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AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON SEPTEMBER 14, 2000
REGISTRATION NO. 333-93525
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 2 TO FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ArchivalCD, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS
CHARTER)
DELAWARE 3998 83-0324656
(STATE OR OTHER Industry Code (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)
(936) 545-9515
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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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
<TABLE>
<CAPTION>
================================================================================
Title of Each Amount Proposed Proposed Amount of
Class of Securities to be Maximum Aggregate Registration
to be Registered Registered Offering Price Offering Fee
Per Unit(1) Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares,
Par value $.01 3,700,000 $2.00 $7,400,000 $1,953.60
================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
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.
<PAGE> 2
EXPLANATORY NOTE
Due to the extent of changes to the registration statement on Form SB-2, this
amendment is being filed without EDGAR redlining.
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Cross-Reference Sheet for Prospectus under From SB-2
<TABLE>
<CAPTION>
Form
SB-2
Item Caption In Prospectus
------------------------------------------------------------------------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Cover Page, Outside
Front Cover of Prospectus.......................Front Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover
Prospectus......................................Prospectus
3. Summary Information and Risk Factors..................Prospectus Summary;
Risk Factors
4. Use of Proceeds.......................................Use of Proceeds
5. Determination of Offering Price.......................Front Page of
Prospectus,
6. Dilution..............................................Dilution
7. Selling Security Holders..............................Prospectus Summary,
The Offering,
Security Ownership
of Certain
Beneficial Shareholders
8. Plan of Distribution..................................Cover Page
9. Legal Proceedings.....................................Legal Proceedings
10. Directors, Executive Officers, Promoters and
and Control Persons.............................Management,
Directors and
Executive Officers
11. Security Ownership of Certain Beneficial Owners Security Ownership of
and Management..................................Certain Beneficial Owners
and Management
12. Description of Securities.............................Description of
Common Stock
13. Interest of Named Experts and Counsel.................None
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..None
15. Organization Within Last Five Years...................The Company, Management
and Directors
16. Description of Business...............................The Company, Business
17. Management's Discussion and Analysis or Plan of
Operation.......................................Management's Discussion
And Analysis
18. Description of Property...............................The Company, Business
19. Certain Relationships and Related Transactions........Management
20. Market for Common Equity and Related Stockholder
Matters.........................................None
21. Executive Compensation................................Management-Executive
Compensation
22. Financial Statements..................................Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.............None
</TABLE>
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SUBJECT TO COMPLETION, DATED SEPTEMBER 14, 2000
ARCHIVALCD, INC.
3,700,000
Common Shares
This is an initial public offering of 3,700,000 shares, at $2.00 per share, of
ArchivalCD, Inc. common stock. Each share consists of one share of Common
Stock, $.01 par value. Fractional shares may not be purchased.
The shares are being offered on a best efforts basis by the company's officers
and directors and no compensation will be paid. The latest date for termination
of the offering will be 90 days after the effective date of the Registration
Statement. There is no minimum number of shares or dollar amount for the
offering and the proceeds of the offering will not be held in escrow.
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 500,000 shares of common stock held
by a selling stockholder identified in this prospectus. ArchivalCD, Inc. will
not receive any proceeds from the sale of such shares.
INVESTING IN COMMON STOCK AND WARRANTS INVOLVES RISKS. YOU SHOULD PURCHASE
THESE SECURITIES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. PLEASE SEE THE RISK
FACTORS SECTION OF THIS DOCUMENT LOCATED ON PAGE SEVEN OF THIS OFFERING.
<TABLE>
<S> <C>
Issuer $6,400,000
Selling Shareholder $1,000,000
</TABLE>
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.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
4
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary....................6
Risk Factors..........................7
Use of Proceeds.......................8
Dilution.............................10
Business.............................10
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............14
Management...........................22
Selling Stockholders.................25
Description of Capital Stock.........26
Legal Matters........................28
Index to Financial Statements........32
</TABLE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed information
and financial statements appearing elsewhere in this Prospectus.
The Company
ArchivalCD, Inc., is a development stage manufacturer, organized in November
1998 as a Delaware Corporation. The Company will initiate production as a
designer of Genealolgical and Business Archive Records digitized information
and storage libraries by developing, manufacturing and digitizing microfilm
documents of historical value and placing them on Recordable Compact Disk
(CDRs).
The Offering
<TABLE>
<S> <C>
Securities being offered: 3,700,000 common shares total
Common Stock Outstanding Prior to Offering 18,573,783 shares
Common Stock Offered by the Company 3,200,000 shares
Common Stock Offered by a Selling Shareholder 500,000
Common Stock Outstanding After this Offering 22,273,783 shares
</TABLE>
Use of Proceeds The Proceeds from this offering will be used for
product development, sales and marketing expenses,
facilities and capital expenditures, expansion of
internal operations and working capital in addition
to general corporate purposes.
Risk Factors This filing contains forward-looking statements
within the meaning of the Securities Act of 1933, as
amended, including statements using terminology such
as "may", "will", "expects", "plans", "anticipates",
"estimates", "potential" or other comparable
terminology regarding beliefs, plans, expectations
or intentions concerning the future. For a specific
list of Risk Factors please see the section titled
"Risk Factors" contained in this offering.
THE COMPANY
ArchivalCD, Inc., (ArchivalCD or the "Company") is a development stage
manufacturer, organized on November 12, 1998, as a Delaware Corporation. The
company has no products or services for sale at this time and has not generated
any production or revenues.
ArchivalCD, Inc. will initiate production as a designer of Genealogical and
Business Archive Records digitized information and storage libraries. The
company develops, manufactures and digitizes microfilm documents of historical
value and places them on Recordable Compact Disk (CDR). The company founder has
seven 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 imagebase
on CD portion of the market.
The company was incorporated as a Delaware corporation on November 12, 1998.
Our address is 100 North Sixth Street Suite 212, Crockett, TX 75835, and our
telephone number is (936)545-9515.
