UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under section 12(b) or (g) of the Securities Exchange Act of 1934
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
CybeRecord, Inc.
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(Name of Small Business Issuer in its charter)
Florida 91-1985843
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(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
800 Bellevue Way NE, 4th Floor, Bellevue, WA 98004
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (425) 990-5593
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Securities to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
None None
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Securities to be registered pursuant to Section 12(g)
of the Act.
Common Stock $.01 par value
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(Title of Class)
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CybeRecord, Inc.
Form 10-SB
TABLE OF CONTENTS
PART I
Item 1. Description of Business..............................................1
Item 2. Plan of Operation...................................................11
Item 3. Description of Property.............................................13
Item 4. Security Ownership of Certain Beneficial Owners and Management......14
Item 5. Directors and Executive Officers, Promoters and Control Persons.....15
Item 6. Executive Compensation..............................................17
Item 7. Certain Relationships and Related Transactions......................18
Item 8. Description of Securities...........................................20
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters.............................21
Item 2. Legal Proceedings...................................................23
Item 3. Changes in and Disagreements with Accountants.......................23
Item 4. Recent Sales of Unregistered Securities.............................23
Item 5. Indemnification of Directors and Officers...........................23
PART F/S
Financial Statements........................................................F-1
PART III
Items 1 and 2. Index to Exhibits and Description of Exhibits................24
SIGNATURES...................................................................25
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PART I
CybeRecord, Inc. (which we refer to in this registration statement as "we" or
the "Company" or "CybeRecord") submitted three previous filings to the
Securities and Exchange Commission (the "SEC") on Form 10-SB. The first filing,
our original Form 10-SB, was filed electronically on EDGAR on October 26, 1999.
The second filing, an amended Form 10-SB, was filed on EDGAR on February 11,
2000. The third filing, a second amended Form 10-SB, was filed on EDGAR on April
20, 2000. Due to our inexperience with SEC disclosure requirements, our ^ first
two filings on Form 10-SB contained information under Part I, Items 1 and 2,
that was unclear and beyond the scope of what was required for a Form 10-SB
filing.
THE INFORMATION CONTAINED IN OUR SECOND AMENDED FROM 10-SB FILED ON APRIL 20,
2000, UNDER ITEMS 1 AND 2, TOGETHER WITH REVISIONS SET FORTH BELOW IN THIS
REGISTRATION STATEMENT, REPLACES, IN ITS ENTIRETY, THE INFORMATION CONTAINED IN
OUR OCTOBER 26, 1999 AND FEBRUARY 11, 2000 FORM 10-SB FILINGS.^
Item 1. Description of Business.
Form and Year of Organization
CybeRecord is the continuation of a corporation that was first formed on
February 17, 1969 under Florida law. Our Company was first named Flexi-Built
Modular Housing Corporation. In March 1984, we changed our name to Flexicare,
Inc., and then in September 1996 we changed it again to Pillar Entertainment
Group Inc. In November 1997 we acquired all of the outstanding stock of
Chrysalis Hotels and Resorts Corp. and changed our name to Chrysalis Hotels and
Resorts Corp. None of our predecessor corporations engaged in any significant
business activities.
In April 1999 we acquired a group assets from people who were working
independently to develop technology relating to microfilm scanning device
design. The people from whom we acquired the assets were James J. Lucas, Glenn
and Paulette Kimball, Marek Niczyporuk, James L. and Barbara Baker Quinn,
Herbert and Patricia Walker, and Alva D. and Kirsten Cravens. These people were
not part of a company, but they were coordinating their work and for convenience
we will refer to them as the "Kristal Group."
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The assets we acquired from the Kristal Group in April 1999 all related to the
development, production, and marketing of our key product: a low-cost,
high-speed automated microfilm scanning device, which we have named
"ScanServer." The assets we acquired included: (a) owned and licensed
intellectual property rights for the device's overall design, and all hardware
design; (b) computer programming code and all software developed including (but
not limited to) all software needed to allow ScanServer to operate reliably and
with commercial quality and efficiency; (c) programs software, including all
related trademarks and intellectual property, in machine readable or human
readable form (or both); (d) rights to, and any rights to apply for and
register, patents and patent applications, copyrights, trademarks, trade secrets
and all other proprietary rights relating the intellectual property we acquired;
(e) records and files relating to manufacturing, quality control, sales,
marketing, customer support, and designs for the intellectual property we
acquired; (f) derivative works of intellectual property; and (g) all related
documentation. We also acquired hardware patents, rights to hardware patents,
customer lists, contracts, agreements, licenses or license agreements,
commitments, warranties, claims, and other existing and inchoate rights. We
treated the costs of these asset as research and development expenses because we
determined that the assets had not, at the time we acquired them, reached
technological feasibility.
We issued Company common stock to pay for the assets we acquired from the
Kristal Group in April 1999. In May 1999 we changed our name to CybeRecord, Inc.
Since April 1999 we have continued to conduct our research and development and
marketing activities under the name CybeRecord, Inc. As of the filing date of
this registration statement, we are in the early stages of manufacturing
ScanServers for commercial distribution.
Forward-Looking Statements
In explaining our business in this registration statement, some of what we say
will be "forward-looking statements." Words such as "expect," "anticipate,"
"intend," "believe," "plan," "objective," "target," "goal," and similar
expressions indicate that a statement is forward-looking. Our forward-looking
statements reflect our management's beliefs and assumptions based on the
information we currently have available. Because our forward-looking statements
are based on what we know and expect at the time we are preparing this
registration statement, we cannot be sure that the actual course of our business
activities will correspond to what we say in our forward-looking statements.
There are many risks and uncertainties that could cause the assumptions we have
used to formulate our business plans to turn out to be wrong. If our assumptions
turn out to be wrong, our business's actual performance could be much worse than
we anticipate based on our current assumptions. If our business does not perform
as well as investors expect, or analysts or investors develop concerns about how
well our business will perform, the trading prices for our stock are likely to
decline, perhaps substantially.
As explained in more detail below, our business is to develop, manufacture, and
market a low-cost, high-speed automated microfilm scanner. The following
paragraphs describe the key risks and uncertainties we believe could have a
serious negative effect on our business, or at least delay our progress. While
we are not currently aware of circumstances that would produce the potential
problems and delays we describe below, we recognize that we cannot foresee what
adverse events our business might encounter. If our business does encounter
unexpected problems because of risks and uncertainties, investors could lose
some or all of their investments in our business.
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If We Cannot Identify Reliable and Affordable Parts Vendors, Cannot Assemble
ScanServers on Schedule, Cannot Produce ScanServers Within Necessary Quality
Control Standards, or Encounter Problems with Parts Orders, It Will Have Serious
Negative Effects on Our Ability to Produce Revenue
As reflected in our financial statements, we are currently a development stage
company. As of the filing date of this registration statement, we have begun
limited commercial production of ScanServers. We have never generated any
revenues from sales. If, as we proceed with commercial production, we encounter
problems, we will not progress from development to revenue-generation in the
time frame we have planned on as set forth in Part I, Item 2 below. Problems
could come from being unable to identify reliable and affordable sources of
quality parts necessary to build our scanners, being unable to assemble scanners
on schedule even if parts arrive on time and in sufficient quantities, or
producing scanners that do not meet necessary quality-control standards.
Additional problems could come from ordering wrong parts, failing to order parts
for delivery in time to meet assembly schedules, and failing to assure that
delivered parts are the parts that were ordered. If we experience any
significant problems in these areas relating to production, it will most likely
have a serious negative effect on our ability to produce revenue.
We Could Have Problems with the Domestic Shipping Channels We Use to Deliver
ScanServers and Parts to Customers, Which Could Lead to Missed Delivery
Schedules, Damaged Goods, and Customer Relations Problems
We rely upon vendors to ship our ScanServers and parts to customers. Our vendors
may encounter delays in delivering the ScanServer and parts in accordance with
our instructions. These delays could cause us to miss delivery schedules and
lead to customer relations problems. ScanServers and parts could also be damaged
during shipping, which would cause further delays from needing to repair or
replace damaged ScanServers or parts. If we do not have adequate insurance in
place to cover the cost of damaged shipments, any damage our ScanServers or
parts encounter during shipment will also increase our total costs to deliver
operational ScanServers to our customers.
If We Cannot Generate Sufficient Cash from Operations or Otherwise Obtain
Funding Adequate to Continue and Expand Our Current Production Activities, It
Will Have a Serious Negative Effect on Our Business
We need cash to continue funding our operations. We believe that the cash we
have on hand as of the filing date of this registration statement is sufficient
for us to continue operations at our current level (without any additional cash
from operating revenues, borrowing, or stock sales) for approximately another
three months. At the end of the three months, we expect that we will need at
least another $750,000 during the remainder of 2000 to continue operating at
current levels. If we encounter problems with building up our commercial
production as we intend, it will delay our ability to generate revenue from
operations. If during any delay, we cannot obtain sufficient funding to keep
operating our business, our business will most likely fail or have to be sold.
