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Good News for New Business Models
...scalability and the Net

Focus on HomeCom
... Web Builder for Banks, Insurance Sellers

Focus on Security First Technologies:
... Turnkey Net Bank Systems

Focus on Peapod (PPOD)
...Online Grocery Sales

Focus on Radio Frequency Micro Devices (RFMD)
... Wireless infrastructure

Financial Services Online:
March '98 Update on Insurance

Insurance.com
. . . Online Distribution Strategies for Insurance Products

Bi$Net97
. . . The Net Proves Commercial Viability

Bi$Net96
. . . Introduction to E-Commerce & Law of Net

Managing Casinos: A Guide for Entrepreneurs, Management Personnel and Aspiring Managers
by Ruben Martinez

Casino Operations Management
by Jim Kilby, Jim Fox

(... updated April 24, 1999)

"Starnet has a plan to become
the Microsoft of casino software vendors."
Forbes, June 12, 1998

New (see below):
. . . Law Review Article by Scott Olson: "Betting No End to Internet Gambling"
. . . Summary financials for quarter ending 1/31/99
. . . Native Saskatchewan Tribal Nation licenses turnkey Starnet online gaming system

Background and History of SNMM

Starnet began as a vendor of online adult entertainment to paying subscribers. In early 1998, it raised $2.4 million through an IPO and borrowed another half million from banks. Around the time of its IPO, it reexamined its business model and refocused upon online casino services and technology. Trading on the OTC Bulletin Board, its shares changed hands for as little as 38 cents in November of 1998, but closed 1998 around $1.50.

The company's Internet casino, which targets only customers outside North America, is operated by its subsidiary, World Gaming Services Inc, in its domicile of Antigua. Softec System Caribbean Inc., the Company's other Antigua subsidiary, licenses its gaming product to third parties for a set up fee and a sliding-scale percentage royalty. A third subsidiary, EFS Australia PTY Ltd, functions as an international currency converter and secure internet transaction gateway to financial institutions.

In a June 12, 1998 article, Forbes addressed the prospects of online gaming businesses in the face of new and existing laws aimed at outlawing use of U.S. ISPs for wagering:

"By moving into the licensing game, Starnet and its competitors have found a nifty way to circumvent the 1961 Federal Wire Act, which makes it a crime to accept sports bets over telephone lines."

"And the Kyl bill will probably have little effect on Starnet's online casino business, since it already refuses bets from IP addresses that originate within the U.S, channeling these players into a play-for-fun section of the site. Online casinos based in Antigua, however, are not prohibited by the government from accepting American wagers, viewing any American government-led ban as a breach of its sovereignty."

-- Forbes (6/12/98)

World Gaming Partners Program

Starnet's World Gaming Casino offers website operators a persistent "click-through" commission that resembles the "associates program" of Amazon.com. As explained at its explanatory pages, World Gaming says it will pay 25% of all "profits" from customers that click through the World Gaming banner to the casino: "To collect generous revenues, all you have to do is strategically place one of the attractive World Gaming banners on your web site. * * * As customers click through, you will share in the "house" profits every time one of your customers places a wager. The more members you refer, the more commissions you receive!" Those desiring to become "Partners" must register to receive a unique ID code that is embedded in the software "their" customers download to play. The company then represents that it will track the customer's payout statistics, every time they log on. Full terms & conditions are spelled out online. To assist its partners in promoting its casino, World Gaming offers animated banners in five languages, with sample code to link to the casino.

New: Legal Issues of Gambling on the Internet

According to the Abstract of "Gambling on the Internet" written for Boston Consulting Group by lawyer Cynthia R. Janower:

"Making gambling more broadly available via the networks threatens heightened crime, an increased incidence of compulsive gambling, and cannibalized spending in other areas of the economy. Yet U.S. state and federal laws are inadequate to deal with the onslaught of virtual gaming."

In her review of the status of the industry, Ms. Janower observed that "The economics are excellent." and "The financial allure is enormous." In her footnoted report, she pointed to various economic and social costs and hazards of increased gambling activity, and to studies indicating video gambling to be highly addictive, presenting it with extra risks unless controlled. She did note that "policing centralized systems will be easier than policing thousands of dispersed terminals."

Potential benefits of Net gambling, according to Janower, might include diminished importance of organized crime, and also offering a medium for more efficient operation of sanctioned state lotteries. Janower:

"With rigorous monitoring, it would provide one of the least expensive, most creative ways for a state to help define the networks of tomorrow. * * * Online gaming may be one of the few services, according to some experts, that can directly generate the billions of dollars in revenue that will be needed to finance the cost of developing the information super-highway infrastructure."

