<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON NOVEMBER 3, 2000
REGISTRATION NO. 333-93525
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 3 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 OR (903) 670-3220
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================
TITLE OF EACH AMOUNT PROPOSED PROPOSED AMOUNT OF
CLASS OF SECURITIES TO BE MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT(1) OFFERING PRICE FEE
------------------- ---------- -------------------------- -------------- ------------
<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
Cross-Reference Sheet for Prospectus under From SB-2
<TABLE>
<CAPTION>
FORM
SB-2
ITEM CAPTION IN PROSPECTUS
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<S> <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 Security Ownership of
Owners 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 None
Liabilities
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 Management
Transactions
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>
2
<PAGE> 3
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 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.
The shares are being offered on a best efforts basis by ArchivalCD'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.
Concurrently with this offering, a selling shareholder will offer 500,000 shares
for sale at $2.00.
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.
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.
3
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary ...................................... 5
Risk Factors ............................................ 6
Use of Proceeds ......................................... 6
Dilution ................................................ 9
Business ................................................ 9
Management's Discussion and
Analysis of Financial
Condition and Plans of Operations........................ 14
Management .............................................. 20
Selling Stockholders .................................... 23
Description of Capital Stock ............................ 24
Legal Matters ........................................... 26
Index to Financial Statements ...........................
</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. ArchivalCD will initiate production as a
designer of Genealogical 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 ArchivalCD 3,200,000 shares
Common Stock Offered by a Selling Shareholder 500,000
Common Stock Outstanding After this Offering 21,773,783 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.
ArchivalCD 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.
The use of the words ArchivalCD, we and us throughout the document means
ArchivalCD, Inc.
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<PAGE> 6
RISK FACTORS
Limited Operating History
We are a recently organized company without revenues and expect to incur losses
for at least the next two quarters. ArchivalCD has incurred significant losses
since inception. 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 ArchivalCD'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
imagebase products due to reduced funding for our workforce, equipment and
microfilm collection.
Dependence on Key Personnel
Investors must rely on all management decisions from Dr. Hay, who will own
sufficient shares to control ArchivalCD after the offering. 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 ArchivalCD from the sale of the Securities offered hereby
will be 6,400,000. The net proceeds to ArchivalCD from the sale of the
Securities offered hereby, after deduction estimated expenses relating to the
offering, are estimated to be approximately $5,430,684.
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<PAGE> 7
ArchivalCD 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. ArchivalCD 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 $ 268,800 42% $1,419,100 46%
expenditures
Working capital and general $ 128,000 20% $ 617,000 20%
corporate
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 ArchivalCD'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 ArchivalCD's
operations, technical advances, terms of collaborative arrangements, and changes
in competitive conditions. ArchivalCD also expects, when the opportunity arises,
to acquire or invest in complementary businesses, products or technologies.
ArchivalCD has no present understandings, commitments or agreements with respect
to any material acquisition or investment.
ArchivalCD 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 ArchivalCD's requirements
for any particular period of time. To the extent capital resources are
insufficient to meet future capital requirements, ArchivalCD will have to raise
additional funds to satisfy ArchivalCD's requirements. There can be no assurance
that such funds will be available.
Contemplated uses for the Working Capital include salaries, rent, utilities,
office expenses, advertising, auditing, insurance and other general and
administrative expenses
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<PAGE> 9
DILUTION
As of June 30, 2000, the net tangible book value of ArchivalCD 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 ArchivalCD, net tangible
book value of ArchivalCD at June 30, 2000 would have been $5,689,555, or
approximately $0.261 per share of Common stock. This represents an immediate
increase in the tangible book value of $0.247 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:
100% of Shares Sold
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 $0.247.
Pro forma, as adjusted, net tangible book value per share after the offering
$0.261.
Dilution per share to new investors $1.739, or 86.95% of the offering price of
$2.00 per share.
50% of Shares Sold
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 $0.153
Pro forma, as adjusted, net tangible book value per share after the offering
$0.167
Dilution per share to new investors $1.833 or 91.65% of the offering price of
$2.00 per share.