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Furthermore, even if our early commercial production activities proceed
smoothly, there will be a delay before we can generate sufficient cash from
operations to meet our on-going expenses. If we cannot obtain adequate credit or
sufficient cash from selling additional stock while we are trying to build up
our production and revenue stream, it will delay or limit our activities and
hurt our business. Also, if the securities markets in the United States are in a
down cycle at a time we wish to sell stock, it will most likely be harder for us
to raise cash through stock sales than it would be if securities markets were
strong and rising.
If We Encounter Unexpected Problems with Our Critical Technology, It Could
Damage Our Current and Future Business Results
We have developed our key technology with the goal of creating a microfilm
scanner that can automatically recognize individual images, locate the
boundaries between images, and accurately convert images into digital form. We
have been testing and refining our technology, but we cannot be certain that we
have identified and corrected all the potential problems that could prevent
ScanServer's hardware or software from functioning properly. If we do encounter
serious problems with our critical technology, it will hurt our ability to
market the ScanServer to new customers and our existing customer relationships
are likely to suffer also.
If We Lose Key Personnel or Have Problems Hiring Qualified New Management and
Technical Employees, It Could Have a Serious Negative Effect on Our Business's
Future Growth and Operating Results
Our current engineering and technical employees, as well as our President and
Chief Executive Officer, have specialized knowledge and experience relating to
the ScanServer and to the microfilm scanner industry generally. Our future
success depends heavily on our ability to retain our key management and
technical personnel. Competition for skilled technical and management employees
is intense within and among high-technology industries. We therefore may not be
able to retain our existing key management and technical personnel, and we do
not have employment agreements with any of our key personnel. In addition, we
may not be able to attract additional qualified employees in the future. If we
lose key management or technical employees or cannot attract qualified new
employees, it could have a serious negative effect on our business's future
growth and operating results.
If We Cannot or Do Not Adequately Protect Our Intellectual Property Rights, It
Will Hurt Our Business
As disclosed below under Part I, Item 1 - "Patent, Trademark, and Service Mark
Applications and Research and Development Activities," we have applied for
patents to protect technology related to the ScanServer, and trademarks and
service marks to identify and distinguish our goods and services from others. If
the United States Patent and Trademark Office ^("USPTO") or foreign equivalent
agencies do not grant the patents for which we have applied, we could be
seriously hurt by competitors taking advantage of our critical technology.
Likewise, if the USPTO or foreign equivalent agencies do not grant the
trademarks and service marks for which we have applied, it will expose us to
damage from competitors taking advantage of similarities with our goods and
services. Even if we receive all the patents, trademarks and service marks for
which we have applied, we may not be able to enforce our patents, trademarks and
service marks against infringement of those rights, which would also very likely
cause serious harm to our business.
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If We Have Problems Obtaining Necessary Governmental Approvals and Agency
Listings, It Could Delay Our Marketing and Distribution Process and Impede Our
Ability to Expand into New Markets
Our ScanServers include electronic components for which we must obtain evidence
of compliance with Federal Communications Commission ("FCC") standards
concerning radio frequency emissions (under Part 15 of the FCC's rules). Our
electrical components should also receive safety listings from Underwriters'
Laboratories ("UL"). To the extent we seek to place our ScanServers into service
in Canada, the United Kingdom, and other parts of Europe and the rest of the
world, there are similar requirements for testing and approval (such as the
European equivalent of UL known as "CE"). As of the filing date of our April 20,
2000 Amendment No. 2 to Form 10-SB, we had not applied for FCC approval or UL
and other similar listings because at that time we had only assembled prototype
ScanServers for operational testing. To apply for governmental and safety
listings and approvals, we needed commercial production models. This is because
we needed to demonstrate that the commercial units we would distribute to
customers (as opposed to prototypes) could pass the applicable tests and satisfy
the applicable standards. We were not able to do this until we started
commercial production, which we did during May 2000. (Disclosure concerning the
current status of governmental and safety approvals is provided below under Part
I, Item 2 below - Plan of Operation.)
If we are delayed in obtaining any necessary approvals or clearances, it will
delay our ability to distribute ScanServers in the affected locations. If we are
unable to obtain a required approval or clearance, we will either have to forego
marketing our ScanServer in the affected locations or expend the time and money
to change our ScanServer until it meets the applicable requirements. Delay or
failures in obtaining governmental or agency approvals or listings could have a
significant negative impact on the development of our business.
If General Economic Conditions in Our Target Markets Are Bad, It Could Seriously
Hurt Our Marketing Results
Like many other businesses, our business will be sensitive to general economic
conditions that affect us or our potential customers or both. For example, if
interest rates rise and our expenses in running our business increase because of
that, it will be harder for us to price our scanner competitively and still
generate a profit. If the businesses, agencies, and organizations that we plan
to target as our customers experience financial constraints for any reason, they
may decide that using our scanner to convert their microfilm records to digital
form is an expense they prefer to forego or delay. If we are not able to place
as many scanners with customers as we expect, our revenues will be lower than we
anticipate and this will impede the continuing development of our business.
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Business Operations We Conduct in Foreign Countries Could Expose Us to Serious
Additional Risks from Differing Laws and Regulations, Language and Cultural
Barriers, Political Uncertainty, Currency Risk, Staffing, Service, and Shipping
Problems, and Economic Downturns Affecting Our Foreign Markets
To the extent that we distribute our ScanServers outside of the United States
(which we intend to do), this exposes us to additional risks beyond those
related to conducting business within the United States. These additional risks
are numerous. We could experience problems because we are unfamiliar or lack of
experience with the regulatory and legal requirements of foreign countries in
which we conduct business. We could experience problems from language and
cultural differences. Unexpected political changes or governmental instability
in the foreign countries where we distribute our ScanServers could hinder or
disrupt our ability to conduct business as we expect. Unfavorable shifts in
currency exchange rates between United States dollars and the currencies of the
foreign countries in which we do business could increase our costs (for example,
with respect to shipping or payroll) or decrease our revenues (due to losses
upon conversion of foreign currency to U.S. dollars) associated with our foreign
operations. We could have difficulty finding enough qualified local personnel
(such as management, sales, technical support, service, and administrative
staff) to properly run our foreign operations. Any problems with staffing could
lead to problems with maintaining adequate inventory at our foreign offices and
an inability to perform any necessary warranty or maintenance services properly
and promptly. We could encounter problems locating reliable international
shipping vendors, and we could encounter problems clearing customs in each
foreign country. Problems in these areas could cause us to miss delivery
schedules and lead to customer relations problems. All of these risks are in
addition to the risk that even if economic conditions in the United States are
good, serious and sustained downturns could occur in the economies of the
foreign countries in which we conduct business, which would almost certainly
damage (perhaps severely) that segment of our business. The more we depend on
our foreign operations, the more badly we could be hurt by negatives events
associated with the special risks those operations carry.
Principal Product
Our business is to develop, manufacture, and market a low-cost high-speed
automated microfilm scanner. We believe the key drivers for microfilm conversion
are the desire to have speedier and more convenient access to records, and the
desire to share and transmit images electronically. Our ScanServer technology
create images that can be transmitted across the Internet or placed on a server
and made accessible by intra-net. Users can select the standard image format
they wish to use for their converted microfilm images, which are stored on a
computer hard-drive. Among the standard image formats available are "tif,"
"jpg," and bit map files. The stored images can be cataloged, viewed, and
transmitted electronically using standard "off-the-shelf" software.
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Our ScanServer does not produce a computer file that can be edited as text or
other types of data. The digital record is essentially an electronic picture of
the original microfilm image. A converted image, if it consists of text, could,
if a customer chose, be loaded into an optical character recognition (OCR)
device or program. This step is not part of what ScanServer provides to its
users, however. It would require customers to use separate applications with the
necessary capabilities. We envision that in the future we may find opportunities
to develop alliances with other types of information management businesses, such
as in the areas of conversion to word-processible documents or databases that
could be edited, sorted, or searched. We do not presently have any alliances of
this type in place or under development. We have incorporated nothing into
ScanSaver's current design to mesh with or enable other conversion processes,
except the ability of ScanServer software to improve the clarity and contrast of
imperfect or deteriorated microfilm images.
We plan to rent our microfilm scanners to customers who can use them to convert
their microfilm records to digital form. We currently do not intend to encourage
customers to purchase ScanServers. We plan to base the fees we charge our
customers on the number of images they convert from microfilm to digital format.
We call this per-image fee a "click-charge."
Competitive Business Conditions, Position in Industry, and Methods of
Competition
Offering customers the ability to rent rather than buy or lease our ScanServer,
and to pay based on the number of images converted, are two of the key factors
we believe will allow us to offer an attractive alternative to other options
customers may consider. We believe our target customers have essentially two
alternatives to renting our ScanServer: outsourcing their records to a third
party (such as a service bureau) for conversion or purchasing or leasing other
producers' microfilm scanners.
