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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB
Amendment No.2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS
ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Cyco.net Inc.
(Name of Small Business Issuer in its charter)
Nevada 13-3389415
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
600 Central Avenue, S.W.
Albuquerque, New Mexico 81102
(Address of principal executive offices) (Zip Code)
(505) 244-0088
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.001 par value OTC
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CYCO.NET, INCORPORATED
Cyco.net is a small business issuer pursuant to Reg. Section 228.10 which meets
the following criteria: (i) has revenues of less than $25,000,000, (ii) is a
U.S. Issuer (iii) is not an investment company and (iv) is not a subsidiary of
another corporation. It is therefore authorized to use Form 10-SB, the General
Form for Registration of Securities of Small Business Issuers under Section
12(b) or (g) of the Securities Exchange Act of 1934.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
The Company elects Alternative Disclosure Format #3, and hereby submits the
following information in accordance therewith.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
Cyco.net, Incorporated (formerly AVE, Incorporated) Cyco.net is an e-commerce
business. The main web site is in the form of an "e-zine", similar to a magazine
except that it is only available on-line. It currently has two ancillary sites
which are in the market of selling cigarettes on-line. After a discussion of the
Company History, a detailed description of the business will follow.
A. COMPANY HISTORY
AVE, Incorporated was incorporated in 1921 under the name Deluxe Onyx Company.
In 1987, the Deluxe Onyx Company's name was changed to Walsh communications
Group, Inc. and its domicile was changed to Nevada. On January 5, 1990, the
Board of Directors authorized the name of Deluxe Onyx Company be changed and on
May 4, 1990, amended Articles of Incorporation were filed changing the Deluxe
Onyx Company's name to AVE, Inc. AVE's initial principal business was the
production of motion Pictures. AVE was inactive from 1990 until April, 1997 when
it began to seek to acquire assets of, or interest in, a small to medium size
company or venture actively engaged in a business generating revenues or having
immediate prospects of generating revenues. Digital Manufacturing Inc. (DMI), a
Texas company located in Fort Worth, was acquired in a reverse merger on
December 28, 1997.
AVE, Inc.'s offices were located at 45 Breamore Court, Castle Rock, Colorado
80104. AVE's fiscal year end is December 31.
In November 1996, DMI/AVE approached NASA's Technology Transfer group and
discussed the possibility of licensing antenna technology. NASA had a
flat-plane, high-gain, phased-array antenna that, while not having been
originally designed for the home satellite frequency spectrum, could be
re-engineered to operate in that frequency range. The antenna appears to offer
advantages to those presently in use by consumers who receive their television
signal from direct broadcast satellites. Further it appears to have significant
and similar advantages in a number of other applications in other bandwidths.
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AVE entered into an agreement with NASA to complete design of a prototype
antenna. In the course of this development work, NASA determined that
significant mathematical errors existed in the patent and a substantial effort
would be required to "re-engineer" the antenna. In view of the time required to
"re-invent" the antenna, AVE decided to pursue another core business strategy.
Consistent with this decision, on February 22, 1999, AVE entered a letter of
intent with Zenith Technology, Inc. (a wholly owned subsidiary of Prime
Companies, Inc.) to sell to the same, all rights to the NASA patent and license
agreement.
AVE did not "assign" or "transfer" its rights under its agreement with NASA to
Zenith. Prior to March 4, 1999, the distribution agreement between NASA and AVE
was voided. AVE was to "convey" any rights that it had vis-a-vis the AVE
relationship with NASA to Zenith. This included the rights to manufacture, use,
market, and sell devices based on any new distribution agreement and patent
access rights that could be secured on Zenith's behalf. No current patents have
been transferred or signed as of March 4, 1999. The same remains true today.
Zenith bought AVE's personal relationship with NASA, meaning former President
Mr. Gene Klawetter's relationship with NASA. Mr. Klawetter was to maintain
rapport throughout the period in which NASA was developing the new patent and/or
patent modification. At the appropriate time, on Zenith's behalf, Mr. Klawetter
would submit a business plan and application for distribution agreement and
nurture this process through the Commerce Business Daily notice period. Once
this 60-day grace period expired, if uncontested, Zenith would receive rights to
use the patent and an exclusive distribution agreement. At this point,
negotiations with NASA would begin for them to complete the antenna development
pursuant to a Space Act Agreement (engineering agreement) funded by Zenith. In
exchange for this continuing service, AVE received 25,000 shares of Prime
Companies common stock (OTC BB: prmc) that at the time was bid at $2.00. As of
May 10, 2000, the stock is trading at $1.25. Because of the nontransferable
clause in AVE's agreement with NASA, AVE did not transfer its rights per se. It
"conveyed" the rights, which at the time of the agreement between AVE and
Zenith, were nil. Therefore, there was no impact on AVE's ability to complete
the deal (it was not a sale) on 3/1/99.
On March 16, 1999 AVE entered in to a letter of intent with Green Dolphin System
Corp. (Green), an unrelated company who develops, manufactures and distributes
chemicals in Canada. AVE was to acquire Green Dolphin in a reverse acquisition
with Green Dolphin becoming a wholly owned subsidiary. The acquisition of Green
Dolphin was never finalized, because Green was unable to meet the terms of the
letter of Intent. Specifically, Green Dolphin was to raise $750,000 prior to
closing and could not meet this condition. Hence, all negotiations were
terminated on April 30, 1999.
Having divested itself of its antenna license rights and seeking a new core
business, AVE, Inc., acquired CYCO.NET, Inc. of Albuquerque, New Mexico in a
purchase transaction on July 22, 1999. Under the terms of the agreement, AVE,
Inc. changed its name to CYCO.NET, Inc. Mr. R. Gene Klawetter, former Chairman
and CEO of AVE, Inc. became a director of CYCO.NET, Inc. George Sullivan, former
AVE Vice President of Operations resigned, as did Henri Hornby, former Director
of AVE, Inc. In the purchase transaction, CYCO shareholders received 2.08 shares
of AVE (now CYCO) for each share of Cyco.net stock. This provided the former AVE
shareholders with 15% ownership interest in the surviving company and Cyco.net
shareholders with 85% ownership interest of the surviving company.
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On July 28, 1999, amended Articles of Incorporation were filed with the
Secretary of State of Nevada to change the name of AVE, Inc. to CYCO.NET, Inc.
Concurrently, a request was submitted to NASD to change AVE's listing symbol
from AVEN to CYKE.
Regardless of the requirement for Cyco.net to complete the registration with
NASD by August, 1999, the merger was completed by the agreement of both Ave,
Inc. and Cyco.net. Cyco has been de-listed from NASD Bulletin Board for failure
to comply with the registration requirements. To be re-listed, Form 10 must be
completed and the Company must comply with all comments by the governing body.
CYCO.NET, Inc.'s leases its executive offices, on a month-to-month basis, at 600
Central Avenue SW, 3rd Floor, Albuquerque, New Mexico. CYCO.NET's telephone
number is (505) 244-0088 and it's fax is (505) 244-0089. The offices in Castle
Rock, Colorado were closed prior to 1999.
B. CORE BUSINESS
CYCO.NET, Inc. (hereafter the "Company") was established in December 1998 to
develop a network of web based companies. These companies are centered around a
central site called cyco.net (www.cyco.net). This site is a lighthearted
destination that presents the Internet to individuals through quick wit,
interesting links and other standard Internet offerings (i.e. stock quotes,
horoscopes, etc.). The goal of this site is to provide the Internet User with a
starting point for their daily excursions into the World Wide Web. It is
intended to put the most interesting of the millions of sites on the web at site
visitors' fingertips. The focus is to provide a virtual atmosphere of
sophistication, intelligence and cunning.
The site is formatted as a weekly, soon to be daily, magazine or "e-zine".
Content varies according to the weekly topic - i.e., interviews, short comical
lists, photographs and stories. Topics vary, and can consist of anything from
contemporary entertainment venues, travel destinations, fashions, sports or
financial markets. The goal is to provide the user information across a wide
range of interests, with striking and informative links relating to the current
topic.
The home page consists of a photograph reflecting the current topic.
Superimposed on the photograph are links to various sites on the Internet. Links
are of three types. First, there are standard links provided by most every
launch site, including news, horoscopes and stock quotes. These links are
provided for the convenience of the viewer, and are not considered the main draw
of the site.
Secondly, are the temporary, topic specific links. Temporary links relate
directly to the topic and will change accordingly. Examples of these links
include historical and cultural information, available activities, photographs,
travel information or discussion groups. For example, when the topic was the Taj
Mahal, the site linked to an Intel site that had a virtual tour of the
structure, a short history of the Taj Mahal, a picture galleries and information
of the surrounding area. Effort is made to provide viewers instant and concise
information they might not search for on their own.
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Last, there are the topic specific e-commerce links. These links take the viewer
to sites that provide products and services directly related to the current
subject.
The site will provide links to vendors like Amazon.com, where the viewer can buy
a book for more information, or to Abercrombie & Kent who will provide a first
class trip to that special locale.
In effort to attract loyal viewers, Cyco.net does not require registration
information or fees to access the site. The Company believes such barriers
inhibit users to peruse the site in depth. Reason being, many people are
reluctant to provide personal data over the Internet.
Cyco.Net will focus on maximizing the number of hits or visitors a day. As more
and more customers visit CYCO.NET, the Company will position itself to take
advantage of the audience that CYCO.NET is attracting. This will be accomplished
by building e-businesses, which will sell products and services to the CYCO.NET
visitors. Every CYCO.NET visitor is a potential customer for a plethora of
products and services that will be provided by the site, it's owned companies,
affiliates and advertisers.
C. CYCOCIGS.COM
In November of 1999, the Company opened its first E-Commerce web site. The site,
www.cycocigs.com, sells cigarettes over the Internet. New Mexico state laws
allows the Company to sell out of state without paying the state excise tax on
cigarettes, thus enabling the Company to provide customers with their favorite
name brand cigarettes at discounted prices.
The first page of www.cycocigs.com, provides a pull down menu listing all
available brands of cigarettes. Once a brand is selected, obtainable styles are
listed. From there, the customer places desired cigarettes into a shopping cart
that details total quantities ordered, unit costs, shipping charges, and the
total cost of the order. This page also provides an opportunity to place
additional orders, and continually scheduled shipments to the customer. To
complete the order, customers enter a secure site to provide form of payment.
The site accepts Visa, Mastercard, Discover Card, and American Express. With
credit card orders, the Company is paid before the order is shipped. Age is
verified because credit card holders must be 18 years old. Any credit cards
issued to minors must be co-signed by a parent or guardian who receives monthly
itemized statements. Faxed photo identification is requested, anytime a
customer's age in is question.
Customers must agree to the following terms of sale to complete their order.
1. Billing address must be used as shipping address to verify the age of
recipient.
2. Billing addresses outside the USA or within the state of New Mexico are
prohibited.
3. Purchaser must be 18 years of age.
4. Purchaser agrees not to resell or retail any part of their order.
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5. Limit of 10 cartons per brand per customer per order.
These terms are listed in several places, as well as on the final checkout page.
Orders placed Monday-Thursday before 5pm Mountain Standard Time are shipped the
next day. Orders received Friday-Sunday are shipped on Monday. All orders are
shipped via United States Postal Service 2-3 day priority mail. This has proven
to be the most cost effective method of shipping.