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RISK FACTORS
Limited Operating History
The company has incurred significant losses since inception and expects to
continue to incur substantial losses for a least two quarters after this
offering. Although the offering is intended to provide all required funding to
meet Company needs, it must be noted that the offering could be successful at
less than the full offering. However, a reduced amount received from the
offering could adversely affect the Company's goals for early revenue
generation. We could also incur additional losses and longer time frames than
presently anticipated in establishing widespread market acceptance for our CDR
image base products due to reduced funding for our workforce, equipment and
microfilm collection.
Unpredictability of Future 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, but not limited to, variations in demand for our products
and services, changes in availability of raw materials for imaging services and
for CDR duplication as well as unanticipated acceptance or lack of acceptance
of our products and services including both the image base CDR material and our
business archival imaging services. Additionally, competitive products could
conceivably force price reductions in sales or increases in marketing expenses.
Costs of litigation and intellectual property protection, unexpected
competitive factors, changes in the technology and growth of the Internet,
technical difficulties with respect to our product and client equipment and
general economic conditions are also factors which could impact our anticipated
and projected revenue.
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.
Future Success
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 to our captive
market as well as to new markets. We may not efficiently address customer
requirements and adopt 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 be detrimental to our
financial model.
We also rely on certain technologies 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 an adverse affect on
our business, financial condition and results of operations.
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Intellectual Property Rights
We attempt to avoid infringing upon known proprietary rights of third parties
in our product development efforts. However, we have not conducted
comprehensive patent searches to determine whether the technology used in our
products infringes patents held by third parties. 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 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 adversely affect our business, financial condition and results of
operations.
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. We have entered into an employment agreement with Dr.
Hay, which will commence on the closing of this offering. We do not maintain,
as yet, any key man life insurance but such coverage will be added in the
future. The loss of services of any of our executive officers or key employees
could cause us to miss projections and would adversely affect our financial
success.
USE OF PROCEEDS
The net proceeds to the company from the sale of the Securities offered hereby
will be 6,400,000. The net proceeds to the Company from the sale of the
Securities offered hereby, after deduction estimated expenses relating to the
offering, are estimated to be approximately $5,430,684.
The Company intends the Use of Proceeds to be:
<TABLE>
<CAPTION>
Approximate
Proceeds Percent of
Proceeds
<S> <C> <C>
Facilities and other capital
expenditures...........................$3,100,000 48%
Working capital and general corporate..$1,047,684 16%
Cost of Offering.......................$ 969,316 15%
Product development expenses...........$ 500,000 8%
Sales and marketing expenditures.......$ 400,000 6%
Expansion of internal operations.......$ 350,000 6%
Repayment of certain indebtedness......$ 37,000 1%
Total..................................$6,400,000 100%
</TABLE>
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There can be no assurances that any proceeds will be realized from this
offering. The company has made alternate use of proceeds plans in the event
that this offering is not successful in raising the funds as indicated in the
above Use of Proceeds table. The following table includes figures for alternate
levels of funding and are based upon adjusted business plan figures for the
minimum level of 10% and a mid-range level of 50%.
Percent of Total
<TABLE>
<CAPTION>
10% Proceeds 50% Proceeds
<S> <C> <C> <C> <C>
Facilities and other capital expenditures $268,800 42% $1,419,100 46%
Working capital and general corporate $128,000 20% $ 617,000 20%
Cost of Offering $ 64,000 10% $ 308,500 10%
Product Development expenses $ 57,600 9% $ 277,650 9%
Sales and marketing expenditures $ 44,800 7% $ 215,950 7%
Expansion of internal operations $ 39,800 6.2% $ 197,440 6.8%
Repayment of certain indebtedness $ 37,000 5.8% $ 37,000 1.2%
Total $640,000 100% $3,085,000 100%
</TABLE>
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.
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DILUTION
As of June 30, 2000, the net tangible book value of the Company was $258,871 or
approximately $0.014 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.
After deducting estimated offering expenses payable by the company, net
tangible book value of the Company at June 30, 2000 would have been $5,689,555,
or approximately $0.255 per share of Common stock. This represents an immediate
increase in the tangible book value of $0.241 per share of Common Stock to
existing stockholders and an immediate dilution in net tangible book value of $
1.745 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
Net tangible book value per share prior to the offering $0.014.
Increase per share attributable to the offering $ 0.241.
Pro forma, as adjusted, net tangible book value per share after the offering $
0.255.
Dilution per share to new investors $1.745, or 87.3% of the offering price of
$2.00 per share.
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
sales portion of the market and the more expansive microfilm imagebase on CD
portion of the market. Doing both supports the furthering of genealogical
research and education and the corresponding historical and educational
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.
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ArchivalCD, Inc. will be producing specific microfilm Titles on CDR for the
genealogical, historical, and educational markets. Approximately 90 days after
the successful completion of this offering the master microfilm collection
needed to address this market will be obtained and delivered to the company
facilities. Production of imaging and duplication of CDR will commence
immediately and product will be made available to clients at this point. at the
same time, duplication services for the microfilm Collection can commence in
the same thirty-day period after the microfilm has been received at corporate
facilities. It is expected that generation of revenue will commence in the
second quarter following the completion of this offering.
Additional secondary markets may not generate revenues for the first year
following this offering due to the nature of bidding for services. A number of
projects are in the pre-bid stage but are not far enough along to be considered
reliable sources at this time.
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.
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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 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 that researching genealogists desire to have access to the
film, or in ArchivalCD's case, the image of the film and that every assumption
and relationship must be documented and proper citations of sources 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 rental fees.
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.
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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.
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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 digitization 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 Internet sales.
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.
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. was incorporated in November 1998 as a Delaware corporation
for the purpose of digitizing historical documents with the express purpose of
filling a market niche and to acquire certain technologies and intellectual
property to further the growth of ArchivalCD, Inc.
