U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ABACUS RESEARCH AND DEVELOPMENT, INC.
---------------------------------------------
(Name of small business issuer in its charter)
Delaware 7373 85-0377572
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
2601 Wyoming, NE Suite 209
Albuquerque, NM 87112
(505) 766-9115
(Address and telephone number of principal executive offices)
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2601 Wyoming, NE Suite 209
Albuquerque, NM 87112
(Address of principal place of business or intended principal place of
business)
Clifford T. Matthews, President
ABACUS RESEARCH AND DEVELOPMENT, INC.
2601 Wyoming, NE Suite 209
Albuquerque, NM 87112
(505) 766-9115
(Name, address and telephone number of agent for service)
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Copies of Communications to:
Stoecklein Law Group
402 West Broadway, Suite 400
San Diego, CA 92101
(619) 595-4882
Fax (619) 595-4883
Approximate date of commencement of proposed sale to public:
As soon as practicable after the 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, please 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,
please check the following box. [ ]
Calculation of Registration Fee
Proposed
Offering Proposed
Price Maximum
Amount to Per Aggregate Amount of
Title of Each Class of be Share Offering Registration
Securities to be Registered Registered (1) Price (1) Fee (2)
Common Stock, $.001 par
value 1,000,000 $5.00 $5,000,000 $1,250
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TOTAL 1,000,000 $5.00 $5,000,000 $1,250
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(1) The proposed maximum offering price is estimated solely for the purpose
of determining the registration fee and calculated pursuant to Rule 457(c).
(2) Previously paid.
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 the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Subject to Completion, dated _______________, 2002
Initial Public Offering
PROSPECTUS
ARDI
1,000,000 Shares of Common Stock
$5.00 per share
The Offering
Per share Total
Public Price. $5.00 $5,000,000
Commissions. $0 $0
Proceeds to ARDI. $5.00 $5,000,000
Minimum Purchase. 200 shares $1,000
We are offering to the public a minimum of 600,000 and a maximum of
1,000,000 shares of common stock on a "direct public offering" basis through
our officer and director, Clifford Matthews. If we do not sell at least the
minimum of 600,000 shares by September 30, 2002, the offering will terminate
and all money paid for shares will be promptly returned to the purchasers,
without interest and without deduction.
This is our initial public offering, and no public market currently exists
for our shares. The offering price may not reflect the market price of our
shares after the offering. Funds received prior to the completion of the
minimum offering amount will be placed into an escrow account at Sunwest
Escrow, LC.
________________________
An investment in our common stock involves a high degree of risk. You
should purchase our common stock only if you can afford a complete loss of
your purchase. See "Risk Factors" beginning on page 4 for a discussion of
material risks that you should consider prior to purchasing any of our
common stock.
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 contained in this prospectus is subject to completion or
amendment. We have filed a registration statement with the Securities and
Exchange Commission relating to the securities offered in this prospectus.
We may not sell nor may we accept any offers to buy the securities prior to
the time the registration statement becomes effective. This prospectus is
not an offer to sell or a solicitation of an offer to buy any securities. We
shall not sell these securities in any state where such offer, solicitation
or sale would be unlawful before we register or qualify the securities for
sale in any such State.
THE DATE OF THIS PROSPECTUS IS _________________, 2002.
Prospectus Summary
You should read the following summary together with the entire
prospectus, including the more detailed information in our consolidated
financial statements and related notes appearing elsewhere in this
prospectus. You should carefully consider the matters discussed in "Risk
Factors."
Abacus Research and Development, Inc. ("ARDI")
ARDI develops a particular type of computer software known as emulation
software. Emulation software enables a computer or part of a computer of
one type to imitate a computer or part of a computer of a different type.
ARDI's emulation software allows PCs and workstations to run Macintosh
software.
Clifford T. Matthews founded ARDI in 1986 by beginning to write
Macintosh emulation software. In 1989 Clifford T. Matthews incorporated
ARDI as a corporation in Delaware. Since its founding, ARDI has been
developing Macintosh compatibility using the methodology called reverse-
engineering. Reverse-engineering is using information about an existing
entity, for example a Macintosh computer, to create an emulation of that
entity. None of ARDI's employees, contractors or volunteers has
disassembled any of Apple Computer's software; all of ARDI's reverse-
engineering has been done using publicly available specifications and test
programs run on Macintoshes. This process is known as strictly clean-room
reverse engineering.
Macintosh programs use routines (collections of computer instructions)
provided by the Macintosh Operating System to interact with the Macintosh
computer. ARDI has reverse-engineered 1,200 of these routines. One source of
information ARDI has used is the Inside Macintosh series of documentation
that lists the names of these routines and what each routine does.
Programmers use these routines to construct their software. Writing its own
set of 1,200 of these routines enables ARDI to sell software that allows
hundreds of Macintosh applications to run on machines that do not contain
Apple's intellectual property.
In addition to the 1,200 Macintosh-specific routines that ARDI has
written, ARDI has also created software that translates computer
instructions meant for the Motorola 680x0 family of Central Processing Units
(CPUs) into the instructions used by the CPU inside PCs. Motorola 680x0
CPUs were used in Apple's Macintosh computers from 1983 through 1994 and are
currently used in Personal Digital Assistants (PDAs) such as those made by
Palm and Handspring. Software that allows a CPU to execute the instructions
of a different type of CPU is known as a synthetic CPU.
ARDI has combined its Macintosh-specific routines and its synthetic CPU
into two Macintosh compatibility product lines: Carbonless Copies and
Executor.
Carbonless Copies is used by Macintosh programmers to create new
versions of their applications for non-Macintoshes. For example, a company
that developed a word processor for Japanese text for the Macintosh has used
Carbonless Copies to create a version of their word processor for PCs
running Microsoft's Windows operating system. They also used Carbonless
Copies to create another version of their word processor for PCs running the
Linux operating system. Carbonless Copies makes ARDI's 1,200 Macintosh-
specific routines available to programmers who want to release their
applications on Windows or Linux without rewriting their programs.
Executor is used by individuals to run their existing Macintosh
software on PCs. An example of an Executor user would be someone who uses a
Macintosh at home and a PC at work. Executor allows this user the ability to
create documents on their home machine and be able to read them on their
work machine without having to purchase a PC for their home.
Although ARDI's initial products have specifically been created to
allow Macintosh programs to run on PCs, the same synthetic CPU that is in
ARDI's Executor product can emulate the CPU in certain Personal Digital
Assistants (PDAs), enabling new hardware to be compatible with PDAs.
ARDI currently has only two employees and its auditor has issued a
going concern qualification in the footnotes to its financial statements.
ARDI has managed to remain in business on a very limited operating budget,
which has forced a majority of the product programming to be borne by
Clifford Matthews. The proceeds of this offering will allow ARDI to hire
additional employees and improve its proprietary technology to increase
functionality and applicability to technological changes.
ARDI's principal offices are located at 2601 Wyoming, NE Suite 209,
Albuquerque, NM 87112 and its telephone number is (505) 766-9115. ARDI's
website can be accessed at www.ardi.com. Information contained on ARDI's
website is not a part of this prospectus.
The Offering
Securities Offered. 600,000 shares minimum
1,000,000 shares maximum of common stock
Price Per Share. $5.00
Minimum Purchase. 200 shares or $1,000
Offering Termination Date. September 30, 2002
Common Stock Outstanding
before Offering. 2,393,770 shares of common stock
Common Stock Outstanding
after Offering. 2,993,770 shares - minimum offering
3,393,770 shares - maximum offering
Estimated Net Proceeds. $3,000,000 - minimum offering
$5,000,000 - maximum offering
Use of Proceeds. The proceeds of the
offering will be used for our marketing
and promotional program, additional
product development, and for general
working capital.
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary financial data derived from our
financial statements. The data should be read in conjunction with the
financial statements, related notes and other financial information included
in this prospectus.
For the Year For the Year
Ended Ended
September 30, September
Operating Statement Data: 2001 30, 2000
(audited) (audited)
Income Statement Data:
Revenues:
Sales revenue $64,506 $68,577
Licensing revenue 56,000 --
Expenses:
Total Expenses: 125,263 118,613
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Other Income or Expenses
Interest Income 6,167 4,975
Interest Expense (11,086) (22,382)
Deemed interest expense
associated with beneficial
conversion of common stock (1) (1,277,365) --
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Net Income (Loss) from Operations $(1,287,041) $(67,443)
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Basic and diluted earnings per share $(0.71) $(0.06)
============= ===========
At At
Balance Sheet Data: September 30, September
2001 30, 2000
(audited) (audited)
Total Assets. $102,552 $75,698
Liabilities. $204,300 $312,230
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Stockholders' Equity (Deficit). $(101,748) $(236,532)
============ ===========
(1) In January of 2001, ARDI issued 1,036,020 shares in a beneficial
conversion of amounts owed at September 30, 2000 totaling $17,660. The
shares were valued at $1.25 for accounting purposes and the amount of value
issued over the debt retired was included as Interest expense
Risk Factors
Investors in ARDI should be particularly aware of the inherent risks
associated with its business plan. As of the date of this filing, its
management is aware of the following material risks.
Risks Relating to Our Business:
Our auditor's report reflects the fact that without realization of
additional capital, it would be unlikely for us to continue as a going
concern.
As a result of our deficiency in working capital at September 30, 2001, our
auditors have included a paragraph in their report regarding substantial
doubt about our ability to continue as a going concern. Our plans in this
regard are to seek additional funding through this offering and future
equity private placements or debt facilities.
Our products may have defects, which could harm our reputation, decrease
market acceptance of our products, cause us to lose customers and revenue,
and result in liability to us.
Our complex software products may contain defects or bugs. Often, these
defects and bugs are not detected until after the products have been
shipped. If any of our products contains defects, or has reliability,
quality or compatibility problems, our reputation might be damaged
significantly and customers might be reluctant to buy our products, which
could harm our ability to retain or attract customers.
In addition, these defects could interrupt or delay sales. We may have to
invest significant capital and other resources to correct these problems. If
any of these problems are not found until after we have commenced commercial
production of a new product, we might incur substantial additional
development costs. If we fail to provide solutions to the problems, such as
upgrades or patches, we could also incur product recall, repair or
replacement costs. These problems might also result in claims against us by
our customers or others. In addition, these problems may divert our
technical and other resources from other development efforts. Moreover, we
would likely lose, or experience a delay in, market acceptance of the
affected product or products, and we could lose credibility with our current
and prospective customers.
Our products may infringe upon the intellectual property rights of others,
which may require us to pay significant license fees, prevent us from
selling our products, and/or may cause us to become subject to expensive
litigation or incur damages.
Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. We cannot be sure that our products do not and
will not infringe upon issued patents or other intellectual property rights
of others. Historically, patent applications in the United States have not
been publicly disclosed until the patent is issued, and we may not be aware
of filed patent applications that relate to our products or technology. If
patents later issue on these applications, we may be liable for
infringement. In addition, leading companies in the software industry have
extensive portfolios with respect to software technology. From time to time,
third parties, including these leading companies, may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies and related methods that are important to us. We expect that we
may become subject to infringement claims as the number of products and
competitors in our target markets grows and the functionality of products
overlaps. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. We may also be subject to claims from
customers for indemnification. Any resulting litigation could result in
substantial costs and diversion of resources.
If it were determined that our products infringe upon the intellectual
property rights of others, we would need to obtain licenses from these
parties or substantially re-engineer our products in order to avoid
infringement. We might not be able to obtain the necessary licenses on
acceptable terms or at all, or to re-engineer our products successfully.
Moreover, if we are sued for infringement and lose the suit, we could be
required to pay substantial damages or enjoined from licensing or using the
infringing products or technology. Any of the foregoing could cause us to
incur significant costs and prevent us from selling our products.
Apple Computer, Inc. may try to stop us from continuing our business by
filing infringement claims or other legal actions, which would severely
hamper our ability to continue to license or sell our products.
If we are seen as a threat to Apple they could sue us to attempt to stop us
from producing any more of our products. We have produced our software
independent of all Apple source code, relying merely on published
documentation accessible to all third-party software developers. Neither
Clifford Matthews, our president and founder, nor any of ARDI's employees,
contractors or contributors have ever been employed by Apple. To document
its independent development effort, ARDI maintains hundreds of pages of hand-
written notes, describing early design issues. More significantly, ARDI can
fully document the evolution of its software, dating back to 1986, and has
written its software in a language different from that used by Apple.
