. From 1991 to the present,
Mr. Cartmel has been a principal of BMB Holdings, Ltd., a provider of investor
relations and consulting services. Mr. Cartmel holds a B.A. degree in economics
and psychology from the University of British Columbia.
William D. Baker, C.A. Mr. Baker joined the Company as a consultant in
August 1999 and subsequently became Vice President and Chief Financial officer
on September 1, 1999. Mr. Baker has experience in finance and operations with
early stage, high growth technology companies who serve international markets.
He has been C.F.O./C.O.O. for a number of startups including Cardlink Worldwide,
Inc. a private data networking company with operations in Brazil, PopMedia Ltd.
a specialty media company in North America, and Bynamics Inc., a
telecommunications manufacturer with international operations. His experience
includes two years as Vice President for Bytec Management Corporation., a high
technology venture capital firm and several years as Principal Consultant for
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<PAGE>
Willabeth Capital Corp., a firm which specializes in business planning and early
stage financing of high growth technology companies. Mr. Baker is a member of
the Canadian Institute of Chartered Accountants and the Institute of Chartered
Accountants of British Columbia and is a Commerce graduate from McGill
University.
Victor W.Y. Jung. Mr. Jung joined the Company as a full-time consultant
in October 1996 providing technology management and guidance as Vice President
of Technology. Mr. Jung became a full time employee in October 1999. Mr. Jung
brings ten (10) years of commercial software development experience to the
Company. Mr. Jung was the founder of the engineering group at EyeTel
Communications Inc. that developed the award-winning DeskTop Communicator video
conferencing product. Prior to this, Mr. Jung was the software manager for MTI,
which produces computerized vehicle diagnosis system for new vehicles such as
GM, Chrysler and Ford. Mr. Jung obtained his Bachelor's Degree in Computing.
Alyssa J. Bampton. Ms. Bampton has worked with the Company on a
part-time basis since April 1994 performing various administrative duties. From
1991 to 1993, she worked as an administrator at Eyetel Technologies, Inc.
handling a variety of duties such as customer service, public relations,
advertising and product promotion for the video teleconferencing technology
being developed and sold for that company. Ms. Bampton attended Capilano College
for two years. Ms. Bampton is the niece of the Company's Vice President, Craig
J. Bampton.
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<PAGE>
Other Key Persons
Arthur Rosenberg. Mr. Rosenberg joined the Company in February 1996 as
its Chief Operating Officer and Chief Financial Officer. Pursuant to a
consolidation of the Company's operations in Vancouver, BC, Mr. Rosenberg
resigned on September 30, 1999 and has agreed to provide consulting and advisory
services to the Company on a mutually agreeable basis. Mr. Rosenberg has been a
high-profile individual in the online gaming industry and has served on the
board of directors of the Interactive Gaming Council, the trade association for
the industry. Mr. Rosenberg has also been invited to provide testimony on behalf
of the industry at United States government hearings, such as the National
Gambling Impact Study Commission. Since 1992, Mr. Rosenberg has been an
independent corporate consultant offering his clients advice on financial,
strategic, investment and operational matters. From 1992 to 1996, Mr. Rosenberg
was the Chief Operating Officer and Chief Financial Officer of LottoFone
Incorporated, a company located in Alexandria, Virginia seeking to provide
telephone based wagering capabilities to state and international lotteries. Mr.
Rosenberg is a graduate of Northeastern University with a B.A. degree in
chemistry and also earned a M.B.A. in management from Boston College.
Item 6. Executive Compensation
The Company does not have a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or directors. As of
September 30, 1999, no employee of the Company has earned in excess of $100,000
per annum.
The following table sets forth all cash compensation paid by the
Company for services rendered to the Company for the fiscal years ended December
31, 1997 and 1998 and the nine month period ended September 30, 1999, to the
Company's Chief Executive Officer and former Chief Operating Officer. No
executive officer of the Company has earned a salary greater than $100,000
annually for the period depicted.
<TABLE>
<CAPTION>
Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation
- - - - - - - - - - - - ------------------ ---- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
Kenneth Fitzpatrick, 1999* $ -0- $ -0- $ -0- $ -0-
President, C.E.O. 1998 -0- -0- -0- -0-
1997 -0- -0- -0- -0-
Arthur Rosenberg,(1) 1999* 54,000 -0- 2,700 27,250
C.O.O. and C.F.O 1998 72,000 -0- 4,059 -0-
1997 78,000 -0- 5,437 -0-
</TABLE>
* For the first nine months of fiscal 1999 ended September 30,
1999.
(1) On October 1, 1999, the board of directors granted a severance
payment to Mr. Rosenberg of $25,000 payable in 4 installments
beginning in November 1999 and ending February 2000. The
payments are contingent on sufficient capital resources being
available to the Company so as not to impact the Company's
ongoing operations.
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<PAGE>
The preceding table does not include any amounts for noncash
compensation, including personal benefits, paid to the Company's C.E.O. or
C.O.O. The Company believes that the value of such noncash benefits and
compensation paid to Messrs. Fitzpatrick and Rosenberg during the periods
presented did not exceed the lesser of $50,000 or 10% 0f the cash compensation
reported for them.
The following table includes those stock purchase warrants
(options) issued by the Company to its C.E.O., C.F.O., C.O.O. and
directors during the last fiscal year. For purposes of calculating
the percent of the total options granted to employees, the
aggregate number issued to all officers, directors and employees is
used.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of Percent of total
securities options/SARs
underlying granted to
Name and options/SARs employees in Exercise or base Expiration
Principal Position granted(#) fiscal year price ($/Sh.) date
- - - - - - - - - - - - ------------------ ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Kenneth Fitzpatrick, 50,000 2.8% $ .44 01-27-02
President, C.E.O. 75,000 4.2% $ .47 06-30-02
Arthur Rosenberg, 150,000 8.4% $ .47 06-30-02
C.O.O.
William Baker, 360,000 20.2% $ .28 (1)
C.F.O.
</TABLE>
(1) Pursuant to an employment letter dated August 31, 1999 and
board of director's resolution, Mr. Baker was granted 360,000
four-year term warrants exerciseable on an installment basis
(45,000 warrants per quarter beginning on 12/01/99 and ending
on 09/01/2001) contingent on his continued employment with the
Company.
Employment Agreements
As of the date thereof, the Company has not entered into any employment
contracts with any of its employees, officers or directors, nor has the Company
had a bonus, profit sharing, or deferred compensation plan for the benefit of
its employees, officers or directors. Mr. William Baker's (C.F.O.) employment
offer letter from the Company specifies a thirty day notice of termination and
provides for the exercise of warrants (see table above) on an earned basis. Mr.
Rosenberg (C.O.O.) was granted a severance payment of $25,000 to be paid in
installments commencing in November 1999 and ending in February 2000, contingent
on adequate resources being available to the Company.
Item 7. Certain Relationships and Related Transactions
There have been no transactions between the Company and any officer,
director, nominee for election as director, or any shareholder owning greater
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than five percent (5%) of the Company's outstanding shares, nor any member of
the above referenced individuals' immediate family, except as set forth below.
In 1999, the Company granted 1,780,000 warrants to certain officers and
directors and consultants of the Company. See Note 12 to Financial Statements.
The warrants were issued with conversion prices ranging from $0.28 to $.61 which
represented the fair market value of the stock at the time of grant, and for
periods ranging from two to three years. The warrants were issued in
consideration for services rendered, or expected to be rendered, to the Company.
No compensation expense has been recorded as the option price exceeded the fair
market value of the shares when the options were issued.
Item 8. Description of Securities
Common Stock
The Company is authorized to issue 100,000,000 shares of Common Stock,
no par value, of which 35,895,870 shares are issued and outstanding as of
December 15, 1999. All shares of Common Stock have equal rights and privileges
with respect to voting, liquidation and dividend rights. Each share of Common
Stock entitles the holder thereof to (i) one non-cumulative vote for each share
held of record on all matters submitted to a vote of the stockholders; (ii) to
participate equally and to receive any and all such dividends as may be declared
by the Board of Directors out of funds legally available therefore; and (iii) to
participate pro rata in any distribution of assets available for distribution
upon liquidation of the Company. Stockholders of the Company have no preemptive
rights to acquire additional shares of Common Stock or any other securities. The
Common Stock is not subject to redemption and carries no subscription or
conversion rights. All outstanding shares of Common Stock are fully paid and
non- assessable.
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<PAGE>
PART II
Item 1. Market Price of And Dividends on the Registrant's Common
Equity and Other Shareholder Matters
No shares of the Company's common stock have previously been registered
with the Securities and Exchange Commission (the "Commission") or any state
securities agency or authority. The Company's common stock is traded on the OTC
Bulletin Board under the symbol "VTEH". The following table sets forth, for the
periods indicated the range of quarterly high and low sales prices of the
Company's common stock as obtained from the NASD for the past two years and
through the date set forth for the current year. Price quotations reflect
inter-dealer prices, without retail market mark- up, mark-down or commission and
may not represent actual transactions.
High Low
---- ---
1997
First Quarter $13.75 $ 1.50
Second Quarter $ 3.00 $ .55
Third Quarter $ .80 $ .55
Fourth Quarter $ .30 $ .19
1998
First Quarter $ .50 $ .22
Second Quarter $ 1.42 $ .42
Third Quarter $ 1.00 $ .50
Fourth Quarter $ .78 $ .14
1999
First Quarter $ .91 $ .34
Second Quarter $ .98 $ .47
Third Quarter $ .50 $ .23
Fourth Quarter $ .30 $ .17
2000
First Quarter(1) $ .44 $ .16
-------------------------
(1) Through January 26, 2000
The ability of an individual shareholder to trade their shares in a
particular state may be subject to various rules and regulations of that state.
A number of states require that an issuer's securities be registered in their
state or appropriately exempted from registration before the securities are
permitted to trade in that state. Presently, the Company has no plans to
register its securities in any particular state. Further, most likely the
Company's shares will be subject to the provisions of Section 15(g) and Rule
15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security
that has a market price less than $5.00 per share, subject to certain
exceptions. Rule 3a51-1 provides that any equity security is considered to be a
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<PAGE>
penny stock unless that security is: registered and traded on a national
securities exchange meeting specified criteria set by the Commission; authorized
for quotation on The NASDAQ Stock Market; issued by a registered investment
company; excluded from the definition on the basis of price (at least $5.00 per
share) or the issuer's net tangible assets; or exempted from the definition by
the Commission. If the Company's shares are deemed to be a penny stock, trading
in the shares will be subject to additional sales practice requirements on
broker- dealers who sell penny stocks to persons other than established
customers and accredited investors, generally persons with assets in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with their
spouse.
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such securities and must
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker- dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in the Company's Common Stock and may affect the
ability of shareholders to sell their shares.
As of December 15, 1999, there were approximately 195 holders of record
of the Company's Common Stock, which figure does not take into account those
shareholders whose certificates are held in the name of broker-dealers or other
nominees.
As of December 15, 1999 the Company has issued and outstanding
35,895,870 shares of common stock. Of this total, 5,900,816 shares were deemed
"restricted securities" as defined by the Act and certificates representing such
shares bear an appropriate restrictive legend.
Of the Company's total outstanding shares, approximately 29,995,054
shares may be sold, transferred or otherwise traded in the public market without
restriction, unless held by an affiliate or controlling shareholder of the
Company. None of these shares have been identified as being held by affiliates.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares of the
Company for at least one year, including any person who may be deemed to be an
"affiliate" of the Company (as the term "affiliate" is defined under the Act),
is entitled to sell, within any three-month period, an amount of shares that
does not exceed the greater of (i) the average weekly trading volume in the
Company's Common Stock, as reported through the automated quotation system of a
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<PAGE>
registered securities association, during the four calendar weeks preceding such
sale or (ii) 1% of the shares then outstanding. A person who is not deemed to be
an "affiliate" of the Company and has not been an affiliate for the most recent
three months, and who has held restricted shares for at least two years would be
entitled to sell such shares without regard to the resale limitations of Rule
144.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that it will pay
cash dividends or make distributions in the foreseeable future. The Company
currently intends to retain and invest future earnings to finance its
operations.
Item 2. Legal Proceedings
There are presently no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of its property is
subject and, to the best of its knowledge, no such actions against the Company
are contemplated or threatened. In 1998, the Company took a reserve of $100,000
on its books against any possible litigation arising out of the termination of
its licensing agreement with Casino World Holdings (CWH). Based on a legal
opinion, the Company reasonably believes that it would be successful in any
litigation brought by CWH and that any claims that may be brought by CWH are
without merit. The Company may elect to litigate against CWH in the future to
recover its prior investment, but has no immediate plans to do so.
Item 3. Changes in and Disagreements With Accountants
There have been no changes in or disagreements with accountants.
Item 4. Recent Sales of Unregistered Securities
In September 1999, the Company authorized a convertible debenture for
up to $1.0 million to account for funds advanced to the Company by third parties
during the calendar year. This debenture superceded a previous debenture
initiated by the Company in January of 1999 and $379,458 of previously advanced
funds 'rolled-over" into the superceding debenture. The terms of the resulting
debenture included a 10% per annum interest rate, provides for a two-year
conversion period in which the debenture holder may convert advanced funds into
authorized but unissued shares of the Company's Common Stock at a conversion
price of twenty cents ($0.20) per share. Each such converted share includes the
right to purchase an additional share of authorized but unissued Common Stock at
the twenty cents ($0.20) conversion price for a five-year period from date of
original conversion. The Company issued a total of 4,282,025 shares (at $0.20
per share) in September 1999 to two persons upon the conversion of debt totaling
$856,405
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<PAGE>
In August 1999, the Company granted 360,000 warrants to a certain
officer of the Company with a conversion price of twenty- eight ($0.28) per
share as an employment inducement. The warrants become exercisable over a
two-year period with 45,000 warrants vesting at the end of each quarter over the
two-year period provided that the individual continues his employment with the
Company.
In June 1999, the Company granted 595,000 warrants to certain
individuals, consultants, Directors and Officers of the Company. These warrants
were granted for services or beneficial contributions to the Company and/or for
the expectation of future contributions to the Company. The warrants were issued
to 15 individuals. Of the 595,000 warrants, 545,000 were exercisable at
forty-seven cents ($0.47) per share and 50,000 are exercisable at sixty-one
cents ($0.61 per share). All warrants expire June 30, 2002.
In January 1999, the Company granted 825,000 warrants to certain
individuals, consultants, Directors and Officers of the Company. These warrants
were granted for services or beneficial contributions to the company and/or for
the expectation of future contributions to the Company. The warrants were issued
to 11 individuals. All warrants are exercisable at a price of forty-four cents
($0.44) per share and expire January 27, 2002.
In April 1998, the Company authorized a stock conversion agreement for
up to $500,000 to account for funds advanced to the Company by third parties.
The agreement provided for a one-year conversion period in which the holder may
convert advanced funds into authorized but unissued shares of the Company's
common sock at a conversion price of forty-five cents ($0.45) per share. Each
such converted share included the right to purchase an additional share of
authorized but unissued Common Stock at the forty-five cents ($0.45) conversion
price for a five-year period from date of original conversion. Prior to
expiration, three persons converted $712,706 of advanced funds into 1,583,791
shares of authorized but unissued Common Stock at $0.45 per share.
In May and August of 1998, the Company issued an aggregate of 35,000
shares of Common Stock to one person upon the partial exercise of warrants at
the cash exercise price of $0.25 per share. Also during 1998, the Company issued
an aggregate of 4,700,000 shares of Common Stock to a total of four persons upon
the exercise of certain warrants at the exercise price of $0.03 per share, that
were a part of the March 1994 Convertible Debenture.
In December 1997, the Company granted 830,000 warrants to certain
individuals, consultants, Directors and Officers of the Company. These warrants
were granted for services or beneficial contributions to the Company and/or for
the expectation of future contributions to the Company. The warrants were issued
to 25 individuals. 710,000 warrants are exercisable at a price of twenty-five
cents ($0.25) per share and 120,000 warrants are exercisable at $0.50 per share.
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<PAGE>
All warrants expire December 29, 2001. To date 35,000 warrants have been
converted into common shares.
In December 1997, the Company authorized a private placement in the
form of a stock conversion agreement to account for funds advanced to the
Company to cover its operating requirements. The conversion agreement provided
for the conversion of up to 3,500,000 shares in the aggregate at a strike price
of twenty-two cents ($0.22 per share), which represented the closing price of
the Company's stock on the date of execution. As of December 31, 1997, the
Company issued 3,495,000 shares of Common Stock to three persons upon the
conversion of debt at the conversion price of $0.22 per share.
