As filed with the Securities & Exchange Commission on October 17, 2001
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CYOP SYSTEMS INTERNATIONAL INCORPORATED
(Name of small business issuer in its charter)
Nevada 7373 98-0222927
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Suite 300
1286 Homer Street
Vancouver, B.C.
V6B 2Y5 Canada
Telephone: (604)647-6400
(Address and telephone number of principal executive offices)
Suite 300
1286 Homer Street
Vancouver, B.C.
V6B 2Y5 Canada
(Address of principal place of business or intended principal place of business)
Gerald R. Tuskey, Personal Law Corporation
Suite 1000, 409 Granville Street
Vancouver, B.C.
V6C 1T2 Canada
(604)681-9588
(Name, Address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this
registration statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [___]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [___]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [___]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [___]
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------
TITLE OF EACH
CLASS OF PROPOSED PROPOSED AMOUNT OF
SECURITIES TO AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PRICE PER SHARE (1) OFFERING PRICE FEE (2)
----------------------------------------------------------------------------------------------------------------
Common Stock, 8,998,000 shares $1.40 $12,597,200 $3,149.30
Par value $0.0001
----------------------------------------------------------------------------------------------------------------
(1) Based on last price at which shares have been sold.
(2) Estimated solely for the purpose of calculating the registration fee under
Rule 457 of the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENTS SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PART I - INFORMATION REQUIRED IN PROSPECTUS
2
PROSPECTUS
CYOP SYSTEMS INTERNATIONAL INCORPORATED
8,998,000 SHARES OF COMMON STOCK
CYOP Systems International Incorporated is a software development company
organized in the State of Nevada.
The selling shareholders named in this prospectus are offering 8,998,000 common
shares of our stock registered through this prospectus. The shares were acquired
by the selling shareholders directly from us in a private offering that was
exempt from registration under US securities laws.
Our common stock is presently not traded on any market or securities exchange.
This offering will expire 24 months from the effective date of this prospectus.
--------------------
The purchase of the securities offered through this prospectus involves a high
degree of risk. See section entitled "Risk Factors" on page 6.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------
The date of this Prospectus is October 17, 2001
TABLE OF CONTENTS
PROSPECTUS SUMMARY................................................................................................5
RISK FACTORS......................................................................................................6
USE OF PROCEEDS...................................................................................................7
DETERMINATION OF OFFERING PRICE...................................................................................7
DILUTION..........................................................................................................7
DIVIDEND POLICY...................................................................................................7
SELLING SHAREHOLDERS..............................................................................................7
PLAN OF DISTRIBUTION..............................................................................................9
LEGAL PROCEEDINGS................................................................................................10
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.....................................................10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ND MANAGEMENT....................................................11
DESCRIPTION OF SECURITIES........................................................................................12
INTERESTS OF NAMED EXPERTS AND COUNSEL...........................................................................13
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES..............................13
ORGANIZATION WITHIN LAST FIVE YEARS..............................................................................13
DESCRIPTION OF BUSINESS..........................................................................................14
PLAN OF OPERATION................................................................................................20
DESCRIPTION OF PROPERTY..........................................................................................22
Office Premises...............................................................................................22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................22
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................................22
EXECUTIVE COMPENSATION...........................................................................................23
INDEPENDENT PUBLIC ACCOUNTANTS...................................................................................24
INDEX TO FINANCIAL STATEMENTS....................................................................................25
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS....................................................................59
AVAILABLE INFORMATION............................................................................................59
INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................................................59
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION......................................................................60
RECENT SALES OF UNREGISTERED SECURITIES..........................................................................60
EXHIBITS.........................................................................................................61
UNDERTAKINGS.....................................................................................................61
4
PROSPECTUS SUMMARY
OUR COMPANY
We were incorporated on October 29, 1999 under the laws of the State of Nevada
as Triple 8 Development Corporation to engage in any lawful corporate purpose.
We changed our name to CYOP Systems International Incorporated on November 2,
2000.
We have not been involved in any bankruptcy, receivership or similar
proceedings.
CYOP Systems International Incorporated is the parent company in our corporate
structure. We own 100% of the common shares of CYOP Systems Inc., a Barbados
company, which in turn owns 100% of the issued common shares of Moshpit
Entertainment Inc. Moshpit Entertainment Inc. is a British Columbia company
which conducts all of our product development. Moshpit is a developer and
provider of multimedia transactional technology solutions and services for the
entertainment industry. Moshpit's range of products and services include
financial transaction platforms for on-line video games and integrated
e-commerce transaction technology for on-line merchants.
All dollar amounts in this prospectus are U.S. dollars.
THE OFFERING
Securities being registered: 8,998,000 shares of common stock held by existing shareholders.
Securities Issued: 28,439,975 shares of common stock are issued and outstanding as of the
date of this prospectus. The 8,998,000 shares of common stock to be
registered under this prospectus are already issued and may be sold by
existing shareholders.
Use of Proceeds: We will not receive any proceeds from the sale of shares sold by the
selling shareholders.
Reason for filing this Prospectus: The Securities and Exchange Commission and National Association of
Securities Dealers have adopted the position that securities of blank
check companies issued to affiliates and non-affiliates are ineligible
for resale under Rule 144 unless those previously issued securities are
registered under a registration statement. As of the date of issuance
of our initial common shares, we were a blank check company because we
had not adopted a definitive business plan. This prospectus is being
filed solely for the purpose of registering 8,998,000 common shares held
by non-affiliated shareholders which would, but for the SEC and NASD
position on blank check companies, be free of trading restrictions.
Expiration Date
---------------
This offering will expire 24 months from the effective date of this prospectus.
5
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus and any other filings we make with the SEC in the future before
investing in our common stock. If any of the following risks occur, our
business, operating results and financial condition could be seriously harmed.
The value of our common stock could decline due to any of these risks, and you
may lose all or part of your investment.
Our operating subsidiary is a software development company with a history of
----------------------------------------------------------------------------
losses.
-------
We have no revenues from operations since our incorporation. If we are unable to
generate revenue and become profitable, our company will fail and you could lose
your entire investment.
Our management is under no contractual obligation to remain with us and their
-----------------------------------------------------------------------------
departure could cause our business to fail.
-------------------------------------------
Our director and our officers have varied business interests and are working for
other companies. No member of management has signed a written employment
agreement with us and we cannot afford to pay management members. In the event
Mr. White resigns as a director or an officer of our company we may be unable to
attract other qualified officers and directors which would result in the failure
of our company and the loss of your investment.
Our competitive position in the on-line pay for play video gaming industry is
-----------------------------------------------------------------------------
dependent on the success of our pending patent application.
-----------------------------------------------------------
We have filed a patent application in the United States to obtain patent
protection for our unique in-house developed software and unique pay for play
platform. In the event our patent application is not granted, we could be put at
a significant competitive disadvantage to other better financed companies who
could copy our software and achieve rapid market penetration.
We are highly dependent upon our management for financing our software
----------------------------------------------------------------------
development and ongoing operations.
-----------------------------------
We are a private company and have just begun earning revenues through the
licensing of our pay for play software. We have been and continue to be
dependent upon management for loans to our company to finance our operations and
software development. In the event management is unable to continue to advance
funds to our company before we achieve positive cash flow, our company could
fail.
Online pay for play video gaming is attracting the interest of large well
-------------------------------------------------------------------------
financed potential competitors.
-------------------------------
Even if we obtain patent protection for our system of offering pay for play
games online, it is possible we could receive intense competition from better
financed companies with in-house software development capabilities who are able
to offer online pay for play video games without infringing on our patent
protection.
Our common shares are not quoted on any exchange or listing service. Our common
-------------------------------------------------------------------------------
shares are penny stock.
-----------------------
Persons who acquire our common shares have limited liquidity or opportunity to
sell their shares and may not be able to recover any funds which have been
invested in our common shares. Our common shares fall within the definition of a
penny stock. In the event our shares become quoted on an exchange or listing
service, all transactions involving our shares will be subject to special rules
established by the Securities and Exchange Commission which require brokers and
dealers to complete due diligence on penny stocks being acquired on behalf of
clients. These requirements are onerous and may make an investment in penny
stocks less appealing to certain investors which could affect your ability to
sell our common shares.
6
We have no experience operating online pay for play video games or processing
-----------------------------------------------------------------------------
online financial transactions.
------------------------------
We have tested our operating system and believe it will accommodate the expected
commercial traffic at our website however, our lack of experience operating our
system could result in a breakdown of our operations and a resulting lack of
business.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believe," "plan," "expect,"
"future," "intend" and similar expressions to identify such forward-looking
statements. You should not place reliance on these forward-looking statements.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described in the Risk Factors section and elsewhere in this prospectus.
USE OF PROCEEDS
All of the common shares being registered under this prospectus are owned by
existing shareholders of our company. In the event registered shares are sold in
the future, all proceeds will accrue to the selling shareholders.
DETERMINATION OF OFFERING PRICE
It is not currently possible to determine a price at which the shares being
registered under this prospectus may be sold. The shares being registered were
acquired by our shareholders at $0.001 per share. Our common shares are not
quoted or listed on any exchange. Future sales of the registered shares either
through private transactions or a future listing will be determined by market
forces and the independent decisions of selling shareholders.
DILUTION
The common stock to be sold by the selling shareholders is common stock that is
currently issued and outstanding. Accordingly, there will be no dilution to our
existing shareholders.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. We do not anticipate paying any cash dividends in the foreseeable
future.
SELLING SHAREHOLDERS
The selling shareholders named in this prospectus are registering a total of
8,998,000 common shares for possible future resale. All shares being registered
were acquired by the selling shareholders on November 1, 1999 at $0.001 per
share under Regulation S. The Regulation holding period on these shares has been
satisfied in accordance with Rule 903(b)(3)(iii)(A). Only common shares owned by
shareholders who are non-affiliates are being registered under this prospectus.
Our former director, Mr. Keith Ebert, owns 10,225,000 of our common shares which
are not being qualified for resale under this prospectus.
The following table provides information regarding the beneficial ownership of
our common stock held by each of the selling shareholders as of October 17,
2001.
To the best of our knowledge, the shareholders in the table that follows are the
beneficial owners and have the sole voting and investment power over all shares
or rights to the shares reported.
7
--------------------------------------------------------------------------------
TOTAL NUMBER CURRENT
SHARES OF SHARES BEING PERCENT OF
OWNED PRIOR REGISTERED BY COMPANY
NAME AND ADDRESS TO THIS SELLING SHARES
OF SELLING SHAREHOLDER OFFERING SHAREHOLDER OWNED
--------------------------------------------------------------------------------
Tom Bollum 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
Renata Kubicek 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Gerald J. Shields 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Sandra Ann Hughes 204,500 204,500 0.72%
Surrey, B.C.
--------------------------------------------------------------------------------
Rob Smith 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Jackie A. Tuskey 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Darren Ross 204,500 204,500 0.72%
South Surrey, B.C.
--------------------------------------------------------------------------------
Brian Tuskey 204,500 204,500 0.72%
Courtenay, B.C.
--------------------------------------------------------------------------------
Mary Ann Myers 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
Tom Connell 204,500 204,500 0.72%
Oshawa, Ontario
--------------------------------------------------------------------------------
Dr. Keith Lim Inc. 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Jane Shields 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
Doug Irwin 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Margot Jones 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
John Furlan 204,500 204,500 0.72%
Calgary, Alberta
--------------------------------------------------------------------------------
Rick Gateman 204,500 204,500 0.72%
Calgary, Alberta
--------------------------------------------------------------------------------
Tom Simmons 204,500 204,500 0.72%
Calgary, Alberta
--------------------------------------------------------------------------------
John Jardine 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
Gail Fish 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
Ro Lal 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Erin Strench 204,500 204,500 0.72%
Puerto Vallarta, Mexico
--------------------------------------------------------------------------------
Allen Wilson 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Beverly Strench 204,500 204,500 0.72%
Richmond, B.C.
--------------------------------------------------------------------------------
Neville Ebert 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
8
--------------------------------------------------------------------------------
Gloria Martino 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
Bill Martino 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
Andrew Allan 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
Haroon Rashid 204,500 204,500 0.72%
Surrey, B.C.
--------------------------------------------------------------------------------
Ann Marie Butler Rashid 204,500 204,500 0.72%
Halifax, Nova Scotia
--------------------------------------------------------------------------------
Kenny Chan 204,500 204,500 0.72%
Richmond, B.C.
--------------------------------------------------------------------------------
Dwight Chan 204,500 204,500 0.72%
Richmond, B.C.
--------------------------------------------------------------------------------
Dee Gorrell 204,500 204,500 0.72%
Delta, B.C.
--------------------------------------------------------------------------------
Shauna Loiselle 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
Paul Canfield 204,500 204,500 0.72%
Keswick, Ontario
--------------------------------------------------------------------------------
Janet Moher 204,500 204,500 0.72%
Oshawa, Ontario
--------------------------------------------------------------------------------
Ruth Canfield 204,500 204,500 0.72%
Bowmanville, Ontario
--------------------------------------------------------------------------------
Jill Jankovich 204,500 204,500 0.72%
Gabriola Island, B.C.
--------------------------------------------------------------------------------
Dan Nugent 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Judy Morey 204,500 204,500 0.72%
Calgary, Alberta
--------------------------------------------------------------------------------
Rob Furlan 204,500 204,500 0.72%
Calgary, Alberta
--------------------------------------------------------------------------------
Sandra Furlan 204,500 204,500 0.72%
Vancouver, B.C.