However, should Apple choose to sue us it could have a severe adverse effect
on our business and plan of operation.
Our failure to protect our proprietary rights, or the costs of protecting
these rights, may harm our ability to compete.
We believe that our success will depend in part upon our proprietary
technology. We rely on a combination of copyrights, trademarks, trade secret
laws and contractual obligations with employees and third parties to protect
our proprietary rights. These legal protections provide only limited
protection and may be time consuming and expensive to obtain and enforce.
Our failure to adequately protect our proprietary rights could result in
competitors offering similar products and impair our ability to compete.
Moreover, despite our efforts to protect our proprietary rights,
unauthorized parties may copy aspects of our products and obtain and use
information that we regard as proprietary. Also, our competitors may
independently develop similar, but not infringing, technology, duplicate our
products, or design around our intellectual property. In addition, other
parties may breach confidentiality agreements or other protective contracts
with us, and we may not be able to enforce our rights in the event of these
breaches. Furthermore, we expect that we will increase our international
operations in the future, and the laws of many foreign countries do not
protect our intellectual property rights to the same extent as the laws of
the United States.
We operate in a sub-section of the highly competitive computer software
market and may not be able to compete effectively, which could result in
additional financial losses to us.
We expect that if we are successful in our strategy to expand the scope of
our products and services, we may encounter many additional market-specific
competitors. In addition, because there are relatively low barriers to entry
in the software market, we expect additional competition from reverse-
engineering software developers that may have not previously focused on the
Macintosh. Some of these companies, as well as some other competitors, may
have longer operating histories, significantly greater financial, technical,
marketing and other resources, significantly greater name recognition and a
larger installed base of customers than we have. As a result, our
competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, devote greater resources
to the development, promotion and sale of their products, or adopt more
aggressive pricing policies to gain market share. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability
of their products to address customer needs. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. We also expect that competition will
increase as a result of software industry consolidations.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm our
business, financial condition and results of operations. We may not be able
to compete successfully against current and future competitors, in which
case our business could suffer, resulting in more significant financial
losses.
Our operating results are difficult to predict in advance and may fluctuate
significantly. If our common stock becomes publicly traded, a failure to
meet the expectations of analysts or our stockholders would likely result in
a substantial decline in our stock price.
There is little historical financial information that is useful in
evaluating our business, prospects and future operating results. You should
not rely on quarter-to-quarter comparisons of our results of operations as
an indication of our future performance. We expect our future operating
results to fluctuate significantly from quarter to quarter. If our operating
results fail to meet or exceed the expectations of analysts or investors,
our stock price would likely decline substantially. Factors that are likely
to cause our results to fluctuate include the following:
* the gain or loss of significant customers or significant changes in
purchasing volume;
* the amount and timing of our operating expenses and capital
expenditures;
* changes in the volume of our product sales and pricing concessions on
volume sales;
* the timing, rescheduling or cancellation of customer orders;
* the varying length of our sales cycles;
* the availability and pricing of competing products and technologies and
the resulting effect on sales and pricing of our products;
* our ability to specify, develop, complete, introduce and market new
products and technologies and bring them to volume production in a timely
manner;
* the rate of adoption and acceptance of new industry standards in our
target markets;
* the effectiveness of our product cost reduction efforts and those of our
suppliers;
* changes in the mix of products we sell; and
* changes in the average selling prices of our products.
We are highly dependent on Clifford T. Matthews, our CEO and founder. The
loss of Mr. Matthews, whose knowledge, leadership and technical expertise
upon which we rely, would harm our ability to execute our business plan.
Our success depends heavily upon the continued contributions of Clifford T.
Matthews, our CEO and founder, whose knowledge, leadership and technical
expertise would be difficult to replace. Mr. Matthews is employed at-will.
We have no employment contract and maintain no key person insurance on Mr.
Matthews. If we were to lose his services, our ability to execute our
business plan would be harmed.
If we are unable to recruit, hire, train and retain additional sales,
marketing, operations, engineering and finance personnel, our growth will be
impaired.
To grow our business successfully and maintain a high level of quality, we
will need to recruit, retain and motivate additional highly-skilled sales,
marketing, engineering and finance personnel. If we are not able to hire,
train and retain a sufficient number of qualified employees, our growth will
be impaired. In particular, we will need to expand our sales and marketing
organizations in order to increase market awareness of our products and to
increase revenue.
In addition, as a company focused on the development of complex products, we
will need to hire additional engineering staff of various experience levels
in order to meet our product roadmap. The market for skilled employees is
extremely limited. We may have even greater difficulty recruiting potential
employees after this offering if prospective employees perceive the equity
component of our compensation package to be less valuable after this
offering than before this offering.
We are subject to various risks associated with technological change and if
we do not adapt our products to these changes our business will be adversely
affected through decreased gross product margins and loss of market share.
The computer software market involves numerous characteristics that expose
our existing and future technologies, service practices and methodologies to
the risk of obsolescence. These characteristics included the following:
* rapid changes in technology;
* rapid changes in user and customer requirements;
* frequent new service or product introductions embodying new
technologies; and
* the emergence of new industry standards and practices.
Our performance will partially depend on our ability to license leading
technologies, enhance our existing services, and respond to technological
advances and emerging industry standards and practices on a timely and cost-
effective basis. The development of software entails significant technical
and business risks. We cannot predict if we will use new technologies
effectively or adapt our products to consumer, vendor, advertising or
emerging industry standards. If we were unable, for technical, legal,
financial or other reasons, to adapt in a timely manner in response to
changing market conditions or customer requirements, our business, results
of operations and financial condition could be materially adversely
affected.
Risks Relating to This Offering:
There is no current public market for our common stock, therefore investors
in this offering will have a very limited ability to liquidate their
investment for any reason.
As of the date of this prospectus, there is no public market for our common
stock. Although we plan to apply for listing our common stock on NASDAQ,
there can be no assurance that our attempts to do so will be successful.
Furthermore, if we do become listed with respect to our common stock on
NASDAQ or elsewhere, there can be no assurance that a market will develop
for the common stock or that a market in the common stock will be
maintained. As a result, investors may be unable to liquidate their
investment for any reason.
Due to our low book value, investors in this offering will incur substantial
immediate dilution of up to $4.05 per share.
Investors who purchase shares of common stock in this offering will pay a
per share price that substantially exceeds the value of our assets after
subtracting liabilities. Accordingly, the offering price is substantially
higher than the book value per share of our outstanding common stock. As a
result, an investor who acquires shares of common stock in this offering
will incur immediate substantial dilution of approximately $4.05 per share
if the minimum offering is achieved and $3.57 per share if the maximum
offering is achieved. See "Dilution" for a more detailed description of how
new shareholders will incur dilution.
Because our common stock may be deemed a low-priced "Penny" stock, an
investment in our common stock should be considered high risk and subject to
marketability restrictions.
Our common stock may become subject to "penny stock" rules and if so our
shareholders will in all likelihood find it difficult to sell their common
stock.
If the trading price of the common stock falls below $5.00 per share,
trading in the common stock would become subject to various rules under the
Securities Exchange Act of 1934 which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any equity security that has a market price of less
than $5.00 per share). Such rules require the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. For these types of
transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. The additional burdens imposed
upon broker-dealers by such requirements may discourage them from effecting
transactions in the common stock, thereby severely limiting the market
liquidity of the common stock and the ability of purchasers in this offering
to sell common stock in the secondary market.
Clifford Matthews, our president, director and founder, holds a majority of
our common stock, therefore investors will have minimal influence on
shareholder decisions.
Clifford Matthews beneficially owns 1,553,000 shares or 65% of our common
stock. He will not purchase shares in the offering. If the minimum number
of shares is sold, he will own 52% of the outstanding shares. If the maximum
number of shares is sold, he will own 46% of the outstanding shares. In the
case of the minimum offering, Mr. Matthews has and will continue to have the
ability to control our management policies and decisions as well as issues
that require a shareholder vote. Mr. Matthews can control the outcome of
certain corporate actions requiring shareholder approval, including the
election of directors and the approval or non-approval of significant
corporate transactions, such as the merger or sale of all or substantially
all of our assets. His interests may differ from the interests of other
shareholders with respect to management issues.
If we need additional financing, we may not be able to raise further
financing or it may only be available on terms unfavorable to us or our
stockholders, which may result in our inability to fund our working capital
requirements and harm our operational results.
We believe that our available cash resources, combined with the net proceeds
from this offering, will be sufficient to meet our anticipated working
capital and capital expenditure requirements for at least twelve months
after the date of this prospectus. We might need to raise additional funds,
however, to respond to business contingencies, which could include the need
to:
* fund more rapid expansion;
* fund additional marketing expenditures;
* develop new products or enhance existing products;
* enhance our operating infrastructure;
* hire additional personnel;
* respond to competitive pressures; or
* acquire complementary businesses or technologies.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders would be
reduced, and these newly issued securities might have rights, preferences or
privileges senior to those of existing stockholders, including those
acquiring shares in this offering. Additional financing might not be
available on terms favorable to us, or at all. If adequate funds were not
available or were not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or
enhance our products or otherwise respond to competitive pressures would be
significantly limited.
Since this is a direct public offering with no underwriter, we may not be
able to sell any shares. If we do not sell any shares or enough to reach the
minimum offering amount, we will be forced to seek other financing to expand
our operations.
We have not retained an underwriter to sell any of our shares. We are
conducting this offering as a direct public offering, which means there is
no guarantee as to how much money we will be able to raise or if we will
successfully sell any of the shares in this offering or if we do sell shares
that we will successfully meet our 600,000 share minimum. Our officer and
director, Clifford Matthews, will be selling the shares and has no prior
experience in selling securities. If he fails to sell at least the minimum
number of shares offered in this prospectus, our ability to implement our
business plan will be materially effected and we will be forced to seek
other methods of financing.
About this Prospectus
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide information different from that
contained in this prospectus. We are offering to sell, and seeking offers
to buy, shares of our common stock only in jurisdictions where offers and
sales are permitted.
Available Information
We are not subject to the informational requirements of the Securities
Exchange Act of 1934. Once our securities are registered under the
Securities Exchange Act of 1934, we will file reports and other information
with the Securities and Exchange Commission. We intend to register our
securities under Section 12(g) of the Exchange Act. Once our registration
statement becomes effective we shall file supplementary and periodic
information, documents and reports that are required under section 13 of the
Securities Act of 1933. Such reports, proxy statements and other
information can be reviewed through the SEC's Electronic Data Gathering
Analysis and Retrieval System which is publicly available through the SEC's
website http://www.sec.gov.
We intend to furnish to our stockholders annual reports containing financial
statements audited by our independent certified public accountants and
quarterly reports containing unaudited interim financial statements for the
first three-quarters of each fiscal year.
We have filed with the Commission a registration statement on Form SB-2
under the Securities Act of 1933 with respect to the securities offered in
this prospectus. This prospectus does not contain all the information set
forth in the registration statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further
information with respect to us and the common stock offered in this
prospectus, reference is made to such registration statement, exhibits and
schedules. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference. A copy of the
registration statement, including the exhibits and schedules, may be
reviewed through EDGAR.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Description of Business", and elsewhere in this prospectus
constitute forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expects", "plans", "anticipates", "believes", "estimated", "predicts",
"potential", or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions and involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. These
factors include, among other things, those listed under "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this prospectus. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance, or
achievements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform forward-looking
statements to actual results.
USE OF PROCEEDS
The amounts and timing of expenditures described in the table for each
purpose may vary significantly depending on numerous factors, including,
without limitation, the progress of our marketing, distribution and further
development of our products and services, competing technological and market
developments, changes in our existing research relationships, our ability to
establish collaborative arrangements, the initiation of commercialization
activities and the availability of other financing. We anticipate, based on
currently proposed plans and assumptions relating to our operations, that
our available cash and short-term investments, the maximum proceeds of this
offering and cash flow from operations, if any, will be adequate to satisfy
our capital needs for at least 12 months following consummation of this
offering.
