As filed with the Securities and Exchange Commission on September 23, 1999
Registration No. 34-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB
General Form For Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
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MASTERCOIN, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0396452
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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313 Elks Point Road
Zephyr Cove, Nevada 89448
(Address of Principal Executive Offices,
including Zip Code)
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(775) 771-5115
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
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PART I ................................................................................1
FORWARD-LOOKING STATEMENTS.............................................1
ITEM 1. DESCRIPTION OF BUSINESS................................................1
BUSINESS DEVELOPMENT...................................................1
BUSINESS OF MASTERCOIN.................................................1
Principal Products and Services...............................2
Competitive Business Conditions...............................4
Dependence on Customers.......................................4
Product Development...........................................4
Intellectual Property.........................................6
Government Regulation. .......................................6
Research and Development......................................6
Employees.....................................................6
Basis for Registration........................................6
RISK FACTORS...........................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.............................................................15
ITEM 3. DESCRIPTION OF PROPERTY...............................................18
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................................19
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS..........20
ITEM 6. EXECUTIVE COMPENSATION................................................21
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................21
ITEM 8. DESCRIPTION OF SECURITIES.............................................21
PART II ...............................................................................22
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS...........................22
ITEM 2. LEGAL PROCEEDINGS.....................................................22
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.........................22
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES...............................23
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ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.............................24
PART F/S ...............................................................................26
PART III ...............................................................................26
ITEM 1. INDEX TO EXHIBITS.....................................................26
ITEM 2. DESCRIPTION OF EXHIBITS...............................................26
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PART I
FORWARD-LOOKING STATEMENTS
This Registration Statement on Form 10-SB includes forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"). All statements, other than statements of historical
fact, included in this Form 10-SB, including, without limitation, statements
under "Description of Business" and "Management Discussion and Analysis or Plan
of Operation" regarding the business strategy and plans and objectives of
management of MasterCoin, Inc. ("we" or "MasterCoin") for future operations, are
forward-looking statements. Although we believe that the expectations reflected
in such forward-looking statements are reasonable, we can give no assurance that
such expectations will prove to have been correct. Forward-looking statements
are not guarantees of future performance. They involve risks, uncertainties and
assumptions.
Our future results will vary and may vary materially from those
expressed in such forward-looking statements. Many of the factors that would
determine these results and values are beyond our ability to control or predict.
Important factors that could cause actual results to differ materially from our
expectations are disclosed in this Form 10-SB, including under the heading
"Description of Business-Risk Factors." These statements are based on our
beliefs and assumptions, and on information currently available to us.
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
MasterCoin was incorporated as CyberGames International, Inc. under the
laws of the State of Nevada in January 1997. From January 1997 until October
1998, our business operations consisted primarily of efforts to develop and
market online casino services. Due to potential legal problems associated with
Internet casinos in the United States, in July 1998, we sold the online
casino-related assets and operations to a former shareholder in exchange for the
return of 700,000 shares of our Common Stock, and, in October 1998 we
discontinued developing online casino services. In August 1999, we completed an
acquisition of substantially all of the assets of MasterCoin of Nevis Ltd., a
Nevis limited corporation ("MasterCoin of Nevis"). Our acquisition of MasterCoin
of Nevis (the "MasterCoin Acquisition") was completed pursuant to the terms of
an Asset Purchase and Sale Agreement (the "MasterCoin Acquisition Agreement")
dated August 5, 1999. Under the terms of the MasterCoin Acquisition Agreement,
we acquired substantially all of the assets of MasterCoin of Nevis in exchange
for our issuance of 6,925,000 shares of Common Stock to the sole shareholder of
MasterCoin of Nevis and his designees.
At the time of the MasterCoin Acquisition, MasterCoin of Nevis was a
newly-organized business engaged in developing and commercializing software for
use in providing electronic currency for e-commerce. Subsequent to the
0completion of the MasterCoin Acquisition, our business operations have
consisted entirely of conducting and developing the e-commerce business
previously conducted by MasterCoin. To facilitate the development of these
business operations, we currently conduct business as "MasterCoin" through
MasterCoin International Limited, a newly-formed St. Kitts exempt corporation
("MasterCoin Limited").
Our principal executive offices are located at 313 Elks Point Road,
Zephyr Cove, Nevada 89448, and our telephone number is (775) 771-5115. Our web
site is located at http:www.mastercoin.com.
BUSINESS OF MASTERCOIN
We are a development stage enterprise. Prior to the MasterCoin
Acquisition, our principal business activity was developing and marketing online
casino services. Due to potential legal problems associated with Internet
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casinos in the United States, in July 1998, we sold the casino-related
operations and assets to a former shareholder, and, in October 1998, we
discontinued our efforts to develop an online casino. Following the MasterCoin
Acquisition, we have focused our business on developing and marketing the
e-commerce services formerly offered by MasterCoin of Nevis.
Principal Products and Services.
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Currently, our principal service is developing an easy-to-use, secure
electronic currency system for e-commerce. We are in the beta stage of
developing our online system. We presently anticipate that our e-commerce system
will be functional online by October 1999. The principal target clients of our
electronic currency are consumers, merchants and financial institutions. Our
MasterCoin e-commerce system is designed to work as follows:
A consumer would complete an enrollment form to open a secure
MasterCoin account. Upon enrollment, the consumer would be permitted to select
his or her own user identification and password, which would provide secure
access to the "Members Only" area of the MasterCoin web site. From here, the
consumer would have the ability to review purchases, change profile information,
purchase our electronic currency known as "MasterCoin" or withdraw the
consumer's funds. Through the MasterCoin web site, the consumer would access a
proprietary software module that could be invoked either from a merchant site or
from the MasterCoin web site to purchase MasterCoin or withdraw funds. This
process would work similar to the process of withdrawing funds from a bank's
automated teller machine ("ATM"). Purchasing MasterCoin or withdrawing funds
could be done by credit card, Western Union, Moneygram, bank wire or personal
check.
Once the MasterCoin web site is fully functional, a merchant would sign
up to become a MasterCoin "Authorized Merchant" by completing the enrollment
form on the MasterCoin web site. If the merchant is qualified as an "Authorized
Merchant," it would be given the proprietary MasterCoin ATM software module to
integrate into the merchant's web site or Internet application. This software
module would allow consumers to buy goods and services over the Internet at the
merchant's site. Authorized Merchants could also select a user identification
and password which would give the Authorized Merchant secure access to the
"Members Only" area of the MasterCoin web site. From here, Authorized Merchants
could check the financial activity of their customers, change their profile
information and redeem their MasterCoin. Authorized Merchants could receive
redeemed funds by Western Union, MoneyGram, wire transfer or MasterCoin check.
Financial institutions could offer their customers our e-commerce
solution by entering into a merchant agreement to retain our services. After a
contract is signed, our employees would work with participating financial
institutions to provide the necessary knowledge and training so that
participating financial institutions could conduct e-commerce quickly and
cost-effectively.
To explain how the MasterCoin process is designed to work and how we
propose to conduct our operations, the following paragraphs summarize the
MasterCoin business cycle. This business cycle consists of three basic steps:
Purchase, Float and Redemption.
o Purchase: At the Purchase step, a consumer would buy some amount of
MasterCoin. We would incur the cost to process the purchase via credit
card. The consumer would be charged an amount equal to our processing
cost, leaving the consumer's purchase money, less the processing cost,
in our bank account until an Authorized Merchant redeems the
MasterCoin.
o Float: At the Float step, until the MasterCoin is redeemed
(turned back into cash), the money from the consumer's purchase would
be held by us in an interest-bearing account. Typically, we would
retain control of this money for approximately five days. We believe
that in many instances, a portion of the MasterCoin would be held by a
consumer for a longer period of time, potentially extending the time
that we would have control of the consumer's deposit.
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o Redemption: At the Redemption step, when the consumer purchases a
product or service from an Authorized Merchant, the Authorized Merchant
would then redeem an amount of MasterCoin equal to the amount of the
purchase. We would incur costs to process the Redemption; however, we
would also charge the Authorized Merchant a processing discount. The
amounts of these processing discounts will be determined through
negotiations with the Authorized Merchant, but we currently expect the
amount of the discount to range between four and ten percent of the
total purchase amount.
Marketing Plan.
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We believe that establishing credibility and name recognition will be
critical to the development of our business. In order to establish this
credibility and name recognition, we will need to execute a well-developed
marketing plan. Our marketing plan addresses three separate and distinct types
of client: merchants, consumers and financial institutions.
o Merchants: Merchants will be targeted to accept MasterCoin on their
web sites. Our sales team will identify merchant markets that would
benefit from the specific services that we intend to provide. We will
aggressively pursue these markets to encourage the coverage and
visibility of MasterCoin. We will also approach large turnover sites
(sites which have high transaction volumes) to encourage audience
recognition.
o Consumers: We will encourage consumers to open MasterCoin accounts.
This will become increasingly easier if and to the extent that our
merchant base increases. Coverage and presence will be the target to
encourage consumers to sign up to use MasterCoin.
o Financial Institutions: We will encourage financial institutions to
offer their customers MasterCoin for their e-commerce solution.
Generally, the customer base of the targeted financial institutions
will include existing and potential merchants. We intend to seek to
persuade financial institutions that they will be regarded by their
existing and potential customers as technologically advanced if they
offer their customers advanced e-commerce solutions such as MasterCoin.
The following paragraphs outline a few of the key directions in our
marketing plan to capture and hold market share:
o The Web Site: The MasterCoin web site will be a major factor in
promoting our business and products. The design and development of the
web site is currently in progress and a beta version of the web site
has been developed. We presently anticipate that our system will be
functional online by October 1999.
o Newsgroups: Although the Internet is global by design and is accessed
by millions of people every day, it is very small in one sense -- word
travels fast, whether it is good or bad. We propose to encourage
Newsgroups to spread the word about MasterCoin in an effort to spark
interest. We intend to target key special interest and niche specific
marketing and sales newsgroups and post a brief description of the
opportunity with the URL for the MasterCoin web site.
o Strategic Alliances: We believe that forging the appropriate initial
strategic alliances with merchants will steer us in the right
direction. Several well-suited and well-established companies will be
offered use of the MasterCoin services at a discounted rate. We believe
strong partners will help establish credibility and name recognition
for MasterCoin.
o Banner Ads: Although the productiveness of banner ads is unproven, we
believe there is one place on the Internet where they have appeared to
be effective - search engines. Search engines such as Yahoo(R) have
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designed their sites so that when surfers are looking for information
regarding a subject, banners ads appear that relate to that specific
topic. The result is a banner ad that appears aimed at a targeted
audience. Historically, these also have produced a high click through
rate.
o Search Engine Registration: Internet search engines are the most
common starting point for Internet users to begin looking for specific
information. We plan to work with leading search engines so that the
MasterCoin URL appears at or near the top of their lists.
o User-Friendly Design: We intend to use marketing group input as an
integral part of the technical design of our products in order to make
those products easy to use. We believe that ease of use is a major
factor in the success or failure of any new software technology launch.
o Customer Support and Service: We believe that customer support and
service are of paramount importance to our success. Because we believe
that software-driven enterprises need to provide customers with
first-rate technical support, we plan to place emphasis on developing a
knowledgeable, friendly, twenty-four hour-a-day, seven-days-a-week
customer support group for both business and technical questions.
Competitive Business Conditions.
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The market for providing electronic currency for Internet e-commerce is
highly competitive and subject to rapid changes in technology. We anticipate
that competition will continue to increase as other companies seek to enter this
relatively new market in which no company has yet to capture any significant
market share. The companies that are offering services in competition with our
proposed products and services include CyberCash, DigiCash, InterCoin,
MilliCent, Pay2See and Cybank. Further, there is no way of knowing whether large
computer hardware or software companies with resources that are substantially
greater than ours will elect to develop similar products and services.
We believe we have developed recognition as an early leader in
providing electronic currency for Internet gaming companies, but new technology
will be required in order for us to expand our operations to provide services
between merchants. We are in the development stage of providing electronic
currency to forms of e-commerce other than Internet gaming. We have completed a
beta web site, but have not yet activated the MasterCoin web site, and the
product development is not complete for a universal product. Rapidly changing
technology, new customer requirements and preferences and new product and
service offerings typify the Internet and e-commerce. To remain competitive, we
must develop and improve our product and service offerings. Additionally,
capturing and maintaining a meaningful market share will be a key to developing
successful operations, but we can't give any assurance that we will be able to
do so.
Dependence on Customers.
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Our business is not dependant upon one or a few major customers.
However, to become a viable form of electronic currency for e-commerce, we will
need to expand the base of consumers, merchants and financial institutions that
use our products and services. Capturing and maintaining a meaningful market
share will be a key to our success.
Product Development.
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The MasterCoin software suite is a comprehensive database system that
is designed to automate the functions and features required for successful
operation of an electronic cash system on the Internet. The MasterCoin software
suite is currently operational and has been incorporated in our beta web site.
We presently anticipate that our web site will be functional online by October
1999.
Our immediate goal is to develop the MasterCoin system to the point
that it will easily be accepted by merchants, consumers and financial
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institutions. This will entail creating a robust, easy-to-use ATM that can
quickly be plugged into merchant web sites. The next phase of development of the
MasterCoin software suite will focus on the following components:
o ATM: If developed, the MasterCoin ATM component will provide Internet
merchants an easy and user- friendly way for consumers to purchase
their products. The merchant would just "plug in" a simple interface to
its web site or application. Then, when the consumer makes a purchase,
he or she would automatically be taken to the MasterCoin ATM. There,
the consumer could purchase MasterCoin to buy the merchant's products
or services or convert his or her MasterCoin into cash just like a
mechanical ATM.
o Web Site: The MasterCoin web site will be the focal point for
companies wanting to enroll as MasterCoin merchants, consumers wishing
to purchase MasterCoin or find merchants accepting MasterCoin, and for
all to find out more about MasterCoin and its products and services.
o Redemption Center: The Redemption Center component will provide a
reporting and accounting platform allowing Authorized Merchants to view
their MasterCoin activity and withdraw funds credited to their
accounts.
We plan to continue product development after the MasterCoin concept is
developed and launched. We will continue our research and development activities
in an effort to enhance our system and its features.
o Microbilling: We plan to expand MasterCoin to support financial
transactions as small as 1/10th of a cent. This is called microbilling.
Microbilling may become an integral component of e-commerce for
transactions such as selling newspapers by the article, information by
topic, or even music by the song. We plan to be ready to support
microbilling soon after the MasterCoin web site becomes functional
online, which is presently anticipated to occur by October 1999.
o Incentive Programs: We intend to introduce incentive programs to
reward those who regularly spend MasterCoin.
o Smart Cards: We believe the future for small change is limited. It
will soon be possible for consumers to go into the corner store and
purchase groceries such as newspapers, paper and cartons of milk,
paying with a "Smart" card that could be formatted to accept
MasterCoin. The merchant would swipe the card and the purchase amount
would be debited from the consumer's MasterCoin account.
o Interest Accounts: As more competition enters into this area, we
believe it will be necessary to provide additional incentives to
encourage consumers to use MasterCoin. In the future, we may elect to
pay interest on accounts that maintain a minimum balance of MasterCoin
for a designated period (e.g., monthly).
o Debit Accounts: An easy way to provide consumers with access to their
MasterCoin funds would be to set up their MasterCoin account as a debit
account that could be accessed via a MasterCoin card, Visa or
MasterCard. This would provide the consumer easy access to his or her
funds. We could also collect issuing card fees from the credit card
companies when the consumer purchases via credit card.
o Other Product Directions: We believe that as our product development
efforts proceed, we will identify related product opportunities. As we
identify these opportunities, we will analyze their viability and
decide whether they should be included in our development plans.
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Intellectual Property.
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Our operations and financial condition are not dependent on any
material patents, trademarks or copyrights. We have, however, developed a suite
of software products upon which our business is substantially dependent. See
"Product Development." We will seek to protect the value of our software
products with contractual agreements such as non-disclosure and confidentiality
agreements. Our use of our software products is not subject to any license or
royalty agreement.
Government Regulation.
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We are not aware of any government regulations which we expect to have
a material effect on our business.
Research and Development.
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During the fiscal year ended December 31, 1998 and the period ended
December 31, 1997, we incurred research and development expenses of
approximately $116,000 and $1,240,000, respectively. We incurred these expenses
primarily for the purpose of developing computer software related to Internet
gaming operations that have been discontinued. These expenses do not relate to
the development of our current software products, which were developed by
MasterCoin of Nevis. See "--Intellectual Property."
Employees.
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As of September 2, 1999, we employed five full-time employees. We
consider our relationships with our employees to be good. In the event that
additional full or part-time employees are required to conduct or expand our
business operatives, we believe we will be able to identify and hire qualified
persons.
Basis for Registration.
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We are voluntarily filing this Registration Statement on Form 10-SB in
order to make information concerning our business operations and activities more
readily available to the public. As a result of filing this registration
statement, we will become obligated to file with the SEC annual, quarterly and
interim reports including an annual report containing audited financial
statements.
RISK FACTORS
An investment in the shares of our Common Stock is highly speculative
and involves substantial risk. Prospective investors should consider carefully
the following risk factors, as well as other information set forth in this
registration statement.
We Do Not Have a Fully Functional Web Site
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Our business plan is dependent upon our ability to develop and operate
a fully-functional web site. We do not currently operate a fully functional web
site. Our web site is currently limited to beta operation of our MasterCoin
software suite. We can give no assurance that we will be able to complete the
development of our web site. If we are able to complete the development of web
site, we can give no assurance that the web site will function in a manner
described in this registration statement, or that its functions will be
attractive to prospective customers.
We Have a Limited Operating History and Have Not Yet Produced Profits
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We were initially incorporated in January 1997. From January 1997 to
October 1998, our business operations consisted primarily of efforts to develop
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and market online casino services. We discontinued developing online casino
services in October 1998. In August 1999, we completed the MasterCoin
Acquisition. As a result, there is a limited operating history upon which an
evaluation of MasterCoin can be based.
Our prospects are subject to the risks, expenses and uncertainties
frequently encountered by companies in the new and rapidly evolving markets for
Internet products and services. These risks include:
o Whether we can complete development of our web site;
o Whether demand for our products and services grows
to a level sufficient to support our operations;
o Whether we can respond quickly and effectively to
technological changes;
o Whether we can develop and maintain equal or
superior products and services to the services and
products of competitors;
o Whether we can effectively integrate the technology,
personnel and operations of any other acquired
businesses or technologies with our operations;
o Whether we can identify, attract, retain and
motivate qualified personnel; and
o Whether we can successfully raise capital as needed
to produce and sell products and services; attract,
retain and motivate qualified personnel; and develop
new markets.
There can be no assurance that we will be successful in addressing
these risks. Our limited operating history and the uncertain nature of the
market for our products and services make the prediction of future results of
operations difficult or impossible. As a result of all of the foregoing factors
and the other factors identified in this section, there can be no assurance that
we will operate profitably on a quarterly or annual basis.
