AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 07 , 2003
REGISTRATION NO. 333-107199
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO.2 TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CYPACIFIC TRADING INC.
(Exact name of registrant as specified in its charter)
British Columbia, Canada 5961 N/A
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
909 - 3083 East Kent Avenue North, Vancouver, B.C., Canada V5S 4R2
Telephone: 604-683-0692
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Agent for Service:
Target Group
520 - 177 Telegraph Road
Bellingham, WA
USA 98226
1-866-802-1222
(Name, address, including zip code, and telephone number, including area code of
agent of service)
With Copies to:
ELLIE JO
PENN CAPITAL CANADA LTD.
16th Floor, 543 Granville Street
Vancouver, B.C., Canada V6C 1X8
Tel.: (604) 647-0044
Fax:(604)633-9440
1
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please 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 registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box:[ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS AMOUNT TO AMOUNT OF
OF SECURITIES TO BE BE PROPOSED MAXIMUM PROPOSED MAXIMUM REGISTRATION
REGISTERED REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------
Common stock, without
par value: 200,000 $0.10 per share (1) $20,000.00 $1.62
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
Monetary amounts are shown in US$'s unless otherwise indicated.
The registrant hereby amends this registration statement on such date 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 statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
NOVEMBER 07, 2003
SUBJECT TO COMPLETION
PROSPECTUS
CYPACIFIC TRADING INC.
200,000 SHARES OF COMMON STOCK TO BE SOLD BY SELLING SHAREHOLDER
The common shares to be sold by the selling shareholder hereunder are being
offered for sale by the existing shareholder of CyPacific Trading Inc. (also
referred to as 'CyPacific' or the'Company'). Andrew Lee , the selling
shareholder under this prospectus, is an affiliated shareholder of CyPacific and
is, the president of CyPacific. The proceeds from the sale of shares by this
selling shareholder will not be for the benefit of CyPacific and CyPacific will
receive no proceeds from these sales.
INVESTING IN OUR COMMON SHARES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.
The selling shareholder of CyPacific is listed on page 14 under the caption
"Selling Shareholders". Upon effectiveness of this registration statement the
selling shareholder will offer and sell the shares at a maximum price of $ 0.10
per share until such time as our shares are quoted on the OTC Bulletin Board and
then thereafter at prevailing market prices or privately negotiated prices.
There are no pre-existing contractual agreements for any person to purchase the
shares. We have made no selling arrangements for the sale of the securities
offered in this prospectus.
CyPacific's common stock is not listed on a national securities exchange or the
Nasdaq Stock Market. There can be no assurance that an active trading market for
CyPacific stock will develop.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY 6
RISK FACTORS 8
USE OF PROCEEDS 14
DETERMINATION OF OFFERING PRICE 14
DIVIDEND POLICY 14
DILUTION 14
SELLING SHAREHOLDERS 14
PLAN OF DISTRIBUTION 15
EXCHANGE RATES 16
CAPITALIZATION 17
SELECTED FINANCIAL AND OTHER DATA 17
OPERATING AND FINANCIAL REVIEW AND PROSPECTS 18
BUSINESS 20
MANAGEMENT 24
PRINCIPAL SHAREHOLDERS 26
DESCRIPTION OF SHARE CAPITAL 26
SHARES ELIGIBLE FOR FUTURE SALE 28
TAX CONSIDERATIONS 38
LEGAL MATTERS 33
EXPERTS 33
INFORMATION AVAILABLE TO THE PUBLIC 33
INDEX TO FINANCIAL STATEMENTS 35
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES.
THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE ACCURATE ON THE DATE OF THIS
DOCUMENT.
4
[This Page Intentionally Left Blank]
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ITEM 3. SUMMARY INFORMATION AND RISK FACTORS
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding CyPacific, our common shares being registered in this
prospectus and our historical financial statements included elsewhere in this
prospectus. This summary does not contain all of the information you should
consider before buying shares in CyPacific. You should read the entire
prospectus carefully.
THE OFFERING
Common stock offered by selling shareholders: 200,000 shares
Common stock outstanding before this offering: 2,000,000 shares
Common stock to be outstanding after this offering: 2,000,000 shares
OVERVIEW
CyPacific intends to become an Internet-based electronic retailer with an
on-line store. CyPacific will specialize in selling products obtained from North
American manufacturers, which products are difficult to find in Asian countries,
to individuals and businesses first in Korea, and later in other parts of Asia.
The services of CyPacific will include on-line and off-line direct sales of
products as well as on-line banner advertisements. The goal of CyPacific is to
commercialize new products in the Korean market and to create a distribution
channel in Korea for manufacturers who produce specialized goods of quality
CyPacific will design its Website to provide a place where customers buy
products that are hard to find elsewhere in Asia and also to provide a place
where North American manufacturers can present their companies and products to
an Asian market. CyPacific hopes to become the home page of choice for Asian
consumers and banner advertisers worldwide.
CyPacific's system will be designed to fully integrate all aspects of retail
transaction processing including order placement, secure payment verification,
order fulfillment and vendor invoicing, in one seamless and automated process.
The Company believes that the principal competitive factors in its market will
be the uniqueness and quality of its merchandise, wide selection, ease of use,
twenty four hour accessibility, customer service, convenience, reliability,
quality of search engine tools, and quality of other site contents.
The Company will develop and employ specialized information systems to provide
its customers with access to an automated marketplace of merchandise and
services, which consist of detailed product descriptions, product availability,
approximate delivery times, delivery status of merchandise ordered and
back-order information. Product categories available on the Company's website
will include: collectibles, consumer electronics, gifts and office accessories.
The Company will introduce new merchandise of a unique idea and good quality on
a continual basis and intends to enter arrangements with a number of
manufacturers and distributors for product supply.
CyPacific estimates that funding of $100,000 will be required to implement its
business plan over the first 12 months from commencement of its business. The
funding is anticipated to be required for administrative expenses of $40,000,
web building expenses of $20,000, purchase of computer and peripheral equipment
of $15,000 and other miscellaneous expenses of $25,000. CyPacific intends to
finance its administrative, start up and initial operating costs by the sale of
its shares, other shareholder financings, and standard business trade financing.
No commitments to provide additional funds have been made by management,
stockholders or anyone else, with the exception of Andrew Lee. Andrew Lee, a
director and president of CyPacific, will advance funds of approximately
$50,000, required for minimal expenses over the next nine months in the event
that additional funds are not available. There is no assurance that Andrew Lee
will be able to advance sufficient funds or that CyPacific will continue to
operate if additional funding is not available on terms acceptable to CyPacific
or at all. The absence of funding would make the successful completion of
CyPacific's business plan doubtful.
CONTACT INFORMATION
Our principal executive offices are located at 909 - 3083 East Kent Avenue
North, Vancouver, B.C., Canada V5S 4R2 and our telephone number is 604-683-0692.
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PROCEEDS OF THIS OFFERING
The offering by the selling shareholder under this prospectus will be on a
continuous and delayed basis.
CyPacific will not receive any of the proceeds from the sale of shares by our
selling shareholder. The selling shareholder may offer and sell up to an
aggregate of 200,000 shares of common stock under this prospectus. The selling
shareholder will offer and sell the shares at a maximum price of $ 0.10 per
share until such time as our shares are quoted on the OTC Bulletin Board and
then thereafter at prevailing market prices or privately negotiated prices.
The offering by the selling shareholder will begin after the registration
statement that includes this prospectus becomes effective.
SUMMARY FINANCIAL AND OTHER DATA
The summary financial and other data set forth below should be read in
conjunction with the audited financial statements of CyPacific including the
notes thereto, and "Operating and Financial Results and Prospects" included in
this prospectus. The statement of operations data set forth below for the fiscal
period from inception March 21, 2003 to April 30, 2003 and the balance sheet
data as of April 30, 2003 are derived from the April 30, 2003 audited financial
statements of CyPacific included elsewhere in this prospectus, which have been
audited by Pannell Kerr Forster, a worldwide association of independent
accounting and consulting practices. The partners of the Vancouver firm are
members of The Canadian Institute of Chartered Accountants. The Company's
functional currency for its operations is the Canadian dollar and its financial
statements are prepared in accordance with accounting principles generally
accepted in the United States of America. The auditors have issued their report
with a caution that CyPacific financial statements have been prepared assuming
that CyPacific will continue as a going concern and that CyPacific has had no
operations, has no established sources of revenue and needs additional funds in
order to complete its business plan. This raises substantial doubt about
CyPacific's ability to continue as a going concern.
SUMMARY FINANCIAL DATA
The following tables summarize the statement of operations and balance sheet
data for the business of CyPacific.
PERIOD FROM INCEPTION
(MARCH 21, 2003)
THROUGH APRIL 30, 2003
STATEMENT OF OPERATIONS DATA:
Revenues $0
Operating Expenses $2,379
Net Loss $(2,379)
Basic loss per share $(0.01)
Weighted average common shares outstanding 2,000,000
BALANCE SHEET DATA: AS AT APRIL 30, 2003
Cash $1,389
Total Assets $1,389
Total Liabilities $2,415
Shareholders' Deficiency $(1,026)
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RISK FACTORS
There are significant risks associated with an investment in shares of CyPacific
common stock. Before making a decision concerning the purchase of CyPacific
securities, you should carefully consider the following factors and other
information in this prospectus when you evaluate our business. The potential
success of our business model must be considered in light of our status as a
development stage company the material risks of which are described as follows:
BUSINESS RISKS
WE HAVE NOT COMMENCED OPERATIONS
Since we have not begun operations, the prediction of future financial results
is difficult and, in some cases, impossible. Furthermore, we believe that
period-to-period comparisons of our financial results may not be meaningful and
that the results for any particular period should not be relied upon as an
indication of future performance. To the extent that we are unable to generate
revenues as anticipated, our results of operations and financial condition will
be materially and adversely affected, and CyPacific may fail.
WE MAY BE UNABLE TO CONTINUE AS A GOING CONCERN WHICH COULD RESULT IN A LOSS FOR
OUR INVESTORS
We may never become profitable. Since we have not begun operating, we are unable
at this time to predict our potential to realize a profit. If we do achieve
profitability at some point in the future, we cannot be certain that we will
remain profitable or that profits will increase in the future. At this time, we
have not commenced operations and expect to incur net losses for the foreseeable
future. CyPacific's auditor has cautioned in its auditor's report dated May 8,
2003 for the period ended April 30, 2003 that CyPacific has not earned any
revenues. As of April 30, 2003, CyPacific reported a net loss of $2,379.
CyPacific estimates that additional funding of $100,000 will be required to
implement its business plan over its first 12 months. CyPacific intends to start
Phase 2 of its business plan after completion of Phase 1 and estimates that it
will require $35,000 to complete Phase 2. This raises substantial doubt about
its ability to continue as a going concern. In the event that the required funds
are not raised, CyPacific will significantly curtail its operation in order to
minimize business expenses. Andrew Lee, a director and president of CyPacific,
intends to advance funds of approximately $50,000 to the Company, estimated to
be required for minimized expenses over the initial nine months from
commencement of its business plan in the event that additional funds are not
raised. There is no assurance that Andrew Lee will be able to advance the
required funds or that CyPacific will continue to operate if additional funding
does not materialize. For further discussion, see the section of this
prospectus entitled " Operating and Financial Review and Prospects
or Plan of Operation" below.
FUTURE ISSUANCE OF DEBT MAY CONTAIN CONTRACTUAL RESTRICTIONS THAT MAY CURTAIL
IMPLEMENTATION OF OUR BUSINESS PLAN
We do not have any contractual restrictions limiting our ability to incur debt.
Any significant indebtedness, however, could restrict our ability to fully
implement our business plan. If we are unable to repay the debt, we could be
forced to cease operating. For further discussion, see liquidity and capital
resources in the section of this prospectus entitled " Operating and Financial
Review and Prospects
or Plan of Operation" below.
WE EXPECT TO INCUR LOSSES FOR THE FORESEEABLE FUTURE
As a developmental stage company, the Company must invest heavily in
infrastructure, Internet site and related hardware and software, and sales and
marketing. The Company expects to incur losses for the foreseeable future. The
Company expects to be able to earn future revenue ; however, there can be no
assurance that it will ever achieve or maintain profitability or generate
positive cash flow from operations. (See "Business")
IF WE ARE UNABLE TO DEVELOP A FUNCTIONAL AND COMPETITIVE WEBSITE, OUR BUSINESS,
OPERATING RESULTS AND FINANCIAL CONDITION MAY BE NEGATIVELY IMPACTED AND AS A
RESULT, WE MAY NOT BE ABLE TO CONTINUE WITH OUR OPERATIONS
Andrew Lee, the Company's president, is currently developing many of the basic
features and services that will be offered on our website. The initial layout,
design and functionality drawings have been completed. However, if we are unable
to complete the developing process and launch the planned website in a timely,
functional and competitive manner, our business, operating results and financial
condition may be negatively impacted and as a result, we may not be able to
continue with our operations.
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AS A RESULT OF NOT HAVING ANY ARRANGEMENTS FOR PROVIDERS OF PRODUCTS FOR OUR
WEBSITE, WE ARE AT RISK OF HAVING LITTLE OR NO PRODUCTS TO SELL ON OUR WEBSITE.
