Pre-Effective Amendment to Registration of Securities by a Small-Business Issuer — Form SB-2 Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: SB-2/A Pre-Effective Amendment to Registration of HTML 316K Securities by a Small-Business Issuer
2: EX-23 Consent of Experts or Counsel HTML 5K
SB-2/A — Pre-Effective Amendment to Registration of Securities by a Small-Business Issuer Document Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2/A
AMENDMENT NO. 7
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ARCHIVALCD, INC.
(Name of small business issuer in our charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
75835 83-0324656
(Primary standard industrial (I.R.S. Employer
classification code number) Identification No.)
121 Carroll Dr., Athens, TX75752
(903) 670-3220
(Address and telephone number of principal executive offices)
American Incorporators Ltd.
1220 N. Market St., Suite 606
Wilmington, Delaware19801
(Name, address and telephone of agent for service)
Correspondence to:
Brenda Lee Hamilton, Esq.
Hamilton, Lehrer & Dargan, P.A.
555 S. Federal Highway, Suite 270
Boca Raton, Florida33432
WE ARE OFFERING 13,200,000 OF OUR COMMON STOCK AT THE OFFERING PRICE OF $0.50
PER SHARE. OUR SELLING SHAREHOLDERS ARE OFFERING 350,000 SHARES OF OUR COMMON
STOCK.
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
Our common stock is not listed on any national securities exchange, the
Over-the-counter Bulletin Board or the NASDAQ stock market.
If any of the Securities being registered on this Form are to be offered
on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act of 1933 registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
of 1933 registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
of 1933 registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE (1)
CALCULATION OF REGISTRATION FEE (1)(2)
-------------------------------------------------------------------------------
Title of Each Amount Proposed Proposed Amount of
Class of to be Maximum Maximum Registration
Securities to be Registered Offering Aggregate Fee
Registered Price per Offering
Share(1)(2) Price(1)(2)
Common 13,200,000 $0.50 6,600,000 $ 1,650.00
Common 350,000 (2) N/A N/A $ 43.75
Total Registration Fee: $1,693.75
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(h) (1).
(2) Selling shareholders hold 350,000 shares, which we are registering. These
shares will be sold at prevailing market prices. We will not receive proceeds
from the sale of shares from the selling shareholders.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a) may
determine.
1
ARCHIVALCD, INC.
Maximum of 13,200,000 Shares ($6,600,000) of Common Stock
No Minimum Sales of Common Stock Are Required
Selling Shareholders are offering up to 350,000 Shares of Common Stock
We are offering 13,200,000 shares of our common stock at the price of $0.50
per share on a best efforts, self-underwritten, no minimum basis. We will not
hold the proceeds from the sale of the shares in escrow. We may utilize the
proceeds from the sale of the shares immediately. The offering of our common
stock will terminate on the earlier of the date all 13,200,000 shares of common
stock are subscribed to or January 1, 2002, which ever occurs first. Our
management may extend the termination date of the offering. The latest date the
Offering will be closed is January 1, 2002 or the date that our management
extends the termination date.
There is no public market for our securities. The offering price of our
shares of common stock has been arbitrarily determined and does not bear any
relationship to our assets, income or net worth and should not be considered as
an indication of the actual value of our securities.
Concurrent with our offering of 13,200,000 shares, our selling shareholders
will also offer 350,000 shares of our common stock at negotiated prices. We
will not receive proceeds from the sale of the stock by the selling shareholders.
This offering is highly speculative and these securities involve a high
degree of risk and should be considered only by persons who can afford the loss
of their entire investment. There is substantial doubt about our ability to
continue as going concern. SEE "RISK FACTORS" BEGINNING ON PAGE __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
No Person is authorized to give any information not contained in the
prospectus in connection with this offering and, if made, such information or
representation must not be relied upon as having been authorized by us. This
prospectus does not constitute an offer by any person within any jurisdiction to
any person to whom such offer would be unlawful.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with any other information. The information
in this prospectus is not complete and is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sales of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
Offering Information
Price to Underwriting Discounts Net Proceeds
Public And Commissions To Company
Per Share $0.50 $0.0 $0.0
Total Offering(1)(2) $6,600,000 $0.0 $6,600,000
(1)Does not include offering costs, including filing, printing, legal,
accounting, and transfer agent fees estimated at $100,000. We will pay
these expenses; however, we may not sell a sufficient number of shares to
cover our offering expenses.
(2)Does not include the 350,000 shares being offered by selling
shareholders. We will not receive any proceeds from the sale of the shares
by the selling shareholders.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this preliminary prospectus is October 9, 2001
SUBJECT TO COMPLETION, DATED OCTOBER 9, 2001
2
TABLE OF CONTENTS
Page
PART I - INFORMATION REQUIRED IN PROSPECTUS
Front of Registration Statement and Outside Front Cover of
Prospectus ................................................... 1
Inside Front and Outside Back Cover Pages of Prospectus ................... 2
Summary Information ....................................................... 4
Risk Factors
Because we are a development stage company with a limited operating
and a poor financial condition, you will be unable to determine
whether we will ever become profitable .............................. 5
If we are unable to obtain funding or are able to obtain only
limited funding, our ability to implement our plan of operations
will be limited or prevented ........................................ 5
Because our common stock is considered a penny stock, any
investment in our common stock is a high-risk investment and
is subject to restrictions on marketability; you may be unable
to sell your shares ................................................. 5
Because there is no public market for our common stock, you
may be unable to sell your investment in our common stock ........... 6
Because our principal stockholders retain control over a
majority of the issued and outstanding shares, you will be
limited in your ability to affect change in how we do business ...... 6
We have no agreements for the purchase of capital equipment
or a contractor to construct our proposed production facility;
accordingly, our efforts to secure such agreements may lead to
substantial delays in our operations or may be subject to
other risks ......................................................... 6
We will rely upon third parties for the development and
maintenance of our technological components; any failures on
the part of our third party providers may negatively impact
our Internet connections and the security and integrity of
our software and accounting systems ................................. 6
Our Chief Financial Officer currently devotes limited time
to our business and may continue to do so in future, which
may negatively impact the financial aspects of our operations,
our internal controls, and the integrity of our accounting
information systems ................................................. 7
Use of Proceeds ........................................................... 7
Determination of Offering Price ........................................... 9
Dilution .................................................................. 9
Selling Security Holders ..................................................10
Plan of Distribution ......................................................10
Legal Proceedings .........................................................13
Directors, Executive Officers, Promoters and Control Persons ..............13
Security Ownership of Certain Beneficial Owners ...........................15
Description of Securities .................................................16
Interest of Named Experts and Counsel .....................................16
Disclosure of Commission Position on Indemnification ......................16
Organization Within Last Five Years .......................................17
Description of Business ...................................................18
Plan of Operations ........................................................20
Description of Property ...................................................28
Certain Relationships and Related Transactions ............................28
Market for Common Equity and Related Stockholder Matters ..................30
Executive Compensation ....................................................32
Financial Statements ......................................................33
Changes In and Disagreements With Accountants onAccounting and Financial Disclosure ....................................34
Dealer Prospectus Delivery Requirements ...................................34
3
PROSPECTUS SUMMARY
The following summary is intended only to supply certain facts and
highlights from the material contained in the body of the Prospectus. This
summary is qualified in its entirety by the detailed information, financial
statements and notes thereto appearing elsewhere in this Prospectus.
ABOUT OUR BUSINESS
We are a development stage business. We currently have no operations or
revenues. We intend to operate a document management business that specializes
in digitization of data and other information contained in microfilm, paper
documents, and other formats, and transferring these images to compact disks. We
intend to produce specific titles on compact disks converted from our own
library of data and information contained in microfilm and other media that
appeal to the genealogical, historical and educational markets.
We were incorporated in Delaware on November 12, 1988. Our principle
executive offices are located at 121 Carroll Dr., Athens, TX75752. Our
telephone number is (903)670-3220. Our email is info@archivalcd.com.
ABOUT THIS OFFERING
As of the date of this prospectus, we had 17,049,398 shares of common stock
outstanding and 0 shares of preferred stock outstanding. The securities being
offered in this Offering are comprised of 13,200,000 shares of our common stock
that we are selling to the public in an initial public offering. This offering
is also comprised of 350,000 shares of our common stock that may be offered by
selling shareholders at negotiated prices. There will be 30,541,537 shares of
common stock outstanding after the completion of the offering, assuming all the
shares we are offering are sold.
We will receive gross proceeds of $6,600,000 from the sale of our common
stock if all shares offered are sold. We will not receive any proceeds from the
sale of our securities by selling shareholders. We anticipate offering expenses
of approximately $100,000.
OUR FINANCIAL SUMMARY:
Because this is only a financial summary, it does not contain all the
financial information that may be important to you. Therefore, you should also
carefully read all the information in this prospectus, including the financial
statements and their explanatory notes before making an investment decision.
-----------------------------------------------------------------------
STATEMENT OF PERIOD FROM
OPERATIONS INCEPTION TO
JUNE 30, 2001
-----------------------------------------------------------------------
Net Sales $ -0-
----------------------------------- -----------------------------------
Cost of Sales $ -0-
----------------------------------- -----------------------------------
Gross Profit $ -0-
----------------------------------- -----------------------------------
Operating Expenses $ 276,191
----------------------------------- -----------------------------------
Loss from Operations $ (276,191)
----------------------------------- -----------------------------------
Other Expenses, Net $ 10,486
----------------------------------- -----------------------------------
Net Loss $ (286,677)
-----------------------------------------------------------------------
Net Loss per Common Share $ (0.02)
-----------------------------------------------------------------------
BALANCE SHEET JUNE 30, 2001
-----------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------
Total Current Assets $ 7,934
----------------------------------- -----------------------------------
Property and Equipment, Net $ 274,281
----------------------------------- -----------------------------------
Other Assets $ 1,000
----------------------------------- -----------------------------------
Total Assets $ 283,215
-----------------------------------------------------------------------
LIABILITIES & STOCKHOLDER'S EQUITY
-----------------------------------------------------------------------
Current Liabilities:
----------------------------------- -----------------------------------
Accounts Payable & Accrued
Liabilities $ 33,726
----------------------------------- -----------------------------------
Related Party Payables $ 16,373
----------------------------------- -----------------------------------
Loans from Shareholders $ 7,030
----------------------------------- -----------------------------------
Total Current Liabilities $ 57,129
----------------------------------- -----------------------------------
Long Term Liabilities:
----------------------------------- -----------------------------------
Note Payable to Stockholders $ 18,000
----------------------------------- -----------------------------------
Total Liabilities $ 75,129
----------------------------------- -----------------------------------
Total Stockholder's Equity $ 208,086
----------------------------------- -----------------------------------
Total Liabilities and
Stockholder Equity $ 283,215
-----------------------------------------------------------------------
4
RISK FACTORSDEVELOPMENT STAGE RISKSBecause we are a development stage company with a limited operating and a
poor financial condition, you will be unable to determine whether we will
ever become profitable.
We are a development stage company with limited operations and no revenues
through our year-end at December 31, 2000, and through our interim financial
period ending June 30, 2001. From our inception to June 30, 2001, we had
continuously increasing losses and we anticipate our losses to accumulate for
the foreseeable future. From our inception to June 30, 2001, we incurred
operating losses of ($286,677) and had a net working capital deficiency of
($49,195). Our ability to continue as a going concern is dependent on our
ability to raise funds from this initial public offering to implement our plan
of operations; however there is no assurance that we will raise sufficient funds
from this offering to do so. There is substantial doubt about our ability to
continue as a going concern over the next twelve months. Because we are
currently operating at a substantial loss, with a limited operating history and
no revenue source, an investor cannot determine if we will ever become
profitable. Future losses are likely before our operations become profitable, if
ever.
If we are unable to obtain funding or are able to obtain only limited funding,
our ability to implement our plan of operations will be limited or prevented.
We face substantial costs of approximately $4,354,000 to implement our plan of
operations, including purchase of high tech computer systems, microfilm
digitizers and duplicators, a microfilm inventory and specialty scanners. In
addition we plan to construct a 10,000 square foot production facility at a cost
of approximately $800,000.
Although we are attempting to register 13,200,000 shares of our common stock in
this registration statement for sale to the public, we may have insufficient
funds from the sale of the shares to implement our plan of operations. If we
fail to raise adequate funds to purchase this equipment or construct our
production facility, we will be able to conduct only limited operations or no
operations at all. Our limited operations could lead to decreases in our planned
product production, product development, marketing resources, and revenue
potential. Accordingly, we may need additional financing through traditional
bank financing or a debt or equity offering, which is subject to additional
risks, including:
o There can be no assurance that such financing will be available on
commercially reasonable terms or that a financial institution will
extend financing to us;
o If future financing is not available, when needed, we may be forced to
cease our operations;
o Additional financing may result in dilution to existing and future
equity holders; and
o If we issue debt instruments, we will be subject to increased debt
obligations that will impose a greater financial strain upon our
operations.
MARKET RISKS AND OFFERING RISKS ASSOCIATED
WITH AN INVESTMENT IN OUR COMMON STOCK
Because our common stock is considered a penny stock, any investment in our
common stock is a high-risk investment and is subject to restrictions on
marketability; you may be unable to sell your shares.
If our common stock becomes tradable in the secondary market, we will be
subject to the penny stock rules adopted by the Securities and Exchange
Commission that require brokers to provide extensive disclosure to its customers
prior to executing trades in penny stocks. These disclosure requirements may
cause a reduction in the trading activity of our common stock and as a result
you may be subject to the risk of being unable to sell your shares.
Broker-dealer practices in connection with transactions in penny stocks are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00. Penny stock rules require a broker dealer prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer makes a special
written determination that the penny stock is a suitable investment for the
purchaser and receives the purchaser's written agreement to the transaction.
Our shares may someday be subject to such penny stock rules and our
shareholders will, in all likelihood, find it difficult to sell their
securities.
5
Because there is no public market for our common stock, you may be unable to
sell your investment in our common stock.
There is no established public trading market or market maker for our
securities. There can be no assurance that a market for our common stock will be
established or, that if established, a market will be sustained. If you purchase
or have already purchased our common stock, you may be unable to sell it and you
should be able to bear the financial risk of losing your entire investment.
Because our principal stockholders retain control over a majority of the issued
and outstanding shares, you will be limited in your ability to affect change in
how we do business.
As of the date of this offering our principal stockholder/president, Daniel
Hay, owns approximately 94% of our common stock and the remaining stockholders
own approximately 6% of our common stock. Assuming we sell the maximum shares in
this offering, our principal stockholder will own approximately 53% of our
common stock. As a result, our principal stockholder has significant influence
over all matters requiring approval by our stockholders without the approval of
minority stockholders. In addition, he will be able to elect all of the members
of our Board of Directors, which allows them to significantly control our
affairs and management. He will also be able to affect most corporate matters
requiring stockholder approval by written consent, without the need for a duly
noticed and duly held meeting of stockholders. Such control could adversely
affect the market value of our common stock or delay or prevent a change in our
control. Accordingly, you will be limited in your ability to affect change in
how we conduct our business.
We have no agreements for the purchase of capital equipment or a contractor to
construct our proposed production facility; accordingly, our efforts to secure
such agreements may lead to substantial delays in our operations or may be
subject to other risks.
Our estimates of our prospective capital equipment acquisitions are based
upon obtaining information from various companies regarding these proposed
acquisitions. We now have no funds to purchase the equipment until we raise
sufficient funds from this offering. In addition, we have no agreements
obligating companies to sell us the equipment or which guarantee pricing. We now
have no funds to arrange for the construction of our proposed production
facility. We have no agreements with contractors or subcontractors to construct
the facility. Accordingly, we face additional risks in not having any of these
agreements in place, including the following:
o Substantial price increases over time;
o Substantial delays in our operations to secure agreements for the
construction of our facility and purchase of the equipment;
o Inability to meet the financial guarantees required by a construction
contractor
We will rely upon third parties for the development and maintenance of our
technological components; any failures on the part of our third party providers
may negatively impact our Internet connections and the security and integrity of
our software and accounting systems.
We will rely on third parties to maintain, house and operate the Internet
servers that host our website. Although our agreements with these third parties
include service agreements, in the event of any technical failures, there is no
assurance that the third parties will comply with the terms of the service
agreements. Any service interruptions resulting from failures by third party
maintenance providers would have a negative impact on confidence in our
services.
In addition, we will rely upon third parties to process our billings and
payments due to us. Any service interruptions by these third party providers due
to computer failures, labor problems, credit card fraud, or other unforeseen
developments, could cause accounting errors or possible cash flow disruptions.
We will also rely upon third party providers to improve and update our
software per our specifications. These third parties may be unable to keep up
with new technology that may be required in order to adjust to the rapidly
changing Internet arena. Any failure to meet the demands of new technology may
undermine any present or future attempts to gain market awareness and
acceptance.
Any failures on the part of our third party providers could negatively
impact our operations. Presently, we have no agreements in place with any third
party providers. Accordingly, there can be no assurances that we will be able to
successfully enter into such agreements.
6
Our Chief Financial Officer currently devotes limited time to our business and
may continue to do so in future, which may negatively impact the financial
aspects of our operations, our internal controls, and the integrity of our
accounting information systems.
Although our president, Daniel Hay spends full time on our business and
implementing our plan of operations, our Chief Financial Officer, Mr. Michael
Sirotka, is employed elsewhere on a full-time basis and now spends only
approximately 10 to 15 hours per week on our internal accounting and financial
aspects of our business. He may continue to spend limited time on our business
in the future. The limited amount of time Mr. Sirotka devotes to our business
activities as our Chief Financial Officer may negatively impact the financial
aspects of our operations, our internal accounting controls, and accounting
information systems.
FORWARD LOOKING STATEMENTS
SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS
Some of the statements in this prospectus are "forward-looking statements".
These forward-looking statements involve certain known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. These
factors include, among others, the factors set forth above under "Risk Factors".
The word "believe", "expect", "anticipate", "intend", and "plan" and similar
expressions identify forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements. We undertake no obligation
to update and revise any forward-looking statements or to publicly announce the
result of any revisions to any of the forward-looking statements in this
document to reflect any future or developments.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares offered by the
Selling Shareholders.
MAXIMUM OFFERING PROCEEDS
Our maximum gross proceeds will be $6,600,000. We anticipate offering
expenses of $100,000 relating to the offering. Our maximum net proceeds from the
sale of all of the common stock offered pursuant to the Offering prospectus,
after deduction of offering expenses, will be approximately $6,500,000.