"The real problem, however," said Janower, "is that even if (it) might be desireable to halt the development of online gaming, it is unlikely that any government can do so." Her article goes on to discuss in detail the various state and federal statutes that might be used to crack down on Net gaming, and the actual enforcement activities taken up to the time of her writing (around 1995). She had some particularly interesting things to say about the legal questions under the Federal Indian Gaming Regulatory Act and attempts by various tribes to conduct national lotteries.

Could Native American tribes end up being the big beneficiaries of state reluctance to accept, license and regulate online gambling? Her article gives the thoughtful reader much to think about. Its online at http://www.ascusc.org/jcmc/vol2/issue2/janower.html

A more recent law review article by lawyer Scott Olson, Betting No End to Internet Gambling, 4 J. TECH. L. & POL'Y 2 http://journal.law.ulf.edu/~techlaw/4/Olson.html (1999) discusses operation of Net gambling sites, methods used by states to prohibit it, and analyzes the Kyl Bill. Then, Atty. Olson articulates various legal reasons for his position that neither federal nor state attempts to control online gambling will be effective and argues that government should regulate Internet gambling instead of trying to prohibit it.

Atty. Olson points to the impact of the Dormant Commerce Clause in the United States Constitution, as applied in American Libraries Ass'n v. Pataki, 969 F.Supp. 160 (D.D.N.Y. 1997), which may render states powerless to exercise control over gambling conducted within their borders. Olson discusses issues of jurisdiction, including the Minnesota v. Granite Gate Resort case, and the analysis suggested by the more recent Zippo Mfg. v. Zippo Dot Com decision. Because of the jurisdictional challenges, Olson expresses doubt over a state's ability to obtain an injunction against a non-resident Internet gambling site.

Olson also sees serious legal problems with any federal attempt (as through the Internet Gambling Prohibition Act (IGPA), or "Kyl Bill") to exert extraterritorial jurisdiction over a site operating in a jurisdiction where online gambling is legal (eg., Greece, Turkey, Antiqua, Monte Carlo and Australia). He specifically discusses attempts to ban advertising of Net gambling as an unconstitutional violation of the First Amendment, pointing to the 1997 United States Court of Appeals decision in Valley Broadcasting Company v. United States. He also discusses the Missouri v. Coeur d'Alene Tribe lawsuit pending at the time, which raises the issue whether Internet gambling from a server on an Indian reservation is "on Indian lands" within the meaning of the Indian Gaming Regulatory Act (IGRA). Olson opines:

"{73} Nonetheless, the court's decision in Coeur d'Alene will have significant implications.  If the court decides that Indian Tribes which set up web sites offer gambling "on Indian lands," then legalized Internet gambling may become widespread in the United States.  Gambling on Indian reservations is only subject to IGRA, [244] thereby precluding regulation and enforcement under the proposed IGPA.  Furthermore, Indian Tribes are already specifically exempted from the prohibition on advertising through television and radio broadcasts, [245] thereby allowing them to advertise both in states which allow gambling and in those which forbid it.  Thus, the IGPA would have almost no effect if Indian Tribes are allowed to offer on-line gaming." (emphasis added)

Olson closed with a discussion of the practical and legal problems with attempting to enforce Internet gambling prohibitions against individuals. Olson expresses the opinion that other priorities will command the limited resources of law enforcement.

Scott Olson is a Law clerk for U.S. District Court Judge Ewing Werlein, Jr. The full paper, consisting of 98 paragraphs with 306 footnotes, is at http://journal.law.ulf.edu/~techlaw/4/Olson.html

Starnet licensed its first turnkey gaming system to a Canadian native tribe in March of 1999.

Financial Results Reported in 10KSB for Fiscal Year 1998

Highlights from Management Discussion in Annual Report filing with SEC.

In the 10KSB, management explained the rising gross margin by pointing to the relatively higher margin of the gaming operations and efficiencies gained from having a larger number of memberships. It reported that for the fiscal year ended April 1998, 32.1% of the operating expenses was related to the development of the gaming operations and exploration of other business opportunities.

The 10KSB filing also stated that 45% of the outstanding shares are held by a British Virgin Islands trust for some of the Company's officers and directors: Jason Bolduc; Mark Dohlen; Paul Giles; John Carley, and their families, none of whom have the power to vote the shares. CEO Mark Dolen took $57 thousand in salary in FY 1998. Managers have vested stock options exercisable at 75 cents per share.