The Company feels that it has two distinct markets. The first one is considered
its core market and is considered the stronger of the two in early years of
growth. This market is the genealogical, historical, and educational markets
having need for historic documents in an accessible format. Hence, documents
that are typically stored on microfilm or microfiche in such collections as,
but not limited to, at the National Archives or the Library of Congress are
digitized and placed upon storage media such as recordable compact disk (CDR).
ArchivalCD considers this market, known to be of interest to more than eighteen
million potential clients, as its target market. And it is this niche market
that the company envisioned when creating its proprietary processes and
software and in developing its business plan. The second market is directly
related to records archiving for business and government offices needing to
retain the original document in an imagebase rather than as a database. The
company considers the second market the expansion market. As such, the
expansion market is not included in the business plan, nor in projections, as
the company feels significant market competition in that area makes estimates
unreliable. The business and government market also includes the capability of
long term storage of microfilm and CD masters for clients in the facilities the
company already needs for its own long term storage.
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The Company uses "just-in-time production" techniques to service the core
market. To do this the company acquires collections of microfilm, such as those
at the National Archives, that have a high usage rate among the targeted
market. All of the approximate 200,000 titles of microfilm are placed in the
catalog of available titles but none are actually produced until they are first
ordered and paid for. This allows all production time to be spent on titles in
demand instead of creating titles and trying to sell the market on their use.
Once a master copy is created later requests for the title on CDR can be
duplicated and shipped the same day as order is received. All orders are
prepaid and inventory is only created as needed allowing for fine control of
inventory and supplies as well as maintaining tight reins on overhead costs.
The company has created a proprietary forecasting algorithm to help determine
what microfilm titles to prepare for times when custom orders are slowing. This
will allow us to project which titles to produce during any potential cyclic
periods and allow training of new staff to be on titles not presently ordered
allowing new staff sufficient time to meet quality control requirements without
risking delay of product to customers.
Acquired from the LLC, ArchivalCD, Inc. uses a proprietary computer controlled
production process that starts with customer service and the inputting of
orders and follows the order and the product right through inventory control,
production needs, labeling, and shipping, and in the event of rentals, tracks
return titles, dates, and condition. The program is already well tested and
proven successful at reducing manpower requirements as well as maintaining
excellent quality control.
ArchivalCD, Inc. has incurred significant losses during development and while
searching for funding sources. However, the company feels that it will be able
to sustain continued growth and further development based upon the market size
and the LLC's earlier test market production response once this offering is
completed. In light of the Company's limited operating history and rapid
improvements in technology and marketing of its digital imagebase 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 performances.
The Company has incurred significant net losses and negative cash flows from
operations since inception, and as of June 30, 2000, had an accumulated deficit
of $190,236. 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.
15
<PAGE> 16
RESULTS OF OPERATIONS
Operating Costs and Expenses
Selling, General and Administrative Expenses.
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.
<TABLE>
<CAPTION>
Common Shares issued for: Number Dollar Value
<S> <C> <C>
Cash 61,006 $ 76,829
Services Rendered 3,762,010 $ 312,015
In lieu of Interest Pymnt 100 $ 150
To Acquire Assets 14,438,000 $ 354,510
Rent 2,500 $ 2,500
Compensation 310,167 $ 3,101
Total Common Shares Issued: 18,573,783
Total Dollar Value $ 749,105
</TABLE>
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 June 30, 2000, the Company had available net operating loss carryforwards of
approximately $190,236 to offset future taxable income for federal 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 carryforwards expire beginning in the year 2019. 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.
16
<PAGE> 17
Liquidity and Capital Resources
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.
17
<PAGE> 18
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 January 1, 1999, 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 98-9, "Software Revenue Recognition"
("SOP 98-9"). SOP 98-9 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 98-9 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 them on various types of digital storage media, 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.
18
<PAGE> 19
Marketing and Sales
Statistical and demographic research shows that within the genealogy market
there has been little, if any, marketing strategy among competing entities due
to 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 most have a presence on the Internet. ArchivalCD,
Inc. feels that there are a number of marketing venues overlooked by these
other entities. The marketing research done by Advanced Resources, Inc. and by
ArchivalCD has provided a valuable collection of marketing data and processes
of marketing that the company considers proprietary processes.
The marketing strategy has already been successfully proven during test
marketing taking practical experience, market awareness and both data and
training acquired from appropriate consulting sources. It has been shown that
none of the film-based competitors in the market, and most of the book and disk
publishing entities in the market, have professional marketing personnel on
staff. ArchivalCD's 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 core target market and its
advertisement channels. The company 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 in
the Internet and has acquired other intellectual property specific to this core
target market.
Additionally, the expansion markets the Company is targeting will make use of
the same techniques and knowledge as well as customized versions of the
proprietary software used for imagebase manipulation.
ArchivalCD's 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 trade-show conferences at
both state and national levels. Some of the special efforts the company will
extend include cultivating the product reviewers in each of its markets,
providing scholarships to each of the five annual genealogy institutes, and
making the company available to help thousands of smaller organizations to
produce their annual programs by supplying material, speakers, and
advertisement. Presently other market entities make little extra effort in
reaching the market outside of the monthly magazine advertisements. ArchivalCD
will lead the way in this respect by using market awareness to reiterate
ArchivalCD's efforts. Early efforts have proven very fruitful as shares of the
marketing budget. Marketing research shows few competitive marketing entities
are involved with the local levels 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, already proven to be very effective, merged with a firm
understanding of the market means that the company can execute local level
marketing of its product.
19
<PAGE> 20
Market Analysis
ArchivalCD's core market is targeted at a minimum of two million researching
genealogists. As of June 1997 statistics verified that 67% were computer
compatible with ArchivalCD imagebase product. June 2000 estimates indicate 84%
are now compatible. This target market is augmented by more than seventeen
million more individuals who are actively using microfilm for research but who
are not yet aware of the availability of the ArchivalCD product.
