<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 2000
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
INCHORUS.COM
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
NEVADA 7372 86-0891610
------ ---- ----------
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
2041 Mission College Boulevard, Suite 259
Santa Clara, California 95054
(408) 496-6668
(Address and Telephone Number of Principal Executive Offices)
2041 Mission College Boulevard, Suite 259
Santa Clara, California 95054
(Address of Principal Place of Business or Intended Principal Place of Business)
Mr. William Yuan
President
inChorus.com
2041 Mission College Boulevard, Suite 259
Santa Clara, California 95054
(408) 496-6668
(Name, Address and Telephone Number of Agent for Service)
Copy to:
James C. Chapman, Esq.
Cathryn S. Gawne, Esq.
Romin P. Thomson, Esq.
Silicon Valley Law Group
152 N. Third Street, Suite 900
San Jose, California 95112
Approximate Date of Proposed Sale to Public: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [X].
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Title of each class of Amount to be Proposed Proposed Amount of
securities to be registered maximum maximum registration fee
registered offering price per aggregate offering
unit price
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par 20,000,000 shares $0.44 (1) $8,800,000(1) $2,323.20(1)
value
---------------------------------------------------------------------------------------------------------------------------
Total 20,000,000 shares $8,800,000(1) $2,323.20(1)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated in accordance with Rule 457(c).
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.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities, and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
Subject to Completion, September 22, 2000
[LOGO OF INCHORUS.COM APPEARS HERE]
By this Prospectus, we may offer up to 20,000,000 Shares
Common Stock
Our common stock is listed on the NASD O-T-C Market Bulletin Board under
the symbol "ICHC". In February 2000, we changed our name from "Softlink, Inc."
to "inChorus.com". On September 14, 2000, the last sale price of our common
stock on the O-T-C Market Bulletin Board was $0.469 per share.
______________________
See "Risk Factors" beginning on page 5 for a discussion of material issues to
consider before purchasing our common stock.
_______________________
We will provide the specific terms of the securities offered in a
supplement to this prospectus. You should read this prospectus and the
supplement carefully before you invest.
_______________________
We may offer the securities directly or through underwriters, agents or
dealers. The supplement will describe the terms of that plan of distribution.
The section of this prospectus entitled "Plan of Distribution" also provides
more information on this topic.
_______________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ____________, 2000 .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
About This Prospectus 3
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 9
Price Range of Common Stock and Dividend Policy 9
Capitalization 11
Selected Consolidated Financial Data 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Business 22
Management 35
Related Party Transactions 42
Principal Stockholders 44
Description of Capital Stock 46
Shares Eligible for Future Sale 54
Plan of Distribution 54
Legal Matters 56
Experts 56
Where You Can Find Additional Information 56
Index to Financial Statements F-1
</TABLE>
You should rely only on the information contained in this prospectus and
its supplement. We have not authorized anyone to provide you with information
different from that contained in this prospectus. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of the common stock.
In this prospectus, "inChorus.com", "we", "us" and "our" refer to inChorus.com,
a Nevada corporation, and its wholly-owned subsidiary, inChorus.com, a
California corporation.
"eMail inChorus", "Future of Email", "inChorus Pro" and "email VoiceLink",
are trademarks of inChorus.com. All other trademarks, service marks or
tradenames referred to in this prospectus are the property of their respective
owners.
All share information has been adjusted to reflect our reorganization in
March 1998.
2
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, we may
from time to time offer up to 20,000,000 shares of our common stock, $0.001 par
value. The common stock offered pursuant to this prospectus may be issued in our
one or more series of issuances and the aggregate number of shares will not
exceed 20,000,000.
Each time we offer the common stock, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. This prospectus may not be used to consummate sales of our common
stock unless accompanied by a prospectus supplement.
PROSPECTUS SUMMARY
This summary highlights information described more fully elsewhere in this
prospectus. You should read the entire prospectus carefully.
INCHORUS.COM
Our Business inChorus.com (formerly known as "Softlink, Inc.")
provides multimedia email solutions that bring life to
online communication with voice, sound, animation and
graphics. We develop and market software products that
use our proprietary technology to allow businesses and
consumers to communicate through text, voice, sound,
annotation and animation.
THE OFFERING
We may offer and sell shares of our common stock under this prospectus.
Common stock offered 20,000,000 shares of common
stock, $.001 par value.
Common stock to be outstanding after this 31,526,310 shares, excluding an
Offering aggregate of 4,093,207 shares
reserved for issuance upon the
exercise of outstanding stock
options and warrants. Also
excludes Common Stock to be
issued upon the conversion of our
Series A Preferred Stock, the
conversion of our 8% convertible
debentures and the conversion of
our equity line.
Use of proceeds Proceeds we receive from the
issuance of the shares will be
used for marketing, expansion of
our consulting and service
business and for working capital
and general corporate purposes.
O-T-C Market Bulletin Board symbol: "ICHC"
3
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Years Ended March 31,
-------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
Consolidated Statements of Operations Data: (unaudited) (unaudited)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales, including license fee income $ 403,300 $ 324,600 $ 680,200 $ 731,100
-----------------------------------------------------------------------------------------------------------------
Cost of sales 88,300 57,000 491,100 39,200
-----------------------------------------------------------------------------------------------------------------
Loss from operations (1,191,000) (555,600) (4,867,600) (1,128,100)
-----------------------------------------------------------------------------------------------------------------
Net loss (1,265,200) (562,700) (6,148,600) (1,015,900)
-----------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share (0.12) (0.07) (0.88) (0.14)
-----------------------------------------------------------------------------------------------------------------
Basic and diluted weighted-average common shares
outstanding 10,533,300 7,803,700 8,195,300 7,132,600
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
June 30, 2000 March 31, 2000
-----------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet Data:
(unaudited)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 445,700 $ 1,995,900
-----------------------------------------------------------------------------------------------------------------
Working capital 192,100 1,477,200
-----------------------------------------------------------------------------------------------------------------
Total assets 2,129,000 3,288,600
-----------------------------------------------------------------------------------------------------------------
Total stockholders' deficiency (1,263,500) (88,900)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
RISK FACTORS
An investment in the shares of our common stock offered by this
prospectus involves a high degree of risk. You should consider carefully the
following risk factors as well as the other information set forth in this
prospectus before you decide to buy our common stock.
We have a history of losses, and we expect losses for the foreseeable future.
Since our inception in November 1995, we have incurred substantial
losses. Our net loss equaled $1,265,200 for the three months ended June 30,
2000, and approximately $6,148,600 for the year ended March 31, 2000. As of June
30, 2000, we had an accumulated deficit of $10,177,400.
We anticipate that our expenses relating to developing, marketing and
supporting our current and future products and services will increase
substantially in the future. Accordingly, for the foreseeable future we expect
to experience additional losses as these increased expenses exceed our total
revenues. These additional losses will increase our accumulated deficit.
The report of BDO Seidman, LLP on our consolidated financial statements
for the year ended March 31, 2000 contains an explanatory paragraph indicating
that our accumulated deficit and net losses raise substantial doubt about our
ability to continue as a going concern. This going concern qualification may
adversely affect our perception by prospective customers and suppliers, as well
as by the financial community.
Our revenues currently depend on one product family.
To date, we have generated nearly all of our revenues from our eMail
VOICELink and eMail inChorus family of products. We expect that our current
eMail VOICELink and eMail inChorus family of software products and software
products in the future will continue to account for a substantial majority of
our revenues for the foreseeable future. Therefore, our future financial
performance is dependent, in significant part, upon the successful development,
introduction and customer acceptance of new and enhanced versions of eMail
VOICELink and eMail inChorus and of related new products and services that we
may develop. We cannot assure you that we will be successful in upgrading eMail
VOICELink and eMail inChorus or that we will successfully develop new products
and services, or that any new product or service will achieve market acceptance.
For more information on the sources of our revenues, please see the section of
this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Our revenues are also dependent on licensing revenue from one major licensing
customer.
For the years ended March 31, 2000 and 1999, approximately $153,100 and
$640,000, respectively, or 22.5% and 87.5%, respectively, of our net sales were
derived from licensing revenue from one customer, NIC Ltd. In addition, we had
net accounts receivable from NIC Ltd. of $479,900 and $421,900 at March 31, 2000
and March 31, 1999, respectively. As of March 31, 2000, we increased the
allowance for doubtful accounts to $672,200, fully reserving the unpaid balance
of the NIC receivable. The loss of this customer, or the inability to collect in
full the
5
<PAGE>
receivable from this customer could have a material and adverse effect on our
business, results of operations or financial condition. Although we are seeking
to increase our sales of software products, we expect that a substantial
majority of our revenues for the foreseeable future will be derived from the
licensing of our software products.
We are changing our business model from one focused on licensing to one focused
on sales of software. This new model is unproven.
Our core business model has focused on licensing software designed to
enable our customers to enhance their email communications with voice and
multimedia features. To date, substantially all of our revenue has been derived
from licensing of our software. We are attempting to increase sales of our
software to complement our licensing revenue; however, we believe that it is too
early to determine whether this business model will be successful in the future.
We have broadened our business by offering turnkey multimedia email
services. These services would transfer to us the responsibility for
constructing and disseminating multimedia messages on behalf of our customers.
We would be competing against production and advertising companies in this
market, and we may not compete effectively with these current or future service
providers based on price, performance or other features. We expect to devote
significant engineering, marketing, sales and customer support resources to
enhance the competitiveness and cost-effectiveness of these services. These
actions may divert resources from our other products and services and may thus
harm our core eMail VOICELink and eMail inChorus business.
Multimedia email is a new and evolving business, competes with other methods of
online communication, and may not receive widespread acceptance.
Multimedia email is in its very early stages of development. Like many
new businesses, it is characterized by rapidly evolving technologies, quickly
changing marketing and sales strategies, multiple and aggressive market
participants, fluctuating demand and uncertain market acceptance for products
and services. Businesses and consumers have the option of using other methods of
online communication, including video and audio streaming. These methods may
receive greater acceptance than our multimedia email model. Multimedia email is
also heavily dependent on the success of the Internet, which itself is a
relatively new medium with an unpredictable future.
We intend to grow rapidly, and effectively managing our growth may be difficult.
In order to execute our business plan, we must grow significantly by
expanding our product line and hiring new employees. This growth will strain our
management, resources and systems. Our ability to compete effectively and manage
future growth, if any, will require us to implement and improve our operational,
financial and management information systems on a timely basis and to attract,
hire, train and retain additional personnel. If we cannot effectively manage our
growth, our business could be harmed.
6
<PAGE>
The loss of the services of one or more of our key personnel or our failure to
hire, integrate or retain other qualified personnel could disrupt our business.
We depend upon the continued services and performance of our executive
officers and other key employees, particularly William Yuan, our President and
Chief Executive Officer, Johnson Lee, our Chairman, and Edmund Leung, our Chief
Technical Officer. We currently maintain key person life insurance on Messrs.
Yuan, Lee and Leung; however, the loss of the services of any of them could
materially and adversely affect our business. Competition for qualified
personnel in technology is intense and we may not be able to retain or hire
necessary personnel.
We would lose revenues and incur significant costs if our systems or material
third-party systems are not year 2000 compliant.
To date, we have not incurred any material costs in identifying or
evaluating year 2000 compliance issues. However, we may fail to discover year
2000 compliance problems in our systems that will require substantial revisions
or replacements. There can be no assurance that third-party software, hardware
or services incorporated into our material systems will not need to be revised
or replaced, which could be time-consuming and expensive. Our inability to fix
or replace third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs and other business
interruptions, any of which could have a material and adverse effect on our
business, results of operations and financial condition. Moreover, the failure
to adequately address year 2000 compliance issues in our software, hardware or
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
In addition, there can be no assurance that governmental agencies,
utility companies, Internet access companies, third-party service providers and
others outside our control will be or continue to be year 2000 compliant. The
failure by these entities to be year 2000 compliant could result in a systemic
failure beyond our control, including, for example, a prolonged Internet,
telecommunications or electrical failure, which could also prevent us from
delivering our services to our users, decrease the use of the Internet or
prevent users from accessing our services, any of which would have a material
and adverse effect on our business, results of operations and financial
condition.
We are heavily reliant on third parties for order fulfillment and any delays or
other problems in fulfillment could adversely affect our business.
We are heavily reliant on the ability of Pakpro and Russ Thill, our
fulfillment houses, to package and ship orders of our products. Growth in the
volume of orders for our products may strain the capacity of our fulfillment
houses, and delays or other problems with order fulfillment could have a
material and adverse effect on our business.
7
<PAGE>
There are dilutive effects of our equity line agreement with Plumrose Holdings,
Ltd. and WEC Global Telecom Ltd.
The sale of stock pursuant to our equity line agreement with Plumrose
Holdings, Ltd. and WEC Global Telecom Ltd. will have a dilutive impact on our
stockholders. As a result, our net income or loss per share could be materially
affected in future periods and the market price of our common stock could be
materially and adversely affected. The shares of common stock to be issued under
the equity line agreement will be issued at a discount to the then-prevailing
market price of the common stock. These discounted sales could have an immediate
adverse affect on the market price of the common stock. We have also issued to
AMRO International, S. A., Plumrose Holdings, Ltd. and WEC Global Telecom Ltd.
warrants to purchase an aggregate of 200,000 shares of our common stock at
exercise prices from $1.50 to $3.187 per share. The issuance of shares of common
stock under the equity line agreement or upon exercise of these warrants, and
the subsequent resale of the common stock would have a further dilutive effect
on our common stock and could adversely affect its market price. The shares of
common stock under the equity line agreement and underlying the warrants have
been registered pursuant to our registration statement on Form SB-2 (File No.
333-39534), which was declared effective by the Securities and Exchange
Commission on August 11, 2000.
The offer and sale of shares of common stock under our private equity line
arrangement with Plumrose Holdings, Ltd. and WEC Global Telecom Ltd. might
violate federal securities laws.
In a transaction like our sale of common stock to Plumrose Holdings, Ltd.
and WEC Global Telecom Ltd. pursuant to our equity line agreement, the issuer of
such securities generally may register the resale of securities prior to their
issuance if the issuer has completed a valid exempt sale of the securities to
the investor, and the investor is at market risk at the time of filing of the
registration statement. Because Plumrose Holdings, Ltd. and WEC Global Telecom
Ltd might not be deemed to have been at market risk prior to filing of the
registration statement, the transaction might not qualify for an exemption from
the registration requirements of the Securities Act of 1933. If this transaction
is deemed to have violated the Securities Act of 1933, Plumrose Holdings, Ltd.
and WEC Global Telecom Ltd. would have the right, for a period of up to one year
from the date of its purchase of common stock, to recover the cash it paid or,
if it had already sold the stock, sue for damages resulting from its purchase.
These damages could equal up to the full $5,000,000 plus interest that Plumrose
Holdings, Ltd. and WEC Global Telecom Ltd. might purchase under the equity line.
If this occurs, our business, results of operations and financial condition
would be harmed. In particular, such an occurrence would have a material adverse
effect on our liquidity position and our ability to meet short-term obligations
and we might not be able to secure alternative financing on favorable terms or
at all.
Some of the information in this prospectus contains forward-looking statements.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "estimate" and "continue" or similar words. You should
read statements that contain these words carefully
8
<PAGE>
because they:
- discuss our expectations about our future performance;
- contain projections of our future operating results or of our future
financial condition; or
- state other "forward-looking" information.
We believe it is important to communicate our expectations to our stockholders.
There may be events in the future, however, that we are not able to predict
accurately or over which we have no control. The risk factors listed in this
section, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of any of the events described in these risk factors and elsewhere in this
prospectus could have a material and adverse effect on our business, results of
operations and financial condition and that upon the occurrence of any of these
events, the trading price of our common stock could decline and you could lose
all or part of your investment.
USE OF PROCEEDS
Proceeds we receive pursuant to the issuance of the shares will be used
for marketing, expansion of our consulting and service business and for working
capital and general corporate purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been traded on the NASD O-T-C Market Bulletin Board
since October 21, 1998. Prior to that date, our common stock was not actively
traded in the public market. Our common stock is listed on the NASD O-T-C Market
Bulletin Board under the symbol "ICHC". The following table sets forth, for the
periods indicated, the high and low bid prices for our common stock as reported
by various Bulletin Board market makers. The quotations do not reflect
adjustments for retail mark-ups, mark-downs, or commissions and may not
necessarily reflect actual transactions.
<TABLE>
<CAPTION>
Period Low Bid High Bid
------ ------- --------
<S> <C> <C>
Fiscal 2001
Second Quarter (July 1, 2000 to September 14, 2000) $0.260 $0.800
First Quarter (April 1, 2000 to June 30, 2000) $0.500 $2.906
Fiscal 2000
Fourth Quarter (January 1, 2000 to February 29, 2000) $1.562 $4.812
Third Quarter (October 1, 1999 to December 31, 1999) $0.500 $2.750
Second Quarter (July 1, 1999 to September 30, 1999) $1.437 $3.250
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C>
First Quarter (April 1, 1999 to June 30, 1999) $1.875 $4.750
Fiscal 1999
Fourth Quarter (January 1, 1999 to March 31, 1999) $1.062 $8.125
Third Quarter (October 21, 1998 to December 31, 1998) $0.875 $5.500
</TABLE>
On September 14, 2000, the high and low bid prices of our common stock on
the Bulletin Board were $0.437 and $0.375 per share, respectively, and there
were approximately 177 holders of record of the common stock.
The market price of our common stock has been, and is likely to continue
to be, highly volatile as the stock market in general, and the market for
technology companies in particular, has been highly volatile. Investors may not
be able to resell their shares of our common stock following periods of
volatility because of the market's adverse reaction to volatility. The trading
prices of many technology companies' stocks have reached historical highs within
the last 52 weeks and have reflected valuations substantially above historical
levels. During the same period, these companies' stocks have also been highly
volatile and have recorded lows well below historical highs. We cannot assure
you that our stock will trade at the same levels of other technology stocks or
that technology stocks in general will sustain their current market prices.
Factors that could cause such volatility may include, among other things:
- actual or anticipated fluctuations in our quarterly operating
results;
- announcements of technological innovations;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet industry;
- changes in the market valuations of other technology companies; and
- general market conditions.
To date, we have never declared or paid any cash dividends on our capital
stock. We currently intend to retain any future earnings for funding growth and
therefore, do not expect to pay any dividends in the foreseeable future.. We are
obligated to pay dividends on our outstanding Series A Preferred Stock at the
rate of seven percent per annum. We may pay these dividends in either cash or
shares of our common stock. We currently intend to retain earnings, if any, to
fund the development and growth of our business and do not anticipate paying
cash dividends on the common stock in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of our Board of Directors after
taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.
10
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000.
This information should be read in conjunction with our Consolidated Financial
Statements and the related Notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Actual
------------
<S> <C>
Short-term debt $ -
Convertible notes payable 1,899,000
Stockholders' Equity
Convertible Preferred stock, .001 par value; 1,000,000 shares 936,800
authorized; 118 shares issued and outstanding
Common stock, $0.001 par value; 59,000,000 shares authorized; 10,955,997 11,000
shares issued and outstanding
Additional paid-in capital 7,983,900
Accumulated deficit (10,177,400)
------------
(1,245,700)
Less: Notes receivable (17,800)
Total Stockholders' (Deficiency) (1,263,500)
------------
Total Capitalization $ 635,500
============
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are summary consolidated statements of operations data for the
three months ended June 30, 2000 and 1999, respectively, and for the years ended
March 31, 2000 and 1999, respectively, and summary balance sheet data as of June
30, 2000 and March 31, 2000. You should read this information in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and related Notes
appearing elsewhere in this prospectus.
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Years Ended March 31,
---------------------------------- ---------------------------------
2000 1999 2000 1999
---------------- ----------------- --------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Net Sales, including license
fee income $ 403,300 $ 324,600 $ 680,200 $ 731,100
Cost of Sales 88,300 57,000 491,100 39,200
--------------- -------------- -------------- --------------
Gross Profit 315,000 267,600 189,100 691,900
--------------- -------------- -------------- --------------
Operating Expenses:
Research and development 321,900 187,500 907,500 286,300
Sales and marketing 620,800 232,600 1,625,800 688,600
General and administrative 563,300 403,100 2,523,400 845,100
--------------- -------------- -------------- --------------
Total Operating Expenses 1,506,000 823,200 5,056,700 1,820,000
--------------- -------------- -------------- --------------
Loss From Operations (1,191,000) (555,600) (4,867,600) (1,128,100)
--------------- -------------- -------------- --------------
Other Income (Expense):
Interest income 14,300 900 72,500 115,500
Interest expense (62,700) - (1,311,100) (2,500)
Other - (7,200) (6,700) -
--------------- -------------- -------------- --------------
Total Other Income (Expense) (48,400) (6,300) (1,245,300) 113,000
--------------- -------------- -------------- --------------
Loss Before Provision for Income
Taxes (1,239,400) (561,900) (6,148,600) (1,015,100)
Provision for Income Taxes 25,800 800 35,700 800
--------------- -------------- -------------- --------------
Net Loss (1,265,200) (562,700) (6,148,600) (1,015,900)
--------------- -------------- -------------- --------------
Preferred Stock Dividends (24,300) - (120,200) -
Deemed Dividend on Beneficial Conversion
of Preferred Stock - - (972,600) -
--------------- -------------- -------------- --------------
Net Loss Available to Common Shareholders $ (1,289,500) $ (562,700) $ (7,241,400) $ (1,015,900)
--------------- -------------- -------------- --------------
Basic and diluted loss per share $ (0.12) $ (0.07) $ (0.88) $ (0.14)
--------------- -------------- -------------- --------------
Basic and diluted weighted-average
common shares outstanding 10,533,300 7,803,700 8,195,300 7,132,600
--------------- -------------- -------------- --------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
---------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and Cash Equivalents $ 445,700 $1,995,900
Working Capital 192,100 1,477,200
Total Assets 2,129,000 3,288,600
Total Stockholders' Deficiency (1,263,500) (88,900)
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We provide rich media email message creation solutions and software
that bring life to online communication with voice, sound, animation and
graphics. We develop and market software products that use our proprietary
technology to allow businesses and consumers to communicate through text, voice,
sound, annotation and animation.
