U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
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. We have set a minimum investment of
200 shares ($1,000). If we do not sell at least the minimum of 600,000 shares
by January 1, 2003, 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. January 1, 2003
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 Six For the
Months For the Year Year
Ended Ended Ended
March 31, September September
2002 30, 2001 30, 2000
Operating Statement Data: (unaudited) (audited) (audited)
Income Statement Data:
Revenues:
Sales revenue $ 28,875 $ 64,506 $ 68,577
Licensing revenue 0 56,000 0
Expenses:
Total Expenses: 52,362 125,263 118,613
----------- ------------ ---------
Other Income or Expenses
Interest Income 2,130 6,167 4,975
Interest Expense (6,782) (11,086) (22,382)
Deemed interest expense
associated with beneficial
conversion of notes payable (1) -- (1,277,365) --
----------- ------------ ---------
Net Income (Loss) from Operations $ (28,139) $(1,287,041) $(67,443)
=========== ============ =========
Basic and diluted earnings per share $ (0.01) $ (0.71) $ (0.06)
=========== ============ =========
At At At
Balance Sheet Data: March 31, September September
2002 30, 2001 30, 2000
(unaudited) (audited) (audited)
Total Assets. $ 113,406 $ 146,440 $ 75,698
Liabilities. $ 199,405 $ 204,300 $ 312,230
----------- ---------- ----------
Stockholders' Equity (Deficit). $ (85,999) $ (57,860) $(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. At this time we have no plans to apply for listing our common
stock on any quotation system or stock exchange. If we do become listed with
respect to our common stock on a quotation system or stock exchange, 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 $4.04 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 $4.04 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
inspected and copied at the public reference facility maintained by the SEC
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Information
regarding the public reference facilities may be obtained from the SEC by
telephoning 1-800-SEC-0330. Our filings are also available to the public
through the SEC's Electronic Data Gathering Analysis and Retrieval System
which is publicly available through the SEC's website http://www.sec.gov.
Copies of such materials may also be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
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 and copied at the SEC's
public reference facilities or through the SEC's EDGAR website.
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; including
dirty-room/clean-room reverse engineering $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 March 31, 2002 our common stock had a pro forma net tangible book
value of approximately $(85,999) 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 March 31, 2002, would have
been $2,864,001 or $0.96 per share in the minimum offering and $4,864,001 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 $4.04 or 80.87% in
the minimum offering and $3.57 or 71.34% 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. $0.96 $1.43
Dilution per share to investors. $4.04 $3.57
The following table summarizes, as of March 31, 2002 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
Original Stockholders 2,393,770 71% $1,569,819 23.89% $0.66
Public Stockholders 1,000,000 29% $5,000,000 76.11% $5.00
--------- ------- ---------- -------
Total 3,393,770 100% $6,569,819 100%
========= ======= ========== =======
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 January 1, 2003; 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 January 1,
2003, 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 January 1,
2003 or until we have sold all of the securities offered in this prospectus.
During the offering period, 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.
You may purchase shares by completing and manually executing the
subscription agreement attached to this Prospectus and delivering it with
your payment in full for all shares that you wish to purchase to our offices.
All payments are to be made by cash, check or money order payable only to:
"SUNWEST ESCROW". 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
Percent After After
Number Before Offering Offering
Name of Beneficial Owner 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, LLC, 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 SIX MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
Revenue. For the six months ended March 31, 2002, we had revenues of
$28,875, compared to $70,305 for the six months ended March 31, 2001. The
decrease in revenue is primarily attributable to decreased product marketing.
Net Loss. For the six months ended March 31, 2002, we incurred a net
loss of approximately $28,139, compared with a net loss of $1,302,448 for the
six months ended March 31, 2001. The decrease is primarily attributable to
our decrease in sales revenue and to a deemed interest expense associated
with the beneficial conversion of notes payable. Please see footnote 7 of our
financial statements for further information.
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 notes payable. 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 March 31, 2002 the outstanding loan balance payable
to us from Mr. Matthews was $45,186. We have never forgiven any indebtedness
from Mr. Matthews.
MARKET PRICE OF COMMON STOCK
At this time we have no intentions on listing our common stock on any
quotation system or stock exchange. Prior to the effective date of this
offering, our common stock was not traded on any public exchange or quotation
system.
As of March 31, 2002 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 three fiscal years 2001,
2000 and 1999. No other officer or director received 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 Compensation
Annual Compensation
Name and Principal Other Annual Restricted
Position Year Salary Bonus Compensation Stock Options
Clifford Matthews, 2001 $15,000 N/A N/A N/A 50,000
President, CEO 2000 -$0- N/A N/A N/A N/A
and Director 1999 -$0- N/A N/A N/A N/A
Leonard Hall,
Director 2001 -$0- N/A N/A N/A 50,000
Michael Angst,
Director 2001 -$0- N/A N/A N/A 50,000
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 $76,656.
EXECUTIVE OFFICER/DIRECTOR OPTION GRANTS IN LAST FISCAL YEAR
Percent of
total
Number of options
securities granted to Exercise
underlying employees or base
options in fiscal price
Name granted year ($/Share) Expiration 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% $1.25 March 23, 2006
Irvin Metelits -0- -0- -0- --
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of
Shares Securities
acquired underlying Value of
on Value unexercised unexercised
exercise Realized options at options at fiscal
Name (#) ($) fiscal year-end year-end
Clifford Matthews -0- -0- 50,000 -0-
Michael Angst -0- -0- 50,000 -0-
Leonard Hall -0- -0- 50,000 -0-
Irvin Metelits -0- -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 consultants. 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, 2001 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, 2001 and 2000, and the related
statements of operations, shareholders' deficit, and cash flows for the years
ended September 30, 2001 and 2000. 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 in the United States. 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.
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, 2001 and 2000, and the related
statements of operations, shareholders' equity (deficiency), and cash flows
for the years ended September 30, 2001 and 2000, in conformity with generally
accepted accounting principles in the United States.
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 26, 2001
Abacus Research & Development, Inc.
Balance Sheet
March 31, September 30,
2002 2001 2000
Assets (unaudited)
Current assets:
Cash $ 1,695 $ 3,264 $ 0
Prepaid expenses 60,128 59,276 0
---------- ----------- ---------
61,823 62,540 0
---------- ----------- ---------
Equipment 44,247 44,247 40,029
Less: Accumulated depreciation 38,408 37,561 35,015
---------- ----------- ---------
5,839 6,686 5,014
---------- ----------- ---------
Other assets:
Other assets 558 558 558
Due from officer 45,186 76,656 70,126
---------- ----------- ---------
45,744 77,214 70,684
---------- ----------- ---------
$ 113,406 $ 146,440 $ 75,698
========== =========== =========
Liabilities and Shareholder's
Deficit
Current liabilities:
Accounts payable $ 21,427 $ 18,514 $ 76,423
Deferred revenue 0 14,000 0
---------- ----------- ---------
21,427 32,514 76,423
Other liabilities:
Notes payable, long-term 177,978 171,786 235,807
---------- ----------- ---------
199,405 204,300 312,230
---------- ----------- ---------
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 September 30,
2000; 2,393,770 issued and
outstanding as of March 31, 2,394 2,394 1,146
2002
Additional paid in capital 1,569,819 1,569,819 105,354
Retained deficit (1,658,212) (1,630,073) (343,032)
---------- ----------- ---------
(85,999) (57,860) (236,532)
---------- ----------- ---------
$ 113,406 $ 146,440 $ 75,698
========== =========== =========
See notes to financial statements.
Abacus Research & Development, Inc.
