UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20 - F
(MARK ONE)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 2004
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ or __________
Commission file number: 333-107199
CYPACIFIC TRADING INC.
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(Exact name of registrant as specified in its charter)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
7th Floor, 543 Granville Street, Vancouver, British Columbia, Canada V6C 1X8
Telephone: 604-683-0082
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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- ------------------- -------------------
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common shares
- --------------------------------------------------------------------------------
(Title of Class)
- --------------------------------------------------------------------------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
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(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Common shares outstanding: April 30, 2004: 2,000,000
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- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) [X] Yes [ ] No
(2) [X] Yes [ ] No
Indicate by check mark which financial statement item the registrant has
selected to follow.
[ ] Item 17 [X] Item 18
PART I
1
Item 1. Identity of Directors, Senior Management and Advisers
A. DIRECTORS AND SENIOR MANAGEMENT
See Item 4.C.
B. ADVISERS
Principal banker:
Bank of Montreal
First Bank Tower, 595 Burrard Street, Vancouver, B.C. V7X 1L7 Canada
C. AUDITORS
Pannell Kerr Forster, Registered Independent Chartered Accountants
Marine Building
7th Floor, 355 Burrard Street, Vancouver, B.C. V6C 2G8 Canada
Item 2. Offer Statistics and Expected Timetable
Not Applicable
Item 3. Key Information
A. Selected financial data
The selected financial and other data set forth below should be read in
conjunction with the audited financial statements of CyPacific Trading Inc. as
of April 30, 2004 and 2003 including the notes thereto, and "Item 5 - Operating
and Financial Review and Prospects" included in this annual report. The selected
financial data set forth below for the fiscal year ended April 30, 2004 and for
the period ended April 30, 2003 are derived from the audited financial
statements of the Company, which have been audited by Pannell Kerr Forster,
registered independent chartered accountants. Our financial statements are
compiled in Canadian dollars, expressed in US dollars, and presented in
accordance with accounting principles generally accepted in the United States of
America.
STATEMENT OF OPERATIONS (in U.S. dollars)
Select information
Year ended April 30, 2004 and from inception March 21, 2003 to April 30, 2003
Year ended Period ended
2004 2003
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Revenue - Sales $0 $0
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Operating expenses 6,189 2,379
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Net loss (6,189) (2,379)
Other comprehensive income (loss) 87 (42)
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Comprehensive loss $(6,102) $(2,421)
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Weighted average number of
common shares 2,000,000 219,178
Basic and diluted loss per common share $(0.00) $(0.01)
2
BALANCE SHEETS (in U.S. dollars) as of April 30, 2004 and 2003
Select information
2004 2003
Cash and cash equivalents $13 $1,389
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Total current assets 13 1,389
Total Assets $13 $1,389
Accounts payable and accrued liabilities $3,644 $2,093
Due to related party 3,497 322
Total Liabilities 7,141 2,415
Shareholders' equity (deficiency) (7,128) (1,026)
Total Liabilities and Shareholders'
Equity $13 $1,389
EXCHANGE RATES
CyPacific records its finances in Canadian (Cdn) dollars and reports its
operations in US dollars. Fluctuation 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 by the Company. The following table sets
forth, for the periods and dates indicated, certain information concerning the
noon buying rate of one US dollar in Cdn funds. 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 July 7, 2004 the noon
buying rate was Cdn$1.3196 to US$1.00.
YEARS ENDED DECEMBER 31 (CDN$ PER US$1.00)
AVERAGE RATE(1) YEAR END HIGH LOW
1999 1.4827 1.4440 1.5302 1.4440
2000 1.4871 1.4995 1.5600 1.4350
2001 1.5519 1.5925 1.6023 1.4933
2002 1.5702 1.5800 1.6128 1.5108
2003 1.3916 1.2923 1.5750 1.2923
(1) the average of the noon buying rates on the last day of each month during
the period.
(CDN$ PER US$1.00)
HIGH LOW
December 2003 1.3405 1.2923
January 2004 1.3340 1.2690
February 2004 1.3442 1.3108
March 2004 1.3480 1.3080
April 2004 1.3612 1.3095
May 2004 1.3970 1.3580
June 2004 1.3772 1.3407
3
B. Capitalization and indebtedness
Not applicable
C. Reasons for the offer and use of proceeds
Not applicable
D. Risk Factors
There are significant risks associated with an investment in our common stock.
Before making a decision concerning the purchase of our securities, you should
carefully consider the following factors and other information in this annual
report 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.
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 October
30, 2004 for the year ended April 30, 2004 that CyPacific has not earned any
revenues. As of April 30, 2004, CyPacific reported an accumulated net loss of
$8,568 since inception March 21, 2003. CyPacific estimates that additional
funding of $100,000 will be required to implement its business plan over its
first 12 months. 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 continue curtailling its operations in order to minimize business expenses.
Andrew Lee, a director and president of CyPacific, is unable 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
CyPacific will continue to operate if additional funding does not materialize.
For further discussion, see the section of this prospectus entitled "Operating
and Financial Results 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 currently 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
Results and Prospects or Plan of Operation" below.
ANTICIPATED LOSSES
As a developmental stage company, CyPacific must invest heavily in
infrastructure, internet site and related hardware and software, 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")
4
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.
WE DO NOT HAVE ANY ARRANGEMENTS FOR PROVIDERS OF PRODUCTS FOR OUR WEBSITE, AS A
RESULT 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 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. 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
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) The Company's lack of operating experience in Internet commerce and retail
business.
Due to the above factors, the Company's operating results may fall below
the expectations of management and its business could suffer significantly.
5
INABILITY TO MANAGE GROWTH
In order to maximize potential growth in the Company's market opportunities, the
Company believes that it must expand 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 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 its Form
1 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, including Mr. Andrew Lee, a director and
president of CyPacific, who has determined that he is not able 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. 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.
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 VOLUMES 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:
1) The development of a large base of users possessing demographic
characteristics attractive to advertisers;
2) The level of traffic on our websites;
3) Our ability to derive better demographic and other information from our
users;
4) Acceptance by advertisers of the Web as an advertising medium; and
5) Our ability to transition and expand into other forms of advertising.
6
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. 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.
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. 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 products 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 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.
7
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.
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; other claims based
on the nature and content of Internet materials.
LIMITED 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. Even if a registration of the Shares becomes
effective, 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.
8
RISKS RELATING TO FORWARD-LOOKING STATEMENTS
Information provided concerning 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 that merchant does not obtain a
cardholder's signature, as is the case with the transactions we will process. 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 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.
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.
9
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 exempted 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.
INVESTMENT RISKS
OUR ISSUANCE OF ADDITIONAL SHARES MAY HAVE THE EFFECT OF DILUTING THE INTEREST
OF SHAREHOLDERS; OUR COMMON STOCK SHAREHOLDERS DO NOT HAVE PREEMPTIVE RIGHTS
Any additional issuances of common stock by us from our authorized but unissued
shares may have the effect of diluting the percentage interest of existing
shareholders. The securities issued to raise funds may have rights, preferences
or privileges that are senior to those of the holders of our other securities,
including our common stock. The board of directors has the power to issue such
shares without shareholder approval. We fully intend to issue additional common
shares in order to raise capital to fund our business operations and growth
objectives.
WE DO NOT ANTICIPATE PAYING DIVIDENDS TO COMMON STOCKHOLDERS IN THE FORESEEABLE
FUTURE, WHICH MAKES INVESTMENT IN OUR STOCK SPECULATIVE OR RISKY
We have not paid dividends on our common stock and do not anticipate paying
dividends on our common stock in the foreseeable future. The board of directors
has sole authority to declare dividends payable to our stockholders. The fact
that we have not and do not plan to pay dividends indicates that we must use all
of our funds generated by operations for reinvestment in our business
activities. Investors also must evaluate an investment in CyPacific solely on
the basis of anticipated capital gains.
LIMITED LIABILITY OF OUR EXECUTIVE OFFICERS AND DIRECTORS MAY DISCOURAGE
SHAREHOLDERS FROM BRINGING A LAWSUIT AGAINST THEM
Our Memorandum and Articles contain provisions that limit the liability of
directors for monetary damages and provide for indemnification of officers and
directors. These provisions may discourage shareholders from bringing a lawsuit
against officers and directors for breaches of fiduciary duty and may also
reduce the likelihood of derivative litigation against officers and directors
even though such action, if successful, might otherwise have benefited the
shareholders. In addition, a shareholder's investment in CyPacific may be
adversely affected to the extent that we pay costs of settlement and damage
awards against officers or directors pursuant to the indemnification provisions
of the bylaw. The impact on a shareholder's investment in terms of the cost of
defending a lawsuit may deter the shareholder from bringing suit against any of
our officers or directors. We have been advised that the SEC takes the position
that these article and bylaw provisions do not affect the liability of any
director under applicable federal and state securities laws.