We were incorporated in November 1995 as Softlink, Inc., a California
corporation ("Softlink California") and shipped our first product, eMail
VOICELink, in August 1997. For the period from inception through December 1997,
our revenue was minimal and our operating activities related primarily to the
development of our infrastructure and our first products.
In March 1998, Softlink California entered into a reorganization with
Draco Technologies, Inc., a Nevada corporation. Under the reorganization, the
stockholders of Softlink California received approximately 0.6745344 shares of
common stock of Draco Technologies, Inc. in exchange for each of their shares of
Softlink California, and Softlink California became a wholly-owned subsidiary of
Draco. Draco then changed its name to Softlink, Inc. In February 2000, we
changed our name to "inChorus.com".
We began the marketing and promotion of our products when we introduced
our second product, PowerLink, a precursor of eMail inChorus, in November 1997.
Beginning in 1998, we also focused on recruiting personnel and raising capital.
To date, our revenues have been derived primarily from the licensing of
our products. We are attempting to increase sales of our software to complement
our licensing revenue; however, we believe that it is too early to determine
whether this business model will be successful in the future.
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We have broadened our business in 2000 by offering turnkey multimedia
email services. These services transfer to us the responsibility for
constructing and disseminating multimedia messages on behalf of our customers.
We would be competing against production and advertising companies in this
market, and we may not compete effectively with these current or future service
providers based on price, performance or other features. We expect to devote
significant engineering, marketing, sales and customer support resources to
enhance the competitiveness and cost-effectiveness of these services; however,
to date we have not devoted substantial resources to this effort. Once
commenced, these actions may divert resources from our other products and
services and may thus harm our core eMail VOICELink and eMail inChorus business.
Due to the fact that we were founded in November 1995 and commercially
released version 1.0 of our first product, eMail VOICELink, in August 1997, we
have a limited operating history, and we face all of the risks and uncertainties
encountered by early stage companies such as the need to establish our
credibility with customers, advertising and other service providers, and
prospective strategic partners. There can be no assurance that we will be able
to overcome some of these obstacles; if we do not, we may be unable to achieve
our business goals and raise sufficient capital to expand our business.
Results Of Operations
The following table sets forth the percentage relationship to net sales of
principal items contained in our Consolidated Statements of Operations for the
three months ended June 30, 2000 and 1999, respectively, and the fiscal years
ended March 31, 2000 and 1999, respectively. It should be noted that percentages
discussed throughout this analysis are stated on a rounded basis. Our revenues,
gross margins and other operating results may vary significantly from quarter to
quarter. The fluctuations may be due to a number of factors, many of which are
beyond our control, including actions of our competitors, market acceptance of
our products, changes in pricing and margins, and unanticipated costs. Given our
limited operating history, we believe that an analysis of our cost and expense
categories as a percentage of net sales is not meaningful.
15
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Year Ended March 31,
------------------------------- ---------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------- ---------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Net Sales, including license fee income 100% 100% 100% 100%
Cost of Sales 22 18 72 5
-------- ------- -------- -------
Gross Profit 78 82 28 95
Operating Expenses 373 253 744 249
Loss From Operations (295) (171) (176) (154)
Other Income (Expense) (12) (2) (183) 15
Loss Before Provision for Income Taxes (307) (173) (899) (139)
Provision for Income Taxes 7 -- 5 --
-------- ------- -------- -------
Net Loss (314)% (173)% (904)% (139)%
======== ======= ======== =======
</TABLE>
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Three Months Ended June 30, 2000, Compared With Three Months Ended June 30, 1999
Net revenues for the three months ended June 30, 2000, were $403,300,
compared to net revenues of $324,600 for the three months ended June 30, 1999.
The increase reflects expanded licensing fees for our inChorus product and
related services offset by a decrease in our product sales. In the three months
ended June 30, 2000, $262,500 of our revenue consisted of licensing revenue and
$140,800 was derived from sales of products and services, as compared to
licensing revenue of $153,100 and product revenue of $171,500 for the three
months ended June 30, 1999. Cost of sales increased to $88,300 for the three
months ended June 30, 2000, from $57,000 for the comparable period in 1999, due
to increased production of our products and increased reserves for obsolescence.
Operating expenses increased to $1,506,000 for the three months ended
June 30, 2000, compared to $823,200 for the three months ended June 30, 1999.
The increase was comprised of growth in all components of our operating
expenses, including research and development expenses, sales and marketing and
general and administrative expenses. Research and development expenditures
increased to $321,900 for the three months ended June 30, 2000, compared to
$187,500 for the three months ended June 30, 1999, due primarily to costs
associated with the development of new versions of our existing products and the
design and development of new products. Sales and marketing expenses increased
to $620,800 in the three months ended June 30, 2000, compared to $232,600 for
the comparable period in 1999, due to expanded marketing efforts for our eMail
VOICELink and eMail inChorus software introduced at the end of fiscal 1998.
These efforts included the hiring of 3 additional sales personnel and
participation in trade shows. General and administrative expenses increased to
$563,300 for the three months ended June 30, 2000, compared to $403,100 for the
three months ended June 30, 1999, due primarily to the expansion of our
infrastructure through the hiring of additional personnel and management and the
lease of additional facilities.
Our interest income increased to $14,300 for the three months ended
June 30, 2000, compared to $900 for the three months ended June 30, 1999. The
increase was due to interest earned on increased cash balances, which mainly
resulted from the $2,000,000 proceeds of a convertible note payable near the end
of March 2000. Interest expense equaled $62,700 for the three months ended June
30, 2000, due to interest accrued on our 8% convertible debentures. No interest
expense was incurred during the three months ended June 30, 1999.
As a result of these factors, we incurred a net loss of $1,265,200 for
the three months ended June 30, 2000, compared to a net loss of $562,700 for the
three months ended June 30, 1999.
Years Ended March 31, 2000 and 1999
Net revenues for the year ended March 31, 2000 were $680,200, compared
to net revenues of $731,100 for the year ended March 31, 1999. The decrease
reflects significant returns of our eMail VOICELink and eMail inChorus products
from distributors in excess of previously expected amounts. In the fourth
quarter ended March 31, 2000, we experienced greater than estimated returns of
our software from distributors and retailers. These returns equaled 455,000,
which we believe reflected the traditionally higher return date in the first
calendar quarter in the
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shrinkwrap software industry as distributors and retailers balance their
inventories.
In the year ended March 31, 2000, $309,200, or 45%, of our revenues
consisted of licensing revenues as compared to licensing revenues of $640,000,
or 87.5%, of revenues for the year ended March 31, 2000.
Cost of sales increased to $491,100 for the year ended March 31, 2000
from $39,200 for the comparable period in 1999, due to the increase of inventory
reserves, the elimination of obsolete products and increased production of our
products.
Operating expenses increased to $5,056,000 for the year ended March 31,
2000, compared to $1,820,000 for the year ended March 31, 1999. The increase was
comprised of growth in all components of our operating expenses such as research
and development, sales and marketing and general and administrative expenses.
Research and development expenditures increased significantly to $907,500 for
the year ended March 31, 2000 compared to $286,300 for the year ended March 31,
1999, due primarily to costs associated with the development of new versions of
our existing products and the design and development of new products. Sales and
marketing expenses increased to $1,625,800 for the year ended March 31, 2000
compared to $688,600 for the comparable period in 1999, due to expanded
marketing efforts for our eMail VOICELink and eMail inChorus software introduced
at the end of fiscal 1998. These efforts included hiring additional sales
personnel and participation in trade shows. General and administrative expenses
increased to $2,523,400 for the year ended March 31, 2000 compared to $845,100
for the year ended March 31, 1999 due primarily to the expansion of our
infrastructure through the hiring of additional personnel and management and the
lease of additional facilities.
Our interest income decreased slightly to $72,500 for the year ended
March 31, 2000, compared to $115, 500 for the year ended March 31, 1999. The
decrease was due to slightly decreased average balances of cash and cash
equivalents in fiscal 2000. We also incurred $1,311,100 of interest expense
(including noncash interest of $1,298,400) related to the $2,000,000 bridge loan
that we received from AMRO International, S. A. in March 2000. The noncash
interest related to a beneficial conversion price of the bridge loan note.
As a result of these factors, we incurred a net loss of $6,148,600 for
the year ended March 31, 2000 compared to a net loss of $1,015,900 for year
ended March 31, 1999. Net loss available to common shareholders for the year
ended March 31, 2000 equaled $7,241,400 due to a deemed dividend of $972,600
related to a beneficial conversion price in connection with the convertible
preferred stock offering and $120,200 in dividends on outstanding shares of
preferred stock.
Income Taxes
At June 30, 2000 and March 31, 2000, we had deferred tax assets of
$3,191,500 and $2,695,700, respectively, principally arising from net operating
loss carryforwards available to offset future taxable income. As management
cannot determine that it is more likely than not that we will realize the
benefit of these assets, a 100% valuation allowance has been established.
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Liquidity and Capital Resources
Our working capital requirements have been financed over the past two
years through private placements of common and preferred stock and, to a lesser
extent, from borrowings from principal stockholders. In the years ended March
31, 2000 and 1999, financing activities, principally private placements,
generated $5,191,700 and $1,363,000, respectively, of cash. In the three months
ended June 30, 2000 financing activities generated $71,300 (principally from the
exercise of stock options), as compared to $480,000 in cash generated by our
financing activities in the three months ended June 30, 1999. As of June 30,
2000, we had approximately $445,700 in cash and cash equivalents, an increase
from $56,200 of cash and cash equivalents at June 30, 1999, but a decrease from
the $1,995,900 of cash and cash equivalents at March 31, 2000. Cash and cash
equivalents at June 30, 2000, reflected the amount remaining from the proceeds
from our sale of 8% convertible debentures in March 2000. Our accounts
receivable (net of an allowance for doubtful accounts of $550,900) equaled
$929,600 at June 30, 2000, as compared to $701,400 at March 31, 2000 (net of an
allowance of $672,200 for doubtful accounts). Included in the doubtful account
allowance as of June 30, 2000 was a reserve of $479,900 for NIC.
In the three months ended June 30, 2000, our operating activities
utilized $1,460,400 in cash, as compared to the utilization of $663,100 in cash
for operating activities for the comparable period in 1999. The increase in our
operating activities expenditure for the three month period ended June 30, 2000,
as compared to the three month period ending June 30, 1999, was due to the
expansion of our operations as a component of our business growth. Investing
activities utilized $161,100 of cash during the three month period ended June
30, 2000, compared to the $68,200 utilized for investing activities during the
same 1999 period. The increase in investing activities was due to the
availability of funds from the sale of our 8% convertible debentures in March
2000.
In March 2000, we entered into a loan agreement with AMRO
International, S.A. for a $2,000,000 bridge loan. The loan is evidenced by
convertible debentures bearing interest at the rate of eight percent per annum,
which are convertible into shares of our common stock at $1.75 per share. If not
converted, the debentures are due and payable on September 30, 2001. In
connection with this loan, we issued to AMRO International, S.A. warrants to
purchase 100,000 shares of our common stock at an exercise price of $3.187 per
share. Furthermore, in August 2000 we issued 100,000 shares of our common stock
to AMRO in lieu of penalties incurred by us for the untimely filing of a
registration statement for resale of the common stock issuable upon conversion
of the convertible debentures and exercise of the warrants.
Effective April 24, 2000, we entered into an equity line agreement with
Plumrose Holdings, Ltd. and WEC Global Telecom Ltd. This agreement allows us to
sell, from time to time, through April 24, 2001, up to $5,000,000 of our common
stock. To date, we have not drawn down any capital under the equity line. We
also issued warrants to purchase 50,000 shares of our common stock, with an
exercise price of $1.50 per share, to each of Plumrose Holdings, Ltd. and WEC
Global Telecom Ltd., for a total of 100,000 shares of our common stock, in
connection with this transaction.
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Our independent certified public accountants have issued a report on
our audited financial statement for the year ended March 31, 2000 with an
explanatory paragraph regarding our ability to continue as a going concern. Our
continuation as a going concern is dependent upon our ability to obtain
additional financing or refinancing as may be required, and ultimately upon our
ability to attain profitability.
In the future, we may acquire or make investments in complementary
businesses, products, services or technologies on an opportunistic basis when we
believe they will assist us in carrying out our business strategy. We do not
have any present understanding, nor are we having any discussions relating to
any such acquisition or investment. Any such acquisition or investment could
harm our operating results or cause our stock price to decline because:
- the amount of time and level of resources required to successfully
integrate the acquired company's business operation could be substantial;
- challenges in assimilating personnel, organizational structure, and
technology could cause significant delays in executing other key areas of our
business plan;
- the key personnel of the acquired company may decide not to work for
us, which could result in the loss of key technical or business knowledge to us;
and
- we may have to incur debt or issue equity securities to pay for any
future acquisitions, the issuance of which could be dilutive to our existing
stockholders.
We need working capital to execute our business plan. We believe that
our current cash and cash equivalents plus existing financing commitments and
anticipated cash generated from operations will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures into the
fourth quarter of the calendar year 2000. If cash generated from operations is
insufficient to satisfy our liquidity requirements after that date, we may seek
to sell additional equity or debt securities or to obtain a credit facility. The
sale of additional equity or convertible debt securities could result in
additional dilution to our stockholders. The incurrence of additional
indebtedness would result in an increase in our fixed obligations and could
result in operating covenants that would restrict our operations. There can be
no assurance that financing will be available in amounts or on terms acceptable
to us, if at all. If financing is not available when required or is not
available on acceptable terms, we may be unable to develop or enhance our
products or services. In addition, we may be unable to take advantage of
business opportunities or respond to competitive pressures. Any of these events
could have a material and adverse effect on our business, results of operations
and financial condition.
Impact of the Year 2000
In our previous filings, we have discussed the nature and progress of
our plans to deal with potential Year 2000 problems. These problems arise from
the fact that many currently installed computer systems and software products
are coded to accept or recognize only two digit entries in the date code field.
These systems may recognize a date using "00" as the year 1900 rather than the
year 2000. As a result, computer systems and/or software used by many companies
and governmental agencies needed to be upgraded to comply with Year 2000
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<PAGE>
requirements or risk system failure or miscalculations causing disruptions of
normal business activities. Prior to December 31, 1999, we completed our
assessment of all material information technology and non-information technology
systems at our headquarters, as well as our review of year 2000 compliance by
our key vendors, distributors and suppliers. To date, we have experienced no
material technical problems related to the year 2000. We will continue to
monitor our material information technology and non-information technology
systems and that of our suppliers and vendors throughout the year 2000 to ensure
that any latent year 2000 matters that may arise are addressed promptly.
Effects Of Inflation
Due to relatively low levels of inflation in 1999 and 2000, inflation
has not had a significant effect on our results of operations since inception.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Software for Internal Use", which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The adoption of SOP No. 98-1
did not have a material impact on our consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133, as amended, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Historically,
we have not used derivatives and therefore this new pronouncement is not
applicable.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies
the application of Opinion No. 25 for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
cover specific events that occur after either December 15, 1998, or January 12,
2000. Due to the repricing of options, FIN 44 may have a material effect on our
future financial position or results of operations.
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BUSINESS
Overview
inChorus provides multimedia email solutions that bring life to online
communication with voice, sound, animation and graphics. We develop and market
software products that use our proprietary technology to allow businesses and
consumers to communicate through text, voice, sound, annotation and animation.
Our two key products are eMail VOICELink and eMail inChorus. eMail
VOICELink adds voice messages to email communications over the Internet,
allowing users to add personality, clarity and impact to their email messages.
eMail inChorus is a multimedia email product that integrates text, voice, sound,
annotation and animation with email. Users of both eMail VOICELink and eMail
inChorus can send their messages through industry standard email packages such
as Netscape Mail, Microsoft Outlook, America Online and Eudora, and can utilize
our products with MSN and other major Internet service providers.
Industry sources indicate that email accounts for 70% of all Internet
connect time. Businesses are currently using email in their e-commerce
strategies to replace or supplement banners and other online advertising
strategies. To date, however, most email products only allow the transmission of
text or text with file attachments due to the large amount of capacity, or
bandwidth, required for more complex messages.
Our proprietary multimedia composer and compression technology allows
multimedia email messages to be transmitted over the Internet with the minimum
consumption of bandwidth. Use of this technology permits businesses to expand
their e-commerce marketing capabilities with multimedia email by offering
product demonstrations or complex graph and tables to customers. In addition, we
believe that companies could realize cost savings by using multimedia email in
lieu of printed brochures, flyers and coupons. We do not currently own any
patented technology registered with the United States Patent and Trademark
Office.
Our products provide online communication solutions for consumers and
business users across a variety of industries. We have established strategic
relationships with several manufacturers of multimedia computer components, such
as Compaq, to promote our software products by including them in computer
hardware products sold by them and have entered an agreement with
Earthlink/Sprint combining its Internet access services with our products in
return for a payment from new Earthlink subscribers. We also have an agreement
with one of the largest Japanese distributors, NIC, Ltd., to sell our products
in Japan through distributors and original equipment manufacturer partners.
Industry Background and Market Opportunities
Email
-----
Global communication using the Internet has expanded exponentially in
the past few years. In addition to providing a medium for basic communication,
email can be used for e-
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commerce. The increased use of email generally has opened up significant
opportunities for the large number of businesses that are working on e-commerce
strategies. While these companies have relied on banner advertising and other
online advertising strategies to reach potential customers over the Internet,
they are now turning to email as another e-commerce marketing tool.
Various e-commerce functions can be accomplished with email. First of
all, it can be used as a promotional tool to get information out to a targeted
list of customers. This can be done in mass mailing, i.e., bulk email, or on an
individualized basis for businesses that emphasize person-to-person selling.
Second, it can be used as a customer service tool for products that must be
installed by the user, or products that need more than text instruction to
explain clearly. Third, it can be used to obtain customer registrations.
Finally, it can be used as a form of intra-company communications on an
Intranet, which might also include extranet communications through an external
network, an extranet, with vendors and subcontractors.
In each of these functional areas, email reduces costs and improves the
communication with the receiver. For example, using a bulk email approach to a
targeted list of online users is a very inexpensive way to reach customers
directly. Moreover, email has been found by some commercial marketers to be more
effective than banner ads in driving online sales. ZDNet, an industry media
analyst, has reported that Tower Records increased its response rate from 4.4%
to 14.9% after introducing personalized email, while The Gap doubled its online
sales after launching an email campaign. Thus, we believe the eventual use of
email as a functional replacement for what is currently used in these areas by
companies is reasonably likely.
Multimedia Opportunities
------------------------
One of the problems with email to date as a tool to market products is
that most email products only allow text or text with file attachments. Two
important means of reaching customers, the use of sound and the use of pictures,
have been missing, partly due to the bandwidth problem and the need to compress
data files. In today's multimedia environment, the lack of these features has
held email back as a marketing tool. However, due to technical advances,
companies are now able use innovative multimedia email business solutions.
Multimedia email is substantially different than text email, or even
voice email when used as an e-commerce tool. Many products require being viewed
or benefit when the customer can see a picture, as well as hear a promotional
pitch. Voice in some ways is superior to text since it easier to listen than it
is read. Voice can add a level of persuasiveness not available with text alone.
Also, if one is sitting in front of a computer screen, it is possible to avoid
reading, but not easy to avoid listening. When voice is combined with pictures
or graphics a far more powerful tool is created.
In order to utilize multimedia email, both the sender and recipient of
the message must have a multimedia computer. Most new computers and much of the
installed base in the United States are multimedia computers.
In e-commerce, the primary beneficiaries of multimedia email will be
companies online that need graphics and sound in their selling pitch and in
their communications with others. This
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would include companies offering consumer products that must be seen before they
are bought because the particular design and look of the product is important in
the buying decision; leisure and other products that are selling excitement and
adventure; products that are primarily sold by a broker or salesperson to an
individual consumer; and products that are more complicated and may require
explanations using graphs and tables. The other important benefits are cost
saving and improve time to market for companies to market their product and
services.
All of these applications, however, require an enormous increase in the
current capacity, or bandwidth, of communications networks. Behind this
phenomenal rise in consumption of bandwidth is the simple fact that there are
more people connected to networks, sending more bits of information more often.
The Internet has become not only a primary means for interpersonal
communication, but a commercial tool as well. Businesses are now looking at the
Internet and the Web as a connectivity tool to implement remote access, wire
their suppliers and customers to their networks, and potentially integrate their
voice and data traffic over a single network. We believe that a flood of demand
is being created for the products and services that will enable this
connectivity to occur as seamlessly as possible - either through increased
bandwidth or by using the existing capacity to maximum advantage.
Because we are in the business of multimedia email solutions, our
success is directly tied to the widespread acceptance and continued use of the
Internet. However, the Internet may not be accepted as a viable commercial
medium for a number of reasons, including the following:
- inadequate Internet infrastructure;
- security concerns;
- possible governmental regulation and taxation;
- inconsistent quality of service; and
- unavailability of cost-effective, high-speed service.