Also during 1997, the Company issued an aggregate of 10,500,000 shares
of Common Stock to a total of ten persons. These shares were issued upon the
conversion of a portion of the March 1994 Convertible Debenture (3,533,333
shares), exercise of certain "A" Warrants (5,833,333 shares) and "B" Warrants
(1,133,334 shares) that were a part of that Debenture, all at the price of $0.03
per share.
In 1996, the Company issued 1,408,126 shares of its authorized but
unissued common sock to third parties in settlement of debt at one dollar and
seventy cents ($1.70) per share pursuant to a private placement agreement
entered into in June of 1995. The private placement provided for conversion of
debt at one dollar and seventy cents ($1.70) per unit for up to 1,000,000 units.
Each unit consisted of one share of common sock and one warrant entitling the
holder to acquire one additional share of Common Stock at the exercise price of
$1.70.
None of the above issuances of securities was registered under the
Securities Act of 1933, as amended (the "Act"). The Company believes that these
were private, isolated transactions with persons familiar with the operations of
the Company and were therefore exempt under Section 4(2) of the Act. Further,
conversions of debentures and/or warrants into shares of the Company's common
stock were made in reliance upon Section 3(a)(9) of the Act.
Item 5. Indemnification of Directors and Officers
As permitted by the provisions of the Idaho General Business
Corporation Law (the "Idaho Code"), the Company has the power to indemnify any
officer or director who, in their capacity as such, is made a party to any suit
or proceeding, whether criminal, administrative or investigative, if such
officer or director acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interests of the Company and, in the case of
any criminal proceeding, the person had no reasonable cause to believe their
conduct was unlawful. An officer or director shall be indemnified against
expenses to the extent they have been successful on the merits or otherwise in
defense of any action, suit or proceeding. Indemnification or advance expenses
-39-
<PAGE>
to an officer or director is available only to the extent as permitted under
Sections 30-1-850 through 30-1-859 of the Idaho Code. Further, the Idaho Code
permits a corporation to purchase and maintain liability insurance on behalf of
its officers and directors. Presently, the Company does not carry such
insurance.
Transfer Agent
The Company has designated Interstate Transfer Company, 874 East 5900
South, Suite 101, Salt Lake City, Utah 84107, as its transfer agent.
PART F/S
The Company's financial statements for the fiscal years ended December
31, 1998 and 1997, and the period ended June 30, 1999 have been examined to the
extent indicated in their reports by Jones, Jensen & Company, independent
certified public accountants, and have been prepared in accordance with
generally accepted accounting principles and pursuant to Regulation S-B as
promulgated by the Securities and Exchange Commission and are included herein in
response to Part F/S of this Form 10-SB. Unaudited financial statements for the
period ended September 30, 1999 have been prepared by the Company.
-40-
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and December 31, 1998
F-1
<PAGE>
CONTENTS
Independent Auditors' Report......................................... F-3
Consolidated Balance Sheets.......................................... F-4
Consolidated Statements of Operations................................ F-6
Consolidated Statements of Stockholders' Equity (Deficit)............ F-7
Consolidated Statements of Cash Flows................................F-13
Notes to the Consolidated Financial Statements.......................F-15
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
VentureTech, Inc.
(A Development Stage Company)
Vancouver, British Columbia
We have audited the accompanying consolidated balance sheets of VentureTech,
Inc. (a development stage company) as of June 30, 1999 and December 31, 1998,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the six months ended June 30, 1999 and the years
ended December 31, 1998 and 1997 and from inception on January 1, 1986 through
June 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 generally accepted auditing
standards. 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
VentureTech, Inc. (a development stage company) as of June 30, 1999 and December
31, 1998 and the consolidated results of their operations and their cash flows
for the six months ended June 30, 1999 and the years ended December 31, 1998 and
1997 and from inception on January 1, 1986 through June 30, 1999 in conformity
with generally accepted accounting principles.
The accompanying 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 is a development stage company
with no significant operating results to date and current liabilities in excess
of current assets, which together raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 5. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/Jones, Jensen & Company
- - - - - - - - - - - - --------------------------
Jones, Jensen & Company
Salt Lake City, Utah
October 27, 1999
F-3
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
1999 1998
----------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 70,706 $ 53,324
----------------- -----------------
Total Current Assets 70,706 53,324
----------------- -----------------
PROPERTY AND EQUIPMENT (Note 2) 77,412 95,370
----------------- -----------------
OTHER ASSETS
Investment (Note 8) 158,112 158,112
License fees (Note 9) 100,000 -
----------------- -----------------
Total Other Assets 258,112 158,112
----------------- -----------------
TOTAL ASSETS $ 406,230 $ 306,806
================= =================
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 109,466 $ 76,865
Related party payables (Note 3) 379,458 -
Interest payable (Note 3) 12,375 -
Reserve for legal fees (Note 9) 100,000 100,000
License fee payable (Note 9) 75,000 -
----------------- -----------------
Total Current Liabilities 676,299 176,865
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; 100,000,000 shares authorized
of $0.001 par value, 31,613,845 shares issued and
outstanding 31,615 31,615
Additional paid-in capital 6,083,012 5,733,012
Deficit accumulated during the development stage (6,384,696) (5,634,686)
----------------- -----------------
Total Stockholders' Equity (Deficit) (270,069) 129,941
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 406,230 $ 306,806
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
For the Inception on
Six Months January 1,
Ended For the Years Ended 1986 Through
June 30, December 31, June 30,
---------------------------------
1999 1998 1997 1999
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
REVENUE $ - $ - $ 412,501 $ 555,646
--------------- ---------------- --------------- ----------------
EXPENSES
Research and development - - - 50,215
General and administrative 369,581 645,754 677,024 4,564,139
Depreciation and amortization 17,958 35,917 285,480 382,918
--------------- ---------------- --------------- ----------------
Total Expenses 387,539 681,671 962,504 4,997,272
--------------- ---------------- --------------- ----------------
(LOSS)FROM OPERATIONS (387,539) (681,671) (550,003) (4,441,626)
--------------- ---------------- --------------- ----------------
OTHER (EXPENSE)
Net loss on disposal of asset - (1,400,000) - (1,400,000)
Interest expense (362,471) - (2,774) (405,855)
--------------- ---------------- --------------- ----------------
Total Other (Expense) (362,471) (1,400,000) (2,774) (1,805,855)
--------------- ---------------- --------------- ----------------
LOSS BEFORE LOSS FROM
DISCONTINUED OPERATIONS
AND PROVISION FOR INCOME TAX (750,010) (2,081,671) (552,777) (6,247,481)
--------------- ---------------- --------------- ----------------
LOSS FROM DISCONTINUED
OPERATIONS - - - (137,215)
PROVISION FOR INCOME TAX - - - -
--------------- ---------------- --------------- ----------------
NET LOSS $ (750,010) $ (2,081,671) $ (552,777) $ (6,384,696)
=============== ================ =============== ================
BASIC LOSS PER SHARE $ (0.02) $ (0.07) $ (0.03)
=============== ================ ===============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 31,613,845 29,230,096 22,089,095
=============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
------ ------ ------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1986 (inception) 278,692 $ 279 $ (279) $ -
Assessment of existing
shareholders to increase
paid-in capital - - 8,722 -
Net loss for the year ended
December 31, 1987 - - - (8,722)
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1987 278,692 279 8,443 (8,722)
Stock issued to an individual who
became an officer and director for
services performed to acquire rights
to Harvard Medical Project on July 13,
1988 recorded at predecessor cost of $0.00
per share 1,188,889 1,189 (1,189) -
Stock issued to Spartan
Medical Corporation to
acquire rights to the Harvard
Medical Project on
November 1, 1988 recorded at
predecessor cost of $0.00 per
share 200,000 200 (200) -
Net loss for the year ended
December 31, 1988 - - - (5,644)
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1988 1,667,581 $ 1,668 $ 7,054 $ (14,366)
---------------- ---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
------ ------ ------- -----
<S> <C> <C> <C> <C>
Balance forward 1,667,581 $ 1,668 $ 7,054 $ (14,366)
Stock issued for services
at an average price of
$0.21 per share 61,667 62 12,638 -
Stock issued for cash in
private placements at an
average price of $2.48 98,005 98 242,502 -
Stock offering costs offset
against paid-in capital - - (93,687) -
Net loss for the year ended
December 31, 1989 - - - (134,399)
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1989 1,827,253 1,828 168,507 (148,765)
Stock issued for services
valued at $0.06 per share 19,301 19 1,140 -
Stock issued to an individual
for services valued at
$12.00 per share 1,667 1 19,999 -
Stock issued to individuals
for $3.92 per share 11,933 12 46,788 -
Net loss for the year ended
December 31, 1990 - - - (174,522)
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1990 1,860,154 $ 1,860 $ 236,434 $ (323,287)
---------------- ---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
------ ------ ------- -----
<S> <C> <C> <C> <C>
Balance forward 1,860,154 $ 1,860 $ 236,434 $ (323,287)
Stock issued to Ballater, Ltd. in
exchange for services recorded
at predecessor cost of $0.00 per
share 100,000 100 (100) -
Net loss for the year ended
December 31, 1991 - - - (2,457)
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1991 1,960,154 1,960 236,334 (325,744)
Debt converted into additional
paid-in capital by
Park Avenue, Inc. - - 45,750 -
Debt converted into additional
paid-in capital by
stockholder - - 12,400 -
Net loss for the year ended
December 31, 1992 - - - (1,981)
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1992 1,960,154 1,960 294,484 (327,725)
Common stock issued in settlement
of debt at $0.012 per share 1,500,000 1,500 16,252 -
Net loss for the year ended
December 31, 1993 - - - (15,200)
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1993 3,460,154 3,460 310,736 (342,925)
Common stock issued for cash
at $0.50 per share 340,000 340 169,660 -
Stock issuance costs - - (67,500) -
Net loss for the year ended
December 31, 1994 - - - (29,190)
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1994 3,800,154 $ 3,800 $ 412,896 $ (372,115)
---------------- ---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock During the
Common Stock Paid-in Subscription Development
Shares Amount Capital Receivable Stage
------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance forward 3,800,154 $ 3,800 $ 412,896 $ - $ (372,115)
Common stock issued to
acquire Tessier Resources Ltd. 3,200,000 3,200 (80,856) - -
Debt converted into additional
paid-in capital - - 10,417 - -
Common stock issued in
settlement of debt at $1.70
per share 591,774 592 1,005,425 - -
Net loss for the year ended
December 31, 1995 - - - - (1,037,235)
------------- ------------- --------------- --------------- -------------
Balance, December 31, 1995 7,591,928 7,592 1,347,882 - (1,409,350)
Common stock issued in
settlement of debt at $1.70
per share 1,408,126 1,408 2,392,473 - -
Common stock issued as a
partial conversion of the
convertible debenture at
$0.03 per share 2,300,000 2,300 66,700 - -
Common stock issued for
cash at $10.00 per share 6,000,000 6,000 59,994,000 (60,000,000) -
Net loss for the year ended
December 31, 1996 - - - - (1,590,888)
------------- ------------- --------------- --------------- -------------
Balance, December 31, 1996 17,300,054 $ 17,300 $ 63,801,055 $ (60,000,000) $ (3,000,238)
------------- ------------- --------------- --------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-10
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)(Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock During the
Common Stock Paid-in Subscription Development
Shares Amount Capital Receivable Stage
------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 17,300,054 $ 17,300 $ 63,801,055 $ (60,000,000) $ (3,000,238)
Common stock issued as a
conversion of the convertible
debenture at $0.03 per share 3,533,333 3,533 102,467 - -
Common stock issued as a full
exercise of the "A" warrants
associated with the convertible
debenture at $0.03 per share 5,833,333 5,834 169,166 - -
Common stock issued as a partial
exercise of the "B" warrants
associated with the convertible
debenture at $0.03 per share 1,133,334 1,133 32,867 - -
Cancellation of stock
subscription receivable (6,000,000) (6,000) (59,994,000) 60,000,000 -
Common stock issued in
settlement of debt
at $0.22 per share 3,495,000 3,495 765,321 - -
Net loss for the year ended
December 31, 1997 - - - - (552,777)
---------------- --------------- ---------------- ---------------- --------------
Balance, December 31, 1997 25,295,054 $ 25,295 $ 4,876,876 $ - $ (3,553,015)
---------------- --------------- ---------------- ---------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-11
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock During the
Common Stock Paid-in Subscription Development
Shares Amount Capital Receivable Stage
------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 25,295,054 $ 25,295 $ 4,876,876 $ - $ (3,553,015)
Common stock issued as a complete
exercise of the "B" warrants
associated with the convertible
debenture at $0.03 per share 4,700,000 4,700 136,300 - -
Common stock issued as a
partial exercise of warrants
for cash at $0.25 per share 35,000 35 8,715 - -
Common stock issued in
settlement of debt at $0.45
per share 1,583,791 1,585 711,121 - -
Net loss for the year ended
December 31, 1998 - - - - (2,081,671)
---------------- --------------- ---------------- ---------------- --------------
Balance, December 31, 1998 31,613,845 31,615 5,733,012 - (5,634,686)
Issuance of debenture and
warrants at less than market
value - - 350,000 - -
Net loss for the six months
ended June 30, 1999 - - - - (750,010)
---------------- --------------- ---------------- ---------------- --------------
Balance, June 30, 1999 31,613,845 $ 31,615 $ 6,083,012 $ - $ (6,384,696)
================ =============== ================ ================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-12
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
<CAPTION>
From
For the Inception on
Six Months January 1,
Ended For the Years Ended 1986 Through
June 30, December 31, June 30,
1999 1998 1997 1999
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) $ (750,010) $ (2,081,671) $ (552,777) $ (6,384,696)
Adjustments to reconcile net (loss)
to net cash used by operating activities:
Common stock issued for services - - - 34,259
Debentures and warrants issued at
less that market value 350,000 - - 350,000
Depreciation and amortization 17,958 35,917 285,480 408,702
Loss on sale of investments - - - 20,390
Net loss on disposition of asset - 1,400,000 - 1,400,000
Changes in assets and liabilities:
(Increase) decrease in accounts
receivables and related receivables - - - (6,025)
Increase (decrease) deferred revenue - - (412,500) -
Increase (decrease) in accounts
payable and other current liabilities 44,976 (36,308) (300,667) 16,616
--------------- ---------------- --------------- ----------------
Net Cash Used by Operating
Activities (337,076) (682,062) (980,464) (4,160,754)
--------------- ---------------- --------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of investments - - - (378,313)
Sale of investments - - - 7,110
Purchase of fixed assets - - - (249,151)
Disposal of fixed assets - - - 3,223
Purchase of license fees (25,000 ) - - (1,575,000)
--------------- ---------------- --------------- ----------------
Net Cash Used by Investing
Activities (25,000) - - (2,192,131)
--------------- ---------------- --------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of convertible debenture - - - 175,000
Conversion of debt to equity - - - 75,902
Proceeds from notes payable 379,458 712,706 768,816 5,648,004
Common stock issued for cash - 8,750 209,000 515,963
Shareholder assessment - - - 8,722
--------------- ---------------- --------------- ----------------
Net Cash Provided by Financing
Activities $ 379,458 $ 721,456 $ 977,816 $ 6,423,591
--------------- ---------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-13
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<CAPTION>
From
For the Inception on
Six Months January 1,
Ended For the Years Ended 1986 Through
June 30, December 31, June 30,
1999 1998 1997 1999
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH $ 17,382 $ 39,394 $ (2,648) $ 70,706
CASH AT BEGINNING OF PERIOD 53,324 13,930 16,578 -
--------------- ---------------- --------------- -----------
CASH AT END OF PERIOD $ 70,706 $ 53,324 $ 13,930 $ 70,706
=============== ================ =============== ================
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ - $ - $ - $ -
Income taxes $ - $ - $ - $ -
NON CASH FINANCING ACTIVITIES:
Conversion of debt into additional
paid-in capital $ - $ - $ - $ 75,902
Common stock issued in settlement
of debt $ - $ 712,705 $ 768,816 $ 4,899,171
Conversion of debenture and warrants
to common stock $ - $ 141,000 $ 106,000 $ 525,526
Debenture and warrants issued at less
than market value $ 350,000 $ - $ - $ 350,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-14
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of
VentureTech, Inc. and its wholly-owned subsidiaries.
