UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended March 31, 2009 |
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
| | For the transition period from ______________ to _____________ |
Commission file number 333-143672
CRITICAL DIGITAL DATA, INC.
(Exact name of small business issuer as specified in its charter)
| Nevada | 80-0189455 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
7770 Regents Road, Suite 113-129, San Diego, CA 92122
(Address of principal executive offices)
858-518-0447
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issues (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes £ No £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes S No £
APPLICABLE ONLY TO CORPORATE ISSUES
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
As of May 13, 2009, the Company had 4,246,667 shares of $0.001 par value common stock issued and outstanding.
Indicate by check mark whether the Registrant is a large accelerated filer, and accredited filer, a non-accredited filer and smaller reporting company in Rule 12b-2 of the Exchange Act.(check one)
| Large Accredited filer | o | Accelerated filer | o |
| Non-accredited filer | o | Smaller reporting company | x |
CRITICAL DIGITAL DATA, INC.
TABLE OF CONTENTS
| | | |
| | | Page |
| Part I | FINANCIAL INFORMATION | 1 |
| | | |
| Item 1. | Financial Statements: | 1 |
| | | |
| | Balance Sheets at March 31, 2009 (unaudited) and September 30, 2008 (audited) | 1 |
| | | |
| | Statements of Operations for the three and six months ended March 31, 2009 and | |
| | the period from May 2, 2008 (inception) to March 31, 2009 (unaudited) | 2 |
| | | |
| | Statements of Cash Flows for the six months ended March 31, 2009 and the period | |
| | from May 2, 2008 (inception) to March 31, 2009 (unaudited) | 3 |
| | | |
| | Notes to Financial Statements (unaudited) | 4 |
| | | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 |
| | | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
| | | |
| Item 4. | Controls and Procedures | 15 |
| | | |
| Part II | OTHER INFORMATION | 16 |
| | | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| | | |
| Item 6. | Exhibits | 16 |
| | | |
| | Signatures | 17 |
PART I- FINANCIAL INFORMATION
ITEM 1. Financial Statements
CRITICAL DIGITAL DATA, INC.(A Development Stage Company)CONDENSED BALANCE SHEETS
| ASSETS |
| | March 31, 2009 | | September 30, 2008 | |
| | (Unaudited) | | (Audited) | |
| Current assets: | | | | |
| Cash | | $ | 40,226 | | | $ | 35,457 | |
| Prepaid assets | | | 3,784 | | | | - | |
| Total current assets | | | 44,010 | | | | 35,457 | |
| | | | | | | | | |
| Website in development | | | 38,952 | | | | 22,929 | |
| | | | | | | | | |
| Total assets | | $ | 82,962 | | | $ | 58,386 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 4,051 | | | $ | 2,909 | |
| Accounts payable and accrued expenses-related parties | | | 2,295 | | | | 1,260 | |
| Total current liabilities | | | 6,346 | | | | 4,169 | |
| | | | | | | | | |
| Note payable - related party | | | 15,172 | | | | 15,172 | |
| | | | | | | | | |
| Total liabilities | | | 21,518 | | | | 19,341 | |
| | | | | | | | | |
| Commitments | | | | | | | | |
| | | | | | | | | |
| Stockholders’ equity | | | | | | | | |
| Preferred stock, $0.001 par value; 10,000,000 shares | | | | | | | | |
| authorized; no shares issued and outstanding | | | - | | | | - | |
| Common stock, $0.001 par value; 100,000,000 shares | | | | | | | | |
| authorized; 4,246,667 and 3,990,000 shares issued | | | | | | | | |
| and outstanding at March 31, 2009 and | | | | | | | | |
| September 30, 2008, respectively | | | 4,247 | | | | 3,990 | |
| Additional paid-in capital | | | 108,559 | | | | 45,360 | |
| Founders' receivable | | | (350 | ) | | | (350 | ) |
| Deficit accumulated during development stage | | | (51,012 | ) | | | (9,955 | ) |
| | | | | | | | | |
| Total stockholders’ equity | | | 61,444 | | | | 39,045 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 82,962 | | | $ | 58,386 | |
See accompanying notes to condensed financial statements
CRITICAL DIGITAL DATA, INC.