The proceeds from the sale of the shares of common stock offered hereby
are estimated to be approximately $3,000,000 upon meeting the minimum
offering and approximately $5,000,000 upon meeting the maximum offering. We
intend to utilize the estimated net proceeds during the 12-month period
following this offering for the following purposes:
Minimum Maximum
Amount Amount
Total Proceeds $3,000,000 $5,000,000
Less: Offering Expenses
Legal $25,000 $25,000
Accounting $5,000 $5,000
Copying, Printing & Advertising $15,000 $15,000
SEC Filing Fee $1,250 $1,250
Other expenses $3,750 $3,750
----------- -----------
Net Proceeds from Offering $2,950,000 $4,950,000
=========== ==========
Use of Net Proceeds
Research and Development $1,000,000 $1,400,000
Sales & Marketing $650,000 $750,000
Executive $300,000 $300,000
Technical Support & Internal Engineering $200,000 $200,000
General & Administrative $150,000 $150,000
Working Capital $650,000 $2,150,000
------------ ----------
Total Use of Net Proceeds $3,000,000 $5,000,000
============ ==========
We intend to apply the balance of the proceeds of the offering to
working capital. Our management will have broad discretion with respect to
the use of proceeds retained as working capital. Such proceeds may be used
to defray overhead expenses, purchase capital equipment, fund expansion and
negative cash flow positions and for future opportunities and contingencies
that may arise.
DETERMINATION OF OFFERING PRICE
We have arbitrarily determined the initial public offering price of the
shares. We considered several factors in such determination. Including the
following:
* prevailing market conditions, including the history and prospects for
the industry in which we compete;
* our future prospects; and
* our capital structure.
Therefore, the public offering price of the shares does not necessarily bear
any relationship to established valuation criteria and may not be indicative
of prices that may prevail at any time or from time to time in the public
market for the common stock. You cannot be sure that a public market for
any of our securities will develop and continue or that the securities will
ever trade at a price at or higher than the offering price in this offering.
DILUTION
The difference between our initial public offering price per share of
common stock and the pro forma net tangible book value per share of common
stock after this offering constitutes the dilution to investors in this
offering. Our net tangible book value per share is determined by dividing
our net tangible book value (total tangible assets less total liabilities)
by the number of outstanding shares of common stock.
At September 30, 2001 our common stock had a pro forma net tangible
book value of approximately $(101,748) or $(0.04) per share. After giving
effect to the receipt of the net proceeds from the minimum and maximum
offering offered in this prospectus at an assumed initial offering price of
$5.00 per share, our pro forma net tangible book value at September 30,
2001, would have been $2,848,252 or $0.95 per share in the minimum offering
and $4,865,242 or $1.43 per share in the maximum offering. This represents
an immediate increase in net tangible book value to our present stockholders
of $0.99 in the minimum offering and $1.47 per share in the maximum
offering. This results in immediate dilution per share to investors of $4.05
or 80.97% in the minimum offering and $3.57 or 71.33% in the maximum
offering. The following table illustrates dilution to investors on a per
share basis:
Minimum Maximum
Offering price per share $5.00 $5.00
Net tangible book value per share before offering $(0.04) $(0.04)
Increase per share attributable to investors. $0.99 $1.47
Pro forma net tangible book value per share after offering $0.95 $1.43
Dilution per share to investors. $4.05 $3.57
The following table summarizes, as of September 30, 2001 the difference
between the number of shares of common stock purchased from us, the total
cash consideration paid and the average price per share paid by existing
stockholders of common stock and by the new investors purchasing shares in
this offering. The table assumes the sale of the 1,000,000 shares maximum
offered in this prospectus at an assumed initial public offering price of
$5.00 per share and before any deduction of estimated offering expenses.
Average
Price
Total Cash Per
Shares Purchased Consideration Share
Amount Percent Amount Percent
<C.
Original Stockholders 2,393,770 71% $1,525,931 23.38% $0.64
Public Stockholders 1,000,000 29% $5,000,000 76.62% $5.00
--------- ------- ---------- -------
Total 3,393,770 100% $6,525,931 100%
========= ======= ========== =======
PLAN OF DISTRIBUTION AND TERMS OF THE OFFERING
This is a "direct public" offering. We will not receive any proceeds of the
offering unless we sell shares equal to the minimum offering amount. If the
minimum offering is not sold, subscribers will lose the use of their funds
for the offering period expiring on September 30, 2002; the funds invested
by them will be promptly returned to the subscribers at the end of the
offering without interest and without deduction.
We are offering a minimum six hundred thousand (600,000) shares and a
maximum of one million (1,000,000) shares, at five dollars ($5.00) per
share. We can give no assurance that the minimum number of shares will be
sold. If subscriptions are received for fewer than 600,000 shares, no
shares will be sold.
Funds received prior to reaching the 600,000 share minimum will be held in a
escrow account at Sunwest Escrow, LC and will not be released to us until
the minimum offering is achieved.
If we do not sell at least the minimum of 600,000 shares by September 30,
2002, the offering will terminate and all money paid for shares will be
promptly returned to the purchasers, without interest and without deduction.
If we were to be unsuccessful in achieving the minimum offering, funds will
be redistributed to all investors who have purchased the shares offered in
this prospectus. Upon achieving the minimum offering and the acceptance of
a subscription for shares, our transfer agent will issue the shares to the
purchasers. We may continue to offer shares through September 30, 2002 or
until we have sold all of the securities offered in this prospectus. During
the offering period or any extension, no subscriber will be entitled to any
refund of any subscription.
We will sell the shares on a "direct public offering basis" through Clifford
Matthews, our chairman and president, who will not receive any compensation
in connection with the sale of shares, although we will reimburse him for
expenses incurred in connection with the offer and sale of the shares. He
will be relying on Rule 3a4-1 of the Exchange Act as a "safe harbor" from
registration as a broker-dealer in connection with the offer and sale of the
shares. In order to rely on such "safe harbor" provisions provided by Rule
3a4-1, he must be in compliance with all of the following:
* he must not be subject to a statutory disqualification;
* he must not be compensated in connection with such selling participation
by payment of commissions or other payments based either directly or
indirectly on such transactions;
* he must not be an associated person of a broker-dealer;
* he must restrict participation to transactions involving offers and
sale of the shares;
* he must perform substantial duties for the issuer after the close of the
offering not connected with transactions in securities, and not have been
associated with a broker or dealer for the preceding 12 months, and not
participate in selling an offering of securities for any issuer more than
once every 12 months; and
* he must restrict participation to written communications or responses to
inquiries of potential purchasers.
Mr. Matthews intends to comply with the guidelines enumerated in Rule 3a4-1.
None of our officers or directors have the ability to purchase shares in
this offering.
Terms of the Offering:
The proceeds of this offering will be held in an escrow account with Sunwest
Escrow, LC. The escrow account has been established for the sole purpose of
depositing the funds received prior to achieving the minimum offering amount
of shares. Once the minimum offering is completed and the funds are released
to us the escrow account will be promptly closed.
All payments are to be made by cash, check or money order payable only
to: "ARDI Escrow Account". Your subscription shall not become effective
until accepted by us and approved by our counsel.
LITIGATION
We may from time to time be involved in routine legal matters incidental to
our business; however, at this point in time we are currently not involved
in any litigation, nor are we aware of any threatened or impending
litigation.
MANAGEMENT
The members of our board of directors serve for one year terms and are
elected at the next annual meeting of stockholders, or until their
successors have been elected. The officers serve at the pleasure of the
board of directors. Information as to the directors and executive officers
are as follows:
Name Age Title
Clifford T. Matthews 39 President, CEO, Secretary, Director
Irvin Metelitis 66 Treasurer
Michael Angst 35 Director
Leonard Hall 54 Director
Duties, Responsibilities and Experience
Clifford T. Matthews, president, CEO, secretary and a director of ARDI,
received his M.S.C.S from the University of New Mexico in 1985. His
emphasis was on operating systems and programming languages. Matthews began
programming when he was 13 years old and was programming professionally at
16. Mr. Matthews has served as our chairman of the board since our inception
in 1989.
Matthews began working on Macintosh emulation in July of 1986 founding ARDI.
Matthews wrote the core library routines that are at the heart of Executor
and Carbonless Copies. Matthews created the first version of Executor on a
Sun3 computer and did the first port of Executor, from the Sun3 to a NeXT
running NEXTSTEP.
During the first few years of Macintosh emulation work, Matthews continued
to occasionally work as a consultant. At CompuGraphics, Matthews developed
software that solved specific graphics problems by using pipelined digital
processors. Matthews designed and prototyped an electronic communication
system for Salomon Brothers when they switched to UNIX systems in 1989.
Irvin Metelitis, treasurer of ARDI, has been a Certified Public Accountant
for the past 35 years and specializes in advising clients in financial
matters, tax planning, estate planning and tax preparation.
Michael Angst, a director of ARDI, has been employed as the COO of National
Healthcare Resources, Inc. since 1996. Mr. Angst also has numerous years
experience in the financial and technology industries. Mr. Angst received
his B.S. in Engineering from the University of Pennsylvania in 1988. Mr.
Angst has been a director of ARDI since March 2001.
Leonard Hall, Ph.D, a director of ARDI, brings more than 30 years of
successful administration of education programs in the public sector and was
a founder and senior vice president of a start-up software company. That
company, Skillsbank Corporation, was started in 1986 through a limited
private stock placement and was subsequently acquired by the Learning
Company in 1997. Mr. Hall has been a director of ARDI since March 2001.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
prospectus, and as adjusted giving effect to the sale of 600,000 shares
minimum and 1,000,000 shares maximum of common stock in this offering,
relating to the beneficial ownership of our common stock by those persons
known to us to beneficially own more than 5% of our capital stock, by each
of our directors, proposed directors and executive officers, and by all of
our directors, proposed directors and executive officers as a group. The
address of each person is care of ARDI.
Percent Percent
Name of Beneficial Owner Percent After After
Number Before Offering Offering
Of Shares Offering (Minimum) (Maximum)
Clifford T. Matthews (1) 1,553,000 65% 52% 46%
Irvin Metelitis 16,400 1% 1% 1%
Michael Angst (2) 50,000 1% 1% 1%
Leonard Hall (3) 50,000 1% 1% 1%
Mathew Hostetter 336,070 14% 11% 10%
----------- --------- --------- --------
All Directors, Officers and
Principle Stockholders as a
Group 1,955,470 82% 66% 59%
"Beneficial ownership" means the sole or shared power to vote or to
direct the voting of, a security, or the sole or shared investment power
with respect to a security (i.e., the power to dispose of or to direct the
disposition of, a security). In addition, for purposes of this table, a
person is deemed, as of any date, to have "beneficial ownership" of any
security that such person has the right to acquire within 60 days from the
date of this prospectus.
(1) On March 23, 2001, Mr. Matthews was granted 50,000 options to purchase
common shares at a price of $1.25 per share.
(2) On March 23, 2001, Mr. Angst was granted 50,000 options to purchase
common shares at a price of $1.25 per share.
(3) On March 23, 2001, Mr. Hall was granted 50,000 options to purchase
common shares at a price of $1.25 per share.
DESCRIPTION OF SECURITIES
Common Stock
Our certificate of incorporation authorizes the issuance of 6,000,000
shares of common stock, $0.001 par value per share, of which 2,393,770
shares were outstanding as of the date of this prospectus. Upon sale of the
600,000 shares minimum and 1,000,000 share maximum, we will have outstanding
2,993,770 or 3,393,770 shares of common stock, respectively. Holders of
shares of common stock are entitled to one vote for each share on all
matters to be voted on by the stockholders. Holders of common stock have no
cumulative voting rights. Holders of shares of common stock are entitled to
share ratably in dividends, if any, as may be declared, from time to time by
the board of directors in its discretion, from funds legally available to be
distributed. In the event of a liquidation, dissolution or winding up of
ARDI, the holders of shares of common stock are entitled to share pro rata
all assets remaining after payment in full of all liabilities. Holders of
common stock have no preemptive rights to purchase our common stock. There
are no conversion rights or redemption or sinking fund provisions with
respect to the common stock. All of the outstanding shares of common stock
are validly issued, fully paid and non-assessable.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for us by
Stoecklein Law Group, 402 West Broadway, Suite 400, San Diego, California
92101.
EXPERTS
The financial statements of ARDI as of September 30, 2001 and September
30, 2000 are included in this prospectus and have been audited by Weaver &
Martin, LLP, an independent auditor, as set forth in their report appearing
elsewhere in this prospectus and are included in reliance upon such reports
given upon the authority of such individual as an expert in accounting and
auditing.