--------------------------------------------------------------------------------
Karen Lynn Bollum 204,500 204,500 0.72%
Salmon Arm, B.C.
--------------------------------------------------------------------------------
Dr. Denis Vincent 204,500 204,500 0.72%
North Vancouver, B.C.
--------------------------------------------------------------------------------
Lindsay Nevison 204,500 204,500 0.72%
West Vancouver, B.C.
--------------------------------------------------------------------------------
PLAN OF DISTRIBUTION
The selling shareholders have not informed us of how they plan to sell their
shares. However, they may sell some or all of their common stock in one or more
transactions, including block transactions:
(1) on such public markets or exchanges as the common stock may
from time to time be trading;
(2) in privately negotiated transactions;
(3) through the writing of options on the common stock;
(4) in short sales; or
(5) in any combination of these methods of distribution.
9
The sales price to the public may be:
(1) the market price prevailing at the time of sale;
(2) a price related to such prevailing market price; or
(3) such other price as the selling shareholders determine from
time to time.
The selling shareholders may also sell their shares directly to market makers
acting as principals or brokers or dealers, who may act as agent or acquire the
common stock as a principal. Any broker or dealer participating in transactions
as agent may receive a commission from the selling shareholders, or, if they act
as agent for the purchaser of common stock, from the purchaser. The selling
shareholders will likely pay the usual and customary brokerage fees for
services. Brokers or dealers may agree with the selling shareholders to sell a
specified number of shares at a stipulated price per share and, to the extent
such broker or dealer is unable to do so acting as agent for the selling
shareholders, to purchase, as principal, any unsold shares at the price required
to fulfill the respective broker's or dealer's commitment to the selling
shareholders. Brokers or dealers who acquire shares as principals may thereafter
resell shares from time to time in transactions in a market or on an exchange,
in negotiated transactions or otherwise, at market prices prevailing at the time
of sale or at negotiated prices, and in connection with re-sales may pay or
receive commissions to or from the purchasers of shares. These transactions may
involve cross and block transactions that may involve sales to and through other
brokers or dealers.
We are bearing all costs relating to the registration of the common stock under
this prospectus. Any commissions or other fees payable to brokers or dealers in
connection with any sale of the common stock, however, will be borne by the
selling shareholders or other party selling such common stock.
The selling shareholders must comply with the requirements of the Securities Act
of 1933 and the Securities Exchange Act of 1934 in the offer and sale of their
common stock. In particular, during such times as the selling shareholders may
be deemed to be engaged in a distribution of the common stock, and therefore be
considered to be an underwriter, they must comply with applicable law and may,
among other things:
(1) not engage in any stabilization activities in connection with
our common stock;
(2) furnish each broker or dealer through which common stock may
be offered, such copies of this prospectus, as amended from
time to time, as may be required by such broker or dealer; and
(3) not bid for or purchase any of our securities or attempt to
induce any person to purchase any of our securities other than
as permitted under the Securities Exchange Act.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our director and officer is as follows:
NAME AGE POSITION
---- --- --------
Mitch White 40 Director, C.F.O. and President
Our officer and director will serve until the next annual meeting of the
shareholders or until his death, resignation, retirement, removal, or
disqualification, or until his successors have been elected. Vacancies in the
existing Board of Directors are filled by majority vote of the remaining
directors. Our officer serves at the will of the Board of Directors. There are
no family relationships between any executive officer and/or director.
10
Resumes
-------
Mitch White was appointed to his positions on February 14, 2001. He devotes his
time to our business affairs on an as needed basis which is currently
approximately 30 hours per week.
From March, 1995 to June, 1998, Mr. Mitch White held the position of Chairman of
the Board of Directors of Starnet Systems International which is a publicly
traded reporting company quoted on the NASD OTC Bulletin Board under the symbol
"WGMGY" and on the AIM market in London, England. Starnet Systems developed and
implemented computer software designed to process online casino transactions in
those jurisdictions in which online gaming is permitted. From June, 1998 until
the present, Mr. White has been principally engaged in the founding, funding and
development of Moshpit Entertainment and its pay for play electronic
transactional platform. Mr. White is also President of Caribbean Way.com, a
Montreal, Canada based online travel and booking agency. Mr. White possesses 15
years of experience in sales, marketing and management in the high technology
and entertainment industries.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ND MANAGEMENT
The table below lists the beneficial ownership of our voting securities by each
person known by us to be the beneficial owner of more than 5% of our securities,
as well as the securities beneficially owned by all our directors and officers.
Unless specifically indicated, the shareholders listed possess sole voting and
investment power with respect to the shares shown.
* each person or entity known by us to be the beneficial owner
of more than 5% of the outstanding shares of common stock,
* each of our directors and named executive officers, and
* all of our directors and executive officers as a group.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER OF CLASS
-------------- ------------------- ------------------- --------
$.0001 Par Value Keith Ebert 10,225,000 common shares 35.95%
Common Stock Suite 2901 Direct Ownership
1201 Marinaside Cres.
Vancouver, B.C.
V6Z 2V2
$.0001 Par Value Greenday Inc. 4,000,000 common shares 14.06%
Common Stock Suite 29 - 1st Floor Direct Ownership
Beckwith Mall (Potential beneficial Owner
Lower Broad Street is Mitch White)
Bridgetown, Barbados
$.0001 Par Value Andrea Carley 500,000 common shares 1.76%
Common Stock 2779 Lake City Way Direct Ownership
Burnaby, B.C.
V5A 2Z6
11
$0.001 Par Value Mitch White 500,000 common shares 1.76%
Common Stock 2779 Lake City Way Direct Ownership
Burnaby, B.C.
V5A 2Z6
$0.001 Par Value Caska Trust 1,250,000 common shares 4.39%
Common Stock Suite 29 - 1st Floor Direct Ownership
Beckwith Mall (Potential beneficial owner
Lower Broad Street is Mr. Stephen White)
Bridgetown, Barbados
$0.001 Par Value Jazzco Trust 1,250,000 common shares 4.39%
Common Stock Suite 29 - 1st Floor Direct Ownership
Beckwith Mall (Potential beneficial owner
Lower Broad Street is Mr. A.J. Morand)
Bridgetown, Barbados
$0.001 Par Value Lancaster Estate Trust 1,500,000 common shares 5.27%
Common Stock Suite 29 - 1st Floor Direct Ownership
Beckwith Mall (Potential beneficial owner
Lower Broad Street is Mr. Richard Gallo)
Bridgetown, Barbados
$.0001 Par Value Management as a group 5,000,000 common shares 17.58%
Common Stock including executive officers
and directors
The Company's president, Mr. Mitch White, is the potential beneficiary of shares
held by Greenday Inc. in the event of a distribution of property by that Trust.
Moshpit's Vice-President, Mr. Stephen White, is the potential beneficiary of the
1,250,000 shares held by Caska Trust in the event of a distribution of property
by that Trust. Mr. A.J. Morand, a former Vice-President of Moshpit Entertainment
is the potential beneficiary of 1,250,000 shares held by Jazzco Trust in the
event of a distribution by that Trust. Mr. Richard Gallo, who is an investor in
our company, is the potential recipient of 1,500,000 shares held by Lancaster
Estate Trust in the event of a distribution of property by that Trust. There is
no affiliation between the trusts which hold shares in our company.
DESCRIPTION OF SECURITIES
General
-------
Our authorized capital stock consists of 100,000,000 shares of common stock at a
par value of $0.0001 per share.
The following description of our capital stock discloses all material
information relating to our common stock but is not a full summary of all
information relating to our common stock. The description is subject to and
qualified in its entirety by our articles of incorporation and bylaws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Nevada law.
Common Stock
------------
As of October 17, 2001, there were 28,439,975 shares of common stock issued and
outstanding that were held by 112 shareholders of record.
12
All shares of common stock have equal voting rights and are entitled to one vote
per share in all matters to be voted upon by shareholders. Our shares have no
pre-emptive, subscription, conversion or redemption rights and may be issued
only as fully paid and non-assessable shares. Cumulative voting in the election
of directors is not permitted, which means that the holders of a majority of our
issued shares represented at any meeting where a quorum is present will be able
to elect the entire Board of Directors. In that event, the holders of the
remaining shares of common stock will not be able to elect any directors. In the
event of liquidation, each shareholder is entitled to receive a proportionate
share of our assets available for distribution to shareholders after the payment
of liabilities and after distribution of preferred amounts. All shares of our
common stock issued and outstanding are fully paid and non-assessable. Holders
of stock are entitled to share pro rata in dividends and distributions with
respect to the common stock out of funds legally available for that purpose.
There are no outstanding options or warrants to acquire our shares. 8,998,000 of
our shares held by non-affiliates are being registered under this registration
statement and will become free trading if this registration statement becomes
effective. 10,225,000 of our issued shares are held by Mr. Ebert, an affiliate
of our company. The shares held by Mr. Ebert were issued when we were a blank
check company and cannot be sold unless they are registered under a future
registration statement.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the validity of the
securities being registered or upon other legal matters in connection with the
registration or offering of the common stock was employed on a contingency
basis, or had, or is to receive, in connection with the offering, a substantial
interest, direct or indirect, in the registrant or any of its parents or
subsidiaries. Nor was any such person connected with the registrant or any of
its parents or subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer, or employee.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Our directors and officers are indemnified as provided by the Nevada Revised
Statutes (the "NRS") and our Bylaws. We have been advised that in the opinion of
the Securities and Exchange Commission indemnification for liabilities arising
under the Securities Act is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities is asserted by one of our directors,
officers, or controlling persons in connection with the securities being
registered, we will, unless in the opinion of our legal counsel the matter has
been settled by controlling precedent, submit the question of whether such
indemnification is against public policy to a court of appropriate jurisdiction.
We will then be governed by the court's decision.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
We were incorporated on October 29, 1999 under the laws of the State of Nevada
to engage in any lawful corporate purpose. On November 1, 1999, we issued
2,250,000 common shares at a deemed price of $0.001 per share to Mr. Keith
Ebert. Mr. Ebert was issued these shares in consideration for his services in
organizing our company and acting as an officer and director and building our
business plan. The value of the services rendered is $2,250. We relied on the
exemption contained in Regulation S of the Securities Act of 1933 to issue these
shares to Mr. Ebert.
13
On November 3, 2000, we issued a total of 9,000,000 common shares to the
shareholders of CYOP Systems Inc. in consideration for all of the issued and
outstanding common shares of CYOP Systems Inc. The former shareholders of CYOP
Systems Inc. now collectively own 31.8% of our company. Our current president,
Mr. Mitch White, is the potential beneficial owner of 4,500,000 of the shares
which were issued in consideration for the shares of CYOP Systems Inc. Mr.
Stephen White, who is the president of our subsidiary, Moshpit Entertainment
Inc., is the potential beneficiary of 1,250,000 of the shares we issued to
acquire CYOP Systems Inc. Mr. A.J. Morand, a former vice president of Moshpit
Entertainment Inc. is the potential beneficiary of 1,250,000 of the shares which
we issued to acquire CYOP Systems Inc.
DESCRIPTION OF BUSINESS
(I) OUR PRINCIPAL PRODUCTS AND SERVICES
Our business model is built on an e-commerce transaction system applied to
innovative market niches and existing strong markets in the entertainment
industry. Our CYOP transaction network is the backbone to all existing and
future ventures and is critical to providing seamless revenue streams and
integrated business practices. The key to our products and services is the
transactional engine that powers our e-commerce infrastructure. This
transactional engine consists of in-house developed software.
Our in-house developed software creates our unique pay for play platform which
allows real time on line competitions and all of the commercial processing that
they involve. This intricate co-ordination of the receipt of fees, processing of
game credits and revenue sharing makes our company unique.
Play-For-Pay Tournaments
The concept of professional video gaming is a widely anticipated expansion in
the video game industry. Local area network game tournaments are sponsored which
generate hundreds of thousands of dollars in top prizes for contestants. We have
an infrastructure which we refer to as the Bloodmoney Universe to develop this
trend of playing video games for money through the establishment of financial
gaming accounts for members which allow contestants to compete in multi-player
tournaments 24 hours a day, against people from around the world.
We are unaware of any existing or probable government regulations which would
have an adverse affect on the implementation of our current business plan. We
are relying on American and Canadian legal opinions to ensure that our business
falls within current government regulations in those jurisdictions.
Our network is a transactional platform that links game players to a network of
Internet servers that are hosting play-for-pay tournaments. Our network allows
Bloodmoney Universe members to convert money in their financial account into
game credits and compete in these tournaments. Successful competitors receive a
percentage of tournament entry fees automatically deposited into their accounts.
Our Bloodmoney Universe is organized to generate three core revenue streams:
membership fees, play-for-pay network maintenance fees, and credit card
processing fees. The Bloodmoney Universe is operational. To date, a minimal
amount of money has been spent of marketing our products and services.
Accordingly, traffic to our site has been limited. A breakdown of our revenue to
date by core revenue stream is provided below.
14
The Bloodmoney Universe was launched on the internet in December 2000. As of the
date of this registration statement, we have sponsored 12,933 pay for play
tournaments. The majority of these tournaments have been demonstration
tournaments. We have distributed $4,051.10 in entry fees for winning tournaments
to date.
Membership Fees
Much like a sporting facility, we will provide a number of membership services
for our members through the Bloodmoney Universe; higher paying members receive
greater services such as lower credit card processing fees. The Bloodmoney
Universe is a complete virtual world with a story line, characters, game
information, links, shopping, music, etc. where members can accumulate, spend or
cash out their credits. As of the date of this registration statement, we have
not generated membership fees and have not yet accepted any paying members.