BUSINESS
Overview
ArchivalCD is dedicated to producing imagebases from microfilm, books, and other
paper documents to further historical, genealogical and educational uses of
historic documents. We plan to continue development of services in the
reproduction of historical data and we seek to expand to include other potential
markets. 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. We have
combined years of development, research, and analysis with acquired intellectual
property, specific rights, and software to pursue this market and secondary
markets in archiving of business records.
In order to successfully address these markets we feel that several milestones
must be met in the short term. We break the progress to revenue generation into
three distinct short stages following the completion of this offering. Note that
the business plan allows for different rates of success on the offering and the
percentages shown in each stage are adjustable and relate to the Use of
Proceeds. The three stages are:
o Stage 1: During the first three months 45% of the proceeds of the
offering will be expended in equipment acquisition, microfilm collection
acquisition and in costs associated with obtaining appropriate office
and production facilities, as well as general overhead of obtaining and
training approximately ten staff members.
o Stage 2: The fourth through sixth months will see the completion of
staffing and training as well as the implementation of our marketing
plan. 20% of proceeds will be expended during this stage with training
and marketing timed to meet the release of advertisements. We expect
that a small amount of revenue will be derived late in the fifth month.
o Stage 3: By design our business plan allocates 35% of proceeds for long
term overhead. By the end of the sixth month following the offering we
begin generating revenues from our primary market. Experience derived
from test markets indicates demand for product will meet production
capacities within three months of release of marketing campaigns.
Additional secondary markets may not generate revenues for the first year
following this offering due to the nature of bid processes. A number of projects
are in the pre-bid stage but are not far enough along to be considered in the
three stages towards revenue generation.
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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 and is populated by the largest market group in
history - "baby boomers".
ArchivalCD 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.
ArchivalCD 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
ArchivalCD'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. As part of this strategy, ArchivalCD 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.
ArchivalCD believes that its technology leadership, market position and brand
name are significant assets that ArchivalCD can leverage to maintain and
increase its market share and diversify its revenue base. ArchivalCD 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. ArchivalCD believes that the introduction of such products and
services will expand ArchivalCD's user base and build greater brand recognition.
ArchivalCD also plans to strengthen its marketing, sales and customer support
efforts as the size of its market opportunity and customer base increases.
ArchivalCD intends to invest substantially in operations and systems in
anticipation of future growth. This effort includes investing in customer
service, expanding its public relations, advertising, and trade show activities,
and developing programs which will help support an affiliate network of
resellers and distributors.
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<PAGE> 12
Sales and Marketing
ArchivalCD 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 ArchivalCD has firmly established itself in these markets,
ArchivalCD plans to expand into other vertical business markets and consumer
markets. ArchivalCD sells its products and services through a direct sales force
and through Internet sales. We also participate in trade shows, conferences and
seminars and promote ArchivalCD and its products for industry analysts and the
media.
Determination of the Offering Price
The Offering Price was determined by taking into consideration the fair market
value of ArchivalCD, Inc.'s assets and anticipated earnings from company
operations.
Plan of Distribution
ArchivalCD is offering its shares on a best efforts basis.
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 ArchivalCD should be read in conjunction with ArchivalCD'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. ArchivalCD'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.
ArchivalCD 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 ArchivalCD 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. ArchivalCD
considers the second market the expansion market. As such, the expansion market
is not included in the business plan, nor in projections, as ArchivalCD 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 ArchivalCD already
needs for its own long term storage.
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<PAGE> 13
ArchivalCD uses "just-in-time production" techniques to service the core market.
To do this ArchivalCD 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. ArchivalCD 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, ArchivalCD 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 ArchivalCD's limited operating history and rapid
improvements in technology and marketing of its digital imagebase products,
ArchivalCD 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.
ArchivalCD 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. ArchivalCD intends to continue to invest heavily in technology and
infrastructure development, and marketing and promotion. As a result, ArchivalCD
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 ArchivalCD will be able to achieve or sustain revenue growth,
profitability, or positive cash flow on either a quarterly or annual basis.
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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, ArchivalCD 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 ArchivalCD'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.
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Liquidity and Capital Resources
ArchivalCD's capital requirements depend on numerous factors, including market
acceptance of ArchivalCD's products and services, the amount of resources
ArchivalCD devotes to investments in its products, the resources ArchivalCD
devotes to marketing and selling its services and its brand promotions and other
factors. ArchivalCD has experienced a substantial increase in its capital
expenditures since its inception consistent with the growth in ArchivalCD's
operations and staffing, and anticipates that this will continue for the
foreseeable future. Additionally, ArchivalCD 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.
ArchivalCD 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 ArchivalCD's internally
generated cash flow, are not sufficient to satisfy its financing needs,
ArchivalCD 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. ArchivalCD 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 ArchivalCD on favorable
terms, if at all.
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RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1999, ArchivalCD 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 ArchivalCD's
financial position or results of operations.
Effective January 1, 1999, ArchivalCD 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 ArchivalCD's financial position or results of operations.
Effective January 1, 1999, ArchivalCD 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 ArchivalCD's financial position
or results of operations.
Sources of Supply
ArchivalCD 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. ArchivalCD scans the documents into digital
form and stores them on various types of digital storage media, each of which is
commercially available.
ArchivalCD has developed several sources, to supply the continued materials and
equipment needed to digitalize, produce and market its products.
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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 ArchivalCD 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. ArchivalCD will augment its management team with a marketing
specialist who has the capability of developing both print and web marketing
materials. ArchivalCD pioneered marketing to the genealogy market in the
Internet and has acquired other intellectual property specific to this core
target market.
Additionally, the expansion markets ArchivalCD 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 ArchivalCD will extend
include cultivating the product reviewers in each of its markets, providing
scholarships to each of the five annual genealogy institutes, and making
ArchivalCD 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, ArchivalCD 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 ArchivalCD can execute local level marketing of its product.
17
<PAGE> 18
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
ArchivalCD is not a party to any collective bargaining agreement. ArchivalCD
considers its relations with its employees to be satisfactory and has not
experienced any interruption of operation due to labor disagreements with
employees.
ArchivalCD 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 ArchivalCD.
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.
18
<PAGE> 19
Trade names and Trademarks
ArchivalCD 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, ArchivalCD anticipates continuing to adopt additional unregistered
names and marks and will selectively seek registration of some names and marks.
Environmental Regulation
ArchivalCD'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
ArchivalCD 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
ArchivalCD 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.
19
<PAGE> 20
MANAGEMENT
Executive Officers and Directors of ArchivalCD
The following table sets forth certain information concerning the directors and
executive officers of ArchivalCD.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH ARCHIVALCD
---- --- ------------------------
<S> <C>
Daniel J. Hay 43 President, CEO, Chairman
William Hale 67 Director
Richard H. Lytle 54 Director
Guillermo J. "Bill" 37 Director
Campisteguy
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.
20
<PAGE> 21
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 ArchivalCD's fast adaptations to market demand and ArchivalCD 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
ArchivalCD 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 ArchivalCD'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.
21
<PAGE> 22
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 ArchivalCD to own beneficially more than 5% of the shares of
Common Stock of ArchivalCD 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
BEFORE AFTER
NAME NUMBER OF SHARES OFFERING OFFERING
<S> <C> <C> <C>
Daniel J. Hay 14,435,000 78% 65%
William Hale 826 greater than 1%
Richard H. Lytle 4,235 greater than 1% greater than 1%
Guillermo J. "Bill" Campisteguy 214 greater than 1% greater than 1%
Gary Toms 1,000 greater than 1% greater than 1%
William R. Gann 1,000 greater than 1% greater than 1%
Mike Sirotka 0 0% 0%
Total Board owned shares: 14,439,740 78% 65%
</TABLE>
22
<PAGE> 23
SELLING STOCKHOLDERS
The registration statement, of which this Prospectus forms a part, also relates
to the registration by ArchivalCD, 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.
23
<PAGE> 24
DESCRIPTION OF CAPITAL STOCK
ArchivalCD'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 ArchivalCD, 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.
24
<PAGE> 25
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 ArchivalCD 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, ArchivalCD 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.
ArchivalCD 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.
