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As filed with the Securities and Exchange Commission on April 11, 2000
Registration Statement No. 000-29417
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
I CRYSTAL, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 62-1581902
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3237 KING GEORGE HWY., SUITE 101-B
SURREY, BC V4P 1B7, CANADA
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604) 542-5021
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which each
to be so registered: class to be registered:
None Not Applicable.
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
FORWARD LOOKING STATEMENTS
This Registration Statement contains forward-looking statements based on its
current expectations about its business and its industry. You can identify
these forward-looking statements when you see words such as "expect,"
"anticipate," "estimate" and other similar expressions. These forward-looking
statements involve risks and uncertainties and actual results could differ
materially from those anticipated in these forward-looking statements as a
result of such risk factors as discussed in Business Description, Risk
Factors and elsewhere in this Registration Statement. The registrant
undertakes no obligation to publicly update any forward-looking statements
for any reason, even in the event new information becomes available or other
events occur in the future.
Unless otherwise indicated, all references to "dollars", "$" or "US$" refer to
U.S. dollars and all references to "Cdn$" refer to Canadian dollars.
THE COMPANY
I crystal, Inc. (together with its subsidiary, the "Company") is a Delaware
corporation, incorporated on October 5, 1994, as Cable Group South, Inc.
Effective October 19, 1998 the Company undertook an 8:1 reverse stock split
and changed its name to SoftNet Industries, Inc. To avoid a conflict with a
similarly named company, the Company again changed its name to I crystal, Inc.
on July 29, 1999. The Company intends to ask its stockholders for approval to
change its name to "iCrystal, Inc." at a Special Meeting to stockholders
currently scheduled to be held on May 15, 2000. The Company believes this
change in its name will better reflect the Internet aspects of its software
development business.
From 1994 until late 1998, the Company had minimal operations and devoted its
efforts to corporate structuring, financial and business planning,
recruitment of directors and advisors, and raising additional financing. In
1998 the business of the Company became focused on the development and
licensing of Internet based software for computer based card and table games
for gaming and casino applications. In December 1998 the Company entered into
a licensing and put option agreement (the "Diversified License") with
Diversified Cosmetics International, Inc. ("Diversified") to license that
company's game and casino software. Diversified subsequently exercised the
put option (the "Put Option") granted in the Diversified License and required
the Company to acquire Diversified's casino software for Company Common Stock
and a promissory note. As of April 3, 2000, Diversified held 16.8% of the
Company's Common Stock and officers and directors of the Company held 26.5%
of Diversified's common stock. The Company's first revenues from the newly
focused business operations were realized in July 1999 and, therefore, the
Company has presented development stage financial statements for the periods
through June 1999. Since its founding, the Company has recorded significant
losses. At December 31, 1999, the Company has an accumulated deficit of
$5,775,600 and has a shareholders deficiency of $216,700.
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BUSINESS
The Company is in the business of developing, acquiring, upgrading and
supporting Internet based games and casino and gaming software and developing
and maintaining websites for business to business enterprises that are
engaged in the Internet based casino and gaming business and associated
electronic commerce operations. The Company generally licenses the use of its
software on a non-exclusive basis to licensees for the payment of an initial
up-front fee and a percentage of the revenues generated by such licensees
whether at their websites or through sublicensees. While the current games
are focused on table and casino style games, the Company has the capacity and
intends to produce games that work on a variety of game platforms and span a
wide range of genres including action, adventure, strategy and simulation
models to attract game enthusiasts, value buyers and foreign casino players.
In addition, the Company offers website development and transaction support
services, cash transaction processing and software upgrading to its
licensees. Merchant banking and e-cash services for licensees of the
Company's software have been contracted through agreements with Digital
Commerce Bank, Ltd. and CTC, Inc., and the Company may enter into additional
agreements for such services in the ordinary course of business. Although the
Company charges additional fees for such ongoing services, such fees vary
with each licensing arrangement. Company management expects that its
principal revenues will be derived from licensing revenues.
In April 1999, the Company entered into its first licensing agreement (the
"Master License") for its gaming software with DCI, Inc. (the "Master
Licensee"), a corporation organized in Dominica which also operates under the
working name of "Dynamic Casino Investments". The Master License anticipates
that the Company will develop six Internet based casino websites for the
Master Licensee. The first website, Video Poker Palace, began operations in
mid-1999. In exchange for establishing the website and licensing its casino
software to the Master Licensee, the Company will receive 40% of the Master
Licensee's net gaming revenues, subject to certain rebates and discounts for
advertising and promotional efforts undertaken by the Master Licensee. Total
revenues received by the Company under the Master License in 1999 were
$90,900. The Master Licensee accounted for substantially all of the Company's
revenues in 1999. The Company intends to pursue additional licensing
agreements with other parties in the ordinary course of business.
The Company entered into the Master License with the Master Licensee on April
8, 1999. Under the Master License the Company agreed to license to the
Master Licensee a minimum of 6 new casino software packages and websites per
year, and to provide any updates to such casino software and websites for a
term of 10 years at no extra cost. The Master License grants the Master
Licensee the right to extend the license for an additional five years. Under
the Master License, the Company will be entitled to 40% of the Net Gaming
Revenue derived from revenue generated by the casino or websites licensed to
the Master Licensee. Net Gaming Revenue is defined in the Master License as
gross revenues less customer payouts, e-cash charges, fees, holdbacks, and
chargebacks, and taxes or levies to which the Master Licensee is subject.
Additionally, the Company will be entitled to 50% of up-front fees charged by
the Master Licensee to any sub-licensees, and 10% of revenue derived from
sales of the software. Under the terms of an amendment to the Master License
the Company has the option to spend up to a specified amount on promotion of
the Master Licensee's website in exchange for an additional 10% share of net
gaming revenue, but not more than the total amount spent by the Company.
Effective August, 1999 the Company purchased the proprietary rights to the
bingo software ("MetroBingo") that was being developed by Power Star Corp.
("Power Star"). The Company has been developing and improving the bingo
software and intends to begin licensing MetroBingo in the second quarter of
2000. Management believes that it will then have applications in both the
table game and casino gaming aspects of the Company's business plan.
On March 13, 2000, the Company's subsidiary, I crystal Software, Inc. ("I
crystal Software") a British Columbia corporation, licensed additional
software under the terms of an agreement (the "AA Agreement") from American
Amusements Co. ("American Amusements"). The software consists of additional
versions of video poker, slot machine blackjack, keno, scratch cards and
other games, which may be developed by American Amusements during the
five-year term of the AA Agreement. The Company believes I crystal
Software's acquisition of the additonal software will broaden its product line.
The Company's expenses are based in part on the Company's product development
and marketing budgets. Many of the costs incurred by the Company to develop
sell and license its products are expensed as such costs are incurred, which
often is before a product is released or licensed. In addition, a significant
portion of the Company's expenses are fixed. As the Company increases its
production and licensing activities, current expenses will increase and, if
revenues from previously released products are below expectations, net income
is likely to be disproportionately affected.
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PRODUCTS
The Company's current and upcoming releases are based on a combination of games
derived from the Company's freely accessible traditional card and table games,
original game concepts created by the Company, and intellectual property or
other rights licensed from third parties. In releasing games and gaming items
based on licensed intellectual property rights, the Company intends to
capitalize on the name recognition, marketing efforts and goodwill associated
with the underlying property.
COMPANY CASINO SOFTWARE
The Company produces proprietary Internet based casino style gaming software
with on-line transaction processing capabilities. The Company's casino software
packages are generally based on a specific gaming theme or a specific gaming
venue. For example, the Company's "Video Poker Palace" program offers thirty
(30) versions of video poker, including versions like "Jacks or Better," "Deuces
Wild," and "Joker Poker." The Company has also developed its own versions of
poker such as "Flushorama," "King of the House," and "Straight Flush Bonus."
The Company believes its future success will be driven by its variety of
games, its website graphics and its relatively short development cycle, all
of which should attract and retain players. The Company's themed casino
software packages come with an accessory game package to provide a variety of
experiences for the players. For example, the Company's "Blackjack Castle"
software offers eight variations of blackjack. The Company's "Sizzling Slots"
software, currently under development, will offer more than 20 different slot
machines styles.
The Company's focus is to provide its licensees with a wide variety of gaming
themes, game versions and frequently updated graphics so that players will be
attracted to the website initially and will want to return to experience the
updated software, to try new applications and to use e-commerce applications.
The four main casino themes the Company has developed are: video poker,
blackjack, slot machines and a casino featuring games preferred by the Asian
market, such as pai gow and baccarat. The Company believes that players will
search for, and keep returning to, casino websites using its software due to
the variety of games and gaming themes offered. The Company believes that
players, given a choice of gaming venues, will prefer to play in environments
that present a wide variety of games that are regularly updated but offered
in a familiar environment. While the Company anticipates that most players
will seek sites with rich and colorful graphic displays, some players who
have more limited time or technology access may prefer a less rich
environment with faster access speeds. The Company intends to provide game
versions that meet both expectations.
As with all commercial Internet software, security for commerce and information
exchange is a paramount requirement imposed by the licensees and the regulatory
environments to which Internet gaming is subject. To this end, the Company has
developed a security protocol, a communications protocol, and financial
transaction software which utilize specially developed, state-of-the-art
encryption technology, to ensure security, ease of use, and real time banking
for its licensees, and to limit access to players who are eligible, by age,
credit status and residence, to participate.
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GAME APPLICATIONS
The Company's first general audience non-casino style game will be
MetroBingo, an internet bingo site currently under development by the
Company. The underlying game software was acquired by the Company from Power
Star in August 1999 for 1,450,000 shares of Common Stock. MetroBingo will be
a multi-player game designed to provide players with an interactive gaming
experience. The games are designed to be quick, approximately 18 per hour,
and will feature attractive graphics utilizing the Java programming language
which the Company believes will reduce lengthy downloading times. The Company
currently plans to complete development of the MetroBingo software and to
make it available for licensing in the third quarter of 2000.
PRODUCT DEVELOPMENT
INTERNAL DEVELOPMENT
The Company has one wholly-owned subsidiary, I crystal Software based in
Surrey, British Columbia, Canada, which researches, develops and tests each
software application licensed from third parties or being developed
internally by the Company. The Company has located its operations in the
Vancouver region partly because the area has a broad pool of technical
personnel, programmers, web designers and support services. In addition to
developing and testing the Company's Internet based casino software and
games, I crystal Software designs and develops each licensee's website and
the overall theme and visual design of the licensee's software package. To
this end I crystal Software maintains a team of software programmers, graphic
designers and website developers, specialized in 3-D and conventional
graphics programming.
I crystal Software has a webmaster department charged with researching
Internet developments and innovations related to the Internet based casino
industry and serves as the Company's security division and systems
administrator, in charge of securing both the Company and its software from
unauthorized penetration.
To develop its products, the Company relies principally on its group of
programmers, web designers and graphic artists who work at I crystal Software
as employees or who work at the Company under service contracts. The Company
also acquires software through licenses with third parties and plans to
acquire rights to other complimentary products through strategic and
distribution arrangements with other interactive entertainment and leisure
companies.
The Company develops and produces it products using a model in which a core
group of creative, production and technical professionals on staff at the
Company, in cooperation with the Company's marketing group, have overall
responsibility of the development and production process and for the
supervisor and coordination of internal and external resources. This team
provides the creative elements to complete a project using, where
appropriate, outside programmers, artists and sound and special effects
experts.
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The Company currently is in a growth mode and plans to give first priority to
rapid response to product requests. As resources allow the Company plans to
expand its internal review and quality assurance process to include
pre-development, development and production phases, with specific milestones.
This procedure is consistent with other industry participants and is designed
to enable the Company to manage and control production timetables, to
identify and address production and technical issues at the earliest
opportunity, and to coordinate revenues, quality control and distribution
phases.
EXTERNAL DEVELOPMENT
The Company has relied heavily on software products it acquired from
independent developers. Acquired titles generally are acquired and marketed
under the Company's name. If titles are acquired through licenses, such
licenses will generally provide the Company with distribution rights for a
specific period of time and for specified platforms and territories. In other
instances titles may be acquired outright by the Company from third parties.
In consideration for its services, a developer may receive a royalty based on
revenues and may receive a nonrefundable advance which may or may not be
recouped by the Company.
PRODUCT SUPPORT
The Company provides various forms of product support to both its internally
and externally developed titles. The Company's quality assurance personnel
are involved throughout the development and production processes for each
title published by the Company. All such products are subjected to extensive
testing before release in order to insure compatibility with the widest
possible array of hardware configurations and to minimize the number of bugs
and other defects found in the products. To support its products after
release, the Company provides 24-hour operator help lines. The customer
support group tracks customer inquiries and this data is used to help improve
the development and production process.
PUBLISHING AND DISTRIBUTION ACTIVITIES
MARKETING
The Company's plans to expand its marketing efforts to include on-line
activities such as the creation of World Wide Web pages to promote specific
Company titles, as well as public relations, print and broadcast advertising,
industry promotions and product sampling through demonstration software
distributed through the Internet.
INDUSTRY
The Company is currently developing Internet based games with both gaming and
non-gaming attributes. In addition to the Company's casino software programs,
the Company is developing a free keno game site ("Free Keno") which it plans to
operate. The Free Keno site is based on the popular keno game. The Company's
website, will, when completed, offer free keno games to users with cash
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prizes to be supported by revenues from banner ad sales and direct e-mail
advertising directed at registered users of the free Keno site.
GAMING
There are many other licensors of Internet based casino software and various
providers of alternative entertainment activities, all competing for the
public's entertainment dollar. The Company competes for the public's monthly
expenditures on entertainment with other Internet based gaming activities, cable
television, movie theaters, sporting events and other recreational activities.
As the Company's primary source of revenues will be a percentage of the net
gaming revenues generated by its licensees at their Internet casino websites,
the Company's revenues will be directly affected by the increase or decrease in
participation in such activities by the public. The Company cannot estimate how
such competing activities may grow or to what extent such growth would decrease
the Company's revenues.
The Internet based gaming industry began in 1996 when the first on-line casinos
established operations, principally from operating bases in the Caribbean and
Central America. Technology constraints resulted in limited graphics, slow play
and a reliance on software which was difficult for the players to understand.
Companies such as Cryptologic and Microgaming were among the first to license
their software to the industry.
As of January 2000, the current Internet based casino industry has grown to over
650 e-gaming websites, while expected revenues for "e-gaming" sites in 1999 is
expected to be around $1.2 billion., expanding from its North American base, to
such markets as Europe, China and Australia. Expenditures for gambling in the
U.S. for 1997 exceeded $100 billion. Some predicted annual revenues for 2000
for the Internet based gaming in the U.S. alone at over $8 billion, while
other more recent sources are predicting that on-line gaming revenues will be
about $3 billion in 2002. Some in the industry are predicting an increase in
player participation from 3 million players in 1999 to 16 million players by
the year 2002.
COMPETITORS
There are several companies which offer free game websites similar to the
Company's planned Free Keno and Metrobingo websites. These include uproar.com
and gamesville.com, both of which operate bingo based websites.
More generally, the Company faces competition from a number of other
companies that license Internet based gaming software, many of which are well
established and have significantly greater resources than does the Company.
Currently, the Company believes its primary competitor is Starnet
Communications International Inc. ("Starnet"). Starnet and its subsidiaries
have been licensing Internet based casinos since 1997. Utilizing operating
subsidiaries in Antigua, Starnet also licenses adult entertainment websites,
lotteries, parimutuals, and a sportsbook. The Company also faces competition
from Boss Media, which has been licensing Internet based gaming websites
since 1997 and is known for high quality gaming software. Currently Boss
Media licenses are reported to require an upfront fee of $300,000, ongoing
royalty payments of 35% of net gaming revenue and a monthly charge of over
$25,000 to service each licensee's hosting and bandwidth requirements. In
addition, Microgaming, a privately held company based out of South Africa,
has been licensing software since 1997. Microgaming customizes most of its
game packages for its licensees. Cryptologic has been licensing
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Internet casinos through its wholly owned subsidiaries in Cyprus and Antigua,
since 1997. Cryptologic also handles credit card processing for all of its
licensees. Cryptologic recently settled a litigation matter in California in
which an on-line gambler refused to pay her casino debts, characterizing them
as illegal gambling contracts. Cryptologic settled the matter by paying the
legal fees and certain bank charges of the gambler. See also "REGULATORY
CONSIDERATIONS-North America" for additional discussion.
CUSTOMERS
The Company's Free Keno website will, when completed, be available for any
registered users and thus the number and scope of users is hard to predict.
The Company entered into its first gaming licensing agreement in April 1999 with
the Master Licensee, but has not yet secured licensing agreements with other
licensees. As a result, all of the Company's revenues are dependent on the
performance of the Master Licensee's website. However, the Company continues to
pursue additional licensing arrangements with other parties.
REGULATORY CONSIDERATIONS
Worldwide governmental regulation of Internet based gambling is varied and still
evolving. While it is currently legal in some countries, predominantly certain
countries in the Caribbean and Latin America, to set up regulated Internet based
gaming facilities, other countries, such as the United States, are considering
restrictions on Internet based gambling.
NORTH AMERICA
The United States Congress is currently considering passing the Internet
Gambling Prohibition Act, commonly known as "the Kyl Bill," sponsored by
Senator John Kyl from Arizona. If passed, the Kyl Bill would preempt state
laws and prohibit persons involved in a gambling business to use the Internet
to place, receive or otherwise make a bet or wager or to send, receive, or
invite information assisting in the placing of a bet or wager. An important
element of the Kyl Bill is that it does not place legal liability on the
individual player and only attempts to regulate persons engaged in a gambling
business who knowingly use the Internet to accept wagers from U.S. residents.
In its current form, the Kyl Bill provides for penalties of the greater of
the amount wagered or $20,000 and a maximum 4 year prison term against
persons who take or place bets, with the possibility of a permanent
injunction against such activities. State Attorneys General would be allowed
to bring actions under the Kyl Bill. The Kyl Bill was passed by the Senate
and sent to the House of Representatives in November 1999. In January 2000
the House referred the Kyl Bill to the House Committee on the Judiciary. The
House Judiciary Committee approved the Kyl Bill in April 2000 and sent the
Kyl Bill back for a vote by the full House of Representatives where it is
currently awaiting a vote.
While U.S. Federal law on Internet based casino style gaming remains
uncertain, federal courts are beginning to enforce the Wire Communications
Act (the "Wire Act") against on-line sports book operators. In February
2000, a U.S. Federal Court in New York found the president and owner of World
Sports Exchange; an internet based sports book, guilty of violating the Wire
Act for accepting wagers for sporting events over interstate telephone lines.
Individual U.S. states have also begun to prohibit or regulate internet
based gambling. For example, Minnesota has challenged the Web-based gambling
system entitled "WagerNet," arguing that its claims that Minnesota residents
can lawfully participate constitute false advertising. WagerNet's system is
representative of many of the on-line gambling systems. Its web site is
housed in Nevada (where gambling is legal) and all of its transactions are
processed in Belize (where gambling is also legal).
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WagerNet sought dismissal of the Minnesota action, but the court refused to
dismiss the claim and WagerNet has appealed that decision.
Missouri, which bans Internet gambling, has sought an injunction to stop
Executone Information Systems from offering an on-line lottery from the
reservation of the Coeur d'Alene Tribe in Idaho because that lottery is
accessible by Missouri residents. Executone operates the National Indian
Lottery (known as U.S. Lottery) from the reservation in Idaho on tribal land,
where gambling is legal. The lottery is only offered in states (such as
Missouri) that have conducted state lotteries. U.S. Lottery participants
register on-line by providing their name, address, telephone number, social
security number, and birth date. They then receive an identification code and
a password. Finally, they put money into a U.S. Lottery account using a
credit card, and draw on that account as they play. A Missouri court has
issued a temporary restraining order prohibiting the tribe from allowing
Missouri residents to participate.
Missouri recently obtained an injunction and $66,000 in penalties against
Interactive Gaming & Communications Co. after it accepted bets from
Missourians and represented that such bets were legal in the state.
California is evaluating legislation that would make on-line gambling a
misdemeanor. A case was recently brought in California by an online gambler
against the credit card companies and banks which the gambler used to charge
bets placed at the internet casino sites of Cryptologic. The gambler's claim was
based on the theory that the large credit card debts she incurred could not be
enforced as such debts were based on an activity illegal in the State.
Cryptologic and the banks settled the case and agreed to forgive amounts owed
and to pay the gambler's legal fees.
In addition to the possible ramifications of the federal ruling against World
Sports Exchange discussed above, New York is also considering several bills,
including one that would apply all existing New York state gambling laws to
on-line gambling and would require on-line gaming services that take bets in
New York to register with the state and post a bond.