7
We presently intend to use the net offering proceeds for the purposes and
in the approximate amounts set forth below, assuming all of the shares of common
stock offered are sold. Assuming that we obtain the maximum offering proceeds,
we intend our use of the offering proceeds to be as shown in the table below. We
have shown alternate figures for reduced offering proceeds of 50% and 10%:
100% Proceeds 50% Proceeds 10% Proceeds
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Description Amount($) Percentage(%) Amount($) Percentage(%) Amount($) Percentage(%)
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Gross Proceeds 6,600,000 3,300,000 660,000
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Offering Expenses 100,000 50,000 10,000
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Net Proceeds 6,500,000 100% 3,250,000 100% 650,000 100%
-------------------------------- ---------------------------- ---------------------------- ----------------------------
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Working Capital 1,930,000 (1) 30 1,000,000 (2) 31 200,000 (3) 31
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Capital Equipment 1,950,000 (4) 30 800,000 25 200,000 31
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Sales and Marketing
Expenditures 800,000 12 230,000 7 35,000 5
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Production facilities and
Executive offices allocation 824,000 (5) 13 700,000 21 95,000 (6) 15
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Product Development Expenses 528,000 8 330,000 10 40,000 6
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Expansion of internal
operations 383,000 6 150,000 5 40,000 6
-------------------------------- ---------------------------- ---------------------------- ----------------------------
Repayment of certain
indebtedness 85,000 1 40,000 1 40,000 6
-------------------------------- ---------------------------- ---------------------------- ----------------------------
TOTAL 6,500,000 100.00% 3,250,000 100.00% 650,000 100.00%
-------------------------------- ---------------------------- ---------------------------- ----------------------------
(1) Our Working Capital includes expenditures for:
o Microfilm inventory at an acquisition cost of $1,000,000;
o Salary expenses of $705,000;
o Utilities expenses of $18,000;
o Office expenses of $6,000;
o Advertising expenses $90,000;
o Auditing expenses of $18,000;
o Insurance expenses of $43,000; and
o General and administrative expenses of $50,000.
(2) Includes not initially acquiring the microfilm collection and having
to purchase on a roll by roll basis per order or renting on a roll by
roll basis per order. This will create higher production costs,
greater operating overhead, and reduced quality control. Expected
revenues will be reduced by not being able to properly service the
expected microfilm duplication market.
(3) Microfilm collection would have to be rented on a per order basis
creating slower production, higher per product creation costs, and
reduced quality control. Because our business plan could not include
microfilm duplication services, our expected revenues would be greatly
reduced.
(4) Our capital equipment expenditures will include purchase of the
following equipment:
o Hi-tech computer systems at an acquisition cost of $775,000;
o Microfilm digitizers at an acquisition cost of $900,000;
o Microfilm duplicators at an acquisition cost of $125,000; and
o Specialty scanners at an acquisition cost of $150,000.
(5) Our production facilities and executive offices allocation includes
purchase of land and construction of our production facility.
(6) At this reduced level of offering proceeds our production facilities
would have to be leased and would encompass a reduced square footage.
The reduced size of our production facilities and capital equipment
acquisitions would hinder our growth and expansion.
8
The above table is our best estimate of the allocation of the maximum net
offering proceeds, based upon our plan of operations and current economic
conditions. Assuming we receive less than our maximum offering proceeds, we
would have to reapportion the proceeds among the categories listed above similar
to the figures for 50% and 10% proceeds as shown in the table. In our
management's opinion, the net proceeds of this offering, assuming we receive the
maximum offering proceeds, together with anticipated revenues from operations,
will satisfy our anticipated cash requirements for at least 24 months. However,
there can be no assurance that the proceeds of this offering will be sufficient
to finance the operations and future capital requirements. The amount and timing
of our expenditures from the offering proceeds will vary depending upon progress
of our operations, our business growth rate, delivery and operation of capital
equipment and changes in competitive conditions. We have no present
understandings, commitments or agreements with respect to any material
acquisition or investment.
We currently anticipate that the net maximum proceeds of this offering,
along with cash provided by operations, will enable us to meet our operations
and capital requirements for at least 24 months following the date of this
prospectus. However, there can be no assurance that the net proceeds of this
offering and cash provided by operations will satisfy our requirements for any
particular period of time. To the extent capital resources are insufficient to
meet future capital requirements, we will have to raise additional funds to
satisfy our requirements; however, there are no assurances that we will be
successful in obtaining financing or raising additional funds.
Our contemplated uses for our working capital include salaries, rent,
utilities, office expenses, advertising, auditing, insurance and other general
and administrative expenses.
DETERMINATION OF OFFERING PRICE
Our selling shareholders will be able to sell their securities at
negotiated prices and therefore will be able to determine the price at which
they will sell their securities. The offering prices of the Selling Shareholders
will be determined by market factors and the independent decisions of the
Selling Shareholders.
Prior to this offering, there has been no market for our common stock. We
have arbitrarily determined the offering price of the shares in this offering.
The price of the shares bears no relationship to assets, book value, net worth,
earnings, actual results of operations, or any other established investment
criteria.
DILUTION
As of June 30, 2001, our common stock had a net tangible book value of
$208,086 or approximately $.01 per share. As a result of the sale of 13,200,000
shares of our common stock through the sale of our common stock offered hereby
and the receipt of net proceeds of approximately $6,500,000 therefrom, and after
deduction of estimated expenses of the offering, assuming the sale of all the
shares of common stock offered hereby, our pro forma net tangible book value at
close of offering would be $6,783,215 or approximately $.22 per share. This
represents an immediate increase in net tangible book value of the company of
approximately $6,500,000 at the time of close of this offering.
Dilution 100% 50% 10%
Current shares outstanding 17,049,398 17,049,398 17,049,398
Shares sold in this offering 13,200,000 6,600,000 1,320,000
Offering price per share $0.50 $0.50 $0.50
Net tangible book value before offering $208,086.00 $208,086.00 $208,086.00
Net tangible book value per share before offering $0.01 $0.01 $0.01
Approximate net proceeds from this offering $6,500,000.00 $3,250,000.00 $650,000.00
Net tangible book value after this offering $6,708,086.00 $3,458,086.00 $858,086.00
Pro forma net tangible book value per share after offering $0.22 $0.15 $0.05
Increase per share attributable to new investors $0.21 $0.14 $0.04
Dilution per common share to new investors $0.28 $0.35 $0.45
Percentage dilution 55.65% 70.76% 90.66%
Shares Purchased Total Consideration%% Per Share
Number %% Total Shares Amount of Total Amount Avg. PriceExisting Shareholders 17,049,398 56.36% 208,086.00 3.06% 0.01
New Investors (at 100%) 13,200,000 43.64% 6,600,000 96.94% 0.50
Total (100% Offering) 30,249,398 100.00% 6,808,086 100.00% 0.23
Existing Shareholders 17,049,398 72.09% 208,086.00 5.93% 0.01
New Investors (at 50%) 6,600,000 27.91% 3,300,000 94.07% 0.50
Total (50% Offering) 23,649,398 100.00% 3,508,086 100.00% 0.15
Existing Shareholders 17,049,398 92.81% 208,086.00 23.97% 0.01
New Investors (at 10%) 1,320,000 7.19% 660,000 76.03% 0.50
Total (10% Offering) 18,369,398 100.00% 868,086 100.00% 0.05
9
SELLING SHAREHOLDERS
The selling shareholders named below are selling the securities. The table
assumes that all of the securities will be sold in this offering. However, any
or all of the securities listed below may be retained by any of the selling
shareholders, and therefore, no accurate forecast can be made as to the number
of securities that will be held by the selling shareholders upon termination of
this offering. We believe that the selling shareholders listed in the table have
sole voting and investment powers with respect to the securities indicated. We
will not receive any proceeds from the sale of the securities by the selling
shareholders.
----------------- -------------- -------------------------------- ------------------------------- -------------------------
Name Relationship Amount of Beneficially Owned Amount of Beneficially Owned Percentage Owned
With Issuer Prior to Offering to be Offered Before/After
----------------- -------------- -------------------------------- ------------------------------- -------------------------
Brenda Lee Attorney 300,000 shares of common stock 300,000 shares of common stock Less than 1%/Less than 1%
Hamilton, P.A.
----------------- -------------- -------------------------------- ------------------------------- -------------------------
Beadros Asare Edgarizer 50,000 shares of common stock 50,000 shares of common stock Less than 1%/Less than 1%
----------------- -------------- -------------------------------- ------------------------------- -------------------------
PLAN OF DISTRIBUTION
Sale of our Common Stock in the Offering:
Upon effectiveness of this registration statement, we will conduct the sale
of the shares we are offering on a self-underwritten, best-efforts basis. We do
not have an underwriter and the 13,200,000 shares of our common stock which we
are offering will be sold to the public by our officers and directors, who will
not receive commission from the sales of our common stock. Our officers and
directors have no experience in the securities industry or in selling
securities. We have no arrangement or guarantee that we will sell any of the
shares which we are offering. We do not have arrangements and do not intend to
utilize the services of any registered securities broker dealers in connection
with any sales of the shares. We may in our discretion use the services of
broker-dealers at a later date. If we do decide to use a broker-dealer in
connection with this offering, we will file an amendment to this Registration
statement.
The offering price, however, has been arbitrarily determined and does not
bear any relationship to our assets, results of operations, or book value, or to
any other generally accepted criteria of valuation. Prior to this offering,
there has been no market for our securities. Accordingly, solely our management
determined the public offering price for the shares.
Our officers and directors will sell a maximum of 13,200,000 shares of our
common stock to the public on a on a best efforts, self-underwritten, no minimum
basis. Our officers and directors will sell our common stock according to the
requirements provided by Rule 3a4-1 of the Securities Exchange Act of 1934. We
will not pay, directly or indirectly, any commissions or fees or any form of
compensation to our officers or directors in connection with such sales. Our
officers and directors have not and will not be associated with a securities
broker or dealer. In addition, the primary duties of our officers and directors
after this offering will not be associated with the sale of securities on our
behalf.
We are not using the services of a professional underwriter. In the event
we elect to use a professional underwriter, we will file an amendment to this
prospectus disclosing the terms of the engagement with an underwriter.
10
Method of Subscribing:
Persons may subscribe by completing and returning our subscription
agreement. The subscription price of $0.50 per share must be paid by certified
check, bank draft, or postal or express money order payable to ArchivalCD, Inc.
There is no minimum amount which must be purchased by a subscriber. The
subscription price must accompany the subscription agreement. All payments
received from subscribers will be transmitted to our corporate account by the
close of business of the next business day following receipt of funds from
subscribers. Certificates for the shares subscribed will be issued within
fourteen business days following the closing of the offering, unless required to
be held in escrow by any state securities laws.
Expiration Date:
The subscription offer will expire on the earlier date all 13,200,000
shares of common stock are subscribed to or January 1, 2002, whichever occurs
first. In the event that all of the shares being offered are not sold by January1, 2002, we may extend the offering for up to an additional 90 days. However,
management reserves the right to extend the date beyond that additional 90 days.
We are making this Offering through our officers and directors who will not
receive commissions or other remuneration in connection with sale of our
securities.
No Minimum/No Maximum and Escrow
There will be no minimum amount or maximum amount of shares or offering
amount to be sold in this offering. All funds will be deposited in a corporate
account at Crockett Bank in Crockett, Texas and such funds will only be invested
in investments permissible under SEC Rule 15c2-4. We have not established an
escrow account. We are employing the funds as they are being raised. This
offering is not subject to any minimum subscription level, and therefore any
funds received from a purchaser are available to us and need not be refunded to
the purchaser.
Right to Reject
We reserve the right to reject any subscription, and to withdraw the
offering at any time prior to acceptance of the subscriptions received, if
acceptance of a subscription would result in the violation of any law to which
we are subject.
Transfer Agent
Transfer Online, located at 227 S.W. Pine Street, Suite 300, Portland,
Oregon97204, is our transfer agent, and will continue as our transfer agent
after our registration statement is declared effective, if ever.
Sale of our Common Stock by our Selling Shareholders:
Our Selling Shareholders are offering 350,000 shares of our common stock.
The Selling Shareholders have not informed us of how they intend to sell their
shares. The selling shareholder may sell their shares at any price. We will not
receive proceeds from the sale of shares by the selling shareholders. The
Selling shareholders may sell their shares in one or more transactions,
including block transactions:
o on such public markets or exchanges as our common stock from time to
time may eventually be trading;
o in privately negotiated transactions;
o in short sales; or
o in any combination of these methods of distribution.
The sales price to the public may be:
o the market price prevailing at the time of sale;
o the price relating to such prevailing market price; or
o such other price as the selling shareholders may determine from time
to time.
The shares may also be sold in compliance with the Securities and Exchanges
Commission's Rule 144. The selling shareholders may also sell their shares
directly to market makers acting as principals or brokers or dealers, who may
act as agent or acquire the common stock as principal. Any broker or dealer
participating in such transactions as agent may receive a commission from the
selling shareholders, or, if they act as agent for the purchaser of such common
stock, from such purchaser. The selling shareholders will likely pay the usual
and customary brokerage fees for such services. If applicable, the selling
shareholders also may have distributed, or may distribute, shares to one or more
of their partners who are unaffiliated with us. Such partners may, in turn,
distribute such shares as described above. We can provide to investors no
assurance that all or any of the common stock offered will be sold by the
selling shareholders. We are bearing all costs relating to the registration of
the common stock. Any commissions or other fees payable to brokers or dealers in
connection with any sale of the common stock, however, will be paid by the
selling shareholders or other party selling such common stock. The selling
shareholders must comply with the requirements of the Securities Act of 1933 and
the Securities Exchange Act of 1934 in the offer and sale of the common stock.
11
In particular, during such times as the selling shareholders may be deemed
to be engaged in a distribution of the common stock, and therefore be considered
to be an underwriter, they must comply with applicable law and may, among other
things:
o not engage in any stabilization activities in connection with our
common stock;
o furnish each broker or dealer through which common stock may be
offered, such copies of this prospectus, as amended from time to time,
as may be required by such broker or dealer; and
o not bid for or purchase any of our securities or attempt to induce any
person to purchase any of our securities other than as permitted under
the Securities Exchange Act.
The securities offered by this prospectus regarding the selling
shareholders will be sold by the selling security holder or by those to whom
such shares are transferred. We will file a post effective amendment to this
registration statement to identify transferees to whom the selling shareholders
transfer their stock. We are not aware of any underwriting arrangements that
have been entered into by the selling security holder.
The selling shareholders may pledge all or a portion of the securities
owned as collateral for margin accounts or in loan transactions, and the
securities may be resold pursuant to the terms of such pledges, accounts or loan
transactions. Upon default by such selling shareholders, the pledgee in such
loan transaction would have the same rights of sale as the selling security
holder under this prospectus. The selling shareholders may also enter into
exchange traded listed option transactions, which require the delivery of the
securities listed under this prospectus. The selling shareholders may also
transfer securities owned in other ways not involving market makers or
established trading markets, including directly by gift, distribution, or other
transfer without consideration, and upon any such transfer the transferee would
have the same rights of sale as such selling security holders under this
prospectus.
The selling shareholders, acting alone or in concert with others, may be
considered statutory underwriters under the Securities Act of 1933, if they are
directly or indirectly conducting an illegal distribution of the securities on
behalf of our corporation. For instance, an illegal distribution may occur if
the selling shareholder were to provide us with cash proceeds from his sale of
the securities. If the selling shareholder or others are determined to be
underwriters, they may be liable for securities violations in connection with
any material misrepresentations or omissions made in this prospectus.
In addition, the selling shareholders and any brokers and dealers through
whom sales of the securities are made may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, and the commissions or discounts and
other compensation paid to such persons may be regarded as underwriters'
compensation.
In addition to the above, the selling shareholders and any other person
participating in a distribution will be affected by the applicable provisions of
the Securities Exchange Act of 1934, including, without limitation, Regulation
M, which may limit the timing of purchases and sales of any of the securities by
the selling shareholders or any such other person.
There can be no assurances that the selling shareholders will sell any or
all of the securities. In order to comply with state securities laws, if
applicable, the securities will be sold in jurisdictions only through registered
or licensed brokers or dealers. In various states, the securities may not be
sold unless these securities have been registered or qualified for sale in such
state or an exemption from registration or qualification is available and is
complied with. Under applicable rules and regulations of the Securities Exchange
Act of 1934, as amended, any person engaged in a distribution of the securities
may not simultaneously engage in market-making activities in these securities
for a period of one or five business days prior to the commencement of such
distribution.
All of the foregoing may affect the marketability of the securities.
Pursuant to the various agreements we have with the selling shareholders, we
will pay all the fees and expenses incident to the registration of the
securities, other than the selling security holders' pro rata share of
underwriting discounts and commissions, if any, which is to be paid by the
selling shareholder.
12
LEGAL PROCEEDINGS
We are not aware of any pending or threatened legal proceedings, in which
we are involved.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
Our Board of Directors elects our executive officers annually. A majority
vote of the directors who are in office is required to fill vacancies. Each
director shall be elected for the term of one year, and until his successor is
elected and qualified, or until his earlier resignation or removal. Our
directors and executive officers are as follows:
-------------------------- -------- ---------------------------- ----------------
Name Age Position Director Term(1)
-------------------------- -------- ---------------------------- ----------------
Daniel J. Hay 44 President/CEO/Director 1 yr
Michael Sirotka 55 Treasurer/Director 1 yr
Brenda L. Saul 41 Vice President/Secretary ----
William R. Gann 69 Director 1 yr
Richard H. Lytle 55 Director 1 yr
Rachel A. Maze 68 Director 1 yr(2)
Guillermo J. Campisteguy 38 Director 1 yr
Gary R. Toms 52 Director 1 yr
-------------------------- -------- ---------------------------- ----------------
(1) Each director (other than Rachel A. Maze) has held office since
appointment by the founder in June of 2000. Each director will
hold office until the first shareholders meeting following this
offering.
(2) The board appointed Rachel A. Maze to an open seat on the board
in February 2001.
Daniel J. Hay has been our President and Chief Executive Officer since November
1998. As president, Mr. Hay has directed our operations, including our product
development, software design, and marketing development. From April 1996 to
August 1998, Mr. Hay was the president and Managing Partner of ArchivalCD, LLC,
a marketing development firm located in Utah. From February 1993 to April 1996,
Mr. Hay was the President of Advanced Resources, Inc., located in West
Bountiful, Utah, which was a company that developed software products and
supported Internet development for small businesses. In 1979 Mr. Hay earned a
Bachelor of Science Degree in Music from Pacific Northwestern University in
Seattle, Washington. Mr. Hay received a Master of Business Administration from
Franklin University in 1981 and a Doctorate of Divinity from Psalms College in
Houston, Texas in 1983. Mr. Hay has lectured on genealogy subjects and has
authored "The Copyright Reference Guide" booklet and "The County Reference
Guide" database in the genealogy market.