Network Maintenance Fees
One of our divisions, CYOP studios, manages the games and tournament servers in
the Bloodmoney Universe. Members wishing to compete in tournaments of skill for
money are charged a network maintenance fee each time they access a play-for-pay
tournament. The network maintenance fee is split between CYOP Systems, game
developers and game server operators. As of the date of this registration
statement, we have generated $1,168.00 in network maintenance fees. Game
developers will set a network maintenance fee for their game with higher profile
games having a higher network maintenance fee. Our company will advertise the
new games within the Bloodmoney Universe. We will enter into agreements with
game developers and server operators to share in their network maintenance fees
that are all transaction based. Our company earns 40% of network maintenance
fees with game developers and game server operators each earning 30% of network
maintenance fees.
Server operators have full control over their tournaments including establishing
the entry fee. Our company, game developers and game server operators do not
take a percentage of the total accumulated by the entry fee. This total gets
disbursed to winners of the tournaments based on set distribution percentages.
As of the date of this registration statement, we have entered into ten letters
of intent with game developers. These letters of intent will be replaced with
agreements as our company is able to demonstrate its ability to attract player
traffic.
Credit Card Processing Fees
Our transaction network receives credit card processing fees for every deposit
of cash into a member's financial account. This e-commerce transactional network
is also the backbone for additional ventures which stem from the Bloodmoney
Universe. As of the date of this registration statement, we have generated
$188.19 in credit card processing fees.
Non-Competitive Strategy
We are committed to the Linux open source movement, which allows our members to
share and contribute to the development of games. Our members will have access
to all information surrounding game development and game hosting. All resources
are available to members except the technology behind our processing network.
We allow members to use our technology to become play-for-pay game developers
and game server operators. This open source strategy creates new business and
integrates and binds members to our transaction network.
15
We developed the Bloodmoney Universe as a new playing field for the growing
number of people playing games on-line.
Distribution Methods of our Products and Services.
--------------------------------------------------
Our product of providing on-line access to pay-for-play video gaming is not
distributed in the conventional sense. Rather, video gamers log on to our
internet site and register at one of the membership levels to enter play. We
expect that news of our unique site and pay-for-play concept will spread quickly
through the on-line gaming community. We also propose to advertise at venues
such as the computer game developers conference, electronic entertainment
exposition and various on-line traditional video game sites. Word of mouth and
our targeted marketing plan will effectively be the way our product is
distributed.
(II) COMPETITIVE BUSINESS CONDITIONS AND OUR POSITION IN OUR INDUSTRY
Video games have often been dismissed as a rudimentary form of entertainment -
lacking the glitz and glamour of Hollywood and prime time television. But, over
the past few years, the games industry has been growing faster than any other
part of the entertainment business. In terms of revenues, it is now running
neck-and-neck with the movie box office. Movies still make much more money once
television sales, videos and licensing deals are included.
The video game industry can be segregated into three main technology areas: game
developers, platform developers, and game server operators. Game developers
create games to be played on different platforms such as those developed by
Sony, Sega and Nintendo, on personal computers or on arcade machines. With the
introduction of the Internet, games are now hosted on servers where players from
around the world log in and play.
In a recent report by Forrester Research, "Pervasive Gaming Goes Mainstream",
August, 2000, it was found that 80% of game companies expect broadband-connected
consoles to be the dominant home game platform by 2003. The Forrester Report
suggests that next generation consoles are on route to become "an entire home
entertainment system, encompassing games to Web browsing to eCommerce."
Internet-enabled consoles are ushering in a new generation of interactive gaming
with technology that utilizes the Internet to create new dimensions in
interactive gaming and which will transform the entertainment industry. The
report outlines three evolutionary changes in technology that will create
pervasive gaming:
1. Platforms will connect to the Internet and control TVs.
2. Pipes will deliver content at the speed of Broadband.
3. People will seamlessly segue from playing games to watching TV.
These changes will force new business models within the industry such as
subscription and pay-per-use revenue streams. Advertising revenue will also
increase substantially as interactive media advances technologically. Estimates
of retail, hardware, subscription/pay-per-use, advertising and product placement
sales put total games revenue at near 30 billion dollars by 2005.
16
Target Market
The myth that most gamers are children also seems to defy the changing gaming
demographics. In reality, nearly 75% of PC gamers are adults, with only 30%
being under the age of 18. The Forrester Report indicates that 25% of the
on-line population plays games on-line, 49% are women and 51% are men, and they
have a median age of 39. On-line gamers generate an average yearly income of
$49,000 US/year and play an average of 13 hours/week.
Industry Players
Console Developers
The video game industry has some giants that are a dominant force in the
marketplace. Sega, Sony, and Nintendo dominate the game platform market with a
projected 80% by 2003. Microsoft has recently entered the console market with
its Xbox and may become a dominate player in the next few years.
Publishers/Game Developers
Electronic Arts, headquartered in Redwood City, California, is the world's
leading interactive entertainment software company. Founded in 1982, Electronic
Arts posted revenues of more than $1.2 billion for fiscal 1999. The company
develops, publishes and distributes software worldwide for personal computers
and video game systems such as the PlayStation(R) and Nintendo(R) 64.
Blizzard Entertainment(R) is a premier publisher of entertainment software.
Since establishing the Blizzard label in 1994, the company has quickly become
one of the most popular and well respected makers of computer games. With
blockbuster hits including the Warcraft (R) series, the Diablo. series, and
StarCraft., the company has enjoyed back-to-back number-one selling games, as
well as consecutive Game of the Year awards. Blizzard Entertainment operates a
free online game service, Battle.net(R); the largest in the world with millions
of active users.
As a known leader in the industry and one of the world's leading developers of
best selling software, id Software has forged frenetic titles such as
Wolfenstein 3-D, DOOM, DOOM II, QUAKE, and QUAKE II. With intense graphics and
mind-blowing adventure, id creates frenzied demands worldwide and continues to
break retail and shareware sales records. id has proven itself to be genius at
more than just software development. Using non-traditional means of product
distribution, shareware channels, online services, and the Internet . id has
helped to create a new way to market computer games. id's titles have become
cultural phenomenon inspiring other developers while spawning mainstream
licensing agreements for movie and book series . id games have been featured on
prime time TV shows such as Friends and ER and in the movies The Net, Congo and
Gross Point Blank.
Game Server Operators
On-line, multi-player games allow for the game player to link to game servers
hosting the game. These game servers constitute any corporation or anyone with a
server that wishes to host a game. Game server operators have not had a revenue
generating model beyond providing a web portal where game players can log on and
search for different games being hosted. The best estimate for the number of
game servers today is the Championship League or CLQ which now monitors 218,660
servers and 10,830,173 players on-line.
Professional (for money) Video Game Leagues
Professional video gaming is a new concept that is gaining momentum within the
video game industry. Two organizations have evolved to cultivate this new trend.
17
The Cyberathlete Professional League (CPL) was founded on June 26, 1997. The CPL
is a computer gamer's league attempting to transform computer game competitions
into a professional sport. The CPL attracts thousands of gamers to its live
events and hundreds of thousands of spectators, both live and online. The CPL
sets up physical local area network tournaments and receives sponsorship
financing. Through its various sponsors, the CPL awards tournament winners as
much as $150,000 in cash prizes. The CPL events feature: professional computer
game tournaments, large spectator arenas, amateur local area network
competitions, hardware and software exhibitions and occasionally a variety of
workshops.
Online Athletes (OLA) is member-based professional game league. Members are
charged a $25/year membership fee which gives them a registered server. The
league monitors play and distributes cheques to top players each week based on
performance.
CYOP Systems and the Video Game Industry
CYOP Systems is positioning itself as an asset to all industry players through
its integrated transaction technology. The Bloodmoney Universe is a complete
entertainment network where game players can access and play their favorite
games for real money distributed to them via their electronic accounts.
Game console developers are creating web browser capabilities within their next
generation systems that will enable players to connect to the Bloodmoney
Universe.
Transaction technology within the Bloodmoney Universe creates a means by which
game developers can create play-for-pay versions of their games. Developers can
utilize the Bloodmoney Universe audience to market and promote their games.
CYOP Systems has created a new business model for game server operators. By
simply hosting Bloodmoney Universe games from their server, anyone can host
play-for-pay video games, generating a significant additional source of revenue.
Professional game leagues are limited to physical tournament settings or
reliance on sponsorships for financing. The Bloodmoney Universe creates a 24
hour market of interactive video gaming where players enter tournaments through
their own financial accounts and accumulate credits that can be converted back
into cash.
As of the date of this prospectus, management is unaware of any other company
which offers pay for play video gaming with the capacity to credit players in
real time. Assuming that our pending patents are granted, other companies will
be restricted from competing against the pay for play games offered through the
Bloodmoney Universe. At present, the Bloodmoney Universe is in its start up
phase. We have not yet established a competitive position within the video
gaming industry and our ability to successfully compete in the future is
dependent upon our receipt of funding for advertising, full product launch and
further product development. It is likely we will receive competition from other
companies offering online pay for play video gaming which falls outside of our
pending patent protection. These competitors may utilize future off the shelf
software systems or custom designed pay for play video software. Our business
model is designed to provide financial incentives for game developers and server
operators who may otherwise compete against our Company. However, the relative
ease with which potential competitors may set up other pay for play internet
sites will likely result in online competition.
How We Plan to Expand Our Business Model
----------------------------------------
The video game industry has many players. One of the biggest setbacks for
talented game developers is finding a distribution channel to expose their games
to a target market. As a solution for these developers, we have created a
division, CYOP studios, to act as a distribution network within the
18
Bloodmoney Universe. Through our entertainment network CYOP studios will promote
Bloodmoney Universe games. As of the date of this registration statement, only
our in-house developed game Urban Mercenary is being promoted using the
Bloodmoney Universe. There are not yet any independent game developers using the
Bloodmoney Universe to promote their games.
We will also be developing Big Deal Mall as an on-line shopping network where
members can use credits or cash to purchase products straight out of their
financial game accounts. As of the date of this registration statement, the Big
Deal Mall does not have any products offered. It is an online shopping network
in concept only.
On-line shopping portals are numerous and it is difficult to create customer
loyalty. As a product retailer accessing a specific, vertical market through an
established membership base, management believes big deal mall possesses
potential to profit and expand into other product categories through customer
evaluation strategies. We are developing a licensing plan for big deal mall's
on-line merchant processing technology allowing business to set up their own
e-commerce system through our transaction network.
Our information technology oriented audience creates a unique position for us to
enter the growing on-line education market with a strong focus on technical and
game development courses. Know University is powered by our transaction network,
offering fee and credit-based courses for members as well as the opportunity for
members to create and host their own tutorials.
This self-evolving model similar to the philosophy of the entire entertainment
network creates a knowledge exchange environment that expands into a wide
variety of subjects. The Know University infrastructure will be licensed out to
other on-line educators and institutions as a means to bring their content
on-line.
We are launching into the on-line music industry with a unique sales and
distribution model. The Music Thing is a promotion and distribution portal for
digital media on-line that provides a simple and profitable means for artists to
distribute their music and an easy way for members to obtain music and
artist-related content.
As with all our ventures, the Music Thing will involve cross-marketing within
our transaction network. The Music Thing is integrated to our network following
subscription-based and direct purchase models. The backend technology will also
be licensed out to record companies and labels as a business model for
distribution of their content on-line.
The key to the success of our business plan is the development of a sense of
community where members can interact, learn and be entertained. Our network is
not just a portal to play games for money, although this service alone should
generate members. We are a complete, self-evolving virtual world with a
story-line, interactive chat features and clubs, comic strips, knowledge
exchange, shopping network, and music and game downloads and distribution that
are all interconnected through member's accounts.
There are no organizations currently operating in our Big Deal Mall, Know
University or Music Thing business segments.
(III) SOURCES AND AVAILABILITY OF RAW MATERIALS
The raw material for the development of our products comes from the imagination
and intellect of our in-house software developers. These are the same
individuals Moshpit has relied on in the development of its first play-for-pay
online video game Urban Mercenary and for the development of our e-commerce
transaction network. None of our product development is sourced to outside
contractors or sub-contractors nor are we dependent on any other person or
company for the supply of goods and services to continue the development of our
products.
19
(VI) REQUIREMENT OF GOVERNMENT APPROVAL
Most jurisdictions including Canada and the United States have legislation which
regulates gambling activities. We have obtained legal opinions from American and
Canadian legal counsel detailing American and Canadian gaming provisions and
advising our management on which jurisdictions the operation of our interactive
video game website is legal. Fundamentally, our interactive video game website
and pay for play concept is legal because members compete in a contest of skill
only and not a game of chance or a game of mixed skill and chance.
Patents, Trademarks and Licenses
--------------------------------
Our company's intellectual property lawyers have filed a patent application in
the United States to obtain patent protection for our unique in-house developed
software and unique pay for play platform. This invention relates to the field
of online pay for play and/or pay for play game services generally and, more
particularly, to the field of management of usage fees for those services. More
generally, our invention relates to a system for offering pay for play and/or
pay for play games online and more particularly to an efficient system for
regulating and charging subscribers for the game services used.