10
SINCE WE ARE A CANADIAN COMPANY AND MOST OF OUR ASSETS AND KEY PERSONNEL ARE
LOCATED OUTSIDE THE UNITED STATES OF AMERICA, YOU MAY NOT BE ABLE TO ENFORCE ANY
UNITED STATES JUDGMENT FOR CLAIMS YOU MAY BRING AGAINST US, OUR ASSETS, OUR KEY
PERSONNEL OR THE EXPERTS NAMED IN THIS DOCUMENT
We have been organized under the laws of Canada. Many of our assets are located
outside the United States. In addition, a majority of the members of our board
of directors and our officers and the experts named in this document are
residents of countries other than the United States. As a result, it may be
impossible for you to effect service of process within the United States upon us
or these persons or to enforce against us or these persons any judgments in
civil and commercial matters, including judgments under United States federal
securities laws. In addition, a Canadian court may not permit you to bring an
original action in Canada or to enforce in Canada a judgment of a U.S. court
based upon civil liability provisions of U.S. federal securities laws.
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements. We intend to identify
forward-looking statements in this document using words such as "anticipates",
"will", "believes", "plans", "expects", "future", "intends" or similar
expressions. These statements are based on our beliefs as well as assumptions we
made using information currently available to us. Because these statements
reflect our current views concerning future events, these statements involve
risks, uncertainties and assumptions. Actual future results may differ
significantly from the results discussed in the forward-looking statements.
Some, but not all, of the factors that may cause these differences include those
discussed in the Risk Factors section. You should not place undue reliance on
these forward-looking statements.
Item 4. Information on the Company
A. History and Development of the Company
CyPacific Trading Inc. (CyPacific or the Company) was incorporated in British
Columbia, Canada, on March 21, 2003 under the Companies Act of British Columbia,
as a privately owned company that operates from its corporate headquarters
located in Vancouver, British Columbia, Canada. CyPacific is a development stage
company with no revenue to date. As of April 30, 2004 the Company has reported
cumulative operating losses of $8,568.
CyPacific has negotiated its first contract to manage Internet-based electronic
retail sales via an on-line store for Daval Productions Ltd. Daval produces and
distributes travel and sites of interest video products in DVD format to the
travel and tourist industry. CyPacific has not generated any revenue from the
Daval opportunity at October 15, 2004.
B. Business Overview
CyPacific's original business concept involved Internet-based electronic retail
sales with an on-line store. CyPacific intended to 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. To date, no such products have become
available to CyPacific.
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.
11
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, 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. 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. There is no assurance 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.
Our Product
CyPacific has negotiated its first contract to manage Internet-based electronic
retail sales via an on-line store for Daval Productions Ltd. Daval produces and
distributes travel and sites of interest video products in DVD format to the
travel and tourist industry.
The Company's objective is to become a dominant retailer on the Internet.
Currently, CyPacific is searching for merchandise suppliers with regards to what
merchandise CyPacific will sell and where it will market its merchandise. As
soon as CyPacific decides on the merchandise suppliers, CyPacific will enter
into purchase and other agreements.
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 up
28% 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 (1.1%). More and more retail transactions are occurring
on-line, and through the 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.
12
E-Business Marketing and Customer Service Differences
The Internet has 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.
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 allowing the computer and software to 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 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 a premier
on-line store. CyPacfic will target individuals and 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 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 with other 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.
13
CyPacfic intends to build 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 will send customers information updating Company prices as well as 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 a CyPacfic on-line store, CyPacfic makes no assurance that it's marketing
will be successful or its sales will materialize or increase. There are a number
of factors that may negatively impact CyPacfic's business plan - see "Risk
Factors" beginning on page 4 .Therefore,CyPacficprovidesnoassurances that
its plans will be successful.
Competition
The electronic commerce market is rapidly evolving and intensely competitive.
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 include:
- - various Internet auction houses such as Auction Korea, Waawaa, Clickplus and
Woori Home Shopping;
- - 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;
- - 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 01, 2004, 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
two full-time employees for the shipping department, two full-time employees for
the Customer service department, two full-time employees for the Purchasing
department and two full-time employees for the Marketing and Sales department.
14
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. We expect our labour relations to
be good. None of our employees will be covered by a collective bargaining
agreement.
Government Regulation
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 discussions pertaining to
laws and regulations involving the Internet. 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.
C. Organizational Structure
CyPacific was incorporated on March 21, 2003 under the laws of British Columbia,
Canada as a privately owned company that operates from its corporate
headquarters located at 16th Floor, 543 Granville Street, Vancouver, B.C.
Canada.
D. Property, Plant and Equipment
CyPacific rents on a month-to-month basis its current principal executive
offices located on the 16th Floor, 543 Granville Street, Vancouver, British
Columbia, Canada V6C 1X8. There is no security deposit. The office facilities
are leased from the property owners. The Company does not carry tenants
insurance for office contents.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis is based on and should be read in
conjunction with the Company's audited financial statements, including the notes
thereto, and other financial information appearing elsewhere herein. The audited
financial statements have been prepared using US dollars and are presented in
accordance with accounting principles generally accepted in the United States.
