0001005150-01-500746.txt : 20011101 0001005150-01-500746.hdr.sgml : 20011101 ACCESSION NUMBER: 0001005150-01-500746 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20011030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYOP SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0001111698 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-72464 FILM NUMBER: 1769940 BUSINESS ADDRESS: STREET 1: 409 GRANVILLE ST STE 1000 STREET 2: VANCOUVER BRITISH COLUMBIA V6C 1T2 CITY: CANADA STATE: A1 ZIP: 00000 BUSINESS PHONE: 6046819588 MAIL ADDRESS: STREET 1: 409 GRANVILLE ST STE 1000 STREET 2: VANCOUVER BRITISH COLUMBIA V6C 1T2 CITY: CANADA STATE: A1 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: TRIPLE 8 DEVELOPMENT CORP DATE OF NAME CHANGE: 20000412 SB-2 1 sb2.txt FORM SB-2 As filed with the Securities & Exchange Commission on October 17, 2001 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 CYOP SYSTEMS INTERNATIONAL INCORPORATED (Name of small business issuer in its charter) Nevada 7373 98-0222927 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
Suite 300 1286 Homer Street Vancouver, B.C. V6B 2Y5 Canada Telephone: (604)647-6400 (Address and telephone number of principal executive offices) Suite 300 1286 Homer Street Vancouver, B.C. V6B 2Y5 Canada (Address of principal place of business or intended principal place of business) Gerald R. Tuskey, Personal Law Corporation Suite 1000, 409 Granville Street Vancouver, B.C. V6C 1T2 Canada (604)681-9588 (Name, Address and telephone number of agent for service) Approximate date of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [___] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [___] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [___] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [___] CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF PROPOSED PROPOSED AMOUNT OF SECURITIES TO AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION BE REGISTERED REGISTERED PRICE PER SHARE (1) OFFERING PRICE FEE (2) ---------------------------------------------------------------------------------------------------------------- Common Stock, 8,998,000 shares $1.40 $12,597,200 $3,149.30 Par value $0.0001 ----------------------------------------------------------------------------------------------------------------
(1) Based on last price at which shares have been sold. (2) Estimated solely for the purpose of calculating the registration fee under Rule 457 of the Securities Act. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENTS SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. PART I - INFORMATION REQUIRED IN PROSPECTUS 2 PROSPECTUS CYOP SYSTEMS INTERNATIONAL INCORPORATED 8,998,000 SHARES OF COMMON STOCK CYOP Systems International Incorporated is a software development company organized in the State of Nevada. The selling shareholders named in this prospectus are offering 8,998,000 common shares of our stock registered through this prospectus. The shares were acquired by the selling shareholders directly from us in a private offering that was exempt from registration under US securities laws. Our common stock is presently not traded on any market or securities exchange. This offering will expire 24 months from the effective date of this prospectus. -------------------- The purchase of the securities offered through this prospectus involves a high degree of risk. See section entitled "Risk Factors" on page 6. -------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. -------------------- The date of this Prospectus is October 17, 2001 TABLE OF CONTENTS PROSPECTUS SUMMARY................................................................................................5 RISK FACTORS......................................................................................................6 USE OF PROCEEDS...................................................................................................7 DETERMINATION OF OFFERING PRICE...................................................................................7 DILUTION..........................................................................................................7 DIVIDEND POLICY...................................................................................................7 SELLING SHAREHOLDERS..............................................................................................7 PLAN OF DISTRIBUTION..............................................................................................9 LEGAL PROCEEDINGS................................................................................................10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.....................................................10 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ND MANAGEMENT....................................................11 DESCRIPTION OF SECURITIES........................................................................................12 INTERESTS OF NAMED EXPERTS AND COUNSEL...........................................................................13 DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES..............................13 ORGANIZATION WITHIN LAST FIVE YEARS..............................................................................13 DESCRIPTION OF BUSINESS..........................................................................................14 PLAN OF OPERATION................................................................................................20 DESCRIPTION OF PROPERTY..........................................................................................22 Office Premises...............................................................................................22 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................22 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................................22 EXECUTIVE COMPENSATION...........................................................................................23 INDEPENDENT PUBLIC ACCOUNTANTS...................................................................................24 INDEX TO FINANCIAL STATEMENTS....................................................................................25 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS....................................................................59 AVAILABLE INFORMATION............................................................................................59 INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................................................59 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION......................................................................60 RECENT SALES OF UNREGISTERED SECURITIES..........................................................................60 EXHIBITS.........................................................................................................61 UNDERTAKINGS.....................................................................................................61
4 PROSPECTUS SUMMARY OUR COMPANY We were incorporated on October 29, 1999 under the laws of the State of Nevada as Triple 8 Development Corporation to engage in any lawful corporate purpose. We changed our name to CYOP Systems International Incorporated on November 2, 2000. We have not been involved in any bankruptcy, receivership or similar proceedings. CYOP Systems International Incorporated is the parent company in our corporate structure. We own 100% of the common shares of CYOP Systems Inc., a Barbados company, which in turn owns 100% of the issued common shares of Moshpit Entertainment Inc. Moshpit Entertainment Inc. is a British Columbia company which conducts all of our product development. Moshpit is a developer and provider of multimedia transactional technology solutions and services for the entertainment industry. Moshpit's range of products and services include financial transaction platforms for on-line video games and integrated e-commerce transaction technology for on-line merchants. All dollar amounts in this prospectus are U.S. dollars. THE OFFERING Securities being registered: 8,998,000 shares of common stock held by existing shareholders. Securities Issued: 28,439,975 shares of common stock are issued and outstanding as of the date of this prospectus. The 8,998,000 shares of common stock to be registered under this prospectus are already issued and may be sold by existing shareholders. Use of Proceeds: We will not receive any proceeds from the sale of shares sold by the selling shareholders. Reason for filing this Prospectus: The Securities and Exchange Commission and National Association of Securities Dealers have adopted the position that securities of blank check companies issued to affiliates and non-affiliates are ineligible for resale under Rule 144 unless those previously issued securities are registered under a registration statement. As of the date of issuance of our initial common shares, we were a blank check company because we had not adopted a definitive business plan. This prospectus is being filed solely for the purpose of registering 8,998,000 common shares held by non-affiliated shareholders which would, but for the SEC and NASD position on blank check companies, be free of trading restrictions.
Expiration Date --------------- This offering will expire 24 months from the effective date of this prospectus. 5 RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus and any other filings we make with the SEC in the future before investing in our common stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed. The value of our common stock could decline due to any of these risks, and you may lose all or part of your investment. Our operating subsidiary is a software development company with a history of ---------------------------------------------------------------------------- losses. ------- We have no revenues from operations since our incorporation. If we are unable to generate revenue and become profitable, our company will fail and you could lose your entire investment. Our management is under no contractual obligation to remain with us and their ----------------------------------------------------------------------------- departure could cause our business to fail. ------------------------------------------- Our director and our officers have varied business interests and are working for other companies. No member of management has signed a written employment agreement with us and we cannot afford to pay management members. In the event Mr. White resigns as a director or an officer of our company we may be unable to attract other qualified officers and directors which would result in the failure of our company and the loss of your investment. Our competitive position in the on-line pay for play video gaming industry is ----------------------------------------------------------------------------- dependent on the success of our pending patent application. ----------------------------------------------------------- We have filed a patent application in the United States to obtain patent protection for our unique in-house developed software and unique pay for play platform. In the event our patent application is not granted, we could be put at a significant competitive disadvantage to other better financed companies who could copy our software and achieve rapid market penetration. We are highly dependent upon our management for financing our software ---------------------------------------------------------------------- development and ongoing operations. ----------------------------------- We are a private company and have just begun earning revenues through the licensing of our pay for play software. We have been and continue to be dependent upon management for loans to our company to finance our operations and software development. In the event management is unable to continue to advance funds to our company before we achieve positive cash flow, our company could fail. Online pay for play video gaming is attracting the interest of large well ------------------------------------------------------------------------- financed potential competitors. ------------------------------- Even if we obtain patent protection for our system of offering pay for play games online, it is possible we could receive intense competition from better financed companies with in-house software development capabilities who are able to offer online pay for play video games without infringing on our patent protection. Our common shares are not quoted on any exchange or listing service. Our common ------------------------------------------------------------------------------- shares are penny stock. ----------------------- Persons who acquire our common shares have limited liquidity or opportunity to sell their shares and may not be able to recover any funds which have been invested in our common shares. Our common shares fall within the definition of a penny stock. In the event our shares become quoted on an exchange or listing service, all transactions involving our shares will be subject to special rules established by the Securities and Exchange Commission which require brokers and dealers to complete due diligence on penny stocks being acquired on behalf of clients. These requirements are onerous and may make an investment in penny stocks less appealing to certain investors which could affect your ability to sell our common shares. 6 We have no experience operating online pay for play video games or processing ----------------------------------------------------------------------------- online financial transactions. ------------------------------ We have tested our operating system and believe it will accommodate the expected commercial traffic at our website however, our lack of experience operating our system could result in a breakdown of our operations and a resulting lack of business. FORWARD LOOKING STATEMENTS This prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as "anticipate," "believe," "plan," "expect," "future," "intend" and similar expressions to identify such forward-looking statements. You should not place reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in the Risk Factors section and elsewhere in this prospectus. USE OF PROCEEDS All of the common shares being registered under this prospectus are owned by existing shareholders of our company. In the event registered shares are sold in the future, all proceeds will accrue to the selling shareholders. DETERMINATION OF OFFERING PRICE It is not currently possible to determine a price at which the shares being registered under this prospectus may be sold. The shares being registered were acquired by our shareholders at $0.001 per share. Our common shares are not quoted or listed on any exchange. Future sales of the registered shares either through private transactions or a future listing will be determined by market forces and the independent decisions of selling shareholders. DILUTION The common stock to be sold by the selling shareholders is common stock that is currently issued and outstanding. Accordingly, there will be no dilution to our existing shareholders. DIVIDEND POLICY We have not declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. We do not anticipate paying any cash dividends in the foreseeable future. SELLING SHAREHOLDERS The selling shareholders named in this prospectus are registering a total of 8,998,000 common shares for possible future resale. All shares being registered were acquired by the selling shareholders on November 1, 1999 at $0.001 per share under Regulation S. The Regulation holding period on these shares has been satisfied in accordance with Rule 903(b)(3)(iii)(A). Only common shares owned by shareholders who are non-affiliates are being registered under this prospectus. Our former director, Mr. Keith Ebert, owns 10,225,000 of our common shares which are not being qualified for resale under this prospectus. The following table provides information regarding the beneficial ownership of our common stock held by each of the selling shareholders as of October 17, 2001. To the best of our knowledge, the shareholders in the table that follows are the beneficial owners and have the sole voting and investment power over all shares or rights to the shares reported. 7 -------------------------------------------------------------------------------- TOTAL NUMBER CURRENT SHARES OF SHARES BEING PERCENT OF OWNED PRIOR REGISTERED BY COMPANY NAME AND ADDRESS TO THIS SELLING SHARES OF SELLING SHAREHOLDER OFFERING SHAREHOLDER OWNED -------------------------------------------------------------------------------- Tom Bollum 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- Renata Kubicek 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Gerald J. Shields 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Sandra Ann Hughes 204,500 204,500 0.72% Surrey, B.C. -------------------------------------------------------------------------------- Rob Smith 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Jackie A. Tuskey 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Darren Ross 204,500 204,500 0.72% South Surrey, B.C. -------------------------------------------------------------------------------- Brian Tuskey 204,500 204,500 0.72% Courtenay, B.C. -------------------------------------------------------------------------------- Mary Ann Myers 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- Tom Connell 204,500 204,500 0.72% Oshawa, Ontario -------------------------------------------------------------------------------- Dr. Keith Lim Inc. 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Jane Shields 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- Doug Irwin 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Margot Jones 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- John Furlan 204,500 204,500 0.72% Calgary, Alberta -------------------------------------------------------------------------------- Rick Gateman 204,500 204,500 0.72% Calgary, Alberta -------------------------------------------------------------------------------- Tom Simmons 204,500 204,500 0.72% Calgary, Alberta -------------------------------------------------------------------------------- John Jardine 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- Gail Fish 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- Ro Lal 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Erin Strench 204,500 204,500 0.72% Puerto Vallarta, Mexico -------------------------------------------------------------------------------- Allen Wilson 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Beverly Strench 204,500 204,500 0.72% Richmond, B.C. -------------------------------------------------------------------------------- Neville Ebert 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- 8 -------------------------------------------------------------------------------- Gloria Martino 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- Bill Martino 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- Andrew Allan 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- Haroon Rashid 204,500 204,500 0.72% Surrey, B.C. -------------------------------------------------------------------------------- Ann Marie Butler Rashid 204,500 204,500 0.72% Halifax, Nova Scotia -------------------------------------------------------------------------------- Kenny Chan 204,500 204,500 0.72% Richmond, B.C. -------------------------------------------------------------------------------- Dwight Chan 204,500 204,500 0.72% Richmond, B.C. -------------------------------------------------------------------------------- Dee Gorrell 204,500 204,500 0.72% Delta, B.C. -------------------------------------------------------------------------------- Shauna Loiselle 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- Paul Canfield 204,500 204,500 0.72% Keswick, Ontario -------------------------------------------------------------------------------- Janet Moher 204,500 204,500 0.72% Oshawa, Ontario -------------------------------------------------------------------------------- Ruth Canfield 204,500 204,500 0.72% Bowmanville, Ontario -------------------------------------------------------------------------------- Jill Jankovich 204,500 204,500 0.72% Gabriola Island, B.C. -------------------------------------------------------------------------------- Dan Nugent 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Judy Morey 204,500 204,500 0.72% Calgary, Alberta -------------------------------------------------------------------------------- Rob Furlan 204,500 204,500 0.72% Calgary, Alberta -------------------------------------------------------------------------------- Sandra Furlan 204,500 204,500 0.72% Vancouver, B.C. -------------------------------------------------------------------------------- Karen Lynn Bollum 204,500 204,500 0.72% Salmon Arm, B.C. -------------------------------------------------------------------------------- Dr. Denis Vincent 204,500 204,500 0.72% North Vancouver, B.C. -------------------------------------------------------------------------------- Lindsay Nevison 204,500 204,500 0.72% West Vancouver, B.C. -------------------------------------------------------------------------------- PLAN OF DISTRIBUTION The selling shareholders have not informed us of how they plan to sell their shares. However, they may sell some or all of their common stock in one or more transactions, including block transactions: (1) on such public markets or exchanges as the common stock may from time to time be trading; (2) in privately negotiated transactions; (3) through the writing of options on the common stock; (4) in short sales; or (5) in any combination of these methods of distribution. 9 The sales price to the public may be: (1) the market price prevailing at the time of sale; (2) a price related to such prevailing market price; or (3) such other price as the selling shareholders determine from time to time. The selling shareholders may also sell their shares directly to market makers acting as principals or brokers or dealers, who may act as agent or acquire the common stock as a principal. Any broker or dealer participating in transactions as agent may receive a commission from the selling shareholders, or, if they act as agent for the purchaser of common stock, from the purchaser. The selling shareholders will likely pay the usual and customary brokerage fees for services. Brokers or dealers may agree with the selling shareholders to sell a specified number of shares at a stipulated price per share and, to the extent such broker or dealer is unable to do so acting as agent for the selling shareholders, to purchase, as principal, any unsold shares at the price required to fulfill the respective broker's or dealer's commitment to the selling shareholders. Brokers or dealers who acquire shares as principals may thereafter resell shares from time to time in transactions in a market or on an exchange, in negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices, and in connection with re-sales may pay or receive commissions to or from the purchasers of shares. These transactions may involve cross and block transactions that may involve sales to and through other brokers or dealers. We are bearing all costs relating to the registration of the common stock under this prospectus. Any commissions or other fees payable to brokers or dealers in connection with any sale of the common stock, however, will be borne by the selling shareholders or other party selling such common stock. The selling shareholders must comply with the requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934 in the offer and sale of their common stock. In particular, during such times as the selling shareholders may be deemed to be engaged in a distribution of the common stock, and therefore be considered to be an underwriter, they must comply with applicable law and may, among other things: (1) not engage in any stabilization activities in connection with our common stock; (2) furnish each broker or dealer through which common stock may be offered, such copies of this prospectus, as amended from time to time, as may be required by such broker or dealer; and (3) not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities other than as permitted under the Securities Exchange Act. LEGAL PROCEEDINGS We are not currently a party to any legal proceedings. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS Our director and officer is as follows: NAME AGE POSITION ---- --- -------- Mitch White 40 Director, C.F.O. and President Our officer and director will serve until the next annual meeting of the shareholders or until his death, resignation, retirement, removal, or disqualification, or until his successors have been elected. Vacancies in the existing Board of Directors are filled by majority vote of the remaining directors. Our officer serves at the will of the Board of Directors. There are no family relationships between any executive officer and/or director. 10 Resumes ------- Mitch White was appointed to his positions on February 14, 2001. He devotes his time to our business affairs on an as needed basis which is currently approximately 30 hours per week. From March, 1995 to June, 1998, Mr. Mitch White held the position of Chairman of the Board of Directors of Starnet Systems International which is a publicly traded reporting company quoted on the NASD OTC Bulletin Board under the symbol "WGMGY" and on the AIM market in London, England. Starnet Systems developed and implemented computer software designed to process online casino transactions in those jurisdictions in which online gaming is permitted. From June, 1998 until the present, Mr. White has been principally engaged in the founding, funding and development of Moshpit Entertainment and its pay for play electronic transactional platform. Mr. White is also President of Caribbean Way.com, a Montreal, Canada based online travel and booking agency. Mr. White possesses 15 years of experience in sales, marketing and management in the high technology and entertainment industries. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ND MANAGEMENT The table below lists the beneficial ownership of our voting securities by each person known by us to be the beneficial owner of more than 5% of our securities, as well as the securities beneficially owned by all our directors and officers. Unless specifically indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown. * each person or entity known by us to be the beneficial owner of more than 5% of the outstanding shares of common stock, * each of our directors and named executive officers, and * all of our directors and executive officers as a group. NAME AND ADDRESS AMOUNT AND NATURE PERCENT TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER OF CLASS -------------- ------------------- ------------------- -------- $.0001 Par Value Keith Ebert 10,225,000 common shares 35.95% Common Stock Suite 2901 Direct Ownership 1201 Marinaside Cres. Vancouver, B.C. V6Z 2V2 $.0001 Par Value Greenday Inc. 4,000,000 common shares 14.06% Common Stock Suite 29 - 1st Floor Direct Ownership Beckwith Mall (Potential beneficial Owner Lower Broad Street is Mitch White) Bridgetown, Barbados $.0001 Par Value Andrea Carley 500,000 common shares 1.76% Common Stock 2779 Lake City Way Direct Ownership Burnaby, B.C. V5A 2Z6
11 $0.001 Par Value Mitch White 500,000 common shares 1.76% Common Stock 2779 Lake City Way Direct Ownership Burnaby, B.C. V5A 2Z6 $0.001 Par Value Caska Trust 1,250,000 common shares 4.39% Common Stock Suite 29 - 1st Floor Direct Ownership Beckwith Mall (Potential beneficial owner Lower Broad Street is Mr. Stephen White) Bridgetown, Barbados $0.001 Par Value Jazzco Trust 1,250,000 common shares 4.39% Common Stock Suite 29 - 1st Floor Direct Ownership Beckwith Mall (Potential beneficial owner Lower Broad Street is Mr. A.J. Morand) Bridgetown, Barbados $0.001 Par Value Lancaster Estate Trust 1,500,000 common shares 5.27% Common Stock Suite 29 - 1st Floor Direct Ownership Beckwith Mall (Potential beneficial owner Lower Broad Street is Mr. Richard Gallo) Bridgetown, Barbados $.0001 Par Value Management as a group 5,000,000 common shares 17.58% Common Stock including executive officers and directors
The Company's president, Mr. Mitch White, is the potential beneficiary of shares held by Greenday Inc. in the event of a distribution of property by that Trust. Moshpit's Vice-President, Mr. Stephen White, is the potential beneficiary of the 1,250,000 shares held by Caska Trust in the event of a distribution of property by that Trust. Mr. A.J. Morand, a former Vice-President of Moshpit Entertainment is the potential beneficiary of 1,250,000 shares held by Jazzco Trust in the event of a distribution by that Trust. Mr. Richard Gallo, who is an investor in our company, is the potential recipient of 1,500,000 shares held by Lancaster Estate Trust in the event of a distribution of property by that Trust. There is no affiliation between the trusts which hold shares in our company. DESCRIPTION OF SECURITIES General ------- Our authorized capital stock consists of 100,000,000 shares of common stock at a par value of $0.0001 per share. The following description of our capital stock discloses all material information relating to our common stock but is not a full summary of all information relating to our common stock. The description is subject to and qualified in its entirety by our articles of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable Nevada law. Common Stock ------------ As of October 17, 2001, there were 28,439,975 shares of common stock issued and outstanding that were held by 112 shareholders of record. 12 All shares of common stock have equal voting rights and are entitled to one vote per share in all matters to be voted upon by shareholders. Our shares have no pre-emptive, subscription, conversion or redemption rights and may be issued only as fully paid and non-assessable shares. Cumulative voting in the election of directors is not permitted, which means that the holders of a majority of our issued shares represented at any meeting where a quorum is present will be able to elect the entire Board of Directors. In that event, the holders of the remaining shares of common stock will not be able to elect any directors. In the event of liquidation, each shareholder is entitled to receive a proportionate share of our assets available for distribution to shareholders after the payment of liabilities and after distribution of preferred amounts. All shares of our common stock issued and outstanding are fully paid and non-assessable. Holders of stock are entitled to share pro rata in dividends and distributions with respect to the common stock out of funds legally available for that purpose. There are no outstanding options or warrants to acquire our shares. 8,998,000 of our shares held by non-affiliates are being registered under this registration statement and will become free trading if this registration statement becomes effective. 10,225,000 of our issued shares are held by Mr. Ebert, an affiliate of our company. The shares held by Mr. Ebert were issued when we were a blank check company and cannot be sold unless they are registered under a future registration statement. INTERESTS OF NAMED EXPERTS AND COUNSEL No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our directors and officers are indemnified as provided by the Nevada Revised Statutes (the "NRS") and our Bylaws. We have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court's decision. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. ORGANIZATION WITHIN LAST FIVE YEARS We were incorporated on October 29, 1999 under the laws of the State of Nevada to engage in any lawful corporate purpose. On November 1, 1999, we issued 2,250,000 common shares at a deemed price of $0.001 per share to Mr. Keith Ebert. Mr. Ebert was issued these shares in consideration for his services in organizing our company and acting as an officer and director and building our business plan. The value of the services rendered is $2,250. We relied on the exemption contained in Regulation S of the Securities Act of 1933 to issue these shares to Mr. Ebert. 13 On November 3, 2000, we issued a total of 9,000,000 common shares to the shareholders of CYOP Systems Inc. in consideration for all of the issued and outstanding common shares of CYOP Systems Inc. The former shareholders of CYOP Systems Inc. now collectively own 31.8% of our company. Our current president, Mr. Mitch White, is the potential beneficial owner of 4,500,000 of the shares which were issued in consideration for the shares of CYOP Systems Inc. Mr. Stephen White, who is the president of our subsidiary, Moshpit Entertainment Inc., is the potential beneficiary of 1,250,000 of the shares we issued to acquire CYOP Systems Inc. Mr. A.J. Morand, a former vice president of Moshpit Entertainment Inc. is the potential beneficiary of 1,250,000 of the shares which we issued to acquire CYOP Systems Inc. DESCRIPTION OF BUSINESS (I) OUR PRINCIPAL PRODUCTS AND SERVICES Our business model is built on an e-commerce transaction system applied to innovative market niches and existing strong markets in the entertainment industry. Our CYOP transaction network is the backbone to all existing and future ventures and is critical to providing seamless revenue streams and integrated business practices. The key to our products and services is the transactional engine that powers our e-commerce infrastructure. This transactional engine consists of in-house developed software. Our in-house developed software creates our unique pay for play platform which allows real time on line competitions and all of the commercial processing that they involve. This intricate co-ordination of the receipt of fees, processing of game credits and revenue sharing makes our company unique. Play-For-Pay Tournaments The concept of professional video gaming is a widely anticipated expansion in the video game industry. Local area network game tournaments are sponsored which generate hundreds of thousands of dollars in top prizes for contestants. We have an infrastructure which we refer to as the Bloodmoney Universe to develop this trend of playing video games for money through the establishment of financial gaming accounts for members which allow contestants to compete in multi-player tournaments 24 hours a day, against people from around the world. We are unaware of any existing or probable government regulations which would have an adverse affect on the implementation of our current business plan. We are relying on American and Canadian legal opinions to ensure that our business falls within current government regulations in those jurisdictions. Our network is a transactional platform that links game players to a network of Internet servers that are hosting play-for-pay tournaments. Our network allows Bloodmoney Universe members to convert money in their financial account into game credits and compete in these tournaments. Successful competitors receive a percentage of tournament entry fees automatically deposited into their accounts. Our Bloodmoney Universe is organized to generate three core revenue streams: membership fees, play-for-pay network maintenance fees, and credit card processing fees. The Bloodmoney Universe is operational. To date, a minimal amount of money has been spent of marketing our products and services. Accordingly, traffic to our site has been limited. A breakdown of our revenue to date by core revenue stream is provided below. 14 The Bloodmoney Universe was launched on the internet in December 2000. As of the date of this registration statement, we have sponsored 12,933 pay for play tournaments. The majority of these tournaments have been demonstration tournaments. We have distributed $4,051.10 in entry fees for winning tournaments to date. Membership Fees Much like a sporting facility, we will provide a number of membership services for our members through the Bloodmoney Universe; higher paying members receive greater services such as lower credit card processing fees. The Bloodmoney Universe is a complete virtual world with a story line, characters, game information, links, shopping, music, etc. where members can accumulate, spend or cash out their credits. As of the date of this registration statement, we have not generated membership fees and have not yet accepted any paying members. Network Maintenance Fees One of our divisions, CYOP studios, manages the games and tournament servers in the Bloodmoney Universe. Members wishing to compete in tournaments of skill for money are charged a network maintenance fee each time they access a play-for-pay tournament. The network maintenance fee is split between CYOP Systems, game developers and game server operators. As of the date of this registration statement, we have generated $1,168.00 in network maintenance fees. Game developers will set a network maintenance fee for their game with higher profile games having a higher network maintenance fee. Our company will advertise the new games within the Bloodmoney Universe. We will enter into agreements with game developers and server operators to share in their network maintenance fees that are all transaction based. Our company earns 40% of network maintenance fees with game developers and game server operators each earning 30% of network maintenance fees. Server operators have full control over their tournaments including establishing the entry fee. Our company, game developers and game server operators do not take a percentage of the total accumulated by the entry fee. This total gets disbursed to winners of the tournaments based on set distribution percentages. As of the date of this registration statement, we have entered into ten letters of intent with game developers. These letters of intent will be replaced with agreements as our company is able to demonstrate its ability to attract player traffic. Credit Card Processing Fees Our transaction network receives credit card processing fees for every deposit of cash into a member's financial account. This e-commerce transactional network is also the backbone for additional ventures which stem from the Bloodmoney Universe. As of the date of this registration statement, we have generated $188.19 in credit card processing fees. Non-Competitive Strategy We are committed to the Linux open source movement, which allows our members to share and contribute to the development of games. Our members will have access to all information surrounding game development and game hosting. All resources are available to members except the technology behind our processing network. We allow members to use our technology to become play-for-pay game developers and game server operators. This open source strategy creates new business and integrates and binds members to our transaction network. 