In our view, outsourcing has the drawback of taking critical, potentially
irreplaceable records away from the customer's premises and out of the
customer's control. This means that while the records are being converted, the
customer does not have access to them. In addition, the charges for conversion
through outsourcing can be significant for customers that have millions of
records to convert. The information we have from potential customers on their
expected costs for service bureau conversion range from 5(cent) to 15(cent) per
image converted or more. We plan to offer a "click charge" pricing structure
with a sliding scale based on the number of images converted. We expect that the
high end of our pricing scale will meet the lowest prices service bureaus can
offer. We expect that for customers whose volume places them in the middle or
lower end of our sliding scale, the per-image charge will be lower than the
least expensive service bureau charges. At the same time, our customers will not
need to surrender control of and access to their records during the conversion
process. Our customers will be able to use the ScanServer at their places of
business.
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A chief drawback we perceive with respect to purchase or leasing our
competitors' scanners is the need for businesses to include purchase or leasing
costs in their capital planning cycles. Another drawback is the potentially
limited usefulness of any purchased or leased scanners after the initial
conversion process is completed. A business may be required to purchase or lease
a large number of scanners to complete initial conversion in a timely manner,
but need fewer machines to keep up with on-going microfilm conversion. With our
proposed rental arrangement based on click-charges, there is no need for capital
budget treatment and no need to procure more scanners than are required to meet
a business's current needs. We envision that many potential customers may prefer
to rent several ScanServers for a limited period to facilitate conversion of
microfilm images over a shorter time period. In this way, a customer does not
have to endure an extended disruption to records access and does not have to
devote as much personnel attention to the conversion process. Our click-charge
approach facilitates use of multiple scanners in a way we believe purchase or
lease arrangements do not.
Our currently available information on prices for other companies' microfilm
scanners indicates that they range from $50,000 to $160,000 for a single
scanner. We believe that SunRise Imaging, Inc. and Mekel are presently the
leaders in the microfilm scanner market. Fuji also offers a proprietary scanner
limited to its own 16mm blipped roll film.
Both SunRise Imaging and Mekel have recently been acquired by other companies.
We believe that the effect of these acquisitions is likely to make them less
competitive than they were before. The reason we believe this is so is because
both companies were acquired by businesses that we see as focused and
experienced primarily in areas outside of the microfilm scanner business. (In
the case of the company that acquired SunRise Imaging, this primary business
relates to software for analyzing fingerprints, and in the case of the company
that acquired Mekel, the primary business is photocopy machines.) In our view,
these acquiring companies will not necessarily be motivated to aggressively
market and promote innovation of their microfilm scanner products, because
microfilm scanners are not their primary business.
So far as we know, none of the existing microfilm scanner companies place their
products without a sales contract or third party lease, both of which require
capital purchase approval and capital. The exception is a Fuji film scanner that
sells for around $16,000, but the scanner is limited to16mm Fuji blipped
roll-film and is therefore in our view not a competitor for the general
microfilm scanning market.
The other important distinctions between our ScanServer and the other microfilm
scanners with which we are familiar are the degree of automation, simplicity of
use, multiple film format capability, and quality of converted images. Our
ScanServer incorporates two key software components that we believe will give
our product a significant competitive advantage. We call them "ImageFinder" and
"ImageRestore."
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ImageFinder is designed to automatically detect and distinguish between images
on microfilm. As explained in a November 30, 1999 press release available
through our Website (www.cyberecord.com), we tested ImageFinder in November 1999
using microfilm samples we selected specifically to challenge ImageFinder's
capabilities. The sample included overlapping images and films that had
different size images intermixed with each other. We were very pleased with the
results of our test. Our ImageFinder software partitioned the images on the test
samples with 100% accuracy, without the need for operator intervention.
ScanServer's ability to accurately locate and distinguish among microfilm images
is central to our marketing strategy. Our goal is to offer a scanner that
requires minimal human supervision, so that our customers will incur lower
personnel costs and less work disruption than will other scanners. To accomplish
this goal, our scanner has to provide reliable, automatic image recognition. Our
ImageFinder software is designed to meet this need. Furthermore, the ScanServer
works with a range of microfilm formats, including fiche, jacketed and cut film,
reel and cartridge formats, and aperture cards.
The ScanServer's second key software component is ImageRestore. ImageRestore is
designed to automatically restore contrast, clarity, and content to digital
images produced from microfilm records. As described in an August 3, 1999 press
release available through our Website, when we tested ImageRestore on a variety
of microfilm samples, we obtained very good results. The images we tested not
only had improved clarity, but extraneous marks such as scratches and specks had
been removed.
Another advantage we believe we can offer customers with ScanSaver is simplicity
of use. We have designed ScanServer to be easy enough to operate to allow an
unskilled clerk to use it correctly with minimal training. Our ScanServer is no
more difficult to operate than a simple photocopier. A set of microfilm records
is placed into the ScanServer, the operator chooses the copying options, presses
the start button, and the ScanServer carries out the conversion process
automatically. We consider this is a significant improvement over other
currently available scanners, which we believe are complicated and cumbersome to
operate and require substantial training. Our competitors' scanners require an
operator to manually process each image in microfilm format, particularly
difficult images. By "difficult," we mean images that are overlapping, have
unclear borders, are non-standard shapes or sizes or are skewed within their
frames. Our ScanServer is designed to automatically detect even difficult
images. If other scanners are less reliable in accurately and consistently
recognizing individual microfilm images, they have to be much more closely
attended because an operator has to manually check and compensate for any image
recognition errors.
Even though we believe that our click-charge approach will enable customers to
more quickly and efficiently convert existing microfilm records to digital form,
we anticipate that many businesses and agencies will continue to generate
records on microfilm in the future. This is because microfilm is considered one
of the most durable and economical methods of storing large quantities of
information. Microfilm has been in successful use for more than one-hundred
years, and does not depend on computer programming to make it accessible.
Microfilm therefore does not carry the risk that it could become unretrievable
because of outmoded software the way computer-generated data can. Therefore, we
believe businesses will most likely continue to keep critical records on
microfilm because of its durability. At the same time, we expect that for ease
of access, management, and distribution, they will also want to create duplicate
records in digital form.
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Potential Customers and Markets
In identifying the scope of our target market and potential customers, we have
relied on widely-recognized sources in the information-management field (such as
the Association for Information and Image Management or "AIIM"), as well direct
contacts with customers and the substantial experience of our management,
research and development, and sales personnel. According to information posted
on AIIM's public Website (AIIM is the successor to the National Microfilm
Association, which was founded in 1945. AIIM claims membership of more that 650
corporations and 9,000 individuals. Based on our management's long experience in
the information and imaging industries and the information we have about AIIM,
we believe AIIM to be a respected and reliable source of information. AIIM has
commissioned and published substantial studies of the magnitude, make-up, and
growth rate of the market for document imaging and information management, which
are available through AIIM's Website.
The information published by AIIM and other industry sources provides
independent confirmation of what our own experience and marketing efforts have
indicated: that a vast array of businesses, organizations, and agencies
worldwide have stored and continue to generate enormous quantities of critical
information in various microfilm formats. These include banks and financial
services institutions, insurance companies, libraries, government and law
enforcement agencies (federal, state, and local), educational and research
institutions, and private businesses. The types of information these potential
customers have in their microfilm records include such documents as mortgage
records, customer service and loan records, insurance policies, personnel and
human resources records, claims files, intelligence data, IRS records, birth,
death, and marriage certificates, arrest and fingerprint records, medical
records of all kinds, and so forth. Initially, we expect to focus our marketing
efforts most heavily on government agencies (including law enforcement),
banking, insurance, and title companies. To help us establish ourselves in these
areas, we have focused on recruiting and hiring sales and marketing personnel
with experience and contacts in each of these sectors.
Methods of Distribution and Marketing
We currently expect to distribute our ScanSaver through direct sales channels.
We also plan to work to develop relationships with resellers, value-added
resellers, and system integrators as viable opportunities emerge. Our marketing
strategy is to use in-person and telephone sales calls, advertising, direct
mail, and trade show appearances. We plan to target our advertising in trade
magazines aimed at the types of businesses and agencies we have identified for
our initial marketing focus, such as government, banking, insurance, and title
companies.
Sources and Availability of Raw Materials
Manufacturing the ScanServer requires three types of basic materials: metal
parts for the structural and exterior components, optical elements, and computer
parts. We expect to purchase optical components for our ScanServers from
commercially available sources. The computer parts are available from
over-the-counter computer stores. Most of the metal components require custom
manufacturing, for which we have arranged with a third-party contractor. We do
not expect to be dependent on any single or few sources for raw materials.
Dependence on One or a Few Major Customers
We do not anticipate that we will be dependent on a single or very small number
of customers.
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Patent, Trademark, and Service Mark Applications and Research and Development
Activities
We currently have a number of United States and foreign patent applications
pending with respect to our ScanServer's technology. We have also applied for
trademark and service mark protection for the words "cyberecord" and "4eyes."
Since acquiring the assets of the Kristal Group in April 1999, essentially all
of our activities have been focused on research and development, but none of the
associated costs have been or will be borne directly by our customers.
Governmental Regulation and Environmental Compliance
We are not aware of any current or pending federal, state, or local
environmental laws or regulations that are likely to have a significant impact
on our business operations. We do not anticipate any significant governmental
regulation unique to our business, other than the matters described above under
the subheadings "Need for Governmental Approvals and Agency Listings" and
"Patent, Trademark, and Service Mark Applications and Research and Development
Activities."