A. Operating Results
Year comparisons between 2004 and 2003
For the year ended April 30, 2004, the Company achieved sales revenues of
$nil compared with sales revenues of $nil for the period ended April 30,
2003. The Company's operating loss increased to $6,189 in 2004 from a loss
of $2,379 in 2003. Such increase in the operating loss was due primarily to
costs incurred in organizing the Company to become a reporting issuer. In
the same period, the working capital deficiency increased to $(7,128) in
2004 from a deficiency of $(1,026) in 2003. As of the year ended April 30,
2004, the Company had an accumulated stockholders' deficiency of $(7,128).
The current year's contribution to the deficit was financed in part by a
$4,726 increase in current liabilities.
B. Liquidity and capital resources
Our initial sources of liquidity are expected to be existing cash and
related party loans. CyPacific has $13 on hand as at April 30, 2004 and
anticipates expending an additional $50,000 to advance its business to
sales over the next year. The Company will need additional funding in order
to research, acquire and distribute products that may become under
contract.
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. We have made no arrangements with our officers, directors or affiliates
to provide liquidity to us.
15
We anticipate that we will need to raise additional capital within the
next 12 months in order to continue implementing our business plan and
commence full operations. We will need to raise the funds through debt
or equity financing or a combination of both. 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 twelve months, we may
be required to significantly curtail our operations or no longer be
able to operate.
C. Research and development, patents and licenses, etc.
Research and Development
It is the goal of the Company to continually make enhancements and
improvements to its delivery systems. Costs incurred to make routine
enhancements or improvements, design changes to existing products and
trouble shooting in production is excluded from research and
development expenses.
Proprietary Technology
Intellectual Property
The Company has no proprietary products or systems and does not
anticipate a need for patents or other registered intellectual
property.
D. Trend information
See Item 4 B. Business Overview, Industry Overview
E. Off-balance sheet arrangements
Not applicable
F. Tabular disclosure of contractual obligations
Payments due (by period)
less than more than
Contractual Obligations Total one year 1-3 years 3-5 years 5 years
Long-term debt obligations $nil $nil $nil $nil $nil
Debentures $nil $nil $nil $nil $nil
Long-term accounts payable $nil $nil $nil $nil $nil
Contractual commitments $nil $nil $nil $nil $nil
Retirement and severance
indemnities $nil $nil $nil $nil $nil
G. Safe harbor
Forward-looking statements
This annual report contains forward-looking statements. We intend to
identify forward-looking statements in this report using words such as
"anticipates", "will", "believes", "plans", "expects", "future",
"intends" or similar expressions. These statements are based on our
beliefs as well as assumptions we made using information currently
available to us. Because these statements reflect our current views
concerning future events, these statements involve risks,
uncertainties and assumptions. Actual future results may differ
significantly from the results discussed in the forward-looking
statements. Some, but not all, of the factors that may cause these
differences include those discussed in the Risk Factors section. You
should not place undue reliance on these forward-looking statements.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management
The following table sets forth the name, age, and position of each Director and
Executive Officer of CyPacific Trading Inc.
16
NAME AGE POSITION
- ---- --- --------
Andrew S. Lee 24 President, CFO and Director
- ------------- -- ------------------------------
Ron Loudoun 41 Director and Secretary
- ------------- -- ------------------------------
There are no arrangements or understandings between the directors and
officers of CyPacific and any other person pursuant to which any
director or officer was or is to be selected as a director or officer.
In addition, there are no agreements or understandings for the
officers or directors to resign at the request of another person and
the above-named officers and directors are not acting on behalf of nor
acting at the direction of any other person.
The following summary outlines the professional background of the
directors and executive officers of the Company:
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. 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
day to day decisions as well as supervising website management.
Ron Loudoun graduated from the British Columbia Institute of
Technology's business administration program in 1983. During the years
1983 to 2000 Mr. Loudoun has owned and operated several businesses,
including Acorn Investments, 231117 BC Ltd. and Pathway Films Inc. and
has been a real estate agent with a focus on commercial properties. In
2001 Mr. Loudoun graduated from the Vancouver Film School Foundation
Program and, from 2002 to the present, has purchased and renovated two
downtown Vancouver buildings for use as a film studio (Cambie Film
Center) and media production company.
B. Compensation
Executive Compensation
The Company did not pay any compensation during fiscal 2004 to our
directors and officers. The amount of retirement and severance
benefits accrued for our executive officers and directors in 2004 was
$nil. There were no pension, retirement or other similar benefits set
aside for our executive officers and directors in 2004.