15 We developed the Bloodmoney Universe as a new playing field for the growing number of people playing games on-line. Distribution Methods of our Products and Services. -------------------------------------------------- Our product of providing on-line access to pay-for-play video gaming is not distributed in the conventional sense. Rather, video gamers log on to our internet site and register at one of the membership levels to enter play. We expect that news of our unique site and pay-for-play concept will spread quickly through the on-line gaming community. We also propose to advertise at venues such as the computer game developers conference, electronic entertainment exposition and various on-line traditional video game sites. Word of mouth and our targeted marketing plan will effectively be the way our product is distributed. (II) COMPETITIVE BUSINESS CONDITIONS AND OUR POSITION IN OUR INDUSTRY Video games have often been dismissed as a rudimentary form of entertainment - lacking the glitz and glamour of Hollywood and prime time television. But, over the past few years, the games industry has been growing faster than any other part of the entertainment business. In terms of revenues, it is now running neck-and-neck with the movie box office. Movies still make much more money once television sales, videos and licensing deals are included. The video game industry can be segregated into three main technology areas: game developers, platform developers, and game server operators. Game developers create games to be played on different platforms such as those developed by Sony, Sega and Nintendo, on personal computers or on arcade machines. With the introduction of the Internet, games are now hosted on servers where players from around the world log in and play. In a recent report by Forrester Research, "Pervasive Gaming Goes Mainstream", August, 2000, it was found that 80% of game companies expect broadband-connected consoles to be the dominant home game platform by 2003. The Forrester Report suggests that next generation consoles are on route to become "an entire home entertainment system, encompassing games to Web browsing to eCommerce." Internet-enabled consoles are ushering in a new generation of interactive gaming with technology that utilizes the Internet to create new dimensions in interactive gaming and which will transform the entertainment industry. The report outlines three evolutionary changes in technology that will create pervasive gaming: 1. Platforms will connect to the Internet and control TVs. 2. Pipes will deliver content at the speed of Broadband. 3. People will seamlessly segue from playing games to watching TV. These changes will force new business models within the industry such as subscription and pay-per-use revenue streams. Advertising revenue will also increase substantially as interactive media advances technologically. Estimates of retail, hardware, subscription/pay-per-use, advertising and product placement sales put total games revenue at near 30 billion dollars by 2005. 16 Target Market The myth that most gamers are children also seems to defy the changing gaming demographics. In reality, nearly 75% of PC gamers are adults, with only 30% being under the age of 18. The Forrester Report indicates that 25% of the on-line population plays games on-line, 49% are women and 51% are men, and they have a median age of 39. On-line gamers generate an average yearly income of $49,000 US/year and play an average of 13 hours/week. Industry Players Console Developers The video game industry has some giants that are a dominant force in the marketplace. Sega, Sony, and Nintendo dominate the game platform market with a projected 80% by 2003. Microsoft has recently entered the console market with its Xbox and may become a dominate player in the next few years. Publishers/Game Developers Electronic Arts, headquartered in Redwood City, California, is the world's leading interactive entertainment software company. Founded in 1982, Electronic Arts posted revenues of more than $1.2 billion for fiscal 1999. The company develops, publishes and distributes software worldwide for personal computers and video game systems such as the PlayStation(R) and Nintendo(R) 64. Blizzard Entertainment(R) is a premier publisher of entertainment software. Since establishing the Blizzard label in 1994, the company has quickly become one of the most popular and well respected makers of computer games. With blockbuster hits including the Warcraft (R) series, the Diablo. series, and StarCraft., the company has enjoyed back-to-back number-one selling games, as well as consecutive Game of the Year awards. Blizzard Entertainment operates a free online game service, Battle.net(R); the largest in the world with millions of active users. As a known leader in the industry and one of the world's leading developers of best selling software, id Software has forged frenetic titles such as Wolfenstein 3-D, DOOM, DOOM II, QUAKE, and QUAKE II. With intense graphics and mind-blowing adventure, id creates frenzied demands worldwide and continues to break retail and shareware sales records. id has proven itself to be genius at more than just software development. Using non-traditional means of product distribution, shareware channels, online services, and the Internet . id has helped to create a new way to market computer games. id's titles have become cultural phenomenon inspiring other developers while spawning mainstream licensing agreements for movie and book series . id games have been featured on prime time TV shows such as Friends and ER and in the movies The Net, Congo and Gross Point Blank. Game Server Operators On-line, multi-player games allow for the game player to link to game servers hosting the game. These game servers constitute any corporation or anyone with a server that wishes to host a game. Game server operators have not had a revenue generating model beyond providing a web portal where game players can log on and search for different games being hosted. The best estimate for the number of game servers today is the Championship League or CLQ which now monitors 218,660 servers and 10,830,173 players on-line. Professional (for money) Video Game Leagues Professional video gaming is a new concept that is gaining momentum within the video game industry. Two organizations have evolved to cultivate this new trend. 17 The Cyberathlete Professional League (CPL) was founded on June 26, 1997. The CPL is a computer gamer's league attempting to transform computer game competitions into a professional sport. The CPL attracts thousands of gamers to its live events and hundreds of thousands of spectators, both live and online. The CPL sets up physical local area network tournaments and receives sponsorship financing. Through its various sponsors, the CPL awards tournament winners as much as $150,000 in cash prizes. The CPL events feature: professional computer game tournaments, large spectator arenas, amateur local area network competitions, hardware and software exhibitions and occasionally a variety of workshops. Online Athletes (OLA) is member-based professional game league. Members are charged a $25/year membership fee which gives them a registered server. The league monitors play and distributes cheques to top players each week based on performance. CYOP Systems and the Video Game Industry CYOP Systems is positioning itself as an asset to all industry players through its integrated transaction technology. The Bloodmoney Universe is a complete entertainment network where game players can access and play their favorite games for real money distributed to them via their electronic accounts. Game console developers are creating web browser capabilities within their next generation systems that will enable players to connect to the Bloodmoney Universe. Transaction technology within the Bloodmoney Universe creates a means by which game developers can create play-for-pay versions of their games. Developers can utilize the Bloodmoney Universe audience to market and promote their games. CYOP Systems has created a new business model for game server operators. By simply hosting Bloodmoney Universe games from their server, anyone can host play-for-pay video games, generating a significant additional source of revenue. Professional game leagues are limited to physical tournament settings or reliance on sponsorships for financing. The Bloodmoney Universe creates a 24 hour market of interactive video gaming where players enter tournaments through their own financial accounts and accumulate credits that can be converted back into cash. As of the date of this prospectus, management is unaware of any other company which offers pay for play video gaming with the capacity to credit players in real time. Assuming that our pending patents are granted, other companies will be restricted from competing against the pay for play games offered through the Bloodmoney Universe. At present, the Bloodmoney Universe is in its start up phase. We have not yet established a competitive position within the video gaming industry and our ability to successfully compete in the future is dependent upon our receipt of funding for advertising, full product launch and further product development. It is likely we will receive competition from other companies offering online pay for play video gaming which falls outside of our pending patent protection. These competitors may utilize future off the shelf software systems or custom designed pay for play video software. Our business model is designed to provide financial incentives for game developers and server operators who may otherwise compete against our Company. However, the relative ease with which potential competitors may set up other pay for play internet sites will likely result in online competition. How We Plan to Expand Our Business Model ---------------------------------------- The video game industry has many players. One of the biggest setbacks for talented game developers is finding a distribution channel to expose their games to a target market. As a solution for these developers, we have created a division, CYOP studios, to act as a distribution network within the 18 Bloodmoney Universe. Through our entertainment network CYOP studios will promote Bloodmoney Universe games. As of the date of this registration statement, only our in-house developed game Urban Mercenary is being promoted using the Bloodmoney Universe. There are not yet any independent game developers using the Bloodmoney Universe to promote their games. We will also be developing Big Deal Mall as an on-line shopping network where members can use credits or cash to purchase products straight out of their financial game accounts. As of the date of this registration statement, the Big Deal Mall does not have any products offered. It is an online shopping network in concept only. On-line shopping portals are numerous and it is difficult to create customer loyalty. As a product retailer accessing a specific, vertical market through an established membership base, management believes big deal mall possesses potential to profit and expand into other product categories through customer evaluation strategies. We are developing a licensing plan for big deal mall's on-line merchant processing technology allowing business to set up their own e-commerce system through our transaction network. Our information technology oriented audience creates a unique position for us to enter the growing on-line education market with a strong focus on technical and game development courses. Know University is powered by our transaction network, offering fee and credit-based courses for members as well as the opportunity for members to create and host their own tutorials. This self-evolving model similar to the philosophy of the entire entertainment network creates a knowledge exchange environment that expands into a wide variety of subjects. The Know University infrastructure will be licensed out to other on-line educators and institutions as a means to bring their content on-line. We are launching into the on-line music industry with a unique sales and distribution model. The Music Thing is a promotion and distribution portal for digital media on-line that provides a simple and profitable means for artists to distribute their music and an easy way for members to obtain music and artist-related content. As with all our ventures, the Music Thing will involve cross-marketing within our transaction network. The Music Thing is integrated to our network following subscription-based and direct purchase models. The backend technology will also be licensed out to record companies and labels as a business model for distribution of their content on-line. The key to the success of our business plan is the development of a sense of community where members can interact, learn and be entertained. Our network is not just a portal to play games for money, although this service alone should generate members. We are a complete, self-evolving virtual world with a story-line, interactive chat features and clubs, comic strips, knowledge exchange, shopping network, and music and game downloads and distribution that are all interconnected through member's accounts. There are no organizations currently operating in our Big Deal Mall, Know University or Music Thing business segments. (III) SOURCES AND AVAILABILITY OF RAW MATERIALS The raw material for the development of our products comes from the imagination and intellect of our in-house software developers. These are the same individuals Moshpit has relied on in the development of its first play-for-pay online video game Urban Mercenary and for the development of our e-commerce transaction network. None of our product development is sourced to outside contractors or sub-contractors nor are we dependent on any other person or company for the supply of goods and services to continue the development of our products. 19 (VI) REQUIREMENT OF GOVERNMENT APPROVAL Most jurisdictions including Canada and the United States have legislation which regulates gambling activities. We have obtained legal opinions from American and Canadian legal counsel detailing American and Canadian gaming provisions and advising our management on which jurisdictions the operation of our interactive video game website is legal. Fundamentally, our interactive video game website and pay for play concept is legal because members compete in a contest of skill only and not a game of chance or a game of mixed skill and chance. Patents, Trademarks and Licenses -------------------------------- Our company's intellectual property lawyers have filed a patent application in the United States to obtain patent protection for our unique in-house developed software and unique pay for play platform. This invention relates to the field of online pay for play and/or pay for play game services generally and, more particularly, to the field of management of usage fees for those services. More generally, our invention relates to a system for offering pay for play and/or pay for play games online and more particularly to an efficient system for regulating and charging subscribers for the game services used. (IV) OUR PART TIME EMPLOYEES We have 19 full time employees who are on contract with our company and who hold the following positions: 5 Programmers 1 President 1 3D Animator 1 Investor Relations 2 System Administrators 2 Marketing Representatives 1 Human Resource Manager 1 Tester 2 Project Managers 2 Web Designer/Graphic Artist 1 Accounting OUR EXPENDITURES DURING THE LAST TWO FISCAL YEARS ON RESEARCH AND DEVELOPMENT ACTIVITIES During the period October 1, 1999 (commencement of operations) to June 30, 2001, we incurred software development costs totalling $1,137,107. PLAN OF OPERATION In the three months ended June 30, 2001, we earned revenue of US$58,643 from website development. This is not our core business. We have been primarily focused on developing our product for market launch. Management has financed our operations to date. Management will continue to fund our operations through shareholders loans for the next 12 months or until such time as we are able to raise equity or debt financing privately, through a public listing, or until we have positive cash flow. We can 20 satisfy our cash requirements solely from funds loaned by management for approximately 12 months. However, management is not under any contractual obligation to provide continued funding. We will spend approximately $2 million in additional capital in the next 12 months to maintain current operations at our current expenditure rate. Additional funds in the amount of $500,000 will be required for a complete launch of the Bloodmoney Universe including a full marketing budget. We anticipate maintaining our staff of 19 persons during the next 12 months. We do not expect to acquire any material physical assets or significant equipment in the next 12 months. We will not be performing any significant research and development in the next 12 months as our pay for play software is complete and tested. We launched our first pay-for-play online video game, Urban Mercenary in February, 2001. In March, 2001, the Company secured the Canadian Imperial Bank of Commerce as the Company's merchant account processor. Also in March, 2001, the Company hosted a trade booth at the Computer Gamers and Developers Conference (CDGC) in California. The Company signed seven letters of intent with game developers as a result of its exposure at the CDGC conference. In June, 2001, we signed a licensing contract with Bingo.com. This contract calls for our company to provide front end game development and site management. It is also a licensing agreement under which Bingo.com will use our pay for play transaction software. Bingo.com has approximately 700,000 members playing bingo online. Bingo.com has devised a new format for bingo which is a skill based game and not a game of chance. The Bingo.com site will begin using CYOP's pay for play transaction software commencing in October, 2001. The Company's agreement with Bingo.com generated revenue of US$58,643 for the fiscal quarter ended June 30, 2001. This revenue was from web site development which will be a sporadic source of revenue for the Company. This revenue has been treated as a software development cost expense recovery in the Company's June 30, 2001 financial statements. This treatment has been applied because the revenue received by the Company in the quarter ended June 30, 2001 was not considered revenue from the Company's core business. The Company's online video game Urban Mercenary is completely developed as is our pay for play transaction software. Our agreement with Bingo.com is the first which will demonstrate the effectiveness of our e-commerce pay for play platform with third party licensees. Management will continue to fund the Company through shareholders' loans until such time as the Company is financially self supporting. Management of the Company will be aggressively seeking private financing to launch an aggressive marketing campaign for our pay for play network and our flagship video game Urban Mercenary. In order for our Company to expand it's operations and realize profits from pay for play online video gaming a number of additional steps must be taken. We must continue to maintain and upgrade our software programs and our website. This is an ongoing month to month responsibility which is handled by our current staff members. Funds for this ongoing software maintenance have been budgeted and are covered by funds which are being loaned to our Company by management. In the future, the funds required for ongoing software maintenance will come from revenue from licensing fees or system maintenance fees from pay for play video gaming. Secondly, to increase our Company's exposure and attract players to our website we will be required to complete a full marketing launch of our Bloodmoney Universe. We anticipate that this marketing launch will cost approximately $500,000. Until we complete a marketing launch we cannot expect large volumes of players for our online pay for play video game. Revenues will be derived from licensing fees from third parties. We will also continue to pursue our pending patent applications in the United States. Patent protection will improve our competitive position in the online pay for play video gaming industry. We anticipate spending up to an additional $25,000 for costs associated with our patent applications. We anticipate it may take up to one year for our current patent applications to be granted. 21 DESCRIPTION OF PROPERTY Office Premises --------------- We maintain an office at Suite 300, 1286 Homer Street, Vancouver, British Columbia, Canada. This is leased office space of approximately 4,400 square feet which houses our current operations. Monthly lease payments on this office space are $10,400. We carry adequate insurance to protect our physical assets from loss and damage. These facilities are fully utilized and are adequate for our needs for the next 12 months. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On November 1, 1999, our former Chief Executive Officer and director, Mr. Keith Ebert, received 2,250,000 of our common shares valued at $0.001 per share ($2,250.00) in consideration for his services in helping to set up our company and for managing our operations. On November 3, 2000 we acquired 100% of the issued and outstanding common shares of CYOP Systems Inc. The former shareholders of CYOP Systems Inc. now collectively own 9,000,000 of our 28,439,975 issued common shares or 31.6% of our company. Certain of the former shareholders of CYOP Systems Inc. are independently managed trusts. The following individuals are potential beneficiaries of the trusts in the event of a distribution of property: NAME OF FORMER CYOP NUMBER OF CYOP NUMBER OF CYOP NAME OF POTENTIAL SYSTEMS INC. SHAREHOLDER SYSTEMS INC. SYSTEMS INTERNATIONAL BENEFICIAL OWNER SHARES FORMERLY HELD INCORPORATED SHARES RECEIVED Greenday Inc. 8,000,000 4,000,000 Mitch White Andrea Carley 1,000,000 500,000 Andrea Carley Mitch White 1,000,000 500,000 Mitch White Caska Trust 2,500,000 1,250,000 Stephen White Jazzco Trust 2,500,000 1,250,000 A.J. Morand Lancaster Estate Trust 3,000,000 1,500,000 Richard Gallo
Our President and Chief Executive Officer, Mr. Mitch White, has been the primary source of funding for the development of our wholly owned subsidiary, Moshpit Entertainment Inc. As of the date of this registration statement, Mr. White has advanced total proceeds of US$936,812 to Moshpit Entertainment Inc. as demand loans at 8.5% per annum. These loans are not secured by any of the assets of our company or its subsidiaries. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS No Present Public Market ------------------------ There is presently no public market for our common stock. We can provide no assurance that our shares will be traded on any public market in the future. Holders of Our Common Stock --------------------------- As of the date of this registration statement, we have 112 registered shareholders. 22 Dividends --------- There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend: (1) we would not be able to pay our debts as they become due in the usual course of business; or (2) our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. We have not declared any dividends. We do not plan to declare any dividends in the foreseeable future. Transfer Agent -------------- Our transfer agent is The Nevada Agency and Trust Company of Suite 880, Bank of America Plaza, 50 West Liberty Street, Reno, Nevada, 89501. EXECUTIVE COMPENSATION Our President, C.E.O. and C.F.O., Mr. Mitch White, receives no cash compensation or compensation in any other form from our company. On November 1, 1999, our former C.E.O., Mr. Ebert received 2,250,000 of our common shares valued at $0.001 per share in consideration for his services in helping to set up our company and for managing our operations. Mr. Ebert will receive no additional compensation from our company for his services. Mr. Stephen White and Mr. A.J. Morand who are the President and former Vice-President of our subsidiary, Moshpit Entertainment, respectively, received cash salaries of $38,500 each during the last fiscal year of Moshpit Entertainment. SUMMARY COMPENSATION TABLE Long Term Compensation ---------------------------------------------------------------------------------------------------------------------- Annual Compensation Awards Payouts ---------------------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) (h) (i) ---------------------------------------------------------------------------------------------------------------------- Other All Annual Restricted Securities Other Name and Principal Comp- Stock Underlying LTIP Comp- Position Salary Bonus ensation Award(s) Option/SARs Payouts ensation Year ($) ($) ($) ($) (#) ($) ($) ---------------------------------------------------------------------------------------------------------------------- Mitch White, 5 $0.00 $0.00 $0.00 $0.00 0 $0.00 $0.00 C.E.O., C.F.O., months President and ended Director July 31, 2001 ----------------------------------------------------------------------------------------------------------------------
None of our directors are compensated for any services provided as a director. No amounts are paid to our directors for committee participation or special assignments. None of our directors are under consulting contracts or are in any other way compensated for their services. 23 Stock Option Grants ------------------- We did not grant any stock options to any executive officers or directors during our most recent fiscal year ended December 31, 2000. We have not granted any stock options to any executive officers or directors since December 31, 2000. Employment Agreements --------------------- We do not have an employment or consulting agreement with Mr. Mitch White, our President, C.F.O. and director. Mr. White provides his services to us on an as needed basis. We do not pay any salary, consulting fee or other compensation to Mr. White. INDEPENDENT PUBLIC ACCOUNTANTS Our audited financial statements for the year ended December 31, 2000 and the related statements of loss and deficit, stockholders deficiency and cash flows appearing in this prospectus, have been included herein in reliance on the report of Ellis Foster, Chartered Accountants, given on the authority of said firm as experts in accounting and auditing. 24 INDEX TO FINANCIAL STATEMENTS CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Financial Statements (EXPRESSED IN U.S. DOLLARS) June 30, 2001 (Unaudited) INDEX ----- Report of Independent Accountants Consolidated Balance Sheets Consolidated Statements of Stockholders' Deficiency Consolidated Statements of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 25 MOORE STEPHENS ELLIS FOSTER LTD. CHARTERED ACCOUNTANTS 1650 West 1st Avenue Vancouver, BC Canada V6J 1G1 Telephone: (604) 737-8117 Facsimile: (604) 714-5916 E-Mail: generaldelivery@ellisfoster.bc.ca -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS CYOP SYSTEMS INTERNATIONAL INCORPORATED (A development stage company) We have reviewed the accompanying consolidated balance sheet of CYOP Systems International Incorporated ("the Company") and subsidiaries as of June 30, 2001, the related consolidated statements of stockholders' equity for the six-month period then ended, and the consolidated statements of operations and cash flows for the three-month and the six-month periods then ended and the cumulative period from October 1, 1999 (commencement) to June 30, 2001. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles in the United States. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We have previously audited, in accordance with generally accepted auditing standards in the United States, the consolidated balance sheet as at December 31, 2000 and the related consolidated statements of operations, shareholders' equity and its cash flows for the cumulative period and the year then ended (not presented herein) and in our report dated June 4, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as at December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD." September 18, 2001 Chartered Accountants -------------------------------------------------------------------------------- [LOGO] An independently owned and operated member of Moore Stephens North America Inc. Member in principal cities throughout North America. Moore Stephens North America Inc. is a member of Moore Stephens International Limited, members in principal cities throughout the world 26 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Balance Sheets (Unaudited) (EXPRESSED IN U.S. DOLLARS)
=========================================================================================================== June 30 December 31 2001 2000 ----------------------------------------------------------------------------------------------------------- ASSETS CURRENT Cash and cash equivalents $ 4,751 $ 29,480 Deposits (Note 4) 27,006 1,333 Other receivable 20,035 -- Refundable tax credits 11,785 16,808 Demand loans, interest at 12% per annum and unsecured 115,704 -- Prepaid expenses 39,506 49,659 ----------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 218,787 97,280 FIXED ASSETS (NOTE 5) 166,745 236,246 SOFTWARE DEVELOPMENT COSTS (NOTE 6) 100 100 ----------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 385,632 $ 333,626 =========================================================================================================== LIABILITIES CURRENT Bank overdraft 16,816 $ -- Demand loans (Note 7a and 8e) 1,474,217 1,177,805 Accounts payable and accrued liabilities (Note 8a) 751,401 433,062 Short-term loan (Note 7b) 226,388 -- ----------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 2,468,822 1,610,867 ----------------------------------------------------------------------------------------------------------- NATURE AND CONTINUANCE OF OPERATIONS (NOTE 1) COMMITMENTS (NOTE 9) STOCKHOLDERS' (DEFICIENCY) SHARE CAPITAL Authorized: 100,000,000 shares of common stock with a par value of $0.0001 per share Issued, allotted and outstanding: 28,439,975 shares of common stock (2000 - 28,382,975) 2,844 2,838 ADDITIONAL PAID-IN CAPITAL 211,431 149,237 ACCUMULATED OTHER COMPREHENSIVE INCOME 16,649 14,801 DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (2,314,114) (1,444,117) ----------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' (DEFICIENCY) (2,083,190) (1,277,241) ----------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) 385,632 $ 333,626 ===========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. On behalf of the Board: /s/Mitch White, Director Mitch White, Director MOORE STEPHENS ELLIS FOSTER LTD. 27 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Statements of Stockholders' Deficiency Six-Month Period Ended June 30, 2001 (Unaudited) (Expressed in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------ Accumulated Compre- other Common Stock Additional hensive compre- --------------------- paid-in income Deficit hensive Shares Amount capital (loss) accumulated income ------------------------------------------------------------------------------------------------------------------------------------ Recapitalization as a result of reverse acquisition (Note 3) -- $ -- $ 69 $ (67,863) $ (66,465) $ (1,398) ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income (loss) (67,863) =========== BALANCE, December 31, 1999 -- -- 69 (66,465) (1,398) Shares issued for cash on February 29, 2000 10,020,500 1,002 1,448 -- -- Shares issued for services on February 29, 2000 9,202,500 920 1,330 -- -- Deficit accumulated as at November 3, 2000 -- -- -- (14,401) -- Recapitalization adjustment (Note 3) -- (2,968) 14,401 -- ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AFTER RECAPITALIZATION ADJUSTMENT 19,223,000 1,922 (121) (66,465) (1,398) Shares allotted for equity of shell in stock acquisition (Note 3) 9,000,000 900 (10,601) -- -- -- Shares allotted for cash on December 13, 2000 159,975 16 159,959 -- -- -- Other comprehensive income - foreign currency translation adjustment -- -- -- 16,199 -- 16,199 Comprehensive income - net (loss) for the period -- -- -- (1,377,652) (1,377,652) -- ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income (loss) $(1,361,453) =========== BALANCE, December 31, 2000 28,382,975 2,838 149,237 (1,444,117) $ 14,801 ------------------------------------------------------------------------------------------------------------------------------------ Total Stock- holders' (deficiency) Recapitalization as a result of reverse acquisition (Note 3) $ (67,794) --------------------------------------------------------------- Comprehensive income (loss) BALANCE, December 31, 1999 (67,794) Shares issued for cash on February 29, 2000 2,450 Shares issued for services on February 29, 2000 2,250 Deficit accumulated as at November 3, 2000 (14,401) Recapitalization adjustment (Note 3) 11,433 --------------------------------------------------------------- BALANCE AFTER RECAPITALIZATION ADJUSTMENT (66,062) Shares allotted for equity of shell in stock acquisition (Note 3) (9,701) Shares allotted for cash on December 13, 2000 159,975 Other comprehensive income - foreign currency translation adjustment 16,199 Comprehensive income - net (loss) for the period (1,377,652) --------------------------------------------------------------- Comprehensive income (loss) BALANCE, December 31, 2000 $(1,277,241) ---------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 28 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Statements of Stockholders' Deficiency Six-month Period Ended June 30, 2001 (Unaudited) (Expressed in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------ Accumulated Compre- other Total Common Stock Additional hensive compre- Stock- ------------------ paid-in income Deficit hensive holders' Shares Amount capital (loss) accumulated income (deficiency) ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, December 31, 2000 28,382,975 2,838 149,237 (1,444,117) 14,801 (1,277,241) Shares allotted for cash at $1.00 per share 44,000 5 43,995 -- -- 44,000 Shares allotted for cash at $1.40 per share 13,000 1 18,199 -- -- 18,200 Other comprehensive income - foreign currency translation adjustment -- -- -- $ 1,848 -- 1,848 1,848 Comprehensive income - net (loss) for the period -- (869,997) (869,997) -- (869,997) ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income (loss) $ (868,149) ========== Balance, June 30, 2001 28,439,975 $2,844 $211,431 $(2,314,114) $16,649 $(2,083,190) ============================================================================= ======================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 29 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Statements of Operations (Unaudited) (EXPRESSED IN U.S. DOLLARS)
=============================================================================================================== Three Months Six Months Cumulative from Ended Ended October 1, 1999 June 30 June 30 to June 30 2001 2001 2001 --------------------------------------------------------------------------------------------------------------- EXPENSES Accounting and audit $ 10,938 $ 25,084 $ 89,482 Advertising and promotion 11,457 100,615 176,402 Automobile 15,735 29,656 63,260 Bank charges and interest (Note 8c) 41,785 67,696 121,997 Depreciation of fixed assets 2,036 3,690 11,095 Legal and other professional fees 43,287 73,852 193,572 Office and miscellaneous 20,363 46,459 110,099 Rent 17,873 34,659 63,127 Salaries and benefits 42,935 74,711 249,749 Software development costs (Note 6) 71,621 358,859 1,137,107 Telephone and bandwidth 4,159 6,544 22,780 Travel 5,133 6,903 21,241 Foreign exchange (gain) loss (40,983) 9,216 22,150 --------------------------------------------------------------------------------------------------------------- OPERATING LOSS (246,339) (837,944) (2,282,061) Leasehold improvements write off 31,725 31,725 31,725 Loss on disposal of fixed assets 328 328 328 --------------------------------------------------------------------------------------------------------------- NET LOSS FOR THE PERIOD $ (278,392) $ (869,997) $(2,314,114) =============================================================================================================== LOSS PER SHARE Basic and diluted $ (0.01) $ (0.03) =============================================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 28,437,213 28,426,776 ===============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 30 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Statements of Cash Flows (Unaudited) (EXPRESSED IN U.S. DOLLARS)
==================================================================================================================================== Three Months Six Months Cumulative from Ended Ended October 1, 1999 June 30 June 30 to June 30 2001 2001 2001 ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net (loss) for the period $ (278,392) $ (869,997) $(2,314,114) Adjustments to reconcile net loss to net cash used in operating activities: - depreciation of fixed assets 17,200 33,739 76,471 - fixed assets write off 31,725 31,725 31,725 - loss on disposal of fixed assets 328 328 328 - exchange (gain) loss on fixed assets (8,149) 3,089 3,089 ------------------------------------------------------------------------------------------------------------------------------- (237,288) (801,116) (2,202,501) Changes in assets and liabilities: - deposits (1,085) (25,673) (25,673) - other receivable (20,035) (20,035) (20,035) - refundable tax credits 10,579 5,023 (11,785) - demand loans (115,704) (115,704) (115,704) - prepaid expenses (6,565) 10,153 (40,839) - accounts payable and accrued liabilities 158,961 318,339 743,432 ------------------------------------------------------------------------------------------------------------------------------- (211,137) (629,013) (1,673,105) ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Capitalized software development costs -- -- (100) Disposal of fixed assets 6,806 6,806 6,806 Purchase of fixed assets -- (6,186) (285,164) ------------------------------------------------------------------------------------------------------------------------------- 6,806 620 (278,458) ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Shares allotted for cash 11,300 82,200 242,244 Cancellation of shares allotted (20,000) (20,000) (20,000) Proceeds from demand loans 68,880 296,412 1,474,217 Proceeds from short-term loans 226,388 226,388 226,388 ------------------------------------------------------------------------------------------------------------------------------- 286,568 585,000 1,922,849 ------------------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE ON FOREIGN CURRENCY TRANSLATION (85,487) 1,848 16,649 ------------------------------------------------------------------------------------------------------------------------------- DECREASE IN CASH AND CASH EQUIVALENTS (3,250) (41,545) (12,065) CASH AND CASH EQUIVALENTS (DEFICIENCY), beginning of period (8,815) 29,480 -- ------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS (DEFICIENCY), end of period $ (12,065) $ (12,065) $ (12,065) =============================================================================================================================== CASH AND CASH EQUIVALENTS (DEFICIENCY) REPRESENTED BY: Cash $ 4,751 $ 4,751 $ 4,751 Bank overdraft (16,816) (16,816) (16,816) ------------------------------------------------------------------------------------------------------------------------------- $ (12,065) $ (12,065) $ (12,065) ===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 31 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 1. NATURE AND CONTINUANCE OF OPERATIONS The Company was incorporated on October 29, 1999 in the name of Triple 8 Development Corporation under the laws of the State of Nevada to engage in any lawful business or activity for which corporations may be organized under the laws of the State of Nevada. The Company changed its name to CYOP Systems International Incorporated on October 30, 2000. On November 3, 2000, the Company acquired 100% of the issued and outstanding shares of CYOP Systems Inc., Barbados ("CYOP Barbados"). This transaction was accounted for as a reverse acquisition recapitalization (see Note 3). The efforts of the Company have been devoted to sales and marketing of multimedia transactional technology solutions and services on internet for the entertainment industry. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting by Development Stage Companies", the Company is deemed to be in the Development Stage. CYOP Barbados was incorporated under the laws of Barbados on June 20, 2000. CYOP Barbados is in the business of developing personal computer and console entertainment software designed to provide interactive online games, and development of multimedia transactional technology solutions and services on internet for the entertainment industry. On August 31, 2000, CYOP Barbados acquired 100% of the issued and outstanding shares of Moshpit Entertainment Inc., Canada ("Moshpit"), a company in the business of developing software for interactive online games incorporated under the laws of British Columbia, Canada. Both CYOP Barbados and Moshpit are considered to be in the development stage. These consolidated financial statements have been prepared using the generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has suffered recurring losses from operations and has a net capital deficiency. The ability of the Company to continue as a going concern is dependent upon many factors, including the ability of the Company to obtain financing to fund working capital requirements, the degree of competition encountered by the Company, technology risks, government regulation and general economic conditions. The Management's plan in this regard are to raise equity financing as required and keep abreast of the multimedia technology. These financial statements do not include any adjustments that might result from this uncertainty. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Consolidation These interim consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, include the accounts of the Company and its subsidiaries CYOP Barbados and Moshpit. MOORE STEPHENS ELLIS FOSTER LTD. 32 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of Consolidation (continued) The consolidated balance sheets, as at June 30, 2001 and December 31, 2000 include the assets and liabilities of the Company, CYOP Barbados and Moshpit. The consolidated statements of operations for the three-month and the six-month periods ended June 30, 2001 and the cumulative period from October 1, 1999 (commencement) to June 30, 2001 include the operating results of the Company, CYOP Barbados and Moshpit for the periods and cumulative period then ended. Significant inter-company accounts and transactions have been eliminated. (b) Basis of Presentation These interim consolidated financial statements have been prepared using the same accounting policies and methods of their application as the most recent annual consolidated financial statements of the Company. These interim consolidated financial statements do not include all disclosures normally provided in the annual consolidated financial statements and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2000. In management's opinion, all adjustments necessary for fair presentation have been included in these interim consolidated financial statements. Interim results are not necessary indicative of the results expected for the fiscal year. Certain comparative figures have been reclassified to conform to the current period's presentation. (c) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from those estimates. (d) Cash Equivalents Cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturities of three months or less when purchased. As at June 30, 2001 and December 31, 2000, cash and cash equivalents consist of cash only. MOORE STEPHENS ELLIS FOSTER LTD. 33 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Fixed Assets Fixed assets are recorded at historical cost. Depreciation is charged to earnings in amounts sufficient to allocate the costs over their estimated useful lives, as follows:
Audio and visual equipment 20% declining-balance basis Computer hardware 30% declining-balance basis Computer software 100% declining-balance basis Office furniture and equipment 20% declining-balance basis Leasehold improvements 20% straight-line basis
(f) Software Development Costs Software development costs are charged to expenses as incurred. (g) Advertising and Promotion The Company expenses advertising and promotion costs as incurred. Total advertising and promotion costs charged to expenses for the six months ended June 30, 2001 amounted to $100,615. (h) Foreign Currency Transactions The Company and CYOP Barbados maintain their accounting records in their functional currency (i.e., US dollars). Foreign currency transactions are translated into their functional currency in the following manner. At the transaction date, each asset, liability, revenue and expense is translated into the functional currency by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are translated into the functional currency by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations. (i) Foreign Currency Translations Assets and liabilities of Moshpit, whose functional currency is Canadian dollars, are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate. Gain and losses from such translations are included in stockholders' equity, as a component of other comprehensive income. MOORE STEPHENS ELLIS FOSTER LTD. 34 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (j) Income Taxes The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in income tax rates is included in the period that includes the enactment date. (k) Impairment Certain long-term assets of the Company are reviewed when changes in circumstances require as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. If impairment is deemed to exist, the assets will be written down to fair value. (l) Comprehensive Income The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its consolidated Statement of Stockholders' Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. SFAS NO. 130 did not change the current accounting treatments for components of comprehensive income. (m) Financial Instruments and Concentration of Risks Fair value of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgement, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values. MOORE STEPHENS ELLIS FOSTER LTD. 35 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Financial Instruments and Concentration of Risks (continued) The carrying value of cash and cash equivalents, deposits, other receivable, refundable tax credits, demand loans receivable, bank overdraft, demand loans payable, accounts payable and accrued liabilities and short-term loans approximate their fair values because of the short-term maturity of these instruments. Moshpit is operating in Canada, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between U.S. dollars and the Canadian dollars. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, the balances of which are stated on the balance sheet. The Company places its cash in high credit quality financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risk. (n) Reporting on Costs of Start-Up Activities The Company has adopted the Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-Up Activities" issued by the American Institute of Certified Public Accountants on the financial reporting of start-up costs and organization costs. It requires costs to be expensed as incurred. The Company charged all start-up costs to expenses as incurred. (o) Accounting for Derivative Instruments and Hedging Activities The Company has adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" issued by the Financial Accounting Standards Board. SFAS No. 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. MOORE STEPHENS ELLIS FOSTER LTD. 36 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (p) Net Income (Loss) Per Share Basic net income (loss) per share are computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share incorporate the incremental shares issuable upon the assumed exercise of stock options and other dilutive securities. Convertible loan and option to purchase 45,000 shares of common stock outstanding during the three-month and six-month period ended June 30, 2001 were not included in the net income (loss) per share computation, as the effect of including them would be anti-dilutive. (q) Stock-based Compensation The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-based Compensation". SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. 3. ACQUISITION OF CYOP SYSTEMS INC., BARBADOS On November 3, 2000, the Company acquired 100% of the issued and outstanding common shares of CYOP Barbados. As the Company was a non-operating shell company, the transaction resulted in the management of CYOP Barbados having effective operating control of the combined company, with the shareholders of the Company continuing only as passive investors. Accounting principles applicable to reverse acquisition recapitalization have been applied to record this transaction. Under this basis of accounting, CYOP Barbados has been identified as the acquirer and, accordingly, the combined company is considered to be a continuation of the operations of CYOP Barbados with the net liabilities of the Company deemed to have been assumed by CYOP Barbados. The net liabilities of the Company assumed by CYOP Barbados are summarized as follows: --------------------------------------------------- Current assets $ 2,399 Current liabilities (12,100) --------------------------------------------------- Net liabilities assumed $ (9,701) =================================================== 4. DEPOSITS The deposits are interest bearing at 4.2% per annum, and are hypothecated for merchant visa accounts. MOORE STEPHENS ELLIS FOSTER LTD. 37 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 5. FIXED ASSETS ----------------------------------------------------------------------- June 30, 2001 ----------------------------------------------------------------------- Accumulated Net book Cost depreciation Value ----------------------------------------------------------------------- Audio and visual equipment $ 22,207 $ 4,222 $ 17,985 Computer hardware 199,861 60,371 139,490 Computer software 3,251 2,240 1,011 Office furniture and equipment 9,891 1,632 8,259 ----------------------------------------------------------------------- Total $235,210 $ 68,465 $166,745 ======================================================================= ----------------------------------------------------------------------- December 31, 2000 ----------------------------------------------------------------------- Accumulated Net book Cost depreciation Value ----------------------------------------------------------------------- Audio and visual equipment $ 22,411 $ 2,241 $ 20,170 Computer hardware 204,682 33,549 171,133 Computer software 3,280 1,640 1,640 Office furniture and equipment 9,982 1,043 8,939 Leasehold improvements 38,182 3,818 34,364 ----------------------------------------------------------------------- Total $ 278,537 $ 42,291 $236,246 ----------------------------------------------------------------------- ----------------------------------------------------------------------- For the six months ended June 30, 2001, depreciation expenses of $33,739 were charged to expenses. 6. Software Development Costs ----------------------------------------------------------------------- June 30 December 31 2001 2000 ----------------------------------------------------------------------- Balance, beginning of period $ 100 $ 100 Salaries and benefits 387,453 715,198 Depreciation on fixed assets 30,049 33,622 Expense recoveries (58,643) -- ----------------------------------------------------------------------- 358,959 748,920 Software development costs charged to expenses (358,859) (748,820) ----------------------------------------------------------------------- Balance, end of period $ 100 $ 100 ----------------------------------------------------------------------- ----------------------------------------------------------------------- MOORE STEPHENS ELLIS FOSTER LTD. 38 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 7. LOANS
(a) Demand loans -------------------------------------------------------------------------------------------------------- June 30 December 31 2001 2000 -------------------------------------------------------------------------------------------------------- i. Interest at the Bank of Montreal's prime lending rate of 6.0% plus 1.5% per annum and unsecured: - Mitchell White - director: Cdn$1,122,493 $ 725,054 $ 428,642 (2000:Cdn$643,048) - Greenday Inc. - shareholder 296,487 296,487 - Cyber Roads Inc. 178,519 178,519 - Tapijkabouter BV 99,157 99,157 -------------------------------------------------------------------------------------------------------- 1,299,217 1,002,805 ii. Interest at the Hongkong Bank of Canada's prime lending rate of 6.0% plus 1% per annum and unsecured: - Ameera Group Inc. 75,000 75,000 iii. Non-interest bearing and unsecured: - Tapijkabouter BV 100,000 100,000 -------------------------------------------------------------------------------------------------------- $ 1,474,217 $ 1,177,805 ======================================================================================================== (b) Short-term loan -------------------------------------------------------------------------------------------------------- June 30 December 31 2001 2000 -------------------------------------------------------------------------------------------------------- i. Interest at 40% per annum, due on July 25, 2001, convertible to 20,000 shares of common stock of the Company at due date: - Kornfeld MacOff (Cdn$25,000) $ 16,513 $ -- ii. Interest at 10% per annum, due on June 1, 2002: - RedRuth Ventures 209,875 -- -------------------------------------------------------------------------------------------------------- $ 226,388 $ -- ========================================================================================================
MOORE STEPHENS ELLIS FOSTER LTD. 39 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 8. RELATED PARTY TRANSACTIONS Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows: (a) Accounts payable and accrued liabilities include $73,342 interest accrued to a director and a shareholder of the Company. (b) Accounting fees of $10,338 were paid to a company controlled by individuals related to a director of the Company and were charged to expenses. (c) Interest expenses of $33,059 were accrued to a director and a shareholder of the Company and were charged to expenses. (d) Professional fees of $5,000 were paid to an individual related to a director of the Company and were charged to expenses. (e) Demand loans include $1,021,541 due to a director and a shareholder of the Company. These demand loans bear interests at the Bank of Montreal's prime lending rate of 6.0% plus 1.5% per annum and are unsecured (see Note 7ai). 9. COMMITMENTS (a) Moshpit has entered into lease contracts for automobiles and computer equipment with minimum lease payments for the year ending December 31st, as follows: ------------------------------------- 2001 $ 35,135 2002 92,938 2003 81,759 2004 20,351 ------------------------------------- Total $ 230,183 ===================================== (b) The Company has entered into contracts with service providers to pay for the services received partly by cash and partly by issuance of common stock of the Company when the common stock are freely trading in the equity market. As at June 30, 2001, 33,705 shares of common stock of the Company are to be issued for services received. MOORE STEPHENS ELLIS FOSTER LTD. 40 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 10. INCOME TAXES (a) A reconciliation of the statutory income tax to the Company's effective income tax rate is as follows: ---------------------------------------------- Statutory income tax rate 15% Tax losses not benefited (15%) ---------------------------------------------- Effective income tax rate -- ============================================== (b) The tax effect of temporary differences that give rise to the Company's deferred tax assets (liabilities) are as follows:
----------------------------------------------------------------------------------------- Undepreciated capital cost of capital assets over their net book value $ 20,000 Estimated tax loss carryforwards 969,000 Less: valuation allowance (989,000) ----------------------------------------------------------------------------------------- $ -- =========================================================================================
The valuation allowance reflects the Company's estimate that the tax assets, more likely than not, will not be realized. As at June 30, 2001, the Company has non-capital losses of approximately $2,176,000 which can be carried forward for tax purposes and are available to reduce taxable income of future years. The non-capital losses expire commencing in 2006 through 2008. 11. STOCK OPTION On May 8, 2001, the Company granted a stock option to a service provider to acquire 25,000 shares of common stock at a price of US$1 per share. The stock option expires on May 9, 2004. MOORE STEPHENS ELLIS FOSTER LTD. 41 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements June 30, 2001 (Unaudited) (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 12. SEGMENTED INFORMATION (a) Industry Information The Company operates in one reportable operating segment, being in the developing and providing multimedia transactional technology solutions and services on internet for the entertainment industry. (b) Geographic Information All the Company's operations and fixed assets are located in Canada. 13. SUBSEQUENT EVENTS The short-term loan of $16,513 (Cdn$25,000) due on July 25, 2001 was extended to January 25, 2002 with interest rate at 40% per annum, convertible to 20,000 shares of common stock of the Company at due date (Note 7bi). 14. COMPARATIVE FIGURES Certain 2000 comparative figures have been reclassified to conform with the financial statement presentation adopted for 2001. MOORE STEPHENS ELLIS FOSTER LTD. 42 CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Consolidated Financial Statements (EXPRESSED IN U.S. DOLLARS) December 31, 2000 and 1999 INDEX Report of Independent Accountants Consolidated Balance Sheets Consolidated Statement of Stockholders' Deficiency Consolidated Statements of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 43 MOORE STEPHENS ELLIS FOSTER LTD. CHARTERED ACCOUNTANTS 1650 West 1st Avenue Vancouver, BC Canada V6J 1G1 Telephone: (604) 734-1112 Facsimile: (604) 714-5916 E-Mail: generaldelivery@ellisfoster.bc.ca -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS CYOP SYSTEMS INTERNATIONAL INCORPORATED (formerly Triple 8 Development Corporation) (A development stage company) We have audited the consolidated balance sheets of CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) ("the Company") (a development stage company) as at December 31, 2000 and 1999, the related consolidated statements of stockholders' deficiency for the years then ended, and the consolidated statements of operations and cash flows for the cumulative period from October 1, 1999 (commencement) to December 31, 2000, the year ended December 31, 2000 and the period ended from October 1, 1999 (commencement) to December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2000 and 1999 and the results of its operations and its cash flows for the cumulative period from October 1, 1999 (commencement) to December 31, 2000, the year ended December 31, 2000 and the period ended from October 1, 1999 (commencement) to December 31, 1999 in conformity with generally accepted accounting principles in the United States. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD." June 4, 2001 Chartered Accountants Moore Stephens North America, Inc. is a member of Moore Stephens International Limited, members in principal cities throughout the world. ------------------------------------------------------------------------------- MSAn independently owned and operated member of Moore Stephens North America, Inc. Members in principal cities throughout North America. ------------------------------------------------------------------------------- 44 MOORE STEPHENS ELLIS FOSTER LTD. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Consolidated Balance Sheets December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS)
---------------------------------------------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------------------------------------------- ASSETS CURRENT Cash and cash equivalents $ 29,480 $ 55,765 Refundable tax credits 16,808 1,069 Prepaid expenses and deposit 50,992 -- --------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 97,280 56,834 FIXED ASSETS (Note 3) 236,246 10,095 SOFTWARE DEVELOPMENT COSTS (Note 4) 100 100 --------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 333,626 $ 67,029 =================================================================================================== LIABILITIES CURRENT Demand loans (Note 6 and 7e) $ 1,177,805 $ 129,006 Accounts payable and accrued liabilities (Note 7a) 433,062 5,817 --------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,610,867 134,823 --------------------------------------------------------------------------------------------------- NATURE AND CONTINUANCE OF OPERATIONS (Note 1) COMMITMENTS (Note 8) CONTINGENCIES (Note 13) STOCKHOLDERS' (DEFICIENCY) SHARE CAPITAL Authorized: 100,000,000 common shares with a par value of $0.0001 per share Issued and outstanding: 23,382,975 common shares (1999 - Nil) 2,838 -- ADDITIONAL PAID-IN CAPITAL 149,237 69 ACCUMULATED OTHER COMPREHENSIVE INCOME 14,801 (1,398) DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (1,444,117) (66,465) ---------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' (DEFICIENCY) (1,277,241) (67,794) ---------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) $ 333,626 $ 67,029 ====================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 45 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Consolidated Statement of Stockholders' Deficiency (EXPRESSED IN U.S. DOLLARS)
---------------------------------------------------------------------------------------------------------------------------- Compre- Common stock Additional hensive ------------------------------ paid-in income Shares Amount capital (loss) ---------------------------------------------------------------------------------------------------------------------------- Recapitalization as a result of reverse acquisition (Note 5) -- $ -- $ 69 $ (67,863) ---------------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss) (67,863) =============== BALANCE, December 31, 1999 -- -- 69 Shares issued for cash on February 29, 2000 10,020,500 1,002 1,448 Shares issued for services on February 29, 2000 9,202,500 920 1,330 Deficit accumulated as at November 3, 2000 -- -- -- Recapitalization adjustment (Note 5) -- (2,968) ---------------------------------------------------------------------------------------------------------------------------- BALANCE AFTER RECAPITALIZATION ADJUSTMENT 19,223,000 1,922 (121) Shares allotted for equity of shell in stock acquisition (Note 5) 9,000,000 900 (10,601) -- Shares allotted for cash on December 13, 2000 159,975 16 159,959 -- Other comprehensive income - foreign currency translation adjustment -- -- -- 16,199 Comprehensive income - net (loss) for the period -- -- -- (1,377,652) ---------------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss) $ (1,361,453) ==================== BALANCE, December 31, 2000 28,382,975 $ 2,838 $ 149,237 =====================================================================================================
---------------------------------------------------------------------------------------------------------- Accumulated other Total compre- Stock- Deficit hensive holders' accumulated income (deficiency) ---------------------------------------------------------------------------------------------------------- Recapitalization as a result of reverse acquisition (Note 5) $ (66,465) $ (1,398) $ (67,794) ---------------------------------------------------------------------------------------------------------- Comprehensive income (loss) BALANCE, December 31, 1999 (66,465) (1,398) (67,794) Shares issued for cash on February 29, 2000 -- -- 2,450 Shares issued for services on February 29, 2000 -- -- 2,250 Deficit accumulated as at November 3, 2000 (14,401) -- (14,401) Recapitalization adjustment (Note 5) 14,401 -- 11,433 ---------------------------------------------------------------------------------------------------------- BALANCE AFTER RECAPITALIZATION ADJUSTMENT (66,465) (1,398) (66,062) Shares allotted for equity of shell in stock acquisition (Note 5) -- -- (9,701) Shares allotted for cash on December 13, 2000 -- -- 159,975 Other comprehensive income - foreign currency translation adjustment -- 16,199 16,199 Comprehensive income - net (loss) for the period (1,377,652) -- (1,377,652) ---------------------------------------------------------------------------------------------------------- Comprehensive income (loss) BALANCE, December 31, 2000 $ (1,444,117) $ 14,801 $ (1,277,241) ==========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 46 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Consolidated Statements of Operations (EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------------------------------------------------- Cumulative from October 1, 1999 October 1, 1999 Year (commencement to ended of operations) to December 31 December 31 December 31 2000 2000 1999 --------------------------------------------------------------------------------------------------------------------------- EXPENSES Accounting and audit $ 64,398 $ 64,398 $ -- Advertising and promotion 75,787 70,805 4,982 Automobile 33,604 33,604 -- Bank charges and interest (Note 7d) 54,301 50,813 3,488 Depreciation of fixed assets 7,405 7,380 25 Legal and other professional fees 119,720 119,720 -- Office and miscellaneous 50,190 50,190 -- Rent 28,468 28,468 -- Repairs and maintenance 5,263 5,263 -- Salaries and benefits 175,038 147,217 27,821 Software development costs (Note 4) 778,248 748,820 29,428 Telephone and bandwidth 16,236 15,515 721 Training 8,187 8,187 -- Travel 14,338 14,338 -- Foreign exchange loss 12,934 12,934 -- --------------------------------------------------------------------------------------------------------------------------- NET (LOSS) FOR THE PERIOD $ (1,444,117) $ (1,377,652) $ (66,465) =========================================================================================================================== (LOSS) PER SHARE $ (0.07) $ -- =========================================================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 20,682,124 19,223,000 ===========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 47 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Consolidated Statements of Cash Flows (EXPRESSED IN U.S. DOLLARS)
------------------------------------------------------------------------------------------------------------------------------ Cumulative from October 1, 1999 October 1, 1999 Year (commencement to ended of operation) to December 31 December 31 December 31 2000 2000 1999 ------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net (loss) for the period $ (1,444,117) $ (1,377,652) $ (66,465) Adjustments to reconcile net loss to net cash used in operating activities: - depreciation of fixed assets 42,732 41,002 1,730 ------------------------------------------------------------------------------------------------------------------------------ (1,401,385) (1,336,650) (64,735) Changes in assets and liabilities: - refundable tax credits (16,808) (15,739) (1,069) - prepaid expenses and deposit (50,992) (50,992) -- - accounts payable and accrued liabilities 425,093 419,276 5,817 ------------------------------------------------------------------------------------------------------------------------------ (1,044,092) (984,105) (59,987) ------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Capitalized software development costs (100) -- (100) Purchase of fixed assets (278,978) (267,153) (11,825) ------------------------------------------------------------------------------------------------------------------------------ (279,078) (267,153) (11,925) ------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Shares issued for cash 160,044 159,975 69 Proceeds from demand loans 1,177,805 1,048,799 129,006 ------------------------------------------------------------------------------------------------------------------------------ 1,337,849 1,208,774 129,075 ------------------------------------------------------------------------------------------------------------------------------ EFFECT OF EXCHANGE RATE ON FOREIGN CURRENCY TRANSLATION 14,801 16,199 (1,398) ------------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,480 (26,285) 55,765 CASH AND CASH EQUIVALENTS, beginning of period -- 55,765 -- ------------------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, end of period $ 29,480 $ 29,480 $ 55,765 ==============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 48 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 1. NATURE AND CONTINUANCE OF OPERATIONS The Company was incorporated under the laws of the State of Nevada to engage in any lawful business or activity for which corporations may be organized under the laws of the State of Nevada. The Company changed its name to CYOP Systems International Incorporated on October 30, 2000. On November 3, 2000, the Company acquired 100% of the issued and outstanding shares of CYOP Systems Inc., Barbados ("CYOP Barbados"). This transaction was accounted for as a reverse acquisition recapitalization (see Note 5). The efforts of the Company have been devoted to sales and marketing of multimedia transactional technology solutions and services on internet for the entertainment industry. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting by Development Stage Companies", the Company is deemed to be in the Development Stage. CYOP Barbados was incorporated under the laws of Barbados on June 20, 2000. CYOP Barbados is in the business of developing personal computer and console entertainment software designed to provide interactive online games, and development of multimedia transactional technology solutions and services on internet for the entertainment industry. On August 31, 2000, CYOP Barbados acquired 100% of the issued and outstanding shares of Moshpit Entertainment Inc., Canada ("Moshpit"), a development stage company in the business of developing software for interactive online games incorporated under the laws of British Columbia, Canada. Both CYOP Barbados and Moshpit are considered to be in the development stage. These consolidated financial statements have been prepared using the generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has suffered recurring losses from operations and has a net capital deficiency. The ability of the Company to continue as a going concern is dependent upon many factors, including the ability of the Company to obtain financing to fund working capital requirements, the degree of competition encountered by the Company, technology risks, government regulation and general economic conditions. The Management's plan in this regard are to raise equity financing as required and keep abreast of the multimedia technology. These financial statements do not include any adjustments that might result from this uncertainty. 49 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Consolidation These consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States, include the accounts of the Company and its subsidiaries CYOP Barbados and Moshpit. The consolidated balance sheets, as at December 31, 2000 and 1999 includes the assets and liabilities of the Company, CYOP Barbados and Moshpit. The consolidated statement of operations for the cumulative period from October 1, 1999 (commencement) to December 31, 2000, the year ended December 31, 2000 and the period ended from October 1, 1999 (commencement) to December 31, 1999 include the operating results of the Company, CYOP Barbados and Moshpit for the cumulative period and years then ended. Significant inter-company accounts and transactions have been eliminated. (b) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from those estimates. (c) Cash Equivalents Cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturities of three months or less when purchased. As at December 31, 2000 and 1999, cash and cash equivalents consist of cash only. (d) Fixed Assets Fixed assets are recorded at historical cost. Depreciation is charged to earnings in amounts sufficient to allocate the costs over their estimated useful lives, as follows: Audio and visual equipment 20% declining-balance basis Computer hardware 30% declining-balance basis Computer software 100% declining-balance basis Office furniture and equipment 20% declining-balance basis Leasehold improvements 20% straight-line basis 50 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Software Development Costs Software development costs are charged to expenses as incurred. (f) Advertising and Promotion The Company expenses advertising and promotion costs as incurred. Total advertising and promotion costs charged to expenses for the year ended December 31, 2000 amounted to $70,805 (1999 - $4,982). (g) Foreign Currency Transactions The Company and CYOP Barbados maintain their accounting records in their functional currency (i.e., US dollars). Foreign currency transactions are translated into their functional currency in the following manner. At the transaction date, each asset, liability, revenue and expense is translated into the functional currency by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are translated into the functional currency by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations. (h) Foreign Currency Translations Assets and liabilities of Moshpit, whose functional currency is Canadian dollars, are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate. Gain and losses from such translations are included in stockholders' equity, as a component of other comprehensive income. (i) Income Taxes The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in income tax rates is included in the period that includes the enactment date. 51 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (j) Impairment Certain long-term assets of the Company are reviewed when changes in circumstances require as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. (k) Comprehensive Income The Company adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its consolidated Statement of Stockholders' Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. SFAS NO. 130 did not change the current accounting treatments for components of comprehensive income. (l) Financial Instruments and Concentration of Risks Fair value of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgement, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values. The carrying value of cash and cash equivalents, deposits, refundable tax credits, demand loans and accounts payable and accrued liabilities approximate their fair values because of the short-term maturity of these instruments. Moshpit is operating in Canada, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between U.S. dollars and the Canadian dollars. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, the balances of which are stated on the balance sheet. The Company places its cash in high credit quality financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risk. 52 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Reporting on Costs of Start-Up Activities In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities", which provides guidance on the financial reporting of start-up costs and organization costs. It requires costs to be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998 with initial adoption reported as the cumulative effect of a change in accounting principles. The Company has adopted SOP 98-5 and charged all start-up costs incurred during the period to expenses. (n) Accounting for Derivative Instruments and Hedging Activities On June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not anticipate that the adoption of the statement will have a significant impact on its financial statements. (o) Stock-based Compensation The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-based Compensation". SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. 53 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------- 3. FIXED ASSETS ------------------------------------------ ---------------------------------------------------------------- December 31, 2000 ---------------------------------------------------------------- Cost Accumulated Net book depreciation value ------------------------------------------ -------------------- --------------------- --------------------- Audio and visual equipment $ 22,411 $ 2,241 $ 20,170 Computer hardware 204,682 33,549 171,133 Computer software 3,280 1,640 1,640 Office furniture and equipment 9,982 1,043 8,939 Leasehold improvements 38,182 3,818 34,364 ------------------------------------------ -------------------- --------------------- --------------------- Total $ 278,537 $ 42,291 $ 236,246 ========================================== ==================== ===================== ===================== December 31, 1999 ---------------------------------------------------------------- Cost Accumulated Net book depreciation value ------------------------------------------ -------------------- --------------------- --------------------- Computer hardware $ 11,603 $ 1,740 $ 9,863 Office furniture and equipment 258 26 232 ------------------------------------------ -------------------- --------------------- --------------------- Total $ 11,861 $ 1,766 $ 10,095 ========================================== ==================== ===================== =====================
For the year ended December 31, 2000, depreciation expenses of $41,002 (1999 - $1,730) were charged to expenses. 4. SOFTWARE DEVELOPMENT COSTS
-------------------------------------------------------------- ----------------- -------------------------- October 1, 1999 (commencement December 31 of operations) to 2000 December 31 1999 -------------------------------------------------------------- ----------------- -------------------------- Balance, beginning of period $ 100 $ -- Salaries and benefits 715,198 27,823 Depreciation on fixed assets 33,622 1,705 -------------------------------------------------------------- ----------------- -------------------------- Software development costs charged to expenses (748,820) (29,428) -------------------------------------------------------------- ----------------- -------------------------- Balance, end of period $ 100 $ 100 ============================================================== ================= ==========================
54 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 5. ACQUISITION OF CYOP SYSTEMS INC., BARBADOS On November 3, 2000, the Company acquired 100% of the issued and outstanding common shares of CYOP Barbados. As the Company was a non-operating shell company, the transaction resulted in the management of CYOP Barbados having effective operating control of the combined company, with the shareholders of the Company continuing only as passive investors. Accounting principles applicable to reverse acquisition recapitalization have been applied to record this transaction. Under this basis of accounting, CYOP Barbados has been identified as the acquirer and, accordingly, the combined company is considered to be a continuation of the operations of CYOP Barbados with the net liabilities of the Company deemed to have been assumed by CYOP Barbados. The net liabilities of the Company assumed by CYOP Barbados are summarized as follows:
-------------------------------------------------------------------------------------- Current assets $ 2,399 Current liabilities (12,100) -------------------------------------------------------------------------------------- Net liabilities assumed $ (9,701) ======================================================================================
6. DEMAND LOANS
----------------------------------------------------------------------------------------------------------- 2000 1999 ----------------------------------------------------------------------------------------------------------- a) Interest at the Bank of Montreal's prime lending rate of 7.5% plus 1.5% per annum and unsecured: - Mitchell White - shareholder (Cdn$643,048; 1999 - Cdn$186,195) $ 428,642 $ 129,006 - Greenday Inc. - shareholder 296,487 -- - Cyber Roads Inc. 178,519 -- - Tapijkabouter BV 99,157 -- ----------------------------------------------------------------------------------------------------------- 1,002,805 129,006 b) Interest at the Hongkong Bank of Canada's prime lending rate of 7.5% plus 1% per annum and unsecured - Ameera Group Inc. 75,000 -- c) Non-interest bearing and unsecured - Tapijkabouter BV 100,000 -- -------------------------------------------------------------------- ------------------ ------------------- $ 1,177,805 $ 129,006 ==================================================================== ================== ===================