Michael Sirotka has been one of our directors since June, 2000. He has been our
Chief Financial Officer and Treasurer since November 1998. Mr. Sirotka has
served as the Chief Operating Officer and Chief Financial Officer of Aquaculture
Technologies, Inc., a manufacturer, distributor and marketer of aquarium related
products, since January 1998. Previously, from April 1985 until January 1998,
Sirotka was President and CFO for the Regina Companies. Regina Companies was a
compact disk distribution company located in Houston, Texas. In June 1967, Mr.
Sirotka received a Bachelor of Science in Accounting degree from Bentley College
located in Waltham, Massachusetts.
Brenda L. Saul has served as our Vice President/Secretary since
November 1998. From August 1992 through August 1995 Ms. Saul served as the
Director of Subscriptions and Renewal for "Heritage Quest Magazine" at the
American Genealogical Lending Library in Bountiful, Utah. She was the office
manager and archival collection department manager for Advanced Resources, Inc.
from September 1995 through April 1996. Advanced Resources, Inc. was a
software development company located in West Bountiful, Utah. In June of 1998,
Ms. Saul received a Bachelor of Arts Degree in American History from Columbus
University located in New Orleans, LA.
13
William R. Gann has been of our directors since June 2000. Mr. Gann has been
retired since 1986, but conducts personal genealogical and historical research
and publishes in genealogical newsletters. From 1968-1971, Mr. Gann served as a
Director of a Rockefeller Foundation funded program at Claremont Colleges. From
1971 to 1986, Mr. Gann was Dean of Students of Harvey Mudd College, the
Claremont Colleges, located in Claremont, CA. Mr. Gann received a Bachelor of
Music from the University of Missouri in 1953 and a Master of Science in
Counseling from the University of California--Los Angeles in 1968.
Richard H. Lytle has been one of our directors since June 2000. He is senior
partner in the law firm of Dorothy, Lytle, Cronk & Miller. He has been
engaged in the active practice of law since 1974. He received a Bachelor of
Science in Finance from Drake University in 1967 and a Juris Doctor Degree from
the University of Iowa School of Law in 1974. Mr. Lytle has served for more than
twenty years, since 1979, as the Secretary of the private Van Buren Foundation,
Keosauqua, Iowa. He also serves as the Vice-President of the Indian Hills
Community College Foundation located in Ottumwa, Iowa and as Secretary of
Keosauqua Economic Development Association a local economic development
corporation.
Rachel A. Maze has been one of our directors since February 2001. She has been
the Executive Director of the Tulsa Education Fund since 1989, a nonprofit,
community-based organization that funds creativity and innovation in the 15
Tulsa County school districts. Mrs. Maze received a Bachelor of Arts Degree in
English and Spanish, summa cum laude, from Washburn University, Topeka, Kansas
in 1953.
Guillermo J. Campisteguy has been one of our directors since June 2000. Since
May 1989 Mr. Campisteguy has been employed as an engineer at The Boeing Company
in the capacities of commercial aircraft design, performance, production and
support. Mr. Campisteguy received a Bachelor of Science Degree in Engineering
from SUNY at Buffalo, New York in January 1986 and a Master of Science Degree in
Engineering from The Ohio State University in June 1989.
Gary R. Toms has been one of our directors since June 2000. From 1983 to 1990
and from 1993 to present, Mr. Toms has been President of Genealogical Pursuits,
a firm that provides custom research services. He was employed through October
2000 as Director of Data Processing/Quality Control at MVSi, a privately held
firm specializing in imaging services for government jurisdictions. Since
October 2000, he has been employed as librarian and researcher at Educational
Resources, Inc. As such, he utilizes experience and knowledge from 25 years in
the museum and historic preservation field in his current roles as researcher
and librarian. In addition, he holds a part-time position as Genealogy Reference
Assistant at the Genealogy Branch of Mid-Continent Public Library, since July
2000. Toms is an active genealogist, author and editor. From 1978 through 1992,
served as Director or officer in various local, state, and national historical
and genealogical organizations, including as President for the Missouri State
Genealogical Society, as Vice President for American Family Records Association
and as a Director for the Federation of Genealogical Societies. Mr. Toms
received a Bachelor of Arts in History from the University of Missouri-Kansas
City in 1972.
SIGNIFICANT EMPLOYEES
We have no significant employees other than the officers and directors listed
above.
14
FAMILY RELATIONSHIPS
Ms. Saul, serving as Vice President and Secretary, is the professional name
of Brenda Hay who is the wife of our President, Daniel J. Hay. She is expecting
the company to replace her for both positions when suitable individuals are
located to join management. There are no other family relationships among our
officers, directors, or persons nominated for such positions.
LEGAL PROCEEDINGS
We are unaware of any officer, director, or persons nominated for such
positions, promoter or significant employee that has been involved in legal
proceedings that would be material to an evaluation of our management.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth the names and addresses of each person known to
us to own more than 5% of our outstanding common stock as of the date of this
registration statement, and by our officers and directors, individually and as a
group. To the best of our knowledge, all persons named have sole voting and
investment power with respect to such shares, except as otherwise noted. We are
unaware of any pending or anticipated arrangements that would result in a change
in our control.
Security Ownership of Beneficial Owners:
Title of Name Position Amount Nature Percent of Percent of
Class & Address class before class after
Offering Offering
Common Daniel J. Hay President,
121 Carroll Dr. CEO 16,282,070 Direct 94% 53%
Athens, TX75752
Security Ownership of Management:
Title of Name Position Amount Nature Percent of Percent of
Class & Address class before class after
Offering Offering
Common Daniel J. Hay President, 16,282,070 Direct 94% 53%/0.0%
121 Carroll Dr. CEO
Athens, TX75752
Common Brenda L. Saul Vice President 130,000 Direct less than 1% 0%/0.0%
121 Carroll Dr. Secretary
Athens, TX75752 *
Common William R. Gann 1,000 Direct less than 1% 0%/0.0%
2804 S. Maybrook Ave.
Independence, MO64057
Common Richard H. Lytle 10,235 Direct less than 1% 0%/0.0%
P.O. Box 159
Keosauqua, IA52565
Common Rachel A. Maze 1,536 Direct less than 1% 0%/0.0%
7016 E. 77th Place
Tulsa, OK74133
Common Guillermo J. Campisteguy 15,214 Direct less than 1% 0%/0.0%
15509 SE 175th Court
Renton, WA98058
Common Gary R. Toms 1,000 Direct less than 1% 0%/0.0%
2804 S. Maybrook Ave.
Independence, MO64057
Total 16,441,055
*Brenda L. Saul is the wife of Daniel Hay. Her stock ownership reflects 70,000
shares issued to her and 60,000 shares to her minor children, Trefor Hay and
Shodie Hay, for which she acts as custodian.
15
DESCRIPTION OF SECURITIES
The following description as a summary of the material terms of the provisions
of our Articles of Incorporation and Bylaws, is qualified in its entirety. The
Articles of Incorporation and Bylaws have been filed as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
GENERAL:
We are authorized to issue 100,000,000 shares of common stock with a par
value of $.0001 per share. As of the date of this registration statement, there
were 17,341,537 shares of common stock issued and outstanding held by 563
shareholders of record. All shares of common stock outstanding are validly
issued, fully paid and non-assessable.
We are authorized to issue 10,000,000 shares of preferred stock with a par
value of $.0001 per share. As of the date of this registration statement, there
were no preferred shares issued and outstanding.
VOTING RIGHTS:
Each share of our common stock entitles the holder to one vote, either in
person or by proxy, at meetings of the shareholders. The holders are not
permitted to vote their shares cumulatively. Accordingly, the holders of a
majority of the shares of common stock voting, for the election of directors can
elect all of the directors. The vote of the holders of a majority of the issued
and outstanding shares of common stock entitled to vote thereon is sufficient to
effectuate certain fundamental corporate changes such as liquidation,
reorganization, merger or an amendment to our articles of incorporation and to
authorize, affirm, ratify or consent to such act or action, except as otherwise
provided by law.
DIVIDEND POLICY:
Holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared by our board of directors out of funds legally available
therefore. We have not paid any dividends since our inception and presently
anticipate that all earnings, if any, will be retained for development of our
business. Any future disposition of dividends will be at the discretion of our
Board of Directors and will depend upon, among other things, our future
earnings, operating and financial condition, capital requirements, and other
factors.
MISCELLANEOUS RIGHTS AND PROVISIONS:
Holders of our common stock have no preemptive rights. Upon our
liquidation, dissolution or winding up, the holders of our common stock will be
entitled to share ratably in the net assets legally available for distribution
to shareholders after the payment of all of our debts and other liabilities. All
outstanding shares of our common stock are, and the common stock to be
outstanding upon completion of this offering will be fully paid and
nonassessable. There are not any provisions in our Articles of Incorporation or
our by-laws that would prevent or delay change in our control.
INTEREST OF NAMED EXPERTS AND COUNSEL EXPERTS
CERTIFIED PUBLIC ACCOUNTANTS:
Our Financial Statements for the periods ending December 31, 1999 and
December 31, 2000, have been included in this prospectus in reliance upon Cross
and Robinson, Certified Public Accountants, as experts in accounting and
auditing.
LEGAL MATTERS:
The validity of the common stock being offered hereby will be passed upon
for us by Hamilton, Lehrer & Dargan, P.A. who received 300,000 shares of our
common stock in exchange for legal services rendered to us.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons, we
have been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable.
16
ORGANIZATION WITHIN LAST FIVE YEARS
As part of agreement at inception of the company we agreed to issue 51% of
the company to our founder/president, Mr. Daniel J. Hay in exchange for his
ownership of our business plan, marketing surveys, software specifications,
equipment design, and certain intellectual properties. We issued such shares
July 9, 1999, and on July 15, 2001 the Board of Directors resolved to issue an
additional 3,404,570 as an antidilutive measure. These shares were issued July16, 2001.
At our inception on November 12, 1998 we agreed to issue 14,745,167 shares
to individual owners of ArchivalCD, LLC as payment for:
o The rights to certain software processes;
o The following equipment valued at $174,370: a microfilm digitizer; an
NT system server and compact disk duplicating server; and various
computers systems, laptop computers, and printers.
o Rights to corporate name and product names;
o Completed and pending software packages;
o Certain archived records valued at $140,140;
o Customer databases;
o Production processes; and
o Proprietary intellectual property.
The shares were issued periodically during 1999 and 2000, as follows:
Date of Issue Name Shares
------------------- -------------------------------------------- ----------------
02/05/1999 Daniel J. Hay (1) 14,275,000
------------------- -------------------------------------------- ----------------
03/08/2000 Mike Vanderhoof 223,000
------------------- -------------------------------------------- ----------------
02/05/1999 Brenda Hay (2) 70,000
------------------- -------------------------------------------- ----------------
02/05/1999 Brenda Hay, Custodian for 60,000
Benefit Trefor Hay and Shodie Hay(3)
------------------- -------------------------------------------- ----------------
11/03/1999 Carl Dearmin 45,000
------------------- -------------------------------------------- ----------------
08/24/1999 Lauren Hay (4) 30,000
------------------- -------------------------------------------- ----------------
03/08/2000 Marion Saul 10,000
------------------- -------------------------------------------- ----------------
03/08/2000 Janice Winters 10,000
------------------- -------------------------------------------- ----------------
11/03/1999 John Goebel 10,000
------------------- -------------------------------------------- ----------------
03/08/2000 Brad Steuart 5,000
------------------- -------------------------------------------- ----------------
11/03/1999 Lynn Toms 1,667
------------------- -------------------------------------------- ----------------
11/03/1999 Gary Toms 1,000
------------------- -------------------------------------------- ----------------
03/08/2000 Barbara Harvey 500
------------------- -------------------------------------------- ----------------
06/01/1999 Kathy Kirkpatrick 1,500
------------------- -------------------------------------------- ----------------
03/08/2000 Kathy Kirkpatrick 1,500
------------------- -------------------------------------------- ----------------
(1) Our founder/president, Daniel Hay, was affiliated as the
president and managing partner with ArchivalCD, LLC;
(2) Brenda Hay is the wife of Daniel J. Hay
(3) Minors Trefor Hay and Shodie Hay are minor children of
Daniel J. and Brenda L. Hay
(4) Lauren Hay is the daughter of Daniel J. and Brenda L. Hay.
These shares were originally issued to Brenda L. Hay as
Custodian and later converted to issue to Ms. Hay when she
reached adult status.
Other than the above transactions, we have not entered into any material
transactions with any director, executive officer, and nominee for director,
beneficial owner of five percent or more of our common stock, or family members
of such persons. Also, we have not had any transactions with any promoter. We
are not a subsidiary of any company.
17
DESCRIPTION OF BUSINESSBUSINESS DEVELOPMENT.
We were incorporated in the state of Delaware on November 12, 1998, for the
purpose of engaging in the document management business.
We have never been the subject of any bankruptcy or receivership action. We
have had no material reclassification, merger, consolidation, or purchase or
sale of a significant amount of assets outside the ordinary course of business.
We began implementing our business plan in 1998 that consisted of the above
activities.
PRINCIPAL PRODUCT & SERVICES
We currently have no products or services.
We have operated as a development stage company since our inception. We
have devoted all of our efforts to:
o Research and development;
o Market analysis;
o Business planning activities; and
o Establishing our website.
We began implementing our business plan in 1998 that consisted of the above
activities.
We have two distinct markets:
Core Market:
Our planned core market is the genealogical, historical, and educational
markets having need for historic documents in an accessible format. To respond
to this market need, we will convert documents that are typically stored on
National Archives or Library of Congress microfilm or microfiche collections or
other documents to a digitized format on compact discs. Our proprietary
processes and software have been designed to capture this market that is
composed of members of the general public who are conducting genealogy research,
university researchers, library collections and individuals interested in
historical research.
Business and Government Documents Market:
Our second potential market is related to converting data and information
from business and government documents and retaining the original document in an
image base rather than as a database. We will not develop this second market
until:
o We develop our plan of operations fully from our maximum offering
proceeds;
o Our revenues sufficiently support our business, without the need for
additional financing;
o We have developed and expanded our core market directed to the
genealogical, historical and educational markets; and
o We construct our production facility and obtain all capital equipment
for our operations.
We will use "just-in-time production" techniques for our collections of
microfilm. In so doing, all of our approximate 200,000 titles of microfilm are
placed in the catalog of available titles but none are actually produced until
they are ordered and paid for. This production method permits our production
time to be spent on titles in demand, instead of creating titles, converting the
data and information to a compact disc format and then attempting to sell the
market on their use. Once we create a master copy, later requests for the title
on compact disk can be duplicated and shipped the same day as order is received.
All orders are prepaid and inventory is only created as needed allowing for a
tight control of inventory and supplies as well as maintaining tight reins on
overhead costs. We have created a proprietary forecasting algorithm to help
determine what microfilm titles to prepare for times when custom orders are
slowing. In so doing, we will be able to project which titles to produce during
any potential cyclic periods. Our forecasting method will also allow training of
new staff to occur on titles not presently ordered allowing new staff sufficient
time to meet quality control requirements without risking delay of product to
customers.
We use a proprietary computer controlled production process that tracks our
needs in the following areas:
o Customer service;
o Inputting of orders;
o Following the order and the product through inventory control;
o Production needs;
o Labeling;
o Shipping;
o With compact disk rentals, track return titles, dates, and condition.
We have incurred significant net losses and negative cash flows from
operations since inception, and as of June 30, 2001 we had an accumulated
deficit of $286,677. Depending upon our offering proceeds, we intend to continue
to invest in technology and infrastructure development, and marketing and
promotion. We believe that we will continue to incur operating losses and
negative cash flows from operations for the foreseeable future. The rate at
which our losses will be incurred may increase from current levels. There can be
no assurance that we will be able to achieve or sustain revenue growth,
profitability, or positive cash flow on either a quarterly or annual basis.
18
We believe that we can continue to satisfy our current cash requirements
for a period of 24 months through our maximum offering proceeds and our revenues
from continuing operations. We anticipate total estimated capital expenditures
of $4,354,000 over the next twelve months, as detailed in our Use of Proceeds
Section discussed above, which includes purchase of various equipment,
construction of a production facility and purchase of a library of microfilm
records for our initial product production.
COMPETITIVE BUSINESS CONDITIONS AND OUR PLACE IN THE MARKET:
The document management business is extremely competitive. We do not have
an established brand name or reputation while our competitors have significantly
greater brand recognition, customer bases, operating histories and financial and
other resources. Some of our biggest competitors, Ancestry.com and Heritage
Quest, concentrate their business in the genealogical data business. These
competitors have developed hundreds of products, including databases of
genealogical, military record, and historical data in compact disk format. In
addition, they have a database of over 1 billion ancestral records and
genealogical databases that are applicable to foreign countries as well as the
United States. These companies also offer discounted product pricing and free
products with product purchases.
In contrast, we are a developmental stage company and we have not developed
any products. In addition, we have not developed a marketing program for our
potential products. Our ability to compete will be based on our success in
distinguishing our business from our competitors. Because we do not operate an
exclusive set of services and products, we will encounter difficulties in
distinguishing our services and products from others. In addition, much of the
same information accessible through our business will be available elsewhere on
the Internet or in other informational formats offered by our competitors.
SOURCES AND AVAILABILITY OF RAW MATERIALS:
We do not require raw materials in our business.
CUSTOMER DEPENDENCY:
We currently do not have any customers. We do not intend upon being
dependent upon any one or a few customers; however, there are no assurances that
we will not become dependent upon one or a few customers.
INTELLECTUAL PROPERTY:
We have not applied for service mark protection for our domain name or our
corporate name, ArchivalCD. We have not applied for copyright protection of our
software technology. We do not have any patents or royalty agreements.
GOVERNMENTAL APPROVAL REQUIREMENTS:
We are not aware of the need for any government approval of our principal
product or services. Some of our products and services may involve bidding for
government contracts, which will require approval of our submissions from the
particular approving governmental agency.
EFFECT OF EXISTING GOVERNMENTAL REGULATIONS:
Not applicable
19
RESEARCH AND DEVELOPMENT:
During the period from our inception to the date of this registration
statement, we have not spent any funds on research.
COSTS ASSOCIATED WITH ENVIRONMENTAL COMPLIANCE:
We currently have no costs associated with compliance with environmental
regulations. We do not anticipate any costs associated with environmental
compliance. However, there can be no assurance that we will not incur such costs
in the future.
EMPLOYEES:
As of the date of this registration statement, we had one full time and one part
time employee.
REPORTS TO SHAREHOLDERS.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will file
periodic reports, proxy statements and other information with the Securities and
Exchange Commission.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 with respect to the common stock in this offering. This
prospectus, which constitutes a part of the registration statement, does not
contain all the information set forth in the registration statement. For further
information about us and the shares of common stock to be sold in the offering,
please refer to the registration statement and the exhibits and schedules
thereto. The registration statement and exhibits may be inspected, without
charge, and copies may be obtained at prescribed rates, at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The registration statement and other information filed
with the SEC is also available at the web site maintained by the SEC at
http://www.sec.gov.