25
<PAGE> 26
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for ArchivalCD 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
ArchivalCD plans to furnish annual reports to shareholders, which reports will
include financial statements together with the report of ArchivalCD's
independent certified public accountants thereon. In addition, ArchivalCD 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
26
<PAGE> 27
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 ArchivalCD'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
November 1, 2000
27
<PAGE> 28
ARCHIVALCD, INC.
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
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.
28
<PAGE> 29
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.
29
<PAGE> 30
ARCHIVALCD, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 12, 1998 (INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK DEFICIT
-------------------------------------- ACCUMULATED
ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
----------- ---------- ---------- ----------- ------------
<S> <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.
30
<PAGE> 31
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.
31
<PAGE> 32
<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 receiveables (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>
32
<PAGE> 33
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 "ArchivalCD") was incorporated
under the laws of the state of Delaware on November 12, 1998. ArchivalCD
specializes in digitization of historic microfilm, enhancing the images, and
writing them to compact discs. ArchivalCD intends to provide subscribers
with access to the digitized historical records on compact disc for use in
genealogical, historical, and educational research. ArchivalCD further
intends to provide file conversion services to businesses and local
governments.
ArchivalCD is in the development stage as its operations principally
involve research and development, market analysis, and other business
planning activities. ArchivalCD 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, ArchivalCD'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. ArchivalCD
believes that it will commence its principal operations and begin generating
revenues in the fiscal year ending December 31, 2000. Because ArchivalCD 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
ArchivalCD considers all highly liquid assets with maturities of three
months or less to be cash equivalents.
33
<PAGE> 34
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
ArchivalCD 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
ArchivalCD 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 ArchivalCD 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.
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 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPUTER SOFTWARE COSTS
As of December 31, 1999, ArchivalCD had not incurred any computer
software costs. ArchivalCD has adopted the accounting statements summarized
in the following paragraphs in anticipation that ArchivalCD may incur such
costs once principal operations have commenced.
ArchivalCD 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.
ArchivalCD 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.
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)
VALUATION OF NON-EMPLOYEE STOCK-BASED COMPENSATION
ArchivalCD 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, ArchivalCD purchased equipment valued at $174,370
and certain archived records valued at $140,140 from various entities either
owned or controlled by ArchivalCD's Chief Executive Officer, including
ArchivalCD, LLC ("the LLC"), a defunct Utah corporation, in which
ArchivalCD's CEO was a partner. The equipment and records were purchased in
exchange for 14,435,000 shares of ArchivalCD's common stock. As these assets
were under common control of a significant shareholder prior to and after
the acquisition, ArchivalCD 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, ArchivalCD purchased certain archived records from an
unrelated company valued at $40,000 in exchange for 3,000 shares of
ArchivalCD'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 ArchivalCD paid $1,000 to repurchase
667 shares of its common stock. As of December 31, 1999, the shares had not
been returned to ArchivalCD, resulting in a $1,000 receivable from the
stockholder at December 31, 1999.
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 4 - RECEIVABLES (CONTINUED)
EMPLOYEE ADVANCES
Since inception, ArchivalCD 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 ArchivalCD's common stock at the rate
of $1.00 per share. 18,000
<TABLE>
<S> <C>
Less current portion (15,000)
-------
Long-term debt $ 18,000
========
</TABLE>
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 6 - NOTES PAYABLE (CONTINUED)
Principal maturities of long-term debt are as follows:
<TABLE>
<S> <C> <C>
Fiscal year ended December 31, 2002 $ 18,000
========
</TABLE>
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 ArchivalCD 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, ArchivalCD 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.
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 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
ArchivalCD 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, ArchivalCD 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. ArchivalCD 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 ArchivalCD'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>
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 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
ArchivalCD expenses advertising costs as incurred. During the period
ended December 31, 1999, ArchivalCD expensed $314 in advertising costs.
NOTE 11 - RELATED PARTY TRANSACTIONS
During the period, ArchivalCD accepted $2,000 in loans from stockholders
for which no promissory notes were executed. ArchivalCD 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, ArchivalCD entered into a consulting agreement with
Corporate Vision, Inc., whereby Corporate Vision will provide services
valued at $300,000 to assist ArchivalCD in making an initial public offering
in exchange for 3,750,000 shares of ArchivalCD'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 ArchivalCD's second
largest shareholder, owning 20% of the total common shares outstanding at
December 31, 1999.