DISCLOSURE OF COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
No director of ARDI will have personal liability to us or any of our
stockholders for monetary damages for breach of fiduciary duty as a director
involving any act or omission of any director since provisions have been
made in the certificate of incorporation limiting liability. The foregoing
provisions shall not eliminate or limit the liability of a director for:
* any breach of the director's duty of loyalty to us or our stockholders
* acts or omissions not in good faith or, which involve intentional
misconduct or a knowing violation of law
* or under applicable Sections of the Delaware Revised Statutes or,
* for any transaction from which the director derived an improper personal
benefit.
The Bylaws provide for indemnification of our directors, officers, and
employees in most cases for any liability suffered by them or arising out of
their activities as directors, officers, and employees if they were not
engaged in willful misfeasance or malfeasance in the performance of their
duties; provided that in the event of a settlement the indemnification will
apply only when the board of directors approves settlement and reimbursement
as being for our best interests.
Our officers and directors are accountable to us as fiduciaries, which means
they are required to exercise good faith and fairness in all dealings
affecting ARDI. In the event that a stockholder believes the officers and/or
directors have violated their fiduciary duties, the stockholder may, subject
to applicable rules of civil procedure, be able to bring a class action or
derivative suit to enforce the stockholder's rights, including rights under
federal and state securities laws and regulations to recover damages from
and require an accounting by management. Stockholders who have suffered
losses in connection with the purchase or sale of their interest in ARDI in
connection with a sale or purchase, including the misapplication by any
officer or director of the proceeds from the sale of these securities, may
be able to recover losses from us.
We undertake the following:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange
Commission this type of indemnification is against public policy as
expressed in the Act and is unenforceable.
OUR BUSINESS
Definitions,Comparisons and Distinctions
ARDI's goal is to be a leader in emulation software. ARDI's most
technically sophisticated work to date has been its software that allows
certain classes of Macintosh applications to run on PCs. In order to
describe ARDI's accomplishments and the challenges facing ARDI, this
prospectus uses some industry-specific terms. This section of the
prospectus provides definitions of these terms as well as comparisons to
similar terms and important distinctions that relate to ARDI's business.
Emulation
ARDI develops computer software. The type of computer software that ARDI
creates is emulation software. Emulation is the ability to perform a task
or function that is normally provided by something else. Emulation software
can be packaged for use by computer users, computer programmers and computer
manufacturers. ARDI's emulation software is currently packaged for use by
computer users as ARDI's Executor product line and for use by programmers as
ARDI's Carbonless Copies product line. ARDI does not yet package its
emulation software for use by computer manufacturers.
CPU Emulation
One type of emulation software is CPU emulation. Inside every computer is
at least one Central Processing Unit (CPU). CPUs are the part of computers
that perform computation. CPUs retrieve instructions from memory and
execute (perform what the instruction specifies) these instructions at rates
of hundreds of millions of these simple instructions per second. The
engineers who design CPUs decide the format of the instructions that a given
CPU will use. IBM-compatible PCs use Intel 80x86-compatible CPUs such as
Intel's Pentium and Celeron line and AMD's Athlon and Duron line of CPUs.
Macintosh computers have never used Intel 80x86-compatible CPUs; the
original Macintosh used Motorola 680x0 CPUs and current Macintoshes use
Motorola & IBM PowerPC CPUs. CPU emulation software allows a CPU to execute
instructions that are otherwise incompatible with that CPU.
OS Emulation
Another type of emulation software is Operating System (OS) emulation.
Operating Systems are collections of instructions that provide a set of
routines to the programs that run on the computer. Typically OS routines
are grouped into layers, where the lowest layers directly interact with the
computer hardware and where higher layers interact with lower layers.
Maintaining layers reduces the complexity of developing, debugging and
updating the OS. In IBM-compatible PCs, the lowest layer is known as the
BIOS (Basic Input/Output System). OS emulation software allows a computer
to provide routines that are not normally provided by the OS that comes with
the computer. In some cases OS emulation replaces all the layers of an OS.
In other cases, only certain layers are replaced.
Platform
A combination of computer hardware and an operating system is called a
platform. For example, an IBM-compatible PC running Microsoft's Windows XP
Operating System is a different platform than the same PC running the Linux
operating system. Computer software is traditionally released for
particular platforms. Running computer software on a platform for which it
was not developed may require emulation. Whereas engineering considerations
dictate when CPU emulation is needed, licensing considerations dictate when
OS emulation is needed. When the IBM PC was cloned, for example, the
cloners didn't need CPU emulation, but did need their own BIOS
implementation. This was because PC clone makers could purchase the same CPU
for their clones as IBM used in their PCs, but IBM did not license the BIOS.
Although IBM didn't license their BIOS, Microsoft did license the rest of
the operating system, DOS and later Windows, for use in clones. Apple does
not license any of their Classic Macintosh Operating System for use in
clones. ARDI's technology and experience in CPU and OS emulation will allow
ARDI to create Macintosh emulation software that takes platform distinctions
into account.
Reverse Engineering
Reverse engineering is a development method that uses information about
an existing entity to produce a new entity that has some of the same
properties of the existing entity. For example, ARDI has reverse-engineered
the Motorola 680LC040 CPU and has also reverse-engineered 1,200 Macintosh
Classic Operating System routines. In other words, by using information
about the 680LC040 CPU and about the Macintosh Classic Operating System,
ARDI has produced software that performs enough of the same functions of the
CPU and the Operating System to run hundreds of Macintosh programs.
Clean-Room Reverse Engineering
Software that is created that is functionally equivalent to other
software is said to be Clean-Room Reverse Engineered if the creators avoid
directly examining the software that is to be emulated. This can be done by
using published specifications and test programs. Using clean-room reverse-
engineering prevents the developers from including pieces of the software to
be emulated in the emulated software. It does not prevent the developers
from infringing on patents or infringing on look-and-feel copyrights. It
can also be a labor intensive methodology because any behavior that either
isn't documented in the publicly available specifications or that is
incorrectly documented can cause the developers to write, run and analyze
complex tests to determine the true behavior of the system being emulated.
Although Apple's Classic Macintosh Operating System is fairly well
documented by Apple in Inside Macintosh series of books, each error and
omission results has either resulted in an incompatibility in ARDI's
software or the expenditure of time searching for better documentation or
writing, running and analyzing test programs.
Software that is created that is functionally equivalent to hardware is said
to be Clean-Room Reverse Engineered if the creators avoid looking at the
hardware implementation. In general, there is little need to examine the
hardware implementation when emulating a CPU, because CPUs have well-defined
specifications.
Dirty-Room/Clean-Room Reverse Engineering
Dirty-Room Engineering is where the thing being emulated is directly
examined. For example, looking at the individual instructions that make up
a computer program, even if only to determine specifications that aren't
publicly available, is an example of dirty-room reverse engineering. Dirty-
room reverse engineering done by the same engineers who create the emulation
software runs the risk of deliberate or accidental copyright violations by
incorporating portions of the software to be emulated in the emulator. To
avoid this risk, dirty-room reverse engineering can be done in conjuction
with clean-room engineering by using two physically and electronically
isolated teams where one team does dirty-room engineering and the other does
clean-room engineering. In strictly clean-room reverse engineering when it
is determined that the specification that the clean-room engineers are
working from is insufficient to produce the degree of compatibility desired,
the only recourse is to search for additional documentation or to write
tests that are run and analyzed in an effort to gain more information. In
Dirty-Room/Clean-Room Engineering, the clean-room engineers write a
description of the portion of the specification that needs elaboration or
clarification. The dirty-room engineers then use that request to create
additional functional specifications. These functional specifications
should not reveal the way in which the emulated software has been written,
or it would defeat the purpose of having separate clean-room and dirty-room
engineers. One way to prevent such things from occurring is to not allow
the clean-room and dirty-room engineers to talk to each other. Instead all
communication between the two teams is passed through an intermediary who
enforces the protocol that only functional specifications are passed from
the clean-room to the dirty-room.
For complex products, the number of man-hours needed to create an
emulation using dirty-room/clean-room reverse engineering may be less than
the number of man-hours needed to create an emulation using only clean-room
reverse engineering. This will be so when it is considerably easier for
dirty-room engineers to determine hidden specifications, than it is for
clean-room engineers to determine the same hidden specifications through the
construction and analysis of tests.
Strictly Clean-Room Reverse Engineering
Because clean-room engineering can be used in conjunction with dirty-
room engineering, a product is said to be produced as Strictly Clean-Room
Reverse Engineered when no dirty-room engineering is used. To date, ARDI
has used strictly clean-room reverse engineering in constructing its
software, even though doing so has been less efficient than using dirty-
room/clean-room reverse engineering. The benefit to ARDI of using strictly
clean-room techniques is that ARDI has avoided the overhead of having
separate dirty-room engineers and an intermediary. The significant drawback
has been that ARDI's lower operating system layers are not sufficiently
compatible to allow Apple's upper operating system layers to work with them.
Such compatibility may be easier to provide using dirty-room/clean-room
reverse engineering.
Classic MacOS
Apple first released the Macintosh in 1984. The original Macintosh
Operating System made hundreds of routines available to programmers to use
in their Macintosh programs. Over the years, Apple steadily added routines.
Occasionally some routines that were previously supported were made
unavailable, but the overall structure of the Macintosh Operating System has
stayed the same up through the release of MacOS 9, one of the two Operating
Systems shipping on new Macintoshes sold by Apple in November 2001. For
example, the memory allocation routines "NewHandle" and "NewPtr" that were
available to programmers in 1984 are still available under MacOS 9. The
1,200 Macintosh routines that ARDI has written are all Clasic MacOS
routines.
Mac OS X
In December 1996, Apple bought NeXT Computers, Inc. and began revising
NeXT's OPENSTEP operating system for use on its Macintosh line. In July
2001 Apple began shipping MacOS X as well as MacOS 9 on all its new
computers. MacOS X interacts with the hardware by using a freely available
UNIX operating system core and provides three fundamentally different
programming models to the programmers. One model is the UNIX programming
model; another is the Macintosh Classic programming model; the third is
similar to the OPENSTEP programming model. Programs can use routines from
more than one programming model simultaneously. ARDI's Macintosh
compatibility software does not currently implement any of the routines made
available in the UNIX or OPENSTEP-like programming models and is unlikely to
ever directly do so.
Business Overview
Emulation software's usefulness varies depending on the degree of
compatibility of the emulation. The Macintosh platform is continually
updated by Apple. Two major changes to the Macintosh platform have
decreased the usefulness of ARDI's currently shipping Macintosh
compatibility software. One change began in 1993 when Apple began
manufacturing Macintoshes with PowerPC CPUs instead of 680x0 CPUs. The
other change began in 2000 when Apple began shipping MacOS X, an Operating
System with a set of routines at its lowest layer which are different from
all the Macintosh Operating Systems that preceded it.
To meet its business objectives, ARDI will have to develop a new synthetic
CPU capable of emulating the PowerPC with sufficient compatibility to allow
MacOS X to run on it. ARDI does not currently have such a synthetic CPU,
but does have tools, techniques and experience associated with its current
synthetic CPU.
ARDI's mission is to be a leader in emulation, both CPU and OS, software.
ARDI's initial products emulate the Macintosh Classic OS and the Motorola
680x0 CPU. ARDI's knowledge of emulation and the methodology to create
emulation software will be used to refine and market ARDI's existing
Macintosh compatibility products and can be used to provide emulation
capabability to new hardware so that the new hardware can be backwardly
compatible with existing hardware.
Development to Date
ARDI has created two Macintosh compatibility product lines. These product
lines are Carbonless Copies and Executor. Carbonless Copies is used by
Macintosh programmers to create new versions of their applications for non-
Macintoshes. Executor is used by PC owners to run Macintosh software on
their PCs. Executor is currently sold for both Windows and Linux.
Carbonless Copies is currently sold only for Windows but is presently being
tested under Linux.
Sales and Marketing to Date
ARDI has never had sales or marketing employees or contractors. It has
advertised occasionally in computer publications but primarily has sold its
software from its website. ARDI has supported itself by using its own
engineers, primarily Clifford Matthews, to sell its software. This has
consumed available engineering hours, which resulted in fewer sales than if
ARDI had used professional sales and market people.
Products and Services
General Technical Background
The original Macintosh released by Apple in 1984 was built out of hardware
that could be purchased by other computer manufacturers and used to create
Macintosh compatible computer systems. The CPU was the mc68000 from
Motorola. The video image was produced using a fixed portion of the memory
to represent the 512x342 black and white screen. The hardware was basic,
but the operating system was complex. For a company to build a computer
that could run Macintosh programs, the routines made available to
programmers from the Classic Macintosh Operating System would have to be
rewritten, just like cloning IBM PCs required the routines provided by the
BIOS.