Stock Option Plan
Under our Articles of Incorporation, we may grant options for the
purchase of our shares to certain qualified officers and employees.
There was no stock options or warrants convertible into CyPacific
Trading Inc. common stock outstanding as at October 15, 2004.
Compensation of Directors
Directors, including directors who are also employees of the Company,
receive no extra compensation for their service on the Board of
Directors of the Company.
C. Board practices
BOARD OF DIRECTORS
The board of directors has the ultimate responsibility for the
administration of the affairs of CyPacific. Our Articles, as currently
in effect, provides for a board of directors of not more than ten
directors. Under our Articles, all directors serve a three-year term
but may be replaced at the ordinary general meeting of shareholders
convened with respect to the last fiscal year. It is expected that all
current directors will continue to serve the Company. The directors
are elected at a general meeting of shareholders by a majority vote of
the shareholders present or represented by proxy, subject to quorum
requirements of at least one third of all issued and outstanding
shares having voting rights.
17
Independent auditor
Our Articles of Incorporation provide for the appointment, by the
shareholders of the Company, 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, registered independent Chartered
Accountants of Vancouver, Canada, are our independent auditors.
D. Employees
Employment Contracts with employees and officers
The Company does not have any employment agreement with any of its
employees or officers.
E. Share Ownership
The following table sets forth certain information regarding the
beneficial ownership of the common stock of the Company as of April
30, 2004 of: (a) each of the Company's directors and officers, and (b)
all directors and officers of the Company, as a group:
Name Shares Owned Percentage of
Shares Owned
Andrew S. Lee, President,
CFO and Director 0 0%
Ron Loudoun, Secretary and Director 1,800,000 90%
All Executive Officer and
Directors as a Group 1,800,000 90%
Ron Loudoun purchased 1,800,000 shares of common stock from Andrew S.
Lee in March of 2004. The shares are restricted as to resale to the
public.
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders
The following table sets forth information with respect to the
beneficial ownership of our shares as of April 30, 2004 by each person
known to us to own beneficially more than five percent (5%) of our
shares.
Name and address Amount of Stock Percentage
Beneficially Owned of Class
Ron Loudoun 1,800,000 90%
536 Cambie Street
Vancouver, B.C. Canada
All the shares are shares of common stock and all have equal rights. There are
no arrangements known to the Company the operation of which would at a
subsequent date result in a change in control of the Company.
B. Related party transactions
There is no known relationship between any of the Directors and
Officers of the Company with major clients or providers of essential
products and technology with the exception that Mr. Ron Loudoun, a
Director and officer of CyPacific, is also a principal of Daval
Productions Ltd., the first customer for CyPacific's services.
18
In the event conflicts arise, the Company will attempt to resolve any
such conflicts of interest in favour of the Company. The officers and
directors of the Company are accountable to the Company and its
shareholders as fiduciaries, which require that such officers and
directors exercise good faith and integrity in handling the Company's
affairs. A shareholder may be able to institute legal action on behalf
of the Company on or behalf of that shareholder and all other
similarly situated shareholders to recover damages or for other relief
in cases of the resolution of conflicts in any manner prejudicial to
the Company.
C. Interests of experts and counsel
Not applicable
Item 8. Financial Information
A. Statements and Other Financial Information
See "Item 18- Financial Statements"
B. Significant Changes
There has been no significant change in the Company's affairs since
the April 30, 2004 financial statements.
Item 9. The Offer and Listing
Not Applicable
Item 10. Additional Information
A. Share capital
The Company had 2,000,000 shares of common stock issued and
outstanding prior to the filing of its form F-1 with the U.S.
Securities and Exchange Commission. Effective May 27, 2003, the
founding shareholder of the Company sold 200,000 shares of common
stock of the Company to the public at the maximum price of USD$0.10
per share. None of the proceeds on sale were made available to the
Company. The number of current outstanding shares of the Company as of
April 30, 2004 was 2,000,000 shares with no par value.
B. Memorandum and articles of association
Refer to Exhibit numbers 3.1 and 3.2 of the Company's Form F-1 accepted for
filing May 27, 2003
C. Material contracts
None
D. Exchange Controls
There are currently no laws, decrees, regulations or other
legislation in Canada that restricts the export or import of
capital, or affects the remittance of dividends, interest or
other payments to non-resident holders of the Company's
securities, other than withholding tax requirements.