A 1997 report by American Demographics magazine states that 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 sold more than 600,000 copies of one genealogical title and a 1999 Time
magazine article of 13 pages emphasized the wide-spread interest in genealogy
and the demand for research tools such as ArchivalCD`s microfilm imagebase on
CDR.
Projections indicate the market growth will continue to expand with the
addition of over 10,000 people in the United States turning 50 per day. Surveys
show a high percentage of this population expressing an interest in
genealogical and historical research. Management feels that the most important
fact of the potential new customers is that they are overwhelmingly computer
literate and have computers systems compatible with ArchivalCD CDR product.
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. Of them,
42% have purchased product via the Internet. The average age of individuals
doing research is now 52 having dropped from 65 just five years ago. In
general, an Internet capable computer system is compatible with ArchivalCD
product.
Employees
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
employees.
The Company uses clerical staff, customer service staff, and image production
staff. These needs are easily filled. Mid-management staffing has already been
filled with individuals having similar backgrounds to the needs of the company.
The management 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.
20
<PAGE> 21
Trade names and Trademarks
The Company does not hold United States Registered trademarks for its brand
names and products, but uses various unregistered trade names, trademarks, and
service marks. With the completion of this offering, and with the introduction
of new products, the company anticipates continuing to adopt additional
unregistered names and marks and will selectively seek registration of some
names and marks.
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 business 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.
DESCRIPTION OF PROPERTY FACILITIES
The Company currently leases office space under an annual lease that expires
December 31, 2001 and is renewable under flexible terms. Production facilities
will require extensive humidity control, computer power systems and special
inventory storage. Administrative offices will be moved to the new production
and inventory facility upon completion of funding.
21
<PAGE> 22
MANAGEMENT
Executive Officers and Directors of the Company
The following table sets forth certain information concerning the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position With the Company
--------------------------------------------------------------------------
<S> <C> <C>
Daniel J. Hay 43 President, CEO, Chairman
William Hale 67 Director
Richard H. Lytle 54 Director
Guillermo J. "Bill" Campisteguy 37 Director
Gary Toms 50 Director
William R. Gann 69 Director
Mike Sirotka 54 CFO, Treasurer
Brenda L. Saul 39 Vice President/Secretary
</TABLE>
Board of Directors: [Appointed for the interim until the first Shareholder's
Meeting upon completion of this offering. It is anticipated that these members
of the board will be elected by the shareholder's to continue serving in this
capacity.]
Daniel J. Hay, (BA, MBA, DD) As a professional genealogist, lecturer and author
Hay joined Advanced Resources, Inc in 1994 as President for large scale
interlinked database development. Hay developed one of the first subscription
magazines on diskette and one of the earliest webpage award programs. In 1996
he became President and Managing Partner of ArchivalCD, LLC with primary
responsibilities including market development and product enhancement. He
developed the fully integrated ORDEPS program for ArchivalCD's customer
management, inventory control, production scheduling, CDR printing and
creation, and shipping and testing. In 1998 he became CEO and President of
ArchivalCD, Inc with emphasis on niche product development and corporate
expansion.
William Hale, (MS, Engineering) Retired IBM, currently serving on the Board of
Directors for Corporate Vision, Inc. (CVIA) and appointed by CVIA to the
ArchivalCD, Inc. Board of Directors. Mr. Hale has been appointed to the Audit
Review Committee.
Richard H. Lytle, (JD), is senior partner in the law firm of Dorothy, Lytle,
Cronk & Miller. He has been engaged in the active practice of law since 1974.
Prior to that he was on active duty as an officer in the United States Air
Force. He currently serves as the Secretary of the private Van Buren
Foundation, Inc. is a member of the Board of Directors of the Indian Hills
Community College Foundation.
Guillermo J. "Bill" Campisteguy, (BS and MS Aerospace Engineering), has worked
the past twelve years in the Aerospace industry conducting customer specific
performance analysis supporting Sales and Marketing and contractual guarantees,
filling multiple consulting capacities focusing on Quality, Just-in-Time (JIT)
processes, Statistical Process Control (SPC), and process improvement
methodologies as well as configuration control and integration of engineering
and production activities. Mr. Campisteguy has been appointed to the Audit
Review Committee.
22
<PAGE> 23
Gary Toms, (BA History) is President of Genealogical Pursuits, and combines
twenty-five years in the museum and historic preservation field with current
employment as Director of Data Processing/Quality Control at MVSi specializing
in imaging services for government jurisdictions. Toms is an active
genealogist, author and editor and has served as Director or Officer in various
national organizations including the Federation of Genealogical Societies and
the American Family Records Association.
William R. Gann, (MS) Retired private investor, he currently is active in
genealogical and historical research. Mr. Gann served for more than eighteen
years in administrative positions with Claremont Colleges, the last fifteen
years as Dean of Students of Harvey Mudd College. He writes and publishes in
local, state and national publications and has served as editor for a number of
state and national periodicals. Mr. Gann has been appointed to the Audit Review
Committee.
Mike Sirotka, (BS Accounting) is the Chief Financial Officer and Treasurer of
ArchivalCD, Inc. He has served as the COO/CFO of Aquaculture Technologies, Inc.
since 1997. Previously, Sirotka was President and CFO for The Regina Companies.
Brenda L. Saul, (BA American History) Vice President/Secretary. Ms. Saul served
as the Director of Subscription/Renewals for the "Heritage Quest" magazine at
American Genealogical Lending Library prior to joining Advanced Resources, Inc.
in 1995. She served as Office Manager and Collections Development Manager until
joining ArchivalCD, Inc. in 1998 with responsibility for Human Resources and
Office Management.
Management Team Limitations
The appointment of Mr. Sirotka, with more than 30 years of corporate accounting
experience and strong financial experience, as CFO, Director and Treasurer
rounded out the management team which had previously considered itself weakened
in financial acumen.