(IV) OUR PART TIME EMPLOYEES
We have 19 full time employees who are on contract with our company and who hold
the following positions:
5 Programmers
1 President
1 3D Animator
1 Investor Relations
2 System Administrators
2 Marketing Representatives
1 Human Resource Manager
1 Tester
2 Project Managers
2 Web Designer/Graphic Artist
1 Accounting
OUR EXPENDITURES DURING THE LAST TWO FISCAL YEARS ON RESEARCH AND DEVELOPMENT
ACTIVITIES
During the period October 1, 1999 (commencement of operations) to June 30, 2001,
we incurred software development costs totalling $1,137,107.
PLAN OF OPERATION
In the three months ended June 30, 2001, we earned revenue of US$58,643 from
website development. This is not our core business. We have been primarily
focused on developing our product for market launch. Management has financed our
operations to date. Management will continue to fund our operations through
shareholders loans for the next 12 months or until such time as we are able to
raise equity or debt financing privately, through a public listing, or until we
have positive cash flow. We can
20
satisfy our cash requirements solely from funds loaned by management for
approximately 12 months. However, management is not under any contractual
obligation to provide continued funding. We will spend approximately $2 million
in additional capital in the next 12 months to maintain current operations at
our current expenditure rate. Additional funds in the amount of $500,000 will be
required for a complete launch of the Bloodmoney Universe including a full
marketing budget.
We anticipate maintaining our staff of 19 persons during the next 12 months. We
do not expect to acquire any material physical assets or significant equipment
in the next 12 months. We will not be performing any significant research and
development in the next 12 months as our pay for play software is complete and
tested.
We launched our first pay-for-play online video game, Urban Mercenary in
February, 2001. In March, 2001, the Company secured the Canadian Imperial Bank
of Commerce as the Company's merchant account processor. Also in March, 2001,
the Company hosted a trade booth at the Computer Gamers and Developers
Conference (CDGC) in California. The Company signed seven letters of intent with
game developers as a result of its exposure at the CDGC conference.
In June, 2001, we signed a licensing contract with Bingo.com. This contract
calls for our company to provide front end game development and site management.
It is also a licensing agreement under which Bingo.com will use our pay for play
transaction software. Bingo.com has approximately 700,000 members playing bingo
online. Bingo.com has devised a new format for bingo which is a skill based game
and not a game of chance. The Bingo.com site will begin using CYOP's pay for
play transaction software commencing in October, 2001.
The Company's agreement with Bingo.com generated revenue of US$58,643 for the
fiscal quarter ended June 30, 2001. This revenue was from web site development
which will be a sporadic source of revenue for the Company. This revenue has
been treated as a software development cost expense recovery in the Company's
June 30, 2001 financial statements. This treatment has been applied because the
revenue received by the Company in the quarter ended June 30, 2001 was not
considered revenue from the Company's core business. The Company's online video
game Urban Mercenary is completely developed as is our pay for play transaction
software. Our agreement with Bingo.com is the first which will demonstrate the
effectiveness of our e-commerce pay for play platform with third party
licensees.
Management will continue to fund the Company through shareholders' loans until
such time as the Company is financially self supporting. Management of the
Company will be aggressively seeking private financing to launch an aggressive
marketing campaign for our pay for play network and our flagship video game
Urban Mercenary.
In order for our Company to expand it's operations and realize profits from pay
for play online video gaming a number of additional steps must be taken. We must
continue to maintain and upgrade our software programs and our website. This is
an ongoing month to month responsibility which is handled by our current staff
members. Funds for this ongoing software maintenance have been budgeted and are
covered by funds which are being loaned to our Company by management. In the
future, the funds required for ongoing software maintenance will come from
revenue from licensing fees or system maintenance fees from pay for play video
gaming. Secondly, to increase our Company's exposure and attract players to our
website we will be required to complete a full marketing launch of our
Bloodmoney Universe. We anticipate that this marketing launch will cost
approximately $500,000. Until we complete a marketing launch we cannot expect
large volumes of players for our online pay for play video game. Revenues will
be derived from licensing fees from third parties. We will also continue to
pursue our pending patent applications in the United States. Patent protection
will improve our competitive position in the online pay for play video gaming
industry. We anticipate spending up to an additional $25,000 for costs
associated with our patent applications. We anticipate it may take up to one
year for our current patent applications to be granted.
21
DESCRIPTION OF PROPERTY
Office Premises
---------------
We maintain an office at Suite 300, 1286 Homer Street, Vancouver, British
Columbia, Canada. This is leased office space of approximately 4,400 square feet
which houses our current operations. Monthly lease payments on this office space
are $10,400. We carry adequate insurance to protect our physical assets from
loss and damage. These facilities are fully utilized and are adequate for our
needs for the next 12 months.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 1, 1999, our former Chief Executive Officer and director, Mr. Keith
Ebert, received 2,250,000 of our common shares valued at $0.001 per share
($2,250.00) in consideration for his services in helping to set up our company
and for managing our operations.
On November 3, 2000 we acquired 100% of the issued and outstanding common shares
of CYOP Systems Inc. The former shareholders of CYOP Systems Inc. now
collectively own 9,000,000 of our 28,439,975 issued common shares or 31.6% of
our company. Certain of the former shareholders of CYOP Systems Inc. are
independently managed trusts. The following individuals are potential
beneficiaries of the trusts in the event of a distribution of property:
NAME OF FORMER CYOP NUMBER OF CYOP NUMBER OF CYOP NAME OF POTENTIAL
SYSTEMS INC. SHAREHOLDER SYSTEMS INC. SYSTEMS INTERNATIONAL BENEFICIAL OWNER
SHARES FORMERLY HELD INCORPORATED SHARES
RECEIVED
Greenday Inc. 8,000,000 4,000,000 Mitch White
Andrea Carley 1,000,000 500,000 Andrea Carley
Mitch White 1,000,000 500,000 Mitch White
Caska Trust 2,500,000 1,250,000 Stephen White
Jazzco Trust 2,500,000 1,250,000 A.J. Morand
Lancaster Estate Trust 3,000,000 1,500,000 Richard Gallo
Our President and Chief Executive Officer, Mr. Mitch White, has been the primary
source of funding for the development of our wholly owned subsidiary, Moshpit
Entertainment Inc. As of the date of this registration statement, Mr. White has
advanced total proceeds of US$936,812 to Moshpit Entertainment Inc. as demand
loans at 8.5% per annum. These loans are not secured by any of the assets of our
company or its subsidiaries.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No Present Public Market
------------------------
There is presently no public market for our common stock. We can provide no
assurance that our shares will be traded on any public market in the future.
Holders of Our Common Stock
---------------------------
As of the date of this registration statement, we have 112 registered
shareholders.
22
Dividends
---------
There are no restrictions in our articles of incorporation or bylaws that
restrict us from declaring dividends. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend:
(1) we would not be able to pay our debts as they become due in
the usual course of business; or
(2) our total assets would be less than the sum of our total
liabilities, plus the amount that would be needed to satisfy
the rights of shareholders who have preferential rights
superior to those receiving the distribution.
We have not declared any dividends. We do not plan to declare any dividends in
the foreseeable future.
Transfer Agent
--------------
Our transfer agent is The Nevada Agency and Trust Company of Suite 880, Bank of
America Plaza, 50 West Liberty Street, Reno, Nevada, 89501.
EXECUTIVE COMPENSATION
Our President, C.E.O. and C.F.O., Mr. Mitch White, receives no cash compensation
or compensation in any other form from our company. On November 1, 1999, our
former C.E.O., Mr. Ebert received 2,250,000 of our common shares valued at
$0.001 per share in consideration for his services in helping to set up our
company and for managing our operations. Mr. Ebert will receive no additional
compensation from our company for his services.
Mr. Stephen White and Mr. A.J. Morand who are the President and former
Vice-President of our subsidiary, Moshpit Entertainment, respectively, received
cash salaries of $38,500 each during the last fiscal year of Moshpit
Entertainment.
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
----------------------------------------------------------------------------------------------------------------------
Other All
Annual Restricted Securities Other
Name and Principal Comp- Stock Underlying LTIP Comp-
Position Salary Bonus ensation Award(s) Option/SARs Payouts ensation
Year ($) ($) ($) ($) (#) ($) ($)
----------------------------------------------------------------------------------------------------------------------
Mitch White, 5 $0.00 $0.00 $0.00 $0.00 0 $0.00 $0.00
C.E.O., C.F.O., months
President and ended
Director July 31,
2001
----------------------------------------------------------------------------------------------------------------------
None of our directors are compensated for any services provided as a director.
No amounts are paid to our directors for committee participation or special
assignments. None of our directors are under consulting contracts or are in any
other way compensated for their services.
23
Stock Option Grants
-------------------
We did not grant any stock options to any executive officers or directors during
our most recent fiscal year ended December 31, 2000. We have not granted any
stock options to any executive officers or directors since December 31, 2000.
Employment Agreements
---------------------
We do not have an employment or consulting agreement with Mr. Mitch White, our
President, C.F.O. and director. Mr. White provides his services to us on an as
needed basis. We do not pay any salary, consulting fee or other compensation to
Mr. White.
INDEPENDENT PUBLIC ACCOUNTANTS
Our audited financial statements for the year ended December 31, 2000 and the
related statements of loss and deficit, stockholders deficiency and cash flows
appearing in this prospectus, have been included herein in reliance on the
report of Ellis Foster, Chartered Accountants, given on the authority of said
firm as experts in accounting and auditing.
24
INDEX TO FINANCIAL STATEMENTS
CYOP SYSTEMS INTERNATIONAL
INCORPORATED & SUBSIDIARIES
(A development stage company)
Consolidated Financial Statements
(EXPRESSED IN U.S. DOLLARS)
June 30, 2001
(Unaudited)
INDEX
-----
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Deficiency
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
25
MOORE STEPHENS
ELLIS FOSTER LTD.
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 737-8117 Facsimile: (604) 714-5916
E-Mail: generaldelivery@ellisfoster.bc.ca
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
CYOP SYSTEMS INTERNATIONAL INCORPORATED
(A development stage company)
We have reviewed the accompanying consolidated balance sheet of CYOP Systems
International Incorporated ("the Company") and subsidiaries as of June 30, 2001,
the related consolidated statements of stockholders' equity for the six-month
period then ended, and the consolidated statements of operations and cash flows
for the three-month and the six-month periods then ended and the cumulative
period from October 1, 1999 (commencement) to June 30, 2001. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. These consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
We have previously audited, in accordance with generally accepted auditing
standards in the United States, the consolidated balance sheet as at December
31, 2000 and the related consolidated statements of operations, shareholders'
equity and its cash flows for the cumulative period and the year then ended (not
presented herein) and in our report dated June 4, 2001, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as at
December 31, 2000 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD."
September 18, 2001 Chartered Accountants
--------------------------------------------------------------------------------
[LOGO]
An independently owned and operated member of Moore Stephens North America Inc.
Member in principal cities throughout North America. Moore Stephens North
America Inc. is a member of Moore Stephens International Limited, members in
principal cities throughout the world
26
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Balance Sheets
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
===========================================================================================================
June 30 December 31
2001 2000
-----------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 4,751 $ 29,480
Deposits (Note 4) 27,006 1,333
Other receivable 20,035 --
Refundable tax credits 11,785 16,808
Demand loans, interest at 12% per annum and unsecured 115,704 --
Prepaid expenses 39,506 49,659
-----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 218,787 97,280
FIXED ASSETS (NOTE 5) 166,745 236,246
SOFTWARE DEVELOPMENT COSTS (NOTE 6) 100 100
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 385,632 $ 333,626
===========================================================================================================
LIABILITIES
CURRENT
Bank overdraft 16,816 $ --
Demand loans (Note 7a and 8e) 1,474,217 1,177,805
Accounts payable and accrued liabilities (Note 8a) 751,401 433,062
Short-term loan (Note 7b) 226,388 --
-----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,468,822 1,610,867
-----------------------------------------------------------------------------------------------------------
NATURE AND CONTINUANCE OF OPERATIONS (NOTE 1)
COMMITMENTS (NOTE 9)
STOCKHOLDERS' (DEFICIENCY)
SHARE CAPITAL
Authorized:
100,000,000 shares of common stock with a par value
of $0.0001 per share
Issued, allotted and outstanding:
28,439,975 shares of common stock (2000 - 28,382,975) 2,844 2,838
ADDITIONAL PAID-IN CAPITAL 211,431 149,237
ACCUMULATED OTHER COMPREHENSIVE INCOME 16,649 14,801
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (2,314,114) (1,444,117)
-----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' (DEFICIENCY) (2,083,190) (1,277,241)
-----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) 385,632 $ 333,626
===========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
On behalf of the Board:
/s/Mitch White, Director
Mitch White, Director
MOORE STEPHENS ELLIS FOSTER LTD.