Andrew Lee, the Company's president, is currently searching for the products for
our website and contacting third party product providers. However, if we are
unable to complete the arrangements for products from third party providers, our
business, operating results and financial condition may be negatively impacted
and as a result, we may not be able to continue with our operations.
WE WILL RELY ON THIRD PARTIES FOR OUR ORDER FULFILLMENT, AND FAILURES ON THE
PART OF THESE THIRD PARTIES COULD HARM OUR BUSINESS.
We will use overnight courier and delivery services for substantially all of our
products. Should these services be unable to deliver our products for a
sustained time period as a result of a strike or other reason, our business,
results of operations and financial condition would be adversely affected. If,
due to problems related to these third-party service providers, we experience
any delays in shipment, our business, results of operations and financial
condition would be adversely affected.
FLUCTUATIONS IN OPERATING RESULTS
Given the current developmental status of the Company and the rapidly evolving
nature of the markets in which the Company will be competing, the Company
expects to experience significant fluctuations in its future operating results
due to a variety of factors, many of which are outside its control. Factors that
may adversely affect the Company's future operating results include the
following: 1) The continued overall acceptance and use of the Internet and
online services and increasing consumer acceptance of the Internet as a medium
for commerce; 2) The level of traffic on the Company's web site; 3) The
Company's ability to continually upgrade its systems and infrastructure and
attract new personnel in a timely and effective manner; 4) The announcement or
introduction of new sites, services and products by the Company and its
competitors; 5) Technical difficulties and system downtime or Internet
brownouts; 6) The amount and timing of operating costs and capital expenditures
relating to expansion of the Company's business, operations and infrastructure;
7) General economic conditions and economic conditions specific to the Internet
and online commerce; and 8) Lack of operating experience in Internet commerce
and retail business. The Company anticipates that completion of this offering
will be sufficient to achieve a breakeven point from operations by the time the
placement is completed. Due to the above factors, the Company's operating
results may fall below the expectations of management and its business could
suffer significantly.
INABILITY TO MANAGE GROWTH
In order to maximize potential growth in the Company's market opportunities, the
Company believes that it must expand rapidly and significantly in the market
place. This impetus for expansion will place a significant strain on the
Company's management, operational and financial resources. In order to manage
growth, the Company must implement and continually improve its operational and
financial systems, expand operations, attract and retain superior management and
train, manage and expand its employee base. The Company can give no assurance
that it will effectively manage the rapid expansion of its operations, that its
systems, procedures or controls will adequately support its operations or that
the company's management will successfully implement the plan described in this
Registration Statement. If the Company cannot effectively manage its growth,
business and financial condition, then the results of operations could suffer a
material adverse effect.
NEED FOR ADDITIONAL FINANCING
The Company requires financing to start the operation of its Internet retail
business. The financing would be used primarily for software development and
online and offline marketing to establish brand name recognition. The Company
can give no assurance that it will successfully negotiate or obtain the
necessary financing, or that it will obtain financing on terms favorable or
acceptable to the Company. None of the Company's directors or officers have
made any commitments for financing, except for Mr. Andrew Lee. Andrew Lee, a
director and president of CyPacific, intends to advance funds of approximately
$50,000, required for the minimized expenses over the first nine months from the
commencement of the business plan in the event that additional funds are not
raised. There is no assurance that Andrew Lee will be able to advance the funds.
The Company's ability to obtain capital depends on market conditions, the global
economy and other factors outside its control. If the Company does not obtain
adequate financing or such financing is not available on acceptable terms, the
Company's ability to develop or enhance products or services to respond to
competitive pressure would be significantly limited. The Company's failure to
secure necessary financing could have a material adverse effect on its business,
prospects, financial conditions and results of operations.
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DEVELOPMENT OF THE INTERNET INFRASTRUCTURE
The Company's business model depends on the Internet infrastructure. This
dependence on the Internet infrastructure may prove problematic for a number of
reasons, including: 1) Inadequate development of the necessary infrastructure
for communication speed, access and server reliability; 2) Security and
confidentiality concerns; 3) Lack of development of complementary products, such
as high-speed modems, and high-speed communication lines; 4) Implementation of
competing technologies; 5) Delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity; and 6) United States, Canadian and foreign governmental regulation.
The Company expects Internet use to grow in number of users and volume of
traffic. The Internet infrastructure may be unable to support the demands placed
on it by this continued growth. If these factors limit the acceptance or
effectiveness of Internet products, the Company's business could suffer
dramatically.
OUR FAILURE TO ATTRACT BANNER-ADVERTISING REVENUE IN QUANTITIES AND AT RATES
THAT ARE SATISFACTORY TO US COULD HARM OUR BUSINESS.
We expect in the future to derive a portion of our net revenue from
advertisements displayed on our websites. Our ability to achieve any substantial
advertising revenue depends upon:
- - the development of a large base of users possessing demographic
characteristics attractive to advertisers;
- - the level of traffic on our websites;
- - our ability to derive better demographic and other information from our users;
- - acceptance by advertisers of the Web as an advertising medium; and
- - our ability to transition and expand into other forms of advertising.
No standards have yet been widely accepted for the effectiveness of Web-based
advertising. Advertising filter software programs are available that limit or
remove advertising from an Internet user's desktop. Such software, if generally
adopted by users, may have a materially adverse effect upon the viability of
advertising on the Internet. If we are unsuccessful in sustaining or increasing
advertising sales levels, it could have a material adverse effect on our
business, operating results and financial condition.
DEPENDENCE ON CONTINUED USE OF THE INTERNET
The Company's level of sales to be generated from its worldwide web sites
depends in part on the use and acceptance of the Internet by end-users. The
growth in Internet usage is a relatively recent development, and no assurance
can be made that the Internet will continue to develop or that a sufficiently
broad base of consumers will adopt and continue to use the Internet and other
online services as a medium of commerce. Sales of computer products over the
Internet have increased as a percentage of the Company's net sales in recent
years. Continued growth of the Company's Internet sales is dependent on
potential customers using the Internet in addition to traditional means of
commerce to purchase products. The Company cannot accurately predict the rate
at which they will do so. If the use by consumers of the Internet to purchase
products does not continue, the Company's business, financial condition and
results of operations could be adversely affected.
The Company's success in maintaining and growing its Internet business will
depend in large part upon the development of an infrastructure for providing
Internet access and services. If the number of Internet users or their use of
Internet resources continues to grow rapidly, such growth may overwhelm the
Company's Internet infrastructure. The Company's ability to increase the speed
with which it provides services to customers and to increase the scope of such
services ultimately is limited by and reliant upon the speed and reliability of
the networks operated by third parties. The Company cannot assure that networks
and infrastructure providing sufficient capacity and reliability will continue
to be developed.
10
UNCERTAIN ACCEPTANCE OF THE INTERNET COULD HINDER THE COMPANY'S DEVELOPMENT
The internet market through which the Company intends to deliver its services
has only recently begun to develop and will continue to evolve. As a result,
demand for and market acceptance of products and services delivered over the
Internet remain uncertain. Moreover, since the market for its services is new
and evolving, the Company cannot accurately predict the size of this market or
its future growth rate, if any. The success of the Company's services will
depend substantially upon the widespread acceptance and use of the Internet by a
broad base of consumers. Rapid growth in the use of the Internet is a recent
phenomenon. For the Company to succeed, consumers who have historically used
other means to shop must accept and utilize novel ways of conducting business
and exchanging information. The Company cannot assure the investor that a broad
base of consumers will accept the Internet as an effective way of conducting
business and exchanging information or selecting credit and insurance products.
If the Company's online services do not achieve market acceptance or if the
Internet does not become a viable way of conducting business and exchanging
information, the Company's business, results of operations and financial
condition would suffer a material adverse effect and the Company may be unable
to sustain operations.
COMPETITION MAY HINDER THE COMPANY'S GROWTH
The online commerce market for exchanging product and services over the Internet
is evolving and may become intensely competitive. Since anticipated transactions
on the CyPacific site will include cash transactions, all sites that transact
trade, auction, exchanges or barter are current or potential competitors.
Certain of the Company's competitors may devote greater resources to marketing
and promotional campaigns and devote substantially more resources to web site
and development. Increased competition may result in reduced operating margins.
The Company cannot assure potential investors that the Company will compete
successfully against future competitors.
RAPID TECHNOLOGY CHANGE MAY RENDER THE COMPANY'S APPROACH OBSOLETE
The Internet and online commerce industries typically experience rapid
technological change, changing market conditions and customer demands and the
emergence of new industry standards and practices that could render the
Company's developing web site and technology obsolete. The Company's future
success will substantially depend on its ability to enhance its services and
technology and respond to technological advances in a timely and cost-effective
manner. The development of the web site and other proprietary technology entails
significant technical know how and business risk. The Company cannot assure the
investor that it will succeed in developing and using new technologies or in
adapting its technology and systems to meet emerging industry standards and
customer requirements. If the Company is unable, for technical, legal, financial
or other reasons, to adapt in a timely manner in responding to changing market
conditions or customer requirements, or if its new products and services do not
achieve market acceptance, its business, prospects, results of operations and
financial condition would suffer a material adverse effect.
RELIANCE ON KEY MANAGEMENT PERSONNEL
The Company's performance depends substantially on the continued services and
performance of its President. The Company's performance also depends on its
ability to attract, retain and motivate other qualified officers and key
employees. The loss of services of its executive officer could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operation. The Company's future success also depends on its ability
to identify, attract, hire, train, retain and motivate other highly skilled
technical, managerial and marketing personnel. Competition for such personnel is
intensive, and the Company's failure to attract and retain the necessary
technical, managerial and marketing personnel could have a material adverse
effect on its business, prospects, financial condition and results of
operations.
RISK OF SYSTEM FAILURE
The Company's success depends substantially on its ability to deliver high
quality, uninterrupted Internet hosting. This requires that the Company protect
its computer equipment and the information stored in its servers. The Company's
systems will be vulnerable to damage by fire, natural disasters, power loss,
telecommunications failures, unauthorized intrusion and other catastrophic
events. Any substantial interruption in the Company's systems would have a
material adverse effect on its business, prospects, financial condition and
results of operations. Although the Company intends on carrying property and
business interruption insurance, its coverage may not adequately compensate for
the losses that may occur. In addition, the Company's system may be vulnerable
to computer viruses, physical or electronic break-ins and other similar
disruptive events. Computer viruses, break-ins or other problems caused by third
parties could lead to interruptions, delays, and loss of data or cessation in
service to users of the Company's services. The occurrence of any of these risks
could have a material adverse effect on the Company's business, prospects,
financial condition or results of operations.
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GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
The Company is subject to various laws and regulations applicable to trade,
barter and sale or purchase of goods and services. To date, governmental
regulations have not materially restricted use of the Internet in our targeted
markets. However, there are an increasing number of laws and regulations
pertaining to the Internet. In addition, a number of legislative and regulatory
proposals are under consideration by federal, state, local and foreign
governments and agencies. Uncertainty and new regulations could increase our
costs of doing business and prevent us from delivering our products and services
over the Internet. The growth of the Internet may also be significantly slowed.
This could delay growth in demand for our online services and limit the growth
of our revenues. In addition to new laws and regulations being adopted, existing
laws may be applied to the Internet. New and existing laws may cover issues
including:
- - collection of sales and other taxes;
- - user privacy;
- - pricing controls;
- - characteristics and quality of products and services;
- - consumer protection;
- - libel and defamation;
- - copyright, trademark and patent infringement; and
- - other claims based on the nature and content of Internet materials.
NO PUBLIC MARKET FOR THE COMPANY'S SHARES AS AN INVESTMENT
There is currently no market existing for the issued and outstanding shares of
common stock of the Company. The shares may be currently traded only through
privately negotiated transactions. The Company intends to apply for
quotation on the OTC Bulletin Board and register with Standard & Poors. However
there can be no assurance that a public market will develop in the future, nor
can the Company give any assurance that any public offering it might undertake
in the future will be successful. There can be no assurance that purchasers
will be able to sell their acquired shares at any time in the future at a
profit, at a loss or even at all.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST CYPACIFIC
The enforcement by purchasers of the common shares offered in this prospectus of
civil liabilities under the federal securities laws of the United States may be
adversely affected by the fact that CyPacific is a Canadian corporation, all of
its directors and shareholders are residents of Canada, and all of CyPacific's
assets are located outside the United States. As a result, it may be difficult
for purchasers to effect service of process within the United States upon such
persons or to realize against them in the United States upon judgments of courts
of the United States predicated upon civil liabilities under securities laws of
the United States. Venture Law Corporation, Canadian counsel for CyPacific,
advised CyPacific that there is doubt as to the enforceability in Canada against
CyPacific or its directors or officers who are not residents of the United
States in original actions or in actions for enforcement of judgments of United
States courts of liabilities predicated upon federal securities laws of the
United States.
RISKS RELATING TO FORWARD-LOOKING STATEMENTS
Information provided concerning this Offering and the Company and its business
contains forward-looking statements, which reflect management's current view
with respect to future events and the Company's performance. Such
forward-looking statements may include projections with respect to market size
and acceptance, revenues and earnings, marketing and sales strategies and
business operations, along with other statements. These forward-looking
statements are subject to certain risks and uncertainties, including, but not
limited to, acceptance of the Company's products and services, the ability to
price products and services competitively, the ability to attract additional
capital, the establishment of an effective marketing plan, and the other risks
identified herein. Due to such uncertainties and the risk factors set forth
herein, prospective investors are cautioned not to place undue reliance upon
these forward-looking statements.