Along with creating e-businesses, the Company has affiliated itself via links,
with several larger e-commerce sites such as Amazon.com, Lobster.net and
Tavalo.com. Being an affiliate entitles the Company to a commission on sales
derived from visitors of Cyco.net. If a user goes to Amazon.com, from the link
on Cyco.net, and makes a purchase, then the Company is entitled to a percentage
of that sale. At this time, no revenues have been realized from any affiliate
programs. Such affiliate programs are not unique to Cyco.net. Currently
Amazon.com has over 500,000 affiliates.
The Company seeks to gain revenue by contracting advertisers on the Cyco.net
site. Although the Company is having ongoing discussions toward this end, there
are currently no agreements with advertisers. No assurance can be given that any
arrangements will be established, or that, if established, the marketing and
operating arrangements proposed to be utilized by the Company can be
successfully implemented.
The Company sees an advantage in targeting the Tobacco and Spirits companies as
its major advertisers. With regards to the Tobacco and Spirits companies, these
advertisers are quickly losing their current mediums, including billboard
advertisements and as major sports sponsors. The only current advertising medium
in the United states for the Tobacco and Spirit industries are print ads and the
Internet. Many of the larger Internet sites, like Yahoo, do not accept
advertising from tobacco and spirit companies because of the unhealthy stigma
associated with these products. Tobacco and spirit companies are shunned by
current major Internet operators, who in turn, are leaving billions of dollars
worth of advertising on the table. In turn, rising anti-alcohol and tobacco
sentiment might cause some Internet users to ban or boycott companies, such as
Cyco.net, who promote products from these industries.
D. INDUSTRY ANALYSIS
The Internet is a virtual world. In this world a complete society exists. People
work, play, learn, communicate and shop all at the touch of a button from their
home or office. The Internet gives almost unfettered access to communication,
information and products to the user. At the same time, the Internet gives
advertisers almost unlimited access to the consumer. The Internet has become an
open market where anyone can locate almost any product they want.
Explosive Growth
The Internet is the fastest growing medium of communication in History. It has
only taken 5 years to reach 50 million U.S. users, while Cable required 10
years, television took 13 years and radio needed 38 years.
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By the end of 1998 the Internet had attracted 63 million US viewers, and is
expected to have 149 million US viewers by the year 2002. At the same time World
Wide Web users are expected to grow from 142 million in 1998 to 399 million by
2002 (Source: Yahoo.com (Source: IDC, March 99)).
Frenzied Spending
Along with record growth in users, the amount of money being spent on the
Internet is growing just as fast. In the US alone, web customers are spending
$37 billion a year, and are expected to spend $407 billion by the end of the
year 2002. World Wide Web users spent $50 billion by the end of 1998 and are
expected to spend $734 Billion by the year 2002 (Source: Yahoo.com (Source: IDC,
March 99. Last Revised: March 26, 1999)
E-Commerce
As stated before, the Internet is like an open-air market where anyone can set
up a booth and trade their wares. People from all over the world open booths
(web sites) and sell everything from photographs to cars. Practically any
product a consumer wants can be bought on the Internet. People in rural areas
have instant access to items without travel.
Advertising
Like all other mediums of communication, a major source of revenues is
advertising. But the Internet is different from all other means of
communication. The difference is in the way people experience the Internet. In
this medium, the viewer is actively involved in what is being presented. Users
make involved choices as to what they are seeing. They do not passively accept
information as they do when watching TV or reading the newspaper. This highly
attentive state creates an interaction that builds brand value even as it drives
consumer action (Source: Yahoo.com (Source: IAB, Oct 1998, Last Revised: Nov.
17, 1998)) Unlike other mediums of communication, the Internet, as a whole, is
experiencing a growth spurt in advertising revenues. Between 1996 and 1997, ad
spending on the Internet rose from $220.5 million to $544.8 million (Source:
AdAge.com). This represents an increase of 147.1%. The second largest growth in
advertising revenues was seen in the outdoor arena with only a 32% increase
(Source: AdAge.com). That is a difference of 115%. No other advertising medium
is near to this type of growth in revenues.
E. RISKS
There are several risks associated with e-commerce businesses. The Internet is a
highly competitive arena. Internet operators are not only competing with
geographically local companies, they must also compete with companies from all
over the world. With the millions of sites already on the Internet, it is easy
to be overlooked. E-Businesses rely on their servers to be operational. Server
failure results in lost business.
FEAR OF THE INTERNET
Additionally, many Internet users view E-businesses as risky. People are often
reluctant to purchase online, despite the promise of secure transactions. People
are wary of relinquishing personal data, including
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credit card information, over the Internet. Potential customers may incur
difficulty finding particular sites, due to domain name confusion, i.e. Cyco.com
(Cyco Software Company) vs. Cyco.net. Companies risk losing customers who
utilize search engines, because competitors are listed as well. Cyco.Net is
aware of such pitfalls, and attempts to lessen the impact of these downfalls by
providing secure transactions for all online purchases, and requiring minimal
personal customer information to complete transactions. The company has assured
its customers that it will never sell nor provide customer information to third
parties. Additionally, the Company attempts to make its presence known by
continually submitting information to the many major search engines that service
the Internet.
COMPETITION
If competitors are allowed to use buy down promotions to lower their prices and
the manufacturers continue to disallow the Company to participate in such
programs, it will be at a distinct disadvantage and will suffer reduced sales
due to non competitive prices. These buy downs are the cigarette industries
version of a rebate to entice sales. In this case, the rebate goes to the
retailer to mark down the over the counter price. At this time, the
manufacturer's stance is that they will not give these buy downs to internet
companies but currently there are a couple of competitors that are selling their
product with these discounts.
VALIDITY OF THE JENKINS ACT
Currently, there is controversy over validity of the Jenkins Act as applied to
e-commerce sales of cigarettes. The Jenkins Act, United States Code Title 15,
Section 376, was enacted in the 1940s to monitor interstate sales of cigarettes.
This Act requires that companies selling cigarettes report monthly the names and
addresses of their customers with state tobacco tax administrators. It is
uncertain whether the Act applies to e-commerce because Internet sales take
place in a state other than the customer's state of origin. Further, the Jenkins
Act conflicts with other Federal laws, such as the Privacy Act of 1974 and the
Electronics Communications Act of 1986. The Jenkins Act is also considered
discriminatory because it applies to cigarette sales only, and not the
interstate sale of cigars and tobacco. If it is deemed that the Jenkins Act is
applicable to Internet Cigarette sales, the Company will report to individual
state tax authorities. Such enforcement could adversely affect sales because the
lure of purchasing online is the exemption of state excise taxes. The cost
burden of reporting to every state tax authority could affect the profitability
of the Company.
CONTINUED GROWTH OF THE INTERNET
The Company's future revenues substantially depend upon the increased acceptance
and use of the Internet and other online services as a medium of commerce. Rapid
growth in the use of the Internet, the Web and online services is a recent
phenomenon. As a result, acceptance and use may not continue to develop at
historical rates and a sufficiently broad base of customers may not adopt,
and/or continue to use, the Internet and other online services as a medium of
commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty and there
exist few proven services and products.
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NECESSARY NETWORK INFRASTRUCTURE FOR THE INTERNET
In addition, the Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. If the Internet continues to
experience significant expansion in the number of users, frequency of use or
bandwidth requirements, the infrastructure for the Internet may be unable to
support the demands placed upon it. In addition, the Internet could lose its
viability as a commercial medium due to delays in the development or adoption of
new standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in, or
insufficient availability of, telecommunications services to support the
Internet also could result in slower response times and adversely affect usage
of the Internet generally.
The Company's business, financial condition and results of operations would be
seriously harmed if: use of the Internet, the Web and other online services does
not continue to increase or increases more slowly than expected; the
infrastructure for the Internet, the Web and other online services does not
effectively support expansion that may occur; the Internet, the Web and other
online services do not become a viable commercial marketplace; or traffic to the
Web site decreases or fails to increase as expected or if management spends more
than was expected to attract visitors to the Web site.
WEB DOMAINS
The Company may be unable to acquire or maintain Web domain names relating to
the brand in the United States and other countries in which management may
conduct business. As a result, the Company may be unable to prevent third
parties from acquiring and using domain names relating to the Company's brand,
which could damage its brand and reputation and take customers away from its Web
site. The Company currently holds the "Cyco.net", "Cycocigs.com",
"aabakismokes.com", "Cyconet.com", "Psychcigs.com" "digidarkroom.com" domain
names and may seek to acquire additional domain names. Governmental agencies and
their designees generally regulate the acquisition and maintenance of domain
names. The regulation of domain names in the United States and in foreign
countries is subject to change in the near future. The changes in the United
States are expected to include a transition from the current system to a system
that is controlled by a non-profit corporation and the creation of additional
top-level domains. Governing bodies may establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names.
NEW LAWS REGULATING THE INTERNET
The adoption or modification of laws or regulations relating to the Internet
could adversely affect the manner in which the Company proposes to conduct its
business. In addition, the growth and development of the market for online
commerce may lead to more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on the Company. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The United States Congress recently enacted
Internet laws regarding children's privacy, copyrights, taxation and the
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transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations. Laws regulating the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel, and taxation apply to the
Internet.
In order to comply with new or existing laws regulating online commerce, the
Company may need to modify the manner in which it proposes to do business, which
may result in additional expenses. For instance, the Company may need to spend
time and money revising the process by which it intends to fulfill customer
orders to ensure that each shipment complies with applicable laws. The Company
may need to hire additional personnel to monitor compliance with applicable
laws. The Company may also need to modify its software to further protect
customers' personal information.
POTENTIAL LIABILITY
As a publisher of online content, the Company faces potential liability for
defamation, negligence, copyright, patent or trademark infringement, or other
claims based on the nature and content of materials that it publishes or
distributes. If the Company faces liability, then its reputation and its
business may suffer. In the past, plaintiffs have brought these types of claims
and sometimes successfully litigated them against online companies. In addition,
the Company could be exposed to liability with respect to the unauthorized
duplication of content or unauthorized use of other parties' proprietary
technology. Although the Company intends to carry general liability insurance,
such insurance may not cover claims of these types. The Company cannot be
certain that it will be able to obtain insurance to cover the claims on
reasonable terms or that it will be adequate to indemnify the management or the
Company for all liability that may be imposed. Any imposition of liability that
is not covered by our insurance or is in excess of insurance coverage could harm
the business.
FUTURE COLLECTION OF TAXES
If one or more states or any foreign country successfully asserts that the
Company should collect sales or other taxes on the sale of products, net sales
and results of operations could be harmed. The Company does not currently
collect sales or other similar taxes for physical shipments of goods into any
states. However, one or more local, state or foreign jurisdictions may seek to
impose sales tax collection obligations on the Company. In addition, any new
operation could subject shipments in other states to state sales taxes under
current or future, laws. If the Company becomes obligated to collect sales
taxes, it will need to update its system that processes customer orders to
calculate the appropriate sales tax for each customer order and to remit the
collected sales taxes to the appropriate authorities. These upgrades will
increase operating expenses. In addition, customers may be discouraged from
purchasing products from the Company because they have to pay sales tax, causing
net sales to decrease. As a result, the Company may need to lower prices to
retain these customers.