55 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 7. RELATED PARTY TRANSACTIONS Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows: (a) Accounts payable and accrued liabilities include the following amounts due to a director of Moshpit and shareholders of the Company:
------------------------------------------------------------------------- --------------------- 2000 1999 ------------------------------------------------------------------------- --------------------- Expense reimbursements $ 1,636 $ 1,020 Accrued interests 40,180 3,504 ------------------------------------------------------------------------- --------------------- $ 41,816 4,524 ====================================================== ===================== =====================
(b) Accounting fees of $33,946 (1999 - $Nil) were paid to a company controlled by individuals related to a shareholder of the Company and were charged to expenses. (c) Promotion fees of $3,397 (1999 - $Nil) were paid to a shareholder of the Company and were charged to expenses. (d) Interest expenses of $40,398 (1999 - $3,432) were accrued to shareholders of the Company and were charged to expenses. (e) Demand loans include $725,129 (1999 - $129,006) due to shareholders of the Company. These demand loans bear interests at the Bank of Montreal's prime lending rate of 7.5% plus 1.5% per annum and are unsecured (see Note 6a). (f) During the year ended December 31, 2000, the Company issued 9,202,500 common shares at a deemed value of $2,250 to a director of the Company for services rendered. 8. COMMITMENTS Moshpit has entered into lease contracts for automobiles and computer equipment with minimum lease payments for the year ending December 31st, as follows:
---------------------------------------------- --------- ------------ 2001 $ 88,253 2002 88,253 2003 78,356 2004 20,539 ---------------------------------------------- ---------------------- Total $ 275,401 ============================================== ========= ============
56 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 9. NON-CASH FINANCING ACTIVITIES See Note 7(f). 10. STOCK SPLIT On October 23, 2000, the Company increased its number of issued and outstanding common shares to 19,233,000 shares by a forward split on a one (1) for 4.09 basis on its 4,700,000 common shares issued and outstanding on that day. The par value of the common shares after the forward split is $0.0001 per share. The forward split is deemed to have taken effect on November 1, 1999. All share data have been restated to reflect retroactively the effects of the split. 11. INCOME TAXES (a) A reconciliation of the statutory income tax to the Company's effective income tax rate is as follows:
--------------------------------------------------------------- ----------------- 2000 1999 --------------------------------------------------------------- ----------------- Statutory income tax rate 15% 15% Tax losses not benefited (15%) (15%) --------------------------------------------------------------- ----------------- Effective income tax rate -- -- =============================================================== =================
(b) The tax effect of temporary differences that give rise to the Company's deferred tax assets (liabilities) are as follows:
---------------------------------------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------------------------------------- Undepreciated capital cost of capital assets over their net book value $ 19,000 $ -- Estimated tax loss carryforwards 627,700 3,800 Less: valuation allowance (646,700) (3,800) ------------------------------------------------------------- ------------------ ----------------- $ -- $ -- ============================================================= ================== =================
The valuation allowance reflects the Company's estimate that the tax assets, more likely than not, will not be realized. As at December 31, 2000, the Company has non-capital losses of approximately $1,386,000 which can be carried forward for tax purposes and are available to reduce taxable income of future years. The non-capital losses expire commencing in 2006 through 2007. 57 CYOP SYSTEMS INTERNATIONAL INCORPORATED AND SUBSIDIARIES (formerly Triple 8 Development Corporation) (A development stage company) Notes to Consolidated Financial Statements December 31, 2000 and 1999 (EXPRESSED IN U.S. DOLLARS) -------------------------------------------------------------------------------- 12. SEGMENTED INFORMATION (a) Industry Information The Company operates in one reportable operating segment, being in the developing and providing multimedia transactional technology solutions and services on internet for the entertainment industry. (b) Geographic Information All the Company's operations and fixed assets are located in Canada. 13. CONTINGENCIES The Company has no insurance coverage on commercial and third party liabilities. The Management considers the occurrence of a loss or damage to property of the Company or loss resulting from injury to others or damage to property of others is remote and not determinable. 14. SUBSEQUENT EVENT (a) The following shares were allotted for cash subsequent to the year ended December 31, 2000: - 64,000 common shares were allotted at $1.00 per share; and - 13,000 common shares were allotted at $1.40 per share. (b) Subsequent to the year ended December 31, 2000, the Company granted a stock option of 25,000 common shares at $1.00 per share to a service provider. The stock option expires May 9, 2004. 58 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS We have had no changes in or disagreements with our accountants since our incorporation in October, 1999. AVAILABLE INFORMATION We are a reporting company and are subject to the reporting requirements of the Exchange Act. We voluntarily filed a Form 10-SB on February 14, 2001. We have filed a registration statement on Form SB-2 under the Act with the Securities and Exchange Commission with respect to the shares of our common stock offered by this prospectus. This prospectus is filed as a part of the registration statement and does not contain all of the information contained in the registration statement and exhibits and reference is hereby made to such omitted information. Statements made in this registration statement are summaries of the material terms of these referenced contracts, agreements or documents but are not necessarily complete. However, all information we considered material relating to the terms of any referenced contracts, agreements or documents has been disclosed. Reference is made to each exhibit for a more complete description of the matters involved and these statements shall be deemed qualified in their entirety by the reference. You may inspect the registration statement and exhibits and schedules filed with the Securities and Exchange Commission at the Securities and Exchange Commission's principle office in Washington, D.C. Copies of all or any part of the registration statement may be obtained from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Securities and Exchange Commission also maintains a web site (http://www.sec.gov) that contains reports, proxy statements and information regarding registrants that file electronically with the Commission. For further information pertaining to us and our common stock offered by this prospectus, reference is made to the registration statement. PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS INDEMNIFICATION OF DIRECTORS AND OFFICERS Our officers and directors are indemnified as provided by the Nevada Revised Statutes and our bylaws. Under the NRS, director immunity from liability to a company or its shareholders for monetary liabilities applies automatically unless it is specifically limited by a company's articles of incorporation which is not the case with our articles of incorporation. Excepted from that immunity are: (1) a willful failure to deal fairly with the company or its shareholders in connection with a matter in which the director has a material conflict of interest; (2) a violation of criminal law (unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful); (3) a transaction from which the director derived an improper personal profit; and (4) willful misconduct. Our bylaws provide that we will indemnify our directors and officers to the fullest extent not prohibited by Nevada law; provided, however, that we may modify the extent of such indemnification by individual contracts with our directors and officers; and, provided, further, that we shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless: (1) such indemnification is expressly required to be made by law; (2) the proceeding was authorized by our Board of Directors; 59 (3) such indemnification is provided by us, in our sole discretion, pursuant to the powers vested us under Nevada law; or (4) such indemnification is required to be made pursuant to the bylaws. Our bylaws provide that we will advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of CYOP, or is or was serving at the request of CYOP as a director or executive officer of another company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under our bylaws or otherwise. Our bylaws provide that no advance shall be made by us to an officer of CYOP --except by reason of the fact that such officer is or was a director of CYOP in which event this paragraph shall not apply-- in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made: (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding; or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of CYOP. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated costs of the offering are denoted below. Please note that all amounts are estimates other than the Commission's registration fee. Securities and Exchange Commission registration fee: $3,149.30 Federal Taxes $0.00 State Taxes and Fees $0.00 Transfer Agent Fees $1,200.00 Accounting fees and expenses $2,000.00 Legal fees and expenses $3,000.00 Miscellaneous $1,000.00 TOTAL: $10,349.30 ========== We will pay all expenses of the offering listed above from cash on hand. No portion of these expenses will be borne by the selling shareholders. RECENT SALES OF UNREGISTERED SECURITIES On November 1, 1999, we issued 2,450,000 common shares at $0.001 per share to 45 U.S. non-resident subscribers under Regulation S. We received cash consideration of $2,450 for the sale of these shares. None of the offerees or purchasers are U.S. persons as defined in Rule 902(k) of Regulation S, and no sales efforts were conducted in the U.S., in accordance with Rule 903(c). Subscribers to the offering acknowledge that the securities purchased must come to rest outside the U.S., and the certificates contain a legend restricting the sale of such securities until the Regulation S holding period is satisfied in accordance with Rule 903(b)(3)(iii)(A). 60 We issued 2,250,000 common shares at a deemed price of $0.001 per share to Mr. Keith Ebert on November 1, 1999. Mr. Ebert was issued these shares in consideration for his services in organizing the Company, acting as officer and director and seeking an acquisition. The value of the services rendered is $2,250. We relied on the exemption contained in Regulation S of the Securities Act of 1933. None of the offerees or purchasers are U.S. residents as defined in Rule 902(k) of Regulation S, and no sales efforts were conducted in the U.S., in accordance with Rule 903(c). Subscribers to the offering acknowledge that the securities purchased must come to rest outside the U.S., and the certificates contain a legend restricting the sale of such securities until the Regulation S holding period is satisfied in accordance with Rule 903(b)(3)(iii)(A). On November 3, 2000, we issued 9,000,000 common shares to the shareholders of CYOP Systems Inc. in consideration for all of the issued and outstanding common shares of CYOP Systems Inc. We relied on the exemption contained in Regulation S of the Securities Act of 1933. None of the offerees or purchasers are U.S. residents as defined in Rule 902(k) of Regulation S, and no sales efforts were conducted in the U.S., in accordance with Rule 903(c). Subscribers to the offering acknowledge that the securities purchased must come to rest outside the U.S., and the certificates contain a legend restricting the sale of such securities until the Regulation S holding period is satisfied in accordance with Rule 903(b)(3)(iii)(A). On December 22, 2000, we issued 159,975 common shares at $1.00 per share to 49 U.S. non resident subscribers under Regulation S, on January 8, 2001, we issued 17,500 common shares at $1.00 per share to two U.S. non resident subscribers under Regulation S, on January 19, 2001, we issued 32,200 common shares at $1.00 per share to five U.S. non resident subscribers, on February 14, 2001, we issued 13,000 common shares at $1.40 per share to two U.S. non resident subscribers under Regulation S, on March 8, 2001, we issued 3,000 common shares at $1.00 per share to one U.S. non resident subscriber under Regulation S and on April 24, 2001, we issued 11,300 common shares at $1.00 per share to three U.S. non resident subscribers under Regulation S. None of the offerees or purchasers are U.S. residents as defined in Rule 902(k) of Regulation S, and no sales efforts were conducted in the U.S., in accordance with Rule 903(c). Subscribers to the offering acknowledge that the securities purchased must come to rest outside the U.S., and the certificates contain a legend restricting the sale of such securities until the Regulation S holding period is satisfied in accordance with Rule 903(b)(3)(iii)(A). EXHIBITS Item 27 Exhibits 3.1 Articles of Incorporation 3.2 Articles of Amendment 3.3 Bylaws 5.1 Legal Opinion of Randall J. Lanham 10.1 Share Purchase Agreement 10.2 Software Licensing Agreement 21.1 Subsidiaries of the Registrant 23.1 Consent of Ellis Foster, Accountants UNDERTAKINGS Item 28 Undertakings We undertake that we will: 61 1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) Include any additional or changed material information on the plan of distribution. 2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the bona fide offering. 3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement on Form SB-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Vancouver, Province of British Columbia, Canada, on October 17, 2001. CYOP SYSTEMS INTERNATIONAL INCORPORATED /s/Mitch White ----------------------------------------------- Mitch White, President, Chief Financial Officer and Director In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated. SIGNATURE TITLE DATE --------- ----- ---- /s/Mitch White President, C.F.O. October 17, 2001 -------------- and Director Mitch White 62 EX-3.1 3 ex3-1.txt EXHIBIT 3.1 EXHIBIT 3.1 FILED ARTICLES OF INCORPORATION IN THE OFFICE OF THE SECRETARY OF STATE OF THE Of STATE OF NEVADA OCT. 29, 1999 TRIPLE 8 DEVELOPMENT CORPORATION No. C26990-99 A Nevada Corporation Dean Heller, Secretary of State KNOW ALL MEN BY THESE PRESENTS: That I, the Undersigned, for the purpose of forming a corporation under the Laws of the State of Nevada, relating to the General Corporation Law. I DO HEREBY CERTIFY THAT: FIRST: The name of the corporation shall be: TRIPLE 8 DEVELOPMENT CORPORATION SECOND: The address of The Nevada Agency and Trust Company, resident agent and Agent for Service of Process of this corporation, is to be located at Suite 880, Bank of America Plaza, 50 West Liberty Street, Reno, Nevada 89501. THIRD: This Corporation is authorized to carry on any lawful business or enterprise. This corporation may conduct all or any part of its business and may hold, purchase, mortgage, lease and convey real and/or personal property, anywhere in the world. FOURTH: The authorized capital stock of this corporation is ONE HUNDRED MILLION (100,000,000) common shares with a par value of $0.0001 per share. The common shares of this corporation are non assessable. The board of directors has the authority to prescribe, by resolution, the classes, series, number of each class and series, voting powers, designations, preferences, limitations, restrictions and relative rights of each class and series of stock. FIFTH: The members of the governing board of this corporation shall be styled as directors over the age of eighteen (18) and their number shall be not less than one nor more than ten. The initial director of the corporation shall be one, and the name and address of the initial director is: Gerald R. Tuskey Suite 1000 409 Granville Street Vancouver, B.C. V6C 1T2 SIXTH: The name and address of the incorporator is as follows: Gerald R. Tuskey Suite 1000 409 Granville Street Vancouver, B.C. V6C 1T2 SEVENTH: The period of existence of this corporation shall be perpetual. EIGHTH: No director, officer or shareholder of this corporation shall have personal liability for damages for breach of any fiduciary duty as a director or officer to the corporation, its shareholders or any other person except for: (a) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or (b) the payment of dividends in violation of NRS78.300 I, THE UNDERSIGNED, FOR THE PURPOSE OF FORMING A CORPORATION UNDER THE LAWS OF THE STATE OF NEVADA, DO MAKE, FILE AND RECORD THIS CERTIFICATE, AND CERTIFY THAT THE FACTS STATED ARE TRUE AND I HAVE ACCORDINGLY SET MY HAND AND SEAL THIS DAY: OCTOBER 18, 1999. /s/ Gerald R. Tuskey ------------------------------ Gerald R. Tuskey, Incorporator 2 EX-3.2 4 ex3-2.txt EXHIBIT 3.2 EXHIBIT 3.2 FILED # C26990-99 OCT 31, 2000 CERTIFICATE OF AMENDMENT IN THE OFFICE OF TO THE ARTICLES OF INCORPORATION OF DEAN HELLER, SECRETARY OF STATE TRIPLE 8 DEVELOPMENT CORPORATION The undersigned certifies that, pursuant to the provisions of the Nevada Revised Statutes, the shareholders of TRIPLE 8 DEVELOPMENT CORPORATION, a Nevada corporation, adopted the following resolutions to amend its articles of incorporation on October 30, 2000: 1. All of the directors consented in writing to the following resolution dated October 30, 2000: "RESOLVED that upon receipt of a shareholder's resolution authorizing a change of the Company's name from "TRIPLE 8 DEVELOPMENT CORPORATION" to "CYOP SYSTEMS INTERNATIONAL INCORPORATED", the president, secretary and sole director of the Company, Mr. Keith Ebert, is authorized to make such administrative, regulatory and governmental filings as are necessary to effect the change of the Company's name to "CYOP SYSTEMS INTERNATIONAL INCORPORATED"." 2. A majority of the shareholders holding 53.19% of the common shares outstanding of TRIPLE 8 DEVELOPMENT CORPORATION consented in writing to the following resolution dated October 30, 2000: RESOLVED that the Company's articles of incorporation be amended as follows: "1. The name of the corporation is: CYOP SYSTEMS INTERNATIONAL INCORPORATED" Dated this 30th day of October, 2000. TRIPLE 8 DEVELOPMENT CORPORATION Per: /s/Keith Ebert -------------------------------------- Keith Ebert, President, Secretary and Sole Director EX-3.3 5 ex3-3.txt EXHIBIT 3.3 EXHIBIT 3.3 BYLAWS OF TRIPLE 8 DEVELOPMENT CORPORATION A Nevada Corporation ARTICLE I OFFICES SECTION 1. PRINCIPAL EXECUTIVE OR BUSINESS OFFICES. The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of Nevada. If the principal executive office is located outside Nevada and the corporation has one or more business offices in Nevada, the Board of Directors shall fix and designate a principal business office in Nevada. SECTION 2. OTHER OFFICES. Branch or subordinate offices may be established at any time and at any place by the Board of Directors. ARTICLE II MEETINGS OF SHAREHOLDERS SECTION 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside the State of Nevada designated by the Board of Directors. In the absence of a designation by the Board, shareholders' meetings shall be held at the corporation's principal executive office. SECTION 2. ANNUAL MEETING. The annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. The date so designated shall be within three months after the end of the corporation's fiscal year, and within fifteen months after the last annual meeting. At each annual meeting, Directors shall be elected and any other proper business within the power of the shareholders may be transacted. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the Board of Directors, by the Chair of the Board, by the President or a Vice President, or by one or more shareholders holding shares that in the aggregate are entitled to cast ten percent or more of the votes at that meeting. If a special meeting is called by anyone other than the Board of Directors, the person or persons calling the meeting shall make a request in writing, delivered personally or sent by registered mail or by telegraphic or other facsimile transmission, to the Chair of the Board or the President, Vice President, or Secretary, specifying the time and date of the meeting (which is not less than 35 nor more than 60 days after receipt of the request) and the general nature of the business proposed to be transacted. Within 20 days after receipt, the officer receiving the request shall cause notice to be given to the shareholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, stating that a meeting will be held at the time requested by the person(s) calling the meeting, and stating the general nature of the business proposed to be transacted. If notice is not given within 20 days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph shall be construed as limiting, fixing, or affecting the time when a meeting of shareholders called by action of the Board may be held. SECTION 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of shareholders shall be sent or otherwise given in accordance with the requirements of Section 5 of this Article II and shall not be fewer than 10 nor more than 60 days before the date of the meeting. Shareholders entitled to notice shall be determined in accordance with the provision of Section 11 of this Article II. The notice shall specify the place, date, and hour of the meeting, and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters that the Board of Directors, at the time of giving the notice, intends to present for action by the shareholders. If Directors are to be elected, the notice shall include the names of all nominees whom the Board intends, at the time of the notice, to present for election. The notice shall also state the general nature of any proposed action to be taken at the meeting to approve any of the following matters: (i) A transaction in which a Director has a financial interest; (ii) An amendment of the Articles of Incorporation; (iii) A reorganization; (iv) A voluntary dissolution; or (v) A distribution in dissolution that requires approval of the outstanding shares. SECTION 5. MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE. Notice of any shareholders' meeting shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address appearing on the corporation's books or given by the shareholder to the corporation for purposes of notice. If no address appears on the corporation's books or has been given as specified above, notice shall be either (1) sent by first-class mail addressed to the shareholder at the corporation's principal executive office, or (2) published at least once in a newspaper of general circulation in the county where the corporation's principal executive office is located. Notice is deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. If any notice or report mailed to a shareholder at the address appearing on the corporation's books is returned marked to indicate that the United States Postal Service is unable to deliver the document to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if the corporation holds the document available for the shareholder on written demand at the corporation's principal executive office for a period of one year from the date the notice or report was given to all other shareholders. An affidavit of the mailing, or other authorized means of giving notice or delivering a document, of any notice of shareholders' meeting, report, or other document sent to shareholders, may be executed by the corporation's Secretary, Assistant Secretary, or transfer agent, and, if executed, shall be filed and maintained in the minute book of the corporation. SECTION 6. QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of the shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. SECTION 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 6 of this Article II. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place are announced at the meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than 45 days from the date set for the original meeting, in which case the Board of Directors shall set a new record date. Notice of any such adjourned meeting, if required, shall be given to each shareholder of record entitled to vote at the adjourned meeting, in accordance with the provisions of Sections 4 and 5 of this Article II. At any adjourned meeting, the corporation may transact any business that might have been transacted at the original meeting. SECTION 8. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 11 of this Article II. The shareholders' vote may be by voice vote or by ballot, provided, however, that any election for Directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than the election of Directors, any shareholder may vote part of the shares the shareholder is to vote in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares that the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present (or if a quorum has been present earlier at the meeting but some shareholders have withdrawn), the affirmative vote of a majority of the shares represented and voting, provided such shares voting affirmatively also constitute a majority of the number of shares required for a quorum, shall be the act of the shareholders unless the vote of a greater number or voting by classes is required by law or by the Articles of Incorporation. At a shareholders' meeting at which Directors are to be elected, no shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which that shareholder normally would be entitled to cast), unless the candidates' names have been placed in nomination before commencement of the voting and a shareholder has given notice at the meeting, before the voting has begun, of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then all shareholders entitled to vote may cumulate their votes for candidates in nomination, and may give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of Directors to be elected, shall be elected. SECTION 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of shareholders, either annual or special, however called and noticed and wherever held, shall be as valid as though they were had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if each person entitled to vote who was not present in person or by proxy, either before or after the meeting, signs a written waiver of notice or a consent to holding the meeting or an approval of the minutes of the meeting. A shareholder's attendance at a meeting also constitutes a waiver of notice of that meeting, unless the shareholder at the beginning of the meeting objects to the transaction of any business on the ground that the meeting was not lawfully called or convened. In addition, attendance at a meeting does not constitute a waiver of any right to object to consideration of matters required by law to be included in the notice of the meeting which were not so included, if that objection is expressly made at the meeting. SECTION 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action that could be taken at an annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. Directors may be elected by written consent of the shareholders without a meeting and vacancies on the Board (other than vacancies created by removal) not filled by the Board may be filled by the written consent of the holders of a majority of the outstanding shares entitled to vote. All consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records. Any shareholder or other authorized person who has given a written consent may revoke it by a writing received by the Secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. Unless the consents of all shareholders entitled to vote have been solicited in writing, prompt notice shall be given of any corporate action approved by shareholders without a meeting by less than unanimous consent, to those shareholders entitled to vote who have not consented in writing. SECTION 11. RECORD DATE FOR SHAREHOLDER NOTICE OF MEETING, VOTING, AND GIVING CONSENT. (a) For purposes of determining the shareholders entitled to receive notice of and vote at a shareholders' meeting or give written consent to corporate action without a meeting, the Board may fix in advance a record date that is not more than 60 nor less than 10 days before the date of a shareholders' meeting, or not more than 60 days before any other action. (b) If no record date is fixed: (i) The record date for determining shareholders entitled to receive notice of and vote at a shareholders' meeting shall be the business day next preceding the day on which notice is given, or if notice is waived as provided in Section 9 of this Article II, the business day next preceding the day on which the meeting is held. (ii) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, if no prior action has been taken by the Board, shall be the day on which the first written consent is given. (iii) The record date for determining shareholders for any other purpose shall be as set forth in Section 1 of Article VIII of these Bylaws. (c) A determination of shareholders of record entitled to receive notice of and vote at a shareholders' meeting shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting. However, the Board shall fix a new record date if the adjournment is to a date more than 45 days after the date set for the original meeting. (d) Only shareholders of record on the corporation's books at the close of business on the record date shall be entitled to any of the notice and voting rights listed in subsection (a) of this section, notwithstanding any transfer of shares on the corporation's books after the record date, except as otherwise required by law. SECTION 12. PROXIES. Every person entitled to vote for Directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the shareholder or the shareholder's attorney in fact. A validly executed proxy that does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by attendance at the meeting and voting in person by the person executing the proxy or by a subsequent proxy executed by the same person and presented at the meeting; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of 6 months from the date of the proxy, unless coupled with an interest. The revocability of a proxy that states on its face that it is irrevocable shall be governed by NRS 78.355. SECTION 13. INSPECTORS OF ELECTION. Before any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the Chair of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint Inspectors of Election at the meeting. The number of Inspectors shall be either one or three. If Inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one or three Inspectors are to be appointed. If any person appointed as Inspector fails to appear or fails or refuses to act, the Chair of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. These Inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots, or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS SECTION 1. POWERS. Subject to the provisions of the Nevada General Corporation Law and any limitations in the Articles of Incorporation and these Bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. Without prejudice to these general powers, and subject to the same limitations, the Board of Directors shall have the power to: (a) Select and remove all officers, agents, and employees of the corporation; prescribe any powers and duties for them that are consistent with law, with the Articles of Incorporation, and with these Bylaws; fix their compensation; and require from them security for faithful service. (b) Change the principal executive office or the principal business office in the State of Nevada from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency, or country and conduct business within or outside the State of Nevada; and designate any place within or outside the State of Nevada for holding any shareholders' meeting or meetings, including Annual Meetings. (c) Adopt, make, and use a corporate seal; prescribe the forms of certificates of stock; and alter the form of the seal and certificates. (d) Authorize the issuance of shares of stock of the corporation on any lawful terms, in consideration of money paid, labor done, services actually rendered, debts or securities cancelled, or tangible or intangible property actually received. (e) Borrow money and incur indebtedness on behalf of the corporation, and cause to be executed and delivered for the corporation's purposes, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, and other evidences of debt and securities. SECTION 2. NUMBER OF DIRECTORS. The number of Directors shall be no fewer than one (1) nor more than five (5). The exact number of authorized Directors shall be two (2) until changed, within the limits specified above, by a Bylaw amending this section, duly adopted by the Board of Directors, or the shareholders. The maximum or minimum number of Directors cannot be changed, nor can a fixed number be substituted for the maximum and minimum numbers, except by a duly adopted amendment to the Articles of Incorporation or by an amendment to this Bylaws duly adopted by a majority of the outstanding shares entitled to vote. However, once shares have been issued to more than two (2) shareholders, an amendment that would reduce the authorized number of Directors to a number fewer than five cannot be adopted if the votes cast against its adoption at a shareholders' meeting or the shares not consenting to an action by written consent are equal to more than one-sixth (16 2/3%) of the outstanding shares entitled to vote. SECTION 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each Annual Meeting of the shareholders to hold office until the next Annual Meeting. Each Director, including a Director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. No reduction of the authorized number of Directors shall have the effect of removing any Director before that Director's term of office expires. SECTION 4. VACANCIES. A vacancy in the Board of Directors shall be deemed to exist: (a) if a Director dies, resigns, or is removed by the shareholders or an appropriate court, as provided in NRS 78.335 and 78.345; (b) if the Board of Directors declares vacant the office of a Director who has been convicted of a felony or declared of unsound mind by an order of court; (c) if the authorized number of Directors is increased; or (d) if at any shareholders' meeting at which one or more Directors are elected the shareholders fail to elect the full authorized number of Directors to be voted for at that meeting. Any Director may resign effective on giving written notice to the Chair of the Board, the President, the Secretary, or the Board of Directors, unless the notice specifies a later effective date. If the resignation is effective at a future time, the Board may elect a successor to take office when the resignation becomes effective. Except for a vacancy caused by the removal of a Director, vacancies on the Board may be filled by approval of the Board or, if the number of Directors then in office is less than a quorum, by (1) the unanimous written consent of the Directors then in office, (2) the affirmative vote of a majority of the Directors then in office at a meeting held pursuant to notice or waivers of notice complying with NRS 78.370 and & 78.375, or (3) a sole remaining Director. A vacancy on the Board caused by the removal of a Director may be filled only by the shareholders, except that a vacancy created when the Board declares the office of a Director vacant as provided in clause (b) of the first paragraph of this section of the Bylaws may be filled by the Board of Directors. The shareholders may elect a Director at any time to fill a vacancy not filled by the Board of Directors. The term of office of a Director elected to fill a vacancy shall run until the next annual meeting of the shareholders, and such a Director shall hold office until a successor is elected and qualified. SECTION 5. PLACE OF MEETINGS; TELEPHONE MEETINGS. Regular meetings of the Board of Directors may be held at any place within or outside the State of Nevada as designated from time to time by the Board. In the absence of a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board shall be held at any place within or outside the State of Nevada designated in the notice of the meeting, or if the notice does not state a place, or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, provided that all Directors participating can hear one another. SECTION 6. ANNUAL DIRECTORS' MEETING. Immediately after each annual shareholders' meeting, the Board of Directors shall hold a regular meeting at the same place, or at any other place that has been designated by the Board of Directors, to consider matters of organization, election of officers, and other business as desired. Notice of this meeting shall not be required unless some place other than the place of the annual shareholders' meeting has been designated. SECTION 7. OTHER REGULAR MEETINGS. Other regular meetings of the Board of Directors shall be held without call at times to be fixed by the Board of Directors from time to time. Such regular meetings may be held without notice. SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called for any purpose or purposes at any time by the Chair of the Board, the President, any Vice President, the Secretary, or any two Directors. Special meetings shall be held on four days' notice by mail or forty-eight hours' notice delivered personally or by telephone or telegraph. Oral notice given personally or by telephone may be transmitted either to the Director or to a person at the Director's office who can reasonably be expected to communicate it promptly to the Director. Written notice, if used, shall be addressed to each Director at the address shown on the corporation's records. The notice need not specify the purpose of the meeting, nor need it specify the place if the meeting is to be held at the principal executive office of the corporation. SECTION 9. QUORUM. A majority of the authorized number of Directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 11 of this Article III. Every act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors. SECTION 10. WAIVER OF NOTICE. Notice of a meeting, although otherwise required, need not be given to any Director who (i) either before or after the meeting signs a waiver of notice or a consent to holding the meeting without being given notice; (ii) signs an approval of the minutes of the meeting; or (iii) attends the meeting without protesting the lack of notice before or at the beginning of the meeting. Waivers of notice or consents need not specify the purpose of the meeting. All waivers, consents, and approvals of the minutes shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 11. ADJOURNMENT TO ANOTHER TIME OR PLACE. Whether or not a quorum is present, a majority of the Directors present may adjourn any meeting to another time or place. SECTION 12. NOTICE OF ADJOURNED MEETING. Notice of the time and place of resuming a meeting that has been adjourned need not be given unless the adjournment is for more than 24 hours, in which case notice shall be given, before the time set for resuming the adjourned meeting, to the Directors who were not present at the time of the adjournment. Notice need not be given in any case to Directors who were present at the time of adjournment. SECTION 13. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors individually or collectively consent in writing to that action. Any action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. All written consents shall be filed with the minutes of the proceedings of the Board of Directors. SECTION 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees of the Board may be compensated for their services, and shall be reimbursed for expenses, as fixed or determined by resolution of the Board of Directors. This section shall not be construed to preclude any Director from serving the corporation in any other capacity, as an officer, agent, employee, or otherwise, and receiving compensation for those services. ARTICLE IV COMMITTEES SECTION 1. COMMITTEES OF THE BOARD. The Board of Directors may, by resolution adopted by a majority of the authorized number of Directors, designate one or more committees, each consisting of two or more Directors. The Board may designate one or more Directors as alternate members of any committee, to replace any absent member at a committee meeting. The appointment of committee members or alternate members requires the vote of a majority of the authorized number of Directors. A committee may be granted any or all of the powers and authority of the Board in the management of the business and affairs of the corporation. SECTION 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of committees shall be governed by, and held and taken in accordance with, Bylaw provisions applicable to meetings and actions of the Board of Directors, as provided in Section 5 and Sections 7 through 13 of Article III of these Bylaws, as to the following matters: place of meetings; regular meetings; special meetings and notice; quorum; waiver of notice; adjournment; notice of adjournment; and action without meeting, with such changes in the context of these Bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members, except that (a) the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee; (b) special meetings of committees may also be called by resolution of the Board of Directors; and (c) notice of special meetings of committees shall also be given to all alternative members who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the governance of any committee not inconsistent with these Bylaws. ARTICLE V OFFICERS SECTION 1. OFFICERS. The officers of the corporation shall be a President and Chief Executive Officer, a Secretary, and a Treasurer. The corporation may also have, at the discretion of the Board of Directors, a Chair of the Board, one or more Vice Presidents, one or more Assistant Secretaries, a Chief Financial Officer, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with Section 3 of this Article. Any number of offices may be held by the same person. SECTION 2. APPOINTMENT OF OFFICERS. The officers of the corporation, except for subordinate officers appointed in accordance with Section 3 of this Article V, shall be appointed by the Board of Directors, and shall serve at the pleasure of the Board of Directors. SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and may empower the Chair to appoint other officers as required by the business of the corporation, whose duties shall be as provided in the Bylaws, or as determined from time to time by the Board of Directors or the Chair. SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Any officer chosen by the Board of Directors may be removed at any time, with or without cause or notice, by the Board of Directors. Subordinate officers appointed by persons other than the Board under Section 3 of this Article may be removed at any time, with or without cause or notice, by the Board of Directors or by the officer by whom appointed. Officers may be employed for a specified term under a contract of employment if authorized by the Board of Directors; such officers may be removed from office at any time under this section, and shall have no claim against the corporation or individual officers or Board members because of the removal except any right to monetary compensation to which the officer may be entitled under the contract of employment. Any officer may resign at any time by giving written notice to the corporation. Resignations shall take effect on the date of receipt of the notice, unless a later time is specified in the notice. Unless otherwise specified in the notice, acceptance of the resignation is not necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation to monetary damages under any contract of employment to which the officer is a party. SECTION 5. VACANCIES IN OFFICES. A vacancy in any office resulting from an officer's death, resignation, removal, disqualification, or from any other cause shall be filled in the manner prescribed in these Bylaws for regular election or appointment to that office. SECTION 6. CHAIR OF THE BOARD. The Board of Directors may elect a Chair, who shall preside, if present, at Board meetings and shall exercise and perform such other powers and duties as may be assigned from time to time by the Board of Directors. SECTION 7. PRESIDENT. Except to the extent that the Bylaws or the Board of Directors assign specific powers and duties to the Chair of the Board (if any), the President shall be the corporation's general manager and Chief Executive Officer and, subject to the control of the Board of Directors, shall have general supervision, direction, and control over the corporation's business and its officers. The managerial powers and duties of the President shall include, but are not limited to, all the general powers and duties of management usually vested in the office of President of a corporation, and the President shall have other powers and duties as prescribed by the Board of Directors or the Bylaws. The President shall preside at all meetings of the shareholders and, in the absence of the Chair of the Board or if there is no Chair of the Board, shall also preside at meetings of the Board of Directors. SECTION 8. CHAIR OF THE BOARD. The Chair of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned by the Board of Directors or prescribed by the By-laws. If there is no President, the Chair of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V. SECTION 9. VICE PRESIDENTS. If desired, one or more Vice Presidents may be chosen by the Board of Directors in accordance with the provisions for appointing officers set forth in Section 2 of this Article V. In the absence or disability of the President, the President's duties and responsibilities shall be carried out by the highest ranking available Vice President if Vice Presidents are ranked or, if not, by a Vice President designated by the Board of Directors. When so acting, a Vice President shall have all the powers of and be subject to all the restrictions on the President. Vice Presidents of the corporation shall have such other powers and perform such other duties as prescribed from time to time by the Board of Directors, the Bylaws, or the President (or Chair of the Board if there is no President). SECTION 10. SECRETARY (a) Minutes. The Secretary shall keep, or cause to be kept, minutes of all of the shareholders' meetings and of all other Board meetings. If the Secretary is unable to be present, the Secretary or the presiding officer of the meeting shall designate another person to take the minutes of the meeting. The Secretary shall keep, or cause to be kept, at the principal executive office or such other place as designated by the Board of Directors, a Book of Minutes of all meetings and actions of the shareholders, of the Board of Directors, and of committees of the Board. The minutes of each meeting shall state the time and place the meeting was held; whether it was regular or special; if special, how it was called or authorized; the names of Directors present at Board or committee meetings; the number of shares present or represented at shareholders' meetings; an accurate account of the proceedings; and when it was adjourned. (b) Record of Shareholders. The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the transfer agent or registrar, a record or duplicate record of shareholders. This record shall show the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of share certificates issued to each shareholder, and the number and date of cancellation of any certificates surrendered for cancellation. (c) Notice of Meetings. The Secretary shall give notice, or cause notice to be given, of all shareholders' meetings, Board meetings, and meetings of committees of the Board for which notice is required by statute or by the Bylaws. If the Secretary or other person authorized by the Secretary to give notice fails to act, notice of any meeting may be given by any other officer of the corporation. (d) Other Duties. The Secretary shall keep the seal of the corporation, if any, in safe custody. The Secretary shall have such other powers and perform other duties as prescribed by the Board of Directors or by the Bylaws. SECTION 11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep, or cause to be kept, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any Director. The Chief Financial Officer shall (1) deposit corporate funds and other valuables in the corporation's name and to its credit with depositaries designated by the Board of Directors; (2) make disbursements of corporate funds as authorized by the Board; (3) render a statement of the corporation's financial condition and an account of all transactions conducted as Chief Financial Officer whenever requested by the Chair, the President or the Board of Directors; and (4) have other powers and perform other duties as prescribed by the Board of Directors or the Bylaws. Unless the Board of Directors has elected a separate Treasurer, the Chief Financial Officer shall be deemed to be the treasurer for purposes of giving any reports or executing any certificates or other documents. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS SECTION 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of this Article, "agent" means any person who is or was a Director, officer, employee, or other agent of this corporation, or who is or was serving at the request of this corporation as a Director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or who was a Director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of this corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes, without limitation, attorney fees and any expenses of establishing a right to indemnification under Section 4 or Section 5(d) of this Article VI. SECTION 2. ACTIONS OTHER THAN BY THE CORPORATION. This corporation shall have the power to indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this corporation to procure a judgment in its favor) by reason of the fact that such person is or was an agent of this corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that the person reasonably believed to be in the best interests of this corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of that person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner that the person reasonably believed to be in the best interests of this corporation or that the person had reasonable cause to believe that the person's conduct was not unlawful. SECTION 3. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. This corporation shall have the power to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action by or in the right of this corporation to procure a judgment in its favor by reason of the fact that such person is or was an agent of this corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of that action, if such person acted in good faith, in a manner such person believed to be in the best interests of this corporation and its shareholders. No indemnification shall be made under this Section 3 for the following: (a) With respect to any claim, issue, or matter as to which such person has been adjudged to be liable to this corporation in the performance of such person's duty to the corporation and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine on application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine; (b) Amounts paid in settling or otherwise disposing of a pending action without court approval; or (c) Expenses incurred in defending a pending action that is settled or otherwise disposed of without court approval. SECTION 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this corporation has been successful on the merits in defense of any proceeding referred to in Section 2 or 3 of this Article VI, or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith. SECTION 5. REQUIRED APPROVAL. Except as provided in Section 4 of this Article VI, any indemnification under this Section shall be made by the corporation only if authorized in the specific case, after a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Section 2 or 3 by one of the following: (a) A majority vote of a quorum consisting of Directors who are not parties to such proceeding; (b) Independent legal counsel in a written opinion if a quorum of Directors who are not parties to such a proceeding is not available; (c) (i) The affirmative vote of a majority of shares of this corporation entitled to vote represented at a duly held meeting at which a quorum is present; or (ii) the written consent of holders of a majority of the outstanding shares entitled to vote (for purposes of this subsection 5(c), the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon); or (d) The court in which the proceeding is or was pending, on application made by this corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney, or other person is opposed by this corporation. SECTION 6. ADVANCE OF EXPENSES. Expenses incurred in defending any proceeding may be advanced by the corporation before the final disposition of such proceeding on receipt of an undertaking by or on behalf of the agent to repay such amounts if it shall be determined ultimately that the agent is not entitled to be indemnified as authorized in this Article VI. By unanimous vote of all Directors, other than a Director who may be a party to such proceeding, this provision requiring an undertaking may be waived; provided, however, that such waiver shall not relieve the agent of liability. SECTION 7. OTHER CONTRACTUAL RIGHTS. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or disinterested Directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent such additional rights to indemnification are authorized in the articles of the corporation. Nothing in this section shall affect any right to indemnification to which persons other than such Directors and officers may be entitled by contract or otherwise. SECTION 8. LIMITATIONS. No indemnification or advance shall be made under this Article VI, except as provided in Section 4 or Section 5(d), in any circumstance if it appears: (a) That it would be inconsistent with a provision of the articles, Bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving settlement. SECTION 9. INSURANCE. This corporation may purchase and maintain insurance on behalf of any agent of the corporation insuring against any liability asserted against or incurred by the agent in that capacity or arising out of the agent's status as such, whether or not this corporation would have the power to indemnify the agent against that liability under the provisions of this Article VI. SECTION 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. This Article VI does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person's capacity as such, even though that person may also be an agent of the corporation. The corporation shall have the power to indemnify, and to purchase and maintain insurance on behalf of any such trustee, investment manager, or other fiduciary of any benefit plan for any or all of the Directors, officers, and employees of the corporation or any of its subsidiary or affiliated corporations. SECTION 11. SURVIVAL OF RIGHTS. The rights provided by this Article VI shall continue for a person who has ceased to be an agent and shall inure to the benefit of the heirs, executors, and administrators of such person. SECTION 12. EFFECT OF AMENDMENT. Any amendment, repeal, or modification of this Article VI shall not adversely affect an agent's right or protection existing at the time of such amendment, repeal, or modification. SECTION 13. SETTLEMENT OF CLAIMS. The corporation shall not be liable to indemnify any agent under this Article VI for (a) any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld or (b) any judicial award, if the corporation was not given a reasonable and timely opportunity to participate, at its expense, in the defense of such action. SECTION 14. SUBROGATION. In the event of payment under this Article VI, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents as may be necessary to enable the corporation effectively to bring suit to enforce such rights. SECTION 15. NO DUPLICATION OF PAYMENTS. The corporation shall not be liable under this Article VI to make any payment in connection with any claim made against the agent to the extent the agent has otherwise actually received payment, whether under a policy of insurance, agreement, vote, or otherwise, of the amounts otherwise indemnifiable under this Article. ARTICLE VII RECORDS AND REPORTS SECTION 1. MAINTENANCE OF SHAREHOLDER RECORD AND INSPECTION BY SHAREHOLDERS. The corporation shall keep at its principal executive office or at the office of its transfer agent or registrar, as determined by resolution of the Board of Directors, a record of the names and addresses of all shareholders and the number and class of shares held by each shareholder, a copy certified by the Secretary of State of the corporation's articles of incorporation and all amendments thereto, and a copy certified by an officer of the corporation of its bylaws and all amendments thereto. Any person who has been a stockholder of record for at least 6 months immediately preceding his or her demand, or any shareholder or shareholders holding at least 5 percent in the aggregate of the outstanding voting shares of the corporation shall have the right to inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours, on five days' prior written demand on the corporation. SECTION 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of Nevada, at its principal business office in this state, a copy certified by an officer of the corporation of the Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of Nevada and the corporation has no principal business office in this state, the Secretary shall, on the written request of any shareholder, furnish to that shareholder a copy of the Bylaws as amended to date. SECTION 3. MAINTENANCE AND INSPECTION OF MINUTES AND ACCOUNTING RECORDS. The minutes of proceedings of the shareholders, Board of Directors, and committees of the Board, and the accounting books and records, shall be kept at the principal executive office of the corporation, or at such other place or places as designated by the Board of Directors. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in a form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection on the written demand of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary of the corporation. SECTION 4. INSPECTION BY DIRECTORS. Every Director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. This inspection by a Director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents. SECTION 5. ANNUAL REPORT TO SHAREHOLDERS. The Board of Directors shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year adopted by the corporation. This report shall be sent at least 15 days (if third-class mail is used, 35 days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified for giving notice to shareholders in Section 5 of Article II of these Bylaws. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and a statement of cash flows for the fiscal year prepared in accordance with generally accepted accounting principles applied on a consistent basis and accompanied by any report of independent accountants, or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the corporation's books and records. SECTION 6. ANNUAL REPORT TO SHAREHOLDERS. Inasmuch as, and for as long as, there are fewer than 100 shareholders, the requirement of an annual report to shareholders referred to in Section 5 is expressly waived. However, nothing in this provision shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the shareholders, as the Board considers appropriate. SECTION 7. FINANCIAL STATEMENTS. The corporation shall keep a copy of each annual financial statement, quarterly or other periodic income statement, and accompanying balance sheets prepared by the corporation on file in the corporation's principal executive office for 12 months; these documents shall be exhibited at all reasonable times, or copies provided, to any shareholder on demand. If no annual report for the last fiscal year has been sent to shareholders, on written request of any shareholder made more than 120 days after the close of the fiscal year the corporation shall deliver or mail to the shareholder, within 30 days after receipt of the request, a balance sheet as of the end of that fiscal year and an income statement and statement of cash flows for that fiscal year. A shareholder or shareholders holding 5 percent or more of the outstanding shares of any class of stock of the corporation may request in writing an income statement for the most recent three-month, six-month, or nine-month period (ending more than 30 days before the date of the request) of the current fiscal year, and a balance sheet of the corporation as of the end of that period. If such documents are not already prepared, the chief financial officer shall cause them to be prepared and shall deliver the documents personally or mail them to the requesting shareholders within 30 days after receipt of the request. A balance sheet, income statement, and statement of cash flows for the last fiscal year shall also be included, unless the corporation has sent the shareholders an annual report for the last fiscal year. Quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of independent accountants engaged by the corporation or the certificate of an authorized corporate officer stating that the financial statements were prepared without audit from the corporation's books and records. SECTION 8. ANNUAL STATEMENT OF GENERAL INFORMATION. (a) Every year, during the calendar month in which the original Articles of Incorporation were filed with the Nevada Secretary of State, the corporation shall file a statement with the Secretary of State on the prescribed form, setting forth the authorized number of Directors; the names and complete business or residence addresses of all incumbent Directors; the names and complete business or residence addresses of the President, the Secretary, and the Treasurer; the street address of the corporation's principal executive office or principal business office in this state; a statement of the general type of business constituting the principal business activity of the corporation; and a designation of the agent of the corporation for the purpose of service of process. (b) Notwithstanding the provisions of paragraph (a) of this section, if there has been no change in the information in the corporation's last annual statement on file in the Secretary of State's office, the corporation may, in lieu of filing the annual statement described in paragraph (a) of this section, advise the Secretary of State, on the appropriate form, that no changes in the required information have occurred during the applicable period. ARTICLE VIII GENERAL CORPORATE MATTERS SECTION 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the shareholders entitled to receive payment of dividends or other distributions or allotment of rights, or entitled to exercise any rights in respect of any other lawful action (other than voting at and receiving notice of shareholders' meetings and giving written consent of the shareholders without a meeting), the Board of Directors may fix in advance a record date, which shall be not more than 60 nor less than 10 days before the date of the dividend payment, distribution, allotment, or other action. If a record date is so fixed, only shareholders of record at the close of business on that date shall be entitled to receive the dividend, distribution, or allotment of rights, or to exercise the other rights, as the case may be, notwithstanding any transfer of shares on the corporation's books after the record date, except as otherwise provided by statute. If the Board of Directors does not so fix a record date in advance, the record date shall be at the close of business on the later of (1) the day on which the Board of Directors adopts the applicable resolution or (2) the 60th day before the date of the dividend payment, distribution, allotment of rights, or other action. SECTION 2. AUTHORIZED SIGNATORIES FOR CHECKS. All checks, drafts, other orders for payment of money, notes, or other evidences of indebtedness issued in the name of or payable to the corporation shall be signed or endorsed by such person or persons and in such manner authorized from time to time by resolution of the Board of Directors. SECTION 3. EXECUTING CORPORATE CONTRACTS AND INSTRUMENTS. Except as otherwise provided in the articles or in these Bylaws, the Board of Directors by resolution may authorize any officer, officers, agent, or agents to enter into any contract or to execute any instrument in the name of and on behalf of the corporation. This authority may be general or it may be confined to one or more specific matters. No officer, agent, employee, or other person purporting to act on behalf of the corporation shall have any power or authority to bind the corporation in any way, to pledge the corporation's credit, or to render the corporation liable for any purpose or in any amount, unless that person was acting with authority duly granted by the Board of Directors as provided in these Bylaws, or unless an unauthorized act was later ratified by the corporation. SECTION 4. SHARE TRANSFERS. Transfers of shares of the Corporation must be approved by the board of directors of the Corporation by resolution in writing until such time as the Corporation's shares become listed or quoted on a public stock exchange or quotation service. SECTION 5. CERTIFICATES FOR SHARES. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of the shares are fully paid. In addition to certificates for fully paid shares, the Board of Directors may authorize the issuance of certificates for shares that are partly paid and subject to call for the remainder of the purchase price, provided that the certificates representing partly paid shares shall state the total amount of the consideration to be paid for the shares and the amount actually paid. All certificates shall certify the number of shares and the class or series of shares represented by the certificate. All certificates shall be signed in the name of the corporation by (1) either the Chair of the Board of Directors, the Vice Chair of the Board of Directors, the President, or any Vice President, and (2) either the Chief Financial Officer, any Assistant Treasurer, the Secretary, or any Assistant Secretary. Any or all of the signatures on the certificate may be facsimile. If any officer, transfer, agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that officer, transfer agent, or registrar before that certificate is issued, the certificate may be issued by the corporation with the same effect as if that person were an officer, transfer agent, or registrar at the date of issue. SECTION 6. LOST CERTIFICATES. Except as provided in this Section 5, no new certificates for shares shall be issued to replace old certificates unless the old certificate is surrendered to the corporation for cancellation at the same time. If share certificates or certificates for any other security have been lost, stolen, or destroyed, the Board of Directors may authorize the issuance of replacement certificates on terms and conditions as required by the Board, which may include a requirement that the owner give the corporation a bond (or other adequate security) sufficient to indemnify the corporation against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft, or destruction of the old certificate or the issuance of the replacement certificate. SECTION 7. SHARES OF OTHER CORPORATIONS: HOW VOTED. Shares of other corporations standing in the name of this corporation shall be voted by one of the following persons, listed in order of preference: (1) Chair of the Board, or person designated by the Chair of the Board; (2) President, or person designated by the President; (3) First Vice President, or person designated by the First Vice President; (4) other person designated by the Board of Directors. The authority to vote shares granted by this section includes the authority to execute a proxy in the name of the corporation for purposes of voting the shares. SECTION 8. REIMBURSEMENT OF CORPORATION IF PAYMENT NOT TAX DEDUCTIBLE. If all or part of the compensation, including expenses, paid by the corporation to a Director, officer, employee, or agent is finally determined not to be allowable to the corporation as a federal or state income tax deduction, the Director, officer, employee, or agent to whom the payment was made shall repay to the corporation the amount disallowed. The Board of Directors shall enforce repayment of each such amount disallowed by the taxing authorities. SECTION 9. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in NRS 78.010 through 78.795 shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS SECTION 1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized Directors of the corporation, the authorized number of Directors may be changed only by an amendment of the Articles of Incorporation. SECTION 2. POWERS OF DIRECTORS. Subject to the right of the Shareholders to adopt, amend or repeal Bylaws, as provided in Section 1 of this Article IX, the Board of Directors may adopt, amend or repeal any of these Bylaws other than a Bylaw or amendment thereof changing the authorized number of Directors. EX-5.1 6 ex5-1.txt EXHIBIT 5.1 EXHIBIT 5.1 THE LAW OFFICES OF RANDALL J. LANHAM 45 Glen Echo, Unit A Dove Canyon, California 92679 Telephone: (949)858-6773 Facsimile: (949)858-6774 October 17, 2001 Securities and Exchange Commission Division of Corporate Finance 450 Fifth Street, NW Washington, DC 20549 Dear Sir/Madam: Re: CYOP Systems International Incorporated (the "Company") Registration of Common Shares ------------------------------------------------------------- The following opinion is provided in connection with the Company's registration of 8,998,000 outstanding common shares under a Form SB-2 registration statement and prospectus dated October 17, 2001 (the "Registration Statement"). This opinion is restricted to the laws of the State of Nevada and applicable Federal Laws. After reasonable inquiry, we are of the opinion that the 8,998,000 common shares of the Company to be registered under the Registration Statement have been properly authorized and when sold will be legally issued as fully paid and non-assessable common shares of the Company. This office consents to the filing of this opinion as an exhibit to the Registration Statement and consents to the reference to our firm in the Registration Statement. Yours truly, /s/Randall J. Lanham Randall J. Lanham EX-10.1 7 ex10-1.txt EXHIBIT 10.1 EXHIBIT 10.1 THIS SHARE PURCHASE AGREEMENT is made the 3rd day of November, 2000, AMONG: CYOP SYSTEMS INC., ----------------- of Suite 29, 1st Floor, Beckwith Mall, Lower Broad Street, Bridgetown, Barbados (the "Company") AND: THE SHAREHOLDERS OF CYOP SYSTEMS INC., ------------------------------------- of Suite 29, 1st Floor, Beckwith Mall, Lower Broad Street, Bridgetown, Barbados (the "Vendors") AND: CYOP SYSTEMS INTERNATIONAL INCORPORATED, --------------------------------------- of Suite 880, 50 West Liberty Street, Reno, Nevada, 89501 USA (the "Purchaser")
WHEREAS: A. The Vendors are the legal and beneficial owners of all of the issued and outstanding common shares of the Company (the "Company Shares"); and B. The Vendors have agreed to sell all of their right, title and interest in and to the Company Shares free and clear of all liens, charges and encumbrances on the terms and conditions set forth in this agreement to the Purchaser in consideration for 9,000,000 shares of the Purchaser. NOW THEREFORE WITNESSETH that in consideration of the premises and of the mutual covenants and agreements set forth herein, the parties hereto covenant and agree as follows: ARTICLE 1 DEFINITIONS AND INTERPRETATION ------------------------------ Definitions ----------- 1.01 In this Agreement, including the recitals hereto, the following words an phrases shall have the following meanings: (a) "Closing" means the completion of the transactions contemplated by this Agreement; (b) "Company Shares" means all of the issued and outstanding common shares of CYOP Systems Inc.; (c) "Person" includes a firm, corporation or other entity; and (d) "Purchaser's Shares" means 9,000,000 common shares of the Purchaser issuable to the Vendors in consideration for the Company Shares. Captions and Section Numbers ---------------------------- 1.02 The headings and section references in this Agreement are for convenience of reference only and do not form a part of this Agreement and are not intended to interpret, define or limit the scope, extent or intent of this Agreement or any provision thereof. Extended Meanings ----------------- 1.03 The words "hereof", "herein", "hereunder" and similar expressions used in any clause, paragraph or section of this Agreement shall relate to the whole of this Agreement and not to that clause, paragraph or section only, unless otherwise expressly provided. Number and Gender ----------------- 1.04 Whenever the singular or masculine or neuter is used in this Agreement, the same shall be construed to mean the plural or feminine or body corporate where the context of this Agreement or the parties hereto so require. Section References ------------------ 1.05 Any reference to a particular "article", "section", "subsection" or other subdivision is to the particular article, section or other subdivision of this Agreement. Governing Law ------------- 1.06 This Agreement and all matters arising hereunder shall be governed by, construed and enforced in accordance with the laws of the State of Nevada and all disputes arising under this Agreement shall be referred to the Courts of the State of Nevada. Currency -------- 1.07 All sums of money to be paid or calculated pursuant to this Agreement shall be paid or calculated in currency of the United States unless otherwise expressly stated. Schedules --------- 1.08 The schedules attached hereto are hereby incorporated into this Agreement and form a part hereof. All terms defined in this Agreement shall have the same meaning in such schedules. The schedules to this Agreement are as follows: Schedule "A" - The Vendors and Allocation of Purchaser's Shares ARTICLE 2 PURCHASE AND SALE OF SHARES --------------------------- Purchase and Sale ----------------- 2.01 Upon the terms and conditions of this Agreement, at the Closing the Vendors will sell the Company Shares free and clear of all liens, charges and encumbrances to the Purchaser in consideration for the Purchaser's Shares. 2 Purchase Price -------------- 2.02 The purchase price payable by the Purchaser to the Vendors for the Company Shares is 9,000,000 common shares of the Purchaser with a par value of $0.0001 per share (the "Purchase Price"). The Purchase Price shall be paid to the Vendors at Closing by the Purchaser's delivery of share certificates representing the Purchaser's Shares allocated to the Vendors as set out in Schedule "A". ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE VENDORS AND THE COMPANY ------------------------------ Representations and Warranties ------------------------------ 3.01 The Vendors and the Company jointly and severally represent and warrant to the Purchaser, with the intent that the Purchaser will rely thereon in entering into this Agreement and in concluding the transactions contemplated hereby, that: (a) the Company is duly incorporated, validly exists, is in good standing with respect to the filing of annual returns under the laws of Barbados, has the necessary corporate power, authority and capacity to own its property and assets and to carry on its business as presently conducted and is duly licensed to carry on business in all jurisdictions in which it presently carries on business; (b) the Company is not a "reporting company" or a "reporting issuer" under the laws of the United States of America; (c) the Company owns and possesses and has good and marketable title to all of its properties and assets, both real and personal, free and clear of all liens, charges and encumbrances; (d) none of the Company's properties or assets are in the possession of or under the control of any other Person; (e) the Company's financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the Company's prior fiscal periods. The financial statements present fairly the financial position of the Company as at the date thereof and fairly state the Company's income and deficit for the period covered thereby; (f) except to the extent reflected or reserved against in its financial statements or incurred subsequent to the date thereof in the ordinary and usual course of the business, the Company does not have any outstanding indebtedness or any liabilities or obligations (whether accrued, contingent or otherwise); (g) since the date of incorporation of the Company, there has not been: (i) any changes in the condition or operations of the business, assets or financial position of the Company which are, individually or in the aggregate, materially adverse; or (ii) any damage, destruction or loss or other event, development or condition, of any character (whether or not covered by insurance) which is not generally known or which has not been disclosed to the Purchaser, which has or may materially and 3 adversely affect the business, assets, properties or future prospects of the Company; (h) all material financial transactions of the Company have been accurately recorded in the books and records of the Company and such books and records fairly present the financial position and the corporate affairs of the Company; (i) since the date of incorporation of the Company, the Company has not: (i) transferred, assigned, sold or otherwise disposed of any assets or cancelled any debts or claims except in each case in the ordinary and usual course of business; (ii) incurred or assumed any obligation or liability (fixed or contingent), except unsecured current obligations and liabilities incurred in the ordinary and normal course of business; (iii) declared or made, or committed itself to make, any payment of any dividend or other distribution in respect of any of its shares or purchased or redeemed any of its shares or split, consolidated or reclassified any of its shares; (iv) suffered any operating loss or any material extraordinary loss or entered into any material commitment or transaction not in the ordinary and usual course of business; (v) waived or surrendered any right of substantial value; (vi) made any gift of money or of any property or assets to any Person; (vii) amended or changed or taken any action to amend or change its memorandum or articles; (viii) increased or agreed to increase the pay of, or paid or agreed to pay any pension, bonus, share of profits or other similar benefit of, any director, employee or officer or former director, employee or officer of the Company; (ix) made payments of any kind to or on behalf of the Vendors or any affiliate or associate of the Vendors or under any management agreement with the Company save and except business related expenses and salaries in the ordinary course of business and at the regular rates payable to them; (x) mortgaged, pledged, subjected to lien, granted a security interest in or otherwise encumbered any of its assets or property, whether tangible or intangible; or (xi) authorized or agreed or otherwise have become committed to do any of the foregoing; (j) save and except as disclosed in writing to the Purchaser, all accounts receivable have been recorded by the Company in accordance with its usual accounting practices. The reserve taken for doubtful or bad accounts is adequate based on past experience of the Company and is consistent with the accounting procedures used by the Company in previous fiscal periods. There is nothing which would indicate that such reserve is not adequate or that a higher reserve should be taken; 4 (k) the Company does not own or possess any material assets; (l) the Company is not party to, bound by or subject to any indenture, mortgage, lease, agreement, instrument, judgment or decree which would be violated or breached by, or under which default would occur or which could be terminated, cancelled or accelerated, in whole or in part, as a result of the execution and delivery of this Agreement or the consummation of any of the transactions provided for herein; (m) there is not any suit, action, litigation, arbitration proceeding or governmental proceeding, including appeals and applications for review, in progress, pending or threatened against, or relating to the Company or affecting its assets, properties or business which might materially and adversely affect the assets, properties, business, future prospects or financial condition of the Company; and there is not presently outstanding against any of the Company any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator; (n) to the best of the knowledge of the Vendors, the Company has kept the records required to be kept by the laws of Barbados and any other applicable corporate legislation and such records are complete and accurate and contain all minutes of all meetings of directors and members of the Company; (o) the Company holds all permits, licenses, consents and authorities issued by any government or governmental authority, or any municipal, regional or other authority, or any subdivision thereof, including, without limitation, any governmental department, commission, bureau, board or administrative agency, which are necessary or desirable in connection with the conduct and operation of the Company's business and the ownership or leasing of its assets and the conduct and operation of the Company's business as the same are now owned, leased, conducted or operated and is not in breach of or in default under any term or condition of any thereof; (p) the Company: (i) has filed in a timely manner all income tax returns and election forms and the tax returns of any other jurisdiction required to be filed and all such returns and forms have been completed accurately and correctly in all respects; (ii) has paid all taxes (including all federal, provincial, state, local and property taxes, assessments or other imposts in respect of its income, business, assets or property) and all interest and penalties thereon with respect to the Company, for all previous years and all required instalment payments due for the current fiscal year have been paid; (iii) has provided adequate reserves for all taxes; and there is no agreement, waiver or other arrangement providing for an extension of time with respect to the filing of any tax return, or payment of any tax, governmental charge or deficiency by the Company nor is there any action, suit, proceeding, investigation or claim now threatened or pending against the Company in respect of, or discussion underway with any governmental authority relating to, any such tax or governmental charge or deficiency; 5 (q) the Company has not: (i) disposed of anything to a Person with whom it was not dealing at arm's length for proceeds less than the fair market value thereof; or (ii) discontinued carrying on any business in respect of which non-capital losses were incurred, and any non-capital losses which the Company has are not losses from property or business investment losses; (r) the financial statements and schedules attached to the corporate income tax returns as filed by the Company for each of its taxation years reflect and disclose all transactions to which the Company was party as required by applicable revenue laws and all of the transactions to which the Company was or is a party are reflected or disclosed in such financial statements and schedules and the corporate income tax returns; (s) the authorized capital of the Company consists of an unlimited number of common shares without par value, of which 20,000,000 common shares are issued and outstanding as fully paid and non-assessable. No Person has any agreement or option, present or future, contingent, absolute or capable of becoming an agreement or option or which with the passage of time or the occurrence of any event could become an agreement or option: (i) to require the Company to issue any further or other shares in its capital or any other security convertible or exchangeable into shares in its capital or to convert or exchange any securities into or for shares in the capital of the Company; (ii) for the issue or allotment of any of the authorized but unissued shares in the capital of the Company; (iii) to require the Company to purchase, redeem or otherwise acquire any of the issued and outstanding shares in the capital of the Company; or (iv) to acquire the Company Shares; (t) the Vendors are the registered holders and beneficial owners of and have good marketable title to the Company Shares, free and clear of all liens, charges and encumbrances whatsoever; (u) the Company Shares have been duly and validly allotted and issued and are outstanding as a fully paid and non-assessable shares in the capital of the Company; (v) the Vendors have good and sufficient right and authority to enter into this Agreement on the terms and conditions herein contained and to transfer the legal and beneficial title to the Company Shares to the Purchaser; (w) the Company Shares are not subject to any "hold period" under any federal, state or provincial laws or under any regulatory policy or rule; (x) this Agreement constitutes a valid, binding and enforceable obligation of the Vendors. On Closing, the Vendors will not be a party to, bound by or subject to any indenture, mortgage, lease, agreement, instrument, statute, regulation, order, judgment, decree or law which would be violated, contravened or breached by or under which any default 6 would occur as a result of the execution and delivery by the Vendors of this Agreement or the performance by the Vendors of any of the terms hereof; (y) at Closing the Company will not be indebted to the Vendors or any employees of the Company or any affiliate or associate of the Vendors, on any account whatsoever. Survival -------- 3.02 The representations and warranties contained in section 3.01 shall survive the completion of the transactions contemplated by this Agreement and shall continue in full force and effect for the benefit of the Purchaser thereafter, notwithstanding any independent enquiry or investigation by the Purchaser. Indemnity --------- 3.03 The Vendors covenant to indemnify and hold harmless the Purchaser from and against any loss, claims, damages, liability, expenses and costs, including any payment made in good faith in settlement of any claim or potential claim, arising from any of the representations and warranties set forth in section 3.01 being incorrect or breached. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ----------------------------------------------- 4.01 The Purchaser represents and warrants to the Vendors and the Company, with the intent that the Vendors and the Company will rely thereon in entering into this Agreement and in concluding the transactions contemplated hereby, that, to the best of its knowledge, information and belief: (a) the Purchaser was duly incorporated in the state of Nevada on October 29, 1999. The Purchaser is a valid and subsisting corporation in good standing under the laws of Nevada, has the necessary corporate power, authority and capacity to own its property and assets and to carry on its business as presently conducted and is duly licensed to carry on business in all jurisdictions in which it presently carries on business; (b) the Purchaser is not a "reporting company" under the Securities Exchange Act of 1934; (c) the Purchaser's Financial Statements have been prepared in accordance with generally accepted accounting principles of the United States of America (U.S. GAP) applied on a basis consistent with the Purchaser's prior fiscal periods. The Purchaser's Financial Statements present fairly the financial position of the Purchaser as at the date thereof and fairly state the Purchaser's income and deficit for the period covered thereby; (d) the authorized capital of the Purchaser consists of 100,000,000 common shares of which 19,223,000 common shares are issued and outstanding as fully paid and non-assessable. No Person has any agreement or option, present or future, contingent, absolute or capable of becoming an agreement or option or which with the passage of time or the occurrence of any event could become an agreement or option: (i) to require the Purchaser to issue any further or other shares in its capital or any other security convertible or exchangeable into shares in its capital or to convert or exchange any securities into or for shares in the capital of the Purchaser; 7 (ii) for the issue or allotment of any of the authorized but unissued shares in the capital of the Purchaser; (iii)to require the Purchaser to purchase, redeem or otherwise acquire any of the issued and outstanding shares in the capital of the Purchaser; or (iv) to acquire the Purchaser's Shares; (e) the Purchaser's shares have been duly and validly allotted and issued and are outstanding as a fully paid and non-assessable shares in the capital of the Purchaser; (f) the Purchaser has good and sufficient right and authority to enter into this Agreement on the terms and conditions herein contained; (g) this Agreement constitutes a valid, binding and enforceable obligation of the Purchaser. On Closing, the Purchaser will not be a party to, bound by or subject to any indenture, mortgage, lease, agreement, instrument, statute, regulation, order, judgement, decree or law which would be violated, contravened or breached by or under which any default would occur as a result of the execution and delivery by the Purchaser of this Agreement or the performance by the Purchaser of any of the terms hereof; (h) at Closing, the Purchaser will not be indebted to any party; (i) The current sole director and officer of the Purchaser is Keith A. Ebert; Survival -------- 4.02 The representations and warranties contained in section 4.01 shall survive the completion of the transactions contemplated by this Agreement and shall continue in full force and effect for the benefit of the Company and the Vendors thereafter, notwithstanding any independent enquiry or investigation by such parties. Indemnity --------- 4.03 The Purchaser covenants to indemnify and hold harmless the Company and the Vendors from and against any loss, claims, damages, liability, expenses and costs, including any payment made in good faith in settlement of any claim or potential claim, arising from any of the representations and warranties set forth in section 4.01 being incorrect or breached. ARTICLE 5 CONDITIONS PRECEDENT TO COMPLETION ---------------------------------- Conditions Precedent to Obligation of the Purchaser --------------------------------------------------- 5.01 The obligation of the Purchaser to carry out the terms and conditions of this Agreement is subject to and conditional upon the fulfilment, on Closing of the following conditions: (a) the representations and warranties of the Vendors and the Company set out in Article 3 shall be true and correct at and as of the Closing as if such representations and warranties were made at and as of the Closing; 8 (b) the Vendors shall have performed and complied with all agreements, covenants and conditions required by this Agreement to be performed or complied with by the Vendors on or before the Closing; and 5.02 The conditions described in section 5.01 are conditions only to the Purchaser being required to complete the transactions contemplated by this Agreement and are not conditions to the existence of a binding agreement. If the conditions described in section 5.01 have not been satisfied or waived at or prior to the Closing, the Purchaser may elect not to complete. 5.03 All of the conditions precedent set out in section 5.01 are for the sole and exclusive benefit of the Purchaser and may be waived, in whole or in part, by notice in writing to the Vendors. Subject to section 7.02, all such conditions precedent shall merge in the closing documents on Closing. Conditions Precedent to Obligation of the Vendors ------------------------------------------------- 5.04 The obligation of the Vendors to carry out the terms and conditions of this Agreement is subject to and conditional upon the fulfilment, on or before the Closing of the Purchaser having performed and complied with all agreements, covenants and conditions required by this Agreement to be performed or complied with by the Purchaser on or before the Closing. 5.05 The conditions described in section 5.04 are conditions only to the Vendors being required to complete the transactions contemplated by this Agreement and are not conditions to the existence of a binding agreement. If such conditions have not been satisfied or waived at or prior to the Closing, the Vendors may elect not to complete. 5.06 The conditions precedent set out in section 5.04 are for the sole and exclusive benefit of the Vendors and may be waived, in whole or in part, by notice in writing to the Purchaser. Subject to section 7.02, all such conditions precedent shall merge in the closing documents on Closing. 5.07 The Vendors covenant and agree as follows: (a) to vote in favour of all resolutions placed before shareholders of the Company which are contemplated hereunder; (b) to provide full access to the books, records and property of the Company and to cooperate and provide assistance to the Purchaser in connection with all filings with and approvals required as a result of the transactions contemplated hereunder; and (c) not to do or cause to be done anything outside the ordinary course of business of the Company and to not purchase any assets or properties which collectively exceed a value of $10,000. 5.08 The Purchaser covenants and agrees to maintain confidentiality with respect to the business and affairs of the Company resulting from the review by the Purchaser of the books and records of the Company. 9 ARTICLE 6 CLOSING ------- Time and Place of Closing ------------------------- 6.01 The purchase and sale of the Company Shares and the other transactions contemplated by this Agreement shall be completed at 10:00 a.m. (local time in Bridgetown, Barbados) on the Closing date at the offices of the Company or at such other time and place as may be agreed to by the parties. Closing Documents ----------------- 6.02 At the Closing, the Vendors shall deliver to the Purchaser the following: (a) share certificates representing the Company Shares duly endorsed for transfer to the Purchaser; (b) the corporate minute book and all other books and corporate and financial records of the Company; (c) the common seal of the Company; (d) a legal opinion satisfactory to counsel for the Purchaser; and (e) such other documents and instruments that may be necessary to complete the transactions contemplated hereunder. 6.03 At the Closing, the Purchaser shall deliver or cause to be delivered to the Vendors the Purchase Price for the Company Shares in accordance with section 2.01 and such other documents and instruments that may be necessary to complete the transactions contemplated hereunder. ARTICLE 7 GENERAL PROVISIONS ------------------ Notices ------- 7.01 All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, faxed or mailed postage prepaid addressed as follows: To the Company: CYOP Systems Inc. Suite 29, 1st Floor Beckwith Mall, Lower Broad Street Bridgetown, Barbados Facsimile: (246)435-1429 To the Vendors: Shareholders of CYOP Systems Inc. Suite 29, 1st Floor Beckwith Mall, Lower Broad Street Bridgetown, Barbados Facsimile: (246)435-1429 10 To the Purchaser: CYOP Systems International Incorporated Suite 880 50 West Liberty Street Reno, Nevada 89501 USA Facsimile: (604)688-4933 or to such other address as may be given in writing by the parties and shall be deemed to have been received, if delivered by hand, on the date of delivery, if faxed to the facsimile numbers set out above, on the business day next following the date of transmission and if mailed as aforesaid to the addresses set out above then on the fifth business day following the posting thereof provided that if there shall be between the time of mailing and the actual receipt of the notice a mail strike, slowdown or other labour dispute which might affect the delivery of the notice by the mails, then the notice shall only be effective if actually delivered or faxed to the facsimile numbers set out above. Non-Merger ---------- 7.02 Notwithstanding the completion of the transactions contemplated by this Agreement, the waiver of any condition contained herein (unless such waiver expressly releases a party from any such representation, warranty, covenant or agreement) or any investigation made by the Purchaser or the Vendors, the representations, warranties, covenants and agreements of the parties set forth herein shall survive the Closing and will remain in full force and effect and shall not be extinguished or merged in any way by the delivery or recording of any deed or any other instrument relating to the Shares or the Company or the completion of the transactions contemplated by this Agreement. Time of Essence --------------- 7.03 Time is hereby expressly made of the essence of this Agreement with respect to the performance by the parties of their respective obligations under this Agreement. Binding Effect -------------- 7.04 This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and assigns. Entire Agreement ---------------- 7.05 This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous expectations, understandings, communications, representations and agreements whether verbal or written between the parties with respect to the subject matter hereof. Further Assurances ------------------ 7.06 Each of the parties hereto hereby covenants and agrees to execute such further and other documents and instruments and do such further and other things as may be necessary or desirable to implement and carry out the intent of this Agreement. 11 Amendments ---------- 7.07 No amendment to this Agreement shall be valid unless it is evidenced by a written agreement executed by all of the parties hereto. Counterparts ------------ 7.08 This Agreement may be executed in counterpart and/or by facsimile. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the day and year first above written. THE COMMON SEAL OF ) CYOP SYSTEMS INC. ) was hereunto affixed in the presence of: ) ) c/s (signed) ) -------- Authorized Signatory ) CYOP SYSTEMS INC. SHAREHOLDERS: ------------------------------ GREENDAY INC. Per: /s/ Michael W. Taylor ---------------------- Michael W. Taylor, Director CASKA TRUST JAZZCO TRUST Per: (signed) Per: (signed) ---------------------- ------------------------ Authorized Signatory Authorized Signatory LANCASTER ESTATE TRUST Per: (signed) Authorized Signatory /s/ Mitch White /s/ Andrea Rewa Carley ------------------------------- -------------------------- Mitch White Andrea Rewa Carley THE COMMON SEAL OF ) CYOP SYSTEMS INTERNATIONAL INCORPORATED ) was hereunto affixed in the presence of: ) ) c/s /s/ Keith Ebert, President and Director ) --------------------------------------- ) Keith Ebert ) 12 SCHEDULE "A" THE VENDORS AND ALLOCATION OF PURCHASER'S SHARES
NUMBER OF NUMBER OF CYOP SYSTEMS CYOP SYSTEMS INC. INTERNATIONAL INCORPORATED NAME OF SHAREHOLDER SHARES OWNED SHARES TO BE RECEIVED ------------------- ------------ --------------------- Greenday Inc. 8,000,000 4,000,000 Andrea Carley 1,000,000 500,000 Mitch White 1,000,000 500,000 Caska Trust 2,500,000 1,250,000 Jazzco Trust 2,500,000 1,250,000 Lancaster Estate Trust 3,000,000 1,500,000 ----------------------------------------------- TOTALS: 18,000,000 9,000,000
EX-10.2 8 ex10-2.txt EXHIBIT 10.2 EXHIBIT 10.2 SOFTWARE LICENSE, TECHNICAL SUPPORT, AND OPERATION OF CUSTOMER SERVICE & DATA CENTRE AGREEMENT THIS AGREEMENT is made as of the 1st day of September, 2001. BETWEEN: CYOP SYSTEMS INC., a limited liability company incorporated under the laws of Barbados and having its principal offices at Suite 29-1st Floor, Beckwith Mall, Lower Broad Street, Bridgetown, Barbados ("LICENSOR") AND: BINGO.COM (CANADA) ENTERPRISES INC., a limited liability company incorporated under the laws of Canada and having its principal offices at 3rd Floor--1286 Homer Street, Vancouver, British Columbia, Canada ("LICENSEE") BACKGROUND: A. Licensor has developed a software program known as "CrediPlay" (the "Software"), which is an online financial network offering Pay-for-Play tournaments, and Pay-per-Use integrated games, products, and services for licensed users, and which includes an integrated credit card and financial payment processing application that permits licensed users to access and utilize the services of credit card organizations and collect, record, and distribute financial payments in the course of the licensed users' business activities. B. Licensee operates and maintains an Internet portal or Website that hosts, operates, and organizes skill-based bingo and bingo-like games, tournaments and competitions and an online reference for information and activities relating to bingo and bingo-like games ("LICENSEE'S BUSINESS"). C. Licensor has the necessary personnel, resources, experience, skills, and background in the operation of a customer service and data centre to effectively operate and manage those functions for Licensee's Business. D. Licensee has requested Licensor to grant a license for the Software and to provide services for the operation of Licensee's customer service and data centre. E. The parties have agreed to enter into this Agreement on the terms and conditions set forth in this Agreement. AGREEMENTS: In consideration of the mutual covenants and agreements set forth in this Agreement, the parties agree as follows: Page 2 PART I--DEFINITIONS & INTERPRETATION 1. DEFINITIONS 1.1 DEFINITIONS. In this Agreement: "ASP" means an application service provider selected by Licensor from time to time to host and operate the Software on the ASP's computer server for access by Licensee, Sublicensees and Customers; "APPROVED FINANCIAL INSTITUTION" means a bank, credit union, trust company, investment or brokerage firm, or other financial institution which appears on the list attached as Schedule A to this Agreement, which Schedule A may be modified by Licensee from time to time; "BINGO TOURNAMENT" means a bingo or bingo-like tournament, game, or competition hosted on or accessed from Licensee's or Sublicensee's computer systems, servers, or Website, regardless of the name of such tournament, game or competition; "CONVERSION RATIO" means, at any time, the ratio then in effect as determined or established by the Rules and Regulations for converting Customer Payments into Customer Credits and vice versa, and which will initially be $0.01 for 1 Customer Credit, subject to change under the Rules and Regulations; "CUSTOMER" means any person who gains access to Licensee's or Sublicensee's Website via the Internet for the purpose of participating in a Bingo Tournament, and who pays the applicable Network Maintenance Fees and the applicable Tournament Entrance Fees; "CUSTOMER CREDITS" means an electronic unit of participation, which is recorded and used by the Software to allow Customers access to and participation in a Bingo Tournament; "CUSTOMER PAYMENTS" means all funds collected from Customers, whether by credit card, debit card, cheque, cash, or any other means; "CUSTOMER INFORMATION" means all data relating to Customers collected and stored by the Software or by Licensee's or Sublicensee's Website including, without limiting the generality of the foregoing, name, address, telephone number, telecopier number, e-mail address, credit card numbers and expiration dates, information on other types of payments or fees, activities on the Internet, activities on the Website, and the amount of Customer Payments and Customer Credits; "DOCUMENTATION" means any and all documentation accompanying or describing the Software, specifically including any localized version of the Documentation created by Licensor or Licensee and all supplements and new versions of the foregoing items; "DOWNLOADABLE SOFTWARE" means the portion of the Software, if any, that must be present on a Customer's computer in order for that Customer's Page 3 computer to have access to a Bingo Tournament and which may be downloaded or obtained by the Customer via the Internet as a java applet; "EFFECTIVE DATE" means the date of this Agreement; "ESCROW AGENT" means an independent third party selected, from time to time, by Licensee to hold the Software, including without limitation all source code materials, pursuant to the Escrow Agreement (if and when required by Licensee); "ESCROW AGREEMENT" means the agreement to be entered into between Licensor, Licensee and Escrow Agent pursuant to Section 4.3, as amended from time to time; "INITIAL SET UP FEE" means the sum of $50,000; "INTERNET" means the worldwide collection of computer networks and gateways that use the TCP/ IP suite of protocols to communicate with one another; "LICENSE TERM" has the meaning set out in Section 3.3; "LICENSE FEES" means, in respect of any period of time, an amount equal to 25% of the Network Maintenance Fees collected by or on behalf of Licensee for that period of time for Bingo Tournaments hosted or operated on or accessed from Licensee's Website, subject to adjustment under Section 8.4; "LICENSOR'S CASH ACCOUNT" means an account opened and maintained by Licensor for the benefit of Licensee or a Sublicensee with an Approved Financial Institution for the deposit and withdrawal of cash payments for and on behalf of Licensee or Sublicensee, as the case may be; "LICENSEE'S CONFIDENTIAL INFORMATION" has the meaning set out in Section 10.4; "LICENSOR'S CONFIDENTIAL INFORMATION" has the meaning set out in Section 10.1; "MASTER CD" means a compact disc containing the Downloadable Software, which may be used to mass produce compact discs for delivery of Downloadable Software to Customers when and if Licensee elected to use such delivery mechanism; "NETWORK MAINTENANCE FEES" means the fees expressed in Customer Credits and determined or established by the Rules and Regulations from time to time, which the Customer must pay to Licensee or Sublicensee to register with, and to gain access to Bingo Tournaments, but the Network Maintenance Fees do not include the Tournament Entrance Fees; "RULES AND REGULATIONS" means the instructions and guidelines developed or modified from time to time by Licensee to govern all aspects of a Bingo Tournament, including, without limitation, the rules of play that Customers must adhere to, the distribution of the Customer Payments, the method and ratio for conversion of Customer Payments into Customer Credits and vice versa, the eligibility and entrance requirements and criteria for Bingo Tournaments, the amount of Network Maintenance Fees, Page 4 and the allocation and distribution of the Tournament Entrance Fees, with the initial Rules and Regulations attached hereto as Schedule B; "SERVICE FEES" means, in respect of any period of time, an amount equal to 5% of the Network Maintenance Fees collected by or on behalf of Licensee for that period of time, for Bingo Tournaments hosted or operated on or accessed from Licensee's Website, subject to adjustment under Section 8.6; "SERVICES TERM" has the meaning set out in Section 5.4; "SOFTWARE"--further to the description set forth in the recitals--means the source code form (in all data formats) of the current and any future version of Licensor's software programs known as "CrediPlay" and specifically includes the most current release of any localized version of the Software by Licensor and any Updates to any such program from time to time; "SUBLICENSEE" means any party to whom Licensee grants a sublicense to use the Software in the Territory for the support or operation of Bingo Tournaments conducted by the Sublicensee; "SUBLICENSE FEES" means, in respect of any period of time, an amount equal to 26% of the Network Maintenance Fees collected by or on behalf of a Sublicensee for that period of time for Bingo Tournaments hosted or operated on or accessed from the Sublicensee's Website; "SUBLICENSEE INITIALIZATION FEES" means, in respect of any Sublicensee appointed by Licensee, a mutually agreed fee payable to Licensor for services rendered by Licensor to initialize and make the Software accessible for use by that Sublicensee and its Customers; "SUBLICENSEE SERVICE FEES" means, in respect of any period of time, an amount equal to 10% of the Network Maintenance Fees collected by or on behalf of a Sublicensee for that period of time for Bingo Tournaments hosted or operated on or accessed from the Sublicensee's Website; "SPECIFICATIONS" means all specifications and requirements for the Software set forth in Licensor's standard documentation as modified or supplemented in writing and signed or approved by Licensor; "SUPERVISOR" means Licensee's Chief Financial Officer; "TERRITORY" has the meaning set out in Section 3.2; "TRADEMARKS" means all Licensor-owned trademarks related to the Software; "TOURNAMENT ENTRANCE FEES" means the amount of Customer Credits that the Customer elects to pay towards the winner's prize for Bingo Tournaments, which amount will be retained in a holding account until the completion of the applicable Bingo Tournament, and the sum of all Tournament Entrance Fees paid for a specific Bingo Tournament will be the prize that Customers compete to win in accordance with the Rules and Regulations; Page 5 "UPDATES" means any bug fixes, patches, error corrections, enhancements, improvements, supplements, upgrades, and new versions of the Software which Licensor makes available at any time to any of its customers or business associates with or without charge; "WARRANTY PERIOD" means the period during which the grant of license and rights made by Licensor to Licensee under this Agreement remains in effect; "WEB PAGE" means a document or file that is formatted using HTML and that is intended to be accessible to Customers with a web browser; "WEBSITE" means a series of interconnected Web Pages; and "WITHHOLDING" means any deduction or withholding made by an Approved Financial Institution from the remittance of converted Network Services Fees by Licensor to Licensee or any Sublicensee. 2. INTERPRETATION 2.1 GENDER AND NUMBER. Words expressed in one gender include all genders, and the singular includes the plural, and vice versa. 2.2 HEADINGS. Headings have been inserted into this Agreement for convenience of reference only and they do not affect the interpretation of this Agreement. 2.3 RECITALS AND SCHEDULES. The recitals and schedules to this Agreement are incorporated by reference and form part of this Agreement. 2.4 CURRENCY. All references to dollar amounts are references to lawful currency of the United States of America, unless expressly stated to be otherwise. 2.5 AMBIGUITIES. Ambiguities, inconsistencies, or conflicts in this Agreement will not be strictly construed against the drafter of the language but will be resolved by applying the most reasonable interpretation under the circumstances, giving full consideration to the parties' intentions at the time this Agreement is entered into. PART II--SOFTWARE LICENSE & TECHNICAL SUPPORT 3. OWNERSHIP, TERRITORY, AND LICENSE TERM 3.1 OWNERSHIP. As between the parties, Licensor owns and will retain all right, title, and interest in and to the Software and the Documentation, except for the limited license rights specifically granted in this Agreement. In addition, Licensee agrees that any derivative software technology or products developed by or on behalf of Licensee (with or without the consent of Licensor) using or based upon the Software or the Documentation will be the sole property of Licensor, and Licensee will, upon request by Licensor, execute an assignment and transfer of rights in such derivative software technology, products, or documentation in favour of Licensor. Page 6 3.2 TERRITORY. The license and rights granted to Licensee will apply worldwide (the "Territory"). 3.3 LICENSE TERM. The license and rights granted to Licensee will have effect from the Effective Date and continue until otherwise terminated pursuant to this Agreement (the "License Term"). 4. GRANT 4.1 PERPETUAL WORLDWIDE LICENSE. Licensor grants to Licensee an irrevocable, worldwide, perpetual license to use the Software in and throughout the Territory for the support and operation of Licensee's Business. The above license includes the right to concurrently utilize the Software on all computer systems, servers, and Websites which host or support Licensee's Business from time to time, to distribute and sublicense the Downloadable Software to Customers as necessary, and to create and maintain copies of the Software for back-up and security purposes. The above license includes the right to grant sublicenses to Sublicensees to use the Software in the Territory for the support and operation of Bingo Tournaments hosted or conducted by the Sublicensees, provided that the terms of the sublicenses shall be on such same terms and conditions as Licensee may from time to time require. The above license does not include the right to modify, improve, or create derivative software, technology, or products from the Software, or to use the Software for any activities that are not in the ordinary course of Licensee's Business. Licensor covenants and agrees that Licensee will, for the duration of this Agreement, have the exclusive right to use the Software in the Territory for the support and operation of an Internet portal or Website to host Bingo Tournaments as conducted by Licensee or its Sublicensees from time to time. 4.2 SOFTWARE HOSTING SERVICES. Licensor will engage the services and computer facilities of an ASP to host the Software on the ASP's computer server for access by Licensee, Sublicensees and Customers. Licensor warrants and covenants that the hosting services and facilities of the ASP will at all times satisfy the performance requirements set out in Schedule C. 4.3 DELIVERY BY LICENSOR TO ESCOW AGENT. When and if required by Licensee, Licensor will enter into an Escrow Agreement on terms and conditions reasonably required by Licensee. Upon execution of the Escrow Agreement, Licensor will immediately deliver to the Escrow Agent, at no additional cost to Licensee, one complete copy of the Software to be held pursuant to the Escrow Agreement, which delivery will include all source code materials for the Software, and from time to time thereafter, Licensor will deliver to the Escrow Agent, at no additional cost to Licensee, the following materials to be held pursuant to the Escrow Agreement: (a) current versions of the Software, Specifications, and Documentation, in such format and on such media as Licensee may require to install and operate the Software on Licensee's computer systems and servers, and to grant and support Sublicenses of the Software in accordance with this Agreement, when and if the same are released pursuant to the Escrow Agreement; and (b) a Master CD containing the Downloadable Software (including Upgrades thereto). Page 7 4.4 INTERNET ACCESS BY CUSTOMERS. Licensor will permit and facilitate Customers to: (a) have access to the Software through Licensee's Website; and (b) download and install the Downloadable Software on Customers' computers. 4.5 FINANCIAL TRANSACTIONS AND BINGO TOURNAMENT PARTICIPATION. As part of the Software, Licensor will provide Licensee and Sublicensees a financial transaction processing and Bingo Tournament participation system to allow: (a) Customers to deposit, through the use of credit cards, debit cards, cheques, cash, or any other method of payment, the Customer Payments, to convert the same into Customer Credits at the Conversion Ratio, and vice versa, to receive payment of the converted amount of Customer Credits and to obtain detailed reports on the status of transactions involving Customer Payments and Customer Credits; (b) Customers to gain access to and participate in Bingo Tournaments in accordance with the Rules and Regulations; and (c) Licensee and Sublicensees to collect, directly or through a Software administrator, Network Maintenance Fees, to monitor and administer the collection and distribution of Tournament Entrance Fees, to pay License Fees, Service Fees, Sublicense Fees, and Sublicensee Service Fees, and to obtain detailed transaction reports on Customer Payments, Customer Credits, Network Maintenance Fees, License Fees, Service Fees, Sublicense Fees, and Sublicensee Service Fees. 4.6 SUPPORT OBLIGATIONS OF LICENSOR. Licensor will, during the License Term, provide the following support at no additional cost to Licensee or Sublicensees: (a) Licensor will use commercial best efforts to create, acquire or develop new Upgrades or Documentation that will implement, facilitate and support the effective, timely and accurate performance of all services which Licensor has agreed to provide herein, and to implement, accommodate and support the Rules and Regulations, and to make all new Upgrades and Documentation immediately available to Licensee; (b) maintain and upgrade its staff and facilities to enable it to carry out its obligations under this Agreement and the Rules and Regulations in the most effective, timely, and accurate manner that is technologically possible; (b) technical assistance to promptly respond to and resolve difficulties encountered by Licensee or Sublicensees with the Software, such assistance to be available by e-mail, telecopier, and telephone facilities 24 hours per day, 7 days per week, 365 days per year; and (c) software programming services to promptly correct errors and overcome problems with the Software, to enhance the effectiveness of the Software and to enable the Software to effectively operate on or be accessed from Licensee's and Sublicensee's computer systems and Websites. Page 8 PART III--OPERATION OF CUSTOMER SERVICE & DATA CENTRE 5. ENGAGEMENT OF LICENSOR 5.1 ENGAGEMENT AND RESPONSIBILITIES. Licensee hereby engages Licensor to operate the customer service centre and data centre for Licensee's Business on the terms and conditions set out in this Agreement. Licensor will be responsible to provide and manage all staff, equipment, and facilities necessary for the operation of: (a) the customer service centre to receive and promptly and effectively reply to and process requests for information and service from present, potential, and future Customers; and (b) the data centre to promptly and accurately process and issue financial, management, and Customer reports for Licensee's Business (in a form and by such deadlines as the Supervisor may reasonably require from time to time) and to issue and process payments of funds to Customers based on converted Customer Credits in accordance with the Rules and Regulations. Licensor hereby accepts the above engagement and agrees to carry out the above duties and responsibilities in accordance with this Agreement and the reasonable targets and requirements and directions of Licensee from time to time. Licensor agrees its duties and responsibilities may be reasonably modified, reduced, or increased at Licensee's request from time to time to meet the requirements of Licensee's Business. 