CONCERNS ABOUT SECURITY OVER THE INTERNET MAY REDUCE THE USE OF OUR WEBSITE AND
IMPEDE OUR GROWTH .
A significant barrier to confidential communications over the Internet has been
the need for security. Under current credit card practices, a merchant is liable
for fraudulent credit card transactions where, as is the case with the
transactions we process, that merchant does not obtain a cardholder's signature.
A failure to adequately control fraudulent credit card transactions could reduce
our collections and harm our business. Internet usage could decline if any
well-publicized compromise of security occurred. Our site could be particularly
affected by any such breach because our online commerce model will require the
entry of confidential customer ordering, purchasing and delivery data over the
Internet, and we will maintain a database of this historical customer
information. Until more comprehensive security technologies are developed, the
security and privacy concerns of existing and potential customers may inhibit
the growth of the Internet as a medium for commerce. We cannot be certain that
advances in computer capabilities, new discoveries in the field of cryptography
or other developments will not result in the compromise or breach of the
algorithms we will use to protect content and transactions on our website or
proprietary information in our database. Anyone who is able to circumvent our
security measures could misappropriate proprietary, confidential customer or
company information or cause interruptions in our operations. We may incur
significant costs to protect against the threat of such security breaches or to
alleviate problems caused by these breaches.
12
PRIVACY CONCERNS
Federal, state and foreign governments have enacted or may enact laws or
consider regulations regarding the collection and use of personal identifying
information obtained from individuals when accessing websites, with particular
emphasis on access by minors. Such regulations may include requirements that
companies establish procedures to:
- - give adequate notice to consumers regarding information collection and
disclosure practices;
- - provide consumers with the ability to have personal identifying
information deleted from a company's data;
- - provide consumers with access to their personal information and with the
ability to rectify inaccurate information;
- - clearly identify affiliations or a lack thereof with third parties that
may collect information or sponsor activities on a company's website;
- - obtain express parental consent prior to collecting and using personal
identifying information obtained from children; and
- - the Federal Children's Online Privacy Act.
Such regulation may also include enforcement and redress provisions. While we
will implement programs designed to enhance the protection of the privacy of our
users, including children, there can be no assurance that such programs will
conform to applicable laws or regulations. Moreover, even in the absence of such
regulations, the Federal Trade Commission has begun investigations into the
privacy practices of companies that collect information on the Internet. One
such investigation has resulted in a consent decree pursuant to which an
Internet company agreed to establish programs to implement the privacy
safeguards described above.
We will obtain and retain personal information about our website users with
their consent. We will have a stringent privacy policy covering this
information. However, if third persons become able to penetrate our network
security and gain access to, or otherwise misappropriate, our users' personal
information, we could be subject to liability. Such liability could include
claims for misuses of personal information, such as for unauthorized marketing
purposes or unauthorized use of credit cards. These claims could result in
litigation, our involvement in which, regardless of the outcome, could require
us to expend significant financial resources.
INTERNET TAXATION
A number of legislative proposals have been made at the federal, state and local
levels, and by foreign governments, that would impose additional taxes on the
sale of goods and services over the Internet and some states have taken measures
to tax Internet-related activities. Although Congress has placed a moratorium on
state and local taxes on Internet access or on discriminatory taxes on
e-commerce, existing state or local laws have been expressly excepted from this
moratorium. Further, once this moratorium is lifted, some type of federal or
state taxes may be imposed upon Internet commerce. Such legislation or other
attempts at regulating commerce over the Internet may substantially impair the
growth of commerce on the Internet and, as a result, adversely affect our
opportunity to derive financial benefit from such activities.
JURISDICTION
Due to the global reach of the Internet, it is possible that, although our
transmissions over the Internet originate primarily in the Province of British
Columbia, Canada, the governments of other states and foreign countries might
attempt to regulate Internet activities and our transmissions or take action
against us for violations of their laws.
13
ITEM 4. INFORMATION WITH RESPECT TO THE REGISTRANT AND THE OFFERING
USE OF PROCEEDS
CyPacific will not receive any of the proceeds from the sale of its common stock
by the selling shareholder.
DETERMINATION OF OFFERING PRICE
This prospectus is solely for the purpose of allowing a certain of our
shareholders to sell their stock. The shares may be sold when this registration
statement becomes effective, or the shareholder may elect to sell some or all of
their shares at a later date while the registration statement is effective.
The offering price of the common stock being offered by the selling shareholder
has been determined arbitrarily by Andrew Lee, the selling shareholder and
the president of the Company and has no relationship to any established
criteria of value, such as book value or earnings per share. Additionally,
because we have no significant operating history and have not generated any
revenues to date, the price of the common stock is not based on past earnings,
nor is the price of the common stock indicative of the current market value for
the assets owned by us. We make no representations as to any objectively
reasonable value of the common stock. Prices for the shares of our common stock
after this offering will be determined in the available market and may be
influenced by many factors, including the depth and liquidity of the market for
our common stock, the online retail industry as a whole, and general economic
and market conditions.
DIVIDEND POLICY
We intend to retain any future earnings for use in our business. We do not
intend to pay dividends on our shares for the foreseeable future. The
declaration of dividends is subject to the discretion of the board of directors
and consequently, no assurance can be given to the amount of dividends per share
or that any such dividends will be declared. Future cash dividends, if any, will
also depend upon our future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and other factors
as the board of directors may deem relevant. Loan agreements and contractual
arrangements entered into by CyPacific may also restrict distributions of
dividends.
DILUTION
The shares offered for sale by the selling shareholder are already issued and
outstanding and, therefore, do not contribute to dilution.
SELLING SHAREHOLDERS
The following table sets forth the name of the selling shareholder, the number
of shares of common stock beneficially owned by the selling shareholder prior to
the offering, the number of shares of common stock that may be offered for sale
pursuant to this prospectus by such selling shareholder, the number of shares of
common stock beneficially owned by the selling shareholder after the offering,
and the percentage ownership after the offering. The offered shares of common
stock may be offered from time to time by the selling shareholder named below.
(See "Plan of Distribution"). However, the selling shareholder is under no
obligation to sell all or any portion of the shares of common stock offered.
Neither is the selling shareholder obligated to sell such shares of common stock
immediately under this prospectus. The selling shareholder may not have a
present intention of selling his shares and may offer less than the number of
shares indicated. Because the selling shareholders may sell all or part of the
shares of common stock offered hereby, the following table assumes that all
shares offered under this prospectus have been sold by the selling shareholder.
NUMBER OF SHARES PERCENTAGE OF THE NUMBER NUMBER OF SHARES PERCENTAGE OF THE
NAME BENEFICIALLY CLASS BENEFICIALLY OF SHARES BENEFICIALLY CLASS BENEFICIALLY
OWNED PRIOR TO THE OWNED PRIOR TO OFFERED OWNED AFTER OWNED AFTER
OFFERING THE OFFERING THE OFFERING** THE OFFERING
- --------------------------------------------------------------------------------------------------------------------
Andrew Lee* 2,000,000 100 200,000 1,800,000 90
6874 Radisson St, Vancouver, B.C V5S 3W9
- --------------------------------------------------------------------------------------------------------------------
TOTAL 2,000,000 100 200,000 1,800,000 90
- --------------------------------------------------------------------------------------------------------------------
* Andrew Lee is currently the president of CyPacific.
** Assumes the sale of all offered shares of common stock under this offering.
14
PLAN OF DISTRIBUTION
We are unaware of any intention on the part of management or affiliated parties
to purchase any shares in this offering.
The selling shareholder may sell some or all of his 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 quoted or 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.
Upon the effectiveness of this registration statement, the selling shareholder
will offer and sell the shares at a maximum price of $0.10 per share until such
time as the shares of our common stock become quoted on the over-the-counter
Bulletin Board. Although we intend to apply for quotation of our common stock on
the over-the-counter Bulletin Board, public trading of our common stock may
never materialize. If a market develops for our common stock, then the sales
price to the public will vary according to the selling decisions of each selling
shareholder and the market for our stock at the time of resale. In these
circumstances, the sales price to the public may be:
1. The market price of our common stock prevailing at the time of sale;
2. A price related to such prevailing market price of our common stock; or
3. Such other price as the selling shareholder determine from time to time.
The offering will be on a continuous and delayed basis. The selling shareholder
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 such transactions as agent may
receive a commission from the selling shareholder, or, if they act as agent for
the purchaser of such common stock, from such purchaser. The selling shareholder
will likely pay the usual and customary brokerage fees for such services.
Brokers or dealers may agree with the selling shareholder 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 shareholder, to
purchase, as principal, any unsold shares at the price required to fulfill the
respective broker's or dealer's commitment to the selling shareholder. Brokers
or dealers who acquire shares as principals may thereafter resell such 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 such re-sales may pay or receive
commissions to or from the purchasers of such shares. These transactions may
involve cross and block transactions that may involve sales to and through other
brokers or dealers. If applicable, the selling shareholder may distribute shares
to one or more of their partners who are unaffiliated with us. Such partners
may, in turn, distribute such shares as described above. We can provide no
assurance that all or any of the common stock offered will be sold by the
selling shareholder.
CyPacific will bear all costs relating to the registration of the 200,000 shares
of common stock, estimated to be $10,320.00. The selling shareholder, however,
will pay any commissions or other fees payable to brokers or dealers in
connection with any sale of the common stock.
The following table sets forth the estimated expenses payable by the Registrant
in connection with the offering described in the Registration Statement (all
amounts are estimated including the SEC registration fee):
ITEM AMOUNT ($)
SEC Registration Fee $ 20.00
- -------------------- -----------
EDGAR Filing Expenses $ 2,000.00
- ------------------------------- ------------
Transfer Agent Fees $ 1,500.00
- ------------------------- ------------
Legal Fees $ 3,000.00
- -------------- ------------
Accounting Fees $ 2,000.00
- -------------------- ------------
Printing Costs $ 1,000.00
- ------------------ ------------
Miscellaneous $ 800.00
- ----------------- -----------
TOTAL $10,320.00
- ---------------- -------------
15
The selling shareholder must comply with the requirements of the Securities Act
of 1933 and the Securities Exchange Act of 1934 in the offer and sale of the
common stock. In particular, during such times as the selling shareholder may be
deemed to be engaged in a distribution of the common stock, and therefore is an
underwriter within the meaning of Section 2(11) of the Securities Act of 1933
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. There is no assurance that the selling shareholder will sell any
or all of the shares offered by them. Under the securities laws of certain
states, the shares may be sold in such states only through registered or
licensed brokers or dealers. In addition, in certain states the shares may not
be sold unless they have been registered or qualified for sale in that state or
an exemption from registration or qualification is available and is met.
CyPacific believes that shares registered by this prospectus may be offered by
the selling shareholder for sale in countries other than the United States,
specifically in Canada and Korea, subject to securities regulations in those
jurisdictions.
EXCHANGE RATES
CyPacific records its finances in Canadian (Cdn) dollars and reports its
operations in US dollars. Fluctuations in the exchange rate between the Cdn
dollar and the US dollar will affect the amount of dollars reported in its
financial statements and paid out in respect of cash dividends or other
distributions paid in Cdn dollars. The following table sets forth, for the
periods and dates indicated, certain information concerning the noon buying
rate. No representation is made that the Cdn dollar amounts referred to herein
could have been or could be converted into US dollars at any particular rate, or
at all. On November 4, 2003 the noon buying rate was Cdn$1.3321 to US$1.00.
YEARS ENDED DECEMBER 31 (CDN$ PER US$1.00)
AVERAGE RATE(1) YEAR END HIGH LOW
1998 1.4894 1.5375 1.5770 1.4075
1999 1.4827 1.4440 1.5302 1.4440
2000 1.4871 1.4995 1.5600 1.4350
2001 1.5519 1.5925 1.6023 1.4933
2002 1.5702 1.5800 1.6128 1.5108
(1)the average of the noon buying rates on the last date of each month (or a
portion thereof) during the period.
FOR EACH OF LAST SIX MONTHS (CDN$PER US$1.00)
HIGH LOW
May, 2003 1.4221 1.3446
June, 2003 1.3768 1.3348
July, 2003 1.4114 1.3368
August, 2003 1.4100 1.3836
September, 2003 1.3469 1.3876
October, 2003 1.3043 1.3481
16
CAPITALIZATION
The following table sets forth our capitalization as of July 30, 2003. Our
capitalization is presented on an actual basis. You should read this table in
conjunction with ''Operating and Financial Results and Prospects'' and our
financial statements and the notes thereto, included elsewhere in this
prospectus.
July 31, 2003 AS ADJUSTED ACTUAL POST
OFFERING
Cash $1,389
Long-term debt, including capital lease
obligations less current portion $nil
Shareholders' equity:
Common stock: no par value;
100,000,000 authorized;
2,000,000 shares issued and outstanding
on an actual basis, $1,395
2,000,000 shares issued and outstanding
on a pro forma basis, $1,395
Additional paid-in capital $nil
Loans to employees to acquire common stock $nil
Accumulated earnings (deficit) $(2,379)
Accumulated other comprehensive loss $(42)
Total shareholders' deficiency $(1,026)
SELECTED FINANCIAL AND OTHER DATA
The selected financial and other data set forth below should be read in
conjunction with the financial statements of CyPacific Trading Inc., including
the notes thereto, and "Operating and Financial Results and Prospects'' included
in this prospectus. The statement of operations data set forth below for the
period from incorporation March 21, 2003 and ended April 30, 2003 and the
balance sheet data as of April 30, 2003 are derived from the audited financial
statements of CyPacific included elsewhere in this prospectus, which have been
audited by Pannell Kerr Forster. Our financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America.