ADDITIONAL FINANCING
The Company cannot be certain that additional financing will be available on
favorable terms when required, or at all. If the Company raises additional funds
through the issuance of equity, equity-related
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or debt securities, the securities may have rights, preferences or privileges
senior to those of the rights of the common stock and those stockholders may
experience additional dilution. The Company expects to require substantial
working capital to fund the business. Since inception, the Company has
experienced negative cash flow from operations and expects to experience
significant negative cash flow from operations for the foreseeable future.
Management currently anticipates that the private financing done to date,
together with expected revenues, will be sufficient to meet anticipated needs
for working capital and capital expenditures through at least the next 12
months. After that, the Company may need to raise additional funds.
VOLITILE STOCK MARKET
The market price for the Company's common stock is likely to be highly volatile
and subject to wide fluctuations in response to factors including the following,
some of which are beyond the Company's control: actual or anticipated variations
in the quarterly operating results; announcements of technological innovations
or new products or services by the Company or its competitors; changes in
financial estimates by securities analysts; conditions or trends in the Internet
and/or online commerce industries; changes in the economic performance and/or
market valuations of other Internet, online commerce or retail companies;
announcements by management or competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments; additions or
departures of key personnel; release of lock-up or other transfer restrictions
on the outstanding shares of common stock or sales of additional shares of
common stock; and potential litigation.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations. These broad market fluctuations may adversely affect
the market price of the Company's common stock.
In the past, following periods of volatility in the market price of their stock,
many companies have been the subject of securities class action litigation. If
the Company was sued in a securities class action, it could result in
substantial costs and a diversion of management's attention and resources and
would cause the stock price to fall.
FUTURE REGULATIONS OF ON-LINE COMMERCE
The Company is not currently subject to direct federal, state or local
regulation other than regulations applicable to businesses generally and
directly applicable to online commerce. However, as Internet use gains
popularity, it is possible that a number of laws and regulations may be adopted
with respect to the Internet. These laws may cover issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
Furthermore, the growth of online commerce may prompt calls for more stringent
consumer protection laws. Several states have proposed legislation to limit the
uses of personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Management does not contemplate providing personal information regarding the
Company's customers to third parties. However, the
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adoption of additional consumer protection laws could create uncertainty in Web
usage and reduce the demand for the Company's products and services.
Management is not certain how its business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of these laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws that
are intended to address these issues could create uncertainty in the Internet
market place. This uncertainty could reduce demand for the Company's services or
its cost of doing business may increase as a result of litigation costs or
increased service delivery costs.
In addition, because the Company's services are intended to be made available
over the Internet in multiple states and foreign countries, other jurisdictions
may claim that the Company is required to qualify to do business in that state
or foreign country. The Company intends to qualify to do business only in New
Mexico. The Company's failure to qualify in a jurisdiction where it is required
to do so could subject it to taxes and penalties. It could also hamper the
Company's ability to enforce contracts in these jurisdictions. The application
of laws or regulations from jurisdictions whose laws do not currently apply to
the business could have a material adverse effect on the business, results of
operations and financial condition.
F. BENEFITS
While Internet Companies compete with global competitors, they also service a
global market. Along with the million or so web sites on the Internet, there are
several million customers on the Internet. By the end of 1998, there were 63
million U.S. viewers and 142 million global viewers (Source: Yahoo.com (Source:
IDC, March 99)). Another benefit of the Internet is the low capital requirements
to enter the market. For a fraction of the cost of starting a landed store,
Internet companies can set up a web site and begin making sales. Low overhead
enables e-companies to be profitable with smaller profit margins, selling their
products at a considerable savings to the customer, at any hour of the day.
E-companies can deliver products and prices that are not available locally to
many consumers. It is the goal of Cyco.net to find such regularly consumed
products and offer them to customers at competitive prices. Such is the case in
incorporating Cyco.cigs, the Company's first fully operational, revenue
generating, cigarette e-business.
G. CURRENT STATUS
CYCO.NET, Inc. is a developmental stage company having two full-time employees
and one part time employee. The Company has a web site in operation
(www.cyco.net) with expectations of expanding the site and making it fully
operational when funding is secured. Further, CYCO.NET out sources accounting
and legal support and will do so until cost considerations make it reasonable
and necessary to bring either or both in house.
<PAGE> 13
The effect of existing governmental regulation which could materially affect the
Company or the business is uncertain. However, any legislated taxes or tariffs
on e-commerce or the company lines of business would adversely affect the
Company's competitive advantage.
The anticipated costs or effects associated with any federal, state or local
environmental laws are uncertain.
The Company is not at present required to deliver an annual report to security
holders, however CYCO.NET is in the process of becoming a full-reporting company
and, therefore, is required to produce an annual report after filing the 1999
10K-SB.
AVE, Inc. (now CYCO.NET, Inc.) filed a 15c2-11 and commenced actively trading
shares on the OTC Electronic Bulletin Board effective October 27, 1998.
CYCO.NET is planning to hold its first Annual Meeting of Shareholders in
September, 2000 in Albuquerque, New Mexico. Notice to shareholders will be given
by no later than August 15, 2000.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the financial
statements and notes thereto included herein.
A. PLAN OF OPERATION
In the next 12 months, the Company plans to tend to sales growth and gain
additional traffic to its e-commerce sites by:
o locating appropriate facilities in which to conduct shipping of product.
o Launching an affiliate program to build traffic to its e-commerce sites.
o Advertising through print ads, e-newsletters and e-mails to target markets.
o Continue funding efforts
o Maintain and add features to the Cyco.net site, i.e. location cameras
providing live feed from worldwide locations of interest.
o Pursue advertising contracts from major tobacco and spirit manufacturers.
o Hire additional employees, as needed. The hiring of 1-2 additional
full-time employees is projected in the next 12 months.
Furthermore, the Company plans to identify other niches in e-commerce to expand
and diversify it's business to reduce dependence on a single sector or product.
B. FINANCIAL CONDITION
Immediate raising of capital is needed to satisfy cash requirements and expand
the Company's market base. Fear of FDA tobacco regulations and tobacco
e-commerce restrictions, as well as anti-tobacco sentiment has limited the
number of people who are willing to invest in the Company.
<PAGE> 14
Current internal sources of liquidity include 25,000 shares in Prime Company,
Inc. Commitments for capital expenditures include monthly software and server
leases. The Company currently leases office space on a month-to-month basis. The
Company is currently seeking suitable office space for its cigarette shipping
business that may require a long-term contract.
Sales could be adversely affected by any FDA or Congressional regulations, or
decisions of tobacco companies, prohibiting or limiting the sale of cigarettes
over the Internet. Additionally, further legal judgments against tobacco
companies, or increase in anti-tobacco sentiment among the public, could lower
cigarette sales for the Company.
To date, there have been no significant elements of income or loss arising from
the Company's continuing operations. There are no seasonal aspects that could
affect the Company's financial condition or results of operations.
C. LIQUIDITY AND CAPITAL RESOURCES
Cash on-hand on December 31, 1999 was $10,737. During 1999, The Company obtained
Capital the following sources. $95,000 in proceeds from stock issuance; $8,000
in payment of subscription and account receivable for stock; $18,000 increase in
amounts due to related party. In the first quarter of 2000, the Company has
received $22,000 in proceeds from stock issuance.
Cycocigs.com has produced the following revenue from the sale of cigarettes:
<TABLE>
<S> <C>
November 1999 $ 2,217
December 1999 $ 8,891
January 2000 $17,761
February 2000 $19,786
March 2000 $67,027
</TABLE>
It is anticipated that the sales will continue to increase monthly. (Please note
that the sales figures include freight. It is for this reason that the sales
figures differ from the totals included in the financial statements.)
D. INFLATION
The Company believes that inflation affects the Company's business to no greater
or lesser extent than the general economy.
<PAGE> 15
ITEM 3 - DESCRIPTION OF PROPERTY.
The Company has been operating from leased office space at 600 Central Avenue
SW, 3rd floor, Albuquerque, New Mexico since August, 1999. The lease is month to
month. There are no outstanding obligations with regard to the lease. It is
anticipated that the Company will require a larger facility for its business
within the next 12 months.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the names of persons who own of record, or were
known by the Company to own beneficially, more than 5 percent of its issued and
outstanding common stock, and the beneficial ownership of stock as of July 31,
1999 date by officers and directors of the Company and all officers and
directors as a group. Except as otherwise noted, each person listed below is the
sole beneficial owner of the shares and has sole investment and voting power of
such shares. No person listed below has any option, warrant or other rights to
acquire additional securities of the Company, except as may be otherwise noted.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Address Amount and Nature of
Title of Class Of Beneficial Owner Beneficial Owner Percent of Class
-------------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
Richard Urrea 2,496,000 $0.001 Par 13.2
Common 600 Alcalde SW #4D
Albuquerque, NM 87104
Matthew Urrea 2,496,000 $0.001 Par 13.2
Common 2213 Matthew NW
Albuquerque, NM 87110
Daniel Urrea 2,496,000 $0.001 Par 13.2
Common 3009 Charleston NE
Albuquerque, NM 87110
Nunzio P De Santis 2,496,000 $0.001 Par 13.2
Common 600 Central Ave. SW, 3rd Floor
Albuquerque, NM 87102
Francisco Urrea Jr. 2,184,000 $0.001 Par 11.5
Common 3009 Charleston NE
Albuquerque, NM 87110
Brent Wolford 2,080,000 $0.001 Par 11.0
Common 2601 Silver Avenue SE #8
Albuquerque, NM 87106
Henri Hornby 1,082,540 $0.001 Par 5.6
Common 3653 Hemlock Court
Reno, NV 89509
No. Shares & % 11,752,000 62.1
owned by directors
& officers as a
whole
</TABLE>
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The present directors and executive officer of the Company, their age, positions
held in the Company and duration as such, are listed below.
<PAGE> 16
Each director will serve until the first annual meeting of shareholders to be
held on August 22, 2000, 10:00 am at the Albuquerque Country Club, 601 Laguna
Blvd. SW, Albuquerque, NM 87104, or until his or her respective successor has
been elected and duly qualified. Officers hold office at the pleasure of the
Board of Directors, absent any employment agreement. Presently no officers of
the company have an employment agreement.
Francisco Urrea Jr. a Director is the father of the CEO Richard A. Urrea, CFO
Daniel R. Urrea and Chief Council Matthew Urrea.
<TABLE>
<CAPTION>
Name Age Position Held and Tenure
<S> <C> <C>
Richard Urrea 35 President/CEO
(since January 1, 1999)
Daniel Urrea 28 Chief Financial Officer
(since January 1, 1999)
Brent Wolford 23 Chief Technical Officer
(since January 1, 1999)
Matthew Urrea 32 Chief Council
(since January 1, 1999)
Francisco Urrea, Jr. 67 Director
(since January 1, 1999)
R. Gene Klawetter 61 Director
(since July 31, 1999)
</TABLE>
The following is a brief account of the business experience during at least the
past five years of each director and executive officer, indicating the principal
occupation and employment during that period, and the name and principal
business of the organization in which such occupation and employment were
carried out.
RICHARD URREA
Mr. Urrea's has been president of Sycom International, Inc. since 1997. Sycom is
a data communications company. Mr. Urrea led the company from start up through
national marketing plan and implementation of manufacturing plan. The company
currently manufactures its products and markets them throughout the U.S and is
in the process expanding into foreign markets. From 1996 to 1997 Mr. Urrea was
President of Klaire International Ltd., an export company distributing
automotive parts in Mexico. From 1995-1996 Mr. Urrea served as the managing
member of Toltec Fruit, L.C. a limited liability company involved in the
importation of fruit into the United States from Mexico and South America. From
1993 to 1995 Mr. Urrea worked on the development and marketing plan for Septima
Enterprises Inc. From 1991 to 1993, Mr. Urrea managed the Albuquerque Office of
White Discount Securities. In 1990, Mr. Urrea was contract administrator for
Foresight, Inc., an Albuquerque, laser-optics, government contractor. In 1989,
Mr. Urrea served as marketing director for HDI System, Inc. where he devised and
implemented an international marketing plan for an ignition system for marine
application. In 1985 and 1986, Mr. Urrea owned and operated Shannon Euro
Motorcars, a European automobile importing and maintenance company. Mr. Urrea
sold
<PAGE> 17
the business in 1986 to attend Baylor University. Mr. Urrea received his
Bachelor of Business Administration in Marketing and Business Broadcasting from
Baylor University's Hankammer School of Business in 1989.
FRANCISCO URREA, JR.
Mr. Urrea has founded numerous public companies including Diagnostek, Inc., a
prescription benefits management and hospital pharmacy management company (New
York Stock Exchange), Nuclear Pharmacy Incorporated, a centralized
radiopharmaceutical company servicing several hundred hospitals throughout the
United States (NASDAQ), Summa Medical Corporation, a research and development
company (American Stock Exchange), Septima Enterprises, Inc., a company that has
developed a high voltage automotive ignition system (NASDAQ Bulletin Board) and
Advanced Optics Electronics, Inc., a company developing a high-intensity, flat-
panel display (NASDAQ Bulletin Board). Mr. Urrea served as Chairman of the Board
of Directors of Nuclear Pharmacy Incorporated from 1974 until 1982. Mr. Urrea
served as Chairman of the Board of Summa Medical Corporation from 1978 until
1990, as president from 1978 through April 1982 and as president again from
October 1986 through February 1990. Mr. Urrea served as Chairman of the Board of
Directors of Diagnostek from 1983 through 1985. Mr. Urrea also was a director of
Septima Enterprises and served as president from 1988 through 1992. Mr. Urrea
has served as Vice Chairman of the New Mexico State Investment Council, Chairman
of the New Mexico Game and Fish Department, Commissioner of the New Mexico State
Racing Commission, Member of the New Mexico Industrial Development Commission,
Member of the New Mexico Foreign Trade and Investment Council, and Member of the
United States Department of Commerce's Biotechnology Advisory Committee. Mr.
Urrea graduated from Saint Mary's High School in 1949 after which he served two
years in the United States Navy during the Korean War. He is currently Chairman
of the Board of Directors of Klaire International, Ltd., a company holding the
exclusive distribution rights in Mexico for a patented automotive ignition
product developed in the United States by Septima Enterprises, Inc.
DANIEL URREA
Mr. Urrea has been associated with the CYCO.NET since inception in December of
1998. Prior to his involvement with the CYCO.NET, Mr. Urrea worked with Sycom
International, manufacturer and distributor of Radio Telemetry Units. During
that time Mr. Urrea was responsible for the maintenance of the accounting
records for the company, and was instrumental in the development of the
company's business plan. Before this, Mr. Urrea worked for Klaire International,
an exporter of automotive accessories to Mexico, in the same capacity. From
January 1996 thorough August of 1996 Mr. Urrea worked with Equinox
International. An international marketing and distribution company, where he was
involved in sales and talent recruiting activities. In the Spring of 1995, Mr.
Urrea received a Bachelors in Business Administration with a concentration in
Finance from the Anderson Schools of Management at the University of New Mexico.
Mr. Urrea has also spent several months out of the country where he studied
business and other cultures.
<PAGE> 18
BRENT WOLFORD
Mr. Wolford has been involved in CYCO.NET since inception, and is in charge of
Web page design and maintenance. Mr. Wolford will graduate from the University
of New Mexico with a Major in Computer Science, and a Minor in Business
Management in May of 1999. He is literate in all major operating systems
including DOS 6.2, Macintosh OS8, UN*X, and Windows 95/98/NT, and has extensive
experience with several applications including Microsoft Office + Frontpage,
Adobe Photoshop + Pagemaker, Alias Wavefront, Bryce 3D and many more. Before
becoming involved with CYCO.NET, Mr. Wolford built and continues to maintain
several Web Sites including the Dartmouth Street Gallery
(http://www.dsg-art.com), Mortgage Internet Technologies
(http://www.vlender.com), and Digital Skunk Bud Productions
(http://www.dsbp.cx).
MATTHEW URREA
Mr. Urrea is a tax lawyer with a private law practice in Albuquerque. He
received his Master of Laws in Taxation from New York University School of Law
(May 1993), his Juris Doctor from the University of New Mexico School of Law
(May 1992), and his Bachelors of Business Administration in Finance from the
University of New Mexico's Anderson School of Management (May 1989). From 1993
until April 1996, Mr. Urrea was an associate with the law firm of
Miller,Stratvert, Torgerson & Schlenker, P.A. in Albuquerque, New Mexico where
he practiced primarily in the area of taxation, including individual, estate and
business tax planning, business entity formation, mergers, sales, acquisitions
and reorganizations of business entities, international tax planning, and
like-kind exchanges. Mr. Urrea has lectured before professional and civic groups
on various tax subjects and is a member of the New Mexico, American, and
Albuquerque Bar Associations.
R. GENE KLAWETTER
Mr. Klawetter brings a decade of professional wireless communications experience
and growth to AVE. He was previously Chairman, President and CEO of American
Digital Communications, a company involved in building out 105 channels of 220
MHz spectrum for low-cost analog dispatch applications. Mr. Klawetter
successfully sold the systems to a larger provider and guided the company to a
merger with TrackPower International of Toronto, Canada. The company
subsequently moved its headquarters to Toronto. Prior to ADC he was President
and CEO of Millicom Radio Telephone Company, Inc., a 900 MHz provider in 5
states. Mr. Klawetter has extensive experience in working with the FCC in the
areas of licensing and legal interface. He has successfully negotiated
contracts, management agreements, option, lease and purchase agreements which
gave him the administrative expertise necessary to manage the ADC operation and
his experience with high tech communications systems will be of substantial
benefit to AVE. Subsequent to the decision of Millicom's parent company to exit
the SMR industry, Mr. Klawetter successfully liquidated approximately $5 million
in assets on behalf of Millicom. Mr. Klawetter's extensive experience in the
computer, communications and information systems environment has given him the
executive skills necessary to successfully implement the strategies of AVE.
Mr. Klawetter is formerly the President and Chief Operating Officer of Pinetree
Computer Systems, a company he helped take public in 1984 (OTC) and was National
Sales Manager of NBI, Inc., of Boulder, Colorado. Mr.
<PAGE> 19
Klawetter attended Blinn College in Brenham, Texas, TCU, Fort Worth, Texas and
Pace University, New York. Graduate-level studies included historical case study
analysis at Exeter Academy in New Hampshire taught by Harvard Business School.
This program was sponsored by Xerox Corp.
Former Officers and Directors
TOM ATHANS
Mr. Athans served as a Director and President of Ave Inc. from December 28, 1997
to June 1, 1998. Mr. Athans resigned from both positions effective June 1, 1998
to pursue other business interests.
HENRI HORNBY
Mr. Hornby was first elected a Director of Ave Inc. in June of 1995. Since
November, 1989 Mr. Hornby has been engaged in private asset management.
Additionally, from May, 1994 to present he has been an Officer and Director for
Wincanton Corporation, a company which, through its subsidiary Trademan
Industries, is involved in development of specialty motor vehicles. Mr. Hornby
has also been a Director for Adven, Inc., whose business is oil clean-up
products. Mr. Hornby resigned as Director of AVE, Inc. effective July 31, 1999.
GEORGE SULLIVAN
Mr. Sullivan served Ave Inc., as Vice President of Operations from January, 1998
and resigned as a part of the reverse merger agreement with CYCO.NET, Inc.
DAN SMITH
Mr. Smith served Ave Inc. as Chief Financial Officer from January, 1998 until
April, 1998 at which time he resigned to pursue other opportunities.
ITEM 6 - EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation authorized for
the Company's Chief Executive Officer and such compensation as has been
authorized board members since December 28, 1997. The CEO's total annual salary
does not exceed $100,000 nor does that of any other board member.
<PAGE> 20
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Principle Year Salary ($) Bonus Other Annual Restricted Securities LTIP All Other
Position ($) Compensation ($) Stock Underlying Payouts Compensation
Award(s) Options/SARs ($) ($)
($) (#)
<S> <C> <C>
1998 $0.00
Richard Urrea, 1999 $28,666
President/CEO 2000 $9,999
1st Qtr
Daniel Urrea 1998 $0.00
CFO 1999 $10,000
2000 $5,000
1st Qtr
Brent 1998 $0.00
Wolford 1999 $7,000
CTO 2000 $0.00
1st Qtr
Matthew 1998 $0.00
Urrea 1999 $0.00
Chief
Counsel
Francisco 1998 $0.00
Urrea, Jr. 1999 $0.00
Director
R. Gene 1998 $11,000
Klawetter, 1999 $30,000
Director
George Sullivan 1998 $6,000
Former V.P. 1999 $7,500
Operations
Secretary
of Ave Inc.
</TABLE>
(1) Certain of the Company's executive officers may receive personal
benefits in addition to salary and other cash bonuses. The aggregate amount
of the personal benefits, however, will not exceed the lesser of $10,000 or
10% of the total of the annual salary and bonus reported for the named
officers.
<PAGE> 21
Stock Compensation Plan
The Company has adopted a Compensatory Stock Option Plan (the "CSO Plan") for
officers, key employees, potential key employees, non-employee directors and
advisors. The Company has reserved a maximum of 4,000,000 Common Shares to be
issued upon the exercise of options granted under the CSO Plan. The CSO Plan
will not qualify as an "incentive stock option" plan under Section 422A of the
Internal Revenue Code of 1986, as amended. Options will be granted under the CSO
Plan at exercise prices to be determined by the Board of Directors or other CSO
Plan administrator. With respect to options granted pursuant to the CSO Plan,
optionees will not recognize taxable income upon the grant of options, but will
realize income (or capital loss) at the time the options are exercised to
purchase Common Stock. The amount of income will be equal to the difference
between the exercise price and the fair market value of the Common Stock on the
date of exercise.
The Company will be entitled to a compensating deduction in an amount equal to
the taxable income realized by an optionee as a result of exercising the option.
The CSO Plan will be administered by the Board of Directors or a committee of
directors.
COMPENSATION OF DIRECTORS
CYCO.NET, INC. has agreed to a term as Director for a period of one year and to
reimburse Mr. Klawetter $500 per Board meeting plus expenses.
OPTION/SAR GRANTS AS OF DECEMBER 38, 1999
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Name Number of Securities % of Total Options/SARs Exercise or Expiration
Underlying Options/SARs Granted to Employees in Base Price Date
Granted (#) Fiscal Year ($/Sh)
<S> <C> <C> <C> <C>
R. Gene Klawetter, 400,000 66.6% $0.10 Jan. 2003
Former CEO, Chairman
George Sullivan 200,000 33.3% $0.10 Jan. 2003
Former VP,
Operations, Corp.
Secretary
</TABLE>
Note 1. Number of options shown are pre-merger.