If use of the Internet does not grow as expected, our business, results
of operations and financial condition would be materially and adversely
affected.
The inChorus.com Solution
inChorus.com provides multimedia email solutions that bring life to
online communication through multimedia. Our founders, Johnson Lee and Edmund
Leung, formed inChorus.com in 1995 in recognition of the growing need for
complex communications on the Internet, the diminishing capacity of text-only
email to meet this need and the need to provide this solution within the
existing bandwidth. Our multimedia email solution is based upon our multimedia
composer and proprietary compression technology, which permits users to shorten
the time and bandwidth required to send and receive complex multimedia email
without the loss of quality or resolution. We shipped our first product, eMail
VOICELink, in August 1997, and introduced PowerLink, a previous generation of
eMail inChorus, in November 1997.
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Our business is being positioned to capitalize on the growing
marketplace opportunities attributable to several overlapping factors such as
the increase in the number of email addresses on the Internet, the increase in
frequency of email use in e-commerce solutions, and the rapidly growing
installed base of multimedia computers.
Due to the fact that we were founded in November 1995 and commercially
released version 1.0 of our first product, eMail VOICELink, in August 1997, we
have a limited operating history, and we face all of the risks and uncertainties
encountered by early stage companies such as the need to establish our
credibility with customers, advertising and other service providers, and
prospective strategic partners. There can be no assurance that we will be able
to overcome some of these obstacles; if we do not, we may be unable to achieve
our business goals and raise sufficient capital to expand our business.
Strategy
Our strategy is to be the leading provider of multimedia communications
solutions, based on our proprietary multimedia composer and compression
technology, for communication over the Internet. Key elements of our strategy
include:
Extend Technology Leadership By Producing Superior Products. Since
inception, we have focused our research and development efforts on developing
our multimedia composer and core compression technology that addresses the issue
of inadequate capacity on the Internet for the transmission of complex
communications. Our products integrate a number of advanced technologies,
including our proprietary data compression technology, that provide a 50:1
compression rate without loss of quality or resolution. We believe that we are
currently a leader in multimedia communications technology, and we intend to
extend this leadership position by continuing to devote additional resources to
research and development efforts.
Create Brand Recognition. We are focused on building brand awareness
and acceptance as well as on developing strategic marketing and distribution
relationships. We have a comprehensive marketing strategy with several key
components:
- image and awareness building;
- direct marketing to prospective and existing customers using
demographic profiling;
- a strong Web presence and broad scale marketing programs in
conjunction with key partners.
Our corporate marketing strategy also includes trade shows and public
relations activities. Our business and products have received news coverage from
ABC, CBS and NBC as well as their affiliated stations nationwide through brief
interview segments. We also have received coverage to date from many radio
stations.
Expand Market Leadership Position Through Strategic Licensing
Relationships. We are attempting to establish a leading position in the emerging
market for multimedia
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communications solutions. To accelerate the adoption of VOICELink and inChorus
as the standard multimedia communications solutions and to facilitate global
acceptance of our products, we have established and are continuing to establish
strategic licensing relationships with leading personal and laptop computer
manufacturers and distributors. Our strategic licensing partners include NEC,
and Earthlink/Sprint. In general, these relationships provide for the inclusion
of our software in hardware products sold by our partners. In the case of
Earthlink, our agreement provides for the combining of Internet access services
offered by Earthlink/Sprint with our software in return for a payment form new
Earthlink subscribers. We believe that brand recognition is essential to our
business success, and encourage all of our partners and resellers to use the
Softlink brand name in conjunction with their applications. We intend to further
develop our existing strategic licensing relationships and enter into new
partnerships in both licensing and sales to expand our market presence and brand
recognition.
Broaden Distribution Channels. To date, we have sold our products
primarily through original equipment manufacturer partners and distributors as
well as through direct sales. We intend to expand our direct sales force as well
as to leverage and grow our existing network of original equipment manufacturer
partners and distributors.
Increase International Presence. While to date our international sales
have been limited, we plan to increase our international sales presence. We have
entered into an agreement with NIC, Ltd., one of the largest Japanese
distributors, to sell our products in Japan, and are also working with our
Chinese partners to stimulate sales in that country. We have also entered into
an agreement with ANS Korea, Inc., a provider of various Internet-related
products and services. Pursuant to the agreement, ANS Korea will license our
inChorus Pro technology and marketing rights in Korea.
Products And Technology
Products
--------
We currently offer two primary communications products. These are
called eMail inChorus and eMail VOICELink. eMail inChorus, introduced in August
1997, develops and transmits full-featured multimedia presentations via email on
the Internet and corporate Intranets. An email message generated with eMail
inChorus integrates text, voice, sound, annotation and animation. Users can
import, manipulate and edit text, pictures, photos and graphics, capture screen
shots displayed on a monitor, annotate directly from a document, cut and paste
documents and use original art works within a single email message as though the
message were being presented on a white board to an audience. We also include
graphical templates and clip art to reduce the time required for message
creation.
eMail inChorus uses our proprietary compression technology to shorten
the time and bandwidth required to send and receive multimedia email. For
example, a one minute multimedia message sent through eMail inChorus requires
only 200 kilobytes of capacity, as compared to the 6 megabytes required to send
the same message through competitive channels such as QuickTime. eMail inChorus
is compatible with the most popular email programs including Netscape Mail,
Microsoft Outlook and Eudora, and works with America Online, MSN and other major
Internet service providers. An eMail inChorus message is sent as an attached
26
<PAGE>
file with a free player, giving the recipient the opportunity to play the
message. To send a response, however, the recipient must also have the eMail
inChorus software.
Our eMail inChorus software is currently configured for use with all
Windows and Macintosh applications.
Our second product, eMail VOICELink, was introduced in November 1997.
eMail VOICELink allows users to add voice capability to their email messages to
provide personality, clarity and impact without the cost of long distance. Like
eMail inChorus, eMail VOICELink features our proprietary compression technology,
permitting a one-minute eMail VOICELink message to require just 100 kbpm as
compared to 5,200 kbpm utilized by a standard one minute audio file.
Except for our Macintosh version, as Macintosh computers already
contain a built-in microphone, we package eMail VOICELink with a high quality
microphone, player software, the message recipient must also have eMail
VOICELink to send a reply, and over 200 pre-designed graphical templates and
clip art images. eMail VOICELink is compatible with both Windows and Macintosh
applications, and works with email packages such as Netscape Mail, Microsoft
Outlook, Lotus Notes and Eudora. eMail VOICELink messages may be sent through
most major Internet service providers, including America Online and MSN.
In February 2000, we introduced a version of eMail inChorus with
database connectivity and mass mailing capabilities, called eMail inChorus Pro,
for corporate users.
In addition to refining our existing software products and expanding
their applicability, we are considering the development of complementary
communications services. These services would provide turnkey multimedia
messaging capability, message construction and transmission, for the business
market, using our already developed proprietary multimedia composer and
compression technology. The development and commercialization of these services
will require significant additional effort and resources; accordingly, we
currently do not have an anticipated date of introduction.
Software products frequently contain errors, defects or performance
problems, commonly called "bugs", especially when they are first introduced or
when new versions or enhancements are released. Although we test our products
extensively prior to introduction, we cannot assure you that our testing will
detect all serious defects, errors and performance problems prior to commercial
release of our future software products. Any future software defects, errors or
performance problems discovered after commercial release could result in the
diversion of scarce resources away from customer service and product
development, lost revenues or delays in customer acceptance of our products and
damage to our reputation, which, in each case, could have a material and adverse
effect on our business, results of operations or financial condition.
Although our license agreements with our customers typically contain
provisions designed to limit our exposure to liabilities arising from product
liability claims, we cannot assure you that these provisions will be enforceable
under existing or future international, federal, state or local laws and
judicial decisions. We have not experienced any product liability claims to
date, but we may be subject to such claims in the future. A product liability
claim
27
<PAGE>
brought against us could have a material and adverse effect on our business,
results of operations or financial condition.
Technology
----------
Most email systems contain the limited capability to attach digital
files through a technology known as MIME, multi-purpose Internet mail extension.
While MIME technology permits the compression of data before sending and the
decompression of this data at the recipient's end of the transmission, its data
standards are borrowed from other uses and are not optimal for e-mail. The data
compression standards provided by MIME require 960 kbpm for a one-minute audio
file and 12,000 kbpm for a one-minute video file. Audio, video and text
attachments are not integrated in a MIME transmission, but instead must be
played/viewed/read in sequence.
Our eMail inChorus and eMail VOICELink software features our
proprietary multimedia composer and compression technology. This technology uses
neural network architecture to reduce the size of an input data string to a
minimal number of components. The compressed data is then transmitted and
reconstructed by the message recipient. Our multimedia email messages are
integrated, and can be played simultaneously and synergistically, similar to a
movie. A one-minute email can blend text annotation, graphics, audio and
animation into one coherent message. We do not currently own any patented
technology registered with the United States Patent and Trademark Office.
Marketing And Sales
We are focused on building brand awareness and acceptance as well as on
developing strategic marketing and distribution relationships. We have a
comprehensive marketing strategy with several key components:
- image and awareness building;
- direct marketing to prospective and existing customers using
demographic profiling;
- a strong Web presence and broad scale marketing programs in
conjunction with key partners.
Our corporate marketing strategy also includes syndicated interviews, public
relations activities and trade shows.
We currently sell or license our products through four channels:
- through distributors to retailers, including Fry's, Comp USA and
Electronic Boutique;
- through bundling relationships with original equipment manufacturer
such as Compaq, Earthlink and NEC/Packard Bell;
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<PAGE>
- through e-commerce outlets such as America Online; and
- through direct sales to the corporate market.
Our products are distributed in North America by Merisel and Navarre,
the largest domestic distributors of computer products.
In March 2000, we entered into an equity investment and partnership
agreement with eNews, a Japanese corporation, which gave eNews the exclusive
right in Japan to develop and market our inChorus Pro technology through March
2003. Under this agreement, we have received $700,000 to date. We also have
invested $150,000 in eNews in exchange for an equity interest in eNews.
Customer and Technical Support
We believe that providing superior customer service is critical to the
successful sale and marketing of our products. We provide email and telephone
support during normal business hours, and supplement this with Web-based support
services 24 hours a day, seven days a week, including product update and
download areas. We also have an instructional guide for our customers for common
product usage questions, and we notify our customers about the latest product
updates.
Research and Development
Our research and development team consists of development engineers,
product managers, quality assurance engineers and technical writers. Research
and development expenses were $907,500 and $286,300 for the years ended March
31, 2000 and March 31, 1999, respectively, and $321,900 and $187,500 for the
three months ended June 30, 2000 and 1999, respectively. We intend to continue
to make substantial investments in research and development and related
activities to maintain and enhance our products. We believe that our future
success will depend in part on our ability to support current and future
releases of popular operating systems and applications, to maintain and improve
our current products and to timely develop new products and services that
achieve market acceptance.
Competition
We compete in a market that is intensely competitive and characterized
by rapidly changing technology and evolving standards. Our principal competitors
for our eMail inChorus software are companies that create, produce and transmit
mass multimedia email, such as eCommercial.com, MindArrow Systems, Inc.,
RadicalMail.com and CyberLink.
In the voice email market, we compete directly with Qualcomm and a
variety of smaller, privately held companies. Some of our competitors bundle
their voice email solutions with existing email products such as Eudora, an
email product owned and marketed by Qualcomm.
29
<PAGE>
In the multimedia email market, we compete with companies that create,
produce and transmit mass multimedia email, such as eCommercial.com, MindArrow
Systems, Inc., RadicalMail.com and CyberLink.
We believe that the principal competitive factors in our market are
technological innovation and time to market. Many of our current and potential
competitors have significantly greater financial, technical, marketing and other
resources than we do, and therefore may be able to respond more quickly to new
or emerging technologies and changes in customer requirements or devote more
resources to the development and commercialization of their products. In
addition, certain of our competitors may have greater name recognition and the
ability to leverage significant installed customer bases. We expect additional
competition as other established and emerging companies enter into the
multimedia email solutions market and new products and technologies are
introduced. Increased competition could result in price reductions, reduced
gross margins, longer sales cycles and loss of market share, any of which would
materially and adversely affect our business, operating results and financial
condition. We believe that our ability to compete depends on many factors both
within and beyond our control, including:
- the ease of use, performance, features, price and reliability of our
solutions as compared to those of our competitors;
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us and our competitors;
- the quality of our customer service and support; and
- the effectiveness of our sales and marketing efforts.
Many of our current and potential competitors are likely to enjoy
substantial competitive advantages, including:
- longer operating histories;
- greater name recognition;
- more extensive customer bases; and
- cooperative relationships among themselves or with third parties to
enhance their products.
Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share, any one of which could impair our
finances and business prospects. We cannot assure you that we will be able to
compete successfully against existing or potential competitors or that
competitive pressures will not materially impair our finances or business
prospects.
30
<PAGE>
Intellectual Property
We are in the process of registering our trademarks "eMail inChorus",
"Future of Email", "inChorus Pro" and "email VoiceLink", with the United States
Patent and Trademark Office.
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. For example, we license our software pursuant to
shrinkwrap or signed license agreements, which impose certain restrictions on
licensees' ability to utilize the software. We have entered into confidentiality
and invention assignment agreements with our employees and contractors, and
nondisclosure agreements with its suppliers and strategic partners in order to
limit access to and disclosure of its proprietary information. There can be no
assurance that these contractual arrangements or the other steps taken by us to
protect our intellectual property will prove sufficient to prevent
misappropriation of our technology or to deter independent third-party
development of similar technologies. While we intend to pursue registration of
our trademarks and service marks in the U.S. and internationally, effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our services are made available online. We
do not currently own any patented technology registered with the United States
Patent and Trademark Office.
Policing unauthorized use of our products is difficult. The laws of
other countries may afford little or no effective protection of our technology.
We cannot assure you that the steps taken by us will prevent misappropriation of
our technology or that agreements entered into for that purpose will be
enforceable. In addition, 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. Such litigation, whether successful or
unsuccessful, could have a material and adverse effect on our business, results
of operations or financial condition.
The success and competitiveness of our products depend in part upon our
ability to protect our current and future technology through a combination of
trademark, trade secret and copyright law. Because laws protecting certain
ownership rights in software are uncertain and still evolving, we cannot give
you any assurance about the future viability or value of any of our current
technology ownership rights.
We enter into intellectual property agreements with our employees and
consultants and confidentiality agreements with certain other parties, and
generally control access to and distribution of our software, documentation and
other proprietary information. Notwithstanding these precautions, it may be
possible for a third party to copy or otherwise obtain and use our software or
other proprietary information without authorization or to develop similar
software independently.
Although we do not believe that we infringe the proprietary rights of
third parties, there can be no assurance that third parties will not claim
infringement by us with respect to past, current or future technologies. We
expect that participants in our markets will be increasingly
31
<PAGE>
subject to infringement claims as the number of services and competitors in our
industry segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could have a material adverse effect upon our
business, results of operations and financial condition.
Governmental Regulation
Government regulation of communications and commerce on the Internet
varies greatly from country to country. The United States has recently enacted
legislation addressing such issues as the transmission of certain materials to
children, intellectual property protection, taxation, and the transmission of
sexually explicit material. There is some risk that the United States and other
countries will increase their regulation of the Internet in the future. As our
products are utilized solely in connection with the Internet, any new law or
regulation pertaining to the Internet, or the application or interpretation of
existing laws, could adversely impact our sales, increase our cost of doing
business or otherwise have a material and adverse effect on our business,
results of operations and financial condition.
32
<PAGE>
Litigation
On April 9, 1999, the Securities and Exchange Commission issued a
formal Order Directing Private Investigation and Designating Officers to Take
Testimony in the Matter of Softlink, Inc. and Certain Other Companies.
The private order empowers the SEC enforcement staff to investigate
whether inChorus.com, its employees or associates:
- made misleading statements regarding projected financial revenues of
inChorus.com;
- purchased or sold securities of inChorus.com while in possession of
material non-public information; and
- offered or sold securities through the use or medium of prospectuses
or similar means while no registration statement was in effect.
The private order also authorizes the staff to investigate possible similar
violations by another unrelated, unaffiliated company.
In connection with the private order, the SEC has issued a subpoena
duces tecum to which we have responded. On January 7, 2000, the SEC issued
subpoenas compelling the testimony of Mr. Johnson Lee, a member of our board of
directors and our Chairman, Mr. William Yuan, a member of our board of directors
and our Chief Executive Officer and Mr. Edmund Leung, a member of our board of
directors and our Chief Technical Officer and Secretary. All of these
individuals complied with the subpoenas and are cooperating with the SEC in
connection with this matter. Additional testimony of Mr. Johnson Lee and Mr.
William Yuan had been scheduled to be taken the week of September 18, 2000, but
have been adjourned by the SEC staff without an adjourned date at this time.
The SEC has not advised us that inChorus.com, our employees or
affiliates are presently or will be the subject of any enforcement action by the
SEC. To the best of our knowledge, there are presently no other material pending
legal proceedings to which we or any of our subsidiaries is a party or to which
any of our property is subject and, to the best of our knowledge, no such
actions against us are contemplated or threatened.
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<PAGE>
Employees
As of August 31, 2000, we had 31 employees, including 9 in product
development, 14 in marketing, sales and business development, 1 in customer
support and 7 in administration. We believe that our future success will depend
in part on our continued ability to attract, integrate, retain and motivate
highly qualified technical and managerial personnel, and upon the continued
service of our senior management and key technical personnel. The competition
for qualified personnel in our industry and geographical location is intense,
and there can be no assurance that we will be successful in attracting,
integrating, retaining and motivating a sufficient number of qualified personnel
to conduct its business in the future. From time to time, we also employ
independent contractors to support our research and development, marketing,
sales and support and administrative organizations. We have never had a work
stoppage, and no employees are represented under collective bargaining
agreements. We consider our relations with our employees to be good.
Facilities
Our executive offices, comprising a total of approximately 5,236 square
feet, are located in Santa Clara, California. We lease these facilities pursuant
to a lease agreement, which has a term of 36 months, expiring in January 2003.
We believe that our current facilities are suitable for our current needs,
however, we anticipate that we will require additional space in the next six
months.
We maintain substantially all of our computer systems at our Santa
Clara facility. Our operations are dependent in part on our ability to protect
our operating systems against physical damage from fire, floods, earthquakes,
power loss, telecommunications failures, break-ins or other similar events.
Furthermore, despite our implementation of network security measures, our
servers are also vulnerable to computer viruses, break-ins and similar
disruptive problems. To the extent commercially feasible, we have secured
casualty insurance to protect our properties. However, the occurrence of any of
these events could result in interruptions, delays or cessations in service to
our users which could have a material adverse effect on our business, results of
operations and financial condition.
34
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth the names and positions of our directors
and executive officers as of August 31, 2000:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
NAME AGE POSITION
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William Yuan 45 President, Chief Executive Officer, Director and Member of the
Compensation Committee.
------------------------------------------------------------------------------------------------------------------
Edmund T. Leung 33 Chief Financial Officer, Chief Technical Officer and Director and
Member of the Compensation Committee. Mr. Leung also served as our
Chief Financial Officer until October 1999.
------------------------------------------------------------------------------------------------------------------
Johnson C. Lee 34 Chairman, Director and Member of the Compensation Committee. Mr. Lee
served as our Chief Executive Officer until March 1, 1999.
------------------------------------------------------------------------------------------------------------------
Ralph G. Coan 57 Chief Financial Officer and Vice President of Operations. Mr. Coan has
served as our Chief Financial Officer since October 1999.
------------------------------------------------------------------------------------------------------------------
</TABLE>
All members of our board of directors hold office until the next annual
meeting of the shareholders following their election or until their successors
have been elected and qualified. Executive officers are appointed by and serve
at the pleasure of the Board of Directors. The following sets forth biographical
information concerning our directors and executive officers for at least the
past five years:
William Yuan. Mr. Yuan was appointed to the Board of Directors and became
president and Chief Executive Officer of inChorus.com in March 1999. Mr. Yuan
served as the chief operating officer of Net USA, a provider of
telecommunications and technology software solutions, from July 1998 to December
1998. He served as the president of KPY Corp., a systems integration company,
from March 1990 until June 1998, and was also the president of Network Partners,
a software company, from November 1993 until December 1994. Mr. Yuan earned his
bachelor's degree in Computer Science in 1986 from the University of California
at Santa Cruz and his master's degree in Business Administration in 1989 from
National University.
Edmund Leung. Mr. Leung co-founded inChorus.com in September 1995. He has
served as the Chief Financial Officer and as a member of the board of directors
since 1995. He became the Chief Technical Officer of inChorus.com in September
1998. Mr. Leung has over nine years' experience in software development, and has
participated in the development of several commercial software products. Prior
to founding inChorus.com, he served as a software engineer at MediaMotion, Inc.,
a multimedia software company, from November 1993 to August 1995, and worked at
Integrated Information Technology, Inc. from June 1990 to October 1993 as a
software engineer. At Integrated Information Technology, Inc., he developed
algorithms for the most time-critical portion of that company's "XtraDrive". Mr.
Leung received his bachelors'
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<PAGE>
degree in Computer Science from the University of California at Berkeley in 1989
and his masters' degree in Computer Science from Stanford University in 1990.
Johnson C. Lee. Mr. Lee was a co-founder of inChorus.com and has served
as a member of the board of directors since September 1995 and as Chairman since
March 1999. From September 1995 to March 1999, he served as inChorus.com's Chief
Executive Officer. As Chairman, Mr. Lee is a full time employee of inChorus.com.