5.2 COVENANTS. Licensor will report to the Supervisor. Licensor will comply with all lawful instructions and directions given by Licensee. Licensor will not represent itself as being a partner of Licensee nor as having any proprietary interest in the Licensee's Business or the intellectual property developed by Licensee. Licensor will not commit or purport to commit Licensee to any financial obligation or liability, without the prior approval of the Supervisor. 5.3 INDEPENDENT CONTRACTOR. Licensor is and will be deemed to be an independent contractor and will provide or procure its own office, equipment, and staff to complete its responsibilities and duties under this Part III. Licensor will register and pay applicable employer premiums under Workers Compensation legislation and will pay all income taxes and statutory remittances on payments received from Licensee. Licensor may, at its sole cost and liability, contract with subsidiaries, affiliates, and third parties to provide portions of the services and facilities which Licensor is required to provide under this Part, provided that Licensor will continue to remain responsible for the due performance of its obligations under this Part. 5.4 RENEWABLE SERVICES TERM. Subject to the provisions for termination set forth in this Agreement, the term of Licensee's engagement under this Part (the "Services Term") will be for an initial period of 3 years commencing on the Effective Date. Thereafter, the Services Term may be renewed by mutual written agreement of the parties for successive 3 year periods, until: (a) Licensor's engagement under this Part is terminated by either party in accordance with this Agreement; or, Page 9 (b) either party gives written notice to the other party at least 90 days prior to the end of the initial Services Term or any renewal thereof, that the first party elects not to renew the engagement of Licensor for a further Services Term and following such notice, the engagement of Licensor under this Part will terminate on the last day of the current Services Term. 5.5 SERVICES FOR SUBLICENSEES. Licensor will provide the above-stated services for the operation of a customer service centre and data centre for any Sublicensees appointed by Licensee from time to time. PART IV--COLLECTION & DISTRIBUTION OF CUSTOMER PAYMENTS AND LICENSOR'S CASH ACCOUNTS 6. CUSTOMER PAYMENTS 6.1 LICENSOR'S CASH ACCOUNTS. Licensee authorizes Licensor to establish, maintain or operate one or more Licensor's Cash Accounts for the deposit of Customer Payments and for the withdrawal of payments authorized by this Agreement. When requested by Licensee, Licensor will promptly transfer cash amounts between Licensor's Cash Accounts. Licensor acknowledges and agrees that Licensee will be the sole owner of all Customer Payments made by Customers of Licensee and that all funds deposited into Licensor's Cash Accounts as a result of Customer Payments from Customers of Licensee pursuant to this Agreement and the Rules and Regulations will be held in trust by Licensor for Licensee, subject to the express provisions of this Agreement which entitle Licensor to withdraw interest and fees from Licensor's Cash Accounts. At Licensee's request, Licensor will execute a form of general security interest or other agreement prepared by Licensee's solicitors to confirm Licensee's beneficial ownership of all Customer Payments made by Customers of Licensee, subject to the above mentioned exclusions in favour of Licensor. 6.2 COLLECTION OF CUSTOMER PAYMENTS FOR LICENSEE. Licensee hereby appoints Licensor as its agent to use the Software to collect and record the Customer Payments in a timely and accurate manner. The Customer Payments will be made and retained in US currency. Licensor will deposit the Customer Payments in one or more of Licensor's Cash Accounts. Upon deposit into Licensor's Cash Accounts, all Customer Payments made by Customers of Licensee will be the property of Licensee and will be held in trust by Licensor, provided: (a) all interest earned on the Licensor's Accounts will be for the sole benefit of Licensor (and Licensee hereby waives and disclaims all rights and title to such interest in favour of Licensor) and such interest may be withdrawn from Licensor's Cash Accounts by Licensor at any time; and (b) all fees payable to Licensor pursuant to this Agreement may be withdrawn from Licensor's Cash Accounts by Licensor as and when such fees are due and payable (and Licensee hereby authorizes Licensor to make such withdrawals). Following such deposit, no Customer will have any property rights in Page 10 the Customers Payments or in Licensor's Cash Accounts. Customers' rights will then be limited to the Customer Credits as set out in Article 7 of this Agreement and the Rules and Regulations. Licensor agrees to remit the balance of converted Network Maintenance Fees to Licensee as set out in Article 8 of this Agreement. 6.3 COLLECTION OF CUSTOMER PAYMENTS FOR SUBLICENCEES. Licensor will act as agent for any Sublicensees appointed by Licensee from time to time, to use the Software to collect and record the Customer Payments made by Customers of Sublicensees in a timely and accurate manner. The Customer Payments will be made and retained in US currency. Licensor will deposit the Customer Payments in one or more of Licensor's Cash Accounts. Upon deposit into Licensor's Cash Accounts, all Customer Payments made by Customers of a Sublicensee will be the property of that Sublicensee and will be held in trust by Licensor, provided: (a) all interest earned on the Licensor's Accounts will be for the sole benefit of Licensor (and Licensee will cause Sublicensee to waive and disclaim all rights and title to such interest in favour of Licensor) and such interest may be withdrawn from Licensor's Cash Accounts by Licensor at any time; (b) all fees payable in to Licensor for the Sublicence to this Agreement may be withdrawn from Licensor's Cash Accounts by Licensor as and when such fees are due and payable (and Licensee will cause Sublicensee to authorize Licensor to make such withdrawals). At Licensee's request, Licensor will execute a form of general security interest or other agreement prepared by Licensee's solicitors to confirm a Sublicensee's beneficial ownership of all Customer Payments made by Customers of that Sublicensee, subject to the above mentioned exclusions in favour of Licensor. 6.4 BOOKS AND RECORDS. On the second business day of each month Licensor will issue a transaction statement to Licensee detailing the calculation, collection, and deposit of the Customer Payments and all applicable Licensor's Cash Accounts for the immediately preceding month. If Licensee has appointed Sublicensees, Licensor will issue separate statements for the Customer Payments relating to each Sublicensee's Website. Licensor will maintain books of account and records relating to the Customer Payments and all applicable Licensor's Cash Accounts and will take reasonable measures to ensure that these books and records are accurate. Upon reasonable notice of not less than 10 days, Licensee or a Sublicensee may, at its expense, inspect such books of account and records. If an inspection determines that Licensor has not collected or deposited the correct amount of the Customer Payments collected or deposited, then Licensor will immediately make the necessary adjusting payment. If Licensor has incorrectly collected and deposited Customer Payments by a figure of greater than 0.5% for the period covered by the inspection, then Licensor will bear the cost of that inspection. 6.5 FINANCIAL SERVICE CHARGES AND CHARGE-BACKS. Notwithstanding any other provision of this Agreement, Licensor will bear the cost of all fees, service charges, however described or named, payable to credit card companies, banks, credit unions, trust companies, investment or brokerage firms or financial institutions for the collection, deposit, investment, handling and remittance of Customer Payments and other payments referred to in this Agreement and the operation of Licensor's Cash Accounts. If any Customer Payment that is made by credit card or Page 11 debit card is subsequently reversed by the processing financial institution (referred to as a "charge-back"), then such charge-back will be the responsibility of the Licensee or Sublicensee whose Customer Payment is subject to the charge-back, and Licensor shall be entitled to withdraw the amount of the charge-back from the funds held in trust for the responsible Licensee or Sublicensee in the Licensor's Cash Accounts. 7. CUSTOMER ACCOUNTS 7.1 ESTABLISHMENT OF CUSTOMER ACCOUNTS. Upon receipt of a Customer Payment, Licensor will use the Software to establish a separate account for that Customer. Licensor will use the Conversion Ratio to determine the amount of Customer Credits to be added to that Customer's account in respect of the Customer Payment. Licensor will immediately update and at all times maintain an accurate record of the amount of Customer Credits in a Customer's account, in accordance with the Rules and Regulations and this Agreement. The Software's user interface and the reports issued to Customers and Licensee may, for ease of reference, understanding and operation, show the Customers' accounts in US currency, however, this depiction does not grant the Customers' any rights in the Licensor's Cash Accounts. 7.2 INCREASING CUSTOMER CREDITS. Licensor will increase the amount of Customer Credits in a Customer's account if and to the extent that: (a) the Customer is entitled, under the Rules and Regulations, to receive all or part of the Tournament Entrance Fees for a specific Bingo Tournament; (b) the Customer makes additional Customer Payments; (c) the Customer is entitled, under the Rules and Regulations, to a refund of any Network Maintenance Fees or Tournament Entrance Fees previously paid by the Customer; (d) a third party transfers his or her Customer Credits to the Customer in accordance with the Rules and Regulations; (e) an entry in required to correct one or more errors in the Customer's account; or (f) any other increase is authorized under the Rules and Regulations. 7.3 DECREASING CUSTOMER CREDITS. Licensor will decrease the amount of Customer Credits in a Customer's account if and to the extent that: (a) the Customer is required, under the Rules and Regulations, to pay Network Maintenance Fees for a specific Bingo Tournament; (b) the Customer, under the Rules and Regulations, elects to pay Tournament Entrance Fees for a specific Bingo Tournament; (c) the Customer demands conversion of the Customer Credits Page 12 in his or her account and payment of the converted Customer Credits to the Customer's credit card or other account; (d) the Customer transfers his or her credits to a third party in accordance with the Rules and Regulations; (e) an entry is required to correct one or more errors in the Customer's account; or (f) any other deduction is authorized under the Rules and Regulations. Using the Software, Licensor will initiate and record prior notice to the Customer of each proposed decrease in the amount of Customer Credits and enable the Customer to record his or her approval of such decrease by sending the appropriate command through the Software. 7.4 CONVERSION AND WITHDRAWAL OF CUSTOMER CREDITS. At any time, a Customer of a Licensee or Sublicensee may authorize the conversion and withdrawal of the Customer Credits, or a portion of the Customer Credits, remaining in the Customer's account. Upon receipt of such authorization, Licensor will immediately use the Software to decrease the Customer's account by the requested amount of Customer Credits (up to the remaining Customer Credits available), and to convert the applicable credits into US currency according to the Conversion Ratio, and immediately withdraw and remit the converted amount of Customer Credits in US currency from funds held in trust in Licensor's Cash Accounts for Licensee or Sublicensee, as the case may be, to the Customer's credit card or other account in accordance with the Rules and Regulations, and any applicable national, federal, state, provincial, municipal, or other laws. 7.5 CUSTOMER ACCOUNT RECORDS. Upon a request by a Customer, Licensor will, using the Software, immediately provide that Customer with an accurate transaction record of that Customer's account, which will display the amount of Customer Credits in that Customer's account, the amount of Network Maintenance Fees and Tournament Entrance Fees paid by that Customer, the amount of Tournament Entrance Fees deposited to that Customer's account for winning a Bingo Tournament as defined in the Rules and Regulations, the total deposits made to that Customer's account, and the total withdrawals from the account made by that Customer. Licensor will provide this report in a secure, confidential electronic form on Licensee's or Sublicensee's Website, in a format suitable for downloading by that Customer via the Internet. 8. NETWORK MAINTENANCE FEES, LICENSE FEES, SERVICE FEES, SUBLICENSE FEES, SUBLICENSEE SERVICE FEES, INTIAL SETUP FEE AND SUBLICENSEE INITIALIZATION FEE 8.1 NETWORK MAINTENANCE FEES. Licensee will be the sole owner of all Network Maintenance Fees paid by Customers of Licensee and each Sublicensee will be the sole owner of all Network Maintenance Fees paid by Customers of that Sublicensee, regardless of the place, account, or manner in which the Network Maintenance Fees are collected, stored, recorded, deposited, or held. 8.2 COLLECTION OF NETWORK MAINTENANCE FEES. Using the Software, Licensor will deduct and collect the Network Maintenance Fees from the Page 13 Customers' accounts on behalf of Licensee and Sublicensees. The Network Maintenance Fees will be initially expressed in Customer Credits and will be recorded in separate accounts for Licensee and each Sublicensee. At the end of each month Licensor will use the Conversion Ratio to convert the Network Maintenance Fees in Licensee's and Sublicensees' accounts into US currency. Until paid to Licensee or Sublicensees, Licensor will hold the converted Network Maintenance Fees in trust for Licensee or Sublicensees in a separate account at an Approved Financial Institution, with interest accruing on this account for the benefit of Licensor. 8.3 LICENSE FEES AND SUBLICENSE FEES. As consideration for the grant of license and rights by Licensor and for the issuance of the warranties and representations by Licensor, Licensee hereby agrees to pay, or will direct its Software administrator to pay, to Licensor the applicable License Fees. Licensee will pay only one set of License Fees regardless of the number of computer systems or servers that the Software is installed on or utilized in the course of Licensee's Business. Licensee will pay, or will direct its Software administrator to pay, Sublicense Fees for each sublicense granted by Licensee. 8.4 MINIMUM MONTHLY LICENSE FEE. Commencing on the Effective Date, Licensee will pay Licensor a minimum monthly license fee of $60,000 for each complete calendar month, inclusive of License Fees and Sublicense Fees payable for that month. The amount by which the minimum monthly license fees for a completed calendar month exceeds the License Fees and all Sublicense Fees paid for that month, if any, will be paid by Licensee to Licensor within 14 days of the last day of that month. 8.5 SERVICE FEES AND SUBLICENSEE SERVICE FEES. Licensee will pay, or will direct its Software administrator to pay, Service Fees to Licensor. The Service Fees will be calculated for each calendar month and paid to Licensor within 14 days after the end of the applicable calendar month. Licensee will pay, or will direct its Software administrator to pay, Sublicensee Service Fees for each sublicense granted by Licensee. 8.6 MINIMUM MONTHLY SERVICE FEE. Commencing on the Effective Date, Licensee will pay a minimum monthly service fee of $18,000 for each complete calendar month, inclusive of the Service Fees and Sublicensee Service Fees payable for that month. The amount by which the minimum monthly service fees for a completed calendar month exceeds the Service Fees and all Sublicensee Service Fees for that calendar month will be paid by Licensee to Licensor within 14 days after the end of the calendar month. 8.7 INITIAL SETUP FEE AND SUBLICENSEE INITIALIZATION FEES. Licensee will pay Licensor the Initial Setup Fee as the one-time consideration for services rendered by Licensor to initialize and make the Software accessible for use by Licensee and its Customers. The Initial Setup Fee will be due and payable on the date the Software is first initialized and made accessible for use by Licensee and its Customers. Licensee will pay Licensor a one-time Sublicensee Initialization Fee for each Sublicensee appointed by Licensee, payable on the date the Software is first initialized for the Sublicensee and its Customers. 8.8 TAXES. The Initial Setup Fee, and all License Fees, Service Fees, Sublicense Fees, Sublicensee Service Fees and Sublicensee Initializations Fees will be subject to all laws and regulations now or hereafter in existence requiring the deduction or withholding of payment for income or other taxes and duties payable by or assessable against Licensor. Licensee will have the right to make such deductions and withholdings and to remit the same to the government or agency Page 14 concerned and such action will fulfill Licensee's obligation to pay the applicable amount of License Fees, Service Fees, Sublicense Fees, Sublicensee Service Fees and Sublicensee Initialization Fees to Licensor. Licensor will indemnify and save Licensee harmless from all such taxes and duties. 8.9 REMITTANCE OF CONVERTED NETWORK MAINTENANCE FEES. Within 14 calendar days after the end of each calendar month, commencing 30 days after the Effective Date, Licensor will remit from Licensor's Cash Accounts; (a) to Licensor, or as Licensor directs, the Initial Setup Fee and all applicable License Fees, Service Fees, Sublicense Fees, Sublicensee Service Fees and Sublicensee Initialization Fees, less Withholding for the preceding month subject to any adjustments or reconciliation payments required from time to time pursuant to this Agreement; (b) to Licensee, or as Licensee directs, the balance of the converted Network Maintenance Fees paid by Customers of Licensee for the preceding calendar month, less the Initial Setup Fee and applicable License Fees, Service Fees, and Withholding on the aforesaid fees, and adjustments or reconciliation payments required from time to time pursuant to this Agreement; and (c) to each Sublicensee, or as that Sublicensee directs, the balance of the converted Network Maintenance Fees paid by Customers of that Sublicensee for the preceding calendar month, less the Sublicensee Initialization Fee, Sublicense Fees, Sublicensee Service Fees and Witholding on the aforesaid fees, and adjustments or reconciliation payments required from time to time pursuant to this Agreement. 8.10 BOOKS AND RECORDS. Licensor will issue a monthly statement detailing the calculation and payment of Network Maintenance Fees, License Fees, Service Fees, Sublicense Fees and Sublicensee Service Fees to accompany each payment of converted Network Maintenance Fees to Licensee. If Licensee has appointed Sublicensees, Licensor will issue separate statements and payments for the Network Maintenance Fees, Sublicense Fees, and Sublicensee Service Fees relating to each Sublicensee's Website. This statement will be conclusive as to the contents thereof, except for manifest errors and omissions. Licensor will maintain books of account and records relating to Network Maintenance Fees, License Fees, Service Fees, Sublicense Fees and Sublicensee Fees and will take reasonable measures to ensure that these books and records are accurate. Upon reasonable notice of not less than 10 days, Licensee or Sublicensee may, at its expense, inspect such books of account and records. If an inspection determines that Licensor has not paid the correct amount of Network Maintenance Fees, License Fees, Service Fees, Sublicense Fees, or Sublicensee Service Fees, then the parties will make the necessary adjusting payment within 14 calendar days after such determination. If Licensor has underpaid the correct amount of the Network Maintenance Fees, or overpaid the correct amount of License Fees, Service Fees, Sublicense Fees, or Sublicense Service Fees, by more than 2%, then Licensor will bear the cost of the inspection. 8.11 INTEREST ON OVERDUE PAYMENTS. Licensor will pay to Licensee or Sublicensee, as the case may be, interest at the rate of 2% per month, compounded monthly, on all payments of funds due and owing to Licensee or Sublicensee under this Agreement and which have become overdue. Page 15 Interest will accrue at the aforesaid rate on a daily basis until the outstanding payments have been made. 8.12 PRE-CONDITION TO WITHDRAWAL OF FEES. Notwithstanding any other provision of this Agreement, Licensor will not be entitled to withdraw any fees or payments from Licensor's Cash Accounts if Licensor is in default of its obligations or breach of its warranties and representations under this Agreement. 9. TOURNAMENT ENTRANCE FEES 9.1 COLLECTION OF TOURNAMENT ENTRANCE FEES. Using the Software, Licensor will deduct and collect the Tournament Entrance Fees from Customers' accounts. The Tournament Entrance Fees will be initially expressed in Customer Credits and will be recorded in a separate account for the applicable Bingo Tournament. 9.2 DISTRIBUTION OF TOURNAMENT ENTRANCE FEES. Upon completion of each Bingo Tournament, Licensor will cause the collected Tournament Entrance Fees to be distributed to Customers, in accordance with the Rules and Regulations. Nothing in this Agreement gives Licensee, Licensor, or any Sublicensee any property in or rights to the Tournament Entrance Fees, and no part of the Tournament Entrance Fees will be distributed to Licensee, Licensor, or any Sublicensee. 9.3 BOOKS AND RECORDS. On the second business day of each month Licensor will issue a statement to Licensee detailing the collection, calculation and distribution of the Tournament Entrance Fees for the immediately preceding month. Licensor will maintain books of account and records relating to the Tournament Entrance Fees and will take reasonable measures to ensure that these books and records are accurate. Upon reasonable notice of not less than 10 days, Licensee or a Sublicensee may, at its expense, inspect such books of account and records. If an inspection determines that Licensor has not collected or distributed the correct amount of the Tournament Entrance Fees, then Licensor will immediately make the necessary adjusting payment to the Customers suffering an underpayment. If Licensor has overpaid or underpaid out the Tournament Entrance Fees to Customers by a figure of greater than 0.5% for the period covered by the inspection, then Licensor will bear the cost of that inspection. If Licensee has appointed a Sublicensee or Sublicensees, then Licensor will issue separate statements for the Tournament Entrance Fees relating to each Sublicensee's Website. PART V--CONFIDENTIAL, CUSTOMER, & PROPRIETARY INFORMATION 10. CONFIDENTIALITY 10.1 LICENSOR'S CONFIDENTIAL INFORMATION. The Software, the Documentation, and any other source code, computer program listings, techniques, algorithms, and processes and technical and marketing plans or other sensitive business information, including all materials containing said information, which are supplied by Licensor to Licensee is the confidential information of Licensor (the "Licensor's Confidential Information"). 10.2 RESTRICTIONS ON USE. Licensee agrees that, except as allowed under this Agreement or as authorized in writing by Licensor, Licensee will: Page 16 (a) preserve and protect the confidentiality of all of the Licensor's Confidential Information; (b) not disclose to any third party the existence, source, content, or substance of the Licensor's Confidential Information or make copies of the Licensor's Confidential Information; (c) not deliver any of the Licensor's Confidential Information to any third party, or permit the Licensor's Confidential Information to be removed from Licensee's premises; (d) not use any of the Licensor's Confidential Information in any way other than as provided in this Agreement; and (e) not disclose, use, or copy any third-party information or materials received in confidence by Licensee for the purposes of this Agreement. 10.3 LIMITATIONS. Information is not considered to be the Licensor's Confidential Information if Licensee can demonstrate that it: (a) is already or otherwise becomes publicly known through no act of Licensee; (b) is lawfully received from third parties subject to no restriction of confidentiality; (c) can be shown by Licensee to have been independently developed by it without the use of the Licensor's Confidential Information; (d) is required or authorized by applicable law, regulation, or by administrative, quasi-judicial, or judicial order or decree to be disclosed; or (e) is authorized in writing by Licensor to be disclosed, copied, or used. 10.4 LICENSEE'S CONFIDENTIAL INFORMATION. The Customer Information, all information, data, specifications, documentation, and software listings relating to Licensee's Business, and any other source code, computer program listings, techniques, algorithms, and processes and technical and marketing plans or other sensitive business information, including all materials containing said information, which Licensee may from time to time disclose or impart to Licensor is the confidential information of Licensee (the "Licensee's Confidential Information"). 10.5 RESTRICTIONS ON USE. Licensor agrees that, except as authorized in writing by Licensee, Licensor will: (a) preserve and protect the confidentiality of all of the Licensee's Confidential Information; (b) not disclose to any third party the existence, source, content, or substance of the Licensee's Confidential Information or make copies of the Licensee's Confidential Information; Page 17 (c) not deliver any of the Licensee's Confidential Information to any third party, or permit the Licensee's Confidential Information to be removed from Licensor's premises; (d) not use any of the Licensee's Confidential Information in any way other than as provided in this Agreement; (e) not disclose, use, or copy any third party information or materials received in confidence by Licensor for the purposes of this Agreement; and (f) require that each of its employees who work on or have access to the materials that are the subject of this Agreement sign a suitable confidentiality and work-for-hire/ assignment agreement and be advised of the confidentiality and other applicable provisions of this Agreement. 10.6 LIMITATIONS. Information is not considered to be the Licensee's Confidential Information if Licensor can demonstrate that it: (a) is already or otherwise becomes publicly known through no act of Licensor; (b) is lawfully received from third parties subject to no restriction of confidentiality; (c) can be shown by Licensor to have been independently developed by it without the use of the Licensee's Confidential Information; (d) is required or authorized by applicable law, regulation, or by administrative, quasi-judicial, or judicial order or decree to be disclosed; or (e) is authorized in writing by Licensee to be disclosed, copied, or used. 10.7 LICENSEE REPORTS. Licensor will ensure that all reports and statements to be provided to Licensee or Sublicensees by the Software are in a secure, confidential electronic form in a format suitable for downloading by Licensee or Sublicensees via the Internet. 11. CUSTOMER INFORMATION 11.1 Customer Information. Licensor acknowledges and confirms that Licensee holds all right, title, and interest in the Customer Information. Nothing in this Agreement gives Licensor any property or interest in the Customer Information. Licensor will preserve, safeguard, and not disclose to any third party any Customer Information that Licensor may be in possession of. Licensor may use the Customer Information to further the interests of the Licensee's Business. 11.2 CUSTOMER REPORTS. Nothing in this Agreement restricts Licensor from recording, storing, manipulating, and extracting Customer Information solely for the purpose of producing the Customer reports described in Part III. Page 18 12. TRADEMARKS 12.1 RIGHT TO USE. Further to the rights granted to Licensee by Licensor, Licensor hereby grants to Licensee and Sublicensees the right to use and display Trademarks solely to the extent reasonably necessary to disclose to third parties Licensee's rights to use the Software and Licensor's ownership interest in the Software and Documentation. Licensee will display the Licensor's trademarks on Licensee's and Sublicensee's Websites in a manner as agreed between the parties. 13. NON-DISCLOSURE 13.1 NON-DISCLOSURE. Neither party will disclose any of the terms of this Agreement to any third party without first obtaining the consent of the other party, save and except where such disclosure is required or authorized by applicable law, regulation, or by administrative, quasi-judicial, or judicial order or decree to be disclosed. PART VI--WARRANTIES & INDEMNITY 14. WARRANTIES AND INDEMNITY 14.1 GENERAL WARRANTIES. Licensor warrants as follows: (a) during the Warranty Period the media containing each portion of the Software and the Downloadable Software (except for modifications made by Licensee) will, under normal use, be free of defects in materials and workmanship, the Software and the Downloadable Software will operate and perform in accordance with the Specifications and the Documentation, and the media containing the Software and the Downloadable Software will allow the Licensee to replicate the Software and the Downloadable Software; (b) Licensor is the sole and exclusive owner of all rights, whether registered or unregistered, in the Software, the Downloadable Software, and the Documentation; (c) the Software and the Downloadable Software are not subject to any restriction or to any mortgages, liens, pledges, charges, security interests, encumbrances, or claims or to any rights of others or any kind or nature whatsoever which may prevent, or may be breached by, the grant of license and rights to the Licensee; (d) the Software, the Downloadable Software, and the Documentation do not encroach or infringe upon or misappropriate any copyrights, trademarks, trade secrets, or any other proprietary or contractual rights of third parties; (e) Licensor has not entered into any agreement or arrangement of any kind whatsoever which may have any restricting affect upon Licensor's rights and authority to grant the license and rights to Licensee; (f) Licensor has not entered into any agreement or arrangement of any kind whatsoever which may have any restricting affect upon Licensor's rights and ability to carry out its responsibilities under this Agreement; Page 19 (g) Licensor will not, for the duration of the License Term, provide any management or financial services or support to any third parties conducting business competitive to the Licensee's Business, other than Sublicensees that propose to operate or acquire an internet portal to host bingo tournaments and competitions as conducted by Licensee from time to time; (h) Licensor will use best commercial efforts to promote and serve the best interests of Licensee and Sublicensees; (i) Licensor will provide to all Sublicensees appointed by Licensee from time to time the services and facilities required to be provided to Licensee pursuant to this Agreement, subject to such enhancements or limitations as Licensee may require; (j) Licensor will not interfere with or interrupt the contractual relationship between Licensee and its Sublicensees; and (i) the execution, delivery, and the performance and completion of this Agreement by Licensor have been duly authorized by all necessary corporate resolutions of the directors and shareholders of Licensor, as necessary, and the terms of this Agreement are valid and binding obligations of Licensor. 14.2 INDEMNITY AND LIMITATION OF LICENSOR'S LIABILITY. Licensor agrees to indemnify, hold harmless, and defend Licensee and its Sublicensees, directors, officers, employees, and agents from and against all claims, defence costs (including reasonable attorney's fees and disbursements), judgments, and other expenses arising out of or on account of such claims, including without limitation claims of: (a) alleged infringement or violation of any trademark, copyright, trade secret, right of publicity or privacy (including but not limited to defamation), patent, or other proprietary right with respect to the Software or Documentation as delivered to Licensee; (b) any use of confidential or proprietary information or trade secrets Licensor has obtained from sources other than Licensee; (c) any misrepresentation or breach of warranty by Licensor or any negligent act, omission, or breach of Licensor in the performance of this Agreement (and for greater certainty, the failure of Licensor to provide a Sublicensee the services and facilities contemplated in this Agreement or a breach of warranty or misrepresentation by Licensor to a Sublicensee shall constitute a breach by Licensor of this Agreement); and (d) Licensor's failure to comply with federal, provincial, state, or local law. Licensee agrees that Licensor's maximum aggregate liability under this Section will be limited to the lesser of (i) $5,000,000 and (ii) the aggregate amount of the Initial Setup Fee and all License Fees, Service Fees, Sublicense Fees and Sublicensee Service Fees paid or payable by Licensee during the term of this Agreement and the term of Licensor's Page 20 engagement under Part III. Any claim for indemnity by Licensee under this Section must be initiated or documented in writing prior to the second anniversary of the date on which Licensee first becomes aware of circumstances which entitle Licensee to claim financial recovery from Licensor under this Section. This Section will survive termination of this Agreement or any Part of this Agreement. PART VII--CANCELLATION, TERMINATION, & DISPUTE RESOLUTION 15. CANCELLATION AND TERMINATION 15.1 CANCELLATION. If Licensee does not pay the License Fees, the Service Fees, the Sublicense Fees or the Sublicensee Services Fees (if the Sublicense Fees or Sublicensee Service Fees are applicable at a given time), then Licensor may cancel this Agreement and thereafter neither party will have any liability or obligation to the other in respect of the matters set out in this Agreement. 15.2 TERMINATION. A party may terminate this Agreement by issuing notice in writing to the other party, if any of the following events occurs: (a) the other party is in breach of any provision of this Agreement and fails to cure such breach within 14 days after notice of such breach is received; (b) the other party is subject to voluntary or involuntary proceedings which may lead to the dissolution or winding up of its corporate existence, to a declaration of bankruptcy or insolvency against it, to the appointment of a receiver or receiver-manager in respect of its assets or to the assignment of its assets for the benefit of one or more of its secured or unsecured creditors; or (c) the other party ceases to carry on business in the ordinary course. 15.3 TERMINATION FOR CONVENIENCE. Licensee or Licensor may at any time terminate Licensor's engagement under Part III, on 3 months written notice. 15.4 ADDITIONAL RIGHT OF TERMINATION BY LICENSEE. In addition to Sections 15.2 and 15.3, Licensee may immediately terminate Licensor's engagement under Part III of this Agreement at any time by providing written notice to Licensor if Licensee has reasonable grounds to believe Licensor has committed an act of fraud or dishonesty in the course of its engagement under Part III, whether or not such act has resulted in actual loss or damage to Licensee. 15.5 EFFECTS. Upon cancellation or termination of this Agreement, the parties will remain liable to each other for any defaults that occurred prior to the cancellation or termination. Licensee and all Sublicensees will immediately cease using the Software and Documentation and return all copies of the Software and Documentation, and the Licensor's Confidential Information, to Licensor. Licensor will immediately return all of the Licensee's Confidential Information, including the Customer Information, to Licensee. Licensor will, at Licensee's direction, continue to perform its obligations and duties under this Agreement to the date of termination and will cooperate fully with Licensee to ensure that other staff or contractors of Licensee become familiar with the content and status of the services and responsibilities assigned to Licensor. Page 21 16. DISPUTE RESOLUTION AND GOVERNING LAW 16.1 ARBITRATION. The parties agree to submit any dispute arising out of or in connection with this Agreement to binding arbitration in Vancouver, British Columbia before a single arbitrator, appointed by agreement of the parties (or, if they are unable to reach agreement within 21 calendar days, appointed by a justice of the British Columbia Supreme Court) pursuant to the provisions of this Section, and to the extent not inconsistent with this Agreement, the Commercial Arbitration Act (British Columbia), the International Commercial Arbitration Act (British Columbia), and the Rules of the British Columbia International Commercial Arbitration Centre. The parties agree that such arbitration will be in lieu of either party's rights to assert any claim, demand, or suit in any court action, provided that either party may elect either binding arbitration or a court action with respect to a breach by the other party of such party's proprietary rights, including without limitation any trade secrets, copyrights, or trademarks. Any arbitration will be final and binding and the arbitrator's order will be enforceable in any court of competent jurisdiction. 16.2 GOVERNING LAW AND VENUE. The validity, construction, and performance of this Agreement will be governed by the laws of British Columbia, and the applicable laws of Canada, and, subject to Section 16.1, all claims and lawsuits, or either, in connection with this Agreement must be brought in the courts of British Columbia. PART VIII--GENERAL PROVISIONS 17. GENERAL 17.1 ENTIRE AGREEMENT, MODIFICATION, AND WAIVER. The Agreement, including the recitals and schedules, constitutes the entire agreement between the parties and replaces and supersedes any and all representations, negotiations, or agreements previously existing between the parties. This Agreement may only be modified by the prior written approval of a duly authorized representative of each party. The failure by Licensee or Licensor to enforce at any time, or for any period of time, the provisions of this Agreement, will not be interpreted to be a waiver of the right of either party to enforce any such provision. 17.2 NOTICES. All notices or demands under this Agreement will be via messenger, overnight delivery services, telecopier, or mail to the address of the receiving party specified on page one, above, and will be deemed complete upon receipt. 17.3 ASSIGNMENT. Licensee or Licensor may assign or subcontract this Agreement or any of their respective rights and obligations under this Agreement, or any Part of this Agreement, to another person or entity, upon giving the other party 14 days advance notice, which notice will include the name of the proposed assignee or subcontractor. Despite the foregoing, no such assignment or subcontract will operate to release either Licensee or Licensor from responsibility for the due performance of its obligations under this Agreement. The terms of this Agreement will be fully binding upon, enure to the benefit of, and be enforceable by the parties and their respective successors and permitted assigns. 