Statement of Operations
Year Ended September 30,
Six Months Ended
March 31,
2002 2001 2001 2000
(unaudited)
Revenue:
Sales revenue $ 28,875 $ 42,305 $ 64,506 $ 68,577
Licensing revenue 0 28,000 56,000 0
------- ---------- ---------- --------
28,875 70,305 120,506 68,577
Expense:
Depreciation 848 1,062 2,546 3,154
Consulting 0 0 15,625 14,600
Insurance 14,351 10,041 20,507 365
Rent 5,863 7,200 14,400 14,400
Payroll 10,319 25,362 35,134 17,053
General and 20,981 48,584 37,051 69,041
administrative
expenses
------- ---------- ---------- --------
52,362 92,249 125,263 118,613
------- ---------- ---------- --------
Income (loss) from (23,487) (21,944) (4,757) (50,036)
operations
Other income (
expense ):
Interest income 2,130 3,105 6,167 4,975
Interest expense (6,782) (6,244) (11,086) (22,382)
Deemed interest
expense associated
with
beneficial
conversion of notes
payable 0 (1,277,365) (1,277,365) 0
------- ---------- ---------- --------
(4,652) (1,280,504) (1,282,284) (17,407)
------- ---------- ---------- --------
Net income (loss) $ (28,139) $ (1,302,448) $ (1,287,041) $ (67,443)
======= ========== ========== ========
Basic and diluted
income (loss) per $ (0.01) $ (0.81) $ (0.71) $ (0.06)
share
======= ========== ========== ========
Weighted average
shares outstanding 2,393,770 1,604,990 1,802,185 1,146,000
======= ========== ========== ========
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 111,200 111 44,889 0 45,000
services
Common stock
issued for
consulting
services 12,500 13 15,612 0 15,625
Common stock
issued for
notes
payable
and
beneficial
conversion
for 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 1,569,819 (1,630,073) (57,860)
The
following
information
for the
six months
ended March
31, 2002
is
unaudited
Net loss for
the six
months
ended
March 31, 0 0 0 (28,139) (28,139)
2002
-------- ------ ---------- ---------- -----------
Balance
March 31, 2,393,770 $ 2,394 $ 1,569,819 $(1,658,212) $ (85,999)
======== ====== ========== ========== ===========
See notes to financial statements.
Abacus Research & Development, Inc.
Statement of Cash Flows
Six Months Ended Year Ended September
March 31, 30,
2002 2001 2001 2000
(unaudited)
Cash flows from
operating
activities:
Net income (loss) $(28,139) $ (1,302,448) $ (1,287,041) $ (67,443)
Adjustments to
reconcile net
income (loss) to
cash
used by operating
activities:
Depreciation
and amortization 848 1,062 2,546 3,154
Stock issued
for services 0 60,625 60,625 0
Deemed
interest associated
with beneficial
conversion of notes 0 1,277,365 1,277,365 0
payable
Changes in
operating assets
and liabilities:
Accounts
receivable 0 (12,389) 0 0
Prepaid (852) (43,888) (59,276) 0
expense
Due from
shareholder 31,470 (31,568) (6,530) 550
Accounts
payable 2,912 (49,379) (32,249) 0
Deferred
revenue (14,000) 42,000 14,000 45,924
------ ---------- ----------- --------
Cash used
in operating
activities (7,761) (58,620) (30,560) (17,815)
------ ---------- ----------- --------
Cash flows from
investing
activities:
Acquisition of
property and
equipment 0 0 (4,218) (4,079)
Cash used
in investing
activities 0 0 (4,218) (4,079)
Cash flows from
financing
activities:
Sale of common
stock 0 27,500 27,500 0
Increase in
notes payable 6,192 31,905 10,542 21,894
------ ---------- ----------- --------
Cash
provided by
financing 6,192 59,405 38,042 21,894
activities
------ ---------- ----------- --------
Increase (decrease)
in cash (1,569) 785 3,264 0
Cash, beginning 3,264 0 0 0
------ ---------- ----------- --------
Cash, ending $ 1,695 $ 785 $ 3,264 $ 0
====== ========== =========== ========
Supplement cash
flow information:
Cash paid for
interest $ 0 $ 0 $ 0 $ 0
====== ========== =========== ========
Cash paid for
income taxes 0 0 0 0
====== ========== =========== ========
Noncash financing
activities
Conversion of
notes payable to
common stock $ 0 $ 92,333 $ 92,333 $ 0
========= ============= ============= ==========
Conversion of 0 8,000 8,000 0
accounts payable to
common stock
====== ========== =========== ========
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 maturates 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
March 31, 2002, 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. There are no rights of return, conditions of
acceptance, or warranties, of any kind, nor are there any subsequent
services, for example, installation and maintenance. 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. All research and development
costs were incurred by the majority shareholder/director and is not
valued as there is no viable way of assessing the fair market value
of his time spent. The company will not reimburse him for his
personal efforts.