The Development of a Market for Our Products and Services Could Be Negatively
Affected by Factors Outside of Our Control
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Sales of goods and services over the Internet do not currently
represent a significant portion of overall sales of goods and services worldwide
or in the United States. The market for our products and services is still
immature and emerging. Our business will depend on the use and acceptance of the
Internet as an effective medium of commerce by financial institutions, merchants
and consumers. Rapid growth in the use of and interest in the Internet is a
relatively recent development. We cannot be certain that acceptance and use of
the Internet will continue to develop or that a sufficiently broad base of
financial institutions, merchants and consumers will adopt, and continue to use,
the Internet as a medium of commerce and our products and services as a means of
facilitating that commerce.
The emergence of the Internet as a commercial marketplace may occur
more slowly than anticipated for a number of reasons, including potentially
inadequate development of the necessary network infrastructure, delayed
development of enabling technologies and performance improvements, and security
or reliability concerns. If the number of Internet users or their use of
Internet resources continues to grow, their use may overwhelm the Internet
infrastructure. Delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity could also
have a detrimental effect. These factors could result in slower response times
or hinder commercial usage of the Internet, resulting in lower numbers of
e-commerce transactions and reduced demand for our products and services. For
all of these reasons, it remains uncertain whether commerce over the Internet
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will continue to grow, a significant market for our products and services will
emerge, or our products and services will become generally adopted. Even if such
a market does develop, competitive pressures may make it difficult, or
impossible, for us to operate profitably.
The Intense Competition in Our Industry Could Reduce or Eliminate the Demand for
Our Services
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The market for our services is intensely competitive and subject to
rapid technological change. We expect competition to intensify in the future. We
believe our primary source of competition will come from developers of other
systems for Internet payments processing such as Clear Commerce, CyberCash,
Cyber Source, Digital River, HNC Software, Open Market and Hewlett-Packard
(VeriFone). In addition, other companies may enter the market for our services.
In the future, we may also compete with large financial institutions that
develop custom systems for their use and their merchants' and customers' use.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in financial institution and
merchant requirements. Competition could seriously impede our ability to sell
our services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future services
obsolete, unmarketable or less competitive. Our current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with other solution providers, thereby
increasing the ability of their services to address the needs of our prospective
customers. Competitive pressures could reduce our market share or require the
reduction of the prices of our services, either of which could materially and
adversely affect our business, results of operations or financial condition.
We Expect Fluctuations In Our Quarterly Operating Results
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As a result of our limited operating history, we lack historical
financial data to use for planning operating expenses. Our product line
constitutes an emerging market that is difficult to forecast accurately. Our
expense levels are based in part on our expectations concerning future revenues
and to a large extent are fixed. Quarterly revenues and operating results will
depend substantially upon the revenues received within the quarter, which are
difficult to forecast accurately. Accordingly, the failure of consumers,
merchants and financial institutions to increasingly use our services and
products could have a material adverse effect on our business, results of
operations and financial condition. We may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall, and any
significant shortfall in revenue in relation to our expectations would have an
immediate adverse effect on our business, operating results and financial
condition.
Our operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. These
factors include, but are not limited to:
o the level of commercial usage of the Internet;
o demand for electronic forms of currency for e-commerce;
o seasonal trends in commercial usage of the Internet;
o the introduction of new products or services by us or our competitors;
o merchant and financial institution acceptance of our pricing model;
o technical difficulties with respect to the use of our web site; and
o our success in expanding our sales and marketing programs.
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Other factors that may affect our quarterly results are set forth
elsewhere in this section. As a result of these factors, our revenues and
expenses are not predictable with any significant degree of certainty. Due to
the uncertainty surrounding our revenues and expenses, we believe that
quarter-to-quarter comparisons of our historical operating results should not be
relied upon as an indicator of our future performance. Moreover, as a result of
the uncertainties created by all of the foregoing factors, our operating results
in future quarters may fall below the expectations of securities analysts and
investors. In such event, the price of our Common Stock would likely be
materially and adversely affected.
We Must Attract and Retain Qualified Management and Employees
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Our future success and our ability to expand our operations will depend
on our ability to attract and retain highly qualified management and employees,
particularly employees with technical expertise. Competition for people
experienced in the technical areas in which we operate is intense and increasing
due to the limited number of qualified professionals and the increasing number
of companies demanding such employees. As a small company, we may have
difficulty or even be unable to attract highly qualified management and
employees. Failure to attract and retain personnel, particularly marketing and
technical personnel, could make it difficult for us to manage our business and
meet our objectives, and will likely have a material adverse effect on our
business operations. We do not carry key person life insurance on any of our
senior management personnel. The loss of the services of any of our executive
officers or other key employees could detrimentally affect us and have a
material adverse effect on our business operations.
Our Management Team Must Work Together Effectively
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Our performance will be substantially dependent on the effectiveness of
our senior management and key technical personnel. In particular, our success
depends substantially on the continued efforts of our senior management team,
many of whom only recently joined the Company through the MasterCoin
Acquisition. Because these members of our management team are new, there is an
increased risk that management will not be able to work together effectively as
a team, especially in the short term, to address the challenges to our business.
Failure of senior management to effectively coordinate their efforts in managing
and expanding our business operations could have a material adverse effect on
our business operations.
Our Business Is Offshore
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Services provided to merchants outside the United States currently
account for approximately 90% of our revenues. Conducting business outside of
the United States is subject to additional risks that may affect our ability to
sell our products and services and result in reduced revenues, including,
without limitation:
o changes in regulatory requirements;
o reduced protection of intellectual property rights;
o evolving privacy laws in foreign countries;
o the burden of complying with a variety of foreign laws; and
o political or economic instability or constraints on international trade.
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In addition, some software exports from the United States are subject
to export restrictions as a result of the encryption technology in that software
and we may become liable to the extent we violate these restrictions. The
encryption technology subject to export restrictions may be necessary for us to
maintain sufficient security to provide financial institutions, merchants and
consumers with confidence to use our products and services. We cannot be certain
that one or more of these factors will not materially adversely affect our
future international operations and, consequently, our business, financial
condition and operating results.
We Depend on Our Existing Technology and Infrastructure
- -------------------------------------------------------
Our ability to deliver services to prospective merchants will
depend on the uninterrupted operation of our Internet payment
processing systems. Our systems and operations are vulnerable to damage
or interruption from, among other things:
o earthquake, fire, flood and other natural disasters;
o power loss, telecommunications or data network failure;
o operator negligence, improper operation by employees, physical and
electronic break-ins and similar events; and
o computer viruses.
Although we have implemented redundant servers in our data center, we
may still experience service interruptions for the reasons listed above and a
variety of other reasons. If our redundant servers are not available, we may
suffer substantial financial losses as well as loss of business. In addition,
any interruption in our system that impairs our ability to provide services
could damage our reputation and reduce demand for our services.
Our success will also depend on our ability to grow, or scale, our
payment processing systems to accommodate increases in the volume of traffic on
our system, especially during peak periods of demand. We may not be able to
anticipate increases in the use of our system and successfully expand the
capacity of our network infrastructure. Our inability to expand our system to
handle increased traffic could result in system disruptions, slower response
times and other difficulties in providing services to our financial
institutions, merchant and consumers, which could materially harm our business,
operating results and financial condition.
We Must Keep Up With Technological Changes
- ------------------------------------------
To remain competitive, we will need to enhance and improve the
responsiveness, functionality and features of our anticipated services and the
underlying network infrastructure. The Internet and the e-commerce industry are
characterized by rapid technological change, changes in user requirements and
preferences, frequent new product and service introductions and enhancements
embodying new technologies and the emergence of new industry standards and
practices that could render our anticipated technology obsolete. These market
characteristics are exacerbated by the emerging nature of this market and the
fact that many companies are expected to introduce new Internet products and
services in the near future. Our future success will depend on our ability to
both internally develop and license leading technologies to enhance the
performance, features and reliability of our existing services and develop new
services. We must address the increasingly sophisticated and varied needs of our
financial institutions and merchants, and respond to technological advances and
emerging industry standards and practices on a cost-effective and timely basis.
The development of proprietary technology involves significant technical and
business risks. We may fail to develop new technologies effectively or to adapt
our proprietary technology and systems to merchant and financial institution
10
<PAGE>
requirements or emerging industry standards. If we are unable to adapt to
changing market conditions, customer requirements or emerging industry
standards, our business, results of operation and financial condition would be
materially harmed.
Some of Our Equipment or Equipment Upon Which We Rely May Fail in the Year 2000
- -------------------------------------------------------------------------------
Computer systems, software applications and microprocessor dependent
equipment that we use in our business may cease to function properly or generate
erroneous data when the year 2000 arrives. The problem affects those systems or
products that are programmed to accept a two-digit code in date code fields. To
correctly identify the year 2000, a four-digit date code field will be required
to be what is commonly termed "year 2000 compliant." In addition to our computer
systems, software applications and microprocessor dependent equipment, we rely
on equipment and services provided by other vendors that are susceptible to year
2000 problems. It is possible that we will discover problems that will require
substantial time and resources to remedy. It is also possible that we could fail
to identify a problem with a resulting failure or disruption of our operations.
Either eventuality could have a material adverse effect on our business.
A Breach of Security Measures Could Reduce Demand for Our Services and Expose Us
to Liability
- --------------------------------------------------------------------------------
The ability to securely transmit information over public networks is
crucial to the development and growth of e-commerce in general, and our business
in particular. Unfortunately, regulatory and export restrictions may prohibit us
from using the strongest and most secure cryptographic protection available and
thereby expose us to a risk of data interception. We may be required to expend
significant capital and other resources to protect against security breaches or
to address any problems they may cause. Concerns over the security of the
Internet and other online transactions and the privacy of users may also inhibit
the growth of commercial usage of the Internet and reduce demand for our
products and services.
Despite the security measures we maintain, our infrastructure may be
vulnerable to computer viruses, hackers, rogue employees or similar sources of
disruption. A party who is able to circumvent our security measures could
significantly disrupt our operations. Any compromise or elimination of our
security could reduce demand for our services. Additionally, such a compromise
or elimination of our security could result in significant liability to
financial institutions, merchants or consumers.
We May Become Subject to Government Regulation and Legal Uncertainties
- ----------------------------------------------------------------------
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, export control laws and laws or regulations directly applicable to
ecommerce. However, due to the increasing usage of the Internet, it is possible
that a number of laws and regulations may be applicable or may be adopted in the
future with respect to conducting business over the Internet covering issues
such as:
o taxes;
o user privacy;
o pricing;
o content;
o right to access personal data;
o copyrights;
o distribution; and
o characteristics and quality of services.
11
<PAGE>
Furthermore, the growth and development of the market for e-commerce
may prompt more stringent consumer protection laws that may impose additional
burdens on those companies conducting business online. The adoption of
additional laws or regulations may decrease the growth of the Internet or other
online services, which could, in turn, decrease the demand for our services and
increase our cost of doing business.
We Are Dependent Upon Proprietary Technology
- --------------------------------------------
We depend upon our proprietary technology to provide services to
financial institutions, merchants and consumers and to compete with our
competitors. We rely on a combination of patent, copyright, trademark and trade
secret rights, confidentiality procedures and licensing arrangements to
establish and protect our proprietary rights.
Despite these precautions, third parties could copy or otherwise obtain
and use our technology without authorization, or develop similar technology
independently. Moreover, effective protection of intellectual property rights
may be unavailable or limited in foreign countries, and the global nature of the
Internet as well as our efforts to develop international markets make it likely
that our products and services will at times be in foreign countries. We cannot
be certain that the protection of our proprietary rights will be adequate or
that our competitors will not independently develop similar technology,
duplicate our services or design around any patents or other intellectual
property rights we hold.
We also cannot be certain that third parties will not claim that our
current or future services infringe upon their rights. As the number of services
in our market increases and functionalities increasingly overlap, companies such
as ours may become increasingly subject to infringement claims. Such claims may
require us to enter into royalty or license agreements to continue our business
operations. If royalty or license agreement are necessary for the continued
operation of our business, we may not be able to obtain such royalty or license
agreements, or obtain them on terms acceptable to us, which would likely have a
material adverse effect on our business.
We also rely on certain technology which we license from third parties.
We cannot provide assurances that such third-party technology will continue to
be available to us on commercially reasonable terms or at all, or that such
licenses are valid licenses that are not infringing upon the intellectual
property right of another third party. The loss of or inability to maintain our
use of any of this technology could result in a material adverse effect on our
business, financial condition or operating results.
We may engage in litigation related to our intellectual property for a
number of reasons, including to:
o enforce our intellectual property rights;
o protect our trade secrets;
o determine the validity and scope of the proprietary rights of others; or
o defend against claims of infringement or invalidity.
Such litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, including absorbing a significant amount of
management time, which could have a material adverse effect on our business.
12
<PAGE>
Ownership of Our Common Shares Is Concentrated
- ----------------------------------------------
Our present directors, executive officers, greater than 5% shareholders
and their respective affiliates beneficially own approximately 61.37% of our
outstanding Common Stock. As a result of their ownership, the directors,
executive officers, greater than 5% stockholders and their respective affiliates
collectively are able to control or significantly influence all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of MasterCoin,
which may have a material adverse effect on the trading price of our common
stock.
Our Stock Price is Volatile
- ---------------------------
Broad market and industry fluctuations may adversely affect the trading
price of our Common Stock, regardless of our operating performance. The trading
price of our Common Stock has been and may continue to be subject to wide
fluctuations. In the last twelve months our Common Stock has traded as low as
$1.06 and as high as $6.25. The wide swings in the price of our Common Stock
have not always been in response to any factors that we can identify. Factors
that are likely to contribute to the volatility of the trading price of our
Common Stock include, among others:
o our quarterly results of operations;
o the variance between our actual quarterly results of operations
from predictions by stock analysts;
o financial predictions and recommendations by stock analysts
concerning Internet companies and companies competing in our market
in general, and concerning us in particular;
o public announcements of technical innovations relating to our
business, new products or services by us or our competitors, or
acquisitions or strategic alliances by us or our competitors;
o public reports concerning our products and services or those of our
competitors or concerning developments or trends in e-commerce; and
o the operating and stock price performance of other companies that
investors or stock analysts may deem comparable to us.
In addition to the foregoing factors, the trading prices for equity
securities in the stock market in general, and of Internet-related companies in
particular, have been subject to wide fluctuations that may be unrelated to the
operating performance of the particular company affected by such fluctuations.
Consequently, broad market fluctuations may have an adverse effect on the
trading price of our Common Stock, regardless of our results of operations.
We May Not Be Able to Secure Additional Capital in the Future
- -------------------------------------------------------------
We will require substantial working capital to fund our business. We
believe that our existing revenues and available cash resources will be
sufficient to meet our operating and capital requirements for the next twelve
months. However, our capital requirements depend on several factors, including
the rate of market acceptance of our services, the ability to expand our
customer base, the growth of sales and marketing, the expansion of our business,
the acquisition of other companies and other factors. If capital requirements
vary materially from those currently planned, we may require additional
financing sooner than anticipated. If we raise additional funds through the
issuance of additional equity securities, existing shareholders will experience
dilution of their percentage ownership of our Common Stock. It is also possible
that any new equity securities might have rights, preferences or privileges
13
<PAGE>
senior to those of the holders of our Common Stock. Moreover, additional
financing in any form may not be available when needed on terms favorable to us
or at all. If adequate funds are not available or are not available on
acceptable terms, we may be unable to develop or enhance our services, take
advantage of future opportunities or respond to competitive pressures.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
We have been a development stage company since our organization in
January 1997. Prior to the MasterCoin Acquisition in August 1999, we produced no
revenue and incurred losses of approximately $1,100,000 for software development
and other costs associated with building an Internet casino. Due to potential
legal problems associated with Internet casinos in the United States, we decided
in October 1998 to abandon our attempt to develop an Internet casino.
In August 1999, we completed the MasterCoin Acquisition with MasterCoin
of Nevis. In the MasterCoin Acquisition, MasterCoin of Nevis sold all of its
assets to us in exchange for 6,925,000 shares of our Common Stock. At the time
of the MasterCoin Acquisition, we had no significant operations or operating
assets. As a result of the MasterCoin Acquisition, the sole shareholder of
MasterCoin of Nevis and his designees received and currently hold approximately
67% of the issued and outstanding shares of our Common Stock. The MasterCoin
acquisition has been accounted for as a reorganization of MasterCoin into
MasterCoin of Nevis and the reverse acquisition of MasterCoin by MasterCoin of
Nevis.
Due to the operating losses we have incurred since formation, largely
associated with our efforts to develop an Internet casino, and negative cash
flows from operating activities during the development stage, our auditors have
concluded that there is substantial doubt about our ability to continue as a
going concern. This concern is discussed in the Report of Independent Certified
Public Accounts presented with our financial statements in Part F/S of this
registration statement. Please also refer to the "Risk Factors" section of this
registration statement for a discussion of this concern as well as other risks
of an investment in MasterCoin.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 Proforma Operations of MasterCoin
- ----------------------------------------------------------------
MasterCoin of Nevis was organized in January 1999 and began operations
in March 1999, therefore there is no comparative financial information presented
for the six-month period ended June 30, 1998.
Revenue
Net revenues for the six months ended June 30, 1999 were $245,029 from
the sale of electronic currency services for the Internet.
Cost of Sales
Cost of sales associated with the sale of electronic currency services
for the Internet for the six months ended June 30, 1999 was $163,472.
General and Administrative Expense
General and administrative expense for the six months ended June 30,
1999 was $193,096. Of this amount, $62,468 was incurred for the operations of
MasterCoin of Nevis prior to the MasterCoin Acquisition, $23,230 for our
combined operations of subsequent to the MasterCoin Acquisition, and $107,398
for an adjustment to depreciation on the assets acquired in the MasterCoin
Acquisition.
15
<PAGE>
Selling Expense
We incurred $16,311 of selling expenses during the six months ended
June 30, 1999 for commissions associated with the sale of electronic currency.
Depreciation and Amortization Expense
Depreciation and amortization expense for the six months ended June 30,
1999 was $53,699.
Research and Development Expense
We incurred $70,000 of research and development expense during the six
months ended June 30, 1999, principally for the development of our base software
suite.
Year Ended December 31, 1998 Compared with the Period Ended December 31, 1997
- -----------------------------------------------------------------------------
The following discussion of the year ended December 31, 1998 and the
period ended December 31, 1997 relates to our operations conducted as CyberGames
International, Inc., consisting of efforts to develop and market online casino
services. In October 1998, we discontinued our efforts to develop online casino
operations and sold the casino-related operations and assets to a former
shareholder. We are providing the following information and comparisons for
historical reference only. The following information may not be indicative of
the expected or anticipated results of the operation of our existing business of
developing and commercializing e-commerce products and services.