The gaming industry itself is examining possible forms of self-regulation for
online operations. An industry association, the Interactive Service Association,
has drafted a voluntary code of conduct for online gaming. These efforts at
self-regulation by the on-line gaming industry have been made more urgent by
federal law enforcement initiatives aimed at Internet gambling. The Department
of Justice has charged fourteen on-line gambling Web site owners and operators
with federal criminal violations associated with the use of interstate
telecommunications systems to process bets. It remains to be seen, however, how
thorough or effective these law enforcement initiatives will be.
CANADA
Currently, each province sets its own regulations for Internet based gambling.
However, there has been some public discussion by federal politicians about
possibly enacting federal regulations on Internet based gambling in Canada.
Currently, however, there are no proposed or pending bills in the Canadian
Parliament which would regulate Internet based gambling in Canada on a national
level.
Due to an uncertain regulatory environment, the Company's Master Licensee
currently intends to focus on markets outside of North America until such time
as U.S. and Canadian laws regarding Internet gaming are clarified. The Company
has designed its software to be capable of blocking wagers originating from
specified jurisdictions, such as the U.S. and Canada, thereby enabling its
licensees to ensure that gaming laws inside or outside the U.S. and Canada are
not violated. Although the
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Company's software is capable of screening out wagers placed from any
jurisdiction, the Company does not have control over the operation of websites
utilizing its software once such software is licensed to third parties,
including the Master Licensee. The Company believes that the Master Licensee is
not currently screening wagers. However, the Company will also work with its
licensee, major credit card providers, Internet service providers and Internet
based self regulatory organizations to confirm that players at Company designed
Internet based casino websites are of legal age, and reside in jurisdictions
where Internet wagering is legal.
AUSTRALIA
Australia has regulated, rather than prohibited, Internet based gaming. The
Australian Government has placed strict guidelines and taxation rates, as high
as 50%, on Internet based gaming operators. Recently, the country's Prime
Minister indicated his intention to hold inquiries into the status of Internet
based gambling in Australia and possible strengthening of regulations.
One of the first Australian based Internet gaming sites to be established was
Lassiters Online Casino ("Lassiters"). Lassiters, which opened in April 1999
near Alice Springs in the Northern Territory, reported over 3,500 customers
producing over $2,000,000 in net gaming revenue by their third month of
operation.
GLOBAL OUTLOOK
With the exception of the U.S., a significant amount of governments appear to
be accepting Internet based gaming and are attempting to regulate and tax
this industry. Many countries in Europe now allow Internet based lotteries,
and many have blueprints for full Internet gaming regulations.
Caribbean countries such as Antigua, Dominica, and Aruba currently allow
regulated Internet based gaming. Antigua, for example, had licensed 48 gaming
operators as of July 1, 1999. Dominica and Aruba together have nearly as
many. The Caribbean will likely continue to be a major center for the
Internet based casino industry even if other countries put regulations or
prohibitions in place. The Company's Master Licensee currently operates its
site out of Dominica.
SALES AND MARKETING
The Company currently has one staff member devoted to marketing and licensing
sales. The Company also has three staff members who devote a portion of their
time to analyzing market information for the Company and its Master Licensee.
The Company is seeking to add an additional person to its marketing staff in
2000 to increase the Company's marketing effectiveness.
INTELLECTUAL PROPERTY
The Company uses the tradename "I crystal Inc." under common law trademark
protection, but has no registered trademarks on such tradename or any other
tradenames or service marks utilized by it.
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The Company regards its software products as proprietary in that title to and
ownership of the software it develops resides exclusively with the Company.
The Company relies largely on its license agreements with licensees, its own
software protection schemes, confidentiality procedures and employee
agreements to maintain the trade secret aspects of its products. The Company
does not currently intend to apply for copyright or patent protection for its
software products. The Company believes that, due to the rapid pace of
innovation within the internet software industry, factors such as
technological and creative skill of personnel, knowledge and experience of
management, name recognition, maintenance and support of software products,
the ability to develop, enhance and market software product and services and
the establishment of strategic relationships in the industry are as important
as patent, copyright and other legal protections for its technology.
The Company believes that it has all necessary rights to market its products,
although there can be no assurance that third parties will not assert
infringement claims in the future.
EMPLOYEES
As of April, 2000, there were 10 persons dedicating full-time services to the
Company of whom two were acting as senior programmers, two were acting as
system administrators, and six were involved in website development,
marketing, graphic art development and project management. Of those persons,
four were full-time employees and six were under contractual arrangements
with the Company. Competition for qualified management and technical
employees is intense in the Internet software industry and the Company's
success will depend in large part upon its ability to continue to attract and
retain qualified employees. The Company believes that its relations with its
employees are excellent.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue creates risks for the Company. The Year 2000 issue is the
result of computer programs being written using two digits rather than four
digits to define the applicable year. Any computer software program or
hardware that has date-sensitive software of embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000 which could result
in system failures or miscalculations causing disruptions to operations and
normal business activities.
The Company is a comparatively new company and as a result, the software and
hardware the Company uses to operate its business have all been purchased or
developed in the last several years. While the Company cannot guarantee that
it has eliminated all risks related to the Year 2000, the Company can state
that steps have been taken to minimize the risks associated to the Year 2000
issue.
The Company has developed and implemented Year 2000 compliance plans related
to both its internal business operations, as well as its software
development. With respect to the Company's Year 2000 plan the Company has
ensured that all of its hardware equipment and software used in normal
business operations are certified as Y2K compliant. The Company's strategy
involves maintaining an extensive inventory of any and all computer-related
systems and software, whether initially thought to be exposed to the Y2K bug
or not. An assessment is made of each inventory item identifying potential
risks or
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uncertainties. All hardware that is not Year 2000 compliant is disposed of,
and all software used is certified to be Year 2000 compliant through written
documentation provided by the vendor.
The Company is committed to providing releases of software which are
certified as being Year 2000 compliant. The Company has not developed all of
its software internally but has taken steps to ensure that all date fields
are compatible to the year 2000. However, certain subcomponents may not have
been properly engineered to ensure date compatibility. Steps have been taken
to confirm sub-components compatibility, but this area still remains one of
moderate risk. Third party products that the Company has purchased, or
intends to license in the future have been, or will be, researched for Year
2000 compliancy.
The cost to the Company to address the Year 2000 issue has been minimal as
most of the Company's development work has taken the Year 2000 issue into
consideration from the onset of such development. This includes product
development, testing and the cost of ensuring that the hardware and software
used in internal operations are Year 2000 compliant.
The risks that the Company faces as a result of the Year 2000 issues include
complete interruption to its operations and development, however this risk
has been mitigated through the Company's Year 2000 plan. Other risks include
possible interruption to communication for the users of Company software.
Users of Company software include future licensees and the Master Licensee.
There is a risk of liability if the master Licensee's website operations are
interrupted resulting in adverse affects in its business operations. In the
worst case scenario a licensee may lose the ability to operate a Company
designed website until such time as the Year 2000 bug is identified and
corrected. If the loss is of significance to the licensee, there is the
possibility of litigation and claims against the Company.
The Company has prepared a contingency plan that covers worst case scenarios
that the Company may face. The plan covers how to deal with both internal
systems that may be affected by the Year 2000 issues, as well as how to deal
with Company software problems and possible interruptions to its licensee's
operations.
12
<PAGE>
RISK FACTORS
The Company's business and investment in its securities is subject to a
number of risks which, in addition to ordinary business risks, include the
following:
DEVELOPMENT STAGE COMPANY WITH NO HISTORY OF EARNINGS
The Company has only recently entered into its first Internet based casino
software licensing agreement and has a limited history of revenues or
earnings from such activities. The Company may not be successful in securing
other licenses for its casino software or in developing its general game
related software. There is no assurance that the Company will generate either
revenues or earnings from its existing licensee or from any other licensing
arrangements that it may enter into in the future.
The Company is at an early stage of entering the commercial marketplace. The
Company's future operating results are subject to a number of risks,
including its ability to implement its strategic plan, to attract qualified
personnel and to raise sufficient financing as required. Management's
inability to effectively guide the Company's growth (including implementing
appropriate systems, procedures and controls) could have an adverse effect on
the Company's financial condition and operating results.
UNCERTAINTY OF ADDITIONAL CAPITAL
The Company does not anticipate achieving positive cash flows from operations
until the second quarter of 2000. Therefore, the Company's financial position
for at least the next 12 months is contingent on its ability to raise money
through equity or debt financing to meet the financial needs that are not
funded from operations. The Company will seek to raise additional capital
either through the sale of equity or debt securities in private or public
financing or through strategic partnerships, in order fully to finance,
develop, market and upgrade its casino software programs and websites. The
Company cannot offer assurances that funds will be raised when it requires
them or that the Company will be able to raise funds on suitable terms.
Failure to obtain such financing when needed could delay or prevent the
Company's planned software development and licensing projects, which could
adversely affect the Company's business, financial condition and results of
operations. If additional capital is raised through the sale of additional
equity or convertible securities, dilution to the Company's stockholders is
likely to occur.
COMPETITION
The Company faces direct competition from a number of other companies, many
of which have greater resources. Many of the Company's competitors have well
established track records and customer bases in developing software generally
or in developing software games and gaming. As a relatively new company
entering into the market place, the Company has not yet established a
reputation or market presence in the industry and there is no assurance that
it will. In addition, since the Company's revenues are substantially
all derived from its Master Licensee, the Master License is specifically
discussed and disclosed in this registration statement thereby making that
information available to current or future competitors or entities dealing
with the Company. This disclosure may impact business negotiations between
the Company and such entities in the future.
13
<PAGE>
TECHNOLOGICAL DEVELOPMENTS
Internet based industries in general, and the Internet based casino industry
in particular, are subject to rapid changes arising from new technological
developments and evolving industry standards. The Company's success will
depend heavily on its continuing ability to develop and introduce
enhancements to its existing casino software and new software or related
products that meet changing markets for on-line games and gaming. The Company
will constantly be required to commit significant resources to continued
research and development in order to remain competitive. However, the Company
cannot be certain that it will develop the software or technologies needed to
ensure the Company's future success or that its casino or general games
software will not become obsolete due to the introduction of alternative
technologies. If the Company cannot continue to innovate successfully, its
business and operating results could be adversely affected.
GOVERNMENT REGULATION
Every Internet business faces the risk of having to comply not only with the
laws of its home jurisdiction, but also with the laws of the countries where
its customers reside. With respect to Internet based casinos, many countries
have enacted or are considering enacting laws which may regulate or prohibit
Internet based gambling. The Company faces the risk that potential government
regulations in various jurisdictions could reduce the potential markets of
its licensees or the amount of revenues such licensees may generate in such
markets or both. The Company also faces the risk that its licensees may face
extra-territorial prosecution as a result of customers residing in regulated
countries visiting a licensee's Internet casino site thereby generating
increased uncertainty in the Company's revenues obtained from licensing. If
any such risks were to materialize, the Company's financial condition and
results of operations would be adversely affected. To date, while general
Internet games have not been subject to special government regulations, there
is no assurance that this sector will not become subject to regulatory
oversight. See "Regulatory Considerations" for a more complete discussion.
THE COMPANY DERIVES A SUBSTANTIAL AMOUNT OF ITS REVENUES FROM FOREIGN SOURCES
The Company plans to license its software in countries outside North America
and to derive a portion of its games revenues and most of its gaming related
revenues from licensees in such jurisdictions. The Company intends to expand
these activities through licenses, direct and indirect software sales, and
localization activities. These activities will require separate management
focus and a full understanding of the international marketplace, including
skills not currently available at the Company. The Company's international
activities and its overall results will therefore be subject to certain
risks inherent in international trade, many of which are beyond its control,
such as changes in laws and policies affecting trade, investment and taxes
(including laws and policies relating to the repatriation of funds and to
withholding taxes), difficulties in attracting and retaining a skilled local
work force, differences in local fiscal discipline and the instability of
foreign economies and governments. There can be no assurance that the Company
will be able to increase international revenues or that the foregoing local
factors will not have a material adverse effect on the Company's future
revenues and, consequently, on the Company's overall business, operating
results and financial conditions.
14
<PAGE>
The Company's costs are generally paid in U.S. and Canadian currencies while
its revenues, generally paid in U.S. dollars, may at times be paid in
non-U.S. or Canadian currencies. Therefore, Company's revenues and operating
results may be affected by fluctuations in the exchange rates applicable to
its licensees. Currency exchange rates are determined by market factors
beyond the Company's control and may vary substantially during the course of
a production period. Further, the Company's ability to repatriate to Canada
funds arising in connection with foreign licensees may be adversely affected
by currency and exchange control regulations imposed by the country in which
the Company's casino software is exploited.
PROTECTION OF THE COMPANY'S INTELLECTUAL PROPERTY IS LIMITED
The Company, other than through confidentiality agreements and restrictions
it places on its licensee's through its licensing agreements, does not retain
or protect its proprietary and intellectual property rights. Unauthorized
parties may copy and distribute the Company's casino software or certain
portions or applications of its software. In addition, other companies may
independently develop and produce software which is similar to, or imitates,
the Company's software. The Company has no registered copyrights or patents
in either the U.S. or Canada for its gaming software.
The Company does not have and does not intend to apply for patents on its
casino or game software or its licensed websites. Management believes that
the patent application process in many countries in which the Company intends
to sell or license products would be time-consuming and expensive. In
addition, patents would have the effect of publicizing the source code or
other proprietary aspects of the Company's products. Finally, the Company
intends continually to improve and upgrade its casino and game software, and,
as a consequence, any patent protection may be out of date by the time the
patent is granted.
In addition, the Company may in the future be notified that it is infringing
upon certain patent and/or other intellectual property rights of others.
Although there are no such pending lawsuits against the Company or unresolved
notices that the Company is infringing upon intellectual property rights of
others, there can be no assurance that litigation or infringement claims will
not occur in the future. Such litigation or claims could result in
substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, financial condition and results of
operations. If it appears necessary or desirable, the Company may seek
licenses under patents or other intellectual property that it is allegedly
infringing. No assurance can be given, however, that licenses could be
obtained on commercially reasonable terms or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain the
necessary licenses or other rights could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL AND PROGRAMMING STAFF
The Company is highly dependent on key members of its management and its
programming staff . The loss of the services of any of them may adversely
affect the Company's ability to achieve its business plan. Recruiting and
retaining qualified technical personnel to carry out research and development
and technical support will be critical to the Company's future success.
Although management believes that
15
<PAGE>
the Company will continue to be successful in attracting and retaining
skilled personnel, it can offer no assurance that the Company can accomplish
this objective on acceptable terms. The Company has not implemented key
person insurance on any management employee.
Although the Company performs almost all of its software development
in-house, the Company hires the services of some individuals on a contract
basis and pays for the provisions of some services related to its business
from third parties. A disruption in the supply of such services could have an
adverse impact on its business and financial results of the Company,
particularly at a time when the Company is attempting to develop new game
software, build brand identity and customer loyalty. In addition, an increase
in prices from its service providers could also have an adverse impact on the
Company's business and financial results.
THE COMPANY'S STOCK PRICE MAY BE VOLATILE
In recent years and months, the U.S. stock market has experienced significant
price and volume fluctuations. These fluctuations, which are often unrelated
to the operating performances of specific companies, have had a substantial
effect on the market price of stocks, particularly stocks like the Company's.
It is also possible that the Company's operating results will not meet the
expectations of its public market analysts, which could have an adverse
effect on the trading price of its common shares. Accordingly, the market
price for the Company's Common Stock may fluctuate substantially.
THE COMPANY DOES NOT PLAN TO PAY DIVIDENDS
The Company has not yet realized positive net income and has not, since
incorporation, paid dividends. The Company expects to use any earnings to
fund it ongoing operations and to fund future casino software development.
MANAGEMENT OF RAPID GROWTH AND LIMITED OPERATING EXPERIENCE
The Company anticipates that the management of its growth will be a key
challenge. Failure effectively to meet this challenge could have a material
adverse effect on its operating results. Successful commercialization and
licensing of internet based casino software and websites will require
management of a number of operational activities in which the Company has
little experience. There is no assurance that, if the Company's business
grows rapidly, the Company will be able to manage such growth successfully.
SHARES ELIGIBLE FOR FUTURE SALE
At April 3, 2000, the Company had outstanding 14,682,800 shares of common
stock, $.01 par value per share (the "Common Stock") of which 5,180,300
shares were eligible for resale without restriction. In addition, there are 2
million shares of Common Stock held by directors and officers which will be
eligible for resale pursuant to Rule 144 of the Securities Act (but subject
to the relevant volume limitations) and 2.5 million shares of Common Stock
held by Diversified which would be eligible for resale but was being held for
distribution on liquidation of Diversified. See Part II, Item 4. Recent Sales
of Unregistered Securities. Under those exemptions such shares will
generally be available for resale in the U.S. one year from the date of
respective issuance. This may adversely affect the market price of the
Company's shares and could affect the amount of trading in such shares.
16
<PAGE>
This may adversely affect the market price of its shares and could affect the
amount of trading of such shares.
MINIMAL TRADING HISTORY OF COMMON STOCK - POSSIBLE STOCK PRICE VOLATILITY
The Company's Common Stock traded on the OTC Bulletin Board under the symbol
"ICRS" from August 1999 through March 2000, and under the symbol "ICRSE" from
March 2000 until April 4, 2000. The Company's stock currently has traded on
the National Quotation Bureau's "Pink Sheets" since April 5, 2000. The market
price of the Company's Common Stock could fluctuate substantially due to a
variety of factors, including market perception of its ability to achieve its
planned growth, the quarterly operating results of other Internet based
gambling and casino software development companies, the trading volume in its
Common Stock, changes in general conditions in the economy, the financial
markets or other developments affecting the Company or its competitors. In
addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance.
PENNY STOCK REGULATION
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission (the "SEC" or the "Commission"). Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered
on certain national securities exchanges or quoted on Nasdaq provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or trading system).
The penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in connection with the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock
rules generally require that prior to a transaction in a penny stock, the
broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have
the effect of reducing the level of trading activity in the secondary market
for a stock that becomes subject to the penny stock rules. The Company's
securities are presently subject to the penny stock rules, and, as a result,
investors may find it more difficult to sell its securities.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 90,900 $ $ -
Net Income (Loss) from operations (5,538,300) (191,500) -
Net Income (Loss) (5,552,100) (191,500) -
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
At December 31, At December 31, At December 31,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Working Capital (Deficiency) $(215,600) $ (65,000) $ 6,500
Total Assets 118,300 - -
Long Term Debt 19,000 - -
Stockholders' Equity (Deficit) (215,600) (65,000) 6,500
</TABLE>
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999 AND
DECEMBER 31, 1998
Revenues - Revenues were $90,900 and $0 for the fiscal years ended December
31, 1999 and 1998, respectively. The increase of $90,900 reflects the
cessation of the Company's development stage operations in the third quarter
of 1999, when it began collecting revenues from its Master License agreement.
Operating Expenses - Operating expenses are primarily comprised of research
and development and general and administrative costs. Operating expenses
were $5,629,200 and $191,500 for the fiscal years ended December 31, 1999
and 1998, respectively. The increase of $5,437,700 was a result of the
Company's embarking on its new business strategy to develop and license
Internet based gaming technology and its emergence from development stage
operations in the third quarter of 1999. Of the total expenses incurred
during the fiscal years ended December 31, 1999 and December 31, 1998,
$4,350,500 were non-cash expenses paid for through the issuance of stock.
Research and Development - The Company's research and development costs
consist primarily of costs associated with the continued development of its
Internet based casino software and the acquisition of the rights to certain
Internet based bingo software known as METROBINGO. Research and development
costs were $658,000 and $90,000 respectively for the fiscal years ended
December 31, 1999 and 1998, respectively. The $568,000 increase again
reflects the
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<PAGE>
Company's undertaking its new business strategy to develop and license
Internet based gaming software. METROBINGO was acquired in exchange for
1,450,000 shares of common stock valued at $0.19 per share, for a total cost
of $275,500. Because the technological feasibility of the bingo software had
not been established at the date of acquisition, the cost of the software
rights was expensed.
General and Administrative - The Company's general and administrative costs
consist primarily of investor relations services and e-cash services for
Internet based commercial transactions. Other costs include personnel costs,
professional and legal fees, consulting fees, travel, and Internet promotion.
General and administrative costs were $4,862,700 and $101,500 for the fiscal
years ended December 31, 1999 and 1998, respectively. The increase of
$4,761,200 again reflects the Company's undertaking its new business
strategy, which included establishing a head office in Surrey, British
Columbia, Canada and retaining fulltime staff and consultants. Of the total
amount of general and administrative costs, $4,041,200 represents one-time,
non-cash investor relations and e-cash expenses paid for through the issuance
of stock.