FROM INCEPTION MARCH 21, 2003 TO APRIL 30, 2003
STATEMENT OF OPERATIONS DATA:
Revenues: $nil
Costs and expenses:
Professional fees $2,057
Incorporation $317
Interest and bank charges $5
Net (loss) $(2,379)
Weighted average number of shares outstanding 2,000,000
Basic and diluted loss per share of common stock $(0.01)
17
AS OF APRIL 30, 2003 (1)
BALANCE SHEET DATA:
Cash $1,389
Working capital (deficiency) $(704)
Total assets $1,389
Long-term debt, excluding current portion $nil
Total shareholders' deficiency $(1,026)
(1) Reflects the period from March 21, 2003 (inception) to April 30, 2003.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
LIQUIDITY AND CAPITAL RESOURCES
Our initial sources of liquidity are expected to be existing cash and cash from
the proceeds of future offerings of our shares for sale. On incorporation March
21, 2003, Andrew Lee, a Director and President of the Company, acquired
2,000,000 shares of common stock for proceeds to the Company of $1,395. Since we
have no operating history, we must now rely on equity and/or debt financing to
launch our business. There can be no assurances that financing, whether debt or
equity, will be available to us in the amounts required at any particular time
or for any particular period, or if available, that it can be obtained on
satisfactory terms.
At April 30, 2003 we had a working capital deficiency of $(704). We anticipate
that we will need to raise additional capital within the next 6 months in order
to continue implementing our business plan and commence full operations.
CyPacific estimates that funding of $100,000 will be required to implement its
business plan over the first 12 months from commencement of its business. The
funding is anticipated to be required for administrative expenses of $40,000,
web building expenses of $20,000, purchase of computer and peripheral equipment
of $15,000 and other miscellaneous expenses of $25,000. CyPacific intends to
finance its administrative, start up and initial operating costs by the sale of
its shares, other shareholder financings, and standard business trade financing.
To the extent that additional capital is raised through the sale of equity
or equity-related securities, the issuance of such securities is likely to
result in dilution to our shareholders. There can be no assurance that sources
of capital will be available to us on acceptable terms, or at all. If we are
unable to raise additional capital, we may not be able to continue as a going
concern, and might have to reorganize under bankruptcy laws, liquidate or enter
into a business combination. We have not presently identified any probable
business combination. If adequate funds are not available within the next 3
months, CyPacific will significantly curtail its operation in order to minimize
business expenses.
No commitments to provide additional funds have been made by management,
stockholders or anyone else, with the exception of Andrew Lee. Andrew Lee a
director and president of CyPacific, will advance funds of approximately
$50,000, required for minimal expenses over the next nine months in the event
that additional funds are not available through the sale of the Company shares,
other shareholder financings, or standard business trade financing. The $50,000
will be used to build the website, purchase computer and necessary equipments
and hire employees. Part-time employees instead of full-time employees will be
hired, and CyPacific may hire sales and marketing staff on a compensation for
performance basis rather than on a monthly salary basis. CyPacific will also
consider issuing its shares to the website developer through stock option plan
if CyPacific does not have enough cash for the website development. There is no
assurance that Andrew Lee will be able to advance $50,000 or that CyPacific will
continue to operate if additional funding is not available on terms acceptable
to CyPacific or at all. The absence of funding would make the successful
completion of CyPacific's business plan doubtful.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk exposures due to fluctuations in exchange rates
and interest rates. CyPacific denominates its financial statements in United
States dollars but conducts its daily affairs in Canadian dollars. Changes in
the foreign exchange rate between the Cdn$ and the US$ may affect us due to the
effect of such changes on any shareholder distributions to US residents.
We are not currently carrying significant amounts of short term or long term
debt. Upward fluctuations in interest rates increase the cost of additional debt
and the interest cost of outstanding floating rate borrowings.
18
INFLATION
We do not consider that inflation in Canada has had a material impact on our
results of operations. Inflation in Canada in 2000, 2001, and 2002 was 2.7%,
2.6%, and 2.2%, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 138 (amendment of SFAS No. 133 issued June, 1998),
''Accounting for Derivative Instruments and Hedging Activities.'' Statement No.
138 establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. Because we currently hold no derivative financial instruments and do
not currently engage in hedging activities, adoption of Statement No. 138 is not
expected to have a material impact on our financial condition or results of
operations.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position, or ''SOP,'' 98-5, ''Reporting on the Costs of Start-Up
Activities''. SOP 98-5 requires that entities expense start-up costs as
incurred. We have adopted SOP 98-5 in our corporate accounting policies for the
period ending April 30, 2003.
19
BUSINESS
OVERVIEW
CyPacific was incorporated under the Company Act of British Columbia in British
Columbia, Canada on March 21, 2003 under the name of "CyPacific Trading Inc."
Since its inception, CyPacific has had its registered office and principal place
of business at 909 - 3083 East Kent Avenue North, Vancouver, B.C., Canada
V5S 4R2.. CyPacific has an agent in the United States of America. The agent is
Target Group, located at #520 177 Telegraph Road, Bellingham, WA USA 98226.
The officers and directors of CyPacific are currently looking to raise $100,000
in financing to execute the Company's business plan. If successful, the Company
intends to use the $100,000 as follows: building an e-commerce solution, renting
an office, and hiring administrative and marketing employees. For the first year
of operation, CyPacific will pursue the signing of contracts with manufacturers,
distributors, or other on-line retailers. CyPacific will focus on searching for
manufacturers of unique and marketable products. The product suppliers are not
identified yet. The Company is currently searching for suppliers with products
that are marketable in Asia. CyPacific will focus on the following categories of
merchandise:
i) apparel: clothing, shoes and fashion accessories
ii) toys
iii) cosmetics including aromatherapy merchandise
iv) sports gear
v) other collectibles.
Upon successful financing, the Company will retain an e-commerce solution
provider and build its online store. The Company has no plan to hire any
employees until financing of $100,000 takes place.
The online store will have features such as product search through online
catalogues, order placement or credit card payment and will also provide linking
service to other on-line retailers. The customers of CyPacific will browse
through CyPacific's on-line catalogue and search for the merchandise they want.
When CyPacific's customers decide on what to purchase, they fill out an order
form and make a payment using their credit cards. The order information is sent
to the customers' email accounts, which are provided at the time of order
placement, and also to CyPacific's customer service department. After the
payment is verified, the customer service department then gives an order to its
supplier. Upon the receipt of ordered merchandise from the suppliers, CyPacific
will ship the merchandise to each of its customers. Similar to the leaders in
the field of on-line sales, such as eBay, Yahoo and Amazon, CyPacific will limit
the method of customer payment to credit cards. In the future we may research
the possible benefits of using PayPal or E-Gold, should such payment methods
prove popular.
In addition to product sales, CyPacific plans to sell banner advertising by
charging a fee, with the fee varying depending on the placement of the banner
(i.e., a banner on CyPacific's proposed web site homepage would cost more than a
banner placed on other pages throughout the eventual site). The Company expects
to sell banner advertising mostly to North American manufacturers who wish to
introduce their companies and merchandise to Asian consumers. If the visitors
to CyPacific's website want to know about the manufacturers of certain
merchandise, they should be able to click on the manufacturers' banners and
enter the manufacturers' websites.
In the long run, CyPacific plans to secure stock of merchandise in advance and
sell them in the same manner, but in a broader area. CyPacific will deliver its
merchandise to customers in other parts of Asia as well as Korea. By securing
stock in advance, the Company will be able to attract more customers with more
ease by offering discount prices or holding special events, such as giving gifts
or offering certain merchandise for a specific period. In order to do this,
CyPacific will examine and analyze its performance and adjust its marketing and
purchasing plans. The banner advertising will continue to generate regular
income.
By having access to the inventories of multiple manufacturers and distributors,
the Company believes it will be able to offer its customers a competitive
combination of price, product availability, order fulfillment and delivery
services while obtaining profitability. Beyond the benefits of a wide selection,
purchasing from CyPacific will be able to be done conveniently, 24 hours a day,
without requiring a trip to a store. Unlike other retail and warehouse stores
which risk showcasing new products which may not achieve market acceptance, the
Company will not be as much at risk when introducing new products and services
or when creating consumer demand because it is able to do so without maintaining
expensive inventory. Further, the Company will be able to create increased
consumer demand by showcasing related products and services to its customers and
more accurately gauging their market acceptance.
20
BUSINESS STRATEGY
The Company's objective is to become a dominant retailer on the Internet by
pursuing the following key strategies:
INCREASE MARKET AWARENESS AND BRAND RECOGNITION
- ----------------------------------------------------
The Company operates in a market in which its brand name franchise is critical
to attracting high quality vendors and a high level of customer traffic.
Accordingly, the Company's strategy is to promote, advertise and increase its
visibility through a variety of marketing and promotional techniques, including
advertising on leading Internet sites, conducting an ongoing public relations
campaign and obtaining links from other Websites.
EXPAND AND STRENGTHEN LONG-TERM RELATIONSHIPS WITH SUPPLIERS
- ------------------------------------------------------------------
The Company's ability to attract, secure and obtain large quantities of
merchandise for its Website is key to its success. The Company will constantly
conduct research on suppliers and build long-term relationships with suppliers
by giving them a chance to showcase their new merchandise. The Internet
provides a low-cost venue to test new merchandise and concepts, which, the
Company believes, will appeal to vendors who may wish to showcase new
merchandise via the Internet. The suppliers who are not able to market their
merchandise in the Korean market on their own can utilize CyPacific's website in
order to introduce their companies and new merchandise. Relationships with such
suppliers may provide an innovative and entertaining aspect to its merchandise
mix that can potentially enhance general consumer appeal and help to
differentiate the Company from its competitors who have access to less volume
and variety of merchandise or who carry only Korean merchandise.
CyPacific intends to finance its administrative, start up and initial operation
costs by the sale of its shares, other shareholder financings and standard
business trade financing. The Company does not have any specific plans for
another offering for the moment. However, the Company might issue and sell its
shares to private investors residing in Canada pursuant to Rule 903 of
Regulation S. The offering will not be a public offering and will not be
accompanied by any general advertisement or any general solicitation. At this
time, there are no known sources of funding and no specific dates by which
CyPacific intends to accomplish the goals in its business plan. However,
CyPacific intends to start Phase 2 of its business plan, upon the completion
of Phase I at a cost of $30,000, by the end of December 2003.
CURRENT AND PAST ACTIVITIES:
CyPacific was incorporated in British Columbia, Canada on March 21, 2003. Since
that time, the management of CyPacific has worked on its business plan with
regards to what merchandise CyPacific will sell and where it will market its
merchandise. CyPacific has been contacting several small sized merchandise
suppliers in North America but has not entered into any agreements yet.
Currently, CyPacific is meeting a couple of website developers to get a price
quote and is doing a research for its web site design.
CyPacific plans to schedule its business operation by meeting the following
Phases:
Phase 1
- --------
Raise Funds and Conduct Market Survey
CyPacific will focus on raising $100,000 to build its website and cover the
operation costs until the Company generates revenues. Currently, the Company
has no employees. Upon successful funding, CyPacific will hire an employee for
research, surveying markets and retaining contracts with suppliers. The
researcher will conduct research into various potential target markets. The
market research is planned to consist of a telephone survey to approximately 100
randomly chosen prospective customers and an email survey to approximately 100
randomly chosen Internet users. Phase 1 is expected to be completed at a cost of
$30,000 by the end of December 2003. If raising of $100,000 is not successful,
CyPacific will hire part-time temporary employees to conduct market survey
instead of hiring a professional survey firm.
21
Phase 2 (Upon successful completion of Phase 1)
- ------------------------------------------------------
Develop Website and Enter into Strategic Alliance with Suppliers As soon
as Phase 1 is completed, CyPacific will develop its website over the next three
months. The Company will retain an e-commerce solution provider in order to
build its on-line store at a cost estimated at approximately $20,000. CyPacific
is now in the process of negotiating on the terms and conditions with several
such service providers. The Company will also need to be equipped with computers
and relevant devices in order to manage its website, which will cost
approximately $15,000. In this phase, the Company will exchange memorandum of
understandings and enter into strategic alliances with on-line retailers as well
as manufacturers. The Company will also designate a delivery service provider
to deliver the orders to customers. During Phase 2, the Company expects to
incur operational cost of approximately $50,000; $35,000 for website building
and necessary equipments, $3,000 for office rent, and $12,000 for two full-time
employees.
Phase 3 (Upon successful completion of Phase 2)
- ------------------------------------------------------
Launch the on-line store and a marketing team for off-line sales
CyPacific will publish a product catalogue and launch its on-line store and
off-line marketing team. To advertise the on-line store and also to market the
products off-line, CyPacific's sales and marketing team, consisting of two
full-time employees, will use various methods including visiting small offices
and distributing catalogues. For maintenance and update of the site, CyPacific
will use the service of the e-commerce solution provider who builds CyPacific's
website and online store. Phase 3 is estimated to require $60,000 over twelve
months.