The Classic Macintosh System Software consists of three different portions
of software: the Macintosh Operating System, the Macintosh Toolbox and
Additional System Software. ARDI has re-implemented the parts of the
Classic Macintosh Operating System ARDI considers important, most of the
Macintosh Toolbox and enough of the Additional System Software to enable
Macintosh programs to run on PCs without the use of any software from Apple.
ARDI has registered the trademark ROMlib to refer to this re-implementation.
The Macintosh System Software is to a Macintosh what the PC BIOS and Windows
are to a PC. The Macintosh System Software routines are more numerous and
more complex than the BIOS in PCs. Several companies (e.g. Compaq, Phoenix)
have duplicated the functionality of PC BIOS. ARDI has duplicated the heart
of the Macintosh System Software. It is the availability of re-implemented
PC BIOS and Microsoft's licensing of Windows that allows PC programs to run
on PCs that were not made by IBM. ARDI's technology allows Macintosh
programs to run on PCs not made by Apple.
Executor and Carbonless Copies
Executor is ARDI's program that creates a virtual Macintosh and thereby
allows Macintosh programs to be run on any platform supported by Executor.
Executor is sold as two different products. Executor for Windows includes
both Executor/DOS and Executor/Win32. Executor for Linux includes versions
of Executor for all popular Linux distributions. Executor's target audience
is anyone who has a need or desire to run Macintosh programs on their PCs.
Carbonless Copies allows Macintosh developers to support and sell their
Macintosh applications on non-Macintosh systems. When a Macintosh program
is combined with Carbonless Copies, a new program that can be shipped to
Windows and Linux users is created.
Incompatibilities
ARDI's core technology is adequate to run hundreds of Macintosh programs,
but Macintosh programs that have been developed more recently are less
likely to run than Macintosh programs that were developed years ago. ARDI
will use a portion of the proceeds of this offering to use dirty-room/clean-
room reverse-engineering in an attempt to limit the major sources of
incompatibility. ARDI will also try to use a portion of the proceeds to
write a synthetic PowerPC CPU sufficiently compatible to run arbitrary
Operating Systems directly on it, including MacOS X.
Industry Analysis
Apple
According to their 10-K filed on December 21, 2001, Apple's net sales were
$5.3b (five point three billion dollars) for their fiscal year ending
September 29, 2001. During that twelve-month period they sold 3m (three
million) CPU units.
Macintosh purchasers are the targeted consumers for ARDI's Executor product.
ARDI's products may be purchased as part of a move onto the Macintosh
platform or as an adjunct to or to move off the Macintosh platform. As
Macintoshes age, Macintosh owners who want to buy a new machine and continue
to use their existing software can either purchase a new machine from Apple
or purchase a non-Apple machine and use ARDI's emulation technology to run
their old Macintosh programs.
Macintosh Software
Apple's website lists over 17,000 Macintosh applications. Many of these are
available for Windows. Relatively few of these Macintosh applications are
available for Linux. Even when an application is available for two or more
platforms, there may be an additional charge when a Macintosh user wants to
get the Windows or Linux version of the software.
Target Market
Executor
Executor will be marketed for purchase primarily by people who desire to use
Macintosh applications on PCs running Windows or Linux.
Macintosh users may be potential Executor customers because they may want to
use their existing Macintosh software on non-Macintoshes. Macintoshes are
significantly outnumbered by non-Macintoshes. For example, people who use a
Macintosh at work or school may have a PC at home or vice-versa. Another
use of Executor is to continue to use the same Macintosh applications even
when the user doesn't have access to a Macintosh.
When it is time to replace a machine, owners of Macintoshes may consider
buying a PC as a replacement and may want to continue using their Macintosh
software. When acquiring a second machine for a household, Macintosh users
may consider using a PC as their second machine, for example in a family
household where other household members use PCs outside the household. Such
a household might want to run their Macintosh applications on their PC using
ARDI's technology.
Some people who use the Linux operating system who aren't Macintosh users
may buy Executor to get access to high quality shrink-wrapped applications
that will run efficiently on their machines. Potential examples of such
quality shrink-wrapped applications are Quark XPress, Adobe Photoshop or
Quicken. Even if these particular examples are ported to Linux, there are
still 17,000 other Macintosh applications.
Network administrators, graphic arts shops and educational institutions may
purchase Executor for environments where Macintosh, Linux and Microsoft
machines are used.
Carbonless Copies
Carbonless Copies is licensed to developers for either $2,500 for a license
which allows up to 100 copies of the new program to be sold, or $5,000 for a
license which allows up to 1,000 copies of the new program to be sold. ARDI
negotiates royalties individually with developers who want to sell more than
1,000 copies of their products.
Carbonless Copies is sold "AS IS" and includes no free technical support.
Developers are paying to bundle ARDI's existing technology with their
products. Carbonless Copies clients who require additions to ARDI's core
technology pay for the additions.
Product Licensing
Executor -- Executor has a typical end-user license that allows the licensee
to use one copy of Executor on their machine in exchange for a fee.
Additionally, if requested by a licensee, we will grant one license for
several copies of Executor.
Carbonless Copies -- is a software library license, which allows the
software manufacturer to include a copy of the Carbonless Copies Runtime
System in their product. The number of copies of their product that can be
sold is limited by the license. Typical numbers are 100 to 1,000 copies.
Neither licenses have time limits associated with them, but since the
Carbonless Copies license limits the number of copies of the library that
can be used, Carbonless Copies licensees need to purchase more licenses if
they want to continue selling copies of their software after their initial
set of licenses have been used.
At this point in time ARDI does not have any material single licensees for
Executor or Carbonless Copies.
Competition
Introduction
ARDI is currently unaware of any other product that allows PCs to run
hundreds of Macintosh applications without using Apple's software. There
are a variety of Macintosh emulators that work by having the user supply
Apple's Macintosh operating system software. ARDI has written enough of the
Classic Macintosh Operating System routines to allow PCs to run hundreds of
Macintosh applications.
In the future, ARDI's biggest direct competitor could be Apple, or a
competitor who is currently unknown to ARDI with similar software that
allows Macintosh applications to run on PCs without using Apple's
intellectual property
Current indirect competition includes actual Macintoshes running Macintosh
applications; Macintosh emulators that require Apple-Intellectual Property;
cross-platform software (such as software that is written for both Macintosh
and PCs) and non-Macintosh software.
Apple
Apple does not currently market any products that allow Macintosh programs
to run on non-Macintoshes. Because Apple has significant resources,
including the source to their own operating system, they could easily begin
to develop a product that will compete with ARDI if they chose to. Apple
licensed their Classic Macintosh Operating System to hardware vendors from
September 1994 through September 1997. They could choose to do so again in
the future. As such, although Apple isn't currently a direct competitor in
the Macintosh emulation market, Apple could become or enable others to
become competitors in the Macintosh emulation market at any time without any
advance notice.
Non-Macintosh Applications
Beyond the threat of Apple, people choosing to stop using Macintosh
applications is the next threat.
Although the Macintosh is the second largest shrink-wrapped software market,
the PC shrink-wrapped market dominates the Macintosh shrink-wrapped software
market. Few applications are Macintosh only. As such, people who own
Macintosh software who are going to be using a non-Macintosh will have a
choice. They can use their existing software under Executor or they can
find a substitute in the PC domain, especially if the PC is running Windows
instead of Linux.
Trademarks
ARDI has registered the following three trademarks, which expire in 2009:
* ROMlib
* Executor
* the ARDI logo (letters ARDI in an Abacus frame)
Proprietary Rights
Our success and ability to compete are dependent to a significant degree on
our ability to develop and maintain the proprietary aspects of our
technology and operate without infringing on the proprietary rights of
others. We seek to protect our source code for our software, documentation
and other written materials under trade secret and copyright laws. We
license our software to end-users and to other software developers, using
standard industry licenses and practices as appropriate for each class of
licensees. Finally, we seek to limit disclosure of our intellectual property
by requiring employees and consultants with access to our proprietary
information to execute confidentiality agreements with us and by restricting
access to our source code.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of
our software exists, software piracy can be expected to be a persistent
problem. In addition, the laws of many countries do not protect our
proprietary rights to as great an extent as do the laws of the United
States. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. Any such resulting litigation could
result in substantial costs and diversion of resources. We cannot be certain
that our means of protecting our proprietary rights will be adequate or that
our competitors will not independently develop similar technology.
Third parties may claim infringement with respect to our current or future
products. We expect that developers of similar Macintosh compatibility
software products will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and as the
functionality of products in different segments of the software industry
increasingly overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's
attention and resources, cause product shipment delays or require us to
enter into terms acceptable to us or at all. A successful infringement claim
against us and our failure or inability to license the infringed rights or
develop or license technology with comparable functionality may have a
substantial negative effect on our ability to continue our business
operations.
Marketing and Sales Strategy
Executor is meant for end-users. Compared to Executor 2, Executor 3 will
require additional documentation, packaging, placement and ads to attract
the general public. ARDI will attempt to sell Executor 3 through one or
more distributors who can put shrink-wrapped copies of Executor on store
shelves across the world.
Carbonless Copies is essentially a licensing program for ARDI's existing
technology. Macintosh developers may license Carbonless Copies so that they
can ship their applications on non-Macintosh platforms. Because Carbonless
Copies is used exclusively by developers, significantly less packaging,
placement and advertising is needed to sell Carbonless Copies. Carbonless
Copies documentation will be derived from ARDI's internal documentation
(i.e. written by programmers for programmers).
Employees
ARDI currently has two full-time employees, Clifford Matthews and
Deirdre Smith. Smith handles all administrative functions including taking
phone calls, first tier tech. support and order fulfillment. Matthews
handles everything else including product development, documentation and
debugging. Previous programmers for ARDI include Mathew Hostetter, now one
of the founders of Curl; Sam Lantinga creator of the Simple Direct Media
Library and former lead programmer of Loki Entertainment software and Cotton
Seed. The successful closing of this offering will allow ARDI to hire a
CEO, CFO, sales staff and additional software developers. Once a suitable
CEO has been hired, Matthews will become CTO.
None of ARDI's employees is represented by a labor union or subject to
a collective bargaining agreement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements section included elsewhere in this prospectus.
Overview
Historically, ARDI has developed software and proprietary products that have
solved technical problems, but due to lack of capital and marketing talent
ARDI has been unable to effectively sell its products. ARDI currently sells
two products (Executor and Carbonless Copies) solely through its website.
Aside from the website ARDI is not marketing either product. With
investment, ARDI intends to hire a marketing director and enter into
distribution agreements with third parties with national domestic
distribution networks, such as Ingram Micro. ARDI has continually tailored
its operational budget to closely correlate to funds received from
operations and investment. It is conceivable that ARDI could remain in
business indefinitely by continuing to operate in this manner. However, if
ARDI is to expand its business and accomplish its business goals as outlined
in this offering, substantial additional funds would be needed. Those funds
are being raised through this offering.
To implement ARDI's business plan with its strategic direction - that is,
the marketing and distribution of Executor and Carbonless Copies and the
development and introduction of new products - ARDI will require the
substantial additional capital that this offering, if successful, provides.
Additionally, partnerships are highly desirable for accelerating market
penetration and for establishing market dominance. Creators of new computer
architectures and new operating systems are likely to benefit from ARDI's
expertise in reverse engineering and emulation and as ARDI makes a name for
itself with its existing Macintosh OS emulation and CPU emulation, ARDI will
seek out partnerships with companies that have new technology.
Due to a lack of capital and a subsequent over reliance on Clifford
Matthews, ARDI's majority stockholder and president, to research, develop,
sell, plan and manage, ARDI has been unable to pursue a meaningful number of
Carbonless Copies clients. A substantial part of ARDI's business over the
last two years has come from Teacher Technology Systems, accounting for
approximately 71% of ARDI's revenues in 2001 and approximately 36% in 2000.
Teacher Technologies Systems was acquired by a private technology company
and has since been disbanded.