VentureTech, Inc. (VTI) was incorporated on July 19, 1948 under
the laws of the State of Idaho. VTI has had limited activity since
the mid 1950's and is considered a development stage company
because no significant revenues have been realized and planned
principal operations have not yet commenced. The Company is
engaged in the development, acquisition and licensing of certain
computer based technology designed to ultimately offer a full
range of casino style gaming, entertainment, information and
financial transaction services over the world-wide Internet. The
Company intends to establish a series of multi-
cultural/multi-ethnic virtual casinos over the Internet from
authorized locations around the world.
The Subsidiaries:
Cybernet Currency Clearing, Inc. (CCCI) was incorporated on August
23, 1995 under the laws of the State of Nevada as a foreign
corporation to provide encoding protection for secure Internet
transactions. CCCI is considered a development stage company
because no revenues have been realized and planned principal
operations have not yet begun.
Euro Asian E-Casinos, Inc (E-Casinos) was incorporated on April
18, 1996 in accordance with the Associates Law of the Republic of
the Marshall Islands as a foreign corporation to own and operate
full service gaming casinos on the internationally accessible
Internet. E- Casinos is considered a development stage company
because no revenues have been realized and planned principal
operations have not yet begun.
Euro Asian E-Casinos International, Ltd. (E-Casinos Ltd.) was
incorporated in St. John's Antigua, West Indies to own and operate
full service gaming casinos on the internationally accessible
Internet. E-Casinos Ltd. owns the gaming license issued by the
government of Antigua.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
b. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding during the
period of the financial statements. Fully diluted loss per share
is not presented because of the antidilutive nature of the
operating loss.
The accompanying notes are an integral part of these consolidated
financial statements.
F-15
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Provision for Taxes
At June 30, 1999, the Company has net operating loss carryforwards
of approximately $4,100,000 that may be offset against future
taxable income through 2014. No tax benefit has been reported in
the financial statements, because the Company believes there is a
50% or greater chance the carryforwards will expire unused.
Accordingly, the potential tax benefits of the loss carryforwards
are offset by a valuation allowance of the same amount.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
e. Principles of Consolidation
The June 30, 1999 and December 31, 1998 and 1997 financial
statements are consolidated with CCCI, E-Casinos and E-Casinos,
Ltd. All significant intercompany accounts and transactions 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. Depreciation expense for continuing operations for
the six months ended June 30, 1999 and for the years ended
December 31, 1998 and 1997 was $17,958, $35,917 and $35,480
respectively.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -----------------
<S> <C> <C>
Office equipment $ 161,339 $ 161,339
Leasehold improvements 36,491 36,491
Accumulated depreciation (120,418 ) (102,460)
------------------- -----------------
Net Property and Equipment $ 77,412 $ 95,370
=================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-16
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF 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. Change in Accounting Principle
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" and Statement of Financial Accounting Standards No. 129
"Disclosures of Information About an Entity's Capital Structure."
SFAS No. 128 provides a different method of calculating earnings
per share than was previously used in accordance with APB Opinion
No. 15, "Earnings Per Share." SFAS No. 128 provides for the
calculation of "Basic" and "Dilutive" earnings per share. Basic
earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar
to fully diluted earnings per share. SFAS No. 129 establishes
standards for disclosing information about an entity's capital
structure. SFAS No. 128 and SFAS No. 129 are effective for
financial statements issued for periods ending after December 15,
1997. In fiscal 1998, the Company adopted SFAS No. 128, which did
not have a material impact on the Company's financial statements.
The implementation of SFAS No. 129 did not have a material effect
on the Company's financial statements.
The Financial Accounting Standards Board has also issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income
be reported in a financial statement that displays with the same
prominence as other financial statements. SFAS No. 131 supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards on the way that
public companies report financial information about operating
segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and
major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance.
F-17
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Change in Accounting Principles (Continued)
SFAS No. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. The implementation
of SFAS No. 130 and 131 did not have a material impact on the
Company.
In February 1998, the Financial Accounting Standards Board
("FASB") has issued Statement of Financial Accounting Standard
("SFAS") No. 132. "Employers' Disclosures about Pensions and other
Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other Postretirement benefits and
requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate
financial analysis. SFAS No. 132 is effective for years beginning
after December 15, 1997 and requires comparative information for
earlier years to be restated, unless such information is not
readily available. The adoption of this statement did not have
material impact on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of this statement had no material
impact on the Company's financial statements.
i. Revenue Recognition Policy
When normal operations begin, the Company will recognize as
revenue the net winnings from gaming activities, which is the
difference between gaming wins and losses.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1999, a related party made
advances to the Company totaling $379,458. Through June 30, 1999,
interest in the amount of $12,375 was accrued on the amounts
advanced. The amounts advanced with accrued interest are expected
to be converted to common stock at $0.20 per share in a subsequent
period.
In 1998, a related party converted $712,706 of debt into 1,583,79
shares of common stock at $0.45 per share (Note 11).
In 1998, a related party converted $141,000 of the "B" warrants
into 4,700,000 shares of common stock.
F-18
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
In 1997, a related party converted $106,000 of the convertible
debenture, and exercised $175,000 of "A" warrants and $34,000 of
"B" warrants into 10,500,000 shares of common stock (Note 4).
On December 31, 1997, the Company issued 3,495,000 shares of its
common stock in consideration for cash received from a related
party. At the date of issuance, $909,816 was owed and $768,816 was
converted to common stock. At December 31, 1997, an additional
note payable of $141,000 was still owed by the Company. This note
was non-interest bearing and was due upon demand.
On December 31, 1996, the Company issued 159,818 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance $271,691 was owed and converted to common
stock. At December 31, 1996, an additional note payable of
$387,125 was still owed by the Company. This note payable was non
interest bearing and was due upon demand. (Note 11).
On September 30, 1996, the Company issued 210,050 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance, $357,085 was owed and converted into common
stock.
On July 26, 1996, the Company issued 80,000 shares of its common
stock in consideration of money owed to a related party. At the
date of issuance, $136,000 was owed and converted into common
stock.
On June 30, 1996, the Company issued 419,086 shares of its common
stock in consideration of money owed to a related party. At the
date of the issuance $712,445 was owed and converted to common
stock.
In April, 1996, the Company issued 2,300,000 shares of its common
stock as a partial conversion of the convertible debenture. The
shares were issued at $0.03 per share (Note 4).
On March 31, 1996, the Company issued 539,172 shares of its common
stock in consideration of money owed to a related party. At the
date of issuance $916,660 was owed and converted to common stock
(Note 11).
On December 31, 1995, the Company issued 210,888 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance $358,510 was owed and converted to common
stock (Note 11).
On October 31, 1995, the Company issued 380,886 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance $647,507 was owed and converted to common
stock (Note 11).
F-19
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
The Company has granted 720,000 warrants to officers and directors
of the Company (Note 11). The warrants were issued at prices
ranging from $0.25 to $5.75 which represented the fair market
value of the stock at the time of grant, and for periods ranging
from four to five years.
On May 14, 1994, officers and directors of the Company were issued
stock options to purchase 120,000 shares of the Company's common
stock at $2.50 per share. No compensation expense has been
recorded as the option price exceeded the fair market value of the
shares when the options were issued.
On November 1, 1993, the Company issued 1,500,000 shares of its
common stock in consideration of $17,752 owed to a related party.
NOTE 4 - CONVERTIBLE DEBENTURE - RELATED PARTY
In March of 1994, the Company issued a $175,000 fixed and floating
convertible debenture. The debenture bears interest at 10% per
annum. The debenture is convertible into common stock at a rate of
$0.03 per share. The debenture carries "A" and "B" warrants to
purchase additional shares of the Company's common stock. The
terms of the warrants are also $0.03 per share. In April 1996, the
Company issued 2,300,000 shares of common stock to convert $69,000
of the debenture. At December 31, 1996, the balance payable on the
debenture was $106,000. In 1997, the Company issued 10,500,000
shares of common stock to convert the balance payable on the
debenture of $106,000 as well the exercise of all of the "A"
warrants for $175,000 and 1,133,334 of the "B" warrants for
$34,000 that accompanied the debentures. In 1998, the Company has
issued 4,700,000 shares of common stock to exercise $141,000 of
"B" warrants. No compensation expense was recorded on the issuance
of the warrants because the exercise price exceeded the trading
price at the time of issuance. At June 30, 1999 and December 31,
1998, the balance payable on the debenture was $0.00.
NOTE 5 - GOING CONCERN
The Company's 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 June 30, 1999. 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.
F-20
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 6 - STOCK TRANSACTIONS
On December 31, 1998, the Company issued 310,189 shares of common
stock in settlement of debt at $0.45 per share.
On June 30, 1998, the Company issued 1,273,602 shares of common
stock in settlement of debt at $0.45 per share (Note 3).
In 1998, the Company issued 35,000 shares of common stock as an
exercise of warrants at $0.25 per share.
In 1998, the Company issued 4,700,000 shares of common stock as an
exercise of "B" warrants at $0.03 per share (Note 4).
On December 31, 1997, the Company issued 3,495,000 shares of its
common stock in settlement of debt at $0.22 per share (Notes 3 and
11).
During 1997, the Company issued 10,500,000 shares of common stock
as a conversion of the convertible debenture and exercise of
warrants. The shares were issued at $0.03 per share (Note 4).
On December 31, 1996, the Company issued 159,818 shares of its
common stock in settlement of debt at $1.70 per share (Notes 3 and
11).
On September 30, 1996, the Company issued 210,050 shares of its
common stock in settlement of debt at $1.70 per share (Notes 3 and
11).
On July 26, 1996, the Company issued 80,000 shares of its common
stock in settlement of debt at $1.70 per share (Notes 3 and 11).
On June 30, 1996, the Company issued 419,086 shares of its common
stock in settlement of debt at $1.70 per share (Notes 3 and 11).
On May 6, 1996, the Company issued 6,000,000 shares of its common
stock to an escrow agent who was to hold the shares until the
Company is paid $60,000,000. This $60,000,000 was recorded as a
stock subscription receivable until it was canceled in 1997 (Note
13).
F-21
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 6 - STOCK TRANSACTIONS (Continued)
During April 1996, the Company issued 2,300,000 shares of common
stock as a partial conversion of the convertible debenture. The
shares were issued at $0.03 per share and represented conversion
of $69,000 of the initial $175,000 debenture.
On March 31, 1996, the Company issued 539,172 shares of its common
stock in settlement of debt at $1.70 per share (Notes 3 and 11).
On December 31, 1995, the Company issued 210,888 shares of its
common stock in settlement of debt at $1.70 per share (Notes 3 and
11).
On October 31, 1995, the Company issued 380,886 shares of its
common stock in settlement of debt at $1.70 per share (Notes 3 and
11).
During 1994, the Company issued 340,000 shares of its common stock
for cash, at $0.50 per share. The Company incurred costs of
$67,500 in connection with the stock offering which were offset to
additional paid-in capital.
In November 1993, the Company issued 1,500,000 shares of its
common stock in settlement of debt at $0.012 per share (Note 3).
NOTE 7 - DISCONTINUED OPERATIONS
On March 14, 1996 the Company sold its subsidiary, Tessier
Resources, LTD. (Tessier) to a public shell corporation controlled
by some of the Company's shareholders, PTC Group, Inc. (formerly
Kaniksu Ventures, Inc.) (PTC). The consolidated financial
statements have been restated to reflect this transaction as
discontinued operations. Tessier had no revenues and no income tax
benefit was attributed to the sale. (Note 8)
NOTE 8 - INVESTMENT
The investment represents a minority interest in PTC Group from
the sale of Tessier Resources, Ltd., whereby PTC gave the Company
a convertible debenture with a face value of $3,000,000 in
exchange for all of the issued and outstanding stock of Tessier
Resources, Ltd. The debenture will mature in four (4) years and
does not carry any interest. The debenture is convertible at any
time before repayment into an aggregate of 2,000,000 shares of
authorized but previously unissued shares of PTC common stock at a
conversion price of $1.50 per share. The investment is being
carried at its predecessor cost of $158,112 and no gain or loss
was recognized on the sale. At June 30, 1999, the Company has
converted $750,000 of the debenture into 500,000 shares of PTC
common stock and has deposited those shares with a brokerage
house. The Company subsequently converted the balance of the
debenture.
F-22
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 9 - LICENSE FEES
The fees are amounts paid for software licenses and the rights to
use the software related to the Company's conduct of its Internet
related gaming.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -----------------
<S> <C> <C>
Softec Systems Caribbean, Inc. $ 100,000 $ -
CasinoWorld Holdings, Ltd. (CasinoWorld) - 2,000,000
Accumulated amortization - (2,000,000)
------------------- -----------------
$ 100,000 $ -
=================== =================
</TABLE>
In August of 1998, Casino World Holdings, Ltd. (CWH) ceased to
supply necessary services related to its license and operating
agreements with the Company. The Company has subsequently
questioned CWH's ability to provide an online interactive gaming
system and support services as originally outlined in the
aforementioned agreements. Consequently, the Company, in its best
judgment, has elected to write-off the unamortized portion of its
paid investment in the license agreement a well as the remaining
unpaid balance of $700,000. The Company has subsequently entered
into a similar licensing agreement with another third party to
provide its required gaming software and transaction processing.
As practicable, the Company may seek to reclaim a portion or all
of its investment in CWH through appropriate legal action.
Notwithstanding the above, the Company has set a reserve of
$100,000 to cover possible future legal action on this matter.
The Company, through its subsidiary, E-Casinos Ltd., has entered
into an agreement with Softec Systems Caribbean, Inc. which will
provide software and operating services relating to Internet
gaming. Under the terms of the agreement, E-Casinos Ltd. is
required to pay a non-refundable one-time license fee of $100,000.
Payment of this fee must be made in accordance with the following
schedule:
o $25,000 upon signing the agreement.
o $5,000 thirty-days from the acceptance of the first wager
using the licensed software, and
o $10,000 per month, for seven consecutive months, with the
first payment being made 60-days from the acceptance of the
first wager using the licensed software.
The license fee will be amortized over a 2-year period. The
Company will begin amortizing the license fee when it begins
receiving revenue from the use of the licensed software.
F-23
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 10 - 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., a
wholly-owned subsidiary of Starnet Communications International,
Inc., to provide online-gaming software and hardware services.
The license agreement calls for a commitment by the company to
spend a certain portion of the net revenues generated by its
Internet casino for ongoing promotion and marketing. The license
agreement also calls for a certain percentage of revenue sharing
of net revenues based on a specific formula agreed to by the
Company and licensor. The minimum monthly payment from the
Company to the licensor related to such sharing of net revenues
is $25,000 beginning 90-days from the date the first wager is
accepted using the licensed software. As the license agreement
may be terminated by the Company at the end of any one-year term
or by the licensor at the end of any one-year term subsequent to
the first year of the agreement, the License Agreement will be
amortized over a two-year period.
CasinoWorld Holdings
--------------------
The Company has written off the Licensing Agreement with
CasinoWorld Holdings (CWH), and is refusing to pay the balance of
$700,000 due to them per the terms of the original agreement
because of non-performance by CWH. Management believes that it
would, more likely than not, prevail in any litigation with CWH.
Consultants
-----------
The Company currently pays a shareholder $12,000 a month for
services provided by the shareholder to the Company.
NOTE 11 - DILUTIVE INSTRUMENTS
In August 1999, the Company granted 360,000 warrants to a certain
officer of the Company at $0.28 per share. No compensation
expense was recorded at the time of issuance as the exercise
price was equal to the trading price at the time of issuance. The
warrants become exercisable over a two-year period with 45,000
warrants vesting at the end of each quarter over the two-year
period provided the individual continues his employment with the
Company.
F-24
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
In June 1999, the Company granted 595,000 warrants to certain
individuals, consultants, Directors and Officers of the Company.
These warrants were granted for services or beneficial
contributions to the Company and/or for the expectation of future
contributions to the success of the Company. The warrants were
issued to 15 individuals. Of the 595,000 warrants, 545,000 are
exercisable at $0.47 per share and 50,000 are exercisable at
$0.61 per share. No compensation expense was recorded on the
issuance of warrants because the exercise price was either equal
to or exceeded the trading price at the time of issue. All
warrants expire June 30, 2002.