Net Loss - The Company incurred a net loss of $5,552,100 and $191,500 for the
fiscal years ended December 31, 1999 and 1998, respectively. The 1999 loss
was the result of the expenses incurred by the Company during its development
stage, which ceased in the third quarter of 1999, when it began to realize
revenues from licensing its Internet based casino software.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31,
1997
Revenue - The Company was in the development stage during 1998 and 1997 and
recorded no revenue for the years ended December 31, 1998 and 1997.
Operating Expenses - Operating expenses are comprised of research and
development expenses incurred in exchange for debt or stock, and general and
administrative expenses incurred in exchange for stock. Operating expenses
were $191,500 and $0 for the years ended December 31, 1998 and 1997,
respectively. The increase of $191,500 in operating expenses was a result of
the Company's embarking on its new business strategy to develop and license
Internet based gaming technology.
Research and Development - The Company's research and development costs
consisted exclusively of the cost to acquire the rights to certain Internet
based casino software from Diversified. Research and development costs were
$90,000 and $0 for the years ended December 31, 1998 and 1997, respectively.
The $90,000 reflects the Company's undertaking its new business strategy to
develop and license Internet based gaming technology. The software referred
to above was acquired in exchange for 2.5 million shares of Common Stock
valued at $0.01 per share, along with a $65,000 note payable, for a total
cost
19
<PAGE>
of $90,000. Because the technological feasibility of the software had not
been established at the date of acquisition, the cost of the software rights
was expensed.
General and Administrative - The Company's general and administrative costs
consisted primarily of promotional costs and the cost of services of
corporate officers. These costs were $101,500 and $0 for the years ended
December 31, 1998 and 1997 respectively. The increase of $101,500 from 1997
to 1998 reflects the Company's efforts to restructure its operations to focus
on the development and licensing of Internet based casino software. All
expenses were incurred in exchange for stock.
Net Loss - The Company incurred a net loss of $191,500 and $0 for the years
ended December 31, 1998 and 1997, respectively. The 1998 loss was the result
of the expenses incurred by the Company during its development stage, as it
undertook its new business strategy to acquire, develop and license Internet
based gaming software.
FLUCTUATIONS IN ANNUAL AND QUARTERLY RESULTS
The Company's annual and quarterly operating results may fluctuate
significantly in the future as a result of numerous factors, including:
1. the amount and timing of expenditures required to develop the
Company's casino and bingo software and its licensing and strategic
relationships to enhance sales and marketing;
2. changes in the growth rate of Internet usage and the interest of
consumers in using Internet based casino and bingo websites for
recreation; and
3. the emergence of new services and technologies in the market in which
the Company now competes.
The Company also faces foreign currency exchange risk as a majority of its
revenue is denominated in U.S. currency and a majority of its operating costs
are incurred in Canadian currency. Significant fluctuations in the foreign
exchange rate between U.S. and Canadian currency will result in fluctuations
in the Company's annual and quarterly results.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficiency and working capital ratio at
December 31, 1999 were $215,600 and 0.3 to 1.0, respectively, compared to
$65,000 and 0.0 to 1.0 at December 31, 1998, respectively. At December 31,
1999 and 1998, stockholders' deficit was $216,700 and $65,000, respectively.
The working capital deficiency and stockholder deficit are attributable to
the Company's being in the development stage throughout 1998 and the first
half of 1999, during which time it generated no revenues. The increase in
the working capital deficiency and stockholders' deficit in 1999 is
attributable to an increase in costs incurred to begin developing and
marketing the Company's Internet gaming software and websites, without an
equivalent increase in licensing revenues. As discussed below, $98,700 of
the Company's current liabilities is due to a related party, with which it
may negotiate repayment terms favorable to the Company's financial condition.
Another $67,000 of current liabilities consists of deferred revenue, which
will not require an outlay of cash.
20
<PAGE>
Effective April 8, 1999, the Company entered into the Master License with the
Master Licensee for use of the Company's technology. Under the terms of the
Master License, the Company is obligated to provide a minimum of six new
theme-oriented software packages and websites per year, along with updates
and technical support, and development of specified electronic payment and
accounting technology. During the first year of the Master License the
Company provided the six packages required, however, the Master Licensee has
requested special upgrades to the graphics and the games in two of the
packages. The special modifications are expected to be completed by June
2000. The Company is also obligated to provide a monthly advertising rebate
equal to the lesser of 10% of monthly net gaming revenue derived from the
Master Licensee's use of its software or the amount expended by the Master
Licensee on advertising. The Company, in return, is to receive 40% of
monthly net gaming revenue derived from use of the software by the Master
Licensee and 50% of upfront fees charged by the Master Licensee to any
sub-licensee. In the event the Company produces certain of its games on
CD-ROM and enters into a reseller agreement with the Master Licensee, the
Company will receive 10% of gross revenue derived from the Master Licensee's
sales of the software. The Master Licensee is also obligated to spend $10,000
per month on advertising for each software package and website licensed from
the Company. Under terms of an amendment to the Master License dated May 1,
1999, the Company has the option to spend up to a specified amount on
promotion of the Master Licensee's website in exchange for an additional 10%
share of net gaming revenue, not to exceed the total amount spent by the
Company on promotion.
Through December 31, 1999, the Company had realized $90,900 of revenues under
the Master License with the Master Licensee. Another $67,000 of upfront fees
received in 1999 has been deferred and will be recognized ratably over the
ten-year term of the Master License as software maintenance, customer
support, and product upgrades are delivered.
In October 1999, the Company entered into a second ten-year agreement with
the Master Licensee related to licensing three specific theme-oriented
Internet casino websites. Under this agreement, once all three sites are
ready for operation, the Company is to receive a $100,000 upfront fee. It
will then receive 40% of the first $100,000 of monthly net gaming revenue
derived from the sites and 30% of monthly net gaming revenue in excess of
$100,000. In January 2000, the Company received $67,000 of the upfront fee.
The balance of $33,000 is due once the third casino website is delivered.
In March 2000, the Company launched a free gaming website where people can
play the game Keno for free prizes. In the month of March, 2000 the site
received approximately 4,000,000 "hits". This site is structured to generate
banner-advertising revenue for the Company. Given the recent launch of this
site, management has not determined whether the current traffic is indicative
of future traffic or potential traffic growth and whether future revenues to
the Company from this or similar free sites will be significant.
As of March 31, 2000, current monthly cash flows from licensing royalties are
approximately $45,000 per month. Currently, average monthly operating cash
needs are approximately $70,000. Although cash flows from licensing revenues
have been increasing as games and websites are developed and licensed,
management does not anticipate that cash revenues will equal cash expenses
until mid 2000. However, the high level of non-cash expenses incurred by the
Company during 1999 and 1998 in exchange for stock issued is expected to be
reduced in 2000 and future periods as the Company matures.
During 1999, capital expenditures totaled $19,500. Budgeted capital
expenditures for 2000 are $40,000.
During 1999, the Company raised $915,300 of net cash proceeds (including
funding of subscription receivables) from exempt offerings or the private
placements of Common Stock. Another $78,200 of cash was raised in connection
with a convertible loan agreement. The loan obligation remains outstanding,
although the Company tendered the specified Common Stock. (See Legal
Proceedings). Financing was also provided in 1999 by Diversified, a related
party, which, through December 31, 1999, had advanced $98,700 to the Company.
In January 2000 the Company commenced negotiations to raise an additional
$200,000 of equity financing, which management hopes to complete by the end
of April 2000. During the remainder of 2000, the Company hopes to raise
another $1.5 million in private equity financing principally to fund its
software development projects. Management is pursuing numerous potential
financing sources for the $1.5 million, including existing equity holders and
new sources, but no commitments have been received. Management believes that
the Company's success in raising this additional financing will depend on the
Company's ability to demonstrate that it can fulfill its business strategy to
license its games and websites and generate significant royalty revenues.
Management also believes that stockholders will continue to support the
financing efforts of the Company as long as it continues to demonstrate that
it can fulfill that business strategy. Management also believes these plans,
coupled with cash from operations, will allow the Company to generate
sufficient cash to support its operations for the next twelve months.
However, there can be no certainty that the Company will be able to meet its
financing goals or raise sufficient financing to fund such future business
plans. In the event that the Company is unsuccessful in its efforts to raise
the capital expected to be required over the next twelve months, the Company
will need to modify its business strategy accordingly, to adjust its
operating requirements to meet its available liquidity and may need to
consider reductions in operations until capital resources or operating cash
flows are sufficient to meet operating needs.
IMPACT OF INFLATION
The Company believes that inflation has not had a material effect on its past
business.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases 1200 square feet of commercial space at 3237 King George
Highway, Suite 101-B, in Surrey, British Columbia, Canada. This facility houses
all of the Company's functions including its software development, production,
technical, marketing, and administrative operations. It also houses the
Company's subsidiary I crystal Software and all of its functions. The Company
entered into its lease on September 4, 1999 and the lease runs until January 31,
2003. The Company's total rent over the four year term of the lease is
Cdn$62,400 (approximately U.S.$43,500), at January 27, 2000, payable monthly in
installments of Cdn$1,300 (approximately U.S.$906). The Company also has an
21
<PAGE>
option to rent additional space adjacent to its current location during the
term of the lease and on the same terms.
The Company believes that existing facilities are adequate for its needs through
the middle of the year 2000. Should the Company require additional space at that
time, or prior thereto, the Company believes that such space can be secured on
commercially reasonable terms and without undue operational disruption.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables set forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 3, 2000 by (i) each
person who owns beneficially more than 5% of the Company's outstanding Common
Stock, (ii) each of the Company's directors and executive officers, and (iii)
all current directors and executive officers as a group. As of April 3, 2000
there were 14,682,800 shares of Common Stock issued and outstanding.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------------- -------------------- ----------------
<S> <C> <C>
OFFICERS AND DIRECTORS:
Larry J. Hrabi(2)(7) 199,535 *
Gerald P. Slamko(3)(7) 937,327 6.3%
Douglas J. Slamko(4)(7) 932,631 6.2%
5% STOCKHOLDERS:
AG Capital Management, Ltd. 1,000,000 6.7%
P.O. Box 612
Times Square Providenciales
Turks 7, Caicos Islands, B.W.I
CEDE & Co. (5) 4,722,665 32.2%
P.O. Box 222 Bowling Green Station
New York, NY 10274
CTC, Inc. 1,000,000 6.7%
40 Hillsborough St
Roseau, Dominica,
West Indies
Diversified(6) 2,500,000 16.8%
1103 Toronto Dominion Tower
Edmonton Centre
Edmonton, Alberta
T5J 2Z1 CANADA
Digital Commerce Bank, Ltd. 1,000,000 6.7%
1815 Hornby Street, Suite 404
Vancouver, B.C. V4Z 2E6
Power Star Corp. 1,450,000 9.7%
33 Saint George Street
Commonwealth of Dominica
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
DIRECTORS AND OFFICERS AS A 2,069,493 13.6%
GROUP (3 PERSONS): (7)
</TABLE>
* Indicates that shares beneficially owned does not exceed five (5) percent of
the class.
- ------------------------
(1) Each of the directors and officers named can be reached at the Company's
executive offices located at 3237 King George Hwy., Suite 101-B, Surrey,
B.C. V5P 1B7 Canada, except for Gerald Slamko who can be reached at #206,
11062-156th Street, Edmonton, Alberta Canada. The persons named in the
table have sole voting and investment power with respect to all shares
shown to be beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes to this
table.
(2) Mr. Hrabi is a shareholder of Diversified and based on his percentage
ownership in that company indirectly owns approximately 99,535 shares of
the Common Stock. Mr. Hrabi directly owns 100,000 shares of the
Company's Common Stock.
(3) Mr. Gerald P. Slamko is a shareholder of Diversified and based on his
percentage ownership in that company indirectly owns approximately
282,327 shares of Common Stock. Mr. Slamko's common law wife, Ms. Diane
Dutnall, owns approximately 5,000 shares Common Stock through a
percentage shareholding in Diversified. Mr. Slamko directly owns 650,000
shares of the Company's Common Stock.
(4) Mr. Douglas J. Slamko is a shareholder of Diversified and based on his
percentage ownership in that company indirectly owns approximately
243,831 shares of Common Stock. Mr. Slamko's wife, Linda Slamko, owns
approximately 38,800 shares of Common Stock through a percentage
shareholding in Diversified. Mr. Slamko directly owns 650,000 shares of
the Company's Common Stock.
(5) These shares represent beneficial holdings held of record in brokerage
accounts through Cede & Co.
(6) The shares of the Company's Common Stock owned by Diversified may be
treated as beneficially held by Diversified stockholders prorata to
their Diversified holdings including Doug Slamko (243,831 shares of
Common Stock), his wife Linda Slamko (38,800 shares of Common Stock),
Gerald Slamko (282,327 shares of Common Stock), his common law wife,
Diane Dutnall (5,000 shares of Common Sock) and Larry Hrabi (99,535
shares of Common Stock) and the remaining stockholders of Diversified
(73,5% held by approximately 300 persons) with such percentages subject
to any distributions that may be made to creditors in the dissolution
approved by Diversified's stockholders October 7, 1999. As a result of
that decision to dissolve, Diversified plans to distribute its shares of
the Company, subject to payment of the outstanding obligations, to its
shareholders.
(7) Includes percentage shareholdings in Diversified held by officers and
directors of the Company. The percentage ownership of Company Common Stock
held by the stockholder through ownership in Diversified does not take into
account the costs which will be associated with dissolving that company. A
certain portion of Company Common Stock held by Diversified will likely be
used to cover costs associated with its dissolution thereby reducing
pro-rata the Common Stock ownership of Diversified shareholders.
CHANGES IN CONTROL
There are no arrangements which would result in a change in control of the
Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Although the Company's Bylaws only authorize a Board consisting of one
director, the Company's Board currently consists of three individuals. The
Company is calling a Special Meeting of its stockholders to be held on May
15, 2000, at which
24
<PAGE>
stockholders, among other things, will be asked to approve new Bylaws which
would provide for a Board of Directors consisting of not less than two nor
more than five directors, whose number would be determined by a properly
approved resolution of the Board.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
OFFICERS AND DIRECTORS:
<S> <C> <C>
Larry J. Hrabi 48 Director, Chairman and Chief Executive Officer of the Company.
Director and Chief Executive Officer of I crystal Software.
Douglas J. Slamko 45 President of the Company.
Director and President of I crystal Software.
Gerald P. Slamko 43 Vice President, Treasurer and Chief Financial Officer of the
Company
Director, Treasurer and Chief Financial Officer of I crystal
Software
Derek Bodnarchuk 25 Director.
H. Rex Hollett 68 Director.
SENIOR TECHNOLOGY PERSONNEL:
Fabrice L'Heureux 28 Project Development Coordinator and
Creative Director.
</TABLE>
LARRY J. HRABI is the Chairman of the Company's Board of Directors and its
Chief Executive Officer. Mr. Hrabi has been a Director since December 10,
1998 and the Chief Executive Officer of the Company since December 10, 1998.
Mr. Hrabi has also served as a Director and the Chief Executive Officer of
the Company's wholly owned subsidiary, I crystal Software since August 17,
1999. Prior to joining the Company Mr. Hrabi was the President of Klein's
Hair Care Centre, a private manufacturing company he has owned since 1975.
Mr. Hrabi is also the President and major shareholder of Cleanse-Rite
Solutions.
DOUGLAS J. SLAMKO is the Company's President and has served in that capacity
since December 10, 1998. Mr. Slamko has also served as a Director and
President of the Company's wholly owned
25
<PAGE>
subsidiary, I crystal Software since August 17, 1999. Prior to joining the
Company, Mr. Slamko was President of IHC International Hair Consultants Inc.
("IHC") from 1997 and the president of HRS Hair Consultants International,
Inc. since 1993. Prior to that, Mr. Slamko was the President of Smart Hair
Care (California) and similar companies in other states which functioned as
the "Smart" group of companies. As the President of IHC, Mr. Slamko oversaw
the development of that company's franchise and licensee program, while the
business grew from one location into an international organization located in
over 40 cities. Mr. Slamko has been a director of Diversified since 1987. Mr.
Slamko has over 20 years of experience in leading company development,
including such companies as Relic Rent a Car and Budget Sports Rentals. Mr.
Slamko is the brother of Gerald P. Slamko, the Company's Treasurer and Chief
Financial Officer, and Leonard Slamko who served as a director of the Company
until he entered into a consulting relationship with the Master Licensee.
GERALD P. SLAMKO is the Company's Vice President, Treasurer and Chief
Financial Officer and has served in that capacity since December 10, 1998.
Mr. Slamko has also served as a Director, Treasurer and the Chief Financial
Officer of the Company's wholly owned subsidiary, I crystal Software, since
August 17, 1999. Mr. Slamko has been a member of the Canadian Institute of
Chartered Accountants of Alberta for the past 15 years. For more than 15
years Mr. Slamko has been the president and a director of Gerald P. Slamko
Professional Corporation, a partner in the firm of Slamko Visser, chartered
accountants. Slamko Visser provides accounting services to the Company. Mr.
Slamko has over 15 years of corporate development and accounting experience.
Since 1987 Mr. Slamko has also been a director of Diversified. Mr. Slamko is
the brother of Douglas J. Slamko, the Company's President, and Leonard Slamko
who served as a director of the Company until he entered into a consulting
relationship with the Master Licensee.
DEREK BODNARCHUK has been a member of the Company's Board of Directors since
November 3, 1999. Mr. Bodnarchuk is the president of 591879 BC Ltd., a
drive-through coffee kiosk established in October 1999 which is operated as
Celestial Blends Coffee. From August through January of 1999 Mr. Bodnarchuk
was the Manager of Delrios Restaurants. Prior to that he was a martial arts
instructor at the Academy of Martial Arts and Inner Power from December 1997
through December 1998. From June 1995 to December 1997 he was a waiter at
Delrios Restaurant.
HENRY REX HOLLETT has been a director of the Company since March 2000.
For the past 44 years Mr. Hollett has been the president and owner of B & H
Tire, Ltd. He also is presently on the council for the District of North
Cowichan, British Columbia, Canada, where he has held the title of Mayor for
over 10 years.
26
<PAGE>
FABRICE L'HEUREUX is not an executive officer but has been the Company's
Software Development Manager since July 1, 1999. Under a service contract the
Company entered into with 4250 Investments Ltd., Mr. L'Heureux is responsible
for development and design of the Company's and licensees websites and the
Company's MetroBingo Software and the overall creative and graphic design of
Company software. Mr. L'Heureux graduated form Laval University in 1995 with
a degree in Communications and Graphic Design and a degree in "Alias
Wavefront 3-D Software for the Motion Picture Industry". He has designed
numerous Websites and was the Art Director and Multi-media Producer for
ITV.net, an Internet broadcaster based in Vancouver, B.C. He is also a
creator and designer of the MetroBingo software acquired by the Company.
ITEM 6. EXECUTIVE COMPENSATION
The following table shows, for the three-year period ended December 31, 1999,
the cash and other compensation paid to the Company's Chief Executive
Officer. No other executive officer had annual compensation in excess of
$100,000 during such period.
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------ -------------------------- ---------
COMMON
NAME AND STOCK UNDER
PRINCIPAL OTHER ANNUAL OPTION/SAR'S PREFERRED LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION GRANTED STOCK PAYOUTS COMPENSATION
--------- ---- ------- ----- ------------ ------------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry Hrabi......
Chief Executive 1999 $6,000(1) -- $2,667 -- -- -- (1)
Officer 1998 0 -- -- -- -- -- --
1997 0 -- -- -- -- -- --
</TABLE>
(1) Mr. Hrabi's Service Contract with the Company provided that he be
granted 100,000 shares of Common Stock on or prior to November 1, 2000.
The compensation represented by the issuance of such stock is being
recognized monthly by the Company and Mr. Hrabi during the twelve month
period commencing November 1999 at a rate of $1,333.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
In April 4, 2000 the Company's Directors approved the 2000 Incentive Plan
of the Company subject to approval of the Company's Stockholders at the
Special Meeting of stockholders of the Company currently scheduled for
May 15, 2000. Prior to April 2000, the Company had no employee stock
option or other incentive plans. No awards have been made under the 2000
Incentive Plan.
27
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The Company has no options, exercises or values to report for its last fiscal
year.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
The Company had no long term incentive plans during 1999 and therefore has no
awards to report for its last fiscal year.
COMPENSATION OF DIRECTORS
The Directors of the Company are not compensated for their services.