(A Development Stage Company)CONDENSED STATEMENTS OF OPERATIONS(Unaudited)
| | | Three months ended March 31, 2009 | | | Six months ended March 31, 2009 | | | May 2, 2008 (inception) to March 31, 2009 | |
| | | | | | | | | | |
| Revenues | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Professional fees | | | 12,148 | | | | 13,123 | | | | 17,695 | |
| Software licensing costs | | | 18,982 | | | | 18,982 | | | | 18,982 | |
| Marketing | | | 801 | | | | 1,563 | | | | 4,077 | |
| Corporate fees | | | 640 | | | | 1,541 | | | | 1,677 | |
| General and administrative | | | 3,510 | | | | 5,091 | | | | 6,337 | |
| | | | | | | | | | | | | |
| Total operating expenses | | | 36,081 | | | | 40,300 | | | | 48,768 | |
| | | | | | | | | | | | | |
| Loss from operations | | | (36,081 | ) | | | (40,300 | ) | | | (48,768 | ) |
| | | | | | | | | | | | | |
| Taxes | | | - | | | | - | | | | 800 | |
| Interest expense-related party | | | 374 | | | | 757 | | | | 1,444 | |
| | | | | | | | | | | | | |
| Net loss | | | (36,455 | ) | | | (41,057 | ) | | $ | (51,012 | ) |
| | | | | | | | | | | | | |
| Weighted average number of common | | | | | | | | | | | | |
| shares outstanding - basic and fully diluted | | | 4,151,259 | | | | 4,094,249 | | | | 3,798,509 | |
| | | | | | | | | | | | | |
| Net loss per share - basic and fully diluted | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.01 | ) |
See accompanying notes to condensed financial statements
CRITICAL DIGITAL DATA, INC.
(A Development Stage Company)CONDENSED STATEMENT OF CASH FLOWS(Unaudited)
| | | Six months ended March 31, 2009 | | | May 2, 2008 (inception) to March 31, 2009 | |
| | | | | | | |
| Cash flows from operating activities | | | | | | |
| Net loss | | $ | (41,057 | ) | | $ | (51,012 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | |
| Stock based compensation | | | 9,474 | | | | 9,474 | |
| Software licensing costs | | | 18,982 | | | | 18,982 | |
| Changes in operating assets and liabilities | | | | | | | | |
| Prepaid assets | | | (1,483 | ) | | | (1,483 | ) |
| Accounts payable and accrued expenses | | | (1,159 | ) | | | 3,122 | |
| Accounts payable and accrued expenses-related parties | | | 1,035 | | | | 2,295 | |
| | | | | | | | | |
| Net cash used in operating activities | | | (14,208 | ) | | | (18,622 | ) |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Purchase of website development | | | (16,023 | ) | | | (25,152 | ) |
| | | | | | | | | |
| Net cash used in investing activities | | | (16,023 | ) | | | (25,152 | ) |
| | | | | | | | | |
| Cash flows from financing activities | | | | | | | | |
| Proceeds from issuance of common stock | | | 35,000 | | | | 84,000 | |
| | | | | | | | | |
| Net cash provided by financing activities | | | 35,000 | | | | 84,000 | |
| | | | | | | | | |
| Net increase in cash | | | 4,769 | | | | 40,226 | |
| | | | | | | | | |
| Cash, beginning of period | | | 35,457 | | | | - | |
| | | | | | | | | |
| Cash, end of period | | $ | 40,226 | | | $ | 40,226 | |
| | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | |
| Income taxes paid | | $ | - | | | $ | - | |
| Interest paid | | $ | - | | | $ | - | |
| | | | | | | | | |
| Supplementary disclosure of noncash financing activities: | | | | | | | | |
| Issuance of common stock for founders' receivable | | $ | - | | | $ | 350 | |
| Issuance of note payable for development of website and marketing of Company | | $ | - | | | $ | 15,172 | |
See accompanying notes to condensed financial statements
CRITICAL DIGITAL DATA, INC.
(A Development Stage Company)
Notes to Interim Condensed Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Critical Digital Data, Inc. (“CDD” or the “Company”), a development stage company, was incorporated on May 2, 2008 under the laws of the State of Nevada with its principal place of business in San Diego, California. CDD is a development stage company that intends to develop, launch and operate an online data storage service (a “Digital Vault”) specifically for data preservation and disaster recovery. The Digital Vault will enable subscribers to create a “back-up” copy of their most critical documents and electronic personal data, in an off-site secure location. We intend to operate the business of CDD under the service and brand name “Home Data Guard” (“HDG”).