Both the Marketing Director and the Computer Department Manager positions are
crucial to the company's fast adaptations to market demand and the company is
waiting until the completion of the offering so that the positions may be
awarded to candidates already selected.
EXECUTIVE COMPENSATION
No employee or officer's salary exceeds $100,000 annually at the time of this
filing.
Daniel J. Hay, CEO/President, received a total $24,000 in compensation for
1999.
Stock Option Plan
The Company has no pension or profit sharing plan or other contingent forms of
remuneration, but does expect to select a pension plan during the first year of
operation. The Board of Directors may, from time to time, amend or may
terminate any such Plan without action by the Company's shareholders, but no
such amendment may increase the number of shares of Common Stock that me be
issued under the Plan without the consent of such holders. To date, no stock
options are outstanding under any plan.
23
<PAGE> 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth at June 30,2000 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.
<TABLE>
<CAPTION>
Percent of Shares
Shares Name and Beneficially
Owned Address Owned
<S> <C> <C>
78% Dr. Daniel J. Hay (1) 14,435,000
100 North Sixth, #212
Crockett, Texas 75835
20% Corporate Vision Inc. (2) 3,677,621
6130 South Memorial Drive
Tulsa OK 74133
</TABLE>
(1) Mr. Hay's shares shown as Beneficially Owned also include 70,000 shares
owned by his wife, Brenda Hay, and an additional 60,000 shares controlled by
Mrs. Hay as trustee for two minor children.
(2) Shares were granted to Corporate Vision, Inc. (NASD OTC:BB CVIA) for
underwriting and consulting services rendered. In April 1999, Corporate Vision
Inc. distributed 71,494 ArchivalCD Inc common shares to CVIA shareholders of
record creating a shareholder base for ArchivalCD Inc.
The following table sets forth at June 30, 2000 the name of each person and the
number of shares Beneficially owned by each Director.
<TABLE>
<CAPTION>
Percentage of Class
Name Number of Shares Before After
Offering Offering
<S> <C> <C> <C>
Daniel J. Hay 14,435,000 78% 65%
William Hale 826 >1% >1%
Richard H. Lytle 1,700 >1% >1%
Guillermo J. "Bill" Campisteguy 214 >1%% >1%
Gary Toms 1,000 >1% >1%
William R. Gann 1,000 >1% >1%
Mike Sirotka 0 0% 0%
Total Board owned shares: 14,439,740 78% 65%
</TABLE>
24
<PAGE> 25
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 500,000 shares of Common Stock. The Selling
Stockholder is Corporate Vision, Inc. Corporate Vision has a representative on
the Board of Directors of ArchivalCD, Inc.
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.
25
<PAGE> 26
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of (i) 25,000,000 shares of
Common Stock, par value $.01 per share and (ii) 1,000,000 shares of Preferred
Stock, par value $.01 per share ("Preferred Stock"). 18,573,783 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.
26
<PAGE> 27
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.
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.
27
<PAGE> 28
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the Company
by Jackson L. Morris of 3116 West North A Street, Tampa, Florida 33609-1544.
EXPERTS
The audited consolidated financial statements, included in this Prospectus,
have been examined by Cross and Robinson, independent certified public
accountants, and are included herein in reliance upon the report of said firm
given upon their authority as experts in accounting and auditing.
REPORTS TO SHAREHOLDERS
The Company plans to furnish annual reports to shareholders, which reports will
include financial statements together with the report of the Company's
independent certified public accountants thereon. In addition, the Company may
furnish other unaudited interim reports as the Board of Directors determines.
TRANSFER AGENT
Transfer Online Inc. 227 Pine Street Suite 300
Portland OR 97204
Phone: (503) 227-2950 Fax (503) 227-6874
28
<PAGE> 29
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
ArchivalCD, Inc.
Crockett, TX
We have audited the accompanying balance sheets of ArchivalCD, Inc., (a
development stage company), as of December 31, 1999 and 1998, and the related
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1999, the period November 12, 1998 (inception) to December 31,
1998, and for the period November 12, 1998 (inception) to December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ArchivalCD, Inc., as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the year ended December 31, 1999, the period from November 12, 1998
(inception) to December 31, 1998, and the period from November 12, 1998
(inception) to December 31, 1999, in conformity with generally accepted
accounting principles.
CROSS AND ROBINSON
Certified Public Accountants
Tulsa, Oklahoma
March 16, 2000
29
<PAGE> 30
ARCHIVALCD, INC.
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,255 $ --
Receivable from stockholders (Note 4) 1,000 --
Employee advances (Note 4) 24,127 --
------------ ------------
TOTAL CURRENT ASSETS 26,382 --
------------ ------------
PROPERTY AND EQUIPMENT, NET (NOTE 5) 327,952 314,510
------------ ------------
OTHER ASSETS
Deposit (Note 12) 1,000 --
------------ ------------
TOTAL ASSETS $ 355,334 $ 314,510
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued liabilities $ 14,282 $ --
Loans from stockholders (Note 11) 1,000 --
Notes payable to stockholders, current portion (Note 6) 15,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 30,282 --
------------ ------------
NOTES PAYABLE TO STOCKHOLDERS, NET OF CURRENT PORTION (NOTE 6) 18,000 --
------------ ------------
STOCKHOLDERS' EQUITY (NOTE 7)
Cumulative convertible preferred stock, $.01 par value,
1,000,000 shares authorized, no shares issued or outstanding -- --
Common stock, $0.01 par value; 25,000,000 shares authorized, 18,305,726 and
18,185,000 shares issued and outstanding at
December 31, 1999 and 1998, respectively 183,057 181,850
Additional paid-in capital 240,699 132,660
Deficit accumulated during the development stage (116,704) --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 307,052 314,510
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 355,334 $ 314,510
============ ============
</TABLE>
Accompanying notes are an integral part
of the financial statements.
30
<PAGE> 31
ARCHIVALCD, INC.