40
<PAGE> 41
ARCHIVALCD, INC.
(A Development Stage Company)
BALANCE SHEET
JUNE 30, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Receivable from stockholders $ 1,000
Employee advances 30,057
---------
TOTAL CURRENT ASSETS 31,057
---------
PROPERTY AND EQUIPMENT, NET (NOTE 2) 310,686
---------
OTHER ASSETS
Deposit 1,000
---------
TOTAL ASSETS $ 342,743
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,221
Accrued liabilities 15,652
Loans from stockholders 4,000
Notes payable to stockholders, current portion 15,000
---------
TOTAL CURRENT LIABILITIES 65,872
---------
NOTES PAYABLE TO STOCKHOLDERS, NET OF CURRENT PORTION 18,000
---------
STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock, $20 par value,
1,000,000 shares authorized, no shares outstanding --
Common stock, $0.01 par value; 25,000,000 shares
authorized; 18,573,783 shares issued and outstanding 185,738
Additional paid-in capital 263,368
Deficit accumulated during the development stage (190,236)
---------
TOTAL STOCKHOLDERS' EQUITY 258,871
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 342,743
=========
</TABLE>
Accompanying notes are an integral part of the financial statements.
41
<PAGE> 42
ARCHIVALCD, INC.
(A Development Stage Company)
INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE,
NOVEMBER 12,
1998
SIX MONTHS ENDED (INCEPTION) TO
JUNE 3 0, JUNE 30,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUE $ -- $ -- $ --
------------ ------------ ------------
GENERAL AND ADMINISTRATIVE
EXPENSES 70,970 40,945 186,092
------------ ------------ ------------
OPERATING INCOME (40,945) (186,092) (70,970)
OTHER EXPENSES
Interest expense
(2,562) (150) (4,144)
------------ ------------ ------------
NET INCOME (LOSS) $ (73,532) $ (41,095) $ (190,236)
============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (NOTE 3)
18,485,169 18,188,729 18,296,326
============ ============ ============
NET INCOME (LOSS) PER
COMMON SHARE $ (0.01) $ (0.01) $ (0.01)
============ ============ ============
</TABLE>
Interim results are not indicative of the results expected for a full year.
Accompanying notes are an integral part of the financial statements.
42
<PAGE> 43
ARCHIVALCD, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE,
NOVEMBER 12,
1998
SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
2000 1999 2000
------------ ------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash paid for goods and services $ (23,237) $ (38,337) $(104,621)
Interest paid -- -- (150)
--------- --------- ---------
NET CASH USED BY
OPERATING ACTIVITIES (23,237) (38,337) (104,771)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES:
Fixed asset purchases (1,368) (319) (9,058)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 20,350 23,657 76,829
Proceeds from long-term debt -- -- 18,000
Proceeds from short-term debt 3,000 15,000 20,000
Repayment of short-term debt -- -- (1,000)
--------- --------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 23,350 38,657 113,829
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH (1,255) -- --
CASH AT BEGINNING OF PERIOD 1,255 -- --
--------- --------- ---------
CASH AT END OF PERIOD $ -- $ -- $ --
========= ========= =========
</TABLE>
Accompanying notes are an integral part of the financial statements.