Phase 4 (Upon successful completion of Phase 3)
- ------------------------------------------------------
Maintenance and Update of Website and Business Expansion to become a Wholesaler
CyPacific will periodically analyze the purchase pattern and opinions of
customers and use the result to constantly update its list of products and
website. CyPacific will keep searching for new products and build long-term
relationships with the suppliers. When additional fund becomes available,
CyPacific will establish a distribution center in Busan, Korea for better
customer service and faster deliveries of products.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND THE WORLD WIDE WEB
The Internet has become one of the fastest-growing means of communication,
reaching consumers and businesses worldwide. The Internet allows millions of
users to obtain and share information, interact with each other and conduct
business electronically. Lower computer prices, faster, easier and cheaper
Internet access, improvements in the performance and speed of personal computers
and modems, and an increase in the information and services available on the
Internet are among the factors fuelling the growth of Internet users.
The growth in the number of Web users is being driven by the increasing
importance of the Internet as a communications medium, an information resource,
and a sales and distribution channel. The widespread adoption and interactive
nature of the Internet have created new opportunities for conducting business
on-line and are changing the way companies do business. According to a recent
report from Ipsos-Reid, a global marketing research company, 54% of Internet
users worldwide indicated that in 2002 they had gone on-line shopping and 62% of
these people have made an order for a product or service on-line, which is 28%
growth from 1999. The US Census Bureau of the Department of Commerce announced
that out of US$3.168 trillion of total retail sales for the year 2001, US$35.916
billion was made on-line. More and more retail transactions are occurring
on-line, and through year 2002 about 1.3% of total sales were made over on-line
systems, including the Internet, extranet, electronic mail or electronic data
interchange network. In addition, the latest scores from the American Customer
Satisfaction Index, which was released in February 2003, indicates that US
consumers' satisfaction with on-line retail websites scored an 83 out of 100.
E-BUSINESS MARKETING AND CUSTOMER SERVICE DIFFERENCES
The Internet has also evolved into a unique marketing channel. Unlike
traditional marketing channels, Internet retailers do not have many of the
overhead costs, such as store rent, wages for salespeople or expenses for
merchandising, decorating and maintenance of a store, borne by traditional
retailers. In addition, electronic transaction workflows cost less to process
than paper-based workflows, which can add up to huge savings in a high-volume
transaction processing business. The Internet offers the opportunity to create a
large, geographically dispersed customer base more quickly than traditional
retailers. Online storefronts and Web-based order entry extend the reach of
sales systems to millions of Internet consumers and business markets. The
Internet also offers customers a broader selection of goods to purchase,
provides sellers the opportunity to sell their goods more efficiently to a
broader base of buyers and allows business transactions to occur at all hours.
Self-service applications, which are the Internet equivalent of a bank's ATM,
provide business partners with easier access to information access and a more
flexible availability schedule. Self-service application can also be seen as
enhancing customer service by providing new avenues for promotion and
distribution, by responding more quickly to orders, and by offering more
responsive after-sales service.
22
E-BUSINESS ADMINISTRATION DIFFERENCES
Web-based business has revolutionized traditional commerce processes. Employees
will be more productive because they are able to focus their time on better
exception handling, rather than mundane tasks that are done faster and more
efficiently by software. Business information and documents are distributed
electronically rather than on paper, cutting costs and improving consistency.
Participating in business process workflows electronically rather than manually
creates a seamless duty flow and automatic follow-up trail. In the majority of
E-businesses, as will be the case with our business, information is delivered
on-demand and proactively rather than reactively, and there is a reliance on
systematized business knowledge rather than on the knowledge of individuals. You
can cut costs and save time by improving the quality of supply chain management,
by integrating back-end production and logistics with front-end marketing and
sales, and by letting the computer and software do most of the work in
controlling inventory. You can cut costs and save time by improving internal
functions, by cutting down on meetings, by sharing information, by eliminating
endless trails of paper, and by assuring that internal communications are
precise and understood.
MARKETING AND SALES
The success of CyPacfic is contingent upon the visibility and market acceptance
it will achieve on the Internet and the revenues generated by on-line and
off-line product sales as well as banner advertisement.
CyPacfic's marketing will be designed to position the Company as the premier
on-line store. CyPacfic will target individuals, corporations as well as other
retailers.
Whereas earlier Internet advertising was mostly accomplished through banner
advertising, the industry is now marketing websites through a combination of
on-line advertising and more traditional media and direct mail advertisement.
CyPacfic will adopt this approach in its marketing campaign.
CyPacfic believes that by advertising in a broad range of media, including the
Internet, newspapers and magazines, it will be able to substantially increase
its exposure. CyPacfic will also need to expand its advertising arrangements
with other on-line store sites and other companies. These website advertising
arrangements will include mutual linking arrangements, such as other companies
linking to CyPacfic website and CyPacfic site linking to the sites of those
companies. In addition to this, the Company will adopt a more traditional
marketing approach such as visiting and making phone calls to potential
customers and distributing advertising material.
CyPacfic intends to build strong customer loyalty through the use of customized
offerings to its customers through the use of extensive data regarding customer
preference and behavior, obtained as a result of monitoring its customers'
activities on-line. The Company's website will be designed to allow rapid
product experimentation, customer buying pattern analysis, instant user feedback
and customized data-based marketing for each of the customers. In contrast to
traditional direct-marketing efforts, CyPacfic's personalized notification
services send customers information updating its prices as well as its new
product and service offerings. By offering customers a compelling and
personalized value proposition, the Company seeks to increase the number of
visitors who make a purchase, encourage repeat visits and purchases and extend
customer retention. Satisfied customers will generate word-of-mouth advertising
and are able to reach thousands of potential customers because of the wide reach
of on-line communication.
Although CyPacfic believes that this marketing strategy will attract more users
to CyPacfic on-line store, CyPacfic makes no assurance that it's marketing will
be successful or its sales will increase. There are a number of factors that may
negatively impact CyPacfic's business plan. See "Risk Factors" beginning on page
8. Therefore, CyPacfic provides no assurances that the plans of CyPacfic will
be successful.
23
COMPETITION
The electronic commerce market is rapidly evolving and intensely competitive,
including South Korea, which is CyPacific's target market. Furthermore,
CyPacific expects competition to intensify in the future. Barriers to entry are
relatively low, and current and new competitors can launch new sites at a
relatively low cost using commercially available software. CyPacific competes
with a variety of other companies depending on the type of merchandise and sales
format offered to customers. These competitors are based in South Korea and
include: (i) various Internet auction houses such as Auction Korea, Waawaa,
Clickplus and Woori Home Shopping; (ii) a number of competitors that specialize
in electronic commerce or derive a substantial portion of their revenue
from electronic commerce, including LG eshop, Interpark, CJ Mall, Lotte.com and
Hmall; (iii) a variety of other companies that offer merchandise similar to
that of CyPacific but through physical auctions.
CyPacific will compete for banner advertisements with other portals or on-line
stores that offer shopping search engines, including CJ Mall, Yahoo! Shopping
and Daum.net. There can be no assurance that CyPacific can maintain a
competitive position with potential competitors.
Many of the Company's current and potential competitors will have longer
operating histories, larger customer bases, greater brand name recognition and
significantly greater financial, marketing and other resources than the Company.
In addition, on-line retailers may be acquired by, receive investments from or
enter into other commercial relationships with larger, well-established and
well-financed companies as use of the Internet and other on-line services
increases. Certain of the Company's competitors may be able to secure
merchandise from vendors on more favourable terms, devote greater resources to
marketing and promotional campaigns, adopt more aggressive pricing or inventory
availability policies and devote substantially more resources to Website and
systems development than the Company. Increased competition may result in
reduced operating margins, loss of market share and a diminished franchise
value.
EMPLOYEES
As of October 6, 2003, the Company has no employees. The Company plans to hire
employees upon the successful completion of funding and Phase 1 of its business
plan. The additional employees that CyPacific will need is expected to
include 2 full-time employees for the shipping department, 2 full-time employees
for the Customer service department, 2 full-time employees for the Purchasing
department and 2 full-time employees for the Marketing and Sales department.
The Company believes that its future success will depend in part on its ability
to attract, hire and maintain qualified personnel. Competition for such
personnel in the on-line industry is intense.
TRANSACTIONS WITH AFFILIATES AND OTHER RELATED PARTIES
There have been no transactions with affiliates or related parties since
inception, and none are anticipated.
CERTAIN BUSINESS RELATIONSHIPS
No director or nominee for director is or has been during CyPacific's last
fiscal year an executive officer or beneficial owner of more than 10% of any
other entity that has engaged in a transaction with CyPacific in excess of 5% of
either its revenues or assets.
INDEBTEDNESS OF MANAGEMENT
There are no persons who are directors, executive officers of CyPacific,
nominees for election as a director, immediate family members of the foregoing,
corporations or organizations (wherein the foregoing are executive officers or
partners, or 10% of the shares of which are directly or beneficially owned by
the foregoing), trusts or estates (wherein the foregoing have a substantial
beneficial interest or as to which the foregoing serve as a trustee or in a
similar capacity) that are indebted to CyPacific in any amount.
FACILITIES
CyPacific's headquarters are located in Vancouver, British Columbia, Canada.
CyPacific does not own any property. It uses approximately 800square feet of
office space at 909 - 3083 East Kent Avenue North, Vancouver, B.C., Canada.
at no cost.
LITIGATION
The Company is not party to any material legal proceedings.
24
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
CyPacific has three directors and two officers, president and secretary.
Mr. Andrew Lee, the president and director, also acts as a chief financial
officer of the Company.
The following table sets forth the name, age, and position of each Director and
Executive Officer of CyPacific Trading Inc.
NAME&BUSINESS ADDRESS(1) AGE POSITION
- ------------------------ --- --------
Andrew S. Lee 24 President, Director and acting as Chief
Financial Officer
- --------------- -- -----------------------------
Jongin Lee 53 Secretary and Director
- --------------- -- -----------------------------
Ben Wilson 25 Director
- --------------- -- --------
Note: (1) The business address of Andrew Lee, Joingin Lee and Ben Wilson is
"909 - 3083 East Kent Avenue North, Vancouver, B.C., Ca
DIRECTORS AND EXECUTIVE OFFICERS
Andrew S. Lee majored in computer science at the British Columbia Institute of
Technology and has been working as a freelance computer system and network
administrator since graduation in 2002. . His duties included adding and
configuring new workstations, setting up user accounts, installing system-wide
software, performing procedures to prevent the spread of viruses, developing
Website, and maintaining network (LAN and WAN). While working for several small
companies, including those providing online services, he has accumulated
knowledge on how to operate and manage an online-based company. At CyPacific, he
will be responsible for making the major decisions as well as supervising
website management.
Jongin Lee, the father of Andrew S. Lee, graduated from Busan National
University in South Korea in 1980 and has 25 years management experience as the
president of Seoul Art Inc., an artificial flower manufacturer located in South
Korea. Since he came to Canada in 1995, he has been a consultant to Korean
people starting a business in Canada. With his knowledge and experiences in
business management, he will contribute to the Company in establishing strategic
relationships with suppliers. The Company also believes that his network in
Korea will help the Company explore the Korean market.
Ben Wilson is currently working as an anchor for a radio program "News 1130" in
Vancouver, Canada. He graduated from British Columbia Institute of Technology
with a major in English in 2000 and has been working for the radio station since
graduation. While working as a radio program anchor, he has established an
extensive network in the British Columbia community, which we believe will help
the Company to obtain financing and reputable suppliers.
BOARD OF DIRECTORS
The board of directors has the ultimate responsibility for the administration of
the affairs of CyPacific. Our Articles currently provide for a board of
directors of not less than one while the company is not a reporting company, and
not less than three directors when the company is reporting. There is no
maximum number of directors of the Company. The directors are elected at a
general meeting of shareholders by a majority vote of the shareholders present
or represented by proxy. These general meetings are subject to quorum
requirements of at least two members or proxy holders holding an accumulative
minimum of 35 % of the outstanding votes, if the company has two or more
members, or one member if the company has one sole member. A member by
definition must hold a minimum of one share of the company stock. All directors,
being share-holding members or not, are to be treated as members in every
respect. All directors from the previous year must retire at the ordinary
general meeting of shareholders convened with respect to the last fiscal year,
and may also be immediately re-elected should the members so vote. If such
meeting is not held, it is expected that all current directors will continue to
serve. Under our Articles, at each annual general meeting of the the term of
all directors is served until the director chooses to resign, or is removed
pursuant to Article 14.2 of the Company Act of British Columbia, or is
convicted of an indictable offence and the other directors resolve to remove
him, or if he ceases to be qualified as a director under the same Company Act.
It is expected that all current directors of CyPacific will continue to serve
after this offering and until April 30, 2004.
25
AUDIT COMMITTEE AND RENUMERATION COMMITTEE
CyPacific does not have an audit committee or remuneration committee at this
time.