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.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
combination," and SFAS No. 142, "Goodwill and Other Intangible
Assets." These pronouncements provide guidance on how to account for
the acquisition of businesses and intangible assets, including
goodwill, which arise from such activities. SFAS No. 141 affirms
that only one method of accounting may be applied to a business
combination, the purchase method. SFAS No. 142 provides that
goodwill resulting from business combinations as well as other
intangible assets no longer be amortized to expense, but rather
requires an annual assessment of impairment and, if necessary,
adjustments to the carrying value of goodwill.
The Company does not expect the adoption of SFAS No 141 and 142 to
have a material effect on its financial position or results from
operations.
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 consists 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, and $6,800 for the six months ended March 31,
2002.
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, and $2,130
for the six months ended March 31, 2002.
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:
(unaudited)
March 31, September 30,
2002 2001 2000
Benefit of net operating loss
carryforwards $133,500 $123,000 $120,000
Valuation allowance $133,500 $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:
March 31, September 30,
2002 2001 2000
(unaudited)
Statutory Federal Income Tax Rate -34.0% -34.0% -34.0%
Changes in valuation allowances 34.0% .3% 34.0%
Nondeductible interest expense related to
beneficial conversion. See note 7. 0.0% 33.7% 0.0%
----------- ------- -------
Effective Tax Rate 0.0% 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,
and $5,900 for the six months ended March 31, 2002.
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. Included in the $17,760 converted was $11,400 owed to an
officer/shareholder of the Company. 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 expense relating
to the beneficial conversion in the period ended September 30, 2001
was $1,277,365.
In January and February of 2001, the Company issued 66,050 shares in
a conversion of $8,000 of accounts payable owed to an
officer/shareholder of the Company and $74,563 of notes payable owed
to unrelated parties. The shares were valued at $1.25 for accounting
purposes and the amount of value issued was equal to the debt
retired, therefore there was no amount recorded as income or expense
in the financial statements for the period ended September 30, 2001.
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 $45,000 in legal 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.
See note 7 for details.
In March of 2001, the company sold 4,000 shares of common stock for
$5,000.
On September 12, 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.
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.
As of March 31, 2002, 168,900 options are vested and no options have
been exercised or cancelled. The remaining 3,800 options vest in
May, 2002.
The following table summarizes the Option Plan:
March 31, September 30,
2002 2001 2000
(unaudited)
Beginning Balance - Option Outstanding 172,700 0 0
Options Granted 0 172,700 0
Options Cancelled 0 0 0
Options Exercised 0 0 0
------------ --------- -------
Ending Balance - Options Outstanding 172,700 172,700 0
============= ========= =======
Exercise Price 1.25 1.25 0
Shares available for grant 2,327,300 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 has been recognized as
licensing revenue in the six months ended March 31, 2002.
11. Prepaid Expense
As of September 31, 2001, the Company had $59,276 in prepaid
expenses. The prepaid expenses consists of $55,000 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 has been expensed in the
six months ended March 31, 2002.