17.4 INJUNCTIVE RELIEF. It is understood and agreed that a breach of any Page 22 provision of this Agreement by either party may cause the other irreparable harm for which recovery of money damages would be inadequate and that either party will therefore be entitled to obtain timely injunctive relief to protect its rights under this Agreement in addition to any and all remedies at law. 17.5 TIME OF THE ESSENCE. Time is of the essence in this Agreement and all obligations of the parties under this Agreement. 17.6 FURTHER ASSURANCES. The parties agree to do all such further acts and execute such further documents as may be reasonably necessary to effectively carry out the terms and intent of this Agreement and to assure to Licensee all of the rights and privileges in the Software and the Documentation. 17.7 PUBLIC DISCLOSURE. Licensor and Licensee are, or will become, either a reporting issuer or controlled by a reporting issuer. Accordingly, each party will have the right, notwithstanding any other provision contained in this Agreement, to make such public disclosure relating to this Agreement and Licensee's use of and rights in the Software as may be required to comply with Licensor's and Licensee's obligations to make full disclosure of its affairs to the public and to regulatory and stock exchange officials. 17.8 SEVERABILITY. If any of the terms or provisions of this Agreement are determined to be invalid, unlawful, or unenforceable to any extent, such term or provision will be severed from the remaining terms and provisions which will continue to be valid to the fullest extent permitted by law. 17.9 COUNTERPARTS. This Agreement may be executed and delivered in counterparts and by telecopier with the same effect as if the parties had concurrently executed and delivered the same original copy of this Agreement. 17.10 FORCE MAJEURE. Neither party will be held responsible for damages caused by any delay or default due to any contingency beyond its control preventing or interfering with its performance under this Agreement. 17.11 NO THIRD PARTY RIGHTS. This Agreement is not for the benefit of any third party, and will not be considered to grant any remedy to any third party whether or not referred to in this Agreement. Page 23 17.12 AGENCY. The parties are separate and independent legal entities. Except as expressly set out herein, this Agreement will not constitute either Licensee or Licensor as an agent, representative, partner, joint venturer, or employee of the other party for any purpose. Neither party has the authority to bind the other or to incur any liability on behalf of the other, nor to direct the employees of the other. TO EVIDENCE THEIR AGREEMENT, the parties have executed this Agreement as of the date written on page one, above. Accepted and Agreed by Licensee: Accepted and Agreed by Licensor: BINGO.COM (CANADA) ENTERPRISES INC. CYOP SYSTEMS INC. by: by: ----------------------------------- -------------------------------- Authorized Signatory Authorized Signatory by: by: ----------------------------------- -------------------------------- Authorized Signatory Authorized Signatory WE HAVE AUTHORITY TO BIND THE WE HAVE AUTHORITY TO BIND THE CORPORATION CORPORATION SCHEDULE A List of Approved Financial Institutions. CIBC HSBC Bank of Canada Royal Bank of Canada Scotia Bank (Bank of Nova Scotia) TD Canada Trust SCHEDULE B BINGO.COM, INC. PLAY4PAY SKILL-BINGO This page states the Terms and Conditions under which you may use any PAY-TO-PLAY web site operated by or for Bingo.com, Inc. (the "Web Site"). Please read these Terms and Conditions of Use for the Web Site (the "Terms and Conditions") carefully. Any use of the Web Site will constitute your acceptance of and be subject to these Terms and Conditions. If you do not accept the Terms and Conditions stated here, please refrain from using the Web Site. Bingo.com, Inc. (the "Company") may revise these Terms and Conditions at any time by updating this posting. You should visit this page periodically to review the Terms and Conditions, because they are binding on you. SECTION 1. PAY-TO-PLAY TRANSACTIONS. All financial transactions relating to the Web Site are handled and processed by CYOP Systems, Inc. ("CYOP") under contract with the Company. You agree that CYOP will be solely responsible for the proper handling of and accounting for all funds involved in such transactions, including compliance with all applicable laws and regulations, and the Company shall not in any event whatsoever be liable to you, and you hereby release any claim and agree to indemnify the Company, for any loss or damage relating to or arising from any default or negligence of CYOP. You will ensure that only the authorized user of a credit card will enter information for or use that credit card for any transaction relating to the Web Site on your account. You will be liable, jointly and severally with the authorized user of the credit card, for any charges to any credit card used on your account, and for any harm or charges that result from any unauthorized use by any person of any credit card on your account, including termination of your account. The user of a credit card on your account will be asked to agree to, and reaffirm, any charges that CYOP will make to the credit card. The user's agreement to and reaffirmation of those charges constitutes your representation and warranty to the Company and CYOP that you have authority to use that credit card, agree to be liable for the reaffirmed charges, and authorize CYOP to charge that credit card. You agree to promptly notify CYOP and the Company of any changes to any entered credit card information including, without limitation, account number, expiration date, or billing address. You also agree to immediately notify CYOP and the Company if an entered credit card expires, is stolen, or is cancelled for any reason. You may access your account information with ease and in a timely fashion, upon compliance with any applicable identification requirements. You may credit winnings back to your credit card up to the same amount of the initial charge at any time prior to settlement of that charge by the credit card issuer. CYOP will send to you by cheque at your entered billing address any winnings above the initial charge. There will be an additional service fee for this service. The Company may at any time issue a warning, temporarily suspend, indefinitely suspend or terminate your membership account, or pursue any other remedies that may be available to the Company, if you breach this agreement. These conditions also apply to situations in which required member information cannot be verified or authenticated. You hereby grant to the Company a security interest in any Page 26 funds that may be in your account from time to time to secure your obligations hereunder, and you agree to sign such documents and provide such further assurances as the Company may request to confirm and enforce that security interest. Members whose accounts have been terminated may not access any member services in any manner for any reason without the express prior written consent of the Company. Active members may not knowingly allow any user whose membership has been terminated to use the active member's account, User ID, or password. SECTION 2. COMPANY'S LIABILITY. The Company makes no claims that the Web Site or the Materials it presents are appropriate or may be lawfully accessed, used or downloaded in the jurisdiction in which you are located. Access to the Materials may not be legal by certain persons or in certain jurisdictions. Your access to the Web Site is at your own risk and you are responsible for compliance with the laws of your jurisdiction. The Material may contain inaccuracies or typographical errors. The Company makes no representations about the accuracy, reliability, completeness or timeliness of the Material or about the results to be obtained from the Web Site or the Material. Use of the Web Site or the Material is at your own risk. Changes are periodically made to the Web Site and may be made at any time. THE COMPANY DOES NOT WARRANT THAT THE WEB SITE WILL OPERATE ERROR-FREE OR THAT THE WEB SITE AND ITS SERVER ARE FREE OF COMPUTER VIRUSES OR OTHER HARMFUL CONTENT. IF YOUR USE OF THE WEB SITE OR THE MATERIAL RESULTS IN THE NEED FOR SERVICING OR REPLACING EQUIPMENT OR DATA, THE COMPANY IS NOT RESPONSIBLE FOR THOSE COSTS. THE WEB SITE AND MATERIAL ARE PROVIDED ON AN "AS IS" BASIS WITHOUT ANY CONDITIONS OR WARRANTIES OF ANY KIND. TO THE FULLEST EXTENT PERMITTED BY LAW, THE COMPANY DISCLAIMS AND YOU HEREBY WAIVE ALL EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY CONDITION OR WARRANTY OF MERCHANTABILITY, DURABILITY, COMPATIBILITY, NON-INFRINGEMENT OF THIRD PARTIES' RIGHTS OR FITNESS FOR A PARTICULAR PURPOSE. THE COMPANY MAKES NO WARRANTIES ABOUT THE ACCURACY, RELIABILITY, COMPLETENESS, OPERATION OR TIMELINESS OF THE MATERIAL, SERVICES, TEXT, GRAPHICS, PHOTOGRAPHS OR LINKS CONTAINED IN THE WEB SITE. SECTION 3. LIABILITY LIMITATIONS. IN NO EVENT SHALL THE COMPANY OR ANY THIRD PARTIES MENTIONED AT THE WEB SITE BE LIABLE FOR ANY DAMAGES WHATSOEVER (INCLUDING WITHOUT LIMITATION ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR DAMAGES RESULTING FROM LOST DATA OR BUSINESS INTERRUPTION) RESULTING FROM ANY USE OF OR INABILITY TO USE THE WEB SITE OR THE MATERIAL, REGARDLESS OF WHETHER BASED ON WARRANTY, CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR ANY OTHER LEGAL THEORY, AND WHETHER THE COMPANY IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. YOU AGREE THAT THE LIABILITY OF THE COMPANY AND ANY PARENT, SUBSIDIARIES, ASSOCIATED OR AFFILIATED COMPANIES AND THEIR RESPECTIVE DIRECTORS, OFFICERS, Page 27 AGENTS AND EMPLOYEES, FOR ALL CLAIMS ARISING FROM OR RELATING TO THE WEB SITE, THE MATERIAL OR THE USE THEREOF, AND WHETHER ARISING OUT OF CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR ANY OTHER LEGAL THEORY, SHALL NOT EXCEED IN CUMULATIVE AGGREGATE THE AMOUNT OF US$100. No action, regardless of form, arising from or relating to the Web Site, the Material or the use thereof, may be brought by you against the Company more than SIX MONTHS after the cause of action has arisen. SECTION 4. USE OF MATERIAL. The contents of the Web Site, including without limitation the text, graphics, photographs, images, software and other material ("Material"), are protected by copyright under both United States and foreign laws. Downloading, digitization, input, storage and printing of protected works all constitute acts of reproduction under copyright law. Unauthorized use of the Material will violate copyright, trade-mark and other laws. Except as expressly provided herein, you may not use, download, upload, copy, print, display, perform, record, copy, reproduce, publish, license, post, transmit or distribute any information, data, software code, documents, text, photographs, images, graphics, audio or video from the Web Site in whole or in part without the prior written permission of Bingo.com, Inc. The Company authorizes you to view and download a single copy of the Material on the Web Site only to the extent necessary for you to use the Web Site strictly in accordance with these Terms and Conditions and solely for your personal, non-commercial use. You must retain all copyright and other proprietary notices contained in the original Material on any copy you make of the Material. You may not sell or modify the Material or reproduce, display, publicly perform, distribute or otherwise use the Material in any way for any public or commercial purpose. BINGO.COM and other related marks, names, slogans, logotypes and logos set forth on the Web Site are trade-marks or service marks of the Company. Any other company, product, trade or service names set forth on the Web Site are used for identification purposes only and may be trade-marks of their respective owners. These Terms and Conditions do not authorize you to use any trade-marks or services marks of the Company or of any other party. You may not use any device, software, or routine to interfere or attempt to interfere with the normal operation of the Web Site, or any transactions conducted through the Web Site If you violate any of these Terms and Conditions, your permission to use the Material automatically terminates, you must immediately destroy any copies you have made of the Material and you will be liable to the Company for any damage associated with the violation. SECTION 5. USER SUBMISSIONS. You may not give false information or intentionally hide required information at the time of registration. Upon registration, you must choose a User ID to represent yourself to others, and a password. You may not select as a User ID the name of another person, or a name that violates trade-mark, copyright, or other proprietary right. You are entirely responsible for maintaining the confidentiality of your password. You are liable for all activities conducted through your User ID, and any consequences and charges that arise from such use, including any use resulting from any disclosure of your password. You are hereby Page 28 warned that no staff member of Bingo.com is permitted to ask for your password online. Although your internet service may allow a feature that `remembers' a password, use of this feature is strongly discouraged as it may make it possible for third parties to access your User ID and account. Generally, any communication that you post to the Web Site is considered to be non-confidential. If particular Web Site pages permit the submission of communications which will be treated by the Company as confidential, that fact will be stated in the Company's Privacy Policy. By posting communications to the Web Site, you automatically grant the Company a royalty-free, perpetual, irrevocable nonexclusive universe-wide license to use, reproduce, modify, publish, edit, translate, distribute, perform, and display the communication alone or as part of other works in any form, media or technology, whether now known or hereafter developed, and to sublicense such rights. As a user, you are responsible for all communications and are responsible for the consequences of those communications. You must not do or permit any of the following things: post or arrange the exchange of material in which copyright subsists, unless you are the copyright owner or have the permission of the copyright owner to post it; post or arrange the exchange of material that reveals trade secrets, unless you own them or have the permission of the owner; post or arrange the exchange of material that infringes on any other intellectual property rights of others or on the privacy or publicity rights of others; post or arrange the exchange of material that is illegal, obscene, defamatory, threatening, harassing, abusive, hateful, disruptive or embarrassing to another user or any other person or entity; post or arrange the exchange of any sexually-explicit images; post advertisements or solicitations of business; post or arrange the exchange of chain letters or pyramid schemes; or impersonate another person. The Company does not represent or guarantee the truthfulness, accuracy, or reliability of any communications posted by other users or endorse any opinions expressed by users. You acknowledge that any reliance on material posted by other users will be at your own risk. The Company may, but is not obligated to, monitor and screen communications posted by users. If notified by a user of communications which allegedly do not conform to these Terms and Conditions, the Company may investigate the allegation and determine in good faith and its sole discretion whether to remove or request the removal of the communication. You agree to immediately remove material if requested by the Company. The Company has no liability or responsibility to users for performance or non-performance of such activities. The Company reserves the right to expel users and prevent their further access to its web sites for violating these Terms and Conditions or the law, and the Company reserves the right to block the posting of or remove communications which the Company believes to be abusive, illegal or disruptive. Some of the Company's games reward successful players with prizes that can take the form of cash or other miscellaneous prizes. The operation of the game and the awarding of the prize to you must be lawful under all laws and regulations applicable in the jurisdiction in which you are located in order for you to be eligible for prizes. Without limitation, players who reside in Quebec or outside of the United States or Canada (excluding Quebec), or who are under 18 years of age, are not eligible to receive some of the prizes offered elsewhere by the Company. Page 29 Furthermore, to be eligible for a cash prize, you must provide the Company with specific personal individual information for income tax purposes. This specific information includes: full legal name, complete address (city, state, country and zip/postal code), a social security number (social insurance number in Canada) and date of birth. All information must be completed in full as described in our Affidavit of Eligibility (copy available on the Web Site) and must be accurate in order to receive a prize. If information is not provided or cannot be verified, you will not be eligible to receive a prize. Bingo.com also reserves the right to use the collected personal information in advertising, promotional and/or marketing materials as described in our Rules section and the Liability and Publicity Release on our prize claim form, copies of which are available on the Web Site. SECTION 6. NOTICE AND PROCEDURE FOR MAKING CLAIMS OF COPYRIGHT INFRINGEMENT. If you believe that your work has been copied in a way that constitutes copyright infringement, please provide the Company's copyright agent the written information specified below. This procedure is exclusively for notifying the Company that your copyright has been infringed. An electronic or physical signature of the person authorized to act on behalf of the owner of the copyright interest; A description of the copyrighted work that you claim has been infringed upon; A description of where the material that you claim is infringing is located on the site; Your address, telephone number, and e-mail address; A statement by you that you have a good-faith belief that the disputed use is not authorized by the copyright owner, its agent, or the law; A statement by you, made under penalty of perjury, that the above information in your notice is accurate and that you are the copyright owner or authorized to act on the copyright owner's behalf. THE COMPANY'S COPYRIGHT AGENT FOR NOTICE OF CLAIMS OF COPYRIGHT INFRINGEMENT ON ITS SITE CAN BE REACHED AS FOLLOWS: Bingo.com Copyright Agent Bingo.com, Inc. 1286 Homer St., Suite 300 Vancouver, BC V6B 2Y8 Tel. 604-647-6407 Fax 604-647-6422 SECTION 7. USER INFORMATION. Subject to the Company's Privacy Policy, the Company may use the information it obtains relating to you, including your IP address, name, mailing address, email address and use of the Web Site, for its internal business and marketing purposes and may disclose the information to third parties for such purposes. SECTION 8. LINKS TO OTHER WEB SITES. Page 30 The Web Site may contain links to third party web sites. These links are provided solely as a convenience to you and not as an endorsement by the Company of the contents on such third-party web sites. The Company is not responsible for the content of linked third-party sites and does not make any representations regarding the content or accuracy of materials on such third party web sites. If you decide to access linked third-party web sites, you do so at your own risk. SECTION 9. COMPLIANCE WITH EXPORT CONTROL AND OTHER LAWS. The laws of the United States and other jurisdictions control the export, import and use of products, services and information. You agree to comply with all laws and regulations applicable to the export, import or use of the Materials, and more particularly you agree not to export, import or use the Materials, or permit the export, import or use of the Materials, in contravention of any applicable laws or regulations. By downloading the Materials, you represent and warrant to the Company that you are not a person or in a jurisdiction to which such export or import is prohibited, and that you are not a person by whom, or in a jurisdiction in which, such use is prohibited by any applicable laws or regulations. SECTION 10. INDEMNITY. You agree to defend, indemnify and hold harmless the Company, its officers, directors, employees and agents, from and against any claims, actions or demands, including without limitation reasonable legal and accounting fees, alleging or resulting from your use of the Material or your breach of the Terms and Conditions. The Company shall provide notice to you of any such claim, suit, or proceeding and shall assist you, at your expense, in defending any such claim, suit or proceeding. SECTION 11. GENERAL. These Terms and Conditions are governed by the internal substantive laws of the Province of British Columbia, Canada, without respect to its conflict of laws principles. If any provision of these Terms and Conditions is found to be invalid by any court having competent jurisdiction, the invalidity of such provision shall not affect the validity of the remaining provisions of these Terms and Conditions, which shall remain in full force and effect. No waiver of any term of these Terms and Conditions shall be deemed a further or continuing waiver of such term or any other term. Except as expressly provided in the Company's Privacy Policy, Legal Notices or material on particular web pages, these Terms and Conditions constitute the entire agreement between you and the Company with respect to the use of the Web Site. Select the Game you want to play and click the Play Game button. This will take you into that particular game, where you'll join the other players in the "waiting room" until the game starts. Since each game is designed for a specific number of players, a game will start only when that room is full of players. When the required number of players have entered the room, a 5 second countdown clock will start on screen, giving you time to loosen up your mouse fingers and get ready to play! Page 31 When the game list pops up you will see multiple games being displayed on the list. Each game has different variables that create different types of games. These are displayed in different columns for ease of use. Credits: Each Customer Credit is the equivalent of $0.01, and is calculated in U.S currency. Game Name: We name the games so you can tell them apart. Aren't we thoughtful! Game Type: The game type is the style of bingo you are playing for. Currently we only have 5 in-a-row, but patterns and much much more are coming soon. No. Cards: Currently you can only play a 6 card game. In the future you will be able to play 6 - 12 - 18 cards. Your choice! No. Players: We are running 10, 20 and 50 player games at this time. The game list will display the amount of people allowed in a game as well as the amount of people already waiting for you to join. A game must be full before it starts and remember, the more people playing against you, the bigger the winnings. Ball Speed: This is a game of skill. To up the skill factor or lower it we can drop the balls as slow or as fast as we want. We currently have three settings. Slow, Normal and Fast. Entry Fee: The entry fee is the amount of money you are paying to play each game. This money goes into a prize pool and is 100% split by the winners. NMF: The Network Maintenance Fee is how we can afford to give you all this fun and not take part of the pot. This money is used to operate our system and improve on what we've already given you. Prize Pool: You will notice two parts to the prize pool. The first part is an image of a trophy with a number on it. This trophy tells you what kind of a payout applies to this game. This image represents the Winner Takes All payout. You got it 100% of the prize pool goes to the 1st place winner. This image represents Top 5 Winners payout. In this case the pot is split between the 5 top players. The Second part represents the total amount of money in the pool when the game is full. Play!: Now you know what all the variables are. Choose the game you want to play and click on the play button at the end of the line to launch the game. Page 32 SECTION 1. INFORMATION COLLECTION AND USE Bingo.com, Inc in partnership with CYOP Systems International Inc. will not sell, share, or rent information collected through the CrediPlay Network to others in ways different from what is disclosed in this statement. SECTION 2. REGISTRATION In order to join the CrediPlay network, a user must first complete the registration form on one of our affiliate websites. During registration, a user is required to give contact information (such as name and email address) and financial information (such as credit card number and expiration date). This information is used to contact the user about CrediPlay's services for which they have expressed interest as well as for billing purposes. Users should also find out if they are required, in their region, to report these earnings for income tax purposes. Where it is optional for the user to provide demographic information (such as income level and gender) or other unique identifiers, the user may opt out, but is encouraged to provide this information so that CYOP Systems and its affiliates can provide a more personalized experience on its sites. SECTION 3. LOG FILES CYOP Systems uses IP addresses to analyze trends, administer the site, track users' movements, and gather broad demographic information of aggregate use. IP addresses are not linked to personally identifiable information. SECTION 4. SHARING CYOP Systems will share aggregated demographic information with our partners. This is not linked to any personal information that can identify any individual person. If CYOP Systems' partners with another party to provide the CrediPlay Service, when the user signs up for CrediPlay, names and other contact information that is necessary for the third party to provide the CrediPlay service will be shared. SECTION 5. LINKS This web site may contain links to other sites. Please be aware that CYOP Systems is not responsible for the privacy practices of other sites unless they are direct affiliates to CrediPlay. Users are encouraged to be aware when they leave CrediPlay, to read the privacy statements of each and every web site that collects personally identifiable information. This privacy statement applies solely to information collected by CrediPlay. SECTION 6. SURVEYS & Contests From time to time the site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose this information. Requested information may include contact information (such as name and shipping Page 33 address), and demographic information (such as zip code, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the use and satisfaction of this site. SECTION 7. SECURITY CrediPlay takes every precaution to protect user and member information. When users or members submit sensitive information via a CrediPlay affiliate site, that information is protected both online and off-line. When the registration form asks users to enter sensitive information (such as credit card number and/or social security number), that information is encrypted and is protected with the best encryption software in the industry - SSL. While on a secure page, such as our order form, the lock icon on the bottom of Web browsers such as Netscape Navigator and Microsoft Internet Explorer becomes locked, as opposed to un-locked, or open, as it is when the user is just 'surfing'. CYOP Systems uses 128-bit SSL encryption to protect sensitive information online, and also do everything possible to protect user-information off-line. All users' information, not just the sensitive information mentioned above, is restricted in our offices. Only employees who need the information to perform a specific job (for example, a billing clerk or a customer service representative) are granted access to personally identifiable information. Our employees must use password-protected screen-savers when they leave their desk. When they return, they must re-enter their password to re-gain access to your information. Furthermore, ALL employees are kept up-to-date on security and privacy practices. Every quarter, as well as any time new policies are added, employees are notified and/or reminded about the importance CYOP Systems places on privacy, and what they can do to ensure that user and member information is protected. Finally, the servers that store personally identifiable information are kept in a secure environment, behind a locked cage. SECTION 8. SPECIAL OFFERS CYOP Systems will send all new members a welcoming email to verify password and username. CYOP Systems will also send regular newsletters to CrediPlay members. Established members will occasionally receive information on products, services, special deals, and a newsletter. Out of respect for the privacy of our users, we present the option to not receive these types of communications. Please see the choice and opt-out section below. SECTION 9. SITE AND SERVICE UPDATES CYOP Systems will also send the users site and service announcement updates via email or phone. Members are not able to un-subscribe from service announcements, which contain important information about the service. We do this in order to communicate with the user regarding requested services and issues relating to their account. Correction/Updating Personal Information: If a user's personally identifiable information changes (such as the zip code), or if a user no longer desires our service, CYOP Systems will endeavor to provide a way to correct or Page 34 update that information. This can usually be done through the user's Account manager when logging in. SECTION 10. CHOICE/OPT-OUT Users who no longer wish to receive our newsletter or promotional materials from CYOP Systems' partners may opt-out of receiving these communications by un-subscribing through their account manager. Users of our sites are always notified when their information is being collected by any outside parties. We do this so our users can make an informed choice as to whether they should proceed with services that require an outside party, or not. SECTION 11. NOTIFICATION OF CHANGES If we decide to change this privacy policy, we will post changes on our Homepage so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected. Page 35 SCHEDULE C PERFORMANCE SPECIFICATIONS OF ASP This document describes the performance specifications for the services of the ASP selected to host the Software (referred to as the "Provider"). 1. DEFINITIONS In this Schedule, the following terms shall have the meanings set forth below: "CLIENT" shall mean any one or more of Licensee, Sublicensees and Customers as defined in the attached Agreement. "NETWORK AVAILABILITY" shall be the percentage of time that the Provider's Systems are available to carry network traffic between the Software and the Point of Access. "POINT OF ACCESS" shall mean Provider's border router which is used to establish connectivity from Provider's systems to its Internet service provider and the public Internet. "PROVIDER'S SYSTEMS" shall be the entire physical operation(s) provided to host the Software. This includes all networks and servers, hardware and software utilized in the provision of services located behind the Point of Access. "SERVER AVAILABILITY" shall be the percentage of time that the servers used to host the Software are operational and are successfully executing the necessary web and database server software. "SOFTWARE AVAILABILITY" shall be the percentage of time that the hosted Software is accessible by the Software shall be considered accessible unless (insert qualification, e.g., if there is a complete loss of access by the Client). "SYSTEM AVAILABILITY" means the availability of the Software combined with the availability of Provider's systems, for access by Client to receive the services. "SYSTEM AVAILABILITY PERIOD" shall be defined as twenty-four (24) hours per day, seven days per week less the agreed system maintenance period. "SYSTEM MAINTENANCE PERIOD" shall mean the time period from (insert maintenance time period) during which Software access and services are not available because of required system maintenance, upgrades, and other Provider's Systems' hosting requirements. 2. PERFORMANCE STANDARDS 2.1 Provider is responsible for delivery of Software access services on the Provider's Systems up to and including the Point of Access. Provider shall monitor and manage capacity to endeavor to meet commitments regarding disk space, CPU usage, system alarms, connectivity (routers and firewalls) and bandwidth are within operating parameters. The services shall meet the following performance standards as measured during (insert measurement period), excluding any System Maintenance Period: o Server Availability = (insert number)%+/-(insert number for variance)% Page 36 o System Availability = (insert number)%+/-(insert number for variance)% o Software Availability = (insert number)%+/-(insert number for variance)% o Network Availability = (insert number)%+/-(insert number for variance)% 2.2 Provided agrees to provide and allocate [insert amount, eg as percentage, memory capacity or number of servers] server space and [insert size] bandwidth for hosting of the Software. 3. PROBLEM RESOLUTION STANDARDS 3.1 Provider shall respond to incidents that have been reported by the Client within the time parameters described as follows: (insert Provider's support service response times, depending on level of severity) 4. NETWORK ARCHITECTURE 4.1 Provider shall contract with its Internet service provider(s) to ensure that network packet loss does not exceed 1 percent from the Point of Access to the termination point of the Internet Service Provider's uplink to the public Internet. 4.2 Provider shall implement redundant networking devices: routers, firewalls, switches and balancing devices. 4.3 The Provider's Systems shall support public Internet access through diverse paths and routing to enable disaster recovery. 4.4 Network packets shall travel the round-trip length of the Provider's Systems in (insert time in milliseconds) or less. This shall be measured using a standard ping test from a designated Software database server to the end of the Point of Access. 4.5 Provider shall deploy a firewall to filter out network traffic that is not accessing the Software and load balancing devices. The servers to which the load balancer is directing traffic shall not receive packets directly from the Internet. The Provider's Systems shall include reasonable attacker defences and security measures. The Provider's Systems shall be configured with reasonable security measures regarding data theft (through SSL encryption) and unautho-rized network access from other subnets within Provider. 4.6 Any packet processed by the Internet router and forwarded to the Software servers shall first be examined by an intrusion detection ("ID") system. The ID system shall be configured to monitor for network attacks, Java Server attacks, Web Server attacks, Server system attacks, and take appropriate measures should an incident occur. In the event of an attack, the offensive packets shall either be stopped at the Point of Access, edge router, or firewall, or be redirected to another location for further investigation and prosecution, and prevented from entering the Provider's Systems. 4.7 Unauthorized traffic between Client and other software that is hosted on Provider's Systems, shall be denied. 5. PROVIDER SYSTEMS SERVICES 5.1 Provider shall define the Software network and systems architecture and in turn specify which hardware and/or software is required to perform the services. Page 37 5.2 Provider shall procure, at its cost and expense, hardware and/or software used to meet Provider's obligations under this Agreement. Provider shall maintain and support platform operating systems, including required patches. Provider shall periodically review and apply new patches for operating systems as necessary to perform the services. 5.3 Provider shall monitor server utilization levels and acquire additional hardware as necessary to perform the services. 5.4 Provider shall carry spare parts inventory in sufficient quantities to support the services. Such spares will not include CPU or memory. These shall be provided under Provider's support contract with the relevant hardware vendor. 6. SERVER AND DATABASE ARCHITECTURE 6.1 Web and database servers shall support high availability and fault tolerance through the use of multiple web servers and a clustered database server configuration. 6.2 Configuration shall be highly secured through the utilization of a hardened server architecture which is based upon open standards. 7. REPORTING 7.1 Provider shall provide to Client (insert how often, e.g., weekly) summary Software access reports and summary reports of Server Availability, System Availability, Software Availability and Network Availability. 7.2 When emergency maintenance that results from hosting server, network or other Provider Systems' failure is required, Provider will provide a reasonable amount of lead-time and arrange, with the Client, a solution that lessens the impact on the Client. 7.3 Provider will provide e-mail notification to the Client prior to scheduled maintenance windows and as soon as possible in the event of emergency maintenance. 8. DATA BACKUPS AND RECOVERY 8.1 Provider shall perform data backup with rotation to off-site storage occurring as follows: (a) Hot (partial) backups of the database shall be performed at a minimum of daily intervals. (b) Full backups of the web servers shall be performed at a minimum of weekly intervals. (c) Cold (full) backups of the database shall be performed at a minimum of weekly intervals as part of the scheduled maintenance window. 8.2 Recovery requests under (insert size limit) shall be completed within (insert number) hours using the most recent version of the backup. Backups consist of data, databases, applications, and all configuration pieces required to restore the Client data. EX-21.1 9 ex21-1.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF CYOP SYSTEMS INTERNATIONAL INCORPORATED February 12, 2001 CYOP Systems Inc. is a wholly owned subsidiary of CYOP Systems International Incorporated. CYOP Systems Inc. is incorporated in Barbados and conducts business under the name CYOP Systems Inc. Moshpit Entertainment Inc. is a wholly owned subsidiary of CYOP Systems Inc. Moshpit Entertainment Inc. is incorporated in the Province of British Columbia, Canada and conducts business under the name Moshpit Entertainment Inc. EX-23.1 10 ex23-1.txt EXHIBIT 23.1 EXHIBIT 23.1 MOORE STEPHENS ELLIS FOSTER LTD. CHARTERED ACCOUNTANTS 1650 West 1st Avenue Vancouver, BC Canada V6J 1G1 Telephone: (604) 737-8117 Facsimile: (604) 714-5916 E-Mail: generaldelivery@ellisfoster.com Reply Attention: D.T. Kong ---------------------------- -------------------------------------------------------------------------------------------
October 17, 2001 CYOP SYSTEMS INTERNATIONAL INCORPORATED c/o 1000 - 409 Granville Street Vancouver, BC V6C 1T2 Dear Sirs: RE: FORM SB-2 -------------- We refer to the Form SB-2 Registration Statement of CYOP Systems International Incorporated (the "Company") filed pursuant to the Securities Exchange Act of 1933, as amended. We conducted an audit of the Company's financial statements for the year ended December 31, 2000 and have provided an audit report dated June 4, 2001 in connection with the preparation of the Form SB-2 Registration Statement. We hereby consent to the filing of our audit report as part of the aforementioned Form SB-2 Registration Statement. Moore Stephens Ellis Foster Ltd. consents to the filing of this consent letter as an exhibit to the Form SB-2 Registration Statement and consents to the reference to our firm in the Form SB2 Registration Statement. Yours truly, MOORE STEPHENS ELLIS FOSTER LTD. [LETTERHEAD]