43
<PAGE> 44
<TABLE>
<CAPTION>
CUMULATIVE,
NOVEMBER 12,
1998
SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
2000 1999 2000
------------ ------------ ---------------
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES:
Net loss $ (73,532) $ (41,095) (190,236)
--------- --------- ---------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 18,634 -- 52,882
Stock issued in exchange for services -- -- 12,015
Stock issued in lieu of interest
on stockholder loan -- 150 150
Stock issued as compensation 5,000 15 5,602
Stock compensation accrual -- -- 2,500
(Increase) Decrease in deposits -- -- (1,000)
(Increase) Decrease in receivables
from stockholders -- -- (1,000)
(Increase) Decrease in employee receivables (5,930) -- (30,057)
Increase (Decrease) in accrued liabilities 1,370 -- 13,152
Increase (Decrease) in accounts payable 31,221 2,593 31,221
--------- --------- ---------
Total Adjustments 50,295 2,758 85,465
--------- --------- ---------
NET CASH USED
BY OPERATING ACTIVITIES $ (23,237) $ (38,337) $(104,771)
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
NON-CASH ACTIVITIES:
Stock issued to acquire fixed assets $ -- $ -- $ 354,510
</TABLE>
44
<PAGE> 45
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION) TO JUNE 30, 2000
(Unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
ArchivalCD, Inc. (referred to herein as or "ArchivalCD") was
incorporated under the laws of the state of Delaware on November 12,
1998. ArchivalCD specializes in digitization of historic microfilm,
enhancing the images, and writing them to compact discs. ArchivalCD
intends to provide subscribers with access to the digitized historical
records on compact disc for use in genealogical, historical, and
educational research. ArchivalCD further intends to provide file
conversion services to businesses and local governments.
ArchivalCD is in the development stage as its operations
principally involve research and development, market analysis, and other
business planning activities. ArchivalCD has had no significant revenue
from product sales. As of June 30, 2000, ArchivalCD's accumulated
deficit in the development stage was $190,236, which was funded
primarily through loans from stockholders and the proceeds from sales of
common stock. ArchivalCD believes that it will commence its principal
operations and begin generating revenues in the fourth quarter of the
fiscal year ending December 31, 2000.
The accompanying unaudited financial statements should be read in
conjunction with ArchivalCD's audited financial statements and related notes for
the year ended December 31, 1999. These financial statements reflect all
adjustments, which, in the opinion of management, are necessary for a fair
presentation of the results of operations for the periods shown. The results of
operations for such periods are not necessarily indicative of the results
expected for the full fiscal year or for any future period.
45
<PAGE> 46
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION) TO JUNE 30, 2000
(Unaudited)
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets
of five to ten years. Property and equipment consists of the following at
June 30, 2000:
<TABLE>
<S> <C>
Equipment $ 174,370
Archived records 180,140
Automobile 2,600
Office equipment 6,458
Accumulated depreciation (52,882)
---------
Property and equipment, net $ 310,686
=========
</TABLE>
Depreciation expense for the Six Months Ended June 30, 2000 was $18,634.
NOTE 3 - INCOME (LOSS) PER COMMON SHARE
The computation of income (loss) per share from continuing operations
for the six months ended June 30, 2000 and 1999 and from inception were as
follows:
<TABLE>
<CAPTION>
FROM
2000 1999 INCEPTION
------------ ------------ ------------
<S> <C> <C> <C>
Income (loss) attributable to
common shares $ (73,532) $ (41,095) $ (190,236)
Weighted average common
Shares outstanding 18,485,169 18,188,729 18,296,326
------------ ------------ ------------
Net income (loss) per
common share $ (0.01) $ (0.01) $ (0.01)
============ ============ ============
</TABLE>
46
<PAGE> 47
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION) TO JUNE 30, 2000
(Unaudited)
NOTE 4 - COMMON STOCK ISSUANCES
The following is a summary of common stock issued by ArchivalCD for the
six months ended June 30, 2000:
<TABLE>
<CAPTION>
AVERAGE NUMBER
DATE(S) TYPE OF TRANSACTION PER-SHARE OF SHARES
ISSUED CONSIDERATION VALUE VALUATION ISSUED
------ ------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Jan-Apr Cash $ 14,250 $ 1.50 9,500
March 1 See Note 5 6,000 1.00 6,000
March 8 See Note 5 2,500 0.01 250,000
April 1 See Note 5 2,500 1.00 2,500
June 6 Cash 100 1.75 57
</TABLE>
The per-share valuation set forth above is based on the recorded value
of the transaction divided by the number of shares issued as consideration
for the transaction.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
As described in the notes to the audited financial statements for the
year ended December 31, 1999, ArchivalCD passed a resolution on January 18,
1999 to compensate the former shareholders of the defunct ArchivalCD, LLC in
the form of stock or cash, as a gesture of goodwill. The projected cash
payment and stock issuance, valued at par, were accrued in 1999. The stock
issuance detailed in Note 4 represents the balance of the December 31, 1999
stock accrual. At June 30, 2000, the remaining cash accrual relating to this
commitment was $10,500
On May 12, 1999, ArchivalCD entered into a repurchase agreement with a
stockholder, whereby ArchivalCD 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. These shares were
originally purchased at $1.00 per share. If ArchivalCD 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 of June 30, 2000, ArchivalCD had paid $1,000 to the
stockholder to repurchase 667 shares, which had not been returned to
ArchivalCD. Accordingly, a receivable of $1,000 from the
47
<PAGE> 48
ARCHIVALCD, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND THE PERIOD NOVEMBER 12, 1998 (DATE OF INCEPTION) TO JUNE 30, 2000
(Unaudited)
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
stockholder has been recorded. In July 2000, ArchivalCD paid an additional
$4,000 to the stockholder to repurchase 2,667 shares, leaving 11,166 shares
held by the stockholder that could be subject to this agreement.
