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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 4
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
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
incorporation or organization) Identification No.)
800 Bellevue Way NE, 4/th/ 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
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PART I
Item 1. Description of Business...................................................................................... 1
Item 2. Plan of Operation............................................................................................ 9
Item 3. Description of Property...................................................................................... 11
Item 4. Security Ownership of Certain Beneficial Owners and Management............................................... 11
Item 5. Directors and Executive Officers, Promoters and Control Persons.............................................. 13
Item 6. Executive Compensation....................................................................................... 14
Item 7. Certain Relationships and Related Transactions............................................................... 15
Item 8. Description of Securities.................................................................................... 17
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters.............. 18
Item 2. Legal Proceedings............................................................................................ 19
Item 3. Changes in and Disagreements with Accountants................................................................ 19
Item 4. Recent Sales of Unregistered Securities...................................................................... 19
Item 5. Indemnification of Directors and Officers.................................................................... 20
PART F/S
Financial Statements.................................................................................................. F-1
PART III
Items 1 and 2. Index to Exhibits and Description of Exhibits......................................................... 20
SIGNATURES............................................................................................................ 21
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PART I
CybeRecord, Inc. (which we refer to in this registration statement as "we" or
the "Company" or "CybeRecord") has submitted four 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 via EDGAR on October 26, 1999.
The second filing, an amended Form 10-SB, was filed via EDGAR on February 11,
2000. The third filing, a second amended Form 10-SB, was filed via EDGAR on
April 20, 2000. The fourth filing, a third amended Form 10-SB, was filed via
EDGAR on June 21, 2000.
THE INFORMATION CONTAINED IN THIS REGISTRATION STATEMENT, REPLACES, IN ITS
ENTIRETY, THE INFORMATION CONTAINED IN OUR PREVIOUS FORM 10-SB FILINGS.
Item 1. Description of Business.
Form and Year of Organization
CybeRecord, Inc. was formed on February 17, 1969 under the laws of the State of
Florida. The 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.
Prior to 1999, the Company did not engage in any significant business
activities. In April 1999 we acquired a group of 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."
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 to 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 assets 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.
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Risk Factors
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.
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, There Will Be
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 our "Plan of Operation" below.
Problems could arise 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.
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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
During the next 12 months, our foreseeable cash requirements are expected to be
met by a combination of existing cash, revenue generated by our sales, and
additional equity and/or debt financing. We are currently devoting substantial
resources to the development of our products and to the establishment of sales
and distribution relationships. Substantial additional capital may be required
in the future to fund product development and product launch cycles. No
assurance can be given that additional financing will be available or that, if
available, such financing will be obtainable on terms favorable to us or our
shareholders. If needed capital is unavailable, our ability to continue in
business will be jeopardized. To the extent we raise additional capital by
issuing equity or securities convertible into equity, ownership dilution to our
shareholders will result.
If we encounter any problems with building up our commercial production as we
intend, it will delay our ability to generate revenue from operations. If
during any delays, we cannot obtain sufficient funding to keep operating our
business, our business will most likely fail or have to be sold. Furthermore,
even if our 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.
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If We Cannot or Do Not Adequately Protect Our Intellectual Property Rights, Our
Business Will Be Negatively Impacted
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.
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"). In June 2000 the ScanServer unit
passed FCC radio frequency emissions tests, however as of the date of this
registration statement, we had not completed the UL and CE testing process. We
did not apply for FCC approval earlier, because we needed commercial production
ScanServer units to do so. Our first commercial production units were assembled
during May 2000, so that is when we began the testing process. We must make
another commercial production ScanServer unit available to UL to complete this
process. Once we deliver the unit, we expect it will take another approximately
two months or so to complete the UL and CE testing process, during which time UL
will retain one of our production ScanServer units for testing. For additional
disclosure concerning the current status of governmental and safety approvals,
see "Plan of Operation" below.