27
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Statements of Stockholders' Deficiency
Six-Month Period Ended June 30, 2001
(Unaudited)
(Expressed in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Compre- other
Common Stock Additional hensive compre-
--------------------- paid-in income Deficit hensive
Shares Amount capital (loss) accumulated income
------------------------------------------------------------------------------------------------------------------------------------
Recapitalization as a result of reverse
acquisition (Note 3) -- $ -- $ 69 $ (67,863) $ (66,465) $ (1,398)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) (67,863)
===========
BALANCE, December 31, 1999 -- -- 69 (66,465) (1,398)
Shares issued for cash on
February 29, 2000 10,020,500 1,002 1,448 -- --
Shares issued for services on
February 29, 2000 9,202,500 920 1,330 -- --
Deficit accumulated as at November 3, 2000 -- -- -- (14,401) --
Recapitalization adjustment (Note 3) -- (2,968) 14,401 --
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AFTER RECAPITALIZATION ADJUSTMENT 19,223,000 1,922 (121) (66,465) (1,398)
Shares allotted for equity of shell
in stock acquisition (Note 3) 9,000,000 900 (10,601) -- -- --
Shares allotted for cash on December 13, 2000 159,975 16 159,959 -- -- --
Other comprehensive income
- foreign currency translation adjustment -- -- -- 16,199 -- 16,199
Comprehensive income
- net (loss) for the period -- -- -- (1,377,652) (1,377,652) --
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $(1,361,453)
===========
BALANCE, December 31, 2000 28,382,975 2,838 149,237 (1,444,117) $ 14,801
------------------------------------------------------------------------------------------------------------------------------------
Total
Stock-
holders'
(deficiency)
Recapitalization as a result of reverse
acquisition (Note 3) $ (67,794)
---------------------------------------------------------------
Comprehensive income (loss)
BALANCE, December 31, 1999 (67,794)
Shares issued for cash on
February 29, 2000 2,450
Shares issued for services on
February 29, 2000 2,250
Deficit accumulated as at November 3, 2000 (14,401)
Recapitalization adjustment (Note 3) 11,433
---------------------------------------------------------------
BALANCE AFTER RECAPITALIZATION ADJUSTMENT (66,062)
Shares allotted for equity of shell
in stock acquisition (Note 3) (9,701)
Shares allotted for cash on December 13, 2000 159,975
Other comprehensive income
- foreign currency translation adjustment 16,199
Comprehensive income
- net (loss) for the period (1,377,652)
---------------------------------------------------------------
Comprehensive income (loss)
BALANCE, December 31, 2000 $(1,277,241)
---------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Statements of Stockholders' Deficiency
Six-month Period Ended June 30, 2001
(Unaudited)
(Expressed in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Compre- other Total
Common Stock Additional hensive compre- Stock-
------------------ paid-in income Deficit hensive holders'
Shares Amount capital (loss) accumulated income (deficiency)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2000 28,382,975 2,838 149,237 (1,444,117) 14,801 (1,277,241)
Shares allotted for cash at $1.00 per share 44,000 5 43,995 -- -- 44,000
Shares allotted for cash at $1.40 per share 13,000 1 18,199 -- -- 18,200
Other comprehensive income
- foreign currency translation adjustment -- -- -- $ 1,848 -- 1,848 1,848
Comprehensive income
- net (loss) for the period -- (869,997) (869,997) -- (869,997)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (868,149)
==========
Balance, June 30, 2001 28,439,975 $2,844 $211,431 $(2,314,114) $16,649 $(2,083,190)
============================================================================= ======================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
29
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Statements of Operations
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
===============================================================================================================
Three Months Six Months Cumulative from
Ended Ended October 1, 1999
June 30 June 30 to June 30
2001 2001 2001
---------------------------------------------------------------------------------------------------------------
EXPENSES
Accounting and audit $ 10,938 $ 25,084 $ 89,482
Advertising and promotion 11,457 100,615 176,402
Automobile 15,735 29,656 63,260
Bank charges and interest (Note 8c) 41,785 67,696 121,997
Depreciation of fixed assets 2,036 3,690 11,095
Legal and other professional fees 43,287 73,852 193,572
Office and miscellaneous 20,363 46,459 110,099
Rent 17,873 34,659 63,127
Salaries and benefits 42,935 74,711 249,749
Software development costs (Note 6) 71,621 358,859 1,137,107
Telephone and bandwidth 4,159 6,544 22,780
Travel 5,133 6,903 21,241
Foreign exchange (gain) loss (40,983) 9,216 22,150
---------------------------------------------------------------------------------------------------------------
OPERATING LOSS (246,339) (837,944) (2,282,061)
Leasehold improvements write off 31,725 31,725 31,725
Loss on disposal of fixed assets 328 328 328
---------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (278,392) $ (869,997) $(2,314,114)
===============================================================================================================
LOSS PER SHARE
Basic and diluted $ (0.01) $ (0.03)
===============================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted 28,437,213 28,426,776
===============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
====================================================================================================================================
Three Months Six Months Cumulative from
Ended Ended October 1, 1999
June 30 June 30 to June 30
2001 2001 2001
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net (loss) for the period $ (278,392) $ (869,997) $(2,314,114)
Adjustments to reconcile net loss to net cash
used in operating activities:
- depreciation of fixed assets 17,200 33,739 76,471
- fixed assets write off 31,725 31,725 31,725
- loss on disposal of fixed assets 328 328 328
- exchange (gain) loss on fixed assets (8,149) 3,089 3,089
-------------------------------------------------------------------------------------------------------------------------------
(237,288) (801,116) (2,202,501)
Changes in assets and liabilities:
- deposits (1,085) (25,673) (25,673)
- other receivable (20,035) (20,035) (20,035)
- refundable tax credits 10,579 5,023 (11,785)
- demand loans (115,704) (115,704) (115,704)
- prepaid expenses (6,565) 10,153 (40,839)
- accounts payable and accrued liabilities 158,961 318,339 743,432
-------------------------------------------------------------------------------------------------------------------------------
(211,137) (629,013) (1,673,105)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capitalized software development costs -- -- (100)
Disposal of fixed assets 6,806 6,806 6,806
Purchase of fixed assets -- (6,186) (285,164)
-------------------------------------------------------------------------------------------------------------------------------
6,806 620 (278,458)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Shares allotted for cash 11,300 82,200 242,244
Cancellation of shares allotted (20,000) (20,000) (20,000)
Proceeds from demand loans 68,880 296,412 1,474,217
Proceeds from short-term loans 226,388 226,388 226,388
-------------------------------------------------------------------------------------------------------------------------------
286,568 585,000 1,922,849
-------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE ON FOREIGN CURRENCY TRANSLATION (85,487) 1,848 16,649
-------------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (3,250) (41,545) (12,065)
CASH AND CASH EQUIVALENTS (DEFICIENCY),
beginning of period (8,815) 29,480 --
-------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS (DEFICIENCY), end of period $ (12,065) $ (12,065) $ (12,065)
===============================================================================================================================
CASH AND CASH EQUIVALENTS (DEFICIENCY)
REPRESENTED BY:
Cash $ 4,751 $ 4,751 $ 4,751
Bank overdraft (16,816) (16,816) (16,816)
-------------------------------------------------------------------------------------------------------------------------------
$ (12,065) $ (12,065) $ (12,065)
===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
31
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
1. NATURE AND CONTINUANCE OF OPERATIONS
The Company was incorporated on October 29, 1999 in the name of Triple
8 Development Corporation under the laws of the State of Nevada to
engage in any lawful business or activity for which corporations may be
organized under the laws of the State of Nevada. The Company changed
its name to CYOP Systems International Incorporated on October 30,
2000. On November 3, 2000, the Company acquired 100% of the issued and
outstanding shares of CYOP Systems Inc., Barbados ("CYOP Barbados").
This transaction was accounted for as a reverse acquisition
recapitalization (see Note 3). The efforts of the Company have been
devoted to sales and marketing of multimedia transactional technology
solutions and services on internet for the entertainment industry. In
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 7 "Accounting and Reporting by Development Stage Companies", the
Company is deemed to be in the Development Stage.
CYOP Barbados was incorporated under the laws of Barbados on June 20,
2000. CYOP Barbados is in the business of developing personal computer
and console entertainment software designed to provide interactive
online games, and development of multimedia transactional technology
solutions and services on internet for the entertainment industry. On
August 31, 2000, CYOP Barbados acquired 100% of the issued and
outstanding shares of Moshpit Entertainment Inc., Canada ("Moshpit"), a
company in the business of developing software for interactive online
games incorporated under the laws of British Columbia, Canada. Both
CYOP Barbados and Moshpit are considered to be in the development
stage.
These consolidated financial statements have been prepared using the
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The
Company has suffered recurring losses from operations and has a net
capital deficiency. The ability of the Company to continue as a going
concern is dependent upon many factors, including the ability of the
Company to obtain financing to fund working capital requirements, the
degree of competition encountered by the Company, technology risks,
government regulation and general economic conditions. The Management's
plan in this regard are to raise equity financing as required and keep
abreast of the multimedia technology. These financial statements do not
include any adjustments that might result from this uncertainty.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
These interim consolidated financial statements, prepared in
accordance with accounting principles generally accepted in
the United States of America, include the accounts of the
Company and its subsidiaries CYOP Barbados and Moshpit.
MOORE STEPHENS ELLIS FOSTER LTD.
32
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Basis of Consolidation (continued)
The consolidated balance sheets, as at June 30, 2001 and
December 31, 2000 include the assets and liabilities of the
Company, CYOP Barbados and Moshpit. The consolidated
statements of operations for the three-month and the six-month
periods ended June 30, 2001 and the cumulative period from
October 1, 1999 (commencement) to June 30, 2001 include the
operating results of the Company, CYOP Barbados and Moshpit
for the periods and cumulative period then ended. Significant
inter-company accounts and transactions have been eliminated.
(b) Basis of Presentation
These interim consolidated financial statements have been
prepared using the same accounting policies and methods of
their application as the most recent annual consolidated
financial statements of the Company. These interim
consolidated financial statements do not include all
disclosures normally provided in the annual consolidated
financial statements and should be read in conjunction with
the Company's audited consolidated financial statements for
the year ended December 31, 2000. In management's opinion, all
adjustments necessary for fair presentation have been included
in these interim consolidated financial statements. Interim
results are not necessary indicative of the results expected
for the fiscal year. Certain comparative figures have been
reclassified to conform to the current period's presentation.
(c) Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the
period. Actual results may differ from those estimates.
(d) Cash Equivalents
Cash equivalents usually consist of highly liquid investments
which are readily convertible into cash with maturities of
three months or less when purchased. As at June 30, 2001 and
December 31, 2000, cash and cash equivalents consist of cash
only.
MOORE STEPHENS ELLIS FOSTER LTD.
33
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Fixed Assets
Fixed assets are recorded at historical cost. Depreciation is
charged to earnings in amounts sufficient to allocate the
costs over their estimated useful lives, as follows:
Audio and visual equipment 20% declining-balance basis
Computer hardware 30% declining-balance basis
Computer software 100% declining-balance basis
Office furniture and equipment 20% declining-balance basis
Leasehold improvements 20% straight-line basis
(f) Software Development Costs
Software development costs are charged to expenses as
incurred.
(g) Advertising and Promotion
The Company expenses advertising and promotion costs as
incurred. Total advertising and promotion costs charged to
expenses for the six months ended June 30, 2001 amounted to
$100,615.
(h) Foreign Currency Transactions
The Company and CYOP Barbados maintain their accounting
records in their functional currency (i.e., US dollars).
Foreign currency transactions are translated into their
functional currency in the following manner.
At the transaction date, each asset, liability, revenue and
expense is translated into the functional currency by the use
of the exchange rate in effect at that date. At the period
end, monetary assets and liabilities are translated into the
functional currency by using the exchange rate in effect at
that date. The resulting foreign exchange gains and losses are
included in operations.
(i) Foreign Currency Translations
Assets and liabilities of Moshpit, whose functional currency
is Canadian dollars, are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Revenues
and expenses are translated at the average exchange rate. Gain
and losses from such translations are included in
stockholders' equity, as a component of other comprehensive
income.
MOORE STEPHENS ELLIS FOSTER LTD.
34
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(j) Income Taxes
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes",
which requires the Company to recognize deferred tax
liabilities and assets for the expected future tax
consequences of events that have been recognized in the
Company's financial statements or tax returns using the
liability method. Under this method, deferred tax liabilities
and assets are determined based on the temporary differences
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. The effect on
deferred income tax assets and liabilities of a change in
income tax rates is included in the period that includes the
enactment date.
(k) Impairment
Certain long-term assets of the Company are reviewed when
changes in circumstances require as to whether their carrying
value has become impaired, pursuant to guidance established in
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". Management considers
assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations. If impairment is
deemed to exist, the assets will be written down to fair
value.
(l) Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display
of comprehensive income, its components and accumulated
balances. The Company is disclosing this information on its
consolidated Statement of Stockholders' Equity. Comprehensive
income comprises equity except those resulting from
investments by owners and distributions to owners. SFAS NO.
130 did not change the current accounting treatments for
components of comprehensive income.
(m) Financial Instruments and Concentration of Risks
Fair value of financial instruments are made at a specific
point in time, based on relevant information about financial
markets and specific financial instruments. As these estimates
are subjective in nature, involving uncertainties and matters
of significant judgement, they cannot be determined with
precision. Changes in assumptions can significantly affect
estimated fair values.
MOORE STEPHENS ELLIS FOSTER LTD.
35
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) Financial Instruments and Concentration of Risks (continued)
The carrying value of cash and cash equivalents, deposits,
other receivable, refundable tax credits, demand loans
receivable, bank overdraft, demand loans payable, accounts
payable and accrued liabilities and short-term loans
approximate their fair values because of the short-term
maturity of these instruments.
Moshpit is operating in Canada, which may give rise to
significant foreign currency risks from fluctuations and the
degree of volatility of foreign exchange rates between U.S.
dollars and the Canadian dollars.
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash, the
balances of which are stated on the balance sheet. The Company
places its cash in high credit quality financial institutions.
The Company does not require collateral or other security to
support financial instruments subject to credit risk.