(A Development Stage Company)
INCOME STATEMENTS
<TABLE>
<CAPTION>
CUMULATIVE,
NOVEMBER 12, 1998 NOVEMBER 12, 1998
YEAR ENDED (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATING REVENUE $ -- $ -- $ --
----------------- ----------------- -----------------
GENERAL AND ADMINISTRATIVE
EXPENSES 115,122 -- 115,122
----------------- ----------------- -----------------
OPERATING INCOME (115,122) -- (115,122)
OTHER EXPENSES
Interest expense (1,582) -- 1,582
----------------- ----------------- -----------------
NET INCOME (LOSS) $ (116,704) $ -- $ (116,704)
================= ================= =================
WEIGHTED AVERAGE COMMON
SHARE OUTSTANDING (NOTE 8) 18,220,460 18,185,000 18,215,394
================= ================= =================
NET INCOME (LOSS) PER
COMMON SHARE $ (0.01) $ -- $ (0.01)
================= ================= =================
</TABLE>
Accompanying notes are an integral part
of the financial statements.
31
<PAGE> 32
ARCHIVALCD, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 12, 1998 (INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT
NOVEMBER 12, 1998
(DATE OF INCEPTION) -- $ -- $ -- $ -- $ --
Issued to acquire assets
of the former
ArchivalCD, LLC
(Note 3) 14,435,000 144,350 170,160 -- 314,510
Issued to Corporate
Vision, Inc. for services
rendered (Note 12) 3,750,000 37,500 262,500 -- 300,000
Costs of raising equity -- -- (300,000) -- (300,000)
Net loss for the period -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT
DECEMBER 31, 1998 18,185,000 181,850 132,660 -- 314,510
Issued for cash 45,449 454 56,025 -- 56,480
Issued in exchange for
services rendered 12,010 120 11,895 -- 12,015
Issued as compensation
(Note 12) 60,167 602 -- -- 602
Issued in lieu of
interest payment
(Note 11) 100 1 149 -- 150
Issued to acquire assets
(Note 3) 3,000 30 39,970 -- 40,000
Net loss for the period -- -- -- (116,704) (116,704)
------------ ------------ ------------ ------------ ------------
BALANCE AT
DECEMBER 31, 1999 18,305,726 $ 183,057 $ 240,699 $ (116,704) $ 307,052
============ ============ ============ ============ ============
</TABLE>
Accompanying notes are an integral part
of the financial statements.
32
<PAGE> 33
ARCHIVALCD, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE,
NOVEMBER 12, 1998 NOVEMBER 12,1998
YEAR ENDED (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash paid for goods and services $ (81,384) $ -- $ 81,384
Interest paid (150) -- (150)
--------------- --------------- ---------------
NET CASH USED BY OPERATING ACTIVITIES (81,534) -- (81,534)
--------------- --------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES:
Fixed asset purchases (7,690) -- (7,690)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 56,480 -- 56,480
Proceeds from long-term debt 18,000 -- 18,000
Proceeds from short-term debt 17,000 -- 17,000
Repayment of short-term debt (1,000) -- (1,000)
--------------- --------------- ---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 90,480 -- 90,480
--------------- --------------- ---------------
NET INCREASE IN CASH 1,255 -- 1,255
CASH AT BEGINNING OF PERIOD -- -- --
--------------- --------------- ---------------
CASH AT END OF PERIOD $ 1,255 $ -- $ 1,255
=============== =============== ===============
</TABLE>
Accompanying notes are an integral part
of the financial statements.
33
<PAGE> 34
<TABLE>
<CAPTION>
CUMULATIVE,
NOVEMBER 12, 1998 NOVEMBER 12, 1998
YEAR ENDED (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES:
NET LOSS $ (116,704) $ -- $ (116,704)
--------------- --------------- ---------------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 34,248 -- 34,248
Stock issued in exchange for services 12,015 -- 12,015
Stock issued in lieu of interest on
shareholder loan 150 -- 150
Stock issued as compensation (Note 12) 602 -- 602
Stock compensation accrual (Note 12) 2,500 -- 2,500
(Increase) Decrease in deposits (1,000) -- (1,000)
(Increase) Decrease in receivables
from shareholders (1,000) -- (1,000)
(Increase) Decrease in employee receivables (24,127) -- (24,127)
Increase (Decrease) in accrued liabilities 11,782 -- 11,782
--------------- --------------- ---------------
Total Adjustments 35,170 -- 35,170
--------------- --------------- ---------------
NET CASH USED BY OPERATING ACTIVITIES $ (81,534) $ -- $ (81,534)
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF
NON-CASH ACTIVITIES:
Stock issued to acquire fixed assets $ 40,000 $ 314,510 $ 354,510
</TABLE>
34
<PAGE> 35
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD NOVEMBER 12, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
ArchivalCD, Inc. (referred to herein as "the Company") was
incorporated under the laws of the state of Delaware on November 12,
1998. The Company specializes in digitization of historic microfilm,
enhancing the images, and writing them to compact discs. The Company
intends to provide subscribers with access to the digitized historical
records on compact disc for use in genealogical, historical, and
educational research. The Company further intends to provide file
conversion services to businesses and local governments.
The Company is in the development stage as its operations
principally involve research and development, market analysis, and
other business planning activities. The Company has had no significant
revenue from product sales. Other than the asset acquisition detailed
in Note 3 and the exchange of common stock for services disclosed in
Note 12, there were no significant operating transactions for the
period November 12, 1998 to April 1, 1999.
As of December 31, 1999, the Company's accumulated deficit in the
development stage was $116,704, which was funded primarily through
loans from stockholders and the proceeds from sales of common stock.
The Company believes that it will commence its principal operations
and begin generating revenues in the fiscal year ending December 31,
2000. Because the Company is in the development stage, the
accompanying financial statements should not be regarded as typical
for normal operating periods.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING 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.
35
<PAGE> 36
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD NOVEMBER 12, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 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.
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.
