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As filed with the Securities and Exchange Commission on February 9, 2000
Registration Statement No. ____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
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 in February, 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 a 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
that the Company acquire Diversified's casino software from Diversified for
Company Common Stock and a promissory note. As of January 20, 2000,
Diversified held 16.9% of the Company's Common Stock and officers and
directors 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 September 30, 1999, the Company has an
accumulated deficit of $5,312,100 and has a shareholders deficiency of
$138,600.
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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. 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 for its
gaming software with DCI, Inc. (the "Master License"), 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. The Company received
its first revenues under the Master License in fall of 1999.
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 to both the
game and the gaming/casino aspects of the Company's business plan.
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 superior 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 Corp. 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 superior 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 second quarter of 2000.
PRODUCT DEVELOPMENT
INTERNAL DEVELOPMENT
The Company has one wholly-owned subsidiary, I crystal Software, Inc. ("I
crystal Software"), a British Columbia corporation 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 predict annual revenues for 2000 for
the Internet based gaming in the U.S. alone at over $8 billion.
COMPETITORS
There are several companies which offer free game websites similar to the
Company's planned Free Keno website. 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 is a privately held company based out of South Africa
which 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 removes any legal liability from the individual player
and only attempts to regulate persons engaged in a gambling business who
knowingly use the Internet for such purposes. In its current form, the Kyl Bill
provides for penalties of the greater of the amount wagered or $20,000 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 where it is currently awaiting
further action.
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 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.
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.
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 current licensee, Master Licensee,
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 January 25, 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 has 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.
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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.
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 is 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. 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 have
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 January 20, 2000, the Company had outstanding 14,767,504 shares of common
stock, $.01 par value per share (the "Common Stock") of which 4,805,250
shares were free trading under Rule 504. See Item 8-"Description of
Securities". The 14,001,254 shares of Common Stock issued from December of
1998 under Rule 506 of the Securities Act of 1933, as amended (the
"Securities Act") have not been registered under the Securities Act and
therefore will be treated as "restricted securities" and may be resold only
if registered or if the transfer is made in accordance with an exemption from
registration,
16
<PAGE>
such as Rule 144 under the Securities Act. Under these exemptions the shares
of Common Stock issued since December of 1998 generally will be eligible for
resale in the United States without registration one year from the respective
date of issuance of such shares and so long as the other exemption
requirements have been met. 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 currently trades on the Nasdaq OTC Bulletin Board
under the symbol "ICRS." 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, 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. 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>
9 MONTHS ENDED 9 MONTHS
SEPTEMBER 30, ENDED
DECEMBER 31, 1999 SEPTEMBER 30,
DECEMBER 31, 1998 1997 ---- 1998
----------------- ---- ----
<S> <C> <C> <C> <C>
Revenue $ - $- $ (21,100) $-
Net Income (Loss) from operations (266,500) - (5,013,600) -
Net Income (Loss) (266,500) - (5,013,600) -
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
9 MONTHS ENDED 9 MONTHS ENDED
AT DECEMBER AT DECEMBER SEPTEMBER 30, SEPTEMBER 30,
31, 1998 31, 1997 1999 1998
-------- -------- ---- ----
<S> <C> <C> <C> <C>
Working Capital (Deficiency) $ (65,000) $ 6,500 $(153,300) $ 6,500
Total Assets - - 63,100 -
Long Term Debt - - - -
Stockholders' Equity (Deficit) (65,000) 6,500 (138,600) 6,500
</TABLE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
SEPTEMBER 30, 1998
Revenues - Revenues for the periods ending September 30, 1999 and September
30, 1998 were $21,100 and $0, respectively. The increase of $21,100 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
$5,034,700 and $0 for the nine months ended September 1999 and 1998,
respectively. The increase of $5,034,700 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 nine months
ended September 30, 1999, $4,022,300 were non-cash expenses paid for through
the issuance of stock.
18
<PAGE>
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 $572,500 and $0 respectively for the nine months ended September
30, 1999 and 1998, respectively. The $572,500 increase again reflects the
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 $4,462,200 and $0 for the nine months
ended September 30, 1999 and 1998, respectively. The increase of $4,462,200
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, $4,022,300 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 $(5,013,600) and $0 for the
nine months ended September 30, 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 $266,500 and $0 for the years ended December 31, 1998 and 1997,
respectively. The increase of $266,500 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
$165,000 and $0 for the years ended December 31, 1998 and 1997. The $165,000
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 stick valued at $0.04
per share, along with a $65,000 note payable, for a total cost
19
<PAGE>
of $165,000. 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 $(266,500) and $0 for the years
ended December 31, 1998 and 1997. 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
On December 1, 1998 the Company and Diversified entered into the Diversified
License whereby the Company was granted a five-year license by Diversified to
develop and exploit certain casino software being developed by Diversified.
Under the Diversified License, Diversified was granted the Put Option to
require the Company to purchase the casino software for 2,500,000 shares of
Common Stock. On December 10, 1998, Diversified exercised the Put Option. In
addition to issuing 2,500,000 shares of Common Stock, the Company also issued
to Diversified a promissory note (the "Note") in the principal amount of
Cdn$100,000 (approximately U.S.$65,000) in consideration for services
rendered
20
<PAGE>
for additional development work performed by Diversified on the casino
software. The Note was paid in full in 1999.
Since the shift in the focus of the Company's business to the development of
Internet based gaming software and websites, the Company's accumulated loss
is $5,312,100 at September 30, 1999. Although the Company began realizing
revenues from its licensing activities in June of 1999, such revenues
amounted to only $21,100 through September 30, 1999. The Company does not
anticipate significant sales revenue for the remaining fiscal period ending
December 31, 1999. While revenue was generated during the last quarter of
1999, the Company anticipates that its cash outflows will continue to exceed
its cash inflows over the next 12 months. The Company's liquidity over the
next 12 months is contingent on its ability to raise money through debt or
equity financings to meet its cash needs that are not covered from operations.
The Company's budgeted capital expenditures for the fiscal year ending
December 31, 1999 are approximately $22,000, of which $16,800 had been spent
as of September 30, 1999.
The Company currently anticipates that cash inflows from operating revenues
will increase in the long-term as a result of its continuing to license and
sell its software products. The Company anticipates that its cash operating
expenses will increase in the long-term as well, as a result of enhanced
development and production of its software products. The amount of noncash
expenses incurred during 1998 and 1999 in exchange for stock are not expected
to be repeated at similar levels in future periods.
To the extent that cash from operations are insufficient to fund the
Company's activities, the Company may need to raise additional funds through
the sale of equity or debt securities in private or public financing or
through strategic partnerships, in order to develop, market and upgrade its
casino and bingo software programs and websites. 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 financial condition and results of operations.
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 January 20, 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 January 20, 2000
there were 14,767,504 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 6.3%
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) 3,992,590 27.0%
CTC, Inc. 1,000,000 6.75%
40 Hillsborough St
Roseau, Dominica,
West Indies
Diversified(6) 2,500,000 16.9%
1103 Toronto Dominion Tower
Edmonton Centre
Edmonton, Alberta
T5J 2Z1 CANADA
Digital Commerce Bank, Ltd. 1,000,000 6.6%
1815 Hornby Street, Suite 404
Vancouver, B.C. V4Z 2E6
Power Star Corp. 1,450,000 9.8%
33 Saint George Street
Commonwealth of Dominica
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
DIRECTORS AND OFFICERS AS A 2,069,493 14.0%
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 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 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 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 four individuals. The
Company is calling a Special Meeting of its stockholders to be held before
the Effective Date of this Registration Statement, 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 three nor
more than seven 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.
Glyn G. Davies 52 Director.
Justin Stenner 32 Director.
SENIOR TECHNOLOGY PERSONNEL:
Fabrice L'Heureux 28 Software Development Manager.
</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.
GLYN G. DAVIES has been a member of the Company's Board of Directors since
December 10, 1998. From 1995-1999 Mr. Davies was the President of Gold-Heir
Resources Ltd. ("Gold-Heir"), a company specializing in the mining industry.
While with Gold-Heir Mr. Davies was initially responsible establishment of
that company and later general administration and mining site and data
inspection. In 1999 Mr. Davies became the President of Transnet Int'l
Technologies Inc., a private investment company. Mr. Davies was also a
consultant in the hotel industry for five years from 1991 to 1996. In that
capacity he was responsible for site acquisition and general staff management.
JUSTIN STENNER has been a member of the Company's Board of Directors since
December 10, 1998. Mr. Stenner has extensive experience in marketing and
specializes in commercial finance. From 1995-1996, he was the General Lease
Manager of MSA Ford Sales Ltd. Prior to that Mr. Stenner was the General
Sales Manager of Fleetwood Motors from 1996-1997. In 1997 Mr. Stenner became
the Lease Manager
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<PAGE>
of MSA Ford Sales Ltd., a position he held until 1999. In 1999 Mr. Stenner
became the corporate Secretary of Transnet Int'l Technologies Inc., a private
investment company.
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
The Company does not have an employee stock option 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 has no long term incentive plans 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.
On July 1, 1999 the Company entered into a Service Contract with 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 has no stock option plans.
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.
On December 10, 1998, Diversified exercised the Put Option and the Company
acquired the casino software 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 is a director, the Chief Executive Officer,
the President and a shareholder of Diversified and his wife is a shareholder
of Diversified. Gerald P. Slamko is a Director, Secretary, Treasurer and
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.
On March 3, 1999, the Company entered into a Letter of Intent with Digital
Commerce Bank, Ltd. ("Digital Commerce") whereby Digital Commerce would issue
to the Company a merchant number
29
<PAGE>
for use in processing credit card transactions. In consideration of the use
of the Digital Commerce merchant number the Company issued to Digital
Commerce 1,000,000 shares of Common Stock.
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, and10% 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 has
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 is paid to Company by
December 31, 1999 and a second deposit of $40,000 is paid to the Company by
January 31, 2000 with the balance due on completion of software package. The
deposit due December 31, 1999 was not paid and the Company is currently
considering whether to extend the term for payment of the deposit, but may
consider other options.
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
formerly provided services to Power Star in connection with the creation and
development of the MetroBingo software.
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 U.S.$200,000.
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 of a one-time
service fee of $200,000 for the provision of electronic commerce and e-cash
services.
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 currently trade on the Nasdaq OTC
Bulletin Board Market under the trading symbol "ICRS." The Company's Common
Stock initially began trading on the Nasdaq 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. As of December 31, 1999, there were approximately 109 holders
of record and approximately 14,767,504 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.
The Company is not a party to any pending legal proceeding nor is its property
the subject of any pending legal proceeding.
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 subsequent interim periods preceding
December 9, 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 (without giving effect to the 8:1 reverse
stock split) of the Company's Common Stock to the former president of the
Company 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. When the Company undertook the
8:1 reverse stock split of its Common Stock to cause 766,250 shares Common
Stock to be issued and outstanding. 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 in exchange for Diversified's casino software (valued at
$100,000 and a Cdn$100,000 (U.S.$65,000) Note payable). Certain officers and
shareholders of Diversified are directors or executive officers of the
Company. 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.
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. The consideration consisted of services to be rendered to
the Company during the year following the issuance by the officers and
directors and cash paid by all parties. All such services were rendered
throughout 1999 and the full amount of cash (U.S.$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.
On December 16, 1998, the Company issued 2,500,000 shares of Common Stock in
exchange for services rendered to the Company in the amount of $75,000 and
for $25,000 in subscription receivables from certain 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 506 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 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.
On March 30, 1999, the Company sold, for an aggregate of $800,300 net of costs
of $156,700, for which the Company recognized an additional expense of
$2,272,800 services to reflect the fair value of the 1,914,000 shares of its
Common Stock which were issued in a private placement to less than thirty-five
investors. 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.
On August 16, 1999, the Company received a convertible loan in the amount of
$78,196 from West Peak Ventures of Canada, Inc. ("West Peak"). The proceeds of
the loan were paid to the Company through Diversified which acts 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%. In accordance with
the terms of the loan the principal was converted into 200,000 shares of Common
Stock in December 1999.
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.
On October 5, 1999, the Company agreed to issue 1,000,000 shares of Common Stock
to 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.
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.
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:
<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 $33,750
734633 Alberta Ltd. 6-28-99 127,500 $0.50 $63,750
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>
PART F/S.
FINANCIAL STATEMENTS
<PAGE>
I CRYSTAL, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
DECEMBER 31, 1998 AND 1997
PAGE
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 FINANCIAL STATEMENTS................................6-14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders I crystal Inc.
We have audited the accompanying balance sheet of I crystal Inc. (a development
stage company formerly named Softnet Industries, Inc. and Cable Group South,
Inc.) as of December 31, 1998, and the related statements of operations,
stockholders' deficit, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of I crystal Inc. as of
December 31, 1998, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
The 1997, 1996, and 1995 financial statements were audited by other independent
auditors 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. The presentation of the separate periods
combined in the accompanying statements of operations and cash flows for the
period from October 5, 1994 (date of inception) to December 31, 1998 have been
subjected to the auditing procedures applied in our audit of the basic financial
statements as of December 31, 1998 and in our opinion fairly state, in all
material respects, the presentation required to be set forth therein, in
relation to the separate periods combined.
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
December 21, 1999
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
TOTAL ASSETS $ --
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Note payable $ 65,000
---------
Total liabilities 65,000
---------
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par value, 30,000,000 shares authorized;
7,766,300 shares issued and outstanding 77,700
Additional paid-in capital 255,800
Stock subscription receivable (45,000)
Deferred compensation (55,000)
Deficit accumulated during the development stage (298,500)
---------
Total stockholders' deficit (65,000)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ --
=========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS. 2
- --------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD
OCTOBER 5, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10/5/94 (Date
of Inception)
1998 1997 TO 12/31/98
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUE $ -- $ -- $ --
--------------- --------------- ---------------
OPERATING EXPENSES
Research and development 165,000 -- 165,000
General and administrative 101,500 -- 133,500
--------------- --------------- ---------------
Total operating expenses 266,500 -- 298,500
--------------- --------------- ---------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (266,500) -- (298,500)
PROVISION FOR INCOME TAXES -- -- --
--------------- --------------- ---------------
NET LOSS $ (266,500) $ -- $ (298,500)
=============== =============== ===============
EARNINGS (LOSS) PER SHARE
BASIC AND DILUTED $ (0.36) $ -- $ (0.54)
=============== =============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS. 3
- --------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM OCTOBER 5, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL STOCK DURING THE
DATE OF ----------------- PAID-IN SUBSCRIPTION DEFERRED DEVELOPMENT
TRANSACTIONS SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION STAGE TOTAL
------------ ---------- ---------- ---------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCEPTION 10/5/94 -- $ -- $ -- $ -- $ -- $ -- $ --
STOCK ISSUED FOR SERVICES 10/9/94 2,834,400 28,300 -- -- -- -- 28,300
STOCK ISSUANCE 10/9/94 115,500 1,200 -- -- -- -- 1,200
NET LOSS -- -- -- -- -- (28,300) (28,300)
------------ ---------- ---------- ---------- ------------ ----------- ----------- ---------
BALANCE, DECEMBER 31, 1994 2,949,900 29,500 -- -- -- (28,300) 1,200
STOCK ISSUANCE 1/10/95 50,100 500 2,000 -- -- -- 2,500
NET LOSS -- -- -- -- -- (3,700) (3,700)
------------ ---------- ---------- ---------- ------------ ----------- ----------- ---------
BALANCE, DECEMBER 31, 3,000,000 30,000 2,000 -- -- (32,000) --
1995 AND 1996
STOCK ISSUANCE 12/30/97 130,000 1,300 5,200 -- -- -- 6,500
------------ ---------- ---------- ---------- ------------ ----------- ----------- ---------
BALANCE, DECEMBER 31, 1997 3,130,000 31,300 7,200 -- -- (32,000) 6,500
EFFECT OF ONE-FOR-EIGHT (2,738,700) (27,400) 27,400 -- -- -- --
REVERSE STOCK SPLIT
STOCK ISSUED FOR SERVICES 7/6/98 375,000 3,800 11,200 -- -- -- 15,000
STOCK ISSUED FOR RESEARCH 12/10/98 2,500,000 25,000 75,000 -- -- -- --
AND DEVELOPMENT
STOCK ISSUED FOR SERVICES AND 12/10/98 2,000,000 20,000 60,000 (20,000) (60,000) -- 100,000
STOCK SUBSCRIPTION RECEIVABLE
STOCK ISSUED FOR SERVICES AND 12/16/98 2,500,000 25,000 75,000 (25,000) -- -- 75,000
STOCK SUBSCRIPTION RECEIVABLE
AMORTIZATION OF DEFERRED -- -- -- -- 5,000 -- 5,000
COMPENSATION
NET LOSS -- -- -- -- -- (266,500) (266,500)
---------- ---------- ---------- ------------ ----------- ----------- ---------
BALANCE, DECEMBER 31, 1998 $7,766,300 $ 77,700 $ 255,800 $ (45,000) $ (55,000) $ (298,500) $ (65,000)
========== ========== ========== ============ =========== =========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS. 4
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD
OCTOBER 5, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
10/5/94 (DATE
OF INCEPTION)
1998 1997 TO 12/31/98
--------- --------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(266,500) $ -- $ (298,500)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH FROM OPERATING ACTIVITIES
Amortization of deferred compensation 5,000 -- 5,000
Noncash research and development expenses incurred
in exchange for debt 65,000 -- 65,000
Noncash research and development expenses incurred
in exchange for stock 100,000 -- 100,000
Noncash general and administrative expenses incurred
in exchange for stock 90,000 -- 118,300
--------- --------- ---------
Net cash from operating activities (6,500) -- (10,200)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceed from stock issuances -- 6,500 10,200
--------- --------- ---------
NET CHANGE IN CASH (6,500) 6,500 --
CASH, beginning of period 6,500 -- --
--------- --------- ---------
CASH, end of period $ -- $ 6,500 $ --
========= ========= =========
NONCASH TRANSACTIONS
Stock issued for future services $ 60,000 $ -- $ 60,000
========= ========= =========
Stock issued for stock subscriptions receivable $ 45,000 $ -- $ 45,000
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS. 5
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND 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
a one-for-eight 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 7), 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 (Note 3).
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.
DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN
For the period October 5, 1994 through December 31, 1998, the Company's
efforts have been devoted to corporate structuring, financial and
business planning, recruiting directors and advisors, and raising
additional financing. Prior to the transactions discussed above, the
Company had no material amount of assets or liabilities. Development
stage operations during this period were financed primarily through the
issuance of shares for services. The Company has incurred net losses
since inception; and, at December 31, 1998, it has a stockholders'
deficit of $65,000.
Subsequent to December 31, 1998, the Company raised $800,300 of net
proceeds through exempt issuances of common stock. It 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. (the Master Licensee), a related party (Note 7), 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.
The Company has not yet generated revenues sufficient to fund its
operations.
6
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
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.
Management is exploring several financing options and expects to raise
additional capital through private placements or exempt offerings of
equity or debt securities.
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.
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 7), technological feasibility of the software had not been
established. Accordingly, $165,000 of consideration given by the Company
for the software rights was charged to research and development expense.
As described in Note 10, technological feasibility of the software was
subsequently established in the first quarter of 1999.
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.
7
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
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.
8
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
NOTE 3 - NOTE PAYABLE
The Company has a $65,000 unsecured note payable to Diversified, a
related party, dated December 10, 1998. The note is denominated in
Canadian dollars (Cdn $100,000) and is due on demand. The note is
non-interest bearing; and, accordingly, interest charges are credited to
additional paid in capital. At December 31, 1998, no interest had been
accrued. Subsequent to December 31, 1998, the note was paid in full.
NOTE 4 - INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
10/5/94 (Date
of Inception)
1998 1997 to 12/31/98
--------------- --------------- ---------------
<S> <C> <C> <C>
Deferred income tax benefit $ 90,600 $ - $ 101,500
Increase in valuation allowance (90,600) - (101,500)
--------------- --------------- ---------------
$ - $ - $ -
=============== =============== ===============
</TABLE>
The total provision differs from the amount computed using statutory tax
rates as follows:
<TABLE>
<CAPTION>
10/5/94 (Date
of Inception)
1998 1997 to 12/31/98
--------------- --------------- ---------------
<S> <C> <C> <C>
Tax benefit at statutory rate of 34% $ 90,600 $ - $ 101,500
Increase in valuation allowance (90,600) - (101,500)
--------------- --------------- ---------------
$ - $ - $ -
=============== =============== ===============
</TABLE>
Tax effects of temporary differences that give rise to deferred tax
assets, based on a 34% tax rate, consist solely of a $101,500 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 $101,500 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.