INDEPENDENT AUDITOR
Our Articles provide for the appointment by the shareholders of CyPacific of an
independent auditor. The independent auditor's term expires at the close of the
ordinary general meeting of shareholders convened with respect to the last
fiscal year from the date of acceptance by the independent auditor. Currently,
Pannell Kerr Forster, Chartered Accountants Accountants and members of Institute
of Chartered Accountants of British Columbia, located at #700-355 Burrard
Street, Vancouver, British Columbia Canada V6C 2G8, , is our independent
auditor.
INDEPENDENT DIRECTORS
There are no independent directors at this time.
BUSINESS AND FINANCIAL ADVISOR
We do not have any business or financial advisors at this time.
EXECUTIVE COMPENSATION
We have not paid any compensation so far to our directors and officers
individually or as a group. The amount of retirement and severance benefits
accrued for our executive officers and directors so far is $nil. There has been
no pension, retirement or other similar benefits set aside for our executive
officers and directors.
STOCK OPTION PLAN
Under our Articles, we may grant options for the purchase of our shares to
certain qualified officers and employees. There are no stock options or warrants
or other securities convertible into CyPacific Trading Inc. common stock
outstanding as at April 30, 2003. We may file a registration statement on Form
S-8 after the effective date hereof that would permit and facilitate the
offering of options to acquire shares of common stock of CyPacific by employees,
directors and consultants at prices per share at variance with any market
quotations at the time. There were no warrants or other securities convertible
into CyPacific Trading Inc. common stock outstanding as of April 30, 2003.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 30, 2003, our outstanding common
stock owned of record or beneficially by each executive officer and director and
by each person who owned of record, or was known by us to own beneficially, more
than 5% of our common stock, and the shareholdings of all executive officers and
directors as a group. As of April 30, 2003, we had 2,000,000 shares of common
stock issued and outstanding. All shares set forth in the following table are
held directly and the shareholder has sole voting and investment power
concerning their shares.
NAME TITLE SHARES OWNED PERCENTAGE OF SHARES OWNED
- ---- ---------------------- ------------ ---------------------------
Andrew S. Lee President and Director 2,000,000 100
Each of CyPacific Trading Inc.'s officers and directors may be reached at its
executive offices located at 909 - 3083 East Kent Avenue North, Vancouver, B.C.,
Canada V5S 4R2.
There are no arrangements, known to us, the operation of which may result in a
change of control of CyPacific.
26
DESCRIPTION OF SHARE CAPITAL
The following is a description of the material terms of our capital stock. For a
more complete understanding, see our Memorandum and Articles, which are included
as exhibits to the registration statement that include this prospectus, and the
applicable provisions of Canadian law.
Our authorized capital stock consists of 100,000,000 shares of common stock,
without par value. At April 30, 2003, there were 2,000,000 shares of common
stock issued and outstanding.
COMMON STOCK
Each recorded holder of common stock is entitled to one vote for each share held
on all matters properly submitted to the shareholders for their vote. The
Articles do not permit cumulative voting for the election of directors, and
shareholders do not have any preemptive rights to purchase shares in any future
issuance of CyPacific's common stock.
Because the holders of shares of CyPacific's common stock do not have cumulative
voting rights, the holders of more than 50% of the outstanding shares, voting
for the election of directors, can elect all of the directors to be elected, if
they so choose. In such event, the holders of the remaining shares will not be
able to elect any directors.
The holders of shares of common stock are entitled to dividends, out of funds
legally available therefore, when and as declared by the Board of Directors. The
Board of Directors has never declared a dividend and does not anticipate
declaring a dividend in the future. In the event of liquidation, dissolution or
winding up of our affairs, holders are entitled to receive, ratably, the net
assets of CyPacific available to shareholders after payment of all creditors.
Under the Articles, only the Board of Directors has the power to call a special
meeting of the shareholders, thereby limiting the ability of shareholders to
effect a change in control of CyPacific by changing the composition of its
Board.
In the future CyPacific may issue additional shares of its common stock, in
which event the relative interest of the existing shareholders and shareholders
who purchase under this offering may be diluted.
MEMORANDUM AND ARTICLES OF INCORPORATION
Our charter documents consist of our Memorandum and our Articles. Neither our
Memorandum nor our Articles contain our purpose or our objectives, as neither is
required under the laws of British Columbia.
None of our directors is permitted to vote on any resolution to approve a
material contract or transaction in which such director has a material interest.
(Articles, Paragraph 12.6). Neither our Memorandum nor our Articles limit the
directors' power, in the absence of an independent quorum, to vote compensation
to themselves or any members of their body. The Articles provide that directors
shall receive such remuneration as the board of directors shall determine from
time to time. (Articles: Paragraph 12.4). The board of directors may, without
the authorization of the shareholders:
- -borrow money in such manner and amount, on such security, from such sources and
upon such terms and conditions as they think fit;
- -issue bonds, debentures and other debt obligations either outright or as
security for any liability or obligation of us by any other person; and
- -mortgage or charge, whether by way of specific or floating charge, or give
other security on the undertaking and the whole or any part of the property and
assets (both present and future) of us (Articles: Paragraph 8.1).
Neither our Memorandum nor our Articles discuss the retirement or non-retirement
of directors under an age limit requirement, and there is no number of shares
required for director qualification.
Neither our Memorandum nor our Articles address the process by which the rights
of holders of shares may be changed. The general provisions of the British
Columbia Company Act apply to this process, and require that any change in the
rights, privileges and restrictions attached to shares must be approved by not
less than three quarters of the votes cast at a duly convened general meeting of
shareholders at which the proposed change is put forward for consideration.
27
Annual general meetings and special general meetings of our shareholders are
held on such day as is determined by resolution of the directors. (Articles,
Paragraph 9.1). The British Columbia Company Act requires that our annual
general meeting be held within 13 months after our past preceding annual general
meeting. The British Columbia Company Act requires that shareholders be given
not less than 21 days' notice of any general meeting. Notices of general
meetings of shareholders must state the nature of the business to be transacted
in detail and must include the text of any special resolution to be submitted to
the meeting. Our board of directors is permitted to fix a record date for any
meeting of the shareholders that is not more than 49 days prior to such meeting.
(Articles, Paragraph 9.7) Pursuant to the British Columbia Company Act, the only
persons entitled to admission at a meeting of the shareholders are shareholders
entitled to vote, our directors, our auditors, and others entitled by law, by
invitation of the chairman of the meeting, or by consent of the meeting.
Neither our Memorandum nor our Articles discuss limitations on the rights to own
securities or exercise voting rights thereon
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our shares, and there can
be no assurance that a significant public market for our shares will develop or
be sustained after this offering. Future sales of substantial amounts of our
shares (including shares issued upon exercise of outstanding options and
warrants) in the public market following this offering could adversely affect
market prices prevailing from time to time and could impair our ability to raise
capital through sale of our equity securities.
This registration statement and prospectus will permit our shareholder to sell
up to an aggregate of 200,000 shares of our common stock from time to time, as
long as we maintain the effectiveness of the registration statement and update
the prospectus.
A further 1,800,000 shares of our common stock are held by Andrew S. Lee,
president and director of CyPacific and the selling shareholder in this
prospectus, and may be sold under Rule 144 only in compliance with the public
information, volume limitation, manner of sale and notice conditions of the
rule.
In general, a sale under Rule 144 after holding shares for more than one year
but less than two years requires compliance with the following material
conditions:
- - public information - we must be current in our requirement to file our
quarterly and annual reports with the SEC;
- - volume limitation - during any three-month period, a shareholder may not sell
more than one percent of our total outstanding shares, as shown on our most
recent quarterly or annual report;
- - manner of sale - the shares must be sold in a market transaction through a
broker or market maker, generally without solicitation of a buyer; and
- - notice - except for certain de minimis sales, the seller must file a Form 144
with the SEC.
Sales of unregistered securities by an affiliate must always comply with these
four conditions. After holding their shares for more than two years,
shareholders who are not affiliates may sell their shares without having to
comply with these conditions. Rule 144 has a number of exceptions and
complications, and any sale under Rule 144 requires an opinion of counsel
reasonably satisfactory to us.
There are no contractual restrictions prohibiting the sale of any of our
outstanding shares.
TAX CONSIDERATIONS
A brief description of provisions of the tax treaty between Canada and the
United States is included below, together with a brief outline of certain taxes,
including withholding provisions, to which United States security holders are
subject under existing laws and regulations of Canada. The consequences, if any,
of provincial, state and local taxes are not considered.
Security holders are urged to seek the advice of their own tax advisors, tax
counsel or accountants with respect to the applicability or effect on their own
individual circumstances of the matters referred to herein and of any
provincial, state or local taxes.
Material Canadian Federal Income Tax Consequences. The discussion under this
heading relates to the principal Canadian federal income tax consequences of
acquiring, holding and disposing of shares of common stock of the Company for a
shareholder of the Company who is not a resident of Canada but is a resident of
the United States and who will acquire and hold shares of common stock of the
Company as capital property for the purposes of the Income Tax Act (Canada) (the
"Canadian Tax Act"). This summary does not apply to a shareholder who carries on
business in Canada through a "permanent establishment" situated in Canada or
performs independent personal services in Canada through a fixed base in Canada
if the shareholder's holding in the Company is effectively connected with such
permanent establishment or fixed base. This information is based on the
provisions of the Canadian Tax Act and the regulations thereunder and on an
understanding of the administrative practices of Canada Customs and Revenue
Agency, and takes into account all specific proposals to amend the Canadian Tax
Act or regulations made by the Minister of Finance of Canada as of the date
hereof. This discussion is not a substitute for independent advice from a
shareholder's own Canadian and U.S. tax advisors.
28
The provisions of the Canadian Tax Act are subject to income tax treaties to
which Canada is a party, including the Canada-United States Income Tax
Convention (1980), as amended (the "Convention").
Dividends on Common Shares and Other Income. Under the Canadian Tax Act, a
non-resident of Canada is subject to Canadian withholding tax at the rate of 25
percent on dividends paid or deemed to have been paid to him or her by a
corporation resident in Canada. The Convention limits the rate to 15 percent if
the shareholder is a resident of the United States and the dividends are
beneficially owned by and paid to such shareholder, and to 5 percent if the
shareholder is also a corporation that beneficially owns at least 10 percent of
the voting stock of the payor-corporation.
The amount of a stock dividend (for tax purposes) would be equal to the amount
by which the paid up or stated capital of the Company had increased because of
the payment of such dividend. The Company will furnish additional tax
information to shareholders in the event of such a dividend. Interest paid or
deemed to be paid on the Company's debt securities held by non-Canadian
residents may also be subject to Canadian withholding tax, depending upon the
terms and provisions of such securities and any applicable tax treaty.
The Convention exempts from Canadian income tax dividends paid to a religious,
scientific, literary, educational or charitable organization or to an
organization constituted and operated exclusively to administer a pension,
retirement or employee benefit fund or plan, if the organization is a resident
of the United States and is exempt from income tax under the laws of the United
States.
Dispositions of Common Shares. Under the Canadian Tax Act, a taxpayer's capital
gain or capital loss from a disposition of a share of common stock of the
Company is the amount, if any, by which his or her proceeds of disposition
exceed (or are exceeded by, respectively) the aggregate of his or her adjusted
cost base of the share and reasonable expenses of disposition. One-half of a
capital gain (the "taxable capital gain") is included in income, and one-half of
a capital loss in a year (the" allowable capital loss") is deductible from
taxable capital gains realized in the same year. The amount by which a
shareholder's allowable capital loss exceeds the taxable capital gain in a year
may be deducted from a taxable capital gain realized by the shareholder in the
three previous or any subsequent year, subject to adjustment when the capital
gains inclusion rate in the year of disposition differs from the inclusion rate
in the year the deduction is claimed.
If a share of common stock of the Company is disposed of to the Company other
than in the open market in the manner in which shares would normally be
purchased by the public, the proceeds of disposition will, in general terms, be
considered as limited to the paid-up capital of the share and the balance of the
price paid will be deemed to be a dividend. In the case of a shareholder that is
a corporation, the amount of any capital loss otherwise determined may be
reduced by the amount of dividends previously received in respect of the shares
disposed of, unless the corporation owned the shares for at least 365 days prior
to sustaining the loss and (together with corporations, persons and other
entities, with whom the corporation was not dealing at arm's length) did not own
more than five percent of the shares of any class of the corporation from which
the dividend was received. These loss limitation rules may also apply where a
corporation is a member of a partnership or a beneficiary of a trust that owned
the shares disposed of.
Under the Canadian Tax Act, a non-resident of Canada is subject to Canadian tax
on taxable capital gains, and may deduct allowable capital losses, realized on a
disposition of "taxable Canadian property." Shares of common stock of the
Company will constitute taxable Canadian property of a shareholder at a
particular time if the shareholder used the shares in carrying on business in
Canada, or if at any time in the five years immediately preceding the
disposition 25 percent or more of the issued shares of any class or series in
the capital stock of the Company belonged to one or more persons in a group
comprising the shareholder and persons with whom the shareholder did not deal at
arm's length.
29
The Convention relieves United States residents from liability for Canadian tax
on capital gains derived on a disposition of shares unless (a) the value of the
shares is derived principally from "real property" in Canada, including the
right to explore for or exploit natural resources and rights to amounts computed
by reference to production, (b) the shareholder was resident in Canada for 120
months during any period of 20 consecutive years preceding, and at any time
during the 10 years immediately preceding, the disposition and the shares were
owned by him when he or she ceased to be resident in Canada, or (c) the shares
formed part of the business property of a "permanent establishment" that the
holder has or had in Canada within the 12 months preceding the disposition.
