To: David A. Lethe (0 )
From: David A. Lethe
Wednesday, Jul 1 1998 3:04PM ET
Reply # of 382
To All: New letter to shareholders (forwarded)
June 30, 1998
Dear Starnet Shareholders:
Having served as Starnet's Chief Financial Officer for a year and Chairman for almost three months, I
feel it is appropriate and timely for me to share with you my impressions of the Company to date.
Our fiscal year ended on April 30, 1998 and our auditors, Ernst & Young,are currently in our office
conducting their review of our financial statements. I am confident that our forthcoming Annual Report
will display a positive trend relating to Starnet's growth and profitability.
While I feel my time is better spent discussing the merits of the Company I wish to advise you that to
date, none of our current Directors or Officers have sold a single share of Starnet. We all believe in
the long-term value of the Company. I also wish to iterate my personal opinion that the current value
of Starnet's stock simply does not reflect the value of our going concerns - let alone our prospects.
What will assist in the creation of shareholder value is documented proof of the Company's growth
and profitability. To enhance liquidity and geographic diversification, we also intend to explore the
possibility of obtaining a listing on a secondary securities exchange.
During fiscal 1998, Starnet grew from a staff of 46 people to a current staff of 82 full-time and
approximately 50 contract personnel, in such capacities as system administration, programming,
animation and graphics, audio/video, marketing and support. I believe strongly in the qualifications,
experience, and most significantly the commitment and loyalty of our current executive team:
John Carley, DBA, CGA, FICB - Chairman, CFO & Director
Mark Dohlen, B.Admin., MBA, LLB, FCIS, P.Admin. - CEO & Director
Chris Zacharias, MBA, LLB, ACIS - Secretary/Treasurer, Corp. Council & Director
Jason King, BA - COO
Benjamin Wong, BBA, CGA, CPA - Vice-President Finance
Grant Johnson, BA - Vice-President Corporate Development
Terrence Bowering, B.Admin., MBA - General Manager of Offshore Operations
Michael Hiebert - Senior Programmer
Our recent and projected developments in the area of Internet Gaming are the result of a
comprehensive, documented strategy being implemented in accordance with our Business Plan.
Our World Gaming subsidiary in Antigua has displayed steady growth since its launch in October
1997. We are currently accepting wagers on a variety of games of chance, from bettors residing in
over 60 countries - excluding, of course, the United States and Canada. To this end, I wish to take
this opportunity to express my gratitude to World Gaming's international marketing department, which
seems to be effectively penetrating the more challenging non-North American market segment. In
recognizing the long-term value of this industry, Starnet continues to maintain its credibility instead of
exploiting the ambiguities existing within North American statutes relating to Internet gaming.
Our other Antiguan subsidiary, Softec Systems Caribbean Inc., has licensed six turn-key Internet
gaming systems, with five currently in full operation by their respective licensees. I believe our strategy
to implement a "technology licensing model" under Softec was our most significant decision last year.
While carrying out our original business plan of becoming a singular
Internet gaming owner and operator (ie. World Gaming only), we soon
recognized the wider potential of this product. The projected enormity of this industry has resulted in
an unexpected number of operators wanting to enter the market: the Financial Times recently
estimated that the Internet gaming industry would be annually netting US $10.2 billion within four
years. Yet the barriers of entry into Internet gaming are significant, particularly in respect of the capital
and time intensive nature of developing such technologies. Recognizing the intrinsic, timesaving value
of a bundled product (software, network, financial transaction system, etc.), and the economies of
scale associated with shared operating costs, we seized the opportunity.
Consequently, operators wishing to immediately capitalize on the Internet gaming opportunity have
turned to us. Our recently enlarged Softec sales team has been fielding qualified inquires worldwide.
We expect to have 12 Softec systems under license by calendar
year-end. Each new licensee creates an additional revenue stream which aids in the reduction of R&D
costs as a percentage of Starnet's Internet gaming expenses.
Starnet has struck strategic Internet Simulcast alliances with seven
top-tier North American horse and dog racing operations, and continues to pursue more, in our quest
to eventually offer 24-hour live horse and dog racing coverage via the Internet - complete with
pari-mutuel wagering facilities where legal. We believe that our alliance with these real-world gaming
entities, one of which has been in operation for as long as 117 years, only adds to our credibility.
I wish to note that Starnet Canada's websites have been steadily and
increasingly profitable since their inception in 1995. The significant
revenues and subsequent competition realized from the overall Internet
entertainment industry has, much to the unawareness of the general public, funded the development of
many technologies which the rest of the Internet community now enjoys. For example, Starnet
developed its secure on-line financial transaction processing technology, STAR-MX, to accept direct
credit card payments from its subscriber base.
STAR-MX technology was the FIRST of its kind to be certified by a Canadian Chartered Bank, the
Bank of Montreal, to conduct on-line commerce. The cash flow provided by our original operations
has precluded the necessity to incur constant debt and/or dilution in order to develop our unsurpassed
gaming software and simulcast technologies.
To confirm, Starnet's emphasis has shifted to Internet gaming. While our original operations remain
valuable assets, we feel their value is not adequately reflected in the value of Starnet's stock, and we
are therefore exploring the possibility of divesting them in a timely and appropriate manner.
In summary, I believe Starnet is moving in the right strategic direction under the control of a strong
and loyal management team, in a market with tremendous potential. This leads me to believe we are in
for a wonderful fiscal 1999. Thank you so much for embracing our vision and providing your support.
Yours truly,
STARNET COMMUNICATIONS INTERNATIONAL INC.
John A. Carley
Chairman of the Board & Chief Financial Officer
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Starnet is at the forefront in delivering and creating aesthetic,
interactive and user-friendly web sites resulting in an established
daily audience of over 170,000 users. A recognized leader in the
field of on-line entertainment, Starnet has an established traffic
flow to its sites of over 6 million hits per day.
*******STARNET AND SUBSIDIARIES*******
______Starnet Communications Intl. Inc._______
snmm.com
____________EFS Caribbean Inc.________________
starnet.ca
_____________Softec Caribbean Inc.____________
softecsystems.com
________________World Gaming__________________
worldgaming.net
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