In January 1999, the Company approved one or more convertible
debentures, totaling no more than $1 million in the aggregate.
The debentures were convertible into "restricted" common stock of
the Company at $0.40 per share with one (1) four-year $0.40
warrant attached. This authorization was canceled in September
1999 in conjunction with the Company authorizing a separate
convertible debenture for up to $1 million. This debenture
offering applies only to funds received on or before December 1,
1999. This debenture is convertible at $0.20 per share into
"restricted" common stock of the Company with one (1) five-year
$0.20 warrant attached. Unconverted balances accrue 10% interest
per annum on a quarterly basis and all balances must be converted
within two years of the receipt of funds by the Company.
In April 1998, the Company approved a private placement for
1,111,111 shares of its common stock with accompanying 1,111,111
warrants at $0.45 per share and warrants. All of the 1,111,111
shares and 472,680 shares from the exercise of warrants have been
issued.
In 1998, the Company converted warrants for 35,000 shares of its
common stock at $0.25 per share.
In December 1997, the Company granted 830,000 warrants to
officers and shareholders of which 710,000 are exercisable at
$0.25 per share and 120,000 are exercisable at $0.50 per share.
No compensation expense was recorded on the issuance of warrants
because the exercise price exceeded the trading price at the time
of issuance. Additionally, the Company has reserved 100,000
warrants for future issuance. All warrants expire December 29,
2001.
In December 1997, the Company approved a private placement for
3,500,000 shares at $0.22 per share. All but 5,000 shares were
issued pursuant to this private placement at December 31, 1997.
F-25
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 11 - DILUTIVE INSTRUMENTS (Continued)
In March 1996, the Company authorized 1,000,000 stock options for
possible future allocation to an individual and his associates
for their services in raising funds and completing projects for
the Company. Issuance of these stock options are at the
discretion of the Company's Board of Directors. The options are
exercisable at $6.00 per share which represented the fair market
value of the stock at the time of grant, with no time limit
associated with the allocation. These stock options were canceled
by the Company on July 23, 1999.
In June 1995 the Company initiated a private placement for
1,000,000 shares of its common stock with accompanying 1,000,000
warrants at $1.70 per share and warrant. Of the 2,000,000 shares
which have been issued pursuant to this private placement,
591,774 shares were issued in 1995, while 1,408,126 shares were
issued in 1996.
Over the period of May 1994 through November 1995, the Company
granted 1,532,000 warrants to certain individuals, consultants,
Directors and Officers of the Company. These warrants were
granted for services or beneficial contributions provided to the
Company and/or for the expectation of future contributions to the
success of the Company. The warrants were issued to thirty
individuals or organizations at exercise prices ranging from
$2.50 to $5.75, which represented the fair market value of the
stock at the time of grant, and for periods ranging from four to
five years. The warrants will be issued to these individuals or
organizations pursuant to a warrant agreement with the Company.
The Company intends to register the shares underlying these
warrants at a time deemed suitable by management. The warrants
are conditional upon the Company achieving a listing with the
NASDAQ stock exchange. Of the 1,532,000 warrants granted, 637,000
expired on May 31, 1999 and 135,000 were canceled by mutual
consent of the Company and one of its officers on June 30, 1999.
The remaining 760,000 expire between October 1999 and May 2000.
The following is a schedule of outstanding warrants as of June
30, 1999:
<TABLE>
<CAPTION>
EXPIRATION EXERCISE WARRANTS WARRANTS
DATE OF ISSUE DATE PRICE ISSUED OUTSTANDING
---------------------- --------------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
May 18, 1994 May 18, 2000 $ 2.50 120,000 120,000
May 31, 1995 October 31, 1999 2.50 20,000 20,000
October 31, 1995 October 31, 1999 5.75 150,000 150,000
November 6, 1995 November 6, 1999 5.75 470,000 470,000
December 29, 1997 December 29, 2001 0.25 710,000 675,000
December 29, 1997 December 29,2001 0.50 120,000 120,000
January 15, 1999 December 1, 2001 0.40 2,500,000 2,500,000
June 3, 1999 June 3, 2002 0.61 50,000 50,000
June 30, 1999 June 30, 2002 0.47 545,000 545,000
---------------- ------------------
4,685,000 4,650,000
================ ==================
</TABLE>
F-26
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
F-27
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
September 30, December 31,
1999 1998
----------------- -----------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 118,182 $ 53,324
Accounts receivable, net 5,021 -
Prepaid expenses 18,995 -
Investment (Note 8) 424,961 -
----------------- -----------------
Total Current Assets 567,159 53,324
----------------- -----------------
PROPERTY AND EQUIPMENT (Note 2) 68,432 95,370
----------------- -----------------
OTHER ASSETS
Investment (Note 8) - 158,112
License fees (Note 9) 170,833 -
----------------- -----------------
Total Other Assets 170,833 158,112
----------------- -----------------
TOTAL ASSETS $ 806,424 $ 306,806
================= =================
The accompanying notes are an integral part of these consolidated
financial statements.
F-28
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<CAPTION>
September 30, December 31,
1999 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 81,840 $ 76,865
Reserve for legal fees (Note 9) 100,000 100,000
License fee payable (Note 9) 70,000 -
Note payable (Note 10) 100,000 -
----------------- -----------------
Total Current Liabilities 351,840 176,865
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; 100,000,000 shares authorized
of $0.001 par value, 35,895,870 and 31,613,845
shares issued and outstanding, respectively 35,897 31,615
Additional paid-in capital 6,985,135 5,733,012
Comprehensive income (loss) 266,730 -
Deficit accumulated during the development stage (6,833,178) (5,634,686)
----------------- -----------------
Total Stockholders' Equity (Deficit) 454,584 129,941
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 806,424 $ 306,806
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-29
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
From
Inception on
For the For the January 1,
Nine Months Ended Three Months Ended 1986 Through
September 30, September 30, September 30,
------------------------------- -------------------------------- ---------------
1999 1998 1999 1998 1999
-------------- -------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUE
Sales $ 9,526 $ - $ 9,526 $ - $ 565,172
Cost of sales 3,669 - 3,669 - 3,669
-------------- -------------- -------------- ---------------- ---------------
Gross margin 5,857 - 5,857 - 561,503
-------------- -------------- -------------- ---------------- ---------------
EXPENSES
Research and development - - - - 50,215
General and administrative 721,279 504,213 351,698 173,406 4,915,837
Depreciation and amortization 56,105 176,938 38,147 58,979 421,065
-------------- -------------- -------------- ---------------- ---------------
Total Expenses 777,384 681,151 389,845 232,385 5,387,117
-------------- -------------- -------------- ---------------- ---------------
(LOSS)FROM OPERATIONS (771,527) (681,151) (383,988) (232,385) (4,825,614)
-------------- -------------- -------------- ---------------- ---------------
OTHER (EXPENSE)
Net loss on disposal of asset - - - - (1,400,000)
Interest expense (426,965) - (64,494) - (470,349)
-------------- -------------- -------------- ---------------- ---------------
Total Other (Expense) (426,965) - (64,494) - (1,870,349)
-------------- -------------- -------------- ---------------- ---------------
LOSS BEFORE LOSS FROM
DISCONTINUED OPERATIONS
AND PROVISION FOR INCOME TAX (1,198,492) (681,151) (448,482) (232,385) (6,695,963)
-------------- -------------- -------------- ---------------- ---------------
LOSS FROM DISCONTINUED OPERATIONS - - - - (137,215)
PROVISION FOR INCOME TAX - - - - -
-------------- -------------- -------------- ---------------- ----------
NET LOSS (1,198,492) (681,151) (448,482) (232,385) (6,833,178)
-------------- -------------- -------------- ---------------- ---------------
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain on marketable
securities 266,849 - 266,849 - 266,849
Currency translation adjustment (119) - (119) - (119)
-------------- -------------- -------------- ---------------- ---------------
Total Other Comprehensive
Income (Loss) 266,730 - 266,730 - 266,730
-------------- -------------- -------------- ---------------- ---------------
NET COMPREHENSIVE LOSS $ (931,762) $ (681,151) $ (181,752) $ (232,385) $ (6,566,448)
============== ============== ============== ================ ===============
BASIC LOSS PER SHARE $ (0.04) $ (0.02) $ (0.01) $ (0.01)
============== ============== ============== ================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 31,629,530 27,642,359 31,660,389 28,595,623
============== ============== ============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-30
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<CAPTION>
Deficit
Accumulated
Additional Stock Other During the
Common Stock Paid-in Subscription Comprehensive Development
----------------------------
Shares Amount Capital Receivable Income (Loss) Stage
------------ ------------- ------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1986 (inception) 278,692 $ 279 $ (279) $ - $ - $ -
Assessment of existing
shareholders to increase
paid-in capital - - 8,722 - - -
Net loss for the year ended
December 31, 1987 - - - - - (8,722)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1987 278,692 279 8,443 - - (8,722)
Stock issued to an individual
who became an officer and director
for services performed to acquire
rights to Harvard Medical Project
on July 13, 1988 recorded at
predecessor cost of $0.00 per
share 1,188,889 1,189 (1,189) - - -
Stock issued to Spartan
Medical Corporation to
acquire rights to the Harvard
Medical Project on
November 1, 1988 recorded at
predecessor cost of $0.00 per
share 200,000 200 (200) - - -
Net loss for the year ended
December 31, 1988 - - - - - (5,644)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1988 1,667,581 $ 1,668 $ 7,054 $ - $ - $ (14,366)
------------ ------------- ------------- ------------- --------------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-31
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock Other During the
Common Stock Paid-in Subscription Comprehensive Development
----------------------------
Shares Amount Capital Receivable Income (Loss) Stage
------------ ------------- ------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance forward 1,667,581 $ 1,668 $ 7,054 $ - $ - $ (14,366)
Stock issued for services
at an average price of
$0.21 per share 61,667 62 12,638 - - -
Stock issued for cash in
private placements at an
average price of $2.48 98,005 98 242,502 - - -
Stock offering costs offset
against paid-in capital - - (93,687) - - -
Net loss for the year ended
December 31, 1989 - - - - - (134,399)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1989 1,827,253 1,828 168,507 - - (148,765)
Stock issued for services
valued at $0.06 per share 19,301 19 1,140 - - -
Stock issued to an individual
for services valued at
$12.00 per share 1,667 1 19,999 - - -
Stock issued to individuals
for $3.92 per share 11,933 12 46,788 - - -
Net loss for the year ended
December 31, 1990 - - - - - (174,522)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1990 1,860,154 $ 1,860 $ 236,434 $ - $ - $(323,287)
------------ ------------- ------------- ------------- --------------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-32
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock Other During the
Common Stock Paid-in Subscription Comprehensive Development
----------------------------
Shares Amount Capital Receivable Income (Loss) Stage
------------ ------------- ------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance forward 1,860,154 $ 1,860 $ 236,434 $ - $ - $(323,287)
Stock issued to Ballater, Ltd. in
exchange for services recorded
at predecessor cost of $0.00 per
share 100,000 100 (100) - - -
Net loss for the year ended
December 31, 1991 - - - - - (2,457)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1991 1,960,154 1,960 236,334 (325,744)
Debt converted into additional
paid-in capital by
Park Avenue, Inc. - - 45,750 - - -
Debt converted into additional
paid-in capital by
stockholder - - 12,400 - - -
Net loss for the year ended
December 31, 1992 - - - - - (1,981)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1992 1,960,154 1,960 294,484 - - 327,725)
Common stock issued in settlement
of debt at $0.012 per share 1,500,000 1,500 16,252 - - -
Net loss for the year ended
December 31, 1993 - - - - - (15,200)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1993 3,460,154 3,460 310,736 - - (342,925)
Common stock issued for cash
at $0.50 per share 340,000 340 169,660 - - -
Stock issuance costs - - (67,500) - - -
Net loss for the year ended
December 31, 1994 - - - - - (29,190)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1994 3,800,154 $ 3,800 $ 412,896 $ - $ - $(372,115)
------------ ------------- ------------- ------------- --------------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-33
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock Other During the
Common Stock Paid-in Subscription Comprehensive Development
----------------------------
Shares Amount Capital Receivable Income (Loss) Stage
------------ ------------- ------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance forward 3,800,154 $ 3,800 $ 412,896 $ - $ - $(372,115)
Common stock issued to
acquire Tessier Resources Ltd. 3,200,000 3,200 (80,856) - - -
Debt converted into additional
paid-in capital - - 10,417 - - -
Common stock issued in
settlement of debt at $1.70
per share 591,774 592 1,005,425 - - -
Net loss for the year ended
December 31, 1995 - - - - - (1,037,235)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1995 7,591,928 7,592 1,347,882 - - (1,409,350)
Common stock issued in
settlement of debt at $1.70
per share 1,408,126 1,408 2,392,473 - - -
Common stock issued as a
partial conversion of the
convertible debenture at
$0.03 per share 2,300,000 2,300 66,700 - - -
Common stock issued for
cash at $10.00 per share 6,000,000 6,000 59,994,000 (60,000,000) - -
Net loss for the year ended
December 31, 1996 - - - - - (1,590,888)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1996 17,300,054 $ 17,300 $ 63,801,055 $ (60,000,000) $ - $(3,000,238)
------------ ------------- ------------- ------------- --------------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-34
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)(Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock Other During the
Common Stock Paid-in Subscription Comprehensive Development
----------------------------
Shares Amount Capital Receivable Income (Loss) Stage
------------ ------------- ------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 17,300,054 $ 17,300 $ 63,801,055 $ (60,000,000) $ - $(3,000,238)
Common stock issued as a
conversion of the convertible
debenture at $0.03 per share 3,533,333 3,533 102,467 - - -
Common stock issued as a full
exercise of the "A" warrants
associated with the convertible
debenture at $0.03 per share 5,833,333 5,834 169,166 - - -
Common stock issued as a partial
exercise of the "B" warrants
associated with the convertible
debenture at $0.03 per share 1,133,334 1,133 32,867 - - -
Cancellation of stock
subscription receivable (6,000,000) (6,000) (59,994,000) 60,000,000 - -
Common stock issued in
settlement of debt
at $0.22 per share 3,495,000 3,495 765,321 - - -
Net loss for the year ended
December 31, 1997 - - - - - (552,777)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1997 25,295,054 $ 25,295 $ 4,876,876 $ - $ - $(3,553,015)
------------ ------------- ------------- ------------- --------------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-35
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<CAPTION>
Deficit
Accumulated
Additional Stock Other During the
Common Stock Paid-in Subscription Comprehensive Development
----------------------------
Shares Amount Capital Receivable Income (Loss) Stage
------------ ------------- ------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 25,295,054 $ 25,295 $ 4,876,876 $ - $ - $(3,553,015)
Common stock issued as a complete
exercise of the "B" warrants
associated with a convertible
debenture at $0.03 per share 4,700,000 4,700 136,300 - - -
Common stock issued as a
partial exercise of warrants
for cash at $0.25 per share 35,000 35 8,715 - - -
Common stock issued in
settlement of debt at $0.45
per share 1,583,791 1,585 711,121 - - -
Net loss for the year ended
December 31, 1998 - - - - - (2,081,671)
------------ ------------- ------------- ------------- --------------- ---------
Balance, December 31, 1998 31,613,845 31,615 5,733,012 - - (5,634,686)
Gain on marketable securities
(unaudited) - - - - 266,849 -
Currency translation adjustment
(unaudited) - - - - (119) -
Issuance of debenture and warrants
at less than market value (unaudited) - - 400,000 - - -
Common stock issued as a conversion
of a convertible debenture at $0.20
per share (unaudited) 4,282,025 4,282 852,123 - - -
Net loss for the nine months
ended September 30, 1999
(unaudited) - - - - - (1,198,492)
------------ ------------- ------------- ------------- --------------- ---------
Balance, September 30, 1999
(unaudited) 35,895,870 $ 35,897 $ 6,985,135 $ - $ 266,730$(6,833,178)
============ ============= ============= ============= =============== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-36
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
From
Inception on
For the For the January 1,
Nine Months Ended Three Months Ended 1986 Through
September 30, September 30, September 30,
----------------------------------------------------------- -----------------
1999 1998 1999 1998 1999
-------------- ------------ ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) $(1,198,492) $ (681,151) $ (448,482) $ (232,385) $ (6,833,178)
Adjustments to reconcile net (loss) to net
cash used by operating activities:
Common stock issued for services -- -- -- -- 34,259
Debenture and warrants issued at
less than market value 400,000 -- 50,000 -- 400,000
Depreciation and amortization 56,105 176,938 38,147 58,979 446,849
Loss on sale of investments -- -- -- -- 20,390
Net loss on disposition of asset -- -- -- -- 1,400,000
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable and related receivables (5,021) -- (5,021) -- (11,046)
(Increase) decrease in prepaid expenses 1,005 -- 1,005 -- 1,005
Increase (decrease) in accounts
payable and other current liabilities 27,556 (54,675) (17,420) (1,550) (13,179)
----------- ----------- ----------- ----------- -----------
Net Cash Used by Operating Activities (718,847) (558,888) (381,771) (174,956) (4,554,900)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments -- -- -- -- (378,313)
Sale of investments -- -- -- -- 7,110
Purchase of fixed assets -- -- -- -- (249,151)
Disposal of fixed assets -- -- -- -- 3,223
Purchase of license fees (130,000) -- (105,000) -- (1,680,000)
----------- ----------- ----------- ----------- -----------
Net Cash Used by Investing Activities (130,000) -- (105,000) -- (2,297,131)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of convertible debenture -- -- -- -- 175,000
Conversion of debt to equity -- -- -- -- 75,902
Proceeds from notes payable 933,705 616,218 554,247 42,820 6,214,626
Payments on note payable (20,000) -- (20,000) -- (20,000)
Common stock issued for cash -- 8,750 -- 4,375 515,963
Shareholder assessment -- -- -- -- 8,722
----------- ----------- ----------- ----------- -----------
Net Cash Provided by Financing
Activities $ 913,705 $ 624,968 $ 534,247 $ 47,195 $ 6,970,213
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-37
<PAGE>
<TABLE>
VENTURETECH, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<CAPTION>
Inception on
For the For the January 1,
Nine Months Ended Three Months Ended 1986 Through
September 30, September 30, September 30,
----------------------------------------------------------- -------------
1999 1998 1999 1998 1999
-------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH $ 64,858 $ 66,080 $ 47,476 $ (127,761) $ 118,182
CASH AT BEGINNING OF PERIOD 53,324 13,930 70,706 207,771 --
---------- ---------- ---------- ---------- ----------
CASH AT END OF PERIOD $ 118,182 $ 80,010 $ 118,182 $ 80,010 $ 118,182
========== ========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 4,167 $ -- $ 4,167 $ -- $ 4,167
Income taxes $ -- $ -- $ -- $ -- $ --
NON CASH FINANCING ACTIVITIES:
Conversion of debt into additional
paid-in capital $ -- $ -- $ -- $ -- $ 75,902
Common stock issued in settlement of debt $ -- $ -- $ -- $ -- $4,899,171
Conversion of debenture and warrants
to common stock $ 856,405 $ 60,000 $ 856,405 $ -- $1,381,931
Debenture and warrants issued at less
than market value $ 400,000 $ -- $ 50,000 $ -- $ 400,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-38
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of
VentureTech, Inc. and its wholly-owned subsidiaries.