9
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
NOTE 5 - EARNINGS PER SHARE
The numerators and denominators of basic and diluted earnings per share
are as follows:
<TABLE>
<CAPTION>
10/5/94 (Date
of Inception)
1998 1997 to 12/31/98
--------------- --------------- ---------------
<S> <C> <C> <C>
Numerator - net loss $ (266,500) $ - $ (298,500)
=============== =============== ===============
Denominator - weighted average
number of shares outstanding 735,300 375,000 547,900
=============== =============== ===============
</TABLE>
At December 31, 1998, the Company had no potential common shares that
would have had a dilutive effect.
NOTE 6 - 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 7,766,300 shares are issued (or
committed to be issued) and outstanding at December 31, 1998. 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 1998, after giving affect to the reverse stock split, the Company
issued a total of 6,875,000 shares as follows:
- 375,000 shares were issued July 6, 1998 in exchange for services
of the Company President through November 1998.
- 2.5 million shares were issued December 10, 1998 to Diversified,
a related party (Note 7), along with a $65,000 note payable, in
exchange for the rights to certain software under development
(Notes 1 and 2).
- 2.0 million shares were issued December 10, 1998 to the Company's
officers in exchange for a $20,000 stock subscription receivable
and for future services. Deferred compensation is being
recognized ratably over twelve months.
- 2.5 million shares were issued December 16, 1998 in exchange 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.
As described in Note 10, subsequent to year-end, the Company issued or
was committed to issue an additional 7,116,500 shares in connection with
an exempt stock offering, the acquisition of certain software rights, a
convertible denture, and various subscriptions agreements and service
contracts.
10
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company is affiliated with the following entities:
DIVERSIFIED COSMETICS INTERNATIONAL (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. Diversified
also acts as a common paymaster for the Company. Subsequent to the
transfer of the technology to the Company, Diversified has had no
significant business operations and, as of December 21, 1999 it was in
the process of winding down its affairs.
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 101,900
Due from I crystal 43,900
Other noncurrent assets 200
---------------
Total assets $ 247,600
===============
Current liabilities $ 120,700
Redeemable preferred stock 1,500
Stockholders' equity 125,400
---------------
Total liabilities and stockholders' equity $ 247,600
===============
</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)
Gain on sale of software rights to I crystal 171,100 -
Other income 48,000 -
Income tax - -
--------------- ---------------
Net loss $ (60,400) $ (46,200)
=============== ===============
</TABLE>
DCI, INC. (THE MASTER LICENSEE)
Subsequent to December 31, 1998, the Company entered into a master
license agreement with the Master Licensee (Note 10). Essentially all of
the Company's subsequent revenue has been realized under this agreement.
Management of the Master Licensee also includes 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
11
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
games of chance by way of telecommunications.
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.
NOTE 8 - SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
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 December 31,
1998, the Company's efforts were focused primarily on development stage
operations, and no material activities occurred within this segment.
At December 31, 1998, the Company had no long-lived assets. Subsequent
to December 31, 1998, essentially all long-lived assets acquired or
developed by the Company were located in the lower mainland of British
Columbia, Canada.
As described in Note 10, in April 1999, the Company entered into a
master license agreement with the Master Licensee, a related party
(Note 7),from which it has realized essentially all revenue earned
subsequent to December 31, 1998.
NOTE 9 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's note payable approximates its carrying
amount due to the short-term nature of this financial instrument.
NOTE 10 - SUBSEQUENT EVENTS
MASTER LICENSE AGREEMENT
Subsequent to December 31, 1998, the Company continued developing its
internet-based gaming software, attaining technological feasibility in
the first quarter of 1999. Effective April 8, 1999, the Company
entered into a ten-year nonexclusive master license agreement with the
Master Licensee, a related party (Note 7), for use of the Company's
technology. 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
12
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
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.
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.
13
- -------------------------------------------------------------------------------
<PAGE>
I CRYSTAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 10 - SUBSEQUENT EVENTS (Continued)
FORMATION OF I CRYSTAL SOFTWARE INC.
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 research and
development activity.
OPERATING LEASE COMMITMENT
Commencing in September 1999, the Company entered into an operating
lease agreement for use of facilities located in Surrey, British
Columbia, Canada. The lease requires minimum monthly lease payments of
Cdn $1,300 (U.S. $860) over a four-year term.
STOCK ISSUANCES, ACQUISITION OF METROBINGO SOFTWARE, AND OTHER
COMMITMENTS
Effective March 30 ,1999, the Company completed the issuance of
1,914,000 shares of common stock at $0.50 per share for total proceeds,
net of issue costs, of $800,300. The issuance is exempt from
registration in reliance on Rule 504 of Regulation D.
Effective August 28, 1999, the Company acquired from Power Star Corp.
(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. Of
the total amount of shares to be issued, 250,000 will have registration
rights, and the balance will be restricted until December 1, 2000.
In April 1999, the Company entered into a merchant banking agreement
with Digital Commerce Bank (Digital). Under the agreement, the Company
is committed to issue one million shares in exchange for Digital's
issuing the Company a merchant banking number.
In October 1999, the Company entered into two stock subscription
agreements for a total of two million shares for total proceeds of
$400,000. One of the subscriptions is tied to a second merchant banking
agreement. The other subscription is tied to a corporate management
agreement, under which the Company is required to issue 650,000 shares
in exchange for certain services provided in 1999. The Company received
$70,000 cash for the remaining 350,000 subscribed shares.
Subsequent to December 31, 1998, the Company entered into service
agreements with officers and members of management for the services of
these individuals. A total of 400,000 shares are issuable under these
agreements. Of the total amount, 200,000 are issuable no later than
February 3, 2000; 100,000 are issuable no later than November 1, 2000;
and 100,000 are issuable ratably on August 1, 2000 and August 1, 2001.
The Company entered into two other service agreements for technology
management and engineering services provided in 1999. A total of 152,500
shares are issuable under these agreements.
In December 1999, the Company issued 200,000 shares to honor the
conversion rights of a $78,200 convertible debenture issued in August
1999.
14
- --------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
UNAUDITED CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
AND FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1999 1998
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ -- $ --
Accounts receivable 21,900 --
Advances receivable 26,500 --
----------- -----------
Total current assets 48,400 --
PROPERTY AND EQUIPMENT 14,700 --
----------- -----------
$ 63,100 $ --
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY/DEFICIT
CURRENT LIABILITIES
Accounts payable $ 28,000 $ --
Advances and note payable to related parties 87,800 65,000
Customer deposits 7,000 --
Loan payable 78,900 --
----------- -----------
Total current liabilities 201,700 65,000
----------- -----------
STOCKHOLDERS' EQUITY/DEFICIT
Common stock, $ 0.1 par value Authorized 30,000,000 shares issued and
outstanding 12,286,600 and 7,766,300 at September 30, 1999 and
December 31, 1998 respectively 122,800 77,700
Additional paid-in-capital 5,097,100 255,800
Stock subscriptions receivable -- (45,000)
Deferred compensation (46,400) (55,000)
Accumulated deficit (5,312,100) (298,500)
----------- -----------
(138,600) (65,000)
----------- -----------
$ 63,100 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30/99 Sept. 30/98 Sept. 30/99 Sept. 30/98
<S> <C> <C> <C> <C>
Revenue $ 21,100 $ -- $ 21,100 $ --
------------ --------------- ------------ ------------
Expenses
General and
administrative expenses 1,363,400 -- 4,462,200 --
Research and development 339,800 -- 572,500 --
------------ --------------- ------------ ------------
1,703,200 -- 5,034,700 --
------------ --------------- ------------ ------------
Net (loss) before
income taxes (1,682,100) -- (5,013,600) --
Income taxes -- -- -- --
------------ --------------- ------------ ------------
Net (loss) $ (1,682,100) $ -- $ (5,013,600) $ --
============ =============== ============ ============
Basic and diluted
earnings (loss)
per share $ (0.15) $ -- $ (0.51) $ --
============ =============== ============ ============
Weighted average
shares outstanding 11,356,600 750,000 9,871,400 510,800
============ =============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
UNAUDITED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Common stock Additional Stock
Date of ---------------- Paid-in Subscription Deferred Deficit
Transactions Shares Amount Capital Receivable Compensation Accumulated Total
------------ ------- ------- ---------- ------------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 7,766,300 $ 77,700 $ 255,800 $ (45,000) $ (55,000) $ (298,500) $ (65,000)
Stock issuance (net of
costs of $156,600) 3/30/99 1,914,000 19,100 3,054,000 -- -- -- 3,073,100
Payment for stock
subscription 3/31/99 -- -- -- 45,000 -- -- 45,000
Stock issued for e-cash
processing 4/14/99 1,000,000 10,000 1,426,500 -- -- -- 1,436,500
Stock issuance for
programming 4/22/99 25,000 300 33,500 -- -- -- 33,800
Stock issuance for
programming 6/28/99 127,500 1,200 62,500 -- (63,700) -- --
Stock issuance for
programming 7/01/99 3,800 -- 3,800 -- -- -- 3,800
Stock issuance for software 8/28/99 1,450,000 14,500 261,000 -- -- -- 275,500
Amortization of deferred
compensation -- -- -- -- 72,300 -- 72,300
Net loss, September 30, -- -- -- -- -- (5,013,600) (5,013,600)
1999 ----------- ----------- ----------- ----------- ----------- ----------- -----------
12,286,600 $ 122,800 $ 5,097,100 $ - $ (46,400) $(5,312,100) $ (138,600)
========== ========== =========== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Sept. 30/99 Sept. 30/98
<S> <C> <C>
CASH FLOWS FROM (FOR)
OPERATING ACTIVITIES
Continuing operations
Net income (loss) $ (5,013,600) $ --
Non-cash items included in net income (loss)
Stock issued for services rendered 4,022,300 --
Amortization of deferred compensation 72,300 --
Depreciation 2,100 --
Increase in accounts receivable (21,900) --
Increase in accounts payable 28,000 --
Increase in customer deposits 7,000 --
----------- -------------
Cash (used for) operating activities (903,800) -
----------- -------------
Cash flows from investing activities
Purchase of equipment (16,800) --
----------- -------------
Cash (used for) investing activities (16,800) --
----------- -------------
Cash flows from financing activities
Stock issued for cash 800,400 --
Decrease in due from lawyer's trust -- --
Loan advance 78,900 --
Receipt of stock subscriptions receivable 45,000 --
Increase (decrease) in advances receivable (26,500) --
Increase in advances payable 87,800 --
Payment of note payable (65,000) --
----------- -------------
Cash from financing activities 920,600 --
----------- -------------
Net change in cash -- --
Cash at beginning of period -- --
----------- -------------
CASH AT END OF PERIOD $ -- $ --
=========== =============
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 1,200 $ --
=========== =============
Cash paid for income taxes $ -- $ --
=========== =============
Non-cash transactions
Stock issued for future services $ 63,700 $ --
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND CESSATION OF DEVELOPMENT STAGE OPERATIONS
For the period October 9, 1994 through June 30, 1999, the efforts of I
crystal Inc. (the "Company") have been devoted to corporate structuring,
financial and business planning, recruiting directors and advisors, and
raising additional financing. Development stage operations during this
period were financed through the issuance of shares for services, exempt
stock offerings, and advances from related parties.
During the nine months ended September 30, 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, poker, and bingo games. The
Company does not conduct any gaming activities itself but has entered into
a nonexclusive master license agreement with DCI, Inc. (the Master
Licensee), for use of the Company's gaming technology. During the three
months ended September 30, 1999 the Company began realizing revenues from
this agreement and development stage operations ceased.
The Company has incurred net losses since inception; and, at September 30,
1999 it has a stockholders' deficit of $ 138,600.
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.
Management is exploring several financing options and expects to raise
additional capital through private placements of equity or debt securities.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and in accordance with Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
disclosures normally required by generally accepted accounting principles
for complete financial statements or those normally reflected in the
Company's annual report. The financial information included herein reflects
all adjustments (consisting of normal recurring adjustments), which are, in
the opinion of management, necessary for a fair presentation of results of
interim periods. Results of interim periods are not necessarily indicative
of the results to be expected for a full year. These unaudited condensed
financial statements should be read in conjunction with the financial
statements for the year ended December 31, 1998 and the notes thereto
included in Form 10-SB.
- -------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Nonrefundable, initial license fees are
recognized as revenue upon completion of license agreements and receipt of
fees. 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 ratably over the contract period.
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.
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.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31
Accumulated 1998
Cost Depreciation Net Net
------------------------------------------- ----
<S> <C> <C> <C> <C>
Equipment $ 16,800 $ 2,100 $ 14,700 $ -
====== ===== ====== ==========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
4. LOAN PAYABLE
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
Prime + 2% loan payable, due
November 30, 1999, convertible to 200,000
shares at the discretion of the Company
prior to November 30, 1999 $78,900 $ -
======= ===========
</TABLE>
5. CAPITAL STOCK
The Company has a single class of $ 0.01 par value common stock. Thirty
million shares are authorized and 12,286,600 and 7,766,300 shares are
issued, or committed to be issued, and outstanding at September 30, 1999
and December 31, 1998 respectively.
PRIVATE PLACEMENTS
In March 1999 the Company completed the issuance of 1,914,000 shares of
common stock for gross proceeds of $ 957,000, less $ 156,700 of issue
costs. The issuance was exempt from registration. In connection with the
issuance, the Company recognized an additional $ 2,272,800 of consulting
services to reflect the fair value of shares issued.
In April 1999 the company entered into two agreements to issue shares. The
company agreed to issue 1,000,000 as a non-refundable, up-front fee for
receipt of a merchant banking number and 25,000 shares for programming on
its internet bingo program. These shares were valued at $ 1,436,500 and
$ 33,800 respectively.
In June 1999 the company entered into an agreement to issue up to 250,000
shares in exchange for programming services. Only 127,500 of these shares
were earned. The company valued these at $ 63,700 which was recorded as
deferred compensation at the agreement date. This amount is amortized over
the period from June 28, 1999 to January 31, 2000.
In July 1999 the company entered into an agreement to issue up to 100,000
shares valued at $ 47,000 for programming services to be provided between
July 1, 1999 and August 1, 2001. The company is recording its obligation to
issue these shares over the period earned.
In August 1999, the company also entered into an agreement to acquire
certain software rights in exchange for 1,450,000 common shares.
Technological feasibility of the software was not established at the time
the rights were acquired. Accordingly, the $ 275,500 value of the shares
issued has been recorded as research and development expense.
- -------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
6. 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. In December 1998, the Company acquired the rights
to certain software applications under development from Diversified in
exchange for 2.5 million shares of common stock and a $ 65,000 note
payable. Diversified acts as a paymaster for the Company. Subsequent to the
transfer of the technology to the Company, Diversified has had no
significant business operations and is in the process of winding down its
affairs.
DCI, INC. (THE MASTER LICENSEE)
The Company is affiliated with the Master Licensee through a master license
agreement entered into in April 1999. Management of the Master Licensee
also includes a relative of officers and significant stockholders 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.
SLAMKO VISSER, CHARTERED ACCOUNTANTS (SLAMKO VISSER)
The Company is affiliated with the Canadian chartered accounting firm
Slamko Visser through common ownership. The Company employs the services of
Slamko Visser to maintain its accounting system and related records.
7. SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company's primary operations consist of the development and licensing
of internet-based gaming technology. Management assesses the operation of
its operations as a single segment. Essentially all long-lived assets
acquired or developed by the Company were located in the lower mainland of
British Columbia, Canada.
As described in Notes 6 and 8, in April 1999, the Company entered into a
master license agreement with DCI, Inc., a related party, from which it has
realized essentially all revenue earned.
- -------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
8. COMMITMENTS AND SUBEQUENT EVENTS
MASTER LICENSE AGREEMENT
Effective April 8, 1999, the Company entered into a ten-year nonexclusive
master license agreement with DCI, Inc. (the Master Licensee), a related
party, for use of the Company's technology. 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 net gaming revenue derived
from use of its software or the amount expended by the Master Licensee on
advertising.
The Company, in return, is to receive 40% of net gaming revenue derived
from the software, 50% of upfront fees charged 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 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 $ 70,000 on promotion of
the Master Licensee's website in exchange for an additional 10% share of
net gaming revenue, not to exceed in total the amount spent by the Company
on promotion.
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 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.
ACQUISITION OF METROBINGO
During the three months ended September 30, 1999, the Company acquired from
Power Star Corp. (Power Star) the software rights and related source codes,
domain names, websites, and trademarks for certain internet-based gaming
technology know as METROBINGO. In exchange, the Company is obligated to
issue 1,450,000 shares of common stock to Power Star. Of the total amount
of shares to be issued, 250,000 will have registration rights, and the
balance will be restricted until December 1, 2000.
- -------------------------------------------------------------------------------
<PAGE>
ICRYSTAL INC.
(FORMERLY SOFTNET INDUSTRIES INC.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
STOCK TRANSACTIONS
Subsequent to September 30, 1999 the company agreed to issue stock as follows:
a) 300,000 Shares for services from officers and directors.
b) 200,000 Shares issued for conversion of the company's loan payable of $
78,900.
c) 1,000,000 Shares issued for cash and services.
d) 1,000,000 Shares issued for e-cash services.
- -------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THE EXHIBITS HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE C0MMISSION.
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.
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.
11.1 Statement re computation of per share earnings
21.1 Subsidiaries of registrant
27.1 Financial Data Schedule
</TABLE>
- --------------------
* Confidential treatment requested. Confidential portions of the Exhibit have
been redacted and have been filed separately with the Commission.
<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: February 9, 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>
EXHIBIT 3.1
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/05/1994
944189118 - 2439323
CERTIFICATE OF INCORPORATION
of
CABLE GROUP SOUTH, INC.
------------------------------------------
FIRST. The name of this corporation is CABLE GROUP SOUTH, INC.
--------------------------------------------------------------
- -------------------------------------------------------------------------------
SECOND. Its registered office: in the State Delaware is to be
located at Three Christina Cemtre, 201 N Walnut St., City of WILMINGTON,
----------
County of NEW CASTLE. The registered agent in charge thereof is THE COMPANY
----------
CORPORATION a: SAME ADDRESS. -----------
- ----------- ------------
THIRD. The nature of the business and, the Objects and purposes
proposed to be transacted, promoted and carried on, are to do any and or all
thc things herein mentioned, as fully and to thc same extent as neutral
persons might or could do, and in any part of the world. viz:
"The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the
General Corporation Law of Delaware."
FOURTH. The amount of the total authorized capital stock of
this corporation is 30 MILLION share of .01 Par Value.
---------- ---
FIFTH. The name and mailing address of the incorporator is as
follows:
NAME: ADDRESS:
DAVID E. MEAD P.O. BOX 285, HERMITAGE, TN 37076
------------- ---------------------------------
SIXTH. The powers of the incorporator are to terminate upon
filing of the certificate of incorporation, and the name(s) and mailing
address(es) of persons who are to serve as director(s) until the first annual
meeting stockholders or until their successors are elected and qualify are as
follows:
Name and address of director(s)
David E. Mead Box 285, Hermitage, TN 37076 Fill in name(s)
Wil1iam Tomber1in Box 1875 ClarksvilIe, TN 37040 and addresses(es)
SEVENTH. The Directors shall have power to make and to alter or
amend the By-Laws; to fix the amount to be reversed as working capital, and to
authorize and cause to be executed, mortgages and liens without limit as to the
amount, upon the property and franchise of the Corporation.
With the consent in writing, and pursuant to a vote of the
holders of a majority of the capital stock issued and outstanding, the Directors
shall have the authority to dispose, in any manner, of the whole property of
this Corporation.
The By-Laws shall determine whether and to what extent the
accounts and books of this corporation, or any of them shall be open to the
inspection of the stockholders; and no stockholder shall have any right of
inspecting any account, or book or document of this Corporation, except as
conferred by the law or the By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have the powers to hold
their meetings and keep the books, documents and papers of the Corporation
outside of the State of Delaware, at such places as may be from time to time
designated by the By-Laws or by resolution of the stockholders or directors,
except as otherwise required by the laws of Delaware.