During May 2008, CDD offered to sell 1,500,000 shares of common stock (the “Shares”) at $0.10 per share through a private placement memorandum (the “PPM”). As a result of the PPM, the Company sold 560,000 shares of common stock (the “PPM Shares”) resulting in an increase in capital of $56,000. The investors in the PPM were subsequently knows as the “Selling Shareholders”.
On December 10, 2008, CDD filed Form S-1 with the Securities and Exchange Commission (the “SEC”) in order to effectively register the PPM Shares and allow the Selling Shareholders to sell the PPM Shares on the OTC Bulletin Board. CDD received their Notice of Effectiveness on the S-1 from the SEC on December 22, 2008.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The accompanying unaudited condensed financial statements of CDD have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and applicable regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position and results of operations have been included. Our operating results for the three and six months ended March 31, 2009 are not necessarily indicative of the results that may be expected for future quarters and the year ending September 30, 2009. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Form S-1 filed with the SEC on December 10, 2008 which includes the audited financial statements and notes thereto of CDD as of September 30, 2008 and the risks factors contained therein.
CRITICAL DIGITAL DATA, INC.
(A Development Stage Company)
Notes to Interim Condensed Financial Statements
(Unaudited)
The preparation of the accompanying unaudited condensed financial statements requires the use of estimates that affect the reported amounts of assets, liabilities, revenues, expenses and contingencies. These estimates include, but are not limited to, estimates related to revenue recognition, tangible and intangible long-term asset valuation, and other obligations and commitments. Estimates are updated on an ongoing basis and are evaluated based on historical experience and current circumstances. Changes in facts and circumstances in the future may give rise to changes in these estimates which may cause actual results to differ from current estimates.
Going Concern
No assurance can be given that a market for the CDD product will develop, or that customers will be willing to pay for the CDD product. For the period from May 2, 2008 (inception) through March 31, 2009, the Company incurred net losses totaling $51,012; had net cash used in operating activities totaling $18,621; and had an accumulated deficit of $51,012 as of March 31, 2009. If the Company is unable to generate sufficient cash flow from operations and/or continue to obtain financing to meet its working capital requirements, it may have to curtail its business sharply or cease business altogether.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, the ability of the Company to continue as a going concern on a longer-term basis will be dependent upon the ability to generate sufficient cash flow from operations to meet its obligations on a timely basis, the ability to successfully raise additional financing, and the ability to ultimately attain profitability.
Management plans to raise additional capital during fiscal year 2009 through the sale of shares of its common stock (See Note 3-Stockholders’ Equity). While the Company has been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to the Company and/or that demand for the Company’s equity instruments will be sufficient to meet its capital needs. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Development Stage Company
The Company complies with Financial Accounting Standards Board Statement No. 7 and Securities and Exchange Commission Act Guide 7 for its characterization of the Company as development stage.
Fair Value Estimates
Pursuant to SFAS No. 107, “Disclosures About Fair Value of Financial Instruments”, the Company is required to estimate the fair value of all financial instruments included on its balance sheet. The fair value of an asset or liability is the amount at which it could be exchanged or settled in a current transaction between willing parties. The carrying values for cash and cash equivalents, prepaid assets, accounts payable and accrued liabilities approximate their fair value due to their short maturities.
CRITICAL DIGITAL DATA, INC.
(A Development Stage Company)
Notes to Interim Condensed Financial Statements
(Unaudited)
Stock-based Compensation
Stock based compensation expense is recorded in accordance with SFAS 123R (Revised 2004), Share-Based Payment, for stock options awarded in return for goods and services received. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Recently Issued Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133," as amended and interpreted, which requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. Disclosing the fair values of derivative instruments and their gains and losses in a tabular format provides a more complete picture of the location in an entity's financial statements of both the derivative positions existing at period end and the effect of using derivatives during the reporting period. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Early adoption is permitted. The adoption of this standard did not have a material effect on our financial statements.
In June 2008, the FASB issued FASB SP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." SP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in SFAS No. 128, "Earnings per Share." SP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. The adoption of this standard did not have a material effect on our financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value and enhances disclosure about fair value measurements. SFAS 157 was effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 is not expected to have a material impact on the Company’s financial position.
NOTE 3 – STOCKHOLDERS’ EQUITY
During the three and six months ended March 31, 2009, the Company sold 186,667 shares and 256,667 shares of common stock, respectively at prices ranging from $0.10 to $0.15 per share resulting in an increase in capital of $28,000 and $35,000, respectively for said periods.
CRITICAL DIGITAL DATA, INC.