Mr. Lee has over nine years of extensive experience in network multimedia
software development. Prior to founding inChorus.com, he worked as a software
engineer for MediaMotion, Inc. from November 1993 to August 1995. From June 1989
to November 1993 he worked as a software engineer for Oracle Corp. Mr. Lee
received his bachelor's degree in Computer Science from the University of
California at Berkeley in 1989.
Ralph G. Coan, Jr, Mr. Coan has served as our Chief Financial Officer
and Vice President of Operations since October 1999. Mr. Coan has over twenty-
five years of financial management and operations experience with high
technology companies. Prior to joining inChorus.com, he was Chief Financial
Officer of Dryden Engineering Company from January 1998 until to September 1999,
where he was instrumental in the negotiation and sale of the company to MPW
Corporation. Previously, he served as Chief Financial Officer of Fairchild
Technologies from February 1997 until December 1997. Previously, he served as
Chief Operating Officer and Chief Financial Officer of Optical Media
International from April 1994 until December 1996, where he negotiated the sale
of the company to Microtest Corporation. His previous employment experience
includes ten years at Memorex Corporation and three years at Raychem
Corporation. His contributions include raising capital, renegotiation of debt
repayment terms, joint venture structuring, technology sales, mergers and
acquisitions, growing company sales, and IPO preparation. Mr. Coan earned his
B.S. in Economics from the University of Oregon in Eugene in June of 1965 and an
MBA in Finance from the University of Oregon in June of 1967.
Board Committees
The Compensation Committee of the board of directors determines the
salaries and incentive compensation of our officers and provides recommendations
for the salaries and incentive compensation of our other employees. The
compensation committee also administers our Stock Option Plan. The current
members of the Compensation Committee are Messrs. Yuan, Leung and Lee. Prior to
September 1999, we did not have a Compensation Committee or any other committee
of the board of directors that performed any similar functions. See
"Compensation Committee Interlocks and Insider Participation."
The board of directors does not currently have an audit or nominating
committee.
Compensation Committee Interlocks and Insider Participation
Messrs. Yuan, Leung and Lee, current members of the Compensation
Committee, are also officers and directors of inChorus.com. However, no member
of the Compensation Committee serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or Compensation Committee.
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<PAGE>
Compensation Summary
The following table sets forth the compensation awarded or paid to, or
earned by, our Chief Executive Officer and all our other executive officers who
earned in excess of $100,000 in salary and bonus, collectively the "Named
Executives" for services rendered to us during the years ended March 31, 1999
and March 31, 2000. Mr. William Yuan became our Chief Executive Officer in March
1999 and thus, the table only reflects one month's salary earned by Mr. Yuan in
the year ended March 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------------------------------------------------------------------------------
YEAR SALARY ($) NUMBER OF SECURITIES UNDERLYING
OPTIONS (#)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William Yuan, Chief 2000 166,289 657,143
Executive Officer 1999 12,000 500,000
---------------------------------------------------------------------------------------------------------------
Johnson C. Lee 2000 151,645 50,000
1999 96,000 80,201
---------------------------------------------------------------------------------------------------------------
Edmund Leung 2000 151,644 50,000
1999 96,000 80,201
---------------------------------------------------------------------------------------------------------------
</TABLE>
On March 1, 1999, Mr. Yuan was granted options to purchase up to
500,000 shares of our common stock. These options were rescinded by our Board of
Directors. Mr. Yuan was subsequently granted options to purchase 657,143 shares
of our common stock on September 1, 1999, of which options to purchase 260,000
shares will vest upon the achievement of certain business objectives which have
been described elsewhere in this prospectus.
Option Grants in Last Year
The following table sets forth information concerning options granted
to the Named Executives during the fiscal year ended March 31, 2000. Each option
listed in the table, represents the right to purchase one share of our common
stock. Options may terminate before their expiration dates if the optionee's
status as an employee or consultant is terminated or upon the optionee's death
or disability.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Name Number of Securities % of Total Options Exercise Fair Market Expira-
Underlying Options Granted to Price Per Value of tion Date
Granted (#) Employees Share ($/Sh) Stock on
Grant Date
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William Yuan 657,143 29% $1.75 $1.75 9/09
------------------------------------------------------------------------------------------------------------------------
Johnson C. Lee 50,000 2% $2.00 $1.75 9/09
------------------------------------------------------------------------------------------------------------------------
Edmund Leung 50,000 2% $2.00 $1.75 9/09
------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended March 31, 2000, we granted officers, employees
and consultants options to purchase an aggregate of 2,284,883 shares of our
common stock. In September 1999,
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<PAGE>
we rescinded options to purchase 958,000 shares issued during the year ended
March 31, 1999 to officers, employees and consultants.
In April 1999, we rescinded options to purchase an aggregate of 500,000
shares of common stock granted in fiscal1999 to Mr. Yuan. The Board subsequently
granted Mr. Yuan options to purchase 657,143 shares of our common stock, of
which options to purchase 260,000 shares will vest upon the achievement of
certain business objectives described elsewhere in this prospectus.
In September 1999, we issued each of Johnson C. Lee and Edmund Leung
options to purchase 50,000 shares of common stock pursuant to our stock option
plan. These options had an exercise price of $2.00, which was more than 110% of
the fair market value of our common stock on the date of grant. For each of Mr.
Lee and Mr. Leung, the right to purchase 6,250 shares vested on the date of
grant and the right to purchase the remainder vest in seven quarterly
installments.
Aggregate Option Exercises in Year Ended March 31, 2000 and Year-End Option
Values
The following table sets forth certain information with respect to the
Named Executives concerning exercisable and unexercisable stock options held by
them as of March 31, 1999. No Named Executives exercised options to purchase
shares of our common stock in the year ended March 31, 2000.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Name Number of Unexercised Options at Year End(#) Value of Unexercised In-the-Money Options
at Year End($)
---------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William Yuan 287,143 370,000 502,500 647,500
---------------------------------------------------------------------------------------------------------------------
Johnson C. Lee 20,833 29,167 41,666 58,334
---------------------------------------------------------------------------------------------------------------------
Edmund Leung 20,833 29,167 41,666 58,334
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The calculation of the value of unexercised in-the-money options at
year end is based on a per share fair market value of our common stock equal to
$2.78 at March 31, 2000, the closing price for our common stock on that date as
reported by various market makers for our common stock on the NASD
Over-The-Counter Market Bulletin Board.
Employment Agreements And Termination Of Employment And Change Of Control
Arrangements
We have entered into executive employment agreements with each of Mr.
William W. Yuan, Mr. Johnson C. Lee, Mr. Edmund Leung and Mr. Ralph G. Coan.
Under the agreements, the executives receive paid vacation and are eligible to
participate in the health and other benefit programs which we may offer from
time to time. We may terminate either executive at any time
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<PAGE>
with or without "cause". The term "cause" is defined in the executive employment
agreements as:
- the failure to follow directions of our board of directors which are
not inconsistent with the executive employment agreement;
- the gross neglect of the executive's responsibilities;
- any act by the executive of dishonesty, fraud, misrepresentation,
harassment or employment discrimination;
- the executive's indictment for a felony; and
- the executive's unauthorized dissemination of our confidential
information or trade secrets.
The executives are eligible to receive severance pay if they are
terminated without cause. The severance payment would be an amount equal to one
year's salary in one lump sum and must be paid no later than 30 days from the
date of termination. The executive employment agreements also contain covenants
regarding the assignment of inventions, the disclosure of our confidential
information, the solicitation of our employees or agents and the ability of the
executives to engage in competing activities.
William Yuan's executive employment agreement has a term of three years
commencing March 1, 1999 and automatically renews for successive periods of one
year unless terminated prior to such renewal. He serves as our President and
Chief Executive Officer and will perform duties consistent with these positions
and under the direction of the board of directors. He receives a monthly salary
of $18,000. His agreement specifically provides that our failure to pay him as
required by the agreement is to be deemed a breach of the agreement. If there is
a change in control of inChorus.com and Mr. Yuan is terminated without cause
within 12 months of the change, he will be eligible for severance pay and all of
his outstanding options will immediately vest. "Change in control" is defined as
a new owner controlling more than 50% of our common stock.
Johnson C. Lee's agreement has a term of three years commencing August
31, 1999 and automatically renews for successive periods of one year unless
terminated prior to such renewal. He serves as our Chairman and will perform
duties consistent with the position and under the direction of the board of
directors. He receives a monthly salary of $12,500.
Edmund Leung's agreement has a term of three years commencing August
31, 1999 and automatically renews for successive periods of one year unless
terminated prior to such renewal. He serves as our Secretary and Chief Technical
Officer and will perform duties consistent with the positions and under the
direction of the board of directors. He receives a monthly salary of $12,500.
Ralph G. Coan's agreement has a term of two years commencing October
1999 and automatically renews for successive periods of one year unless
terminated prior to such renewal.
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<PAGE>
He serves as our Chief Financial Officer and will perform duties consistent with
the position and under the direction of the board of directors. He receives a
monthly salary of $14,167. The agreement also provides that Mr. Coan is to
receive options to purchase up to two hundred thousand (200,000) shares of our
common stock pursuant to our stock option plan. The right to exercise the option
vests quarterly over four years and the exercise price is $1.75, the fair market
value of the stock on the date of grant.
Employee Benefit Plans
1999 Stock Option Plan. Our 1999 Stock Option Plan was adopted by the
board of directors as of September 3, 1999 and has not yet been ratified by our
stockholders. We plan to present the 1999 Stock Option Plan to our stockholders
for approval at the next annual meeting of stockholders, which we currently
anticipate will occur shortly after our fiscal year ending March 31, 2000. The
following description of the 1999 Stock Option Plan is a summary and qualified
in its entirety by the text of the Plan, which is filed as an exhibit to the
registration statement of which this prospectus is a part.
The purpose of the 1999 Stock Option Plan is to enhance our
profitability and stockholder value by enabling us to offer stock based
incentives to employees, directors and consultants. The plan authorizes the
grant of options to purchase shares of common stock to employees, directors and
consultants of inChorus.com and its affiliates. Under the plan, we may grant
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986 and non-qualified stock options. Incentive stock options
may only be granted to our employees.
The number of shares available for options under the 1999 Stock Option
Plan is 3,398,000. The Plan is administered by our board of directors. Subject
to the provisions of the plan, the board of directors has authority to determine
the employees, directors and consultants who are to be awarded options and the
terms of such awards, including the number of shares subject to such options,
the fair market value of the common stock subject to options, the exercise price
per share and other terms.
Incentive stock options must have an exercise price equal to at least
100% of the fair market value of a share on the date of the award and generally
cannot have a duration of more than 10 years. If the grant is to a stockholder
holding more than 10% of our voting stock, the exercise price must be at least
110% of the fair market value on the date of grant. Terms and conditions of
awards are set forth in written agreements between inChorus.com and the
respective option holders. Awards under the Plan may not be made after the tenth
anniversary of the date of its adoption but awards granted before that date may
extend beyond that date.
If the employment of the holder of an incentive stock option is
terminated for any reason other than as a result of the holder's death or
disability or for "cause" as defined in the 1999 Stock Option Plan, the holder
may exercise the option, to the extent exercisable on the date of termination of
employment, until the earlier of the option's specified expiration date and 90
days after the date of termination. If an option holder dies or becomes
disabled, both incentive and non-qualified stock options may generally be
exercised, to the extent exercisable on the date of
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death or disability, by the option holder or the option holder's survivors until
the earlier of the option's specified termination date and one year after the
date of death or disability.
As of August 31, 2000, no shares had been issued as the result of the
exercise of options previously granted under the 1999 Stock Option Plan;
however, 2,416,714 shares were subject to outstanding options and 981,286 shares
were available for future grants. The exercise prices of the outstanding options
ranged from $0.31 to $2.12. The options under the Plan vest over varying lengths
of time pursuant to various option agreements that we have entered into with the
grantees of such options.
Optionees have no rights as stockholders with respect to shares subject
to option prior to the issuance of shares pursuant to the exercise thereof.
Options issued to employees under the Plan shall expire no later than ten years
after the date of grant. An option becomes exercisable at such time and for such
amounts as determined at the discretion of the board of directors at the time of
the grant of the option. An optionee may exercise a part of the option from the
date that part first becomes exercisable until the option expires. The purchase
price for shares to be issued to an employee upon his exercise of an option is
determined by the board of directors on the date the option is granted. The
purchase price is payable in full in cash, by promissory note, by net exercise
or by delivery of shares of our common stock when the option is exercised. The
plan provides for adjustment as to the number and kinds of shares covered by the
outstanding options and the option price therefor to give effect to any stock
dividend, stock split, stock combination or other reorganization of or by
inChorus.com.
Directors' Compensation
Directors who are also employees of inChorus.com receive no
compensation for serving on the board of directors. With respect to directors
who are not employees, we intend to reimburse such directors for all travel and
other expenses incurred in connection with attending meetings of the board of
directors and any committees of the board. Non-employee directors will also be
eligible to receive grants of non-qualified stock options under our 1999 Stock
Option Plan. We also intend to establish a non-employee director stock option
plan which will provide for initial option grants of a fixed number of shares of
our common stock to non-employee directors and successive annual option grants
to such non-employee directors covering an additional fixed number of shares, to
provide us with an effective way to recruit and retain qualified individuals to
serve as members of the board of directors.
Limitation of Liability and Indemnification
Our Articles of Incorporation, with certain exceptions, eliminate any
personal liability of directors or officers to us or our stockholders for
monetary damages for the breach of such person's fiduciary duty, and, therefore,
an officer or director cannot be held liable for damages to us or our
stockholders for gross negligence or lack of due care in carrying out his or her
fiduciary duties as a director or officer except in certain specified instances.
We may also adopt by-laws which provide for indemnification to the full extent
permitted under law which includes all liability, damages and costs or expenses
arising from or in connection with service for, employment by, or other
affiliation with us to the maximum extent and under all circumstances permitted
by law.
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There are presently no material pending legal proceeding to which a
director, officer and employee of ours is a party. There is no pending
litigation or proceeding involving one of our directors, officers, employees or
other agents as to which indemnification is being sought, and we are not aware
of any pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
We have purchased directors' and officers' liability insurance to
defend and indemnify directors and officers who are subject to claims made
against them for their actions and omissions as directors and officers of
inChorus.com. The insurance policy provides standard directors' and officers'
liability insurance in the amount of $2,000,000.
We have entered into indemnification agreements with our directors and
officers. These agreements provide, in general, that we shall indemnify and hold
harmless such directors and officers to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement, and expenses,
including attorneys' fees and disbursements, incurred in connection with, or in
any way arising out of, any claim, action or proceeding against, or affecting,
such directors and officers resulting from, relating to or in any way arising
out of, the service of such persons as our directors and officers.
To the extent provisions of our articles of incorporation provide for
indemnification of directors for liabilities arising under the Securities Act of
1933 or the Securities Exchange Act of 1934, those provisions are, in the
opinion of the Securities and Exchange Commission, against public policy and
therefore are unenforceable.
RELATED PARTY TRANSACTIONS
The following describes transactions to which we were or are a party
and in which any of our directors, officers, or significant stockholders, or
members of the immediate family of any of the foregoing persons, had or has a
direct or indirect material interest.
Unless otherwise indicated, information in this section regarding
shares of our common stock reflect the conversion ratio applied to shares of our
common stock at the time of the reorganization described below.
Stock Transactions by Softlink, Inc., a California Corporation
Issuances to Founders. Softlink, Inc., a California corporation ("Softlink
California") was formed in November 1995 by Johnson C. Lee and Edmund Leung. At
the time of formation, each of them was issued 1,011,802 shares of common stock
of Softlink California in consideration of their efforts in establishing that
company and developing its initial business strategy.
All the shares of Softlink California held by Johnson C. Lee and Edmund
Leung were converted into shares of our common stock in the reorganization with
Draco Technologies, Inc. described below.
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Reorganization with Draco Technologies, Inc.
In March 1998, Softlink California entered into the reorganization with
Draco Technologies, Inc., a Nevada corporation incorporated in July 1997. Under
the reorganization, the Softlink California stockholders received approximately
0.6745344 shares of common stock of Draco in exchange for each of the 4,259,449
outstanding shares of Softlink California common stock, and Softlink California
became a wholly-owned subsidiary of Draco. An aggregate of 2,873,145 shares was
issued to the former Softlink California stockholders in the reorganization with
Draco and the Softlink California stockholders owned approximately 52% of Draco
immediately after the reorganization. As part of the reorganization, all of the
executive officers and directors of Draco resigned and the executive officers
and directors of Softlink California became the executive officers and directors
of Draco, which then changed its name to Softlink, Inc.
Stock Option Grants
In May 1998, Johnson C. Lee and Edmund Leung each were issued options to
purchase 80,201 shares of inChorus.com common stock.
In March 1999, we issued William Yuan options to purchase up to 500,000
shares of our common stock, and in April 1999, each of Johnson C. Lee and Edmund
Leung were granted options to purchase up to 50,000 shares of our common stock.
All of these options were rescinded by our board of directors and are now of no
further force or effect.
In September 1999, we issued each of Johnson C. Lee and Edmund Leung
options to purchase 50,000 shares of inChorus.com common stock pursuant to our
stock option plan. These options had an exercise price of $2.00, which was more
than 110% of the fair market value of our common stock on the date of grant. For
each of Mr. Lee and Mr. Leung, the right to purchase 6,250 shares vested on the
date of grant and the right to purchase the remainder vest in seven quarterly
installments.
In September 1999, we also issued William Yuan options to purchase up to
657,143 shares of our common stock. These options have an exercise price of
$1.75, the fair market value of our common stock on the date of grant. Mr.
Yuan's right to purchase 217,143 shares vested on the date of grant. Options to
purchase 180,000 of the shares vest in 18 monthly installments. The right to
purchase 130,000 shares vests upon the listing of inChorus.com with Nasdaq. The
right to purchase the remaining 130,000 shares vests upon the recording by
inChorus.com of $12 million in revenue.
In October 1999, we issued Ralph G. Coan options to purchase up to 200,000
shares of our common stock. These options have an exercise price of $1.45, the
fair market value of our common stock on the date of grant. The right to
exercise these options vests in 16 equal quarterly installments.
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Other Agreements
As described above, we have entered into employment agreements with William
Yuan, our President and Chief Executive Officer, Johnson C. Lee, our Chairman,
and Edmund Leung, our Chief Technical Officer and Vice President of Engineering.
During the year, ended March 31, 1999, we accepted a loan from Silicon
Valley New Issues, a shareholder of inChorus.com, in the amount of $165,000. We
repaid this loan during the quarter ended September 30, 1999.
In December 1999, we issued each of William Yuan, Johnson C. Lee and Edmund
Leung 1,250 shares of common stock as bonus compensation for services rendered
by them on behalf of inChorus.com.
In December 1999, we issued 1,000 shares of common stock to Ralph G. Coan
as bonus compensation for services rendered by Mr. Coan.
In March 2000, we entered into a license agreement with eNews Corporation,
under which eNews is to pay $1,000.000. Additionally, we invested $149,200 in
eNews in June 2000. eNews paid $250,000 relating to the license agreement during
the quarter ended June 30, 2000. Additionally, we recorded revenue of $56,300
during the three months ended June 30, 2000, relating to support and maintenance
under the license agreement. As of June 30, 2000, amounts due under the license
agreement were $789,300, offset by deferred revenue of $750,000.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested directors, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of August 31, 2000, the ownership of our
common stock by each of our directors and executive officers, all of our
executive officers and directors as a group, and all persons known by us to
beneficially own more than 5% of our common stock.
Unless otherwise indicated in the footnotes to the table, the following
individuals have sole vesting and sole investment control with respect to the
shares they beneficially own and the address of each beneficial owner listed
below is c/o inChorus.com, 2041 Mission College Boulevard, Suite 259, Santa
Clara, California 95054.
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The amount of shares owned by each shareholder in the following table was
calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for the
purpose of calculating the number and percentage owned by each other person
listed. The total number of outstanding shares of common stock at August 31,
2000 is 11,526,310.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Name And Address Of Beneficial Amount And Nature Percent Of Percent Of
Owner Of Beneficial Class Before the Class After the
Ownership Offering Offering
Executive Officers and
Directors:
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Johnson C. Lee 1,144,238 9.8% 3.6%
--------------------------------------------------------------------------------------------------------
William Yuan 368,393 3.1% 1.2%
--------------------------------------------------------------------------------------------------------
Edmund T. Leung 1,137,238 9.8% 3.6%
--------------------------------------------------------------------------------------------------------
Ralph G. Coan 66,500 * *
--------------------------------------------------------------------------------------------------------
All directors and executive officers 2,716,369 22.7% 8.4%
as a group (four persons)
--------------------------------------------------------------------------------------------------------
</TABLE>
*Less than one percent.
The number of shares shown for Mr. Leung and Mr. Lee each includes 104,334
shares of common stock subject to options that are exercisable within 60 days of
August 31, 2000. The number of shares shown for Mr. Yuan includes 347,143 shares
of common stock subject to options that are exercisable within 60 days of August
31, 2000. The number of shares shown for Mr. Coan includes 62,500 shares of
common stock subject to options that are exercisable within 60 days of August
31, 2000. The number of shares shown for all directors and executive officers
includes 618,311 shares of common stock subject to options that are exercisable
within 60 days of August 31, 2000.
As indicated in the table above, our executive officers and directors
beneficially own, in the aggregate, 22.7% of our outstanding common stock. As a
result these stockholders may, as a practical matter, be able to influence all
matters requiring stockholder approval including the election of directors,
merger or consolidation and the sale of all or substantially all of our assets.
This concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which in turn could reduce the market price of
our common stock.
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DESCRIPTION OF CAPITAL STOCK
The descriptions in this section and in other sections of this prospectus
of our securities and various provisions of our articles of incorporation and
our bylaws are descriptions of the material terms of our securities. Our
articles of incorporation and bylaws have been filed with the Securities and
Exchange Commission as exhibits to this registration statement of which this
prospectus forms a part.
We may offer shares of common stock under this prospectus. The aggregate
number of shares to be offered will not exceed 20,000,000.
Our authorized capital stock consists of 59,000,000 shares of common stock,
par value $.001 per share, and 1,000,000 shares of preferred stock, par value
$.001 per share. As of August 31, 2000, 11,526,310 shares of our common stock
were issued and outstanding and 4,093,207 shares of common stock were reserved
for issuance upon exercise of outstanding options and warrants. As of August 31,
2000, 105 shares of our Preferred Stock were issued and outstanding.
Description of Common Stock
The holders of our common stock are entitled to equal amounts per share of
any dividends and distributions declared by the board of directors. No holder of
any shares of our common stock has a pre-emptive right to subscribe for any of
our securities, nor are any common shares subject to redemption or convertible
into other of our securities. Upon liquidation, dissolution or winding up of
inChorus.com, and after payment of creditors and preferred stockholders, if any,
the assets will be divided pro-rata on a share-for-share basis among the holders
of the shares of common stock. All shares of common stock now outstanding are
fully paid, validly issued and non-assessable.
Each share of common stock is entitled to one vote with respect to the
election of any director or any other matter upon which shareholders are
required or permitted to vote. Holders of the common stock do not have
cumulative voting rights, so the holders of more than 50% of the combined shares
voting for the election of directors may elect all of the directors if they
choose to do so, and, in that event, the holders of the remaining shares will
not be able to elect any members to the board of directors.
Description of the Equity Line Agreement
We entered into an equity line agreement with Plumrose Holdings, Ltd. And
WEC Global Telecom Ltd. effective April 24, 2000. This agreement entitles us to
sell, from time to time through April 24, 2001, up to $5,000,000 of our common
stock.
On August 11, 2000, our registration statement on Form SB-2 (File No. 333-
39534), filed in connection with the equity line agreement, was declared
effective by the Securities and Exchange Commission, and continuing from that
date through April 24, 2001. We may from time to time, in our sole discretion
sell, or put, shares of our common stock to Plumrose Holdings, Ltd. and WEC
Global Telecom Ltd. at a price per share equal to the average daily price on
each separate trading day during each draw down pricing period. The pricing
period is 15 days for the first draw down period and all other draw down periods
except the second, and
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45 days for the second draw down period. We may sell as much as $2,000,000 in
common stock during the first draw down period, up to $3,000,000 in common
stock during the second draw down period, and up to $500,000 in common stock
during subsequent draw down periods, subject to certain conditions, with the
total amount sold not to exceed $5,000,000. The maximum dollar amount of the
draw down during the first draw down period and all other draw down periods
except the second draw down period is limited to an amount equal to 20% of the
product of (i) the average stock price over the 45-day draw down period, (ii)
the average trading volume during that period and (iii) 45. The minimum draw
down is $250,000.
To date, we have not drawn down any Capital under the equity line. Although
we do not currently intend to draw down capital under the equity line, we may do
so in the near future. Based on our 15-day average daily price, as of May 11,
2000, of approximately $1.17 per share and our 15-day average daily trading
volume of 72,920 shares, we would have been entitled to draw down approximately
$255,950. We may effect subsequent draw downs of the applicable maximum amount
available under the equity line every 45 trading days thereafter until April 24,
2001, the termination date of the equity line.
Our ability to put shares of our common stock to Plumrose Holdings, Ltd.
and WEC Global Telecom Ltd. is subject to certain conditions and limitations,
including but not limited to the following:
- our registration statement on Form SB-2 (File No. 333-39534) must
remain effective on the date of each put;
- our representations and warranties to Plumrose and WEC set forth in
the equity line agreement must be true and correct in all material
respects as of the date of each put.
- no statute, rule, regulation, executive order, decree, ruling or
injuction shall be in effect that prohibits, nor any action, suit or
proceeding shall be in progress, pending or threatened that seeks to
enjoin or prohibit, the transactions contemplated under the equity
line agreement, or otherwise has a material adverse effect on our
business, operations, properties or financial condition;
- at the time of a put, there shall have been no material adverse change
in our business, operations, properties, prospects or financial
condition, except as disclosed in our reports filed with the
Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended;
- our common stock shall not have been delisted from its principal
market nor suspended from trading;
- the total of all of Plumrose's and WEC's purchases of common stock
under the equity line agreement shall not exceed $5,000,000; and
- at least 15 trading days (and in the case of the second draw down, 45
days) shall have elapsed between puts.
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Plumrose and WEC, or other underwriters of the securities, have the right
to our records and properties to obtain information about us and the accuracy of
this registration statement and prospectus, but are not entitled to reject a put
by us based on their review. Plumrose and WEC may be entitled to indemnification
by us for any lawsuits based on language in this prospectus with which they do
not agree.
We cannot assure you that we will satisfy all conditions required under the
equity line agreement or that we will be able to sell any shares to Plumrose
and/or WEC thereunder.
As discussed above, we filed a registration statement on Form SB-2 (File
No. 333-39534), which was declared effective by the Securities and Exchange
Commission on August 11, 2000, in order to permit Plumrose and WEC to resell to
the public any common stock issued under the equity line agreement.
In connection with the equity line agreement, on April 24, 2000, we issued
to each of Plumrose and WEC a warrant to purchase 50,000 shares of our common
stock, at an exercise price of $1.50 per share. The warrants are exercisable
through April 24, 2003, and contain provisions that protect Plumrose and WEC
against dilution upon the occurrence of certain events, such as a stock split,
reverse stock split, stock dividend or recapitalization. Under a registration
rights agreement, we agreed to register for resale the common stock issuable to
Plumrose and WEC under the equity line agreement and the warrants. In this
regard, we filed our registration statement on Form SB-2 (File No. 333-39534),
which was declared effective by the Securities and Exchange Commission on August
11, 2000. Registration permits Plumrose and WEC to resell common stock from time
to time in the market or in privately-negotiated transactions. We will prepare
and file amendments and supplements to the registration statement as may be
necessary in order to keep the registration statement effective as long as
Plumrose or WEC hold shares of our stock. We have agreed to bear certain
expenses (other than broker discounts and commissions, if any) in connection
with the registration statement.
Description of the 8% Convertible Debentures
We issued 8% convertible debentures in the original principal amount of
$2,000,000 to AMRO in March 2000. The debentures are convertible, at the option
of the holder, into shares of our common stock at a price per share of $1.75,
subject to adjustments for stock splits, stock dividends and reverse stock
splits. Interest is payable quarterly.
Pursuant to the agreement with AMRO providing for the issuance of the
debentures, we filed our registration statement on Form SB-2 (File No. 333-
39534), which was declared effective by the Securities and Exchange Commission
on August 11, 2000, that includes up to 1,142,857 shares of common stock
available for issuance upon conversion of the debentures, which shares AMRO may
then offer and sell to the public. In August 2000, we issued 100,000 shares of
common stock to AMRO in lieu of $40,000 in penalties for failure to file the
registration statement on a timely basis. We have also issued warrants to AMRO
to purchase 100,000 shares of common stock at an exercise price of $3.187 per
share, which shares AMRO may then also offer and sell to the public through the
above referenced registration statement.
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Description of Preferred Stock
The board of directors is authorized, without further stockholder approval,
to issue from time to time up to an aggregate of 1,000,000 shares of preferred
stock. The preferred stock may be issued in one or more series and the board of
directors may fix its rights, preferences and designations.
On August 17, 1999, we issued 300 shares of Series A Convertible Preferred
Stock to two investors. The Series A Convertible Preferred Stock is convertible
at the option of the preferred stockholders into shares of our common stock
equal to the stated value of the Series A Convertible Preferred Stock, equal to
$10,000 per share plus all accrued but unpaid dividends, divided by the
conversion price. The conversion price is the lesser of (i) $2.51 and (ii) 85%
of the lowest three closing bid prices of our common stock on the Over-The-
Counter market during the 50 trading days preceding the conversion date. As of
August 31, 2000, holders of our Series A Preferred Stock had converted an
aggregate of 195 shares of preferred stock into an aggregate of 3,116,771 shares
of common stock.
No holder of Series A Convertible Preferred Stock together with any
affiliate thereof may beneficially own in excess of 4.999% of the outstanding
shares of common stock following conversion. These restrictions may only be
waived by a holder of the Series A Preferred Stock after providing 61 days'
notice to us.
If the Series A Convertible Preferred Stock has not been converted or
redeemed by August 17, 2002, it will automatically convert into common stock on
that date, subject to exceptions. Upon the occurrence of certain events
specified in the securities purchase agreement, the holders of Series A
Convertible Preferred Stock may elect to have us redeem the Series A Convertible
Preferred Stock at a premium to their purchase price. These events include the
following:
- failure by us to maintain the effectiveness of the registration
statement filed to register the common stock underlying the preferred
stock;
- failure of our common stock to be eligible for quotation on the NASD
O-T-C Market, or any subsequent market on which our common stock may
be listed;
- failure by us to issue shares of our common stock upon conversion of
the Series A Convertible Preferred Stock;
- participation by us in a change of control transaction, agreement by
us to sell, in one or a series of related transactions all or
substantially all of our assets, or redemption by us of more than a de
minimus amount of securities;
- failure by us to cure an event of default under the securities
purchase agreement within 60 days after receipt of notice of such
default; and
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- failure by us to keep the specified number of shares of our common
stock reserved for issuance upon conversion of the Series A
Convertible Preferred Stock.
We may also redeem the Series A Convertible Preferred Stock at any time,
with prior notice, if the conversion price is equal to or falls below $1.75 per
share. Holders of Series A Convertible Preferred Stock are entitled to receive
cumulative dividends at the rate of seven percent per year, payable in cash or
shares of our common stock.
The foregoing has been a brief description of some of the terms of our
Series A Convertible Preferred Stock. For a more detailed description of the
rights of the holders of the Series A Convertible Preferred Stock, prospective
investors are directed to the actual certificate of designation that has been
filed as an exhibit to the registration statement of which this prospectus is a
part.
Other than the Series A Convertible Preferred Stock described above, no
shares of preferred stock are currently outstanding and we have no present plans
to issue any shares of preferred stock. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock. This difficulty could adversely affect
prevailing market prices for our common stock.
Description of Series A Warrants
In connection with the August 1999 issuance of our Series A Preferred
Stock, we also issued warrants to purchase shares of our common stock to the two
investors, Deephaven Private Placement Trading Ltd. and Hornblower Investors
LLC. These warrants may be exercised at any time during the five-year period
following their issuance at an exercise price of $2.43756 per share. The
warrants contain certain provisions that limit the number of shares of common
stock into which they are exercisable. Under these provisions, no holder of a
warrant may exercise his or her warrant if such exercise would result in the
holder beneficially owning more than 4.999% of our common stock.
In consideration for services provided by Cardinal Capital Management, Inc.
to us, we have issued to Cardinal Capital warrants to purchase up to 150,000
shares of our common stock. The warrants may be exercised at any time during the
five-year period following their issuance at an exercise price of $2.25 per
share. The number of shares issuable upon exercise of the warrants is subject to
adjustment upon the occurrence of stock splits, dividends or reclassifications.
The warrants carry registration rights which are described below.
This has been a brief description of some of the terms of our outstanding
warrants. For a more detailed description of the rights of the holders of the
warrants, prospective investors are directed to the actual forms of warrants
that have been filed as exhibits to the registration statement of which this
prospectus is a part.
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Registration Rights
Deephaven Private Placement Trading Ltd. and Hornblower Investors LLC have
registration rights with respect to the Series A Preferred Stock and warrants
they hold. Pursuant to a registration rights agreement, the common stock
underlying the Series A Preferred Stock and warrants issued to these investors
have been registered pursuant to our registration statement on Form SB-2 (File
No. 333-90185), declared effective by the Securities and Exchange Commission in
February, 1999. The registration rights agreement requires us to keep the
registration statement effective until all of the common stock offered has been
sold. We are responsible for the payment of all fees and costs associated with
the registration of the common stock, except that we are not responsible for
fees generated by the investors' counsel. We are required to indemnify and hold
harmless each investor and its officers, directors, agents and brokers against
any untrue statement of a material fact in a registration statement, prospectus
or amendment or supplement to a registration statement or prospectus. Specific
procedures for carrying out the indemnification are set forth in the
registration rights agreement.
Cardinal Capital Management, Inc. has registration rights with respect to
the warrants it holds. Pursuant to our agreement with Cardinal Capital, the
common stock underlying warrants issued to Cardinal Capital were registered as
part of the registration statement filed for the Series A Preferred Stock.
As discussed above, Plumrose and WEC were granted registration rights in
connection with shares issued to them under our equity line of credit agreement
with them. In this regard, we filed a registration statement on Form SB-2 (File
No. 333-39534), which was declared effective by the Securities and Exchange
Commission on August 11, 2000, in order to permit to resell to the public any
common stock issued under the equity line agreement.
Pursuant to our agreement with the holders of our 8% convertible
debentures, we were required to file our registration statement on Form SB-2
(File No. 333-39534), which was declared effective by the Securities and
Exchange Commission on August 11, 2000, registering shares of stock issuable
upon conversion of the debentures as well as the shares underlying warrants to
purchase common stock issued to the debenture holders.
Anti-Takeover Effects of Various Provisions of Nevada Law and Our Articles of
Incorporation and Bylaws
We are incorporated under the laws of the State of Nevada and are therefore
subject to various provisions of the Nevada Corporation laws, which may have the
effect of delaying or deterring a change in the control or management of
inChorus.com.
Nevada's "Combination with Interested Stockholders Statute," Nevada Revised
Statutes 78.411-78.444 applies to Nevada corporations having at least 200
stockholders. It prohibits a stockholder who owns at least 10% of the
outstanding voting shares of a company from entering into a merger, exchange,
sale of assets, liquidation or other similar, major transaction with that
company unless certain conditions are met.
51
<PAGE>
A company to which the statute applies may not engage in such a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
shares was approved by the board of directors before the interested stockholder
acquired the shares. If this approval was not obtained, then after the three-
year period expires, the combination may be consummated if all the requirements
in the Articles of Incorporation are met and either
- the board of directors or the shareholders approve of the
transactions.
- the market value of cash and other consideration other than cash to be
received by holders of common shares and holders of any other class or series of
shares meets the minimum requirements set forth in Sections 78.411 through
78.443, inclusive, and prior to the consummation of the combination, except in
limited circumstances, the "interested stockholder" will not have become the
beneficial owner of additional voting shares of the corporation.
Nevada's "Control Share Acquisition Statute," Nevada Revised Statute
Section 78.378-78.379, generally prohibits a shareholder from attempting to
acquire the company from voting shares of the company's stock once the
shareholder owns a certain percentage of the company's stock unless the
shareholders first approve. This statute only applies to Nevada corporations
with at least 200 stockholders, including at least 100 record stockholders who
are Nevada residents, and which do business directly or indirectly in Nevada.
While we do not currently exceed these thresholds, we may well do so in the near
future. The Control Share Acquisition Statute also provides that the
stockholders who do not vote in favor of restoring voting rights to the Control
Shares may demand payment for the "fair value" of their shares (which is
generally equal to the highest price paid in the transaction subjecting the
stockholder to the statute).
Certain provisions of our Bylaws, which are summarized below, may affect
potential changes in control of inChorus.com. The board of directors believes
that these provisions are in the best interests of stockholders because they
will encourage a potential acquiror to negotiate with the board of directors,
which will be able to consider the interests of all stockholders in a change in
control situation. However, the cumulative effect of these terms maybe to make
it more difficult to acquire and exercise control of inChorus.com and to make
changes in management more difficult.
The Bylaws provide the number of directors of inChorus.com shall be
established by the board of directors, but shall be no less than one. Between
stockholder meetings, the Board may appoint new directors to fill vacancies or
newly created directorships. A director may be removed from office by the
affirmative vote of 66-2/3% of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election of directors.
The Bylaws further provide that stockholder action may be taken at a
meeting of stockholders and may be effected by a consent in writing if such
consent is signed by the holders of the percentage of our shares required to
approve the action at a meeting. We are not aware of any proposed takeover
attempt or any proposed attempt to acquire a large block of our common stock.
52
<PAGE>
The provisions described above may have the effect of delaying or deterring
a change in the control or management of inChorus.com.
Application of California GCL
Although we are incorporated in Nevada, our headquarters is in the State of
California. Section 2115 of the California GCL ("Section 2115") provides that
certain provisions of the California GCL shall be applicable to a corporation
organized under the laws of another state to the exclusion of the law of the
state in which it is incorporated, if the corporation meets certain tests
regarding the business done in California and the number of its California
stockholders.
An entity such as us can be subject to Section 2115 if the average of the
property factor, payroll factor and sales factor deemed to be in California
during its latest full income year is more than 50 percent and more than one-
half of its outstanding voting securities are held of record by persons having
addresses in California. Section 2115 does not apply to corporations with
outstanding securities listed on the New York or American Stock Exchange, or
with outstanding securities designated as qualified for trading as a national
market security on NASDAQ, if such corporation has at least 800 beneficial
holders of its equity securities. Since the average of our property factor,
payroll factor and sales factor deemed to be in California during our latest
fiscal year was almost 100%, and over 60% of our outstanding voting securities
are held of record by persons having addresses in California, and our securities
do not currently qualify as a national market security on NASDAQ, we are subject
to Section 2115.
During the period that we are subject to Section 2115, the provisions of
the California GCL regarding the following matters are made applicable to the
exclusion of the law of the State of Nevada:
- general provisions and definitions;
- annual election of directors;
- removal of directors without cause;
- removal of directors by court proceedings;
- filling of director vacancies where less than a majority in office
were elected by the stockholders;
- directors' standard of care;
- liability of directors for unlawful distributions;
- indemnification of directors, officers and others;
- limitations on corporate distributions of cash or property;
- liability of a stockholder who receives an unlawful distribution;
- requirements for annual stockholders' meetings;
- stockholders' right to cumulate votes at any election of directors;
- supermajority vote requirements;
- limitations on sales of assets;
- limitations on mergers;
- reorganizations;
- dissenters' rights in connection with reorganizations;
- required records and reports;
- actions by the California Attorney General; and
- rights of inspection.
53
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is U.S. Stock
Transfer, and its telephone number is (800) 835-8778.
SHARES ELIGIBLE FOR FUTURE SALE
On August 31, 2000, 11,526,310 shares of our common stock were outstanding,
and 2,416,714 shares of common stock were subject to options granted under our
1999 Stock Option Plan and otherwise. Of the outstanding shares, 4,277,757
shares of common stock are immediately eligible for sale in the public market
without restriction or further registration under the Securities Act of 1933,
unless purchased by or issued to any "affiliate" of ours, as that term is
defined in Rule 144 promulgated under the Securities Act of 1933, described
below. All other outstanding shares of our common stock are "restricted
securities" as such term is defined under Rule 144, in that such shares were
issued in private transactions not involving a public offering and may not be
sold in the absence of registration other than in accordance with Rules 144,
144(k) or 701 promulgated under the Securities Act of 1933 or another exemption
from registration.
In general, under Rule 144 as currently in effect, a person, including an
affiliate, who has beneficially owned shares for at least one year is entitled
to sell, within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of one percent
of the then outstanding shares of our common stock or the average weekly trading
volume in our common stock during the four calendar weeks preceding the date on
which notice of such sale is filed, subject to various restrictions. In
addition, a person who is not deemed to have been an affiliate of ours at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell
those shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from an affiliate, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate.
We also filed a registration statement on form SB-2 (File No. 333-90185)
covering shares of common stock underlying the preferred stock held by two
investors. Pursuant to this registration statement 7,551,058 shares of common
stock became immediately eligible for resale upon the conversion of the
preferred stock. We also filed a registration statement on form SB-2 (File No.
333-39534) to register for resale 8,2000,000 of the shares of common stock
reserved for issuance upon the conversion of our 8% convertible debentures and
issued in connection with our equity line agreement. Additionally, we have filed
registration statements on form S-8 covering an aggregate amount of 4,644,743
shares issuable pursuant to outstanding options to purchase shares of our common
stock.
There has been very limited trading volume in our common stock to date.
Sales of substantial amounts of our common stock under Rule 144, this prospectus
or otherwise could adversely affect the prevailing market price of our common
stock and could impair our ability to raise capital through the future sale of
our securities.
PLAN OF DISTRIBUTION
54
<PAGE>
We may sell the securities through underwriters, agents or dealers or
directly to purchases. A prospectus supplement will set forth the terms of each
specific offering, including the name or names of any underwriters or agents,
the purchase price of the securities and the proceeds to us from such sales, any
delayed delivery arrangements, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed form time to time.
If underwriters are used in the sale, the securities will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of the sale. The
securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering and, if an underwriting syndicate is used, the
managing underwriter or underwriters will be set forth on the cover of such
prospectus supplement. Unless otherwise set forth in the prospectus supplement,
the underwriters will be obligated to purchase all the securities if any are
purchased.
During or after an offering through underwriters, the underwriters may
purchase and sell the securities in the open market. These transactions may
include overallotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. The
underwriters also may impose a penalty bid, under which selling concessions
allowed to syndicate members or other broker-dealers for the securities they
sell for their account may be reclaimed by the syndicate if the syndicate
repurchases the securities in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
securities then offered, which may be higher than the price that might otherwise
prevail in the open market, and, if commenced, may be discontinued at any time.
We may sell the securities directly or through agents we designate from
time to time. Any agent involved in the offer or sale of the securities covered
by this prospectus will be named, and any commissions payable by us to an agent
will be set forth, in a prospectus supplement relating thereto. Unless otherwise
indicated in a prospectus supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
If dealers are used in any of the sales of common stock covered by this
prospectus, we will sell common stock to dealers as principals. The dealers may
then resell the common stock to the public at varying prices the dealers
determine at the time of resale. The names of the dealers and the terms of the
transactions will be set forth in a prospectus supplement.
55
<PAGE>
We may sell the common stock directly to institutional investors or others
who may be deemed to be underwriters within the meaning of the Securities Act of
1933 with respect to any sale thereof. The terms of any such sales will be
described in a prospectus supplement.
If so indicated in a prospectus supplement, we will authorize agents,
underwriters or dealers to solicit offers from certain types of institutions to
purchase common stock from us at the public offering price set forth in the
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. These contracts will be
subject only to those conditions set forth in the prospectus supplement, and the
prospectus supplement will set forth the commission payable for solicitation of
such contracts.
Agents, dealers and underwriters may be entitled under agreements entered
into with us to indemnification by us against certain civil liabilities,
including liabilities under the Securities Act of 1933, or to contribution with
respect to payments which such agents, dealers or underwriters may be required
to make in respect thereof. Agents, dealers and underwriters may be customers
of, engage in transactions with, or perform services on our behalf.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Silicon Valley Law Group, San Jose, California.
EXPERTS
The financial statements included in the registration statement on Form SB-
2 have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report, which
contains an explanatory paragraph regarding our ability to continue as a going
concern, appearing elsewhere herein and in the registration statement, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on form SB-2. This prospectus, which is a part of the registration
statement, does not contain all of the information included in the registration
statement. Some information is omitted, and you should refer to the registration
statement and its exhibits. With respect to references made in this prospectus
to any contract, agreement or other document of Softlink, such references are
not necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract, agreement or other
document. You may review a copy of the registration statement, including
exhibits, at the Securities and Exchange Commission's public reference room at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or Seven World
Trade Center, 13th Floor, New York, New York 10048 or Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661.
56
<PAGE>
The public may obtain information on the operation of the public reference
room by calling the Securities and Exchange Commission at 1-800-SEC-0330.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information on file at the public
reference rooms. You can also request copies of these documents, for a copying
fee, by writing to the Securities and Exchange Commission.
Our Securities and Exchange Commission filings and the registration
statement can also be reviewed by accessing the Securities and Exchange
Commission's Internet site at http://www.sec.gov, which contains reports, proxy
------------------
and information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission.
You should rely only on the information provided in this prospectus or any
prospectus supplement. We have not authorized anyone else to provide you with
different information. We are not making an offer to sell, nor soliciting an
offer to buy, these securities in any jurisdiction where that would not be
permitted or legal. Neither the delivery of this prospectus nor any sales made
hereunder after the date of this prospectus shall create an implication that the
information contained herein or our affairs have not changed since the date
hereof.
57
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Contents
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements
Consolidated balance sheets F-3 - F-4
Consolidated statements of operations F-5
Consolidated statements of stockholders' equity (deficiency) F-6
Consolidated statements of cash flows F-7
Notes to consolidated financial statements F-8 - F-28
F-1
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders of
inChorus.com (formerly known as Softlink, Inc.)
We have audited the accompanying consolidated balance sheets of inChorus.com
(formerly known as Softlink, Inc.) and subsidiary as of March 31, 2000 and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the two years in the period ended March
31, 2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
inChorus.com (formerly known as Softlink, Inc.) and subsidiary as of March 31,
2000 and the results of their consolidated operations and cash flows for each
of the two years in the period ended March 31, 2000, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has an accumulated deficit of $8,887,900 as of
March 31, 2000 and incurred net losses of $6,148,600 and $1,015,900 for the
years ended March 31, 2000 and 1999, respectively. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding those matters are also described in Note 1. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amount and
classification of liabilities that might result from the outcome of this
uncertainty.
/s/ BDO Seidman
San Jose, California
May 15, 2000, except for the third paragraph of Note 13, for which the date is
June 8, 2000
F-2
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
-------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 445,700 $ 1,995,900
Due from related party (Note 6) 789,300 700,000
Accounts receivable, net of allowance for doubtful
accounts of $550,900 and $672,200 (Notes 6 and 10) 140,300 1,400
Inventories 82,300 98,100
Prepaid expenses and other current assets 196,000 154,600
-------------------------------------------------------------------------------------------------
Total Current Assets 1,653,600 2,950,000
Property and Equipment, net (Note 3) 163,800 157,000
Investments 149,200 --
Deposits and Other Assets (Note 4) 162,400 181,600
-------------------------------------------------------------------------------------------------
$ 2,129,000 $ 3,288,600
=================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
===========================================================================================================
June 30, March 31,
2000 2000
-----------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Deficiency
Current Liabilities:
Accounts payable $ 349,700 $ 524,300
Accrued expenses 333,400 207,000
Deferred revenue (Note 6) 772,300 734,700
Obligations under capital lease, current portion (Note 3) 6,100 6,800
-----------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,461,500 1,472,800
Convertible notes payable (Notes 4 and 5) 1,899,000 1,878,800
Obligations under capital lease, net of current portion (Note 3) 32,000 25,900
-----------------------------------------------------------------------------------------------------------
Total Liabilities 3,392,500 3,377,500
-----------------------------------------------------------------------------------------------------------
Commitments, Contingencies, and Subsequent
Events (Notes 6, 7, 9, 12, and 13)
Stockholders' Deficiency (Notes 1, 5, 7, 9, and 13):
Convertible preferred stock, $0.001 par value; 1,000,000
shares authorized; 118 and 159 shares issued and outstanding 936,800 1,264,400
Common stock, $0.001 par value; 59,000,000
and 50,000,000 shares authorized; 10,955,997 and
10,261,714 shares issued and outstanding 11,000 10,300
Additional paid-in capital 7,983,900 7,542,100
Accumulated deficit (10,177,400) (8,887,900)
-----------------------------------------------------------------------------------------------------------
(1,245,700) (71,100)
Less: Notes receivable (17,800) (17,800)
-----------------------------------------------------------------------------------------------------------
Total Stockholders' Deficiency (1,263,500) (88,900)
-----------------------------------------------------------------------------------------------------------
$ 2,129,000 $ 3,288,600
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
inChorus.com
(formerly known as Softlink Inc.)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30, Years Ended March 31,
-------------------------- -----------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
License fee revenue, including $250,000 from
related party for quarter ended June 30, 2000 $ 262,500 $ 153,100 $ 309,200 $ 640,000
Product and service revenue, including $56,300 from
related party for quarter ended June 30, 2000 140,800 171,500 371,000 91,100
-----------------------------------------------------------------------------------------------------------------------------
Total Revenue 403,300 324,600 680,200 731,100
-----------------------------------------------------------------------------------------------------------------------------
Cost of Sales 88,300 57,000 491,100 39,200
-----------------------------------------------------------------------------------------------------------------------------
Gross Profit 315,000 267,600 189,100 691,900
-----------------------------------------------------------------------------------------------------------------------------
Operating Expenses (Notes 7 and 9):
Research and development 321,900 187,500 907,500 286,300
Sales and marketing 620,800 232,600 1,625,800 688,600
General and administrative 563,300 403,100 2,523,400 845,100
-----------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 1,506,000 823,200 5,056,700 1,820,000
-----------------------------------------------------------------------------------------------------------------------------
Loss From Operations (1,191,000) (555,600) (4,867,600) (1,128,100)
-----------------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 14,300 900 72,500 115,500
Interest expense, including noncash interest
of $1,298,400 for the year ended
March 31, 2000 (Notes 5 and 11) (62,700) -- (1,311,100) (2,500)
Other -- (7,200) (6,700) --
-----------------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (48,400) (6,300) (1,245,300) 113,000
-----------------------------------------------------------------------------------------------------------------------------
Loss Before Provision for Income Taxes (1,239,400) (561,900) (6,112,900) (1,015,100)
Provision for Income Taxes (Note 8) 25,800 800 35,700 800
-----------------------------------------------------------------------------------------------------------------------------
Net Loss (1,265,200) (562,700) (6,148,600) (1,015,900)
Preferred Stock Dividends (24,300) -- (120,200) --
Deemed Dividend on Beneficial Conversion of
Preferred Stock (Note 9) -- -- (972,600) --
-----------------------------------------------------------------------------------------------------------------------------
Net Loss Allocable to Common Shareholders $ (1,289,500) $ (562,700) $ (7,241,400) $ (1,015,900)
============================================================================================================================
Basic and diluted loss per share $ (0.12) $ (0.07) $ (0.88) $ (0.14)
============================================================================================================================
Basic and diluted weighted-average common
shares outstanding 10,533,300 7,803,700 8,195,300 7,132,600
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Consolidated Statements of Stockholders' Equity (Deficiency)
(Notes 1, 5, 9, and 13)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in
-------------------- ------------------------
Shares Amount Shares Amount Capital
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, April 1, 1998 -- $ -- 5,500,425 $ 5,500 $ 1,111,700
Issuance of common stock for cash and notes receivable -- -- 6,512,835 6,500 5,033,400
Stock option grants -- -- -- -- 343,000
Repurchase and retirement of common stock -- -- (2,650,130) (2,600) (971,300)
Treasury stock acquired, at cost -- -- -- -- --
Issuance of treasury stock for retirement of debt -- -- -- -- 22,600
Issuance of treasury stock as bonus to existing shareholders -- -- -- -- 95,300
Payments received on notes receivable -- -- -- -- --
Net loss -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1999 -- -- 9,363,130 9,400 5,634,700
Stock option grants -- -- -- -- 538,200
Issuance of treasury stock for cash and notes receivable -- -- -- -- 700
Issuance of treasury stock for cash -- -- -- -- 19,400
Issuance of common stock as employee bonus -- -- 28,244 -- 26,500
Issuance of common stock for cash -- -- 1,000 -- 1,200
Exercise of common stock options -- -- 40,000 100 24,300
Issuance of convertible preferred stock and warrants, net
of offering costs of $211,300 300 2,385,700 -- -- 403,000
Deemed dividend on beneficial conversion of preferred stock -- -- -- -- 972,600
Dividend in arrears - convertible preferred stock -- -- -- -- 120,200
Conversion of preferred stock and accrued dividends to
common stock (141) (1,121,300) 2,283,696 2,300 1,119,000
Retirement of treasury stock -- -- (1,454,356) (1,500) (2,737,300)
Deemed interest on beneficial conversion of note payable to
common stock -- -- -- -- 1,298,400
Issuance of warrants to purchase common stock in
conjunction with debt financing -- -- -- -- 121,200
Net loss -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 2000 159 1,264,400 10,261,714 10,300 7,542,100
Issuance of common stock as employee bonus (unaudited) -- -- 10,000 -- 17,400
Exercise of common stock options (unaudited) -- -- 120,000 100 73,100
Dividend in arrears - convertible preferred stock (unaudited) -- -- -- -- 24,300
Conversion of preferred stock and accrued dividends to
common stock (unaudited) (41) (327,600) 564,283 600 327,000
Net loss (unaudited) -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 2000 (unaudited) 118 $ 936,800 10,955,997 $ 11,000 $ 7,983,900
=================================================================================================================================
<CAPTION>
Accumulated Treasury Stock Notes
-----------------------
Deficit Shares Amount Receivable Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, April 1, 1998 $ (630,600) -- $ -- $ (550,000) $ (63,400)
Issuance of common stock for cash and notes receivable -- -- -- (4,976,300) 63,600
Stock option grants -- -- -- -- 343,000
Repurchase and retirement of common stock -- -- -- 973,900 --
Treasury stock acquired, at cost -- (1,771,209) (3,186,500) 3,186,500 --
Issuance of treasury stock for retirement of debt -- 21,209 57,000 -- 79,600
Issuance of treasury stock as bonus to existing shareholders -- 156,250 13,000 -- 108,300
Payments received on notes receivable -- -- -- 1,365,900 1,365,900
Net loss (1,015,900) -- -- -- (1,015,900)
----------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1999 (1,646,500) (1,593,750) (3,116,500) -- 881,100
Stock option grants -- -- -- -- 538,200
Issuance of treasury stock for cash and notes receivable -- 72,727 197,100 (17,800) 180,000
Issuance of treasury stock for cash -- 66,667 180,600 -- 200,000
Issuance of common stock as employee bonus -- -- -- -- 26,500
Issuance of common stock for cash -- -- -- -- 1,200
Exercise of common stock options -- -- -- -- 24,400
Issuance of convertible preferred stock and warrants, net
of offering costs of $211,300 -- -- -- -- 2,788,700
Deemed dividend on beneficial conversion of preferred stock (972,600) -- -- -- --
Dividend in arrears - convertible preferred stock (120,200) -- -- -- --
Conversion of preferred stock and accrued dividends to
common stock -- -- -- -- --
Retirement of treasury stock
Deemed interest on beneficial conversion of note payable to -- 1,454,356 2,738,800 -- --
common stock
Issuance of warrants to purchase common stock in -- -- -- -- 1,298,400
conjunction with debt financing -- -- -- -- 121,200
Net loss (6,148,600) -- -- -- (6,148,600)
----------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 2000 (8,887,900) -- -- (17,800) (88,900)
Issuance of common stock as employee bonus (unaudited) -- -- -- -- 17,400
Exercise of common stock options (unaudited) -- -- -- -- 73,200
Dividend in arrears - convertible preferred stock (unaudited) (24,300) -- -- -- --
Conversion of preferred stock and accrued dividends to
common stock (unaudited) -- -- -- -- --
Net loss (unaudited) (1,265,200) -- -- -- (1,265,200)
----------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 2000 (unaudited) $(10,177,400) -- $ -- $ (17,800) $ (1,263,500)
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Consolidated Statements of Cash Flows
Note ??
================================================================================
<TABLE>
<CAPTION>
Three Months Ended June 30, Year Ended March 31,
---------------------------- ---------------------------
2000 1999 2000 1999
==========================================================================================================================
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (1,265,200) $ (562,700) $ (6,148,600) $ (1,015,900)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 24,300 5,100 22,900 7,100
Allowance for doubtful accounts (121,300) 2,200 672,200 --
Amortization of notes payable discount 27,500 -- -- --
Compensation relating to stock options issued -- 205,000 538,200 343,000
Compensation relating to stock issued for services 17,400 -- 26,500 --
Deemed interest on beneficial conversion of
note payable to common stock -- -- 1,298,400 --
Compensation relating to issuance of treasury stock -- -- -- 108,300
Changes in current operating assets and liabilities:
Accounts receivable (17,600) (318,700) (243,000) (423,700)
Due from related party (89,300) -- (700,000) --
Inventories 15,800 (33,500) (58,500) (25,600)
Prepaid expenses and other current assets (41,400) (50,300) (71,100) (82,700)
Accounts payable (174,600) 56,200 444,600 77,200
Accrued expenses 126,400 20,900 200,300 6,700
Deferred revenue 37,600 12,700 734,700 --
--------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Operating Activities (1,460,400) (663,100) (3,283,400) (1,005,600)
--------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Payments to acquire property and equipment (31,100) (53,000) (90,300) (49,800)
Deposits and other assets (130,000) (15,200) (129,600) (52,000)
Payments for notes receivable -- -- (155,000) --
Proceeds from repayment of notes receivable -- -- 155,000 --
--------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (161,100) (68,200) (219,900) (101,800)
--------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from note payable to shareholder -- 100,000 218,300 --
Principal payments on notes payable to shareholder -- -- (218,300) (50,000)
Proceeds from borrowing on notes payable -- -- 120,000 --
Principal payments on notes payable -- -- (120,000) (16,500)
Principal payments on capital lease obligations (1,900) -- (2,600) --
Proceeds from issuance of convertible preferred stock -- -- 2,788,700 --
Proceeds from issuance of convertible note payable -- -- 2,000,000
Proceeds from issuance of common stock 73,200 -- 25,600 63,600
Proceeds from issuance of treasury stock -- 380,000 380,000 --
Payments received on shareholder notes receivable -- -- -- 1,365,900
--------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 71,300 480,000 5,191,700 1,363,000
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (1,550,200) (251,300) 1,688,400 255,600
Cash and Cash Equivalents, beginning of period 1,995,900 307,500 307,500 51,900
--------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period $ 445,700 $ 56,200 $ 1,995,900 $ 307,500
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999 is unaudited)
1. Summary of
Significant The Company
Accounting Policies Softlink, Inc. (formerly Draco Technologies, Inc., a
and Basis of publicly traded shell corporation) (the Company), a
Presentation Nevada Corporation, was incorporated on July 24,
1997. In February 2000, the Company changed its name
to inChorus.com.
On March 31, 1998 the Company completed the
acquisition of 100% of the outstanding common stock
of Softlink, Inc., a California corporation,
(Softlink CA) in exchange for 2,873,145 shares of the
Company's $.001 par value common stock. For
accounting purposes, the acquisition was treated as
the acquisition of the Company by Softlink CA with
Softlink CA as the acquirer (reverse acquisition).
All shares and per share data prior to the
acquisition have been restated to reflect the stock
issuance as a recapitalization of Softlink CA. The
2,627,280 shares held by the shareholders of the
Company prior to the acquisition have been recognized
as if they were issued in connection with the
acquisition of the Company by Softlink CA. On October
21, 1998, the Company's stock became publicly traded.
Softlink CA was incorporated on November 8, 1995.
Softlink CA's principal activities consist of
developing e-mail enhancement software, and licensing
and marketing its products through wholesalers and
end-users located primarily in North America.
Basis of Presentation
The accompanying financial statements as of June 30,
2000 and for the three month periods ended June 30,
2000 and 1999 have not been audited. However, in the
opinion of management, they include all normal
recurring adjustments necessary for a fair
presentation of the financial position and the
results of operations for the periods presented. The
results of operations for the three months ended June
30, 2000 are not necessarily indicative of results to
be expected for any future period.
F-8
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999 is unaudited)
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. As
shown in the financial statements, the Company had an
accumulated deficit of $8,887,900 as of March 31,
2000 and incurred losses of $6,148,600 and $1,015,900
for the years ended March 31, 2000 and 1999,
respectively.
These conditions give rise to substantial doubt about
the Company's ability to continue as a going concern.
The consolidated financial statements do not include
any adjustments relating to the recoverability and
classification of reported asset amounts or the
amount and classification of liabilities that might
be necessary should the Company be unable to continue
as a going concern. The Company's continuation as a
going concern is dependent upon its ability to obtain
additional financing or refinancing as may be
required and ultimately to attain profitability. The
Company is actively marketing its existing and new
products, which it believes will ultimately lead to
profitable operations. Management is also pursuing
additional financing and has obtained an equity line
under which it may issue up to $5,000,000 in common
stock (Note 13). No assurances can be given that the
Company will be successful in its efforts.
Consolidation
The accompanying consolidated financial statements
include the accounts of inChorus.com (formerly known
as Softlink, Inc.) and its wholly-owned subsidiary,
Softlink CA. All intercompany accounts and
transactions have been eliminated in the consolidated
financial statements.
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 reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from those estimates. Significant
estimates made by the Company include those related
to accounts receivable and inventory reserves.
F-9
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999 is unaudited)
The determination of the adequacy of the allowances
for accounts receivable and inventory are based on
estimates that are particularly susceptible to
significant changes in the economic environment and
market conditions.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with original maturities of three months or less to
be cash equivalents. The Company places its cash and
cash equivalents with a high quality institution. At
times, such funds may be in excess of the Federal
Deposit Insurance Company limit of $100,000.
Accounts Receivable and Allowance for Doubtful Accounts
The Company grants credit to its customers after
undertaking an investigation of credit risk for all
significant amounts and generally does not require
cash collateral. When necessary, an allowance for
doubtful accounts is provided for estimated credit
losses at a level deemed appropriate to adequately
provide for known and inherent risks related to such
amounts. The allowance is based on reviews of loss,
adjustments history, current economic conditions and
other factors that deserve recognition in estimating
potential losses. While management uses the best
information available in making its determination,
the ultimate recovery of recorded accounts receivable
is also dependent upon future economic and other
conditions that may be beyond management's control.
Inventories
Inventories, which consist principally of software
and packaging, are stated at the lower of cost
(average) or market (net realizable value).
Property and Equipment
Property and equipment are stated at cost, net of
accumulated depreciation and amortization.
Depreciation is provided on the straight-line method
over the estimated useful lives of the assets,
generally ranging from two to five years.
Long-Lived Assets
F-10
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
The Company periodically reviews its long-lived
assets for potential impairment based upon the
estimated future cash flows expected to result from
the use of the asset and its eventual disposition.
When events or changes in circumstances indicate that
the carrying amount of an asset may not be
recoverable, the Company writes the asset down to its
estimated then-current fair value.
Revenue Recognition
Revenues consist of sale of the Company's software
products, and fees for license of its products (Note
6). Revenues are recognized when persuasive evidence
of an arrangement exists, delivery has occurred, the
fee is fixed and determinable, and collectibility is
probable. Deferred revenue represents the unearned
portion of amounts billed to customers.
Research and Development Costs
Costs incurred in the research and development of new
software products are expensed as incurred until
technological feasibility has been established. To
date, the establishment of technological feasibility
of the Company's products and general release
substantially coincide. As a result, the Company has
not capitalized any software development costs since
such costs qualifying for capitalization have not
been significant.