It is the intention that the objects, purposes and powers
specified in the Third paragraph hereof shall, except where otherwise specified
in said paragraph, be nowise limited or restricted by reference to or
interference from the terms of any other clause or paragraph in this certificate
of incorporation, but that the objects, purposes and powers specified in the
Third paragraph and in each of the clauses or paragraphs of this charter shall
be regarded as independent objects, purposes and powers.
EIGHTH. Directors of the corporation shall not be liable either
the corporation or its stockholders for monetary damages for a breach of
fiduciary duties unless the breach involves: (1) a director's duty of loyalty to
the corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3)
liability for unlawful payments of dividends or unlawful stock purchases or
redemption by the corporation; or (4) a transaction from which the director
derived an improper personal benefit.
I, THE UNDERSlGNED, for the purpose of forming a Corporation
under the laws of the State of Delaware, do make, file and record this
Certificate and do certify that the facts herein are true: and I have
accordingly hereunto set my hand.
DATED AT: Nashville
---------------------
State of Tennessee
---------------------
County of Davidson /s/ David E. Mead
--------------------- --------------------------------
David E. Mead 9/21/94
<PAGE>
EXHIBIT 3.2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF OF CORPORATIONS
FILED 09:00 AM 12/03/1997
971411712 - 243932
CERTIFICATE FOR
RENEWAL AND REVIVAL OF CHARTER
Cable & Group South, Inc., a corporation organized under the laws of the
- -------------------------
State of Delaware, the charter of which was voided for non-payment of taxes, now
desires a restoration, renewal and revival of its charter and hereby certifies
as follows:
1. The name of this corporation is Cable Group South, Inc.
----------------------
2. Its registered office in the State of Delaware is located at 1313 N. Market
Street, Wilmington, DE 19801-1151, County of New Castle. The name and address of
its registered agent is The Company Corporation, address "same as above".
3. The date of filing of the original Certificate of incorporation in Delaware
was 10/05/94.
--------
4. The date when restoration, renewal, and revival of the charter of this
company is to commence is the 29th day of February, 1996 same being prior to the
---- --------------
date of the expiration of the charter. This renewal and revival of the charter
is to be perpetual.
5. This corporation was duly organized and carried out the business authorized
by its charter until the 01 day of March AD. 1996 at which time its charter
-- ----- --
became inoperative and void for non-payment of taxes and this certificate of
renewal and revival is filed by authority of the duly elected directors of the
corporation in accordance with the laws of the State of Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312 of
General Corporation Law of the State of Delaware, as amended, providing for the
renewal, extension and restoration of Charters, David Mead, its last and acting
----------
authorized officer has hereunto set his/her hand to this certificate this
1st day of December 1997.
- --- -------- --
BY: /s/ David Mead
------------------------------
TITLE OF OFFICER: President
-----------------------------
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CABLE GROUP SOUTH, INC.
CABLE GROUP SOUTH, INC., a corporation organized under the laws of
Delaware, the charter of which was voided for non-payment of taxes, now
desires to procure a restoration, renewal and revival of its charter, and
hereby certifies as follows:
DOES HEREBY:
1. That the Board of Directors of CABLE GROUP SOUTH, INC. duly
adopted resolutions setting forth proposed amendments of the Certificate of
Incorporation of said corporation, declaring said amendments to be advisable
and taking action of the stockholders of said corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED that the Certificate of Incorporation of this corporation
be amended by changing the Article thereof numbered "FIRST" so that, amended
said Article shall be and read as follows:
FIRST: The new name of the corporation is SOFTNET INDUSTRIES, 1NC.
2. That said amendments were duly adopted by WRITTEN CONSENT in
accordance with the provisions of Section 211 and 242 of the General
Corporation Law of the state of Delaware.
3. Additionally a reverse split of 8 to 1 was duly authorized and
adopted.
IN THE WITNESS WHEREOF, said CABLE GROUP SOUTH, INC. has caused this
certificate to be signed by its Authorized Officer this 18th day of November,
1998. --
BY: /s/ Robert Wallace
------------------------
STATE OF DELAWARE Name. Robert Wallace
SECRETARY 0F STATE Title: President
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/18/1998
981444821 - 2439323
<PAGE>
EXHIBIT 3.4
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:05 PM 07/29/1999
991317730 - 2439323
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
OF
SoftNet Industries, Inc.
SoftNet Industries, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
1. That the Board of Directors of SoftNet Industries,
Inc. duly adopted a resolution setting forth the
proposed amendment of the Certificate of
Incorporation of said corporation, declared said
amendment to be advisable and taking action of the
stockholders of said corporation for consideration
thereof. The consent setting forth the proposed
amendment is as follows.
FIRST: The name for the corporation is I crystal,
Inc.
2. The said amendments were duly adopted by the
shareholder consent in accordance with the provisions
of Sections 211 and 242 of the General Corporation
Laws of the State of Delaware.
IN WITNESS HEREOF, said SoftNet Industries, Inc. has caused
this Certificate to be signed by its authorized officer this
15th day of June, 1999.
By: /S/ D.J. Slamko
-----------------------
Douglas Slamko
President
<PAGE>
EXHIBIT 3.5
BY-LAWS
OF
CABLE GROUP SOUTH, INC.
ARTICLE 1 - OFFICERS
The principal office of the corporation in the State of
Tennessee shall be located in the CITY Cotton Town of County of
Summer. The corporation may have such other offices, either within or
without the State of incorporation as the board of directors may
designate or as the business of the corporation may from time to time
require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on the 2nd
day of June in each year, beginning with the year 1995 at the hour 2:00
o'clock P.M., for the purpose of electing directors and for the transaction
of each other business as may come before the meeting. If the day fixed for
the annual meeting shall be a legal holiday such meeting shall be held on
the next succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the president or
by the directors, and shall be called by the president at the request of
the holders of not less than 30 per cent of all the outstanding shares of
the corporation entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the
State unless, otherwise prescribed by statute, as the place of meeting for
any annual meeting or for any special meeting called by the directors. A
waiver of notice signed by all stockholders entitled to vote at a meeting
may designate any place, either within or without the state unless
By-Laws 1
<PAGE>
otherwise prescribed by statute, as the place for holding such meeting. If
no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the principal office of the corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than 5 nor more
than 10 days before the date of the meeting, either personally or by mail,
by or at the direction of the president, or the secretary, or the officer
or persons calling the meeting, to each stockholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the
stockholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or
to vote at any meeting of stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend, or in order to
make a determination of stockholders for any other proper purpose, the
directors of the corporation may provide that the stock transfer books
shall be closed for a stated period but not to exceed, in any case, 15
days. If the stock transfer books shall be closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least 30 days immediately
preceding such meeting. In lieu of closing the stock transfer books, the
directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than 15
days and, in case of a meeting of stockholders, not less than 30 days prior
to the date on which the particular action requiring such determination of
stockholders is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders, or stockholders entitled
to receive payment of a dividend, the date on which notice of the meeting
is mailed or the date on which the resolution of the directors declaring
such dividend is adopted, as the case may be, shall be the record date for
such determination of stockholders. When a determination of stockholders
entitled to vote at any meeting of stockholders has been made as provided
in this section, such determination shall apply to any adjournment thereof.
By-Laws 2
<PAGE>
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books for
shares of the corporation shall make, at least 20 days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at
such meeting, or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each, which list, for
a period of 10 days prior to such meeting, shall be kept on file at the
principal office of the corporation and shall be subject to inspection by
any stockholder at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the whole time
of the meeting. The original stock transfer book shall be prima facie
evidence as to who are the stockholders entitled to examine such list or
transfer books or to vote at the meeting of stockholders.
7. QUORUM.
At any meeting of stockholders 51% of the outstanding shares of the
corporation entitled to Vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Stockholders. If less than said number
of the outstanding shares are represented at a meeting, a majority of the
shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. The stockholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized attorney
in fact. Such proxy shall be filed with the secretary of the corporation
before or at the time of the meeting.
9. VOTING
Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock
entitled to vote held by such stockholders. Upon the demand of any
stockholder, the vote for directors and upon any question before the
meeting shall be by ballot.
By-Laws 3
<PAGE>
All elections for directors shall be decided by plurality vote; all
other questions shall be decided by majority vote except as otherwise
provided by the Certificate of Incorporation or the laws of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders, shall be
as follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes off preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
11. INFORMAL ACTIONS BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be taken at
a meeting of the shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
By-Laws 4
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed by its
board of directors. The directors shall in all cases act as a board, and
they may adopt such rules and regulations for the conduct of their meetings
and the management of the corporation, as they may deem proper, not
inconsistent with these by-laws and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall be one. Each
director shall hold office until the next annual meeting of stockholders
and until his successor shall have been elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held without other
notice than this by-law immediately after, and at the same place as, the
annual meeting of stockholders. The directors may provide, by resolution,
the time and place for the holding of additional regular meetings without
other notice than such resolution.
4. SPECIAL MEETINGS.
Special meeting of the directors may be called by or at the request
of the president or any two directors. The person or persons authorized to
call special meetings of the directors may fix the place for holding any
special meeting of the directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least 10 days
previously thereto by written notice delivered personally, or by telegram
or mailed to each director at his business address. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram,
such notice shall be deemed to be delivered when the telegram is delivered
to the telegraph company. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction
of any business because the meeting is not lawfully called or convened.
By-Laws 5
<PAGE>
6. QUORUM.
At any meeting of the directors 1 (one) shall constitute a quorum for
the transaction of business, but if less than said number is present at a
meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number
of directors and vacancies occurring in the board for any reason except the
removal of directors without cause may be filled by vote of a majority of
the directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be
filled by vote of the stockholders. A director elected to fill a vacancy
caused by resignation, death or removal shall be elected to hold office for
the unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
stockholders or by action of the board. Directors may be removed without
cause only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the
board, the president or the secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt
thereof by the board or such officer, and the acceptance of the resignation
shall not be necessary to make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their
services, but by resolution of the board a fixed sum and expenses for
actual attendance at each regular or special meeting of the board may be
authorized. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
By-Laws 6
<PAGE>
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the
directors at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an
executive committee and other committees, each consisting of three or more
directors. Each such committee shall serve at the pleasure of the board.
By-Laws 7
<PAGE>
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be a president, a
vice-president, a secretary and a treasurer, each of whom shall be elected
by the directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall
be elected annually at the first meeting of the directors held after each
annual meeting of the stockholders. Each officer shall hold office until
his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be
removed by the directors whenever in their judgment the best interests of
the corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the
unexpired portion of the term.
5. PRESIDENT.
The president shall be the principal executive officer of the
corporation and, subject to the control of the directors, shall in general
supervise and control all of the business and affairs of the corporation.
He shall, when present, preside at all meetings of the stockholders and of
the directors. He may sign, with the secretary or any other proper officer
of the corporation thereunto authorized by the directors, certificates for
shares of the corporation, any deeds, mortgages, bonds, contracts, or other
instruments which the directors have authorized to be executed, except in
cases where the signing and execution thereof shall be expressly delegated
by the directors or by these by-laws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or
executed; and in general shall
By-Laws 8
<PAGE>
perform all duties incident to the office of president and such other
duties as may be prescribed by the directors from time to time.
6. VlCE-PRESIDENT.
In the absence of the president or in event of his death, inability
or refusal to act, the vice-president shall perform the duties of the
president, and when so acting, shall have powers of and be subject to all
the restrictions upon the president. The vice-president shall perform such
other duties as from time to time may be assigned to him by the President
or by the directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, see
that all notices are duly given in accordance with the provisions of these
by-laws or as required, be custodian of the corporate records and of the
seal of the corporation and keep a register of the post office address of
each stockholder which shall be furnished to the secretary by each
stockholder, have general charge of the stock transfer books of the
corporation and in general perform all the duties incident to the office of
secretary and such other duties as from time to time may be assigned to him
by the president or by the directors.
8. TREASURER.
If required by the directors, the treasurer shall give bond for the
faithful discharge of his duties in such sum and with such surety or
sureties as the directors shall determine. He shall have charge and custody
of and be responsible for all funds and securities of the corporation;
receive and give receipts for monies due and payable to the corporation
from any source whatsoever, and deposit all such monies in the name of the
corporation in such banks, trust companies or other depositories as shall
be selected in accordance with these by-laws and in general perform all of
the duties incident to the office of treasurer and such other duties as
from time to time may be assigned to him by the president or by the
directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.
By-Laws 9
<PAGE>
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or agent or agents, to enter
into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and such authority may be general or confined
to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by
resolution of the directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the directors may select.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the directors may select.
ARTICLE VI - CERTIFICATIONS FOR SHARES AND THEIR TRANSFER
1. CERTIFICATIONS FOR SHARES.
Certificates representing shares of the corporation shall be in such
form as be determined by the directors. Such certificates shall be signed
by the president and the secretary or by such other officers authorized by
law and by the directors. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and addresses of
stockholders, the number of shares and date of issue, shall be entered on
the stock transfer books of the corporation. All certificates surrendered
to the corporation for transfer shall be canceled and no new certificates
shall be issued until the former certificate for a like number of shares
shall have been surrendered and canceled, except that in case in of a lost,
destroyed or mutilated certificate a new one may be issued there for upon
such terms and indemnity to the corporation as the directors may prescribe.
By-Laws 10
<PAGE>
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it
shall be the duty of the corporation to issue a new certificate to the
person entitled thereto, and cancel the old certificate; every such
transfer shall be entered on the transfer book of the corporation which
shall be kept at its principal office.
(b) The corporation shall be entitled to treat the holder of record
of any share as the holder in fact thereof, and accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such
share on the part of any other person whether or not it shall have express
or other notice thereof, except as expressly provided by the 1aws of this
state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the First day of
January in each year.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may
pay dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be circular
in form and shall have inscribed thereon the name of the corporation, the
state of incorporation, year of incorporation and the words, "Corporate
Seal".
By-Laws 11
<PAGE> EXHIBIT 10.1
MEMORANDUM OF AGREEMENT made as of the 1st day of December, 1998.
BETWEEN:
DIVERSIFIED COSMETICS INTERNATIONAL INC., a corporation
incorporated pursuant to the laws of the Province of Alberta.
(hereinafter referred to as the Licensor")
-and-
SOFTNET INDUSTRIES, INC., a corporation incorporated pursuant
to the laws of the State of De1aware.
(hereinafter referred to as the "Licensee")
LICENCE AND OPTION TO SELL AGREEMENT
WHEREAS The Licensor has agree to license certain computer software and
other intellectual property rights to the Licensee;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and the mutual covenants and agreements herein contained the parties
hereto agree as follows:
1. The Licensor represents that it has all rights to the computer software
and related intellectual property rights being herein collectively referred
to as the "Software") described in Schedule "A" hereto, and has the right,
power and authority to enter into this Agreement.
2. The Licensor agrees to license the software to the Licensee and the
Licensee agrees to license the Software from the Licensor, upon the terms and
conditions hereinafter set out.
3. The term of this license shall be for a period of five years commencing
from December 1, 1998.
4. At all times during the term of the license and thereafter (unless the
Licensee exercises
<PAGE>
the Option described hereinafter) the Software shall be and remain the
property of the Licensor.
5. In consideration of the license of the Software the Licensee agrees to pay
to the Licensor a royalty (the "Royalty") equal to TEN (1O%) PERCENT of the
Net Revenues (as hereinafter defined) of the Licensee from the use, in any
way whatsoever, of the Software. For the purposes of this Agreement, the term
"Net Revenues" shall mean the total revenues received by or for the benefit
of the Licensee (or any subsidiary or affiliate of the Licensee) through the
use, in any way, or as a result of the Software, less all direct costs
associated therewith (excluding the Royalty) and a reasonable allocation of
administrative costs, but without deduction of any income taxes.
6. The Royalty shall be paid by the Licensee on a quarterly basis, within 30
days of the end of each fiscal quarter of the Licensee. Together with each
Royalty payment the Licensee shall provide the Licensor with a report
providing details of the calculation of the amount of the Royalty.
7. Within 60 days of each of the first, second and third fiscal quarters of
the Licensee in each year, the Licensee shall provide the Licensor with
financial statement of the Licensee for such period prepared in accordance
with generally accepted accounting principles. Within 140 days of the end of
each fiscal year of the Licensee the Licensee shall provide the Licensor with
audited financial statements for such fiscal year prepared in accordance with
generally accepted accounting principles and generally accepted auditing
standards.
8. The Licensor may, at its own expense, verify or audit any of the
Licensee's calculations of the Royalty and the Licensee shall provide access
to all records and personnel necessary for such verification or audit. If the
verification or audit shall reveal an understatement by the Licensee in
excess of 5% the Licensee shall pay all costs of the verification or audit.
9. Any overdue license payments or other amount required to be paid to the
Licensor hereunder shall bear interest at the rate of TEN (1O %) PERCENT per
annum.
10. The Licensor shall have the right and option (the "Option") at any time
during the term of this Agreement to sell to the Licensee, and to compel the
Licensee to purchase the Software for a purchase price to be paid by the
Licensee issuing to the Licensor 2,500,000 Common Shares in the capital stock
of the Licensee.
11. The Option shall expire seven (7) days after the expiry of the term of
the license.
12. In the event that the Licensee makes any modifications improvements or
additions to the Software then such modifications, improvements and/or
additions shall be deemed to form part of the Software and shall be and
become the property of the Licensor upon their creation.
13. The Licensee shall be responsible for all costs of registering and or
enforcing the proprietary rights associated with the Software together with
additional development, marketing and operating costs from the date hereof
and the Licensor and Licensee shall cooperate, each with the other in all
situations.
<PAGE>
14. Notwithstanding Section 9 and subject to Section 21, if the Licensee
fails to make a license payment when due, or otherwise is in default of the
Agreement, then if such default is not remedied either by the Licensee within
14 days of receiving notice of such default the Licensor shall have the right
to terminate this license immediately and to take immediate possession and
delivery of the Software. Such remedy is in addition to, and not in
substitution for, any other remedies that the Licensor may have at law or
under this Agreement.
15. Upon the termination of this license by the expiry of its termination,
the Licensee, shall deliver the Software to the Licensor together with all
documentation associated therewith, as it directs, within seven (7) days of
the termination, unless the Licensee has exercised the Option.
16. Any notice required or permitted to be given hereunder shall be
effectively given if sent by facsimile transmission (fax) or delivered
personally or by prepaid courier, addressed to
AS TO THE LICENSOR:
1103 Toronto Dominion Tower
Edmonton Center
Edmonton Alberta
T5J 2Z1
Fax Number (403) 426-1293
AS TO THE LICENSEE:
c/o 4505 South Wasatch Blvd
Suite 330
Salt Lake City, Utah
84124
Fax Number: (801) 274-8200
Any such notice by facsimile transmission shall be deemed to have
been given and received one (l) business day (excluding Saturday and Sundays
and statutory holidays) following the day on which it is transmitted. If
delivered personally or by prepaid courier it shall be deemed to have been
given and received on the day delivered.
17. Time shall be of the essence of this Agreement.
18. The parties hereto agree to execute such other documents and do such
other things as may be required to give full force and effect to this
Agreement.
19. The Licensor may assign its interest under this Agreement without the
consent of the Licensee.
20. The Licensee may not assign its interests under this Agreement without
the prior written consent of the Licensor.
<PAGE>
21. If at any time during the term of this license the Licensee commits an
act of bankruptcy, becomes insolvent, makes an assignment or proposal under
the Bankruptcy Act, or its business or assets are the object of the
appointment of a receiver or receiver-manager, then this license shall be
automatically and forthwith terminated without notice and the Licensor shall
have the right to take immediate possession and delivery of the Software.
22. This Agreement shall be governed and construed in accordance with the
laws of the Province of A1berta.
23. This Agreement shall be binding upon and enure to the benefit of the
parties hereto, their respective successors and permitted assigns.
24. Time shall be of the essence of this Agreement.
25. The parties agree to execute such further or other documents as may be
necessary or desirable to give effect to this Agreement and to cooperate with
each other with respect to obtaining the regulatory approvals.
26 This Agreement constitutes the entire Agreement between the parties hereto
respecting the subject matters hereof and supercedes all prior and
contemporaneous agreement understandings, negotiations and discussions and
representations, whether written or oral, respecting the subject matters
hereof.