PLAN OF OPERATIONS
The discussion contained in this prospectus contains "forward-looking
statements' that involve risk and uncertainties These statements may be
identified by the use of terminology such as "believes", "expects", "may",
"will", or " should", or " anticipates", or expressing this terminology
negatively or similar expressions or by discussions of strategy. The cautionary
statements made in this prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this prospectus. Our
actual results could differ materially from those discussed in this prospectus.
Important factors that could cause or contribute to such differences include
those discussed under the caption entitled "risk factors," as well as those
discussed elsewhere in this prospectus.
20
OUR PLAN OF OPERATIONS AT LESS THAN MAXIMUM OFFERING PROCEEDS
Assuming we raise 50% of the total amount in this offering, we believe we
will be able to finance our planned operations without having to raise
additional cash for a period of 8 to 12 months. Because we will be limited in
our ability to develop our infrastructure until such time that we generate
sufficient revenues and/or obtain additional financing through other means, our
growth rate will be slower. Specifically, our operations and growth will be
limited because:
o Our working capital will be decreased by $930,000 from the maximum
offering proceeds. Because we will have to order film on an order by
order basis, our production process will be negatively affected, as
follows: (a) increased product turn around time; (b) reduced quality
control; and (c) removal of the potential production and revenues from
the microfilm duplication services from our master film collection.
o Our capital equipment acquisitions will be decreased by $1,150,000
from the maximum offering proceeds and will eliminate half of the film
digitizers and hi-tech computer systems that we would have acquired
with the maximum offering proceeds. We would also have to reduce the
number of administrative computers from 12 to 6 and we would be unable
to acquire the specialized book scanners. The reduction in the
equipment acquisitions will slow our production capabilities and
greatly reduce our marketability and our expected revenue stream.
o Our sales and marketing expenses will be decreased by $570,000 from
our maximum offering proceeds and will negatively affect our market
exposure, production capacity, and name branding efforts.
o Our product development expenses will be decreased by $198,000 from
the maximum offering proceeds and will negatively affect our ability
to create new products with our digitized document image bases and to
enhance our existing software products for additional markets.
o Our expansion of internal operations will be decreased by $233,000
from our maximum offering proceeds and will reduce our ability to
adapt to the market changes and expand our production capacity due to
reduced staff capabilities.
Assuming we only raise 10% of the total amount in this offering, we believe
we will be able to finance our planned operations without having to raise
additional cash for a period of 6 to 10 months. If we raise only 10% of the
proceeds in this offering, our growth rate, if any, will be slow since we will
be limited in our ability to develop our infrastructure until such time that we
generate sufficient revenues and/or obtain additional financing through other
means. Specifically, our operations and growth will be limited because:
o Our working capital will be decreased by $1,730,000 from our maximum
offering proceeds that will affect our entire market position. Our
abilities to capture market share, to produce the product demanded by
our clients, and hiring qualified staff for long term growth, will be
negatively impacted. In addition, because of our reduction in working
capital we would not generate any microfilm duplication revenues.
o Because our capital equipment acquisitions will be decreased by
$1,750,000 from our maximum offering proceeds, we will only acquire
one additional microfilm digitizer and limited supporting computer
systems. Accordingly, we will be unable to meet the demand for product
production and would have to limit our production of master new
products. In addition, we would only be able to mass market a small
number of titles instead of the more optimal custom production on
demand we would expect with maximum offering proceeds.
o Our sales and marketing expenses will be decreased by $765,000 from
our maximum offering proceeds that will critically affect our
marketing efforts and our revenue stream. Being unable to effectively
market our brand name and products and our image brand to the market
will drastically reduce the potential market awareness for our
products and services.
o Our planned construction of a production facility would be eliminated
and we would have to lease a building of only approximately 1,500
square feet that would limit our growth and expansion plans;
o Our product development expenses will be decreased by $488,000 from
our maximum offering proceeds which will affect our ability to develop
new uses for our products and would remove our capability of
developing new products until additional funding might be obtained.
o Our expansion of internal operations will be decreased by $343,000
from our maximum offering proceeds which will affect our ability to
evaluate new trends, new products, and to effectively train our staff
and plan for expansion.
21
As of June 30, 2001, we had only $434 of cash assets, although we will
need approximately $4,354,000 to accomplish our goals to implement our plan of
operations. Accordingly, we will be unable to fund our expenses through our
existing assets or cash. If our offering proceeds, and revenues are insufficient
to conduct operations, we plan to fund these expenses through non-interest
bearing loans from our president; however, there are no assurances that our
president will have sufficient funds to make these loans. In addition, there are
no agreements or other arrangements that our president make these loans. We have
no compensation agreements with our president in connection with any loans he
may provide to us. If our president is unable or unwilling to make loans to us
necessary to implement our plan of operations, we will need additional financing
through traditional bank financing or a debt or equity offering; however,
because we are a development stage company with no operating history and a poor
financial condition, we may be unsuccessful in obtaining such financing or the
amount of the financing may be minimal and therefore inadequate to implement our
plan of operations. We have no alternative plan of operations. In the event that
we do not receive financing or our financing is inadequate or if we do not
adequately implement an alternative plan of operations that enables us to
conduct operations without having received adequate financing, we may have to
liquidate our business and undertake any or all of the following actions:
o Sell or dispose of our assets, if any, and including our microfilm
collection which might possibly be disposed of at approximately 60% of
our initial cost;
o Pay our liabilities in order of priority, if we have available cash to
pay such liabilities;
o If any cash remains after we satisfy amounts due to our creditors,
distribute any remaining cash to our shareholders in an amount equal
to the net market value of our net assets;
o File a Certificate of Dissolution with the State of Delaware to
dissolve our corporation and close our business;
o Make the appropriate filings with the Securities and Exchange
Commission so that we will no longer be required to file periodic and
other required reports with the Securities and Exchange Commission,
if, in fact, we are a reporting company at that time; and
o Make the appropriate filings with the National Association of Security
Dealers to affect a delisting of our common stock, if, in fact, our
common stock is trading on the Over-the-Counter Bulletin Board at that
time.
Based upon our current assets, however, we will not have the ability to
distribute any cash to our shareholders.
If we have any liabilities that we are unable to satisfy and we qualify for
protection under the U.S. Bankruptcy Code, we may voluntarily file for
reorganization under Chapter 11 or liquidation under Chapter 7. Our creditors
may also file a Chapter 7 or Chapter 11 bankruptcy action against us. If our
creditors or we file for Chapter 7 or Chapter 11 bankruptcy, our creditors will
take priority over our shareholders. If we fail to file for bankruptcy under
Chapter 7 or Chapter 11 and we have creditors, such creditors may institute
proceedings against us seeking forfeiture of our assets, if any.
We don't know and cannot determine which, if any, of these actions we will
be forced to take.
If any of these foregoing events occur, you could lose your entire
investment in our shares.
We have thus far accomplished the following regarding our plan of
operations:
WHAT WE HAVE ACCOMPLISHED IN OUR PLAN OF OPERATIONS TO DATE:
Purchase of Equipment
In November, 1998, we acquired:
o One SunRise Imaging Microfilm Digitizer
o One Hewlett Packard document scanner
o One network server
o Five desktop computers
o One laptop computer
o Replacement computer for software testing
Purchase of Archived Records
In 1998, we acquired 750 microfilm titles that had been converted to digital
storage on compact disk. We also purchased a library of 60 books of archival
interest. In 1999 we purchased a Minorities Records Collection of photographs,
documents, and books.
Development of Our Website
From approximately February 1999 through June 1999 we developed a website and
our website content. In December 2000 we began a complete reworking of our
planned websites and have most of the web pages ready to be put on-line.
Registered Our Domain Name
In May 1999 we registered archivalcd.com with the U.S. Department of Commerce
as our Internet domain name. The domain was renewed in July of 2001.
22
OUR PLAN OF OPERATIONS WITH MAXIMUM OFFERING PROCEEDS
FIRST YEAR OF OUR OPERATIONS
The first year of our planned operations presented below is contingent upon
receiving maximum offering proceeds.
Construction of Our Production Facility - First four months of our
operations at an estimated approximate cost of $800,000:
o Finalize the selection of the property and location for our production
facilities that will also contain our executive offices;
o Acquire the land for the location of our production facility;
o Hire an architect to make drawings depicting the design of the
exterior and interior of the facility;
o Select a contractor to construct the facility;
o Construction of production facility which we estimate will take from
three to five months;
o In the event of any substantial construction delays, seek temporary
quarters for storage of delivered digitizers, scanners, computers, and
film duplicators.
Hiring of Managers - First six months of our operations at an estimated
approximate cost of $25,000:
o Advertise job postings at HotJobs.com and in market specific
publications such as Everton's "Genealogical Helper" and the "Heritage
Quest" magazine for four manager positions to serve in our marketing,
production, customer service, and computer systems departments. We now
have a list of potential managers that we could potentially hire;
however due to timing factors, there are no assurances that these
candidates will be available when we have the funds to fill these
positions.
o We will begin the selection of four managers to serve in the following
departments: marketing, production, customer service, and computer
systems:
o Marketing Manager - Will be responsible for maintaining our print
and electronic advertisement schedules and in coordinating
advertising and image making with our tradeshows. Our Marketing
Manager must be computer literate and proficient at layout and
design of brochures, letters, advertisements, and press material
in a manner consistent with the look and feel we wish to project
of our company image.
o Production Manager - Will be responsible for the scheduling of
all digitizing, compact disk production and compact disk
duplication processes. The Production Manager will work closely
with the film replicator staff and the shipping control
specialists for inventory control.
o Customer Service Manager - Will work closely with production
staff in providing customers timely delivery of product.
Responsibilities include initial phone training for Customer
Service Representatives and ongoing product training. The
Customer Service Manager will supervise the Customer Service
Representatives who will handle telephone orders, mailed orders,
customer email, and Internet order processing, digital storage of
all communications with customers, order processing, payment
processing, and customer problem resolution.
o Computer Systems Manager - Will be responsible for
installation of all hardware and ongoing maintenance schedules,
network development, software inventory and license requirements,
staff computer training, and Internet access and web development.
o Finalize the selection of managers;
o Employ the managers;
o Begin training of the managers in the areas of market and customer
awareness, familiarity with our production facility and ordering
processes, and cross training immediately upon their hire dates for a
period of two months. We will also provide managers with a series of
seminars on how to manage their staff and skills enhancement.
23
Ordering Equipment - First four months of our operations at an estimated
approximate cost of $3,040,000:
We will order our equipment in the order presented below:
o Place the order for our microfilm collection that has a lead-time of
4-6 months.
o Place the order for microfilm digitizers that has a lead time of six
to ten weeks. We plan to install our microfilm digitizers in our
production facility during approximately the fourth month.
o During approximately the second month we will order our production
computer systems to coordinate their installation simultaneous to the
microfilm digitizers;
o During approximately the third or fourth month we will order remaining
administrative computer units for delivery and installation during the
fourth month;
o During approximately the approximately the third or fourth we will
order microfilm duplicators and specialty scanners with anticipated
delivery and installation by the end of the fourth month.
Delivery and Installation of Equipment - During approximately the fifth to
approximately sixth month of our operations at an estimated approximate cost of
$35,000:
o During approximately the fourth month all previously ordered equipment
will be expected for delivery and installation; presuming successful
completion of the building as anticipated during approximately the
fourth month, all equipment should be ready to run during
approximately the fifth or sixth month of our operations.
Marketing Plans - During the period approximately between the sixth month
to the eighth month of our operations we will implement our marketing plans at
an estimated approximate cost of $12,900.
o During approximately the sixth month the marketing manager will begin
work;
o During approximately the sixth to approximately the seventh month the
marketing manager will formulate plans for our first round of
advertisement placements which includes placing advertisements in
trade journals and magazines including Everton's "Genealogical Helper"
and "Heritage Quest Magazine" and "The Family Tree", Internet
advertisement at targeted sites, direct mail campaign to our own
mailing list;
o During approximately the seventh month, if all our equipment has been
installed and tested, we will place our advertisements to begin during
the seventh month;
o Attendance at tradeshows anytime during this period; and
o Any delays in delivery or installation of the equipment or
construction of our production facility will cause these marketing
plans to be postponed because we will not place the advertisements
until we are capable of full production.
Production Plans - Approximately the seventh month to the ninth month of our
operations at an estimated approximate cost of $17,000:
o During approximately the seventh month the production manager will
begin hiring eight production staff members assuming our production
equipment is installed;
o During the approximately the eighth month final hiring of our
production staff members will occur;
o During approximately the eighth month training of our production staff
members will occur which will include three days at various
manufacturer's sites for training sessions on the use of microfilm
digitizers;
o We will use a list of titles previously ordered for training of the
production staff members; and
o During approximately the ninth month we expect full production
capability.
Remaining Employees: - Approximately the ninth month to the eleventh month
of our operations at an estimated approximate cost of $9,500:
o During approximately the ninth month the customer service manager will
begin hiring four customer service staff employees;
o During approximately the ninth month, the customer service manager
will train customer service staff in product lines; and
o During approximately the eleventh month, the following unfilled staff
positions will be filled:
o Eight Microfilm Digitizing Station Operators that have
familiarity with Windows Platform Personal Computers and will
inspect microfilm and mount it on the film digitizer and then
perform a series of setup routines. Once standards are met on the
setup the digitizer is started and the operator moves to the
support computers for that unit and initiates the enhancement and
compression routines for the digital images being created by the
digitizer. A number of logs are created the operator must
maintain, and critical data in input to give the process quality
control measures and guidance on storage media. Each operator
repeats the process for five stations in a time pattern and then
repeats the process as each station completes its assigned task.
24
o Two Microfilm Replication Specialists who must be experienced
microfilm replicators responsible for the duplication process
from master copies of our film collection to customer copies for
distribution. These individuals also are the only staff allowed
in the microfilm storage vault and are in charge of the inventory
for daily pulling of films to be replicated both in duplicate
film versions and for digital versions. All film is then returned
to vaults by these individuals.
o Four Document Scanning Station Operators that handle the paper
scanners and the book scanners including preparatory work on
projects, scanning, enhancement and compression of digital
images, and they then return the paper project to its source or
create and inventory item for storage if retained by the company.
o One Shipping/Inventory Control Specialist maintains the compact
disk Master and compact disk client inventories and is the only
person allowed in the compact disk storage vault. Using our
software the Control Specialist will label each created compact
disk master, its jewel case, and each compact disk client and its
jewel case. Following computer instructions this person will pack
each customer order and generate an invoice/shipping label, will
file the master compact disk and upon return of client rentals
will refile client compact disks.
o One Native American and Minorities Document Preservation Liaison
is a specialist position for a person familiar with historic
collections, library science, archival sciences and the ability
to work with various groups and individuals in creating a core
collection of documents and records related to Native Americans
and other Minority groups. Individual must work closely with the
Scanning Operators in scheduling production and in proper
handling of private collections.
o One Document and Preservation Field Representative is a
specialist position for a person familiar with historic
collections, library science, archival sciences and the ability
to work with various groups and individuals in creating a core
collection of documents and records which this individual and
management determine would be of value to add to our core
collection.
o One Business/Government Imaging Project Developer will be
following up on leads for business or government projects
requiring digitization of microfilmed or paper documents for long
term storage in digital media. This person may be required to
develop a national sales program as well but must first be able
to follow procedures and file responses to Requests For Bids with
various business and government offices.
o One Internet Image Indexing Project Manager will be an individual
familiar with indexing historic documents for the creation of
research tools and will be able to work with various individuals
and groups on the creation of special interest indexes to
projects of local interest. This person must be familiar with
database tools and indexing methods as well as able to apply our
unique quality control algorithm in the creation of viable
indexes. The goal is to use our Internet based indexing software
to create a master worldwide index to records we have digitized.
The created index can then be appended to our mastered product or
published by the assisting entity as a fund raiser.
Working Capital - Throughout the first year of our operations, salary, utility,
office, auditing, insurance, and general administrative expenses are expected to
be $1,198,750.
25
The following chart summarizes our anticipated implementation,
method of achievement and estimated cost.
--------------------- ---------------------------- --------------------------- ----------------------
MILESTONE TIME FRAME FOR METHOD OF ACHIEVEMENT ESTIMATED COST
IMPLEMENTATION
--------------------- ---------------------------- --------------------------- ----------------------
Construction of our Select location and
Production Facility First four months property and contractors $ 800,000
--------------------- ---------------------------- --------------------------- ----------------------
Various methods including
job websites and
Hiring of Managers First six months professional search firms $ 25,000
--------------------- ---------------------------- --------------------------- ----------------------
Final bids and purchase
orders processed; payment
Ordering Equipment First four months escrowed for collection $ 3,040,000
--------------------- ---------------------------- --------------------------- -----------------------
Installation jointly
Delivery and completed by supplier
Installation of techs and our
Equipment Fifth to sixth months Computer Manager $ 35,000
--------------------- ---------------------------- --------------------------- -----------------------
Consulting with management
team on marketing plan;
ordering and placing
advertisements, link
Internet advertisement,
and begin tradeshow
Marketing Plans Sixth to eighth month scheduling $ 12,000
--------------------- ---------------------------- --------------------------- -----------------------
Includes 3 days training
session at manufacturers
and several weeks of
quality control
verification by running
Production Plans Seventh to ninth month anticipated product $ 17,000
--------------------- ---------------------------- --------------------------- -----------------------
Hire and train any
remaining staff required
to begin full production,
marketing, sales, and
Remaining Employees Ninth to twelfth month support. $ 9,500
--------------------- ---------------------------- --------------------------- -----------------------
Salary, utility, office
auditing, insurance, and
general administrative
Working capital Throughout the first year expenses. $ 1,198,750
--------------------- ---------------------------- --------------------------- -----------------------
TOTAL $ 5,137,250
--------------------- ---------------------------- --------------------------- -----------------------
The above chart reflects our current best estimates regarding the timing of
our planned operations; however, there are no assurances that unforeseen
events will not occur that would delay our planned operations.
SECOND YEAR OF OUR OPERATIONS
During the second year of our operations we anticipate that we will expand
upon our first year of operations, with particular emphasis on our marketing and
expanding into other potential sources of revenue. Because our revenues may not
be sufficient to sustain our operations and expansion plans and it will take
several months for the public to respond to our marketing, we will need
additional working capital from the offering proceeds to sustain our operations.
Our expansion plans are expected to include hiring approximately four additional
customer service staff and approximately three additional production staff.
26
We intend to fully implement our marketing plan, which includes attending
tradeshows, full implementation of our Internet marketing plan, and completion
of the first direct mailing. The development of our expansion plans will include
adding the business and government markets, and expanding our microfilm storage,
compact disc storage, custom replication of microfilm or compact disk/DVD, and
onsite scanning services.