(n) Reporting on Costs of Start-Up Activities
The Company has adopted the Statement of Position 98-5 ("SOP
98-5") "Reporting on the Costs of Start-Up Activities" issued
by the American Institute of Certified Public Accountants on
the financial reporting of start-up costs and organization
costs. It requires costs to be expensed as incurred.
The Company charged all start-up costs to expenses as
incurred.
(o) Accounting for Derivative Instruments and Hedging Activities
The Company has adopted SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" issued by the
Financial Accounting Standards Board. SFAS No. 133 requires
companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them
at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in
the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning
after June 15, 2000.
MOORE STEPHENS ELLIS FOSTER LTD.
36
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(p) Net Income (Loss) Per Share
Basic net income (loss) per share are computed using the
weighted-average number of shares of common stock outstanding
during the period. Diluted net income (loss) per share
incorporate the incremental shares issuable upon the assumed
exercise of stock options and other dilutive securities.
Convertible loan and option to purchase 45,000 shares of
common stock outstanding during the three-month and six-month
period ended June 30, 2001 were not included in the net income
(loss) per share computation, as the effect of including them
would be anti-dilutive.
(q) Stock-based Compensation
The Company has adopted the disclosure-only provisions of SFAS
No. 123, "Accounting for Stock-based Compensation". SFAS 123
encourages, but does not require, companies to adopt a fair
value based method for determining expense related to
stock-based compensation. The Company accounts for stock-based
compensation issued to employees and directors using the
intrinsic value method as prescribed under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations.
3. ACQUISITION OF CYOP SYSTEMS INC., BARBADOS
On November 3, 2000, the Company acquired 100% of the issued and
outstanding common shares of CYOP Barbados. As the Company was a
non-operating shell company, the transaction resulted in the management
of CYOP Barbados having effective operating control of the combined
company, with the shareholders of the Company continuing only as
passive investors. Accounting principles applicable to reverse
acquisition recapitalization have been applied to record this
transaction. Under this basis of accounting, CYOP Barbados has been
identified as the acquirer and, accordingly, the combined company is
considered to be a continuation of the operations of CYOP Barbados with
the net liabilities of the Company deemed to have been assumed by CYOP
Barbados.
The net liabilities of the Company assumed by CYOP Barbados are
summarized as follows:
---------------------------------------------------
Current assets $ 2,399
Current liabilities (12,100)
---------------------------------------------------
Net liabilities assumed $ (9,701)
===================================================
4. DEPOSITS
The deposits are interest bearing at 4.2% per annum, and are
hypothecated for merchant visa accounts.
MOORE STEPHENS ELLIS FOSTER LTD.
37
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
5. FIXED ASSETS
-----------------------------------------------------------------------
June 30, 2001
-----------------------------------------------------------------------
Accumulated Net book
Cost depreciation Value
-----------------------------------------------------------------------
Audio and visual equipment $ 22,207 $ 4,222 $ 17,985
Computer hardware 199,861 60,371 139,490
Computer software 3,251 2,240 1,011
Office furniture and equipment 9,891 1,632 8,259
-----------------------------------------------------------------------
Total $235,210 $ 68,465 $166,745
=======================================================================
-----------------------------------------------------------------------
December 31, 2000
-----------------------------------------------------------------------
Accumulated Net book
Cost depreciation Value
-----------------------------------------------------------------------
Audio and visual equipment $ 22,411 $ 2,241 $ 20,170
Computer hardware 204,682 33,549 171,133
Computer software 3,280 1,640 1,640
Office furniture and equipment 9,982 1,043 8,939
Leasehold improvements 38,182 3,818 34,364
-----------------------------------------------------------------------
Total $ 278,537 $ 42,291 $236,246
-----------------------------------------------------------------------
-----------------------------------------------------------------------
For the six months ended June 30, 2001, depreciation expenses of
$33,739 were charged to expenses.
6. Software Development Costs
-----------------------------------------------------------------------
June 30 December 31
2001 2000
-----------------------------------------------------------------------
Balance, beginning of period $ 100 $ 100
Salaries and benefits 387,453 715,198
Depreciation on fixed assets 30,049 33,622
Expense recoveries (58,643) --
-----------------------------------------------------------------------
358,959 748,920
Software development costs charged to expenses (358,859) (748,820)
-----------------------------------------------------------------------
Balance, end of period $ 100 $ 100
-----------------------------------------------------------------------
-----------------------------------------------------------------------
MOORE STEPHENS ELLIS FOSTER LTD.
38
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
7. LOANS
(a) Demand loans
--------------------------------------------------------------------------------------------------------
June 30 December 31
2001 2000
--------------------------------------------------------------------------------------------------------
i. Interest at the Bank of Montreal's prime lending
rate of 6.0% plus 1.5% per annum and unsecured:
- Mitchell White - director: Cdn$1,122,493 $ 725,054 $ 428,642
(2000:Cdn$643,048)
- Greenday Inc. - shareholder 296,487 296,487
- Cyber Roads Inc. 178,519 178,519
- Tapijkabouter BV 99,157 99,157
--------------------------------------------------------------------------------------------------------
1,299,217 1,002,805
ii. Interest at the Hongkong Bank of Canada's
prime lending rate of 6.0% plus 1% per annum and
unsecured:
- Ameera Group Inc. 75,000 75,000
iii. Non-interest bearing and unsecured:
- Tapijkabouter BV 100,000 100,000
--------------------------------------------------------------------------------------------------------
$ 1,474,217 $ 1,177,805
========================================================================================================
(b) Short-term loan
--------------------------------------------------------------------------------------------------------
June 30 December 31
2001 2000
--------------------------------------------------------------------------------------------------------
i. Interest at 40% per annum, due on July 25, 2001,
convertible to 20,000 shares of common stock of the
Company at due date:
- Kornfeld MacOff (Cdn$25,000) $ 16,513 $ --
ii. Interest at 10% per annum, due on June 1, 2002:
- RedRuth Ventures 209,875 --
--------------------------------------------------------------------------------------------------------
$ 226,388 $ --
========================================================================================================
MOORE STEPHENS ELLIS FOSTER LTD.
39
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
8. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the consolidated
financial statements are as follows:
(a) Accounts payable and accrued liabilities include $73,342
interest accrued to a director and a shareholder of the
Company.
(b) Accounting fees of $10,338 were paid to a company controlled
by individuals related to a director of the Company and were
charged to expenses.
(c) Interest expenses of $33,059 were accrued to a director and a
shareholder of the Company and were charged to expenses.
(d) Professional fees of $5,000 were paid to an individual related
to a director of the Company and were charged to expenses.
(e) Demand loans include $1,021,541 due to a director and a
shareholder of the Company. These demand loans bear interests
at the Bank of Montreal's prime lending rate of 6.0% plus 1.5%
per annum and are unsecured (see Note 7ai).
9. COMMITMENTS
(a) Moshpit has entered into lease contracts for automobiles and
computer equipment with minimum lease payments for the year
ending December 31st, as follows:
-------------------------------------
2001 $ 35,135
2002 92,938
2003 81,759
2004 20,351
-------------------------------------
Total $ 230,183
=====================================
(b) The Company has entered into contracts with service providers
to pay for the services received partly by cash and partly by
issuance of common stock of the Company when the common stock
are freely trading in the equity market. As at June 30, 2001,
33,705 shares of common stock of the Company are to be issued
for services received.
MOORE STEPHENS ELLIS FOSTER LTD.
40
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
10. INCOME TAXES
(a) A reconciliation of the statutory income tax to the Company's
effective income tax rate is as follows:
----------------------------------------------
Statutory income tax rate 15%
Tax losses not benefited (15%)
----------------------------------------------
Effective income tax rate --
==============================================
(b) The tax effect of temporary differences that give rise to the
Company's deferred tax assets (liabilities) are as follows:
-----------------------------------------------------------------------------------------
Undepreciated capital cost of capital assets over their net book value $ 20,000
Estimated tax loss carryforwards 969,000
Less: valuation allowance (989,000)
-----------------------------------------------------------------------------------------
$ --
=========================================================================================
The valuation allowance reflects the Company's estimate that
the tax assets, more likely than not, will not be realized.
As at June 30, 2001, the Company has non-capital losses of
approximately $2,176,000 which can be carried forward for tax
purposes and are available to reduce taxable income of future
years. The non-capital losses expire commencing in 2006
through 2008.
11. STOCK OPTION
On May 8, 2001, the Company granted a stock option to a service
provider to acquire 25,000 shares of common stock at a price of US$1
per share. The stock option expires on May 9, 2004.
MOORE STEPHENS ELLIS FOSTER LTD.
41
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
12. SEGMENTED INFORMATION
(a) Industry Information
The Company operates in one reportable operating segment,
being in the developing and providing multimedia transactional
technology solutions and services on internet for the
entertainment industry.
(b) Geographic Information
All the Company's operations and fixed assets are located in
Canada.
13. SUBSEQUENT EVENTS
The short-term loan of $16,513 (Cdn$25,000) due on July 25, 2001 was
extended to January 25, 2002 with interest rate at 40% per annum,
convertible to 20,000 shares of common stock of the Company at due date
(Note 7bi).
14. COMPARATIVE FIGURES
Certain 2000 comparative figures have been reclassified to conform with
the financial statement presentation adopted for 2001.
MOORE STEPHENS ELLIS FOSTER LTD.
42
CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES
(formerly Triple 8 Development Corporation) (A development
stage company)
Consolidated Financial Statements
(EXPRESSED IN U.S. DOLLARS)
December 31, 2000 and 1999
INDEX
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statement of Stockholders' Deficiency
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
43
MOORE STEPHENS ELLIS FOSTER LTD.
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 734-1112 Facsimile: (604) 714-5916
E-Mail: generaldelivery@ellisfoster.bc.ca
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
CYOP SYSTEMS INTERNATIONAL INCORPORATED
(formerly Triple 8 Development Corporation)
(A development stage company)
We have audited the consolidated balance sheets of CYOP SYSTEMS INTERNATIONAL
INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) ("the
Company") (a development stage company) as at December 31, 2000 and 1999, the
related consolidated statements of stockholders' deficiency for the years then
ended, and the consolidated statements of operations and cash flows for the
cumulative period from October 1, 1999 (commencement) to December 31, 2000, the
year ended December 31, 2000 and the period ended from October 1, 1999
(commencement) to December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2000 and 1999
and the results of its operations and its cash flows for the cumulative period
from October 1, 1999 (commencement) to December 31, 2000, the year ended
December 31, 2000 and the period ended from October 1, 1999 (commencement) to
December 31, 1999 in conformity with generally accepted accounting principles in
the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. These consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD."
June 4, 2001 Chartered Accountants
Moore Stephens North America, Inc. is a member of Moore Stephens International
Limited, members in principal cities throughout the world.
-------------------------------------------------------------------------------
MSAn independently owned and operated member of Moore Stephens North America,
Inc. Members in principal cities throughout North America.