(A Development Stage Company)
Notes to Interim Condensed Financial Statements
(Unaudited)
NOTE 4 –STOCK INCENTIVE PLAN
On March 11, 2009 (the “Effective Date”), we adopted the 2009 Stock Incentive Plan, (the “Plan”), pursuant to which we are authorized to grant stock options intended to qualify as Incentive Stock Options, “ISO”, under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified options and stock appreciation rights to our employees, officers, directors and consultants. The Company is authorized to grant options to purchase up to 1,000,000 shares of common stock under the Plan which as of March 31, 2009, options to purchase 865,000 shares of common stock remained available for future grant. The Company intends that any grant, award or other acquisition of the Company’s securities pursuant to the Plan to any officer and/or director of the Company shall be exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended. No participant may be granted ISOs under the Plan that would result in ISOs to purchase shares of Common Stock with an aggregate fair market value (measured on the Date of Grant) of more than $100,000 first becoming exercisable by such Participant in any one calendar year. The 2008 Plan shall be administered by a committee of the Board of Directors (the “Committee”). The Committee shall have exclusive and final authority in each determination, interpretation or other action affecting the Plan and its participants.
As of March 31, 2009, we have granted options to purchase a total of 135,000 shares of common stock under the Plan. The options were granted to advisors and consultants for services rendered at a price equal to the fair market value of the common stock at the date of grant. As permitted by the Plan, the Committee determined fair market value of the common stock at the date of grant based on a number of factors including the $0.15 per common share price that securities we sold to third party investors during the three months ended March 31, 2009. All options granted vested immediately and expire three years following the vesting date.
For the three months ended March 31, 2009, the Company recorded stock-based compensation expense related to the Plan of $9,474. Stock-based compensation expense increased loss from operations and net loss by $9,474.
SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Stock-based compensation expense was recorded net of estimated forfeitures for the three months ended March 31, 2008 such that expense was recorded only for those stock-based awards that are expected to vest.
The fair value of option grants was estimated using the Black-Scholes option pricing model with the following assumptions:
| | | Three Months EndedMarch 31, 2009 | |
| Expected dividend yield | | | 0.00 | |
| Risk-free interest rate | | | 1.50 % | |
| Expected volatility | | | 70.00 % | |
| Expected life (in years) | | | 3 | |
CRITICAL DIGITAL DATA, INC.
(A Development Stage Company)
Notes to Interim Condensed Financial Statements
(Unaudited)
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Stock option activity under the Plan for the three months ended March 31, 2009 is summarized as follows:
| | | Shares | | | Weighted Average Exercise Price per Share | | | Weighted Average Remaining Contractual Life (in years) | | | Grant Date Fair Value | |
| Outstanding at December 31, 2008 | | | - | | | $ | - | | | | - | | | | |
| Options granted | | | 135,000 | | | $ | 0.15 | | | | 2.95 | | | $ | 9,474 | |
| Options exercised | | | - | | | $ | - | | | | - | | | | - | |
| Options cancelled/forfeited/ expired | | | - | | | $ | - | | | | - | | | | - | |
| Outstanding at March 31, 2009 | | | 135,000 | | | $ | 0.15 | | | | 2.95 | | | $ | 9,474 | |
| Vested and expected to vest at March 31, 2009(1) | | | 135,000 | | | $ | 0.15 | | | | 2.95 | | | $ | 9,474 | |
| Exercisable at March 31, 2009 | | | 135,000 | | | $ | 0.15 | | | | 2.95 | | | $ | 9,474 | |
| (1) | The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total outstanding options. |
As of March 31, 2009, there was $0 of unrecognized compensation cost related to unvested stock options. The Company intends to issue new shares to satisfy share option exercises.
NOTE 5 – COMMITMENTS
During April 2008, on behalf of CDD, the Related Entity entered into a consulting agreement with a third party contractor to assist in the development of the Digital Vault. Compensation for these services is $26,000 payable in installments based on completion of various phases of the work. During the three months ended December 31, 2008, it became apparent that the contractor did not have the resources available to complete the necessary work and accordingly, the consulting agreement has been terminated. As of March 31, 2009, $22,329 had been paid towards the agreement.
CRITICAL DIGITAL DATA, INC.