The following chart summarizes our implementation, method of achievement and
estimated cost of each of the above events.
--------------------- ---------------------------- --------------------------- -----------------------
MILESTONE TIME FRAME FOR METHOD OF ACHIEVEMENT ESTIMATED COST
IMPLEMENTATION
--------------------- ---------------------------- --------------------------- -----------------------
Placement of Throughout the second We will create a $ 45,000
Advertisements year of our operations schedule of
advertisements based
upon our advertising
research
--------------------- ---------------------------- --------------------------- -----------------------
Implementation of Throughout the second Market analysis and $ 22,000
Internet marketing year of our operations Internet development in
plan tandem with our
tradeshow feedback and
other market research
--------------------- ---------------------------- --------------------------- -----------------------
Attendance at Throughout the second We will research the $ 15,000
tradeshows year of our operations available tradeshows,
determine which
tradeshows will present
us with the greatest
market opportunity and
market feedback and then
prepare an annual
schedule for our
attendance.
--------------------- ---------------------------- --------------------------- -----------------------
Expansion Staffing Eighteenth through the Various methods, $ 4,000
twentieth month including job websites,
classified advertising,
and possibly job search
firms
--------------------- ---------------------------- --------------------------- -----------------------
Business Sales Approximately 18th Month Expected that we will $ 78,000
Manager use a search firm
--------------------- ---------------------------- --------------------------- -----------------------
Working capital Throughout the second Salary, utility, office, $ 1,198,750
year of our operations auditing, insurance, and
general administrative
expenses.
--------------------- ---------------------------- --------------------------- -----------------------
The above chart reflects our current best estimates regarding the timing of
our planned operations; however, there are no assurances that unforeseen events
will not occur that would delay our planned operations The above table is our
best estimate of the allocation of the net offering proceeds, based upon our
current operations, plan of operations and current economic conditions. In our
management's opinion, the net proceeds of this offering, together with
anticipated revenues from operations, will satisfy our anticipated cash
requirements for at least 24 months. However, there can be no assurance that the
proceeds of this offering will be sufficient to finance the operations and
future capital requirements or satisfy our requirements for any particular
period of time. The amount and timing of our expenditures from the offering
proceeds will vary depending upon progress of our operations, our business
growth rate, delivery and operation of capital equipment and changes in
competitive conditions. If the opportunity arises we may acquire or invest in
complementary businesses, products or technologies. We have no present
understandings, commitments or agreements with respect to any material
acquisition or investment.
27
DESCRIPTION OF PROPERTY
In 2000, we were obligated under a lease agreement for our operating
facilities, which expired on December 31, 2000. That lease, which included
monthly payments of $234, was extended through March 31, 2001. In April 2001, we
reduced the size of our operating facility and entered into a new lease
agreement, which expires every two months and includes an option to renew. The
new lease agreement includes monthly payments at $93. Our new space encompasses
approximately 100 square feet. At December 31, 2000, there were no long-term
lease commitments and the minimum lease obligation was $702 under the 2000
lease. Rent expense under all operating leases totaled $3,311 and $961 for the
years ended December 31, 2000 and 1999, respectively.
Our telephone number is 903-677-3220. Our facilities are adequate to
conduct our operations at this time.
We do not now own any property; however, we plan to purchase land and
construct a production facility upon this land from the offering proceeds. We do
not intend to renovate, improve or develop properties. We are not subject to
competitive conditions for property and currently have no property to insure. We
have no policy with respect to investments in real estate or interests in real
estate and no policy with respect to investments in real estate mortgages.
Further, we have no policy with respect to investments in securities of or
interests in persons primarily engaged in real estate activities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Between February 5, 1999 and July 9, 1999, pursuant to events that occurred
upon our inception in November 1998, we issued 51% of the company, or 12,750,000
shares, to our founder/president, Daniel Hay. These shares were part of the
14,745,167 shares issued to certain shareholders for certain intellectual
property including the business plan, marketing surveys, software
specifications, and equipment design.
At our inception on November 12, 1998 we agreed to issue 14,745,167 shares
to individual owners of ArchivalCD, LLC and agreed to pay $10,500 in cash in
exchange for:
o The rights to certain software processes;
o The following equipment valued at $174,370: a microfilm digitizer;
an NT system server and compact disk duplicating server; and
various computers systems, laptop computers, and printers.
o Rights to corporate name and product names;
o Completed and pending software packages;
o Certain archived records valued at $140,140;
o Customer databases;
o Production processes; and
o Proprietary intellectual property.
Due to a lack of positive cash flow, the $10,500 due for the purchase of these
assets had not been disbursed and has not been disbursed to the date of this
registration. These 14,745,167 shares were issued periodically during 1999 and
2000, as follows:
28
Date of Issue Name Shares
-------------------------- ------------------------------- -------------------
02/05/1999 Daniel J. Hay (1) 14,275,000
-------------------------- ------------------------------- -------------------
03/08/2000 Mike Vanderhoof 223,000
-------------------------- ------------------------------- -------------------
02/05/1999 Brenda Hay (2) 70,000
-------------------------- ------------------------------- -------------------
02/05/1999 Brenda Hay, Custodian for 60,000
Benefit Trefor Hay and
Shodie Hay) (3)
-------------------------- ------------------------------- -------------------
11/03/1999 Carl Dearmin 45,000
-------------------------- ------------------------------- -------------------
08/24/1999 Lauren Hay (4) 30,000
-------------------------- ------------------------------- -------------------
03/08/2000 Marion Saul 10,000
-------------------------- ------------------------------- -------------------
03/08/2000 Janice Winters 10,000
-------------------------- ------------------------------- -------------------
11/03/1999 John Goebel 10,000
-------------------------- ------------------------------- -------------------
03/08/2000 Brad Steuart 5,000
-------------------------- ------------------------------- -------------------
11/03/1999 Lynn Toms 1,667
-------------------------- ------------------------------- -------------------
11/03/1999 Gary Toms 1,000
-------------------------- ------------------------------- -------------------
11/03/1999 William Gann 1,000
-------------------------- ------------------------------- -------------------
03/08/2000 Barbara Harvey 500
-------------------------- ------------------------------- -------------------
06/01/1999 Kathy Kirkpatrick 1,500
-------------------------- ------------------------------- -------------------
03/08/2000 Kathy Kirkpatrick 1,500
-------------------------- ------------------------------- -------------------
(1) Our founder/president, Daniel Hay, was affiliated as the
president and managing partner with ArchivalCD, LLC;
(2) Brenda Hay is the wife of Daniel J. Hay
(3) Minors Trefor Hay and Shodie Hay are minor children of
Daniel J. and Brenda L. Hay
(4) Lauren Hay is the daughter of Daniel J. and Brenda L. Hay.
These shares were originally issued to Brenda L. Hay as
Custodian and later converted to issue to Ms. Hay when she
reached adult status.
29
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERSMARKET INFORMATION.
There is no established public trading market for our securities.
Management has not discussed market making with any market maker or broker
dealer. No market exists for our securities and there is no assurance that a
regular trading market will develop, or if developed will be sustained. A
shareholder in all likelihood, therefore, will not be able to resell their
securities should he or she desire to do so when eligible for public resales.
Furthermore, it is unlikely that a lending institution will accept our
securities as pledged collateral for loans unless a regular trading market
develops. We have no plans, proposals, arrangements or understandings with any
person with regard to the development of a trading market in any of our
securities.
OPTIONS, WARRANTS, CONVERTIBLE SECURITIES.
None of our securities are subject to outstanding options or warrants, or
securities convertible into our common stock.
SHARES ELIGIBLE FOR FUTURE SALE UNDER RULE 144
There are 900,299 shares of our common stock held by non-affiliates and
16,441,055 shares of our common stock held by affiliates that Rule 144 of the
Securities Act of 1933 defines as restricted securities. No shares have been
sold pursuant to Rule 144 of the Securities Act of 1933 and no shares are
eligible to be resold pursuant to Rule 144. We have agreed to register all of
the shares held by our existing non-affiliate selling shareholders. We plan to
issue common stock subject to an employee benefit plan.
Once this registration statement is effective, the shares of our common
stock being offered by us and our selling shareholder will be freely tradable
without restrictions under the Securities Act of 1933, except for any shares
held by our "affiliates", which will be restricted by the resale limitations of
Rule 144 under the Securities Act of 1933.
In general, Rule 144 provides that any person who has beneficially owned
shares for at least one year, including an affiliate, is generally entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of 1% of the shares of common stock then outstanding, or the reported
average weekly trading volume of the common stock during the four calendar weeks
immediately preceding the date on which notice of the sale is sent to the SEC.
Sales under Rule 144 are subject to manner of sale restrictions, notice
requirements and availability of current public information concerning us. Rule
144(k) -- A person who is not our affiliate and who has not been our affiliate
within three months prior to the sale generally may sell shares without regard
to the limitations of Rule 144, provided that the person has held the shares for
at least one year. Under Rule 144(k), a person who is not deemed to have been
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule144.
No prediction can be made as to the effect, if any, such future sales of
shares, or the availability of shares for such future sales, will have on the
market price of our common stock prevailing from time to time. The sale of
substantial amounts of our common stock in the public market, or the perception
that such sales could occur, could harm the prevailing market price of our
common stock. As a result of the provisions of Rule 144, all of the restricted
securities could be available for sale in a public market, if developed,
beginning 90 days after the date of this prospectus. The availability for sale
of substantial amounts of common stock under Rule 144 could adversely affect
prevailing market prices for our securities.
HOLDERS.
As of the date of this registration, we had 563 holders of record of our
common stock. We have one class of common stock outstanding.
DIVIDENDS.
We have not declared any cash dividends on our common stock since our
inception and do not anticipate paying such dividends in the foreseeable future.
We plan to retain any future earnings for use in our business. Any decisions as
to future payment of dividends will depend on our earnings and financial
position and such other factors, as the Board of Directors deems relevant. We
are not limited in our ability to pay dividends on our securities.
PENNY STOCK CONSIDERATIONS
Our Shares are "penny stocks" as that term is generally defined in the
Securities Exchange Act of 1934 as equity securities with a price of less than
$5.00. Our shares may be subject to rules that impose sales practice and
disclosure requirements on broker-dealers who engage in certain transactions
involving a penny stock.
30
Under the penny stock regulations, a broker-dealer selling a penny stock to
anyone other than an established customer or "accredited investor" must make a
special suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000 or annual income exceeding $200,000 individually or
$300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required to:
o Deliver, prior to any transaction involving a penny stock, a
disclosure schedule prepared by the Securities and Exchange Commission
relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt;
o Disclose commissions payable to the broker-dealer and its registered
representatives and current bid and offer quotations for the
securities;
o Send monthly statements disclosing recent price information pertaining
to the penny stock held in a customer's account, the account's value
and information regarding the limited market in penny stocks.
o Make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction, prior to conducting any penny
stock transaction in the customer's account.
Because of these regulations, broker-dealers may encounter difficulties in
their attempt to sell shares of our common stock, which may affect the ability
of selling shareholders or other holders to sell their shares in the secondary
market and have the effect of reducing the level of trading activity in the
secondary market. These additional sales practice and disclosure requirements
could impede the sale of our securities, if our securities become publicly
traded. In addition, the liquidity for our securities may be adversely affected,
with a corresponding decrease in the price of our securities. Our shares may
someday be subject to such penny stock rules and our shareholders will, in all
likelihood, find it difficult to sell their securities.
31
FINANCIAL STATEMENTSArchivalCD, Inc.
(A Development Stage Company)
Balance SheetJune 30, 2001
(Unaudited)
ASSETSCurrent Assets
Cash $ 434
Receivable from stockholders - Note 2 7,500
------------------
Total Current Assets 7,934
------------------
Property and Equipment, Net 274,281
------------------
Other Assets 1,000
------------------
Total Assets $ 283,215
==================
LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities
Accounts payable and accrued liabilities $ 33,726
Related party payables 16,373
Loans from stockholders 7,030
------------------
Total Current Liabilities 57,129
------------------
Notes Payable to Stockholders 18,000
------------------
Stockholders' Equity
Cumulative convertible preferred stock, $0.01 par
value, 1,000,000 shares authorized, no shares
issued or outstanding --
Common stock, $0.01 par value; 25,000,000 shares
authorized; 13,936,967 shares issued and
outstanding 139,370
Additional paid-in capital 355,393
Deficit accumulated during the development stage (286,677)
------------------
Total Stockholders' Equity 208,086
------------------
Total Liabilities and Stockholders' Equity $ 283,215
==================
F 1-1
Accompanying notes are an integral part
of the financial statements.
ArchivalCD, Inc.
(A Development Stage Company)
Income StatementsFor the Six Months Ended June 30, 2001 and 2000 andfrom November 12, 1998 (Inception) to June 30, 2001
(Unaudited)
Six Months Ended Cumulative
June 30, from
2001 2000 Inception
--------------------- ------------------- ---------------------
Operating Revenue $ -- $ -- $ --
General and AdministrativeExpenses 54,135 70,970 276,191
--------------------- ------------------- ---------------------
Operating Loss (54,135) (70,970) (276,191)
Other Expenses
Interest expense (2,721) (2,562) (10,486)
--------------------- ------------------- ---------------------
Net Loss $ (56,856) $ (73,532) $ (286,677)
===================== =================== =====================
Weighted Average CommonShares Outstanding - Note 5 17,049,398 18,485,169 18,119,141
===================== =================== =====================
Basic and Diluted Net Lossper Common Share $ (0.01) $ (0.01) $ (0.02)
===================== =================== =====================
F 1-2
Accompanying notes are an integral part
of the financial statements.
ArchivalCD, Inc.
(A Development Stage Company)
Statements of Cash FlowsFor the Six Months Ended June 30, 2001 and 2000 andfrom November 12, 1998 (Inception) to June 30, 2001
(Unaudited)
Six Months Ended Cumulative
June 30, from
2001 2000 Inception
------------------- ------------------ --------------------
Cash Flows from Operating Activities:
Cash paid for goods and services $ (10,068) $ (23,237) $ (137,653)
Interest paid
-- -- (190)
------------------- ------------------ --------------------
Net Cash Used byOperating Activities (10,068) (23,237) (137,843)
------------------- ------------------ --------------------
Net Cash Used by Investing Activities:
Fixed asset purchases -- (1,368) (10,170)
------------------- ------------------ --------------------
Cash Flows from Financing Activities:
Issuance of common stock 10,350 20,350 108,417
Proceeds from long-term debt -- -- 18,000
Proceeds from short-term debt -- 3,000 23,030
Repayment of short-term debt -- -- (1,000)
------------------- ------------------ --------------------
Net Cash Provided byFinancing Activities 10,350 23,350 148,447
------------------- ------------------ --------------------
Net Increase in Cash 282 (1,255) 434
Cash at Beginning of Period 152 1,255 --
------------------- ------------------ --------------------
Cash at End of Period $ 434 $ -- $ 434
=================== ================== ====================
F 1-3
Six Months Ended Cumulative
June 30, from
2001 2000 Inception
------------------- ------------------ --------------------
Reconciliation of Net Loss to Net
Cash Used by Operating Activities:
Net loss $ (56,856) $ (73,532) $ (286,677)
------------------- ------------------ --------------------
Adjustments to reconcile net lossto net cash used by operatingactivities:
Depreciation 18,758 18,634 90,399
Stock issued in exchange
for services -- -- 18,015
Stock issued in lieu of interest
on stockholder loan -- -- 150
Stock issued in lieu of rent -- 2,500 5,159
(Increase) Decrease in deposits -- -- (1,000)
(Increase) Decrease in receivables
from stockholders (2,500) -- (7,500)
(Increase) Decrease in employee
receivables 40,304 (5,930) --
Increase (Decrease) in accrued
liabilities and accounts payable (9,774) 35,091 43,611
------------------- ------------------ --------------------
Total Adjustments 46,788 50,295 148,834
------------------- ------------------ --------------------
Net Cash Used by Operating Activities $ (10,068) $ (23,237) $ (137,843)
=================== ================== ====================
Supplemental Disclosure of
Non-cash Activities:
Stock issued to acquire
fixed assets $ -- $ -- $ 354,510
F 1-4
Accompanying notes are an integral part
of the financial statements.
ArchivalCD, Inc.
(A Development Stage Company)
Notes to Financial StatementsFor the Six months Ended June 30, 2001 and 2000and from November 12, 1998 (Inception) to June 30, 2001
(Unaudited)
Note 1 - Organization and Description of Business
ArchivalCD, Inc. (referred to herein as "the Company") was
incorporated under the laws of the state of Delaware on November 12, 1998.
The Company specializes in digitization of historic microfilm, enhancing
the images, and writing them to compact discs. The Company intends to
provide subscribers with access to the digitized historical records on
compact disc for use in genealogical, historical, and educational research.
The Company further intends to provide file conversion services to
businesses and local governments.
The Company is in the development stage as its operations principally
involve research and development, market analysis, and other business
planning activities. The Company has had no significant revenues from
product sales or services.
As of June 30, 2001, the Company's accumulated deficit in the
development stage was $286,677, which was funded primarily through loans
from stockholders and the proceeds from sales of common stock. The Company
believes that it will commence its principal operations in the fourth
quarter of the fiscal year ending December 31, 2001 and begin generating
revenues during the first quarter of the fiscal year ending December 31,2002.
The accompanying unaudited financial statements reflect all
adjustments, which, in the opinion of management, are necessary for a fair
presentation of the results of operation for the periods shown. The
results of operations for such periods are not necessarily indicative of
the results expected for the full fiscal year or for any future period.
These financial statements should be read in conjunction with the
Company's audited financial statements and related notes for the year ended
December 31, 2000. The financial statements of the Company have been
prepared on the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. However, because the Company has not commenced its
principal operations and, therefore, has had no significant operating
revenue, such realization of assets and liquidation of liabilities is
subject to significant uncertainty. Further, the Company's ability to
continue as a going concern is highly dependent on its ability to continue
to raise sufficient operating capital.
F 1-5
ArchivalCD, Inc.
(A Development Stage Company)
Notes to Financial StatementsFor the Six months Ended June 30, 2001 and 2000and from November 12, 1998 (Inception) to June 30, 2001
(Unaudited)
Note 2 - Receivable from Stockholder
In May and June of 2001, the company paid a total of $2,500 to
repurchase 1,667 of the Company's common shares from a stockholder,
pursuant to a stock repurchase agreement (see Note 6). The Company has paid
a total of $7,500 to repurchase 5,000 shares of its common stock under this
agreement. As of June 30, 2001, the shares had not been returned to the
Company. Accordingly, the Company has recorded a receivable of $7,500 on
its balance sheet at June 30, 2001.