No options have been exercised since December 28, 1999 and the number of
securities underlying unexercised options is the same as that shown in the above
table. Under the agreement reached in the merger of AVE, Inc. and CYCO.NET,
Inc., and pursuant to an agreement with the Company as detailed in Board minutes
dated January 12, 1999, the Company will purchase the above number of options
for $0.10 per option within 48 hours after receiving proceeds from the
anticipated 504 Reg D funding described later in this document (See Item 8).
<PAGE> 22
The company has no stock appreciation rights (SAR) plan in place and has not
awarded SAR's to any person. The Company has no long-term incentive plans, as
that term is defined in the rules and regulations of the Securities and Exchange
Commission. The Company does not have an Incentive Stock Option Plan though it
is anticipated that such a plan will be adopted in the future as needs of the
business dictate.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 19, 1998 the company entered into a one-year financial consulting
contract with Messrs. Kenneth Adelberg and Larry Fox of Philadelphia. Under the
agreement, the parties are to raise $300,000 immediately and $3.2 million
subsequent to the successful test of the Company's prototype antenna. In return,
the parties were to receive 1,000,000 of the Company's Compensatory Stock
Options (CSO) at $0.01 per share. Due to lack of interest Messrs. Adelberg and
Fox did not meet the terms of this agreement and, therefore the agreement
terminated on January 18, 1999 with no further obligation by either party. In
February, 1998, Mr. Adelberg loaned the Company $10,000 at 8% interest. Neither
interest or principle has been paid or repaid.
ITEM 8 - DESCRIPTION OF SECURITIES
The OTC Bulletin Board is the principal market where the Company stock is
traded. Active trading commenced October 27, 1998. Previously AVE, Inc. filed a
Rule 15c2-11 in April of 1997 by Citadel Securities and became listed with the
trading symbol "AVEN". At that time the Company did not follow through with a
business plan to support a market for its stock and the listing again became
dormant. The shares never traded and there was no trading activity until October
27, 1998. The Company refiled its 15c211 in October, 1998 through Public
Securities, Spokane, Washington.
AVE, Inc. has authorized 30,000,000 shares (approved by the Secretary of the
State of Nevada on July 8, 1999 from 15,000,000 shares) and the outstanding
post-merger common shares are 19,343,000 as of July 31, 1999. Of this
outstanding stock 18,132,827 shares will be legend stock, 93.7% of the total.
Non-restricted shares amount to the difference between the outstanding and
legend-restricted for a total of 1,210,173 shares. Pursuant to the merger
agreement between AVE, Inc. and CYCO.NET, Inc., post-merger share positions of
pre-merger AVE shareholders will be subject to an 80% lock-up for a period of
one year.
<PAGE> 23
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
<TABLE>
<CAPTION>
QTR Ending High Low
---------- ---- ---
<S> <C> <C>
Dec 1998 .500 .180
Mar 1999 .843 .281
Jun 1999 .750 .250
Sep 1999 .625 .062
Dec 1999 .750 .093
Mar 2000 .500 .150
</TABLE>
The total number of shareholders of record is 451.
No dividends have been paid on the existing shares of stock though there is no
restriction limiting dividends in the future.
The market makers for the Company stock are Hill Thompson, Nite Securities,
Fran, Hrzg, Paragon Capital, and Sharpe.
ITEM 2 - LEGAL PROCEEDINGS
The Company is not a party to any pending or threatened litigation.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
N/A
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
1998 STOCK ISSUANCES
On January 5, 1998, 300,000 shares of the Company's common stock was issued to
Marvin Athans at par value of $0.001 per share for Accounting services rendered
from April 97 to December 97.
On January 5, 1998 100,000 shares of the Company's common stock was issued to
Ferris Peery at a par value of $0.001 per share as a finders fee for introducing
the Director of Ave to DMI Inc.
On January 5, 1998 79,675 shares issued to Olympic Capital Group at par value of
$0.001 per share for legal work during the acquisition of the Ave Inc. shell.
On January 5, 1998 For monies received during the calendar years of 1995 and
1996 the following shares of the Company's common stock were issued to the
following investors and directors. At time of issuance there was not a market
for the stock and the shares were valued at the par value of $0.001 per share:
<PAGE> 24
142,500 shares were issued to David B. Evans at the par value of $0.001 per
share
142,500 shares were issued to E-2 Brokers at the par value of $0.001 per share
373,874 shares were issued to Henry Hornby at the par value of $0.001 per share
200,000 shares were issued to Neil F. Hornby at the par value of $0.001 per
share.
On August 5, 1998, the Company granted 200,000 stock compensation options, at an
exercise price of $0.10 per share, as part of a Financial Consulting Agreement.
On July 20, 1998 and September 11, 1998 the Company issued a total of 200,000
shares to E-2 Brokers at the option price of $0.10 per share for cash of
$20,000.
On November 6, 1998, Pursuant to its 504D offering at $.01 per share the company
issued 400,000 share of its $0.001 par value common stock to ICS Communications
Corp. at $0.01 per share for a subscription receivable of $4,000. Share price on
this offering was arbitrarily determined.
During November 1998, Pursuant to its 504D offering at $.01 per share the
company issued 200,000 shares of its $0.001 par value common stock to Jim Betnar
for a Note receivable of $2,000 for $0.01 per share. Share price on this
offering was arbitrarily determined.
On November 12, 1998 the Company issued 250,000 shares of its $0.001 par value
common stock to KKG Capital of Queensland, Australia at $0.20 per share for cash
of $50,000. Issuance costs were $4,909. Price of shares in this private
placement was arbitrarily determined.
On November 19, 1998 the Company issued 250,000 shares of its $0.001 par value
common stock to Mr. Jim Betnar of Vancouver B.C. at $0.01 per share for cash of
$500 and a Note receivable of $2,000. The Note Receivable has been recorded as a
reduction to Stockholders equity at December 31, 1998.
1999 STOCK ISSUANCES
On February 18th and 19th of 1999, the Company issued a total of 250,000 shares
of its $0.001 par value common stock to Laburnum Investments of Nassau Bahamas
for $50,000 cash or $0.20 per share. Share price of this private placement was
arbitrarily determined. *
On May 21, 1999, the Company issued a total of 1,200,000 shares of its 0.001 par
value common stock to Richard A. Urrea as Capital Contribution in formation
stage and services rendered. *
On May 21, 1999, the Company issued a total of 1,200,000 shares of its 0.001 par
value common stock to Francisco Urrea Jr. as Capital Contribution in formation
stage and fund raising services. Mr. Urrea gifed 150,000 shares of this amount
to a third party, which accounts for the discrepancy in the amount issued and
the amount currently held by Mr. Urrea. *
<PAGE> 25
On May 21, 1999, the Company issued a total of 1,200,000 shares of its 0.000 par
value common stock to MAU LLC for legal services rendered.
On May 21, 1999, the Company issued a total of 1,200,000 shares of its 0.000 par
value common stock to Daniel R. Urrea for Services Rendered/Bookkeeping. *
On May 21, 1999, the Company issued a total of 1,000,000 shares of its 0.000 par
value common stock to Brent Wolford for Services Rendered/Built Website. *
On May 21, 1999, the Company issued a total of 1,200,000 shares of its 0.000 par
value common stock to Nunzio P. DeSantis Family for their aid in fund
Raising/intro to May Davis Trust. *
On May 21, 1999, the Company issued a total of 200,000 shares of its 0.000 par
value common stock to Trey Urrea for his aid in fund raising/intro to possible
investors. *
On May 21, 1999, the Company issued a total of 170,000 shares of its 0.000 par
value common stock to Con Queso LLC 100,000 @ $0.05 funds Rcvd $5,000, and
70,000 for aid in fund raising. Share price of this private placement was
arbitrarily determined. *
On May 28, 1999, the Company issued a total of 50,000 shares of its 0.000 par
value common stock to Max Sonnenberg @ $0.10 funds received $5,000. Share price
of this private placement was arbitrarily determined. *
On June 1, 1999, the Company issued a total of 100,000 shares of its 0.000 par
value common stock to Larry E. Minarsich @ $0.10 funds received $10,000. Share
price of this private placement was arbitrarily determined. *
On June 18, 1999, the Company issued a total of 20,000 shares of its 0.000 par
value common stock to Doug Fenton @ $0.10 funds received $2,000. Share price of
this private placement was arbitrarily determined. *
On June 23, 1999, the Company issued a total of 50,000 shares of its 0.000 par
value common stock to Daniel J Behles @ $0.10 funds received $5,000. Share price
of this private placement was arbitrarily determined. *
On June 24, 1999, the Company issued a total of 50,000 shares of its 0.000 par
value common stock to Charles B. Elias and Joseph J. Elias @ $0.10 funds
received $5,000. Share price of this private placement was arbitrarily
determined. *
On July 8, 1999, the Company issued a total of 100,000 shares of its 0.000 par
value common stock to Leon Palmisano as payment for the introduction to Ave Inc.
for merger. *
On July 8, 1999, the Company issued a total of 100,000 shares of its 0.000 par
value common stock to Dennis C. Chavez @ $0.10 funds received $10,000. Share
price of this private placement was arbitrarily determined. *
<PAGE> 26
On July 8, 1999, the Company issued a total of 50,000 shares of its 0.000 par
value common stock to Paul J Roney for his aid in fund raising/intro to possible
investors. *
On September 10, 1999, the Company issued a total of 50,000 shares of its 0.000
par value common stock to John M & Bobbie A. Love @ $0.20 funds received
$10,000. Share price of this private placement was arbitrarily determined.
On September 22, 1999, the Company issued a total of 20,000 units to John O.
Harry 10,000 units at $1.00 per unit funds received $10,000 1 unit = 2 shares of
stock and 1 option exercisable at $1.00. Share price of this private placement
was arbitrarily determined.
On December 7, 1999, the Company issued a total of 200,000 shares of its 0.000
par value stock to Brenden T. Riccobene @ $0.05 funds received $10,000. Share
price of this private placement was arbitrarily determined.
On December 9, 1999, the Company issued a total of 200,000 shares of its 0.000
par value stock to Dennis Chavez @ $0.075 funds received $15,000. Share price of
this private placement was arbitrarily determined.
On December 21, 1999, the Company issued a total of 150,000 shares of its 0.000
par value stock to Don Rehm @$0.10 funds received $15,000. Share price of this
private placement was arbitrarily determined.
2000 STOCK ISSUANCE
On January 11, 2000 the Company issued a total of 100,000 shares of its 0.000
par value stock to John T. Badal @ $0.10 funds received $10,000. Share price of
this private placement was arbitrarily determined.
January 31, 2000 the Company issued a total of 200,000 shares of its 0.000 par
value stock to Danny Deaver @ $0.05 funds received $10,000. Share price of this
private placement was arbitrarily determined.
On March 10, 2000 the Company issued a total of 20,000 shares of its 0.000 par
value stock to Edward Fittipaldi @ $0.10 funds received $2,000. Share price of
this private placement was arbitrarily determined.
* These shares were issued prior to the merger. Therefore, the number of shares
owned by the above listed shareholders increased upon the completion of the
merger.
ITEM 5 -INDEMNIFICATION OF DIRECTORS AND OFFICERS
There is no statute, charter provision, by-laws, contract or other arrangement
that insures or indemnifies officers or directors of the Company. It is the
intent of Management Ave, Inc. to provide for such indemnification at such time
as is practical based on the operations of the Company and to the fullest extent
permitted by New Mexico law.