(A Development Stage Company)
Notes to Interim Condensed Financial Statements
(Unaudited)
During the three months ended March 31, 2009, CDD entered into two separate agreements with a third party software development firm. The agreements consist of a Master Service Agreement (the “MSA”) which includes a Schedule of Work to complete the development of the Digital Vault and a Licensing Agreement (the “LA”) providing CDD with a non-exclusive, perpetual and non-sublicenseable right to use for internal purposes certain software developed by the software development firm. In consideration for services performed under the MSA, CDD will make scheduled payments to the software development firm totaling $21,000. As of March 31, 2009, $10,500 had been paid towards the agreement. As payment for the LA, CDD has issued a warrant to the software development firm to purchase up to 133,333 fully paid and nonassessable shares of CDD’s common stock at $0.015 per share. The warrant shall be exercisable at any time on or before January 22, 2019 and may be exercisable in either cash or through the receipt of shares equal to the value of the warrant as defined in the LA. The fair value of the 133,333 warrants was estimated to be approximately $19,000 using the Black-Scholes option pricing model based on the following assumptions: expected dividend yield 0%, expected volatility 70%, risk-free interest rate 2.9%, and expected life of 10 years and is expensed as Software Licensing Costs in the accompanying condensed financial statements.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor for Forward-Looking Statements
When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, operating results, and financial position. Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed under the “Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operations,” and also include general economic factors and conditions that may directly or indirectly impact the Company’s financial condition or results of operations.
Description of Business:
Overview
Critical Digital Data, Inc. is a Nevada Corporation (the “Company” or “CDD”) incorporated on May 2, 2008, with its principal place of business in San Diego, California. CDD is a development stage company that intends to develop, launch and operate an online data storage service (“HomeDataGuard Personal Digital Vault Application,” or “Digital Vault”) specifically for data preservation and disaster recovery. The DigitalVault will enable subscribers to create a “back-up” copy of their most critical documents and electronic personal data, in an off-site secure location. We intend to operate the business of CDD under the service and brand name “HomeDataGuard” (sometimes herein referred to as “HDG”). HDG will provide:
| 1) | Secure online digital storage (back-up) and reproduction services via www.HomeDataGuard.com and HomeDataGuard Personal Digital Vault Application, and; |
| | |
| 2) | Access to independent service providers, “HomeDataPros”, trained by us to provide confidential, efficient assistance in the conversion of customers’ printed documents to digital documents and assist in the account set-up for a secure online HomeDataGuard personal file cabinet. |
We are a development stage business and have had no revenue since our formation. There is currently no public market for our common stock.
Background
A person’s most important personal data is at risk from destruction or damage in fires, floods, hurricanes, tornadoes, landslides and other natural disasters, as well as theft. Such data includes but is not limited to homeowner insurance policies, personal estate documents, mortgage and real estate documentation, stock certificates, product warranties, photographs of assets/property, birth certificates, tax records, etc. Most of this data oftentimes solely exists in physical paper-based form.
We believe that the average individual does not spend very much time or put much thought into organizing and consolidating his or her most important physical papers. Oftentimes, a person’s most valued and critical physical documents are dispersed amongst boxes in garages, in closets, file cabinets at home and at work, in piles in one’s bedroom or kitchen, in bank safety deposit boxes, personal home safes, albums, etc. Likewise electronically stored data is spread amongst hard drives, external hard drives, floppy disks, CD-ROMs, flash drives, in email accounts, etc. Other critical documentation and data may be held by advisors (attorneys, accountants, physicians), on diverse servers etc.
HomeDataGuard was developed with the intent to be a very simple-to-use and secure digital repository for the aggregation, organization, storage and rapid retrieval of that personal critical data.
HomeDataGuard
HomeDataGuard, comprised of the HomeDataGuard Personal Digital Vault Application and the HomeDataGuard.com website, will enable a Subscriber, at any time, to digitally transfer a digital copy of their personal documents and information (“upload” and/or “download”) to and from their HomeDataGuard file cabinet on-demand. To facilitate the aggregation and uploading of a Subscriber’s personal information, HomeDataPros, who will be independent service providers trained by the Company to help subscribers scan, upload and organize their data, will be available in select geographic regions, commencing in San Diego County.
Companies in the information protection and storage services industry store and manage information in a variety of media formats, which can broadly be divided into physical and electronic records, and provide a wide range of services related to the records stored. Physical records may include paper documents, as well as all other non-electronic media such as microfilm and microfiche, master audio and videotapes, film, X-rays and blueprints. Digital records may include files retained on some form of hardware device and files in word processing formats, database formats, spreadsheets, digital photographs, digital videos, pdfs, rtfs, etc. HomeDataGuard’s services and functionality will be geared toward storing and protecting inactive or semi-active information in most any digital file format, which is not typically accessed frequently by its owners and updated only occasionally.