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 statement
of operations of both basic and diluted earnings per share. Basic
earnings (loss) per common share is computed by dividing net income
(loss) attributable to common shares by the weighted average number of
common shares outstanding during the period. Diluted earnings per
common share is computed using the combination of dilutive common
share equivalents and the weighted average number of common shares
outstanding during the period. In years where the Company recognizes a
loss from continuing operations, the assumed exercise of common share
equivalents has an antidilutive effect and therefore would not be
included in the weighted average number of shares used in the
calculation of loss per common share.
36
<PAGE> 37
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD NOVEMBER 12, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPUTER SOFTWARE COSTS
As of December 31, 1999, the Company had not incurred any
computer software costs. The Company has adopted the accounting
statements summarized in the following paragraphs in anticipation that
the Company may incur such costs once principal operations have
commenced.
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" under which direct
costs and allocated overhead associated with the development of
software products are capitalized. Initial costs are charged to
operations as research prior to the development of a detailed program
design or a working model. Costs incurred subsequent to the product
release, and research and development performed under contract are
charged to operations. Capitalized costs are amortized over the
estimated product life on the straight-line basis. Unamortized costs
are carried at the lower of book value or net realizable value.
The Company has also adopted the provisions of Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", issued by the American
Institute of Certified Public Accountants in March 1998. SOP 98-1
provides guidance on when costs incurred for internal-use software are
capitalized or expensed and guidance on whether computer software is
for internal use. SOP 98-1 is effective for fiscal years beginning
after December 15, 1998 and applies to internal use software costs
incurred for all projects, including those in progress upon initial
application of the SOP.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
37
<PAGE> 38
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD NOVEMBER 12, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF NON-EMPLOYEE STOCK-BASED COMPENSATION
The Company applies the provisions of SFAS No. 123 "Accounting
for Stock-Based Compensation", to all issuances of stock to
non-employees in exchange for goods and services. Accordingly, such
issuances are accounted for based on the fair value of the goods or
services received or the fair value of the shares issued, whichever is
more reliably measured.
NOTE 3 - ACQUISITION OF ASSETS
Upon its inception, the Company purchased equipment valued at
$174,370 and certain archived records valued at $140,140 from various
entities either owned or controlled by the Company's Chief Executive
Officer, including ArchivalCD, LLC ("the LLC"), a defunct Utah
corporation, in which the Company's CEO was a partner. The equipment
and records were purchased in exchange for 14,435,000 shares of the
Company's common stock. As these assets were under common control of a
significant shareholder prior to and after the acquisition, the
Company has valued the acquired assets at their historical cost, which
is consistent with the provisions of APB Opinion No. 16 and the
Securities and Exchange Commission's Staff Accounting Bulletin (SAB)
No. 48.
On June 23, 1999, the Company purchased certain archived records
from an unrelated company valued at $40,000 in exchange for 3,000
shares of the Company's common stock. The valuation of the transaction
was based on the suggested auction price of the records, as stated in
the sale agreement.
NOTE 4 - RECEIVABLES
RECEIVABLE FROM STOCKHOLDERS
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 December
31, 1999, the shares had not been returned to the Company, resulting
in a $1,000 receivable from the stockholder at December 31, 1999.
38
<PAGE> 39
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD NOVEMBER 12, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
NOTE 4 - RECEIVABLES (CONTINUED)
EMPLOYEE ADVANCES
Since inception, the Company had advanced funds to and paid
certain personal expenses for its chief executive officer, which will
be deducted from his future wages once the payroll system has been
implemented in fiscal year 2000. The total receivable from the chief
executive officer at December 31, 1999 was $24,127.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Equipment $ 174,370 $ 174,370
Archived records 180,140 140,140
Automobile 2,600 0
Office equipment 5,090 0
Accumulated depreciation (34,248) 0
--------- ---------
Property and equipment, net $ 327,952 $ 314,510
========= =========
</TABLE>
Depreciation expense for the period ended December 31, 1999 was
$34,248.
NOTE 6 - NOTES PAYABLE
Notes payable at December 31, 1999 consists of the following:
Unsecured promissory note payable to a stockholder due
May 14, 2000, with interest at 10% per annum. $ 15,000
Loan agreement with a stockholder due October 19, 2002,
with interest at 15%, collateralized by unissued shares of
the Company's common stock at the rate of $1.00 per share. 18,000
Less current portion (15,000)
--------
Long-term debt $ 18,000
========
39
<PAGE> 40
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD NOVEMBER 12, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
NOTE 6 - NOTES PAYABLE (CONTINUED)
Principal maturities of long-term debt are as follows:
Fiscal year ended December 31, 2002 $ 18,000
========
NOTE 7 - STOCKHOLDERS' EQUITY
CAPITALIZATION
The capital stock of the corporation at December 31, 1999 and
1998 was as follows:
Cumulative Convertible Preferred Stock, $.01 par value, 1,000,000
shares authorized. Dividends accrue annually at 15%, payable in cash
or common shares. Each share of preferred stock must be held for a
minimum of three years and after five years must either be repurchased
by the Company at par value or converted into 10 shares of common
stock at the discretion of the board of directors. There were no
preferred shares outstanding at December 31, 1999 or 1998.
Common Stock, $0.01 par value, 25,000,000 shares authorized,
18,305,726 and 18,185,000 shares issued and outstanding at December
31, 1999 and 1998 respectively.
STOCK ISSUED FOR SERVICES
During July and August 1999, the Company issued a total of 12,010
shares of common stock in exchange for services rendered. The
valuation of the stock issued was based on the fair value of the
services rendered, as determined by the vendors.