Revenues generated by ARDI in recent years via sales of Executor 2.1 and
Carbonless Copies have been enough to fund the solution to the major
compatibility problems, but have not been sufficient to fund a separate
clean-room/dirty-room team, to employ engineers necessary to implement these
solutions, or to market an increased compatibility product. As such,
although ARDI's recent revenues display an ability to develop on an
extremely limited budget, they do not reflect or predict ARDI's post-
investment revenue potential.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Royalty Buyout Agreement
On October 11, 2000 ARDI entered into an agreement with Teacher
Technology Systems, a long-term licensee of Carbonless Copies, whereby
Teacher Technology Systems paid a one-time lump sum payment of $70,000 as a
buyout of all royalties that it would have to pay under its existing license
agreement. The royalty buyout expired on December 31, 2001. Teacher
Technology Systems has since discontinued its operations.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
Revenue. For the year ended September 30, 2001, we had revenues of
$120,506, compared to $68,577 for the previous year. The increase in revenue
is primarily attributable to the royalty buyout agreement with Teacher
Technology Systems.
Net Loss. For the year ended September 30, 2001, we incurred a net loss of
approximately $1,287,041, compared with a net loss of $67,443 for the year
ended September 30, 2000. The increase is attributable to a deemed interest
expense associated with the beneficial conversion of common stock. Please
see footnote 7 of our financial statements for further information.
Expenses. For the year ended September 30, 2001, we had expenses,
excluding depreciation, of approximately $122,717, which exceeded our total
revenue by $2,211, compared to $115,459 for the year ended September 30,
2000, which exceeded our total revenue by $46,882. The increase in general
and administrative expenses has been primarily a result of our efforts to
file this registration statement and preparing for becoming a public
company.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Revenue. For the year ended September 30, 2000, we had revenues of $68,577,
compared to $109,400 for the previous year. The decrease in revenue was a
result of the decreased sales of our Executor product, primarily due to its
limitation of only emulating the 680x0 processors which Apple had already
discontinued using.
Expenses. Our expenses, excluding depreciation, were $115,459 for the year
ended September 30, 2000, compared with $78,187 for the previous year, an
increase of $37,272. The increase in general and administrative expenses is
primarily attributable to increasing first level technical support from part-
time to full-time.
Net Loss. For the year ended September 30, 2000, we incurred a net loss of
approximately $67,443, compared with a net income of $10,930 for the year
ended September 30, 1999, a decrease of approximately $78,373. The decrease
is primarily attributable to our decreased revenue and increased expenses.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have suffered from restricted cash flow. We continue
to experience an ongoing working capital deficiency and, since September 30,
2001, cash has come from private sales of our common stock, limited license
revenues and a royalty buyout agreement. Although management believes ARDI
could continue making small improvements with no other revenue than from
licensing and sales of Executor and Carbonless Copies, we will continue to
require substantial amounts of capital to meet the demands of our business
plan. We are attempting to raise sufficient capital to meet our current
obligations and to implement our new business plan. Without ongoing
revenues and/or the funding that we are seeking, it is unlikely that we will
be able to fully implement our business plan and manage our day-to-day
operations.
Our balance of cash was $3,264 at September 30, 2001, compared with $0 at
September 30, 2000. With such a restrictive cash position we have an
immediate need for additional capital.
Accounts payable decreased to $18,514 at September 30, 2001 from $76,423 at
September 30, 2000. The decrease of approximately $57,909 is primarily
attributable to the conversion of certain accounts to common stock.
Long-term notes payable decreased to $171,786 at September 30, 2001 from
$235,807 at September 30, 2000 as a result of conversion of certain debts to
common stock.
Our auditor's report indicates that there is substantial doubt about our
ability to continue as a going concern. We cannot assure you that we will
be able to generate internally or raise sufficient funds to continue our
operations, or that our auditors will not issue another going concern
opinion. However, since the minimum amount of funds to be raised through
this offering are three million dollars ($3,000,000), if successful, we will
have approximately twenty times the working capital we have had in our
existence. If we fail to raise sufficient additional funds, either through
additional financing or continuing operations, we will not be able to
execute our current business plan and will have to change our revenue stream
to be dependent on sales of consulting services rather than directly selling
our products and technology.
Our consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result
from our possible inability to continue our operations.
We will use any internally generated funds and additional capital from this
offering and/or future private placements of equity to meet our obligations
and to implement our new strategic direction.
We do not intend to make material capital expenditures in the short term.
However, as discussed above, we will require cash to implement our strategic
direction.
We have an immediate need for additional capital to fund our operations and
to remedy our working capital deficit. We are seeking to raise additional
capital primarily through this offering. We cannot assure you that we will
be able to raise additional funds on acceptable terms, or at all. If we are
unable to raise additional capital on a timely basis, our business will be
adversely affected and we may not be able to continue as a going concern.
Impact of Inflation
Increases in the inflation rate are not expected to affect our operating
expenses. Although we have no current plans to borrow additional funds, if
we were to do so at variable interest rates, any increase in interest rates
would increase our borrowed funds.
Seasonality
Our operations are not affected by seasonal fluctuations, although our cash
flows may at times be affected by fluctuations in the timing for large
contracts, license fees and royalty payments.
FACILITIES
We lease office space located at 2601 Wyoming, NE Suite 209 Albuquerque, NM
87112. The lease is for one year at approximately $575 per month. We
believe that our facilities are adequate for our purposes at this time.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Officer/Stockholder Loans
From time to time we may grant loans to our principal officer and
stockholder, Clifford Matthews. All loans made to Mr. Matthews bear
interest at a rate of 7% per annum and are due upon demand with no specific
date or terms of repayment. As of September 30, 2001 the outstanding loan
balance payable to us from Mr. Matthews was $76,656. We have never forgiven
any indebtedness from Mr. Matthews.
MARKET PRICE OF COMMON STOCK
We intend to file for inclusion of our common stock on the NASDAQ;
however, there can be no assurance that NASDAQ will approve the inclusion of
the common stock. Prior to the effective date of this offering, our common
stock was not traded.
As of September 1, 2001 there were 22 stockholders of our common stock.
DIVIDENDS
The payment of dividends is subject to the discretion of our board of
directors and will depend, among other things, upon our earnings, our
capital requirements, our financial condition, and other relevant factors.
We have not paid or declared any dividends upon our common stock since our
inception and, by reason of our present financial status and our
contemplated financial requirements, do not anticipate paying any dividends
upon our common stock in the foreseeable future.
We have never declared or paid any cash dividends. We currently do not
intend to pay cash dividends in the foreseeable future on the shares of
common stock. We intend to reinvest any earnings in the development and
expansion of our business. Any cash dividends in the future to common
stockholders will be payable when, as and if declared by our board of
directors, based upon the board's assessment of:
* our financial condition;
* earnings;
* need for funds;
* capital requirements;
* prior claims of preferred stock to the extent issued and outstanding;
and
* other factors, including any applicable laws.
Therefore, there can be no assurance that any dividends on the common stock
will ever be paid.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation of our Chief
Executive Officer, Clifford T. Matthews for the past two fiscal years 2000
and 1999, and year to date 2001. No other officer or director has received
or is anticipated to receive remuneration in excess of $100,000 for fiscal
2001. The remuneration described in the table does not include the cost to
us of benefits furnished to the named executive officer, including premiums
for health insurance and other benefits provided to individuals that are
extended in connection with the conduct of our business. The value of these
benefits cannot be precisely determined, but the executive officer named
below did not receive other compensation in excess of the lesser of $50,000
or 10% of the officer's cash compensation.
Summary Compensation Table
Long Term
Annual Compensation Compensation
Other Annual Restricted
Name and Principal Year Salary Bonus Compensation Stock Options
Position
Clifford Matthews, 2001 $15,000 N/A N/A N/A 50,000
President, CEO and 2000 -$0- N/A N/A N/A N/A
Director 1999 -$0- N/A N/A N/A N/A
Leonard Hall, 2001 -$0- N/A N/A N/A 50,000
Director
Michael Angst, 2001 -$0- N/A N/A N/A 50,000
Director
Mr. Matthews has received loans from us in the past which bear interest at
7% per annum and due upon demand. At September 30, 2001 Mr. Matthews'
outstanding loan balance was $76,656.
EXECUTIVE OFFICER/DIRECTOR OPTION GRANTS IN LAST FISCAL YEAR
Percent of
total
Number of options
securities granted to Exercise or
underlying employees base price
options in fiscal ($/Share) Expiration
Name granted year Date
Clifford Matthews 50,000 29% $1.25 March 23, 2006
Michael Angst 50,000 29% $1.25 March 23, 2006
Leonard Hall 50,000 29% $1.25 March 23, 2006
Irvin Metelits -0- -0- -0- --
Compensation Committee Interlocks and Insider Participation
We do not currently have a compensation committee of the board of directors.
However, the board of directors intends to establish a compensation
committee, which is expected to consist of three inside directors and two
independent members.
Stock Option Plan and Non-Employee Directors' Plan
The following descriptions apply to stock option plans which we adopted in
March of 2001; 172,700 options have been granted as of the date of this
prospectus.
We have reserved for issuance an aggregate of 2,500,000 shares of common
stock under our 2000/2001 Stock Option Plan and Non-Employee Directors'
Plan. These plans are intended to encourage directors, officers, employees
and consultants to acquire ownership of common stock. The opportunity so
provided is intended to foster in participants a strong incentive to put
forth maximum effort for our continued success and growth, to aid in
retaining individuals who put forth such efforts, and to assist in
attracting the best available individuals to us in the future.
Stock Option Plan
Officers (including officers who are members of the board of directors),
directors (other than members of the stock option committee to be
established to administer the stock option plan and the directors' plan) and
other employees and consultants and its subsidiaries (if established) will
be eligible to receive options under the planned stock option plan. The
committee will administer the stock option plan and will determine those
persons to whom options will be granted, the number of options to be
granted, the provisions applicable to each grant and the time periods during
which the options may be exercised. No options may be granted more than ten
years after the date of the adoption of the stock option plan.
Non-qualified stock options will be granted by the committee with an option
price equal to the fair market value of the shares of common stock to which
the non-qualified stock option relates on the date of grant. The committee
may, in its discretion, determine to price the non-qualified option at a
different price. In no event may the option price with respect to an
incentive stock option granted under the stock option plan be less than the
fair market value of such common stock to which the incentive stock option
relates on the date the incentive stock option is granted.
Each option granted under the stock option plan will be exercisable for a
term of not more than ten years after the date of grant. Certain other
restrictions will apply in connection with this plan when some awards may be
exercised. In the event of a change of control (as defined in the stock
option plan), the date on which all options outstanding under the stock
option plan may first be exercised will be accelerated. Generally, all
options terminate 90 days after a change of control.
Option Grants
The board of directors adopted and the stockholders approved the
adoption of our 2000/2001 stock option plan pursuant to which incentive
stock options or nonstatutory stock options to purchase up to 2,500,000
shares of common stock may be granted to employees, directors and consult
ants. Pursuant to the plan we granted stock options as follows:
Date Granted Exercise Price Number of Shares
March 23, 2001
Granted $1.25 172,700
Exercised - -0-
Cancelled - -0-
Total outstanding $1.25 172,700
Transfer Agent
The transfer agent for the common stock is Pacific Stock Transfer, 5844
S. Pecos Road, Suite D, Las Vegas, Nevada 89120.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, since only a limited number of shares will be available for
sale shortly after this offering because of restrictions on resale, sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and
our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
3,389,770shares of common stock, assuming:
* the maximum offering of 1,000,000 shares is achieved, and
* no exercise of options to purchase 172,700 shares of common stock
outstanding as of the date of this prospectus.
Of these shares, the 1,000,000 shares of common stock sold in this offering
will be freely tradable without restriction or further registration under
the Securities Act, unless the shares are purchased by our "affiliates" as
that term is defined in Rule 144 under the Securities Act. The remaining
2,389,770 shares of common stock held by our existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act. Restricted shares may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule
144 or 701 promulgated under the Securities Act. As a result of the
provisions of Rules 144 and 701, additional shares will be available for
sale in the public market as follows:
* 146,000 restricted shares will be eligible for immediate sale on the
date of this prospectus;
* 111,200 restricted shares will be eligible for sale 90 days after the
date of this prospectus; and
* the remainder of the restricted shares will be eligible for sale from
time to time thereafter upon expiration of their respective one-year
holding periods, subject to restrictions on sales by affiliates and other
vesting provisions.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date, an affiliate of ARDI, or person (or persons whose shares
are aggregated) who has beneficially owned restricted shares for at least
one year will be entitled to sell in any 90 day period a number of shares
that does not exceed the greater of:
* one percent (1%) of the then outstanding shares of our common stock; or
* the average weekly trading volume of our common stock on the NASDAQ
during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the SEC.