VentureTech, Inc. (VTI) was incorporated on July 19, 1948 under
the laws of the State of Idaho. VTI has had limited activity since
the mid 1950's and is considered a development stage company
because no significant revenues have been realized and planned
principal operations have not yet commenced. The Company is
engaged in the development, acquisition and licensing of certain
computer based technology designed to ultimately offer a full
range of casino style gaming, entertainment, information and
financial transaction services over the world-wide Internet. The
Company intends to establish a series of multi-
cultural/multi-ethnic virtual casinos over the Internet from
authorized locations around the world.
The Subsidiaries:
Cybernet Currency Clearing, Inc. (CCCI) was incorporated on August
23, 1995 under the laws of the State of Nevada as a foreign
corporation to provide encoding protection for secure Internet
transactions. CCCI is considered a development stage company
because no revenues have been realized and planned principal
operations have not yet begun.
Euro Asian E-Casinos, Inc (E-Casinos) was incorporated on April
18, 1996 in accordance with the Associates Law of the Republic of
the Marshall Islands as a foreign corporation to own and operate
full service gaming casinos on the internationally accessible
Internet. E- Casinos is considered a development stage company
because no revenues have been realized and planned principal
operations have not yet begun.
Euro Asian E-Casinos International, Ltd. (E-Casinos Ltd.) was
incorporated in St. John's Antigua, West Indies to own and operate
full service gaming casinos on the internationally accessible
Internet. E-Casinos Ltd. owns the gaming license issued by the
government of Antigua.
VentureTech Holdings Canada, Ltd. (VHC) was incorporated in July
1999 under the laws
of the Province of British Columbia, Canada.
CCCI, E-Casinos, E-Casinos Ltd. and VHC are all wholly-owned by
the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
b. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding during the
period of the financial statements. Fully diluted loss per share
is not presented because of the antidilutive nature of the
operating loss.
The accompanying notes are an integral part of these consolidated
financial statements.
F-39
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Provision for Taxes
At September 30, 1999, the Company has net operating loss
carryforwards of approximately $4,500,000 that may be offset
against future taxable income through 2014. No tax benefit has
been reported in the financial statements, because the Company
believes there is a 50% or greater chance the carryforwards will
expire unused. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same
amount.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
e. Principles of Consolidation
The September 30, 1999 and December 31, 1998 financial statements
are consolidated with CCCI, E-Casinos, E-Casinos, Ltd. and VHC.
All significant intercompany accounts and transactions 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. Depreciation expense for continuing operations for
the nine months ended September 30, 1999 and for the year ended
December 31, 1998 was $26,938 and $35,917, respectively.
Property and equipment consists of the following:
September 30, December 31,
1999 1998
------------------- ---------
(Unaudited)
Office equipment $ 161,339 $ 161,339
Leasehold improvements 36,491 36,491
Accumulated depreciation (129,398) (102,460)
------------------- -----------------
Net Property and Equipment $ 68,432 $ 95,370
=================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
F-40
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF 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. Change in Accounting Principle
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" and Statement of Financial Accounting Standards No. 129
"Disclosures of Information About an Entity's Capital Structure."
SFAS No. 128 provides a different method of calculating earnings
per share than was previously used in accordance with APB Opinion
No. 15, "Earnings Per Share." SFAS No. 128 provides for the
calculation of "Basic" and "Dilutive" earnings per share. Basic
earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar
to fully diluted earnings per share. SFAS No. 129 establishes
standards for disclosing information about an entity's capital
structure. SFAS No. 128 and SFAS No. 129 are effective for
financial statements issued for periods ending after December 15,
1997. In fiscal 1998, the Company adopted SFAS No. 128, which did
not have a material impact on the Company's financial statements.
The implementation of SFAS No. 129 did not have a material effect
on the Company's financial statements.
The Financial Accounting Standards Board has also issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income
be reported in a financial statement that displays with the same
prominence as other financial statements. SFAS No. 131 supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards on the way that
public companies report financial information about operating
segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and
major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance.
F-41
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Change in Accounting Principles (Continued)
SFAS No. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. The implementation
of SFAS No. 130 and 131 did not have a material impact on the
Company.
In February 1998, the Financial Accounting Standards Board
("FASB") has issued Statement of Financial Accounting Standard
("SFAS") No. 132. "Employers' Disclosures about Pensions and other
Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other Postretirement benefits and
requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate
financial analysis. SFAS No. 132 is effective for years beginning
after December 15, 1997 and requires comparative information for
earlier years to be restated, unless such information is not
readily available. The adoption of this statement did not have
material impact on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of this statement had no material
impact on the Company's financial statements.
i. Revenue Recognition Policy
The Company recognizes as revenue the net winnings from gaming
activities, which is the difference between gaming wins and
losses.
Cost of sales includes royalties, payable to Softec, incurred on
Casino activity and bank discount fees incurred by the Company for
the acceptance of credit cards.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 1999, a related party
made advances to the Company totaling $833,705. Through September
30, 1999, interest in the amount of $22,700 was accrued on the
amounts advanced. The amounts advanced with accrued interest were
converted to 4,282,025 shares of common stock, at $0.20 per share,
on September 30, 1999.
In 1998, a related party converted $712,706 of debt into 1,583,791
shares of common stock at $0.45 per share (Note 12).
In 1998, a related party converted $141,000 of the "B" warrants
into 4,700,000 shares of common stock.
F-42
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
In 1997, a related party converted $106,000 of a convertible
debenture, and exercised $175,000 of "A" warrants and $34,000 of
"B" warrants into 10,500,000 shares of common stock (Note 4).
On December 31, 1997, the Company issued 3,495,000 shares of its
common stock in consideration for cash received from a related
party. At the date of issuance, $909,816 was owed and $768,816 was
converted to common stock. At December 31, 1997, an additional
note payable of $141,000 was still owed by the Company. This note
was non-interest bearing and was due upon demand.
On December 31, 1996, the Company issued 159,818 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance $271,691 was owed and converted to common
stock. At December 31, 1996, an additional note payable of
$387,125 was still owed by the Company. This note payable was non-
interest bearing and was due upon demand.
On September 30, 1996, the Company issued 210,050 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance, $357,085 was owed and converted into common
stock.
On July 26, 1996, the Company issued 80,000 shares of its common
stock in consideration of money owed to a related party. At the
date of issuance, $136,000 was owed and converted into common
stock.
On June 30, 1996, the Company issued 419,086 shares of its common
stock in consideration of money owed to a related party. At the
date of the issuance $712,445 was owed and converted to common
stock.
In April, 1996, the Company issued 2,300,000 shares of its common
stock as a partial conversion of the convertible debenture. The
shares were issued at $0.03 per share (Note 4).
On March 31, 1996, the Company issued 539,172 shares of its common
stock in consideration of money owed to a related party. At the
date of issuance $916,660 was owed and converted to common stock
(Note 12).
On December 31, 1995, the Company issued 210,888 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance $358,510 was owed and converted to common
stock (Note 12).
On October 31, 1995, the Company issued 380,886 shares of its
common stock in consideration of money owed to a related party. At
the date of issuance $647,507 was owed and converted to common
stock (Note 12).
F-43
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
The Company has granted 720,000 warrants to officers and directors
of the Company. The warrants were issued at prices ranging from
$0.25 to $5.75 which represented the fair market value of the
stock at the time of grant, and for periods ranging from four to
five years (Note 12).
On May 14, 1994, officers and directors of the Company were issued
stock options to purchase 120,000 shares of the Company's common
stock at $2.50 per share. No compensation expense has been
recorded as the option price exceeded the fair market value of the
shares when the options were issued.
On November 1, 1993, the Company issued 1,500,000 shares of its
common stock in consideration of $17,752 owed to a related party.
NOTE 4 - CONVERTIBLE DEBENTURE - RELATED PARTY
In March of 1994, the Company issued a $175,000 fixed and floating
convertible debenture. The debenture bears interest at 10% per
annum. The debenture is convertible into common stock at a rate of
$0.03 per share. The debenture carries "A" and "B" warrants to
purchase additional shares of the Company's common stock. The
terms of the warrants are also $0.03 per share. In April 1996, the
Company issued 2,300,000 shares of common stock to convert $69,000
of the debenture. At December 31, 1996, the balance payable on the
debenture was $106,000. In 1997, the Company issued 10,500,000
shares of common stock to convert the balance payable on the
debenture of $106,000 as well the exercise of all of the "A"
warrants for $175,000 and 1,133,334 of the "B" warrants for
$34,000 that accompanied the debentures. In 1998, the Company has
issued 4,700,000 shares of common stock to exercise $141,000 of
"B" warrants. No compensation expense was recorded on the issuance
of the warrants because the exercise price exceeded the trading
price at the time of issuance. At September 30, 1999 and December
31, 1998, the balance payable on the debenture was $0.00.
In January 1999, the Company approved one or more convertible
debentures, totaling no more than $1 million in the aggregate. The
debentures were convertible into "restricted" common stock of the
Company at $0.40 per share with one (1) four-year $0.40 warrant
attached. This authorization was canceled in September 1999 in
conjunction with the Company authorizing a separate convertible
debenture for up to $1 million. This debenture offering applies
only to funds received on or before December 1, 1999. This
debenture is convertible at $0.20 per share into "restricted"
common stock of the Company with one (1) five-year $0.20 warrant
attached. Unconverted balances accrue 10% interest per annum on a
quarterly basis and all balances must be converted within two
years of the receipt of the funds by the Company. At September 30,
1999, $856,405 of the $1 million authorized had been converted
into shares of common stock. At September 30, 1999, the balance
payable on the debenture was $0.00 (Note 12).
F-44
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 5 - GOING CONCERN
The Company's 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 September 30, 1999. 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.
NOTE 6 - STOCK TRANSACTIONS
On September 30, 1999, the Company issued 4,282,025 shares of its
common stock as a conversion of a convertible debenture. The
shares were issued at $0.20 per share (Notes 4 and 12).
On December 31, 1998, the Company issued 310,189 shares of common
stock in settlement of debt at $0.45 per share.
On June 30, 1998, the Company issued 1,273,602 shares of common
stock in settlement of debt at $0.45 per share (Note 3).
In 1998, the Company issued 35,000 shares of common stock as an
exercise of warrants at $0.25 per share.
In 1998, the Company issued 4,700,000 shares of common stock as an
exercise of "B" warrants at $0.03 per share (Note 4).
On December 31, 1997, the Company issued 3,495,000 shares of its
common stock in settlement of debt at $0.22 per share (Notes 3 and
12).
During 1997, the Company issued 10,500,000 shares of common stock
as a conversion of a convertible debenture and exercise of
warrants. The shares were issued at $0.03 per share (Note 4).
On December 31, 1996, the Company issued 159,818 shares of its
common stock in settlement of debt at $1.70 per share (Note 3).
On September 30, 1996, the Company issued 210,050 shares of its
common stock in settlement of debt at $1.70 per share (Note 3).
On July 26, 1996, the Company issued 80,000 shares of its common
stock in settlement of debt at $1.70 per share (Note 3).
On June 30, 1996, the Company issued 419,086 shares of its common
stock in settlement of debt at $1.70 per share (Note 3).
On May 6, 1996, the Company issued 6,000,000 shares of its common
stock to an escrow agent who was to hold the shares until the
Company is paid $60,000,000. This $60,000,000 was recorded as a
stock subscription receivable until it was canceled in 1997.
F-45
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 6 - STOCK TRANSACTIONS (Continued)
During April 1996, the Company issued 2,300,000 shares of common
stock as a partial conversion of a convertible debenture. The
shares were issued at $0.03 per share and represented conversion
of $69,000 of the initial $175,000 debenture.
On March 31, 1996, the Company issued 539,172 shares of its common
stock in settlement of debt at $1.70 per share (Note 3).
On December 31, 1995, the Company issued 210,888 shares of its
common stock in settlement of debt at $1.70 per share (Note 3).
On October 31, 1995, the Company issued 380,886 shares of its
common stock in settlement of debt at $1.70 per share (Note 3).
During 1994, the Company issued 340,000 shares of its common stock
for cash, at $0.50 per share. The Company incurred costs of
$67,500 in connection with the stock offering which were offset to
additional paid-in capital.
In November 1993, the Company issued 1,500,000 shares of its
common stock in settlement of debt at $0.012 per share (Note 3).
NOTE 7 - DISCONTINUED OPERATIONS
On March 14, 1996 the Company sold its subsidiary, Tessier
Resources, LTD. (Tessier) to a public shell corporation controlled
by some of the Company's shareholders, Ocean Power (formerly PTC
Group, Inc.). The consolidated financial statements have been
restated to reflect this transaction as discontinued operations.
Tessier had no revenues and no income tax benefit was attributed
to the sale. (Note 8)
NOTE 8 - INVESTMENT
The investment represents a minority interest in Ocean Power from
the sale of Tessier Resources, Ltd., whereby Ocean Power gave the
Company a convertible debenture with a face value of $3,000,000 in
exchange for all of the issued and outstanding stock of Tessier
Resources, Ltd. The debenture will mature in four (4) years and
does not carry any interest. The debenture is convertible at any
time before repayment into an aggregate of 2,000,000 shares of
authorized but previously unissued shares of Ocean Power commons
stock at a conversion price of $1.50 per share. The investment is
being carried at its fair market value in accordance with SFAS No.