There is no limitation imposed by Canadian law or by the Articles
of Incorporation or other charter documents of the Company on the
right of a non-resident to hold voting shares of the Company,
other than as provided by the Investment Canada Act, as amended
(the "Act"), as amended by the North American Free Trade
Agreement Implementation Act (Canada), and the World Trade
Organization (WTO) Agreement Implementation Act. The Act requires
notification and, in certain cases, advance review and approval
by the Government of Canada of the acquisition by a
"non-Canadian" of "control of a Canadian business," all as
defined in the Act. Generally, the threshold for review will be
higher in monetary terms for a member of the WTO or NAFTA.
19
E. Taxation
United States and Canada: there are reciprocal tax treaties
between Canada and the United States.
Potential purchasers are urged to consult their tax advisors as
to the particular consequences to them under U.S. federal, state,
local and applicable foreign tax laws of the acquisition,
ownership and disposition of common shares.
F. Dividends and paying agents
Not Applicable
G. Statement by experts
Not Applicable
H. Documents on display
Documentation concerning the Company and which is referred to in
this filing may be inspected at the Company's offices located at
the 16th Floor, 543 Granville Street, Vancouver, British
Columbia, Canada V6C 1X8
I. Subsidiary Information
Not Applicable
Item 11. Quantitative and Qualitative Disclosures About Market Risk
CyPacific is subject to market risk exposures due to fluctuations
in exchange rates and interest rates. Changes in the foreign
exchange rate between the CDN$ and the US$ may affect the Company
due to the effect of such changes on any shareholder
distributions to the shareholders using US$ as a main currency.
CyPacific denominates its financial statements in United States
dollars but conducts its daily affairs in Canadian dollars. The
Company is 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.
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, 2002 and 2003 was 2.7%, 2.6%, 2.2% and 2.0% respectively.
Item 12. Description of Securities Other Than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
The Company is not currently in default, arrears or delinquent
with respect to any of its debt obligations or other
responsibilities.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
Not Applicable
Item 15. Controls and Procedures
Based on their evaluation as of a date within 90 days of the
filing date of this Annual Report on Form 20-F, the principal
executive officers and directors of the Company have concluded
that the disclosure controls and procedures of the Company as
defined in 240.13a-15(c) and 240.15d-15(c) of the Securities
Exchange Act of 1934 (the Exchange Act) are effective to ensure
that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission's rules
and forms.
There were no significant changes in internal controls or in
other factors of the Company that could significantly affect
these controls subsequent to the date of their evaluation and up
to the filing date of this Annual Report on Form 20-F. There were
no significant deficiencies or material weaknesses, and therefore
no corrective actions were taken or may occur and not be
detected.
20
Item 16. (Reserved)
Item 16A. Audit Committee Financial Expert
The Company does not yet have an audit committee financial
expert. The Company is in the formative stage and has focused its
requirements on operations for its board of directors. The
Company intends to appoint a financial expert once commercial
operations commence.
Item 16B. Code of Ethics
The Company does not have in place a written code of ethics that
applies to its executive, financial or accounting officers or to
persons performing similar functions. The Company is dependent
upon its president to lead by example and has faith in his
ability to do so. Once the Company becomes more diverse in its
operations and where required by regulation, it intends to
implement a code of ethics for its officers. The Company does not
plan to grant any waiver, including an implicit waiver, from a
provision of the code of business conduct and ethics to any
person.
Item 16C. Principal Accountant Fees and Services
(a) Audit Fees
During the last two fiscal years, the Company paid $2,057 for
professional services rendered by the auditors for the audit of
the Company's annual financial statements or services normally
provided in connection with statutory and regulatory filings for
those fiscal years.
(b) Audit-Related Fees
During the last two fiscal years, the Company paid $nil for
professional services rendered by the current auditors for the
interim review of the Company's October 30, interim financial
statements.
(c) Tax Fees
During the last two fiscal years, the Company paid $nil for
professional services rendered by the principal accountant for
tax compliance, tax advice and tax planning.
(d) All Other Fees
During the last two fiscal years, the Company paid $nil for
professional services rendered by the principal accountant for
services other than those described under (a) through (c).
(e) The Company's board of directors is currently acting as the
audit committee. The board approves all of the services provided
by the principal accountants.
(f) Percentage of work performed by persons other than the
principal accountant's full-time, permanent employees: 0%
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not Applicable
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
Not Applicable
Part III
Item 17. Financial Statements
Not Applicable
Item 18. Financial Statements
Following
21
REPORT OF REGISTERED INDEPENDENT CHARTERED ACCOUNTANTS
TO THE BOARD OF DIRECTORS 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, 2004 and 2003 and the statements
of operations, cash flows and shareholders' equity (deficit) for the
year ended April 30, 2004 and 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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
audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly in all material
respects, the financial position of the Company as at April 30, 2004 and the
results of its operations and its cash flows for the periods referred to abovein
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 adjustments that might result from the
outcome of this uncertainty.