<PAGE> 27
PART F/S
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Cyco.net, Inc. and Subsidiary
Report of Independent Certified Public Accountants F-1
Financial Statements
Consolidated Balance Sheet as of December 31, 1999 F-2
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1999 F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998 and 1999 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1999 F-5
Notes to Consolidated Financial Statements F-6
Unaudited Consolidated Balance Sheet as of March 31, 2000 F-13
Unaudited Consolidated Statements of Operations for the three months
ended March 31, 1999 and 2000 F-14
Unaudited Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 2000 F-15
Notes to Unaudited Consolidated Financial Statements F-16
Pro Forma Financial Statements
Summary F-18
Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1999 F-19
Notes to Unaudited Pro Forma Financial Statements F-20
Explanation of Adjustments F-21
Independent Auditor's Report F-22
Financial Statements
Balance Sheet as of July 22, 1999 F-23
Statement of Operations for the period from inception (January 25, 1999)
to July 22, 1999 F-24
Statement of Stockholders' Equity for the period from inception
(January 25, 1999) to July 22, 1999 F-25
Statement of Cash Flows for the period from inception (January 25, 1999)
to July 22, 1999 F-26
Notes to Financial Statements F-27
</TABLE>
<PAGE> 28
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Cyco.net, Inc.
We have audited the accompanying consolidated balance sheet of Cyco.net, Inc.
and Subsidiary as of December 31, 1999, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the two years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about 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 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Cyco.net, Inc. and Subsidiary
as of December 31, 1999, and the results of its operations, and its cash flows
for each of the two years then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficit. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also discussed in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Stark Tinter & Associates, LLC
Denver, Colorado
June 30, 2000
<PAGE> 29
Cyco.net, Inc. and Subsidiary
Consolidated Balance Sheet
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash $ 10,737
Subscription Receivable 15,000
Other receivables 26,607
Inventory 1,057
Prepaid expenses 4,200
-----------
Total Current Assets 57,601
-----------
Other assets
Available for sale securities 7,812
Goodwill, net of accumulated amortization 1,457,236
-----------
$ 1,522,649
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 45,838
Note payable 10,000
Due to officer 18,000
-----------
Total Current Liabilities 73,838
-----------
Stockholders' equity
Common stock, $0.001 par value,
30,000,000 shares authorized,
19,940,419 issued and outstanding 19,940
Additional paid in capital 2,745,867
Accumulated deficit (1,274,808)
Accumulated other comprehensive (loss):
Unrealized (loss) on available for sale securities (42,188)
-----------
Total stockholders' equity 1,448,811
-----------
$ 1,522,649
===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 30
Cyco.net, Inc. and Subsidiary
Consolidated Statements of Operations
For the Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Revenue $ -- $ 59,671
Operating expenses:
Cost of sales -- 8,321
General and administrative expenses 75,414 155,164
Amortization -- 161,915
Interest Expense 687 533
------------ ------------
76,101 325,933
Net (loss) (76,101) (266,262)
Other comprehensive income:
Unrealized loss on available for sale securities -- (42,188)
------------ ------------
Comprehensive (loss) $ (76,101) $ (308,450)
============ ============
Per share information:
Weighted average shares outstanding - basic and fully diluted 7,298,976 11,371,644
============ ============
Net (loss) per share - basic and fully diluted $ (0.01) $ (0.02)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 31
Cyco.net, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Common Stock Additional Other
---------------------------- Paid in Accumulated Comprehensive
Shares Amount Capital Deficit (Loss) Total
----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 3,066,333 $ 3,066 $ 938,030 $ (932,445) $ -- $ 8,651
Issuance of stock for
a subscription receivable 80,728 81 19,919 -- -- 20,000
Cancellation of shares (783,056) (783) 783 -- -- --
Issuance of stock for cash
in exchange for
a subscription receivable and a
note receivable 242,182 242 5,758 -- -- 6,000
Issuance of stock for cash
net of issuance costs 100,909 101 44,990 -- -- 45,091
Issuance of stock for cash
in exchange for a note receivable 100,909 101 2,399 -- -- 2,500
Net loss for the year -- -- -- (76,101) -- (76,101)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 2,808,005 2,808 1,011,879 (1,008,546) -- 6,141
Shares issued for cash 571,214 571 94,429 -- -- 95,000
Shares issued for a subscription
receivable 150,000 150 14,850 -- -- 15,000
Shares issued in conjunction with
an acquisition 16,411,200 16,411 1,624,709 -- -- 1,641,120
Unrealized loss on available
for sale securities -- -- -- -- (42,188) (42,188)
Net loss for the year -- -- -- (266,262) -- (266,262)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 19,940,419 $ 19,940 $ 2,745,867 $(1,274,808) $ (42,188) $ 1,448,811
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32
Cyco.net, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Net (loss) $ (76,101) $ (266,262)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Amortization -- 161,915
Available for sale securities received as payment for license rights -- (50,000)
(Increase) in other receivables -- (15,261)
(Increase) in inventory -- (1,057)
(Increase) in prepaid expenses -- (4,200)
Increase in accounts payable and accrued expenses 10,524 29,020
----------- -----------
Net cash (used in) operating activities (65,577) (145,845)
----------- -----------
Cash flows from investing activities:
Cash acquired in a business combination -- 16,917
----------- -----------
Net cash provided by investing activities -- 16,917
----------- -----------
Cash flows from financing activities:
Proceeds from stock issuance 65,591 95,000
Payment of subscription and account receivable for stock -- 8,000
Increase in amounts due to related party -- 18,000
Proceeds from note payable 10,000 --
----------- -----------
Net cash provided by financing activities 75,591 121,000
----------- -----------
Net increase (decrease) in cash 10,014 (7,928)
Beginning - cash balance 8,651 18,665
----------- -----------
Ending - cash balance $ 18,665 $ 10,737
=========== ===========
Supplemental cash flow information:
Cash paid for income taxes $ -- $ --
Cash paid for interest $ -- $ --
Non-cash investing and financing activities:
Issuance of stock in exchange for a subscription receivable $ 4,000 $ 15,000
Issuance of stock in exchange for an account receivable $ 4,000 $ --
Unrealized loss on available for sale securities $ -- $ 42,188
Common stock issued in a business combination $ -- $ 1,641,120
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 33
Cyco.net, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1999
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated in 1921 under the name of Deluxe Onyx Company. In
1987, the Company's name was changed to Walsh Communications Group, Inc. and the
Company's domicile was changed to Nevada. On January 5, 1990, the Board of
Directors authorized that the name of the Company be changed and on May 4, 1990,
amended Articles of Incorporation were filed to change the Company's name to
AVE, Inc. On July 28, 1999 the Company again filed amended Articles of
Incorporation changing its name to Cyco.net, Inc. The Company's intent is to
develop a network of web based businesses.
Basis of reporting
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.
The Company has experienced recurring losses from operations as a result of its
investment necessary to achieve its operating plan, which is long-range in
nature. For the years ended December 31, 1998 and 1999 the Company incurred net
losses of $76,101 and $266,262. At December 31, 1999, the Company has a working
capital deficit of $16,237.
The Company's ability to continue as a going concern is contingent upon its
ability to secure financing, increase ownership equity and attain profitable
operations. In addition, the Company's ability to continue as a going concern
must be considered in light of the problems, expenses and complications
frequently encountered by entrance into established markets and the competitive
environment in which the Company operates.
The Company is pursuing financing for its operations and seeking additional
private placement investments. Failure to secure such financing or to raise
additional equity capital may result in the Company depleting its available
funds and not being able pay its obligations.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Business Combinations
Business combinations, which have been accounted for under the purchase method
of accounting, include the results of operations of the acquired business from
the date of acquisition. Net assets of the companies acquired are recorded at
their fair value to the Company at the date of acquisition. The excess of the
purchase price over the fair value of the net assets is included in goodwill.
Revenue Recognition
The Company's records revenue as it is earned.
<PAGE> 34
Cyco.net, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1999
Inventory
Inventory is stated at the lower of cost or market, cost being determined on a
first-in, first-out basis.
Advertising Costs
The Company expenses all costs of advertising as incurred. Advertising costs
included in selling, general and administrative expenses aggregated $2,178 in
1999.
Goodwill and Other Intangible Assets
Goodwill related to a purchase transaction is being amortized on a straight-line
basis over a period of five years. As of December 31, 1999 accumulated
amortization was $161,915. The Company periodically evaluates whether changes
have occurred that would require revision of the remaining estimated useful life
of the assigned goodwill or render the goodwill not recoverable. If such
circumstances arise, the Company would use an estimate of the undiscounted value
of expected future operating cash flows to determine whether the goodwill is
recoverable.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Financial Instruments
The carrying amounts for the Company's cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, and notes payable approximate
fair value as they are short term in nature or are receivable or payable on
demand.
Long Lived Assets
The carrying value of long lived assets is reviewed on a regular basis for the
existence of facts and circumstances that suggest impairment. To date, no such
impairment has been indicated. Should there be an impairment in the future, the
Company will measure the amount of the impairment based on the undiscounted
expected future cash flows from the impaired assets.
Net Income (Loss) per Common Share
The Company calculates net income (loss) per share as required by SFAS No. 128,
"Earnings per Share." Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During the periods presented common stock
equivalents were not considered as their effect would be anti dilutive.
Stock-Based Compensation
The Company accounts for stock based compensation in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation." The provisions of SFAS No. 123
allow companies to either expense the
<PAGE> 35
Cyco.net, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1999
estimated fair value of stock options or to continue to follow the intrinsic
value method set forth in APB Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") but disclose the pro forma effects on net income (loss)
had the fair value of the options been expensed. The Company has elected to
continue to apply APB 25 in accounting for its stock option incentive plans.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Segment Information
The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information." Certain information is disclosed, per SFAS No. 131,
based on the way management organizes financial information for making operating
decisions and assessing performance. The Company currently operates in a single
segment and will evaluate additional segment disclosure requirements as it
expands its operations.
Recent Pronouncements
The FASB recently issued Statement No 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133". The Statement defers for one year the effective date of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
rule now will apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
in years beginning after June 15, 1999. The Statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company has not
yet determined if it will early adopt and what the effect of SFAS No. 133 will
be on the earnings and financial position of the Company.
NOTE 2. BUSINESS COMBINATION
During July 1999, the Company exchanged 16,411,200 shares of its common stock
for all of the issued and outstanding common stock of Cyco.net, Inc.
("Cyco.net") an unrelated entity which was incorporated during January 1999.The
net assets of Cyco.net aggregating $28,263 consisted principally of cash and
other receivables. The acquisition was accounted for under the purchase method
of accounting and, accordingly, the results of operations are included in the
financial statements as of the date of acquisition, and the assets and
liabilities were recorded based upon their fair values at the date of
acquisition. The Company has allocated the excess purchase price over the fair
value of net tangible assets acquired of $1,619,151 to goodwill.
The following unaudited pro forma information has been prepared assuming that
the acquisition had taken place at the beginning of the period presented The pro
forma financial information is not necessarily indicative of the combined
results that would have occurred had the acquisitions taken place at the
beginning of the period, nor is it necessarily indicative of results that may
occur in the future.