115 "Accounting for Certain Investments in Debt and Equity
Securities." As the investment is considered "available for sale,"
gains and losses on the investment are recognized as components of
comprehensive income in accordance with SFAS No. 130, "Reporting
Comprehensive Income." At September 30, 1999, the Company has
converted all of the debenture into 2,000,000 shares of Ocean
Power common stock and has deposited those shares with a brokerage
house. In August 1999, Ocean Power effected a 1-for-10 reverse
stock split. At September 30 1999, the 200,000 shares of Ocean
Power common stock held by the Company carried an aggregate fair
market value of $424,961, or $2.148 per share.
F-46
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 9 - LICENSE FEES
The fees are amounts paid for software licenses and the rights to
use the software related to the Company's conduct of its Internet
related gaming.
September 30, December 31,
1999 1998
---- ----
Softec Systems Caribbean, Inc. $ 100,000 $ --
Annual fee for gaming license -
Government of Antigua 100,000 --
CasinoWorld Holdings, Ltd. (CasinoWorld) -- 2,000,000
Accumulated amortization (29,167) (2,000,000)
---------- ----------
$ 170,833 $ --
========== ==========
In August of 1998, Casino World Holdings, Ltd. (CWH) ceased to
supply necessary services related to its license and operating
agreements with the Company. The Company has subsequently
questioned CWH's ability to provide an online interactive gaming
system and support services as originally outlined in the
aforementioned agreements. Consequently, the Company, in its best
judgment, has elected to write-off the unamortized portion of its
paid investment in the license agreement a well as the remaining
unpaid balance of $700,000. The Company has subsequently entered
into a similar licensing agreement with another third party to
provide its required gaming software and transaction processing.
As practicable, the Company may seek to reclaim a portion or all
of its investment in CWH through appropriate legal action.
Notwithstanding the above, the Company has set a reserve of
$100,000 to cover possible future legal action on this matter.
The Company, through its subsidiary, E-Casinos Ltd., has entered
into an agreement with Softec Systems Caribbean, Inc. which will
provide software and operating services relating to Internet
gaming. Under the terms of the agreement, E-Casinos Ltd. is
required to pay a non-refundable one-time license fee of $100,000.
Payment of this fee must be made in accordance with the following
schedule:
o $25,000 upon signing the agreement.
o $5,000 thirty-days from the acceptance of the first wager
using the licensed software, and
o $10,000 per month, for seven consecutive months, with the
first payment being made 60-days from the acceptance of the
first wager using the licensed software.
The license fee will be amortized over a 2-year period. The
Company began amortizing the license fee in July 1999.
Amortization of the license fee for the nine months ended
September 30, 1999 was $12,500. The Company currently owes Softec
$70,000 for the license fee under the terms of the agreement.
F-47
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 9 - LICENSE FEES (Continued)
Through its subsidiary, E-Casinos Ltd., the Company paid an
annual non-refundable fee of $100,000 to the government of
Antigua for a gaming license. As the gaming license was granted
on July 22, 1999, it will be amortized over a one-year period
beginning August 1, 1999 Softec. Amortization of the gaming
license for the nine months ended September 30, 1999 was $16,667.
Funds to pay for the gaming license were advanced to the Company
by Softec (Note 10).
NOTE 10 - NOTES PAYABLE
In conjunction with the startup of E-Casinos Ltd., the Company
was required to pay a yearly non-refundable fee of $100,000 to
the government of Antigua for a gaming license. The funds for the
gaming license were advanced to the Company by Softec. Under the
terms of the note, the Company is obligated to repay Softec in
twelve monthly installments of $10,000. Through September 30,
1999, the Company had made payments totaling $20,000 on the note.
As of September 30, 1999, the remaining balance outstanding on
the note was $100,000.
NOTE 11 - 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., a
wholly-owned subsidiary of Starnet Communications International,
Inc., to provide online-gaming software and hardware services.
The license agreement calls for a commitment by the company to
spend a certain portion of the net revenues generated by its
Internet casino for ongoing promotion and marketing. The license
agreement also calls for a certain percentage of revenue sharing
of net revenues based on a specific formula agreed to by the
Company and licensor. The minimum monthly payment from the
Company to the licensor related to such sharing of net revenues
is $25,000 beginning 180-days from the date the first wager is
accepted using the licensed software. As the license agreement
may be terminated by the Company at the end of any one-year term
or by the licensor at the end of any one-year term subsequent to
the first year of the agreement, the License Agreement will be
amortized over a two-year period.
CasinoWorld Holdings
--------------------
The Company has written off the Licensing Agreement with
CasinoWorld Holdings (CWH), and is refusing to pay the balance of
$700,000 due to them per the terms of the original agreement
because of non-performance by CWH. Management believes that it
would, more likely than not, prevail in any litigation with CWH.
F-48
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
Consultants
The Company currently pays a shareholder $12,000 a month for
services provided by the shareholder to the Company.
NOTE 12 - DILUTIVE INSTRUMENTS
In August 1999, the Company granted 360,000 warrants to a certain
officer of the Company at $0.28 per share. No compensation
expense was recorded at the time of issuance as the exercise
price was equal to the trading price at the time of issuance. The
warrants become exercisable over a two-year period with 45,000
warrants vesting at the end of each quarter over the two-year
period provided the individual continues his employment with the
Company.
In June 1999, the Company granted 595,000 warrants to certain
individuals, consultants, Directors and Officers of the Company.
These warrants were granted for services or beneficial
contributions to the Company and/or for the expectation of future
contributions to the success of the Company. The warrants were
issued to 15 individuals. Of the 595,000 warrants, 545,000 are
exercisable at $0.47 per share and 50,000 are exercisable at
$0.61 per share. No compensation expense was recorded on the
issuance of warrants because the exercise price was either equal
to or exceeded the trading price at the time of issue. All
warrants expire June 30, 2002.
In January 1999, the Company approved one or more convertible
debentures, totaling no more than $1 million in the aggregate.
The debentures were convertible into "restricted" common stock of
the Company at $0.40 per share with one (1) four-year $0.40
warrant attached. This authorization was canceled in September
1999 in conjunction with the Company authorizing a separate
convertible debenture for up to $1 million. This debenture
offering applies only to funds received on or before December 1,
1999. This debenture is convertible at $0.20 per share into
"restricted" common stock of the Company with one (1) five-year
$0.20 warrant attached. Unconverted balances accrue 10% interest
per annum on a quarterly basis and all balances must be converted
within two years of the receipt of funds by the Company. On
September 30, 1999, the Company converted $856,405, which
included advances and accrued interest of $833,705 and $22,700,
respectively, into 4,282,025 shares of common stock (Notes 3 and
4).
In April 1998, the Company approved a private placement for
1,111,111 shares of its common stock with accompanying 1,111,111
warrants at $0.45 per share and warrants. All of the 1,111,111
shares and 472,680 shares from the exercise of warrants have been
issued.
In 1998, the Company converted warrants for 35,000 shares of its
common stock at $0.25 per share.
F-49
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 12 - DILUTIVE INSTRUMENTS (Continued)
In December 1997, the Company granted 830,000 warrants to
officers and shareholders of which 710,000 are exercisable at
$0.25 per share and 120,000 are exercisable at $0.50 per share.
No compensation expense was recorded on the issuance of warrants
because the exercise price exceeded the trading price at the time
of issuance. Additionally, the Company has reserved 100,000
warrants for future issuance. All warrants expire December 29,
2001.
In December 1997, the Company approved a private placement for
3,500,000 shares at $0.22 per share. All but 5,000 shares were
issued pursuant to this private placement at December 31, 1997.
In March 1996, the Company authorized 1,000,000 stock options for
possible future allocation to an individual and his associates
for their services in raising funds and completing projects for
the Company. Issuance of these stock options are at the
discretion of the Company's Board of Directors. The options are
exercisable at $6.00 per share which represented the fair market
value of the stock at the time of grant, with no time limit
associated with the allocation. These stock options were canceled
by the Company on July 23, 1999.
In June 1995 the Company initiated a private placement for
1,000,000 shares of its common stock with accompanying 1,000,000
warrants at $1.70 per share and warrant. Of the 2,000,000 shares
which have been issued pursuant to this private placement,
591,774 shares were issued in 1995, while 1,408,126 shares were
issued in 1996.
Over the period of May 1994 through November 1995, the Company
granted 1,532,000 warrants to certain individuals, consultants,
Directors and Officers of the Company. These warrants were
granted for services or beneficial contributions provided to the
Company and/or for the expectation of future contributions to the
success of the Company. The warrants were issued to thirty
individuals or organizations at exercise prices ranging from
$2.50 to $5.75, which represented the fair market value of the
stock at the time of grant, and for periods ranging from four to
five years. The warrants will be issued to these individuals or
organizations pursuant to a warrant agreement with the Company.
The Company intends to register the shares underlying these
warrants at a time deemed suitable by management. The warrants
are conditional upon the Company achieving a listing with the
NASDAQ stock exchange. Of the 1,532,000 warrants granted, 637,000
expired on May 31, 1999 and 135,000 were canceled by mutual
consent of the Company and one of its officers on September 30,
1999. The remaining 760,000 expire between October 1999 and May
2000.
F-50
<PAGE>
VENTURETECH, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 12 - DILUTIVE INSTRUMENTS (Continued)
The following is a schedule of outstanding warrants as of September 30, 1999:
EXPIRATION EXERCISE WARRANTS WARRANTS
DATE OF ISSUE DATE PRICE ISSUED OUTSTANDING
- - - - - - - - - - - - ------------- --------------- ----- ------ -----------
May 18, 1994 May 18, 2000 $ 2.50 120,000 120,000
May 31, 1995 October 31, 1999 2.50 20,000 20,000
October 31, 1995 October 31, 1999 5.75 150,000 150,000
November 6, 1995 November 6, 1999 5.75 470,000 470,000
December 29, 1997 December 29, 2001 0.25 710,000 675,000
December 29, 1997 December 29,2001 0.50 120,000 120,000
September 1, 1999 September 1, 2004 0.20 5,000,000 5,000,000
June 3, 1999 June 3, 2002 0.61 50,000 50,000
June 30, 1999 June 30, 2002 0.47 545,000 545,000
August 31, 1999 -- 0.28 360,000 360,000
--------- ---------
7,545,000 7,510 ,000
========= =========
F-51
<PAGE>
PART III
Item 1. Index to Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
3.1 Articles of Incorporation and Amendments
3.2 By-Laws of Registrant
4. See Exhibit No. 3.1, Articles of Incorporation
Article V and amendments thereto
21.1 Subsidiaries
10.1 Software License Agreement
27. Financial Data Schedule
2. Description of Exhibits
See Item I above.
S - 1
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of
1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly organized.
Venture Tech, INC.
(Registrant)
Date: February 9, 2000 By:/s/ KENNETH F. FITZPATRICK
----------------------------
Kenneth F. Fitzpatrick
President, C.E.O.
S - 2
State of Idaho
[GRAPHIC OMITTED]
Department of State
CERTIFICATE OF INCORPORATION
I, J. D. (CY) PRICE, Secretary of State of the State of Idaho, and legal
custodian of the corporation records of the State of Idaho, do hereby certify
that the original of the articles of incorporation of
Giant Ledge Mining Company
was filed in the ofce of the Secretary of State on the nineteent, ___________day
of July___________ A.D. One Thousand Nine Hundred______________Forty-eight and
duly recorded on Film No. 15 of Record of Domestic Corporations, of the State of
Idaho, and that the said articles contain the statement of facts required by
Section 29-103, Idaho Code, Annotated.
I FURTHER CERTIFY, That the persons executing the articles and their
associates and successors are hereby constituted a corporation, by the name
hereinbefore stated, for perpetual existence from the date hereof, with its
registered office in this State located at
Wallace in the County of Shosliona
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed the Great Seal of the State. Done
at Boise City, the Capital of Idaho. this
nineteenth day of July , in the year of our
Lord one thousand nine hundred rorty-eight ,
and of the Independence of the United States
of America the One Hundred Seventy-third.
1
<PAGE>
ARTICLES OF INCORPORATION
of
GIANT LEDGE MINING COMPANY
KNOW ALL MEN BY THESE PRESENTS. That we, the undersigned
citizens of the United States of America, each over the age of twenty-one years,
do hereby voluntarily associate ourselves together for the purpose of forming a
domestic corporation under and by virtue of the laws of the State of Idaho, and
we do hereby make, signn, acknowledge, and file these Articles of lacorrorat,ion
as follows:
ARTICLE 1.
----------
The name of this Corporation is end shall be Giant Ledge Mining Company.
ARTICLE 11.
-----------
The objects and purposes for which this Corporation is formed are as
principals, agents or otherwise, to do in any part of the world any and every of
the things herein set forth or permitted by law to the same extent as natural
persons might and could do. In furtherance and not in limitation of the general
powers conferred by the laws of the State of Idaho, we do expressly provide that
the Corporation shall have power:
(a) To purcuase, sell, option, own, locate, lease, or other- wise,
acquire, mortage and dispose of lends, mines, mtining claims, and mineral
rights; to own, handle and control letters patent and inventions; and to own,
enter, apply for patents for mines and mining millsites, mills, water-rights,
tunnels and rights of way; to work, prospect, explore, exploit, and develop
mines and mineral lands of every kind and nature and wherever the same may be
situated, and to carry on the business of mining, milling; and producing zinc,
lead, gold, silver and any and all other metals and minerals of every kind and
character and to sell and dispose of the same and by-products thereof, and to do
everything that may be necessary or proper in the conduct of the business of
working such mines and mineral lands and the production of ores and metals
therefrom; and to buy, sell, contract for, own, erect, and operate all mills,
smelting and other ore reduction works, sawmills, machinery, roads, tramways,
ditches, flumes, water-rights, power plants of any and all kinds whatsoever, and
to develop and use electricity for power and lighting purposes and to file upon
water-rights for any and all purposes.
(b) To take, hold, lease, mortgage, own, purchase, or acquire by
operation of the law or otherwise, real property or any interest therein or
appurtenant thereto, including storerooms, sawmills, store buildings, and any
part thereof, or any interest therein, or to sell, lease, exchange, mortgage or
hypothecate real estate or any interest therein and to engagein any and all
undertakings and business necessary and proper to the improvement and betterment
of any of the land or real property or interest, therein, owned or otherwise
acquired, or to be owned or otherwise acquired by said corporation, or in any
other lands in which the said corporation may have any interest, and to handle
and deal in any land, interest in land, or other property or interest therein,
of said corporation in any manner it may desire.
2
<PAGE>
(c) To enter into, make, perform and carry out any and all contracts or,
aggreements of every kind, amount and character with any person, firm,
association, corportion, Federal or State government, or any political
subdivisior, or corporation or agency thereof.
(d) To purchase, own, sell, convey, mortgage, pledge, exchange, acquire
by operation of law or otherwise, personal property of every land and character,
debts, dues and demands or causes of action, and each and every land of personal
property, evidences of debts, bonds, stocks of this and other corporations, both
public and private, which the Corporation may deem necessary and convenient for
its business or otherwise.
(e) To borrow and lend money front and to any person, firm, corporation,
association, or Federal or State government or any political subdivision, or
corporation or agency thereof, and to make, take and execute notes, mortgages,
bonds, deeds of trust, or other evidence of indebtedness to secure payment
thereof, or by any other lawful manner or means, and to take and receive notes,
bonds, r..ortr-a,yes, deeds of trust, or any evidence of indebtedness for the
use and benefit of said Corporation, or otherwise.
(f) To own, hold, lease, or sublet, or to conduct on its own account, or
for any person, firm, association, corporation, or Federal or State government
or and political subdivision, or corporation or agency thereof, all and every
kind of merchandise, business or property necescary or proper to carry on an
account of the business of said Corporation.
(g) To build any and all necessary shops, buildings, storerooms, store
rooms, boarding houses, sleeping quarters, sawmills and structures at and place
proper or convenient to carry on any or all of the business of said Corporations
3
<PAGE>
(h) To do and perform every act and thing necessary to carry out the
above enumerated purposes, or calculated directly or indirectly to the
advancements of the interest of the Corporation, or to the enhancement of the
value of its stock, holdings, and property of any kind or character.
ARTICLE III.
-----------
The corporate existence of this Corporation shall be perpetual.
ARTICLE IV.
----------
The location and post office address of the Corporation's registered
office in this State shall be Wallace, Idaho.
ARTICLE V.