40
<PAGE> 41
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD NOVEMBER 12, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
NOTE 8 - INCOME (LOSS) PER COMMON SHARE
The computations of income (loss) per share from continuing
operations for the years ended December 31, 1999 and 1998 and for the
development stage period were as follows:
<TABLE>
<CAPTION>
FROM
1999 1998 INCEPTION
--------------- --------------- ---------------
<S> <C> <C> <C>
Income (loss) attributable to
Common shares $ (116,704) $ -- $ (116,704)
Weighted average common
Shares outstanding 18,220,460 18,185,000 18,215,394
--------------- --------------- ---------------
Net income (loss) per
Common share $ (0.01) $ -- $ (0.01)
=============== =============== ===============
</TABLE>
NOTE 9 - INCOME TAXES
The Company has incurred net operating losses since inception and
has a loss carryforward of approximately $117,000 at December 31, 1999
expiring in years beginning in 2019. As of December 31, 1999, the
Company had net deferred tax assets of $46,682. In accordance with the
provisions of FASB Statement No. 109, "Accounting for Income Taxes," a
valuation allowance has been recognized to fully offset this asset due
to the uncertainty of realizing the future benefit. The Company
continually reviews the adequacy of the valuation allowance and will
recognize the tax benefits of these assets only as assessment
indicates that it is more likely than not that the benefits will be
realized.
Significant components of the Company's net deferred tax assets
as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward $ 46,682
Valuation allowance (46,682)
--------
Net deferred tax assets $ --
========
</TABLE>
41
<PAGE> 42
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD NOVEMBER 12, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
NOTE 9 - INCOME TAXES (CONTINUED)
Deferred taxes reflect a combined federal and state tax rate of
approximately 40%. A reconciliation between the amount of federal and
state income taxes, based on a forty percent (40%) tax rate, and the
effective amount of income taxes based on continuing operations is as
follows:
<TABLE>
<S> <C>
Statutory income taxes (refund) $(46,682)
Change in valuation allowance 46,682
--------
Income tax expense charged to operations
$ --
========
</TABLE>
NOTE 10 - ADVERTISING COSTS
The Company expenses advertising costs as incurred. During the
period ended December 31, 1999, the company expensed $314 in
advertising costs.
NOTE 11 - RELATED PARTY TRANSACTIONS
During the period, the Company accepted $2,000 in loans from
stockholders for which no promissory notes were executed. The Company
agreed to pay these stockholders a flat interest fee equal to 15% of
the loans. At December 31, 1999, the outstanding balance on these
loans was $1,000.
Interest expense relating to stockholder loans was $1,582 for the
year ended December 31, 1999. Interest expense includes common stock,
with a fair value of $150, issued in lieu of cash.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
In October 1998, the Company entered into a consulting agreement
with Corporate Vision, Inc., whereby Corporate Vision will provide
services valued at $300,000 to assist the Company in making an initial
public offering in exchange for 3,750,000 shares of the Company's
common stock. The valuation of the transaction is based on the fair
value of the services provided. As a result of the stock issue,
Corporate Vision, Inc. was the Company's second largest shareholder,
owning 20% of the total common shares outstanding at December 31,
1999.
42
<PAGE> 43
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE PERIOD NOVEMBER 12, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
As a gesture of goodwill toward the stockholders of the defunct
ArchivalCD, LLC, the Company has agreed to compensate the LLC's
stockholders a total of $13,602 for their investments in the LLC in
the form of cash and/or the Company's common stock. As of December 31,
1999, 60,167 shares of common stock, valued at par ($602), had been
issued to these stockholders, with the remaining $13,000 reflected on
the Company's balance sheet as an accrued liability. This additional
compensation cost was charged to expense in the current period.
On May 12, 1999, the Company entered into a repurchase agreement
with a stockholder, whereby the Company will repurchase up to 15,000
shares of its common stock at, the direction of the stockholder, at
the greater of $1.50 per share or the market value on the date of
repurchase. If the Company offers to redeem the shares and the
stockholder elects to retain the shares, the agreement will become
void six months after the offer date and will be replaced by a two
year guarantee to repurchase the shares at $1.10 per share, regardless
of market price. As disclosed in Note 3, the Company paid $1,000 to
the stockholder to repurchase 667 shares, which had not been returned
to the Company at December 31, 1999. At December 31, 1999, the
stockholder held 13,833 shares that could be subject to this
agreement.
The Company is obligated under a lease agreement for its office
facilities, which expires December 31, 2000, with an option to renew.
The Company is also operating under a month-to-month lease for storage
facilities. At December 31, 1999, there were no long-term lease
commitments. The minimum lease obligation for the fiscal year ending
December 31, 2000 is $2,810. Rent expense under all operating leases
totaled $961 for the period ended December 31, 1999.
On October 8, 1999, the Company entered into an agreement to
purchase the distribution rights to a genealogical software package
for $7,500. As of December 31, 1999, the Company had made an initial
payment $1,000, with the entire purchase price payable at such time
the master program and all pertinent files are delivered to the
Company.
43
<PAGE> 44
Part II
LEGAL PROCEEDINGS
Management knows of no material legal proceedings pending, threatened or
contemplated which the Company is or may be a party to or to 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:
Upon inception of the Company the Registrant issued 3,750,000 Shares in
connection to services rendered by Corporate Vision, Inc. The Registrant also
issued 14,435,000 shares to the founders of the Company upon inception.
44
<PAGE> 45
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
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.
45
<PAGE> 46
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
46
<PAGE> 47
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.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Selling Discounts $882,362
Accounting Fee's and Services $ 35,000
Printing Costs $ 25,000
Registration Fee $ 1,954
Transfer Agent Fee's $ 25,000
Total $969,316
</TABLE>
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
47
<PAGE> 48
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.
Part III
Exhibits
Legal Opinion
Directors Consent Form
Consent of Independent Certified Public Accountants
Interim Financial Statements
Index to Financial Statements
48
<PAGE> 49
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ArchivalCD, Inc.
By: /s/ DANIEL HAY Date: May 12, 2000
------------------------------------- -----------------------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
5.1 Opinion of Jackson L. Morris, Attorney at Law
5.2 Directors Consent Form
23 Consent of Independent Certified Public Accountants
99 Interim Financial Statements
</TABLE>