The HomeDataGuard Personal Digital Vault Application is designed to simulate a traditional bank-like physical vault containing a private room with a four-drawer file cabinet. The virtual interface is extremely easy to use, and provides the Subcriber with a virtual experience that may feel very much like the real experience of opening and closing a file cabinet drawer, scrolling through file folders, inserting files inside folders, and moving folders around.
A Subscriber logs in and is presented with a video which shows a steel vault unlocking and its door opening, complete with sound effects. The registered user is taken inside the vault to his/her personal secure file cabinet, which stands next to a whiteboard which contains instructions. The Subscriber can choose to store, organize and/or retrieve their data by accessing the appropriate file drawer and folders presented within
The Subscriber clicks on one of the file cabinet drawers, which rolls open to display the file folders contained inside. When the Subscriber scrolls over a folder and selects to open it, the folder displays thumbnail images of the files contained within. The Subscriber can upload a file into a pre-named folder. The top two drawers contain several pre-named folders to help a Subscriber get started and be organized. The Subscriber may also create dozens of new folders, edit folders, even move them to other drawers. Subscribers have the ability to choose which folders and drawers to place their important data inside. The website will provide guidance, prompts and checklists to subscribers, and ensure that they are reminded several times per year to make necessary updates, changes and/or add new information to their digital file cabinet.
When a Subscriber opens an account they initially do so with the purpose of storing important personal data and documents within their own private secure HomeDataGuard personal file cabinet. In order to transfer documents or information to one’s HomeDataGuard file cabinet, that data must first exist in a digital format (“digital copy”.) It is then uploaded via the Internet to HomeDataGuard’s servers. If the data does not pre-exist in a digital format, it would need to be converted by one of several methods, including but not limited to: being scanned; being faxed to a digital destination; be digitally photographed; or made into a digital movie.
Personal files can be uploaded by the Subscriber or for a fee by a HomeDataPro or other trained professional. To store the digital copies into their personal file cabinets, Subscribers would follow the prompts on the site. Users are prompted to determine which named file folder to place the digital copies into, for organizational purposes.
Subscribers will be able to select an annual or monthly payment subscription plan, for access to their four drawer file cabinet (the “Basic” HomeDataGuard File Cabinet.) A subscriber can obtain, automatically, as much additional digital storage space as they need beyond the initial 4 gigabytes provided, and will be charged for each additional incremental gigabyte of space used on a monthly basis.
Data Access and Maintenance
Once a digital copy is uploaded to a Subscriber’s personal file cabinet, it is easily accessible to that Subscriber anytime from any hardware device that can access the Internet and download that file from HomeDataGuard. Only that Subscriber will have access, unless he/she provides the username and password information directly to another party. HomeDataGuard will, via email notifications, suggest that Subscribers change their password every few months and remind them to update their account information and add fresh data to their file cabinets if warranted.
Data Storage Functionality & Encryption
Data storage space is currently leased from Media Temple and Amazon Web Services. In the future, CDD may select other storage and hosting providers that meet HomeDataGuard’s system’s requirements. All files uploaded to HomeDataGuard by its subscribers are always immediately and automatically encrypted before they are stored on our servers.
HomeDataPros™
We intend to recommend trained and qualified independent professionals, who the company has certified as “HomeDataPros.” HomeDataPros will be trained by us to provide confidential, efficient assistance in the conversion of customers’ documents and information to digital copies and assist in the account set-up and uploading to a secure online HomeDataGuard personal file cabinet.
HomeDataPros will assist the user in the following activities: document scanning; creating digital video recordings of personal property and home inventory; digitally photographing property; and uploading any Subscriber-requested digital copies to the personal file cabinet on www.HomeDataGuard.com.
Market for HomeDataGuard
We anticipate that our initial customers will be consumer households that reside in San Diego County and other geographic locations where there is a high risk of damage to homes as a result of fires, floods, hurricanes, earthquakes and other disasters.
Revenue
We expect to derive revenue primarily from initial and recurring subscription revenues. For business-to-consumer subscriptions, it is anticipated that customers will subscribe for an annual license, at this time expected to start at $49.95 per year or $4.50 per month for a HomeDataGuard File Cabinet and that a portion of those subscribers will renew annually. Starting with 4 gigabytes of storage space, a HomeDataGuard File Cabinet account will automatically expand its storage space on demand, and charge the subscriber for each incremental gigabyte of digital storage space used.