General and Administrative Expense
General and administrative expense for the year ended December 31, 1998
was $41,040. There were no general and administrative expenses incurred during
the period ended December 31, 1997.
Discontinued Operations
During the year ended December 31, 1998, losses associated with online
casino gambling operations were $125,548. Of this amount, $115,500 was for
research and development expense, $5,046 for depreciation and $5,002 for general
and administrative expense. During the year ended December 31, 1998, the online
casino gambling operations were sold for a gain of $350,000. During the period
ended December 31, 1997, losses associated with online casino gambling
operations were $1,264,842. Of this amount, $1,239,379 was for research and
development expense, $1,682 for depreciation and $23,781 for general and
administrative expense.
LIQUIDITY AND CAPITAL RESOURCES
We have principally raised funds for operations through the sale of our
Common Stock in private offering transactions that were exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). To date, we have raised $1,542,811 through the sale of our
Common Stock
Operating activities used $48,724 of cash during the six months ended
June 30, 1999, of which $29,819 came from the operations of MasterCoin of Nevis
and $18,905 came from our operations. Operating activities have used $1,157,696
of cash from January 27, 1997 (date of our inception) through June 30, 1999, of
which $1,127,877 was used for our operations prior to the MasterCoin Acquisition
and $29,819 was used for the operations of MasterCoin of Nevis.
16
<PAGE>
Cash used in investing activities was $25,229 from January 27, 1997
(date of our inception) through June 30, 1999 for the purchase of equipment.
Cash used by financing activities was $185,000 during the six months
ended June 30, 1999. Of this amount, $370,000 was used for the repurchase of
shares of our Common Stock which was offset by the receipt of $185,000 from the
sale of shares of our Common Stock. Cash provided by financing was $1,353,106
from January 27, 1997 (date of our inception) through June 30, 1999. During the
period from January 27, 1997 through June 30, 1999 $1,542,841 was provided from
the sale of shares of our Common Stock, $309,765 was provided by loans from a
shareholder, partially offset by $97,000 for repayments on loans from a
shareholder, and $402,500 for the repurchase of our Common Stock. The balance of
the shareholder loan was satisfied by converting to equity in MasterCoin.
We believe that the completion of the MasterCoin Acquisition will
provide us with sufficient cash flows to continue the operations of our current
business. We are presently considering the possibility of raising up to
$5,000,000 to accelerate the marketing program and for development of the next
generation of software.
YEAR 2000 COMPLIANCE
In the next year, many companies will face a potentially serious
problems because many software applications and operational programs written in
the past may not properly recognize calendar dates beginning in the Year 2000.
This problem could force computers or machines which utilize date dependent
software to either shut down or provide incorrect data or information. We have
examined our computer and information systems to determine whether our software
applications and computer and information systems are compliant with the Year
2000. Because MasterCoin was recently organized, substantially all of our
hardware and software was recently purchased and we have received assurances
from our software and hardware providers that our computer systems are fully
compliant with the Year 2000. We have also performed our own internal tests to
confirm that our hardware and software are Year 2000 compliant.
While we believe that our information systems are fully Year 2000
compliant, we intend to continue to review our information systems for any
possible problems, as well as monitor our key suppliers and customers for any
impact that the Year 2000 may have on their information systems which could then
impact us. We have contacted all of our key suppliers and have been assured that
such suppliers will not be impacted by the Year 2000. During the remainder of
1999, we intend to contact all of our significant customers to request
verification that such customers are Year 2000 compliant.
We do not believe that there will be significant issues or costs
associated with our services and products related to Year 2000 compliance;
however, there can be no assurance that our services or products will not be
affected by undetected errors or defects associated with Year 2000 date
functions. Although we are not currently aware of any material operational
issues or costs associated with our products and services or internal
information systems for the Year 2000, there can be no assurance that we will
not experience unanticipated negative consequences and/or material costs caused
by undetected errors or defects in the technology used in our products and
services or internal information systems, which are comprised predominantly of
third- party software and hardware. We do not currently anticipate that the Year
2000 programming issues will have a material impact on our business, financial
condition and results of operations.
If we are not completely successful in mitigating internal and external
Year 2000 risks, the result could be a system failure or miscalculations causing
disruptions of operation, including among other things, a temporary ability to
process transactions or engage in normal business activities. We do not
currently have a contingency plan with respect to potential Year 2000 failures
of our suppliers or customers.
17
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY
In July 1998, we entered into an oral sublease for an office and data
center in St. Kitts of approximately 2,000 square feet. The sublease currently
requires payment of $2,000 monthly and continues through December 2001. We also
have a satellite link connection to the United States for data and voice
transmission to secure the necessary bandwidth required for our business
operations.
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<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table lists the name and address of any person (including
any "group" as that term is used in section 13(d)(3) of the Exchange Act) who we
believe to be the beneficial owner of more than five percent (5%) of any class
of our voting securities, the name of each MasterCoin director and the stock
ownership of all MasterCoin executive officers and directors as a group. In
addition, the table lists the class of securities held by such persons, the
amount of shares of that class owned by each such person and the percentage of
that class owned by each such person.
<TABLE>
<CAPTION>
Amount and Nature of Percentage of
Name and Address of Beneficial Owners Beneficial Ownership Title of Class Class(1)
- ---------------------------------------------------- --------------------------- -------------- ---------------
<S> <C> <C> <C>
Don Marshall
Basseterre, St. Kitts............................... 1,395,253 (1) Common 13.76%
David Hicks
Basseterre, St. Kitts............................... 1,395,253 (2) Common 13.76%
William Lavin
Orion House
Basseterre, St. Kitts............................... 1,094,662 (3) Common 10.80%
James A. Egide
P.O. Box 11927
Zephyl Cove, NV 89448.............................. 750,200 Common 8.21%
The Wave Land Corp.
Orion House
Basseterre, St. Kitts............................... 547,331 Common 5.99%
Del Mar Corp.
Wellington Road
Basseterre, St. Kitts............................... 547,332 Common 5.99%
Lee Cay Corp.
Wellington Road
Basseterre, St. Kitts............................... 492,500 Common 5.39%
All executive officers and directors
as a group (5 persons).............................. 4,635,368 Common 45.72%
</TABLE>
(1) Of the shares reflected as beneficially owned by Don Marshall,
1,000,000 shares are held of record by Nautilus Management Ltd., John
Gumbs Building, Bay Street, Basseterre, St. Kitts, of which Don
Marshall is a principal shareholder, and 395,253 shares are held of
record by Don Marshall.
(2) Of the shares reflected as beneficially owned by David Hicks, 976,678
shares are held of record by Amathus Holding Ltd., P.O. Box 1281,
Basseterre, St. Kitts, of which David Hicks is a principal shareholder,
and 418,575 shares are held of record 8by David Hicks.
(3) Of the shares reflected as beneficially owned by William Lavin, 547,331
shares are held of record by The Wave Land Corp., Orion House,
Basseterre, St. Kitts, of which William Lavin is a principal
shareholder, and 547,331 shares are held of record by William Lavin.
19
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name Positions
---- ---------
William Lavin - President of MasterCoin Limited and Director
William G. Isetta - Chief Operating Officer and Director
James A. Egide - Director
Don Marshall - Director
David Hicks - Director
WILLIAM LAVIN, 50, has been involved in providing technical
development, management and sales and marketing for over 20 years. He has
provided management and consulting services to companies such as American
Express, Chevron, Kaiser Permanente and Pacific Bell. With American Express, he
spearheaded the launch of several products including Platinum and Gold Year-End
Summary, Optima MIS and a worldwide Marketing System. Mr. Lavin has many years
of experience in directing the successful implementation of projects using
leading-edge technologies and has a thorough understanding of data processing,
management, MIS and marketing applications. Prior to his involvement with
MasterCoin, he co-founded and was Vice President of Sales and Marketing for Tier
Technologies Inc. Tier, a systems consulting firm, grew to over 100 employees
with revenues of over US$20 million by its fourth year, and now has a market
capitalization of over US$200 million. Most recently, Mr. Lavin was President
and Chief Operating Officer for Windstreak Inc., an Internet development
company.
WILLIAM G. ISETTA, 51, has been involved in the management and
operation of a private high school since 1966, serving as a principal for the
past 15 years. Since becoming a principal, Mr. Isetta has been responsible for
the daily operations of the high school and the school's nearly $20,000,000
dollar combined budgets. Mr. Isseta's responsibilities also include contract
negotiations, employee supervision and management and public relations.
JAMES A. EGIDE, 65, has since 1990 been primarily involved in managing
his personal investments, including various national and international business
enterprises. Commencing in 1978, he served as Chief Executive Officer and
Chairman of Carme, Inc., a publicly-traded company engaged in the manufacture
and distribution of hair and skin care products, which he founded in 1978 and
completed its sale in 1989. Between 1976 until 1980, Mr. Egide was President and
a director of Five Star Industries, which functioned as a general contractor and
real estate developer. Mr. Egide also serves as Chairman of the Board and Chief
Executive Officer of Digital Courier Technologies, Inc., an internet payment
processor.
DON MARSHALL, 40, has been involved in offshore financial processing
for the last 10 years. He has provided management and consulting to banking
institutions in Europe and the Caribbean, assisting them in successfully setting
up the infrastructure necessary for credit card processing. Mr. Marshall has
in-depth knowledge of financial processing, VISA and MasterCard regulations and
offshore banking. Using this experience and his business skills, he established
DataBank International, a provider of online systems and services to merchant
banks interested in developing Internet programs ("Databank") in the Federation
of St. Kitts and Nevis. This was the first company processing credit cards for
the Internet in the Caribbean. As President of DataBank, Mr. Marshall has taken
the company from startup to a robust organization, which, at present, is
processing over $20 million in transactions per month.
20
<PAGE>
DAVID HICKS, 31, Mr. Hicks studied business management in United
Kingdom before moving to St. Kitts five years ago. Since moving to St. Kitts,
Mr. Hicks has been a principal and director of Caribe Yachts, an upper-end boat
building enterprise located in St. Kitts, and DataBank. Mr. Hicks is experienced
in dealing with international and European banks and has helped to establish
DataBank as a powerful force in the payment processing industry.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation for services rendered
by any individual who served as our chief executive officer at any time during
the 1997 or 1998 fiscal years. No executive officer was paid in excess of
$100,000 in salary and bonus during either the 1997 or 1998 fiscal years. The
following table does not reflect compensation paid to any executive officer by
MasterCoin of Nevis prior to the consummation of the MasterCoin Acquisition. Our
current chief operating officer and senior executive officer, William G. Izetta,
did not serve as chief executive officer at any time during either the 1997 or
1998 fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
------------------------------
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Securities All
and Annual Restricted Underlying Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary($) Bonus($) sation($) Award(s)($) SARs(#) Payouts($) sation($)
-------- ---- --------- ----------------- ------------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank Torcasio, 1998 $65,500 $0 $0 $0 0 $0 $0
President 1997 $ 0 $0 $0 $0 0 $0 $0
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Don Marshall, William Lavin and David Hicks, each of whom is currently
a director of MasterCoin, all had a direct or indirect material interest in the
MasterCoin Acquisition. Mr. Marshall owns all of the capital stock of MasterCoin
of Nevis. Pursuant to the MasterCoin Acquisition Agreement, MasterCoin of Nevis
transferred to us all of the assets and intellectual property that were used by
MasterCoin of Nevis in conducting its electronic commerce business. In exchange
for those assets, we agreed to transfer to Mr. Marshall and his designees a
total of 6,925,000 shares of our Common Stock. Mr. Marshall and his affiliates
received 1,395,253 shares of our Common Stock, Mr. Lavin and his affiliates
received 1,094,662 shares of our Common Stock, and Mr. Hicks and his affiliates
received 1,395,253 shares of our Common Stock. The number of shares of our
Common Stock issued to Mr. Marshall and his designees, including Messrs. Lavin
and Hicks, was determined through arms-length negotiations with MasterCoin of
Nevis.
ITEM 8. DESCRIPTION OF SECURITIES
MasterCoin's Articles of Incorporation authorize the issuance of
20,000,000 shares of Common Stock, par value $.001 per share. As of September 1,
1999, there were 10,139,500 shares of Common Stock issued and outstanding.
Except as otherwise required by law, each share of Common Stock entitles the
shareholder to one vote on each matter which shareholders may vote on at all
meetings of shareholders of the Company. Holders of Common Stock are not
entitled to cumulative voting in the election of MasterCoin's directors. Holders
of Common Stock also do not have preemptive, subscription or conversion rights,
and there are no redemption or sinking fund provisions applicable thereto.
21
<PAGE>
Holders of Common Stock are entitled to share ratably in dividends paid from the
funds legally available for the payment thereof, when, as and if declared by the
MasterCoin Board of Directors. The declaration of dividends, however, is subject
to the discretion of the Board of Directors. Holders of Common Stock are also
entitled to share ratably in the assets of MasterCoin available for distribution
to holders of Common Stock after payment of liabilities of MasterCoin upon the
liquidation or dissolution of MasterCoin, whether voluntary or involuntary.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
As of September 1, 1999, there were approximately 89 record holders
(which does not include holders of shares held in securities position listings)
of our 10,139,500 shares of issued and outstanding Common Stock. We have not
declared any cash dividends on any class of common equity since our formation in
January 1997.
Our Common Stock is traded in the United States over-the-counter market
under the symbol "COIN." The following table sets forth the range of high and
low bids reported in the over-the-counter market for our Common Stock. The
source of the bid information is a September 8, 1999 report from the National
Quotation Bureau, LLC. The prices shown below represent prices in the market
between dealers in securities; they do not include retail markup, markdown or
commission, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
---------------------------------------------------------------
Quarter Ended Low High
------------------------- ---------------------------
<S> <C> <C>
1st Quarter 1998.......................... 3 5-1/8
2nd Quarter 1998.......................... 2 3
3rd Quarter 1998.......................... 1/8 2-3/4
4th Quarter 1998.......................... 7/8 2
1st Quarter 1999.......................... 1-1/2 2-7/8
2nd Quarter 1999.......................... 2-1/8 6
3rd Quarter 1999 (through Sept. 7)........ 1/8 5-1/4
</TABLE>
We have not declared or paid any dividends on our Common Stock and
currently anticipate that we will retain all available funds to finance future
growth in business expansion. Any future determination to pay dividends will be
at the discretion at our Board of Directors and will be dependent upon results
of operations, contractual restrictions and other factors deemed relevant by the
Board of Directors.
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
22
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
MasterCoin Acquisition
----------------------
On August 5, 1999 MasterCoin, MasterCoin of Nevis and Don Marshall, the
sole shareholder of MasterCoin of Nevis, entered into an Asset Purchase and Sale
Agreement pursuant to which MasterCoin acquired substantially all of the assets
and operations of MasterCoin of Nevis. In exchange for those assets, MasterCoin
transferred to Don Marshall and 15 individuals and entities designated by Mr.
Marshall a total of 6,925,000 shares of MasterCoin's Common Stock. Of these
shares, Mr. Marshall and his affiliates received 1,395,253 shares of MasterCoin
Common Stock, William Lavin and his affiliates received 1,094,662 shares of
MasterCoin Common Stock and David Hicks and his affiliates received 1,395,253
shares of MasterCoin Common Stock. The MasterCoin acquisition was effected in
reliance upon the exemption from registration provided by Section 4(2), of the
Securities Act ("Section 4(2)") based upon a number of considerations, including
the following:
Each of Mr. Marshall and his designees received all material
information necessary to evaluate the terms of and risks associated with the
MasterCoin Acquisition, were provided with an opportunity to review all such
information with the officers and directors of MasterCoin and to ask questions
with respect thereto. Each of Mr. Marshall and his designees provided to
MasterCoin information as to each shareholder's status as an accredited investor
and/or background, education and experience which would enable the shareholder
to effectively evaluate the merits and risks of acquiring shares of our Common
Stock in the MasterCoin Acquisition. In addition, each shareholder provided to
MasterCoin customary representations and warranties regarding the shareholders'
intent to acquire the shares of our Common Stock as an investment, and covenants
not to serve as a conduit for further distribution of the our Common Stock.
No general advertising or solicitation preceded the issuance of our
Common Stock in the MasterCoin Acquisition. Rather, the MasterCoin Acquisition
was a negotiated agreement which was developed as a natural outgrowth of a
pre-existing relationship between MasterCoin, MasterCoin of Nevis and Mr.
Marshall.
April 1999 Private Placement
----------------------------
In April 1999, we issued 250,000 shares of Common Stock to ten existing
shareholders in exchange for $125,000 in cash. The private placement was
effected in reliance upon the exemption for registration provided by Section
4(2), based upon representations and warranties provided by the prospective
purchasers and our review of the background, education and experience of each of
the individual purchasers, all of whom had a pre-existing relationship with us.
Issuance of Common Stock to Frank Torcasio
------------------------------------------
On January 20, 1999, we sold 10,000 shares of Common Stock to Frank
Torcasio, an executive officer and shareholder of MasterCoin, as part of the
consideration paid to Mr. Torcasio for the termination of his option to purchase
75,000 shares of the Common Stock for $.50 per share. The issuance of shares to
Frank Torcasio was done in reliance upon the exemption for registration provided
by Section 4(2), based upon representations and warranties provided by Mr.
Torcasio and our review and knowledge of the background, education and
experience of Mr. Torcasio.
January 1999 Private Placement
------------------------------
In January 1999, we approved the issuance of 500,000 shares of Common
Stock at $.50 per share. In May 1999, we issued 500,000 shares of Common Stock
to six existing shareholders in exchange for $250,000 in cash. The private
placement was effected in reliance upon the exemption for registration provided
23
<PAGE>
by Section 4(2), based upon representations and warranties provided by the
prospective purchasers and our review of the background, education and
experience of each of the individual purchasers.
June 1998 Private Placement
---------------------------
In June 1998, we completed a private placement of 800,000 shares of
Common Stock to five existing shareholders in exchange for the payment of
$342,235 in cash and the cancellation of debt in the amount of $57,765. The
shares of our Common Stock were sold at a price of $.50 per share. The private
placement was effected in reliance upon the exemption for registration provided
by Section 4(2), based upon representations and warranties provided by the
prospective purchasers and our review of the background, education and
experience of each of the individual purchasers, all of whom had a pre-existing
relationship with us.
Cancellation of Debt
--------------------
On January 27, 1998, we issued 310,000 shares of Common Stock to four
existing shareholders in exchange for the cancellation of $155,000 of debt to
such shareholders. The issuance of the shares was done in reliance upon the
exemption for registration provided by Section 4(2),based upon representations
and warranties provided by the prospective purchasers and our review and
knowledge of the background, education and experience of the shareholders, each
of whom had a pre-existing relationship with us.
Rule 504 Private Offering
-------------------------
On March 20, 1997, we offered 247,500 shares of Common Stock at $4.00
per share pursuant to a Confidential Term Sheet dated March 20, 1997. The
aggregate offering price of the Common Stock offered was $990,000. In April
1997, we sold 210,000 shares of Common Stock to eighteen individuals in exchange
for the total payment of $840,000 in cash less $14,394 for offering costs.