Sales pursuant to Rule 144 are subject to requirements relating to manner of
sale, notice, and the availability of current public information about us.
A person (or persons whose shares are aggregated) who is not deemed to have
been an affiliate of ARDI at any time during the 90 days immediately
preceding the sale and who has beneficially owned restricted shares for at
least two years is entitled to sell these shares under Rule 144(k) without
regard to the resale limitations.
An employee, officer or director of or consultant to ARDI who purchased or
was awarded shares or options to purchase shares pursuant to a written
compensatory plan or contract is entitled to rely on the resale provisions
of Rule 701 under the Securities Act, which permits Affiliates and non-
Affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this prospectus. In addition, non-Affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have engaged the services of Weaver & Martin, LLP of Kansas City,
Missouri to provide an audit of our financial statements for the years ended
September 30, 1999 and September 30, 2000. This was our first auditor. We
have no disagreements with our auditor through the date of this prospectus.
ARDI
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT F-1
BALANCE SHEET F-2
STATEMENT OF OPERATIONS F-3
STATEMENT OF CASH FLOWS F-4
STATEMENT OF SHAREHOLDERS' DEFICIT F-5
NOTES TO FINANCIAL STATEMENTS F-6-10
Report of Independent Accountants
Stockholders and Directors
Abacus Research & Development, Inc.
We have audited the accompanying balance sheet of Abacus Research &
Development, Inc. as of September 30, 2000 and 1999, and the related
statements of operations, stockholders' deficit, and cash flows for the
years ended September 30, 2000 and 1999. These financial statements are the
responsibility of the management of the Company. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 8 to the financial statements, authorized and
outstanding shares of common stock have been retroactively restated with
respect to the forward stock split in July 2000.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Abacus Research &
Development, Inc. as of September 30, 2000 and 1999, and the related
statements of operations, stockholders' equity (deficiency), and cash flows
for the years ended September 30, 2000 and 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from
operations and is dependent upon the continued sale of its securities or
obtaining debt financing for funds to meet its cash requirements. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans with regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Weaver & Martin, LLC
Kansas City, Missouri
December 14, 2000
Abacus Research & Development, Inc.
Balance Sheet
September 30,
Assets 2001 2000
Current assets:
Cash $ 3,264 $ 0
Accounts receivable 15,388 0
--------- ----------
18,652 0
--------- ----------
Equipment 44,247 40,029
Less: Accumulated depreciation 37,561 35,015
--------- ----------
6,686 5,014
--------- ----------
Other assets:
Other assets 558 558
Due from officer 76,656 70,126
--------- ----------
77,214 70,684
--------- ----------
$ 102,552 $ 75,698
========= ==========
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable $ 18,514 $ 76,423
Deferred revenue 14,000 0
--------- ----------
32,514 76,423
Other liabilities:
Notes payable, long-term 171,786 235,807
--------- ----------
204,300 312,230
--------- ----------
Contingencies and Commitments
Shareholders' deficit:
Common stock, $.001 par, 6,000,000 shares
authorized; 2,393,770 shares issued and
outstanding as of September 30, 2001;
1,146,000 issued and outstanding as of 2,394 1,146
September 30, 2000
Additional paid in capital 1,525,931 105,354
Retained deficit (1,630,07 (343,032)
3)
--------- ----------
(101,748) (236,532)
--------- ----------
$ 102,552 $ 75,698
========= =========
See notes to financial statements.
Abacus Research & Development, Inc.
Statement of Operations
Year Ended September 30,
2001 2000
Revenue:
Sales revenue $ 64,506 $ 68,577
Licensing revenue 56,000 0
----------- ----------
120,506 68,577
Expense:
Depreciation 2,546 3,154
Consulting 15,625 14,600
Insurance 20,507 365
Rent 14,400 14,400
Payroll 35,134 17,053
General and administrative expenses 37,051 69,041
----------- ----------
125,263 118,613
----------- ----------
Loss from operations (4,757) (50,036)
Other income ( expense ):
Interest income 6,167 4,975
Interest expense (11,086) (22,382)
Deemed interest expense associated with
beneficial conversion of common stock (1,277,365) 0
----------- ----------
(1,282,284) (17,407)
----------- ----------
Net loss $ (1,287,041) $ (67,443)
=========== ==========
Basic and diluted loss per share $ (0.71) $ (0.06)
=========== ==========
Weighted average shares outstanding 1,802,185 1,146,000
=========== ==========
See notes to financial statements.
Abacus Research & Development, Inc.
Statement of Cash Flows
Year Ended
September 30,
2001 2000
Cash flows from operating activities:
Net loss $ (1,287,04 $ (67,443)
1)
Adjustments to reconcile net income (loss) to
cash used by operating activities:
Depreciation and amortization 2,546 3,154
Stock issued for services 16,737 0
Deemed interest associated with beneficial
Conversion of common stock 1,277,365 0
Changes in operating assets and liabilities:
Prepaid expense (15,388) 0
Due from shareholder (6,530) 550
Accounts payable (32,249) 0
Deferred revenue 14,000 45,924
--------- ----------
Cash used in operating activities (30,560) (17,815)
--------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (4,218) (4,079)
--------- ----------
Cash used in investing activities (4,218) (4,079)
--------- ----------
Cash flows from financing activities:
Sale of common stock 27,500 0
Increase in notes payable 10,542 21,894
--------- ----------
Cash provided by financing activities 38,042 21,894
--------- ----------
Increase in cash 3,264 0
Cash, beginning 0 0
--------- ----------
Cash, ending $ 3,246 $ 0
========= ==========
Supplement cash flow information:
Cash paid for interest $ 0 $ 0
========= ==========
Cash paid for income taxes 0 0
========= ==========
Noncash financing activities
Conversion of notes payable to common stock $ 74,563 $ 0
========= ==========
See notes to financial statements.
Abacus Research & Development, Inc.
Statement Of Shareholders' Deficit
Common Stock Contributed Retained Total
Shares Amount Capital Deficit Equity
Balance, October
1, 1998 1,146,000 $ 1,146 $105,354 $(286,518) $(180,018)
Net income for
the year 0 0 0 10,930 10,930
--------- -------- ---------- ----------- -----------
Balance,
September 30,
1999 1,146,000 1,146 105,354 (275,588) (169,088)
Net loss for the
year 0 0 0 (67,443) (67,443)
--------- -------- ---------- ----------- -----------
Balance,
September 30,
2000 1,146,000 1,146 105,354 (343,032) (236,532)
Sales of common
stock 22,000 22 27,478 0 27,500
Common stock
issued for legal
services 111,200 111 1,001 0 1,112
Common stock
issued for
consulting
services 12,500 13 15,612 0 15,625
Common stock
issued for notes
payable
and
beneficial
conversion of
debt 1,102,070 1,102 1,376,486 0 1,377,588
Net loss for the
year 0 0 0 (1,287,041) (1,287,041)
--------- -------- ---------- ----------- -----------
Balance
September 30,
2001 2,393,770 $ 2,394 $ 248,566 $ (335,718) $ (84,758)
========= ======== =========== ============ ===========
See notes to financial statements.
1. The Company and Significant Accounting Policies
Nature of Operations
Abacus Research & Development, Inc. (ARDI) was incorporated in Delaware on
June 30, 1989. The Company was formed to research and develop computer
emulation and reverse-engineered software. ARDI uses clean-room techniques
to re-implement the 1,200 core Macintosh OS and toolbox routines. This
allows ARDI to sell software that allows Macintosh applications to run on
machines that don't contain Apple's intellectual property.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
notes. Actual results could differ from those estimates, but management does
not believe such differences will materially affect the Company's financial
position, results of operations, or cash flows.
Cash Equivalents
The Company's cash equivalents consist principally of any financial
instrument with maturities of generally three months or less.
Equipment
Equipment is carried at cost. Depreciation is on the straight line and
accelerated methods, based on the useful life of the asset. As of September
30, 2001, all equipment is being depreciated over five years.
Maintenance and repairs are charged to operations as incurred.
Basis of Accounting
The Financial statements are presented on the accrual basis of accounting.
Under this method, revenues are recognized in the accounting period in which
they are earned and expenses are recognized in the accounting period in
which the liability is incurred.
Revenue Recognition
Revenues on sales of products are recognized when shipments are made to the
customer. Consulting revenues are recognized when the service has been
completed and revenues have been earned. Expenses are recognized when
incurred.
Income Taxes
The Company accounts for its income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which
requires recognition of deferred tax liabilities and assets for expected
future tax consequences of events that have been included in the financial
statements of tax returns. Under this method, deferred tax liabilities and
assets are determined based on the differences between the financial
statements and tax basis of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse.
Research and Development
Research and development costs relating to both present and future products
are expensed when incurred. There were no research and development costs
capitalized or expensed in the reported periods.
Estimated Fair Value of Financial Instruments
The information set forth below provides disclosure of the estimated fair
value of the Company's financial instruments presented in accordance with
the requirements of Statement of Financial Accounting Standards (SFAS) No.
107. Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
September 30, 2001. Since the reported fair values of financial instruments
are based upon a variety of factors, they may not represent actual values
that could have been realized as of September 30, 2001 or that will be
realized in the future.
The respective carrying value of certain on-balance sheet financial
instruments approximated their fair values. These financial instruments
include cash, due from shareholder, and notes payable. Fair values were
assumed to approximate carrying values for these financial instruments since
they are short-term in nature and their carrying amounts approximated fair
values or they are receivable or payable on demand.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash. At various times during the
year, the Company may have cash balances in excess of federally insured
limits. The Company maintains its cash, which consists primarily of demand
deposits, with high quality financial institutions, which the Company
believes, limits risk.
Earnings Per Share
The Company computes loss per share in accordance with SFAS No. 128,
Earnings Per Share. This standard requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all
entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the diluted earnings per share computation.
Net loss per common share (basic and diluted) is based on the net loss
divided by the weighted average number of common shares outstanding during
the year.
Stock Option Plan
Officers (including officers who are members of the Board of Directors),
directors (other than members of the stock option committee to be
established to administer the stock option plan and the director's plan) and
other employees and consultants and its subsidiaries (if established) will
be eligible to receive options under the stock option plan. The committee
will administer the stock option plan and will determine those persons to
whom options will be granted, the number of options to be granted, the
provisions applicable to each grant and the time periods during which the
options may be exercised. No options may be granted more than ten years
after the date of the adoption of the stock option plan.
Non-qualified stock options will be granted by the committee with an option
price equal to the fair market value of the shares of common stock to which
the non-qualified stock option related on the date of grant. The committee
may, in its discretion, determine to price the non-qualified option at a
different price. In no event may the option price with respect to an
incentive stock option granted under the stock option plan be less than the
fair market value of such common stock to which the incentive stock option
related on the date the incentive stock option is granted.
Each option granted under the stock option plan will be exercisable for a
term of not more than ten years after the date of the grant. Certain other
restrictions will apply in connection with this plan when some awards may be
exercised. In the event of a change of control (as defined in the stock
option plan), the date on which all options outstanding under the stock
option plan may first be exercised will be accelerated. Generally, all
options terminate 90 days after a change of control.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The
Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. SFAS No. 133 requires that derivative
instruments used to hedge be identified specifically to assets, liabilities,
unrecognized firm commitments or forecasted transactions. The gains or
losses resulting from changes in the fair value of derivative instruments
will either be recognized in current earnings or in other comprehensive
income, depending on the use of the derivative and whether the hedging
instrument is effective or ineffective when hedging changes in fair value or
cash flows. This Statement, as amended, is effective for fiscal years
beginning after June 15, 2000. The adoption of this Statement did not have
a material effect on the Company's consolidated financial position, results
of operations or cash flows.
In November 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges".
In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in
Financial Statements". SAB No. 100 expresses the views of the SEC staff
regarding the accounting for and disclosure of certain expenses not commonly
reported in connection with exit activities and business combinations. This
includes the accrual of exit and employee termination costs and the
recognition of impairment charges. SAB No. 101 expresses the views of the
SEC staff in applying accounting principles generally accepted in the United
States to certain revenue recognition issues. The Company has implemented
these SABs and is in compliance with them.
2. Going Concern Matters
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. 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.
It is management's plan to finance its operations for the foreseeable future
primarily with proceeds from capital contributed by shareholders and to
explore other financing options in the investment community. However, there
can be no assurance that these sources will provide sufficient cash inflows
to enable the Company to achieve its operational objectives.