Advertising Costs
F-11
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
The cost of advertising is expensed as incurred,
except for direct response advertising, which is
capitalized and amortized over its expected period of
future benefits. Direct response advertising consists
primarily of television infomercials which are
broadcast to elicit sales to customers who respond
specifically to the advertisement. The capitalized
costs of the advertising are amortized over the
period that the infomercial is broadcasted. As of
March 31, 2000, none of these advertising costs,
pertaining to infomercial production, are included in
prepaid expenses and other current assets.
Advertising expense for the years ended March 31,
2000 and 1999 aggregated $660,600 and $23,900,
respectively. Advertising expense for the three
months ended June 30, 2000 and 1999 aggregated
$200,800 and $79,300, respectively (unaudited).
Income Taxes
The Company reports income taxes in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. Deferred income
taxes are recognized for the tax consequences of
temporary differences by applying the tax rate
expected to be in effect in future years to
differences between the financial statements carrying
amounts and the tax basis of existing assets and
liabilities. Tax credits are recorded as a reduction
of the provision for federal income taxes in the year
realized. A valuation allowance is established for
deferred income tax assets when realization is not
deemed certain.
Adoption of New Accounting Pronouncements
In March 1998, the American Institute of Certified
Public Accountants issued Statement of Position (SOP)
No. 98-1, Software for Internal Use, which provides
guidance on accounting for the cost of computer
software developed or obtained for internal use. The
adoption of SOP No. 98-1 as of April 1, 1999 did not
have a material impact on the Company's consolidated
financial statements.
F-12
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
In June 1998, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS
No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities
in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the
objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of
the hedged assets or liability that are attributable
to the hedged risk or (ii) the earnings effect of the
hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain and loss
is recognized in income in the period of change. SFAS
No. 133, as amended, is effective for all fiscal
quarters of fiscal years beginning after June 15,
2000.
Historically, the Company has not entered into
derivatives contracts either to hedge existing risks
or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to
affect its financial statements.
In March 2000, the Financial Accounting Standards
Board issued Interpretation No. 44 ("FIN 44")
Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No.
25. FIN 44 clarifies the application of Opinion No 25
for (a) the definition of employee for purposes of
applying Opinion No. 25, (b) the criteria for
determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences
of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1,
2000, but certain conclusions cover specific events
that occur after either December 15, 1998, or January
12, 2000. Due to the potential repricing of options,
FIN 44 may have a material effect on our future
financial position or results of operations.
Fair Values of Financial Instruments
The following methods and assumptions were used by
the Company in estimating its fair value disclosures
for financial instruments:
Cash and cash equivalents:
F-13
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and
1999 is unaudited)
The carrying amount reported in the consolidated
balance sheet for cash and cash equivalents
approximates fair value for cash and cash
equivalents.
Loan receivable:
The fair value of the loan receivable from Global
Access Telephone & Technology, Inc. approximates
fair value.
Short-term debt:
The fair value of short-term debt approximates
cost because of the short period of time to
maturity.
All other financial instruments are carried at
amounts that approximate estimated fair value.
Reclassifications
Certain 2000 and 1999 amounts in the consolidated
financial statements and notes thereto have been
reclassified to conform to the present period
presentation.
Earnings Per Share
Basic earnings per share includes no dilution and is
computed by dividing income available to common
stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings
per share reflects the potential dilution of
securities that could share in the earnings of an
entity. For the years ended March 31, 2000 and 1999,
options to purchase 3,079,957 and 2,306,493 shares of
common stock, respectively, were excluded from the
computation of diluted loss per share since their
effect would be antidilutive. For the three months
ended June 30, 2000 and 1999, options to purchase
3,579,957 and 2,504,493 shares of common stock,
respectively, were excluded from the computation of
diluted loss per share since their effect would be
antidilutive (unaudited).
2. Notes Receivable During 2000, the Company loaned an aggregate of
$130,000 to two unrelated companies. As of March 31,
2000, these notes receivable had been repaid.
F-14
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
3. Property and A summary of property and equipment follows:
Equipment
<TABLE>
<CAPTION>
June 30, March 31,
2000 1999
-----------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Furniture and fixtures $ 76,900 $ 61,200
Equipment 14,900 199,200
Software 133,100 13,400
-----------------------------------------------------------------
244,900 193,800
Less accumulated depreciation 61,100 36,800
-----------------------------------------------------------------
$ 163,800 $ 157,000
=================================================================
</TABLE>
Equipment under capital lease obligations aggregated
$35,300 as of March 31, 2000 with related accumulated
depreciation of $2,700. As of June 30, 2000,
equipment under capital lease obligations aggregated
$42,500 with related accumulated depreciation of
$4,900 (unaudited).
4. Deposits and Included in deposits and other assets as of March 31,
Other Assets 2000 and 1999 is a $49,200 loan receivable from
Actanet Inc., an unrelated company. During 2000,
Actanet Inc. assigned the loan to Global Access
Telephone & Technology, Inc., an unrelated Company,
which has agreed to repay the loan at 10% interest in
twelve equal payments beginning August 1, 2000.
Also included in deposits and other assets as of
March 31, 2000 are loan fees of $115,000 relating to
the issuance of a $2,000,000 convertible note payable
(Note 5). The loan fees are being amortized over the
three-year life of the note.
F-15
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
5. Notes Payable In March 1998, the Company borrowed $50,000 from a
stockholder under the terms of a promissory note
bearing a 12% interest rate. In August 1998, the note
payable and accrued interest were repaid in full.
In December 1997, the Company received a $100,000
deposit from Compressant, Inc., a company who had
previously entered into a merger agreement with the
Company. In April 1998, the Company cancelled the
merger agreement with Compressant, Inc. and executed
an 8% promissory note payable in December 1998. In
July 1998, the promissory note was assigned to Harris
& Hull, who subsequently filed a complaint against
the Company for breach of contract on the promissory
note. In March 1999, the Company entered into a
settlement agreement with Harris & Hull which
provided for a $5,000 cash payment and a transfer of
21,209 shares of the Company's common stock as full
payment on the $84,600 remaining balance due under
the promissory note. Since the Company issued shares
of treasury stock carried at their acquisition cost
of $57,000 to settle this note payable, the resulting
gain on this transaction has been recorded as an
increase to additional paid-in capital.
In June and July 1999, the Company borrowed a total
of $202,300 with zero interest from four
shareholders, and a $16,000 interest-free loan from
an officer, respectively. In August 1999, all of
these loans were paid in full.
In July 1999, the Company borrowed $100,000 from an
unrelated lender under the terms of a promissory note
bearing a 10% interest rate. In August 1999, the loan
was paid in full.
In March 2000, the Company borrowed $2,000,000 from
an independent lender. Interest at 8% is payable
quarterly. The holder of the notes may convert the
entire outstanding principal amount into shares of
the Company's common stock at $1.75 per share. The
outstanding principal amount of the notes is due
September 30, 2001, if not converted. In connection
with the notes payable, the Company issued warrants
to purchase 100,000 shares of common stock at $3.187
per share. The Company recorded a discount on the
notes payable of $121,200, based on the fair value of
the warrants, to be amortized as additional interest
expense over the life of the notes. The Company also
recorded deemed interest of $1,298,400, relating to
the beneficial conversion price of the notes payable.
F-16
<PAGE>
InChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and
1999 is unaudited)
6. License In March 1998, the Company entered into a license
Agreements agreement with an unrelated Japanese company, which
provides for the exclusive right to sell certain of
inChorus.com's products in Japan through June 2000.
The license agreement calls for the payment of a
minimum guarantee royalty by the licensee of
$800,000 during the first fifteen months and
$1,200,000 during the next twelve months. The
Company recognized $153,100 and $640,000 in license
fee income during the years ended March 31, 2000
and 1999, respectively. Included in accounts
receivable as of March 31, 2000 and 1999 are
$479,900 and $421,900, respectively, due from the
licensee. Included in the allowance for doubtful
accounts as of March 31, 2000 is $479,900 relating
to this receivable. The $1,200,000 that pertains to
the second twelve-month period has not been
recognized as revenue because collection is not
deemed probable.
In June 1999, the Company entered into a license
agreement with an unrelated U.S. company, which
grants the licensee the right to bundle certain
software with a hardware product and/or computer
services provided by the licensee. The agreement
also provides the right to make, sell and offer for
sale copies of the licensed software. The licensee
paid the Company a one-time license fee of $50,000
for the use of the licensed software for a period
of 12 months from the date of the July 1999 initial
shipment of the licensed software with licensee's
products, not to exceed 300,000 units. The Company
shall share a fixed amount of upgrade revenue with
licensee each time the licensee's customers upgrade
to the Company's product. The license fee is being
recognized as revenue over the twelve-month
contract term, with $35,400 recognized in 2000.
In July 1999, the Company entered into a license
agreement with a U.S. based Japanese company, which
allows the licensee to replicate, copy and license
certain computer software programs as part of a
bundle for use with a hardware product. As part of
the agreement, the Company will deliver its
standard user manual as well as the user guide for
the program. The Company will also provide
continued upgrades and support to the program. The
licensee shall pay the Company a royalty for the
program at a fixed price per unit, and the royalty
payments will be made to the Company on a quarterly
basis. No revenue from this agreement had been
recognized as of March 31, 2000.
F-17
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and
1999 is unaudited)
In September 1999, the Company entered into a
license agreement with an unrelated Japanese
Company, which gives the licensee an exclusive
right in Japan to utilize and sell the Company's
technology for phone-to-PC voice email through
March 31, 2001. The licensee made a $12,000 payment
for the product development and a prepaid royalty
of $10,000 to the Company. The licensee shall also
pay a fixed price per copy of software provided to
users, and a fixed percentage of usage charge for
the phone-to-PC voice email system. Royalty
payments will be made to the Company on a quarterly
basis. The $12,000 product development payment was
recognized as revenue in 2000.
In October 1999, the Company entered into a license
agreement with an unrelated U.S. Company, which
gives the licensee the right to bundle certain
software with a hardware product and/or computer
services provided by the licensee. The agreement
also provides the right to make, sell, and offer
for sale copies of the licensed software. The
Company shall share a fixed amount of upgrade
revenue with the licensee each time the licensee's
customers upgrade to the Company's product. No
revenue from this agreement had been recognized as
of March 31, 2000.
In March 2000, the Company entered into a license
agreement with a Japanese company, which gives the
licensee an exclusive right in Japan to develop and
market the Company's inChorus Pro technology
through March 31, 2003. Under the license
agreement, the licensee is to pay $1,000,000,
provided that the Company has delivered both the
English and Japanese versions of inChorus Pro. The
English version was delivered upon inception of the
agreement and the Japanese version was delivered in
May 2000. Additionally, the Company invested
$149,200 in the licensee in June 2000. The
investment is carried at its original cost in the
balance sheet as of June 30, 2000. No revenue from
this agreement had been recognized as of March 31,
2000. Revenue of $250,000 has been recognized and
collected as of June 30, 2000. Amounts receivable
on the contract of $789,300 and $700,000 as of June
30, and March 31, 2000, respectively, are included
in due from related party and are offset by
$750,000 and $700,000 in deferred revenue as of
June 30, and March 31, 2000.
7. Commitments The Company has employment agreements with four of
its officers which provide for severance payments
equal to one year's salary if the officer is
terminated without cause. The employment agreement
for one of the officers also provides for immediate
vesting of outstanding stock options if terminated
without cause.
F-18
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and
1999 is unaudited)
The Company leases its facilities under operating
leases. The facility leases require the Company to
pay certain maintenance and operating expenses such
as utilities, property taxes and insurance costs.
Rent expense related to these leases was $146,100
and $32,000 for the years ended March 31, 2000 and
1999, respectively. For the three months ended June
30, 2000 and 1999, rent expense was $50,800 and
$22,100, respectively (unaudited).
A summary of the future minimum lease payments
under these non-cancelable operating leases
follows:
Years Ended March 31, Amount
---------------------------------------------------
2001 $ 203,200
2002 155,800
---------------------------------------------------
$ 359,000
===================================================
8. Income Taxes Income tax expense for the year ended March 31,
2000 consisted of foreign taxes of approximately
$35,000 relating to license fee income from a
Japanese company (Note 6) and state minimum taxes.
Income tax expense for the year ended March 31,
1999 consisted of state minimum taxes.
Income tax expense for the three months ended June
30, 2000 consisted of foreign taxes of
approximately $25,000 relating to license fee
income from a Japanese company (Note 6) and state
minimum taxes. Income tax expense for the three
months ended June 30, 1999 consisted of state
minimum taxes (unaudited).
The Company's effective tax rate differs from the
statutory federal income tax rate principally as a
result of Federal and State net operating losses
for which a full valuation allowance has been
provided.
F-19
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
Deferred tax assets (liabilities) comprise the
following:
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
-----------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Loss and credit carryforwards $ 2,450,900 $ 1,955,100
Depreciation and amortization (10,000) (10,000)
Deferred compensation 396,500 396,500
Reserves not currently deductible 354,100 354,100
-----------------------------------------------------------------
3,191,500 2,695,700
Valuation allowance (3,191,500) (2,695,700)
-----------------------------------------------------------------
Net deferred tax asset $ -- $ --
=================================================================
</TABLE>
As of March 31, 2000, the Company has net operating
loss carryforwards of approximately $4,525,200 and
$3,486,400 available to reduce future taxable
income, if any, for Federal and California state
income tax purposes. The net operating loss
carryforwards expire in various years through 2020.
Pursuant to the "change in ownership" provisions of
the Tax Reform Act of 1986, utilization of the
Company's net operating loss carryforwards may be
limited, if a cumulative change of ownership of
more than 50% occurs within any three-year period.
The Company has not made this determination as of
March 31, 2000.
9. Capital Stock
Preferred Stock
In August 1999, the Company restated its Articles
of Incorporation to authorize 59,000,000 shares of
common stock and 1,000,000 shares of preferred
stock, each unit a par value of $0.001 per share.
F-20
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
In August 1999, the Company obtained an additional
financing of $3,000,000 through the issuance of 300
shares of Series A convertible preferred stock to
investors. Holder of the Series A convertible
preferred stock are entitled to cumulative
dividends of 7% per annum, payable upon conversion
in the form of cash or shares of common stock.
During the year ended March 31, 2000, the Company
recorded dividends of $120,200. The Company also
issued warrants to purchase an aggregate of 390,000
shares of common stock. The warrants, which have
exercise prices ranging from $2.25 to approximately
$2.44 per share, expire in August 2004. The
preferred stock is convertible into that number of
shares of common stock equal to the stated value of
the Series A convertible preferred stock divided by
the conversion price in effect at the time of the
conversion. During the year ended March 31, 2000,
the Company recorded deemed dividends of $972,600
relating to beneficial conversion prices of the
preferred stock.
From January through March 2000, two shareholders
converted an aggregate of 141 shares of preferred
stock and accrued dividends into 2,283,696 shares
of common stock.
Common Stock
During the year ended March 31, 1999, the Company
sold 6,512,835 shares of its common stock in
exchange for 8% notes receivable totaling
$4,976,300 and $63,600 in cash. On October 21, 1998
(prior to when the Company's stock became publicly
traded), 2,650,130 of these shares of common stock
were repurchased at the original per-share issuance
price and retired by the Company in exchange for
the cancellation of $973,900 in notes receivable.
In December 1999, the Company issued an aggregate
of 20,250 shares of the Company's common stock to
employees as a bonus, resulting in compensation
costs of $20,900.
Treasury Stock
During 1999, the Company repurchased 1,771,209
shares of its common stock at the then-current
market value in exchange for the cancellation of
$3,186,500 in notes receivable.
F-21
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
The Company reserved 625,000 of these treasury
shares (with a cost of $52,000) for issuance to its
existing shareholders upon achieving the following
three milestones: 25% of the shares would be issued
upon the collection of the first $250,000 due under
a license agreement (Note 6), 35% of the shares
would be issued if the Company generated $2 million
in sales and $100,000 in "audited profits" for the
year ended December 31, 1998, the remaining 40% of
the shares would be issued if the Company generated
$1.5 million in sales and $200,000 in "audited
profits" for the six months ended June 30, 1999.
The Company met the first milestone in June 1998,
and recorded $108,300 in compensation expense for
the issuance of 156,250 of these reserved treasury
shares based on their cost. However, the Company
did not achieve the second and third milestones.
On March 31, 1999, 21,209 of the shares held in
treasury were reissued for the retirement of
$79,600 in debt (Note 5).
In March 1999, the Company reserved 875,000 shares
of treasury stock (with a cost of $2,400,000) for
issuance in exchange for radio and television
advertising. In March 2000, this arrangement was
canceled.
In May 1999, the Company issued 66,667 shares of
treasury stock to a shareholder for proceeds of
$200,000 as an exercise of that shareholder's
contractual right to repurchase shares of treasury
stock.
In June 1999, the Company issued 72,727 shares of
treasury stock to two investors for notes
receivable totaling $17,800 and $180,000 in cash.
In February 2000, the Company's board of directors
canceled the remaining 1,454,356 shares of treasury
stock outstanding.
F-22
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
Stock Options
Options are exercisable as determined by the Board
of Directors on the date of grant and expire five
years from the date of grant. The Company applies
Accounting Principles Board (APB) No. 25,
Accounting for Stock Issued to Employees, and
Related Interpretations in Accounting for Stock
Options Issued to Employees. Under APB Opinion No.
25, employee compensation cost is only recognized
when the estimated fair value of the underlying
stock on date of grant exceeds the exercise price
of the stock option. For stock options issued to
non-employees, the Company applies SFAS No. 123,
Accounting for Stock-Based Compensation, which
requires the recognition of compensation cost based
upon the fair value of stock options at the grant
date, using the Black-Scholes option pricing model.
During the years ended March 31, 2000 and 1999, the
Company recognized $538,200 and $343,000 in
compensation cost relating to stock options issued
to employees and consultants.
In September 1999, the Company's board of directors
adopted the 1999 Stock Option Plan, which has not
yet been ratified by the stockholders. As such,
options granted under the plan will be subject to
compensation expense for any excess of the fair
market value over the exercise price on the date of
stockholder ratification. Under the Plan, 2,400,000
shares of common stock are available for options,
which may be granted to employees, directors, and
consultants.
In September 1999, the Company's board of directors
voted by unanimous consent to rescind options to
purchase 958,000 shares of common stock previously
granted to various employees. The board then
granted options to purchase 1,082,714 shares of
common stock under the newly adopted stock option
plan.
F-23
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and
1999 is unaudited)
A summary of the status of the Company's stock
options as of March 31, 2000 and 1999, and changes
during the years then ended is presented in the
following table:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------
March 31, 2000 March 31, 1999
------------------------ ----------------------
Weighted- Weighted-
average average
exercisable exercisable
Shares price Shares price
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning 2,306,493 $ 0.90 480,702 $ 0.74
Granted 2,284,883 1.48 1,834,324 0.94
Exercised (40,000) 0.61 -- --
Forfeited (1,471,419) 1.19 (8,533) 0.74
-----------------------------------------------------------------
Ending 3,079,957 1.20 2,306,493 0.90
=================================================================
Exercisable
at year-end 2,013,308 1.04 1,150,177 0.75
========== =========
</TABLE>
The following table summarizes information about
stock options granted during the year ended March
31, 2000:
<TABLE>
<CAPTION>
Exercise
price equals
exceeds or Weighted-
Number of is less than average Range of Weighted
options market price exercise exercise average
granted of stock price price fair value
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,246,714 Equals $ 1.60 $ 0.50 - 2.12 $ 1.43
298,000 Exceeds 2.00 2.00 1.63
740,169 Less than 1.06 0.61 - 2.00 0.65
--------------------------------------------------------------------
2,284,883 $ 1.48 $ 1.20
========= ======= =========
</TABLE>
F-24
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and
1999 is unaudited)
The weighted-average exercise price and
weighted-average fair value of stock options
granted during the year ended March 31, 1999 was
$0.94 and $1.70, respectively.
The following table summarizes information about
stock options outstanding as of March 31, 2000:
<TABLE>
<CAPTION>
Options outstanding
------------------------------------------------------------
Weighted- Options exercisable
--------------------------
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise Number exercise
price outstanding life (years) price exercisable price
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.00-0.50 125,589 6.96 $ 0.34 125,589 $ 0.34
0.51-1.00 1,257,571 4.08 0.67 1,053,743 0.67
1.01-1.50 545,333 7.36 1.30 327,791 1.26
1.51-2.12 1.151,464 9.00 1.83 506,185 1.83
--------- ---------
3,079,957 6.62 1.20 2,013,308 1.04
========= =========
</TABLE>
SFAS No. 123 requires the Company to provide pro
forma information regarding net loss and loss per
share as if compensation cost for the Company's
stock option plans had been determined in
accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates
the fair value of stock options at the grant date
by using the Black-Scholes option pricing-model
with the following weighted-average assumptions
used for grants in 2000 and 1999, respectively: no
dividend yield; expected volatility of 191.6% and
227.3% in 2000 and 1999 (for options granted while
the Company's stock was publicly traded) and 0.1%
(for options granted prior to when the Company's
stock was publicly traded) in 1999; risk-free
interest rate of 5.7% and 5.7%; and expected lives
of approximately three years for all plan options.