12. Unaudited Financial Statements
The financial statements for the six months ended March 31, 2002 and
2001 are unaudited; however, in the opinion of management, such
statements include all adjustments (consisting solely of normal
recurring adjustments) necessary to a fair presentation of the
financial position, results of operations, and changes in financial
position of the Company. The results of operations for the six
months ended March 31, 2002 are not necessary indicative of the
results to be obtained for the full fiscal year.
No dealer, salesman or any other person
has been authorized to give any $5,000,000
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 upon as having been authorized by
us. This prospectus does not constitute ___________________, 2002
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. 12
Determination of Offering 13
Price.
Dilution. 13
Plan of Distribution. 14
Litigation. 15
Management. 15
Principal Stockholders. 16
Description of Securities. 17
Legal Matters. 17
Experts. 17
Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities. 17
Our Business. 18
Management Discussion and 26
Analysis.
Facilities. 29
Certain Relationships and
Related Party
Transactions. 29
Market Price of Common
Stock. 30
Dividends. 30
Executive Compensation. 30
Shares Eligible for Future
Sale. 32
Changes in and
Disagreements with
Accountants. 34
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 $1,250
fee
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) and Regulation D Rule 504 thereof. The shares were issued
directly by us and did not involve a public offering or general solicitation.
The recipients of the shares had a preexisting relationship with our
management and had full and complete access to our company and had the
opportunity to speak with our management with regards to their investment
decision. There were no commissions paid on the issuance of the shares.
In October of 2000, we exchanged 111,200 shares of common stock for
$45,000 in legal 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. The
recipient of the shares had complete access to our books and records and was
afforded multiple opportunities to speak with our management with regards to
their investment decision.
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), Rule 701 and Regulation D thereof. The shares were issued
directly by us and did not involve a public offering or general solicitation.
The recipient of the shares had a preexisting relationship with our
management, had performed services for us in the past and had full and
complete access to our company and had the opportunity to speak with our
management with regards to their investment decision. 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) and Regulation D Rule 504
thereof. The shares were issued directly by us and did not involve a public
offering or general solicitation. The recipients of the shares had a
preexisting relationship with our management, had performed services for us
in the past and had full and complete access to our company and had the
opportunity to speak with our management with regards to their investment
decision. 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)
and Regulation D Rule 504 thereof. The shares were issued directly by us and
did not involve a public offering or general solicitation. The recipients of
the shares had a preexisting business relationship with us and had full and
complete access to our company and had the opportunity to speak with our
management with regards to their investment decision. 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) and Regulation D Rule 504 thereof. The shares were issued
directly by us and did not involve a public offering or general solicitation.
The recipients of the shares had a preexisting relationship with our
management and had full and complete access to our company and had the
opportunity to speak with our management with regards to their investment
decision. There were no commissions paid on the issuance of the shares.
All of the above-described issuances were exempt from registration (i)
pursuant to Section 4(2) of the Securities Act, or Regulation D promulgated
thereunder, as transactions not involving a public offering or (ii) Rule 701
promulgated under the Securities Act. With respect to each transaction listed
above, no general solicitation was made by either the Registrant or any
person acting on its behalf; 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 and may not be offered or sold absent
registration or pursuant to an exemption therefrom.
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 May 17, 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 9/18/2001
Clifford Matthews Executive Officer,
Director
/s/ Irvin Metelits Treasurer, Controller 9/18/2001
Irvin Metelits
/s/ Michael Angst Director 9/18/2001
Michael Angst
/s/ Leonard Hall Director 9/18/2001
Leonard Hall
EXHIBIT INDEX
3.1* Certificate of Incorporation of Abacus Research & Development, Inc.
filed on June 30, 1989.
3.1.1* Amended Certificate of Incorporation of Abacus Research &
Development, Inc.
filed on July 7, 2000.
3.1.2* Amended Certificate of Incorporation of Abacus Research &
Development, Inc.
filed on September 12, 2001.
3.2* Bylaws of Abacus Research & Development, Inc.
10-1* Escrow Agreement with Sunwest Escrow, LC dated January 29, 2002.
10-2* Subscription Agreement
5.1* 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