-------------------------------------------------------------------------------
44
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Consolidated Balance Sheets
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
----------------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 29,480 $ 55,765
Refundable tax credits 16,808 1,069
Prepaid expenses and deposit 50,992 --
---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 97,280 56,834
FIXED ASSETS (Note 3) 236,246 10,095
SOFTWARE DEVELOPMENT COSTS (Note 4) 100 100
---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 333,626 $ 67,029
===================================================================================================
LIABILITIES
CURRENT
Demand loans (Note 6 and 7e) $ 1,177,805 $ 129,006
Accounts payable and accrued liabilities (Note 7a) 433,062 5,817
---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,610,867 134,823
---------------------------------------------------------------------------------------------------
NATURE AND CONTINUANCE OF OPERATIONS (Note 1)
COMMITMENTS (Note 8)
CONTINGENCIES (Note 13)
STOCKHOLDERS' (DEFICIENCY)
SHARE CAPITAL
Authorized:
100,000,000 common shares with a par value of
$0.0001 per share
Issued and outstanding:
23,382,975 common shares (1999 - Nil) 2,838 --
ADDITIONAL PAID-IN CAPITAL 149,237 69
ACCUMULATED OTHER COMPREHENSIVE INCOME 14,801 (1,398)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (1,444,117) (66,465)
----------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' (DEFICIENCY) (1,277,241) (67,794)
----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) $ 333,626 $ 67,029
====================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
45
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8
Development Corporation) (A development stage company)
Consolidated Statement of Stockholders' Deficiency
(EXPRESSED IN U.S. DOLLARS)
----------------------------------------------------------------------------------------------------------------------------
Compre-
Common stock Additional hensive
------------------------------ paid-in income
Shares Amount capital (loss)
----------------------------------------------------------------------------------------------------------------------------
Recapitalization as a result of reverse
acquisition (Note 5) -- $ -- $ 69 $ (67,863)
----------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) (67,863)
===============
BALANCE, December 31, 1999 -- -- 69
Shares issued for cash on February 29, 2000 10,020,500 1,002 1,448
Shares issued for services on
February 29, 2000 9,202,500 920 1,330
Deficit accumulated as at November 3, 2000 -- -- --
Recapitalization adjustment (Note 5) -- (2,968)
----------------------------------------------------------------------------------------------------------------------------
BALANCE AFTER RECAPITALIZATION ADJUSTMENT 19,223,000 1,922 (121)
Shares allotted for equity of shell
in stock acquisition (Note 5) 9,000,000 900 (10,601) --
Shares allotted for cash on December 13, 2000 159,975 16 159,959 --
Other comprehensive income
- foreign currency translation adjustment -- -- -- 16,199
Comprehensive income
- net (loss) for the period -- -- -- (1,377,652)
----------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (1,361,453)
====================
BALANCE, December 31, 2000 28,382,975 $ 2,838 $ 149,237
=====================================================================================================
----------------------------------------------------------------------------------------------------------
Accumulated
other Total
compre- Stock-
Deficit hensive holders'
accumulated income (deficiency)
----------------------------------------------------------------------------------------------------------
Recapitalization as a result of reverse
acquisition (Note 5) $ (66,465) $ (1,398) $ (67,794)
----------------------------------------------------------------------------------------------------------
Comprehensive income (loss)
BALANCE, December 31, 1999 (66,465) (1,398) (67,794)
Shares issued for cash on February 29, 2000 -- -- 2,450
Shares issued for services on
February 29, 2000 -- -- 2,250
Deficit accumulated as at November 3, 2000 (14,401) -- (14,401)
Recapitalization adjustment (Note 5) 14,401 -- 11,433
----------------------------------------------------------------------------------------------------------
BALANCE AFTER RECAPITALIZATION ADJUSTMENT (66,465) (1,398) (66,062)
Shares allotted for equity of shell
in stock acquisition (Note 5) -- -- (9,701)
Shares allotted for cash on December 13, 2000 -- -- 159,975
Other comprehensive income
- foreign currency translation adjustment -- 16,199 16,199
Comprehensive income
- net (loss) for the period (1,377,652) -- (1,377,652)
----------------------------------------------------------------------------------------------------------
Comprehensive income (loss)
BALANCE, December 31, 2000 $ (1,444,117) $ 14,801 $ (1,277,241)
==========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
46
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Consolidated Statements of Operations
(EXPRESSED IN U.S. DOLLARS)
---------------------------------------------------------------------------------------------------------------------------
Cumulative from October 1, 1999
October 1, 1999 Year (commencement
to ended of operations) to
December 31 December 31 December 31
2000 2000 1999
---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Accounting and audit $ 64,398 $ 64,398 $ --
Advertising and promotion 75,787 70,805 4,982
Automobile 33,604 33,604 --
Bank charges and interest (Note 7d) 54,301 50,813 3,488
Depreciation of fixed assets 7,405 7,380 25
Legal and other professional fees 119,720 119,720 --
Office and miscellaneous 50,190 50,190 --
Rent 28,468 28,468 --
Repairs and maintenance 5,263 5,263 --
Salaries and benefits 175,038 147,217 27,821
Software development costs (Note 4) 778,248 748,820 29,428
Telephone and bandwidth 16,236 15,515 721
Training 8,187 8,187 --
Travel 14,338 14,338 --
Foreign exchange loss 12,934 12,934 --
---------------------------------------------------------------------------------------------------------------------------
NET (LOSS) FOR THE PERIOD $ (1,444,117) $ (1,377,652) $ (66,465)
===========================================================================================================================
(LOSS) PER SHARE $ (0.07) $ --
===========================================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted 20,682,124 19,223,000
===========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
47
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Consolidated Statements of Cash Flows
(EXPRESSED IN U.S. DOLLARS)
------------------------------------------------------------------------------------------------------------------------------
Cumulative from October 1, 1999
October 1, 1999 Year (commencement
to ended of operation) to
December 31 December 31 December 31
2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net (loss) for the period $ (1,444,117) $ (1,377,652) $ (66,465)
Adjustments to reconcile net loss to net cash
used in operating activities:
- depreciation of fixed assets 42,732 41,002 1,730
------------------------------------------------------------------------------------------------------------------------------
(1,401,385) (1,336,650) (64,735)
Changes in assets and liabilities:
- refundable tax credits (16,808) (15,739) (1,069)
- prepaid expenses and deposit (50,992) (50,992) --
- accounts payable and accrued liabilities 425,093 419,276 5,817
------------------------------------------------------------------------------------------------------------------------------
(1,044,092) (984,105) (59,987)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capitalized software development costs (100) -- (100)
Purchase of fixed assets (278,978) (267,153) (11,825)
------------------------------------------------------------------------------------------------------------------------------
(279,078) (267,153) (11,925)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Shares issued for cash 160,044 159,975 69
Proceeds from demand loans 1,177,805 1,048,799 129,006
------------------------------------------------------------------------------------------------------------------------------
1,337,849 1,208,774 129,075
------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE ON FOREIGN
CURRENCY TRANSLATION 14,801 16,199 (1,398)
------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 29,480 (26,285) 55,765
CASH AND CASH EQUIVALENTS,
beginning of period -- 55,765 --
------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 29,480 $ 29,480 $ 55,765
==============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
48
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
1. NATURE AND CONTINUANCE OF OPERATIONS
The Company was incorporated under the laws of the State of Nevada to
engage in any lawful business or activity for which corporations may be
organized under the laws of the State of Nevada. The Company changed
its name to CYOP Systems International Incorporated on October 30,
2000. On November 3, 2000, the Company acquired 100% of the issued and
outstanding shares of CYOP Systems Inc., Barbados ("CYOP Barbados").
This transaction was accounted for as a reverse acquisition
recapitalization (see Note 5). The efforts of the Company have been
devoted to sales and marketing of multimedia transactional technology
solutions and services on internet for the entertainment industry. In
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 7 "Accounting and Reporting by Development Stage Companies", the
Company is deemed to be in the Development Stage.
CYOP Barbados was incorporated under the laws of Barbados on June 20,
2000. CYOP Barbados is in the business of developing personal computer
and console entertainment software designed to provide interactive
online games, and development of multimedia transactional technology
solutions and services on internet for the entertainment industry. On
August 31, 2000, CYOP Barbados acquired 100% of the issued and
outstanding shares of Moshpit Entertainment Inc., Canada ("Moshpit"), a
development stage company in the business of developing software for
interactive online games incorporated under the laws of British
Columbia, Canada. Both CYOP Barbados and Moshpit are considered to be
in the development stage.
These consolidated financial statements have been prepared using the
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The
Company has suffered recurring losses from operations and has a net
capital deficiency. The ability of the Company to continue as a going
concern is dependent upon many factors, including the ability of the
Company to obtain financing to fund working capital requirements, the
degree of competition encountered by the Company, technology risks,
government regulation and general economic conditions. The Management's
plan in this regard are to raise equity financing as required and keep
abreast of the multimedia technology. These financial statements do not
include any adjustments that might result from this uncertainty.
49
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
These consolidated financial statements, prepared in
accordance with accounting principles generally accepted in
the United States, include the accounts of the Company and its
subsidiaries CYOP Barbados and Moshpit.
The consolidated balance sheets, as at December 31, 2000 and
1999 includes the assets and liabilities of the Company, CYOP
Barbados and Moshpit. The consolidated statement of operations
for the cumulative period from October 1, 1999 (commencement)
to December 31, 2000, the year ended December 31, 2000 and the
period ended from October 1, 1999 (commencement) to December
31, 1999 include the operating results of the Company, CYOP
Barbados and Moshpit for the cumulative period and years then
ended. Significant inter-company accounts and transactions
have been eliminated.
(b) Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the
period. Actual results may differ from those estimates.
(c) Cash Equivalents
Cash equivalents usually consist of highly liquid investments
which are readily convertible into cash with maturities of
three months or less when purchased. As at December 31, 2000
and 1999, cash and cash equivalents consist of cash only.
(d) Fixed Assets
Fixed assets are recorded at historical cost. Depreciation is
charged to earnings in amounts sufficient to allocate the
costs over their estimated useful lives, as follows:
Audio and visual equipment 20% declining-balance basis
Computer hardware 30% declining-balance basis Computer
software 100% declining-balance basis Office furniture and
equipment 20% declining-balance basis Leasehold improvements
20% straight-line basis
50
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Software Development Costs
Software development costs are charged to expenses as
incurred.
(f) Advertising and Promotion
The Company expenses advertising and promotion costs as
incurred. Total advertising and promotion costs charged to
expenses for the year ended December 31, 2000 amounted to
$70,805 (1999 - $4,982).
(g) Foreign Currency Transactions
The Company and CYOP Barbados maintain their accounting
records in their functional currency (i.e., US dollars).
Foreign currency transactions are translated into their
functional currency in the following manner.
At the transaction date, each asset, liability, revenue and
expense is translated into the functional currency by the use
of the exchange rate in effect at that date. At the period
end, monetary assets and liabilities are translated into the
functional currency by using the exchange rate in effect at
that date. The resulting foreign exchange gains and losses are
included in operations.
(h) Foreign Currency Translations
Assets and liabilities of Moshpit, whose functional currency
is Canadian dollars, are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Revenues
and expenses are translated at the average exchange rate. Gain
and losses from such translations are included in
stockholders' equity, as a component of other comprehensive
income.
(i) Income Taxes
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes",
which requires the Company to recognize deferred tax
liabilities and assets for the expected future tax
consequences of events that have been recognized in the
Company's financial statements or tax returns using the
liability method. Under this method, deferred tax liabilities
and assets are determined based on the temporary differences
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. The effect on
deferred income tax assets and liabilities of a change in
income tax rates is included in the period that includes the
enactment date.
51
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(j) Impairment
Certain long-term assets of the Company are reviewed when
changes in circumstances require as to whether their carrying
value has become impaired, pursuant to guidance established in
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". Management considers
assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations (undiscounted and
without interest charges). If impairment is deemed to exist,
the assets will be written down to fair value.
(k) Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display
of comprehensive income, its components and accumulated
balances. The Company is disclosing this information on its
consolidated Statement of Stockholders' Equity. Comprehensive
income comprises equity except those resulting from
investments by owners and distributions to owners. SFAS NO.
130 did not change the current accounting treatments for
components of comprehensive income.
(l) Financial Instruments and Concentration of Risks
Fair value of financial instruments are made at a specific
point in time, based on relevant information about financial
markets and specific financial instruments. As these estimates
are subjective in nature, involving uncertainties and matters
of significant judgement, they cannot be determined with
precision. Changes in assumptions can significantly affect
estimated fair values.
The carrying value of cash and cash equivalents, deposits,
refundable tax credits, demand loans and accounts payable and
accrued liabilities approximate their fair values because of
the short-term maturity of these instruments.
Moshpit is operating in Canada, which may give rise to
significant foreign currency risks from fluctuations and the
degree of volatility of foreign exchange rates between U.S.
dollars and the Canadian dollars. Financial instruments that
potentially subject the Company to concentration of credit
risk consist principally of cash, the balances of which are
stated on the balance sheet. The Company places its cash in
high credit quality financial institutions. The Company does
not require collateral or other security to support financial
instruments subject to credit risk.
52
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) Reporting on Costs of Start-Up Activities
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Costs of Start-Up Activities", which
provides guidance on the financial reporting of start-up costs
and organization costs. It requires costs to be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998 with initial adoption reported as the
cumulative effect of a change in accounting principles.
The Company has adopted SOP 98-5 and charged all start-up
costs incurred during the period to expenses.
(n) Accounting for Derivative Instruments and Hedging Activities
On June 1998, the Financial Accounting Standards Board issued
SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 requires companies to
recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is
to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable
to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income
in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.
The Company does not anticipate that the adoption of the
statement will have a significant impact on its financial
statements.
(o) Stock-based Compensation
The Company has adopted the disclosure-only provisions of SFAS
No. 123, "Accounting for Stock-based Compensation". SFAS 123
encourages, but does not require, companies to adopt a fair
value based method for determining expense related to
stock-based compensation. The Company accounts for stock-based
compensation issued to employees and directors using the
intrinsic value method as prescribed under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations.
53
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
---------------------------------------------------------------------------------
3. FIXED ASSETS
------------------------------------------ ----------------------------------------------------------------
December 31, 2000
----------------------------------------------------------------
Cost Accumulated Net book
depreciation value
------------------------------------------ -------------------- --------------------- ---------------------
Audio and visual equipment $ 22,411 $ 2,241 $ 20,170
Computer hardware 204,682 33,549 171,133
Computer software 3,280 1,640 1,640
Office furniture and equipment 9,982 1,043 8,939
Leasehold improvements 38,182 3,818 34,364
------------------------------------------ -------------------- --------------------- ---------------------
Total $ 278,537 $ 42,291 $ 236,246
========================================== ==================== ===================== =====================
December 31, 1999
----------------------------------------------------------------
Cost Accumulated Net book
depreciation value
------------------------------------------ -------------------- --------------------- ---------------------
Computer hardware $ 11,603 $ 1,740 $ 9,863
Office furniture and equipment 258 26 232
------------------------------------------ -------------------- --------------------- ---------------------
Total $ 11,861 $ 1,766 $ 10,095
========================================== ==================== ===================== =====================
For the year ended December 31, 2000, depreciation expenses of $41,002
(1999 - $1,730) were charged to expenses.
4. SOFTWARE DEVELOPMENT COSTS
-------------------------------------------------------------- ----------------- --------------------------
October 1, 1999
(commencement
December 31 of operations) to
2000 December 31
1999
-------------------------------------------------------------- ----------------- --------------------------
Balance, beginning of period $ 100 $ --
Salaries and benefits 715,198 27,823
Depreciation on fixed assets 33,622 1,705
-------------------------------------------------------------- ----------------- --------------------------
Software development costs charged to expenses (748,820) (29,428)
-------------------------------------------------------------- ----------------- --------------------------
Balance, end of period $ 100 $ 100
============================================================== ================= ==========================
54
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
5. ACQUISITION OF CYOP SYSTEMS INC., BARBADOS
On November 3, 2000, the Company acquired 100% of the issued and
outstanding common shares of CYOP Barbados. As the Company was a
non-operating shell company, the transaction resulted in the management
of CYOP Barbados having effective operating control of the combined
company, with the shareholders of the Company continuing only as
passive investors. Accounting principles applicable to reverse
acquisition recapitalization have been applied to record this
transaction. Under this basis of accounting, CYOP Barbados has been
identified as the acquirer and, accordingly, the combined company is
considered to be a continuation of the operations of CYOP Barbados with
the net liabilities of the Company deemed to have been assumed by CYOP
Barbados.