<PAGE> 36
Cyco.net, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
Pro Forma
For the year
Ended December 31, 1999
-----------------------
<S> <C>
Revenue $ 59,671
Net (Loss) $(150,078)
(Loss) per share-basic and fully diluted $ (.01)
</TABLE>
Note 3. LICENSE AGREEMENT
The Company entered into a Patent License Agreement with the National
Aeronautics and Space Administration ("NASA") on August 14, 1997. This patent
referred to in the Agreement is currently under revision by NASA. As
consideration for the grant of the license the Company paid a one-time royalty
of $2,000. Under the terms of the agreement, the Company was to pay royalties
based on 5% of the net selling price with a minimum $3,000 annual payment. (see
Note 4).
Note 4. MARKETABLE SECURITIES
During February 1999 the Company entered into an agreement with Zenith
Technology, Inc. (a wholly owned subsidiary of Prime Companies, Inc.) to sell to
the same, its rights to the NASA patent and license agreement (See Note 3). In
consideration for the sale of the rights the Company received 25,000 common
shares of Prime Companies, Inc. having a total fair market value of $50,000.
The Company's marketable securities consist of the above investment in equity
securities and are classified as available for sale. The net unrealized gains
(losses) are included in accumulated other comprehensive income as a component
of stockholders' equity.
Marketable securities consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
Amortized Fair Market Unrealized
Cost Value Gain (loss)
--------- ----------- -----------
<S> <C> <C> <C>
Prime Companies, Inc. (25,000 shares) $ 50,000 $ 7,812 $ (42,188)
</TABLE>
Note 5. STOCKHOLDERS' EQUITY
During 1997, the Company granted 80,728 stock compensation options, at an
exercise price of $0.25 per share, as part of a financial consulting agreement.
During July and September 1998 the Company issued a total of 80,728 shares to
this consultant for cash aggregating $20,000.
During November 1998, the Company issued 242,182 shares of its $0.001 par value
common stock to various investors at $0.025 per share for a subscription
receivable of $4,000 and a note receivable of $2,000.
During November 1998 the Company issued 100,909 shares of its $0.01 par value
common stock to various investors at $0.50 per share for cash aggregating
$50,000. Issuance costs were $4,909.
During November 1998 the Company also issued 100,909 shares of its $0.01 par
value common stock to various investors at $0.025 per share for cash aggregating
$500 and a Note receivable of $2,000.
During 1998, 783,056 shares of the Company's $0.001 par value common stock were
returned to the Company by various officers and cancelled.
<PAGE> 37
Cyco.net, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1999
During February 1999 the Company issued 101,214 shares of its $0.001 par value
common to various investors at $.50 per share for cash aggregating $50,000.
During July 1999 the Company issued 16,411,200 shares of its $0.001 par value
common stock in conjunction with an acquisition (see Note 2). These shares were
valued at $0.10 per share which was the fair market value on the date the
agreement to issue the shares was reached.
During August 1999 the Company commenced a private placement of 2,000,000 units
at $1.00 per unit. Each unit consists of 2 shares of the Company's $0.001 par
value common stock and 1 common stock purchase warrant exercisable at $1.00 per
common share. No shares were sold pursuant to this offering through December 31,
1999.
During the period from August 1999 through December 1999 the Company issued
620,000 shares of its $0.001 par value common stock to various investors at
prices ranging from $0.05 to $0.50 per share for cash aggregating $45,000 and a
receivable of $15,000. The receivable was collected during January, 2000 and is
classified as a current asset at December 31, 1999.
During the periods covered by these financial statements the Company issued
shares of common stock without registration under the Securities Act of 1933.
Although the Company believes that the sales did not involve a public offering
of its securities and that the Company did comply with the "safe harbor"
exemptions from registration, it could be liable for recission of the sales if
such exemptions were found not to apply and this could have a material negative
impact on the Company.
Note 6. RELATED PARTY TRANSACTIONS
At December 31, 1999 the Company has outstanding a $18,000 non-interest bearing
loan from an officer.
Note 7. NOTE PAYABLE
During 1998 the Company borrowed $10,000 from an unrelated party at 8% interest.
The principle and interest aggregating are due on demand.
Note 8. INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes", which requires use
of the liability method. FAS 109 provides that deferred tax assets and
liabilities are recorded based on the differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences. Deferred tax assets and
liabilities at the end of each period are determined using the currently enacted
tax rates applied to taxable income in the periods in which the deferred tax
assets and liabilities are expected to be settled or realized.
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences are as follows:
<TABLE>
<S> <C>
Income tax provision at
the federal statutory rate 35 %
Effect of operating losses (35)%
-----
--
=====
</TABLE>
<PAGE> 38
Cyco.net, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1999
As of December 31, 1999, the Company has a net operating loss carryforward of
approximately $460,000 for tax purposes, which will be available to offset
future taxable income. If not used, these carryforwards will expire $200,000 in
2018 and $260,000 in 2019. To the extent that net operating loss carryforwards,
when realized, relate to stock option deductions, the resulting benefits will be
credited to stockholders' equity. The deferred tax asset relating to the
operating loss carryforward of approximately $180,000 has been fully reserved at
December 31, 1999.
Note 9. STOCK BASED COMPENSATION
The Company has a compensatory stock option plan. Under the plan, the Company
may grant options for up to 4,000,000 shares of common stock. The exercise price
of each option shall be determined by the Compensation Committee or by the CEO
with reference to factors such as current fair market value of the Stock, net
book value per share, regular or other remuneration already being received by
the optionee. The maximum term of the options is five years and they vest on the
date granted.
During 1998, the Company granted 600,000 options exercisable at $.10 per share
to officers of the Company. These options are exercisable at any time through
January 31, 2003. The Company has agreed, to repurchase these 600,000 options
for $60,000 upon the receipt of proceeds from a Regulation D, Rule 504 offering.
The effect of applying SFAS No. 123 pro forma net loss as stated below is not
necessarily representative of the effects on reported net income (loss) for
future years due to, among other things, the vesting period of the stock options
and the fair value of additional stock options in future years. Had compensation
cost for the Company's stock option plans been determined based upon the fair
value at the grant date for awards under the plans consistent with the
methodology prescribed under SFAS No. 123, the Company's net (loss) in 1998
would be unchanged. The fair values of the options granted during 1998 are
estimated at $.00, on the date of grant using the minimum value method with the
following assumptions: no dividend yield, volatility of 0%, a risk-free interest
rate of 5%, and an expected lives of 5 years from the date of vesting.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Number Weighted- Weighted-
of average exercise average
shares price fair value
------- ---------------- ----------
<S> <C> <C> <C>
Balance at December 31, 1997 -- $ -- $ --
Granted at below market value -- -- --
Granted at above market value -- -- --
Granted at market value 600,000 .10 .10
Exercised -- -- --
Forfeited -- -- --
------- ------- -------
Balance at December 31, 1998 600,000 .10 .10
Granted at below market value -- -- --
Granted at above market value -- -- --
Granted at market value -- -- --
Exercised -- -- --
Forfeited -- -- --
------- ------- -------
Balance at December 31, 1999 600,000 $ .10 $ .10
======= ======= =======
</TABLE>
<PAGE> 39
Cyco.net, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1999
The following table summarizes information about fixed-price stock options at
December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------- -----------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .10 600,000 3.1 years $ .10 600,000 $ .10
</TABLE>
Note 10. COMMITMENTS
In August 1999 the Company entered into a line of credit agreement ("the
agreement"). Pursuant to the terms of the agreement the Company may issue and
sell to an investor up to $890,000 of debentures. The investments in the
debentures may be made in reliance upon the provisions of Rule 504 of the
Securities Act of 1933 and other exemptions from registration of the Securities
Act as may be available.
As of the date of these financial statements no debentures have been issued.
<PAGE> 40
Cyco.net, Inc. and Subsidiary
Consolidated Balance Sheet
March 31, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash $ 20,468
Accounts receivable 21,331
Other receivables 31,304
Inventory 3,442
Prepaid expenses 1,700
-----------
Total Current Assets 78,245
-----------
Other assets
Available for sale securities 62,500
Goodwill, net of accumulated amortization 1,376,278
-----------
$ 1,517,023
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 55,517
Note payable 10,000
Due to officer 26,358
-----------
Total Current Liabilities 91,875
-----------
Stockholders' equity
Common stock, $0.001 par value,
30,000,000 shares authorized,
20,260,419 issued and outstanding 20,260
Additional paid in capital 2,767,547
Accumulated deficit (1,375,159)
Accumulated other comprehensive income:
Unrealized gain on available for sale securities 12,500
-----------
Total stockholders' equity 1,425,148
-----------
$ 1,517,023
===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 41
Cyco.net, Inc. and Subsidiary
Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000
------------ ------------
<S> <C> <C>
Revenue $ -- $ 96,285
Operating expenses:
Cost of sales -- 84,489
General and administrative expenses 33,630 31,189
Amortization -- 80,958
------------ ------------
33,630 196,636
Net (Loss) (33,630) (100,351)
Other comprehensive income:
Unrealized gain on available for sale securities -- 54,688
------------ ------------
Comprehensive (loss) $ (33,630) $ (45,663)
============ ============
Per share information:
Weighted average shares outstanding - basic and fully diluted 7,184,675 20,146,034
============ ============
Net (loss) per share - basic and fully diluted $ (0.00) $ (0.00)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 42
Cyco.net, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by (used in) operating activities $ 826 $(34,627)
-------- --------
Cash flows from investing activities:
-------- --------
Net cash provided by investing activities -- --
-------- --------
Cash flows from financing activities:
Proceeds from stock issuance -- 22,000
Payment of subscription and account receivable for stock -- 15,000
Increase in amounts due to related party -- 7,358
Proceeds from note payable 8,000 --
-------- --------
Net cash provided by financing activities 8,000 44,358
-------- --------
Net increase in cash 8,826 9,731
Beginning - cash balance 18,665 10,737
-------- --------
Ending - cash balance $ 27,491 $ 20,468
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 43
Cyco.net, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
(Unaudited)
(1) Basis Of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial
information and Item 310(b) of Regulation SB. They do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements of the Company as of December 31,
1999 and for the two years then ended, including notes thereto included in the
Company's Form 10-SB.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiary. Intercompany transactions and balances have been
eliminated in consolidation.
(2) Earnings Per Share
The Company calculates net income (loss) per share as required by SFAS No. 128,
"Earnings per Share." Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During the periods presented common stock
equivalents were not considered as their effect would be anti dilutive.
(3) Impairment of Long Lived Assets
Long lived assets and certain identifiable intangibles held and used by the
Company are reviewed for possible impairment whenever events or circumstances
indicate the carrying amount of an asset may not be recoverable or is impaired.
Management has not identified any impairment losses as of March 31, 2000.
(4) Reclassifications
Certain amounts included in the accompanying financial statements from the
previous year have been reclassified to conform to the current year's
presentation.
(5) Marketable Securities
The Company's marketable securities consist of an investment in equity
securities and are classified as available for sale. The net unrealized gains
(losses) are included in accumulated other comprehensive income as a component
of stockholders' equity.
Marketable securities consist of the following at March 31, 2000:
<TABLE>
<CAPTION>
Amortized Fair Market Unrealized
Cost Value Gain (loss)
---------- ----------- -----------
<S> <C> <C> <C>
Prime Companies, Inc (25,000 shares) $ 50,000 $ 62,500 $ 12,500
</TABLE>
<PAGE> 44
Cyco.net, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
(Unaudited)
(Continued)
(6) Stockholders' Equity
During the period from January through March, 2000, the Company issued 320,000
shares of its $0.001 par value common stock to various investors at prices
ranging from $0.05 to $0.10 per share for cash aggregating $22,000.