Employees
We currently have 18 employees, all of whom work full time for CybeRecord or one
of its wholly owned subsidiaries.
Item 2. Plan of Operation.
In February 2000 we produced two prototype ScanServers that will be used for
testing and evaluation. Over the next 12 months, our goal is to move from a
development stage company to commercial production of the ScanServer. As of June
2000, we have received sufficient hardware components to assemble 30 ScanServers
and sufficient computer and electronic components for 10 ScanServers. (We
ordered hardware for a larger number of ScanServers because these components
require custom manufacturing.) We have leased space in Modesto California to
allow us to assemble initial production models of ScanServer units for
commercial shipping. We shipped one completed production model ScanServer at the
end of May 2000. During June 2000, we expect to complete and ship another nine
ScanServers. After June our goal is to achieve a continuing production rate of
approximately 20 units per month. Our initial target geographical market is the
United States, to be followed by Canada, the United Kingdom, Columbia, Brazil,
and Mexico.
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Although we currently lease assembly space in Modesto, California, we expect to
shift the bulk of our assembly requirements to an outside contractor as soon as
possible. At the same time, we plan to maintain at least limited capacity for
in-house assembly. We intend for this capacity to act as a safety net. It will
give us the ability to complete a minimal number of ScanServers even if we
experience problems with outside assembly contractors.
Based on cash raised from stock sales between February 11 and March 3, 2000 (as
described in Part II, Item 4 below), we believe we have sufficient cash, without
obtaining any additional funds from ScanServer rental revenues or stock sales or
borrowing, to continue operations at our present level for another three months.
We believe this will allow us to meet our current manufacturing and marketing
schedule.
If we are able to implement our current production plans as we intend, we
believe that we will be able to generate adequate revenues from placing
ScanServer units into service to maintain operations at the modest level we
currently contemplate. Without raising additional funds through stock sales or
commercial borrowing arrangements, we do not expect to be able to expand the
scale of our production and marketing efforts quickly, but we believe we could
sustain our business and grow slowly. Additional capital investment or available
borrowed funds for our business during the next 12 months would influence our
activities in three key respects: how much advertising we are able to do, how
quickly we can expand the scale of our production operations, and how quickly we
can enter additional geographical markets. If we are able to secure additional
funding through stock sales or borrowing, we would expect to pursue these areas
to the extent we considered it feasible. We cannot, however, be certain of
placing enough ScanServers into service over the next 12 months to meet our
operating requirements. If we do not place enough units, then we will need to
either obtain adequate commercial credit arrangements or sell additional stock
to fund our continuing operations. We do not currently have commitments in place
for obtaining credit or selling additional stock.
As of June, 2000, we have completed the steps necessary to demonstrate
compliance with Federal Communications Commission ("FCC") regulations concerning
radio frequency emissions (under CFR 47, Part 15, Subpart B-1998, Class A).
These steps involved submitting one of our ScanServers to an accredited
laboratory for testing. The ScanServer has passed these tests, as well as tests
for compliance with comparable Canadian regulations (CSA). We are currently
awaiting final reports on these tests, but we have received certificates stating
that the ScanServer has passed the applicable tests. We have also started the
process to receive safety listings from Underwriters Laboratories, Inc. ("UL")
and the European equivalent of UL, known as "CE." We expect it will take another
two months or so to complete the UL testing process, during which time UL will
have one of our production ScanServer units to conduct the necessary tests. (As
explained under the risk factor above entitled "If We Have Problems Obtaining
Necessary Governmental Approvals and Agency Listings, It Could Delay Our
Marketing and Distribution Process and Impede Our Ability to Expand into New
Markets," we did not apply for FCC approval or UL and other similar listings
earlier because we needed commercial production ScanServer units to do so. This
is because we had to show that the commercial units we would distribute to
customers (as opposed to prototypes) could pass the applicable tests and satisfy
the applicable standards. Our first commercial production units were assembled
during May 2000, so that is when we began the testing process.)
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As of June 2000, we do not intend to conduct significant new research and
development efforts relating to the ScanServer during the next 12 months. We
expect to give primary operational focus to manufacturing ScanServers and
placing them into commercial service. As an integral part of moving from product
development to production, we expect to conduct on-going evaluation of possible
ways to improve production and lower costs. We also expect to devote a modest
level of development effort to completion of a roll-film feeder for the
ScanServer. In addition, if sufficient capital is available during the next 12
months, we expect to begin research and development on a machine that will
transfer digital images onto microfilm. As our operations continue, we also
expect to watch for new opportunities to further develop or build on our core
technologies in ways that complement our microfilm scanning business. We do not
currently have any concrete plans in this regard, however.
As of June 1, 2000, we have leased facilities in Modesto, California to provide
space for our initial in-house assembly activities. Over the next 12 months, we
do not intend to acquire significant new plant or equipment or any other
significant new facilities devoted to the production or assembly of ScanServers.
We do not currently expect to hire a significant number of additional employees
during the next 12 months. We believe that overall, the complement of
management, technical, and sales and marketing personnel we currently employ
should enable us to proceed with production and marketing at our initial target
levels over the next 12 months.
Item 3. Description of Property.
The Company leases offices at 800 Bellevue Way, N.E., Suite 400, Bellevue,
Washington under a written lease, which runs through December 31, 2000. The
Company has the right to terminate the lease early (on June 30, 2000) by
providing 30 days' prior written notice. Unless terminated, after December 31,
2000 our lease will automatically renew for successive one-year terms, with
annual seven-percent increases in the monthly rental. The terms of our lease
provide for office space, communication services, access to common spaces, and
office furniture. Our lease is with Vantas Bellevue, 800 Bellevue Way, NE, 4th
Floor, Bellevue, Washington 98004, telephone number (425) 462-4059. Our Bellevue
lease provides us with approximately 380 square feet of office space and access
to an additional 8,714 square feet of shared common space, at an annual lease
cost of approximately $28,620.
As of June 1, 2000, we have also leased facilities in Modesto, California to
provide space for assembling ScanServers. Our lease is with Rubicon Investments,
Inc. and runs from June 1, 2000 through November 30, 2000, with an option to
extend this lease if we desire. The Modesto, California facilities have about
3,250 square feet and the annual lease cost is approximately $21,300.
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Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of ^ June 1, 2000, the stock ownership of
each executive officer and director of CybeRecord, of all executive officers and
directors of CybeRecord as a group, and of each person known by CybeRecord to be
a beneficial owner of five percent or more of its common stock. Except as
otherwise noted, each person listed below is the sole beneficial owner of the
shares listed opposite his or her name and has sole investment and voting power
for those shares. No person listed below has any options, warrants, or other
rights to acquire additional securities of the Company except as otherwise
indicated.
Name and Address Number of Shares
of Beneficial Owner (1) Beneficially Owned Percentage of Class
--------------------------------------------------------------------------------
James J. Lucas
401 -- 100th NE, #316 1,500,000 8.96
Bellevue, WA 98004-5456
Glenn Kimball*
2850 College Avenue 1,500,000 8.96
Modesto, CA 95350
Marek A. Niczyporuk
962 Elsinore Drive 1,300,000 7.77
Palo Alto, CA 94303
Brent Nelson
5395 176th Place 1,225,000** 6.90
Bellevue, WA 98004
Thomas Morikawa
1737 14th Avenue 1,115,000 6.66
Seattle, WA 98122
James L. Quinn***
3419 Evergreen Point Road 1,100,000 6.57
Medina, WA 98039
Alva D. Cravens
17235 Deerpark Road 100,000 0.60
Los Gatos, CA 95032
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Name and Address Number of Shares
of Beneficial Owner (1) Beneficially Owned Percentage of Class
--------------------------------------------------------------------------------
William S. Altieri
675 Sharon Park Drive none n/a
Menlo Park, CA 94025
All directors and executive
officers as a group (7 persons) 6,725,000 37.89
--------------------------------------------------------------------------------
* Shares held jointly with Mr. Kimball's wife, Paulette Kimball
** Includes 1,000,000 shares that may be acquired by Northwest Capital
Partners, L.L.C. for $.01 per share under a consulting agreement with
CybeRecord if conditions specified in the consulting agreement are
satisfied. Mr. Nelson is the president and sole owner of Northwest
Capital Partners, L.L.C.
*** Shares held jointly with Mr. Quinn's wife, Barbara Quinn
(1) For purposes of this table, a person is considered to "beneficially
own" any shares with respect to which he or she directly or indirectly
has or shares voting or investment power or of which he or she has the
right to acquire the beneficial ownership within 60 days. Unless
otherwise indicated above and subject to applicable community property
law, voting and investment power are exercised solely by the person
named above or shared with members of his or her household.
Item 5. Directors and Executive Officers, Promoters and Control Persons.
The directors and executive officers of the Company and their ages as of the
filing date of this registration statement are as follows:
Name Age Position
---- --- --------
William S. Altieri 71 Director
Alva D. Cravens 59 Director
James J. Lucas 58 Director, Chief Executive Officer,
and President
Brent Nelson 38 Director and Secretary
James L. Quinn 63 Vice President of Sales
Glenn S. Kimball 67 Vice President of Engineering
Marek Niczyporuk 34 Vice President of Software Development
William S. Altieri, Director -- Mr. Altieri was appointed a Director on November
15, 1999. Since 1975, he has been a self-employed marketing and sales consultant
for clients in a variety of business areas, including franchising, computer
services, soft drinks, automobile products, and food products. Mr. Altieri's
experience encompasses domestic and international product branding, corporate
and product positioning, and advertising and general marketing for consumer,
industrial, and high-technology products. He has been employed as a Brand
Manager for Procter and Gamble's Joy detergent. He later joined Norman, Craig
and Kummel Advertising in New York City as a Vice President and was promoted to
Senior Vice President of European Operations directing marketing programs for
Colgate Palmolive, Chesebrough-Ponds, and American-Cyanamid. Subsequently, he
became a senior partner and Managing Director of London's Jack Tinker
Advertising, where he was responsible for adapting U.S. marketing efforts into
European marketing programs for Coca-Cola, Exxon, Miles Laboratories, and
Nabisco. Mr. Altieri holds an MBA from Stanford University. As a Lieutenant in
the United States Navy, he served on an UDT (Underwater Demolition Team), now
called a SEAL (Sea Air Land) team. Mr. Altieri's term as Director runs through
the next annual shareholders' meeting. As of the filing date of this
registration statement, the Company's Board of Directors has not yet set a date
for the next annual shareholders' meeting.
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Alva D. Cravens, Director-- Mr. Cravens was appointed a Director of the Company
on November 15, 1999. Since January 1999 he has been Vice President of Worldwide
Marketing for AdForce, an Internet ad-serving firm recently ranked ninth in
Inter@ctive Week magazine's top ten advertising and marketing companies. From
March 1998 to January 1999, Mr. Cravens was President of OpenGrid (formerly
Ensemble Solutions, Inc.), an electronic distribution company. From April 1996
to January 1998, he served as Vice President of Marketing at Adaptec, Inc., a
manufacturer of SCSI, fiber channel, and RAID products. Between August 1992 and
March 1996, Mr. Cravens was Vice President of Marketing for Radius, Inc. (now
Digital Origin, Inc.), a developer and manufacturer of computer displays and
graphic and video technologies. Mr. Cravens has more than 20 years of executive
experience in strategic marketing, communications, positioning, branding, and
advertising for technology companies. Mr. Cravens holds both a B.A. and an M.A.
in communications from San Jose State University. Mr. Cravens' term as Director
runs through the next annual shareholders' meeting.
James J. Lucas, Director, Chief Executive Officer, and President -- Mr. Lucas
has more than 20 years of senior management experience in digital imaging
markets. He joined CybeRecord as President and CEO May 1999, and was appointed a
Director on November 15, 1999. From June 1998 to May 1999, Mr. Lucas was
Director of National Sales, Seybold Seminars, for ZD Events. From May 1996 to
October 1998, Mr. Lucas served as Vice President of Sales and Marketing for
SunRise Imaging, Inc. in Foster City, California, and from May 1994 to May 1996
he was Vice President of Sales and Marketing for ScanView, Inc. in Foster City,
California. Mr. Lucas' career highlights also include positions as vice
president of product marketing and vice president of advertising and public
relations for General Electric Company, Calma Division, and vice president of
special markets for Eastman Kodak Company, Atex Division. In 1981, he developed
the original business and product concepts for Qubix Graphic Systems, a
venture-funded company that went public and was subsequently acquired. Mr.
Lucas' term as Director runs through the next annual shareholders' meeting.
Brent Nelson, Director and Secretary-- Mr. Nelson has served as a Director and
as Secretary of the Company since October 1997. For more than the past five
years, Mr. Nelson has been president of Northwest Capital Partners, L.L.C., a
venture capital firm located in Bellevue, Washington. Within the past five years
Mr. Nelson has also been Chief Executive Officer of PanPacific Containers L.L.C.
and Director of Business Development for Waterwood Mountain Hotel Resort & Spa
Ltd. and Waterwood International Spa Resorts, Inc. (both Canadian companies). In
addition to CybeRecord, Mr. Nelson presently serves on the boards of directors
of the following reporting companies: Interactive Objects, Inc., a software
development firm, Eclipse Entertainment Group, Inc., a film development,
production, and distribution company, and Mobile PET Systems, Inc., a medical
company. He earned a diploma in marketing from Douglas College, Vancouver, B.C.,
Canada in 1983. Mr. Nelson has over 15 years of experience in corporate project
financing. Mr. Nelson's term as Director runs through the next annual
shareholders' meeting.
James Quinn, Vice President of Sales-- From December 1994 until he joined
CybeRecord in August 1999, Mr. Quinn was Director of International Sales for
Tally Printer Corporation, Kent, Washington. Mr. Quinn graduated from Franklin
Marshall University in 1958.
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Glenn Kimball, Vice President of Engineering -- For more than five years before
joining CybeRecord in May 1999, Mr. Kimball operated an independent consultant
business, Kimball Engineering. Mr. Kimball has more than 20 years of experience
in imaging product development, primarily for large government organizations. He
developed image-processing techniques to separate and enhance poor quality,
overlapping bank endorsements and a series of test documents, enabling
performance of high-speed check reader- sorters for the Federal Reserve. He
managed development and production of seven multimillion-dollar topographic map
compilation systems that performed at micron accuracy for the United States
Defense Mapping Agency.
Marek Niczyporuk, Vice President of Software Development -- Mr. Niczyporuk was
appointed Vice President of Software Development on April 7, 2000. From May 1,
1999 until April 7, 2000, he served as CybeRecord's Director of Imaging Systems.
For more than five years before joining CybeRecord, Mr. Niczyporuk conducted a
private software consulting business. He is a leading machine vision and
computer image processing scientist with expertise in incorporating advanced
image processing methods into successful medical, commercial, and industrial
applications. His cardiovascular imaging systems to detect and reconstruct
real-time, three-dimensional shapes of the heart surface have been in daily
operation since 1989. Mr. Niczyporuk has also developed a system to analyze
Doppler ultrasound images, software to interpret retinal topography, machine
vision systems for inspection and quality control in the printing industry, and
color image analysis programs for a variety of manufacturing environments.
Item 6. Executive Compensation.
The table below sets forth all compensation paid to the Company's executive
officers during 1999 (the Company's most recently completed fiscal year). Other
than as indicated in the table below, none of the Company's executive officers
received any benefits or compensation in any form (including stock, stock
options, stock appreciation rights, long-term incentive plan payouts, etc.) for
service as executive officers of the Company during 1999.
Compensation Paid During 1999
Other
Position Salary Bonus Compensation
-------- ------ ----- --------------
James Lucas, Pres. & CEO* $ 105,000 $12,500
Glenn Kimball, VP Engineering* $ 72,000 $12,500
James Quinn, VP Sales* $ 55,000
Tom Morikawa, Exec. VP of Operations** $ 71,875 $25,000
and Chief Financial Officer
Brent Nelson, Secretary*** $ 5,000
* Salary payments to Mr. Lucas began on May 16, 1999. Salary payments to Mr.
Kimball began on May 1, 1999. Salary payments to Mr. Quinn began on August 1,
1999. The amounts stated in the table above reflect actual payments made to
these officers from the beginning of their salary payments through December 31,
1999. Had the Company's executive officers been on the Company's payroll for the
entire 1999 fiscal year at the same salary rate they received from the beginning
of their salary payments through December 1999, their annual base compensation
would have been as follows: $168,000 for Mr. Lucas; $108,000 for Mr. Kimball,
and $132,000 for Mr. Quinn.
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** Mr. Morikawa was a Director and the Chief Executive Officer of Chrysalis
Hotels and Resorts Corp. (which was the name under which the Company operated
until April 1999) through April 1999, and then Director, Executive Vice
President of Operations, and Chief Financial Officer for CybeRecord until
November 15, 1999. Since November 15, 1999, Mr. Morikawa has been a consultant
to the Company and during 1999 received retainer payments under his consulting
agreement of $25,000. These consulting payments are included under "Other
Compensation" in the table above.
*** Mr. Nelson was a Director and Secretary of Chrysalis Hotels and Resorts
Corp. (the last name under which the Company operated before changing its name
to CybeRecord, Inc. in April 1999). He is one of the Company's current Directors
and shareholders, as well as its Secretary. Mr. Nelson received compensation
through payments the Company made to Northwest Capital Partners, L.L.C. under
the Consulting Agreement described below under Item 7. These consulting payments
are included under "Other Compensation" in the table above.
Item 7. Certain Relationships and Related Transactions.
1. As described above under Part I, Item 1, in April 1999 the Company
issued stock to acquire a group assets from the Kristal Group. Several
members of the Kristal Group are now officers or directors, as well as
shareholders, of the Company. These include James J. Lucas, who is
President and CEO of CybeRecord as well as a director; James L. Quinn,
who is Vice President of Sales for CybeRecord; Glenn S. Kimball, our
Vice President of Engineering; Marek Niczyporuk, our Vice President of
Software Development; and Alva D. Cravens, who is one of the Company's
current directors.