During the twelve months prior to March 20, 1997 and through the end of the
offering of the 247,500 shares of Common Stock, we had not offered any other
shares of securities under Rule 504 or in reliance on any exemption under
section 3(b) of the Securities Act or in violation of section 5(a) of the
Securities Act. At the time we made the offering, we were not (i) subject to the
reporting requirements of section 13 or 15(d) of the Exchange Act, (ii) an
investment company or (iii) a development stage company without a specific
business plan or purpose or with a plan to engage in a merger or acquisition
with an unidentified company or companies, or other entity or person.
Issuance of Shares of Common Stock to Company Founders
------------------------------------------------------
On February 1, 1997, in connection with the formation of CyberGames
International, Inc., we issued the following shares of Common Stock to the
following persons for the following consideration:
<TABLE>
<CAPTION>
Purchaser Number of Shares Consideration
--------- ---------------- -------------
<S> <C> <C>
C.J. Overseas 1,050,000 Exchange of 210 shares of stock of
CyberGames of Ireland
James A. Egide 925,000 Exchange of 185 shares of
stock of CyberGames of
Ireland
CasinoWorld Holdings 405,000 Exchange of 81 shares of
stock of CyberGames of
Ireland
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CWH Trust 202,500 Exchange of 40 shares of
stock of CyberGames of Ireland
Grabin Corporation 150,000 Exchange of 30 shares of
stock of CyberGames of
Ireland
New Media Entertainment 145,000 Exchange of 29 shares of
stock of CyberGames of
Ireland
Prospect Creek Ltd. 125,000 Exchange of 25 shares of
stock of CyberGames of
Ireland
</TABLE>
The issuance of the shares was done in reliance upon the exemption for
registration provided by Section 4(2), based upon representations and warranties
provided to us and our review and knowledge of the background, education and
experience of the purchasers, who were the founding shareholders of CyberGames
International, Inc.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article IX of the Company's Bylaws, the Company is
obligated to indemnify to the fullest extent permitted by, and in the matter
permissible under the laws of the State of Nevada, any person made, or
threatened to be made, a party to any action, suit or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he
is or was a director or officer of the Company, or is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status. The Board of Directors, in its discretion, possesses the power to
cause the Company to purchase and maintain insurance on behalf of any person who
is or was a director or officer of the Company, or is or was serving at the
request of the Company as a director or officer of another corporation, or as
its representative in a partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the Company would have
the power to indemnify such person.
Insofar as indemnification for liabilities arising under the Exchange
Act may be permitted to directors, officers and controlling persons of the
Company, the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Exchange Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceedings) is asserted by such director, officer, or controlling person in
connection with any securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Exchange Act
and will be governed by the final adjudication of such issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE CORPORATION FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE AGAINST
PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS THEREFORE
UNENFORCEABLE.
25
<PAGE>
PART F/S
<TABLE>
<CAPTION>
MASTERCOIN, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
Unaudited Pro Forma Condensed Financial Statements.......................................................F-2
Unaudited Pro Forma Condensed Balance Sheet - June 30, 1999.........................................F-3
Unaudited Pro Forma Condensed Statement of Operations
for the Six Months Ended June 30, 1999............................................................F-4
Notes to Pro Forma Financial Statements.............................................................F-4
MasterCoin of Nevis Ltd.
Balance Sheet - June 30, 1999 (Unaudited)...........................................................F-5
Statement of Operations for the Period From January 1, 1999 (Date
of Inception) Through June 30, 1999 (Unaudited)..................................................F-6
Statement of Stockholders' Equity for the Period From January 1, 1999
(Date of Inception) Through June 30, 1999 (Unaudited)............................................F-6
Statement of Cash Flows for the Period From January 1, 1999 (Date
of Inception) Through June 30, 1999 (Unaudited)..................................................F-7
Notes to Financial Statements.......................................................................F-8
CyberGames, Inc.
Report of Independent Certified Public Accountants.................................................F-10
Balance Sheet - June 30, 1999 and December 31, 1998................................................F-11
Statements of Operations for the Six Month Period Ended June 30, 1999 and
1998 and for the Cumulative Period From January 27, 1997 (Date
of Inception) through June 30, 1999 (Unaudited).................................................F-12
Statements of Operations for the Year Ended December 31, 1998, for the
Period from January 27, 1997 (Date of Inception) through December 31,
1997, and for the Cumulative Period from January 27, 1997 through
December 31, 1998................................................................................F-13
Statements of Stockholders' Equity for the Period from January 27, 1997
(Date of Inception) through December 31, 1997, for the Year Ended
December 31, 1998 and for the Six Months Ended June 30, 1999 (Unaudited).........................F-14
Statements of Cash Flows for the Six Months Ended June 30, 1999 and
1998 and for the Cumulative Period from January 27, 1997, (Date of
Inception) through June 30, 1999 (Unaudited)....................................................F-15
Statements of Cash Flows for the Year Ended December 31, 1998, for the
Period from January 27, 1997 (Date of Inception) through December 31,
1997, and for the Cumulative Period from January 27, 1997 through
December 31, 1998................................................................................F-16
Notes to Financial Statements......................................................................F-17
</TABLE>
F-1
<PAGE>
MASTERCOIN, INC.
UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS
In August 1999, MasterCoin of Nevis Ltd ("MasterCoin") entered into and
completed an agreement with CyberGames International, Inc. ("CyberGames")
pursuant to which CyberGames issued 6,925,000 of its common stock in exchange
for all of the assets of MasterCoin. In addition, CyberGames changed its name to
MasterCoin, Inc. Since CyberGames was a shell corporation with no significant
assets or operations and 3,454,500 common shares outstanding, the transaction
has been accounted for as the reorganization of MasterCoin into CyberGames and
the acquisition of CyberGames' assets by MasterCoin in exchange for 3,454,500
shares of common stock. The Cyber Games assets have been recorded at their
historical cost which was equal to their fair value. Since CyberGames was not
considered a business for accounting purposes, no goodwill was recognized from
the acquisition. The unaudited pro forma condensed balance sheet has been
prepared to present the financial position of MasterCoin, Inc. as though the
agreement had been consummated on June 30, 1999. The unaudited pro forma
condensed statement of operations for the six months ended June 30, 1999 has
been prepared to present the results of operations as though the agreement had
been consummated on January 1, 1999. A pro forma statement of operations for the
year ended December 31, 1998 has not been presented as the pro forma results of
operations for that year would be as shown in the statements of operations of
CyberGames included elsewhere herein.
The following financial information was derived from, and should be read in
conjunction with the separate historical financial statements of CyberGames and
the financial statements of MasterCoin which are included elsewhere herein. The
unaudited pro forma condensed statement of operations has been included herein
for comparative purposes only and does not purport to be indicative of the
results of operations which actually would have been obtained had the agreement
been completed on January 1, 1999, or the results of operations which may be
obtained in the future. In addition, future results of operation may vary
significantly from the results reflected in these pro forma financial
statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
MASTERCOIN, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1999
Pro Forma Pro Forma
MasterCoin CyberGames Adjustments Results
---------- ---------- ----------- -------
ASSETS
<S> <C> <C> <C> <C>
Current Assets
Cash .........................................$ 70,181 $ 100,000 $ -- $ 170,181
Accounts receivable........................... 124,823 -- 124,823
Prepaid expenses.............................. -- --
Other assets.................................. -- -- --
------------- ------------- ------------- -------------
Total Current Assets...................... 195,004 100,000 -- 295,004
------------- ------------- ------------- -------------
Equipment, net..................................... 912,886 15,977 (A) -- 928,863
Advance to MasterCoin.............................. 100,000 (B) (100,000) --
------------- ------------- ------------- -------------
Total Assets.......................................$ 1,107,890 $ 215,977 $ (100,000) $ 1,223,867
============= ============= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable........................$ 92,226 $ -- $ -- $ 92,226
------------- ------------- ------------ -------------
Total Current Liabilities................. 92,226 -- -- 92,226
------------- ------------- ------------- -------------
Notes Payable...................................... 100,000 -- (B) (100,000) --
------------- ------------- --------------- -------------
Stockholders' Equity
Common stock.................................. 6,925 3,455 -- 10,380
Additional paid-in capital.................... 1,029,660 1,301,401 -- 2,331,061
Accumulated deficit........................... (120,921) (1,088,879) -- (1,209,800)
------------- ------------- ------------- -------------
Total Stockholders' Equity................ 915,664 215,977 -- 1,131,641
------------- ------------- ------------- -------------
Total Liabilities and Stockholders' Equity $ 1,107,890 $ 215,977 $ (100,000) $ 1,223,867
============= ============= ============= =============
</TABLE>
Notes to the Unaudited Condensed Pro Forma Consolidated Financial Statements are
presented on page F - 4.
F-3
<PAGE>
<TABLE>
<CAPTION>
MASTERCOIN, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Pro Forma Pro Forma
MasterCoin CyberGames Adjustments Results
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue..............................................$ 245,029 $ -- $ -- $ 245,029
Cost of sales........................................ 163,472 -- -- 163,472
------------- ------------- ----------- -------------
Gross profit......................................... 81,557 -- -- 81,557
General and administrative expense................... 62,468 23,230 (A) 107,398 193,096
Selling and marketing................................ 16,311 -- -- 16,311
Depreciation......................................... 53,699 -- 53,699
Research and development............................. 70,000 -- 70,000
------------- ------------- ----------- -------------
Total expenses....................................... 202,478 23,230 107,398 333,106
------------- ------------- ----------- -------------
Loss from operations................................. (120,921) (23,230) (107,398) (251,549)
Interest expense..................................... -- -- --
Interest income...................................... -- 1,801 -- 1,801
------------ ------------- ----------- -------------
Loss from Continuing Operations......................$ (120,921) $ (21,429) $ (107,398) $ (249,748)
============= ============= =========== =============
Basic and Diluted Loss from Continuing
Operations Per Common Share..........................$ (0.02) $ (0.01) $ -- $ (0.02)
============= ============= =========== =============
Weighted average number of common shares
used in per share calculation........................ 6,925,000 3,085,914 -- 10,010,914
============= ============= =========== =============
</TABLE>
MASTERCOIN, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
A - To adjust depreciation of equipment from being depreciated over a
two-month period to being depreciated over a six-month period.
B - To eliminate intercompany receivable and payable.
F-4
<PAGE>
<TABLE>
<CAPTION>
MASTERCOIN OF NEVIS LTD.
BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
ASSETS
<S> <C>
Current Assets
Cash.....................................................................................$ 70,181
Accounts receivable...................................................................... 124,823
------------
Total Current Assets........................................................................... 195,004
------------
Property & Equipment, net of depreciation...................................................... 912,886
------------
Total Assets...................................................................................$ 1,107,890
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable...................................................................$ 92,226
------------
Total Current Liabilities........................................................... 92,226
------------
Notes Payable.................................................................................. 100,000
------------
Stockholders' Equity
Common stock - $0.001 par value; 20,000,000 shares
authorized; 6,925,000 issued and outstanding.......................................... 6,925
Additional paid-in capital............................................................... 1,029,660
Accumulated deficit...................................................................... (120,921)
------------
Total Stockholders' Equity.......................................................... 915,664
------------
Total Liabilities and Stockholders' Equity.....................................................$ 1,107,890
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MASTERCOIN OF NEVIS LTD.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1999 (DATE OF INCEPTION)
THROUGH JUNE 30, 1999
(UNAUDITED)
Product Sales...................................................$ 245,029
Cost of Goods Sold.............................................. 163,472
---------------
Gross Profit ................................................... 81,557
---------------
Operating and Other Expenses
General and administrative ................................ 116,167
Selling and marketing...................................... 16,311
Research and development................................... 70,000
---------------
Total Operating and Other Expenses......................... 202,478
---------------
Net Loss........................................................$ (120,921)
===============
Basic and Diluted Loss Per Common Share.........................$ (0.02)
===============
Weighted average number of common shares
used in per share calculation................................... 6,925,000
===============
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
MASTERCOIN OF NEVIS LTD.
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1999
(Date of Inception)................... - $ - $ - $ - $ -
Shares issued for research and development
expense paid by shareholder........... 467,641 468 69,532 - 70,000
Shares issued for equipment.............. 6,457,359 6,457 960,128 - 966,585
Net loss for the period ................. - - - (120,921) (120,921)
------------- ------------- ---------- ----------- ------------
Balance - June 30, 1999.................. 6,925,000 $ 6,925 $1,029,660 $ (120,921) $ 915,664
============= ============= ========== =========== ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
MASTERCOIN OF NEVIS LTD.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1999 (DATE OF INCEPTION)
THROUGH JUNE 30, 1999
(UNAUDITED)
<S> <C>
Cash Flows From Operating Activities
Net loss........................................................$ (120,921)
Adjustments to reconcile net loss to net cash used .............
by operating activities:........................................
Depreciation................................................ 53,699
Stock issued for acquisition of CyberGames.................. 70,000
Changes in operating assets and liabilities: ..........
Accounts receivable.................................... (124,823)
Accounts payable....................................... 92,226
---------------
Net Cash Used By Operating Activities........................... (29,819)
---------------
Cash Flows From Financing Activities
Proceeds from borrowings........................................ 100,000
---------------
Net Cash Provided By Financing Activities....................... 100,000
---------------
Net Increase In Cash ............................................... 70,181
Cash - Beginning of Period........................................... --
---------------
Cash - End of Period................................................$ 70,181
===============
</TABLE>
Noncash Investing and Financing Activities
During the period ended June 30, 1998, various individuals contributed equipment
for use in the Company. The value of the contributed equipment was $966,585.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
MASTERCOIN OF NEVIS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization and Nature of Operations - MasterCoin of Nevis, Ltd.,("Company")
began operations in March of 1999 and has been engaged in the business of
developing and marketing an electronic currency service for the Internet.
Revenues from operations are generated from fees paid by the customers and
member merchants. In addition, interest is earned on funds deposited with the
Company until the funds are redeemed by the customer or the merchants. Cost of
sales are incurred from fees on transactions charged by various financial
institutes.
Interim Financial Statements -- The accompanying interim financial statements as
of June 30, 1999 are unaudited. In the opinion of management, all necessary
adjustments (which include only normal recurring adjustments) have been made to
present fairly the financial position, results of operations and cash flows for
the periods presented.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumption that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Equipment - Equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the equipment, which is
three years. Maintenance and repairs of equipment are charged to operations and
major improvements are capitalized. Upon retirement, sale, or other disposition
of equipment, the cost and accumulated depreciation are eliminated from the
accounts and gain or loss is included in operations.
Loss Per Share - The Company computes basic and diluted loss per share in
accordance with Statement of Financial Accounting Standards No. 128, ("SFAS
128"), Earnings Per Share. Basic loss per common share is computed by dividing
net loss available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted loss per share is
calculated to give effect to stock warrants, options and convertible notes
payable except during loss periods when those potentially issuable common shares
would decrease the loss per share. There were no potentially issuable common
shares outstanding at June 30, 1999.
Revenue Recognition -- The Company earns fees on Internet currency transactions
by customer. Accordingly, revenue is recognized when the customer initiates an
electronic purchase. Cost of sales is recognized at the date the sale is
recognized.
Software Costs - Computer software costs incurred during the preliminary
evaluation phase are expensed as incurred while costs incurred after
technological feasibility is established are capitalized. All costs associated
with the Company's efforts to design and develop electronic currency software
were recognized as research and development and expensed as incurred.
NOTE 2-ADVANCE FROM CYBERGAMES INTERNATIONAL INC.
During the six month period ended June 30, 1999, the Company received an
advanced of $100,000 in cash from CyberGames International Inc. No terms for
repayment.
F-8
<PAGE>
MASTERCOIN OF NEVIS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INCOME TAXES
The components of the net deferred tax asset at June 30, 1999 are as follows:
Operating loss carry forwards............$ 41,113
Valuation Allowance...................... 41,113
---------------
Net Deferred Tax Asset...................$ -
===============
For tax reporting purposes, the Company has net operating loss carry forwards in
the amount of $120,921 which will expire beginning in the year 2013.
There was no provision for or benefit from income taxes from continuing
operations during any period presented. The following is a reconciliation of the
amount of tax benefit that would result from applying the federal statutory rate
to pretax loss with the provision for income taxes:
Tax benefit at statutory rate (34%)...............$ 41,113
Change in valuation allowance................... (41,113)
---------------
Provision for Income Taxes........................$ -
===============
NOTE 4 - STOCKHOLDERS' EQUITY
During the period ended June 30, 1998, various individual contributed equipment
for use in the Company. These individuals received 6,457,359 shares of common
stock. The value of the equipment contribute was $966,585.
NOTE 5 - SUBSEQUENT EVENTS
In August 1999, the Company completed an asset purchase and sale agreement with
CyberGames International, Inc. ("CyberGames"). Pursuant to the agreement, the
Company sold all of its assets to CyberGames in exchange for 6,925,000 shares of
CyberGames common stock. CyberGames had no significant operations or operating
assets. As a result of the transaction, the Company received and currently holds
a 67% interest in the outstanding CyberGames common stock. Therefore, the asset
purchase and sale agreement will be accounted for as a reorganization of the
Company into CyberGames and the reverse acquisition of CyberGames by MasterCoin
Inc.
F-9
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East 300 South, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors
CyberGames International, Inc.
We have audited the accompanying balance sheet of CyberGames International, Inc.