----------
The total authorized number of par value shares is 3,000,000 having an
aggregate par value of $300,000.00. All said stock shall be assessable, as
provided by the laws of the State of Idaho.
ARTICLE VI.
----------
The corporate powers of this Corporation shall be vested in a Board of
Directors which shall consist of at least three and not more than nine
Directors, as may be determined from time to tittle by the Bar-Laws.
ARTICLE VII.
-------------
Names, Post Office Address and Number of Shares subscribed by each of
the incorporators are as follows:
4
<PAGE>
Name Address No. of Shares
---- ------- -------------
Piatt H. Hull Wallace, Idaho One share
H. J. Hull Wallace, Idaho One share
H.C. Banks Murray, Idaho One share
ARTICLE VIII.
------------
In addition to the poorer conferred upon the shareholders by law to
make, amend or repeal the By-Laws, the Directors shall have the power to repeal
and amend the By-Laws and adopt near ByLaws, but such powers may be exercised
only by a majority of the whole Board of Directors.
ARTICLE IX.
-----------
A Director or officer of the Corporation shall not, in the absence of
actual fraud, be disqualified by his office from dealing or contracting with the
Corporation, either as vendor, purchaser or otherwise; and, in the absence of
actual fraud, no transaction or contract of the Corporation shall be void or
voidable by reason of the fact that any Director or officer or any firm of which
any Director or officer is a member or any other corporation of which any
Director or officer is a shareholder, officer or Director, is in any, way
interested in such transaction or contract; provided such transaction or
contract is or shall be authorized, ratified or approved either (1) by a vote of
the majority of a quorum of the Board of Directors or of the Executive
Committee, if any, counting in for the purpose of determinining the existence of
such majority or quorum any Director when present who is so interested or who is
a member of a firm so interested or who is a shareholder, officer or Director of
a corporation so interested; or (2) at a stockholders' meeting by a vote of the
majority of the shares of stock of the Corporation represented at such
meetinegs, and then entitled to vote, or (3) by writing in writins signed by a
majority of the outstanding shares of stock of the Corporation then entitled to
vote or by writein or writings signed by a majority of such holders, which shall
have the same force and effect as though such authorization, ratification or
approval were made by all the stockholders; and no Director or officer shall be
liable to account to the Corporation for any profits realized by him from or
through any such transaction or contract of the Corporation authorized, ratified
or approved as aforesaid, by reason of the fact that he or another firm of which
he is a member or any corporation of which he is a shareholder, officer or
director was interested in such transaction. Nothing in this paragraph contained
shall create any liability in the events above mentioned, or prevent the
authorization, ratification or approval of such contracts or transactions in any
offer ,manner permitted by law, or invalidate or make voidable any contract or
transaction which would be valid without reference to the provisions of this
papagraph in accordance, We have hereunto set our hands in triplicate this day
of July, 1998.
5
<PAGE>
[Graphic ommitted]
STATE OF IDAHO )
) ss
County of Sacshone )
Or: this 17th day of July, 1948, before me, the undersigned, a Notary
Public for the State of Idaho, personally appeared Piatt H. Hull, H. J. Hull and
H. C. Banks, known to me to be the persons whose names are subscribed to the
foregoing instrument and acknowledged to me that they executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial Seal the
day and year in this certificate first above written.
illegible signature
-------------------------------------
Notary Public for the State of Idaho,
residing at Wallace, Idaho
6
<PAGE>
[GRAPHIC OMITTED]
STATE OF IDAHO )
)
County of Shoshone )
PIATT H. HULL, being first duly sworn, deposes and says:
The Giant Ledge Mining Company is being organized for the purpose of
taking over a non-productive mining property and trill for some time hence
continue to be non-productive.
That this affidavit is made for the purpose of so informing the
Secretary of State until such time as the corporation shall be organized and
shall file an annual statement to the effect that it is non-productive.
Further deponent sayeth not.
Dated this 4th day of August, 1948.
illegible signature
-------------------------------
Subscribed and sworn to before me this 4th day of August,
1948.
illegible signature
-------------------------------
Notary Public for the State of Idaho,
residing at Wallace, Idaho.
7
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
GIANT LEDGE MINING COMPANY
Pursuant to theprovisions of the Idaho Code, the following amendments to the
Articles of Incorporation of Giant Ledge Mining Company, were adopted by the
shareholders of the Corporation on September 30, 1987, in the manner prescribed
by the Idaho Code:
FIRST: Article I of the Articles of Incorporation is
hereby amended to read as follows:.
ARTICLE I
Name: The name of this Corporation shall be Double Eagle
Mining Corporation.
SECOND: Article II of the Articles of Incorporation is hereby amended by adding
an additional clause to Article II at the end thereof, designated as "(i)" which
shall read as follows:
"(i)" The purposes of the Company include the transaction of any and all
lawful business for which corporations may be organized under the Idaho Business
Corporation Act.
THIRD: Article V of the Articles of Incorporation is
hereby amended to read as follows:
ARTICLE V
The authorized Capital Stock of this corporation shall be 100,000,000 shares of
Common Stock, having a par value of $.001 per share, all of which shares shall
be nonassessab, and in connection therewith, converting each issued and
outstanding share of the capital stock of the Company into .5 shares of Common
Stock, having a par value of $.001 per share. The par value is decreased from
$.10 to $.001 per share, and the authorized shares is increased from 3,000,000
to 100,000,000 shares, thereby effecting the stated capital by decreasing
capitalization from $300,000.00 to $100,000.00.
8
<PAGE>
FOURTH: That a new Article be added to the Articles of Incorporation of
the Corporation, to be designated Article X, which Article shall read as
follows:
ARTICLE X
Pre-Emptive Rights. The stockholders of this Corporation shall have no
pre- emptive rights to acquire unissued or treasury shares or securities
convertible into such shares or carrying a right to subscribe to or acquire
shares of stock of this Corporation.
FIFTH: That a new Article be added to the Articles of Incorporation and
be designated Article XI, which Article shall read as follows:
ARTICLE XI
Cumulative Voting. The stockholders of this Corporation shall not ave the
right, as otherwise provided by Section 30-1-33 of the Idaho Code, to cumulate
their votes at elections for directors.
The number of shares of the Corporation outstanding at the time of said
adoption of the above amendments was 667,800., and the number of shares entitled
to vote thereon was 667,800.
The number of shares voted for such amendments, and each of them in person
and by Proxy, was 576,450., and the number of shares voting against such
amendments was 0.
The effective date hereof shall be the date of said shareholders'
meeting, September 30, 1987.
/s/ (illegible)
-------------------------
PRESIDENT
/s/ Melissa Scheffelmaier
-------------------------
SECRETARY
9
<PAGE>
ACKNOWLEDGEMENT
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
The undersigned, President and Secretary respectively of Giant Ledge Mining
Company, a Corporation organized and existing under the laws of the State of
Idaho, do hereby certify that at a special meeting of shareholders of said
Corporation, properly called on September 30, 1987, the foregoing amendments to
the Articles of Incorporation of said Corporation were adopted and authorized by
more than Fifty Percent (50%) of the outstanding and issued shares of said
Corporation, which shares were properly represented at said meeting; that said
meeting was held pursuant to a resolution of the Board of Directors of the
Corporation setting forth the Amendments and directing that they be submitted to
a vote at a special meeting of shareholders; that written notice of said special
meeting, which notice set forth the proposed amendments, was given to each
shareholder of record entitled to vote thereon more that ten (10) days prior to
the holding of said meeting by first-class mail; the undersigned further certify
that the foregoing amendments to the Articles of Incorporation of said
Corporation correctly set forth the amendments adopted by the shareholders and
correctly states the date of adoption thereof, the number of shares outstanding,
the number of shares voting for and against such amendments.
Dated this 30th day of September, 1987.
/s/ illegible
-------------------------
PRESIDENT
/s/ Melissa Scheffelmaier
-------------------------
Subscribed and sworn to before me, this 30th day of September, 1987.
/s/ Gail M. Elliott
-------------------------
NOTARY PUBLIC
Residing at: Mullen
My Commission Expires:
9/3//91
10
<PAGE>
ACKNOWLEDGEMENT
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
The undersigned, President and Secretary respectively of Double
Eagle Mining Company, a Corporation organized and existing under the
laws of the state of Idaho, do hereby certify that at a Special
Meeting of Shareholders of said Corporation, properly called on
September 30,1987, the foregoing its to the Articles of
Incorporation of said Corporation were adopted and authorized by
more than Fifty Percent of the outstanding and issued shares of said
Corporation, which shares were properly represented at said meeting;
that said meeting was held pursuant to a resolution of the Board of
Directors of the Corporation setting forth the Amendments and
directing that they be submitted to a vote at a Special Meeting of
Shareholders; that written notice of said special meeting, which
notice set forth the proposed amendments, was given to each
shareholder of record entitled to vote thereon more than ten (10)
days prior to the holding of said meeting by first-class mail; the
undersigned further certify that the foregoing its to the Articles
of Incorporation of said Corporation correctly set forth the
amendments adopted by the shareholders and correctly states the date
of adoption thereof, the number of shares outstanding, the number of
shares voting for and against such amendments.
DATED this 30th day of September, 1987.
/s/ H. Derwood Williams
-----------------------
PRESIDENT
/s/ Tina Pulley
-----------------------
SECRETARY
Subscribed and sworn to before me this 30th day of September, 1987.
Residing: David County, Utah
My Commission Expires: 9-13-88
/s/ Jeanette Lawrence
NOTARY PUBLIC
11
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
SPARTAN FUNDING COMPANY
Pursuant to the provisions of the Idaho Code, the following amendment
to the Articles of Incorporation of Spartan Funding Company, Inc., an Idaho
corporation (the "Corporation"), was adopted by the shareholders of the
Corporation on April 14, 1995, in the manner prescribed by the Idaho Code.
FIRST: Article I of the Articles of Incorporaticn is hereby amended to
read as follows:
ARTICLE I
The name of this Corporation shall be VENTURE TECH, INC." The number
of shares of the Corporation outstanding at the time of adoption of the above
amendments was 3,800,154, and the number of shares entitled to vote thereon was
3,800,154. As to the amendment set forth above, the number of shares consenting
and voting For such amendment was 2,118,108, the number of shares voting Against
such amendment was -0-, and the number of shares abstaining was 1,667.
DATED this 18th day of April, 1995.
/s/ Barry Worshoufsky
---------------------
Barry Worshoufsky
President
/s/Mike Cartmel
-------------
Mike Cartmel
Secretary
SUBSCRIBED AND SWORN to before me this 21st day of April 1995.
/s/ Rosemarie De Mastri
------------------------
NOTARY PUBLIC
Residing at: 47 Broadway
Greenlawn, NY 11740
My Commission Expires:
Rosemarie De Mastri
Notary Public, State of new York
No. 4658478
qualified in Suffolk county
Term Expires 11/27/95
12
<PAGE>
STATE OF N Y )
:ss
COUNTY OF Suffolk )
THE UNDERSIGNED, the President and Secretary respectively of Spartan
Funding Company, a corporation organized and existing under the laws of the
State of Idaho, do hereby certify that at a Special Meeting of Shareholders of
said Corporation properly called on April 14, 1995, the foregoing Amendment to
the Articles of Incorporation for said Corporation was duly adopted and
authorized by more than fifty percent (50$) of the issued and outstanding shares
of said Corporation, which shares were properly represented and voted at' said
Meeting. Also that said Meeting was held pursuant to a resolution of the Board
of Directors setting forth the amendment and directing that it be submitted to a
vote at the Meeting, and that written notice of said Special Meeting getting
forth the proposed amendment was given by first class mail to each shareholder
of record entitled to vote thereon at least ten (10) days prior to the holding
of the Meeting. The Undersigned further certify that the foregoing Amendment
correctly sets forth the amendments adopted by the shareholders and 'correctly
states the date of adoption thereof, the number of shares outstanding, the
number of shares voted for and the number of shares voted against each such
amendment.
/s/Harry Worshoufsky
---------------------
HARRY WORSHOUFSRY, President
/s/ Mike Cartmel
----------------
MIKE CARTMEL, Secretary
SUBSCRIBED AND SWORN to before me this 11th day of May 1995.
/s/ Kent R. Nicolson
---------------------
My Commission Expires:
As to the signature of Mike Cartmel
My commission is an appointment for life.
A specimen of my signature is on file at the Ken R. Nicolson
U.S. Consulate, Vancouver, B.C. Canada. Notary Public
Suite 2 - 650 Clyde Avenue
West Vancouver, B.C. V7T 182
13
EXHIBIT 3.2
BY-LAWS
<PAGE>
By-Laws
of
Venture Tech, Inc.
ARTICLE I - OFFICES
-------------------
The principal office of the corporation shall be 62 West 400 South; Salt
Lake City, Utah 84101. The corporation shall have such other offices, either
within or without the state of incorporation, as the Board of Directors may
designate or as the business of the corporation may from time to time require.
ARTICLE II - STOCKHOLDERS
-------------------------
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on the first
Wednesday of each June, at the hour of two o'clock p.m., for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday, such meeting shall be held on the next succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the president or by the
directors, and shall be called by the president at the request of the holders of
not less than ten percent of all the outstanding shares of the corporation
entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the
State of Idaho unless otherwise prescribed by statute, as the place of meeting
for any annual meeting or for any special meeting called by the directors. A
waiver of notice signed by all stockholders entitled to vote at a meeting may
designate any place, either within or without the State unless otherwise
prescribed by statute, as the place for holding such meeting. If no designation
is made, or if a special meeting be otherwise called, the place of meeting shall
be the principal office of the company.
4. 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
1
<PAGE>
is called, shall be delivered not less than ten (10) nor more than fifty (50)
days before the date of the meeting, either personally or by mail, by or at the
direction of the president, or the secretary, or the officer or persons calling
the meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the stockholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
5. WAIVER OF NOTICE.
Any stockholder may waive notice of any meeting of stockholders (however
called or noticed, whether or not called or noticed and whether before, during
or after the meeting) by signing a written waiver of notice or a consent to the
holding of such meeting, or an approval of the minutes thereof. Attendance at a
meeting, in person or by proxy, shall constitute waiver of all defects of call
or notice regardless of whether waiver, consent or approval is signed or any
objections are made. All such waivers, consents, or approvals shall be made part
of the minutes of the meeting.
6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to
vote at a meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper :purpose, the directors of the corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, fifty (50) days. If the stock transfer books
shall be closed for the purpose of determining stockholders entitled to notice
of or to vote at a meeting of stockholders, such books shall be closed for at
least ten (10) days immediately preceding such meeting. In lieu of closing the
stock transfer books, the directors may fix in advance a date as the record date
for any such determination of stockholders. When a determination of stockholders
entitled to vote at any meeting of stockholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
7. VOTING LISTS.
The office or agent having charge of the stock transfer books for shares
of the corporation shall make, at least ten days before such meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten (10) days prior to such meeting, shall be kept on file at the principal
office of the corporation and shall be subject to inspection of any stockholder
during the whole time of the meeting. The original stock transfer book shall be
prima facie evidence as to who are the stockholders entitled to examine such
list of transfer books or to vote at the meeting of stockholders.
2
<PAGE>
8. QUORUM.
At any meeting of stockholders a majority of the outstanding shares of
the corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at such meeting. If less than said number of the outstanding
shares are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
9. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the secretary of the corporation before or
at the time of the meeting.
10. VOTING.
Each stockholder entitled to vote in accordance with the terms and
provisions of the Articles of Incorporation and these By-laws shall be_ entitled
to one vote, in person or by proxy, for each share of stock entitled to vote
held by such stockholders. Upon the demand of any stockholder, the vote for
directors and upon any question before the meeting shall be by ballot. All
elections for directors shall lie decided by majority vote except as otherwise
provided by the Articles of Incorporation or the laws of the State of Idaho.
11. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders shall be as
follows:
a. Roll call
b. Proof of notice of meeting or waiver of notice
c. Reading of minutes of preceding meeting
d. Reports of officers
e. Reports of committees
f. Election of directors
g. Unfinished business
h. New business
12. INFORMAL ACTION BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be taken at a
meeting of the stockholders, or any other action which may be taken at a meeting
of the stockholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the stockholders
entitled to vote with respect to the subject matter thereof.