//Pannell Kerr Forster//
Chartered Accountants
Vancouver, Canada
October 30, 2004
22
CyPacific Trading Inc.
(A Development Stage Company)
BALANCE SHEETS
April 30
(Expressed in U.S. Dollars)
2004 2003
ASSETS
CURRENT ASSETS
Cash $ 13 $ 1,389
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 3,644 $ 2,093
Due to related party (Note 4) 3,497 322
7,141 2,415
STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK (Note 5)
Authorized: 100,000,000 shares; no par value;
Issued and outstanding:
2,000,000 shares 1,395 1,395
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (8,568) (2,379)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 45 (42)
(7,128) (1,026)
$ 13 $ 1,389
GOING CONCERN (Note 1)
See accompanying notes to the financial statements.
Approved by the Board "Andrew S. Lee" Director
"Ron Loudoun" Director
23
CyPacific Trading Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the period from inception March 21, 2003 to April 30, 2004
(Expressed in U.S. Dollars)
Cumulativ
Period from from
inception on inception on
March 21, March 21,
Year ended 2003 to 2003 to
April 30, April 30, April 30,
2004 2003 2004
GENERAL AND ADMINISTRATIVE EXPENSES
Office 77 322 399
Professional fees 6,112 2,057 8,169
6,189 2,379 8,568
NET LOSS (6,189) (2,379) (8,568)
OTHER COMPREHENSIVE LOSS
Foreign currency translation 87 (42) 45
COMPREHENSIVE LOSS $ (6,102) $ (2,421) $ (8,523)
LOSS PER COMMON SHARE -
basic and diluted $ (0.00) $ (0.01)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,000,000 219,178
See accompanying notes to the financial statements.
24
CyPacific Trading Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
>From inception March 21, 2003 to April 30, 2004
(Expressed in U.S. Dollars)
Inception, March 21, 2003 - $ - $ - $ -
Common shares issued for cash 2,000,000 1,395 - -
Foreign currency translation - - - (42)
Net loss for the period - - (2,379) -
Balance at April 30, 2003 2,000,000 1,395 (2,379) (42)
Foreign currency translation - - - 87
Net loss for the year - - (6,189) -
Balance at April 30, 2004 2,000,000 $ 1,395 $ (8,568) $ 45
See accompanying notes to the financial statements.
25
CyPacific Trading Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOW
For the period from inception March 21, 2003 to April 30, 2004
(Expressed in U.S. dollars)
Cumulative
Period from from
inception on inception on
March 21, March 21,
Year ended 2003 to 2003 to
April 30, April 30, April 30,
2004 2003 2004
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (6,189) $ (2,379) $ (8,568)
Adjustments to reconcile net cash provided by
operating activities
Increase (decrease) in
Accounts payable and accrued liabilities 1,490 2,093 3,583
Advances from related party 3,228 322 3,550
CASH FLOW FROM OPERATING ACTIVITIES (1,471) 36 (1,435)
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock for cash - 1,395 1,395
INCREASE (DECREASE) IN CASH DURING THE PERIOD (1,471) 1,431 (40)
EFFECT OF FOREIGN CURRENCY TRANSLATION 95 (42) 53
CASH, beginning of period 1,389 - -
CASH, end of period $ 13 $ 1,389 $ 13
See Note 1.
See accompanying notes to the financial statements.
26
CyPacific Trading Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2004 and 2003
(Expressed in U.S. Dollars)
1. INCORPORATION, NATURE OF OPERATIONS AND GOING CONCERN
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 of the United
States of America.
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, 2004, 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) Travel and tourism
(ii) Clothing apparel and fashion accessories
(iii) Toys, Cosmetics, Sport gear, Collectibles
The accompanying financial statements have been prepared on the
basis of accounting principles generally accepted in the United
States of America applicable to a going concern, which
contemplates the realization of assets and extinguishment of
liabilities in the normal course of business. The Company has
incurred losses during the period from inception on March 21,
2003 to April 30, 2004 of $8,568.
The Company requires financing to fund its future operations and
will attempt to meet its ongoing liabilities as they fall due
through the sale of equity securities and/or debt financing.
There can be no assurance that the Company will be able to raise
the necessary financing to continue in operation or meet its
liabilities as they fall due or be successful in achieving
profitability from its planning principle operations. Should the
Company be unable to discharge its liabilities in the normal
course of business, the Company may not be able to remain in
operation.
2 SIGNIFICANT ACCOUNTING POLICIES
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.