3. Notes Payable
Notes payable consist of notes with interest rates ranging from 7% to 8%.
The notes are payable upon demand. Interest expense related to the notes was
$11,100 and $22,400 for the years ended September 30, 2001 and 2000
4. Due From Officer
The Company has a due from an officer/shareholder. Interest income has been
accrued at a rate of 7% per annum and added to the balance due. Interest
income has been accrued in the amount of $6,200 and $5,000 for the years
ended September 30, 2001 and 2000, respectively.
5. Income Taxes
As of September 30, 2001, the Company had a net operating loss carry forward
for Federal income tax reporting purposes amounting to approximately
$353,000 which expire in varying amounts to 2015.
The components of the deferred tax asset was as follows:
September 30,
2001 2000
Benefit of net operating
loss carryforwards $123,000 $120,000
Valuation allowance $123,000 $120,000
------------ ---------
Net deferred tax asset -- --
============ =========
Sufficient uncertainty exists regarding the realizability of the operating
loss carryforwards and, accordingly, a valuation allowance has been
established.
A reconciliation of the provision for income taxes to the statutory federal
rate for continuing operations is as follows:
September 30,
2001 2000
Statutory Federal Income Tax Rate -34.0% -34.0%
Changes in valuation allowances .3% 34.0%
Nondeductible expenses 33.7% 0.0%
-------- --------
Effective Tax Rate 0.0% 0.0%
======== ========
6. Commitments
The Company leases office space on a month to month basis. Rent expense was
$14,400 for the period ended September 30, 2001 and 2000.
7. Beneficial Conversion
In January of 2001, the Company issued 1,036,020 shares in a beneficial
conversion of amounts owed at September 30, 2000 totaling $17,660. The
shares were valued at $1.25 for accounting purposes and the amount of value
issued over the debt retired was included as Interest expense. Interest
expensed relating to the beneficial conversion in the period ended September
30, 2001 was $1,277,365.
8. Shareholders' Equity
On July 7, 2000, there was a forward split of shares on a 1,000-to-1 basis.
The financial statements have retroactive adjustments for the forward split.
On July 7, 2000 the Company amended its Articles of Incorporation to
increase the authorized capitalization to 5,000,000 shares of common stock
with a par value of $.001.
In October of 2000, the company sold 18,000 shares of common stock for
$22,500.
In October of 2000, the company exchanged 111,200 shares of common stock for
$1,112 in services.
In January of 2001, the company exchanged 12,500 shares of common stock for
$15,625 of consulting services.
In January of 2001, the company exchanged 1,036,020 shares in a beneficial
conversion for $17,660 owed for past services. See note 7 for details.
In February of 2001, the company exchanged 66,050 shares of common stock for
accounts payable of $8,000 and note payables of $74,563
On March 20, 2001 the Company amended its Articles of Incorporation to
increase the authorized capitalization to 6,000,000 shares of common stock
with a par value of $.001.
In March of 2001, the company sold 4,000 shares of common stock for $5,000.
9. Stock Option Plan
During the year ended September 30, 2001, 172,700 stock options were granted
with a strike price of $1.25. As of September 31, 2001, 90,100 are vested
and no options have been exercised or cancelled. The remaining 82,600
options vest at various dates ranging from October, 2001 to May, 2002.
The following table summarizes the Option Plan:
September 30,
2001 2000
Beginning Balance - Option Outstanding 0 0
Options Granted 172,700
Options Cancelled 0 0
Options Exercised 0 0
-------- --------
Ending Balance - Options Outstanding 172,700 0
======== ========
Exercise Price 1.25 0
Shares available for Grant 2,327,300 0
The fair value of the options granted has been estimated at a value of $0 at
the date of the grant using a Black-Scholes option pricing model using the
following assumptions:
Expected Life - 10 years
Volatility - 0%
Dividend Yield - 0%
Weighted average risk free interest rate - 4.98%
FASB Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", establishes a fair value based method of accounting for stock-
based compensation plans and requires additional disclosures for those
companies who elect not to adopt the new method of accounting, as permitted
by SFAS 123. The Company accounts for the options and warrants under
Accounting Principles Board Opinion No. 25 under which no compensation cost
has been recognized. Had the compensation cost been recognized in
accordance with Financial Accounting Standards Board Statement No. 123 there
would have been no effect on the Company's operating income.
10. Licensing and Deferred Revenue
In October of 2000, the Company was paid $70,000 for a licensing buyout
agreement. The agreement covered the period from October of 2000 through
December of 2001. Licensing revenue of $56,000 has been recognized from
this agreement as of September 31, 2001 and deferred revenue, relating to
the agreement, of $14,000 exists as of September 30, 2001. The $14,000 of
deferred revenue will be recognized as licensing revenue in the quarter
ended December 31, 2001.
11. Prepaid Expense
As of September 31, 2001, the Company had $15,388 in prepaid expenses. The
prepaid expenses consists of $11,112 of professional fees associated with
the future issuance of common stock and $4,276 of prepaid insurance. The
prepaid professional fees will be offset against the proceeds of the stock
issuance. The prepaid insurance is for a policy covering calendar year 2001
and will be expensed in the quarter ending December 31, 2001.
No dealer, salesman or any other
person has been authorized to $5,000,000
give any information or to make
any representation other than
those contained in this ARDI
prospectus and, if given or made,
such information or
representation must not be relied ___________________, 2002
upon as having been authorized by
us. This prospectus does not
constitute an offer to sell or a
solicitation of any offer to buy
any security other than the
shares of common stock offered by
this prospectus, nor does it
constitute an offer to sell or a
solicitation of any offer to buy
the shares of a common stock by
anyone in any jurisdiction in
which such offer or solicitation
is not authorized, or in which
the person making such offer or
solicitation is not qualified to
do so, or to any person to whom
it is unlawful to make such offer
or solicitation. Neither the
delivery of this prospectus nor
any sale made hereunder shall,
under any circumstances create
any implication that information
contained in this prospectus is
correct as of any time subsequent
to the date of this prospectus.
DEALER PROSPECTUS
DELIVERY OBLIGATION
Until [ninety days from offering
effective date], 2002, all
dealers that effect transactions
in these securities, whether or
not participating in this
offering, may be required to
deliver a prospectus. This is in
addition to the dealers'
obligation to deliver a
prospectus when acting as
underwriters and with respect to
their unsold allotments or
subscriptions.
_____________________
TABLE OF CONTENTS
Page
Prospectus Summary 1
Summary Financial Information 3
Risk Factors 4
Use of Proceeds 11
Determination of Offering Price 12
Dilution 12
Plan of Distribution 13
Litigation 14
Management 14
Principal Stockholders 15
Description of Securities 16
Legal Matters 16
Experts 16
Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities 16
Our Business 17
Management Discussion and Analysis 25
Facilities 28
Certain Relationships and Related
Party Transactions 28
Market Price of Common Stock 28
Dividends 29
Executive Compensation 29
Shares Eligible for Future Sale 31
Changes in and Disagreements with
Accountants 32
Independent Auditors Report F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Cash Flows F-4
Statement of Stockholders' Equity F-5
Notes to Financial Statements F-6
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
1. Section 145 of the Delaware General Corporation Laws ("DGCL") provides,
in relevant part, as follows: "(a) A corporation shall have power to
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with any action action,
suit or proceeding if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe the person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in subsections (a) and (b) of this section. Such determination
shall be made, with respect to a person who is a director or officer at the
time of such determination, (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a
quorum, or (2) by a committee of such directors designated by majority vote
of such directors, even though less than a quorum, or (3) if there are no
such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or
other employees and agents may be so paid upon such terms and conditions, if
any, as the corporation deems appropriate.
2. ARDI has provided for indemnification of its directors or officers in
its organizing documents.
3. The Registrant may purchase and maintain insurance, at its expense, on
behalf of any indemnitee against any liability asserted against him or her
and incurred by him or her in such a capacity or arising out of his or her
status as a representative of the Registrant, whether or not the Registrant
would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid in
connection with the sale of the shares of common stock being registered
hereby. All amounts are estimates except for the Securities and Exchange
Commission registration fee and the NASD filing fee.
Securities and Exchange Commission registration fee $1,250
NASD filing fee 0
Accounting fees and expenses 5,000
Legal fees and expenses 25,000
Printing fees and expenses 15,000
Blue-sky fees and expenses 2,750
Transfer agent and registrar fees and expenses 500
Miscellaneous 500
Total $50,000
RECENT SALES OF UNREGISTERED SECURITIES
In October 2000, we issued 18,000 shares of our $0.001 par value common
stock for cash of $22,500.00 to three individuals known by Clifford
Matthews. We believe that the issuance of the shares was exempt from the
registration and prospectus delivery requirements of the Securities Act of
1933 by virtue of Section 4(2) thereof. There were no commissions paid on
the issuance of the shares.
In October of 2000, we exchanged 111,200 shares of common stock for $1,112
in services. We believe the issuance to be exempt from registration under
the Securities Act of 1933 pursuant to the exemption provided by Rule 701
for securities issued in compensatory circumstances.
In January of 2001, we issued 12,500 shares of our $0.001 par value common
stock in exchange for past consulting services valued at $15,625. We believe
that the issuance of the shares was exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933 by virtue of
Section 4(2) thereof. There were no commissions paid on the issuance of the
shares.
In January of 2001, we exchanged 1,036,020 shares in a beneficial conversion
for $17,660 owed for past services. See note 7 of the financial statements
for additional details. We believe that the issuance of the shares was
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933 by virtue of Section 4(2) thereof. There were no
commissions paid on the issuance of the shares.
In February of 2001, we exchanged 66,050 shares of common stock for accounts
payable of $8,000 and note payables of $74,563. We believe that the issuance
of the shares was exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933 by virtue of Section 4(2)
thereof. There were no commissions paid on the issuance of the shares.
In March of 2001, we issued 4,000 shares of our $0.001 par value common
stock for cash of $5,000.00 to two individuals known by Clifford Matthews.
We believe that the issuance of the shares was exempt from the registration
and prospectus delivery requirements of the Securities Act of 1933 by virtue
of Section 4(2) thereof. There were no commissions paid on the issuance of
the shares.
Appropriate legends have been placed on the documents evidencing the
securities and investment representations were obtained from the purchasers.
All purchasers of securities either received adequate information about our
company or had access, through employment or other relationships, to such
information. All such securities issued pursuant to such exemptions are
restricted securities as defined in Rule 144(a)(3) promulgated under the
Securities Act.
EXHIBITS
The Exhibits required by Item 601 of Regulation S-B, and an index thereto,
are attached.
UNDERTAKINGS
A. The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and Notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation From the low or high end of the estimated maximum offering range
may be reflected in the form of prospects filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
B.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
(2) In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorize, in the City of Albuquerque, on January 31, 2002.
ARDI
By: /s/ Clifford T. Matthews
Clifford T. Matthews, President
Special Power of Attorney
The undersigned constitute and appoint Clifford Matthews their true and
lawful attorney-in-fact and agent with full power of substitution, for him
and in his name, place, and stead, in any and all capacities, to sign any
and all amendments, including post-effective amendments, to this Form SB-2
Registration Statement, and to file the same with all exhibits thereto, and
all documents in connection therewith, with the Securities and Exchange
Commission, granting such attorney-in-fact the full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that
such attorney in-fact may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
/s/ Clifford Matthews President, Chief 1/31/2002
Clifford Matthews Executive Officer,
Director
/s/ Irvin Metelits Treasurer, Controller 1/31/2002
Irvin Metelits
/s/ Michael Angst Director 1/31/2002
Michael Angst
/s/ Leonard Hall Director 1/31/2002
Leonard Hall
EXHIBIT INDEX
3ia* Certificate of Incorporation of Abacus Research & Development, Inc.
filed on June 30, 1989.
3ib* Amended Certificate of Incorporation of Abacus Research &
Development, Inc. filed on July 7, 2000.
3ic* Amended Certificate of Incorporation of Abacus Research &
Development, Inc. filed on March 20, 2001.
3iia* Bylaws of Abacus Research & Development, Inc.
10* Escrow Agreement with Sunwest Escrow, LC dated January 29, 2002.
5* Opinion of Stoecklein Law Group
23.1* Consent of Weaver & Martin, LLC
23.2* Consent of Stoecklein Law Group
99* 2001 Abacus Research & Development, Inc. Master Stock Option Plan
_________________________
* Filed herewith