3
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
1. GENERAL POWERS.
The business and affairs of the.corporation shall be managed by its
Board of Directors. The directors shall in all cases act as a board, and they
may adopt such rules and regulations for the conduct of their meetings and the
management of the corporation, as they may deem proper, not inconsistent with
these By-laws and the laws of the State of Idaho.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall be not more than nine
(9) or less than three (3). Each director shall hold office until the next
annual meeting of the stockholders and until his successor shall have been
elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors shall be held without other notice
than this By-law immediately after, and at the same place as, the annual meeting
of stockholders. The directors may provide, by resolution, the time and place
for holding of additional regular meetings without other notice than such
resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of
the president or any two directors. The person or persons authorized to call
special meetings of the directors may fix the place for holding any special
meeting of the directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least five (5) days
previously thereto by written notice delivered personally, or by telegram or
mailed to each director at his business address. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice shall
be deemed to be delivered when the telegram is delivered to the telegraph
company. The attendance of a director at a meeting shall constitute a meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened.
6. QUORUM.
At any meeting of the directors, a majority shall constitute a quorum
for the transaction of business, but if less than said number is present at a
meeting, a majority of the directors present may adjourn the meeting from time
ti time without further notice.
4
<PAGE>
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause, may be filled by a vote of the majority of the
directors then in office, although less than a quorum exists. Vacancies
occurring by reason of removal of directors without cause shall be filled by
vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death, or removal shall be elected to hold office for the unexpired
term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
stockholders or by action of the board. Directors may be removed without cause
only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the board,
the president, or the secretary of the corporation. Unless otherwise specified
in the notice, the resignation shall take effect upon receipt thereof by the
board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board, a fixed sum and expenses for actual attendance
at each regular or special meeting of the board may be authorized. Nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the
directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
5
<PAGE>
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an
executive,committee and other committees, each consisting of two (2) or more
directors. Each such committee shall serve at the pleasure of the board.
14. ACTION WITHOUT A MEETING.
Any action that may be taken by the Board of Directors at a meeting may
be taken without a meeting if a consent in writing, setting forth ..the action
so to be taken, shall be signed before such action by all of the directors.
ARTICLE IV - OFFICERS
---------------------
1. NUMBER.
The officers of the corporation shall be a president, a vicepresident, 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.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the stockholders. Each officer shall hold office until a successor
shall have been duly elected and qualified, or until said officer's death,
resignation, or removal in the manner hereinafter provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be
removed by the directors whenever in their judgment the best interest 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.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.
5. PRESIDENT.
The president shall be the principal executiveofficer of the
corporation, and subject to the control of the directors, shall, in general,
supervise and control all of the business and affairs of the corporation. He
shall, when present, preside at all meetings of the stockholders and of
6
<PAGE>
the directors. He may sign, with the secretary or any othe proper officer of the
corporation thereunto authorized by the directors, certificates for shares of
the corporation, 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.
6. VICE PRESIDENT.
In the absence of the president or in event of the president's death,
inability or refusal to act, the vice-president. shall perform the duties of the
president, and when so acting, shall have all powers of and be subject to all
the restrictions upon the president. The vicepresident shall perform such other
duties as from time to time may be assigned by the president or by the
directors.
7. SECRETARY.
The secretary,shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, so that all
notices are duly given in accordance with the provisions of these By-laws or as
required, by custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholders, have general
charge of the stock transfer books of the corporation and in general perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned by the president or by the directors.
8. 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. The treasurer shall have charge and custody of
and be responsible for all funds and securities of the corporation; receive and
give receipts for monies due and payable to the corporation from any source
whatsoever, and deposit all such monies in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these By-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
by the president or by the directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by reason
of the fact that the officer is also a director of the corporation.
7
<PAGE>
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------------------
1. CONTRACTS.
The directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and such authority may be, general or confined to
specific instances.
2. LOANS.
No loan shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation, shall be
signed by such officer or officers, agent or agents of the corporation and in
such manner as shall from time to time be determined by resolution of the
directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
-------------------------------------------------------
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such
form as shall be determined by the directors. such certificates shall be signed
by the president and by the secretary or by such other officers authorized by
law and by the directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders, the
number of shares and date of issue, shall be entered on the stock transfer books
of the corporation. All certificates surrendered to the corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered or
cancelled, except that in 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 directors may prescribe.
2. TRANSFER OF SHARES.
8
<PAGE>
(a) 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 transfer books of the corporation which shall be kept at its principal
office.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize an 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 in the laws of the State of Idaho.
ARTICLE VII - FISCAL YEAR
-------------------------
The fiscal year of the corporation shall begin on the first day of
January in each year.
ARTICLE VIII - DIVIDENDS
------------------------
The directors 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.
ARTICLE IX - SEAL
-----------------
The directors may provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation, the state of
incorporation, year of incorporation, and the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
----------------------------
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these By-laws or under the provisions of the Articles of Incorporation, a waiver
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
-----------------------
These By-laws may be altered, amended or repealed and new By-laws may be
adopted by a vote of the stockholders representing a majority of all the shares
issued and outstanding, at any annual stockholders' meeting or at any special
stockholders' meeting when the proposed amendment has been set out in the notice
of such meeting.
9
The foregoing By-laws were adopted by the Board of Directors resolution dated
February 22, 1989 at a Special Meeting of the Board of Directors.
WE, THE UNDERSIGNED directors of Spartan Funding Company adopt these new by-laws
this 22nd day of February, 1989 by a duly executed resolution and set our hands
and seals
/s/Edward F. Cowle
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Edward F. Cowle, Pres/Director
/s/Deworth Williams
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Deworth Williams, Treas/Director
/s/Tina Pulley
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Tina Pulley, Sec/Diredtor
signature illegible
-------------------
attest
SOFTWARE LICENSE AGREEMENT
THIS AGREEMENT is entered into this 23 day of March 1999.
BETWEEN:
EUROASIAN E-CASINOS INTERNATIONAL LTD., with registered
offices in St. John's Antigua, West Indies
(the "Licensee")
AND
SOFTEC SYSTEMS CARIBBEAN INC. with offices at 1589 Newgate
Street, St. John's Antigua, West Indies
("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;
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
1.1.1. "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
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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 initially consist of not more than 2
casinos (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 themes
chosen by the Licensee, a sportsbook web site within the gaming
site, an HTML version of the sportsbook, and a lottery ticket
distribution web site.
1.1.2 "Net Monthly Revenue" shall mean, for any given calendar month,
the total amount wagered in the Casino, horse track and the
sportsbook, less winnings in the Casino, horse track and the
sportsbook, PLUS, total sales of lottery tickets, less the
invoiced cost for purchasing lottery tickets for the lottery
ticket sales, PLUS, any membership fees or additional fees that
may be charged by the Licensee that are not related to currency
conversion or transaction processing.,
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, 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.
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[GRAPHIC OMITTED]
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 which are necessary for
purposes of determining Softec's compliance with the terms of
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
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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
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 Agreement. If, despite the
foregoing limitations, Softec or any of its shareholders,
directors, officers, employees or representatives should become
liable to the Licensee or any other person (a "Claimant") in
connection with this Agreement, then the maximum aggregate
liability of Softec, its members, shareholders, directors,
officers, employees and representatives for all such things and
to all such parties will be limited to the lesser of the actual
amount of loss or damage suffered by the Claimant or the amount
of the Licensee's fee payable by the Licensee to Softec for the
six months prior to the loss.
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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 Nothwithstanding anything in this Section 1.3, if Softec is found
guilty of fraud in executing its obligations under 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 a total of seven days or more during any calendar month, 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
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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 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
Agreement due to causes beyond its control, including, but not
limited to, work stoppages, fires, civil disobedience, riots,
rebellions, acts of God, and similar occurrences.
1.5.5 The sportsbook "format" shall remain standard, and will not be
materially altered from Softec's standard sportsbook facilities.
Format shall refer to the tabular presentation of the sports
information making up the sportsbook look and feel and shall not
include the graphics that may be added in order to personalize
it.
1.5.6 The Licensee acknowledges that this is a non-exclusive agreement
and that Softec will license the Licensed Software to as many
other parties as are willing to enter into a licensing agreement
with Softec.
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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 gaming servers are
located.
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
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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 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
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 any time upon five days
notice if Softec, or any of its principals, officers or Directors
becomes the subject of third party civil or criminal litigation
as a result of the Licensee's operations under this Agreement.
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The litigation contemplated herein must be 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.
1.6.8 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 $25,000 upon signing this Agreement,
o $5,000 thirty days from the acceptance of the first wager
using the Licensed Software,
o $10,000 per month, for seven consecutive months, with the
first payment being made 60 days from the 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
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accordance with Schedule A of 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 become effective
90 days from the date the first wager is accepted using the
Licensed Software. For clarity, the month in which this section
becomes effective, the minimum payment shall be applied on a
pro-rata basis for that billing month.
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
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granted or implied hereby. For purposes of 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.
1.8.4 Notwithstanding anything i 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 Agreement to third parties would cause considerable
damage to Softec and its parent company, Starnet Communications
International Inc.
OBLIGATIONS OF THE LICENSOR
- - - - - - - - - - - - ---------------------------
1.2 Hardware
2.1.1 Softec shall supply the Hardware as defined in 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.
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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.
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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.
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 i 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. Such request shall not be unreasonably refused.
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.
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[GRAPHIC OMITTED]
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 From time to time and with the consent of Softec, the Licensee
may further add additional casinos, with different names and
themes, to the Licensed software. Such consent shall be
consistent with Softec's business practices and shall not be
unreasonably withheld. The Licensee may add these casinos for its
own direct benefit or for that of various joint ventures, in
which the Licensee is has at least 50% ownership in, entered into
with third parties from time to time. Additional casinos shall be
added at no further license cost, but may require market rate
payments for incidental costs such as, but not limited to, CD
masters and graphical charges.
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, but not limited to 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.
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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 th telephone shall be in English
language only.
2.4.5 Technical support offered via th Internet shall be in all
languages in which the Licensed Software is available.
2.5 Accounting
2.5.1 Softec shall maintain records of all transactions and wagers
placed utilizing the Licensed Software. The Licensee shall have
access to these records via the Internet at all times.
2.5.2 The Licensee shall pay a flat fe of $100.00 US plus all
reasonable hourly administration fees and disbursements,
including printing, photocopy and shipping costs, each time
accounting information is requested. Administration fees shall be
paid out 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.
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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 via the Internet.
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,
photocopy 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 righ to utilize the Customer Information
for any purpose that does not conflict with the Licensee's
marketing of the Licensed Software, nor in a manner that violates
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reasonable customer confidentiality. 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.
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 availabl in the casino and both
versions of the sportsbook, from time to time, in its sole
discretion.
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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 from the jurisdiction in which
the servers are located.
2. OBLIGATIONS OF THE LICENSEE
- - - - - - - - - - - - --------------------------------------
2.1 Licenses
3.1.1 The Licensee shall be responsible for obtainin 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 tha can assist the
Licensee in obtaining, an Internet casino license as required by
the Antigua Free Trade Zone.
2.2 Merchant Numbers
2.2.1 The Licensee shall be responsible for obtainin 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").
2.2.2 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.
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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, based on a yearly average, spend on a monthly
basis, a minimum of 10% of the previous month's Net Revenue on
marketing and promoting the Licensee's gaming site. This section
shall only apply to the first 365 days of operations.
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.
3.3.4 The Licensee shall be responsible for all aspects of nontechnical
customer service, including, but not limited to dealing with
customer complaints and paying out winnings.
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, the entry web page for the casino and sportsbook, as
well on any compact disks containing the Licensed Software, 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.
19
<PAGE>
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"). Softec agrees to host 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
20
<PAGE>
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 thei 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.
3.6.9 To enhance the credibility of the Licensee's gaming operation,
the Licensee is required to utilize the Softec intermercial
provided and designed by Softec, and display the Softec Seal of
Approval icon on the website's homepage.
4 STANDARD CLAUSES
- - - - - - - - - - - - -----------------------
4.1 Notices
Unless otherwise provided in Agreement, any notice provided for
under 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.
21
<PAGE>
To Softec: Newgate Street
P.O. Box 1589
St. John's, Antigua
West Indies
Attention: Chris Zacharias
Fax: (268) 480-1656
To the Licensee:
Registered offices in St. John's, Antigua
4.2 Entire Agreement and Schedules
The parties agree that 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 Agreement which are in addition
or inconsistent with the terms and conditions of Agreement shall
not be binding on Softec and shall not apply to Agreement.
4.3 Governing Law and Arbitration
Any dispute in connection with Agreement shall be settled by
arbitration in accordance with any Arbitration Act agreed upon
between the parties; provided, however, should any dispute arise
under 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 Agreement in
good faith.
22
<PAGE>
[GRAPHIC OMITTED]
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 Agreement. Whenever the approval
or consent of a party is required under 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 the agreement or the Schedules.
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 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
23
<PAGE>
rights or obligations under Agreement without the prior written
consent or Softec.
4.11 Benefit
This Agreement shall enure 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 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
24
<PAGE>
the parties with respect to the subject matter herein and
supersedes all prior agreements, arrangements and understandings
with respect thereto, whether -oral or written.
4.16 Severability
If any part of Agreement is unenforceable because of any rule of
law or public policy, such unenforceable provision shall be
severed from Agreement, and this severance shall not affect the
remainder of 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.
25
<PAGE>
[GRAPHIC OMITTED]
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. Notwithstanding the above, if
there is any uncertainty in the interpretation of this Agreement,
the uncertainty shall be interpreted in Softec's favor.
IN WITNESS WHEREOF the parties have executed Agreement on the date first
written.
Softec Systems Caribbean Inc.
Per:/s/Christopher H. Zacharias Per:/s/Mark Dohcen
--------------------------- --------------
Name: Christopher H. Zacharias Name: Mark Dohcen
Title: In House Counsel Title:CEO
'
The Licensee: /s/EuroAsian E-Casinos, Inc.
----------------------------
EuroAsian E-Casinos, Inc.
Per:/s/ Arthur Rosenberg
--------------------
Name: Arthur Rosenberg
Title: President
26
<PAGE>
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 $250,000 25%
> $250,000 but < or = to $500,000 20%
> $500,000 but < or = to $1,000,000 17.5%
> $1,000,000 but < or = to $5,000,000 15%
> $5,000,000 but < or = to $10,000,000 12.5%
> $10,000,000 10%
The above table should be read with the following understanding: If the licensee
has Net Monthly Revenue of $550,000, the fee payable is calculated as follows:
25% on the first $250,000 = $62,500
20% on the next $250,000 = $50,000
17.5% on the next $50,000 = 8 750
For a total fee payable = $121,250
27
<PAGE>
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
28
<PAGE>
Schedule of Merchant Number Terms
---------------------------------
o Monthly processing limit: $250,000
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.
29
EXHIBIT 21.1
SUBSIDIARIES OF Venture Tech, Inc.
The following are subsidiaries of Venture Tech, Inc., an Idaho
corporation:
1. Venture Tech Holdings (Canada) Inc., a British Columbia
corporation, a wholly owned (100%) subsidiary.
2. EuroAsian E-Casinos International Ltd., an Antigua
corporation, a wholly owned (100%) subsidiary.
3. EuroAsian E-Casinos, Inc., a Marshall Islands
corporation, a wholly owned (100%) subsidiary.
4. Cybernet Currency Clearing, Inc., a Nevada corporation,
a wholly owned (100%) corporation.
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THE
VENTURE TECH, INC. FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31,
1998 AND SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1999 SEP-30-1999
<CASH> 53324 118182
<SECURITIES> 0 424961
<RECEIVABLES> 0 5021
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 53324 567149
<PP&E> 197830 197830
<DEPRECIATION> 102460 129398
<TOTAL-ASSETS> 306806 806424
<CURRENT-LIABILITIES> 176865 351840
<BONDS> 0 0
0 0
0 0
<COMMON> 31615 35897
<OTHER-SE> 5733012 6985135
<TOTAL-LIABILITY-AND-EQUITY> 306806 806424
<SALES> 0 9526
<TOTAL-REVENUES> 0 9526
<CGS> 0 3669
<TOTAL-COSTS> 681671 777384
<OTHER-EXPENSES> 1400000 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 426965
<INCOME-PRETAX> (2081671) (1198492)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2081671) (1198492)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 266730
<NET-INCOME> (2081671) (931762)
<EPS-BASIC> (.07) (.04)
<EPS-DILUTED> (.07) (.04)
</TABLE>