The net liabilities of the Company assumed by CYOP Barbados are
summarized as follows:
--------------------------------------------------------------------------------------
Current assets $ 2,399
Current liabilities (12,100)
--------------------------------------------------------------------------------------
Net liabilities assumed $ (9,701)
======================================================================================
6. DEMAND LOANS
-----------------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------------
a) Interest at the Bank of Montreal's prime lending
rate of 7.5% plus 1.5% per annum and unsecured:
- Mitchell White - shareholder (Cdn$643,048; 1999 -
Cdn$186,195) $ 428,642 $ 129,006
- Greenday Inc. - shareholder 296,487 --
- Cyber Roads Inc. 178,519 --
- Tapijkabouter BV 99,157 --
-----------------------------------------------------------------------------------------------------------
1,002,805 129,006
b) Interest at the Hongkong Bank of Canada's prime lending rate of
7.5% plus 1% per annum and unsecured - Ameera Group Inc.
75,000 --
c) Non-interest bearing and unsecured
- Tapijkabouter BV 100,000 --
-------------------------------------------------------------------- ------------------ -------------------
$ 1,177,805 $ 129,006
==================================================================== ================== ===================
55
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
7. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the consolidated
financial statements are as follows:
(a) Accounts payable and accrued liabilities include the following
amounts due to a director of Moshpit and shareholders of the
Company:
------------------------------------------------------------------------- ---------------------
2000 1999
------------------------------------------------------------------------- ---------------------
Expense reimbursements $ 1,636 $ 1,020
Accrued interests 40,180 3,504
------------------------------------------------------------------------- ---------------------
$ 41,816 4,524
====================================================== ===================== =====================
(b) Accounting fees of $33,946 (1999 - $Nil) were paid to a
company controlled by individuals related to a shareholder of
the Company and were charged to expenses.
(c) Promotion fees of $3,397 (1999 - $Nil) were paid to a
shareholder of the Company and were charged to expenses.
(d) Interest expenses of $40,398 (1999 - $3,432) were accrued to
shareholders of the Company and were charged to expenses.
(e) Demand loans include $725,129 (1999 - $129,006) due to
shareholders of the Company. These demand loans bear interests
at the Bank of Montreal's prime lending rate of 7.5% plus 1.5%
per annum and are unsecured (see Note 6a).
(f) During the year ended December 31, 2000, the Company issued
9,202,500 common shares at a deemed value of $2,250 to a
director of the Company for services rendered.
8. COMMITMENTS
Moshpit has entered into lease contracts for automobiles and computer
equipment with minimum lease payments for the year ending December
31st, as follows:
---------------------------------------------- --------- ------------
2001 $ 88,253
2002 88,253
2003 78,356
2004 20,539
---------------------------------------------- ----------------------
Total $ 275,401
============================================== ========= ============
56
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
9. NON-CASH FINANCING ACTIVITIES
See Note 7(f).
10. STOCK SPLIT
On October 23, 2000, the Company increased its number of issued and
outstanding common shares to 19,233,000 shares by a forward split on a
one (1) for 4.09 basis on its 4,700,000 common shares issued and
outstanding on that day. The par value of the common shares after the
forward split is $0.0001 per share. The forward split is deemed to have
taken effect on November 1, 1999. All share data have been restated to
reflect retroactively the effects of the split.
11. INCOME TAXES
(a) A reconciliation of the statutory income tax to the Company's
effective income tax rate is as follows:
--------------------------------------------------------------- -----------------
2000 1999
--------------------------------------------------------------- -----------------
Statutory income tax rate 15% 15%
Tax losses not benefited (15%) (15%)
--------------------------------------------------------------- -----------------
Effective income tax rate -- --
=============================================================== =================
(b) The tax effect of temporary differences that give rise to the
Company's deferred tax assets (liabilities) are as follows:
----------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------------------
Undepreciated capital cost of capital assets over their net
book value $ 19,000 $ --
Estimated tax loss carryforwards 627,700 3,800
Less: valuation allowance (646,700) (3,800)
------------------------------------------------------------- ------------------ -----------------
$ -- $ --
============================================================= ================== =================
The valuation allowance reflects the Company's estimate that the tax
assets, more likely than not, will not be realized.
As at December 31, 2000, the Company has non-capital losses of
approximately $1,386,000 which can be carried forward for tax purposes
and are available to reduce taxable income of future years. The
non-capital losses expire commencing in 2006 through 2007.
57
CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES
(formerly Triple 8 Development Corporation)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
12. SEGMENTED INFORMATION
(a) Industry Information
The Company operates in one reportable operating segment,
being in the developing and providing multimedia transactional
technology solutions and services on internet for the
entertainment industry.
(b) Geographic Information
All the Company's operations and fixed assets are located in
Canada.
13. CONTINGENCIES
The Company has no insurance coverage on commercial and third party
liabilities. The Management considers the occurrence of a loss or
damage to property of the Company or loss resulting from injury to
others or damage to property of others is remote and not determinable.
14. SUBSEQUENT EVENT
(a) The following shares were allotted for cash subsequent to the
year ended December 31, 2000:
- 64,000 common shares were allotted at $1.00 per share; and
- 13,000 common shares were allotted at $1.40 per share.
(b) Subsequent to the year ended December 31, 2000, the Company
granted a stock option of 25,000 common shares at $1.00 per
share to a service provider. The stock option expires May 9,
2004.
58
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
We have had no changes in or disagreements with our accountants since our
incorporation in October, 1999.
AVAILABLE INFORMATION
We are a reporting company and are subject to the reporting requirements of the
Exchange Act. We voluntarily filed a Form 10-SB on February 14, 2001. We have
filed a registration statement on Form SB-2 under the Act with the Securities
and Exchange Commission with respect to the shares of our common stock offered
by this prospectus. This prospectus is filed as a part of the registration
statement and does not contain all of the information contained in the
registration statement and exhibits and reference is hereby made to such omitted
information. Statements made in this registration statement are summaries of the
material terms of these referenced contracts, agreements or documents but are
not necessarily complete. However, all information we considered material
relating to the terms of any referenced contracts, agreements or documents has
been disclosed. Reference is made to each exhibit for a more complete
description of the matters involved and these statements shall be deemed
qualified in their entirety by the reference. You may inspect the registration
statement and exhibits and schedules filed with the Securities and Exchange
Commission at the Securities and Exchange Commission's principle office in
Washington, D.C. Copies of all or any part of the registration statement may be
obtained from the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Securities and
Exchange Commission also maintains a web site (http://www.sec.gov) that contains
reports, proxy statements and information regarding registrants that file
electronically with the Commission. For further information pertaining to us and
our common stock offered by this prospectus, reference is made to the
registration statement.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our officers and directors are indemnified as provided by the Nevada Revised
Statutes and our bylaws.
Under the NRS, director immunity from liability to a company or its shareholders
for monetary liabilities applies automatically unless it is specifically limited
by a company's articles of incorporation which is not the case with our articles
of incorporation. Excepted from that immunity are:
(1) a willful failure to deal fairly with the company or its shareholders
in connection with a matter in which the director has a material
conflict of interest;
(2) a violation of criminal law (unless the director had reasonable cause
to believe that his or her conduct was lawful or no reasonable cause to
believe that his or her conduct was unlawful);
(3) a transaction from which the director derived an improper personal
profit; and
(4) willful misconduct.
Our bylaws provide that we will indemnify our directors and officers to the
fullest extent not prohibited by Nevada law; provided, however, that we may
modify the extent of such indemnification by individual contracts with our
directors and officers; and, provided, further, that we shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless:
(1) such indemnification is expressly required to be made by law;
(2) the proceeding was authorized by our Board of Directors;
59
(3) such indemnification is provided by us, in our sole discretion,
pursuant to the powers vested us under Nevada law; or
(4) such indemnification is required to be made pursuant to the bylaws.
Our bylaws provide that we will advance to any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer, of CYOP, or is or
was serving at the request of CYOP as a director or executive officer of another
company, partnership, joint venture, trust or other enterprise, prior to the
final disposition of the proceeding, promptly following request therefor, all
expenses incurred by any director or officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under our bylaws or otherwise.
Our bylaws provide that no advance shall be made by us to an officer of CYOP
--except by reason of the fact that such officer is or was a director of CYOP in
which event this paragraph shall not apply-- in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, if a determination is
reasonably and promptly made: (i) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to the proceeding; or
(ii) if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of CYOP.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to our directors, officers and controlling
persons, we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs of the offering are denoted below. Please note that all
amounts are estimates other than the Commission's registration fee.
Securities and Exchange Commission registration fee: $3,149.30
Federal Taxes $0.00
State Taxes and Fees $0.00
Transfer Agent Fees $1,200.00
Accounting fees and expenses $2,000.00
Legal fees and expenses $3,000.00
Miscellaneous $1,000.00
TOTAL: $10,349.30
==========
We will pay all expenses of the offering listed above from cash on hand. No
portion of these expenses will be borne by the selling shareholders.
RECENT SALES OF UNREGISTERED SECURITIES
On November 1, 1999, we issued 2,450,000 common shares at $0.001 per share to 45
U.S. non-resident subscribers under Regulation S. We received cash consideration
of $2,450 for the sale of these shares. None of the offerees or purchasers are
U.S. persons as defined in Rule 902(k) of Regulation S, and no sales efforts
were conducted in the U.S., in accordance with Rule 903(c). Subscribers to the
offering acknowledge that the securities purchased must come to rest outside the
U.S., and the certificates contain a legend restricting the sale of such
securities until the Regulation S holding period is satisfied in accordance with
Rule 903(b)(3)(iii)(A).
60
We issued 2,250,000 common shares at a deemed price of $0.001 per share to Mr.
Keith Ebert on November 1, 1999. Mr. Ebert was issued these shares in
consideration for his services in organizing the Company, acting as officer and
director and seeking an acquisition. The value of the services rendered is
$2,250. We relied on the exemption contained in Regulation S of the Securities
Act of 1933. None of the offerees or purchasers are U.S. residents as defined in
Rule 902(k) of Regulation S, and no sales efforts were conducted in the U.S., in
accordance with Rule 903(c). Subscribers to the offering acknowledge that the
securities purchased must come to rest outside the U.S., and the certificates
contain a legend restricting the sale of such securities until the Regulation S
holding period is satisfied in accordance with Rule 903(b)(3)(iii)(A).
On November 3, 2000, we issued 9,000,000 common shares to the shareholders of
CYOP Systems Inc. in consideration for all of the issued and outstanding common
shares of CYOP Systems Inc. We relied on the exemption contained in Regulation S
of the Securities Act of 1933. None of the offerees or purchasers are U.S.
residents as defined in Rule 902(k) of Regulation S, and no sales efforts were
conducted in the U.S., in accordance with Rule 903(c). Subscribers to the
offering acknowledge that the securities purchased must come to rest outside the
U.S., and the certificates contain a legend restricting the sale of such
securities until the Regulation S holding period is satisfied in accordance with
Rule 903(b)(3)(iii)(A).
On December 22, 2000, we issued 159,975 common shares at $1.00 per share to 49
U.S. non resident subscribers under Regulation S, on January 8, 2001, we issued
17,500 common shares at $1.00 per share to two U.S. non resident subscribers
under Regulation S, on January 19, 2001, we issued 32,200 common shares at $1.00
per share to five U.S. non resident subscribers, on February 14, 2001, we issued
13,000 common shares at $1.40 per share to two U.S. non resident subscribers
under Regulation S, on March 8, 2001, we issued 3,000 common shares at $1.00 per
share to one U.S. non resident subscriber under Regulation S and on April 24,
2001, we issued 11,300 common shares at $1.00 per share to three U.S. non
resident subscribers under Regulation S. None of the offerees or purchasers are
U.S. residents as defined in Rule 902(k) of Regulation S, and no sales efforts
were conducted in the U.S., in accordance with Rule 903(c). Subscribers to the
offering acknowledge that the securities purchased must come to rest outside the
U.S., and the certificates contain a legend restricting the sale of such
securities until the Regulation S holding period is satisfied in accordance with
Rule 903(b)(3)(iii)(A).
EXHIBITS
Item 27 Exhibits
3.1 Articles of Incorporation
3.2 Articles of Amendment
3.3 Bylaws
5.1 Legal Opinion of Randall J. Lanham
10.1 Share Purchase Agreement
10.2 Software Licensing Agreement
21.1 Subsidiaries of the Registrant
23.1 Consent of Ellis Foster, Accountants
UNDERTAKINGS
Item 28 Undertakings
We undertake that we will:
61
1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the bona fide offering.
3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement on Form SB-2 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Vancouver, Province of British Columbia, Canada,
on October 17, 2001.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
/s/Mitch White
-----------------------------------------------
Mitch White, President,
Chief Financial Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Mitch White President, C.F.O. October 17, 2001
-------------- and Director
Mitch White
62