Recent Developments:

10/31/98 Quarter Results released 12/15
Data per 10QSB filing at SEC

Starnet reported a total of 9 licensees of its software as of October 1998, generating over $1 million per month in total revenues. Starnet also reported positive cash flow of $940 thousand for the quarter, about 4 cents per share outstanding.

1/31/99 Quarter Results released 3/12
Data per 10QSB filing at SEC

Starnet reported a total of 21 licensees of its software as of the time of its report, ten of which were operating on 1/31 and generating about $2 million per month in total revenues.

12/2/98: SNMM extended the exercise deadline on warrants for 2.45 million shares @$2/share and "piggyback warrants" for another 2.45 million shares @ $4/share. These warrants were issued with 2.45 million common shares sold @ $1/share in December 1997 to "seven separate sophisticated foreign investment groups," according to an 8-K filed with the SEC.

12/7/98 Japanese-language Pachinko site launched at Pachinko Casino. According to a Starnet press release, "P-ARK Corporation, one of Japan's major Pachinko machine manufacturers, has estimated that there are over 30 million Pachinko enthusiasts in Japan that generate U.S. $180 billion in wagers. "

1/13/99 Ver. 2.0 of Partners Program technology released by Starnet subsidiary Softec Systems Caribbean Inc. (``Softec''). In the Partners Program scenario, a Softec Internet gaming system operator will solicit webmasters of independent websites for banner advertising. In exchange, the webmaster will participate in the net win originated from their websites. According to a press release, this software will be distributed to all existing and future Softec licensees to assist in their marketing and promotional efforts. Webmasters interested in participating in the Partners Program can read about the program at Starnet's subsidiary World Gaming Net and other Starnet licensees.

New: 3/15/99: Sovereign First Nation licenses Starnet technology. The Ochapowace Band, a 1100 member of the Assembly of First Nations, operates 14 businesses from its lands in Saskatchewan, Canada. Its Antiquan subsidiary Axxis Investments will license a customized, full-service Internet gaming system, on which customers can place wagers via a secure online financial transaction system.

New: 4/15/99: Online credit card processing facility launched by Starnet subsidiary EFS Australia Pty Ltd., in association with Westpac Banking Corp. and Pure-Commerce Pty. of Australia.

StarNet is the subject of an active message thread on Silicon Investor.

Do your own research before buying any security.

The Net offers tremendous opportunities for those who can appreciate the "increasing returns" economics of networks, the power of community, and its opportunity to eliminate the costs of intermediaries and manual hand-offs in the distribution chain. Many studies have pointed to gaming as a product offering exceptional suitability for marketing and transactions on the Net.

This focus page will be archived at nnarc-snmm.html and may be edited in the future. Check in at Net Nuggets from time to time. The information contained herein is believed to come from reliable sources, but no warranty of accuracy is expressed or implied. The author or his family may own shares of StarNet Communications purchased on the open market and has never received or been offered any compensation from StarNet Communications or its employees, agents or affiliates. This article is neither an offer to buy or sell a security and is not intended to constitute financial advice.

If you have verifiable information about this company, its business plan or competitors, you are invited to share it via email with me.

Doug Simpson doug.simpson@snet.net 4/24/99

The Innovator's Dilemma : When New Technologies Cause Great Firms to Fail
by Clayton M. Christensen
Hardcover - 256 pages (June 1997)
Avg. Customer Review:

Rules for Revolutionaries: The Capitalist Manifesto for Creating New Products and Services
by Guy Kawasaki, Michele Moreno (Contributor), Gary Kawasaki
Hardcover - 224 pages 1 Ed edition (January 1999)

SNMM and affiliates home pages
...SNMM Home Page
...World Gaming Project
...Softec Systems Caribbean
...World Sportsbook
...World Lotteries
...World Racetracks

Some Competition:
... GIC Global Intertainment
... Gaming Lottery
... Global Games
... Atlantic International Entertainment
...Cryptologics

Articles Mentioning Starnet:
Forbes
... "License to Gamble" (6/12/98)
Internet Stock Newsletter:
... (12/24/98)
... (12/31/98)

Rolling Good Times Online

Silicon Investor Discussion Forums:
... Starnet
... Cryptologic
... Internet Casino

SNMM at Yahoo Finance:
... Profile
... News
... Messages
... Insider Trades
... EDGAR Filings

Background reading from Amazon.Com:

Net Worth: Shaping Markets When Customers Make the Rules
by John Hagel, Marc Singer, Marc Stinger, John Hagel III
Hardcover - 256 pages (January 1999)
List Price: $24.95
Amazon: $14.97
Save: $9.98 (40%)