Material United States Federal Income Tax Considerations The following
discussion is based upon the sections of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, published Internal Revenue Service
("IRS") rulings, published administrative positions of the IRS and court
decisions that are currently applicable. This discussion does not consider the
potential effects, both adverse and beneficial, of any recently proposed
legislation that, if enacted, could be applied, possibly on a retroactive basis,
at any time. Holders and prospective holders of shares of the Company are urged
to consult their own tax advisors about the Federal; state, local and foreign
tax consequences of purchasing, owning and disposing of shares of the Company.
U.S. Holders. As used herein, a "U.S. Holder" includes a holder of shares of the
Company who is a citizen or resident of the United States, a corporation created
or organized in or under the laws of the United States or of any political
subdivision thereof, any entity that is taxable as a corporation for U.S. tax
purposes and any other person or entity whose ownership of shares of the Company
is effectively connected with the conduct of a trade or business in the United
States. A U.S. Holder does not include persons subject to special provisions of
Federal income tax law, such as tax exempt organizations, qualified retirement
plans, financial institutions, insurance companies, real estate investment
trusts, regulated investment companies, broker-dealers, nonresident alien
individuals or foreign corporations whose ownership of shares of the Company is
not effectively connected with conduct of trade or business in the United
States, shareholders who acquired their stock through the exercise of employee
stock options or otherwise as compensation and shareholders who hold their stock
as ordinary assets and not as capital assets.
Distributions on Shares of the Company. U.S. Holders receiving dividend
distributions (including constructive dividends) with respect to shares of the
Company are required to include in gross income for United States Federal income
tax purposes the gross amount of such distributions to the extent that the
Company has current or accumulated earnings and profits as defined under U.S.
Federal tax law, without reduction for any Canadian income tax withheld from
such distributions. Such Canadian tax withheld may be credited against the U.S.
Holder's United States Federal income tax liability or, alternatively, may be
deducted in computing the U.S. Holder's United States Federal taxable income by
those who itemize deductions. (See discussion that is more detailed at "Foreign
Tax Credit" below). To the extent that distributions exceed current or
accumulated earnings and profits of the Company, they will be treated first as a
return of capital up to the U.S. Holder's adjusted basis in the shares and
thereafter as gain from the sale or exchange of the shares. Preferential tax
rates for net capital gains are applicable to a U.S. Holder that is an
individual, estate or trust. There are currently no preferential tax rates for
long-term capital gains for a U.S. Holder that is a corporation.
Dividends paid on the shares of the Company are not expected to be eligible for
the dividends received deduction provided to corporations receiving dividends
from certain United States corporations. A U.S. Holder that is a corporation may
be entitled to a 70% deduction of the United States source portion of dividends
received from the Company (unless the Company qualifies as a "foreign personal
holding company" or a "passive foreign investment company", as defined below) if
such U.S. Holder owns shares representing at least 10% of the voting power and
value of the Company.
In the case of foreign currency received as a dividend that is not converted by
the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have
a tax basis in the foreign currency equal to its U.S. dollar value on the date
of receipt. Any gain or loss recognized upon a subsequent sale or other
disposition of the foreign currency, including the exchange for U.S. dollars,
will be ordinary income or loss. However, for tax years after 1997, an
individual whose realized foreign exchange gain does not exceed U.S. $200 will
not recognize that gain, to the extent that there are not expenses associated
with the transaction that meet the requirement for deductibility as a trade or
business expense (other than travel expenses in connection with a business trip
or as an expense for the production of income).
30
Foreign Tax Credit. A U.S. Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership of shares of the Company may
be entitled, at the option of the U.S. Holder, to either a deduction or a tax
credit for such foreign tax paid or withheld. It will be more advantageous to
claim a credit because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year. There
are significant and complex limitations that apply to the credit, among which is
the general limitation that the credit cannot exceed the proportionate share of
the U.S. Holder's United States Federal income tax liability that the U.S.
Holder's foreign source income bears to his or its worldwide taxable income. In
the determination of the application of this limitation, the various items of
income and deduction must be classified into foreign and domestic sources.
Complex rules govern this classification process. There are further limitations
on the foreign tax credit for certain types of income such as "passive income",
"high withholding tax interest", "financial services income", and "shipping
income". The availability of the foreign tax credit and the application of the
limitations on the credit are fact specific and holders and prospective holders
of shares of the Company are urged to consult their own tax advisors regarding
their individual circumstances.
In the case of certain U.S. Holders that are corporations (other than
corporations subject to Subchapter S of the Code), owning 10% or more of the
Company's Common Shares, a portion of the qualifying Canadian income tax paid by
the Company will also be available as a foreign tax credit for U.S. federal
income tax purposes, at the election of the U.S. Holder.
Disposition of Shares of the Company. A U.S. Holder will recognize a gain or
loss upon the sale of shares of the Company equal to the difference, if any,
between (i) the amount of cash plus the fair market value of any property
received, and (ii) the shareholder's tax basis in the shares of the Company.
This gain or loss will be a capital gain or loss if the shares are a capital
asset in the hands of the U.S. Holder, and will be a short-term or long-term
capital gain or loss depending upon the holding period of the U.S. Holder. Gains
and losses are netted and combined according to special rules in arriving at the
overall capital gain or loss for a particular tax year. Deductions for net
capital losses are subject to significant limitations. Corporate capital losses
(other than losses of corporations electing under Subchapter S or the Code) are
deductible to the extent of capital gains. Non-corporate taxpayers may deduct
net capital losses, whether short-term or long-term, up to U.S. $3,000 a year
(U.S. $1,500 in the case of a married individual filing separately). For U.S.
Holders that are individuals, any unused portion of such net capital loss may be
carried over to be used in later tax years until such net capital loss is
thereby exhausted. For U.S. Holders that are corporations (other than
corporations subject to Subchapter S of the Code), an unused net capital loss
may be carried back three years from the loss year and carried forward five
years from the loss year to be offset against capital gains until such net
capital loss is thereby exhausted.
Other Considerations
In the following circumstances, the above sections of this discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of shares of the Company:
Foreign Personal Holding Company. If at any time during a taxable year more than
50% of the total combined voting power or the total value of the Company's
outstanding shares is owned, directly or indirectly, by five or fewer
individuals who are citizens or residents of the United States and 60% (50% in
subsequent years) or more of the Company's gross income for such year was
derived from certain passive sources (e.g., from dividends received from its
subsidiaries), the Company would be treated as a "foreign personal holding
company". In that event, U.S. Holders that hold shares of the Company (on the
earlier of the last day of the Company's tax year or the last date on which the
Company was a foreign personal holding company) would be required to include in
gross income for such year their allowable portions of such passive income to
the extent the Company does not actually distribute such income.
Foreign Investment Company. If 50% or more of the combined voting power or total
value of the Company's outstanding shares are held, directly or indirectly, by
citizens or residents of the United States, United States domestic partnerships
or corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701 (a)(31)), and the Company is found to be
engaged primarily in the business of investing, reinvesting, or trading in
securities, commodities, or any interest, it is possible that the Company might
be treated as a "foreign investment company" as defined in Section 1246 of the
Code, causing all or part of any gain realized by a U.S. Holder selling or
exchanging shares of the Company to be treated as ordinary income rather than
capital gain.
31
Passive Foreign Investment Company. As a foreign corporation with U.S. Holders,
the Company will be treated as a passive foreign investment company ("PFIC"), as
defined in Section 1297 of the Code, if 75% or more of its gross income in a
taxable year is passive income, or the average percentage of the Company's
assets (by value) during the taxable year which produce passive income or which
are held for production of same is at least 50%. Passive income is defined to
include gross income in the nature of dividends, interest, royalties, rents and
annuities; excess of gains over losses from certain transactions in any
commodities not arising inter alia from a PFIC whose business is actively
involved in such commodities; certain foreign currency gains; and other similar
types of income. Foreign mining companies that are in the exploration stage may
have little or no income from operations and/or may hold substantial cash and
short-term securities that pay interest and dividends while awaiting expenditure
in connection with the business. Given the complexities of determining what
expenditures may be deductible and of how assets held for production of active
income should be valued, the Company, based on advice from its professional
advisers, cannot conclude whether it is a PFIC.
It is not the intention of the Company to be considered a PFIC and the Company
does not consider this to be a material risk. In the event that it were to
become classified as a PFIC, the following should be taken into consideration.
U.S. Holders owning shares of a PFIC are subject to a special tax and to an
interest charge based on the value of deferral of U.S. tax attributable to
undistributed earnings of a PFIC for the period during which the shares of the
PFIC are owned. This special tax would apply to any gain realized on the
disposition of shares of a PFIC. In addition, the gain is subject to U.S.
federal income tax as ordinary income, taxed at top marginal rates, rather than
as capital gain income. The special tax would also be payable on receipt of
excess distributions (any distributions received in the current year that are in
excess of 125% of the average distributions received during the 3 preceding
years or, if shorter, the shareholder's holding period). If, however, the U.S.
Holder makes a timely election to treat a PFIC as a qualified electing fund
("QEF") with respect to such shareholder's interest and the Company provides an
annual information statement, the above-described rules will not apply. The
Company will provide such an information statement upon request from a U.S.
Holder for current and prior taxable years. Instead, the electing U.S. Holder
would include annually in his gross income his pro rata share of the PFIC's
ordinary earnings and any net capital gain regardless of whether such income or
gain was actually distributed. A U.S. Holder of a PFIC treated as a QEF can,
however, further elect to defer the payment of United States Federal income tax
on such income and gain inclusions, with tax payments ultimately requiring
payment of an interest factor. In addition, with a timely QEF election, the
electing U.S. Holder will obtain capital gain treatment on the gain realized on
disposition of such U.S. Holder's interest in the PFIC. Special rules apply to
U.S. Holders who own their interests in a PFIC through intermediate entities or
persons.
Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S.
Holders who hold, actually or constructively, marketable stock of a foreign
corporation that qualifies as a PFIC may elect to mark such stock to the market
(a "mark-to-market election"). If such an election is made, such U.S. Holder
will not be subject to the special taxation rules of PFIC described above for
the taxable years for which the mark-to-market election is made. A U.S. Holder
who makes such an election will include in income for the taxable year an amount
equal to the excess, if any, of the fair market value of the shares of the
Company as of the close of such tax year over such U.S. Holder's adjusted basis
in such shares. In addition, the U.S. Holder is allowed a deduction for the
lesser of (i) the excess, if any, of such U.S. Holder's adjusted tax basis in
the shares over the fair market value of such shares as of the close of the tax
year, or (ii) the excess, if any of (A) the mark-to-market gains for the shares
in the Company included by such U.S. Holder for prior tax years, including any
amount which would have been included for any prior year but for Section 1291
interest on tax deferral rules discussed above with respect to a U.S. Holder,
who has not made a timely QEF election during the year in which he holds (or is
deemed to have held) shares in the Company and the Company is a PFIC
("Non-Electing U.S. Holder"), over (B) the mark-to-market losses for shares that
were allowed as deductions for prior tax years. A U.S. Holder's adjusted tax
basis in the shares of the Company will be increased or decreased to reflect the
amount included or deducted as a result of mark-to-market election. A
mark-to-market election will apply to the tax year for which the election is
made and to all later tax years, unless the PFIC stock ceases to be marketable
or the IRS consents to the revocation of the election.
The IRS has issued proposed regulations that would treat as taxable certain
transfers of PFIC stock by a Non-Electing U.S. Holder that are not otherwise
taxed, such as gifts, exchanges pursuant to corporate reorganizations, and
transfers at death. In such cases, the basis of the Company's shares in the
hands of the transferee and the basis of any property received in the exchange
for those shares would be increased by the amount of gain recognized. A U.S.
Holder who has made a timely QEF election (as discussed herein) will not be
taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to
corporate reorganizations, and transfers at death. The transferee's basis in
this case will depend on the manner of the transfer. The specific tax effect to
the U.S. Holder and the transferee may vary based on the manner in which the
shares of the Company are transferred. Each U.S. Holder is urged to consult a
tax advisor with respect to how the PFIC rules affect their tax situation.
The PFIC and QEF election rules are complex. U.S. Holders are urged to consult a
tax advisor regarding the availability and procedure for making the QEF election
as well as the applicable method for recognizing gains or earnings and profits
under the foregoing rules.
32
Controlled Foreign Corporation. If more than 50% of the voting power of all
classes of stock or the total value of the stock of the Company is owned,
directly or indirectly, by citizens or residents of the United States, United
States domestic partnerships and corporations or estates or trusts other than
foreign estates or trusts, each of whom own 10% or more of the total combined
voting power of all classes of stock of the Company ("United States
shareholder"), the Company could be treated as a "controlled foreign
corporation" under Subpart F of the Code. This classification would effect many
complex results including the required inclusion by such United States
shareholders in income of their pro rata share of "Subpart F income" (as
specially defined by the Code) of the Company. Subpart F requires current
inclusions in the income of United States shareholders to the extent of a
controlled foreign corporation's accumulated earnings invested in "excess
passive" assets (as defined by the Code). In addition, under Section 1248 of the
Code, a gain from the sale or exchange of shares by a U.S. Holder who is or was
a United States shareholder at any time during the five year period ending with
the sale or exchange is treated as ordinary dividend income to the extent of
earnings and profits of the Company attributable to the stock sold or exchanged.