(a development stage company) as of December 31, 1998 and the related statements
of operations, stockholders' equity, and cash flows for the year ended December
31, 1998, for the period from January 27, 1997 (date of inception) through
December 31, 1997 and for the cumulative period from January 27, 1997 through
December 31, 1998. 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 made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CyberGames International, Inc.
as of December 31, 1998 and the results of its operations and its cash flows for
the year ended December 31, 1998, for the period from January 27, 1997 (date of
inception) through December 31,1997 and for the cumulative period from January
27, 1997 through December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing technology related to electronic currency
exchange. As discussed in Note 1, the Company has experienced losses from
operations and negative cash flows from operating activities since inception
which conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans concerning these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
August 3, 1999
Salt Lake City, Utah
F-10
<PAGE>
<TABLE>
<CAPTION>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash.......................................................................$ 100,000 $ 403,905
-------------- --------------
Total Current Assets................................................... 100,000 403,905
-------------- --------------
Advances to MasterCoin of Nevis, Ltd............................................ 100,000 --
Equipment....................................................................... 25,229 25,229
Less: accumulated depreciation............................................. (9,252) (6,728)
-------------- --------------
Net Equipment.......................................................... 15,977 18,501
-------------- --------------
Total Assets....................................................................$ 215,977 $ 422,406
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Stock redemption obligation................................................$ -- 360,000
-------------- --------------
Total Current Liabilities.............................................. -- 360,000
-------------- --------------
Stockholders' Equity
Common Stock - $0.001 par value; 20,000,000
shares authorized; shares issued and
outstanding: 3,454,500 at June 30, 1999 and 3,092,500
at December 31, 1998.................................................... 3,455 3,093
Additional paid-in capital................................................. 1,301,401 1,126,763
Deficit accumulated during the development stage........................... (1,088,879) (1,067,450)
-------------- --------------
Total Stockholders' Equity............................................. 215,977 62,406
-------------- --------------
Total Liabilities and Stockholders' Equity......................................$ 215,977 $ 422,406
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
CYBERGAMES INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
For the Six For the Six January 27, 1997
Month Month (Date of Inception)
Period Ended Period Ended Through
June 30, 1999 June 30, 1998 June 30, 1999
-------------- -------------- --------------
<S> <C> <C> <C>
General and Administrative Expense...........................$ 23,230 $ -- $ 64,270
Interest Income.............................................. 1,801 -- 15,781
-------------- -------------- --------------
Income (Loss) from Continuing Operations..................... (21,429) -- (48,489)
-------------- -------------- --------------
Discontinued Operations
Loss from online casino gambling operations,
no related income tax................................ -- (25,186) (1,390,390)
Gain on sale of online casino gambling
operations, no related income tax..................... -- -- 350,000
-------------- -------------- --------------
Income (Loss) From Discontinued
Operations................................................ -- (25,186) (1,040,390)
-------------- ---------------- ---------------
Net Income (Loss)............................................$ (21,429) $ (25,186) $ (1,088,879)
=============== ============== ==============
Basic and Diluted Income (Loss) Per
Common Share
Continuing Operations...................................$ (0.01) $ -- $ (0.01)
Discontinued Operations................................. -- (0.01) (0.32)
-------------- ---------------- ---------------
Net Income (Loss).......................................$ (0.01) $ (0.01) $ (0.33)
=============== =============== ===============
Weighted Average Common Shares Used In
Per Share Calculations...................................... 3,085,914 3,989,167 3,267,906
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Period For the Period
January 27, 1997 January 27, 1997
(Date of (Date of
For the Inception) Inception)
Year Ended Through Through
December 31, December 31, December 31,
1998 1997 1998
--------------- -------------- -----------------
<S> <C> <C> <C>
General and Administrative Expense........................$ 41,040 $ -- $ 41,040
Interest Income........................................... 5,725 8,255 13,980
--------------- -------------- ---------------
Income (Loss) from Continuing Operations.................. (35,315) 8,255 (27,060)
--------------- -------------- ---------------
Discontinued Operations
Loss from online casino gambling operations,
no related income tax............................. (125,548) (1,264,842) (1,390,390)
Gain on sale of online casino gambling
operations, no related income tax.................. 350,000 -- 350,000
--------------- -------------- ---------------
Income (Loss) From Discontinued Operations 224,452 (1,264,842) (1,040,390)
--------------- -------------- ------------------
Net Income (Loss).........................................$ 189,137 $ (1,256,587) $ (1,067,450)
=============== ============== ==================
Basic and Diluted Income (Loss) Per
Common Share
Continuing Operations................................$ (0.01) $ -- $ (0.01)
Discontinued Operations.............................. 0.06 (0.40) (0.31)
--------------- ---------------- ----------------
Net Income (Loss)....................................$ 0.05 $ (0.40) $ (0.32)
=============== =============== ================
Weighted Average Common Shares Used In Per
Share Calculations...................................... 3,448,749 3,170,074 3,314,763
=============== ============== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
<TABLE>
<CAPTION>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated Total
Additional During the Stockholders'
Common Stock Paid-in Development Equity
Shares Amount Capital Stage (Deficit)
------ ------ ------- ----- ---------
<S> <C> <C> <C> <C> <C>
Balance - January 27, 1997
(Date of inception)............................ -- $ -- $ -- $ -- $ --
Issuance for compensation from the
reorganization of CyberGames, Ltd. into the
Company, March 1997, $0.10 per share............ 3,002,500 3,003 297,247 -- 300,250
Issuance for cash, April and May 1997, $4.00
per share before $14,394 of offering costs 210,000 210 825,396 -- 825,606
Net loss for the period.......................... -- -- -- (1,256,587) (1,256,587)
------------ ------------ ------------ ------------ ------------
Balance - December 31, 1997...................... 3,212,500 3,213 1,122,643 (1,256,587) (130,731)
Conversion of shareholder loans, January through
June1998, $0.50 per share...................... 425,530 426 212,339 -- 212,765
Issuance for cash, July through October 1998,
$0.50 per share................................ 1,064,470 1,064 531,171 -- 532,235
Shares redeemed in disposition of online casino
gambling operations, July 1998, $0.50 per share (700,000) (700) (349,300) -- (350,000)
Shares redeemed for cash, March 1998, $3.25
per share...................................... (10,000) (10) (32,490) -- (32,500)
Shares redeemed October 1998, paid January 25,
1999 with cash, $0.40 per share................ (900,000) (900) (359,100) -- (360,000)
Compensation related to grant of stock options,
June 1998...................................... -- -- 1,500 -- 1,500
Net income for the year ended.................... -- -- -- 189,137 189,137
------------ ------------ ------------ ------------ ------------
Balance - December 31, 1998...................... 3,092,500 3,093 1,126,763 (1,067,450) 62,406
Shares redeemed for cash, February 1999;
$1.25 per share (unaudited) .................... (8,000) (8) (9,992) -- (10,000)
Issuance for cash, January through June 1999;
$0.50 per share (unaudited)..................... 370,000 370 184,630 -- 185,000
Net loss for the period ended June 30, 1999
(Unaudited).................................. -- -- -- (21,429) (21,429)
------------ ------------ ------------ ------------ ------------
Balance - June 30, 1999.......................... 3,454,500 $ 3,455 $ 1,301,401 $ (1,088,879) $ 215,977
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
<TABLE>
<CAPTION>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
For the Six For the Six January 27, 1997
Month Month (Date of Inception)
Period Ended Period Ended Through
June 30, 1999 June 30, 1998 June 30, 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss.....................................................$ (21,429) $ (25,186) $ (1,088,879)
Adjustments to reconcile net loss to net
cash used by operating activities:
Stock used for research and development
services.............................................. -- -- 300,250
Depreciation and amortization............................ 2,524 -- 9,252
Compensation related to stock options.................... -- -- 1,500
Gain on sale of discontinued operations.................. -- -- (350,000)
---------------- -------------- ---------------
Net Cash Used by Operating Activities.................... (18,905) (25,186) (1,127,877)
---------------- --------------- ---------------
Cash Flows From Investing Activities
Advances to MasterCoin of Nevis, Ltd......................... (100,000) -- (100,000)
Purchase of equipment........................................ -- -- (25,229)
---------------- --------------- ---------------
Net Cash Used by Investing Activities.................... (100,000) -- (125,229)
------------------ --------------- ---------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock....................... 185,000 -- 1,542,841
Proceeds from loan from stockholder.......................... -- 57,765 309,765
Principal payments on loan from stockholder.................. -- -- (97,000)
Payments for stock redemption obligations.................... (360,000) -- (360,000)
Payments to repurchase common stock.......................... (10,000) (32,500) (42,500)
---------------- --------------- ---------------
Net Cash Provided by Financing Activities................ (185,000) 25,265 1,353,106
----------------- --------------- ---------------
Net Increase (Decrease) in Cash................................... (303,905) 79 100,000
Cash - Beginning of Period........................................ 403,905 722 --
---------------- --------------- ---------------
Cash - End of Period..............................................$ 100,000 $ 801 $ 100,000
================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Period For the Period
January 27, 1997 January 27, 1997
(Date of (Date of
For the Inception) Inception)
Year Ended Through Through
December 31, December 31, December 31,
1998 1997 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss)..............................................$ 189,137 $ (1,256,587) $ (1,067,450)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Stock issued for research and development services -- 300,250 300,250
Depreciation................................................. 5,046 1,682 6,728
Compensation related to stock options........................ 1,500 -- 1,500
Gain on sale of discontinued operations...................... (350,000) -- (350,000)
-------------- ------------- --------------
Net Cash Used by Operating Activities........................ (154,317) (954,655) (1,108,972)
--------------- -------------- ---------------
Cash Flows From Investing Activities
Purchase of equipment.......................................... -- (25,229) (25,229)
-------------- -------------- ---------------
Net Cash Used by Investing Activities........................ -- (25,229) (25,229)
-------------- -------------- ---------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock ........................ 532,235 825,606 1,357,841
Proceeds from loan from stockholder............................ 57,765 252,000 309,765
Principal payments on loan from stockholder.................... -- (97,000) (97,000)
Payments to repurchase common stock............................ (32,500) -- (32,500)
--------------- ------------- ---------------
Net Cash Provided by Financing Activities.................... 557,500 980,606 1,538,106
-------------- ------------- --------------
Net Increase in Cash.............................................. 403,183 722 403,905
Cash - Beginning of Period........................................ 722 -- --
-------------- ------------- --------------
Cash - End of Period..............................................$ 403,905 $ 722 $ 403,905
============== ============= ==============
</TABLE>
Noncash Investing and Financing Activities
During the year ended December 31, 1998, $212,765 of loans from a shareholder
were converted into 425,530 shares of common stock. The Company redeemed 900,000
shares of common stock at $0.40 per share during 1998 but paid the $360,000
purchase price in cash to the former shareholders on January 25, 1999. The
Company also sold its investment in CyberGames Ltd. ("CGL") and its online
casino gambling operations to a former major shareholder of CGL in exchange for
700,000 shares of the Company's common stock valued at $350,000, or $0.50 per
share.
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Amounts as of June 30, 1999 and for the six months ended June 30, 1999 and 1998
are unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- CyberGames International, Inc. (the "Company") was incorporated
on January 27, 1997 in the State of Nevada. To date, the Company has not begun
planned operations and is considered a development stage enterprise. The
original business purpose of the Company was to provide online casino- style
gambling over the Internet. In March 1997, certain individuals (the "founders")
agreed to use CyberGames Ltd. ("CGL"), an Ireland company, for purposes of
pursuing the online casino concept. After CGL was located, it was reorganized by
issuing common shares to the founders for nominal consideration. The Company
then issued 3,002,500 shares of the Company's common stock to the founders in
exchange for all of the shares of CGL.
The common shares issued by the Company to the founders were valued at $0.10 per
share based upon the stage of the Company's organization and based upon the
price common stock was subsequently issued for cash. The Company was controlled
by the founders after the reorganization of CGL and CGL did not have any
operations or assets prior to the reorganization. In substance, the Company
issued the common shares for the online casino idea and for the founders'
services in organizing the Company and developing the online casino software.
Accordingly, the shares issued to the founders were accounted for as
compensation for their services in the amount of $300,250 and have been included
in discontinued operations as research and development expense.
From the date of the reorganization of CGL through June 1998, the Company's
efforts were to design and develop software to operate an online casino. On July
1, 1998, Management of the Company determined that the required software could
not be developed as planned. As a result, the Company entered into an agreement
with one of the founders whereby CGL, the online casino gambling operations and
any resulting intangible software assets were sold back to the founder in
exchange for the founder returning 700,000 shares of the Company's common stock.
The stock redeemed was valued at $0.50 per share based upon the price common
stock was issued for cash at about that same time. The sale resulted in the
recognition of a $350,000 gain from the sale of the discontinued operations. The
financial statements for 1998 and 1997 have been restated to present the results
from the online casino gambling activities as discontinued operations. Those
operations consisted of the following:
<TABLE>
<CAPTION>
For the Period
For the January 27, 1997
Year Ended Through
December 31, December 31,
1998 1997
------------ ---------------
<S> <C> <C>
Depreciation expense..................................................$ 5,046 $ 1,682
Research and development expense...................................... 115,500 1,239,379
General and administrative expense.................................... 5,002 23,781
------------ -------------
Loss from Online Casino Gambling Operations...........................$ 125,548 $ 1,264,842
============ =============
</TABLE>
Since the sale of the online casino gambling operations, Management of the
Company have pursued the business of electronic currency through the Internet.
In that vain, the Company completed an asset purchase and sale agreement with
MasterCoin of Nevis Ltd. in August 1999 as further discussed in Note 6.
F-17
<PAGE>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Interim Financial Statements -- The accompanying interim financial statements as
of June 3, 1999 and for the six month period ended June 30, 1999 and 1998 and
the cumulative period from June 27, 1999, date of inception, through June 30,
1999 are unaudited. In the opinion of management, all necessary adjustments
(which include only normal recurring adjustments) have been made to present
fairly the financial position, results of operations and cash flows for the
periods presented.
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 reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Basis of Presentation -- The Company discontinued its online casino gambling
operation and had not commenced any other operations through December 31, 1998,
has accumulated losses since inception of $1,067,450 and used cash in operating
activities since inception of $1,108,972. These situations raise substantial
doubt about the Company's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments relative to the
carrying amount of assets and the amount and classification of liabilities that
might result from the outcome of this uncertainty. During August 1999, the
Company completed an asset purchase and sale agreement with MasterCoin of Nevis,
Ltd. The assets were purchased by the Company issuing 6,925,000 shares of common
stock. Management anticipates the Company will generate income from this new
business. However, income or cash generated by operating activities in the
future is not assured.
Principles of Consolidation -- The accompanying financial statements include the
operations and cash flows of CyberGames International, Inc. for all periods
presented and of CGL from January 27, 1997 (date of inception) through July 1,
1998 when CGL was sold. All intercompany transactions have been eliminated in
consolidation.
Concentration of Risk - At December 31, 1998, the Company had cash on deposit
with a bank in excess of insured limits.
Fair Values of Financial Instruments - The amounts reported as cash and stock
redemption obligation are considered to reasonable approximations of their fair
values. The fair value estimates were based on the cash redemption value and the
near term payment made after year-end.
Equipment - Equipment is stated at cost and consists of a telephone system which
is planned to be used in providing services to customers through the Internet.
Although planned operations have not begun, the equipment has been depreciated
since its acquisition. Depreciation is computed using the straight-line method
over the estimated useful lives of the equipment, which is five years.
Depreciation for the six months ended June 30, 1999 was $2,524. No depreciation
was recorded for the six months ended June 30, 1998. Depreciation for the year
ended December 31, 1998 and for the period January 27, 1997 (date of inception)
through December 31, 1997 was $5,046 and $1,682, respectively. Depreciation
F-18
<PAGE>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
expense for the cumulative period January 27, 1997 (date of inception) through
December 31, 1998 was $$6,728. Depreciation expense for the cumulative period
January 27, 1997 (date of inception) through June 30, 1999 was $9,252.
Maintenance and repairs of equipment are charged to operations and major
improvements are capitalized. Upon retirement, sale, or other disposition of
equipment, the cost and accumulated depreciation are eliminated from the
accounts and gain or loss is included in operations.
Stock-Based Compensation -- Stock-based compensation relating to options granted
to non employees is measured by the fair value of the options, computed by an
option pricing model.
Income (Loss) Per Share - Basic income (loss) per share is computed by dividing
net income (loss) by the weighted-average number of common shares outstanding
during the period. Basic income (loss) per share is adjusted during periods of
income from continuing operations to present diluted income (loss) per share
which, in the Company's case, increase the denominator to include the number of
additional common shares that would have been outstanding if dilutive potential
common shares from stock options had been issued. Options to purchase 75,000
common shares were outstanding during the second half of 1998 but were not
included in the computation of income (loss) per share for any period presented
because the incremental shares from exercise of the stock options would have
decreased loss per share from continuing operations.
Software Costs - Computer software costs incurred during the preliminary
evaluation phase are expensed as incurred while costs incurred after
technological feasibility is established are capitalized. All costs associated
with the Company's efforts to design and develop online casino gambling software
were recognized as research and development and were expensed as incurred.
NOTE 2 - RELATED PARTY TRANSACTIONS
During 1997, a shareholder made cash loans to the Company of $252,000. No terms
for repayment of the loans were determined. The Company repaid the shareholder
$97,000 of the loans during 1997. During 1998, the shareholder made additional
cash loans to the Company of $57,765. The balance of the loan of $212,765 was
converted into 425,530 shares of common stock during the period from January
through June 1998 at $0.50 per share which was the fair value of the common
shares based upon the price common stock was being issued for cash.
NOTE 3 - ADVANCES TO MASTERCOIN OF NEVIS, LTD.
During the six month period ended June 30, 1999, the company advanced $100,000
in cash to MasterCoin of Nevis, Ltd.
NOTE 4 - INCOME TAXES
The components of the net deferred tax asset at December 31, 1998 are follows:
Operating loss carry forwards..........$ 260,107
Valuation Allowance.................... 260,107
---------------
Net Deferred Tax Asset.................$ -
===============
F-19
<PAGE>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For tax reporting purposes, the Company has net operating loss carry forwards in
the amount of $1,065,271 which will expire beginning in the year 2013.
There was no provision for or benefit from income taxes from continuing
operations during any period presented. The following is a reconciliation of the
amount of tax (benefit) that would result from applying the federal statutory
rate to pretax income (loss) from continuing operations with the provision for
income tax:
<TABLE>
<CAPTION>
For the For the
Year Ended Period ended
December 31, December 31,
1998 1997
--------------- --------------
<S> <C> <C>
Tax (Benefit) at statutory rate (34%)...............................$ (12,007) $ 2,807
Non-deductible expenses............................................. 600 -
Change in valuation allowance....................................... 11,407 -
Other............................................................... - (2,807)
--------------- --------------
Provision for Income Taxes..........................................$ - $ -
=============== ==============
</TABLE>
NOTE 5 - STOCKHOLDERS' EQUITY
As discussed in Note 1, the Company issued 3,002,500 shares of its common stock
in March 1997 to the Company's founders as compensation for services in
organizing the Company and for research and development services. The shares
were valued at $300,250 or $0.10 per share.
During April and May 1997, the Company issued 210,000 shares of common stock in
a Regulation D, Section 504 private placement offering in exchange for cash of
$840,000, or $4.00 per share, before $14,394 of direct offering costs. In an
effort to maintain the trading price of these common shares during a period of
time when the number of shares traded was very low, the Company redeemed 10,000
of these common shares from an investor in March 1998 for $32,500 cash, or $3.25
per share.
From January through June 1998, the Company issued 425,530 shares of restricted
common stock upon conversion of loans from a shareholder totaling $212,765, or
$0.50 per share. The conversion rate was equal to the fair value of the common
stock based upon the price common stock was issued for cash about that same
time. Company issued 1,064,470 shares of restricted common stock for $532,235
cash at $0.50 per share from July through October 1998. In October 1998, the
Company redeemed 900,000 shares of this restricted common stock for $360,000, or
$0.40 per share, which was paid on January 25, 1999.