The Company issued 6,000,000 shares of common stock to acquire assets
from the Kristal Group. The common stock was valued at $.50 per share,
based on stock sales in the same time period. The number of shares
issued was based on negotiations between the Company and the
individuals who made up the Kristal Group. As part of these
negotiations, certain shareholders contributed 5,000,000 shares of
common stock back to the Company so that, when the transaction was
completed, the parties' ownership percentages in CybeRecord would be as
agreed upon within the Kristal Group.
2. In March 1999, the President of CybeRecord, Inc., a Nevada corporation
("CybeRecord Nevada") executed a Consulting Agreement (the "Agreement")
with Brent Nelson on behalf of Northwest Capital Partners, L.L.C.
("Northwest"). Brent Nelson is the sole member of Northwest. Brent
Nelson is also a director and officer of CybeRecord Nevada. The Board
of Directors of CybeRecord Nevada has not yet approved the Agreement.
The Agreement, which runs through February 2002, provides for Northwest
to assist in obtaining financing for CybeRecord Nevada. In return for
consulting services under the Agreement, CybeRecord Nevada agreed to
pay the consultant $500 per month. Provision is made for this payment
to increase to $1,000 per month. The Agreement also provides that the
consultant is to be issued 500,000 shares of common stock for $0.01 per
share when the market capitalization of CybeRecord Nevada reaches
$100,000,000 and is to be issued an additional 500,000 shares of common
stock at $0.01 per share when the market capitalization of CybeRecord
Nevada reaches $200,000,000. Any shares issued under the Agreement will
be restricted shares, and will have "piggy-back" rights, so that the
shares will be registered upon CybeRecord Nevada's first registration
18
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after the shares are issued. Two CybeRecord, Inc. exist in the United
States: CybeRecord, Inc., a Florida corporation ("CybeRecord Florida")
and CybeRecord Nevada. We are CybeRecord Florida. Brent Nelson is a
director and officer of both corporations. Brent Nelson is also a
shareholder of CybeRecord Florida. Both companies share the same
President. Neither company owns the stock of the other. However, both
companies have taken steps to merge CybeRecord Florida into CybeRecord
Nevada. These steps include the preparation of a merger agreement and
the holding of a special meeting of CybeRecord Florida's shareholders
in February, 2000, to obtain shareholder approval for the merger (which
the shareholders gave at the February 2000 special meeting.) The
contemplated merger was solely for the purpose of changing CybeRecord
Florida's state of incorporation from Florida to Nevada. This process
was initiated before most of the current members of CybeRecord
Florida's Board of Directors were in office. After the shareholder vote
was taken at the February 2000 special meeting, CybeRecord Florida's
current Board of Directors decided it was not a high priority at this
time to carry out the merger, and therefore the merger has not been
completed.
Despite the fact that the merger was never completed, Northwest has
performed services for CybeRecord Florida (even though Northwest's
contract is with CybeRecord Nevada. CybeRecord Florida has paid
Northwest $500 per month ($5,000 in 1999). CybeRecord Florida's Board
of Directors has not approved a contract with Northwest. CybeRecord
Florida and Northwest are working to identify the terms upon Northwest
will provide services to CybeRecord Florida.
Since December 31, 1999, CybeRecord Florida has reached a market
capitalization that exceeds $200,000,000. If CybeRecord Florida and
Northwest enter into a consulting agreement with stock provisions
similar to the provisions contained in CybeRecord Nevada's Agreement,
or CybeRecord Florida assumes CybeRecord Nevada's obligations under the
Agreement, then Northwest will have the right to purchase the stock
from CybeRecord Florida.
3. Tom Morikawa, one of the shareholders named in the table of beneficial
security owners under Item 4 above and also a former director and chief
executive officer of the Company, is currently a consultant to the
Company. Under our consulting agreement with Mr. Morikawa, we pay Mr.
Morikawa a monthly retainer of $12,500. The consulting agreement with
Mr. Morikawa remains in effect through May 15, 2000.
4. After January 1, 2000, the Company borrowed $100,000 from Brent Nelson,
who is one of the Company's directors and shareholders, as well as its
secretary. The Company has repaid this loan, which was due on demand,
unsecured, and bore no interest.
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Item 8. Description of Securities.
Common Stock
The Company has authorized 20,000,000 shares of Common Stock, par value $.01.
Under its Articles of Incorporation, the Company is also authorized to issue
1,500,000 shares of Class B Common Stock, par value $.10 per share. The Company
has not, however, issued any Class B Common Stock and has not registered any
Class B Common Stock under Section 12 of the Securities Exchange Act of 1934.
Each outstanding share of Common Stock, par value $.01 is entitled to one vote,
either in person or by proxy, on all matters that may be voted upon by holders
of the Company's Common Stock at meetings of the Company's shareholders.
The holders of Common Stock (i) have equal ratable rights to dividends from
funds legally available for payment of dividends, when and if declared by the
Company's Board of Directors; (ii) are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution, or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription, or conversion rights, or redemption or
sinking fund provisions applicable thereto; and (iv) are entitled to one
non-cumulative vote per share on all matters on which shareholders may vote at
all meetings of shareholders.
All of the issued and outstanding shares of Common Stock are, and all unissued
shares when sold will be, duly authorized, validly issued, fully paid, and
non-assessable. To the extent that additional shares of the Company's Common
Stock are issued, the relative interests of the then-existing shareholders may
be diluted.
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PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
Market Information
The Company's Common Stock ($.01 par value) is currently traded publicly on the
over-the-counter market through OTC "Pink Sheets." Our Common Stock was formerly
traded on an electronic bulletin board, but during 1999 the bulletin board rules
changed to require companies with securities trading on the bulletin board to
register under Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act"). When the deadline for our company to register passed and we had
not completed our registration under Section 12(g) of the Exchange Act, we were
no longer able to continue stock trading on the electronic bulletin board. It is
to enable our Common Stock to resume trading on the electronic bulletin board,
and to facilitate future sales of registered stock, that we are now voluntarily
registering our Common Stock under Section 12(g) of the Exchange Act.
The Company's principal market makers are Olsen Payne & Company, Paragon Capital
Corporation, Sharpe Capital Corp., and Hill, Thomson Magid and Company. The
high-low bid information for the Company's stock for the period January 1998 to
December 1999 as reported by the "Wall Street City" website
(www.wallstreetcity.com) of Telescan, Inc. follows:
Monthly prices (January 1998 to December 1999)
Date High Low Close
---- ---- --- -----
Dec-99 2.125 0.812 2.125
Nov-99 1.375 0.625 1.250
Oct-99 1.750 0.625 1.062
Sep-99 1.000 0.500 0.875
Aug-99 1.250 0.937 1.000
Jul-99 1.562 1.125 1.187
Jun-99 1.875 0.937 1.625
May-99 1.437 0.500 1.093
Apr-99 1.000 0.406 0.875
Mar-99 0.812 0.125 0.562
Feb-99 0.375 0.187 0.375
Jan-99 0.250 0.125 0.250
Dec-98 0.375 0.125 0.218
Nov-98 0.593 0.250 0.312
Oct-98 0.531 0.218 0.218
Sep-98 0.750 0.250 0.500
Aug-98 0.937 0.500 0.625
Jul-98 1.125 0.750 0.937
Jun-98 1.250 0.687 0.900
May-98 1.187 0.437 1.000
Apr-98 0.687 0.500 0.500
Mar-98 0.750 0.375 0.593
Feb-98 0.750 0.500 0.687
Jan-98 0.750 0.375 0.640
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Holders
The approximate number of record holders of the Company's Common Stock as of
December 31, 1999 was 330, inclusive of those brokerage firms and/or
clearinghouses holding the Company's common shares for their clientele (with
each such brokerage house and/or clearinghouse being considered as one holder).
The aggregate number of shares of Common Stock outstanding as of December 31,
1999 was 15,471,864 shares.
Dividends
The Company has not paid or declared any cash dividends on its Common Stock
since its inception and does not anticipate paying cash any dividends on its
Common Stock in the foreseeable future.
Item 2. Legal Proceedings.
The Company is not presently a party to any material litigation, and, to the
Company's knowledge, there is no material litigation currently threatened
against the Company.
Item 3. Changes in and Disagreements with Accountants.
The Company has had no changes in or disagreements with accountants on
accounting or financial disclosure.
Item 4. Recent Sales of Unregistered Securities.
The Company has issued the following shares of its Common Stock during past
three years without registration under the Securities Act of 1933, as amended
(the "Act"):
1. On October 1, 1997, the Company issued 4,000,000 shares to fifty-one
non-affiliates at a price of $.06 per share for aggregate consideration
of $240,000 pursuant to an exemption from registration under Regulation
D, Rule 504 of the Act. In connection with this October 1, 1997
transaction, the Company redeemed and canceled (without compensation)
700,000 of the 4,000,000 shares that were issued.
2. On October 11, 1997, the Company issued 8,000,000 shares to seventeen
affiliates. These shares were issued by one of the Company's
predecessor corporations, Pillar Entertainment Group Inc., in exchange
for all of the outstanding shares of Chrysalis Hotels and Resorts Corp.