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
accordingly, it will be more difficult 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), we will be exposed 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
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 negative 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 creates images that can be transmitted across the Internet
or placed on a server and made accessible by intranet. 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.
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 ScanServer'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."
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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 5c to 15c 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.
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
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that sells for around $16,000, but the scanner is limited to 16mm 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."
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 ScanServer 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 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 as
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 (www.aiim.org), 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 ScanServer 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 in the Risk
Factors set forth above entitled "If We Cannot or Do Not Adequately Protect Our
Intellectual Property Rights, Our Business Will Be Negatively Impacted" and "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."
Employees
We currently have 18 employees, all of whom work full time for the Company 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 had 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 shipped another
eight ScanServers.
During July 2000, we also undertook a rigorous testing program for our first run
of commercial production ScanServer units. This testing program revealed a
noisy lead screw in the ScanServer's camera lens transport mechanism. As soon
as we made this discovery, we took immediate action to correct the problem for
future production units, as well as to replace the camera lens transport
mechanisms in each of the units we had shipped during May and June 2000.
Because we focused our efforts on analyzing and correcting the problem with the
lead screw in the camera lens transport mechanism, we did not ship any new
ScanServer units during July 2000 and August 2000. Once we have completed the
process of replacing our previous camera lens transport mechanism with the re-
engineered mechanism, we will resume manufacturing new units (which will also
include the re-engineered mechanism). We expect to begin shipping units again
in September 2000. Our goal going forward 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,
Colombia, Brazil, and Mexico.
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
9
<PAGE>
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.
During July 2000 our quality control testing programs revealed the need to re-
engineer the ScanServer's camera lens transport mechanism (as described above).
This required us to order new parts on short notice, which we needed both to
replace transport mechanisms in previously shipped ScanServer units and to
install into future production units. Taking these critical steps during July
2000 added to the unexpected cash demands we experienced. The need to modify
the ScanServer units we had previously shipped has also delayed the generation
of revenues from those units, because they could not be placed into service
without the necessary modifications.
Because of these unexpected developments, we found that by the beginning of
August 2000 we were in need of immediate additional cash to fund our operations.
We are currently seeking the additional financing required in the future to fund
product development and product launch cycles. See "Risk Factors."
Once we have established an on-going commercial production rate of approximately
20 ScanServer units per month, and if we are able to consistently and quickly
place those units into service, we believe that we will be able to generate
adequate revenues from distributing ScanServers to sustain our operations at a
modest level. Without raising additional funds through future debt and/or
equity financings, we do not expect to be able to expand the scale of our
production and marketing efforts quickly, but we believe that meeting the goal
of producing and placing into service 20 ScanServer units each month could
sustain our business and allow us to 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 any additional stock.
As of June, 2000, we had 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 and the unit used for testing has
been returned to us.
We have also started the process to receive safety listings from Underwriters
Laboratories, Inc. ("UL") and the European equivalent of UL, known as "CE." As
of the date of this registration statement, we had not completed the UL and CE
testing process. We must make another commercial production ScanServer unit
available to UL to complete this process. Once we deliver the unit, we expect
it will take approximately two months to complete the UL and CE testing process,
during which time UL will retain one of our production ScanServer units for
testing.
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.
10
<PAGE>
As of the date of this registration statement, 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.
In June 2000 we 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 amounts. 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.
In June 2000, we 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.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of September 5, 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.