Note 3 - Related Party Transaction
Since inception, the Company has advanced funds to and paid certain
personal expenses for its chief executive officer (CEO), with the intention
of deducting these advances from his future wages once the Company has
commenced its principal operations. In May 2001, the Company's CEO paid
certain liabilities of the Company totaling $45,007. Of this amount $39,684
was applied against the outstanding receivable balance, resulting in a
liability to the CEO of $5,518 at June 30, 2001.
Note 4 - Common Stock Transactions
On February 16, 2001, the Company issued 700 shares of its common
stock in exchange for cash in the amount of $1,050, or $1.50 per share.
On April 14, 2001, the Company executed an agreement to rescind a 1998
consulting agreement with Corporate Vision, Inc. ("CVI"). Pursuant to the
rescission agreement, CVI returned 3,677,621 shares of common stock, which
had been issued as payment for consulting services. On May 8, 2001, these
shares were retired from the treasury, canceled and restored to the status
of unissued shares. As further provided for in the agreement, CVI agreed to
cancel a $15,000 promissory note, with accrued interest of $4,012.
On May 11, 2001, the Company issued 7,500 shares of its common stock
in exchange for cash in the amount of $7,500, or $1.00 per share.
On May 31, 2001, the Company issued 1,300 shares of its common stock
in exchange for cash totaling $1,800, or $1.38 per share.
F 1-6
ArchivalCD, Inc.
(A Development Stage Company)
Notes to Financial StatementsFor the Six months Ended June 30, 2001 and 2000and from November 12, 1998 (Inception) to June 30, 2001
(Unaudited)
Note 4 - Common Stock Transactions (Continued)
In May 2001, the Company's chief executive officer elected to return
1,000,000 shares of common stock to the Company, which had been originally
issued as partial payment for the asset purchase described in Note 3 of the
December 31, 2000 audited financial statements. On May 11, 2001, these
shares were retired from the treasury, canceled and restored to the status
of unissued shares.
Note 5 - Loss per Common Share
The computation of net loss per share from continuing operations for
the six months ended June 30, 2001 and 2000 and from inception were as
follows:
From
2001 2000 Inception
------------------ ----------------- ------------------
Net loss attributable to
common shares $ (56,856) $ (73,532) $ (286,677)
Weighted average common
shares outstanding 17,049,398 18,485,169 18,119,141
------------------ ----------------- ------------------
Basic and diluted net loss
per common share $ (0.01) $ (0.01) $ (0.02)
================== ================= ==================
The computation of diluted net loss per common share does not include
the effect of the 3,404,570 common shares issued to the Company's CEO in
July 2001 (see Note 7), as the effect of their inclusion would be
antidilutive.
Note 6 - Commitments and Contingencies
During 1999 and 2000, in an effort to raise operating capital, the
Company periodically entered into agreements with stockholders, whereby the
Company would issue common shares to the stockholders in exchange for cash
or other consideration, with the option to repurchase common shares from
the stockholders at a rate higher than the original purchase price. As of
June 30, 2001, the Company had issued a total of 52,000 shares at $1.00 per
share under these agreements in exchange for $49,500 cash and a $2,500
credit toward rent. Of the 52,000 shares, 21,000 shares were issued to
directors of the Company in exchange for $21,000 in cash. At June 30, 2001,
there were 46,500 shares available for repurchase with a total repurchase
price of $59,075.
Note 7 - Subsequent Events
Effective July 10, 2001, the Company increased the number of
authorized shares of common stock from 25,000,000 to 100,000,000 shares and
increased the authorized number of shares of preferred stock from 1,000,000
to 10,000,000. Also effective July 10, 2001, the Company changed the par
value of its common and preferred stock from $0.01 to $0.0001.
On July 30, 2001, the Company's board of directors approved the
issuance of 3,404,570 restricted shares of common stock to its founder and
CEO, Daniel J. Hay, for the purpose of maintaining Dr. Hay's majority
interest in the Company after the initial public offering.
F 1-6
ArchivalCD, Inc.
(A Development Stage Company)
C O N T E N T S
PAGE
Independent Auditor's Report 1 - 2
Financial Statements
Balance Sheets 3
Income Statements 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 6 - 7
Notes to Financial Statements 8 -17
F-2-0
Independent Auditor's Report
The Board of Directors and Stockholders
ArchivalCD, Inc.
Athens, TX
We have audited the accompanying balance sheets of ArchivalCD, Inc., (a
development stage company), as of December 31, 2000 and 1999, and the related
statements of income, stockholders' equity and cash flows for the years then
ended and for the period November 12, 1998 (inception) to December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ArchivalCD, Inc., as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended and the period from November 12, 1998 (inception) to
December 31, 2000, in conformity with those accounting principles generally
accepted in the United States of America.
F-2-1
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency, which raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 12. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
CROSS AND ROBINSON
Certified Public Accountants
Tulsa, Oklahoma
June 15, 2001
F-2-2
ArchivalCD, Inc.
(A Development Stage Company)
Balance Sheets
December 31, 2000 and 1999ASSETS
2000 1999
------------- -------------
Current Assets
Cash $ 152 $ 1,255
Receivable from stockholders - Note 4 5,000 1,000
Employee advances - Note 4 40,304 24,127
------------- -------------
Total Current Assets 45,456 26,382
------------- -------------
Property and Equipment, Net - Note 5 293,039 327,952
------------- -------------
Other Assets - Note 12 1,000 1,000
------------- -------------
Total Assets $ 339,495 $ 355,334
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities
Accounts payable and accrued liabilities $ 53,431 $ 11,782
Related party payables - Note 11 10,455 --
Loans from stockholders - Note 11 7,030 1,000
Notes payable to stockholders, current
portion - Note 6 15,000 15,000
------------- -------------
Total Current Liabilities 85,916 27,782
------------- -------------
Notes Payable to Stockholders,Net of Current Portion - Note 6 18,000 18,000
------------- -------------
Stockholders' Equity - Note 7
Cumulative convertible preferred stock,
$0.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $0.01 par value; 25,000,000
shares authorized, 18,605,088 and 18,305,726
shares issued and outstanding at December 31,2000 and 1999, respectively
186,051 183,057
Additional paid-in capital 279,350 229,597
Deficit accumulated during the development stage (229,821) (103,102)
------------- -------------
Total Stockholders' Equity 235,579 309,552
------------- -------------
Total Liabilities and Stockholders' Equity $ 339,495 $ 355,334
============= =============
Accompanying notes are an integral part
of the financial statements.
F-2-3
ArchivalCD, Inc.
(A Development Stage Company)
Income Statements
For the Years Ended December 31, 2000 and 1999 and
from November 12, 1998 (Inception) to December 31, 2000Cumulative
from
2000 1999 Inception
--------------- --------------- --------------
Operating Revenue $ -- $ -- $ --
General and Administrative
Expenses 120,536 101,520 222,056
--------------- --------------- --------------
Operating Income (120,536) (101,520) (222,056)
Other Expenses
Interest expense (6,183) (1,582) (7,765)
--------------- --------------- ---------------
Net Loss $ (126,719) $ (103,102) $ (229,821)
=============== =============== ===============
Weighted Average Common
Share Outstanding - Note 8 18,541,717 18,220,460 18,366,005
=============== =============== ===============
Basic and Diluted Net Loss
Per Common Share $ (0.01) $ (0.01) $ (0.01)
=============== =============== ===============
Accompanying notes are an integral part
of the financial statements.
F-2-4
ArchivalCD, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
For the Years Ended December 31, 2000 and 1999 and
from November 12, 1998 (Inception) to December 31, 2000Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
-------------- ------------- ------------- ----------------- -------------
Balance at
December 31, 1998 18,185,000 $ 181,850 $ 122,160 $ -- $ 304,010
Issued for cash 45,449 454 56,025 -- 56,480
Issued in exchange for
services rendered -Note 7 12,010 120 11,895 -- 12,015
Asset acquisition - Note 3 60,167 602 (602) -- --
Issued in lieu of interest
payment - Note 11 100 1 149 -- 150
Asset acquisition - Note 3 3,000 30 39,970 -- 40,000
Net loss for 1999 -- -- -- (103,102) (103,102)
-------------- ------------- ------------- ----------------- -------------
Balance at
December 31, 1999 18,305,726 $ 183,057 $ 229,597 $ 103,102) $ 309,552
Issued for cash 36,715 367 41,220 -- 41,587
Issued in exchange for
services rendered - Note 7 6,000 60 5,940 -- 6,000
Issued for rent - Note 7 6,647 66 5,093 -- 5,159
Asset acquisition - Note 3 250,000 2,500 (2,500) -- --
Net loss for 2000 -- -- -- (126,719) (126,719)
Balance at
December 31, 2000 18,605,088 $ 186,051 $ 279,350 $ (229,821) $ 235,579
============== ============= ============= ================= =============
Accompanying notes are an integral part
of the financial statements.
F-2-5
ArchivalCD, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Years Ended December 31, 2000 and 1999 and
from November 12, 1998 (Inception) to December 31, 2000Cumulative
from
2000 1999 Inception
--------------- --------------- --------------
Cash Flows from Operating Activities:
Cash paid for goods and services $ (46,200) $ (81,384) $ (127,584)
Interest paid
(40) (150) (190)
--------------- --------------- --------------
Net Cash Used by Operating Activities (46,240) (81,534) (127,774)
--------------- --------------- --------------
Net Cash Used by Investing Activities:
Fixed asset purchases (2,480) (7,690) (10,170)
--------------- --------------- --------------
Cash Flows from Financing Activities:
Issuance of common stock 41,587 56,480 98,067
Proceeds from long-term debt, related parties -- 18,000 18,000
Proceeds from short-term debt, related parties 6,030 17,000 23,030
Repayment of short-term debt -- (1,000) (1,000)
--------------- --------------- --------------
Net Cash Provided by Financing Activities 47,617 90,480 138,097
--------------- --------------- --------------
Net Increase (Decrease) in Cash (1,103) 1,255 152
Cash at Beginning of Period 1,255 -- --
--------------- --------------- --------------
Cash at End of Period $ 152 $ 1,255 $ 152
=============== =============== ==============
Accompanying notes are an integral part
of the financial statements.
F-2-6
Cumulative
from
2000 1999 Inception
--------------- --------------- --------------
Reconciliation of Net
Loss to Net Cash Used by Operating Activities:Net Loss $ (126,719) $ (103,102) $ (229,821)
--------------- --------------- ---------------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 37,393 34,248 71,641
Stock issued in exchange for services 6,000 12,015 18,015
Stock issued in lieu of interest on
shareholder loan -- 150 150
Stock issued in lieu of rent 5,159 -- 5,159
(Increase) Decrease in deposits -- (1,000) (1,000)
(Increase) Decrease in receivables
from shareholders (4,000) (1,000) (5,000)
(Increase) Decrease in employee
receivables (16,177) (24,127) (40,304)
Increase (Decrease) in accounts
payable and accrued liabilities 52,104 1,282 53,386
--------------- --------------- ---------------
Total Adjustments 80,479 21,568 102,047
--------------- --------------- ---------------
Net Cash Used by Operating Activities $ (46,240) $ (81,534) $ (127,774)
=============== =============== ===============
Supplemental Disclosure of
Non-cash Activities:
Stock issued to acquire fixed assets $ -- $ 40,000 $ 354,510
Accompanying notes are an integral part
of the financial statements.
F-2-7
ArchivalCD, Inc.
(A Development Stage Company)
Notes to Financial Statements
For the Years Ended December 31, 2000 and 1999 and
from November 12, 1998 (Inception) to December 31, 2000Note 1 - Organization and Description of Business
ArchivalCD, Inc. (referred to herein as "the Company") was
incorporated under the laws of the state of Delaware on November 12,1998. The Company specializes in digitization of historic microfilm,
enhancing the images, and writing them to compact discs. The Company
intends to provide subscribers with access to the digitized historical
records on compact disc for use in genealogical, historical, and
educational research. The Company further intends to provide file
conversion services to businesses and local governments.
The Company is in the development stage as its operations
principally involve research and development, market analysis, and
other business planning activities. The Company has had no significant
revenues from product sales or services.
As of December 31, 2000, the Company's accumulated deficit in
the development stage was $229,821, which was funded primarily through
loans from stockholders and the proceeds from sales of common stock.
The Company believes that it will commence its principal operations
during the fourth quarter of the fiscal year ending December 31, 2001
and begin generating revenues during the first quarter of the fiscal
year ending December 31, 2002. Because the Company is in the
developmental stage, the accompanying financial statements should not
regarded as typical for normal operating periods.
Note 2 - Summary of Significant Accounting Policies
Method of Accounting
The accompanying financial statements conform to the standards
applicable to development stage companies and are prepared using the
accrual basis of accounting in accordance with accounting principals
generally accepted in the United States of America. Therefore, revenues
and gains are recognized when earned, and expenses and losses are
recognized when incurred.
Cash and Cash EquivalentsThe Company considers all highly liquid assets with maturities
of three months or less to be cash equivalents.
F-2-8
Note 2 - Summary of Significant Accounting Policies (continued)Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation expense is charged to operations using the
straight-line method for financial reporting and accelerated methods
for income tax purposes over the estimated useful lives of the assets,
typically 5 to 10 years. Maintenance, repairs, and minor renovations
are charged to expense as incurred.
Income TaxesThe Company has adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires the
measurement of deferred tax assets for deductible temporary differences
and operating loss carryforwards, and of deferred tax liabilities for
taxable temporary differences. Measurement of current and deferred tax
liabilities and assets is based on provisions of enacted tax law. The
effects of future changes in tax laws or rates are not included in the
measurement. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Earnings per Common ShareThe Company has adopted the provisions of SFAS No. 128,
"Earnings per Share", which requires presentation on the face of the
statement of operations of both basic and diluted earnings per share.
Basic earnings (loss) per common share is computed by dividing net
income (loss) attributable to common shares by the weighted average
number of common shares outstanding during the period. Diluted earnings
per common share is computed using the combination of dilutive common
share equivalents and the weighted average number of common shares
outstanding during the period. In years where the Company recognizes a
loss from continuing operations, the assumed exercise of common share
equivalents has an antidilutive effect and therefore would not be
included in the weighted average number of shares used in the
calculation of loss per common share.
F-2-9
Note 2 - Summary of Significant Accounting Policies (continued)Computer Software
As of December 31, 2000, the Company had not incurred any
computer software costs or recognized any revenue from licensing or
marketing computer software. The Company has adopted the accounting
statements summarized in the following paragraphs in anticipation that
the Company may incur such costs or recognize such revenues once
principal operations have commenced.
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" under which direct
costs and allocated overhead associated with the development of
software products are capitalized. Initial costs are charged to
operations as research prior to the development of a detailed program
design or a working model. Costs incurred subsequent to the product
release, and research and development performed under contract are
charged to operations. Capitalized costs are amortized over the
estimated product life on the straight-line basis. Unamortized costs
are carried at the lower of book value or net realizable value.
The Company has also adopted the provisions of Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", issued by the American
Institute of Certified Public Accountants in March 1998. SOP 98-1
provides guidance on when costs incurred for internal-use software are
capitalized or expensed and guidance on whether computer software is
for internal use.
The Company has adopted SOP 97-2 "Software Revenue Recognition",
as modified by SOP 98-9, which provides guidance on applying generally
accepted accounting principles in recognizing revenue on software
transactions.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
F-2-10
Note 2 - Summary of Significant Accounting Policies (continued)Valuation of Non-Employee Stock-Based CompensationThe Company applies the provisions of SFAS No. 123 "Accounting
for Stock-Based Compensation", to all issuances of stock to
non-employees in exchange for goods and services. Accordingly, such
issuances are accounted for based on the fair value of the goods or
services received or the fair value of the shares issued, whichever is
more reliably measured.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated balance sheet. The
Company's financial instruments include cash and related party
receivables and payables. The carrying amounts of these financial
instruments have been estimated by management to approximate fair value.
Note 3 - Acquisition of Assets
Upon its inception in 1998, the Company purchased equipment and
archived records valued at $314,510 from various entities either owned
or controlled by the Company's Chief Executive Officer in exchange for
14,745,167 shares of the Company's common stock and $10,500 in cash. As
these assets were under common control of a significant shareholder
prior to and after the acquisition, the Company has valued the acquired
assets at their historical cost, which is consistent with the
provisions of APB Opinion No. 16 and the Securities and Exchange
Commission's Staff Accounting Bulletin (SAB) No. 48.
As of December 31, 1999, 250,000 of the 14,745,167 shares to be
issued in exchange for the equipment and records purchased had not been
distributed. These shares were issued on March 8, 2000. Due to a lack
of positive cash flow, the $10,500 cash due for the purchase of the
assets had not been disbursed as of December 31, 2000.
On June 23, 1999, the Company purchased certain archived records
from an unrelated company valued at $40,000 in exchange for 3,000
shares of the Company's common stock. The valuation of the transaction
was based on the suggested auction price of the records, as stated in
the sale agreement.
F-2-11
Note 4 - ReceivablesReceivable from Stockholders
Pursuant to a stock repurchase agreement with a stockholder,
disclosed further in Note 12, the Company has paid $5,000 to repurchase
3,333 shares of its common stock. As of December 31, 2000, the shares
had not been returned to the Company, resulting in receivables of
$5,000 and $1,000 from the stockholder at December 31, 2000 and 1999,
respectively.
Employee Advances
Since inception, the Company had advanced funds to and paid
certain personal expenses for its chief executive officer (CEO), which
will be deducted from his future wages once the Company has commenced
its principal operations. The total receivable from the chief executive
officer at December 31, 2000 and 1999 was $40,304 and $24,127,
respectively. In May 2001, the receivable balance was reduced when the
Company's CEO paid expenses for the Company totaling $45,007.
Note 5 - Property and Equipment
Property and equipment consists of the following at
December 31, 2000 and 1999:
2000 1999
------------- -------------
Equipment $ 174,370 $ 174,370
Archived records 180,140 180,140
Automobile 2,600 2,600
Office equipment 7,570 5,090
Accumulated depreciation (71,641) (34,248)
------------- -------------
Property and equipment, net $ 293,039 $ 327,952
============= =============
Depreciation expense for the years ended December 31,2000 and 1999 was $37,393 and $34,248, respectively.
F-2-12
Note 6 - Notes Payable
Notes payable at December 31, 2000 and 1999 consists of the following:
2000 1999
------------- -------------
Unsecured promissory note payable to a stockholder
due May 14, 2000, with interest at 10% per annum,
in default at December 31, 2000. The note was
rescinded in April 2001, pursuant to the agreement
disclosed in Note 13. $ 15,000 $ 15,000
Three loan agreements with a stockholder,
maturing October 19, 2002, with interest at 15%,
collateralized by unissued shares of the
Company's common stock at the rate of $1.00
per share. 18,000 18,000
Less current portion (15,000) (15,000)
------------- -------------
Long-term debt $ 18,000 $ 18,000
============= =============
Principal maturities of long-term debt are as follows:
Year ended December 31, 2002 $ 18,000 $ 18,000
============= =============
Note 7 - Stockholders' EquityCapitalization
The capital stock of the corporation at December 31, 2000 and
1999 was as follows:
Cumulative Convertible Preferred Stock, $0.01 par value,
1,000,000 shares authorized. Dividends accrue annually at 15%, payable
in cash or common shares. Each share of preferred stock must be held
for a minimum of three years and after five years must either be
repurchased by the Company at par value or converted into 10 shares of
common stock at the discretion of the board of directors. There were no
preferred shares outstanding at December 31, 2000 or 1999.