CONTRACTUAL ARRANGEMENTS FOR EMPLOYMENT
On February 3, 1999 the Company entered into a Service Contract with Leonard
Slamko, whereby he agreed to serve as a marketing consultant to the Company
to develop, maintain and monitor its marketing strategies. This Service
Contract could be terminated at any time upon the provision of 14 days notice
by either party and was terminated by the Company on December 2, 1999 at
which time Mr. Slamko entered into a consulting agreement with the Master
Licensee. The Company believes Mr. Slamko's relationship with the Master
Licensee will enable it to maintain a certain degree of oversight concerning
the security of the Company's proprietary software design, and revenue
generation at the Master Licensee website. Such a relationship will also
allow the Company to have indirect feedback on how to better design and
develop its products for future licensees. Under the Service Contract Mr.
Slamko was paid $5000 per month and was entitled to receive 100,000 shares of
Common Stock prior to February 3, 2000, unless the Service Contract had been
previously terminated. Although the Company was not obligated to issue the
shares of Common Stock to Mr. Slamko upon the termination of the Service
Contract on December 2, 1999, all 100,000 shares of Common Stock were issued
to Mr. Slamko in recognition for marketing services rendered to the Company
during the 10 months he served under his service contract.
On July 1, 1999 the Company entered into a Service Contract with 4250
Investments Ltd., a personal contract company whereby Mr. L'Heureux will act
as the Company's Software Development Manager to develop websites for its
corporate and licensee clients, to administer its MetroBingo software
development project and to oversee the overall creative, graphic direction
and design efforts of the Company. This Service Contract may be terminated at
any time upon the provision of 14 days notice by either party. Under the
Service Contract 4250 Investments Ltd. was paid $4000 per month, subject to
performance reviews every three months at which time the amount of
compensation could be adjusted upward in the discretion of the president. On
November 1, 1999 monthly compensation was increased to $5,000 per month.
On November 1, 1999 the Company entered into a Service Contract with Mr.
Larry Hrabi whereby Mr. Hrabi will perform consulting work to develop and
oversee Company investor relations, and the Company's overall licensing,
sales and marketing efforts. This Service Contract may be terminated at any
time upon the provision of 14 days notice by either party. Under the Service
Contract Mr. Hrabi
28
<PAGE>
is paid $3000 per month, and was entitled to receive 100,000 shares of Common
Stock prior to November 1, 2000, unless the Service Contract has been
previously terminated by either party. All 100,000 shares of Common Stock
were issued to Mr. Hrabi on January 11, 2000.
On December 2, 1999 the Company entered into a Service Contract with Douglas
Slamko, whereby Mr. Slamko agreed to serve as president of the Company to
organize, implement and oversee overall operations and to direct the
Company's marketing program. This Service Contract may be terminated at any
time upon the provision of 14 days notice by either party. Under the Service
Contract, Mr. Slamko is paid $5000 per month, and was entitled to receive
100,000 shares of Common Stock on or prior to February 3, 2000, for services
provided in 1999 unless the Service Contract had been previously terminated
by either party. All 100,000 shares of Common Stock were issued to Mr. Slamko
on January 11, 2000.
REPORT ON PRICING OF OPTIONS/SARS
The Company had no stock option plan during the fiscal year ending December
31, 1999.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On December 1, 1998, the Company entered into the Diversified License with
Diversified, whereby the Company agreed to license, for a period of five
years, the Internet based casino software developed by Diversified. As
consideration for the license of the casino software, the Company agreed to
pay a royalty of 10% of the net revenues it obtained from the casino software
to Diversified, and Diversified was granted the Put Option to require the
Company to purchase all of the rights to the casino software from Diversified
for 2,500,000 shares of the Company's Common Stock. Messrs. Doug Slamko,
Gerald Slamko and Larry Hrabi, officers and directors of the Company, are
also shareholders of Diversified. See Part I, Item 4--Security Ownership of
Certain Beneficial Owners and Management.
On December 10, 1998, Diversified exercised the Put Option and the Company
acquired the casino software from Diversified for 2,500,000 shares of its
Common Stock, issued to Diversified, as well as additional consideration in
the form of a promissory note for Cdn$100,000 (approximately U.S.$65,000)
issued to Diversified for continued development work performed on the casino
software (the "Diversified Transaction"). As a result of the Diversified
Transaction, the 10% royalty obligation was extinguished. Prior to the
Diversified Transaction, the Company became obligated to issue 2,000,000
shares of Common Stock to Doug Slamko, Gerald Slamko and Leonard Slamko as
payment for future services to be performed for the Company over the next
twelve months. Such shares were subsequently issued on December 10, 1998.
Additionally, on December 16, 1998 2,500,000 shares of Common Stock were sold
to certain individuals who facilitated the transfer of the software from
Diversified to the Company. Douglas J. Slamko the president of the Company is
also a director, the Chief Executive Officer, the President and a shareholder
of Diversified and his wife is a shareholder of Diversified. Gerald P. Slamko
the Vice President, Treasurer and Chief Financial Officer of the Company is
also a Director, Secretary, Treasurer and a shareholder of Diversified and
his common law wife is a shareholder of Diversified. Leonard Slamko served as
a director of the Company until he entered into a consulting relationship
with the Master Licensee, and he is also a shareholder of Diversified.
29
<PAGE>
On April 8, 1999 the Company entered into an Agreement with the Master
Licensee whereby the Company agreed to license to the Master Licensee a
minimum of 6 new casino software packages and websites per year, and to
provide any updates to such casino software and websites for a term of 10
years at no extra cost. The Agreement grants the Master Licensee the right to
extend the license for an additional five years. Under the Agreement, the
Company will be entitled to 40% of the Net Gaming Revenue derived from
revenue generated by the casino or websites licensed to the Master Licensee.
Net Gaming Revenue is defined in the Agreement as gross revenues less
customer payouts, e-cash charges, fees, holdbacks, and chargebacks, and taxes
or levies to which the Master Licensee is subject. Additionally, the Company
will be entitled to 50% of up-front fees charged by the Master Licensee to
any sub-licensees, and 10% of revenue derived from sales of the software.
Under the terms of an amendment to the Licensing Agreement the Company has
the option to spend up to a specified amount on promotion of the Master
Licensee's website in exchange for an additional 10% share of net gaming
revenue, not to exceed the total amount spent by the Company. Leonard Slamko,
a director of the Company at the time the Agreement was entered into, has
entered into a consulting arrangement with the Master Licensee. Leonard
Slamko is the brother of Douglas J. Slamko and Gerald P. Slamko.
On October 15, 1999 the Company entered into an additional Agreement with
the Master Licensee whereby the Company agreed to license to the Master
Licensee three new casino software packages and websites, including updates
to such casino software and websites for a term of 10 years. Under this
Agreement the Master Licensee has the right to extend the license
indefinitely. Under the Agreement, the Company is to be paid a fee of
$100,000, payable in installments, of which $67,000 has already been paid,
with the remaining $33,000 is to be paid upon completion of the third casino
software package and website. The Company will also be entitled to 40% of the
Net Gaming Revenue derived from revenue generated by the casino or websites
licensed to the Master Licensee, up to the first $100,000 generated per
month, and 30% of Net Gaming Revenue generated per month over $100,000. The
Master Licensee shall be required to spend 10% of monthly Net Gaming Revenue
on advertising, all of which shall be subject to a rebate by the Company. The
Company had agreed to license one MetroBingo software package and websites to
the Master Licensee for no charge and a second such software package and
website for a fee of $200,000, provided that a deposit of $10,000 was paid to
the Company by December 31, 1999 and a second deposit of $40,000 was paid on
January 31, 2000 with the balance due on completion of the software package.
Neither deposit was paid and the Metrobing site will not be provided. Leonard
Slamko, a director of the Company at the time the Agreement was entered into,
has entered into a consulting arrangement with the Master Licensee. Leonard
Slamko is the brother of Douglas Slamko and Gerald Slamko.
On May 1, 1999, the Company and the Master Licensee amended the April 8, 1999
Agreement to provide that Company could spend up to $70,000 to promote its
Internet casino website over a six month period beginning May 1, 1999. In
return the Company is eligible to retain up to an additional 10% of Net
Gaming Revenue until such time as either the total of $70,000 is spent on
such promotional activities or December 31, 1999. Leonard Slamko, a director
of the Company at the time the Agreement was entered into, has entered into a
consulting arrangement with the Master Licensee. Leonard Slamko is the
brother of Douglas Slamko and Gerald Slamko.
30
<PAGE>
On August 28, 1999, the Company entered into an Agreement with Power Star
pursuant to which the Company purchased the rights to certain software known
as MetroBingo that was being developed by Power Star in exchange for an
aggregate of 1,450,000 shares of Common Stock valued at $275,500. Fabrice
L'Heureux, the Company's Project Development Coordinator and Creative
Director through the Company's Service Contract with 4250 Investments
Ltd., formerly provided services to Power Star in connection with the
creation and development of the MetroBingo software.
ITEM 8. DESCRIPTION OF SECURITIES.
The securities to be registered pursuant to this Form 10-SB are all of the
Company's authorized shares of Common Stock. There are no preemptive rights
associated with these securities and no cumulative voting is authorized by the
By-laws. The Company's Certificate of Incorporation authorizes a total share
capital of 30,000,000 of which all such shares are designated as Common Stock,
par value $0.01 per share.
Each shareholder is entitled to one vote for each share of Common Stock owned
of record. The holders of shares of Common Stock do not possess cumulative
voting rights, which means that the holders of more than 50% of the
outstanding shares voting for the election of directors can elect all of the
directors, and in such event the holders of the remaining shares will be
unable to elect any of the Company's directors. Holders of outstanding shares
of Common Stock are entitled to receive dividends out of assets legally
available at such times and in such amounts as the Company's board of
directors may determine. Upon liquidation, dissolution, or winding up, the
assets legally available for distribution to the Company's shareholders will
be distributed ratably among the holders of the shares outstanding at the
time. Holders of the Company's shares of Common Stock have no preemptive,
conversion, or subscription rights, and the Company's shares of Common Stock
are not subject to redemption. All the Company's outstanding shares of Common
Stock are fully paid and non-assessable.
There are no restrictions in the Company's Certificate of Incorporation, as
amended to date or its current Bylaws, which restrict or inhibit changes in the
voting control or ownership in the Company.
31
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's shares of Common Stock formerly traded on the OTC Bulletin
Board Market under the trading symbol "ICRS." The Company's Common Stock
initially began trading on the OTC Bulletin Board on May 20, 1998 under the
symbol "CGSI." The Company changed its name to SoftNet Industries Inc. on
November 18, 1998 and the Company's trading symbol was subsequently changed
to "SFNT" on November 24, 1998. On July 29, 1999 the Company's name was
changed to I crystal Inc. due to a conflicting name being used by another
company and its trading symbol was changed to "ICRS" on August 3, 1999 until
March 1999 when the Company's symbol changed to "ICRSE." On April 5, 2000 the
Company's stock began trading on the National Quotation Bureau's pinks
sheets. As of April 3, 2000, there were approximately 102 holders of record
and approximately 14,682,800 shares of Common Stock outstanding. The high and
low bid prices of the Company's Common Stock for each quarter of its last two
fiscal years as quoted from the OTC Bulletin Board were:
<TABLE>
<CAPTION>
QUARTER HIGH BID PRICE LOW BID PRICE
<S> <C> <C>
3rd Quarter 1998 (CGSI) $0.38 $0.25
4th Quarter 1998 (CGSI) $0.50 $0.13
4th Quarter 1998 (SFNT) $4.75 $0.13
1st Quarter 1999 (SFNT) $4.06 $1.38
2nd Quarter 1999 (SFNT) $2.00 $0.55
3rd Quarter 1999 (SFNT) $0.56 $0.33
3rd Quarter 1999 (ICRS) $0.40 $0.13
4th Quarter 1999 (ICRS) $0.26 $0.14
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not represent actual transactions.
ITEM 2. LEGAL PROCEEDINGS.
On February 15, 2000 West Peak Ventures of Canada, Inc. ("West Peak") filed a
claim against the Company in the Supreme Court of British Columbia, Canada
claiming breach of a loan agreement by the Company. West Peak has asked for
a judgment in the amount of $78,196.20, plus interest, costs and such other
relief as the court may deem necessary. As of the date hereof, the Company is
preparing its response to such claim.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Effective December 9, 1999, the Company dismissed Albright Persing &
Associates ("Albright Persing"), the Company's prior independent auditor, and
appointed Moss Adams LLP ("Moss Adams")
32
<PAGE>
as its independent auditor. The Company's decision to change its independent
auditor was made as a result of the Company's undertaking a new business
strategy and the proximity of offices of Moss Adams to the Company's new
facilities located in Surrey, British Columbia, Canada.
The Company's financial statements for the years ended December 31, 1997,
1996, and 1995 were audited by Albright Persing, whose report dated March 30,
1998 included an explanatory paragraph describing conditions that raised
substantial doubt about the Company's ability to continue as a going concern.
In addition, during these years and the years ending December 31, 1998 and
1999, there was no disagreement with Albright Persing on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the satisfaction of
Albright Persing, would have caused Albright Persing to make a reference to
the subject matter of the disagreement in connection with its report.
During 1997 and prior years and through December 9, 1999, the Company did not
consult with Moss Adams regarding either the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on the Company's financial
statements or any matter that was either the subject of a disagreement or a
reportable event with Albright Persing.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information concerning the currently
outstanding securities of the Company which were sold or issued by the
Company during the last three years without the registration of the
securities under the Securities Act in reliance on exemptions from such
registrations requirements.
At December 31, 1996 there were 3,000,000 shares of Common Stock issued and
outstanding (without giving effect to the 8:1 reverse stock split undertaken
in Fall 1998). On December 30, 1997, the Company sold an aggregate of 130,000
shares of the Company's Common Stock to less than thirty-five investors, for
an aggregate of $6,500 in cash. To the extent that U.S. securities laws were
applicable to the issuance, the issuance was made in reliance on Section 4(2)
of the Securities Act and under Rule 505 of Regulation D thereunder.
On July 6, 1998, the Company issued, for an aggregate of $15,000 in
services, an aggregate of 3,000,000 shares (or 375,000 shares after giving
effect to the 8:1 reverse stock split) of the Company's Common Stock to the
former president of the Company in a private transaction between him and the
Company with an ascribed value of $3800 in exchange for services rendered. To
the extent that U.S. securities laws were applicable to the issuance, the
issuance was made in reliance on Section 4(2) of the Securities Act and under
Rule 505 of Regulation D thereunder. As a result of the above, there were
6,130,000 shares of Common Stock of the Company issued and outstanding
without giving effect to the 8:1 reverse stock split and 766,250 shares after
the reverse split. Unless otherwise indicated, all share data set forth below
gives effect to the reverse split.
33
<PAGE>
On December 10, 1998, the Company issued 2,500,000 shares of its Common Stock
to Diversified when Diversified exercised the option granted to it on
December 1, 1998. The transaction for Diversified's casino software was
valued at $25,000. The Company also delivered a Cdn$100,000 (U.S.$65,000)
Note for additional development undertaken by Diversified after the
transaction. The note was subsequently paid. Certain officers and
shareholders of Diversified are directors or executive officers of the
Company. Diversified is a corporation organized under the laws of Alberta
with a number of shareholders, including certain officers and directors of
the Company. The transaction was negotiated between the Company and
Diversified. To the extent that U.S. securities laws were applicable to the
issuance, the issuance was made in reliance on Section 4(2) of the Securities
Act and under Rule 506 of Regulation D thereunder as a private transaction
between the two entities, not involving a public offering. The 2,500,000
shares continue to be held by Diversified and no distribution of the shares
has been made.
On December 10, 1998, the Company issued 2,000,000 shares of Common Stock to
four persons, three of whom are officers and directors, and one of whom was
their adult sister and all of whom are residents in Canada. The consideration
consisted of a $20,000 cash subscription receivable and services in the
amount of $60,000 to be rendered to the Company by the officers and directors
and cash paid by all parties. The services were rendered throughout 1999 and
the $20,000 was paid in March 1999. To the extent that U.S. securities laws
were applicable to the issuance, the issuance was made in reliance on Section
4(2) of the Securities Act and under Rule 506 of Regulation D thereunder as
a private transaction between the Company and 3 related parties and one party
with prior knowledge and understanding of the Company.
On December 16, 1998, the Company issued 2,500,000 shares of Common Stock to
persons all of which are residents of Canada in exchange for $25,000 in
subscription receivables and for services rendered to the Company in the
amount of $75,000 by the individuals, including persons who provided
promotional and investor services. To the extent that U.S. securities laws
were applicable to the issuance, the issuance was of exempt securities made
in reliance on Section 3(b) of the Securities Act and under Rule 504 (as in
effect on that date) of Regulation D thereunder.
On March 30, 1999, the Company sold, for an aggregate of $800,300 cash, net
of issue costs, and investor relation services valued at $2,272,800, a total
of 1,914,000 shares of its Common Stock in placement to less than thirty-five
investors including individuals resident in Canada and the United States. The
transaction was undertaken as a direct transaction between the Company and
the investors without any public offering. To the extent that U.S. securities
laws were applicable to the issuance, the issuance was of exempt securities
in reliance on Section 3(b) of the Securities Act and under Rule 504 (as in
effect on that date) of Regulation D thereunder.
Effective April 14, 1999, the Company issued 1,000,000 shares of Common Stock
pursuant to a Letter of Intent with Digital Commerce Bank, Ltd. ("Digital
Commerce") whereby Digital Commerce would issue to the Company a merchant
number for use in processing credit card transactions. A non-refundable up
front fee for receipt of the Digital Commerce merchant number was paid by the
Company and recorded as an expense of $1,436,500. To the extent that U.S.
securities laws were applicable to the issuance, the issuance was made in
reliance on Section 4(2) of the Securities Act and under Rule 506 of
Regulation D thereunder as a private transaction negotiated between the two
entities and in connection with their overall business transaction.
On August 16, 1999, the Company received a convertible loan in the amount of
$78,196 from West Peak. The proceeds of the loan were paid to the Company
through Diversified which acted as account manager for the Company. The loan
was repayable as of November 30, 1999, and bore an interest rate equal to the
U.S. prime rate plus 2%. Although the Company converted the principal into
200,000 shares of Common Stock in December 1999, in February 2000 West Peak
filed suit claiming breach of the terms of the loan and claimed as damages
repayment of the principal amount of approximately $78,200 plus interest and
costs. For purposes of the registration statement the shares are treated as
not outstanding at April 3, 2000, without prejudice to the Company's position
in the litigation. To the extent the U.S. securities laws applied to the loan
and the conversion, the transaction with West Peak, a Canadian entity with
business and investment experience, was undertaken as a private transaction
between the Company and West Peak in reliance of Section 4(2) of the
Securities Act and under rule 506 of Regulation D thereunder.
On August 28, 1999, the Company entered into an Agreement with Power Star
pursuant to which the Company purchased all of the rights to certain software
known as MetroBingo that was being developed by Power Star in exchange for
1,450,000 shares of Common Stock with an aggregate value of $275,500. To the
extent that U.S. securities laws were applicable to the issuance, the issuance
was
34
<PAGE>
made in reliance on Section 4(2) of the Securities Act and under Rule 505 and
506 of Regulation D thereunder as a private transaction negotiated between
the two entities not involving a public offering.
On October 5, 1999, the Company agreed to issue 1,000,000 shares of Common
Stock to AG Capital Management, Ltd. ("AG Capital") in exchange for cash and
services rendered in the aggregate amount of $200,000. All 1,000,000 of these
shares were subsequently issued on January 11, 2000. To the extent that U.S.
securities laws were applicable to the issuance, the issuance was made in
reliance on Section 4(2) of the Securities Act and under Rule 506 of
Regulation D thereunder as a private transaction negotiated between two
entities, not involving a public offering.
On October 7, 1999, the Company agreed to issue 1,000,000 shares of Common
Stock valued at $180,000 to CTC Inc., in lieu of payment by the Company of a
one-time service fee for the provision of electronic commerce and cash
services. All 1,000,000 of these shares were subsequently issued on January
11, 2000. To the extent that U.S. securities laws were applicable to the
issuance, the issuance was made in reliance on Section 4(2) of the Securities
Act and under Rule 506 of Regulation D thereunder as a private transaction
negotiated between two entities, not involving a public offering.
On March 13, 2000, I crystal Software entered into an Agreement with
American Amusements whereby 250,000 shares of Common Stock of the Company in
exchange for the granting to I crystal Software a five year exclusive license
for Internet based use of a variety of video gaming software developed by
AAC. Under the terms of the Agreement AAC will be entitled to receive 11% of
the net gaming revenue derived from casino websites which I crystal Software
re-licenses using AAC software. To the extent that U.S. securities laws were
applicable to the issuance, the issuance was made in reliance on Section 4(2)
of the Securities Act and under Rule 506 of Regulation D thereunder as a
private transaction negotiated between two entities, not involving a public
offering.
Additionally, the Company has issued Common Stock in exchange for services
rendered by the following companies and individuals. To the extent that U.S.
securities laws were applicable to the issuance, the issuance was made in
reliance on Section 4(2) of the Securities Act and under Rule 701 thereunder
with respect to the individuals listed and Rule 506 with respect to the
entities based on their knowledge of the Company and its business and general
investment experience:
<TABLE>
<CAPTION>
NAME DATE OF ISSUE NUMBER OF SHARES PRICE PER SHARE AGGREGATE PRICE
---- ------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
RSA Software 4-22-99 25,000 $1.35 $33,800
734633 Alberta Ltd. 6-28-99 127,500 $0.50 $63,800
Sean Comeau 7-01-99 100,000 $0.47 $47,000
Larry J. Hrabi 11-01-99 100,000 $0.16 $16,000
Douglas J. Slamko 12-02-99 100,000 $0.17 $17,000
Leonard Slamko 12-02-99 100,000 $0.17 $17,000
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Eight of the Company's Certificate of Incorporation provides that the
directors of the Company shall not be liable to the Company or the
shareholders of the Company for a breach of fiduciary duty unless such breach
involves (1) the director's duty of loyalty to the Company, (2) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (3) liability for unlawful payments of
dividends or stock purchases or redemption's by the Company, or (4) a
35
<PAGE>
transaction from which a director derives an improper personal benefit. The
Company has no other provisions or arrangements covering Director or Officer
indemnification.
36
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
INDEPENDENT AUDITOR'S REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<PAGE>
I CRYSTAL INC.
TABLE OF CONTENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITOR'S REPORT..................................... 1
FINANCIAL STATEMENTS
Balance Sheet............................................... 2
Statement of Operations..................................... 3
Statement of Stockholders' Deficit.......................... 4
Statement of Cash Flows..................................... 5
Notes to Consolidated Financial Statements................ 6-14
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
I crystal, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of I crystal,
Inc. (formerly named Softnet Industries, Inc. and Cable Group South, Inc.)
and Subsidiary as of December 31, 1999, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of
the two years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of I crystal, Inc.
and Subsidiary as of December 31, 1999, and the results of their consolidated
operations and their cash flows for each of the two years then ended in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses since its inception and
has a net stockholders' deficit. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans
regarding those matters also are described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Moss Adams LLP
Bellingham, Washington
March 31, 2000
<PAGE>
I CRYSTAL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 23,800
Accounts receivable 75,700
Prepaid expenses 900
----------------
Total current assets 100,400
PROPERTY AND EQUIPMENT, net 17,900
----------------
TOTAL ASSETS $ 118,300
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 72,100
Advances from related party 98,700
Deferred revenue 67,000
Convertible debt 78,200
----------------
Total current liabilities 316,000
ADVANCES FROM STOCKHOLDERS 19,000
----------------
Total liabilities 335,000
----------------
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par value, 30 million shares authorized;
14,682,800 shares issued and outstanding 146,900
Additional paid-in capital 5,471,300
Deferred compensation (59,300)
Accumulated deficit (5,775,600)
----------------
Total stockholders' deficit (216,700)
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 118,300
================
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS. 2
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
REVENUE
Software royalties $ 90,900 $ -
--------------- ----------------
OPERATING EXPENSES
General and administrative 4,862,700 101,500
Research and development 658,000 90,000
Sales and marketing 108,500 -
--------------- ----------------
Total operating expenses 5,629,200 191,500
--------------- ----------------
LOSS FROM OPERATIONS (5,538,300) (191,500)
---------------- -----------------
OTHER EXPENSE
Finance costs 12,000 -
Interest 1,800 -
--------------- ----------------
Total other expense 13,800 -
--------------- ----------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (5,552,100) (191,500)
PROVISION FOR INCOME TAXES -
-------------- ----------------
NET LOSS $ (5,552,100) $ (191,500)
============== ================
EARNINGS (LOSS) PER SHARE
Basic and diluted $ (0.52) $(0.26)
======== ======
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS. 3
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Stock
----------------------- Paid-in Subscription Deferred Accumulated
Shares Amount Capital Receivable Compensation Deficit Total
---------- --------- ---------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 3,130,000 $ 31,300 $ 7,200 $ - $ - $ (32,000) $ 6,500
Effect of one-for-eight
reverse stock split (2,738,700) (27,400) 27,400 - - - -
Stock issued for services 375,000 3,800 11,200 - - - 15,000
Stock issued to related
party for acquired
research and development 2,500,000 25,000 - - - - 25,000
Stock issued to officers
for services and stock
subscription receivable 2,000,000 20,000 60,000 (20,000) (60,000) - -
Stock issued for future
services and stock
subscription receivable 2,500,000 25,000 75,000 (25,000) - - 75,000
Amortization of deferred
compensation - - - - 5,000 - 5,000
Net loss - - - - - (191,500) (191,500)
----------- -------- ---------- --------- --------- ----------- ------------
BALANCE, December 31, 1998 7,766,300 77,700 180,800 (45,000) (55,000) (223,500) (65,000)
Stock issued for cash and
investor relations services,
net of $156,600 issue costs 1,914,000 19,100 3,054,000 - - - 3,073,100
Stock issued for merchant
banking services 1,000,000 10,000 1,426,500 - - - 1,436,500
Stock issued for computer
programming services 25,000 300 33,500 - - - 33,800
Stock issued for future
computer programming
services 127,500 1,300 62,500 - (63,800) - -
Stock issued for future
computer programming
services 100,000 1,000 46,000 - (47,000) - -
Stock issued for acquired
research and development 1,450,000 14,500 261,000 - - - 275,500
Stock issued to officer for
future management services 100,000 1,000 15,000 - (16,000) - -
Stock issued for cash and
consulting services 1,000,000 10,000 190,000 - - - 200,000
Stock issued to officer and
former officer for
management services 200,000 2,000 32,000 - - - 34,000
Stock issued for merchant
banking services 1,000,000 10,000 170,000 - - - 180,000
Collection of stock
subscription receivable - - - 45,000 - - 45,000
Amortization of deferred
compensation - - - - 122,500 - 122,500
Net loss - - - - - (5,552,100) (5,552,100)
----------- -------- ---------- --------- --------- ----------- ------------
BALANCE, December 31, 1999 14,682,800 $146,900 $ 5,471,300 $ - $ (59,300) $(5,775,600) $ (216,700)
=========== ======== =========== ========= ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS. 4
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,552,100) $ (191,500)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH FROM OPERATING ACTIVITIES
Amortization of deferred compensation 122,500 5,000
Depreciation 1,600 -
Noncash research and development expenses
incurred in exchange for debt - 65,000
Noncash research and development expenses
incurred in exchange for stock 309,300 25,000
Noncash general and administrative expenses
incurred in exchange for stock 4,041,200 90,000
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts receivable (75,700) -
Prepaid expenses (900) -
Accounts payable 72,100 -
Deferred revenue 67,000 -
------------- -------------
Net cash from operating activities (1,015,000) (6,500)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (19,500) -
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceed from stock issuances 836,400 -
Advances from related parties, net 98,700 -
Proceeds from convertible debt 78,200 -
Collection of stock subscription receivables 45,000 -
------------- -------------
Net cash from financing activities 1,058,300 -
------------- -------------
NET CHANGE IN CASH 23,800 (6,500)
CASH, BEGINNING OF PERIOD - 6,500
------------- -------------
CASH, end of period $ 23,800 $ -
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 1,600 $ -
============= =============
Income taxes paid $ - $ -
============= =============
NONCASH TRANSACTIONS
Stock issued for future services $ 126,800 $ 60,000
============= =============
Stock issued for stock subscriptions receivable $ - $ 45,000
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS. 5
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND CESSATION OF DEVELOPMENT STAGE OPERATIONS
ORGANIZATION
I crystal, Inc. (the Company or I crystal) was incorporated October 5,
1994 in the state of Delaware as Cable Group South, Inc. In November
1998, the Company changed its name to Softnet Industries, Inc.; and, in
June 1999, to avoid a conflict with another company with a similar name,
the name was changed again to I crystal, Inc.
In July 1998, after giving affect to the reverse stock split discussed
below, the Company president received 375,000 shares of common stock in
exchange for services. Effective October 19, 1998, stockholders approved
an eight to one reverse stock split, reducing the number of outstanding
shares from 6,130,000 to 766,300. All references in the accompanying
financial statements to number of shares and per share amounts have been
restated to reflect the reduced number of shares outstanding.
On December 1, 1998, the Company entered into a memorandum of agreement
with Diversified Cosmetics International, Inc. (Diversified), a related
party (Note 8), to license the rights to certain internet-based gaming
software that was in the process of being developed by Diversified.
Under terms of the agreement, Diversified had the option to require the
Company to purchase the rights, including all source code and technical
specifications, graphics, domain names and trademarks, in exchange for
2.5 million shares of common stock. Diversified exercised its option on
December 10, 1998. Consideration also included a $65,000 note payable
given for the additional amount of development undertaken by Diversified
subsequent to entering into the agreement. The note was paid in full
during 1999.
Concurrent with the acquisition of the software rights, the Company
issued two million shares to certain owners of Diversified. The shares
were issued in exchange for stock subscriptions receivable and for
future services to be provided in their capacity as corporate officers
of I crystal. Another 2.5 million shares were issued to certain
individuals in exchange for stock subscriptions receivable and for
services provided in connection with facilitating the transfer of the
software from Diversified to the Company.
CESSATION OF DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN
For the period October 5, 1994 through June 30, 1999, the Company's
efforts were devoted to corporate structuring, financial and business
planning, recruiting directors and advisors, raising additional
financing, establishing the technological feasibility of the gaming
software acquired from Diversified, and negotiating a master license
agreement. Accordingly, through June 30, 1999, the Company was
characterized as a development stage company. Development stage
operations were financed primarily through the issuance of shares of
common stock for services and, in March 1999, the issuance of 1,914,000
shares of common stock for net proceeds of $800,300. Prior to the March
1999 issuance, the Company had no material amount of assets or
liabilities.
In September 1999, the Company established offices in Surrey, British
Columbia, where it engages in developing and licensing software related
to the internet gaming industry. Products include various theme-oriented
blackjack and poker games, slot machines, and bingo games. The Company
does not conduct any gaming activities itself but has entered into a
nonexclusive master license agreement with DCI, Inc. (Master Licensee),
a related party (Note 8), for use of the Company's gaming technology. In
the third quarter of 1999, the Company began realizing revenues from
this agreement and development stage operations ceased.
On August 17, 1999, I crystal Software Inc. (I crystal Software) was
incorporated in the province of British Columbia, Canada. Upon
incorporation, all founding shares were issued to the officers of I
crystal. Effective December 13, 1999, the officers contributed all
shares to the Company, at which time I crystal Software became a
wholly-owned subsidiary of I crystal. I crystal Software has
subsequently carried out essentially all of the Company's software
development activity.
6
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND CESSATION OF DEVELOPMENT STAGE OPERATIONS (Continued)
The Company has incurred net losses since inception; and, at
December 31, 1999, it had a working capital deficiency of $215,600 and
a stockholders' deficit of $216,700. The Company has not yet
generated revenues sufficient to fund its operations. Accordingly,
the Company's ability to accomplish its business strategy and to
ultimately achieve profitable operations is dependent on its capacity
to obtain additional financing and execute its business plan.
Although cash flows from licensing revenues have been increasing as
games and websites are developed and licensed, management does not
anticipate that cash revenues will be adequate to fund its cash
expenses until mid 2000. The high level of non-cash expenses
incurred during 1999 and 1998 in exchange for stock is not expected
to be repeated in 2000 and future periods. Management also believes
that it may be able to negotiate favorable terms of repayment for
the $98,700 of advances from Diversified, a related party (Note 8).
In January 2000, the Company commenced negotiations to raise an
additional $200,000 of equity financing, which management hopes to
complete by the end of April 2000. During the remainder of 2000, the
Company intends to raise another $1.5 million in private equity
financing. Proceeds will be used to fund its software development
projects. Success in raising this additional financing is dependent
on the Company's ability to demonstrate that it can fulfill its
business strategy to license its games and websites and generate
significant royalty revenues. Management believes these plans will
allow the Company to generate sufficient cash to support its
operations through December 31, 2000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of I crystal, Inc. and Subsidiary
include the accounts of its wholly-owned subsidiary, I crystal Software,
Inc. All material intercompany accounts and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
All highly liquid investments, with a maturity of three months or less
at the time of purchase, are considered to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company extends credit to licensees on an unsecured basis.
Management establishes allowances for doubtful accounts based on
evaluation of historical and current payment trends as well as
consideration of specific collection issues that may require additional
specific allowances. At December 31, 1999, all accounts receivable were
considered to be fully collectible.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed
using the straight-line method over six years.
VALUATION OF LONG-LIVED ASSETS
The Company periodically reviews long-lived assets, including
identifiable intangible assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset may be
impaired and not recoverable. Adjustments are made if the sum of the
expected future undiscounted cash flows is less than the carrying
amount.
REVENUE RECOGNITION
The Company recognizes revenue when earned, in accordance with American
Institute of Certified Public Accountants Statement of Position (SOP)
97-2, SOFTWARE REVENUE RECOGNITION, and SOP 98-9, MODIFICATION OF SOP
97-2 WITH RESPECT TO CERTAIN TRANSACTIONS. Royalties based upon
licensees' net gaming revenues are recognized as licensees' revenues are
earned. In the event that licensee's revenue recognition criteria are
not met, revenue is recognized when received. Revenue from packaged
product sales to and through distributors and resellers is recorded when
related products are shipped. Revenue attributable to significant
undelivered elements, including maintenance and technical support, is
recognized over the contract period as elements are delivered.
7
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SOFTWARE DEVELOPMENT COSTS
Costs incurred for research and development of software developed for
resale or licensing are expensed until either technological feasibility
is proven or a working copy of the software is completed. Costs incurred
once feasibility has been established, but prior to release to
customers, are capitalized and amortized on a product-by-product basis.
At the time the software rights described in Note 1 were acquired in
exchange for stock and a note payable from Diversified, a related party
(Note 8), technological feasibility of the software had not been
established. Accordingly, the $90,000 of consideration given by the
Company for the software rights was charged to research and development
expense. Technological feasibility of the software was established in
late March 1999. As described in Note 8, on April 8, 1999, the Company
entered into a master license agreement for the use of the software. Due
to the short period of time between which technological feasibility was
established and the product was available for release to the Master
Licensee, the Company incurred no material amount of development costs
requiring capitalization.
Effective August 28, 1999, the Company acquired from Power Star, Inc.
(Power Star) the software rights and related source codes, domain names,
websites, and trademarks for certain internet-based gaming technology
under development known as METROBINGO. In exchange, the Company is
obligated to issue 1,450,000 shares of common stock to Power Star. At
the time of the acquisition, technological feasibility of the software
had not been established, and the consideration given by the Company for
the software rights was charged to research and development expense. The
Company has continued to develop the software, but as of December 31,
1999 technological feasibility was still not established. The Company
hopes to complete development during the third quarter of 2000.
INCOME TAXES
The Company accounts for income taxes using the liability method.
Deferred income taxes are provided for temporary differences between the
basis of assets and liabilities for financial reporting and income tax
purposes at enacted tax rates. Deferred tax amounts represent the future
tax consequences of those differences, which will be either deductible
or taxable when the assets and liabilities are recovered or settled.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
EARNINGS PER SHARE
Basic earnings per share amounts are computed based on the weighted
average number of shares outstanding during the period, after giving
retroactive effect to stock splits. Diluted earnings per share are
computed by determining the number of additional shares that are deemed
outstanding due to share equivalents.
SEGMENT INFORMATION
The Company reports segments in accordance with Statement of Financial
Accounting Standards (SFAS) No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires that
reportable segments be designated using a management approach, which
relies on the internal organization used by management for making
operational decisions and assessing performance. SFAS No. 131 also
requires certain disclosures about products and services, geographic
areas, and major customers. Management assesses the performance of its
operations as a single segment.
ADVERTISING
Advertising costs are charged to operations when incurred. During 1999
and 1998, advertising expense totaled $84,000 and $-0-, respectively.
8
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Among
other provisions, SFAS No. 133 requires that entities recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those financial instruments at fair value. Accounting for
changes in fair value is dependent on the use of the derivatives and
whether such use qualifies as hedging activity. The new standard, as
amended, becomes effective for the Company in fiscal 2001, and
management is currently assessing the impact, if any, it may have on
financial position and results of operations.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1999:
<TABLE>
<S> <C>
Computer equipment $ 17,200
Furniture and fixtures 2,300
---------------
19,500
Less accumulated depreciation (1,600)
---------------
$ 17,900
===============
</TABLE>
Depreciation expense in 1999 and 1998 was $1,600 and $-0-,
respectively.
NOTE 4 - CONVERTIBLE DEBT
In August 1999, the Company received a $78,200 loan from West Peak
Ventures of Canada, Inc. (West Peak). Under the terms of the loan,
the advance is unsecured and bears interest at 2% above the prime
banking lending rate. The loan was due in full on November 30, 1999,
unless converted into 200,000 common shares of the Company, which the
Company agreed to register for resale at the request of West Peak. On
December 23, 1999 the Company issued 200,000 common shares to West
Peak. West Peak did not accept the shares tendered based on its
position that the shares were to be registered on delivery. On
February 15, 2000, after negotiations to resolve the issue failed,
West Peak filed a claim against the Company in the Supreme Court of
British Columbia, Canada, claiming breach of the loan agreement.
West Peak is seeking $78,200 plus interest, costs and such other
relief as the Court may deem necessary. As of March 31, 2000,
management believes that the Company has not yet been properly served
in the action. Due to the uncertainties surrounding this matter, the
Company continues to report an obligation for the $78,200 loan rather
than the 200,000 common shares.
NOTE 5 - INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Deferred income tax benefit $ 1,887,700 $ 65,100
Increase in valuation allowance (1,887,700) (65,100)
-------------- ---------------
$ - $ -
=============== ===============
</TABLE>
The total provision differs from the amount computed using statutory tax
rates as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Tax benefit at statutory rate of 34% $ 1,887,700 $ 65,100
Increase in valuation allowance (1,887,700) (65,100)
-------------- ---------------
$ - $ -
=============== ===============
</TABLE>
9
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
NOTE 5 - INCOME TAXES (Continued)
Tax effects of temporary differences that give rise to deferred tax
assets, based on a 34% tax rate, consist solely of a $1,963,700 benefit
from net operating loss carryforwards. The Company has incurred losses
since its inception and has filed no income tax returns. The losses
incurred to date may be limited due to a change in control of the
Company and limitations on the deductibility of services received in
exchange for issuance of common stock. Management currently believes
uncertainty exists surrounding realization of the deferred tax asset and
has recorded a $1,963,700 valuation allowance to offset completely the
carrying amount of the asset.
In the event the Company files all delinquent tax returns and is able to
recognize some portion of the losses generated, the carryforward period
of net operating losses begins to expire in 2009.
NOTE 6 - EARNINGS PER SHARE
The numerators and denominators of basic and diluted earnings per share
are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Numerator - net loss $ (5,552,100) $ (191,500)
============== ===============
Denominator - weighted average
number of shares outstanding 10,705,600 735,300
=============== ===============
</TABLE>
At December 31, 1999 and 1998, the Company had no potential common
shares that would have had a dilutive effect.
NOTE 7 - CAPITAL STOCK AND STOCK-BASED COMPENSATION
The Company has a single class of $0.01 par value common stock. Thirty
million shares are authorized and 14,682,800 shares are issued (or
committed to be issued) and outstanding at December 31, 1999. On October
19, 1998, the Board of Directors approved a one-for-eight reverse stock
split. The par value of common stock remained unchanged. All references
in the accompanying financial statements to number of shares and per
share amounts have been restated to reflect the reduced number of shares
outstanding.
During 1999, the Company issued (or committed to be issued) a total of
6,916,500 shares, as follows:
- 1,914,000 shares issued on March 30, 1999 for $800,300 of net
cash proceeds and investor relation services.
- 1.0 million shares issued on April 14, 1999 for merchant banking
services.
- 25,000 shares issued on April 22, 1999 for computer programming
services.
- 127,500 shares issued on June 28, 1999 for future computer
programming services. Deferred compensation is being recognized
ratably over seven months.
- 100,000 shares issued on July 1, 1999 for future computer
programming services. Deferred compensation is being recognized
ratably over 25 months.
- 1,450,000 shares issued on August 24, 1999 for certain gaming
technology under development known as METROBINGO
- 100,000 shares issued on November 1, 1999 to an officer of the
Company for future management services. Deferred compensation is
being recognized ratably over 12 months.
NOTE 7 - CAPITAL STOCK AND STOCK-BASED COMPENSATION (Continued)
10
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
- 1.0 million shares issued on December 1, 1999 for $70,000 of cash
proceeds and consulting services.
- 100,000 shares issued on December 2, 1999 to an officer of the
Company.
- 100,000 shares issued on December 2, 1999 to a former officer of
the Company.
- 1.0 million shares issued on December 3, 1999 for merchant
banking services.
In December 1999, the Company issued an additional 200,000 shares of
common stock that are not reflected above. The shares were issued in
connection with the terms of the convertible debt described in Note 4.
Because the shares were not accepted as settlement for the convertible
debt, they have not been presented as issued and outstanding.
During 1998, after giving affect to the reverse stock split, the Company
issued (or committed to issue) a total of 7,375,000 shares, as follows:
- 375,000 shares issued July 6, 1998 for services of the Company
President through November 1998.
- 2.5 million shares issued December 10, 1998 to Diversified, a
related party (Note 7), along with a $65,000 note payable, for
the rights to certain software under development (Notes 1 and 2).
- 2.0 million shares issued December 10, 1998 to the Company's
officers for a $20,000 stock subscription receivable and for
future services. Deferred compensation is being recognized
ratably over twelve months.
- 2.5 million shares issued December 16, 1998 for a $25,000 stock
subscription receivable and for services provided in connection
with facilitating the transfer of the software from Diversified
to the Company.
Subsequent to December 31, 1999, the Company was in the process of
exploring several options to raise additional private equity financing.
As of March 31, 2000, it had made no firm commitments. It was also in
the process of developing a stock option plan.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company is affiliated with the following entities:
DIVERSIFIED COSMETICS INTERNATIONAL, INC. (DIVERSIFIED)
The Company is affiliated with Diversified through common ownership.
Diversified is an Alberta corporation that was previously listed on the
Alberta Stock Exchange. As described in Note 1, in December 1998, the
Company acquired certain software rights from Diversified. Subsequent to
the transfer of the technology to the Company, Diversified has had no
significant business operations; and, as of March 23, 2000, it was in
the process of winding down its affairs.
Prior to the Company establishing its own bank account, all cash
transactions were deposited in and disbursed from Diversified's bank
account. Diversified has also paid various expenses on the Company's
behalf. The net effect of these circumstances has resulted in the
Company owing Diversified $98,700 at December 31, 1999. During 1999, the
Company paid $6,700 of management fees to Diversified for providing
these services.
11
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)
Unaudited summarized financial information for Diversified as of January
31, 1999 and for the year then ended is as follows:
<TABLE>
<CAPTION>
1/31/99
(UNAUDITED)
---------------
<S> <C>
Current assets $ 101,600
Investment in I crystal 25,000
Due from I crystal 43,900
---------------
Total assets $ 170,500
===============
Current liabilities $ 120,700
Noncurrent Liabilities 1,400
Redeemable preferred stock 1,500
Stockholders' equity 46,900
---------------
Total liabilities and stockholders' equity $ 170,500
===============
</TABLE>
<TABLE>
<CAPTION>
1/31/99 1/31/98
(UNAUDITED) (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Revenue $ 400 $ 500
Operating expenses 279,900 46,700
--------------- ---------------
Operating loss (279,500) (46,200)
Other income 138,000 -
Income tax - -
--------------- ---------------
Net loss $ (141,500) $ (46,200)
=============== ================
</TABLE>
DCI, INC. (THE MASTER LICENSEE)
Effective April 8, 1999, the Company entered into a ten-year
nonexclusive master license agreement with the Master Licensee for use
of the Company's technology. Essentially all of the Company's subsequent
revenue has been realized under this agreement. A consultant retained by
the Master Licensee is an individual who is a stockholder of the Company
and a relative of officers and directors of the Company. The Master
Licensee is incorporated in the Commonwealth of Dominica, where it is
licensed to conduct international wagering, lotteries and games of
chance by way of telecommunications.
Under terms of the license agreement, the Company is obligated to
provide a minimum of six new theme-oriented software packages and
websites per year, along with updates and technical support, and
development of specified electronic payment and accounting technology.
The Company is also obligated to provide a monthly advertising rebate
equal to the lesser of 10% of monthly net gaming revenue derived from
the Master Licensee's use of its software or the amount expended by the
Master Licensee on advertising.
The Company, in return, is to receive 40% of monthly net gaming revenue
derived from use of the software by the Master Licensee and 50% of
upfront fees charged by the Master Licensee to any sub-licensee. In the
event the Company produces certain of its games on CD-ROM and enters
into a reseller agreement with the Master Licensee, the Company will
receive 10% of gross revenue derived from the Master Licensee's sales of
the software. The Master licensee is also obligated to spend $10,000 per
month on advertising for each software package and website licensed from
the Company. Under terms of an amendment to the licensing agreement
dated May 1, 1999, the Company has the option to spend up to a specified
amount on promotion of the Master licensee's website in exchange for an
additional 10% share of net gaming revenue, not to exceed the total
amount spent by the Company on promotion.
12
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)
In connection with the agreement, the Company also received $67,000
of a $100,000 upfront fee. The remaining $33,000 is due from the Master
Licensee when the Company has completed development of a specified
software package. Recognition of the $67,000 of revenue received in 1999
has been deferred. Once the final amount is received, the total balance
will be recognized over the remainder of the ten-year term of the
agreement, as ongoing maintenance, support and upgrades are delivered.
In October 1999, the Company entered into a second ten-year agreement
with the Master Licensee related to licensing three specific
theme-oriented internet casino sites. Under this agreement, once all
three sites are ready for operation, the Company is to receive an
upfront fee. It will then receive 40% of the first $100,000 of monthly
net gaming revenue derived from the sites and 30% of monthly net gaming
revenue in excess of $100,000.
SLAMKO VISSER, CHARTERED ACCOUNTANTS (SLAMKO VISSER)
The Company is affiliated with the Canadian chartered accounting firm
Slamko Visser through common ownership. Subsequent to December 31, 1998,
the Company employed the services of Slamko Visser to maintain its
accounting system and records. During 1999, the Company paid $22,000 to
Slamko Visser for consulting and accounting fees and related costs.
NOTE 9 - SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
SEGMENT INFORMATION
The Company's primary operations consist of the development and
licensing of internet-based gaming technology. Management assesses the
performance of its operations as a single segment. Through June 30,
1999, the Company's efforts were focused primarily on development stage
operations, and no material activities occurred within this segment
prior to that date. The following tables and schedules summarize certain
information about this segment.
<TABLE>
<CAPTION>
Internet Gaming
Software Development
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
External revenues $ 90,900 $ -
Intersegment revenues - -
Interest expense 800 -
Depreciation and amortization 1,400 -
Segment loss before tax (688,800) (90,000)
Income tax expense - -
Segment loss (688,800) (90,000)
Segment assets 101,900 -
Expenditures for segment assets 15,600 -
Total revenues for reportable segments $ 90,900 $ -
Less intersegment revenues - -
--------------- ---------------
$ 90,900 $ -
=============== ===============
Total loss before tax for reportable segments $ (688,800) $ (90,000)
Corporate headquarters expense (4,863,300) (101,500)
--------------- ---------------
Consolidated total $ (5,552,100) $ (191,500)
=============== ===============
</TABLE>
13
<PAGE>
I CRYSTAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
NOTE 9 - SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Total assets for reportable segments $ 101,900 $ -
Corporate headquarters assets 16,400 -
--------------- ---------------
Consolidated total $ 118,300 $ -
=============== ===============
</TABLE>
GEOGRAPHIC INFORMATION
Following is a summary of revenues and long-lived assets related to the
respective countries in which the Company operates. Revenues are
attributed to countries based on location of customers.
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------
Long-Lived
Revenues Assets Revenues
--------------- --------------- ---------------
<S> <C> <C> <C>
Canada $ - $ 17,900 $ -
Commonwealth of Dominica 90,900 - -
--------------- --------------- ---------------
Consolidated total $ 90,900 $ 17,900 $ -
=============== =============== ===============
</TABLE>
MAJOR CUSTOMERS
As described in Note 8, in April 1999, the Company entered into a master
license agreement with the Master Licensee, a related party, from which
it has realized essentially all of the $90,900 revenue earned during
1999.
NOTE 10 - COMMITMENTS
Commencing in September 1999, the Company entered into an operating
lease agreement for use of facilities located in Surrey, British
Columbia, Canada.
Minimum future annual obligations under terms of the lease is as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
2000 $10,800
2001 10,800
2002 5,400
-------
$27,000
=======
</TABLE>
During 1999 and 1998, rent expense totaled $4,400 and $ -0-,
respectively.
NOTE 11 - CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents, and accounts receivable. The Company places its temporary
cash investments with major Canadian financial institutions. Balances
may at times exceed federally insured limits. The Company extends credit
to its Master Licensee, which operates in the Commonwealth of Dominica
(Note 7). Collateral is not required. Essentially all accounts
receivable were due from the Master Licensee at December 31, 1999.
NOTE 12 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash, accounts receivable and payable, and other
current liabilities approximate their carrying amounts. The fair value
of advances from stockholders approximates its carrying amount because
of the short-term nature of the financial instrument.
14
- -------------------------------------------------------------------------------
<PAGE>
PART III.
INDEX TO EXHIBITS
The following exhibits are filed pursuant to Rule 601 of Regulation S-B.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
3.1 Certificate of Incorporation of the Company filed on October 5, 1994.*
3.2 Certificate for Renewal and Revival of Charter of the Company filed on
December 3, 1997.*
3.3 Certificate of Amendment of Certificate of Incorporation of the Company
filed November 18, 1998.*
3.4 Certificate of Amendment to the Certificate of Incorporation of the
Company filed on July 29, 1999.*
3.5 Bylaws of the Company adopted October 10, 1994.*
4.1 2000 Incentive Plan of the Company.
10.1 License and Option to Sell Agreement dated December 1, 1998, by and
between Diversified and the Company.*
10.2 Notice of Exercise Put Option dated December 10, 1998, by and between
Diversified and the Company.*
10.3 Company Promissory Note dated December 10, 1998, issued to Diversified.*
10.4 Service Contract dated February 3, 1999, by and between the Company and
Leonard Slamko.*
10.5 Letter of Intent dated March 3, 1999, by and between the Company and
Digital Commerce.
10.6 Agreement dated April 8, 1999, by and between the Company and the Master
Licensee.*
10.7 Agreement dated April 22, 1999, by and between the Company and RSA
Software, Inc.*
10.8 Addendum to Agreement dated May 1, 1999 by and between the Company and
Master Licensee.*
10.9 Service Contract dated June 28, 1999, by and between the Company 743633
Alberta Ltd. (DBA Computer Assistants).*
10.10 Service Contract dated July 1, 1999, by and between the Company and 4250
Investments Ltd.*
10.11 Service Contract dated July 1, 1999, by and between the Company and Sean
Comeau.*
10.12 Convertible Loan dated August 16, 1999, by and between the Company and
West Peak Ventures of Canada, Inc.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.13 Agreement dated August 28, 1999, by and between the Company and Power Star
Corp.*
10.14 Lease Indenture dated September 4, 1999 by and between Mario's Pinocchio
Ristorante, Ltd. and the Company.*
10.15 Agreement dated October 15, 1999, by and between the Master Licensee and
the Company.
10.16 Service Contract dated November 1, 1999, by and between the Company and
Larry Hrabi.*
10.17 Service Contract dated December 2, 1999, by and between the Company and
Douglas Slamko.*
10.18 Agreement, dated March 13, 2000, by and between I Crystal Software and American
Amusements Co.
10.19 Agreement dated December 3, 1999 by and between the Company and CTC,
Inc.
11.1 Statement re computation of per share earnings.
16.1 Letter of Albright, Persing & Associates, Ltd. dated April 6, 2000.
21.1 Subsidiaries of registrant.*
27.1 Financial Data Schedule.
</TABLE>
- --------------------
* Previously filed.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April 11, 2000 I CRYSTAL INC.
By: /s/ Larry Hrabi
---------------------------
Larry Hrabi
Chief Executive Officer
By: /s/ Gerald P. Slamko
---------------------------
Gerald P. Slamko
Vice President, Treasurer and
Chief Financial Officer
<PAGE>
2000 INCENTIVE PLAN
OF
iCRYSTAL, INC.
Section 1. PURPOSE OF PLAN
The purpose of this 2000 Incentive Plan (this "Plan") of iCrystal,
Inc., a Delaware corporation (the "Company"), is to enable the Company to
attract, retain and motivate their employees and consultants by providing for or
increasing the proprietary interests of such employees and consultants in the
Company, and to enable the Company to attract, retain and motivate its
non-employee directors and further align their interests with those of the
shareholders of the Company by providing for or increasing the proprietary
interests of such directors in the Company. The Plan is intended to permit the
grant of Awards (as defined below) meeting the requirements of (a) Rule 701
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
as such rule may be amended from time to time, and (b) Section 25102(o) of the
Corporations Code of the State of Delaware (the "Corporations Code"), and thus
offers and sales of securities pursuant to the Plan are intended to be exempt
from (i) the registration requirements of the Securities Act if and for so long
as the Company is not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and (ii) the qualification requirements of Section 25110 of the Corporations
Code. Nothing in this Plan shall be deemed, however, to prohibit the granting of
Awards in compliance with federal and state securities laws other than pursuant
to Rule 701 and Section 25102(o).
Section 2. PERSONS ELIGIBLE UNDER PLAN
Any employee, non-employee directors, independent contractors or
consultants of the Company or any of its subsidiaries (each, a "Participant")
shall be eligible to be considered for the grant of Awards (as defined in this
Plan) under this Plan.
Section 3. AWARDS
(a) The Administrator (as hereinafter defined), on behalf of the
Company, is authorized under this Plan to enter into any type of arrangement
with a Participant that is not inconsistent with the provisions of this Plan and
that, by its terms, involves or might involve the issuance of (i) shares of
Common Stock of the Company ("Common Stock"), or (ii) a Derivative Security (as
such term is defined in Rule 16a-1 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as such Rule may be amended from time
to time) with an exercise or conversion privilege at a price related to the
Common Stock or with a value derived from the value of the Common Stock. The
entering into of any such arrangement is referred to herein as the "grant" of an
"Award."
1
<PAGE>
(b) Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
stock options, reload stock options, stock purchase warrants, other rights to
acquire stock, securities convertible into or redeemable for stock, stock
appreciation rights, limited stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, and an Award may consist
of one such security or benefit, or two or more of them in tandem or in the
alternative.
(c) Common Stock and Derivative Securities may be issued pursuant to an
Award for any lawful consideration as determined by the Administrator,
including, without limitation, services rendered by the recipient of such Award.
(d) Subject to the provisions of this Plan, the Administrator, in its
sole and absolute discretion, shall determine all of the terms and conditions of
each Award granted under this Plan, which terms and conditions may include,
among other things:
(i) a provision permitting the recipient of such Award,
including any recipient who is a director or officer of the Company, to
pay the purchase price of the Common Stock or Derivative Securities or
other property issuable pursuant to such Award, or such recipient's tax
withholding obligation with respect to such issuance, in whole or in
part, by any one or more of the following:
(A) the delivery of cash;
(B) the delivery of previously owned shares of
capital stock of the Company (including "pyramiding") or other
property, provided that the Company is not then prohibited
from purchasing or acquiring shares of its capital stock or
such other property,
(C) a reduction in the amount of Common Stock or
Derivative Securities or other property otherwise issuable
pursuant to such Award, or
(D) the delivery of a promissory note, the terms and
conditions of which shall be determined by the Administrator;
(ii) a provision conditioning or accelerating the receipt of
benefits pursuant to such Award, either automatically or in the
discretion of the Administrator, upon the occurrence of specified
events, including, without limitation, a change of control of the
Company, an acquisition of a specified percentage of the voting power
of the Company, the dissolution or liquidation of the Company, a sale
of substantially all of the property and assets of the Company or an
event of the type described in Section 7 hereof; or
2
<PAGE>
(iii) a provision required in order for such Award to qualify
as an incentive stock option (an "Incentive Stock Option") under
Section 422 of the Internal Revenue Code ("Code"), provided that the
recipient of such Award is eligible under the Code to receive an
Incentive Stock Option. Stock options which do not so qualify are
referred to as "Nonqualified Stock Options."
Section 4. STOCK SUBJECT TO PLAN
(a) The aggregate number of shares of Common Stock that may be issued
or issuable pursuant to all Awards (including Incentive Stock Options,
Nonqualified Stock Options and other Awards) granted under this Plan shall not
exceed three million (3,000,000) shares of Common Stock and all of which shall
be subject to adjustment as provided in Section 8 hereof.
(b) For purposes of Section 4(a) hereof, the aggregate number of shares
of Common Stock issued and issuable pursuant to all Awards granted under this
Plan shall at any time be deemed to be equal to the sum of the following:
(i) the number of shares of Common Stock that were issued
prior to such time pursuant to Awards granted under this Plan, other
than Common Stock that was subsequently reacquired by the Company
pursuant to the terms and conditions of such Awards and with respect to
which the holder thereof received no benefits of ownership such as
dividends; plus
(ii) the number of shares of Common Stock that were otherwise
issuable prior to such time pursuant to Awards granted under this Plan,
but that were withheld by the Company as payment of the purchase price
of the Common Stock issued pursuant to such Awards or as payment of the
recipient's tax withholding obligation with respect to such issuance;
plus
(iii) the maximum number of shares of Common Stock issuable at
or after such time pursuant to Awards granted under this Plan prior to
such time.
(c) In the event any Participant is deemed to be a "covered Executive"
pursuant to Section 162(m) of the Code and the exercise of all or a portion of
the Awards would preclude the Company from taking full advantage of the
compensation deductions arising from the grant of such Awards, together with all
other taxable compensation payable to Participant by the Company, by virtue of
the limitations imposed by Section 162(m) of the Code, then the number of shares
as to which Awards shall be exercisable during the applicable tax year shall be
reduced to such number as would allow the Company to fully deduct the
compensation payable to Participant.
(d) If and for so long as the Company is not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the amount of
securities offered and sold under the Plan shall not exceed the limitations set
forth in Rule 701 promulgated under the Securities Act, as such rule may be
amended from time to time.
3
<PAGE>
Section 5. DURATION OF PLAN
No Awards shall be granted under this Plan after April 4, 2010.
Although Common Stock may be issued after April 4, 2010 pursuant to Awards
granted prior to such date, no Common Stock shall be issued under this Plan
after April 4, 2010 (the "Termination Date").
Section 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by a Administrator of the Board
(the "Administrator") consisting of two or more directors. In the event that the
Company becomes "publicly held" within the meaning of Section 162(m) of the
Code, then, with respect to any Awards intended to qualify for the
"performance-based compensation" exception in Section 162(m) of the Code, the
Administrator shall, to the extent necessary, consist of two or more directors
each of whom is an "outside director" within the meaning of Section 162(m) of
the Code and such Award shall not be subject to Board approval.
(b) Subject to the provisions of this Plan, the Administrator shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following:
(i) adopt, amend and rescind rules and regulations relating to
this Plan;
(ii) determine which persons are Participants and to which of
such Participants, if any, Awards shall be granted hereunder;
(iii) grant Awards to Participants and determine the terms and
conditions thereof, including the number of shares of Common Stock
issuable pursuant thereto;
(iv) accelerate the exercisability of an Award or extend the
period during which an owner of an Award may exercise his or her rights
under such Award (but not beyond the Termination Date);
(v) determine whether, and the extent to which, adjustments
are required pursuant to Section 7 hereof; and
(vi) interpret and construe this Plan and the terms and
conditions of all Awards granted hereunder.
The interpretation and construction by the Administrator of any term or
provision of the Plan or of any Award granted under it, including without
limitation any determination of adjustments required pursuant to Section 7
hereof, shall be conclusive, unless otherwise determined by the Board of
Directors of the Company (the "Board") in which event such action by the Board
shall be
4
<PAGE>
conclusive, and such interpretation and construction shall be binding upon
all those who hold or are eligible to receive options under the Plan, and all
persons claiming under them. The Board or Administrator may from time to time
adopt rules and regulations for carrying out this Plan and, subject to the
provisions of this Plan, may prescribe the form or forms of the instruments
evidencing any Award granted under this Plan.