11
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Name and Address Number of Shares
of Beneficial Owner (1) Beneficially Owned Percentage of Class
================================================================================
<S> <C> <C>
James J. Lucas
401 - 100th NE, #316
Bellevue, WA 98004-5456 1,500,000 8.96
--------------------------------------------------------------------------------
Glenn Kimball*
2850 College Avenue
Modesto, CA 95350 1,500,000 8.96
--------------------------------------------------------------------------------
Marek A. Niczyporuk
962 Elsinore Drive
Palo Alto, CA 94303 1,300,000 7.77
--------------------------------------------------------------------------------
Brent Nelson
5395 176th Place
Bellevue, WA 98004 1,225,000** 6.90
--------------------------------------------------------------------------------
Thomas Morikawa
1737 14th Avenue
Seattle, WA 98122 1,115,000 6.66
--------------------------------------------------------------------------------
James L. Quinn***
3419 Evergreen Point Road
Medina, WA 98039 1,100,000 6.57
--------------------------------------------------------------------------------
Alva D. Cravens
17235 Deerpark Road
Los Gatos, CA 95032 100,000 0.60
--------------------------------------------------------------------------------
Robert Hogan
800 Bellevue Way NE, 4th Floor
Bellevue, WA 98004 none n/a
--------------------------------------------------------------------------------
William S. Altieri
675 Sharon Park Drive
Menlo Park, CA 94025 none n/a
--------------------------------------------------------------------------------
All directors and executive
officers as a group (7 persons)
6,725,000 37.89
================================================================================
</TABLE>
* 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.
12
<PAGE>
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 60 Director
Robert Hogan 54 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.
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.
Robert Hogan, Director -- Mr. Hogan is a member of the Board of Directors and
currently serves as principal in the firm of Hogan, Steigemeier & Lyons Merchant
Bankers. Prior to founding that firm, Mr. Hogan was the Director of Acquisitions
of a multi-million dollar consolidated telecommunications and systems
integration firm, Exp@nets. In his capacity as Director of Acquisitions, Mr.
Hogan headed up the team of senior executives involved in executing a
nation-wide business acquisition strategy. The project was underwritten by one
of Wall Street's most recognized investment banking firms. He is an experienced
and successful entrepreneur having started and developed several
telecommunications equipment wholesale and distribution companies in Southern
California. Two of Mr. Hogan's companies were acquired by large corporate
partners and two were sold in public securities offerings. Mr. Hogan is an
active investor in the high technology sector and serves on the board of
VisualCommerce, Inc., a private e-commerce applications company. He resides in
Bellevue, Washington.
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
13
<PAGE>
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). 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. Mr. Nelson also serves on the Board of Directors of
Palmworks, Inc., Mobile PET Systems, Inc., Polar Cargo Systems, Eclipse
Entertainment Group, Innovative Communication Technologies, Inc., Esarati
Technologies Corp., and Interactive Objects, Inc.
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.
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 multi-million 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.
14
<PAGE>
Compensation Paid During 1999
Position Salary Bonus Other 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.
** 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
15
<PAGE>
officer of CybeRecord Nevada. The Board of Directors of CybeRecord Nevada
has not yet approved the Agreement.
The Agreement, which runs from March 1999 through February 2002, provides
for Northwest to act as a finder in obtaining financing for CybeRecord
Nevada. Northwest's duties under the Agreement include evaluating financing
proposals presented to CybeRecord Nevada from the standpoint of financial
soundness, CybeRecord Nevada's business plans and programs, corporate
financial structures, corporate organization, and other financial matters.
In addition, Northwest is to assist CybeRecord Nevada's management in: (1)
the development and execution of a strategic short-term, intermediate-term,
and long-term financial plan; (2) the negotiation of the terms of
financings arranged under the Agreement; and (3) the preparation of
presentation materials to be used to obtain financing. Northwest also has
the obligation to help CybeRecord Nevada become a company with its common
stock quoted on the NASD OTC Bulletin Board.
In return for Northwest's consulting services under the Agreement,
CybeRecord Nevada agreed to pay Northwest $500 per month. If certain
conditions are fulfilled, the Agreement can be extended for an additional
36 months and the payment can be increased 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.
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 which Northwest will provide services to
CybeRecord Florida.
Since December 31, 1999, CybeRecord Florida reached a market capitalization
that exceeded $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.
16
<PAGE>
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, was a consultant to the Company from
November 1999 until May 15, 2000. Under our consulting agreement with Mr.
Morikawa, we paid Mr. Morikawa a monthly retainer of $12,500. In exchange
for these payments, Mr. Morikawa remained available to the Company's
incoming CEO and Board of Directors to help ensure a smooth transition and
continuity of important knowledge about the Company's history and business
plans. Mr. Morikawa also agreed under his consulting agreement that for a
period of two years from the start date of the consulting agreement, he
would not pursue a position or any other ties with a company that competes
with our Company in intellectual property development or sales.
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.
The Company believes that the above-described transactions with related parties
were at least as fair to the Company as comparable transactions would have been
had they been arranged with unaffiliated counter-parties.
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 $.01 is entitled to one vote,
either in person or by proxy, on all matters that may be voted upon by holders
of the Company's Common Stock at meetings of the Company's shareholders.
The holders of Common Stock (i) have equal ratable rights to dividends from
funds legally available for payment of dividends, when and if declared by the
Company's Board of Directors; (ii) are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution, or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription, or conversion rights, or redemption or
sinking fund provisions applicable thereto; and (iv) are entitled to one non-
cumulative vote per share on all matters on which shareholders may vote at all
meetings of shareholders.
All of the issued and outstanding shares of Common Stock are, and all unissued
shares when sold will be, duly authorized, validly issued, fully paid, and non-
assessable. To the extent that additional shares of the Company's Common Stock
are issued, the relative interests of the then-existing shareholders may be
diluted.
17
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
Market Information
The Company's Common Stock ($.01 par value), for which the trading symbol is
"CYRD," 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
closing price of the Company's common stock was $3.40 on September 11, 2000. The
high/low bid information for the Company's stock for the period January 1998 to
August 2000 as reported by the "Wall Street City" website
(www.wallstreetcity.com) of Telescan, Inc. follows:
Monthly prices (January 1998 to August 2000)
Date High Low
Aug 2000 4.250 2.000
Jul 2000 5.000 2.750
Jun 2000 6.250 4.125
May 2000 9.500 5.625
Apr 2000 12.000 4.250
Mar 2000 18.000 5.300
Feb 2000 19.750 3.750
Jan 2000 5.250 1.250
Dec 99 2.125 0.812
Nov 99 1.375 0.625
Oct 99 1.750 0.625
Sep 99 1.000 0.500
Aug 99 1.250 0.937
Jul 99 1.562 1.125
Jun 99 1.875 0.937
May 99 1.437 0.500
Apr 99 1.000 0.406
Mar 99 0.812 0.125
Feb 99 0.375 0.187
Jan 99 0.250 0.125
Dec 98 0.375 0.125
Nov 98 0.593 0.250
Oct 98 0.531 0.218
Sep 98 0.750 0.250
Aug 98 0.937 0.500
18
<PAGE>
Jul 98 1.125 0.750
Jun 98 1.250 0.687
May 98 1.187 0.437
Apr 98 0.687 0.500
Mar 98 0.750 0.375
Feb 98 0.750 0.500
Jan 98 0.750 0.375
Holders
The approximate number of record holders of the Company's Common Stock as of
September 5, 2000 was 351, 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 September 5,
2000 was 16,746,864 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.
19
<PAGE>
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.
PART F/S
The Company's financial statements required by Regulation SB begin on page F-1
and are incorporated into this part of this Amendment No. 4 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*
* 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.
20
<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: September 13, 2000 By: /s/ JAMES J. LUCAS
---------------------------- ----------------------------------
James J. Lucas, President & CEO
21
<PAGE>
PART F/S Financial Statements
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT F-2
AUDITED ANNUAL FINANCIAL STATEMENTS
Balance sheets F-3
Statements of operations F-4
Statements of stockholders' equity F-5
Statements of cash flows F-7
Notes to financial statements F-9 - F-13
INTERIM UNAUDITED FINANCIAL STATEMENTS
Balance Sheets F-14
Statements of operations F-15
Statements of stockholders' equity F-16
Statements of cash flows F-18
Notes to financial statements F-19
F-1
<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-2
<PAGE>
AUDITED ANNUAL FINANCIAL STATEMENTS
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-3
<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-4
<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
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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-6
<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
----------- -------- -----------
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C> <C> <C>
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-8
<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.
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.
F-9
<PAGE>
Note 1. (Continued)
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.
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.
F-10
<PAGE>
Note 1. (Continued)
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.
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-11
<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.
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.
F-12
<PAGE>
Note 5. (Continued)
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.
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-13
<PAGE>
UNAUDITED INTERIM FINANCIAL STATEMENTS
CYBERECORD, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
ASSETS (Unaudited) (Audited)
-------------- ------------
<S> <C> <C>
Current Assets
Cash $180,809 $111,154
Certificate of Deposit 50,000
Prepaid expenses and deposits 21,864 15,194
-------- --------
Total current assets 252,673 126,348
Furniture and Equipment, at cost,
less accumulated depreciation of $20,940
at June 30, 2000 and $3,940 at December 31, 1999
and $3,940 at December 31, 1999 115,059 25,328
Capitalized Development Costs 657,101
----------- -----------
$ 1,024,833 $ 151,676
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 69,423 $ 21,436
Stockholders' Equity
Common stock, par value $.01 167,469 154,719
Additional paid-in capital 6,560,769 4,342,269
Deficit accumulated during the
development stage (5,772,828) (4,366,748)
----------- -----------
955,410 130,240
----------- -----------
$ 1,024,833 $ 151,676
=========== ===========
</TABLE>
See Notes to Financial Statements
F-14
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS Unaudited
For the Three Months and Six Months Ended June 30, 2000 and 1999, and the Period
From September 27, 1996 to June 30, 2000
<TABLE>
<CAPTION>
Total
Accumulated
During
Development
Stage
Three Months Ended Six Months Ended (September 27,
-------------------------------- ---------------------------- 1996 to
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 June 30, 2000)
-------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues, Interest income $ 7,670 $ - $ 14,777 $ - $ 14,777
Expenses
Write-off of acquired research
and development 3,000,000 3,000,000 3,000,000
Research and development 128,317 96,699 128,317 272,124
General and administrative 925,278 65,587 1,324,158 9,199 2,515,481
----------- ----------- ----------- ----------- -----------
925,278 3,193,904 1,420,857 3,203,103 5,787,605
----------- ----------- ----------- ----------- -----------
Net loss $ (917,608) $(3,193,904) $(1,406,080) $(3,203,103) $(5,772,828)
=========== =========== =========== =========== ===========
Basic loss per share of common stock $ (0.05) $ (0.21) $ (0.09) $ (0.23) $ (0.46)
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding 16,746,864 15,038,530 16,321,864 13,687,199 12,579,419
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-15
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Unaudited
For the Six Months Ended June 30, 2000 and 1999,
and the Period From September 27, 1996 to June 30, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Common Paid in Development Receivable for
Shares Stock Capital Stage Shares Sold Total
------- ------- ------- ------- ----------- -------
<S> <C> <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 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 subscriptions
receivable (March 1999) 1,970,000 19,700 965,300 (985,000)
Issuance of common stock in
exchange for services
(March 1999) 6,000 60 2,940 3,000
Additional capital contributed by
shareholders 8,050 8,050
Contribution of shares back
to the corporation (5,000,000) (50,000) 50,000
Issuance of common stock in
</TABLE>
F-16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
exchange for services (April 1999) 90,000 900 36,100 37,000
Issuance of common stock in
exchange for Kristal Group assets
(April 1999) 6,000,000 60,000 2,940,000 3,000,000
Collection of subscriptions
receivable 500,000 500,000
Net loss (3,203,103) (3,203,103)
---------- -------- ---------- ------------ ----------- -----------
Balances, June 30, 1999 15,401,864 154,019 4,311,469 (3,634,234) (485,000) 346,254
Issuance of common stock in
exchange for services
(November 1999) 70,000 700 30,800 31,500
Collection of subscriptions receivable 485,000 485,000
Net loss (732,514) (732,514)
---------- -------- ---------- ------------ ----------- -----------