Following the exchange Pillar Entertainment Group Inc. changed its name
to Chrysalis Hotels and Resorts Corp. The shares issued in this
exchange transaction were exempt from registration pursuant to Section
4(2) of the Act.
3. On March 24, 1999, the Company issued 1,970,000 shares to ten
non-affiliates pursuant to an exemption from registration under
Regulation D, Rule 504 of the Act, at a price of $.50 per share for
total consideration of $985,000. In consideration for legal services
rendered, 46,000 shares were issued to two non-affiliates pursuant to
an exemption from registration under Regulation D, Rule 504 of the Act.
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4. On April 20, 1999, the Company issued 6,000,000 shares to seven
affiliates. These shares were issued by one of the Company's
predecessor corporations, Chrysalis Hotels and Resorts Corp., in
exchange for assets acquired from the Kristal Group. An additional
50,000 shares were issued as a finder's fee in the transaction.
Following the asset acquisition, Chrysalis Hotels and Resorts Corp.
changed its name to CybeRecord, Inc. The shares issued in this
transaction were exempt from registration pursuant to Section 4(2) of
the Act.
5. In November 1999, the Company issued 70,000 shares to two
non-affiliates in exchange for legal services. The shares were exempt
from registration pursuant to Section 4(2) of the Act.
6. Between February 11 and March 3, 2000, the Company issued 1,275,000
shares to 17 non-affiliates pursuant to an exemption from registration
under Regulation D, Rule 506 of the Act, at a price of $1.75 per share
for aggregate consideration of $2,231,250.
Item 5. Indemnification of Directors and Officers.
The Certificate of Incorporation and Bylaws of the Company contain provisions
limiting or eliminating the liability of directors of the Company to the Company
or its stockholders to the fullest extent permitted by the General Corporation
Law of Florida and indemnifying officers and directors of the Company to the
fullest extent permitted by the General Corporation Law of Florida. Insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act") may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer, or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the purchase or sale of the Company's
Common Stock, the Company 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 of whether such indemnification by it is against
public policy as expressed in the Act, and will be governed by the final
adjudication of such issue.
23
<PAGE>
PART F/S
The Company's financial statements required by Regulation S-B begin on page F-1
and are incorporated into this part of this Amendment No. 3 to Form 10-SB by
this reference.
PART III
Items 1 and 2. Index to Exhibits and Description of Exhibits.
3.1 Articles of Incorporation with Amendments*
3.2 By-Laws*
10.2 Consulting Agreement with Northwest Capital Partners, L.L.C.*
10.3 Asset Purchase Agreement Relating to Purchase of Kristal Group Assets*
27 Financial Data Schedule
* Previously filed as exhibits to the Company's Amendment No. 2 to Form 10-SB,
filed with the Securities and Exchange Commission on April 20, 2000.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
CybeRecord, Inc.
-------------------
(Registrant)
Date: June 21, 2000 By: /s/ JAMES J. LUCAS
----------------- -------------------------------
James J. Lucas, President & CEO
25
<PAGE>
CYBERECORD, INC.
FINANCIAL REPORT
DECEMBER 31, 1999
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS
Balance sheets F-2
Statements of operations F-3
Statements of stockholders' equity F-4
Statements of cash flows F-5
Notes to financial statements F-6 - F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
CybeRecord, Inc.
Bellevue, Washington
We have audited the accompanying balance sheets of CybeRecord, Inc. (a
development stage company) as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1999 and 1998, and for the period from September 27, 1996 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CybeRecord, Inc. (a development
stage company) as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998,
and for the period from September 27, 1996 to December 31, 1999, in conformity
with generally accepted accounting principles.
Peterson Sullivan PLLC
Seattle, Washington
March 15, 2000
F-1
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------------- -----------------
<S> <C> <C>
Current Assets
Cash $ 111,154 $ 1,307
Prepaid expenses and deposits 15,194
----------------- -----------------
Total current assets 126,348 1,307
Furniture and Equipment, at cost,
less accumulated depreciation of $3,940 25,328
----------------- -----------------
$ 151,676 $ 1,307
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 21,436 $ -
Stockholders' Equity
Common stock, par value $.01 154,719 123,359
Additional paid-in capital 4,342,269 309,079
Deficit accumulated during the
development stage (4,366,748) (431,131)
----------------- -----------------
130,240 1,307
----------------- -----------------
$ 151,676 $ 1,307
================= =================
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999 and 1998, and the Period
From September 27, 1996 to December 31, 1999
<TABLE>
<CAPTION>
Total
Accumulated
During
Development
Stage
(September 27,
1996 to
December 31,
1999 1998 1999)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
Expenses
Write-off of acquired research
and development 3,000,000 3,000,000
Research and development 175,425 175,425
General and administrative 760,192 82,251 1,191,323
----------------- ----------------- -----------------
3,935,617 82,251 4,366,748
----------------- ----------------- -----------------
Net loss $ (3,935,617) $ (82,251) $ (4,366,748)
================= ================= =================
Basic loss per share of common stock $ (0.27) $ (0.01) $ (0.36)
================= ================= =================
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999 and 1998, and the Period
From September 27, 1996 to December 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Common Paid-in Development
Shares Stock Capital Stage Total
------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, September 27, 1996 335,864 $ 3,359 $ 769 $ - $ 4,128
Issuance of common stock (October and November 1996) 8,700,000 8,700 49,410 58,110
Net loss (3,192) (3,192)
------------ ---------- ---------- ----------- ------------
Balances, December 31, 1996 9,035,864 12,059 50,179 (3,192) 59,046
Issuance of common stock, net of effects of exchange
of Chrysalis shares for Pillar shares (October 1997) 3,300,000 111,300 128,700 240,000
Additional capital contributed by shareholders 46,700 46,700
Net loss (345,688) (345,688)
------------ ---------- ---------- ----------- ------------
Balances, December 31, 1997 12,335,864 123,359 225,579 (348,880) 58
Additional capital contributed by shareholders 83,500 83,500
Net loss (82,251) (82,251)
------------ ---------- ---------- ----------- ------------
Balances, December 31, 1998 12,335,864 123,359 309,079 (431,131) 1,307
Issuance of common stock in exchange for cash (March 1999) 1,970,000 19,700 965,300 985,000
Issuance of common stock in exchange for services
(March and April 1999) 96,000 960 39,040 40,000
Contribution of shares back to the corporation
by shareholders (April 1999) (5,000,000) (50,000) 50,000
Issuance of common stock in exchange for
Kristal Group assets (April 1999) 6,000,000 60,000 2,940,000 3,000,000
Issuance of common stock in exchange for services
(November 1999) 70,000 700 30,800 31,500
Additional capital contributed by shareholders 8,050 8,050
Net loss (3,935,617) (3,935,617)
------------ ---------- ---------- ----------- ------------
Balances, December 31, 1999 15,471,864 $ 154,719 $4,342,269 $(4,366,748) $ 130,240
============ ========== ========== =========== ============
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998, and the Period
From September 27, 1996 to December 31, 1999
<TABLE>
<CAPTION>
Total
Accumulated
During
Development
Stage
(September 27,
1996 to
December 31,
1999 1998 1999)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (3,935,617) $ (82,251) $ (4,366,748)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 3,940 3,940
Write-off of purchased in-process
research and development that had
not reached technological feasibility 3,000,000 3,000,000
Professional fees exchanged for
common stock 71,500 71,500
Changes in operating assets and liabilities
Prepaid expenses and deposits (15,194) (15,194)
Accounts payable 21,436 21,436
----------------- ----------------- -----------------
Cash used in operating activities (853,935) (82,251) (1,285,066)
Cash Flows From Investing Activity
Purchase of equipment (29,268) (29,268)
Cash Flows From Financing Activities
Issuance of common stock 985,000 1,283,110
Capital contribution 8,050 83,500 138,250
----------------- ----------------- -----------------
Cash provided by financing activities 993,050 83,500 1,421,360
----------------- ----------------- -----------------
Net increase in cash 109,847 1,249 107,026
Cash, beginning of period 1,307 58 4,128
----------------- ----------------- -----------------
Cash, end of period $ 111,154 $ 1,307 $ 111,154
================= ================= =================
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
Organization/Development Stage Company
CybeRecord, Inc. ("CybeRecord") was previously known as Chrysalis Hotels and
Resorts, Corp. ("Chrysalis"). Chrysalis was previously known as Pillar
Entertainment, Inc. ("Pillar").
Pillar was a corporation with very little financial activity for many years. In
October 1997, Pillar exchanged its common stock for all the outstanding stock of
Chrysalis. As Pillar and Chrysalis were related corporations (Pillar's president
was a major stockholder in Chrysalis), the transaction was accounted for at a
historical cost basis. Pillar then changed its name to Chrysalis. These
financial statements are prepared as if the companies were combined as of
September 27, 1996 (the date Chrysalis was incorporated).
In April 1999, Chrysalis issued common stock to acquire in-process research and
development from ten individuals: Glenn Kimball, Paulette Kimball, Marek
Niczyporuk, James J. Lucas, James L. Quinn, Barbara Baker Quinn, Herbert J.