IN WITNESS WHEREOF the parties hereto have executed this Agreement
as of the day and year above written.
DIVERSIFIED COSMETICS INTERNATIONAL, INC.
PER: /S/ Doug Slamko
----------------------------------
SOFTNET INDUSTRIES, INC.
PER: /S/ Robert Wallace
----------------------------------
<PAGE>
SCHEDULE A
1. All software and source codes, including any software development.
2. Any domain names associated with the software.
3. All or any web sites under the control under the control or ownership
of Diversified Cosmetics which pertain to any aspect of the software.
4. All or any trademarks associated with the software.
5. All technical specifications, documentation and/or manuals associated
with the development of the software.
<PAGE>
EXHIBIT 10.2
Notice to Exercise Put Option
Dated DECEMBER 10, 1998 A.D.
between:
Diversified Cosmetics International Inc.
(hereafter called the "Vendor")
and
Softnet Industries Inc.
(hereafter called the "Purchaser")
Whereas the Vendor has the option to put its software to the Purchaser in
exchange for 2.5 million shares of the Purchaser and,
The Vendor wishes to exercise this option.
Notice is hereby given that effective December 10, 1998 A.D. the Vendor does
transfer its software valued at $668,138.39 CDN in exchange for 2.5 million
shares valued at $568,138.39 and a $100,000.00 promissory note for work done
on the program subsequent to the initial option.
/S/ Leonard Slamko /S/ D.J. Slamko
- -------------------------------------------- -------------------------
Diversified Cosmetics International Inc Softnet Industries Inc.
<PAGE>
EXHIBIT 10.3
Softnet Industries, Inc.
Promissory Note December 10, 1998
To: Diversified Cosmetics International, Inc.
It is hereby declared that Softnet Industries agrees/promises to pay to
Diversified Cosmetics International, Inc. the sum of $100,000 CDN (or $69,000
US at the time of this agreement).
This sum is due on demand and carries interest at a rate of 0%.
/S/ D.J. Slamko
- ----------------------------
Diversified Cosmetics
<PAGE>
EXHIBIT 10.4
SERVICE CONTRACT
THIS AGREEMENT made as of the 3rd day of FEBRUARY, 1999, by and between
Softnet Industries Inc., a software development company incorporated under
the laws of the state of Delaware (hereinafter called the "Company") and
LEONARD SLAMKO, BUSINESSMAN of the city of SURREY, in the province of BC,
(hereinafter called the "Contractor").
WITNESSETH
WHEREAS, the Contractor is about to be or is engaged by the Company and
has or will thereby become acquainted with the Company's business, records, and
other confidential information; and
WHEREAS, the Company is engaged in the business of software and website
development; and
WHEREAS, the parties hereto acknowledge that the goodwill of the Company
and the contained patronage of its customers and a list of names, addresses, and
phone numbers of its customers or potential customers or leads constitutes a
principal asset of the Company, the same being acquired through its efforts and
the expenditure of time and money; and
WHEREAS, each of the Contractors or associates of the Company hold a
position of trust and confidence and are in large measure enabled by such
association to become acquainted with the many customers, contacts and
associates of the Company, their names, addresses, phone numbers, and, with
other of the Company's business, security, and confidential matters; and
WHEREAS, the parties hereto acknowledge the necessity of restrictive
covenants and non-solicitation covenants of the Contractor herein set forth, and
for the reasonable and proper protection of the goodwill of the Company's
business, and that the same constitutes a material portion of the consideration
of engagement.
<PAGE>
-2-
NOW THEREFORE, in consideration of the premises and of the mutual promises
and covenants herein contained, the parties hereto agree as follows;
1. DUTIES - The Company or its affiliates or subsidiaries engages the
Contractor as a MARKETING CONSULTANT. Contractor's responsibilities, duty and
authority shall be those commonly associated with such position including,
but not limited to, the following duties:
(1) TO DEVELOP, MAINTAIN AND MONITOR MARKETING STRATEGIES FOR THE COMPANY, ITS
AFFILIATES, OR ASSIGNS
(2) TO REPORT DIRECTLY TO THE PRESIDENT
2. COMPENSATION - Beginning on the 3rd day of FEBRUARY, 1999, the
Company shall pay, and the Contractor agrees to accept as compensation for
the services to be rendered herein, the sum of $5,000.00 US per month. In
addition, the Contractor shall receive 100,000 SHARES OF THE COMPANY ON OR
BEFORE FEB 3, 2000, unless this Agreement has been previously terminated by
either party. The Contractor's monetary compensation open to review from time
to time whereupon the Contractor's compensation may increase depending upon
the performance of the Contractor.
3. FURTHER OBLIGATIONS OF CONTRACTOR - The Contractor agrees as follows:
(a) To exercise and carry out all rules, regulations, duties and
policies of the Company, and observe all such directions and
restrictions as the Company may, from time to time, impose upon
the Contractor.
(b) During the term of this Agreement, not to engage in any
business, calling, or enterprise which is or may be competitive
or contrary to the welfare, interest or benefit of the business
of the Company.
(c) During the term of this Agreement, to provide the services of
LEONARD SLAMKO on a full time basis to carry out the
obligations of the Contractor. If LEONARD SLAMKO is unable to
perform the obligations contained herein, then the Contractor
will supply a substitute individual it being understood by both
parties that the Company, after reviewing the substitute
individual's resume, will have the right to terminate this
Agreement if it determines that, in its sole discretion, the
substitute individual does not have the same skills or
qualifications as that of LEONARD SLAMKO.
4. TERM - The services shall begin on FEB 3, 1999 and shall continue
at will until terminated by either party giving notice. Either party may
terminate this Agreement upon fourteen (14) days prior written notice to the
other. The Company reserves the right to terminate this Agreement at any time
during the first six (6) months or at any other time for cause.
<PAGE>
-3
5. CONFIDENTIAL INFORMATION - All confidential information and trade
secrets, including but not limited to, names and lists of clientele or
licensees, software, specifications, suppliers, operations or technical manuals,
and all information, files and records referring to, or relating thereto,
however maintained are valuable, special, and unique assets of the Company and
the sole and exclusive property of the Company. Any of the projects in which the
Contractor works on, on behalf of the Company, become and are the sole property
of the Company
6. COVENANT NOT TO COMPETE - Upon termination of the Contractor's
services, the Contractor, any of it's officers of directors, or any individual
associated with the Contractor shall not, for a period of one (1) year, either
directly or indirectly, enter into or engage in the business of software,
systems administration, security, or website development specifically designed
for use in Internet gaming.
7. FURTHER DUTIES OF THE CONTRACTOR - The Contractor guarantees to have a
qualified person, acceptable to the Company, available at the Company's place of
business no less than 40 hours a week. The Contractor should be aware that
duties associated with this Agreement may involve travel from the Company's
place of business to various locations throughout the world.
8. DUTIES AFTER TERMINATION OF AGREEMENT - The Contractor further agrees
that upon termination of this Agreement, Contractor will immediately surrender
to the company all samples, licensee contact information, price lists,
brochures, supplier, books and records, documents, operations or technical
manuals, software (either developed or under development) of or in connection
with the Company's licensees or business, passwords, codes, security technical
information and protocols and all other in the Contractor's possession which
belongs to the Company, it being distinctly understood that all of such items,
including all software which is or was developed by the Contractor is the
property of the Company.
9. SERVABILITY - The invalidity or unenforceability of any provision in
this Agreement shall in no way affect the validity or enforceability of any
other provision.
10. BENEFIT - This Agreement shall insure to the benefit of and be binding
upon the Company, its successors and assigns, and the Contractor and its heirs,
executors, administrators and legal representatives.,
11. SITUS - This Agreement shall be construed and governed in accordance
with the laws of the province of British Columbia.
<PAGE>
-4
12. PRIOR AGREEMENTS - This Agreement supersedes any prior written or verbal
agreements.
13. ARBITRATION - Any controversy relating to this Agreement or the
interpretation thereof shall be settled by arbitration in the city of Vancouver,
B.C., pursuant to the rules then in place for the province of British Columbia.
14. ADDRESS - The address's for each party to receive any formal notice or
notice's from the other party are as follows:
COMPANY CONTRACTOR
Softnet Industries Inc. 16343 - 9 AVE
3237 - King George Hwy. SURREY, BC, CANADA
Suite 101 B V4A 9B5
Surrey, BC V4P 1B7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
COMPANY
/S/ Peter Tara By: /S/ LARRY HRABI
- ------------------------------ --------------------------
WITNESS
CONTRACTOR
/S/ Peter Tara By: /S/ L. SLAMKO
- ------------------------------ --------------------------
WITNESS
<PAGE>
EXHIBIT 10.5
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
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").
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
<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/ MICHAEL KANG
- --------------------------
Michael Kang
Chairman and CEO
cc: Jack Combs, DCB
Rick Grove, DCB
Doug Slamko, Softnet
Agreed and accepted the 14th, day of APRIL, 1999 on behalf of
---- -----
the Board of Directors of Softnet Inc.
Per:
/S/ LARRY HRABI
- --------------------
Larry Hrabi
CEO and Director
<PAGE>
EXHIBIT 10.6
AGREEMENT
BETWEEN
SOFTNET INDUSTRIES INC., A SOFTWARE DEVELOPMENT
COMPANY INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE (HEREINAFTER
REFERRED TO AS THE "LICENSOR")
AND
DCI, INC., A BODY CORPORATE
INCORPORATED UNDER THE LAWS OF THE
COMMONWEALTH OF DOMINICA (HEREINAFTER
REFERRED TO AS THE "MASTER LICENSEE")
WHEREAS Softnet Industries Inc., a publicly traded corporation trading on the
NASD OTC Bulletin Board, with a trading symbol SFNT, is a developer of
proprietary software and websites specifically designed for the gaming industry;
AND WHEREAS DCI INC., a body corporate, with a head office located in the city
of Roseau, The Commonwealth of Dominica is desirous of entering into an
agreement whereupon the Licensor will license certain software and website
packages to the Master Licensee under the following terms and conditions
contained herein;
A) FEE: The Master Licensee shall pay the Licensor the following ongoing
licensing fees. All payments due to the Licensor shall be paid by the 15th day
of the following month from which said revenue was received by the Master
Licensee:
1. Forty percent (40%) of the NET GAMING REVENUE which is derived
from the revenue or sales related to the software or website
packages that were provided to the Master Licensee by the
Licensor.
2. Fifty percent (50%) of the gross revenue which is derived from
the up front fee which the Master Licensee charges for all and
any sub-licensees.
3. Ten percent (10%) of the gross revenue which the Master
Licensee derives from the wholesale revenue from the sales of
the software to any third party.
B) NON-EXCLUSIVITY: It is recognized by both parties that any of the software
packages or websites that is delivered to the Master Licensee are of a
non-exclusive nature and that the Licensor may choose, at its sole discretion,
to license similar or like packages, websites, or software to other parties.
C) SUB LICENSES. The Licensor may permit the Master Licensee to sub-license any
of the software, software packages, or themed websites that the Licensor has or
will make available to the Master Licensee from time to time it being understood
by all
1
<PAGE>
parties that before any sub-licensing agreement can be ratified, written
permission from the Licensor will be a requirement.
D) OBLIGATIONS OF LICENSOR: The Licensor shall be obligated to the following:
1. To provide all software and website developments to the Master
Licensor on a timely basis, specifically a minimum of 6 new
themed software packages and websites per annum.
2. To provide all updated games or technology to the Master
Licensee software packages.
3. To update any of the websites under the control of Master
Licensee upon request from the Master Licensee.
4. To provide technical support as required by the Master
Licensee.
5. To develop all websites based upon themes requested from the
Master Licensee.
6. To continue to develop software, game applications, and
electronic e-cash technology.
7. To provide back-end accounting software as required by Master
Licensee.
D) OBLIGATIONS OF THE MASTER LICENSEE: The Master Licensee shall be obligated to
the following:
1. To pay all fees to the Licensor as listed in paragraph A
above.
2. To provide 24 hour telephone customer support, 365 days a
year.
3. To provide Licensor or Licensor's representatives access to
Master Licensee's files or accounting records at all times, said
records to be available at the Master Licensee's place of business.
4. To place and spend at least the minimum amount of advertising
as detailed in paragraph F below.
5. To not alter in any way any part of the software or websites
without prior written permission of the Licensor.
6. To obtain and maintain a business license in the jurisdiction
in which it is located.
7. To purchase and maintain all necessary hardware and bandwidth
required to efficiently operate its business.
2
<PAGE>
8. To pay all of its bills, taxes, and obligations in a timely
fashion.
F) ADVERTISING: The Master Licensee agrees to spend a minimum of $10,000. USD
every calendar month on advertising for each software package or casino which
has been licensed to the Master Licensee or any of the Master Licensee's
sub-licensees under its control. For definition of this paragraph, advertising
shall mean those hard costs paid for, but not limited to, internet banner ads,
magazine ads, newspaper ads, T.V. ads, radio ads and other allowable advertising
expenses as approved by the Licensor.
G) ADVERTISING REBATE: The Licensor shall provide a monthly advertising rebate
to the Master Licensee. Said amount of rebate shall be based upon the lesser of
the following:
1. 10% of monthly net gaming revenue.
2. The amount actually expended during the month for advertising.
In order to qualify for the advertising rebate, the Master Licensee must
provide the Licensor with copies of all advertising invoices showing the
supplier or provider, the amount, a description of the advertising, and
evidence that the invoice has been paid in full. All advertising rebates must
be applied for within 30 days of the end of the month in which they were
incurred.
H) TERM: This licensing agreement shall be in effect and continue for a period
of ten (10) years from the date in which it is executed. The Master Licensee
shall have a right to extend this agreement for a further five (5) year period
provided it is not in breach of this Agreement and it gives the Licensor written
notice of its intent to extend this agreement no later than 180 days prior to
the expiry of this Agreement.
I) RELATIONSHIP: Both parties hereto are independent of each other and therefore
will not portray themselves to have any other relationship between them other
than that hereby described in this Agreement. The Master Licensee may conduct
its business in any fashion it so desires provided always that it is legally
conducting business in the jurisdiction in which it is licensed.
J) NET GAMING REVENUE: For the purposes of this agreement, Net Gaming Revenue
shall be defined as Gross Revenue LESS the following:
1. Customer Payouts.
2. E-Cash charges, fees, holdbacks and chargebacks.
3. Jurisdiction Taxes or levies.
K) OWNERSHIP: It is understood by both parties that the Licensor is the owner of
all software and that the Master Licensee is only licensing the software while
this agreement is in effect. All domain names owned by the respective parties
shall remain the property of the originating party, even upon termination of
this Agreement. Any trade marks or copyrights of the Licensor are the property
of the Licensor and the Master Licensee hereby agrees to now and forever
relinquish all rights to same.
3
<PAGE>
L) RIGHTS OF MASTER LICENSEE: The Master Licensee shall have the right to
continue to receive new software packages under the terms described in paragraph
A of this agreement provided that the Master Licensee is not in breach of
paragraph A or paragraph F. If the Master Licensee is in breach of either of
paragraph A or F within 30 days of the date in which such breach occurred.
M) TERMINATION: Except where expressly provided in paragraph L above, either
party may terminate this Agreement if there is a breach by the other party,
provided that the offending party is given 30 days written notice of the breach
and that during the 30 day period the offending party is allowed to cure any
such breach. Either party may terminate this Agreement at any time if the other
party declares bankruptcy or is declared insolvent by a trustee.
N) DISPUTE: In the event of a dispute arising from the interpretation of this
Agreement, said dispute shall be submitted to a binding arbitration process in
place for the province of British Columbia whereupon both parties hereby agree
to abide by the decision of the arbitrator.
O) TIME: Time is of the essence hereof.
P) ENTIRE AGREEMENT: This Agreement contains the entire agreement between both
parties and there are no other agreements, warranties, conditions or guaranties,
either verbal or written except those expressed herein.
Q) SITUS: The laws pertaining to this Agreement shall be the laws of the
province of British Columbia, Canada and if any part of this Agreement should be
found to be unenforceable for any reason, then the balance of this Agreement
shall be unaffected and shall continue to be binding on the parties hereto.
R) ASSIGNMENT: This Agreement cannot be assigned by the Master Licensee without
prior written approval from the Licensor and shall be binding upon all or any
executors, receivers, or trustees of both parties hereto.
Dated this 8th day of APRIL, in the city of Vancouver, the province of
British Columbia.
SOFTNET INDUSTRIES INC.
/S/ D. J. SLAMKO
- -----------------------
DCI INC.
/S/ IRVIN MAXIMEA
- -----------------------
<PAGE>
EXHIBIT 10.7
RSA SOFTWARE, INC.
1. SPECIFICATIONS
After reviewing your Functional Specifications Checklist and my discussions
with you and Paul Bryan of InTouch, we would deal with the following areas of
MetroBingo:
1. User Interface
- All inputs screens (Text format only).
- Expected processing and outputs
- Workflow descriptions
- Event interaction
- Database Layout
- Database Integrity & File Relationship
2. Reporting
- Detailing the required reports.
3. Administration - Administrative functions
We would write two documents:
Application Overview will outline the system, screen layouts and
administrative functions/reports.
Technical Guide will deal the databases, program flow and event
interaction.
The approximate cost will be between $ 6,800 and $ 8,000.
We would also receive $ 25,000 in Softnet Shares (OTC BB:SFNT restricted 144).
Based on Wednesday's closing of 1.375 this would be approximately 18,000 shares.
We would require deposit in the amount of $ 3,000 on your visit to Montreal
before proceeding. Final payment would be on presentation of the final report in
Vancouver.
<PAGE>
RSA SOFTWARE, INC.
2. Administrative Reports
- --------------------------------------------------------------------------------
Once the database specification are accepted, we would then write the reports in
Crystal. Since at this time we don't know the number of reports required, it is
hard to estimate but based on previous experience, would suggest the following
as a staring point and have estimated for a maximum of 20 reports. The cost is
approximately $200 per report and others could be added as needed.
1. Summarized Player List 11. Daily Transaction list
2. Detailed Player List 12. Audit List
3. Lockup Table List 13. Cash Control Report
4, Game Type List 14. Payout Report
5. Game Schedule 15. Player Usage
6. Players per Games 16. Advertising Report
7. Payout Report 17.
8. Player Stats 18.
9. Player Transaction List 19.
10. Game Transaction List 20.
<PAGE>
RSA SOFTWARE, INC.
3. SCHEDULE :
- --------------------------------------------------------------------------------
Meeting with Fabrice in Montreal to define game outline 2-3 days
Write Application Overview and submit to Fabrice for approval 3-4 days
Fabrice review, approval and modifications 2-3 days
Create database outline 3-4 days
Detail program flow and event interaction 3-4 days
Meeting with Fabrice & Team in Vancouver 4 days
With Technical Guide for final modifications (includes travel)
17-20 days
We would begin writing the reports once the database structures have been
accepted.
4. OTHER CONDITIONS:
Travel, out of pocket expenses or the purchase of any required development
software is not included and will be billed to MetroBingo and payable upon
receipt
Any additional work not covered in this quote will be billed at our current
hourly rates of $ 150 per hour or $ 50 hour plus $ 150 in Softnet Shares.
All amounts are in US Dollars.
Signed this 22nd day of April, 1999 in Montreal, Quebec.
Randy Soule Fabrice L'Heureux
RSA Software, Inc Metro Bingo
/S/ RANDY SOULE /S/ FABRICE L'HEUREUX
- ---------------------------------- ---------------------
<PAGE>
EXHIBIT 10.8
ADDENDUM
TO AN
AGREEMENT
WHEREAS DCI INC. and iCYSTAL INC. have entered into a Licensing
Agreement Dated April 8, 1999.
AND WHEREAS both parties wish to add the following clause to the
Agreement which will become an integra1 part of the Agreement the
fo1lwing clause shall be added.
F A. ADVERTISING OBLIGATION: The Licensor shall agree to spend up to
$70,000.00 USD to promote the website of the Master Licensee over a six
month period beginning May 1, 1999. In return the Licensor shall be
entitled to receive an additional 10%of the Master Licensee's portion
of the NET GAMING REVENUE until either whichever of the Following comes
first.