(c) The Administrator will provide to each holder annual financial
statements of the Company to the extent required by law.
Section 7. ADJUSTMENTS
If the outstanding securities of any class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property or
a different number or kind of securities, or if cash, property or securities
are distributed in respect of such outstanding securities, in either case as
a result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly
cash dividend) or other distribution, stock split, reverse stock split or the
like, or if substantially all of the property and assets of the Company are
sold, then, unless the terms of such transaction shall provide otherwise, the
Administrator shall make appropriate and proportionate adjustments in (a) the
number and type of shares or other securities or cash or other property that
may be acquired pursuant to Incentive Stock Options and other Awards
theretofore granted under this Plan, (b) the maximum number and type of
shares or other securities that may be issued pursuant to Incentive Stock
Options, Nonqualified Stock Options and other Awards thereafter granted under
this Plan, and (c) the maximum number of Common Shares that may be subject to
stock options or stock appreciation rights granted during any twelve-month
period to any Participant, as provided in Section 4(c) hereof; provided,
however, that no adjustment shall be made to the number of shares of Common
Stock that may be acquired pursuant to outstanding Incentive Stock Options or
the maximum number of shares of Common Stock with respect to which Incentive
Stock Options may be granted under this Plan to the extent such adjustment
would result in such options being treated as other than Incentive Stock
Options; provided, further, that no such adjustment shall be made to the
extent the Administrator determines that such adjustment would result in the
disallowance of a federal income tax deduction for compensation attributable
to Awards hereunder by causing such compensation to be other than
"performance-based compensation" within the meaning of Section 162(m)(4)(C)
of the Code.
Section 8. OTHER PROVISIONS
Awards granted under this Plan shall contain such other terms and
provisions which are not inconsistent with this Plan as the Board or
Administrator may authorize, including but not limited to (a) vesting
schedules governing the exercisability of such Awards, (b) provisions for
acceleration of such vesting schedules in certain events, (c) arrangements
whereby the Company may fulfill any tax withholding obligations it may have
in connection with the exercise of such Awards, (d) provisions imposing
restrictions upon the transferability of stock acquired on exercise of such
Award, whether required by this Plan or applicable securities laws or imposed
for other reasons, and
5
<PAGE>
(e) provisions regarding the termination or survival of any such Award
upon the optionee's death, retirement or other terminations of employment and
the extent, if any, to which any such Award may be exercised after such
event. Incentive Stock Options shall contain the terms and provisions
required of them under the Code.
Section 9. FINANCIAL ASSISTANCE
The Company is vested with authority under this Plan to assist any
Participant to whom an Award is granted hereunder (including any director or
officer of the Company or any of its subsidiaries who is also a Participant)
in the payment of the purchase price payable on exercise of that Award, by
lending the amount of such purchase price to such Participant on such terms
and at such rates of interest and upon such security (or unsecured) as shall
have been authorized by or under authority of the Board.
Section 10. COMPANY'S RIGHT OF FIRST PURCHASE AND PARTICIPATION
IN COMMON STOCK TRANSACTIONS
(a) While and so long as the Common Stock or any stock of any other
class subject to this Plan has not been Publicly Traded (as hereinafter
defined) for at least ninety (90) days, any stock issued on exercise of any
Award granted under this Plan shall be subject to the Company's right of
first purchase. By virtue of that right, (a) such stock may not be
transferred during the holder's lifetime to any person other than members of
the holder's Immediate Family, a partnership whose members are the holder
and/or members of the holder's Immediate Family, or a trust for the benefit
of the holder and/or members of the holder's Immediate Family, unless such
transfer occurs within fifteen (15) days following the expiration of thirty
(30) days after the Company has been given a written notice which correctly
identified the prospective transferee or transferees and which offered the
Company an opportunity to purchase such stock at its Fair Market Value in
cash, and such offer was not accepted within thirty (30) days after the
Company's receipt of that notice; and (b) upon the holder's death, the
Company shall have the right to purchase all or some of such stock at its
Fair Market Value within nine (9) months after the date of death. This right
of first purchase shall continue to apply to any such stock after the
transfer during the holder's lifetime of that stock to a member of the
holder's Immediate Family or to a family partnership or trust as aforesaid,
and after any transfer of that stock with respect to which the Company
expressly waived its right of first purchase without also waiving it as to
any subsequent transfers thereof, but it shall not apply after a transfer of
that stock with respect to which the Company was offered but did not exercise
or waive its right of first purchase or more than nine months after the
holder's death. The Company may assign all or any portion of its right of
first purchase to any one or more of its shareholders, or to a pension or
retirement plan or trust for Participants of the Company, who may then
exercise the right so assigned. Stock certificates evidencing stock subject
to this right of first purchase shall be appropriately legended to reflect
that right.
(b) While and so long as the Common Stock or any stock of any other
class subject to this Plan has not been Publicly Traded (as hereinafter
defined) for at least ninety (90) days, upon the
6
<PAGE>
exercise of any Awards granted under the Plan, the Company may require that
the Awards granted to Participants be subject to such requirements as the
Company may specify, including a requirement that a Participant participate
in transactions involving the purchase or exchange of all, or substantially
all, of the Common Stock of the Company (a "Transaction"). To the full extent
provided to any other holder of Common Stock of the Company on the date a
Participant exercises the Award, Participants shall be entitled to
participate in any Transaction on the same basis as the other holders of
Common Stock of the Company.
Section 11. LIMITATIONS OF RIGHTS OF PARTICIPANTS
(a) A Participant under this Plan shall not have any interest in the
shares or in any dividends paid thereon, and shall not have any of the rights or
privileges of a shareholder with respect to such shares, until the certificates
therefor have been issued and delivered to him or her.
(b) No shares of stock issuable under the Plan shall be issued and no
certificate therefor delivered unless and until, in the opinion of legal counsel
for the Company, such securities may be issued and delivered without causing the
Company to be in violation of or to incur any liability under any federal, state
or other securities law, or any other requirement of law or of any regulatory
body having jurisdiction over the Company.
(c) The receipt of an option does not give the holder any right to
continued employment by the Company or a subsidiary for any period, nor shall
the granting of the option or the issuance of shares on exercise thereof give
the Company or any subsidiary any right to the continued services of the holder
for any period.
(d) Nothing contained in this Plan shall constitute the granting of an
Award hereunder, which shall occur only pursuant to express authorization by the
Board or the Administrator.
Section 12. AMENDMENT AND TERMINATION
The Board may alter, amend, suspend or terminate this Plan, provided
that no such action shall deprive a holder who has not consented thereto of any
Award granted to the holder pursuant to this Plan or of any of the holder's
rights under such Award. Except herein provided, no such action of the Board,
unless taken with the approval of the shareholders of the Company, may:
(a) increase the maximum number of shares for which Awards granted
under this Plan may be exercised;
(b) reduce the minimum permissible exercise price;
(c) extend the ten-year duration of the Plan set forth herein;
(d) alter the class of Employees eligible to receive Awards under
the Plan; or
7
<PAGE>
(e) amend the Plan in any other manner which the Board, in its
discretion, determines should become effective only if
approved by the shareholders even though such shareholder
approval is not expressly required by this Plan.
If an amendment to this Plan would (i) increase the maximum number
of shares of Common Stock that may be issued pursuant to (a) all Awards
granted under this Plan, (b) all Incentive Stock Options granted under this
Plan, or (c) Awards granted under this Plan during any calendar year to any
one Participant, (ii) change the class of persons eligible to receive Awards
under this Plan, (iii) otherwise materially increase the benefits hereunder
accruing to participants who are subject to Section 16 of the Exchange Act in
a manner not specifically contemplated herein or (iv) affect this Plan's
compliance with Rule 16b-3 or applicable provisions of the Code, as amended
from time to time, the amendment shall be subject to approval by the
Company's shareholders to the extent required to comply with Rule 16b-3,
Sections 422 and 162(m) of the Code, and other applicable provisions of or
rules under the Code, as amended from time to time.
Section 13. CERTAIN DEFINITIONS
As used in this Plan, the following terms shall have the following
meanings:
"Fair Market Value" shall mean the fair market value of the Common
Stock. If the Common Stock is not publicly traded, fair market value shall be
determined by the Board or the Administrator and may be computed by any
method which the Board or the Administrator in good faith believes reflects
the fair market value of the Common Stock on the date of such determination,
including without limitation, reference to the book value of the Common Stock
and reference to the most recent price at which the Common Stock, or a
Derivative Security of the Company, has been issued in an arms-length
transaction, provided however, that Fair Market Value shall not be less than
the exercise price paid by the Participant to receive the subject Common
Stock. If the Common Stock is publicly traded, fair market value shall be the
closing sale price per share of Common Stock, if the Common Stock is listed
on a national securities exchange or on the NASDAQ National Market, or if the
Common Stock is not then so listed, the closing bid price per share of Common
Stock, on the day in question (or, if such day is not a trading day or if no
sales of Common Stock were made on such day, on the nearest preceding trading
day on which sales of Common Stock were made), as reported in THE WALL STREET
JOURNAL, or, if trading in the Common Stock is not then reported in THE WALL
STREET JOURNAL, at such closing sale or bid price as may then appear in what
the Board or the Administrator in its judgment then deems to be the most
nearly comparable listing or reporting service.
An individual's "Immediate Family" includes only his or her spouse,
parents or other ancestors, and children and other direct descendants of that
individual or of his or her spouse (including such ancestors and descendants
by adoption).
8
<PAGE>
Corporate stock is "Publicly Traded" if stock of that class is listed
or admitted to unlisted trading privileges on a national securities exchange or
on the NASDAQ National Market or if sale sor bid and offer quotations are
reported for that class of stock in the automated quotation system ("NASDAQ")
operated by the National Association of Securities Dealers, Inc.
Section 14. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of April 4, 2000, the date upon
which it was approved by the Board of Directors of the Company, subject to
approval by the Company's stockholders.
<PAGE>
digital commerce bank
"yes we can"
March 3, 1999
Softnet Industries Inc. "CONFIDENTIAL"
11062 156th Street VIA FAX 1-204-771-0487
Edmonton, Alberta
Canada T5P 4M8
Attention: Mr. Larry Hrabi, CEO and Director
Dear Larry,
RE: LETTER OF INTENT
This letter shall confirm our mutual understanding and the commitments made
to each other with respect to Softnet Industries Inc ("Softnet") Issuance of
reg. "S" stock to Digital Commerce Inc. ("Digital").
Digital will issue a merchant number to Softnet, enabling them to accept and
process credit card transactions as payment for online services provided by
Softnet to its clients. In consideration of Digital's agreement to provide
the said merchant number to Softnet. Softnet agrees to pay to Digital, a one
time non-refundable fee of one million (1,000,000) reg. "S" stock, in its own
company. The parties agree that the sole consideration for the delivery of
the stocks, is the issuance by Digital of the merchant number to Softnet, and
in no way is the delivery of the stocks contingent upon the delivery or
performance of future services by Digital.
The parties further agree, should Sofnet process credit card transactions,
with the merchant number Digital has supplied to them. Softnet will be
subject to the following fees and terms:
- 10% discount fee, calculated on the total dollar volume
processed and authorized.
- 2.5% rebate, calculated on the total dollar volume processed
and authorized.
- 5% holdback, calculated on the total dollar volume processed
and authorized and held on a five month revolving basis.
- Settlement to be made bi-monthly.
Save and except where specifically required by regulatory bodies, Softnet:
and it's principals, directors and officers covenant not disclose to any
party, directly or indirectly, now or in the future, any details of this
agreement, in whole or in part, without the express written consent of
Digital. Any such disclosure shall constitue a material breach by Softnet. In
the event of such breach, Digital, at its sole option, may terminate the
assigned merchant number, the shares delivered to Digital by Softnet will be
forfeited and Digital may pursue any legal remedy available to it to repair
such breach.
. . . . /2
Digital Commerce Bank Ltd. Project Office
404 - 1815 Hornby Street
www.digitalcommercebank.com Vancouver, BC V4Z 2E6
[email protected]
T: 1.890.505.5600
F: 1.604.899.5495
<PAGE>
digital commerce bank
`yes we can"
Softnet Industries Inc.
Page 2
March 3, 1999
Should the aforementioned terms accurately set out our mutual understandings
and agreements, please so indicate by signed a copy of this letter on the
space provided below and return the original executed copy back to my
attention for our files.
Thank you in advance and we look forward to a long and prosperous
relationship.
Sincerely,
DIGITAL COMMERCEBANK, LTD.
Per: /S/ Micheal Kang
Michael Kang
Chairman and CEO
cc: Jack Combs, DCB
Rick Grove, DCB
Doug Slamko, Softnet
Agreed and accepted the 14, day of APRIL, 1999 on behalf of the Board of
Directors of Softnet Industries Inc.
Per:
/S/ LARRY HRABI
- ------------------------------------
Larry Hrabi
CEO and Director
<PAGE>
AGREEMENT
BETWEEN
DCI INC., A BODY CORPORATE, WITH A HEAD OFFICE LOCATED IN THE
CITY OF ROSEAU, IN THE COMMONWEALTH OF DOMINICA (HEREINAFTER
REFERRED TO AS THE "MASTER LICENSEE")
AND
ICRYSTAL INC., A PUBLICLY TRADED COMPANY WITH A TRADING SYMBOL
ICRS, TRADING ON THE NASD OTC BB, (HEREINAFTER REFERRED TO AS
THE "SOFTWARE PROVIDER")
WHEREAS the Master Licensee has an ongoing internet casino operation located
in the city of Roseau in the Commonwealth of Dominica complete with 24 hour
customer support and all necessary technical, e-commerce and server equipment
necessary to sustain multiple Internet casino sites;
AND WHEREAS the Software Provider is in the business of creating and
developing unique and proprietary internet gaming and website software;
AND WHEREAS there is an existing Agreement currently between the two parties
dated April 8, 1999;
AND WHEREAS the Master Licensee is desirous of licensing 3 themed Internet
Casino sites, hereinafter referred to as the "Casinos", which are based upon
a concept or themes more fully described below, but which are operated by the
Master Licensee based upon software licensed from the Software Provider;
THEREFORE the parties hereto hereby agree to the following terms and
conditions;
1. COMPENSATION: The Master Licensee shall pay the Software Provider the sum of
$100,000.00 USD (one hundred thousand dollars) to be paid in the following
manner;
$ 17,000.00 Deposit Previously Received
<PAGE>
-2-
50,000.00 Upon execution of this Agreement
33,000.00 On or before date which casino number 3 is ready for operation
---------
$100,000.00 TOTAL
The Master Licensee shall receive 60% of the NET GAMING REVENUE for the first
$100,000.00 US of the total monthly NET GAMING REVENUE derived from the
Internet casinos, more fully described in Clause 4.a. of this Agreement and
70% of the NET GAMING REVENUE for all monthly NET GAMING REVENUE in excess of
$100,000.00 US. Example is listed in Schedule A hereto attached. NET GAMING
REVENUE is fully defined in Clause 5 of this Agreement. It is understood by
all parties that monthly NET GAMING REVENUE totals shall be derived from the
accumulated totals from all Casinos, save Bingo, operated by, or associated
with, the Master Licensee.
2. DUTIES AND OBLIGATONS OF THE MASTER LICENSEE: The Master Licensee shall be
responsible for, but not limited to, the following duties and obligations;
a. To provide 24 hour live customer service and support for the Casinos.
b. To maintain all hardware and servers associated with the Casinos.
c. To provide e-cash services and credit card processing for the customers
of the Casinos.
d. To pay, as required, the Software Provider's portion of NET GAMING
REVENUE by the l6th day of the following month from which the revenue
was received.
e. To be responsible for the bandwidth charges relating to the operation
of the Casinos.
f. To provide direction and insight into the development of the theme of
the websites.
g. To be responsible for the promotion and advertising for the Casinos.
h. To be responsible for payment with regard to the promotion and
advertising for the Casinos.
i. To be responsible for bandwidth charges relating to the operation of
the Bingo Site as per Clause 21 of this Agreement.
3. DUTIES AND OBLIGLIONS OF THE SOFTWARE PROVIDER: The Software Provider
shall be responsible for, but not limited to, the following duties and
obligations;
a. To create a complete website for the 3 Casinos based upon the following
themes and styles;
Casino 1 - Blackjack Castle, consisting of 8 versions of Blackjack,
3 video poker 3 Triple Play video poker, and 3 slot
machines (when available)
Casino 2 - Triple Play Casino, consisting of 15 versions of Triple
Play video Poker and up to five other games
Casino 3 - Slot Machine casino, consisting of up to 20 slot
machines, along with 4 other games.
The cost of the website creations are included in the compensation that
is
<PAGE>
-3-
described in Paragraph 1 of this Agreement. Any modifications to the
websites or Casino sites that are requested by the Master Licensee, and
that are agreed to by the Software Provider, after the completion of the
websites or casino sites shall be charged out to the Master Licensee at
the Software Provider's hourly rate, which is currently $40.00 US.
b. To provide a games package to each Casino site consisting of the games
specified in Clause 4.a above. Any changes to the games package after the
Casino site has been must have the written approval of the Software
Provider and will be implemented at an additional cost to the Master
Licensee.
c. To provide technical support regarding the software at all times at no
charge. The Software Provider also has taken all necessary steps to ensure
the software is Y2K compliant.
4. NET GAMING REVENUE: Net Gaming Revenue is described as follows;
Customer Purchases LESS Customer Payouts
LESS E-Commerce Charges (currently 10%) LESS Bank Card Holdback (currently 5%
for 180 days) LESS Chargebacks
LESS Jurisdiction Tax Dominica = 5%)
= NET GAMING REVENUE
IT SHOULD BE NOTED THAT THE ABOVE E-CASH CHARGES ARE SUBJECT TO CHANGE AND THAT
THE HOLDBACK AMOUNT WILL BE AVAILABLE FOR DISTRIBUTION AS SOON AS IT IS RELEASED
BY THE CREDIT CARD PROCESSOR.
RELATIONSHIP: There is an existing Master Licensee Agreement in place between
the Software Provider and the Master Licensee. It is agreed by all parties
that once the websites are completed and the Casino sites delivered, the
obligations, other than ongoing technical support, of the Software Provider
will have been deemed to be completed and the fees earned in their entirety.
5. GAMES PACKAGES: Once the Games Packages have been agreed upon by both
parties, they shall be signed off by both parties and become an integral part
of this Agreement. It is understood by both parties hereto that the Games
Packages shall consist of a variety of games comprised from the various
versions of video poker, slot machines, blackjack and other games which will
be made available from time to time.
6. ADVERTISING EXPENDITURE: The Master Licensee agrees to spend A minimum of
10% of the previous month's NET GAMING REVENUE on advertising and promotional
expenditures on any calendar month.
7. TERM: This Agreement shall be binding upon, and endure to the benefit of
the
<PAGE>
-4-
parties hereto for a ten year period from the date of execution. Provided
there is no breach, the Master Licensee may extend this Agreement for a
further ten-year period provide that the manager gives the Software Provider
written notice of its intent at least 60 days prior to the expiry of the
first ten year period. At the expiry of the second 10 year period, provided
the Master Licensee is not in breach of this Agreement, such breach as
determined by a court justice or independent arbitrator, the Master Licensee
shall have the option to extend this Agreement for further ten-year periods,
and so on, indefinitely.
8. NON-EXCLUSIVE: It is understood by all parties hereto that the Software
Provider is in the business of licensing it's proprietary software and that
the software provided for either the websites or the Casinos are of a
non-exclusive nature and that the Software Provider will be licensing out
similar or identical software or games to other parties at its sole
discretion.
9. DELIVERY DATE: It is recognized and understood by all parties that the
Software Provider shall make every effort to deliver both the websites and
the Casinos on an expedited basis but, as input from the Master Licensee will
be required, there is no guarantee as to the expected completion date.
12. TERMINATION: Either party may terminate this Agreement upon breach by the
other party by giving 60 days written notice of the details of the breach and
allowing the offending party the opportunity to cure such breach during the
60 day notice period. If either party receives notice from the other party of
an alleged breach, the breach must be a breach as determined by court justice
or the independent arbitrator as set forth in Clause 13 of this Agreement.
Both parties address for formal notice are written below. In the event the
address changes for any of the parties, it is the responsibility of that
party to notice the other party.
Software Provider
ICrystal Inc.
3237 King George Hwy.
Suite 101 B
Surrey, BC Canada, V4P 1B7
Master Licensee
DCI Inc.
