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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A-2
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
SOCHRYS.COM INC.
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(Name of Small Business Issuer in its charter)
Nevada 58-2541997
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(State or other jurisdiction (I.R.S. Employer ID No.)
of incorporation or organization)
Route de Jussy 29, CH 1226 Thonex-Geneva, Switzerland
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number 41-22-869-2070
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Securities to be registered under Section 12(b) of the Act. None
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Title of each class Name of each exchange on which
to be so registered each class is to be registered
Not applicable Not Applicable
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Securities to be registered under Section 12(g) of the Act.
Common Stock, $.001 par value
Title of Class
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SOCHRYS.COM INC.
Table of Contents
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PART I
Page
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ITEM 1. Description of Business 2
ITEM 2. Management's Discussion and Analysis
of Financial Conditions and Results of Operation 21
ITEM 3. Description of Property 29
ITEM 4. Security Ownership of Certain Beneficial
Owners and Management 29
ITEM 5. Directors and Executive Officers, Promoters
and Control Persons 32
ITEM 6. Executive Compensation 33
ITEM 7. Certain Relationships and Related Transactions 33
ITEM 8. Description of Securities 34
PART II
ITEM 1. Market Price of and Dividends on the Registrant's
Common Equity and Related Shareholder Matters 35
ITEM 2. Legal Proceedings 36
ITEM 3. Changes in and Disagreements with Accountants 36
ITEM 4. Recent Sales of Unregistered Securities 37
ITEM 5. Indemnification of Directors and Officers 39
PART F/S
Financial Statements F-1
PART III
ITEM 1. Index to Exhibits 40
ITEM 2. