Draft Copy - For Discussion
Purposes Only
AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON December 16,1999
REGISTRATION NO. ________
- ------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
- -----------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
- ------------------------------
ArchivalCD Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS
CHARTER)
DELAWARE 83-0324656
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
100 North Sixth #212
Crockett, Texas 75835
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(409) 545-9515
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
--------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE
TO PUBLIC: As soon as practicable after this
Registration Statement becomes effective.
If this form is filed to register
additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the
following box and list the Securities Act
registration statement number of the earlier
effective registration statement for the same
offering: []
If this form is a post-effective
amendment filed pursuant to Rule 462(c)under the
Securities Act, check the following box and list
the Securities Act registration statement number
of the earlier effective registration statement
for the same offering: [ ]
If this form is a post-effective
amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list
the Securities Act registration statement number
of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected
to be made pursuant to Rule 434, check the
following box: [ ]
Calculation of Registration Fee
THE REGISTRANT HEREBY AMENDS THIS
REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8 (A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS
THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT
COMPLETE AND MAY BE AMENDED. THESE SECURITIES MAY
NOT BE SOLD UNTIL THE RELATED REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR ANY APPLICABLE STATE SECURITIES
COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE IN WHERE THE
OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED December, 13 1999
PROSPECTUS LOGO
ArchivalCD, Inc.
3,700,000
Common Shares
This is an initial public offering of
3,700,000 shares of common stock, of ArchivalCD, Inc.
There is currently no public market for
the common stock. ArchivalCD, Inc. anticipates
that the initial public offering price per share
will be $2.00. It is anticipated that the common
stock will be listed on the Over the Counter
markets under the symbol AHCD.
This prospectus also relates to the sale
of shares of common stock held by certain selling
stockholders identified in this prospectus. Such
shares may not be sold for a period of nine
months from the effective date of this prospectus
without the prior written consent of ArchivalCD
Inc. ArchivalCD Inc. will not receive any
proceeds from the sale of such shares.
Investing in the common stock and
warrants involves certain risks. You should
purchase these securities only if you can afford
a complete loss. See "Risk Factors" beginning on
page 8.
Per Share Total
--------- -----
Public Offering Price $ $
Underwriting Discounts and Commissions$ $
Proceeds to the Company $ $
Proceeds to Selling Stockholders $ $
Neither the Securities and Exchange
Commission nor any State securities commission
has approved or disapproved these securities or
determined if this Prospectus is truthful or
complete. Any representation to the contrary is a
criminal offense.
Common Stock
Over the Counter Bulletin Board
TITLE OF EACH
CLASS ON WHICH TO
BE SO REGISTERED
NATURE OF EACH EXCHANGE
EACH CLASS IS TO BE
REGISTERED
1
TABLE OF CONTENTS
Prospectus Summary....................4
Risk Factors..........................8
Use of Proceeds......................16
Dividend Policy......................17
Capitalization.......................18
Dilution.............................19
Selected Financial Data..............20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............21
Business.............................27
Management...........................37
Certain Transactions.................40
Principal Stockholders...............42
Selling Stockholders.................44
Description of Securities............46
Shares Eligible for Future Sale......49
Underwriting.........................50
Legal Matters........................53
Experts..............................53
Additional Information...............53
Index to Financial Statements.......F-1
Information Required in Registration Statement
Certain Forward-Looking Information
Certain statements included in this
report, which are not historical facts, are
forward looking statements, including the
information provided with respect to future
business opportunities, expected financing
sources and related matters. These forward
looking statements are based on current
expectations, estimates, assumptions and beliefs
of management, and words such as "expects,"
"anticipates," "intends," "believes," "estimates"
and similar expressions are intended to identify
such forward looking statements. Since this
information is based on current expectations that
involve risks and uncertainties, actual results
could differ materially from those expressed in
the forward-looking statements.
PROSPECTUS SUMMARY
You should read the entire Prospectus,
including the "Risk Factors" section and the
Financial Statements and the notes to the
Financial Statements, carefully. The terms the
"Company" and "ArchivalCD Inc." refers to our
predecessor and us.
Unless stated otherwise, all information
in this Prospectus (i) assumes an initial public
offering price of $2.00 per share.
ITEM 1
BUSINESS
The Company
ArchivalCD Inc., (ArchivalCD or the "Company")
is a developmental stage manufacturer, organized
in December 1998, as a Delaware Corporation, The
successor to ArchivalCD LLC.
The Company has no products or services for sale
at this time and did not generate any production or
revenues due to losses experienced the last fiscal
quarter of 1997, from a natural flood and extensive
water damage to it's production facilities, which were
located in North Salt Lake City, UT.
Upon the resumption of production ArchivalCD Inc.
will resume production as a designer of
Genealogical and Business Archive Records
digitalized information and storage libraries.
The company develops, and manufactures, digitizes
microfilm documents of historical value and places,
them on a Compact Disk ("CD's"). The company has five
years of development, planning, programming, and
analysis in this specialized field of operations. The
company plans on entering both the microfilm sales
portion of the market and the more expansive microfilm
image base on CD portion of the market. Doing both
supports the furthering of genealogical education and
the corresponding historical and educational programs
which increases business potential
We were formed as a limited liability
company in July 1995 and merged into a Delaware
corporation in December 1998. Our address is 100
North Sixth Street Suite 212, Crockett, TX 75835,
and our telephone number is (409) 545 9515. Our
Web site can be accessed at www.ArchivalCD.com.
Information contained on our Web site is not part
of this Prospectus.
The Company product design and distribution
network offers its customers a large selection of
research material and record storage via CD's or
proprietary Internet retrieval systems. The
products are marketed, to the more than eighteen
million genealogists in the United States and foreign
markets. Of those, nearly 20% are actively researching
with a need for the documents found on microfilm
contained in the National Archives collections. The
products are to be sold primarily to a membership
clientele from direct marketing, Internet marketing,
journal advertising, and personal contact at national
and regional conferences in much the same manner as
the comparative microfilm rental/sales market
currently operates.
ArchivalCD provides rental usage or purchase of
compact disks containing the specific genealogical
microfilm title requested by the client. The company
is a membership-based company and uses the membership
fees to help offset the initial development costs of
each custom created title. Film titles are ordered by
the National Archives catalog number, which
ArchivalCD's active catalog converts to 'product code'
so that best use of space and production time can be
made. ArchivalCD members are also able to order the
same title in reproduced film versions. All titles are
available in CD or film.
ArchivalCD Inc. has never been in bankruptcy or
receivership, although in Fiscal year 1998 The
Company did not generate any production or revenues
due to losses experienced the last fiscal quarter of
1997, from flood and extensive water damage to it's
production facilities, which were located in North
Salt Lake City, UT. The losses experienced from this
damage and the lack of adequate insurance caused the
company to cease operations. This resulted in
numerous customer accounts going un-serviced. Prior to
this flood The Company recorded $500,000 in gross
revenue with a customer base of 3,000.
The Company plans to focus its efforts on
increasing its customer base through expansion
into both the private market sectors as well as
Governmental services. The Company also seeks to
expand its product line and customer base through
selective acquisitions of other concerns, which
distribute complementary genealogy and electronic
archiving products, although it has not
identified any particular acquisition as of the
date of this Registration Statement. The Company
intends to finance its long-term growth strategy
using, internally generated funds and, if
necessary, borrowings under credit facilities.
THE OFFERING
Securities Offered.............3,700,000 shares
of Common Stock (the "Common Stock")
Common Stock Outstanding
Before the Offering(1)(2)......18,227,581 shares
Common Stock Outstanding
After the Offering(1).........21,227,581 shares
Use of Proceeds........Product
development, sales and
marketing, facilities and
other capital
expenditures, expansion of
internal operations and
working capital and
general corporate
purposes.
See "Use of Proceeds."
Proposed trading
Symbols................Common Stock AHCD
Risk Factors...........For a discussion of
certain risks you should consider before investing
in the Company's securities, see "Risk Factors."
RISK FACTORS
You should carefully consider the
following factors and other information in this
Prospectus before deciding to invest in shares of
Common Stock and Warrants. This Prospectus
contains forward-looking statements that involve
risks and uncertainties. Such statements can be
identified by the use of words such as "may,"
"will," "expect," "anticipate," "estimate,"
"continue," or other similar words. These
statements discuss future expectations, contain
projections of results of operations or of
financial condition, or state other "forward-
looking" information. When considering such
statements, you should keep in mind the risk
factors described below and other cautionary
statements in this Prospectus. The risk factors
described below and other factors noted
throughout this Prospectus, including certain
risks and uncertainties, could cause our actual
results to differ materially from those contained
in any forward-looking statement.
Limited Operating History; Accumulated
Deficit; Anticipated Future Losses; Ability to
Continue as a Going Concern. We were originally
formed as a limited liability company in July
1995 and were merged into a corporation in
December 1998. We did not recognize any revenue
in 1999. Therefore, we have only a limited
operating history upon which you may judge our
performance and prospects. We have incurred
significant losses since inception and we expect
to continue to incur substantial operating losses
for the foreseeable future. We must, among other
things, establish widespread market acceptance of
our existing products, successfully develop and
deliver new products and services, respond
quickly and effectively to competitive, market
and technological developments, expand sales and
marketing operations, broaden customer support
capabilities, control expenses and continue to
attract and retain qualified personnel. We may
not become profitable in the future. Our
independent accountants have included an
explanatory paragraph stating that our financial
statements have been prepared assuming that we
will continue as a going concern and that we have
suffered recurring losses from operations and
have a working capital deficiency which cause
substantial doubt as to our ability to do so. See
"Management's Discussion and Analysis of
Financial Condition and Results of Operations"
and "Financial Statements and Notes thereto."
Unpredictability of Future Revenues;
Potential Fluctuation in Quarterly Operating
Results. As a result of our limited operating
history and the emerging nature of the markets in
which we compete, we may not be able to achieve
anticipated revenues. We expect to experience
significant fluctuations in our future quarterly
operating results due to a variety of factors,
many of which are outside our control, including:
- - demand for products and services;
- - market acceptance of our new products and services;
- - price reductions or changes in pricing;
- - mix of products and services;
- - mix of distribution channels;
- - mix of international and North American revenues;
- - costs of litigation and intellectual property protection;
- - competitive factors;
- - growth in the use of the Internet;
- - technical difficulties with respect to the use
of our products; and
- - general economic conditions and economic
conditions specifically related to the Internet.
We believe that our quarterly revenues, expenses
and operating results could vary significantly in
the future, and that you should not rely upon
period-to-period comparisons as indications of
future performance.
Product Development; Rapid Technological Change.
The markets for our products are characterized by
evolving industry standards, changing
technologies and frequent new product
introductions and enhancements. Our future
success will depend in part on our ability to
enhance our existing products and to develop and
introduce new products and features that meet
changing customer requirements and emerging
industry standards. We may not successfully
complete the development or introduction of
products on a timely basis, if at all. In
addition, our current or future products may not
achieve market acceptance. Products or
technologies developed by others may render our
products or technologies noncompetitive or
obsolete. Any failure by us to anticipate or
respond adequately to changing technologies, or
any significant delays in product development or
introduction, could cause customers to delay or
decide against purchases of our products and
would have a material adverse effect on our
business.
Risk of Product Defects and Product
Liability. Software products as complex as those
offered by us often contain undetected errors or
failures when first introduced or as new versions
are released. In addition, to the extent that we
may have to develop new products that operate in
new environments, such as the Internet, the
possibility for program errors and failures may
increase due to factors such as the use of new
technologies or the need for more rapid product
development that is characteristic of the
Internet market. Despite pre-release testing by
us and by current and potential customers, there
still may be errors in new products, even after
commencement of commercial shipments. The
occurrence of such errors could result in delay,
or failure to achieve, market acceptance of our
products, which could have a material adverse
effect on our business. In addition, because our
products are used in business-critical
applications, any errors or failures in such
products may give rise to substantial product
liability claims, which also could have a
material adverse effect on our business.
Competition. The markets for our products and
services are relatively new, constantly evolving
and intensely competitive. Barriers to entry are
low and we expect that competition will intensify
in the future. Many of our current and potential
competitors have longer operating histories,
greater name recognition and significantly
greater financial, technical and marketing
resources. As a result, our competitors may be
able to develop products comparable or superior
to ours or adapt more quickly to new technologies
or evolving customer requirements. In addition,
we may, as a strategic response to changes in the
competitive environment, implement pricing,
licensing, service or marketing changes designed
to extend our current brand and technology
franchise. Continued price concessions or the
emergence of other pricing or distribution
strategies by competitors may have a material
adverse effect on our business, financial
condition and results of operations.
Possible Need for Additional Financing.
We anticipate that the net proceeds from this
offering and cash provided by operations will
allow us to meet our cash requirements for at
least 12 months following the date of this
Prospectus. This expectation is based on our
current operating plan which can change as a
result of many factors, and we may require
additional funding sooner than anticipated. In
addition, unplanned acquisition and development
opportunities and other contingencies may arise,
which also could require additional capital.
Sources of funds may include the issuance of
common or preferred stock sold in a public
offering or in private placements, or the
issuance of debt or bank financing. If additional
capital is raised through the sale of equity or
convertible debt securities, our stockholders may
be diluted. We may not be able to obtain capital
on a timely basis, on favorable terms, or at all.
If we were unable to obtain such financing, or
generate funds from operations sufficient to meet
our needs, we would be materially adversely
affected. See "Use of Proceeds."
Uncertain Protection of Intellectual Property;
Risks Associated With Licensed Third-Party
Technology. Our success depends in part on our
ability to protect our proprietary software and
other intellectual property. To protect our
proprietary rights, we generally rely on patent,
copyright, trademark and trade secret laws,
confidentiality agreements with employees and
third parties, and license agreements with
consultants, vendors and customers, although we
have not signed such agreements in every case.
Despite such protections, a third party could
copy or otherwise obtain and use our products or
technology, or develop similar technology
independently.
We also rely on certain technology that we
license from third parties, including software
that is integrated with internally developed
software and used in our products, to perform key
functions. In the future, such third-party
technology licenses may not be available to us on
commercially reasonable terms. The loss of any of
these technologies could have a material adverse
effect on our business, financial condition and
results of operations.
We attempt to avoid infringing known
proprietary rights of third parties in our
product development efforts. However, we have not
conducted and do not conduct comprehensive patent
searches to determine whether the technology used
in our products infringes patents held by third
parties. In addition, it is difficult to proceed
with certainty in a rapidly evolving
technological environment in which there may be
numerous patent applications pending, many of
which are confidential when filed, with regard to
similar technologies. If we were to discover that
our products violate third-party proprietary
rights, we may not be able to obtain licenses to
continue offering such products without
substantial reengineering or that any effort to
undertake such reengineering would be successful,
that any such licenses would be available on
commercially reasonable terms, if at all, or that
litigation could be avoided or settled without
substantial expense and damage awards. Any claims
relating to the infringement of third-party
proprietary rights, even if not meritorious,
could result in the expenditure of significant
financial and managerial resources and could
result in injunctions preventing us from
distributing certain products. Such claims could
materially adversely affect our business,
financial condition and results of operations.
Developing Market. The markets for our
products and services are in the early stages of
development and are evolving rapidly, with
continuing new developments in technology,
product distribution methods, and marketing and
licensing relationships. The development of a
market for our products also depends on increased
use of the Internet and intranets for
information, publication, distribution and
commerce relating to video and multimedia.
Critical issues concerning use of the Internet
and intranets (including security, reliability,
cost, ease of use and quality of service) remain
unresolved and may affect the growth of and the
degree to which business is conducted over the
Internet and intranets. If the market for our
products and services fails to grow, develops
more slowly than expected or becomes saturated
with competing products or services, our business
will be materially adversely affected.
Dependence on Key Personnel. We are
dependent on the continued employment and
performance of our executive officers and key
employees, particularly Dr. Daniel J. Hay, Chief
Executive Officer (and President, upon completion
of this offering). We have entered into
employment agreements with Dr. Daniel J. Hay,
which will commence, on the closing of this
offering. We do not maintain any key man life
insurance but it will be added in the future. The
loss of the services any of our executive
officers or key employees could have a material
adverse effect on our business.
See "Management."
Management of Growth. Our rapid growth has
placed, and is expected to continue to place, a
significant strain on our managerial, technical,
operational and financial resources. To manage
our expected growth, we will have to implement
and improve our operational and financial systems
and train and manage our growing employee base.
We will also need to maintain and expand our
relationships with customers, marketing partners,
licensees, licensors, and other third parties.
Our current and planned personnel, financial and
operating procedures and controls may not be
adequate to support our future operations. If we
are unable to manage our growth effectively, our
business will be materially adversely affected.
Risks Associated with International
Expansion. A component of our strategy is to
expand internationally by opening international
sales offices and developing international
distribution and sales networks. We may be unable
to successfully market, sell and deliver our
products internationally. In addition, we will be
subject to the risks of doing business abroad,
including political or economic instability in a
region, changes in diplomatic and trade
relationships, tariffs and other barriers and
restrictions, restrictions on the transfer of
funds, currency fluctuations, potentially adverse
tax consequences and the burdens of complying
with foreign laws and regulations.
Year 2000 Compliance. The "year 2000
problem" is pervasive and complex, as virtually
all computer operations will be affected in some
way. The issue is whether computer systems will
properly recognize date sensitive information
when the year changes to 2000. Systems that do
not properly recognize such information could
generate erroneous data or fail. We have not
completed our assessment of the potential impact
of year 2000 on our systems, nor are we certain
that all of our vendors, suppliers and customers
are year 2000 compliant. Any year 2000 compliance
problem affecting our customers or us could have
a material adverse effect on our business.
Sales and Other Taxes. We currently do not
collect sales or similar taxes with respect to
the sale of products, license of technology, or
provision of services in states and countries
other than states in which we have offices.
However, one or more states or foreign countries
may seek to impose sales or other tax obligations
on companies that engage in online commerce
within their jurisdictions. A successful
assertion by one or more states or any foreign
country that we should collect sales or other
taxes on the sale of products, license of
technology, or provision of services, or remit
payment of sales or other taxes for prior
periods, could have a material adverse effect on
our business.
Control by Management. After completion of
this offering, our executive officers and
directors will beneficially own approximately
50.5% of our outstanding shares. As a result,
these executive officers and directors may
continue to be able to control the outcome of
matters requiring a stockholder vote, including
the election of the members of the Board of
Directors. This control could adversely affect
the market price of the shares of Common Stock or
delay or prevent a change in control of Digital
Lava. See "Principal Stockholders."
Governmental Regulation and Legal
Uncertainty. We are not currently directly
regulated by any governmental agency, other than
laws and regulations generally applicable to
businesses, although certain United States export
controls and import controls of other countries,
including controls on the use of encryption
technologies, may apply to our products. Due to
the increasing popularity and use of the
Internet, it is possible that a number of laws
and regulations may be adopted in the United
States and abroad relating to the Internet. In
addition, the applicability to the Internet of
the existing laws governing issues such as
property ownership, content, taxation, defamation
and personal privacy is uncertain. Any such
export or import restrictions, new legislation or
regulation or governmental enforcement of
existing regulations may limit the growth of the
Internet, increase our cost of doing business,
restrict our business or increase our legal
exposure, which could have a material adverse
effect on our business.
Liability for Internet Content. Because
content from our Web site is distributed to
others, we may be subjected to claims of
negligence, copyright, patent or trademark
infringement, defamation, indecency and other
claims. Such claims have been brought, sometimes
successfully, against Internet content
distributors. In addition, we could be subjected
to claims based upon the content that is
accessible from our Web site through links to
other Web sites. Although we maintain general
liability insurance, our insurance may not cover
potential claims of this type or may not be
adequate to indemnify us for all liability that
may be imposed. Any imposition of liability that
is not covered by insurance or is in excess of
insurance coverage could have a material adverse
effect on our business.
Lack of Experience of Representative.
Corporate Vision Inc., commenced operations in
August 1998. The Representative has co-managed
and participated as an underwriter in only two
previous public offerings of securities. No
assurances can be given that any broker-dealer
will become a market maker for the Common Stock.
See "Underwriting."
Immediate and Substantial Dilution. The
initial public offering price per share of Common
Stock is substantially higher than the net
tangible book value per share of the outstanding
Common Stock. Purchasers of these shares will
experience immediate and substantial dilution of
$ 1.71 per share in net tangible book value per
share, or approximately 85.5% of the assumed
initial public offering price of $2.00 per Share.
See "Dilution."
Dividend Policy. We do not anticipate paying
any cash dividends in the foreseeable future and
intend to retain earnings, if any, to develop,
operate and expand our business. See "Dividend
Policy."
Anti-Takeover Considerations. Certain
provisions of our Amended and
Restated Certificate of Incorporation and Bylaws
could make it more difficult for a third party to
acquire control of the Company, even if a change
in control would be beneficial to stockholders.
Our Amended and Restated Certificate of
Incorporation and Bylaws require advance notice
of special stockholder meetings and permit the
Board of Directors to issue up to 5,000,000
shares of Preferred Stock without stockholder
approval. These provisions could also limit the
price that investors may be willing to pay in the
future for the Common Stock. See "Description of
Securities."
USE OF PROCEEDS
The net proceeds to the Company from the
sale of the Securities offered hereby, after
deduction of underwriting discounts and other
estimated expenses relating to the offering, are
estimated to be approximately $6,280,684 intends
to use the net proceeds as follows:
Percent of Total Net Proceeds
Product development expenses(1)....... $ 750,000 13.0%
Sales and marketing expenditures(2)....$ 500,000 8.0%
Facilities and other capital
expenditures(3)........................$3,600,000 60.0%
Expansion of internal operations(4)....$ 350.000 6.0%
Repayment of certain indebtedness..... $ 50,000 1.0%
Working capital and general corporate..$1,030,684 13.0%
Total..................................$6,280,684 100.0%
(1) The Company intends to significantly
increase its investment in product development
activities associated with the development of new
products, including new products to be used on
the Internet, and the continued enhancement of
the Company's existing products. The Company also
expects to make expenditures for the licensing of
technology, for the acquisition of additional
software products, and for the hiring of
additional, experienced, software engineers and
development management.
(2) The Company intends to increase its sales
and marketing efforts by increasing the size of
its sales and marketing staff, increasing
advertising and trade show related activities,
expanding the level of
technical support offered to its dealers and
customers.
(3) The Company intends to construct additional
space for production, sales and administrative
offices, and to invest in additional computers,
networking systems, furniture, fixtures,
leasehold improvements, and related equipment.
See "Business--Facilities."
(4) The Company intends to expand internal
operations, including further improvement of the
Company's management information systems and the
continued development of the Company's website.
(5) The Company intends to repay an aggregate
principal amount of $46,800 of promissory
notes, due in year 2000, bearing interest at 10%
per annum.
The foregoing represents the Company's best
estimate of the allocation of the net proceeds of
the offering, based upon the current status of
its operations, its current plans and current
economic conditions. Proceeds may be
reapportioned among the categories listed above.
The amount and timing of expenditures will vary
depending upon a number of factors, including
progress of the Company's operations, technical
advances, terms of collaborative arrangements,
and changes in competitive conditions. The
Company also expects, when the opportunity
arises, to acquire or invest in complementary
businesses, products or technologies. The Company
has no present understandings, commitments or
agreements with respect to any material
acquisition or investment.
The Company currently anticipates that the
net proceeds of this offering, along with cash
provided by operations, will enable it to meet
its operational and capital requirements for at
least the 12 months following the date of this
Prospectus. However, there can be no assurance
that the net proceeds of this offering and cash
provided by operations will satisfy the Company's
requirements for any particular period of time.
To the extent capital resources are insufficient
to meet future capital requirements, the Company
will have to raise additional funds to satisfy
the Company's requirements. There can be no
assurance that such funds will be available on
favorable terms, or at all.
See "Risk Factors--Possible Need for Additional Financing."
DIVIDEND POLICY
The Company has never declared or paid
any cash dividends on its capital stock. The
Company presently intends to reinvest earnings to
fund the development and expansion of its
business and, therefore, does not anticipate
paying cash dividends on its Common Stock in the
foreseeable future. The declaration of dividends
in the future will be at the discretion of the
Board of Directors and will depend upon the
earnings, capital requirements and financial
position of the Company, general economic
conditions and other pertinent factors.
DILUTION
DILUTION
As of August 31, 1999 the net tangible book
value of the Company was $318,112 or
approximately $0.017 per share of Common stock.
The net tangible book value per share
represents the amount of total tangible assets
less total liabilities divided by the number of
shares of Common Stock issued and outstanding.
Common Stock offered herby (after deducting
underwriting and commissions and estimated
offering expenses payable by the company), net
tangible book value of the Company at August 31,
1999 would have been $6,318,112, or approximately
$0.28 per share of Common stock. This
represents an immediate increase in the tangible
book value of $0.27 pr share of Common Stock to
existing stockholders and an immediate dilution
in net tangible book value of $ 1.70 per share
of Common Stock to new investors. The following
table illustrates this per share dilution:
Assumed initial public offering price per share
of Common Stock $ 2.00
Pro forma net tangible book value prior to the
offering$ 0.017
Increase per share attributable to the offering
$ 0.24
Pro forma, as adjusted, net tangible book value
per share after the offering $ 0.255
Dilution per share to new investors $ 1.745
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLANS OF OPERATIONS
The following discussion and analysis of the
financial condition and results of operations of
the Company should be read in conjunction with
the Company's Financial Statements and Notes
thereto and the other financial information
included elsewhere in this Prospectus. In
addition to historical information, this
Management Discussion and Analysis of Financial
Condition and Results of Operations and other
parts of this Prospectus contain forward-looking
information that involves risks and
uncertainties. The Company's actual results could
differ materially from those anticipated by such
forward-looking information as a result of
certain factors, including but not limited to,
those set forth under "Risk Factors" and
elsewhere in this Prospectus.
Overview
ArchivalCD Inc. originally operated as
ArchivalCD L.L.C., a Utah limited liability
company that was formed in 1995. In December
1998, ArchivalCD, L.L.C. merged into ArchivalCD
Inc., a Delaware corporation. Pursuant to such
transaction, the ownership interests in
ArchivalCD, L.L.C. were exchanged for common shares.
The Company invested significant resources in
sales, marketing, development and other operating
activities during the twelve-month period ended
June 30,1997. The Company believes that its
success depends largely on building superior
technology and quality into its products,
extending its technological lead on the
competition and developing brand recognition
early in a product's life cycle. Accordingly, the
Company expects to continue spending heavily on
these activities in the near future. Despite
these heavy investments in marketing and product
development, the historical growth in software
sales, rentals and license fees may not be
sustainable in the future. In light of the
Company's limited operating history and rapid
improvements in technology and marketing of its
products, the Company believes that period-to-
period comparisons of its revenues and operating
results, including its gross profit and operating
expenses as a percentage of total net revenues,
are not necessarily meaningful and should not be
relied upon as indications of future performance.
The Company has incurred significant net
losses and negative cash flows from operations
since inception, and as of August 31, 1999, had
an accumulated deficit of $80,085. The Company
intends to continue to invest heavily in
technology and infrastructure development, and
marketing and promotion. As a result, the Company
believes that it will continue to incur operating
losses and negative cash flows from operations
for the foreseeable future and that the rate at
which such losses will be incurred may increase
from current levels. There can be no assurance
that the Company will be able to achieve or
sustain revenue growth, profitability, or
positive cash flow on either a quarterly or
annual basis.
A majority of these losses occurred in June 1997
and afterwards, due to a natural disaster which
incurred major flooding of its North Salt Lake
City, UT production facilities, forcing the
company to cease operation to date.
Results of Operations
Comparison of six Months Ended December 31, 1996
to Six Months Ended June 30, 1997. Due to the
natural disaster (flooding) many of the Companies
records were destroyed and or rendered un-usable.
The results of operations are at best un-audited
and can be considered un-verifiable.
From December 31, 1996 to June 30, 1997 the
company received orders in excess of 6500 items
ordered. Which generated sales of approximately
$210,000 in gross revenues for 1996. Estimated
gross revenue for 1997 (January to June) were
approximately $500,000. Since June 1997 the
company has conducted no production due to at the
time the company had underinsured the cost of
equipment and the replacement costs of its
facilities, the lack of insurance, the company
was not able to secure the funds necessary to
replace and resume its operations.
The Company has incurred significant net
losses and negative cash flows from operations
since inception, and as of August 31, 1999, had
an estimated accumulated deficit of $80,000.
The Company intends to continue to invest heavily
in technology and infrastructure development, and
marketing and promotion. As a result, the Company
believes that it will continue to incur operating
losses and negative cash flows from operations
for the foreseeable future and that the rate at
which such losses will be incurred may increase
from current levels. There can be no assurance
that the Company will be able to achieve or
sustain revenue growth, profitability, or
positive cash flow on either a quarterly or
annual basis.
Cost of Revenues
Cost of revenues consist primarily of the cost of
materials, freight and applicable labor incurred
for the delivery of the product or service.
These costs are estimated to be 25% of the
completed product cost.
Operating Costs and Expenses
Selling, General and Administrative
Expense. Selling, general and
administrative expenses consist primarily of
salaries, taxes and benefits and related costs
for general corporate functions, including
executive management, finance, accounting,
facilities, legal, fees for professional services
and depreciation and amortization. These Costs
are estimated to be 30% of the completed product cost.
Research and Development Expenses.
Research and development expenses consist
primarily of expenditures related to technology
and software development expenses. These costs
are estimated to be 10% of the completed product cost.
Net Operating Loss Carryforwards. At
August 31, 1999, the Company had available net
operating loss carryforwards of approximately
$80,000 to offset future taxable income for
federal and state tax purposes. The utilization
of the loss carryforwards to reduce future income
taxes will depend upon the Company's ability to
generate sufficient taxable income prior to the
expiration of the net operating loss
carryforwards. The federal and state
carryforwards expire beginning in the years 2014,
and 2005 respectively. However, the Internal
Revenue Code of 1986, as amended, limits the
maximum annual use of net operating loss and tax
credit carryforwards in certain situations where
changes occur in the stock ownership of a
corporation. As a result of this offering, a
change in ownership is likely to occur which
would substantially restrict the Company's use of
the net operating loss carryforwards for federal
and state income tax purposes. See Note 11 of
Notes to Financial Statements.
Liquidity and Capital Resources
Since its inception, the Company has financed its
operations primarily through the private
placement of its common stock. As of August 31,
1999, the Company had $1028 in cash.
The Company's capital requirements depend on
numerous factors, including market acceptance of
the Company's products and services, the amount
of resources the Company devotes to investments
in its products, the resources the Company
devotes to marketing and selling its services and
its brand promotions and other factors. The
Company has experienced a substantial increase in
its capital expenditures since its inception
consistent with the growth in the Company's
operations and staffing, and anticipates that
this will continue for the foreseeable future.
Additionally, the Company will continue to
evaluate possible investments in businesses,
products and technologies, and plans to expand
its sales and marketing programs and conduct more
aggressive brand promotions. The Company
currently anticipates that the net proceeds of
the offering and available funds will be
sufficient to meet its anticipated needs for
working capital and capital expenditures for at
least the next 12 months.
If the net proceeds of the offering, together
with the Company's internally generated cash
flow, are not sufficient to satisfy its financing
needs, the Company will be required to seek
additional funding through bank borrowings,
additional public or private sales of its
securities, including equity securities, or
through other arrangements. The Company currently
has no credit facility or other committed sources
of capital, however it intends to secure a credit
facility after the completion of the offering.
There can be no assurance that additional funds,
if required, will be available to the Company on
favorable terms, if at all.
See "Use of Proceeds"and "Risk Factors - Possible Need for Additional
Financing".
Recently Issued Accounting Standards
Effective January 1, 1999, the Company
adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive
income, defined as all changes in equity from
non-owner sources. Adoption of SFAS No. 130 did
not have a material effect on the Company's
financial position or results of operations.
Effective December 1, 1998, the Company
adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 establishes
standards for the way public enterprises report
information about operating segments in annual
financial statements and requires those
enterprises to report selected information about
operating segments in interim financial reports
issued to stockholders. Adoption of SFAS No. 131
did not have a material effect on the Company's
financial position or results of operations.
Effective January 1, 1999, the Company
adopted American Institute of Certified Public
Accountants Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"). SOP 97-2
generally requires revenue earned on software
arrangements involving multiple elements such as
software products, upgrades, enhancements, post-
contract customer support, installation and
training to be allocated to each element based on
the relative fair values of the elements. The
adoption of SOP 97-2 did not have an effect on
the Company's financial position or results of
operations.
Sources of Supply
The Company deals in the exchange of information
and has made arrangements to purchase microform
records from various entities of the United
States, Foreign Governments and private sources.
The company scans the documents into digital form
and stores on various types of digital storage
mechanisms, each of which is commercially
available.
The company has developed several sources, to
supply the continued materials and equipment
needed to digitalize, produce and market its
products.
Marketing and Sales
Management feels and marketing research shows, within
the genealogy market there is little, marketing
strategy because of the narrow vertical structure of
the market. All entities in the general market
advertise in the same media journals, all go to
regional or national genealogy conferences, and have a
presence on the Internet. There is advertising avenues
overlooked by most competitor entities in the market.
Although well known, ArchivalCD considers this
marketing avenue proprietary knowledge.
This marketing strategy has already been successfully
accomplished during test marketing by ArchivalCD and
will be continued in future marketing endeavors.
Previously, and currently, none of the potential film-
based competitors have professional marketing
personnel on staff. Dr. Hay had special emphasis on
marketing in his MBA, has had many years to work with
marketing, and is able to combine both knowledge and
experience with an understanding of the market and its
advertisement channels. ArchivalCD will augment its
management team with a marketing specialist who has
the capability of developing both print and web
marketing materials. ArchivalCD pioneered marketing
to the genealogy market on the Internet. ArchivalCD
was the first to provide an ordering site on the web
with full catalog available there or on CD. Through
the development of the Golden Web Award it helped to
direct the increase in quality of both personal
genealogy web pages and commercial web pages.
ArchivalCD supported the first true Internet Genealogy
Journal and management has often provided training
workshops and seminars on the use of the Internet for
expansion of genealogy research. Being present when
needed is an important key to being a successful
company for this market.
ArchivalCD staff is known in the field through
contributions of expertise; through production of
articles, columns and books relating to the field, and
through participation in seminars, workshops, and
conferences at national and state levels. Some of the
special efforts ArchivalCD will extend include
cultivating the product reviewers for genealogy
columns in local newspapers, providing scholarships to
each annual genealogy institute (five of them
presently), and making the company available to help
thousands of smaller genealogy organizations to
produce their annual programs by supplying material,
speakers, and advertisement. Presently other market
entities make little extra effort in reaching the
market - ArchivalCD will lead the way in this respect
by using market awareness to reiterate ArchivalCD's
efforts over and over again. Early efforts by the
company have proven very fruitful as shares of the
marketing budget. Management believes marketing
research shows, few, competitive marketing entities
are involved with the local level of the market. By
sponsoring conferences at minimum cost, by providing
registration services and manpower, the company will
garner additional market exposure. Extraction software
tools, and assistance in publication, will be offered
to any society or library with a database that needs
to be developed, again at little or no cost.
Management feels this marketing program merged with a
firm understanding of the market means ArchivalCD can
execute local level marketing of its product, through
previously proven marketing strategies.
Market Analysis
ArchivalCD's market for CD using customers is
comprised of a minimal two million researching
genealogists. As of June 1997, 67% were computer
compatible with ArchivalCD product (and more are
becoming so each day). That equates to 1,340,000
persons. They are augmented by more than seventeen
million more individuals who have not previously known
of the possibility of research with an ArchivalCD
product. The company will be more than successful with
a small portion of the 1,340,000 individual market. (A
1997 report by American Demographics magazine reports
40% of Americans are interested in genealogy and about
100 million are attempting to trace their family
history. A 1997 Wall Street Journal article indicated
that a competing firm Banner Blue sold more than
600,000 copies of one genealogical CD title -- at
worst case this would be the minimal market for
ArchivalCD.)
The film market is viewed either as a portion of the
more than eighteen million researching genealogists
who have to have access to microfilm, or the
percentage of the known 60,000 film reader owners. The
company prefers to count the 60,000 as the base film
using market and projects capturing a regular customer
usage of 3,000 to 6,000 users per year of multiple
title purchase. Projections indicate the market trend
growth will expand, with the addition of over 10,000
people in the United States turning age 50 per day.
Surveys show 1% of this population express an interest
in genealogy. Further research shows 67% of that 1%
was computer compatible with ArchivalCD product. Using
these projections, figures show up to 2,000 new users
per month could be included into the genealogy market
sector. Additional research reveals the average age
of active computer using genealogists is now age 52.
For the next twenty years the genealogy research field
should continue its rapid growth, if it continues the
growth trend of the past 20 years. Management feels
most important is that fact that many of the potential
new customers are already computer literate and have
compatible computer systems, some estimates are
approaching 95% of the targeted user segment.
Supporting evidence shows, that in 1998 the Senate
Committee on Aging was informed that there are 7.8
million Internet users aged 55 or older. 42% of them
have purchased product via the Internet. This is
further proof of the vast size of the potential market
as this age group is the strongest in the genealogical
market. In general, an Internet capable computer
system is compatible with ArchivalCD product.
Employees
At November 30, 1999 the Company employed
five specialized technicians and senior managers,
including the founder of ArchivalCD Inc, Dr. Daniel
J. Hay. Dr. Hay is the Director of Operations and the
President of ArchivalCD Inc.
The team has had experience in management of staff in
similar working environments. ArchivalCD has drawn
upon both experience and dedication in forming the
management team. The team has experience in
understanding the genealogy market with exposure to
the needs and wants of the individual researcher, has
worked with a major film retailer in the market, and
is dedicated to the success of ArchivalCD.
Currently the Company is seeking to fill several
key positions, Chief Financial Officer (CFO)
Director of Computer Sciences and Director
Marketing. Management also projects the need for
ten additional full time staff members with
planned growth taking the total of employees to
fifteen within the first year.
Certain job positions at ArchivalCD are provided by a
temporary personnel agency. This will allow trial
periods when needed, proper paper work filing without
undue overhead on the management team and provide for
screening of potential employees before time is spent
in the offices. Projections during the next three
years are for an immediate sixteen staff. Production
staff is needed for 24 hr. production, and Cleric
staff to assist in processing orders. Other positions
are part-time and will be filled as needed.
In addition to the management team there are eight
production positions and three admin positions to be
filled upon funding. These initial numbers will be
augmented as growth dictates to an expected total of
sixteen production and five admin positions.
ArchivalCD demands high intensity staff for quality
levels that are unsurpassed in archival fields.
Benefits for this staff include company co-payment of
medical and dental insurance. Profit sharing and
annual bonuses will be provided as a means of
retaining staff. The payroll burden is as high as 25%,
which covers appropriate taxes and benefits.
The Company is not a party to any collective
bargaining agreement. The Company considers its
relations with its employees to be satisfactory
and has not experienced any interruption of
operation due to labor disagreements with its
employees.
Trade names and Trademarks
The Company does not hold United States
Registered trademarks for some of its various
brand names, but uses various unregistered trade
names, trademarks and service marks. With the
introduction of new products, the company
anticipates continuing to adopt additional
unregistered names and marks.
ORDERS AND PROJECTED ORDERS
As part of its programs to provide customers with
just-in-time information service management and
year-round availability of products, via
conventional and internet accessibility, the
Company has implemented measures to maintain
year-round in-stock information inventory and
delivery systems of many of its products at its
Crockett Texas facility. Prior to the flooding of
its production facilities, The Company
historically has not experienced excess inventory
buildup nor has it been forced to sell
substantial amounts of inventory below cost. The
Company believes that it has will be able to
control excessive demand buildup, because a
substantial portion of its initial public
offering have been allocated to servicing,
products and information pre-ordered by customers
prior to manufacture
Year 2000 Disclosure
The current computer hardware and software used
by the Company are made or licensed by various
name-brand companies and are less than one year
old. The Company has been advised by each vendor,
either directly in writing or indirectly through
information obtained at their web site, that
there hardware and/or software is Year 2000
compliant. ArchivalCD Inc. does not foresee any
hardware or software upgrades until after the
year 2000, therefore will work to correct these
problems as they arise in the future with the add
on computer systems.
The Company believes that the most
likely worst-case scenario related to Year 2000
is a significant delay in the development of its
product. Such an interruption could occur due to
a breakdown in the systems of third parties. The
Company currently does not have a contingency
plan in the event a particular system or vendor
is not Year 2000 ready. There can be no assurance
that unexpected Year 2000 readiness problems of
the Company or its vendors and service providers
will not materially adversely affect the
Company's business, operating results and
financial condition. The foregoing assessment
represents management's best estimates at the
present time, which could change significantly in
the future.
Environmental Regulation
The Company's manufacturing operations does
not routinely involve the use of certain
materials that are classified as hazardous.
Need for Governmental Approval
The sale of ArchivalCD Inc. genealogical
information products does not require any
governmental approval. However, some production
may involve businesses or governmental projects
which require some type of approval for that
specific project.
Seasonality
The Company does not expect to be subject to
seasonality of its products, due to the make up
of its industry, customer base or the usage of
internet systems. Although the company does
expect increased activity at the end of its
business records archiving operations at the end
of the Company's business customer's fiscal
quarters.
Description of Property Facilities
The Company leases facilities at 100 North 6th
Street Crockett Texas. The company feels since
travel is often needed either by automobile or
airplane the location selected is one that is
accessible to both the Dallas/Ft. Worth and the
Houston areas. Crockett, TX. is a growing community
with all the benefits of an emerging business
community and also is willing to discuss tax abatement
programs for the company. The location also fits the
needs and desires of management so it is well suited
to be the chosen location. Although no abatements have
been finalized the company feels that once final
construction plans are filed, abatements and tax
considerations will be granted to ArchivalCD Inc.
BUSINESS
Overview
ArchivalCD is a company dedicated to producing
microfilm images on CD, to furthering genealogical
education, and to supporting historical and
educational programs. Continuous development of
services, reproduction of historical data, expansion
to include other potential markets, and creation of
value for the company and its investors are prime
goals of the company.
In supporting this mission the company plans on
entering both the microfilm sells portion of the
market and the more expansive microfilm image base on
CD portion of the market. Doing both supports the
furthering of genealogical education and the
corresponding historical and education programs.
Present status of the genealogy microfilm market
indicates that ArchivalCD's entry into film resale
will allow a superior reproduction and state of the
art customer service to capture as much as one third
of the genealogy microfilm sales market.
ArchivalCD Inc. Plans to produce specific microfilm
titles on CD for the genealogical, historical, and
educational markets. The products are to be sold
primarily to a membership clientele from direct
marketing, Internet marketing, journal advertising,
and personal contact at national and regional
conferences in much the same manner as the comparative
microfilm rental/sales market currently operates.
Having acquired the initial film inventory the company
will also be in a position to supply diazo copies of
microfilm to the portion of the market that needs or
prefers microfilm. This portion of the company will be
marketed as ArchivalFILM. Additional potential
secondary markets are even larger markets and are
already being served by various competitors. These
potential markets are not currently addressed in this
business plan. Such markets consist of business back
file conversion, library archive collections,
institutional archives, and government office record
retention.
Custom product development for a market demanding high
quality images of historic documentation; i.e.
microfilm, microfiche, newspapers, books, diaries and
journals.
Sales of product and rental of product to a
niche market created by ArchivalCD with a demand that
continues to grow.
Making best use of revenue generation,
repeat usage of inventory, and targeted marketing
to create multiple sales of newly mastered
titles. Serving the microfilm market with quality
reproductions in 48 hr. turn-around.
The company has undergone five years of development,
research, and analysis, one year of actual market
testing production and theory in practice and sits
upon a market demanding a product for the use of over
one million individual researchers needing seven to
twenty new titles per year, per individual researcher.
This is a strong niche market that was first
identified and created by ArchivalCD's test marketing.
Initial test marketing steered clear of microfilm
sales as it was necessary to obtain film from the
leaders in that market. Analysis of the research
market supports simultaneous entry into the CD and
Film markets. Having the complete collection of the
National Archives related microfilm available for
resale will allow the company immediate access to a
larger customer-base and easier marketing to the many
library collections worldwide.
As a niche market, microfilm imaging on CD is
generating a great deal of interest within a market
that is typically served by companies not able, or
willing, to make the expenditures needed to profitably
service it. As an example consider that ArchivalCD's
decision to also market film copies is based upon the
newer film duplicators that are automatic duplicators
providing image enhancement -- while none of the major
film entities are upgrading to the newer equipment.
The major players in the film portion of the market
are still using older manual calibration duplicators
with the inherent higher cost in materials and
manpower. Much of ArchivalCD marketing and ordering is
enhanced by the ArchivalCD web pages. With IBM,
Microsoft, Netscape, Intel, and AT&T announcements
supporting business activity on the Internet it is
expected that continual upgrades to software will
allow additional security for order processing and
continued interest in companies with a successful
presence on the Internet.
Industry Background
The Bureau of Labor Statistics indicates that there
were 16 million workers aged 55 or older in the United
States. American Demographics magazine indicated that
more than 40 percent of Americans were interested in
genealogy and about 100 million were attempting to
trace their family history. ArchivalCD's own studies
indicate only 18 million researchers (with 2,000,000
active) but the $6,600,000 funding requested will
effectively address either volume of researchers and
provide a strong ROI with an early exit plan or
positive debt service. SeniorNet claims that 47% of
seniors are now using the Internet and buying from
websites. For ArchivalCD these figures just confirm
the potential market, the current active market, and
the fact that the target market is becoming
increasingly aware of digital data. It is a market
that consists of more than 18 million individuals,
4,000 Genealogy Societies, 6,000 Library Collections,
two certification organizations, five national
organizations (NGS, FGS, APG, GSG, GCG), and is
populated by the largest market group in history -
"baby boomers".
The company has created this market, itself, and by
the overpowering demand of the individuals within the
market striving to acquire the materials they need in
their own research goals. Unlike a typical publisher
of data, ArchivalCD proposes to service the market not
by creating a product to sell to a potential buyer,
but rather, by creating product only as it is needed
and purchased by the individual researcher.
Unexploited processes and proprietary software make
ArchivalCD product/service desirable. Product is pre-
sold, pre-paid, and provided to the customer as a
custom product each and every time it is needed.
It has been proven researching genealogists desire to
have access to the film, or in ArchivalCD's case - the
image of the film, is that each, and every, assumption
in relationship must be documented and proper
citations of source provided. An index does not prove
any data even if correct. The data must be documented
with primary source documents; and, microfilm is often
the only source of that original data. In most
instances the microfilm image is now considered the
original document since the paper forms have often
been destroyed. A digital image of the film is
conceptually and legally an original. Genealogists,
historians, and educators need and want access to
these original documents and ArchivalCD has created a
means to fill that demand. They want this access to
such a degree that they are willing to pay for an
annual membership fee as well as purchase or rentalfees.
The company is also aware of the impact the Internet
currently has and will continue to have on business
activities worldwide. ArchivalCD, Inc. has already
developed a number of Internet projects and currently
owns more than forty domain names both for marketing
tools and for expansion programs.
Strategy
The Company's objective is to be the
leading Archival and Genealogical information
publishing and technology company, providing
software and services that enable the delivery of
a broad range of genealogical content over the
Internet and intranets. To achieve this
objective, the Company's strategy includes the
following key elements: additional features and
functions like the synchronized deployment of
additional data types, enhanced desktop, and Web-
based digitalized files. As part of this
strategy, the Company has devoted and will
continue to commit significant resources to the
development of technologies that increase the
ease-of-use and functionality of its archival
recording and information solutions.
Build Brand Recognition and Strengthen
Sales and Marketing Efforts.
The Company believes that its technology
leadership, market position and brand name are
significant assets that the Company can leverage
to maintain and increase its market share and
diversify its revenue base. The Company intends
to capitalize on the growth in demand for
genealogy and archiving software by continuing to
develop, market and support industry-leading
products and services. The Company believes that
the introduction of such products and services
will expand the Company's user base and build
greater brand recognition. The Company also plans
to strengthen its marketing, sales and customer
support efforts as the size of its market
opportunity and customer base increases.
Enhance and Expand Internal Operations.
The Company intends to invest substantially in
operations and systems in anticipation of future
growth. This effort includes improving its
management information systems, opening sales
offices in multiple locations, integrating sales
activities, investing in customer service,
expanding its public relations, advertising, and
trade show activities, and developing on-line
training and support programs which will help
support an outside network of resellers and
distributors.
Expand Internationally. The Company
intends to expand its international customer base
over the next several years by hiring additional
employees, developing international distribution
and sales networks, enhancing its software
products by adding localized versions and multi-
language support and increasing its expenditures
for marketing.
Sales, Marketing and Distribution
Sales. The Company has focused and will
continue to focus its sales and marketing efforts
on the public, commercial and genealogical
research groups, along with the digitalization of
corporate and governmental records. Markets for
the next several years. Once the Company has
firmly established itself in these markets, the
Company plans to expand into other vertical
business markets and consumer markets. The
Company markets its products and services through
a direct sales force and through repeat sales.
The Company's direct sales force markets the
Company's products and services primarily to
genealogical, historical and educational research
customers worldwide.
Marketing. The Company participates in
trade shows, conferences and seminars, provides
product information through the Company's Web
site, and promotes the Company and its products
to industry analysts and the media. The Company's
marketing programs are aimed at informing
potential partners and prospects about the
capabilities and benefits of the Company's
products and services, increasing brand name
awareness, and stimulating demand across all
market segments. The Company currently plans to
increase its marketing staff to two employees
following the offering.
MANAGEMENT
Executive Officers and Directors of the Company
The directors and executive officers of
the Company are:
Name Age Position
Dr. Daniel Hay 42 President, CEO and
Chairman of the Board of Directors
William Hale 67 Director
Corporate Vision Inc. Representative
(1) William Hale is a director of
Corporate Vision Inc. (OTC Bulletin Board:
CVIA). Corporate Vision Inc. retains 14%
ownership of ArchivalCD Inc.
Officers
ArchivalCD, Inc. is expected to hold its annual
shareholder meeting during the first or second
fiscal quarter of the year 2000, with the
expressed consideration that three additional
board members are to be appointed or approved by
the shareholders of ArchivalCD Inc.
Daniel J. Hay, (BA, MBA, DD) {President}: Hay has
twenty-five years of genealogical experience with
eighteen of that as a Professional Genealogist. His
background includes two years as Vice President of
Finance at Maacke Electronics, ten years of ownership
in CompuCations -- a microcomputer retail and
consulting business, success as a grant writer
(seventeen of eighteen approved) at both Federal and
State level, and two years with AGLL culminating with
the position of Director of Product Development. He
then started Advanced Resources to develop what has
become ArchivalCD. Mr. Hay is an author, including
Copyright Reference Guide: for Genealogists, a
columnist writing on genealogy, copyrights, and the
Internet, and has lectured at regional and national
conferences for more than ten years. Dr. Hay completed
a Doctorate in Divinity with Psalms College in 1981
and is presently completing requirements for a PhD in
Historical Literature from Columbia. Daniel has served
in management consulting positions, sales and
marketing positions, as teacher and instructor, and as
publisher. Hay is active in the community with a
special interest in music and education.
Kathy Kirkpatrick, (BA History): Kathy has
been a practicing genealogist for twenty years, is
presently working on a Master of Library Sciences, and
is the author of Basic Genealogy: Including Steps
Sometimes Forgotten by the Pros. She has previously
worked as a legal secretary and was Manager of the
Field Rep Program for AGLL. Four years ago Kirkpatrick
went to work for Advanced Resources and then for
ArchivalCD as Manager of Collection Acquisitions. She
developed relations with numerous libraries and
maintained the company conference schedule. Kathy also
handled much of the customer service needs.
Kirkpatrick has worked three years as an executive
assistant to an attorney's office, manager of a
bookstore for two years, and presently handles
customer relations for an expanding doctor clinic.
Brenda Saul, (BA American History): Brenda was
the Office Manager at ArchivalCD. Previous positions
included AGLL where she was Manager of Magazine
Subscription Renewals and assisted the sales
department. She has been office manager for Advanced
Resources for four years, and served the same capacity
for CompuCations and Aragorn Press, and was the
secretary for the department head at the New Jersey
Department of Higher Education: Certification,
Compliance and Testing. She has been on the fringes of
the genealogy business for ten years and is presently
working on obtaining her Masters degree in American
History. Her previous experience includes bookkeeping
and employee relations.
Tony Potter, (BS Biology): Tony joined
ArchivalCD as a full time student, working weekends in
a medical lab. He still worked forty hours per week
for ArchivalCD and became Production Manger with
responsibility of training staff members and in
verifying quality control. Potter has begun working on
a Master of Computer Sciences degree.
Evan Whipple, (BS, MBA): Evan has previously
been General Manager for AGLL and has vast experience
in marketing processes. Mr. Whipple has worked with
AGLL, Advanced Resources and ArchivalCD as a
consultant in the genealogy market and will be
retained in that capacity due to his in depth
knowledge of the market.
Management Team Limitations
There are three important limitations in the
Management Team for ArchivalCD. As such, they are
being addressed once the Initial Public Offering of
the Company's stock has been completed.
The present team, though strong in relation to the
niche market and the processes of ArchivalCD
production, is weak in financial acumen. To strengthen
the management team a CFO is being sought.
The Marketing Director position has been filled by
Daniel J. Hay, although Marketing Director is an
unique position that is to be filled as soon as
feasible, when the right combination of person and
qualifications is found. A number of applicants are
awaiting a final decision of the company.
The network specialist, programmer, and computer
specialist is a unique position. CIS MIS Computer
Department Manager, this person and staff will be
needed to maintain three networks, maintain all
computer systems in production. Several persons have
been identified for this position already. Final
decision will depend upon who is available at closing
of funding from among the current applicants.
Directors of the Company are elected to serve
until the next annual meeting of shareholders or
until there respective successors are elected and
qualified. The Company does not pay direct
remuneration for services to any of its
directors. All officers serve at the discretion
of the Board of Directors subject to the terms of
their employment agreements.
ITEM 6 Executive Compensation
No employee or officer's salary exceeds
$100,000 annually at the time of this filing.
Stock Option Plan
The Board of Directors may from time to time
amend or may terminate the Plan without action by
the Company's shareholders, but no such amendment
may increase the number of shares of Common Stock
that may be issued under the Plan without the
consent of the Company's shareholders or impair
the rights of holders of outstanding options
without the consent of such holders. To date no
stock option are outstanding under the plan.
The Company has no pension or profit sharing plan
or other contingent forms of remuneration.
The Company has been advised that in the opinion
of the Commission indemnification for liabilities
arising under the Securities Act is against
public policy as expressed in the Securities Act
and is, therefore, unenforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth at November 31,
1999, the name of each person and entity known by
the Company to own beneficially more than 5% of
the shares of Common Stock of the Company and the
number of shares owned by each such person and by
each officer and director and all officers and
directors as a group, together with the
respective percentage holdings of such shares.
Percent of Shares
Shares Name and Beneficially
Owned Address Owned
51% Dr. Daniel Hay 14,275,000,
100 North Sixth, #212
Crockett, Texas 75835
14% Corporate Vision Inc. (1) 3,625,000
6130 South Memorial Drive
Tulsa OK 74133
All officers and Directors as a group (6 persons)
(1) A 15% ownership position of the company was
granted to Corporate Vision, Inc. (NASD OTC:BB CVIA)
for monetary seed funding considerations, underwriting
and consulting services rendered. In April 1999,
Corporate Vision Inc. distributed approximately 1% or
37,500 ArchivalCD Inc common shares to CVIA
shareholders of record. Creating a shareholder base
for ArchivalCD Inc. exceeding of one thousand private
investors.
SELLING STOCKHOLDERS
The registration statement, of which this
Prospectus forms a part, also relates to the
registration by the Company, for the account of
the Selling Stockholders, of an aggregate of
522,100 shares of Common Stock. The Selling
Stockholders Shares are not being underwritten by
the Representative in connection with this
offering. The Selling Stockholders have agreed
with the Company not to directly or indirectly
offer, sell, transfer or otherwise encumber or
dispose of any of their Common Stock for a period
of nine (9) months after the date of this
Prospectus. See "Shares Eligible for Future Sale"
and "Underwriting."
The sale of the Selling Stockholders Shares
by the Selling Stockholders may be effected from
time to time in transactions (which may include
block transactions by or for the account of the
Selling Stockholders) in the over-the-counter
market or in negotiated transactions, or through
the writing of options on the Selling
Stockholders Shares, a combination of such
methods of sale, or otherwise. Sales may be made
at fixed prices, which may be changed, at market
prices prevailing at the time of sale, or at
negotiated prices.
The Selling Stockholders may effect such
transactions by selling the Selling Stockholders
Shares directly to purchasers, through broker-
dealers acting as agents for the Selling
Stockholders, or to broker-dealers who may
purchase shares as principals and thereafter sell
the Selling Stockholders Shares from time to time
in the over-the-counter market, in negotiated
transactions, or otherwise. Such broker-dealers,
if any, may receive compensation in the form of
discounts, concessions or commissions from the
Selling Stockholders and/or the purchaser for
whom such broker-dealers may act as agents or to
whom they may sell as principals or both (which
compensation as to a particular broker-dealer may
be in excess of customary commissions).
The Selling Stockholders and broker-dealers,
if any, acting in connection with such sales,
might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act
and any commission received by them and any
profit upon the resale of such securities might
be deemed to be underwriting discounts and
commissions under the Securities Act.
Sales of any shares of Common Stock by the
Selling Stockholders may depress the price of the
Common Stock in any market that may develop for
the Common Stock.
The following table sets forth certain
information known to the Company regarding
beneficial ownership of the Company's Common
Stock by each of the Selling Stockholders as of
August 31, 1999 and as adjusted to reflect the
sale of shares offered pursuant to this
Prospectus. None of the Selling Stockholders has
had any position with, held any office of, or had
any other material relationship with the Company.
CERTAIN TRANSACTIONS
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock
consists of (i) 25,000,000 shares of Common
Stock, par value $.001 per share and (iii)
1,000,000 shares of Preferred Stock, par value
$.001 per share ("Preferred Stock"). 6,400,000
shares of Common Stock and no shares of Preferred
Stock are currently outstanding.
Common Stock
The holders of Common Stock are entitled to
one vote per share on all matters submitted to a
vote of the stockholders. Cumulative voting of
shares of Common Stock is prohibited. The
holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be
declared from time to time by the Board of
Directors out of funds legally available
therefore, subject to the payment of any
preferential dividends with respect to any
Preferred Stock that from time to time may be
outstanding. In the event of the liquidation,
dissolution or winding up of the Company, the
holders of Common Stock are entitled to share
ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights
of the holders of any outstanding Preferred
Stock. The holders of Common Stock have no
preemptive or conversion rights or other
subscription rights, and there are no redemptive
or sinking funds provisions applicable to the
Common Stock. All of the outstanding shares of
Common Stock are fully paid and non-assessable,
and all of the shares of Common Stock offered
hereby, when issued, will be fully paid and non-assessable.
Vote of the holders of a majority of the
issued and outstanding Common Stock entitled to
vote thereon is sufficient to authorize, affirm,
ratify or consent to such act or action, except
as otherwise provided by law. See "Certain Anti-
Takeover Matters" below.
Under the Delaware General Corporation Law
("DGCL"), stockholders may take certain actions
without the holding of a meeting by a written
consent or consents signed by the holders of a
majority of the outstanding shares of the capital
stock of the Company entitled to vote thereon.
Prompt notice of the taking of any action without
a meeting by less than unanimous consent of the
stockholders will be given to those stockholders
who do not consent in writing to the action. The
purposes of this provision are to facilitate
action by stockholders and to reduce the
corporate expense associated with annual and
special meetings of stockholders. If
stockholders action is taken by written consent,
the Company will be required to send each
stockholder entitled to vote on the applicable
matter, but whose consent was not solicited, an
information statement containing information
about the action taken.
Certain Anti-Takeover Matters
The Company's Bylaws establish advance
notice procedures with regard to stockholder
proposals relating to the nomination of
candidates for election as directors, the removal
of directors and amendments to the Certificate of
Incorporation or Bylaws to be brought before
meetings of stockholders of the Company. These
procedures provide that notice of such
stockholder proposals must be timely given in
writing to the Secretary of the Company prior to
the meeting at which the action is to be taken.
Generally, to be timely, notice must be received
at the principal executive offices of the Company
not less than 90 days nor more than 180 days
prior to an annual meeting or, in the case of a
special meeting, not less than 40 days nor more
than 60 days prior to such meeting (or if fewer
than 50 days' notice or prior public disclosure
of the meeting date is given or made by the
Company, not later than the seventh day following
the day on which the notice was mailed or such
public disclosure was made).
The Company is a Delaware corporation and is
subject to Section 203 of the DGCL. In general,
subject to certain exceptions, Section 203
prohibits a Delaware corporation from engaging in
a "business combination" with an "interested
stockholder" for a period of three years
following the date that such stockholder became
an interested stockholder, unless (i) prior to
such date the board of directors of the
corporation approved either the business
combination or the transaction which resulted in
the stockholder becoming an interested
stockholder or (ii) upon consummation of the
transaction which resulted in the stockholder
becoming an interested stockholder, the
interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at
the time the transaction commenced (excluding for
purposes of determining the number of shares
outstanding those shares owned by (x) persons who
are directors and also officers and (y) employee
stock plans in which employee participants do not
have the right to determine confidentially
whether shares held subject to the plan will be
tendered in a tender or exchange offer), or
(iii) on or subsequent to such date the
business combination is approved by the board
of directors and authorized at an annual or
special meeting of stockholders, and not by
written consent, by the affirmative vote of at
least 66-2/3% of the outstanding vote stock
which is not owned by the interested
stockholder. Section 203 defines a "business
combination" to include certain mergers,
consolidations, asset sales and stock issuances
and certain other transactions resulting in a
financial benefit to an "interested stockholder."
In addition, Section 203 defines an "interested
stockholder" to include any entity or person
beneficially owning 15% or more of the
outstanding voting stock of the corporation and
any entity or person affiliated with such an
entity or person.
Indemnification
The Amended and Restated Certificate of
Incorporation (the "Certificate") of the Company
provides that, to the fullest extent permitted by
applicable law, as amended from time to time, the
Company will indemnify any person who was or is a
party or is threatened to be made a party to an
action, suit or proceeding (whether civil,
criminal, administrative or investigative) by
reason of the fact that such person is or was
director, officer, employee or agent of the
Company or serves or served any other enterprise
at the request of the Company.
In addition, the Certificate provides that a
director of the Company shall not be personally
liable to the Company or its stockholders for
monetary damages for breach of the director's
fiduciary duty. However, the Certificate does not
eliminate or limit the liability of a director
for any of the following reasons: (i) a breach of
the director's duty of loyalty to the Company or
its stockholders; (ii) acts or omissions not in
good faith or that involve intentional misconduct
or knowing
violation of law; (iii) a transaction from which
the director derived an
improper personal benefit; or (iv) for unlawful
payments of dividends or
unlawful stock redemptions or repurchases.
The Company will purchase and maintain
Directors' and Officers' Insurance as soon as the
Board of Directors determines practicable, in
amounts which they consider appropriate, insuring
the directors against any liability arising out
of the director's status as a director of the
Company regardless of whether the Company has the
power to indemnify the director against such
liability under applicable law.
The Company has been advised that it is the
position of the Commission that insofar as the
foregoing provisions may be invoked to disclaim
liability for damages arising under the
Securities Act, such provisions are against
public policy as expressed in the Securities Act
and are, therefore, unenforceable.
Certain provisions of the Company's
Certificate and Bylaws may have the effect of
making it more difficult for a third party to
acquire, or of discouraging a third party from
attempting to acquire, control of the Company.
Such provisions could limit the price certain
investors might be willing to pay in the future
for shares of the Company's Common Stock. Certain
of these provisions allow the Company to issue
Preferred Stock without stockholder approval and
provide that special meetings of stockholders of
the Company may be called only by the President
of the Company, the Board of Directors or holders
of not less than a majority of the votes entitled
to be cast at the special meeting. These
provisions may make it more difficult for
stockholders to take certain corporate actions
and could have the effect of delaying or
preventing a change in control of the Company.
Section 102(b)(7) of the DGCL allows a Delaware
corporation to limit a director's personal
liability for monetary damages for breaches of
certain fiduciary duties owned to the corporation
and its stockholders. The Company's Certificate
of Incorporation contains a provision that limits
the liability of its directors for monetary
damages for any breach of fiduciary duty as a
director to the maximum extent permitted by the
General Corporation Law. This provision, however,
does not eliminate a director's liability (i) for
any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve
intentional misconduct or a knowing violation of
law, (iii) for a transaction from which the
director derived an improper personal benefit or
(iv) in respect of certain unlawful dividend
payments or stock purchases or redemptions. The
inclusion of this provision in the Certificate of
Incorporation may reduce the likelihood of
derivative litigation against directors and may
discourage or deter stockholders or management
from bringing a lawsuit against directors for
breaches of their fiduciary duties, even though
such an action, if successful, might otherwise
have benefited the Company and its stockholders.
This provision does not prevent the Company or
its stockholder from seeking injunctive relief or
other equitable remedies against its directors
under applicable state law, although there can be
no assurance that such remedies, if sought, would
be obtained.
Transfer Agent
Transfer Online Inc. 227 Pine Street Suite 300
Portland OR 97204
Phone: (503) 227-2950 Fax (503) 227-6874
LEGAL PROCEEDINGS
Management knows of no material legal
proceeding pending, threatened or contemplated
which the Company is or may be a party to or
which any of its property is subject.
Changes in and Disagreements With Accountants.
None
Recent Sales of Unregistered Securities.
Securities that were not registered
under the Securities Act have been issued or sold
by the Registrant within the past three years
except as follows:
December 27, 1998 Registrant issued
3,750,000 Shares in connection to funding and
services rendered by Corporate Vision Inc.
December 27, 1998 Registrant issued
12,750,000 shares to the founders of the Company.
In June 1998, the Company issued
30,000 shares in a Rule 504 offering.
In December 1998, the Company issued
10,000 shares in exchange for the cancellation of debt.
The aforementioned issuances and sales were made
in reliance upon the exemption from the
registration provisions of the 1933 Act afforded
by Section 4(2) thereof and/or Regulation D
promulgated there under, as transactions by an
issuer not involving a public offering. The
purchasers of the securities described above
acquired them for their own account and not with
a view to any distribution thereof to the public.
The certificates evidencing the securities bear
legends stating that the securities may not be
offered, sold or transferred other than pursuant
to an effective registration statement under the
1933 Act, or an exemption from such registration
requirements. The Registrant will place stop
transfer instructions with its transfer agent
with respect to all such securities.
ADDITIONAL INFORMATION
The Company has filed with the Securities
and Exchange Commission (the "Commission") a
Registration Statement on Form SB-2 (together
with all amendments, exhibits, schedules and
supplements thereto, the "Registration
Statement") under the Securities Act with respect
to the Securities offered hereby. This
Prospectus, which forms a part of the
Registration Statement, does not contain all the
information set forth in the Registration
Statement, as permitted by the rules and
regulations of the Commission. For further
information with respect to the Company and the
Securities offered hereby, reference is made to
the Registration Statement. Statements contained
in this Prospectus as to the contents of any
contract or other document that has been filed as
an exhibit to the Registration Statement are
qualified in their entirety by reference to such
exhibits for a complete statement of their terms
and conditions. The Registration Statement and
other information may be inspected and copied at
the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street N.W.,
Washington, D.C. 20549 or at certain of the
regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, upon payment of
the fees prescribed by the Commission. Copies of
such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth
Street N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a
Web site (http://www.sec.gov) through which the
Registration Statement and other information can
be retrieved.
Following the offering, the Company will be
subject to the reporting and other requirements
of the Exchange Act and intends to furnish its
shareholders annual reports containing financial
statements audited by its independent auditors
and to make available quarterly reports
containing unaudited financial statements for
each of the first three quarters of each year.
ArchivalCD INC.
Index to Financial Statements
Page 1
Report of Independent Accountants.............P-2
Balance Sheet.................................P-3
Statement of Operations.......................P-4
Statement of Stockholders' Equity.............P-5
Statement of Cash Flows.......................P-6
Notes to Financial Statements.................P-7
Independent Auditor's Report
The Board of Directors and Stockholders
ArchivalCD, Inc.
Crockett,TX
We have audited the balance sheet of
ArchivalCD, Inc., (a development stage company as
of August 31, 1999, and the related statements of
income, stockholders' equity and cash flows for
the period from November 12,1998 (date of
inception), to August 31, 1999. These financial
statements are the responsibility of the
Company's management. Our responsibility is to
express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audits to obtain reasonable assurance about
whether the financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence supporting
the amounts and disclosures in the financial
statements. An audit also includes assessing the
accounting principles used and significant
estimates made by management, as well as
evaluating the overall financial statement
presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material
respects, the financial position of ArchivalCD,
Inc., as of August 31, 1999, and the results of
its operations and its cash flows from November
12, 1998 (date of inception), to August 31,1999,
in conformity with generally accepted accounting
principles.
CROSS AND ROBINSON
Certified Public Accountants
Tulsa, Oklahoma
November 5, 1999
ArchivalCD, Inc.
Balance Sheet
August 31, 1999
Assets
Current Assets
Cash $ 1,028
Receivable from stockholder (Note 4) 1,000
Total Current Assets 2,028
Property and Equipment, Net (Note 5) 335,456
Other Assets
Goodwill, net (Note 3) 27,428
Total Assets $ 364,912
Liabilities and Stockholder's Equity
Current Liabilities
Accrued Liabilities $ 29,800
Loans from stockholders (Note 11) 2,000
Note Payable from stockholders
(Note 6) 15,000
Total Current Liabilities 46,800
Stockholder's Equity
Cumulative convertible preferred
stock, $20 par value 1,000,000
shares authorized, no shares
outstanding $ -
Common stock $0.01 par value,
25,000,000 shares authorized,
18,227,581 issued and
outstanding $ 182,276
Additional paid-in capital $ 215,921
Deficit accumulated during
the development stage $ (80,085)
Total Shareholder's Equity $ 318,112
Total Liabilities and
Shareholder's Equity $ 364,912
Accompanying notes are an integral part
of the financial statements
Page 2 of 12
ArchivalCD, Inc.
Income Statement
For the Period November 12, 1988 (Date of
Inception) to August 31, 1999
Operating Revenue $ -
General and Administrative Expenses 79,506
Other Expenses
Interest Expense 579
Net Loss $ 80,085
Weighted Average Shares
Outstanding (Note 8) 3,736,440
Net Loss Per Common Share (0.02)
Accompanying notes are integral part of the
financial statements.
Page 3 of 12
ArchivalCD, Inc.
Statement of Stockholders' Equity
For the Period November 12, 1998 (Date of Inception)
to August 31, 1999
Deficit
Accumulated
Addition During the
Common Stock Paid-In Development
Shares Amount Capital Stage
Balance at
November 12, 1998
(Inception Date) -- -- -- --
Common Stock, par
Value $0.01
25,000,000 shares
authorized:
Cash Sales 25,971 260 31,247
Issued in exchange
for services
rendered 3,762,010 37,620 274,395
Issued in lieu of
interest payment 100 1 149
Issued to acquire
Assets 14,439,500 144,395 210,130
Cost of raising -- -- (300,000)
equity
Net loss for the
Period -- -- -- (80,085)
Balance at
August 31, 1999 18,277,581 182,276 215,921 (80,085)
Accompanying notes are an integral part
of the financial statements
Page 4 of 12
ArchivalCD, Inc.
Statement of Cash Flows
For the Period of November 12, 1998 (Date of Inception)
to August 31, 1999
Cash Used by Operating Activities:
Cash paid for goods and services (44,549)
Net Cash Used by Investing Activities:
Fixed asset purchases (2,930)
Cash Flows From Financing Activities
Issuance of common stock 31,507
Proceeds from short-term debt 17,000
Net Cash Provided by Financing
activities 48,507
Net Increase in Cash 1,028
Cash at Beginning of Period --
Cash at End of Period $ 1,208
Accompanying notes are an integral part
of the financial statements
Page 5 of 12
ArchivalCD, Inc.
(A Developmental Stage Company)
Reconciliation of Net Loss to Net
Cash Used by Operating Activities:
Net loss $ (80,085)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation 21,983
Amortization of intangible assets
1,959
Stock issued in exchange for
services 12,015
Stock issued in lieu of interest
on shareholder loans 150
(Increase) Decrease in
receivables from shareholders (1,000)
Increase (Decrease) in accrued
liabilities 429
Total Adjustments 35,536
Net Cash Used by Operating Activities $ (44,549)
Supplemental Disclosure of Non-Cash Activities:
Stock issued to acquire fixed assets$ 354,510
Stock issued as goodwill 15
Accrual for goodwill 29,372
Accompanying notes are an integral part
of the financial statements.
Page 6 of 12
ArchivalCD, Inc.
(A Development Stage Company)
Notes to Financial Statements
August 31,1999
Note 1 - Organization and Description of Business
ArchivalCD, Inc.(referred to herein as "Archival"
or "the Company") was incorporated in the state
of Delaware on November 12, 1998 to provide
subscribers with access to web-based genealogical
records stored on software developed by the
Company. The Company was formed subsequent to the
dissolution of ArchivalCD, LLC (referred to
herein as "the LLC"), a Utah corporation. The
Company's Chief Executive Officer was a partner
in the LLC. The Company is in the development
stage as its operations primarily involve
research and development, market analysis, and
other business planning activities. The Company
has had no significant revenue from product
sales.
As of August 31, 1999, the Company's
accumulated deficit in the development stage was
$80,085, which was funded primarily through loans
from shareholders and the proceeds from sales of
common stock. The company believes that it will
commence its principal operations and begin
generating revenues in the fiscal year ending
December 31, 1999. Because the company is in the
development stage, the accompanying financial
statements should not be regarded as typical for
normal operating periods.
Note 2 - Summary of Significant Accounting
Policies
Method of Accounting
The accompanying financial
statements conform to the standards applicable to
development stage companies and are prepared
using the accrual basis of accounting in
accordance with generally accepted accounting
principals, whereby revenues and gains are
recognized when earned, and expenses and losses
are recognized when incurred
Cash and Cash Equivalents
The Company considers all highly
liquid assets with maturities of three months or
less to be cash equivalents.
Page 6 of 12
ArchivalCD,Inc.
(A Development Stage Company)
Notes to Financial Statements
August 31, 1999
Note 2 - Summary of Significant Accounting
Policies (continued)
Property and Equipment
Property and equipment are stated
at cost less accumulated depreciation.
Depreciation expense is charged to operations
using the straight-line method for financial
reporting and accelerated methods for income tax
purposes over the estimated useful lives of the
assets, typically 5 to 10 years. Maintenance,
repairs, and minor renovations are charged to
expense as incurred.
Goodwill
Goodwill represents the excess of
cost over the net assets acquired. Goodwill is
amortized on a straight-line basis over ten years
and is presented net of accumulated amortization
of $1,959. The carrying value of goodwill is
continually reviewed to assess its recoverability
from future operations, based on future cash
flows (undiscounted) expected to be generated.
Any impairment in value indicated by the
assessment would be charged against current
operations.
Income Taxes
The Company has adopted Statement
of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the
measurement of deferred tax assets for deductible
temporary differences and operating loss
carryforwards, and of deferred tax liabilities
for taxable temporary differences. Measurement of
current and deferred tax liabilities and assets
is based on provisions of enacted tax law. The
effects of future changes in tax laws or rates
are not included in the measurement. Valuation
allowances are established when necessary to
reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax
payable for the period and the change during the
period in deferred tax assets and liabilities.
Page 7 of 12
ArchivalCD, Inc.
(A Development Stage Company)
Notes to Financial Statement
August 31, 1999
Note 2 - Summary of Significant Accounting
Policies (continued)
Earnings per Common Share
The Company has adopted the
provisions of SFAS No.128,"Earnings per Share",
which requires presentation on the face of the
income statement of both basic and diluted
earning per share. Basic earnings (loss) per
common share are computed by dividing net income
(loss) attributable to common shares by the
weighted average number of common shares
outstanding during the period. Diluted earnings
per common share are computed using the
combination of dilutive common share equivalents
and the weighted average number of common shares
outstanding during the period. In years where the
Company recognizes a loss from continuing
operations, the assumed exercise of common share
equivalents has an antidilutive effect (i.e., it
increases net loss per share) and therefore would
not be included in the weighted average number of
shares used in the calculation of loss per common
share.
Software Development Costs
The Company has adopted the
provisions of Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", issued
by the American Institute of Certified Public
Accountants in March 1998. SOP 98-1 provides on
when costs incurred for internal-use software are
capitalized or expensed and guidance on whether
computer software is for internal use. SOP 98-1
is effective for fiscal years beginning after
December 15, 1998 and applies to internal-use
software costs incurred for all projects,
including those in progress upon initial
application of the SOP.
Page 7 of 12
ArchivalCD, Inc
(A Developmental Stage Company)
Notes to Financial Statements
August 31, 1999
Note 2 - Summary of Significant Accounting
Policies (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 certain
reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Fiscal Year End
The Company's fiscal year ends on
December 31.
Note 3 - Acquisition of Assets and Goodwill
In 1999, the Company purchased equipment
for $174,370 and certain archived records and
software for $ 140,140 from the defunct
ArchivalCD LLC and other companies either owned
or controlled by the Company's Chief Executive
Officer in exchange for 14,435,000 shares of the
Company's common stock. Additionally, the Company
agreed to compensate the LLC's stockholders
investment in the LLC in the form of cash and/or
the Company's common stock. This additional
acquisition cost totaling $ 29,387 has been
recorded as goodwill on the Company's balance
sheet.
On June 23, 1999, the Company purchased
certain archived records from an unrelated
company valued at $40,000 in exchanged for 3,000
shares of the Company's common stock.
Note 4 - Receivables
Pursuant to a stock repurchase agreement
with a stockholder, disclosed further in Note 12,
on August 5, 1999 the Company paid $ 1,000 to
repurchase 667 shares of its common stock. As of
August 31, 1999, the shares had not been returned
to the Company, resulting in a $1,000 receivable
from the stockholder at August 31,
Page 8 of 12
ArchivalCD, Inc.
(A Development Stage Company)
Notes to Financial Statements
August 31, 1999
Note 5 - Property and Equipment
Property and Equipment consists of the
following at August 31, 1999:
Equipment $174,370
Archived Records 140,140
Automobile 2,600
Office Equipment 330
Accumulated
depreciation ( 21,983)
Property and equipment, net $335,456
Depreciation expense for the period
ended August 31,1999 was $21,983
Note 6 - Notes Payable
Notes payable at August 31, 1999 consists
of an unsecured promissory note payable to a
related party due May 14, 2000 with an interest
rate of 10% per annum, and an outstanding
principal balance of $ 15,000. Interest expense
relating to this obligation was $429 for the
period ending August 31, 1999.
Note 7 - Capitalization
The capital stock of the corporation at
August 31, 1999 was as follows:
Cumulative Convertible Preferred
Stock, $20 par value, 1,000,000 shares
authorized. Dividends accrue annually at 15%,
payable in cash or common shares. Each share of
preferred stock must be held for a minimum of
three years and after five years must either be
repurchased by the Company at par value or
converted into 10 shares of common stock at the
discretion of the board of directors. There were
no preferred shares outstanding at August 31,
1999.
Common Stock, $0.01 par value,
25,000,000 shares authorized, 18,227,581 shares
issued and outstanding at August 31, 1999.
Page 9 of 12
ArchivalCD, Inc
(A Development Stage Company)
Notes to Financial Statements
August 31, 1999
Note 8 - Income per Common Share
The computations of basic and dilutive
income per share from continuing operations were
as follows:
Income (loss)
before extraordinary item
Attributable to common shares $ $ (80,085)
Weighted average
common shares outstanding $3,736,440
Basic and dilutive income (loss)
per share before extraordinary item $ (0.02)
Note 9 - Income Taxes
The Company has incurred net operating
losses since inception and has a loss
carryforward of approximately $ 80,000 at August
31, 1999 expiring in years beginning in 2014. As
of August 31, 1999, the Company had net deferred
tax assets of $32,295. A valuation allowance has
been recognized to fully offset this asset due to
the uncertainty of realizing the future benefit
in accordance with the provisions of FASB
Statement No. 109, "Accounting for Income Taxes".
The Company continually reviews the adequacy of
the valuation allowance and will recognize the
tax benefits of these assets only as assessment
indicates that it is more likely than not that
the benefit will be realized.
Significant components of the
Company's net deferred tax assets as of
August 31, 1999 is as follows:
Deferred tax assets:
Net operating loss
carryforward $ 32,034
Book over tax amortization 261
Valuation allowance (32,295)
Net deferred tax assets $ --
Page 10 of 12
ArchivalCD, Inc.
(A Development Stage Company)
Notes to Financial Statements
August 31, 1999
Note 9 - Income Taxes (continued)
Deferred taxes reflect a combined federal
and state tax of approximately 40%. A
reconciliation between the amount of federal and
state incomes taxes, based on a forty percent
(40%) tax rate, and the effective amount of
income taxes based on continuing operations is as
follows:
Statutory income taxes (refund) (32,034)
Book over tax amortization (261)
Change in valuation allowance 32,295
Income tax expense charged to
operations $ --
Note 10 - Advertising Costs
The Company expenses advertising costs as
incurred. During the period ended August 31,
1999, the company expensed $149 in advertising
costs.
Note 11 - Related Party Transactions
As further disclosed in Note 3, the
Company purchased the majority of its fixed
assets from companies owned or otherwise
controlled by its Chief Executive Officer.
As disclosed in Note 6, the Company had a
note payable to a stockholder totaling $15,000
outstanding at August 31, 1999.
The Company has $2,000 in outstanding
stockholder loans for which no promissory notes
exist. The Company has agreed to pay these
stockholders a flat interest fee equal to 15%.
$150 in interest had been paid as of August 31,
1999.
As disclosed in Note 12, the Company has
entered into a stock repurchase agreement, which
resulted in a $1,000 receivable from the
stockholder at August 31, 1999.
Page 11 of 12
ArchivalCD, Inc.
(A Development Stage Company
Notes to Financial Statements
August 31, 1999
Note 11 - Related Party Transactions (continued)
On July 7, 1999, the Company entered into
an agreement to pay Corporate Vision, Inc.
$300,000 to assist the Company in making an
initial public offering. The contracted amount
was paid in the form of 3,750,000 shares of the
Company's common stock. As a result, Corporate
Vision, Inc. was the Company's second largest
shareholder at August 31, 1999.
Note 12 - Commitments and Contingencies
On May 12, 1999, the Company entered into
a repurchase agreement with a shareholder,
whereby the Company will repurchase up to 15,000
shares of its common stock at, the direction of
the shareholder, at the greater of $1.50 per
share or the market value on the date of
repurchase. If the Company offers to redeem the
shares and the shareholder elects to retain the
shares, the agreement will become void after six
months and will be replaced by a two-year
guarantee to repurchase the agreement at $1.10
per share, regardless of market price.
The Company is obligated under a lease
agreement for its office facilities, which
expires November 30, 1999, with an option to
renew. The Company is also operating under a
month-to-month lease for storage facilities. At
August 31, 1999, there were no long-term lease
commitments. Rent expense under all operating
leases totaled $496 for the period ended August
31, 1999.
Registrant has duly caused this Registration
Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the
City of Crockett, State of Texas, on this 10 day
of December 1999.
ArchivalCD, Inc.
By:/s/ Daniel J. Hay
Daniel J. Hay
President