ArchivalCD entered into a repurchase agreement with a stockholder, with
an effective date of March 1, 2000, whereby ArchivalCD will repurchase, at
the stockholder's direction, up to 6,000 shares of common stock six months
from the effective date at a price equal to $1.15 per share. Alternatively,
ArchivalCD may repurchase the stock in twelve months at $1.20 per share if
the shareholder so chooses. The shares were originally purchased at $1.00
per share.
ArchivalCD entered into a repurchase agreement with a stockholder, with
an effective date of April 1, 2000, whereby ArchivalCD will repurchase, at
the stockholder's direction, up to 2,500 shares of common stock six months
from the effective date at a price equal to $1.00 per share. Alternatively,
ArchivalCD may repurchase the stock in twelve months at $1.10 per share if
the shareholder so chooses. The shares were originally issued in exchange
for other non-cash consideration at $1.00 per share.
48
<PAGE> 49
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, ArchivalCD 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 ArchivalCD'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 ArchivalCD's balance sheet as an
accrued liability. This additional compensation cost was charged to expense
in the current period.
On May 12, 1999, ArchivalCD entered into a repurchase agreement with a
stockholder, whereby ArchivalCD 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 ArchivalCD
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, ArchivalCD paid
$1,000 to the stockholder to repurchase 667 shares, which had not been
returned to ArchivalCD at December 31, 1999. At December 31, 1999, the
stockholder held 13,833 shares that could be subject to this agreement.
ArchivalCD is obligated under a lease agreement for its office
facilities, which expires December 31, 2000, with an option to renew.
ArchivalCD 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, ArchivalCD entered into an agreement to purchase the
distribution rights to a genealogical software package for $7,500. As of
December 31, 1999, ArchivalCD 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 ArchivalCD.
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Part II
LEGAL PROCEEDINGS
Management knows of no material legal proceedings pending, threatened or
contemplated which ArchivalCD 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 ArchivalCD 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 ArchivalCD upon inception.
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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
ArchivalCD provides that, to the fullest extent permitted by applicable law, as
amended from time to time, ArchivalCD 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 ArchivalCD or
serves or served any other enterprise at the request of ArchivalCD.
In addition, the Certificate provides that a director of ArchivalCD shall not be
personally liable to ArchivalCD 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 ArchivalCD 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.
ArchivalCD 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 ArchivalCD regardless of whether ArchivalCD
has the power to indemnify the director against such liability under applicable
law.
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ArchivalCD 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 ArchivalCD'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 ArchivalCD. Such provisions
could limit the price certain investors might be willing to pay in the future
for shares of ArchivalCD's Common Stock. Certain of these provisions allow
ArchivalCD to issue Preferred Stock without stockholder approval and provide
that special meetings of stockholders of ArchivalCD may be called only by the
President of ArchivalCD, 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 ArchivalCD.
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. ArchivalCD'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 ArchivalCD 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
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such an action, if successful, might otherwise have benefited ArchivalCD and its
stockholders. This provision does not prevent ArchivalCD 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.
<TABLE>
<CAPTION>
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<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
ArchivalCD 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 ArchivalCD 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
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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, ArchivalCD 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
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: November 3, 2000
------------------------------- ---------------------------------
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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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
</TABLE>