F-2-13
Note 7 - Stockholders' Equity (Continued)
Common Stock, $0.01 par value, 25,000,000 shares authorized,
18,605,088 and 18,305,726 shares issued and outstanding at December 31,2000 and 1999, respectively.
As discussed in Note 13, the par value and number of authorized
shares of the Company's preferred and common stock were changed in July
2001.
Non-cash Issuances of Common Stock
During July and August 1999, the Company issued a total of
12,010 shares of common stock valued at $12,015 in exchange for
services rendered. The valuation of the stock issued was based on the
fair value of the services rendered, as determined by the vendors.
In August 2000, the Company issued 6,000 shares of common stock
valued at $6,000 to a shareholder in exchange for services rendered.
The valuation of the stock issued was based on the estimated fair value
of the services provided.
In August 2000, the Company issued 6,647 shares of common stock
valued at $5,159 as payment of rent on the Company's operating
facility. The valuation of the stock issued was based on the monthly
rent payment provided for in the Company's operating lease.
Note 8 - Loss per Common Share
The computations of net loss per share from continuing
operations for the years ended December 31, 2000 and 1999 and for the
development stage period were as follows:
From
2000 1999 Inception
------------------ ------------------ -----------------
Net loss attributable to common
shares $ (126,719) $ (103,102) $ (229,821)
Weighted average common
shares used in the calculation
of basic loss per share 18,541,717 18,220,460 18,366,005
------------------ ------------------ -----------------
Basic and diluted net loss
per common share $ (0.01) $ (0.01) $ (0.01)
================== ================== =================
F-2-14
Note 8 - Loss per Common Share (Continued)
As disclosed in Note 13, a total of 4,677,621 common shares were
returned to the Company in May 2001. The effect of this cancellation
would be to reduce the weighted average number of shares outstanding
for December 31, 2000 and 1999 to 13,864,096 and 13,542,839,
respectively. Loss per common share would still equate to $0.01 for the
years ended December 31, 2000 and 1999.
The computation of diluted net loss per common share does not
include the effect of the 3,404,570 common shares issued to the
Company's CEO in July 2001 (see Note 13), as the effect of their
inclusion would be antidilutive.
Note 9 - Income TaxesThe Company has incurred net operating losses since inception
and has a loss carryforward of approximately $230,000 at December 31,2000 expiring in years beginning in 2019. As of December 31, 2000 and
1999, the Company had net deferred tax assets of $91,929 and $41,241,
respectively. In accordance with the provisions of FASB Statement No.
109, "Accounting for Income Taxes," a valuation allowance has been
recognized to fully offset this asset due to the uncertainty of
realizing the future benefit. The Company continually reviews the
adequacy of the valuation allowance and will recognize the tax benefits
of these assets only as assessment indicates that it is more likely
than not that the benefits will be realized.
Significant components of the Company's net deferred tax assets
as of December 31, 2000 and 1999 are as follows:
2000 1999
------------- -------------
Deferred tax asset:
Net operating loss carryforward $ 91,929 $ 41,241
Valuation allowance (91,929) (41,241)
------------- -------------
Net deferred tax asset $ -- $ --
============= =============
Net increase in deferred tax asset
valuation allowances $ 50,688 $ 41,241
============= =============
F-2-15
Note 9 - Income Taxes (Continued)
Deferred taxes reflect a combined federal and state tax rate of
approximately 40%. A reconciliation between the amount of federal and
state income taxes, based on a forty percent (40%) tax rate, and the
effective amount of income taxes charged to operations is as follows:
2000 1999
------------- -------------
Statutory federal income taxes (refund) $ (50,688) $ (41,241)
Change in valuation allowance 50,688 41,241
------------- -------------
Income tax expense charged to operations $ -- $ --
============= =============
Note 10 - Advertising CostsThe Company expenses advertising costs as incurred. During the
period ended December 31, 1999, the company expensed $314 in
advertising costs.
Note 11 - Related Party Loans
In 1999, the Company accepted $2,000 in loans from stockholders
for which no promissory notes were executed. The Company agreed to pay
these stockholders a flat interest fee equal to 15% of the loans. At
December 31, 2000, the outstanding balance on these loans was $1,000.
During 2000, the Company received unsecured cash loans totaling
$6,030 from its chief financial officer (CFO). The Company's CFO also
paid expenses on behalf of the Company totaling $10,455 during 2000.
These expenses are to be repaid at such time the Company has sufficient
operating capital.
Interest expense relating to stockholder loans was $6,183 and
$1,582 for the years ended December 31, 2000 and 1999, respectively.
Interest expense for 1999 includes common stock, with a fair value of
$150, issued in lieu of cash.
Note 12 - Commitments and Contingencies
During 1999 and 2000, in an effort to raise operating capital,
the Company periodically entered into agreements with stockholders,
whereby the Company would issue common shares to the stockholders in
exchange for cash or other consideration, with the option to repurchase
common shares from the stockholders at a rate higher than the original
purchase price. As of December 31, 2000, the Company had issued a total
of 44,500 shares at $1.00 per share under these agreements in exchange
for $42,000 cash and a $2,500 credit toward rent. Of the 44,500 shares,
21,000 shares were issued to directors of the Company in exchange for
$21,000 in cash. In May 2001, the Company issued an additional 7,500
shares subject to a repurchase agreement, in exchange for $7,500 cash.
At December 31, 2000, there were 40,667 shares available for repurchase
with a total repurchase price of $50,851. At June 15, 2001 (the date of
this report), there were 48,167 shares available for repurchase with a
total repurchase price of $61,576.
In 2000, the Company was obligated under a lease agreement for
its operating facilities, which expired December 31, 2000. That lease,
which included monthly payments of $234, was extended through March 31,2001. In April 2001, the Company reduced the size of its operating
facility and entered into a new lease agreement, which expires every
two months and includes an option to renew. The new lease agreement
includes monthly payments of $93. At December 31, 2000, there were no
long-term lease commitments and the minimum lease obligation was $702
under the 2000 lease. Rent expense under all operating leases totaled
$3,311 and $961 for the years ended December 31, 2000 and 1999,
respectively.
On October 8, 1999, the Company entered into an agreement to
purchase the distribution rights to a genealogical software package for
$7,500. As of December 31, 2000, the Company had made an initial
payment $1,000, with the entire purchase price payable at such time the
master program and all pertinent files are delivered to the Company.
F-2-16
Note 12 - Commitments and Contingencies (Continued)Going ConcernThe Company's financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. As shown in the accompanying financial statements, the
Company incurred a net operating loss of $126,719 in 2000 and has
sustained development stage losses of $229,821 through December 31,2000. These factors, as well as the lack of operating revenues and the
lack of positive cash flow create an uncertainty about the Company's
ability to continue as a going concern.
The Company's continued ability to operate is dependent on its
ability to raise additional operating capital. Management is in the
process of preparing an initial public offering of the Company's common
stock as a means of raising the funding necessary to implement
management's operating plan. The ability of the Company to continue as
a going concern is highly dependent on the success of the initial
public offering. No assurance can be given that the Company will be
successful in these efforts. The financial statements do not include
any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Note 13 - Subsequent Events
On April 14, 2001, the Company executed an agreement to rescind
a 1998 consulting agreement with Corporate Vision, Inc. ("CVI").
Pursuant to the rescission agreement, CVI returned 3,677,621 shares of
common stock, which had been issued as payment for consulting services.
On May 8, 2001, these shares were retired from the treasury, canceled
and restored to the status of unissued shares. In addition, CVI agreed
to rescind a $15,000 promissory note, plus accrued interest of $2,620.
In May 2001, the Company's chief executive officer elected to
return 1,000,000 shares of common stock to the Company, which had been
originally issued as payment for the asset purchase described in Note
3. On May 11, 2001, these shares were retired from the treasury,
canceled and restored to the status of unissued shares.
Effective July 10, 2001, the Company increased the number of
authorized shares of common stock from 25,000,000 to 100,000,000
shares and increased the authorized number of shares of preferred stock
from 1,000,000 to 10,000,000. Also effective July 10, 2001, the
Company changed par value of its common and preferred stock from $0.01
to $0.0001.
On July 30, 2001, the Company's board of directors approved the
issuance of 3,404,570 restricted shares of common stock to its founder
and CEO, Daniel J. Hay, for the purpose of maintaining Dr. Hay's
majority interest in the Company after the initial public offering.
F-2-17
ArchivalCD, Inc.
(A Development Stage Company)
C O N T E N T S
PAGE
Independent Auditor's Report 1
Financial Statements
Balance Sheets 2
Income Statements 3
Statement of Stockholders' Equity 4
Statements of Cash Flows 5 - 6
Notes to Financial Statements 7 -15
F-3-0
Independent Auditor's Report
The Board of Directors and Stockholders
ArchivalCD, Inc.
Crockett, TX
We have audited the accompanying balance sheets of ArchivalCD, Inc.,
(a development stage company), as of December 31, 1999 and 1998, and the
related statements of income, stockholders' equity and cash flows for the
year ended December 31, 1999, the period November 12, 1998 (inception) to
December 31, 1998, and for the period November 12, 1998 (inception) to
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ArchivalCD, Inc., as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the year ended December 31, 1999, the period from November 12, 1998
(inception) to December 31, 1998, and the period from November 12, 1998
(inception) to December 31, 1999, in conformity with generally accepted
accounting principles.
CROSS AND ROBINSON
Certified Public Accountants
Tulsa, Oklahoma
March 16, 2000
F-3-1
ArchivalCD, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1999 and 1998
ASSETS
1999 1998
-------------- --------------
Current Assets
Cash $ 1,255 $ --
Receivable from stockholders (Note 4) 1,000 --
Employee advances (Note 4) 24,127 --
-------------- --------------
Total Current Assets 26,382 --
-------------- --------------
Property and Equipment, Net (Note 5) 327,952 314,510
-------------- --------------
Other AssetsDeposit (Note 12) 1,000 --
-------------- --------------
Total Assets $ 355,334 $ 314,510
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities
Accrued liabilities $ 11,782 $ 10,500
Loans from stockholders (Note 11) 1,000 --
Notes payable to stockholders, current portion (Note 6) 15,000 --
-------------- --------------
Total Current Liabilities 27,782 --
-------------- --------------
Notes Payable to Stockholders, Net of Current
Portion (Note 6) 18,000 --
-------------- --------------
Stockholders' Equity (Note 7)
Cumulative convertible preferred stock, $0.01
par value, 1,000,000 shares authorized, no
shares issued or outstanding -- --
Common stock, $0.01 par value; 25,000,000 shares
authorized, 18,305,726 and 18,185,000 shares
issued and outstanding at December 31, 1999
and 1998, respectively 183,057 181,850
Additional paid-in capital 229,597 122,160
Deficit accumulated during the development stage (103,102) --
-------------- --------------
Total Stockholders' Equity 309,552 304,010
-------------- --------------
Total Liabilities and Stockholders' Equity $355,334 $314,510
============== ==============
Accompanying notes are an integral part
of the financial statements.
F-3-2
ArchivalCD, Inc.
(A Development Stage Company)
Income Statements
Cumulative,
November 12, 1998November 12, 1998
Year Ended (Inception) to (Inception) to
December 31, 1999December 31, 1998December 31, 1999
----------------------- ----------------------- -----------------------
Operating Revenue $ -- $ -- $ --
----------------------- ----------------------- -----------------------
General and Administrative
Expenses 101,520 -- 101,520
----------------------- ----------------------- -----------------------
Operating Income (101,520) -- (101,520)
Other ExpensesInterest expense (1,582) -- (1,582)
----------------------- ----------------------- -----------------------
Net Income (Loss) $ (103,102) $ -- $ (103,102)
======================= ======================= =======================
Weighted Average CommonShare Outstanding (Note 8) 18,220,460 18,185,000 18,215,394
======================= ======================= =======================
Net Income (Loss) perCommon Share $ (0.01) $ -- $ (0.01)
======================= ======================= =======================
Accompanying notes are an integral part
of the financial statements.
F-3-3
ArchivalCD, Inc.
(A Development Stage Company)
Statement of Stockholders' Equity
For the Period November 12, 1998 (Inception)
to December 31, 1999
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
--------------- --------------- ---------------- ----------------- --------------
Balance at
November 12, 1998
(Date of Inception) -- $ -- $ -- $ -- $ --
Issued to acquire assets
Of the former
ArchivalCD, LLC
(Note 3) 14,435,000 144,350 159,660 -- 304,010
Issued to Corporate
Vision, Inc. for services
rendered (Note 12) 3,750,000 37,500 262,500 -- 300,000
Costs of raising equity -- -- (300,000) -- (300,000)
Net loss for the period -- -- -- -- --
--------------- --------------- ---------------- ----------------- --------------
Balance at
December 31, 1998 18,185,000 181,850 122,160 -- 304,010
Issued for cash 45,449 454 56,025 -- 56,480
Issued in exchange for
Services rendered 12,010 120 11,895 -- 12,015
ArchivalCD, LLC asset
Purchase (Note 3) 60,167 602 (602) -- --
Issued in lieu of
interest payment
(Note 11) 100 1 149 -- 150
Issued to acquire assets
(Note 3) 3,000 30 39,970 -- 40,000
Net loss for the period -- -- -- (103,102) (103,102)
--------------- --------------- ---------------- ----------------- --------------
Balance at
December 31, 1999 18,305,726 $ 183,057 $ 229,597 $ (103,102) $ 309,552
=============== =============== ================ ================= ==============
Accompanying notes are an integral part
of the financial statements.
F-3-4
ArchivalCD, Inc.
(A Development Stage Company)
Statements of Cash Flows
Cumulative,
November 12, 1998 November 12,1998
Year Ended (Inception) to (Inception) to
December 31, 1999December 31, 1998December 31, 1999
--------------------- ----------------------- ----------------------
Cash Flows from Operating Activities:
Cash paid for goods and services $ (81,384) $ -- $ 81,384
Interest paid (150) -- (150)
--------------------- ----------------------- ----------------------
Net Cash Used by Operating Activities (81,534) -- (81,534)
--------------------- ----------------------- ----------------------
Net Cash Used by Investing Activities:
Fixed asset purchases (7,690) -- (7,690)
--------------------- ----------------------- ----------------------
Cash Flows from Financing Activities:
Issuance of common stock 56,480 -- 56,480
Proceeds from long-term debt 18,000 -- 18,000
Proceeds from short-term debt 17,000 -- 17,000
Repayment of short-term debt (1,000) -- (1,000)
--------------------- ----------------------- ----------------------
Net Cash Provided by Financing Activities 90,480 -- 90,480
--------------------- ----------------------- ----------------------
Net Increase in Cash 1,255 -- 1,255
Cash at Beginning of Period -- -- --
--------------------- ----------------------- ----------------------
Cash at End of Period $ 1,255 $ -- $ 1,255
===================== ======================= ======================
Accompanying notes are an integral part
of the financial statements.
F-3-5
Cumulative,
November 12, 1998November 12, 1998
Year Ended (Inception) to (Inception) to
December 31, 1999December 31, 1998December 31, 1999
---------------------- ---------------------- ----------------------
Reconciliation of Net Loss to Net
Cash Used by Operating Activities:Net Loss $ (103,102) $ -- $ (103,102)
---------------------- ---------------------- ----------------------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 34,248 -- 34,248
Stock issued in exchange for services 12,015 -- 12,015
Stock issued in lieu of interest on
shareholder loan 150 -- 150
(Increase) Decrease in deposits (1,000) -- (1,000)
(Increase) Decrease in receivables
from shareholders (1,000) -- (1,000)
(Increase) Decrease in employee receivables (24,127) -- (24,127)
Increase (Decrease) in accrued liabilities 1,282 -- 1,282
---------------------- ---------------------- ----------------------
Total Adjustments 21,568 -- 21,568
---------------------- ---------------------- ----------------------
Net Cash Used by Operating Activities $ (81,534) $ -- $ (81,534)
====================== ====================== ======================
Supplemental Disclosure of
Non-cash Activities:
Stock issued to acquire fixed assets $ 40,000 $ 314,510 $ 354,510
Accompanying notes are an integral part
of the financial statements.
F-3-6
ArchivalCD, Inc.
(A Development Stage Company)
Notes to Financial Statements
For the Year Ended December 31, 1999, the Period November 12, 1998
(Date of Inception) to December 31, 1998 and
the Period November 12, 1998 (Date of Inception)
to December 31, 1999Note 1 - Organization and Description of Business
ArchivalCD, Inc. (referred to herein as "the Company") was
incorporated under the laws of the state of Delaware on November 12,1998. The Company specializes in digitization of historic microfilm,
enhancing the images, and writing them to compact discs. The Company
intends to provide subscribers with access to the digitized historical
records on compact disc for use in genealogical, historical, and
educational research. The Company further intends to provide file
conversion services to businesses and local governments.
The Company is in the development stage as its operations
principally involve research and development, market analysis, and
other business planning activities. The Company has had no significant
revenue from product sales. Other than the asset acquisition detailed
in Note 3 and the exchange of common stock for services disclosed in
Note 12, there were no significant operating transactions for the
period November 12, 1998 to April 1, 1999.
As of December 31, 1999, the Company's accumulated deficit in
the development stage was $103,102, which was funded primarily through
loans from stockholders and the proceeds from sales of common stock.
The Company believes that it will commence its principal operations and
begin generating revenues in the fiscal year ending December 31, 2000.
Because the Company is in the development stage, the accompanying
financial statements should not be regarded as typical for normal
operating periods.
Note 2 - Summary of Significant Accounting PoliciesMethod of Accounting
The accompanying financial statements conform to the standards
applicable to development stage companies and are prepared using the
accrual basis of accounting in accordance with generally accepted
accounting principals, whereby revenues and gains are recognized when
earned, and expenses and losses are recognized when incurred.
Cash and Cash EquivalentsThe Company considers all highly liquid assets with maturities
of three months or less to be cash equivalents.
F-3-7
Note 2 - Summary of Significant Accounting Policies (continued)Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation expense is charged to operations using the
straight-line method for financial reporting and accelerated methods
for income tax purposes over the estimated useful lives of the assets,
typically 5 to 10 years. Maintenance, repairs, and minor renovations
are charged to expense as incurred.