Loss per share
Losses per share computations are based on the weighted average
number of common shares outstanding during the period.
Foreign currency translation
The Company's functional currency is the Canadian dollar and as
such it converts its financial statements into United States
dollars as follows:
Assets and liabilities are translated at the rate of exchange in
effect as at the balance sheet date; and Revenues and expenses
are translated at the average rate of exchange for the year Gains
and losses arising from the translation of foreign currency are
excluded from the net loss for the period and are accumulated as
a separate component of stockholders' equity (deficit).
27
CyPacific Trading Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2004 and 2003
(Expressed in U.S. Dollars)
Note 2 (continued)
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.
Income taxes
The Company follows SFAS No. 109 "Accounting for Income Taxes".
SFAS No. 109 requires recognition of deferred income tax
liabilities and deferred income tax assets for the expected
future income tax consequences of events that have been included
in the financial statements or income tax returns. Under this
method, deferred income tax liabilities and deferred income tax
assets are determined based on the difference between the
financial statement and income tax basis of assets and
liabilities using enacted income tax rates in effect for the year
in which the differences are expected to reverse.
At April 30, 2004 the Company had non-capital losses for Canadian
income tax purposes of approximately Cdn. $8,500 that may reduce
future taxable income through to 2011. The loss carryforwards are
subject to review by the Canada Revenue Agency. The Company has
fully reserved the $3,200 potential income tax benefit of the
loss carryforwards by a valuation allowance of the same amount,
as there is no reasonable assurance the benefit will be realized.
Of the total potential income tax benefit, $1,070 is attributable
to 2003.
There are no significant temporary differences at April 30, 2004.
Recent accounting pronouncements
In June 2003, the FASB approved SFAS No. 150 "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS 150 establishes standards for how
an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. SFAS 150 is
effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. SFAS
150 is not expected to have an effect on the Company's financial
position.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities". SFAS
149 amends certain portions of SFAS 133 and is effective for all
contracts entered into or modified after June 30, 2003 on a
prospective basis. SFAS 149 is not expected to have a material
effect on the results of operations or financial position of the
Company as the Company presently has no derivatives or hedging
contracts.
3.FINANCIAL INSTRUMENTS
Fair value
The carrying values of cash, accounts payable and accrued
liabilities and due to related party approximates their fair
values because of the short maturity of these financial
instruments
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.
28
CyPacific Trading Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
April 30, 2004 and 2003
(Expressed in U.S. Dollars)
Note 3 (continued)
Translation risk
The Company translates the results of foreign transactions into
U.S. currency using rates approximating the average exchange rate
for the year. The exchange rate may vary from time to time. The
Company is exposed to risk to the extent that funds to cover all
expenses must be translated from foreign currencies into U.S.
Dollars at exchange rates prevailing at the time of payment
settlement.
4.RELATED PARTY TRANSACTIONS
The Company entered into a contract to provide services to a company in which a
principal is also the controlling shareholder of Cypacific Trading Inc.
The amount due to a director does not bear interest and has no fixed terms of
repayment.
5.COMMON STOCK
During the period from inception on March 21, 2003 to April 30,
2004 the Company issued 2,000,000 common shares for cash of
$1,395 ($ 0.0007 per share) to the founder of the Company, a
director.
29
Item 19. Exhibits
Exhibit 12 Section 302 Certification
Exhibit 13 Section 906 Certification
SIGNATURES
The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused
and authorized the undersigned to sign this annual report on its
behalf.
CyPacific Trading Inc.
By: /s/ Name: Andrew S. Lee
Title: President, CEO and director
Date: October 30, 2004
Exhibit 12.
CERTIFICATION
I, Andrew S. Lee, certify that:
1. I have reviewed this annual report on Form 20-F of CyPacific Trading Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15e and 15d-15e) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15f and 15d-15f for the Company and have:
designed such disclosure controls and procedures, or caused such disclosure
e. controls and procedures to be designed under our supervision, to ensure that
f. material information relating to the Company, including any consolidated
g. subsidiaries, is made known to us by others within those entities,
particularly
h. during the period in which this report is being prepared;
i. Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
j. Evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
k. Disclosed in this report any change in the Company's internal control over
financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting; and
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
Company's auditors and the audit committee of the Company's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal control over
financial reporting.
By: /s/ Name: Andrew S. Lee
Title: President, CEO and Director
Date: October 30, 2004
29
Exhibit 13.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CyPacific Trading Inc. (the "Company")
on Form 20-F for the year ended April 30, 2004 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Andrew S. Lee,
President of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted
pursuant to 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
By: /s/ Name: Andrew S. Lee
Title: President, CEO and Director
Date: October 30, 2004