Balances, December 31, 1999 15,471,864 154,719 4,342,269 (4,366,748) - 130,240
Issuance of common stock in
exchange for cash (March 2000) 1,275,000 12,750 2,218,500 2,231,250
Net loss (1,406,080) (1,406,080)
---------- -------- ---------- ------------ ----------- -----------
Balances, June 30, 2000 16,746,864 $167,469 $6,560,769 $(5,772,828) $ - $ 955,410
========== ======== ========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
F-17
<PAGE>
CYBERECORD, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS Unaudited
For the Six Months Ended June 30, 2000 and 1999, and the Period
From September 27, 1996 to June 30, 2000
<TABLE>
<CAPTION>
Total Accumulated
During
Development
Stage
Six Months Six Months (September 27,
Ended Ended 1996 to June 30,
June 30,2000 June 30,1999 2000)
------------ ------------ -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(1,406,080) $(3,203,103) $(5,772,828)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 17,000 194 20,940
Write-off of purchased inprocess
research and development that had
not reached technological feasibility 3,000,000 3,000,000
Professional fees exchanged for
common stock 40,000 71,500
Changes in operating assets and liabilities
Certificate of Deposit (50,000) (50,000)
Prepaid expenses and deposits (6,670) (23,101) (21,864)
Accounts payable 47,987 6,713 69,423
----------- ----------- -----------
Cash used in operating activities (1,397,763) (179,297) (2,682,829)
Cash Flows From Investing Activities
Purchase of equipment (106,731) (6,968) (135,999)
Capitalized Development Costs (657,101) (657,101)
----------- ----------- -----------
Cash used in investing activities (763,832) (6,968) (793,100)
Cash Flows From Financing Activities
Issuance of common stock 2,231,250 500,000 3,514,360
Capital contribution 8,050 138,250
----------- ----------- -----------
Cash provided by financing activities 2,231,250 508,050 3,652,610
----------- ----------- -----------
Net increase in cash 69,655 321,785 176,681
Cash, beginning of period 111,154 1,307 4,128
----------- ----------- -----------
Cash, end of period $ 180,809 $ 323,092 $ 180,809
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying un-audited financial statements have been prepared in
accordance with the instructions to Form 10-SB and therefore do not include all
disclosures necessary for a fair presentation of financial position, results of
operations, changes in stockholders' equity, and cash flows in conformity with
generally accepted accounting principles. The operating results for interim
periods are un-audited and are not necessarily an indication of the results to
be expected for the full fiscal year. In the opinion of management, the results
of operations as reported for the interim period reflect all adjustments that
are necessary for a fair presentation of operating results.
Note 2. Per Share Information
Basic loss per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding in the
period. Diluted loss per share has not been presented, as inclusion of any such
shares would be anti-dilutive to the loss per share.
Note 3. Capitalized Development Costs
CybeRecord's ScanServer product reached the stage of technological feasibility
as defined by Statements of Financial Accounting Standards ("SFAS") 86 on
February 16, 2000. Technological feasibility was determined in February 2000 as
two prototype units were completed and tested with only insignificant changes
required. Pilot production and customer acceptance are important but secondary
concerns in determining feasibility as CybeRecord's research has determined a
need and demand for the product and the completion of the prototype units with
few needed changes validates the basic design for pilot production.
Additionally, various governmental and safety approvals were also considered in
determining feasibility. The required tests are relatively routine and did not
play a significant role in determining feasibility.
All product development costs prior to February 15, 2000 have been charged to
expense as research and development and all product development costs subsequent
to that date have been included in capitalized development costs.
CybeRecord expects to lease all ScanServer products. Accordingly, SOP 97-2 and
98-9 related to software revenue recognition are not expected to significantly
affect CybeRecord's financial statements.
F-19