A la carte services provided by HomeDataPros will be charged by the service provided and will be priced based upon time and services provided.
Growth Strategy
Our objective is to establish a leadership position in the niche of record protection and storage services of personal critical information, protecting and storing our customers’ information without regard to media format or geographic location. Our primary avenues of growth are expected to be: (1) acquire consumer household customers within the US and Canada, starting within fire-prone and earthquake-prone regions of California; (2) establish and expand a workforce of HomeDataPro professionals in those regions; (3) eventually expand into other regions of the United States.
Intellectual Property
We rely on a combination of trademark, copyright, trade secret and patent laws in the United States as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand. HomeDataGuard™ and HomeDataPro™ are not registered trademarks as of the date of this S-1filing. An application to register HomeDataPro™ as a service mark was submitted to the U.S. Patent & Trademark Office, as well as a follow-up Response to Office Action statement, and is expected to be granted within the next three to six months. The owners of the filed service mark are our co-founders, Dina Moskowitz & Marc Zimmerman who have agreed to assign the service mark to us.
In September 2008 the company submitted a copyright application to the U.S. Copyright Office for the HomeDataGuard.com Personal Digital Vault Application. As of December 5, 2008, we have received confirmation that the copyright has been granted effective November 19, 2008.
We also rely on copyright laws to protect copy on our web site and all marketing materials. We have registered at least 40 Internet domain names related to our business in order to protect our proprietary interests. From time to time, we may encounter disputes over rights and obligations concerning intellectual property. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business, our brand and reputation, or our ability to compete. Also, protecting our intellectual property rights could be costly and time consuming.
On February 2, 2009, the Company entered into a licensing agreement with a third party software development firm for a non-exclusive, perpetual and non-sublicensible right to use certain proprietary software code for the Digital Vault application and HomeDataGuard website.
Employees
At the present time our Chief Executive Officer, Dina Moskowitz, and our President, Marc Zimmerman, are our only employees as well as our sole officers, directors and major shareholders. Ms. Moskowitz and Mr. Zimmerman will devote such time as required to actively market and further develop our services and software products. At present, we expect Ms. Moskowitz and Mr. Zimmerman to each devote at least 20 hours per week to our business. Our executive officers have not received any compensation since the date of our incorporation, and we did not accrue any compensation. We do not anticipate hiring any additional employees until such time as additional staff is required to support our operations.
Description of Property
Our principal executive offices are located at 3270 Caminito Eastbluff, #95, La Jolla, California, 92037 on a rent-free basis at the home of our CEO, Dina Moskowitz. Our telephone number is (858) 518-0447. We anticipate this situation will be maintained for at least the next six months. The facility meets our current needs, however should we expand in the future, we may have to relocate. If we have to relocate, we will seek office space at or below then prevailing rates.
Results of Operations
Revenues
For the period from May 2, 2008 (Inception) through March 31, 2009, CDD recognized no revenues. We are still a development stage company and do not expect to begin generating revenues until we begin offering our product and services.
Operating Expenses – For the Three and Six Months ended March 31, 2009
Total operating expenses for the three months and six months ended March 31, 2009 totaled $36,081 and $40,300, respectively, and consisted primarily of the following:
| | · | Stock based compensation expense was approximately $9,500 during both the three and six months ended March 31, 2009. On March 11, 2009, the Company adopted its 2009 Stock Incentive Plan in which we are authorized to grant stock options and stock appreciation rights to our employees, officers, directors and consultants. In conjunction with the Plan, on March 18, 2009 we granted options to purchase a total of 135,000 shares of common stock. The options vested immediately and have a three year life. |
| | · | In January 2009, we issued warrants to purchase 133,333 shares of CDD common stock at $0.015 per share to a third party software development firm in exchange for a Licensing Agreement providing CDD the right to use for internal purposes certain software developed by the software development firm. The warrant is exercisable at any time on or before January 22, 2019 and may be exercisable in either cash or through the receipt of shares equal to the value of the warrant as defined in the Licensing Agreement. The fair value of the 133,333 warrants was estimated to be approximately $19,000 and is expensed as software licensing costs during the three and six months ended March 31, 2009. |
| | · | Professional fees relating to the Company’s Form 10-Q for the first quarter ending December 31, 2008 totaled approximately $2,400 |
| | · | Marketing fees incurred to advertising the Company to the public totaled approximately $1,000 and $1,500 for the three and six months ended March 31, 2009, respectively. |