<PAGE> 45
CYCO.NET, INC. AND SUBSIDIARY
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY
The accompanying unaudited pro forma financial statement gives effect to the
combination of AVE, Inc. and Cyco.net, Inc. effective on July 22, 1999.
The statement presented includes the pro forma income statement for the year
ended December 31, 1999. The pro forma financial statement was derived from the
audited consolidated financial statements for Cyco.net, Inc. (formerly AVE,
Inc.) for the year ended December 31, 1999 and the audited financial statements
for Cyco.net, Inc. for the period from inception (January 25, 1999) to July 22,
1999. The pro forma statement of operations assumes that the combination took
place at the beginning of the period presented.
The pro forma financial statements give effect to the combination as a purchase
of Cyco.net, Inc. by AVE, Inc. The pro forma assumptions and adjustments are set
forth in the accompanying notes to the pro forma financial statements.
The results of operations are not necessarily indicative of those which have
been attained had the transaction occurred at the beginning of the periods
presented. The pro forma financial statements should be read in conjunction with
the historical financial statements of the companies.
<PAGE> 46
CYCO.NET, INC. AND SUBSIDIARY
PRO-FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
AVE, Inc. Cyco.net, Inc. Adjustments Pro-forma
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUE $ 50,000 $ 9,671 $ -- $ 59,671
------------ -------------- ------------ -----------
OPERATING COSTS AND EXPENSES
Cost of sales -- 8,321 8,321
Amortization 161,915 --(1) (161,915) --
Selling, general and administrative 59,636 141,792 -- 201,428
------------ -------------- ------------ -----------
NET INCOME (LOSS) $ (171,551) $ (140,442) $ 161,915 $ (150,078)
============ ============== ============ ===========
Basic (loss) per share $ (0.01)
===========
Weighted average shares outstanding 11,371,644
===========
</TABLE>
Read the accompanying notes to the pro-forma financial statements.
<PAGE> 47
CYCO.NET, INC..
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The accompanying pro forma financial statements give effect to the combination
of AVE, Inc. and Cyco.net, Inc. effective on July 22, 1999. The acquisition was
effected by the exchange of all of the issued and outstanding common shares of
Cyco.net, Inc. for 16,411,200 common shares of AVE, Inc.
The statement presented includes the pro forma income statement for the year
ended December 31, 1999.
Pro forma (loss) per share is computed using the weighted average number of
common shares of outstanding for the period presented.
<PAGE> 48
CYCO.NET, INC.
EXPLANATION OF ADJUSTMENTS
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. To adjust for the amortization of goodwill resulting from the business
combination
<PAGE> 49
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Cyco.net, Inc.
We have audited the accompanying balance sheet of Cyco.net, Inc. (a development
stage company) as of July 22, 1999, and the related statements of operations,
stockholders' equity, and cash flows for the period from inception (January 25,
1999) through July 22, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about 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 by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cyco.net, Inc. as of July 22,
1999, and the results of its operations, and its cash flows for the period from
inception (January 25, 1999) through July 22, 1999, in conformity with generally
accepted accounting principles.
Stark Tinter & Associates, LLC
Denver, Colorado
June 30, 2000
<PAGE> 50
Cyco.net, Inc.
(A Development Stage Company)
Balance Sheet
July 22, 1999
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash $ 16,917
Other receivables 11,346
--------
Total Current Assets $ 28,263
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 6,294
--------
Total Current Liabilities 6,294
--------
Stockholders' equity
Common stock, no par value,
10,000,000 shares authorized,
7,890,000 shares issued and outstanding 67,700
Deficit accumulated during the development stage (45,731)
--------
Total stockholders' equity 21,969
--------
$ 28,263
========
</TABLE>
See the accompanying notes to the financial Statements.
<PAGE> 51
Cyco.net, Inc.
(A Development Stage Company)
Statement of Operations
For the Period From Inception (January 25, 1999) to July 22, 1999
<TABLE>
<S> <C>
Revenue $ --
-----------
Operating expenses:
General and administrative expenses 45,731
-----------
45,731
-----------
Net (Loss) $ (45,731)
===========
Per share information:
Weighted average shares outstanding - basic and fully diluted 7,409,953
===========
Net (loss) per share - basic and fully diluted $ (0.01)
===========
</TABLE>
See the accompanying notes to the financial Statements.
<PAGE> 52
Cyco.net, Inc.
(A Development Stage Company)
Statement of Stockholders' Equity
For the Period From Inception (January 25, 1999) to July 22, 1999
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------------------- During the
Shares Amount Development Stage Total
---------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Shares issued at inception for
services at $.001 per share 7,200,000 $ 7,200 $ -- $ 7,200
Shares issued for cash at $.05
per share 100,000 5,000 -- 5,000
Shares issued for services at $.05
per share 70,000 3,500 -- 3,500
Shares issued for cash at $.10
per share 370,000 37,000 -- 37,000
Shares issued for services at $.10
per share 150,000 15,000 -- 15,000
Net loss for the period -- -- (45,731) (45,731)
---------- ---------- ---------- ----------
Balance at July 22, 1999 7,890,000 $ 67,700 $ (45,731) $ 21,969
========== ========== ========== ==========
</TABLE>
See the accompanying notes to the financial Statements.
<PAGE> 53
Cyco.net, Inc.
(A Development Stage Company)
Statement of Cash Flows
For the Period From Inception (January 25, 1999) to July 22, 1999
<TABLE>
<S> <C>
Net (loss) $(45,731)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Common stock issued for services 25,700
(Increase) in other receivables (11,346)
Increase in accounts payable and accrued expenses 6,294
--------
Net cash (used in) operating activities (25,083)
--------
Cash flows from investing activities: --
--------
Cash flows from financing activities:
Proceeds from stock issuance 42,000
--------
Net cash provided by financing activities 42,000
--------
Net increase in cash 16,917
Beginning - cash balance --
--------
Ending - cash balance $ 16,917
========
Supplemental cash flow information:
Cash paid for income taxes $ --
Cash paid for interest $ --
</TABLE>
See the accompanying notes to the financial Statements.
<PAGE> 54
Cyco.net, Inc.
Notes to Financial Statements
July 22, 1999
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on January 25, 1999 in the State of New Mexico.
The Company is in the development stage and its intent is to develop a network
of web based businesses.
Revenue Recognition
The Company's records revenue as it is earned.
Advertising. Costs
The Company expenses all costs of advertising as incurred. Advertising costs
included in selling, general and administrative expenses aggregated $2,178.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Financial Instruments
The carrying amounts for the Company's cash and cash equivalents, accounts
receivable, and accounts payable and accrued expenses approximate fair value as
they are short term in nature or are receivable or payable on demand.
Long Lived Assets
The carrying value of long lived assets is reviewed on a regular basis for the
existence of facts and circumstances that suggest impairment. To date, no such
impairment has been indicated. Should there be an impairment in the future, the
Company will measure the amount of the impairment based on the undiscounted
expected future cash flows from the impaired assets.
Net Income (Loss) per Common Share
The Company calculates net income (loss) per share as required by SFAS No. 128,
"Earnings per Share." Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During the periods presented common stock
equivalents were not considered as their effect would be anti dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
<PAGE> 55
Cyco.net, Inc.
Notes to Financial Statements
July 22, 1999
Segment Information
The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information." Certain information is disclosed, per SFAS No. 131,
based on the way management organizes financial information for making
operating decisions and assessing performance. The Company currently operates
in a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.
Recent Pronouncements
The FASB recently issued Statement No 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133". The Statement defers for one year the effective date of FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The rule now will apply to all fiscal quarters of all fiscal years
beginning after June 15, 2000. In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Statement will require the Company to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined if it will early
adopt and what the effect of SFAS No. 133 will be on the earnings and financial
position of the Company.
Note 2. STOCKHOLDERS' EQUITY
At inception the Company issued 7,200,000 shares of its $.001 par value common
stock for services valued at $7,200, which management believes is the fair
value of the services provided.
During May, 1999 the Company issued 100,000 shares of its $.001 par value
common stock for cash aggregating $5,000 and 70,000 shares of its $.001 par
value common stock for services valued at $3,500 which management believes is
the fair value of the services provided.
During June and July, 1999 the Company issued 370,000 shares of its $.001 par
value common stock for cash aggregating $37,000 and 150,000 shares of its $.001
par value common stock for services valued at $15,000 which management believes
is the fair value of the services provided.
Note 3. INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes", which requires use
of the liability method. FAS 109 provides that deferred tax assets and
liabilities are recorded based on the differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences. Deferred tax assets and
liabilities at the end of each period are determined using the currently
enacted tax rates applied to taxable income in the periods in which the
deferred tax assets and liabilities are expected to be settled or realized.
<PAGE> 56
Cyco.net, Inc.
Notes to Financial Statements
July 22, 1999
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences are as follows:
<TABLE>
<S> <C>
Income tax provision at
the federal statutory rate 35%
Effect of operating losses (35)%
-----
--
=====
</TABLE>
As of July 22, 1999, the Company has a net operating loss carryforward of
approximately $46,000 for tax purposes which may be available to offset future
taxable income. If not used, these carryforwards will expire in .2019. The
deferred tax asset relating to the operating loss carryforward of approximately
$15,000 has been fully reserved. The use of the operating loss carryforward may
be limited as a result of the transaction described in Note 4.
Note 4. EXCHANGE OF COMMON SHARES
During July 1999, the Company's shareholders exchanged 7,890,000 outstanding
common shares for 16,411,200 shares of common stock of AVE, Inc. At this time
the Company became a wholly owned subsidiary of AVE, Inc.
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Cyco.net
Date: July 26, 2000 By: /s/ RICHARD URREA
------------------------------ --------------------------------
Richard Urrea, President
<PAGE> 58
PART III
INDEX TO EXHIBITS
<TABLE>
<S> <C>
1. Acquisition Agreement between Ave and DMI
2. Majority Written Consent of Directors of Ave Inc. dated July 9, 1999
3. Letter of Intent between Ave and Cyco.net dated July 9, 1999
4. Stock Specimen
5. Board of Directors Resolution dated January 5, 1998
6. Resolution of the Directors of Walsh Communications Group dated May 4, 1990
to change name to Ave, Inc.
7. Certificate of Amendment to Change name to Ave, Inc. dated 5/7/90
8. Certificate of Agreement of Merger of DeLuxe Onyx Company dated January 23,
1987.
9. Certificate and Agreement of Merger of DeLuxe dated 1/23/87.
10. Certificate Amending Certificate of Incorporation dated January 23, 1987.
11. Ave, Inc. By Laws
12. Majority Written Consent of Directors of Ave, Inc. Dated January 20, 1998
13. Articles in Incorporation of Cyco.net the Wholly Owned Subsidiary of
Cyco.net (formerly Ave, Inc.)
14. Certificate of Amendment to Articles of Cyco.net to change name from Ave,
Inc. to Cyco.net.
15. Certificate of Amendment of Cyco.net
16. Organizational Minutes of Cyco.net
17. By-Laws of Cyco.net, Inc.
27. Financial Data Schedule
</TABLE>