1) The $70,000.00 is paid in full
or
2) December 31, 1999
Dated this 1st day of MAY 1999 in the city of Vancouver, the province
of British Columbia.
SOFTNET INDUSTRIES INC.
/S/ D. J. Slamko
- -----------------------
DCI INC.
/S/ Irvin Maximea
- -----------------------
<PAGE>
EXHIBIT 10.9
SERVICE CONTRACT
THIS AGREEMENT made as of the 28th day of June, 1999, by and between Softnet
Industries Inc., a software development company incorporated under the laws of
the state of Delaware, (hereinafter called the Company) and 743633 Alberta Ltd.
(DBA Computer Assistants) hereinafter called the Contractor.
WITNESSETH
WHEREAS the Contractor is about to be or is engaged by the Company and has or
will thereby become acquainted with the Company's business, records, and other
confidential information; and
WHEREAS the Company is engaged in the business of software and website
development; and
WHEREAS the parties hereto acknowledge that the goodwill of the Company and the
contained patronage of its customers and a list of names, addresses and phone
numbers of the its customers or potential customers or leads constitutes a
principal asset of the Company, the same being acquired through its efforts and
the expenditure of time and money; and
WHEREAS each of the Contractors or associates of the Company hold a position of
trust and confidence and are in large measure enabled by such association to
become acquainted with the many customers, contacts and associates of the
Company, their names, addresses, phone numbers and, with other of the Company's
businesses, security and confidential matters; and
WHEREAS the parties hereto acknowledge the necessity of restrictive covenants
and non-solicitation covenants of the Contractor herein set forth, and for the
reasonable and proper protection of the good will of the Company's business, and
that the same constitutes a material portion of the consideration of engagement.
NOW THEREFORE in consideration of the premises and of the mutual promises and
covenants herein contained, the parties hereto agree as follows:
DUTIES
The Company or its affiliates of subsidiaries engages the Contractor as a
Director of Technology. The Contractor's responsibilities, duty and authority
shall be those commonly associated with such a position including, but not
limited to, the following:
-- manage the Company's technical office and employees thereof
-- oversee and administer the Company's software development
-- direct the Company's, and the Company's licensees, technical
hardware
-- report directly to the president of the company
COMPENSATION
Beginning on the 31st day of July, 1999 the Company shall pay, and the
Contractor agrees to accept as compensation for the services to be rendered
herein, the sum of US$5,000.00 per month. In addition, the Contractor shall
receive the following
-- 62,500 shares on July 1, 1999
-- 62,500 shares on July 1, 2000
-- 62,500 shares on July 1,2001
-- 62,500 shares on July 1, 2002
unless this agreement has been previously terminated by either party. The
Contractor's monetary compensation shall be open to review from time to time
whereupon the Contractor's compensation may increase depending on the
performance of the Contractor.
<PAGE>
FURTHER OBLIGATIONS OF THE CONTRACTOR
The Contractor agrees to the following;
a) to exercise and carry out all rules, regulations, duties and policies
of the Company, and observe all such directions and restrictions as
the Company may, from time to time, impose upon the Contractor
b) during the term of this agreement, not to engage in any business,
calling or enterprise which is or may be competitive or contrary to
the welfare, interest or benefit of the business of the Company
c) during the term of this agreement, to provide the services of
Reginald Oake on a fill time basis to carry out the obligations of
the Contractor. if Reginald Oake is unable to perform the obligations
contained herein, the Contractor will supply a substitute individual
(it being understood by both parties that the Company, after
reviewing the substitute individual's resume, will have the right to
terminate this agreement if it determines that, in its sole
discretion, the substitute individual does not have the same skills
or qualification as that of Reginald Oake.
TERM
The services shall begin on July 1, 1999 and shall continue at will until
terminated by either party giving notice. Either party may terminate this
agreement upon fourteen (14) days prior written notice to the other. The Company
reserves the right to terminate this agreement at any time during the first six
(6) months at its sole discretion or at any other time for cause.
CONFIDENTIAL INFORMATION
All confidential information and trade secrets, including by not limited to,
names and lists of clientele or licensees, software, specification, suppliers,
operations or technical manuals, and all information, files and records
referring to, or relating thereto, however maintained are valuable, special and
unique assets of the Company and the sole and exclusive property of the Company.
Any of the projects on which the Contractor works, on behalf of the Company, are
the sole property of the Company.
COVENANT NOT TO COMPETE
Upon termination of the Contractor's services, the Contractor, any of it's
officers or directors, or any individual associated with the Contractor shall
not, for a period of one (1) year, either directly or indirectly, enter into or
engage in the business of software, systems administration, security, or website
development specifically designed for use in Internet gaming.
FURTHER DUTIES OF THE CONTRACTOR
The Contractor guarantees to have a qualified person, acceptable to the company,
available to the Company on a full time basis. The Contractor should be aware
that duties associated with this agreement may involve travel from the Company's
place of business to various locations throughout the world.
DUTIES AFTER TERMINATION OF AGREEMENT
The Contractor further agrees that upon termination of this agreement, the
Contractor will immediately surrender to the Company all samples, licensee
contact information, price lists, brochures, supplier, books and records,
documents, operations or technical manuals, software (either developed or under
development) of or in connection with the Company's licensees or business,
passwords, codes, security technical information and protocols and all other in
the Contractor's possession which belongs to the Company, it being distinctly
understood that all such items, including all software which is or was developed
by the Contractor is the property of the Company.
SERVABILITY
The invalidity or unenforceability of any provision of this agreement shall in
no way affect the validity or enforceability of any other provision.
BENEFIT
This agreement shall insure to the benefit of and be binding upon the Company,
its successors and assigns, and the Contractor and its heirs, executors,
administrators and legal representatives.
<PAGE>
SITUS
This agreement shall be construed and governed in accordance with the laws of
the province of British Co1umbia.
PRIOR AGREEMENTS
This agreement supersedes any prior written or verbal agreements
ARBITRATION
Any controversy relating to this agreement or the interpretation thereof shall
be settled by arbitration in the city of Vancouver, B.C., pursuant to the rules
then in play for the province of British Columbia.
ADDRESS
The addresses for each party to receive any formal notice or notices from the
other party are as follows:
iCrystal Inc. 743633 Alberta Ltd. (DBA Computer Assistants)
3237 King George Highway #74, 9520 - 174 Street
Suite l01B Edmonton, AB T5T 5Z3
Surrey, BC V4A 1B7
IN WITNESS WHEREOF the parties hereto have executed this agreement on the date
first written above.
COMPANY
/S/ D. J. Slamko
WITNESS By: /S/ Larry Hrabi
---------------------------
CONTRACTOR
/S/ D. J. Slamko
WITNESS By: /S/Reginald Oake
---------------------------
<PAGE>
EXHIBIT 10.10
SERVICE CONTRACT
THIS AGREEMENT made as of the 1st day of JULY, 1999, by and between
iCrystal Inc., a software development company incorporated under the laws of
the state of Delaware (hereinafter called the "Company") and 4250 Investments
Ltd., A computer services company of the city of Mission, in the province of
BC, (hereinafter called the "Contractor").
WITNESSETH
WHEREAS, the Contractor is about to be or is engaged by the Company and
has or will thereby become acquainted with the Company's business, records, and
other confidential information; and
WHEREAS, the Company is engaged in the business of software and website
development; and
WHEREAS, the parties hereto acknowledge that the goodwill of the Company
and the contained patronage of its customers and a list of names, addresses, and
phone numbers of its customers or potential customers or leads constitutes a
principal asset of the Company, the same being acquired through its efforts and
the expenditure of time and money; and
WHEREAS, each of the Contractors or associates of the Company hold a
position of trust and confidence and are in large measure enabled by such
association to become acquainted with the many customers, contacts and
associates of the Company, their names, addresses, phone numbers, and, with
other of the Company's business, security, and confidential matters; and
WHEREAS, the parties hereto acknowledge the necessity of restrictive
covenants and non-solicitation covenants of the Contractor herein set forth, and
for the reasonable and proper protection of the goodwill of the Company's
business, and that the same constitutes a material portion of the consideration
of engagement.
<PAGE>
-2-
NOW THEREFORE, in consideration of the premises and of the mutual promises
and covenants herein contained, the parties hereto agree as follows:
1. DUTIES - The Company or its affiliates or subsidiaries engages the
Contractor as a THE SOFTWARE DEVELOPMENT MANAGER. Contractor's
responsibilities, duty and authority shall be those commonly associated with
such position including, but not limited to, the following duties;
* Develop corporate and Licensee Websites.
* Responsible for the creative
* Overseeing and administrating the Company's Metro Bingo software
development project and graphic design of the Company.
* Operate within the budget approved by the Company.
* Reporting directly to the president of the Company
2. COMPENSATION - Beginning on the 1st day of July, 1999, the Company
shall pay, and the Contractor agrees to accept as compensation for the services
to be rendered herein, the sum of $4000.00 US per month. During the continuation
of this Agreement, the contractor's compensation shall be open for review every
3 months whereupon the Contractor's compensation may increase depending upon the
performance of the Company.
3. FURTHER OBLIGATIONS OF CONTRACTOR - The Contractor agrees as follows:
(a) To exercise and carry out all rules, regulations, duties and
policies of the Company, and observe all such directions and
restrictions as the Company may, from time to time, impose upon
the Contractor.
(b) During the term of this Agreement, not to engage in any
business, calling, or enterprise which is or may be competitive
or contrary to the welfare, interest or benefit of the business
of the Company.
(c) During the term of this Agreement, to provide the services of
Fabrice L'Heureux on a full time basis to carry out the
obligations of the Contractor. If Fabrice L'Heureux is unable to
perform the obligations contained herein, then the Contractor
will supply a substitute individual it being understood by both
parties that the Company, after reviewing the substitute
individual's resume, will have the right to terminate this
Agreement if it determines that, in its sole discretion, the
substitute individual does not have the same skills or
qualifications as that of Fabrice L'Heureux.
4. TERM - The services shall begin on July 1, 1999 and shall continue at
will until terminated by either party giving notice. Either party may terminate
this Agreement upon fourteen (14) days prior written notice to the other. The
Company reserves the right to terminate this Agreement at any time during the
first six (6) months or at any other time for cause.
<PAGE>
-3-
5. CONFIDENTIAL INFORMATION - All confidential information and trade
secrets, including but not limited to, names and lists of clientele or
licensees, software, specifications, suppliers, operations or technical manuals,
and all information, files and records referring to, or relating thereto,
however maintained are valuable, special, and unique assets of the Company and
the sole and exclusive property of the Company. Any of the projects in which the
Contractor works on, on behalf of the Company, become and are the sole property
of the Company
6. COVENANT NOT TO COMPETE - Upon termination of the Contractor's
services, the Contractor, any of it's officers of directors, or any individual
associated with the Contractor shall not, for a period of one (1) year, either
directly or indirectly, enter into or engage in the business of software,
systems administration, security, or website development specifically designed
for use in Internet gaming.
7. FURTHER DUTIES OF THE CONTRACTOR - The Contractor guarantees to have a
qualified person, acceptable to the Company, available at the Company's place of
business no less than 40 hours a week. The Contractor should be aware that
duties associated with this Agreement may involve travel from the Company's
place of business to various locations throughout the world.
8. DUTIES AFTER TERMINATION OF AGREEMENT - The Contractor further agrees
that upon termination of this Agreement, Contractor will immediately surrender
to the company all samples, licensee contact information, price lists,
brochures, supplier, books and records, documents, operations or technical
manuals, software (either developed or under development) of or in connection
with the Company's licensees or business, passwords, codes, security technical
information and protocols and all other in the Contractor's possession which
belongs to the Company, it being distinctly understood that all of such items,
including all software which is or was developed by the Contractor is the
property of the Company.
9. SERVABILITY - The invalidity or unenforceability of any provision in
this Agreement shall in no way affect the validity or enforceability of any
other provision.
10. BENEFIT - This Agreement shall insure to the benefit of and be binding
upon the Company, its successors and assigns, and the Contractor and its heirs,
executors, administrators and legal representatives.
11. SITUS - This Agreement shall be construed and governed in accordance
with the laws of the province of British Columbia.
<PAGE>
-4-
12. PRIOR AGREEMENTS - This Agreement supersedes any prior written or verbal
agreements.
13. ARBITRATION - Any controversy relating to this Agreement or the
interpretation thereof shall be settled by arbitration in the city of Vancouver,
B.C., pursuant to the rules then in place for the province of British Columbia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
COMPANY
/S/ S. COMEAU By: /S/ L. SLAMKO
- ------------------------- ----------------------------
WITNESS
CONTRACTOR
/S/ S. COMEAU By: /S/ FABRICE L'HEUREUX
- ------------------------- ----------------------------
WITNESS
<PAGE>
EXHIBIT 10.11
SERVICE CONTRACT
THIS AGREEMENT made as of the 1 day of JULY, 1999, by and between
iCrystal Inc., a software development company incorporated under the laws of
the state of Delaware (hereinafter called the "Company") and Sean Comeau, a
computer security expert of the city of Burnaby, in the province of BC,
(hereinafter called the "Contractor").
WITNESSETH
WHEREAS, the Contractor is about to be or is engaged by the Company
and has or will thereby become acquainted with the Company's business,
records, and other confidential information; and
WHEREAS, the Company is engaged in the business of software and
website development; and
WHEREAS, the parties hereto acknowledge that the goodwill of the
Company and the contained patronage of its customers and a list of names,
addresses, and phone numbers of its customers or potential customers or leads
constitutes a principal asset of the Company, the same being acquired through
its efforts and the expenditure of time and money; and
WHEREAS, each of the Contractors or associates of the Company hold a
position of trust and confidence and are in large measure enabled by such
association to become acquainted with the many customers, contacts and
associates of the Company, their names, addresses, phone numbers, and, with
other of the Company's business, security, and confidential matters; and
WHEREAS, the parties hereto acknowledge the necessity of restrictive
covenants and non-solicitation covenants of the Contractor herein set forth,
and for the reasonable and proper protection of the goodwill of the Company's
business, and that the same constitutes a material portion of the
consideration of engagement.
<PAGE>
-2-
NOW THEREFORE, in consideration of the premises and of the mutual
promises and covenants herein contained, the parties hereto agree as follows;
1. DUTIES - The Company or its affiliates or subsidiaries engages
the Contractor as a Systems Security Administrator. Contractor's
responsibilities, duty and authority shall be those commonly associated with
such position including, but not limited to, the following duties;
*Develop corporate and Licensee security protocols
*Overseeing and administrating the Company's database protocol.
*Monitoring of all of the Company's systems
*Operate within the budget approved by the Company
*Reporting directly to the president of the Company
2. COMPENSATION- Beginning on the 1st day of July, 1999, the Company
shall pay and the Contractor agrees to accept as compensation for the
services to be rendered herein, the sum of $2,000.00. US per month. During
the continuation of this Agreement, the Contractor's compensation shall be
increased to $2,500.00 US on Nov. 1, 1999. In addition, the Contractor shall
receive 50,000 shares of the Company on August 1, 2000 and an additional
50,000 shares on August 1,2001, unless this Agreement has been previously
terminated by either party. The Contractor's monetary compensation open to
review from time to time whereupon the Contractor's compensation may increase
depending upon the performance of the Company.
3. FURTHER OBLIGATIONS OF CONTRACTOR- The Contractor agrees as
follows:
(a) To exercise and carry out all rules, regulations, duties and
policies of the Company, and observe all such directions and
restrictions as the Company may, from time to time, impose
upon the Contractor.
(b) During the term of this Agreement, not to engage in any
business, calling, or enterprise which is or may be
competitive or contrary to the welfare, interest or benefit
of the business of the Company.
(c) During the term of this Agreement, to provide the services
of Sean Comeau on a full time basis to carry out the
obligations of the Contractor. If Sean Comeau is unable to
perform any of the obligations of the Contractor, then the
Contractor must provide another individual with similar
skills, it however being understood by both parties that the
Company will have the option to terminate this Agreement if
it determines that, in its sole discretion, the substitute
individual does not have the same skills or qualifications
as that of Sean Comeau.
4. TERM- The services shall begin on Aug. 1, 1999, and shall
continue at will until terminated by either party upon notice. Either party
may terminate this Agreement upon fourteen (14) days prior written notice to
the other. The Company reserves the fight to terminate this Agreement at any
time during the first six (6) months or at any other time for cause.
<PAGE>
-3-
5. CONFIDENTIAL INFORMATION - All confidential information and trade
secrets, including but not limited to, names and lists of clientele or
licensees, software, specifications, suppliers, operations or technical
manuals, and all information, files and records referring to, or relating
thereto, however maintained are valuable, special, and unique assets of the
Company and the sole and exclusive property of the Company. Any of the
projects in which the Contractor works on, on behalf of the Company, become
and are the sole property of the Company
6. COVENANT NOT TO COMPETE - Upon termination of the Contractor's
services, the Contractor, any of it's officers or directors, or any
individual associated with the Contractor shall not, for a period of one (1)
year, either directly or indirectly, enter into or engage in the business of
software, systems administration, security, or website development
specifically designed for use in Internet gaming.
7. FURTHER DUTIES OF THE CONTRACTOR- The Contractor guarantees to
have a qualified person, acceptable to the Company, available at the
Company's place of business no less than 40 hours a week. The Contractor
should be aware that duties associated with this Agreement may involve travel
from the Company's place of business to various locations throughout the
world.
8. DUTIES AFTER TERMINATION OF AGREEMENT - The Contractor further
agrees that upon termination of this Agreement, Contractor will immediately
surrender to the company all samples, licensee contact information, price
lists, brochures, supplier, books and records, documents, operations or
technical manuals, software (either developed or under development) of or in
connection with the Company's licensees or business, passwords, codes,
security technical information and protocols and all other in the
Contractor's possession which belongs to the Company, it being distinctly
understood that all of such items, including all software which is or was
developed by the Contractor is the property of the Company.
9. SERVABILITY- The invalidity or unenforceability of any provision
in this Agreement shall in no way affect the validity or enforceability of
any other provision.
10. BENEFIT - This Agreement shall insure to the benefit of and be
binding upon the Company, its successors and assigns, and the Contractor and
its heirs, executors, administrators and legal representatives.,
11. SITUS - This Agreement shall be construed and governed in
accordance with the laws of the province of British Columbia.
<PAGE>
12. PRIOR AGREEMENTS - This Agreement supersedes any prior written
or verbal agreements.
13. ARBITRATION - Any controversy relating to this Agreement or the
interpretation thereof shall be settled by arbitration in the city of
Vancouver, B.C., pursuant to the rates then in place for the province of
British Columbia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first written above.
COMPANY
/s/ FABRICE L'HEUREUX By: /s/ L. Slamko
- --------------------- -----------------------------
WITNESS
CONTRACTOR
/s/ FABRICE L'HEUREUX By: /s/ S. Comeau
- --------------------- -----------------------------
<PAGE>
EXHIBIT 10.12
WEST PEAK VENTURES OF CANADA, INC.
Icrystal, Inc.
Attn: Doug Slamko, President
145 Tyee Drive, Suite 343
Point Roberts, WA 98281
August 16, 1999
Dear Doug:
RE: CONVERTIBLE LOAN OF $78,196.20 USD TO ICRYSTAL INC.
Please, find attached a cheque, from Thompson Keraghan & Co. Limited, for
$66,196.20 USD payable to DCI Inc. This amount represents the net cash
generated from the sale of 200,000 shares from Icrystal (see Schedule 1).
By way of this letter, please confirm that the proceeds from the sale of the
shares, after brokerage commissions, being $78,196.20 USD represents a loan
to Icrystal, bearing interest at the United States prime lending rate plus 2%
and repayable on November 30, unless converted into 200,000 common shares of
Icrystal, which agrees to register for resale at the request of West Peak,
prior to that date.
Should the loan not be converted into 200,000 common shares prior to November
30,1999, West Peak shall have the right to either convert the loan into
200,000 common shares of Icrystal, which Icrystal agrees to register for
resale at the request of West Peak, or call for the repayment of the loan.
Suite 420 - 475 Howe Street
Vancouver, British Columbia, Canada, V6C- 2B3
Tel: 604-606-7975
Fax: 604-606-7980
Page 1 of 2
August 16, 1999
<PAGE>
Provided you are in agreement with the above, please, so indicate by signing
below.
Sincerely yours:
/S/ George Orr
F. George Orr, Accountant
We are in agreement with the above:
/S/ D.J. Slamko (Doug Slamko, President)
- --------------------------------------
AUGUST 16/99 (Date)
- --------------------------------------
Suite 420 - 475 Howe Street
Vancouver, British Columbia, Canada, V6C- 2B3
Tel: 604-606-7975
Fax: 604-606-7980
Page 2 of 2
August 16, 1999
<PAGE>
Schedule 1
# Shrs $/Shr $USD
Sales from account
120,000 0.410 49,200.00
75,000 0.395 29,625.00
---------
78,825.00
Deemed sale to Britton 5,000 0.250 1,250.00
Commission (1,878.80)(1)
---------
78,196.20
August 99 consulting fee
Paid to Britton (12,000.00)
---------
Balance paid to DCI, Inc 66,196.20
(1) 2.4% (1,878.00 / 78,825) commissions
<PAGE>
EXHIBIT 10.13
AGREEMENT
BETWEEN
ICRYSTAL INC., A SOFTWARE DEVELOPMENT
COMPANY INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE (HEREINAFTER
REFERRED TO AS THE "PURCHASER")
AND
POWER STAR INC., A BODY CORPORATE
INCORPORATED UNDER THE LAWS OF THE
COMMONWEALTH OF DOMINICA (HEREINAFTER
REFERRED TO AS THE "SELLER")
WHREAS Icrystal Inc., a publicly traded corporation trading on the NASD OTC
Bulletin Board, with a trading symbol ICRS, and Power Star Corp. a body
corporate, with a head office located in the city of Roseau, The Commonwealth
of Dominica are desirous of entering into an agreement whereupon the
purchaser will purchase the assets and software of MetroBingo, more fully
described in Section C below, from the Seller based upon the following terms
and conditions contained herein:
A) The total consideration shall be $725,000.00 US. The Purchaser agrees to
pay and the Seller agrees to accept as payment in full, 1,450,000 shares of
ICRS which the Purchaser will issue out of treasury. The price of the ICRS
shares is set at $0.50 US per share for the purposes of this agreement.
B) A total of 250,000 shares will have registration rights attached to them
and the Purchaser will apply for said registration rights upon execution of
this Agreement. The balance of the will be restricted until December 1,
2000.
C) The purchase price shall include all assets of MetroBingo including, but
not limited to the following:
1. All software and source codes including any software still under
development.
2. The Domain Name www.metrobingo.com and all of its variations.
3. All domain names which are associated with Internet Bingo a
schedule of which will be attached to the formal Agreement.
4. All websites now under the control of MetroBingo.
5. All or any trademarks associated with MetroBingo.
6 All graphics and interfaces associated with MetroBingo or any other
Bingo software applications.
7. All technical specs and manuals with regard to the development of
MetroBingo.
<PAGE>
D) The Seller will turn over all assets described in Section C of this
Agreement to the Purchaser within 48 hours of the execution of this
agreement. The Seller warrants that it owns the assets described in Section
C free and clear and that the Software of MetroBingo does not infringe upon
the patents, trademarks, or proprietary rights of any other party. The
Seller agrees to return all ICRS shares in its possession, either free
trading or restricted, in the event a third party is able to prove that the
MetroBingo Software does infringe upon the trademarks, patents, or
proprietary rights of said third party.
E) In the event of a dispute arising from the interpretation of this
Agreement, said dispute shall be submitted to a binding arbitration process
in place for the province of British Columbia whereupon both parties hereby
agree to abide by the decision of the arbitrator.
F) Time is of the essence hereof.
G) This Agreement contains the entire agreement between both parties and there
are no other agreements, warranties, conditions or guarantees, either
verbal or written except those expressed herein.
H) The laws pertaining to this Agreement shall be the laws of the province of
British Columbia, Canada and if any part of this agreement should be found
to be unenforceable for any reason, then the balance of this Agreement
shall be unaffected and shall continue to be binding on the parties hereto.
I) This Agreement shall not be assigned and shall not be binding upon all or
any executors, receivers, or trustees of the parties hereto.
Dated this 28th day of August, 1999 in the city of Surrey, the province of
British Columbia.
ICRYSTAL INC.
/S/ D. SLAMKO
- ----------------------------
POWER STAR CORP.
/S/ MARCELLA CHARLES
- ----------------------------
MARCELLA CHARLES
<PAGE>
EXHIBIT 10.14
THIS LEASE INDENTURE
made the 4th day of September, 1999.
BETWEEN:
MARIO'S PINOCCHIO RISTORANTE LTD.
---------------------------------
Inc. No.197154, of
3140 King George Highway
Surrey, B.C., V4P 1A2
(hereinafter called the "LESSOR")
OF THE FIRST PART
SOFTNET INDUSTRIES INC.
-----------------------
a Company duly incorporated in the State of Delaware in the
United States of America of, 101-B 3237 King George Highway
Surrey, B.C. V4P I B7
(hereinafter called the "LESSEE")
OF THE SECOND PART
ARTICLE I DEFINITIONS
1.01 The definition "Insurable Hazards" means fire and other perils
from which insurance is available and which, in the opinion of the Lessor,
should be protected by insurance.
1.02 "Lease Year" means a twelve (12) month period commencing with
the 1st day of August in one calendar year and ending on the 31st day of July in
the next year, or as agreed upon between the Lessor and the Lessee.
2
<PAGE>
ARTICLE II
2.01 Leased Premises
Witnesseth that in consideration of the rents, covenants
and agreements hereinafter reserved and contained on the part of the Lessee
to be observed and performed, the Lessor demises and leases to the Lessee,
and leases from the Lessor those certain premises being approximately 1,200
net square feet in suite 101-B In the basement of the building civically
known as 3237 King George Highway, in the City of Surrey, in the Province of
British Columbia, more particularly known and described as that portion of
the second floor of the premises situate at:
P.I.D. 015-864-341
Parcel A District Lot 155 Group 2
New Westminster District Reference Plan 84734
as outlined in red on the plan attached as Schedule "A"
hereto, comprising 1,600 net square feet more or less.
(hereinafter referred to as the "Leased Premises")
2.02 NO EXPRESS OR IMPLIED WARRANTY AS TO FITNESS
It is understood and agreed between the parties that there
is no expressed or implied warranty by the Lessor that the premises are fit
for the purposes for which the Lessee proposes to use them. The Lessee states
that he has thoroughly inspected the premises and obtained such professional
advice as he deems necessary for the purposes of such inspection and declares
that they are fit for the purposes for which it is proposed that they be used.
2.03 COMMENCEMENT AND ENDING OF TERM
To have and to hold the Leased Premises for and during a
term of four (4) years. The term of this Lease and the Lessee's obligation to
pay rent hereunder shall commence on theist day of August 1999 and end on the
31st day of July, 2003.
2.04 IMPROVEMENT TO LEASED PREMISES
(a) If the Lessor spends more than SEVENTEEN THOUSAND FIVE
HUNDRED ($ 17,500.00) on the Leasehold improvements agreed to verbally, the
Lessee shall contribute up to a maximum of TWENTY FIVE HUNDRED ($2,500.00)
DOLLARS towards the cost over-run, upon submission, by the Lessor to the
Lessee, of proof of expenditure.
3
(b) The Lessee agrees that the Lessee shall be responsible for
the cost and installation of any and all counter tops, work stations, phone
lines, computer lines and alarm
<PAGE>
system.
2.05 RIGHT OF FIRST REFUSAL
(a) During the term of this Lease, the Right of First Refusal
to lease the area attached, on the same terms and conditions of
the Lessor grants to the Lessee, cross hatched on Schedule "A" this Lease.
(b) The Right of First Refusal must be exercised within Ten
(10) working days of notice being given by either Party to the other. If the
Lessee does not respond to the Lessor's notice, the Lessor shall be free to
lease the Premises described in this section to another party.
ARTICLE III - RENT
3.01 MINIMUM RENT
The Lessee agrees to pay to the Lessor in lawful money of
Canada by delivering postdated cheques as hereinafter set out without any prior
demand therefor and on a net basis without any deduction, defalcation or setoff
whatsoever, as fixed annual minimum rents:
(i) During the term hereof, the sum of SIXTY TWO THOUSAND FOUR HUNDRED
DOLLARS ($62,400.00), plus G.S.T. as applicable, payable in monthly
installments as hereinafter set out, in advance:
(ii) COMMENCING on the 1st day of AUGUST, 1999 and on the 1st day of each
and every month thereafter to and including the 1st day of JULY, 2003
the monthly payment shall be ONE THOUSAND THREE HUNDRED ($1,300.00)
DOLLARS, plus G.S.T.
At the beginning of each lease year the Lessee shall deliver
to the Lessor twelve (12) post-dated cheques for the amount of the equal monthly
installments for the lease year.
3.02 DEPOSITS
(i) A deposit representing the first and last month's rent shall be paid by
the Lessee upon the signing of this lease. The deposit therefore is
TWO THOUSAND SIX HUNDRED DOLLARS ($2,600.00).
<PAGE>
4
ARTICLE IV - INTENT
4.01 The Lessee acknowledges and agrees that it is intended that
this Lease shall be a Gross Lease and the Lessee shall be responsible for the
costs of Hydro and gas related to this unit.
ARTICLE V - TAXES
5.01 As long as the Lessee is not in default the monthly rent shall include real
property, municipal, and school property taxes and rates, whether general or
special, of any nature whatsoever.
5.02 TAXES PAYABLE BY LESSEE
The Lessee shall pay as additional rent and discharge within
twenty (20) days after billing, all taxes and assessments charged or assessed in
respect of any improvements (other than the original approved improvements),
equipment and machinery of the Lessee placed on the Leased Premises, and every
tax and license fee in respect of the Lessee's business.
5.03 EVIDENCE OF PAYMENT
The Lessee further covenants and agrees that upon request of
the Lessor the Lessee will promptly deliver to the Lessor for inspection,
receipt for payment of all taxes, rates, duties, assessments and other charges
in respect of all improvements, equipment and facilities of the Lessee on or in
the Leased Premises which were due and payable up to one (1) month prior to such
request, and in any event will furnish to the Lessor if requested by the Lessor
before the twenty-first (21) day of January in each year of payment of the
preceding years taxes, rates, duties, assessments and other charges.
ARTICLE VI
6.01 USE OF PREMISES
(a) The Lessee shall continuously use the Leased Premises solely for the
purpose of offices. The Lessee will not use or permit or suffer the
Leased Premises or any part thereof to be used for any other business
or purpose during the term hereby granted. If the Lessee or any
sub-lessee or licensee or concessionaire shall not continuously operate
offices as hereinbefore described in the Leased Premises the Lessor
shall have the right to terminate this Lease by giving thirty (30) days
written notice of termination of the Lease to the Lessee.
(b) The Lessee will not perform any acts or carry on any practices which
may injure the building or buildings and improvements or be a nuisance
or menace to the public or to occupiers of adjoining properties.
<PAGE>
5
ARTICLE VII - UTILITIES/LEASED PREMISES
7.01 UTILITY CHARGES
As long as the Lessee is not in default the monthly rent shall
include all charges for water. In no event shall the Lessor be liable for, nor
have any obligation with respect to, and interruption or failure in the supply
of any such utilities or services to the Leased Premises, whether supplied by
Lessor or others.
ARTICLE VIII - MAINTENANCE OF LEASED PREMISES
8.01 MAINTENANCE BY LESSEE
(a) The Lessee shall at all times during the term at its own cost and
expense repair, maintain, keep and make replacements to the whole of
the Leased Premises, including but without restricting the generality
of the foregoing, any improvement now or hereafter made to the Leased
Premises in good order and repair, as a careful owner would do, and the
Lessee covenants to perform such maintenance, to effect such repairs
and replacements and to decorate at its own cost and expense as and
when necessary or reasonably required so to do by the Lessor.
8.02 THE LESSOR'S APPROVAL
(a) In connection with any repairs, replacements, maintenance, alteration,
decoration or improvements set out above, or elsewhere referred to in
this Lease, the Lessee shall before commencing same, obtain Lessor's
written approval and shall, if required by the Lessor to do so, submit
plans and specifications therefor. Any repairs, replacements,
maintenance, alterations, decorations or improvements so done by the
Lessee shall be carried out in a good and workmanlike manner.
(b) If the Lessee refuses or neglects to repair properly as required
hereunder and to the reasonable satisfaction of the Lessor the Lessor
may make such repairs without liability to the Lessee (excepting the
Lessor's gross negligence only) for any loss or damage that may accrue
to the Lessee's merchandise, fixtures, or other property or to the
Lessee's business by reason thereof, and upon completion thereof, the
Lessee shall forthwith pay the Lessor's actual costs and shall further
pay to the Lessor, as a management fee, fifteen percent (15%) of the
said costs.
<PAGE>
6
ARTICLE IX - INSURANCE AND INDEMNITY
9.01 INSURANCE
(a) The Lessee will during the entire term hereof take out and keep in full
force and effect:
(i) Lessee legal liability insurance. If such coverage is not
taken out the Lessee will save harmless the Lessor from any
and all liability resulting from any suit or loss suffered by
the Lessor.
(ii) Property damage and public liability insurance with respect to
the Leased Premises including the plate glass windows, and
business conducted by the Lessee and any other persons in the
Leased Premises in which the limit of public liability shall
not be less than $100,000.00 per person and $2,000,000.00 per
occurrence and in which property damage liability shall not be
less than $2,000,000.00.
(b) All policies shall be at the Lessee's sole cost and expense and shall
name the Lessor and any persons, firms or corporations designated by
the Lessor as additional named insured as their interest may appear and
shall contain a clause that the insurer will not cancel or change or
refuse to renew the insurance without first giving the Lessor not less
than fifteen (15) days prior written notice. The insurance shall be
with insurers acceptable to the Lessor and with policies in form
reasonably satisfactory from time to time to the Lessor and a copy of
all polices or certificates of insurance shall be delivered to the
Lessor forthwith.
(c) The Lessee agrees that, if the Lessee fails to take out or keep in
force any such insurance, the Lessor will have the right but not
obligation to do so and to pay the premium therefor and in such event
the Lessee shall repay to the Lessor the amount so paid as premium
which repayment shall be deemed to be additional minimum rent and shall
be due on the first day of the next month following said payment by the
Lessor.
9.02 INCREASE IN INSURANCE PREMIUMS
The Lessee agrees that it will not keep, use, sell or offer
for sale in or upon the Leased Premises an article which may be prohibited by
the standard form of fire insurance policy in force from time to time
insuring the Leased Premises. In the event the Lessee's occupancy of, conduct
of business in, or sale of merchandise from, or on the Leased Premises, or in
the event any activity carried on or permitted to be carried on by the Lessee
whether or not the Lessor has consented to same, causes any increase in
premiums for insurance carried from pursuant to Section 6.01(a), the Lessee
shall pay any such increase in premium as additional rent within ten (10)
days after bills for such additional premiums shall be rendered by the
Lessor. In determining whether increased premiums are a result of the
Lessee's use or occupancy of the Leased Premises, or the sale of any article
therein or therefrom, a schedule
<PAGE>
7
issued by the organization making the insurance rate on the Leased Premises
showing the various components of such rates shall be conclusive evidence of the
several items and charges which make up such rates.
9.03 CANCELLATION OF FIRE INSURANCE
If any insurance policy upon the Leased Premises, or any
part thereof, shall be cancelled or shall be threatened by the insurer to be
cancelled, or the coverage thereunder reduced in any way by the insurer by
reason of the use and occupation of the Leased Premises or any part thereof by
the Lessee or by any assignee or sub-lessee of the Lessee or by anyone permitted
by the Lessee to be upon the Leased Premises, and if the Lessee fails to remedy
the condition giving rise to cancellation, or reduction of coverage within
forty-eight (48) hours after notice thereof by the Lessor, the Lessor may remedy
the condition giving rise to such cancellation or reduction, threatened
cancellation or reduction, and the Lessee shall forthwith pay the cost thereof
to the Lessor which cost may be collected by the Lessor as additional rent.
9.04 INDEMNIFICATION OF THE LESSOR
The Lessee will indemnify the Lessor and save it harmless
from and against any and all claims, actions, damages, liability and expense in
connection with loss of life, personal injury and/or damage to property arising
from or out of any occurrence in, upon or at the Leased Premises or any part
thereof, which is occasioned wholly or in part by any act or omission of the
Lessee, its agents, contractors, employees, servants, licensees or
- -concessionaires or by anyone permitted to be on the premises by the Lessee.
ARTICLE X - ASSIGNMENT AND SUBLETTING
10.01 CONSENT REQUIRED
The Lessee will not assign this Lease in whole or in part,
nor sublet all or any part of the Leased Premises nor grant a license to all or
any part of the Leased Premises not grant a concession wherein a person not a
party to this agreement is entitled to occupy the Leased Premises nor shall
suffer or permit the occupation in any way of all or part thereof by others not
a party to this agreement, without the prior written consent of the Lessor in
each instance. The consent by the Lessor to any assignment or subletting shall
not constitute a waiver of the necessity for such consent to any subsequent
assignment or subletting. Notwithstanding any assignment or sublease, the Lessee
or its guarantors if any, shall remain fully liable for the performance of all
the terms1 conditions and covenants of this Lease and shall not be released from
performing any of the terms, covenants and conditions of this Lease. It is
understood and agreed that any written consents shall contain:
(a) An increase of the minimum rent.
<PAGE>
8
(b) A designation of the specified use of the premises in like manner
as paragraph 8.01.
(c) A covenant that the prosed Assignee, or by the said Assignee, or by
the Lessor, shall be entitled to commence action against the proposed
Assignee, or Sub-Lessee, or its Guarantors, directly for the
performance or non-performance of any terms, covenants and conditions
of this Lease.
10.02 Where the Lessee is a corporation, any agreement with
respect to the shares of the Lessee corporation wherein there is a change of
control of the Lessee corporation shall be deemed to be an assignment of the
Lease and shall require the consent set out in the paragraphs next preceding.
10.03 Any direct or indirect increase in rent by reasons of an
assignment license sub-lease or change in control of the Lessee Corporation,
including any lump sum payment received by the Lessee by anyone on behalf of
the Lessee, shall accrue to the Lessor and shall be paid in the case of a
lump sum payment forthwith to the Lessor or if by periodic payment in like
manner as set out in paragraph 3.01.
10.04 For the purposes only for providing greater particularity
it is specifically agreed that any breach of Article 12 shall entitle the
Lessor to the remedies set out in Article 16 and without restricting the
generality of the foregoing, shall entitle the Lessor to the remedy of
re-entry and, or termination of this Lease. All costs incurred by the Lessor
in investigating the proposed assignee or sub-lessee, processing an
application for assignment or sub-letting and in issuing or withholding
consent to assignment or sub-letting, including Lessor's reasonable
processing fee shall be borne by the Lessee and be payable upon presentation
of the Lessor's invoice therefor.
ARTICLE XI - WASTE. GOVERNMENT REGULATION
11.01 WASTE OR NUISANCE
The Lessee shall not commit or suffer to be committed any
waste upon the Leased Premises.
11.02 GOVERNMENTAL REGULATIONS
The Lessee shall, at the Lessee's sole cost and expense,
comply with all of the requirements of all municipal, provincial, federal and
other applicable governmental authorities, now in force, or which may hereafter
be in force, pertaining to the said premises, and shall faithfully observe in
the use of the premises all municipal by-laws and provincial and federal
statutes and regulations now in force or which hereafter be in force.
<PAGE>
9
11.03 OBSERVANCE OF LAW
The Lessee covenants to comply with all provisions of law
including, without limiting the generality of the foregoing, federal and
provincial legislative enactments, building by-laws and other governmental or
municipal regulations which relate to the partitioning, equipment, operation
and use of Leased Premises, or to the making of any repairs, replacements,
alterations, additions, changes, substitutions or improvements of or to the
Leased Premises, and to comply with all police, fire and sanitary regulations
imposed by any governmental, provincial or municipal authorities or made by
fire insurance under writers and to observe and obey governmental and
municipal regulations and other requirements governing the conduct of any
business conducted in the Leased Premises.