As described in Note 1, during July 1998, the Company sold CGL, a wholly-owned
subsidiary, and its related intangible software assets, to a founder of the
Company in exchange for the founder returning 700,000 shares of the Company's
common stock. The stock redeemed was valued at $0.50 per share based upon the
price common stock was issued for cash at about that same time.
F-20
<PAGE>
CYBERGAMES INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
During the six month period ended June 30, 1999, the Company issued 370,000
shares of common stock for $185,000, or $0.50 per share and redeemed 8,000
shares of common stock for $10,000, or $1.25 per share.
NOTE 6 - STOCK OPTIONS
In June 1998, the Board of Directors approved and granted options to acquire
75,000 shares of common stock at $0.50 per share to a member of the Board of
Directors. The options became exercisable immediately and expire in one year.
The fair value of the options of $6,167, or $0.08 per option, was computed using
the Black-Scholes option-pricing model and was recognized as an expense when
granted. The fair value of the options was estimated with the following
assumptions: dividend yield of 0%; expected volatility of 36%; risk-free
interest rate of 5% and expected life of the options of 1 year. As of December
31, 1998, all 75,000 options were outstanding and exercisable. Subsequent to
December 31, 1998, the Company reacquired the 75,000 options for $7,500 or $0.10
per option.
NOTE 7 - SUBSEQUENT EVENTS
In August 1999, the Company completed an asset purchase and sale agreement for
certain assets of MasterCoin of Nevis Ltd ("MasterCoin"). MasterCoin is engaged
in the business of developing and marketing an electronic currency service for
the Internet. The assets were purchased by the Company issuing 6,925,000 shares
of common stock. The asset purchase is being accounted for as a reorganization
of MasterCoin since the shareholders of MasterCoin received the majority of the
Company's common stock outstanding.
F-21
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
MASTERCOIN, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
System
Regulation S-K Page
Exhibit No. Description Numbers
- ----------------- ------------------------------------------------------------------------------ -----------
<S> <C>
3.1 Articles of Incorporation of CyberGames International,
Inc., filed January 27, 1997
3.2 Amendment to Articles of Incorporation of MasterCoin,
Inc., dated September 8, 1999
3.3 Bylaws of MasterCoin, Inc.
4.1 Form of Common Stock Certificate
10.1 Asset Purchase and Sale Agreement, dated August 5, 1999,
by and among CyberGames International, Inc., MasterCoin
of Nevis Ltd., and Don Marshall
21.1 List of Subsidiaries
27.1 Financial Data Schedule
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS
26
<PAGE>
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
MasterCoin, Inc.
- --------------------------------------------------------------------------------
(Registrant)
Date September 22, 1999
---------------------
By /s/ William G. Isetta
----------------------
William G. Isetta, Chief Operating Officer
27
ARTICLES OF INCORPORATION
OF
CYBERGAMES INTERNATIONAL, INC.
I, the undersigned natural person of the age of twenty-one years or
more, acting as incorporator of a corporation under the Revised Statues of the
State of Nevada (the "Statutes"), adopt the following articles of incorporation
for such corporation:
ARTICLE I - NAME
The name of this corporation is CYBERGAMES INTERNATIONAL, INC.
ARTICLE II - RESIDENT AGENT
The street address of the corporation's initial resident office and the
name of the corporation's initial resident agent at that office are:
James Egide
313 Elk's Point Road
P.O. Box 11927
Zephyr Cove, NV 89448
ARTICLE III - SHARES
The aggregate number of shares which this corporation shall have
authority to issue is 20,000,000 shares of $0.001 par value per share stock. All
stock of the corporation shall be of the same class, common, and shall have the
same rights and preferences.
ARTICLE IV - DIRECTORS
The governing board of this corporation shall be known as directors.
The number of directors constituting the initial Board of Directors is one (1).
Thereafter, the number of directors shall be determined by the Bylaws. The name
and address of the initial director who is to serve as such until the first
annual meeting of shareholders, or until his successor is elected and qualified,
subject, however, to prior death, resignation, retirement, disqualification, or
removal from office are:
James Egide
313 Elk's Point Road
P.O. Box 11927
Zephyr Cove, NV 89448
ARTICLE V - PURPOSE
The nature of the business and purposes proposed to be transacted,
promoted, or carried on by this corporation is to engage in any lawful activity
permitted under the Statutes.
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ARTICLE VI - LIMITATION ON LIABILITY
To the fullest extent permitted by the Statutes as now in effect or as
they may hereafter be amended, a director or any officer of this corporation
shall not be personally liable to the corporation or its shareholders for
damages for breach of fiduciary duty as director or officer.
Neither any amendment nor repeal of this Article VI, nor the adoption
of any provision in these Articles of Incorporation inconsistent with this
Article Vi, shall eliminate or reduce the effect of this Article VI in respect
of any matter occurring, or any cause of action, suit or claim that, but for
this Article VI, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE VII - INCORPORATOR
The name and address of the incorporator signing these Articles of
Incorporation are as follows:
James Egide
313 Elk's Point Road
P.O. Box 11927
Zephyr Cove, NV 89448
/s/ James Egide
---------------
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STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The foregoing document was acknowledged before me this 24th day of
January , 1997.
/s/ John H. Wood
-----------------
Notary Public
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT OF RESIDENT AGENT
----------------------------------------------------------
James Egide hereby accepts appointment as Resident Agent for the
above-named corporation.
/s/ James Egide
---------------
James Egide
Date: January 24, 1997
-------------------
3
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
CYBERGAMES INTERNATIONAL, INC.
Pursuant to the provisions of Title 7, Chapter 78 of the Nevada Revised
Statutes, Cybergames International, Inc., a Nevada corporation (the
"Corporation"), hereby adopts the following Articles of Amendment to its
Articles of Incorporation:
I.
The name of the corporation is Cybergames International, Inc.
II.
The Articles of Incorporation of the Corporation are hereby amended by
deleting the existing Article I in its entirety and adding in its place the
following:
ARTICLE I - NAME
The name of this corporation is MasterCoin, Inc.
III.
The Board of Directors of the Corporation duly adopted resolutions by
unanimous written consent as of the ____ day of August, 1999 approving and
authorizing the foregoing amendment and recommending the amendment to the
shareholders of the Corporation.
IV.
The number of shares of the Corporation outstanding as of the date the
foregoing amendments were approved by the shareholders was
_________________________ shares of Common Stock. No other class of shares was
issued and outstanding. The number of shares entitled to vote on such amendments
was _____________________________ shares of Common Stock. The number of shares
of the Common Stock voted for such amendments was __________________, and the
number of shares of the Common Stock voted against such amendments was
____________. The number of votes cast for the Amendment by the Shareholders was
sufficient for approval by the Shareholders.
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DATED as of the ____ day of August, 1999.
CYBERGAMES INTERNATIONAL, INC.
a Nevada corporation
By:
William Isseta, Chief Operating Officer
CYBERGAMES INTERNATIONAL, INC.
a Nevada corporation
By:
James Egide, Secretary
STATE OF _____________ )
:ss
COUNTY OF ___________ )
The foregoing instrument was acknowledged before me this ____ day of
August, 1999 by William Isseta, the Chief Operating Officer of Cybergames
International, Inc., a Nevada corporation.
--------------------------
NOTARY PUBLIC
Residing in
---------------
My Commission Expires:
- ----------------------
2
BYLAWS
OF
CYBERGAMES INTERNATIONAL, INC.
ARTICLE I.
Offices
-------
Section 1. Business Offices. The principal office of the
corporation in its state of incorporation shall be located at 313 Elk's Point
Road, P.O. Box 11927, Zephyr Cove, NV. The initial principal place of business
of the corporation shall be located at 313 Elk's Point Road, P.O. Box 11927,
Zephyr Cove, NV. The corporation may have such other offices, either within or
outside Nevada, as the board of directors may designate or as the business of
the corporation may require from time to time.
ARTICLE II.
Shareholders
------------
Section 1. Annual Meeting. An annual meeting of the
shareholders shall be held on the first Monday in May of every year, beginning
with the year 1997, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting, or such other
day as the Board of Directors may determine from time to time. If the day fixed
for the annual meeting shall be a legal holiday, such meeting shall be held on
the next succeeding business day. If the election of directors shall not be held
on the day designated herein for any annual meeting of the shareholders, or at
any adjournment thereof, the board of directors shall cause the election to be
held at a meeting of the shareholders as soon thereafter as conveniently may be.
Failure to hold an annual meeting as required by these bylaws shall not
invalidate any action taken by the board of directors or officers of the
corporation.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the president or the board of directors, and shall be
called by the president at the request of the holders of not less than one tenth
of all the outstanding shares of the corporation entitled to vote at the
meeting.
Section 3. Place of Meeting. Each meeting of the
shareholders shall be held at such place, either within or outside Nevada, as
may be designated in the notice of meeting.
Section 4. Notice of Meeting. Except as otherwise prescribed
by statute, written notice of each meeting of the shareholders stating the
place, day and hour of the meeting, and the purpose or purposes for which the
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meeting is called, shall be given not less than ten nor more than sixty days
before the date of the meeting, either personally or by first class, certified
or registered mail, by or at the direction of the president, or the secretary,
or the officer or person calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, addressed to each shareholder at
his or her address as it appears on the stock transfer books of the corporation,
with postage thereon prepaid, but if two successive notices mailed to the last
known address of any shareholder of record are returned as undeliverable, no
further notices to such shareholder shall be necessary until another address for
such shareholder is made known to the corporation. If requested by a person or
persons, other than the corporation, lawfully calling a meeting, the secretary
shall give notice of such meeting at corporate expense.
Section 5. Closing of Transfer Books or Fixing of Record Date.
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of the shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the board of directors may provide
that the stock transfer books shall be closed for any stated period not
exceeding sixty days. If the stock transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of the shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer books,
the board of directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
days, and in the case of a meeting of the shareholders, not less than ten days,
prior to the date on which the particular action requiring such determination of
shareholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of the shareholders, or shareholders entitled to receive
payment of a dividend, the date on which the notice of the meeting is mailed or
the date on which the resolution of the board of directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of the shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof except where
the determination has been made through the closing of the stock transfer books
and the stated period of the closing has expired.
Section 6. Voting Record. The officer or agent having charge
of the stock transfer books for shares of the corporation shall make, at least
ten days before each meeting of the shareholders, a complete record of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each. For a period of ten days before such meeting, this record shall be
kept on file at the principal office of the corporation and shall be subject to
inspection by any shareholder for any purpose germane to the meeting at any time
during usual business hours. Such record shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder for any purpose germane to the meeting during the whole time of the
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meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such record or transfer books or to
vote at any meeting of the shareholders.
Section 7. Proxies. At each meeting of the shareholders, a
shareholder may vote by proxy executed in writing by the shareholder or his or
her duly authorized attorney-in-fact. Such
proxy shall be filed with the secretary of the corporation before or at the time
of the meeting. No proxy shall be valid after six months from the date of its
execution, unless otherwise provided in the proxy, but, in no case shall a proxy
be valid for more than seven years from the date of its execution.
Section 8. Quorum. Except as otherwise required by the Nevada
Revised Statutes or the articles of incorporation, a majority of the outstanding
shares of the corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at each meeting of the shareholders, and the
affirmative vote of a majority of the shares represented at a meeting at which a
quorum is present and entitled to vote on the subject matter shall be the act of
the shareholders. If less than a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time for a period not to exceed sixty days at any one
adjournment without notice other than an announcement at the meeting. At such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 9. Voting of Shares. Each outstanding share of record,
regardless of class, is entitled to one vote, and each fractional share is
entitled to a corresponding fractional vote, on each matter submitted to a vote
of the shareholders either at a meeting thereof or pursuant to Section 11 of
this Article, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the articles of incorporation as
permitted by the Nevada Revised Statutes.
Section10. Voting of Shares by Certain Holders. Neither
treasury shares nor shares held by another corporation if a majority of the
shares entitled to vote for the election of directors of such other corporation
is held by this corporation shall be voted at any meeting or counted in
determining the total number of outstanding shares at any given time.
Shares standing in the name of another corporation may be
voted by such officer, agent or proxy as the bylaws of such corporation may
prescribe, or in the absence of such provision, as the board of directors of
such corporation may determine.
Shares held by an administrator, executor, guardian or
conservator may be voted by him or her, either in person or by proxy, without a
transfer of such shares into his or her name. Shares standing in the name of a
trustee may be voted by him or her, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him or her without a transfer of such
shares into his or her name.
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Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name if authority so
to do is contained in an appropriate order of the court by which such receiver
was appointed.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Section 11. Action Without a Meeting. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by the shareholders holding at least a majority of the voting power
except that if any greater proportion of voting power is required for such an
action at a meeting, then the greater proportion of written consents is
required. Such consent (which may be signed in counterparts) shall have the same
force and effect as a majority vote of the shareholders, and may be stated as
such in any articles or document filed with the office of the Secretary of State
of Nevada, or other governmental agency.
ARTICLE III.
Board of Directors
------------------
Section 1. General Powers. The business and affairs of the
corporation shall be managed by its board of directors, except as otherwise
provided in the Nevada Revised Statutes, the articles of incorporation or these
bylaws.
Section 2. Number, Tenure and Qualifications. The number of
directors of the corporation shall be not less than three nor more than seven.
The initial board of directors shall consist of one director; thereafter, the
board of directors shall consist of four directors until such time as the board
of directors adopts a resolution changing such number. Directors shall be
elected at each annual meeting of the shareholders. Each director shall hold
office until the next annual meeting of the shareholders and thereafter until
his or her successor shall have been elected and qualified, or until his or her
earlier death, resignation or removal. Directors must be at least eighteen years
old but need not be residents of Nevada or shareholders of the corporation.
Directors shall be removable in the manner provided by the Nevada Revised
Statutes.
Section 3. Vacancies. Any director may resign at any time by
giving written notice to the president or to the secretary of the corporation. A
director's resignation shall take effect at the time specified in such notice;
and unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective. Any vacancy occurring in the board of
directors may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum. A director elected to fill a vacancy shall
be elected for the unexpired term of his or her predecessor in office. Any
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directorship to be filled by reason of an increase in the number of directors
shall be filled by the affirmative vote of a majority of the directors then in
office or by an election at a meeting of the shareholders called for that
purpose, and a director so chosen shall hold office for the term specified in
Section 2 above.
Section 4. Regular Meetings. A regular meeting of the board of
directors shall be held immediately after and at the same place as the annual
meeting of the shareholders, or as soon as practicable thereafter at the time
and place, either within or outside Nevada, determined by the board, for the
purpose of electing officers and for the transaction of such other business as
may come before the meeting. The board of directors may provide by resolution
the time and place, either within or outside Nevada, for the holding of
additional regular meetings.
Section 5. Special Meeting. Special meetings of the board of
directors may be called by or at the request of the president or any two
directors. The person or persons authorized to call special meetings of the
board of directors may fix any place as the place, either within or outside
Nevada, for holding any special meeting of the board called by them.
Section 6. Notice. Notice of each meeting of the board of
directors stating the place, day and hour of the meeting shall be given to each
director at least five days prior thereto by the mailing of written notice by
first class mail, or at least two days prior thereto by personal delivery of
written notice or by telephonic or telegraphic notice, except that in the case
of a meeting to be held pursuant to Section 11 of this Article, telephone notice
may be given one day prior thereto. (The method of notice need not be the same
to each director.) Notice shall be deemed to be given, if mailed, when deposited
in the United States mail, with postage thereon prepaid, addressed to the
director at his or her business or residence address; if personally delivered,
when delivered to the director; if telegraphed, when the telegram is delivered
to the telegraph company; if telephoned, when communicated to the director. Any
director may waive notice of any meeting. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting unless otherwise required by statute.
Section 7. Presumption of Assent. A director of the
corporation who is present at a meeting of the board of directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless he shall file his or her written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
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Section 8. Quorum and Voting. A majority of the number of
directors fixed by Section 2 of this Article, present in person, shall
constitute a quorum for the transaction of business at any meeting of the board
of directors, and the vote of a majority of the directors present at a meeting
at which a quorum is present shall be the act of the board of directors. If less
than such majority is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice other than an
announcement at the meeting, until a quorum shall be present. No director may
vote or act by proxy at any meeting of the directors.
Section 9. Compensation. By resolution of the board of
directors, any director may be paid any one or more of the following: his or her
expenses, if any, of attendance at meetings; a fixed sum for attendance at such
meeting; or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any capacity and receiving compensation
therefor.
Section 10. Executive and Other Committees. By one or more
resolutions, the board of directors may designate from among its members an
executive committee and one or more other committees, each of which to the
extent provided in the resolution establishing such committee, shall have and
may exercise all of the authority of the board of directors, except as
prohibited by statute. The delegation of authority to any committee shall not
operate to relieve the board of directors or any member of the board from any
responsibility imposed by law. Rules governing procedures for meeting of any
committee of the board shall be as established by the committee, or in the
absence thereof, by the board of directors.
Section 11. Meetings by Telephone. Unless otherwise provided
by the articles of incorporation, members of the board of directors or any
committee thereof may participate in a meeting of the board or committee by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other at the same time. Such
participation shall constitute presence in person at the meeting. Each person
participating in the meeting shall sign the minutes thereof. The minutes may be
signed in counterparts.
Section 12. Action Without a Meeting. Any action required or
permitted to be taken at a meeting of the directors or any committee thereof may
be taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the directors or committee members entitled to
vote with respect to the subject matter thereof. Such consent (which may be
signed in counterparts) shall have the same force and effect as a unanimous vote
of the directors or committee members, and may be stated as such in any articles
or documents filed with the office of the Secretary of State of Nevada, or other
governmental agency.
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ARTICLE IV.
Officers and Agents.
--------------------
Section 1. Number and Qualifications. The officers of the
corporation shall be a president, vice-president, secretary and treasurer. The
board of directors may also elect or appoint such other officers, assistant
officers and agents, including a chairman of the board, one or more additional
vice presidents, a controller, assistant secretaries, and an assistant
treasurer, as they may consider necessary.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected by the board of directors annually at the first
meeting of the board held after each annual meeting of the shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Each officer shall hold office
until his or her successor shall have been duly elected and shall have
qualified, or until his or her earlier death, resignation or removal.
Section 3. Salaries. The salaries of the officers shall be as
fixed from time to time by the board of directors and no officer shall be
prevented from receiving a salary by reason of the fact that he is also a
director of the corporation.
Section 4. Removal. Any officer or agent may be removed by the
board of directors whenever in its judgment the best interests of the
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not in itself create contract rights.
Section 5. Vacancies. Any officer may resign at any time,
subject to any rights or obligations under any existing contracts between the
officer and the corporation, by giving written notice to the president or to the
board of directors. An officer's resignation shall take effect at the time
specified therein; the acceptance of such resignation shall not be necessary to
make it effective. A vacancy in any office, however occurring, may be filled by
the board of directors for the unexpired portion of the term.