Walker, Patricia A. Walker, Alva D. Cravens, and Kristin Cravens (hereinafter
referred to as the "Kristal Group" for the sake of convenience). Chrysalis then
changed its name to CybeRecord.
In conjunction with the acquisition of the Kristal Group's assets, CybeRecord is
working toward the development of product that will enhance paper and microfilm
records when converted to digital documents. This will allow these records to be
shared electronically over the Internet and within company Intranet systems. As
of December 31, 1999, products developed by CybeRecord have not reached the
stage of technological feasibility as defined by Statements of Financial
Accounting Standards ("SFAS") 86. Accordingly, the cost of the assets acquired
from the Kristal Group and all costs associated with product development have
been charged to expense as research and development.
CybeRecord intends to market the product it is developing. Revenue recognition
policies for product sales will be established when products are ready for
distribution.
These financial statements have been prepared treating CybeRecord as a
development stage company. CybeRecord has not generated any revenues through
December 31, 1999. For the purpose of these financial statements, it is assumed
the development stage started September 27, 1996, which is the date of inception
for Chrysalis.
F-6
<PAGE>
Note 1. (Continued)
Cash
Cash includes cash balances held at a bank and all highly liquid debt
instruments with original maturities of three months or less. Cash balances are
in excess of amounts insured by the Federal Deposit Insurance Corporation.
No cash payments for interest or income taxes were made during the years ended
December 31, 1999 and 1998.
Furniture and Equipment
Furniture and equipment are depreciated using the straight-line method over the
estimated useful lives of the related assets.
Research and Development
Research and development costs are expensed as incurred. When products being
developed reach technological feasibility, costs associated with these products
will be capitalized and amortized over their estimated useful lives.
Taxes on Income
CybeRecord accounts for income taxes under an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in CybeRecord's
financial statements or tax returns. In estimating future tax consequences,
CybeRecord generally considers all expected future events other than enactments
of changes in the tax laws or rates.
Earnings Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding in the
period. Diluted earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and potentially dilutive
common shares. There are no potentially dilutive common shares at December 31,
1999 and 1998. The weighted average number of shares was 14,559,531 and
12,335,864 for the years ended December 31, 1999 and 1998. The weighted average
number of shares was 12,004,685 for the period from September 27, 1996 to
December 31, 1999.
F-7
<PAGE>
Note 1. (Continued)
Stock-Based Compensation
Although there has been no stock-based compensation, CybeRecord accounts for
stock-based compensation using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of the
quoted market price of CybeRecord's stock at the date of the grant over the
amount an employee is required to pay for the stock.
Comprehensive Income
There are no reconciling items between the net loss presented in the Statements
of Operations and comprehensive loss as defined by SFAS No. 130, "Reporting
Comprehensive Income."
Segment Reporting
Management considers CybeRecord to operate on only one business segment.
Accordingly, any disclosures required by SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," are already incorporated in
other financial statement disclosures.
New Accounting Standards
New accounting standards issued through the date of the independent auditors'
report do not have an effect on these financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Accordingly, actual results could differ from the estimates that were used.
F-8
<PAGE>
Note 2. Capital Stock
December 31, 1999 December 31, 1998
----------------- -----------------
Shares authorized 20,000,000 20,000,000
================= =================
Shares issued and outstanding 15,471,864 12,335,864
================= =================
Note 3. Non-Cash Transactions
In 1999, CybeRecord issued 6,000,000 shares of common stock in conjunction with
the acquisition of the Kristal Group's assets (See Note 1). The common stock was
valued at $.50 per share. This value was based on stock sales in the same time
period. The number of shares issued was based on negotiations between CybeRecord
and the various owners of the Kristal Group's assets. As part of these
negotiations, certain shareholders contributed 5,000,000 shares of common stock
back to CybeRecord. These shareholders contributed the stock back to CybeRecord
so that ownership percentages in CybeRecord subsequent to this transaction were
in accordance with percentages that were agreed upon with the Kristal Group.
In 1999, CybeRecord issued 46,000 shares in exchange for legal services. These
shares were valued at $.50 per share, as they were issued at approximately the
same time that shares were issued for the Kristal Group's assets. In 1999,
CybeRecord issued 50,000 shares in exchange for consulting services. These
shares were valued at $12,000, as they were issued to settle a $12,000 invoice.
In November 1999, CybeRecord issued 70,000 shares in exchange for legal
services. These shares were valued at the closing market price on November 2,
1999, as discounted because the shares were restricted.
Note 4. Income Taxes
The reconciliation of income tax on income computed at the federal statutory
rates to income tax expense is as follows:
December 31, 1999 December 31, 1998
----------------- ------------------
Tax at statutory rate $ (1,338,109) $ (27,966)
Change in valuation allowance
for deferred tax asset 1,338,109 27,966
----------------- ----------------
Income tax expense $ - $ -
================= ================
F-9
<PAGE>
Note 4. (Continued)
CybeRecord's deferred tax asset is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---------------- -------------------
<S> <C> <C>
Net operating loss carryforwards
(before valuation allowance) $ 425,626 $ 144,713
Acquired research and development
costs expensed for financial
statement purposes, but capitalized
for income tax purposes 1,200,000
Other 39,068 1,872
Less valuation allowance for deferred tax asset (1,484,694) (146,585)
-------------- ---------------
Net deferred tax asset $ - $ -
============== ===============
</TABLE>
CybeRecord has net operating loss carryforwards of $1,206,000 at December 31,
1999. Most of these losses expire in 2019.
Note 5. Consulting Contracts
In March 1999, the President of CybeRecord, Inc., a Nevada corporation
("CybeRecord Nevada") executed a Consulting Agreement (the "Agreement") with
Brent Nelson on behalf of Northwest Capital Partners, LLC ("Northwest"). Brent
Nelson is the sole member of Northwest. Brent Nelson is also a director and
officer of CybeRecord Nevada. The Board of Directors of CybeRecord Nevada has
not yet approved the Agreement.
The Agreement, which runs through February 2002, provides for Northwest to
assist in obtaining financing for CybeRecord Nevada. In return for consulting
services under the Agreement, CybeRecord Nevada agreed to pay the consultant
$500 per month. Provision is made for this payment to increase to $1,000 per
month. The Agreement also provides that the consultant is to be issued 500,000
shares of common stock for $0.01 per share when the market capitalization of
CybeRecord Nevada reaches $100,000,000 and is to be issued an additional 500,000
shares of common stock at $0.01 per share when the market capitalization of
CybeRecord Nevada reaches $200,000,000. Any shares issued under the Agreement
will be restricted shares, and will have "piggy-back" rights, so that the shares
will be registered upon CybeRecord Nevada's first registration after the shares
are issued.
F-10
<PAGE>
Note 5. (Continued)
Two CybeRecord, Inc. exist in the United States: CybeRecord, Inc., a Florida
corporation ("CybeRecord Florida") and CybeRecord Nevada. We are CybeRecord
Florida. Brent Nelson is a director and officer of both corporations. Brent
Nelson is also a shareholder of CybeRecord Florida. Both companies share the
same President. Neither company owns the stock of the other. However, both
companies have taken steps to merge CybeRecord Florida into CybeRecord Nevada,
but the merger has not been completed.
While Northwest's contract is with CybeRecord Nevada, Northwest has performed
services for CybeRecord Florida. CybeRecord Florida has paid Northwest $500 per
month ($5,000 in 1999 and none in 1998). CybeRecord Florida's Board of Directors
has not approved a contract with Northwest. CybeRecord Florida and Northwest are
working to identify the terms upon Northwest will provide services to CybeRecord
Florida.
Since December 31, 1999, CybeRecord Florida has reached a market capitalization
that exceeds $200,000,000. If CybeRecord Florida and Northwest enter into a
consulting agreement with stock provisions similar to the provisions contained
in CybeRecord Nevada's Agreement, or CybeRecord Florida assumes CybeRecord
Nevada's obligations under the Agreement, then Northwest will have the right to
purchase the stock from CybeRecord Florida. Emerging Issue Task Force ("EITF")
No. 96-18 states that CybeRecord Florida would account for this stock
arrangement by estimating the fair value of the arrangement as of the
"measurement date" and recognizing the consulting expense over the term of the
consulting agreement. Based on guidance contained in EITF No. 96-18, management
has determined that the appropriate date to measure the fair value of this stock
arrangement is March 1999 (If CybeRecord Florida assumes CybeRecord Nevada's
agreement), or the date that CybeRecord Florida enters into a consulting
agreement with Northwest.
CybeRecord also has a consulting agreement for services with a shareholder and
former chief executive officer. The consultant received $25,000 in 1999 and will
receive an additional $62,500 through May 2000.
F-11
<PAGE>
Note 6. Subsequent Events
Subsequent to December 31, 1999, CybeRecord issued 1,275,000 shares of common
stock to unrelated parties at a price of $1.75 per share resulting in total
proceeds of $2,231,250.
In addition, CybeRecord borrowed $100,000 from a company owned by a member of
the board of directors. The loan is due on demand, unsecured and bears no
interest.
F-12