ARTICLE XII - LESSOR'S COVENANTS
12.01 THE LESSOR'S COVENANTS
Upon payment by the Lessee of the rents including and
without restricting the generality of the foregoing the minimum rent, the
additional rent, and any other charges hereunder set out in this Lease and upon
observance and performance of all covenants, terms and conditions on the
Lessee's part to be observed and performed, the Lessor hereby covenants with the
Lessee:
(a) For quiet enjoyment for the term hereby demised without hindrance or
interruption by the Lessor, or any other person or persons lawfully
claiming by, through or under the Lessor.
(b) Subject to Article V, to cause to be paid from the sums paid by the
Lessee all the realty taxes, all business taxes, if any, from time to
time payable by the Lessor, levied or assessed against the Leased
Premises.
12.02 LOSS AND DAMAGE
The Lessor shall not be liable for any death or injury,
or damage to property of the Lessee or others located on the Leased Premises,
nor for the loss of or damage to any property of the Lessee or of others by
theft or otherwise except for the negligence of the Lessor and its agents,
contractors, and employees and for damage or injury resulting from the
failure of the Lessor to repair according to its obligations under the lease
herein. Except for the gross negligence only of the Lessor, all property of
the Lessee kept or stored on the Leased Premises shall be so kept or stored
at the risk of the Lessee only and the Lessee shall hold the Lessor harmless
from any claims arising out of any of the matters mentioned in this and
Section 13.02.
<PAGE>
10
ARTICLE XIII - SIGNS. FIXTURES AND ALTERATIONS
13.01 INSTALLATION BY LESSEE
All fixtures installed by the Lessee shall be new or like
new. Except for window advertising, the Lessee shall not make or cause to be
made any alterations, additions or improvements or install or cause to be
installed any trade fixtures, exterior signs, floor coverings, interior or
exterior lighting, or mechanical or electrical systems and fixtures, or plumbing
fixtures, shades or awnings, or make any changes to the store front or hang from
or affix anything to the ceiling without first obtaining the Lessor's written
approval and consent. The Lessee shall present to the Lessor plans and
specifications for such work at the time approval is sought and work shall be
carried out in a good and workmanlike manner. All costs of any improvements or
installations required by any governmental body, either during the term of this
Lease or as a condition precedent of occupancy of the premises, shall be borne
by the Lessee. A door sign approved by the Lessor is allowed.
The Lessor shall provide the Lessee the right to advertise
on a free standing sign approved by the local municipality.
13.02 REMOVAL AND RESTORATION BY THE LESSEE
All alterations, decorations, additions and improvements
made by the Lessee, or made by the Lessor on the Lessee's behalf by agreement or
under this Lease shall remain the property of the Lessee for the term of the
Lease, or any extension or renewal thereof. The Lessee shall unless the Lessor
waives this in writing, remove such alterations, decorations, additions and
improvements together with its trade fixtures at the expiration of this Lease
and shall restore any walls, floor coverings, heating equipment or electrical
fixtures removed by the Lessee to its original condition, or any renewal term
thereof, provided that any such removal by the Lessee shall be done at the sole
expense of the Lessee and the Lessee shall repair any damage to the structure of
the Leased Premises or to the heating, ventilation, air-conditioning, plumbing,
electrical or other mechanical systems in the Leased Premises caused thereby and
shall leave the premises in good repair and clean condition. Should the Lessee
not leave the premises in good and clean condition, the Lessor may repair and
clean the premises and the Lessee shall forthwith pay the costs of the same upon
demand by the Lessor.
13.03 NOT TO OVERLOAD FLOORS
The Lessee covenants and agrees that it will not bring upon
the Leased Premises or any part thereof, any machinery, equipment, article or
thing that by reason of its weight, size or use might in the opinion of the
Lessor damage the Leased Premises and will not at any time overload the floors
of the Leased Premises, and that if any damage is caused to the Leased Premises
by any machinery, equipment, article or thing or by overloading or by any act,
neglect, or misuse on the part of the Lessee or its servants, agents or
<PAGE>
11
employees or any person having business with the Lessee, the Lessee will
forthwith repair the same or pay to the Lessor the cost of making good the
same.
13.04 THE LESSEE SHALL DISCHARGE ALL LIENS
The Lessee shall promptly pay all its contractors and
material men and shall do any and all things necessary so as to minimize the
possibility of a lien attaching to the Leased Premises and should any such
lien be made or filed, the Lessee shall discharge the same within ten (10)
days thereafter at the Lessee's expense and shall indemnify and save harmless
the Lessors therefrom.
ARTICLE XIV - DAMAGE AND DESTRUCTION
14.01 TOTAL OR PARTIAL DESTRUCTION
(a) In the event the Leased Premises are wholly or partially damaged or
destroyed by an insurable hazard, and subject to the consent of the
Lessor's mortgagee, if any, the Lessor shall with reasonable diligence
repair or replace the Leased Premises at a cost not less than
approximately the amount of insurance payable and paid by reason of
such damage or destruction, and shall provide for the Lessee, as soon
as reasonably practicable and subject to Section 14.01 (b) premises of
a type, quality and character equal to or better than the premises were
prior to the damage and destruction and suitable for the purposes of
the Lessee.
(b) The Lessor shall not be obligated to expend for such repair or
replacement an amount in excess of the insurance proceeds recovered or
recoverable as a result of such damage. The Lessee shall cause all
proceeds of insurance to be paid to the Lessor on account of the cost
of repair or replacement In no event shall the Lessor be required to
repair or replace the Lessee's stock in trade, fixtures, furnishings,
floor coverings and equipment.
(c) If the casualty, repairing or rebuilding shall render the Leased
Premises untenantable, in whole or in part, a proportionate abatement
of the rent shall be allowed from the date when the damage occurred
until the date the Lessor completes such work, said proportion to be
computed on the basis of the relation which the gross square foot area
of the space rendered untenantable bears to the floor area of the
Leased Premises.
(d) If any damage or destruction cannot, with reasonable diligence, be
repaired and restored within one hundred and eighty (180) days of the
date of happening of such damage or destruction, the Lessor or the
Lessee may, at their respective options, terminate this Lease and the
tenancy hereby created by giving to the Lessee or the Lessor, as the
case may be, within sixty (60) days following the date of such
occurrence, written notice of the election so to do, and in the event
of such
<PAGE>
12
termination, the Lease shall terminate and the rent shall be adjusted
as of the date of the occurrence of such damage.
14.02 NOTICE BY LESSEE
The Lessee shall give immediate notice to the Lessor in case
of fire or accidents in the Leased Premises or in the building of which the
premises are a part, of defects therein or in any fixtures or equipment,
notwithstanding the fact that the Lessor may have no obligations with respect
thereto.
14.03 NOTICE OF REPAIR AND RECONSTRUCTION
From and after the date upon which the Lessee is notified in
writing by the Lessor that the Lessor's work of reconstruction and/or repair is
completed, the Lessee shall forthwith complete all work required to fully
restore the Leased Premises for business fully fixtured, stocked and staffed.
The certificate of the Lessor's architect shall bind the parties hereto as to
the state of tenantability of the Leased Premises and as to the date upon which
the Lessor's work of reconstruction and/or repair is completed.
ARTICLE XV - EXPROPRIATION
15.01 EXPROPRIATION OF LEASED PREMISES
In the event that at any time during the term of this Lease:
(a) The whole of the Leased Premises; or
(b) A part of the Leased Premises such that the remainder is unusable for
the purpose for which this Lease has been made; or
shall be acquired or expropriated by any lawful expropriating authority, then,
in such event, at the option of the Lessor or the Lessee this lease shall cease
and terminate as of the date of title vesting in such authority. Irrespective of
to whom the compensation for expropriation would otherwise be paid, it is agreed
that the net amount received from such expropriation shall be apportioned and
paid as follows:
(a) All compensation for improvements placed on the Leased Premises by the
Lessee shall belong to and be paid to the Lessee.
(b) All other compensation for the value of the property taken shall belong
to and be paid to the Lessor and/or its mortgage creditors.
(c) Each party shall be entitled to claim from the expropriating authority
and to be paid and retained in full the amount which that party may
receive as damages suffered from the cancellation of the present Lease
for the balance of the term hereof or any renewal thereof, as well as
any other damage to which that party alone is entitled in consequence
of the expropriation.
<PAGE>
13
15.02 PARTIAL EXPROPRIATION OF LEASED PREMISES
In the event of any other partial expropriation this Lease
shall remain in full force and effect and the rental payable shall be reduced in
proportion that any part of the Leased Premises expropriated bears the total
area of the Leased Premises prior to the expropriation.
ARTICLE XVI - DEFAULT AND TERMINATION
16.01 RIGHT TO RE-ENTER
The tenancy granted by this Lease is expressly subject to
the condition that if the Lessee fails to pay the rent or other charges required
to be paid by the Lessee hereunder, or if the Lessee shall fail to observe,
perform and keep any one or more of the covenants, provisions or stipulations to
be observed, performed or kept by the Lessee hereunder, and if such failure
shall continue for a period of twenty (20) days after notice to the Lessee of
such failure, the Lessor may re-enter the Leased Premises, or any part thereof
in the name of the whole, the same to have again, re-possess and enjoy as of its
former estate, anything herein contained to the contrary notwithstanding. Upon
such re-entry this lease shall thenceforth be terminated and of no further force
or effect, and no payment or acceptance of rent subsequent to the events of
default hereinbefore in this clause cited shall give the Lessee the right to
continued occupancy of the Leased Premises, or in any way affect the rights of
the Lessor therein, or have the effect of re-instating this Lease.
16.02 The Lessee covenants with the lessor, and it is a condition of
this Lease that:
(a) If the term hereby granted or any of the goods or chattels on the
Leased Premises are at any time repossessed, seized, or taken in
execution or attachment by any creditor of the Lessee, whether under
bill of sale, chattel mortgage, debenture, conditional sales contract,
lien note, lease of personal property, or consignment contract and such
seizure, execution or attachment has not been withdrawn, set aside,
discharged or abandoned within fifteen (15) days after the happening
thereof. OR
(b) If a writ of execution or replevin order issued against the goods or
chattels or the Lessee and such writ has not been set aside or vacated
within fifteen (15) days after the Lessee receives notice thereof. OR
(c) If the Lessor makes any assignment for the benefit of creditors, or
becoming bankrupt or insolvent takes the benefit of, or becomes
subject to, any statutes that may be in order relating to bankrupt or
insolvent debtors. OR
<PAGE>
14
(d) If any application or petition or certificate or order is made or
granted for the winding up or dissolution of the Lessee, voluntarily
or otherwise and if such application or petition or certificate has
not been set aside within fifteen (15) days after the Lessee receives
notice thereof. OR
(e) lf the Leased Premises at any time during the Lease term become vacant
in consequence of their abandonment by the Lessee, or the removal of
the Lessee by legal press for non-payment of rent1 breach of covenant
or any other cause. OR
(f) If the Lessee unreasonably refuses within fifteen (15) days after
notice in writing from the Lessor to rectify or correct any
non-observance or non-performance of all and every of the covenants,
provisions, stipulations and conditions contained in this Lease except
in the event such rectification requires in excess of such fifteen (15)
days' notice, in which event the time period shall be extended. OR
(g) If any insurance policy insuring the Leased Premises or the Lessor is
cancelled by reason of the use an occupation of the Leased Premises or
any part thereof, provided that the Lessor shall not be able to obtain
other insurance to cover same at a reasonable cost. OR
(h) If the Lessee fails to move into or take possession of the Leased
Premises and open for business as required by this Lease. OR
(i) If at any time during the term hereof, the Lessee or any other person
removes or attempts to remove, without the consent in writing of the
Lessor, any goods or chattels from the Leased Premises, save and except
in the ordinary course of the Lessee's business, or in the course of
replacement or renovations. OR
(1) In case the Leased Premises are used by any other person or for any
other purpose than as herein provided without the written consent of
the Lessor.
Then and in every such event the Lessor shall be entitled
upon ten (10) days notice in writing to re-enter the Leased Premises, and upon
such reentry, this Lease shall thenceforth be terminated, and be of no further
force and effect, and no payment or acceptance of rent subsequent to the event
of default hereinbefore in this clause cited shall give the Lessee the right to
continued occupancy of the Leased Premises, or in any way affect the rights of
the Lessor herein, or have the effect or reinstating this Lease.
Besides any other rights or remedies it may have, the Lessor
may remove all persons and property from the Leased Premises and such property
may be removed and stored for the account of the Lessee or sold for the account
of the Lessee all without service of notice or resort to legal process and
without being deemed guilty of trespass or becoming liable for any loss or
damage which may be occasioned thereby.
<PAGE>
15
16.03 DAMAGES
Should the Lessor at any time terminate this Lease for any
breach; in addition to any other remedies it may have, it may recover from the
Lessee all damages it may incur by reason of such breach, including the cost of
recovering the Leased Premises, solicitor's fees on a solicitor/client scale,
and including the worth at the time of such termination of the excess, if any,
of the amount of rent and charges equivalent to rent reserved in this Lease for
the remainder of the stated term of the then reasonable rental value of the
Leased Premises for the remainder of the stated term, all of which amount shall
be immediately due and payable from the Lessee to the Lessor. In any of the
events referred to in Article 16.01 hereof, in addition to any and all other
rights including the rights referred to in this Article and Article 16.01
hereof, the full amount of the current month's minimum rent and the next three
(3) months' minimum rent shall immediately become due and payable, and the
Lessor may immediately distrain for the said, together with any arrears then
unpaid.
16.04 Notwithstanding the provisions set out in this Article XVI
and in addition to the remedy therein set out, if the Lessee fails to pay the
rent, or other charges, or fails to observe, perform and keep any one or more
of the covenants, provisions, or stipulations to be observed, performed, or
kept by the Lessee, the Lessor may elect by notice in writing to the Lessee
at the address set out in this Lease, one of the following courses of action.
(a) That the Lessor elects to do nothing to alter the relationship of the
Lessee and the Lessor and insist on performance of the terms of the
Lease and sue for rent and damages on the basis that the Lease
continues in force. OR
(b) That the Lessor elects to terminate the Lease retaining the right to
sue for rent accrued or for damages to the date of termination. OR
(c) That the Lessor advise the Lessee that the Lessor proposes to relet
the premises on the Lessee's account and the Lessor will enter into
possession of the premises on that basis. OR
(d) That the Lessor elects to terminate the Lease but with notice to the
Lessee or whomsoever is liable for the default that damages will be
claimed on the basis of a present recovery of damages for losing the
benefit of the Lease for the unexpired term and will be claiming
damages based on the present value of the unpaid future rent for the
unexpired period of the Lease.
16.05 That in addition to the remedies in Article XVI, and the remedies set out
in the paragraphs next proceeding, the Lessor may in his sole discretion elect
to take proceedings for possession of the property, pursuant to Section 18 of
the COMMERCIAL TENANCY ACT, R.S.B.C. 1979 and amendments thereto, or to any
subsequent Act of like nature. Notice as hereinbefore set out of default
<PAGE>
16
performance of the covenants as set out in paragraph 16.011 or five (5) days
notice of non-payment of rent1 shall be deemed to be sufficient notice for all
purposes of proceedings under the said Section 18 and the following Sections of
the COMMERCIAL TENANCY ACT, R.S.B.C. 1979, and amendments thereto.
ARTICLE XVII - RIGHT OF ENTRY
17.01 RIGHT OF ENTRY
The Lessor or its agents shall have the right to enter the
Leased Premises during normal business hours except where otherwise agreed to
examine the same and to show them to prospective purchasers, lessees or
mortgagees, and to enter the Leased Premises at times mutually agreed between
the Lessor and the Lessee to make such repairs, as the Lessor may deem necessary
for desirable, and the Lessor shall be allowed to take all material into and
upon said premises that may be required therefor without the same constituting
an eviction of the Lessee in whole or in part and the rent reserved shall in no
way abate by reason of loss or interruption of business of the Lessee or
otherwise while said repairs are being made. During the three (3) months prior
to the expiration of the term of this Lease, the Lessor may place upon the
premises the usual notice "To Let", or "For Sale", which notices the Lessee
shall permit to remain thereon without molestation. The Lessor may at any time
within three (3) months before the end of the term, under twenty four hours
notice, enter the Leased Premises and bring others at all reasonable hours for
the purposes of offering the Leased Premises for rent. If the Lessee shall not
be personally present to open and permit an entry into the said premises, at any
time, when for any reason an emergency pr apprehended emergency shall exist or
be contemplated, the Lessor or its agent may enter the same, without rendering
the Lessor or such agent liable therefor, and without in any manner affecting
the obligations and covenants of this Lease. Nothing herein contained however,
shall be deemed or construed to impose on the Lessor any obligation,
responsibility or liability whatsoever, for the care, maintenance or repair of
the Leased Premises or any part thereof except as otherwise herein specifically
provided.
ARTICLE XVIII - ASSIGNMENT BY LESSOR
18.01 In the event of the sale or lease by the Lessor of the Leased Premises or
the assignment by the Lessor of this Lease or any interest of the Lessor
hereunder, and to the extent that such purchaser or assignee by agreement with
the Lessee has assumed the covenants and obligations of the Lessor hereunder,
the Lessor shall without further written agreement be freed and relieved of
liability upon such covenants and obligations.
<PAGE>
17
ARTICLE XIX
STATUS STATEMENT. ATTORNMENT. SUBORDINATION
19.01 STATUS STATEMENT
within ten (10) days after request therefore by the Lessor,
or in the event that upon any sale, assignment, lease or mortgage of the Leased
Premises and/or the land thereunder by the Lessor, the Lessee agrees to deliver
in a form supplied by the Lessor a certificate to any proposed mortgagee or
purchaser, or to the Lessor certifying (if such be the case) that this Lease is
in full force and effect and that there are no defences or setoffs thereto, or
stating those claimed by the Lessee.
19.02 ATTORNMENT
So long as the Lessee's occupation and possession of the
Leased Premises is not disturbed, the Lessee shall, in the event any proceedings
are brought for the foreclosure of, or in the event of exercise of the power or
sale under any mortgage made by the Lessor covering the Leased Premises, attorn
to the mortgagee or the purchaser upon any such foreclosure or sale and
recognize such mortgage or purchaser as Lessor under this Lease.
19.03 SUBORDINATION
Upon the request of the Lessor the Lessee will subordinate its
rights hereunder to any mortgage or mortgages, or the lien resulting from any
other method of financing or refinancing, nor or hereafter in force against the
land and/or buildings of which the Leased Premises are a part or against any
buildings hereafter placed upon the land of which the Leased Premises are a
part, and to all advances made or hereafter to be made upon the security
thereof.
ARTICLE XX - MISCELLANEOUS
20.01 NO TACIT RENEWAL
in the event the Lessee remains in possession of the Leased
Premises after the end of the term hereof without the execution and delivery of
a new lease, and the Lessor shall accept rent, there shall be no tacit renewal
of this Lease and the term hereby granted, and the Lessee shall be deemed to be
occupying the Leased Premises as a Lessee from month to month at a monthly
rental payable in advance on the fifteenth (1st) day of each month equal to the
sum of:
(a) One Hundred and Fifty Percent (150%) of the fixed minimum monthly rent
payable during the last month of the term of the Lease. AND
(b) A proportionate part of the additional rent.
<PAGE>
18
and otherwise upon the same terms and conditions as are set forth in this Lease,
so far as applicable to a monthly tenancy.
20.02 SUCCESSORS
All rights and liabilities herein given to, or imposed upon,
the respective parties hereto shall extend to and bind the several respective
heirs3 executors, administrators, successors and assigns of the said parties;
and if there be more than one tenant, they shall all be bound jointly and
severally by the terms, covenants, and agreements herein. No rights, however,
shall enure to the benefit of any assignee of the Lessee unless the assignment
to such assignee has been approved by the Lessor in writing as provided in
Section 12.01 hereof.
20.03 ENTIRE AGREEMENT
This Lease and schedules attached hereto and forming a part
hereof, set forth all of the covenants, promises, conditions, agreements, or
understandings, either oral, or written, between them other than herein set
forth. Except as herein otherwise provided, no subsequent alteration, amendment,
change or addition to the Lease shall be binding upon the Lessor or the Lessee
unless reduced to writing and signed by them.
20.04 FORCE MAJEURE
Save as otherwise herein provided in the event that either
party hereto shall be delayed or hindered in or prevented from the performance
of any act required hereunder by reason of strikes, lock-outs, labour troubles,
inability to procure materials, failure of power, restrictive governmental laws
or regulations, riots, insurrection, war or other reason of a like nature not
the fault of the party delayed in performing work or doing acts required under
the terms of this Lease, then performance of such act shall be excused for a
period of the delay and the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay.