Income TaxesThe Company has adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires the
measurement of deferred tax assets for deductible temporary differences
and operating loss carryforwards, and of deferred tax liabilities for
taxable temporary differences. Measurement of current and deferred tax
liabilities and assets is based on provisions of enacted tax law. The
effects of future changes in tax laws or rates are not included in the
measurement. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Earnings per Common ShareThe Company has adopted the provisions of SFAS No. 128,
"Earnings per Share", which requires presentation on the face of the
statement of operations of both basic and diluted earnings per share.
Basic earnings (loss) per common share is computed by dividing net
income (loss) attributable to common shares by the weighted average
number of common shares outstanding during the period. Diluted earnings
per common share is computed using the combination of dilutive common
share equivalents and the weighted average number of common shares
outstanding during the period. In years where the Company recognizes a
loss from continuing operations, the assumed exercise of common share
equivalents has an antidilutive effect and therefore would not be
included in the weighted average number of shares used in the
calculation of loss per common share.
F-3-8
Note 2 - Summary of Significant Accounting Policies (continued)
Computer Software Costs
As of December 31, 1999, the Company had not incurred any
computer software costs. The Company has adopted the accounting
statements summarized in the following paragraphs in anticipation that
the Company may incur such costs once principal operations have
commenced.
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" under which direct
costs and allocated overhead associated with the development of
software products are capitalized. Initial costs are charged to
operations as research prior to the development of a detailed program
design or a working model. Costs incurred subsequent to the product
release, and research and development performed under contract are
charged to operations. Capitalized costs are amortized over the
estimated product life on the straight-line basis. Unamortized costs
are carried at the lower of book value or net realizable value.
The Company has also adopted the provisions of Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", issued by the American
Institute of Certified Public Accountants in March 1998. SOP 98-1
provides guidance on when costs incurred for internal-use software are
capitalized or expensed and guidance on whether computer software is
for internal use. SOP 98-1 is effective for fiscal years beginning
after December 15, 1998 and applies to internal use software costs
incurred for all projects, including those in progress upon initial
application of the SOP.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
F-3-9
Note 2 - Summary of Significant Accounting Policies (continued)
Valuation of Non-Employee Stock-Based CompensationThe Company applies the provisions of SFAS No. 123 "Accounting
for Stock-Based Compensation", to all issuances of stock to
non-employees in exchange for goods and services. Accordingly, such
issuances are accounted for based on the fair value of the goods or
services received or the fair value of the shares issued, whichever is
more reliably measured.
Note 3 - Acquisition of Assets
Upon its inception, the Company purchased equipment valued at
$174,370 and certain archived records valued at $140,140 from various
entities either owned or controlled by the Company's Chief Executive
Officer in exchange for 14,745,167 shares of the Company's common stock
and $10,500 in cash. As these assets were under common control of a
significant shareholder prior to and after the acquisition, the Company
has valued the acquired assets at their historical cost, which is
consistent with the provisions of APB Opinion No. 16 and the Securities
and Exchange Commission's Staff Accounting Bulletin (SAB) No. 48.
As of December 31, 1999 and 1998, 250,000 and 310,167 of the
14,745,167 shares to be issued in exchange for the equipment and
records purchased had not been distributed to certain former members of
the ArchivalCD LLC, a Utah corporation, in which the Company's CEO was
the controlling member. Further, the $10,500 cash due for the purchase
of the assets had not been disbursed as of December 31, 1999. All
remaining outstanding shares were issued in the year ending December31, 2000.
On June 23, 1999, the Company purchased certain archived records
from an unrelated company valued at $40,000 in exchange for 3,000
shares of the Company's common stock. The valuation of the transaction
was based on the suggested auction price of the records, as stated in
the sale agreement.
F-3-10
Note 4 - Receivables
Receivable from Stockholders
Pursuant to a stock repurchase agreement with a stockholder,
disclosed further in Note 12, on August 5, 1999the Company paid $1,000
to repurchase 667 shares of its common stock. As of December 31, 1999,
the shares had not been returned to the Company, resulting in a $1,000
receivable from the stockholder at December 31, 1999.
Employee Advances
Since inception, the Company had advanced funds to and paid
certain personal expenses for its chief executive officer, which will
be deducted from his future wages once the payroll system has been
implemented in fiscal year 2000. The total receivable from the chief
executive officer at December 31, 1999 was $24,127.
Note 5 - Property and Equipment
Property and equipment consists of the following at December 31,1999 and 1998:
1999 1998
---- ----
Equipment $ 174,370 $ 174,370
Archived records 180,140 140,140
Automobile 2,600
Office equipment 5,090
Accumulated depreciation (34,248)
----------- -----------
Property and equipment, net $ 327,952 $ 314,510
=========== ============
Depreciation expense for the year ended December 31, 1999 was $34,248.
F-3-11
Note 6 - Notes Payable
Notes payable at December 31, 1999 consists of the following:
Unsecured promissory note payable to a stockholder due
May 14, 2000, with interest at 10% per annum. $ 15,000
Loan agreement with a stockholder due October 19, 2002,
with interest at 15%, collateralized by unissued shares of the
Company's common stock at the rate of $1.00 per share. 18,000
Less current portion (15,000)
------------
Long-term debt $ 18,000
============
Principal maturities of long-term debt are as follows:
Fiscal year ended December 31, 2002 $ 18,000
============
Note 7 - Stockholders' Equity
Capitalization
The capital stock of the corporation at December 31, 1999 was as
follows:
Cumulative Convertible Preferred Stock, $0.01 par value,
1,000,000 shares authorized. Dividends accrue annually at 15%, payable
in cash or common shares. Each share of preferred stock must be held
for a minimum of three years and after five years must either be
repurchased by the Company at par value or converted into 10 shares of
common stock at the discretion of the board of directors. There were no
preferred shares outstanding at December 31, 1999 and 1998.
Common Stock, $0.01 par value, 25,000,000 shares authorized,
18,305,726 and 18,185,000 shares issued and outstanding at December 31,1999 and 1998, respectively.
F-3-12
Note 7 - Stockholders' Equity (Continued)
Stock Issued for Services
During July and August 1999, the Company issued a total of
12,010 shares of common stock in exchange for services rendered. The
valuation of the stock issued was based on the fair value of the
services rendered, as determined by the vendors.
Note 8 - Income (Loss) per Common Share
The computations of income (loss) per share from continuing
operations for the years ended December 31, 1999 and 1998 and for the
development stage period were as follows:
From
1999 1998 Inception
----------------- ---------------- -----------------
Income (loss) attributable to
Common shares $ (103,102) $ -- $ (103,102)
Weighted average common
Shares outstanding 18,220,460 18,185,000 18,215,394
----------------- ---------------- -----------------
Net income (loss) per
Common share $ (0.01) $ -- $ (0.01)
================= ================ =================
Note 9 - Income TaxesThe Company has incurred net operating losses since inception
and has a loss carryforward of approximately $103,000 at December 31,1999 expiring in years beginning in 2019. As of December 31, 1999, the
Company had net deferred tax assets of $41,241. In accordance with the
provisions of FASB Statement No. 109, "Accounting for Income Taxes," a
valuation allowance has been recognized to fully offset this asset due
to the uncertainty of realizing the future benefit. The Company
continually reviews the adequacy of the valuation allowance and will
recognize the tax benefits of these assets only as assessment indicates
that it is more likely than not that the benefits will be realized.
F-3-13
Note 9 - Income Taxes (Continued)
Significant components of the Company's net deferred tax
assets as of December 31, 1999 are as follows:
Deferred tax assets:
Net operating loss carryforward $ 41,241
Valuation allowance (41,241)
------------
Net deferred tax assets $ --
============
Deferred taxes reflect a combined federal and state tax rate of
approximately 40%. A reconciliation between the amount of federal and
state income taxes, based on a forty percent (40%) tax rate, and the
effective amount of income taxes based on continuing operations is as
follows:
Statutory income taxes (refund) $ (41,241)
Change in valuation allowance 41,241
------------
Income tax expense charged to operations $ --
============
Note 10 - Advertising CostsThe Company expenses advertising costs as incurred. During the
period ended December 31, 1999, the company expensed $314 in
advertising costs.
Note 11 - Related Party Transactions
During the period, the Company accepted $2,000 in loans from
stockholders for which no promissory notes were executed. The Company
agreed to pay these stockholders a flat interest fee equal to 15% of
the loans. At December 31, 1999, the outstanding balance on these loans
was $1,000.
Interest expense relating to stockholder loans was $1,582 for
the year ended December 31, 1999. Interest expense includes common
stock, with a fair value of $150, issued in lieu of cash.
F-3-14
Note 12 - Commitments and Contingencies
In October 1998, the Company entered into a consulting agreement
with Corporate Vision, Inc., whereby Corporate Vision will provide
services valued at $300,000 to assist the Company in making an initial
public offering in exchange for 3,750,000 shares of the Company's
common stock. The valuation of the transaction is based on the fair
value of the services provided. As a result of the stock issue,
Corporate Vision, Inc. was the Company's second largest shareholder,
owning 20% of the total common shares outstanding at December 31, 1999.
On May 12, 1999, the Company entered into a repurchase agreement
with a stockholder, whereby the Company will repurchase up to 15,000
shares of its common stock at, the direction of the stockholder, at the
greater of $1.50 per share or the market value on the date of
repurchase. If the Company offers to redeem the shares and the
stockholder elects to retain the shares, the agreement will become void
six months after the offer date and will be replaced by a two year
guarantee to repurchase the shares at $1.10 per share, regardless of
market price. As disclosed in Note 3, the Company paid $1,000 to the
stockholder to repurchase 667 shares, which had not been returned to
the Company at December 31, 1999. At December 31, 1999, the stockholder
held 13,833 shares that could be subject to this agreement.
The Company is obligated under a lease agreement for its office
facilities, which expires December 31, 2000, with an option to renew.
The Company is also operating under a month-to-month lease for storage
facilities. At December 31, 1999, there were no long-term lease
commitments. The minimum lease obligation for the fiscal year ending
December 31, 2000 is $2,810. Rent expense under all operating leases
totaled $961 for the period ended December 31, 1999.
On October 8, 1999, the Company entered into an agreement to
purchase the distribution rights to a genealogical software package for
$7,500. As of December 31, 1999, the Company had made an initial
payment $1,000, with the entire purchase price payable at such time the
master program and all pertinent files are delivered to the Company.
F-3-15
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The accounting firm of Cross and Robinson, Certified Public Accountants,
audited our financial statements. Since inception, we have had no changes in or
disagreements with our accountants.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until January 1, 2002, all dealers that effect transactions in these securities,
whether or not participating in this Offering, may be required to deliver a
prospectus. This is in addition to the Dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscription.
34
Part II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation and By-laws, subject to the provisions of
Delaware Corporation Law, contain provisions which allow the corporation to
indemnify any person under certain circumstances. Our By-Laws provide when a
person is sued, either alone or with others, because he is or was a director or
officer of the corporation, or of another corporation serving at the request of
this corporation, in any proceeding arising out of his alleged malfeasance in
the performance of his duties or out of any alleged wrongful act against the
corporation or by the corporation, he shall be indemnified for his reasonable
expenses, including attorney's fees incurred in the defense of the proceedings,
if both of the following conditions exist:
(a) The person sued is successful in whole or in part, or the proceeding
against him is settled with the approval of the court.
(b) The court finds that his conduct fairly and equitable merits such
indemnity.
The amount of such indemnity which may be assessed against the corporation, its
receiver, or its trustee, by the court in the same or in a separate proceedings
shall be so much o the expenses, including attorney's fees incurred in the
defense of the proceeding, as the court determines and finds to be reasonable.
Application for such indemnity may be made either by the person sued or by the
attorney or other person rendering services to him in connection with the
defense, and the court may order the fees and expenses to be paid directly to
the attorney, or other person, although he is not a party to the proceeding.
Notice of application for such indemnity shall be served upon the corporation,
its receiver, or its trustee, or upon the plaintiff and other parties to the
proceedings.
Our Articles of Incorporation provide:
Each person who serves or has served as a director shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision shall not eliminate
or limit the liability or a director; (1) for breach of loyalty to the
corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve international misconduct or a knowing violation of law; (iii) for
unlawful payment of dividend or unlawful stock purchase or redemption as such
liability is imposed under Section 174 of the General Corporation Laws of
Delaware; or (iv) for any transaction from which the director derived an
improper personal benefit.
With regard to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person of the Corporation in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by us is against
public policy as expressed in the Securities Act of 1933, as amended, and will
be governed by the final adjudication of such case.
35
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemization of all expenses, without
consideration to future contingencies, incurred or expected to be incurred by
our Corporation in connection with the issuance and distribution of the
securities being offered by this prospectus. Items marked with an asterisk (*)
represent estimated expenses. We have agreed to pay all the costs and expenses
of this offering. Selling shareholders will pay no offering expenses.
ITEM EXPENSE
---- -------
SEC Registration Fee $ 1,693
Legal Fees and Expenses
Accounting Fees $ 30
and Expenses $10,000
Miscellaneous* $ 5,000
========================================
Total* $16,723
* Estimated Figure
RECENT SALES OF UNREGISTERED SECURITIES
Upon our inception in 1998, we purchased equipment and archived records
valued at $314,510, from various entities either owned or controlled by our
Chief Executive Officer, Daniel Hay, in exchange for 14,745,167 shares of our
common stock and $10,500 cash consideration which was never disbursed. Each
share of the 14,745,167 shares was valued at $.02 for a total of $314,510. As of
December 31, 1999, 250,000 of these shares to be issued in exchange for the
equipment and records purchased had not been distributed. These shares were
issued to the former ArchivalCD LLC owners on March 8, 2000.
On June 23,1999, we purchased certain archived records from an unrelated
company valued at $40,000 in exchange for 3,000 shares of our common stock, each
share of which was valued at $13.33 for a total of $40,000.
During July and August 1999, we issued a total of 12,010 shares of our
common stock, each share of which was valued at approximately $1.00 for a total
of $12,015 in exchange for programming and research services rendered to us.
In August 2000, we issued 6,000 shares of our common stock, each share of
which was valued at $1.00 for a total of $6,000 to a shareholder in lieu of
salary due for three months of employment.
In August 2000, we issued 6,647 shares of our common stock, each share of
which was valued at $1.28 for a total of $5,159 as payment of rent on our
operating facility.
During 1999 and 2000, in an effort to raise operating capital, we
periodically entered into agreements with our stockholders, whereby we would
issue shares to the stockholders in exchange for cash or other consideration,
with the option to repurchase common shares from the shareholders at a rate
higher than the original purchase price. As of December 31, 2000, we had issued
a total of 44,500 shares at $1.00 per share under these agreements in exchange
for $42,000 cash and a $2,500 credit toward rent. Of the 44,500 shares, 21,000
shares were issued to our directors in exchange for $21,000 in cash. In May
2001, we issued an additional 7,500 shares subject to a repurchase agreement, in
exchange for $7,500 cash. At December 31, 2000, there were 40,667 shares
available for repurchase with a total repurchase price of $50,851. As of June15, 2001, the date of our audit report, there were 48,167 shares available for
repurchase with a total purchase price of $61,576. On February 16, 2001, we
issued 700 shares of our common stock to one of our stockholders, in exchange
for cash in the amount of $1,050 or $1.50 per share. We relied upon the
exemption from registration provided by Section 4(2) and Rule 506 of Regulation
D of the Act, as amended for the above described sales. We believed this
exemption is available because these issuances were transactions not involving a
public offering and were made only to accredited investors. There was no general
solicitation or advertising used to offer our shares; we had a prior
relationship with each investor. Each investor had the knowledge and experience
in financial and business matters to evaluate the merits and risks of this
prospective investment and therefore was either accredited or sufficiently
sophisticated to undertake such an investment. All of the accredited investors
had access to our documents at our business offices in Crockett, Texas or
Athens, Texas.
36
The following securities issued and as in lieu of payment were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Act, as amended. We believed this exemption is available because these issuances
were transactions not involving a public offering. There was no general
solicitation or advertising used to offer our shares; each investor had a prior
relationship with the Company. Each investor had the knowledge and experience in
financial and business matters to evaluate the merits and risks of this
prospective investment and therefore was either accredited or sufficiently
sophisticated to undertake the investment in our shares.
o Between March 1999 and July 2001 we issued 29,324 for services and/or in
lieu of payment at prices ranging from $.50 to $1.50 per share.
o Between June 2001 and July 2001, we issued 300,000, to Brenda Lee
Hamilton, Esq. in return for legal services. The shares were valued
at par value of .0001 for a total of $30.
o Between June 2001 and July 2001, we issued 50,000 to Beadros Asare in
return for Edgarizing services. The shares were valued at par value of
.001 for a total of $5.
o On July 16, 2001, we issued 3,404,570 shares of our common stock to our
president, Daniel Hay as an antidilutive measure. The shares were
valued at par value for a total of $340.
The following transactions involve a return of shares to our treasury:
o On April 14, 2001, we executed an agreement to rescind a 1998
consulting agreement with Corporate Vision, Inc. In accordance with
the agreement terms, Corporate Vision, Inc. returned 3,677,621 shares
of our common stock to us, which had been issued as payment for
consulting services. On May 8, 2001, these shares were retired from
our treasury, canceled, and restored to the status of unissued shares.
o In May 2001, our Chief Executive Officer, Daniel Hay, elected to
return 1,000,000 shares of common stock to us, which had been
originally issued as payment for the assets purchased at our inception
in 1998. On May 11, 2001, these shares were retired from our treasury,
canceled and restored to the status of unissued shares.
37
EXHIBITS
-------------------- -----------------------------------------------------------
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------------- -----------------------------------------------------------
3. (i) Articles of Incorporation*
-------------------- -----------------------------------------------------------
3. (ii) Articles of Amendment to Articles of Incorporation*
-------------------- -----------------------------------------------------------
3. (iii) By-Laws*
-------------------- -----------------------------------------------------------
4. Specimen Stock Certificate*
-------------------- -----------------------------------------------------------
5. Opinion of Hamilton, Lehrer & Dargan, P.A.*
-------------------- -----------------------------------------------------------
23. Consents of Cross and Robinson Certified Public Accountants
-------------------- -----------------------------------------------------------
27. Financial Data Schedule*
-------------------- -----------------------------------------------------------
* Incorporated by reference to previously filed SB-2/A, Amendment 6, filed
August 1, 2001.
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
a. Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
b. Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement;
c. Include any additional or changed material information on the plan
of distribution.
2. That, for determining liability under the Securities Act of 1933, to
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
4. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
5. In the event that a claim for indemnification against such liabilities,
other than the payment by the Registrant of expenses incurred and paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding, is asserted by such director, officer
or controlling person in connection with the securities being registered hereby,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
38