F-25
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and
1999 is unaudited)
Under the accounting provisions of SFAS No. 123,
the Company's net loss and loss per share would
have been increased to the pro forma amounts as
follows:
<TABLE>
<CAPTION>
Years ended March 31, 2000 2000
----------------------------------------------------------------------------
<S> <C> <C>
Net loss allocable to common shareholders:
As reported $ (7,241,400) $ (1,015,900)
============================================================================
Pro forma $ (8,280,500) $ (1,069,100)
============================================================================
Basic loss per share:
As reported $ (0.88) $ (0.14)
============================================================================
Pro forma $ (1.01) $ (0.15)
============================================================================
</TABLE>
10. Major Customers For the year ended March 31, 2000, revenues from
three customers amounted to 18%, 18%, and 13% of
net sales, respectively, excluding the revenue from
license fees (Note 6). Included in accounts
receivable as of March 31, 2000 is $83,400 due from
these customers, all of which is reserved. For the
year ended March 31, 1999, revenues from two
customers amounted to $72,000, or 79% of net sales,
excluding the revenue from license fees (Note 6).
Included in accounts receivable as of March 31,
1999 is $5,500 due from these two customers.
11. Statements of The Company paid $12,700 and $2,500 for interest
Cash Flows during the years ended March 31, 2000 and 1999,
respectively. The Company paid $800 and $0 for
income taxes during the years ended March 31, 2000
and 1999, respectively.
During the three months ended June 30, 2000 and
1999, the Company paid $22,100 and $0 for interest.
The Company paid $800 and $800 for income taxes
during the three months ended June 30, 2000 and
1999, respectively, (unaudited).
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
During the year ended March 31, 2000, the Company
accrued dividends to the shareholders of
convertible preferred stock in the amount of
$120,200. During the three months ended June 30,
2000, the Company accrued dividends in the amount
of $24,300 (unaudited).
F-26
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and
1999 is unaudited)
During the year ended March 31, 2000, the Company
purchased equipment in the amount of $35,300 under
capital leases. During the three months ended June
30, 2000, the Company purchased equipment in the
amounts of $7,200 under capital leases (unaudited).
In June 1999, the Company received notes receivable
totaling $17,800 for the issuance of treasury
stock.
During the year ended March 31, 2000, the Company
recorded deemed interest in the amount of
$1,298,400, relating to a beneficial conversion
feature of a convertible note payable.
During the year ended March 31, 2000, the Company
recorded deemed dividends of $972,600, relating to
beneficial conversion prices of its preferred
stock.
During the year ended March 31, 1999, the Company
received notes receivable totaling $4,976,300 for
the sale of common stock. Of this amount, $973,900
in notes receivable were cancelled for the
repurchase and retirement of common stock, and
$3,186,500 in notes receivable were cancelled for
the acquisition of treasury stock. In addition, a
note payable amounting to $79,600 was retired
through the issuance of treasury stock (Notes 5 and
9).
12. Contingency The Company is currently under an investigation by
the Securities and Exchange Commission. As of the
date of this report, the outcome of this
investigation is not determinable.
F-27
<PAGE>
inChorus.com
(formerly known as Softlink, Inc.)
Notes to Consolidated Financial Statements
(Information with respect to June 30, 2000 and 1999
is unaudited)
13. Subsequent In April 2000, the Company entered into an equity
Events line agreement in which the Company may sell up to
$2,000,000 in common stock during the first draw
down period, up to $3,000,000 in common stock during
the second draw down period, and up to $500,000 in
common stock during subsequent draw down periods,
with the total amount sold in all draw down periods
not to exceed $5,000,000. In connection with the
equity line, the Company issued warrants to purchase
100,000 shares of common stock, exercisable
immediately, at 120% of the closing bid price of the
Company's common stock on the trading day
immediately prior to the closing date, and expiring
April 2003.
In August 2000, the Company issued 100,000 shares of
common stock to the holder of the convertible note
payable as damages for the late filing of a
registration statement (unaudited).
From April 2000 through August 2000 shareholders
converted 54 shares of preferred stock and accrued
dividends into 1,041,139 shares of common stock
(unaudited).
In August 2000, the Company entered into a license
agreement with a Korean company, which gives the
licensee an exclusive right in Korea to develop and
market the Company's inChorus Pro software through
February 2003. Under the agreement, the Company will
receive a license fee of $500,000 and royalties of
9% of the licensee's total gross revenue relating to
the licensed software. The Company will also receive
warrants to purchase a 5% equity interest in the
licensee if certain conditions are met (unaudited).
F-28
<PAGE>
INCHORUS.COM
20,000,000 Shares of
Common Stock
________________________
PROSPECTUS
________________________
____________, 2000
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Nevada limits the liability of officers and
directors for breach of fiduciary duty except in certain specified
circumstances, and also empowers corporations organized under Nevada Law to
indemnify officers, directors, employees and others from liability in certain
circumstances such as where the person successfully defended himself on the
merits or acted in good faith in a manner reasonably believed to be in the best
interests of the corporation.
Our Articles of Incorporation, with certain exceptions, eliminate any
personal liability of a directors or officers to us or our stockholders for
monetary damages for the breach of such person's fiduciary duty, and, therefore,
an officer or director cannot be held liable for damages to us or our
stockholders for gross negligence or lack of due care in carrying out his or her
fiduciary duties as a director or officer except in certain specified instances.
We may also adopt by-laws which provide for indemnification to the full extent
permitted under law which includes all liability, damages and costs or expenses
arising from or in connection with service for, employment by, or other
affiliation with us to the maximum extent and under all circumstances permitted
by law.
There is presently no material pending legal proceeding to which a
director, officer and employee of ours is a party. There is no pending
litigation or proceeding involving one of our directors, officers, employees or
other agents as to which indemnification is being sought, and we are not aware
of any pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
We have purchased directors and officers liability insurance to defend and
indemnify directors and officers who are subject to claims made against them for
their actions and omissions as directors and officers of inChorus.com. The
insurance policy provides standard directors and officers liability insurance in
the amount of $2,000,000.
We have entered into indemnification agreements with our directors and
officers. These agreements provide, in general, that we shall indemnify and hold
harmless such directors and officers to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement, and expenses,
including attorneys' fees and disbursements, incurred in connection with, or in
any way arising out of, any claim, action or proceeding against, or affecting,
such directors and officers resulting from, relating to or in any way arising
out of, the service of such persons as our directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons pursuant to the
foregoing provisions or otherwise, we have has been advised that in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
II-1
<PAGE>
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemization of various expenses, all of
which we will pay, in connection with the sale and distribution of the
securities being registered. All of the amounts shown are estimates, except the
Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................................ $ 1,214.40
Accounting Fees and Expenses............................................................... $ 20,000.00
Legal Fees and Expenses.................................................................... $ 40,000.00
Miscellaneous.............................................................................. $ 8,785.60
Total............................................................................. $ 70,000.00
</TABLE>
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of common
stock issued and options and warrants and other convertible securities granted
by us during the past three years. Also included is the consideration, if any,
received by us for such shares and options and information relating to the
section of the Securities Act, or rule of the SEC under which exemption from
registration was claimed.
Transactions described in Items (1) through (6) below refer to the
securities of Softlink, Inc., a California corporation which was the predecessor
entity of the filer of this registration statement, and transactions described
in Items (7) through (20) below refer to the securities of inChorus.com, a
Nevada corporation which is the registrant in this registration statement.
Unless otherwise indicated, information in this section regarding shares of
our common stock reflect the conversion ratio applied to shares of our common
stock at the time of the reorganization described above.
(1) In September 1997 Softlink issued 33,727 shares of common stock to
a consultant in exchange for consulting services valued at approximately
$25,000. The issuance was made in reliance on Section 4(2) of the Securities Act
of 1933 and was made without general solicitation or
II-2
<PAGE>
advertising. The consultant was a sophisticated investor with access to all
relevant information necessary to evaluate the investment, and who represented
to Softlink that the shares were being acquired for investment.
(2) In November 1997 Softlink issued 92,380 shares of common stock to 8
investors in exchange for $68,477. The issuances were made in reliance on
Section 4(2) of the Securities Act of 1933 and Rule 504 of Regulation D
promulgated under the Securities Act of 1933 and was made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate the investment, and who
represented to Softlink that the shares were being acquired for investment.
(3) In January 1998, Softlink issued 134,907 shares of common stock to an
investor in exchange for $100,000. The issuance was made in reliance on Section
4(2) of the Securities Act of 1933 and was made without general solicitation or
advertising. The purchaser was a sophisticated investor with access to all
relevant information necessary to evaluate the investment, and who represented
to Softlink that the shares were being acquired for investment.
(4) From January to March 1998, Softlink issued 419,894 shares of common
to 7 consultants in exchange for services performed for Softlink valued at
$311,249. The issuances were made in reliance on Section 4(2) of the Securities
Act of 1933 and were made without general solicitation or advertising. The
consultants were sophisticated investors with access to all relevant information
necessary to evaluate the investment, and who represented to Softlink that the
shares were being acquired for investment.
(5) In March 1998, Softlink and its stockholders entered into a
reorganization with Draco Technologies, Inc., a Nevada corporation. Under the
reorganization, the 17 stockholders of Softlink received 0.6745344 shares of
common stock of Draco Technologies for each share of Softlink they owned prior
to the reorganization and Softlink became a wholly-owned subsidiary of Draco
Technologies. Draco Technologies changed its name to Softlink, Inc. (and
subsequently changed its name to "inChorus.com"); references to "inChorus.com"
hereafter refer to inChorus.com, the filer of this registration statement. The
issuance was made in reliance on Section 4(2) of the Securities Act of 1933 and
Rule 504 of Regulation D promulgated under the Securities Act of 1933 and were
made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary to
evaluate these investments, and who represented to inChorus.com that the shares
were being acquired for investment.
(6) In March 1998, immediately prior to the reorganization, inChorus.com
conducted a private offering of its common stock. Pursuant to that offering, a
total of 875,000 shares of common stock were sold to American Universal Group,
Inc. for total cash and notes receivable consideration of $558,750. The issuance
was made in reliance on Section 4(2) of the Securities Act of 1933 and was made
without general solicitation or advertising. The purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment, and who represented to inChorus.com that the shares were being
acquired for investment. 355,000 of the shares issued pursuant to this offering
were later cancelled by inChorus.com due to nonpayment under the notes.
II-3
<PAGE>
(7) In March 1998, immediately prior to the reorganization, inChorus.com
conducted a private offering of its common stock. Pursuant to that offering, a
total of 1,625,000 shares of common stock were sold to 8 individuals for total
notes receivable consideration of $16,250. The issuances were made in reliance
on Section 4(2) of the Securities Act of 1933 and Rule 504 of Regulation D
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate the investments, and
who represented to inChorus.com that the shares were being acquired for
investment. 1,088,000 of the shares issued pursuant to this offering were later
cancelled by inChorus.com due to nonpayment under the notes.
(8) In May 1998, inChorus.com issued 612,295 shares of common stock to 4
investors pursuant to promissory notes in favor of inChorus.com in the aggregate
amount of $373,500. The issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and Regulation S promulgated under the Securities Act of
1933 and were made without general solicitation or advertising. The purchasers
were sophisticated investors with access to all relevant information necessary
to evaluate these investments, and who represented to inChorus.com that the
shares were being acquired for investment. All of the shares issued pursuant to
this offering were later cancelled by inChorus.com due to nonpayment under the
notes.
(9) In May 1998, inChorus.com issued 737,705 shares of common stock to 4
investors pursuant to promissory notes in favor of inChorus.com in the aggregate
amount of $450,000. The issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to inChorus.com that the shares were being acquired for investment.
594,835 of the shares issued pursuant to this offering were later cancelled by
inChorus.com due to nonpayment under the notes.
(10) Subsequent to the investments noted in (8) and (9) above, inChorus.com
purchased 625,000 shares of common stock for treasury and placed these shares
into an escrow account in favor of employees of inChorus.com. The shares were to
be distributed to the employees upon the achievement by inChorus.com of three
performance milestones. In June 1998, inChorus.com issued 156,250 shares of this
treasury stock to an aggregate of 24 employees upon the achievement of the first
of three performance milestones. The issuances were made in reliance on Section
4(2) of the Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to inChorus.com that the shares were being acquired for investment.
(11) In October 1998, inChorus.com issued 425,130 shares of common stock to
an aggregate of 3 investors in exchange for notes receivable and cash in the
amount of $260,901. The issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to inChorus.com that the shares were being acquired for investment.
(12) In October 1998, inChorus.com issued 2,737,705 shares of common stock
to one investor in exchange for $1,670,000. The issuances were made in reliance
on Section 4(2) of the
II-4
<PAGE>
Securities Act of 1933 and was made without general solicitation or advertising.
The purchaser was a sophisticated investor with access to all relevant
information necessary to evaluate the investment, and who represented to
inChorus.com that the shares were being acquired for investment.
(13) In October 1998, inChorus.com issued 2,000,000 shares of common stock
to one investor in exchange for promissory notes in favor of inChorus.com in the
aggregate amount of $2,400,000. The issuance was made in reliance on Section
4(2) of the Securities Act of 1933 and Rule 506 of Regulation D promulgated
under the Securities Act of 1933 and was made without general solicitation or
advertising. The purchasers was an accredited investor with access to all
relevant information necessary to evaluate the investment, and who represented
to inChorus.com that the shares were being acquired for investment. 1,146,209 of
these shares were later purchased by inChorus.com and converted to treasury
stock of inChorus.com in exchange for the forgiveness of the remaining unpaid
amount due under the promissory notes.
(14) In March 1999, inChorus.com issued 21,209 shares of treasury stock to
an investor to satisfy a loan obligation. The issuance was made in reliance on
Section 4(2) of the Securities Act of 1933 and Rule 504 of Regulation D
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate the investment, and who
represented to inChorus.com that the shares were being acquired for investment.
(15) In June 1999, inChorus.com issued an aggregate of 72,727 shares of
treasury stock to two investors in consideration of an aggregate of $180,000 in
cash and notes receivable. The issuances were made in reliance on Section 4(2)
of the Securities Act of 1933 and Rule 504 of Regulation D promulgated under the
Securities Act of 1933, and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate the investment, and who represented
to inChorus.com that the shares were being acquired for investment.
(16) In August 1999, inChorus.com issued 300 shares of preferred stock and
warrants to purchase up to 240,000 shares of common stock to two investors in
exchange for $3,000,000 in cash consideration. The issuances were made in
reliance on Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D promulgated under the Securities Act of 1933 and were made without
general solicitation or advertising. The purchasers were accredited investors
with access to all relevant information necessary to evaluate the investment,
and who represented to inChorus.com that the shares were being acquired for
investment.
(17) From September 1999 to August 2000, inChorus.com issued options to
purchase 2,416,714 shares of common stock under its 1999 Stock Option Plan, with
exercise prices ranging from $0.31 to $2.12 per share. The issuances were made
in reliance on Section 4(2) of the Securities Act of 1933 and Rule 701
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The recipients were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to inChorus.com that the shares were being acquired for
investment.
(18) In December 1999, inChorus.com issued 20,250 shares of Common Stock to
4 officers and 19 employees as bonus compensation for services rendered by them.
The issuances
II-5
<PAGE>
were made in reliance on Section 4 (2) of the Securities Act of 1933, and were
made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary to
evaluate the investment, and who represented to inChorus.com that the shares
were being acquired for investment.
(19) In March 2000, inChorus.com issued 8% Convertible Debentures in the
principal sum of $2,000,000 to an investor. The issuance was made in reliance on
Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated under the
Securities Act of 1933 and was made without general solicitation or advertising.
The recipient was a sophisticated investor with access to all relevant
information necessary to evaluate the investment, and who represented to
inChorus.com that the debentures were being acquired for investment.
(20) In August 2000, inChorus.com issued 100,000 shares of common stock to
the holders of the convertible note payable as damages for the late filing of a
registration statement. The issuance was made in reliance on Section 4(2) of the
Securities Act of 1933 and Rule 506 promulgated under the Securities Act of 1933
and was made without general solicitation or advertising. The recipient was a
sophisticated investor with access to all relevant information necessary to
evaluate the investment, and who represented to inChorus.com that the debentures
were being acquired for investment.
ITEM 27. EXHIBITS
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
---------- ------------
3.1 Articles of Incorporation of the Registrant, dated as of July
24, 1997 (1)
3.2 Certificate of Amendment to the Articles of Incorporation of
the Registrant, dated as of March 23, 1998 (1)
3.3 Certificate of Amendment of Articles of Incorporation of the
Registrant, dated as of August 12, 1999 (1)
3.3(a) Certificate of Amendment of Articles of Incorporation of the
Registrant, dated as of February 10, 2000.
3.4 Certificate of Designation of Preferences for Series A
Preferred Stock of the Registrant (1)
3.5 By-Laws of Registrant (1)
4.1 Sample Stock Certificate of the Registrant (1)
4.2 See Exhibit No. 3.1, 3.2 and 3.3 (1)
5.1 Opinion of Silicon Valley Law Group *
10.1 License Agreement dated as of March 27, 1998 by and between
NIC Ltd. and the Registrant (1)
10.2 Employment Agreement dated as of March 1, 1999 by and between
William W. Yuan and the Registrant (1)
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<PAGE>
10.3 First Amendment to Employment Agreement dated as of August 31,
1999 by and between William W. Yuan and the Registrant (1)
10.4 Office Rent Sublease Agreement dated as of April 9, 1999 by
and between Auken-Redac and the Registrant (1)
10.5 Computer Software Distribution Agreement dated as of April 29,
1999 by and between Navarre Corporation and the Registrant (1)
10.6 Escrow Agreement, dated as of April 30, 1999 by and between
The Providers, Inc. and the Registrant (1)
10.7 Contract of Engagement by and between Cardinal Capital
Management, Inc. and the Registrant dated May 18,1999 (1)
10.8 Lease Agreement dated as of June 14, 1999 by and between
Koll/Intereal Bay Area and the Registrant (1)
10.9 Software Distribution and Marketing Rights Agreement, dated as
of June 29, 1999, by and between Fountain Technologies, Inc.
and the Registrant (1)
10.10 [Intentionally Left Blank]
10.11 Warrant Agreement dated August 17, 1999 by and between
Deephaven Private Placement Trading Ltd. and the Registrant
(1)
10.12 Warrant Agreement dated August 17, 1999 by and between
Hornblower Investors L.L.C. and the Registrant (1)
10.13 Registration Rights Agreement dated as of August 17, 1999 by
and between Hornblower Investors L.L.C., Deephaven Private
Placement Trading Ltd. and the Registrant (1)
10.14 Convertible Preferred Stock Purchase Agreement dated August
17, 1999 by and between Hornblower Investors, L.L.C.,
Deephaven Private Placement Trading Ltd. and the Registrant
(1)
10.15 Distribution Agreement by and between Earthlink Network, Inc.
and the Registrant (1)
10.16 Executive Employment Agreement dated as of August 31, 1999
between Johnson Lee and Registrant (1)
10.17 Executive Employment Agreement dated August 31, 1999 between
Edmund Leung and Registrant (1)
10.18 Letter Agreement dated as of August 31, 1999 by and between
Packard Bell/NEC and the Registrant (1)
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<PAGE>
10.20 1999 Stock Option Plan (1)
10.21 Form Stock Option Agreement (1)
10.22 Executive Employment Agreement dated October 25, 1999 between
Ralph G. Coan and the Registrant
10.23 First Amendment to Executive Employment Agreement dated as of
August 1,2000 by and between Ralph G. Coan and the
Registrant
10.24 Agreement dated as of September 5, 2000 by and between
Saloo.com and the Registrant
10.25 License Agreement dated as of August 9, 2000 by and between
ANS Korea, Inc. and the Registrant
10.26 Amendment to 1999 Stock Option Plan (3)
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Silicon Valley Law Group (to be contained in
Exhibit 5.1) *
27.1 Financial Data Schedule (2)
* To be filed by amendment.
(1) Incorporated by reference to the corresponding exhibit number in that
certain Registration Statement on Form SB-2 (File No. 333-90185) filed by the
Registrant with the Commission.
(2) Incorporated by reference to the corresponding exhibit number in that
certain Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000.
(3) Incorporated by reference to Exhibit 4.1(a) to that certain Registration
Statement on Form S-8 (File No. 333-36502) filed by the Registrant with the
Commission.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1) file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually, or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
notwithstanding the foregoing, 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 prospectus filed
with the Commission pursuant to Rule 424(b) (230.424(b) of this
Chapter) if, in the aggregate, the changes in volume and price
represent no more than
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<PAGE>
a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
Registration Statement.
[Provided, however, that paragraphs (b)(1)(i) and (b)(1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities and Exchange of 1934 that are incorporated by
reference in the registration statement].
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the Offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934, that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
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<PAGE>
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 of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Santa
Clara, State of California, on September 22, 2000.
INCHORUS.COM
By: /s/ William Yuan
----------------------------
William Yuan
Chief Executive Officer
POWER OF ATTORNEY
We the undersigned officers and directors of Softlink, Inc., hereby
severally constitute and appoint William W. Yuan and Ralph G. Coan, Jr., and
each of them singly (with full power to each of them to act alone), our true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them for him and in his name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement (or any other Registration Statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as full to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
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<PAGE>
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William Yuan President and Director September 22, 2000
------------------------
William Yuan (principal executive officer)
/s/ Johnson Lee Chief Executive Officer, Director September 22, 2000
------------------------
Johnson Lee
/s/ Edmund Leung Treasurer, Secretary and Director September 22, 2000
------------------------
Edmund Leung
/s/ Ralph G. Coan, Jr Vice President, Finance September 22, 2000
------------------------
Ralph G. Coan, Jr. and Chief Financial Officer
(principal accounting officer)
</TABLE>
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