20.05 NOTICES
Any notice, demand, request or other instrument which may be
or is required to be given under this Lease, shall be delivered in person or
sent by registered mail postage prepaid and shall be addressed to all of the
following addresses:
(a) to the Lessor at:
Mario's Pinocchio Ristorante Ltd.
3140 King George Highway
Surrey, B.C.
V4P 1A2
<PAGE>
19
(b) to the Lessee at the address indicated on page 1 of this Lease.
or at such other address as the Lessor or the Lessee may designate by written
notice. Any such notice, demand, request or consent shall be conclusively deemed
to have been given or made on the day upon which such notice, demand, request or
consent is delivered, or, if mailed, then on the third business date following
the date of the mailing as the case may be, and either party may at any time
give notice in writing to the other of an change of address of the party giving
such notice and from and after the giving of such notice, the address therein
specified shall be deemed to be the address of such party for the giving of
notices hereunder.
20.06 SECTION AND ARTICLE NUMBERS
The section and article numbers appearing in this Lease are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or intent of such paragraphs and articles of this Lease
nor in any way after this Lease.
20.07 GOVERNING LAW
This Lease shall be construed and governed by the laws of the
Province of British Columbia.
20.08 Time shall be strictly of the essence herein.
20.09 The Lessor and the Lessee are agreed that nothing contained
in this Lease nor any acts of the Lessor or the Lessee shall be deemed to
create any relationship between the Lessor and the Lessee other than the
relationship of Lessor and Lessee.
20.10 No condoning, excusing or overlooking by the Lessor or the
Lessee of any default, breach or non-observance by the Lessee or the Lessor
at any time or times in respect of any covenant, proviso or condition herein
contained shall operate as a waiver of the Lessor's or the Lessee's right
hereunder in respect of any continuing or subsequent default, breach or
non-observance, or so as to defeat or affect in any way the rights of the
Lessor or the Lessee herein in respect of any such continuing or subsequent
default or breach, and no waiver shall be inferred from or implied by
anything done or omitted by the Lessor or the Lessee save only expressed
waiver in writing. All rights and remedies of the Lessor in this Lease
contained shall be cumulative and not alternative.
20.11 This Lease shall enure to the benefit of and be binding
upon the respective heirs, executors, successors, administrators and assigns
of the parties hereto.
<PAGE>
20
20.12 Arbitration
The Lessor and Lessee covenant and agree that in the case
of any dispute between the Lessor and the Lessee during the term hereof as to
any matter arising hereunder, either party shall be entitled to give to the
other party notice of such dispute and demand, the parties shall appoint a
single arbitrator to settle said dispute. In the event that the parties are
unable to agree on the appointment of said arbitrator within five (5) days of
said notice then each party shall at once each appoint a single arbitrator
and such appointees shall jointly appoint a third. The decision of said
single arbitrator or of a majority of the three arbitrators, in the event
that they are required, shall be final and binding upon the parties1 hereto,
who covenant one with the other that their disputes shall be so decided by
arbitration alone and not by recourse to any court by action of law. The
provisions of the COMMERCIAL ARBITRATION ACT, S.B.C. 1986, c.3 and all
amendments thereto shall apply to any arbitration hereunder.
IN WITNESS WHEREOF the parties hereto have caused this
Lease to be duly executed on the day and year first above written.
THE CORPORATE SEAL OF
MARIO'S PINOCCHIO RISTORANTE
LTD. was hereunto affixed in the
presence of:
/S/ Mario Cauduro G/S
- ------------------------------------
Authorized Signatory
THE CORPORATE SEAL OF
SOFTNET INDUSTRIES INC.
was hereunto affixed in the
presence of:
/S/ D. J. Slamko C/S
- ------------------------------------
Authorized Signatory
<PAGE>
Schedule "A"
Basement Area
[DIAGRAM]
<PAGE>
EXHIBIT 10.15
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
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
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.] to be
paid in the following manner;
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
Deposit Previously Received
<PAGE>
-2-
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
Upon execution of this Agreement
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
On or before date which casino number 3 is ready for operation
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
TOTAL
The Master Licensee shall receive 60% of the NET GAMING REVENUE for the first
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.] 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 [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]. 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 [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION.], the right to manage a
second bingo site provided that the Master Licensee pays an initial deposit of
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.] by
Dec 31, 1999, a further deposit of [CONFIDENTIAL MATERIAL REDACTED AND FILED
SEPARATELY WITH THE COMMISSION.] by Jan.31, 2000 and the balance of
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.] 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 [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION.] 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 [CONFIDENTIAL MATERIAL REDACTED
AND FILED SEPARATELY WITH THE COMMISSION.] 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 15th 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
EXAMPLE ONLY
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
MASTER LICENSEE'S PROCEEDS
60% of first [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION.] NET GAMING REVENUE = [CONFIDENTIAL MATERIAL REDACTED AND FILED
SEPARATELY WITH THE COMMISSION.] 70% of balance [CONFIDENTIAL MATERIAL REDACTED
AND FILED SEPARATELY WITH THE COMMISSION.] NET GAMING REVENUE = [CONFIDENTIAL
MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
TOTAL = [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION.]*
- - THE ABOVE DOES NOT INCLUDE THE MANAGER'S ADVERTISING REBATE WHICH IS IN
ADDITION TO AMOUNT INDICATED.
<PAGE>
EXHIBIT 10.16
SERVICE CONTRACT
THIS AGREEMENT made as of the 1st day of NOVEMBER, 1999, by and between
iCrystal Inc., a software development company incorporated under the laws of
the state of Delaware (hereinafter called the "Company") and LARRY
HRABI,CONSULTANT of the city of SURREY, in the province of BC, (hereinafter
called the "Contractor").
WITNESSETH
WHEREAS, the Contractor is about to be or is engaged by the Company and
has or will thereby become acquainted with the Company's business, records, and
other confidential information; and
WHEREAS, the Company is engaged in the business of software and website
development; and
WHEREAS, the parties hereto acknowledge that the goodwill of the Company
and the contained patronage of its customers and a list of names, addresses, and
phone numbers of its customers or potential customers or leads constitutes a
principal asset of the Company, the same being acquired through its efforts and
the expenditure of time and money; and
WHEREAS, each of the Contractors or associates of the Company hold a
position of trust and confidence and are in large measure enabled by such
association to become acquainted with the many customers, contacts and
associates of the Company, their names, addresses, phone numbers, and, with
other of the Company's business, security, and confidential matters; and
WHEREAS, the parties hereto acknowledge the necessity of restrictive
covenants and non-solicitation covenants of the Contractor herein set forth, and
for the reasonable and proper protection of the goodwill of the Company's
business, and that the same constitutes a material portion of the consideration
of engagement.
<PAGE>
-2-
NOW THEREFORE, in consideration of the premises and of the mutual
promises and covenants herein contained, the parties hereto agree as follows;
1. DUTIES - The Company or its affiliates or subsidiaries engages the
Contractor as a INVESTOR/LICENSE RELATIONS. Contractor's responsibilities,
duty and authority shall be those commonly associated with such position
including, but not limited to, the following duties;
* INITIATE, SET-UP AND OPERATION OF INVESTOR RELATIONS DEPARTMENT.
- -----------------------------------------------------------------------
* INITIATE SET-UP AND OPERATION OF LICENSE SALES & MARKETINGS.
- -----------------------------------------------------------------------
* TO REPORT DIRECTLY TO THE PRESIDENT OF THE COMPANY.
- -----------------------------------------------------------------------
2. COMPENSATION - Beginning on the 1st day of NOVEMBER, 1999,
the Company shall pay, and the Contractor agrees to accept as compensation for
the services to be rendered herein, the sum of $3,000.00 US per month. In
addition, the Contractor shall receive 100,000 SHARES OF THE COMPANY ON
OR BEFORE NOV 1, 2000, unless this Agreement has been previously
terminated by either party. The Contractor's monetary compensation open to
review from time to time whereupon the Contractor's compensation may increase
depending upon the performance of the Contractor.
3. FURTHER OBLIGATIONS OF CONTRACTOR - The Contractor agrees as follows:
(a) To exercise and carry out all rules, regulations, duties and
policies of the Company, and observe all such directions and
restrictions as the Company may, from time to time, impose upon
the Contractor.
(b) During the term of this Agreement, not to engage in any
business, calling, or enterprise which is or may be competitive
or contrary to the welfare, interest or benefit of the business
of the Company.
(c) During the term of this Agreement, to provide the services of
LARRY HRABI on a full time basis to carry out the obligations
of the Contractor. If LARRY HRABI is unable to perform the
obligations contained herein, then the Contractor will supply a
substitute individual it being understood by both parties that
the Company, after reviewing the substitute individual's resume,
will have the right to terminate this Agreement if it determines
that, in its sole discretion, the substitute individual does not
have the same skills or qualifications as that of LARRY
HRABI.
4. TERM - The services shall begin on NOV 1 , 1999 and shall continue at
will until terminated by either party giving notice. Either party may terminate
this Agreement upon fourteen (14) days prior written notice to the other. The
Company reserves the right to terminate this Agreement at any time during the
first six (6) months or at any other time for cause.
<PAGE>
-3-
5. CONFIDENTIAL INFORMATION - All confidential information and trade
secrets, including but not limited to, names and lists of clientele or
licensees, software, specifications, suppliers, operations or technical manuals,
and all information, files and records referring to, or relating thereto,
however maintained are valuable, special, and unique assets of the Company and
the sole and exclusive property of the Company. Any of the projects in which the
Contractor works on, on behalf of the Company, become and are the sole property
of the Company
6. COVENANT NOT TO COMPETE - Upon termination of the Contractor's
services, the Contractor, any of it's officers of directors, or any individual
associated with the Contractor shall not, for a period of one (1) year, either
directly or indirectly, enter into or engage in the business of software,
systems administration, security, or website development specifically designed
for use in Internet gaming.
7. FURTHER DUTIES OF THE CONTRACTOR - The Contractor guarantees to have a
qualified person, acceptable to the Company, available at the Company's place of
business no less than 40 hours a week. The Contractor should be aware that
duties associated with this Agreement may involve travel from the Company's
place of business to various locations throughout the world.
8. DUTIES AFTER TERMINATION OF AGREEMENT - The Contractor further agrees
that upon termination of this Agreement, Contractor will immediately surrender
to the company all samples, licensee contact information, price lists,
brochures, supplier, books and records, documents, operations or technical
manuals, software (either developed or under development) of or in connection
with the Company's licensees or business, passwords, codes, security technical
information and protocols and all other in the Contractor's possession which
belongs to the Company, it being distinctly understood that all of such items,
including all software which is or was developed by the Contractor is the
property of the Company.
9. SERVABILITY - The invalidity or unenforceability of any provision in
this Agreement shall in no way affect the validity or enforceability of any
other provision.
10. BENEFIT - This Agreement shall insure to the benefit of and be binding
upon the Company, its successors and assigns, and the Contractor and its heirs,
executors, administrators and legal representatives.
11. SITUS - This Agreement shall be construed and governed in accordance
with the laws of the province of British Columbia.
<PAGE>
-4-
12. PRIOR AGREEMENTS - This Agreement supersedes any prior written or verbal
agreements.
13. ARBITRATION - Any controversy relating to this Agreement or the
interpretation thereof shall be settled by arbitration in the city of Vancouver,
B.C., pursuant to the rules then in place for the province of British Columbia.
14. ADDRESS - The address's for each party to receive any formal notice or
notice's from the other party are as follows:
COMPANY CONTRACTOR
iCrystal Inc. LARRY HRABI
--------------------------
3237 - King George Hwy. 15 - 15133 29A AVE
--------------------------
Suite 101 B SURREY, B.C.
--------------------------
Surrey, BC V4P 1B7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
COMPANY
/s/ Peter Tara By: /s/ D. J. SLAMKO
- -------------------------- -------------------------
WITNESS
CONTRACTOR
/s/ Peter Tara By: /s/ LARRY HRABI
- -------------------------- -------------------------
WITNESS
<PAGE>
EXHIBIT 10.17
SERVICE CONTRACT
THIS AGREEMENT made as of the 2nd day of DECEMBER, 1999, by and between
iCrystal Inc., a software development company incorporated under the laws of the
state of Delaware (hereinafter called the "Company") and DOUGLAS SLAMKO,
BUSINESSMAN of the city of SURREY, in the province of BC, (hereinafter called
the "Contractor")-
WITNESSETH
WHEREAS, the Contractor is about to be or is engaged by the Company
and has or will thereby become acquainted with the Company's business,
records, and other confidential information, and
WHEREAS, the Company is engaged in the business of software and
website development; and
WHEREAS, the parties hereto acknowledge that the goodwill of the
Company and the contained patronage of its customers and a list of names,
addresses, and phone numbers of its customers or potential customers or leads
constitutes a principal asset of the Company, the same being acquired through
its efforts and the expenditure of time and money; and
WHEREAS, each of the Contractors, or associates of the Company hold
a position of trust and confidence and are in large measure enabled by such
association to become acquainted with the many customers, contacts and
associates of the Company, their names, addresses, phone numbers, and, with
other of the Company's business, security, and confidential matters- and
WHEREAS, the parties hereto acknowledge the necessity of restrictive
covenants and non-solicitation covenants of the Contractor herein set forth, and
for the reasonable and proper protection of the goodwill of the Company's
business, and that the same constitutes a material portion of the consideration
of engagement.
<PAGE>
NOW THEREFORE, in consideration of the premises and of the mutual
promises and covenants herein CONTAINED, the parties hereto agree as follows:
1. DUTIES. The Company or its affiliates or subsidiaries
engages the Contractor as a PRESIDENT. Contractor's responsibilities, duty and
authority shall be those commonly associated with such position including, but
not limited to, the following duties:
1. ORGANIZES, IMPLEMENT, AND OVERSEE THE COMPANY, AS DIRECTED BY THE BOARD
OF DIRECTORS.
- --------------------------------------------------------------------------------
2. TAKE DIRECT CONTROL OVER THE COMPANY'S MARKETING PROGRAM.
- --------------------------------------------------------------------------------
2. COMPENSATION. Beginning on the 2 day of December, 1999, the
Company shall pay, and the Contractor agrees to accept as compensation for
the services to be rendered herein, the sum of $5,000.00 US per month. In
addition, the Contractor shall receive 100,000 COMMON SHARES OF THE COMPANY
ON OR BEFORE FEB. 3, 2000, unless this Agreement has been previously
terminated by either party. The Contractor's monetary compensation open to
review from time to time whereupon the Contractor's compensation may increase
depending upon the performance of the Contractor
3- FURTHER OBLIGATIONS OF CONTRACTOR. The Contractor agrees
as follows:
(a) To exercise and carry out all rules, regulations, duties and
policies of the Company, and observe all such directions and
restrictions as the Company may, from time to time, impose
upon the Contractor.
(b) During the term of this Agreement, not to engage in any
business, calling, or enterprise which is or may be
competitive or contrary to the welfare, interest or benefit of
the business of the Company.
(c) During the term of this Agreement, to provide the services of
DOUGLAS SLAMKO on a full time basis to carry out the
obligations of the Contractor. If DOUGLAS SLAMKO is unable to
perform the obligations contained herein, then the Contractor-
will supply a substitute individual it being understood by
both parties that the Company, after reviewing the substitute
individual's resume, will have the right to terminate. this
Agreement if it determines that, in its sole discretion, the
substitute individual does not have the same skills or
qualifications as that of DOUGLAS SLAMKO.
4. TERM. The services shall begin on DEC 2, 1999 and shall
continue at will until terminated by either party giving notice. Either party
may terminate this Agreement upon fourteen (14) days prior written notice to
the other. The Company reserves the right to terminate this Agreement at any
time during the first six (6) months or at any other time for cause.
<PAGE>
5. CONFIDENTIAL INFORMAT1ON. All confidential information and
trade secrets, including but not limited to, names and lists of clientele or
licensees, software, specifications, suppliers, operations or technical
manuals, and all information, files and records referring to, or relating
thereto, however maintained are valuable, special ,and unique assets of the
Company and the sole and exclusive property of the Company. Any of the
projects in which the Contractor works on, on behalf of the Company, become
and are the sole property of the Company.
6. COVENANT NOT TO COMPETE. Upon termination of the
Contractor's services, the Contractor, any of it's officers or directors, or
any individual associated with the Contractor shall not, for a period of one
(1) year, either directly or indirectly, enter into or engage in the business
of software, systems administration, security, or website development
specifically designed for use in Internet gaming.
7. FURTHER DUTIES OF THE CONTRACTOR. The Contractor guarantees
to have a qualified person, acceptable to the Company, available at the
Company's place of business no less than 40 hours a week. The Contractor
should be aware that duties associated with this Agreement may involve travel
from the Company's place of business to various locations throughout the
world.
8. DUTIES AFTER TERMINATION OF AGREEMENT. The Contractor
further agrees that upon termination of this Agreement, Contractor will
immediately surrender to the company all samples, licensee contact
information, price lists, brochures, supplier, books and records, documents,
operations or technical manuals, software (either developed or under
development) of or in connection with the Company's licensees or business,
passwords, codes, security technical information and protocols and all other
in the Contractor's possession which belongs to the Company, it being
distinctly understood that all of such items, including all software which is
or was developed by the Contractor is the property of the Company.
9. SERVABILITY. The invalidity or unenforceability of any
provision in this Agreement shall in no way affect the validity or
enforceability of any other provision.
10. BENEFIT. This Agreement shall insure to the benefit of and
be binding upon the Company, its successors and assigns, and the Contractor
and its heirs, executors, administrators and legal representatives.
11. SITUS. This Agreement shall be construed and governed in
accordance with the laws of the province of British Columbia.
<PAGE>
12. PRIOR AGREEMENTS. This Agreement supersedes any prior
written or verbal agreements.
13. ARBITRATION. Any controversy relating to this Agreement or
the interpretation thereof shall be settled by arbitration in the city of
Vancouver, B.C., pursuant to the rules then in place for the province of
British Columbia.
14. ADDRESS. The address's for each party to receive any
formal notice or notice's from the other party are as follows:
COMPANY CONTRACTOR
iCrystal Inc. DOUGLAS SLAMKO
3237 - King George Hwy ----------------------
Suite 101 B 12480 OCEAN TIDE COURT
Surrey, BC V4P 187 ----------------------
SURREY BC V4A 9P2
----------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
COMPANY
/S/ DEREK BODNARCHUK /S/ LARRY HRABI
- ----------------------- ------------------------
WITNESS
CONTRACTOR
/S/ DEREK BODNARCHUK /S/ D. J. SLAMKO
- ----------------------- ------------------------
WITNESS
<PAGE>
EXHIBIT 11.1
The numerators and denominators of basic and diluted earnings per share are as
follows:
<TABLE>
<CAPTION>
10/5/94 (DATE
OF INCEPTION)
1998 1997 TO 12/31/98
---------- ----------- -------------
<S> <C> <C> <C>
Numerator - net loss (266,500) $ - $ (298,500)
========== =========== =============
Denominator - weighted average
number of shares outstanding 735,300 375,000 547,900
========== =========== =============
</TABLE>
At December 31, 1998, the Company had no potential common shares that
would have had a dilutive effect.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
1. ICRYSTAL SOFTWARE INC., a corporation of British Columbia. Uses no other
names in business.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ICRYSTAL
INC.'S UNAUDITED CONDENSED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999 AND FOR
THE AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 48,400 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 48,400 0
<PP&E> 16,800 0
<DEPRECIATION> 2,100 0
<TOTAL-ASSETS> 63,100 0
<CURRENT-LIABILITIES> 201,700 65,000
<BONDS> 0 0
0 0
0 0
<COMMON> 122,800 77,700
<OTHER-SE> (261,400) (142,700)
<TOTAL-LIABILITY-AND-EQUITY> 63,100 0
<SALES> 0 0
<TOTAL-REVENUES> 21,100 0
<CGS> 0 0
<TOTAL-COSTS> 5,034,700 266,500
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (5,013,600) (266,500)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,013,600) (266,500)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,013,600) (266,500)
<EPS-BASIC> (0.51) (0.31)
<EPS-DILUTED> (0.51) (0.31)
</TABLE>