Section 6. Authority and Duties of Officers. The officers of
the corporation shall have the authority and shall exercise the powers and
perform the duties specified below and as may be additionally specified by the
president, the board of directors or these bylaws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law:
(a) President. The president shall, subject to
the direction and supervision of the board of directors, (i) be the chief
executive officer of the corporation and have general and active control of its
affairs and business and general supervision of its officers, agents and
employees; (ii) unless there is a chairman of the board, preside at all meetings
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of the shareholders and the board of directors; (iii) see that all orders and
resolutions of the board of directors are carried into effect; and (iv) perform
all other duties incident to the office of president and as from time to time
may be assigned to him or her by the board of directors.
(b) Vice President. The vice president shall
perform all duties incumbent upon the president during the absence or disability
of the president and in general perform all duties incident to the office of
vice president and as from time to time may be assigned by the board of
directors.
(c) Secretary. The secretary shall: (i) keep the
minutes of the proceedings of the shareholders, the board of directors and any
committees of the board; (ii) see that all notices are duly given in accordance
with the provisions of these bylaws or as required by law; (iii) be custodian of
the corporate records and of the seal of the corporation; (iv) keep at the
corporation's principal office in Nevada a certified copy of the articles of
incorporation and all amendments thereto of the corporation, a certified copy of
the bylaws and all amendments thereto of the corporation, and a stock ledger or
duplicate stock ledger revised annually, containing the names, alphabetically
arranged, of all persons who are shareholders of the corporation, showing their
places of residence, if known, and the number of shares held by them
respectively; or in lieu of the stock ledger or duplicate stock ledger, a
statement setting out the name of the custodian of the stock ledger or duplicate
stock ledger and the present and complete post office address, including street
and number, if any, where such stock ledger or duplicate stock ledger is kept;
(v) have general charge of the stock books of the corporation, unless the
corporation has a transfer agent; and (vi) in general, perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him or her by the president or by the board of directors.
Assistant secretaries, if any, shall have the same duties and powers, subject to
supervision by the secretary.
(d) Treasurer. The treasurer shall (i) keep
correct and complete records of account, showing accurately at all times the
financial condition of the corporation; (ii) be the legal custodian of all
moneys, notes, securities, and other valuables that may from time to time come
into the possession of the corporation; (iii) immediately deposit all funds of
the corporation coming into his or her hands in some reliable bank or other
depository to be designated by the board of directors; and (iv) in general,
perform all duties incident to the office of treasurer and such other duties as
from time to time may be assigned to him or her by the board of directors.
Section 7. Surety Bonds. The board of directors may require
any officer or agent of the corporation to execute and deliver to the
corporation a bond in such sums and with such sureties as shall be satisfactory
to the board, conditioned upon the faithful performance of his or her duties and
for the restoration to the corporation of all books, papers, vouchers, money and
other property of whatever kind in his or her possession or under his or her
control belonging to the corporation.
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ARTICLE V.
Stock
-----
Section 1. Issuance of Shares. The issuance or sale by the
corporation of any shares of its authorized capital stock of any class,
including treasury shares, shall be made only upon authorization by the board of
directors, except as otherwise may be provided by statute.
Section 2. Certificates. The shares of stock of the
corporation shall be represented by consecutively numbered certificates signed
in the name of the corporation by its president or a vice president and the
secretary or an assistant secretary, and shall be sealed with the seal of the
corporation or with a facsimile thereof. The signatures of the corporation's
officers on any certificate may also be facsimiles if the certificate is
countersigned by a transfer agent, or registered by a registrar, other than the
corporation itself or an employee of the corporation. In case any officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer at
the date of its issue. Certificates of stock shall be in such form consistent
with law as shall be prescribed by the board of directors. No certificate shall
be issued until the shares represented thereby are fully paid.
Section 3. Consideration of Shares. Shares shall be issued
for such consideration expressed in dollars (but not less than the par value
thereof) as shall be fixed from time to time by the board of directors. Treasury
shares shall be disposed of for such consideration expressed in dollars as may
be fixed from time to time by the board. Such consideration may consist of any
tangible or intangible property or benefit to the corporation, including, but
not limited to, cash, promissory notes, services performed, contracts for
services to be performed or other securities of the corporation.
Section 4. Lost Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, the board of directors may
direct the issuance of a new certificate in lieu thereof upon such terms and
conditions in conformity with law as it may prescribe. The board of directors
may, in its discretion, require a bond in such form and amount and with such
surety as it may determine, before issuing a new certificate.
Section 5. Transfer of Shares. Upon surrender to the
corporation or to a transfer agent of the corporation of a certificate of stock
fully endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, and cancel the old certificate.
Every such transfer of stock shall be entered on the stock books of the
corporation.
Section 6. Holders of Record. The corporation shall be
entitled to treat the holder of record of any share of stock as the
holder-in-fact thereof, and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person whether or not it shall have express or other notice thereof, except as
may be required by the Nevada Revised Statutes.
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Section 7. Transfer Agents, Registrars and Paying Agents. The
board of directors may, at its discretion, appoint one or more transfer agents,
registrars or agents for making payment upon any class or stock, bond, debenture
or other security of the corporation. Such agents and registrars may be located
either within or outside Nevada. They shall have such rights and duties and
shall be entitled to such compensation as may be agreed.
ARTICLE VI.
Indemnification
---------------
Section 1. Third Party Actions. The corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that is or her conduct was unlawful.
Section 2. Derivative Actions. The corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys'
fees actually and reasonably incurred by him or her in connection with the
defense or settlement of the action or suit if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation. Indemnification shall not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the corporation or for amounts paid in settlement to the corporation, unless
and only to the extent that the court in which the action or suit was brought or
10
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other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 3. Success on Merits or Otherwise. To the extent that
a director, officer, employee or agent of the corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or
matter therein, he shall be indemnified by the corporation against expenses,
including attorneys' fees, actually and reasonably incurred by him or her in
connection with the defense.
Section 4. Determination. Any indemnification under Sections
1 and 2 of this Article VI, unless ordered by a court or advanced pursuant to
Section 5 of this Article VI, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a
quorum consisting of directors who were not parties to the act, suit or
proceeding;
(c) If a majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding so orders, by
independent legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
Section 5. Payment in Advance. The expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
shall be paid by the corporation as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this Section 5
do not affect any rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any contract or otherwise
by law.
Section 6. Other Indemnification; Period of Indemnification.
The indemnification and advancement of expenses authorized in or ordered by a
court pursuant to this Article VI:
(a) Does not exclude any other rights to which a
person seeking indemnification or advancement of expenses may be entitled under
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the articles of incorporation, these bylaws, an agreement, vote of stockholders
or disinterested directors or otherwise, for either an action in his or her
official capacity or an action in another capacity while holding his or her
office, except that indemnification, unless ordered by a court pursuant to
Section 2 of this Article VI or for the advancement of expenses made pursuant to
Section 5 of this Article VI, may not be made to or on behalf of any director or
officer if a final adjudication establishes that his or her acts or omissions
involved intentional misconduct, fraud or a knowing violation of the law and was
material to the cause of action.
(b) Continues for a person who has ceased to be a
director, officer, employee or agent and inures to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VII.
Miscellaneous
-------------
Section 1. Waivers of Notice. Whenever notice is required by
law, by the articles of incorporation, or by these bylaws, a waiver thereof in
writing signed by the director, shareholder, or other person entitled to said
notice, whether before or after the time stated therein, or his or her
appearance at such meeting in person or (in the case of a shareholders' meeting)
by proxy, shall be equivalent to such notice.
Section 2. Voting of Securities by the Corporation. Unless
otherwise provided by resolution of the board of directors, on behalf of the
corporation, the president or any vice president shall attend in person or by
substitute appointed by him or her, or shall execute written instruments
appointing a proxy or proxies to represent the corporation at all meetings of
the shareholders of any other corporation, association, or other entity in which
the corporation holds any stock or other securities, and may execute written
waivers of notice with respect to any such meetings. At all such meetings and
otherwise, the president or vice president, in person or by substitute or proxy
as aforesaid, may vote the stock or other securities so held by the corporation
and may execute written consents or any other instruments with respect to such
stock or securities and may exercise any and all rights and powers incident to
the ownership of said stock or securities, subject, however, to the
instructions, if any, of the board of directors.
Section 3. Seal. The corporate seal of the corporation shall
be circular in form and shall contain the name of the corporation, the year of
its organization, and the words, "Seal, Nevada."
Section 4. Fiscal Year. The fiscal year of the corporation
shall be the calendar year.
Section 5. Amendments. Subject to repeal or change by action
of the shareholders, the power to alter, amend, or repeal these bylaws shall be
vested in the board of directors.
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SECRETARY'S CERTIFICATE
-----------------------
I, the undersigned and duly elected Secretary of CyberGames
International, Inc., a Nevada corporation, do hereby certify that the foregoing
Bylaws were adopted as the Bylaws of the corporation as of the 1st day of
February, 1997, and that the same do now constitute the Bylaws of the
corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the corporation this day of , 1998.
---- ----
/s/ James A. Egide
-----------------------------
James A. Egide, Secretary
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[Specimen stock certificate - Cybergames International, Inc.]
ASSET PURCHASE AND SALE AGREEMENT
---------------------------------
THIS ASSET PURCHASE AND SALE AGREEMENT (this "Agreement") is made and
entered into as of August 5, 1999, by and among CyberGames International, Inc.,
a Nevada corporation ("Buyer") and MasterCoin of Nevis Ltd, a Nevis limited
corporation ("Seller"), and Don Marshall, an individual and the sole shareholder
of Seller (the "Shareholder"). All capitalized terms not otherwise specifically
defined herein shall have the meanings set forth in Article VII below.
Background
WHEREAS, the Seller is engaged in the business of developing and
marketing an electronic currency (the "Business"); and
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to
sell to Buyer, certain of the assets of Seller as more particularly set forth
below; and
WHEREAS, the Shareholder is the sole shareholder of Seller and will
benefit from the sale of the Assets (as defined below) by Seller to Buyer;
Agreement
NOW, THEREFORE, in consideration of the respective representations,
warranties and covenants contained herein and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
SALE OF ASSETS; CLOSING
1.1 Assets. Subject to the terms and conditions of this Agreement, at
the Closing, Seller shall sell, transfer, assign and deliver to Buyer, and Buyer
shall purchase from Seller all right, title and interest in and to the items set
forth on Schedule 1.1, attached hereto and made a part hereof (the "Assets").
1.2 Assumption of Liabilities. Buyer is not assuming any Liability of
Seller of any kind or nature other than those expressly set forth on Schedule
1.2, attached hereto and made a part hereof (the "Assumed Liabilities"). In
connection with the acquisition of the Assets, Seller understands and
acknowledges that except for the Assumed Liabilities, Buyer shall have no
obligation for any Liability of Seller of any kind or nature.
1.3 Purchase Price.
(a) The total purchase price (the "Purchase Price") for all of
the Assets shall consist of Buyer's issuance of 6,925,000 shares of the common
stock, no par value, of Buyer (the "CyberGames Common Stock") to be issued and
delivered at the Closing in accordance with Section 1.5(b) below (collectively,
the "Shares"):
<PAGE>
(b) The parties hereto agree to allocate the Purchase Price
among the Assets for all purposes in accordance with an allocation schedule set
forth on Schedule 1.3(c), attached hereto and made a part hereof.
1.4 Closing. The parties hereto agree to close the purchase and
sale (the "Closing") provided for in this Agreement immediately following the
execution of this Agreement (the "Closing Date") and shall be effective as of
12:01 a.m. on the Closing Date.
1.5 Closing Deliveries.
(a) At the Closing, Seller shall deliver to Buyer:
(i) an executed Bill of Sale in substantially the
form of Exhibit A, transferring to Buyer the Assets, free and clear of
all Encumbrances;
(ii) possession of all of the tangible Assets and
copies of the records of the Company;
(iii) subscription agreements, in form and substance
acceptable to Buyer in its absolute discretion, executed by William
Lavin ("Lavin") and David Hicks ("Hicks") with respect to the Shares to
be issued to Lavin and Hicks as contemplated by Section 1.5(b) below;
and
(iv) such other documents, agreements, assignments,
instruments and certificates as may be required by this Agreement or as
may be reasonably requested by Buyer to carry out the terms and
conditions of this Agreement.
(b) At the Closing, Buyer, Lavin and Hicks shall deliver to
Seller (which deliveries may be waived in Seller's sole and absolute
discretion):
(i) executed certificates representing the Shares in
such denominations as Seller shall instruct Buyer in writing prior to
the Closing; and
(ii) such other documents, agreements, assignments,
instruments and certificates as may be required by this Agreement or as
may be reasonably requested by Seller to carry out the terms and
conditions of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
For the purpose of inducing Buyer to enter into this Agreement and with
the knowledge that Buyer will rely on the following representations and
warranties, as of the Closing Date, Seller and the Shareholder, jointly and
severally, represent and warrant to Buyer as follows:
2.1 Organization, Existence and Good Standing. Seller (i) is a Nevis
corporation, duly organized, validly existing and in good standing under the
laws of Nevis, West Indies, (ii) is qualified to do business in every
jurisdiction in which its ownership of property or conduct of business requires
it to be so qualified (iii) has full corporate power and authority to carry on
the Business as now being conducted to own and operate its properties and assets
including the Assets. Seller has not for the past five years, and is not
currently, conducting the Business under any names other than "MasterCoin."
2.2 Authority. Each of Seller and the Shareholder has full power and
authority to execute and deliver this Agreement and to perform its and his
obligations hereunder. This Agreement constitutes the legal, valid and binding
obligation of each of Seller and the Shareholder enforceable against Seller and
the Shareholder in accordance with its terms. All corporate or shareholder
action necessary to approve this transaction on the part of Seller has been
obtained.
2
<PAGE>
2.3 Consents and Approvals; No Violation. Neither the execution,
delivery and performance of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) violate or conflict with, (ii) result
in, or require the creation or imposition of, any Encumbrance upon or with
respect to any of the Assets pursuant to, (iii) require Seller or the
Shareholder to make any filing or registration with, give notice to, or obtain
any consent, approval or authorization from any Governmental Authority or any
other Person (including creditors) in accordance with, (iv) result in a breach
of, (v) constitute (with or without due notice or lapse of time or both) a
default under, or (vi) give rise to any right of termination, cancellation or
acceleration under, any provision of the charter documents of of Seller, any
Legal Requirement binding upon Seller or the Shareholder, any contract,
agreement, license, lease, instrument or other arrangement binding upon Seller
or the Shareholder, or any Governmental Authorization or any other instrument or
obligation to which Seller or the Shareholder is a party, by which Seller, the
Shareholder or any of the Assets may be bound or to which Seller, the
Shareholder or any of the Assets may be subject.
2.4 Books and Records. All records of the Business have been made
available to Buyer and are true, complete and correct. At the Closing, all such
records will be in the possession of Seller and will be delivered to Buyer.
2.5 Title to Assets and Related Matters. Seller owns and has good and
marketable title in and to all of the Assets free and clear of all Encumbrances
and the claims or rights of any other Person. All of the tangible Assets are
merchantable and in good working order and repair. The Assets are sufficient for
the conduct of the Business as conducted by Seller during the one-year period
immediately prior to the Closing. All right, title and interest of Seller with
respect to the Assets will be enforceable by Buyer after the Closing without the
consent or agreement of any other Person.
2.6 Contracts. Schedule 2.5 contains an accurate and complete listing
of all of the contracts between Seller and any other Person other than Buyer or
related to the Business (the "Contracts"). Except as set forth in Schedule 2.5,
no amounts have been paid in advance in the form of fees or compensation to
Seller or any of its affiliates with respect to the Contracts and no amount is
owed by Seller to any Person for goods or services received with respect
thereto. True, correct and complete copies of the Contracts have been delivered
to Buyer. With respect to each of the Contracts:
(1) Each is in full force and effect, is legal, valid and
binding and is enforceable in accordance with its terms. Each will continue to
be in full force and effect, legal, valid and binding and enforceable, subject
to obtaining consent to the assignment thereof from the other parties thereto,
in accordance with its terms following the consummation of the transactions
contemplated hereby;
(2) There are no defaults under or breaches thereof, and no
condition exists or event has occurred which, with notice or lapse of time or
both, would constitute a default or a basis for force majeure or other claim of
excusable delay or non-performance thereunder; and
(3) No party to any of the Contracts has repudiated any
provision of such Contract and there has been no indication or notice of
termination or intent to terminate given, orally or in writing, by any such
party.
2.7 Compliance With Laws. Seller is in compliance with all Legal
Requirements applicable to it, the ownership of the Assets or the operation of
the Business or any combination thereof, and Seller has no basis to expect, nor
has it received, any Order, notice, or other communication from any Governmental
Authority or other Person of any alleged, actual, or potential violation of or
failure to comply with any such Legal Requirement. Seller has maintained and
currently has in full force and effect all required, appropriate and customary
licenses and Governmental Authorizations to conduct the Business.
2.8 Litigation. Neither Seller nor the Shareholder is subject to any
Order affecting the Assets or Seller's or the Shareholder's ability to carry out
the terms of this Agreement, there are no Proceedings pending or threatened
against Seller or the Shareholder which would affect Seller's or the
Shareholder's ability to carry out the terms of this Agreement or which would
affect title to the Assets, and there exist no facts to serve as a basis for any
assertion or institution of any Proceeding.
3
<PAGE>
2.9 No Broker's or Finder's Fees. No agent, broker, investment banker
or similar Person has acted directly or indirectly on behalf of Seller or the
Shareholder in connection with this Agreement or the transactions contemplated
hereby, and no Person, including Seller and/or the Shareholder, is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
or expense, directly or indirectly, in connection with this Agreement or the
transactions contemplated hereby.
2.10 Financial Statements. Seller has delivered to Buyer certain
financial statements (including an income statement for the period ending
December 31,1998, and a balance sheet as of December 31, 1998, (the "Balance
Sheet")). Such financial statements fairly present the financial condition and
results of operations of Seller and the Business as of the respective dates
thereof and for the periods therein referenced. There are no taxes or
assessments owed or payable by Seller nor, upon consummation of the transaction
contemplated by this Agreement, will any taxes or assessments be payable by
Buyer with respect to Seller's operations, any Asset or the consummation of the
transactions contemplated by this Agreement.
2.11 Intellectual Property. Seller has the absolute right to use,
commercialize, exploit and transfer the intellectual property used,
commercialized or exploited by Seller in the conduct of the Business. Such
intellectual property constitutes a portion of the Assets. Seller has not
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any intellectual property rights of third parties. To the
knowledge of Seller, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any intellectual property
rights of Seller. No claim has been made that Seller's use of the Assets
infringes on the right of any other Person, nor has notice been given of any
such claim. Use of the Assets by Buyer in the Business will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with any
intellectual property rights of third parties.