Because of the complexity of Subpart F, and because it is not clear that Subpart
F would apply to the U.S. Holders of shares of the Company, a more detailed
review of these rules is outside of the scope of this discussion.
If the Company is both a PFIC and controlled foreign corporation, the company
will not be treated as a PFIC with respect to United States shareholders of the
controlled foreign corporation. This rule will be effective for taxable years of
the Company ending with or within such taxable years of United States
shareholders.
SUMMARY
- -------
Management believes this discussion covers all material tax consequences.
Nevertheless, this is not intended to be, nor should it be construed to be,
legal or tax advice to any holder of common shares of the Company Holders and
prospective holders are encouraged to consult their own tax advisers with
respect to their particular circumstances.
LEGAL MATTERS
Legal matters relating to the legality of issuance of shares, their
transferability and assessability, will be passed upon for CyPacific by
Schonfeld & Weinstein , L.L.P., 80 Wall Street, Suite 815, New York, New York,
10005 U.S.A
EXPERTS
Our financial statements as of April 30, 2003 and for the period from March 21,
2003 (inception) to April 30, 2003 are included in the prospectus in reliance on
the report of Pannell Kerr Forster, Independent Chartered Accountants, issued
upon the authority of Pannell Kerr Forster as experts in accounting and
auditing.
INFORMATION AVAILABLE TO THE PUBLIC
We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 under the Securities Act with respect to the shares
offered hereby. This prospectus, which forms a part of the registration
statement, does not contain all of the information set forth in the registration
statement, and the exhibits and schedules thereto. You should refer to the
registration statement for further information.
33
You may review a copy of the registration statement, including exhibits and
schedules filed with it, at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may also obtain copies of such materials from
the Public Reference Section of the SEC at prescribed rates. You may call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. The
SEC maintains a website (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, such as
CyPacific, that file electronically with the SEC.
You may read and copy any reports, statements or other information that
CyPacific files with the SEC at the addresse indicated above, and you may also
access them electronically at the web site set forth above. These SEC filings
are also available to the public from commercial document retrieval services.
Prior to this offering, we have not been required to file reports with the SEC.
Following consummation of the offering, we will be required to file reports and
other information with the SEC under the U.S. Securities Exchange Act. As a
foreign private issuer, we are exempt from the rules under the U.S. Securities
Exchange Act prescribing the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the U.S.
Securities Exchange Act. Under the U.S. Securities Exchange Act, we are not
required to publish financial statements as frequently or as promptly as United
States companies.
ITEM 5. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed 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.
34
CYPACIFIC TRADING INC.
(A DEVELOPMENT STAGE COMPANY)
Financial Statements
April 30, 2003
(U.S. Dollars)
INDEX PAGE
Report of Independent Chartered Accountants to the Stockholder 36
Balance Sheet 37
Statement of Operations 38
Statement of Cash Flows 39
Statement of Shareholders' Equity(Deficiency) 40
Notes to Financial Statements 41
35
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE STOCKHOLDER OF CYPACIFIC TRADING INC.
(A Development Stage Company)
We have audited the balance sheet of CyPacific Trading Inc. (A Development Stage
Company) as at April 30, 2003 and the statements of operations, cash flows and
stockholders' equity (deficiency) for the period from incorporation on March 21,
2003 to April 30, 2003. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides 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 April 30, 2003 and the
results of its operations and the cash flows for the period referred to above in
conformity with accounting principles generally accepted in the United States of
America.
These financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in note 1 to the financial
statements, the Company has had no operations and has no established sources of
revenue and needs additional financing in order to complete its business plan.
This raises substantial doubt about its ability to continue as a going concern.
These financial statements do not include any adjustment that might result from
the outcome of this uncertainty.
/s/ Pannell Kerr Forster
Chartered Accountants
Vancouver, Canada
May 8, 2003
36
CYPACIFIC TRADING INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
APRIL 30,2003
(US DOLLARS)
ASSETS
CURRENT
Cash. . . . . . . . . . . . . . . . . . . . . . $ 1,389
LIABILITIES
CURRENT
Accrued liabilities . . . . . . . . . . . . . . $ 2,093
Due to Stockholders (note 4) . . . . . . . . . 322
TOTAL LIABILITIES . . . . . . . . . . . . . . . 2,415
- ----------------------------------------------------- ------------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
CAPITAL STOCK
Authoriszed
100,000,000 Shares of stock without par value
Issued
2,000,000 shares . . . . . . . . . . . . . . . . 1,395
Other Comprehensive Loss. . . . . . . . . . . . . (42)
Deficit accumulated during the Development Stage. (2,379)
Total Stockholders' Deficiency. . . . . . . . . . (1,026)
- ----------------------------------------------------- ------------------------------
$ 1,389
------------------------------
See notes to financial statements.
37
CY PACIFIC TRADING INC.
- -----------------------------------------------------------------------
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCORPORATION ON MARCH 21, 2003 TO APRIL 30, 2003
(US DOLLARS)
EXPENSES
- -----------------------------------------------------------------------
Professional fees . . . . . . . . . . . . . $ 2,057
Incorporation . . . . . . . . . . . . . . . 317
Interest and bank charges . . . . . . . . . 5
LOSS FOR PERIOD . . . . . . . . . . . . . . . $ (2,379)
LOSS PER COMMON SHARE . . . . . . . . . . . . ($0.01)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,000,000
See notes to financial statements.
38
CY PACIFIC TRADING INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCORPORATION ON MARCH 21, 2003 TO APRIL 30, 2003
(US DOLLARS)
OPERATING ACTIVITY
Net Loss . . . . . . . . . . . . . . . . . . $ (2,379)
CHANGES IN NON-CASH WORKING CAPITAL
Accrued Liabilities. . . . . . . . . . . . . 2,093
CASH USED IN OPERATING ACTIVITIES. . . . . . . (286)
FINANCING ACTIVITIES
Advances from stockholders . . . . . . . . . 280
Issuance of common shares. . . . . . . . . . 1,395
1,675
INFLOW OF CASH AND CASH, END OF PERIOD. . . . . .$ 1,389
See notes to financial statements
39
CY PACIFIC TRADING INC.
- -----------------------------------------------------------------------
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
(Deficiency)
FOR THE PERIOD FROM INCORPORATION ON MARCH 21, 2003 TO APRIL 30, 2003
(US DOLLARS)
Common Shares
--------------------------- Comprehensive Stockholders'
Equity
Number Amount Deficit Loss (Deficiency)
-------- -------- --------- --------------- ---------------
Shares Issued
For Cash
.. . . . . . . . . . . 2,000,000 $ 1,395 1,395
Other Comprehensive Loss (42) (42)
Loss for Period. . . . . $ $ (2,379) (2379)
___________________________________________________________________________________________________________________________________
Balance,
March 30, 2003 . . . . 2,000,000 $ 1,395 $ (2,379) (42) (1026)
___________________________________________________________________________________________________________________________________
See notes to financial statements.
40
CYPACIFIC TRADING INC.
(A Development Stage Company)
Notes to Financial Statements
For the Period from Incorporation on March 21, 2003 to April 30, 2003
(US Dollars)
1. INCORPORATION AND NATURE OF OPERATIONS
CyPacific Trading Inc. ("the Company") was incorporated under the law of
British Columbia on March 21, 2003 and has its head office in Vancouver, British
Columbia, Canada. The Company is in the development stage as more fully defined
in Statement No. 7 of the Financial Accounting Standards Board.
Planned principal operations have not commenced and most of the Company's
efforts have been devoted to financial planning, raising capital and developing
a business plan. There has been no revenue generated to April 30, 2003. These
financial statements have been prepared assuming the Company will continue as a
going concern.
The Company intends to become an Internet-based electronic retailer with an
on-line store whose goal is to commercialize new products in Korean markets, and
eventually, other parts of Asia. To April 30, 2003, the Company is in the
process of developing its Website and is searching for suppliers with products
that would appeal to its markets. The Company will focus on the following
categories of merchandises:
(i) Clothing apparel and fashion accessories
(ii) Toys
(iii) Cosmetics
(iv) Sport gear
(v) Collectibles
2 SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
As the company is in the development stage, no revenues have been earned to
date.
The Company recognized revenues at the time of delivery of the product ordered
to the customers.
(b) Loss per share
Losses per share computations are based on the weighted average number of common
shares outstanding during the period.
(c) Foreign currency translation
The functional currency of the Company is the Canadian dollar. For
financial
Amounts reported in foreign currencies are translated into United
States dollars as follows:
(i) Monetary assets and liabilities are translated at the rate of exchange
in effect as at the balance sheet date; and
41
(ii) Non-monetary assets and liabilities are translated at historical
exchange rates
(iii) Revenues and expenses are translated at the average rate of exchange
for the year.
2. Gains and losses arising from the translation of foreign
currency are excluded form the net loss for the period and accumulated
as a separate component of stockholders' equity (deficiency).
(d) Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumption that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and would impact future results of operations and cash flows.
(e) Fiscal year-end
The Company has adopted April 30 as its fiscal year-end.
3 FINANCIAL INSTRUMENTS
(a) Fair value
The carrying values of cash, accrued liabilities and due to stockholder
approximate their fair values because of the short maturity of these financial
instruments.
(b) Interest rate risk
The Company is not exposed to significant interest rate risk due to the
short-term maturity of its monetary current assets and current liabilities and
the nature of these instruments subject to interest rate change.
(c) Translation risk
The Company translates transactions into U.S. currency using rates approximating
the average exchange rate for the period. The exchange rate may vary from time
to time resulting in foreign exchange gains and losses.
(d) Credit risk
The Company is exposed to credit risk with respect to its cash, however, this is
minimized by the Company's use of a large national bank.
4. DUE TO STOCKHOLDER
Amounts due to stockholder have been advanced on an interest free
basis with no fixed terms of repayment.
42
5. COMPREHENSIVE LOSS
Period from March 21, 2003
(Inception)
Through April 30, 2003
Net loss $ (2,379)
Other comprehensive loss (42)
Comprehensive loss $ (2,421)
6. INCOME TAXES
As at April 30, 2003 the Company's net operating loss carry forwards for
Canadian income tax purposes were $2,379. If not utilized, they will start to
expire in 2023.
7. NON-MONETARY TRANSACTIONS
The Company has received rent and other expenses free of charge from an
unrelated company. The Company is not liable for compensating for any of the
services consumed.
43
Outside Back Cover Page
PROSPECTUS
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information that is different. This
prospectus may only be used where it is legal to sell these securities. The
information in this prospectus may only be accurate on the date of this
prospectus.
The selling shareholder is not offering their shares where the offer is not
permitted.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until_______ , 2003, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
44
PART II
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
There is no current provision for the indemnification of the officers and
directors of CyPacific pursuant to their involvement with the offering of this
prospectus.
ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the sales and issuances of our
securities without registration since inception, March 21, 2003.
1. Pursuant to a subscription agreement dated April 30, 2003, we issued
2,000,000 shares of our common stock to Andrew Lee for Cdn $2,000.00. All of the
securities described above were offered and issued outside the United States to
individuals or entities who were not citizens or residents of the United States.
Accordingly, the offering and issuance of such securities were not subject to
the registration requirements of the Securities Act of 1933 pursuant to
Regulation S under the Securities Act of 1933.
ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are attached to this registration statement:
3.1 Memorandum*
3.2 Articles of Incorporation (equivalent to bylaws)*
4.1 Subscription Agreement*
5.1 Legality Opinion of Schonfeld & Weinstein, L.L.P.
23.1 Consent of Pannell Kerr Forster, Independent Chartered Accountants
*. Previously filed
ITEM 9. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
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) and 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) (Sec.230.424(b) of this
chapter) 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;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
45
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Sec.210.3-19 of this chapter at the
start of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, provided that the registrant includes in the prospectus,
by means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all
other information in the prospectus is at least as current as the date of those
financial statements.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant 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. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to 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 F-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, Canada, on November 07, 2003.
CYPACIFIC TRADING INC.
/s/ Andrew Seokwoo Lee
NAME: ANDREW LEE
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on November 07, 2003.
SIGNATURE AND TITLE
/s/ Andrew Seokwoo Lee
---------------
ANDREW LEE
Director and President
46
/s/ Jong In Lee
-----------------
JONG IN LEE
Director and Secretary
/s/Ben Wilson
--------------
BEN WILSON
Director
47
SIGNATURE OF AUTHORIZED REPRESENTATIVE OF THE REGISTRANT
Pursuant to the Securities Act of 1933, as amended, the undersigned, the duly
authorized representative in the United States of America CYPACIFIC TRADING INC.
has signed this amended Registration Statement or amendment thereto in the City
of Vancouver Province of British Columbia, on November 07, 2003. Target Group
/s/ Hyun J. You:
NAME: HYUN J. YOU
TITLE: MANAGING DIRECTOR
II-5
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------ ------------
3. Memorandum*
3.2 Articles of Incorporation (equivalent to bylaws)*
4.1 Subscription Agreement*
5.1 Legality Opinion of Schonfeld & Weinstein, L.L.P.
23.1 Consent of Pannell Kerr Forster, Independent Chartered Accountants
*. Previously filed
48