42 Hillsborough St.
Roseau, Dominica
<PAGE>
-5-
13. ARBITTRATION: Any dispute regarding this Agreement shall be settled by
binding independent arbitration in effect for the province of British
Columbia Canada and both parties hereto agree to accept and abide by the
decision of the arbitrator.
14. SITUS: This Agreement shall be interpreted under the laws of the province
of British Columbia, Canada and if any part of this Agreement should be found
to be unenforceable, then the remainder of the Agreement shall remain
unaffected and shall remain in force.
15. PREAMBLE: The preamble is and forms an integral part of this Agreement.
16. OWNERSHIP: It is understood by all parties that the Master Licensee is
the owner of the Casino sites and that in the event of termination or expiry
of this Agreement, ownership of the Casino and websites, subject to the
previous agreement in place between the Master Licensee and the Software
Provider, remains with the Master Licensee.
17. TIME: Time is of the essence hereof
18. BINDING: This Agreement shall be binding upon the heirs, assigns,
trustees, assessors or court appointed agents or insolvency agents or
representatives of any of the parties hereto.
19. ASSIGNMENTS: This Agreement may be assigned by the Master Licensee but
not without prior written approval of the Software Provider, such written
approval will not be unresonablely withheld.
20. PROFITABILITY: There is no guarantee as to the profitability of the
Casinos and it is totally understood by the parties that the ultimate
profitability of the Casinos shall be determined by the marketing skills of
the Master Licensee.
21. BINGO SOFTWARE: It is understood by both parties that the Software
Provider is in the process of developing an interactive Bingo application and
that the Master Licensee shall have the rights to license and market one
Bingo site at no charge. The Master Licensee shall have, for the price of
$200,000.00 US, the right to manage a second bingo site provided that the
Master Licensee pays an initial deposit of $10,000.00 US by Dec 31, 1999, a
further deposit of $40,000.00 US by Jan.31, 2000 and the balance of
$150,000.00 US by the date the software is completed, BETA tested, and an
attested report provided to the Master Licensee. It is understood that the
Software Provider has the intent to license only two Bingo sites. A formal
agreement regarding the Bingo sites
<PAGE>
-6-
will be drafted on or before December 31, 1999, and will contain, but is not
limited to, the following clauses;
a. The Master Licensee shall receive 60% of NET GAMING REVENUE of the
bingo site.
b. The Master Licensee shall be responsible for all bandwidth or
telephone charges and hardware or equipment charges associated with
the operation of the site.
c. The Master Licensee shall be entitled to an advertising rebate base
upon the conditions in Clause 22 of this Agreement.
d. In the event the second bingo site does not achieve and maintain
monthly NET GAMING REVENUE of$1,000,000.00 US within 12 months of
commencement of operations, the Software Provider will have the option
to license the bingo software to additional parties. In the event the
Master Licensee fails to achieve the above NET GAMING REVENUE within
the allocated time period, the Master Licensee shall not lose the
rights associated with the operation of either of the Bingo sites and
shall be allowed to continue operating the Bingo sites.
e. If the Master Licensee fails to meet it's financial obligations as
detailed in Clause 21 of this Agreement, all licensing rights
associated with the second Bingo site shall be forfeited. All or any
deposits paid to the Software Provider are deemed to have been earned
at the time the deposit was paid and are non-refundable under any
circumstances. The first Bingo site shall remain unaffected by any
financial breach of the Master Licensee with respect to the second
bingo site.
22. ADVERTISING REBATE: The Master Licensee shall be entitled to an
advertising rebate of 10% of monthly NET GAMING REVENUE for all hard
advertising costs associated with the marketing or promotion of the Casino
sites. Hard advertising costs shall include Internet banner ads, print
media, television commercials, radio commercials, and other allowable
expenses. Soft costs such as wages, consulting fees, webmaster services
etc. will not be applicable. The Master Licensee must submit copies of
paid advertising expenses no later than 60 days from the date of said
invoices.
23. ADDITIONAL CASINOS: Notwithstanding the April 8, 1999 Agreement between
the parties, The Master Licensee shall have the right to manage future
Casinos, under the same terms and conditions contained herein, at no
additional charge to the Master Licensee, except for that contained in
Clause 23.b, provided always that;
a. The style, theme, and game selection of any additional casino sites
shall have the written approval of the Software Provider.
b. The Master Licensee shall be responsible for the hard costs
associated with
<PAGE>
-7-
the development and operation of the sites. Hard costs will include
all out of pocket expenses and hardware or equipment necessary for
the operation or development of the sites or casinos. As of the date
of this Agreement, hard costs are estimated to be no more than
$10,000.00 US for a standard, usual, or normal casino site.
C. The Master Licensee demonstrates, to the satisfaction of the
Software Provider, the ability and the wherewithall to adequately
market each additional site.
d. There is no breach of this Agreement.
This Agreement supercedes any other agreements, written or verbal, and there are
no other agreements, guarantees, conditions, clauses, or warrantees except those
expressed herein.
Dated this ____ day of October, 1999 in the cities of Vancouver, British
Columbia and Roseau Dominica. The parties hereto have hereby executed this
Agreement and affixed their corporate seal where applicable.
MASTER LICENSEE SOFTWARE PROVIDER
ICRYSTAL INC
/S/ IRVIN MAXIMEA /S/ LARRY HRABI
- --------------------------- ------------------------------
IRVIN MAXIMEA LARRY HRABI
VICE-PRESIDENT - OPERATIONS CEO
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
EXAMPLE ONLY
<S> <C>
GROSS REVENUE $200,000.00
Less E-Cash(10%) 20,000.00
Less Holdback (5%) 10,000.00
Less Chargebacks 2,000.00
Less Tax (5%) 10,000. 00
----------
NET GAMING REVENUE $158,000.00
</TABLE>
MASTER LICENSEE'S PROCEEDS
60% of first $100,000.00 NET GAMING REVENUE = $ 60,000.00
70% of balance $58,000.00 NET GAMING REVENUE = 40,600.00
TOTAL = $ 100,600.00 *
- - THE ABOVE DOES NOT INCLUDE THE MANAGER'S ADVERTISING REBATE WHICH IS IN
ADDITION TO AMOUNT INDICATED.
<PAGE>
AGREEMENT
BETWEEN
ICRYSTAL SOFTWARE INC.,
A SUBSIDIARY OF ICRYSTAL INC., PUBLICLY TRADED ON
NASD OTC BB WITH A TRADING SYMBOL
ICRS AND A HEAD OFFICE LOCATED IN THE CITY
OF SURREY, BC (HEREINAFTER REFERRED TO AS
THE "MASTER LICENSEE")
AND
AMERICAN AMUSEMENTS CO., A BODY
CORPORATE INCORPORATED IN THE STATE OF NEBRASKA,
WITH A HEAD OFFICE LOCATED IN THE CITY OF OMAHA
(HEREINAFTER REFERRED TO AS THE "SOFTWARE PROVIDER")
WHEREAS, the Master Licensee is in the business of developing, licensing, and
re-licensing computer gaming software designed for use specifically on the
Internet.
AND WHEREAS, the Master Licensee has the ability to license casino gaming style
software to other parties who operate complete with 24 hour customer support and
all necessary technical, e-commerce and server equipment necessary to sustain
multiple Internet casino sites;
AND WHEREAS, the Software Provider is in the business of creating and
developing unique and proprietary video gaming software (hereinafter referred
to as the "software");
AND WHEREAS, the Master Licensee is desirous of licensing from the Software
Provider and the Software Provider is desirous of licensing to the Master
Licensee multiple casino style games based upon the software licensed from
the Software Provider which the Master Licensee intends to re-license to
other third parties all of which operate Internet casino gaming sites with
valid, current, and legal Internet Casino Gaming Licenses issued by their
appropriate jurisdictions;
THEREFORE, the parties hereto hereby agree to the following terms and
conditions;
-2-
<PAGE>
1. COMPENSATION: The Master Licensee shall deliver 250,000 common shares of
ICRS to the Software Provider within 30 days of the execution of this
Agreement. The shares will be subject to all applicable restrictions.
In addition, the Software Provider will receive 11% of the NET GAMING REVENUE
of the total monthly NET GAMING REVENUE derived from the Internet casinos
that the Master Licensee re-licenses that are using the Software Provider's
software. Example is listed in Schedule A hereto attached. NET GAMING REVENUE
is fully defined in Clause 4 of this Agreement. It is understood by all
parties that monthly NET GAMING REVENUE totals shall be derived from the
accumulated totals from all Casinos that utilize the Software Provider's
gaming software that are re-licensed by the Master Licensee.
2. DUTIES AND OBLIGATIONS OF THE MASTER LICENSEE: The Master Licensee shall
be responsible for, but not limited to, the following duties and obligations;
a. To ensure that all Internet casino operations which are utilizing the
Software Provider's software have a valid casino gaming or business
license.
b. To develop all the websites associated with the software.
c. To provide graphic or artistic support wherever necessary.
d. To pay, as required, the Software Provider's portion of NET GAMING REVENUE
by the 16th day of the following month from which the revenue was received.
e. To guarantee that any source codes or other sensitive technology, or
proprietary technology that is or has been developed by the Software
Provider remains the property of the Software Provider.
1. DUTIES AND OBLIGATIONS OF THE SOFTWARE PROVIDER: The Software Provider
shall be responsible for, but not limited to, the following duties and
obligations;
a. To change, alter, or re-build the existing software so that it may be
utilized for use on the Internet.
b. To provide technical support to the Master Licensee regarding the software
at all times at no charge. The Software Provider also has taken all
necessary steps to ensure the software is Y2K compliant.
c. To provide source codes for the back-end software as requested by the
Master Licensee. Such codes are necessary since the program is going to be
run on the Master Licensee's server.
d. To allow the Master Licensee to make cosmetic changes to the software as
desired by the Master Licensee. Cosmetic changes are defined as changes in
sounds and or graphics.
-3-
<PAGE>
2. NET GAMING REVENUE: Net Gaming Revenue is described as follows;
Customer Purchases
LESS Customer Payouts
LESS E-Commerce Charges (currently 10%)
LESS Bank Card Holdback (currently 5% for 180 days)
LESS Chargebacks
LESS Jurisdiction Tax (Dominica = 5%)
= NET GAMING REVENUE
IT SHOULD BE NOTED THAT THE ABOVE E-CASH CHARGES ARE BASED ON VOLUME AND
THEREFORE ARE SUBJECT TO CHANGE AND THAT THE HOLDBACK AMOUNT WILL BE AVAILABLE
FOR DISTRIBUTION AS SOON AS IT IS RELEASED BY THE CREDIT CARD PROCESSOR.
3. RELATIONSHIP: There is no existing relationship in place between the Software
Provider and the Master Licensee.
6. SOFTWARE PACKAGE: . It is understood by both parties hereto that the
software delivered by the Software Provider shall consist of a variety of
games comprised from the various versions of video poker, slot machines,
blackjack, keno, scratch cards, and other games which may be made available
from time to time.
4. ADVERTISING EXPENDITURE: All advertising shall be the responsibility of
the Master Licensee's licensees.
8. TERM: This Agreement shall be binding upon, and endure to the benefit of
the parties hereto for a five year period from the date of execution and will
automatically renew on its anniversary dates for a further five year period.
9. EXCLUSIVITY: It is understood by all parties hereto that the Software
Provider is in the business of licensing it's proprietary software to the
Master Licensee for use on the Internet only and that while this Agreement is
in effect, the Master Licensee shall have the exclusive rights to the
software for use on Internet. It is also understood that the Software
Provider will be licensing out similar or identical software or games to
other parties at its sole discretion for use in other applications than the
Internet.
10. DELIVERY DATE: It is recognized and understood by all parties that the
Software Provider shall make every effort to deliver all software in a timely
fashion. The Master Licensee may, but is not obligated to, provide the
services of technical staff in order to both expedite the delivery date and
to ensure that all aspects of the software will be compatible with the
operating systems of the Master Licensee's licensees. In the event the
Software Provider is unable to deliver any software to the Master Licensee
within 180
-4-
<PAGE>
days of the date of execution of this Agreement, then the Master Licensee may
request, and the Software Providers agrees to, return the ICRS shares to the
Master Licensee.
11. TERMINATION: Either party may terminate this Agreement upon breach by the
other party by giving 60 days written notice of the details of the breach and
allowing the offending party the opportunity to cure such breach during the
60 day notice period. If either party receives notice from the other party of
an alleged breach, the breach must be a breach as determined by court justice
or the independent arbitrator as set forth in Clause 13 of this Agreement.
Both parties address for formal notice are written below. In the event the
address changes for any of the parties, it is the responsibility of that
party to notify the other party.
Software Provider
AMERICAN AMUSEMENTS CO.
3902 Q Street
Omaha, Nebraska 68107
U.S.A.
Master Licensee
ICRYSTAL SOFTWARE INC.
3237 King George Highway
Suite 101 B
Surrey, BC, V4P 1B7
12. MULTIPLE SITES: Both parties recognize that in order to market the software
effectively, multiple Casino sites must be developed and marketed.
13. ARBITRATION: Any dispute regarding this Agreement shall be settled by
binding independent arbitration in effect for the province of British Columbia,
Canada and both parties hereto agree to accept and abide by the decision of the
arbitrator. There shall be 1 arbitrator. If the parties hereto cannot agree on
an arbitrator, then one shall be appointed
-5-
<PAGE>
by a court of competent jurisdiction. The losing party shall pay all the
expenses of the arbitration.
14. SITUS: This Agreement shall be interpreted under the laws of the province
of British Columbia, Canada and if any part of this Agreement should be found
to be unenforceable, then the remainder of the Agreement shall remain
unaffected and shall remain in force.
15. PREAMBLE: The preamble is and forms an integral part of this Agreement.
16. OWNERSHIP: It is understood by all parties that the Master Licensee is
the licensee of the software and that in the event of termination or expiry
of this Agreement, ownership of the software remains with the Software
Provider.
17. TIME: Time is of the essence hereof.
18. BINDING: This Agreement shall be binding upon the heirs, assigns,
trustees, assessors or court appointed agents or insolvency agents or
representatives of any of the parties hereto.
19. ASSIGNMENTS: This Agreement may not be assigned by either party without
prior written consent of the other party.
20. PROFITABILITY: There is no guarantee as to the profitability of the
Casinos and it is totally understood by the parties that the ultimate
profitability of the Casinos shall be determined by the marketing skills of
the Master Licensee.
21. PROPRIETARY WARRANT: The Software Provider warrants that it is the owner
of the software and that it has the legal right to enter into this Agreement
with the Master Licensee.
22. CONFIDENTIALITY: Both parties shall not disclose the confidential
information of either party to any third party without prior written consent,
nor shall either party disclose the terms or contents of this Agreement to
any third party who is not bound to maintain the confidentiality between the
parties.
23. INDEMNIFICATION: The Master Licensee shall indemnify, save and hold
Software Provider harmless from all expenses including; reasonable attorneys'
fees and Costs arising out of or from the claim or claims by any person
including but not limited To employees of Master Licensee or any third
parties related to Master Licensees' sale, distribution, use, or re-license
of the Software. Indemnification shall include, but not be
-6-
<PAGE>
limited to, litigation and claims arising in the arenas of copyrights,
patents and trademarks. Notwithstanding the above, the Software Provider
warrants that all Software provided to the Master Licensee is the Software
Provider's proprietary software.
This Agreement supercedes any other agreements, written or verbal, and there
are no other agreements, guarantees, conditions, clauses, or warrantees
except those expressed herein.
Dated this 13 day of March, 2000 in the cities of Omaha, Nebraska and Surrey,
BC. The parties hereto have hereby executed this Agreement and affixed their
corporate seal where applicable.
MASTER LICENSEE
Icrystal Software Inc.
/S/ LARRY HRABI
- ------------------------------
Larry Hrabi
CEO
SOFTWARE PROVIDER
American Amusements Co.
/S/ JOHN FOX 3/13/00
- -------------------------------
John Fox
President
/S/ CHARLOTTE CIER
<PAGE>
SCHEDULE A
EXAMPLE ONLY
<TABLE>
<S> <C>
GROSS REVENUE $200,000.00
Less E-Cash (10%) 20,000.00
Less Holdback (5%) 10,000.00
Less Chargebacks 2,000.00
Less DominicaTax (5%) 10,000.00
-----------
NET GAMING REVENUE $158,000.00
</TABLE>
SOFTWARE PROVDER'S PROCEEDS
11% of $158,000.00 NET GAMING REVENUE = $ 17,380.00
<PAGE>
CTC INC.
"Internet Banking Solutions
for the Millenium
December 3, 1999
iCrystal Inc.
3237 King George Hwy.
Suite 101B
Surrey, BC
V4P 1B7
ATTN: Mr. Larry Hrabi, CEO
Dear Mr. Hrabi:
RE: E-CASH ACCOUNT FOR ICRYSTAL LICENSEES ("Licensees")
It is our pleasure to provide your licensees with electronic and credit card
processing "CCP Services"), based on the terms and conditions listed below.
In consideration of CTC Inc.'s agreement to provide the above CCP services to
iCrystal licensees, iCrystal agrees to pay to CTC Inc., a one-time,
non-refundable fee of either $200,000.00 U.S. or one million (1,000,000) reg.
"S" stock, in its own company.
It is the understanding of both parties that all licensees must establish a
separate transaction account with CTC. Each account will be based on the
following:
- $5,000.00 U.S. non-refundable connections fee.
- 10% merchant discount on all electronic and manual credit card
purchases
- Revolving 180 day holdback of 5% on all purchase amounts
- VISA and MasterCard only
- Reconciliation and settlement twice per month
- All chargebacks immediately deleted from licensee's settlement
- All transactions submitted through CTC's "Negative Data Base"
- Licensee must follow rules and regulations, as imposed from time to
time. Failure to do so will result in immediate termination of
licensee's CCP services
- Merchant Discount Rate will be reviewed every six months and may be
subject to change based upon licensee's volume.
In addition, CTC Inc. agrees to pay iCrystal a commission of 1% for total
volume processed through each licensee's account (paid monthly).
If the above is in order, please execute below where so indicated and return
to the attention of the writer.
If I can be of further service please do not hesitate to contact me at your
convenience.
/s/ DAN WU /s/ LARRY HRABI
- ----------------------------- -----------------------------
DAN WU LARRY HRABI-CEO
CTC INC. ICRYSTAL INC.
40 HILLSBOROUGH ST., ROSEAU, DOMINA, WEST INDIES
T: 767-448-6132
F: 767.778.1743
<PAGE>
EXHIBIT 11.1
The numerators and denominators of basic and diluted earnings per share are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Numerator - net loss $(5,552,100) $ (191,500)
=========== ==========
Denominator - weighted average
number of shares outstanding 10,754,100 735,300
=========== ==========
</TABLE>
At December 31, 1997 and 1998, the Company had no potential common shares
that would have had a dilutive effect.
<PAGE>
April 7, 2000
I crystal Inc.
3237 King George Highway, #101B
Surrey, British Columbia
Canada V5P 1B7
Gentlemen:
We are aware that I crystal Inc. (formerly, Cable Group South, Inc.) is
registering its class of $0.01 par value common stock with the Securities and
Exchange Commission on Form 10-SB. We are also aware that I crystal, Inc. is
filing Amendment No. 1 to Form 10-SB. We have read Item 3, CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS, of Part II of Form 10-SB dated February 10,
2000 of I crystal, Inc. and of Amendment No. 1 to Form 10-SB of I crystal,
Inc. and are in agreement with the statements contained therein, except that
we are not in a position to confirm that, during 1997 and prior years and
through December 9, 1999, I crystal Inc. did not consult Moss Adams LLP
regarding either the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements, or any other matter
or event set forth in Item 304 (a)(2)(i) and (ii) of Regulation S-K .
Respectfully,
/s/ Albright, Persing & Associates, Ltd.
Albright, Persing & Associates, Ltd.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ICRYSTAL
INC.'S AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND DECEMBER 31,
1998.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 75,700 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 100,400 0
<PP&E> 19,500 0
<DEPRECIATION> 1,600 0
<TOTAL-ASSETS> 118,300 0
<CURRENT-LIABILITIES> 316,000 65,000
<BONDS> 0 0
0 0
0 0
<COMMON> 146,900 77,200
<OTHER-SE> (363,600) (142,700)
<TOTAL-LIABILITY-AND-EQUITY> 118,300 0
<SALES> 0 0
<TOTAL-REVENUES> 90,900 0
<CGS> 0 0
<TOTAL-COSTS> 5,641,200 191,500
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,800 0
<INCOME-PRETAX> (5,552,100) (191,500)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,552,100) (191,500)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,552,100) (191,500)
<EPS-BASIC> (0.52) (0.26)
<EPS-DILUTED> (0.52) (0.26)
</TABLE>