2.12 Seller Shares. The Shareholder holds of record one hundred percent
(100%) of the issued and outstanding capital stock of Seller. No other Person
owns any equity securities of Seller, any options or warrants for the purchase
of any such equity securities or has any agreement with Seller or the
Shareholder for the purchase of any such equity securities or any options,
warrants or other rights to acquire such equity securities.
2.13 Securities Matters. Seller makes the following representations and
warranties with respect to its receipt of the Shares:
(a) Seller, Lavin and Hicks are the sole and true parties in
interest and are not acquiring the Shares for the benefit of any other Person.
(b) Seller confirms that all documents requested by it, its
officers, directors and shareholders have been made available and that each of
it, its officers, directors and shareholders has been supplied with all of the
additional information concerning the Shares and Buyer that has been requested.
(c) Seller has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of owning
the Shares.
(d) Seller is aware that the Shares are highly speculative and
subject to substantial risks. Seller understands there is a high degree of
economic risk associated with the Shares, including, but not limited to, the
possibility of the complete loss of any economic value for the shares and there
is limited transferability of the Shares, which may make the liquidation of the
Shares impossible for the indefinite future.
(e) Seller was able to ask questions of and receive answers
concerning the terms and conditions of this transaction and ask questions and
receive answers regarding the Company. At no time was Seller presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general advertising.
4
<PAGE>
(f) The Shares are being acquired solely for the account of
Seller, Lavin and Hicks, for investment, and are not being acquired with a view
to the resale, distribution, subdivision or fractionalization thereof.
(g) Seller understands that the Shares will not be registered
under the Securities Act of 1933, as amended (the "Securities Act"), or any
state securities laws, in partial reliance upon exemptions from registration for
certain private offerings. Seller understands and agrees that the Shares or any
interest therein, cannot be resold or otherwise disposed of by Seller in
contravention of the Securities Act or any other federal or any state securities
law or in a manner that could jeopardize the exemption from registration upon
which Buyer is relying for the issuance of the Shares.
(h) None of the following information has ever been
represented, guaranteed or warranted to Seller or any of its officers, directors
or shareholders, expressly or by implication, by any Person:
(1) The approximate or exact length of time that
Seller will be required to remain a shareholder of Buyer; or
(2) The percentage of profit and/or amount of or type
of consideration, profit
or loss to be realized, if any, as a result of owning Shares in Buyer.
2.14 Disclosure. Seller has not failed to disclose to Buyer any
information known to Seller or the Shareholder that is material to Buyer's
decision to enter into this Agreement and purchase the Assets. No representation
or warranty of either Seller or the Shareholder or both contained in this
Agreement or in the schedules to this Agreement contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1 Authority. Buyer has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
has been duly and validly executed and delivered by Buyer and constitutes the
legal, valid and binding agreement of Buyer enforceable against Buyer in
accordance with its terms.
3.2 Consents and Approvals; No Violation. Neither Buyer's execution and
delivery of this Agreement, nor Buyer's consummation of the transactions
contemplated hereby will, as of the date hereof or as of the Closing Date: (i)
violate or conflict with, (ii) result in, or require the creation or imposition
of, any Encumbrance upon or with respect to any of the Assets pursuant to, (iii)
require Buyer to make any filing or registration with, give notice to, or obtain
any consent, approval or authorization from any Governmental Authority or any
other Person (including creditors), (iv) result in a breach of, or (v)
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
provision of the Articles of Incorporation or Bylaws of the Buyer, any Legal
Requirement binding upon Buyer, any contract, agreement, license, lease,
instrument or other arrangement, or any Governmental Authorization or other
instrument or obligation to which Buyer is a party, or by which Buyer may be
bound or to which any of its assets may be subject.
3.3 No Broker's or Finder's Fees. No agent, broker, investment banker
or similar Person has acted directly or indirectly on behalf of Buyer in
5
<PAGE>
connection with this Agreement or the transactions contemplated hereby, and no
Person, including Buyer, is or will be entitled to any broker's or finder's fee
or any other commission or similar fee or expense, directly or indirectly, in
connection with this Agreement or the transactions contemplated hereby.
ARTICLE IV
COVENANTS OF PARTIES AFTER CLOSING
Each of the parties hereto agrees as follows with respect to the period
beginning immediately after the Closing:
4.1 Further Assurances of Seller. Seller and the Shareholder will, upon
the request of Buyer from time to time after the Closing, execute and deliver,
and use its best efforts to cause other Persons (including the Shareholder,
Lavin and Hicks) to execute and deliver, to Buyer all such further documents and
instruments, and will do or use their best efforts to cause to be done such
other acts, as Buyer may reasonably request more completely to consummate and
make effective the transactions contemplated hereby.
4.2 Payment of Costs. Shareholder shall bear its and Seller's costs and
expenses (including, without limitation, fees and expenses of business brokers,
legal counsel, accountants and other representatives, consultants, facilitators
and advisors, except as otherwise specifically set forth herein) incurred at any
time in connection with this Agreement and the transactions contemplated hereby.
Buyer shall bear its costs and expenses (including, without limitation, fees and
expenses of business brokers, legal counsel, accountants and other
representatives, consultants, facilitators and advisors, except as otherwise
specifically set forth herein) incurred at any time in connection with this
Agreement and the transactions contemplated hereby.
4.3 Restrictions on Transfer of Shares. The Shares will not be
registered under the Securities Act, and may not be sold, transferred, or
otherwise disposed of for value unless they are subsequently registered under
the Securities Act or an exemption from such registration is available, as
evidenced by an opinion of counsel retained by Seller and addressed to and
reasonably satisfactory to Buyer. Each certificate evidencing the Shares shall
be stamped or otherwise imprinted with a legend substantially in the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE
MEANING OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER
THE SECURITIES ACT.
ARTICLE V
DEFAULT/INDEMNIFICATION
5.1 Default. If there is a breach of any of Seller's representations,
warranties or covenants contained in this Agreement or if any of such
representations or warranties are inaccurate, Buyer shall give written notice of
such breach or default to Seller and Seller shall have thirty (30) days after
receipt of such notice to cure the breach or default. If Seller shall not cure
such breach or default within such thirty (30) day cure period, Buyer shall be
entitled to pursue the indemnification relief set forth in Sections 5.2 through
5.4 of this Article V or any other remedy available to Buyer, including, without
limitation the remedies specified in Section 6.11. Notwithstanding anything in
this Section 5.1 to the contrary, the notice requirement and thirty (30) day
right to cure period provided for in this Section 5.1 shall not apply if Buyer
has been sued or is threatened with legal action as a result of such breach or
default or any other emergency that Buyer reasonably determines to require
expedited resolution, and, in each such case, the provisions of Sections 5.2
through 5.4 and Section 6.11 shall immediately apply.
5.2 Indemnification by Seller. Seller and the Shareholder, jointly and
severally, unconditionally, absolutely and irrevocably agree to and shall
6
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defend, indemnify and hold harmless Buyer, and each of Buyer's officers,
directors, employees, successors or assigns (Buyer and such persons are
collectively referred to as the "Buyer's Indemnified Persons") from and against,
and shall reimburse Buyer's Indemnified Persons for, each and every Loss
threatened against, paid or incurred by, or imposed on, any Buyer's Indemnified
Person, directly or indirectly, relating to, resulting from or arising out of:
(a) any inaccuracy in any representation or warranty, any breach or
nonfulfillment of any covenant, agreement or other obligation of Seller under
this Agreement, the schedules to the Agreement, or any agreement, certificate or
other document delivered or to be delivered by Seller pursuant hereto in any
respect; (b) any claim made based on facts alleged which, if true, would have
constituted any such inaccuracy, breach or nonfulfillment; (c) the ownership or
operation of the Assets or any activities with respect to the Assets or the
Business prior to the Closing Date; (d) the disposition of any of the Shares or
any part thereof, except as contemplated by this Agreement; or (e) the
application or any violation of, or failure to comply with, any Legal
Requirement by Seller or the Shareholder. With respect to matters not involving
Proceedings brought or asserted by third parties, within thirty (30) days after
notification from any of Buyer's Indemnified Persons supported by reasonable
documentation setting forth the nature of the circumstances entitling any or all
of Buyer's Indemnified Persons to indemnity hereunder, Seller and the
Shareholder, at no cost or expense to Buyer's Indemnified Persons, shall
diligently commence resolution of such matters in a manner reasonably acceptable
to Buyer's Indemnified Persons and shall diligently and timely prosecute such
resolution to completion; provided, however, with respect to those valid claims
that may be satisfied by payment of a liquidated sum of money and which are not
disputed reasonably and in good faith by Seller, Seller and the Shareholder
shall promptly pay the amount so claimed. If litigation or any other Proceeding
is commenced or threatened, the provisions of Section 5.4 below shall control
over the immediately preceding sentence.
5.3 Indemnification by Buyer. Buyer unconditionally, absolutely and
irrevocably agrees to and shall defend, indemnify and hold harmless Seller from
and against, and shall reimburse Seller for, each and every Loss paid, imposed
on or incurred by Seller, directly or indirectly, relating to, resulting from or
arising out of: (a) any inaccuracy in any representation or warranty or any
breach or nonfulfillment of any covenant, agreement or other obligation of Buyer
under this Agreement or under any agreement, certificate or other document
delivered or to be delivered by Buyer pursuant hereto in any material respect,
or (b) the ownership, management, operation or control of Buyer's business after
the Closing Date.
5.4 Notice and Defense of Third Party Claims. If any Proceeding shall
be brought or asserted under this Article V against an indemnified party or any
successor thereto (the "Indemnified Person") in respect of which indemnity may
be sought under this Article V from an indemnifying person or any successor
thereto (the "Indemnifying Person"), the Indemnified Person shall undertake the
defense, compromise or settlement of such Proceeding with counsel reasonably
satisfactory to the Indemnified Person, and the Indemnifying Person shall assume
and pay all fees, costs and expenses relating to or associated with the
Indemnified Person's defense thereof, including all fees and costs of counsel
and the payment of all costs and expenses in connection therewith. The
Indemnified Person shall give prompt written notice of such Proceeding to the
Indemnifying Person; provided, that any delay or failure to so notify the
Indemnifying Person shall relieve the Indemnifying Person of its obligations
hereunder only to the extent, if at all, that the Indemnifying Person is
materially prejudiced by reason of such delay or failure. Actual or threatened
action by a Governmental Authority or other Person is not a condition or
prerequisite to the Indemnifying Person's obligations under this Article V. In
connection with the Indemnified Person's defense of any such Proceeding, the
Indemnifying Person shall, reasonably and in good faith, assist and cooperate in
the defense thereof.
ARTICLE VI
MISCELLANEOUS
6.1 Survival of Representations and Warranties. All representations and
warranties of the parties hereto shall survive the Closing.
6.2 Amendment and Modification. This Agreement may be amended,
modified, terminated, rescinded or supplemented only by written agreement signed
by the parties hereto.
6.3 Waiver; Consents. Any failure of a party to comply with any
obligation, covenant, agreement or condition herein may be waived by each party
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affected thereby only by a written instrument signed by the party granting such
waiver. No waiver, or failure to insist upon strict compliance, by any party of
any term or condition or any breach of any term or condition contained in this
Agreement, in any one or more instances, shall be construed to be a waiver of,
or estoppel with respect to, any other term or condition or any other breach of
the same. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver.
6.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when (i) delivered
personally, or (ii) sent by telecopier (with receipt confirmed), provided that a
copy is mailed by registered or certified mail, return receipt requested, or
(iii) received by the addressee, if sent by Express Mail, Federal Express or
other express delivery service (receipt requested) or (iv) three (3) days after
being sent by registered or certified mail, return receipt requested, in each
case to the other party at the following addresses and telecopier numbers (or to
such other address or telecopier number for a party as shall be specified by
like notice; provided that notices of a change of address or telecopier number
shall be effective only upon receipt thereof):
if to Seller, to:
MasterCoin of Nevis Ltd.
Attention: Don Marshall
Orion House, P.O. Box 1281
Wellington Road
Basseterre, St. Kitts, West Indies
Fax: (869) 465-1561
if to Buyer, to:
CyberGames International, Inc.
P.O. Box 11927
Zephyr Cove, NV 89448
Attn: James Egide
Fax: (415) 883-5750
6.5 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other party.
6.6 Governing Law. This Agreement shall be governed by the laws of the
State of Nevada (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including matters
of validity, construction, effect, performance and remedies.
6.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement. This Agreement may be
executed by facsimile signatures, each of which will be deemed an original.
6.8 Entire Agreement. This Agreement, including the instruments,
memoranda, certificates, exhibits, schedules and other documents referred to
herein (and all of which are hereby incorporated herein), embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants, or undertakings other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
8
<PAGE>
6.9 Attorneys' Fees. In the event any party hereto institutes a
Proceeding against any other party hereto for a claim arising out of or to
enforce this Agreement, the party that prevails by enforcing this Agreement
shall be entitled to recover reasonable attorneys' fees, costs and expenses
incurred, in addition to any other relief to which they may be entitled.
6.10 Construction. This Agreement shall be construed as though all
parties had drafted it.
6.11 Non-Exclusivity of Remedies. The rights and remedies of the
parties hereto shall not be mutually exclusive, and the exercise of one or more
of the provisions of this Agreement shall not preclude the exercise of any other
provision. Each of the parties confirms that damages at law may be an inadequate
remedy for a breach or threatened breach of any of the provisions hereof. The
respective rights and obligations hereunder shall be enforceable by specific
performance, injunction, or other equitable remedy, but nothing herein contained
is intended to or shall limit or affect any rights at law or by statute or
otherwise of any party hereto as against the other party for a breach or
threatened breach of any provision hereof.
6.12 Risk of Loss. Seller shall retain all risk of loss with respect to
the Assets until the Closing has occurred.
ARTICLE VII
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
meanings specified or referred to below whether or not capitalized when used in
this Agreement. Any reference or citation to a law, statute or regulation shall
be deemed to include any amendments to that law, statute or regulation and
judicial and administrative interpretations of it.
"Encumbrance" means any lien, pledge, hypothecation, charge, mortgage,
deed of trust, security interest, encumbrance, equity, trust, equitable
interest, claim, easement, right-of-way, servitude, right of possession, lease
tenancy, license, encroachment, burden, intrusion, covenant, infringement,
interference, proxy, option, right of first refusal, community property
interest, legend, defect, impediment, exception, condition, restriction,
reservation, limitation, impairment, imperfection of title, restriction on the
transfer of any security or other asset, restriction on the receipt of any
income derived from any security or other asset, and restriction on the
possession, use, exercise or transfer of any other attribute of ownership,
whether based on or arising from common law, constitutional provision, statute,
contract or otherwise.
"Entity" means any corporation (including any non-profit corporation),
limited liability company, general partnership, limited partnership, joint
venture, joint stock association, estate, trust, cooperative, foundation, union,
syndicate, league, consortium, coalition, committee, society, firm, company or
other enterprise, association, organization or entity of any nature, other than
a Governmental Authority.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any State of the United States of America, any local
authority and any political subdivision of any of the foregoing, any
multi-national organization or body, any agency, department, commission, board,
bureau, court or other authority thereof, or any quasi-governmental or private
body exercising, or purporting to exercise, any executive, legislative,
judicial, administrative, police, regulatory or taxing authority or power of any
nature.
"Governmental Authorization" means any permit, license, franchise,
approval, certificate, consent, ratification, permission, confirmation,
endorsement, waiver, certification, registration, transfer, qualification or
other authorization issued, granted, given or otherwise made available by or
under the authority of any Governmental Authority or pursuant to any Legal
Requirement.
"Legal Requirement" means any law, statute, ordinance, decree,
requirement, Order, treaty, proclamation, convention, rule or regulation (or
interpretation of any of the foregoing) of, and the terms of any Governmental
9
<PAGE>
Authorization issued by, any Governmental Authority.
"Liability" means any debt, obligation, duty or liability of any nature
(including any unknown, undisclosed, unfixed, unliquidated, unsecured,
unmatured, unaccrued, unasserted, contingent, conditional, inchoate, implied,
vicarious, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance with GAAP.
"Loss" means any loss, damage, injury, harm, detriment, decline in
value, lost opportunity, Liability, exposure, claim, demand, Proceeding,
settlement, judgment, award, punitive damage award, fine, penalty, tax, fee,
charge, cost or expense (including costs of attempting to avoid or in opposing
the imposition thereof, interest, penalties, costs of preparation and
investigation, and the fees, disbursements and expenses of attorneys,
accountants and other professional advisors), as well as, with respect to
compliance with any Environmental Law.
"Order" means any order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, sentence, subpoena, consent
decree, writ or award issued, made, entered or rendered by any court,
administrative agency or other Governmental Authority or by any arbitrator.
"ordinary course of business" or "business in the ordinary course"
means the ordinary course of the Business consistent with past custom and
practice of Seller, including with respect to quantity and frequency.
"Person" means any individual, Entity or Governmental Authority.
"Proceeding" means any action, suit, litigation, arbitration, lawsuit,
claim, proceeding (including any civil, criminal, administrative, investigative
or appellate proceeding and any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination, investigation, challenge,
controversy or dispute commenced, brought, conducted or heard by or before, or
otherwise involving, any Governmental Authority or any arbitrator.
Signatures set forth on following page
10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
"Buyer": "Seller":
CyberGames International, Inc.. MasterCoin of Nevis, Ltd,
a Nevada corporation a Nevis limited corporation
By: ____________________________________ By: _______________________
Name: _________________________________ Name: _____________________
Title: __________________________________ Title: ____________________
11
<PAGE>
SCHEDULES
Schedule 1.1 - Assets
Schedule 1.2 - Assumed Liabilities
Schedule 1.3(c) - Purchase Price Allocation
Schedule 2.5 - Contracts
12
<PAGE>
Schedule 1.1
Assets
------
The Assets are described on the pages attached to this Schedule 1.1,
including, without limitation, all good will associated therewith.
13
<PAGE>
Schedule 1.2
Assumed Liabilities
-------------------
None.
14
<PAGE>
Schedule 1.3(c)
Purchase Price Allocation
-------------------------
15
<PAGE>
Schedule 2.5
Contracts
---------
See attached contracts.
16
<PAGE>
EXHIBITS
EXHIBIT A - BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMENT
17
<PAGE>
Exhibit A
Bill of Sale and Assignment
---------------------------
[see document attached hereto]
Exhibit21.1
LIST OF SUBSIDIARIES
Name Jurisdiction
---- ------------
MasterCoin International Limited St. Kitts
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 403905
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 403905
<PP&E> 25229
<DEPRECIATION> 6728
<TOTAL-ASSETS> 422406
<CURRENT-LIABILITIES> 360000
<BONDS> 0
0
0
<COMMON> 3093
<OTHER-SE> 59313
<TOTAL-LIABILITY-AND-EQUITY> 422406
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 35315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (35315)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35315)
<DISCONTINUED> 224452
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189137
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