| | · | Incorporation and filing fees totaled approximately $640 and $1,500 for the three and six months ended March 31, 2009. |
| | · | Various general and administrative fees consisting primarily of the monthly liability insurance, internet and web design services and office expenses totaled approximately $$3,500 and $5,000 for the three and six months ended March 31, 2009. |
Operating Expenses – For the Period from May 2, 2008 (Inception) through March 31, 2009
Total operating expenses for the period from May 2, 2008 (Inception) through March 31, 2009 totaled $48,768 and in addition to the items noted above, consisted primarily of the following:
| | · | Professional fees relating to the audit of the Company’s financial statements for the period from May 2, 2008 (Inception) through September 30, 2008 totaled $4,000. |
| | · | Marketing fees incurred to launch HDG and begin advertising the Company to the public totaled approximately $2,500 for the period from May 2, 2008 (Inception) through September 30, 2008. |
| | · | Professional fees billed by the Company’s attorney for reimbursement of CDD’s filing fees in the State of Nevada and registration to do business in the State of California totaled approximately $570. The Company’s attorney is related to CDD’s Chief Executive Officer. |
Other Expenses
During the three and six months ended March 31, 2009 the Company incurred $374 and $757, respectively of other expenses resulting from interest incurred on a note payable to a related entity (the “Note Payable”). During the period from May 2, 2008 (Inception) through March 31, 2009 the Company incurred $2,244 of other expenses of which $800 represents the state minimum tax imposed on corporations and $1,444 results from interest incurred on the Note Payable. The Note Payable resulted from funds paid on behalf of CDD by an entity controlled by the Chief Executive Officer and President of CDD (the “Related Entity”) to assist in the development of the Digital Vault. The principle balance of the Note Payable is $15,172, bears interest at 10% per annum and matures on September 30, 2010.
Net Loss
During the three months and six months ended March 31, 2009 and for the period from May 2, 2008 (Inception) through March 31, 2009 the Company incurred a net loss of $36,455, $41,057, and $51,012, respectively, due primarily to operating expenses as described above.
Capital Resources and Liquidity
Net cash used in investing activities was $16,023 and $25,152 for the six months ended March 31, 2009 and for the period from May 2, 2008 (Inception) through March 31, 2009, respectively, resulting from the development of the DigitalVault.
Net cash provided by financing activities during the six months ended March 31, 2009 and for the period from May 2, 2008 (Inception) through March 31, 2009 was $35,000 and $84,000 and resulted from the Company’s sale of 256,667 shares and 746,667 shares of common stock via a private placement memorandum during each respective period.
We currently rely on cash flows from financing activities to fund our capital expenditures and to support our working capital requirements. We expect that future cash requirements will principally be for capital expenditures and working capital requirements.
We anticipate that depending on market conditions and our plan of operations, we may continue to incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company,” we are not required to provide the information under this Item 3.
ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer/Chief Financial Officer has concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.
(b) Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During November 2008, we completed a private offering by selling 560,000 shares of common stock to individuals in consideration of $56,000. Proceeds from the sale of the common stock is being utilized for the development and marketing of HomeDataGuard.
On February 2, 2009, the Company entered into a licensing agreement with a third party software development firm for a non-exclusive, perpetual and non-sublicensible right to use certain proprietary software code for the Digital Vault application and HomeDataGuard website. As compensation for this license, CDD has issued to this firm a warrant to purchase from CDD up to 133,333 fully paid and non-sublicensable shares of the Company's Common Stock, pursuant to Regulation D. The exercise price for each Warrant Share shall be equal to $ 0.015 per share, and the warrant shall be exercisable on or before January 22, 2019.
Through May 11, 2009, the Company had sold 186,667 shares of its common stock for $28,000 in a private offering to accredited investors pursuant Rule 506 of the Securities Act of 1933. Proceeds from the sale of the common stock is being utilized for the development and marketing of HomeDataGuard.
ITEM 6. Exhibits
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-B.
| SEC Ref. No. | Title of Document |
| 10.1 | Critical Digital Data, Inc, 2009 Stock Incentive Plan* |
| | |
| 31.1 | Certification of the Principal Executive Officer/Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
| | |
| 32.1 | Certification of the Principal Executive Officer/Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
* Filed herewith.
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.
| | CRITICAL DIGITAL DATA, INC. | |
| | | | |
| Date: May 13, 2009 | By: | /s/ Dina Moskowitz | |
| | | Dina Moskowitz Chief Executive Officer/Chief Financial Officer | |
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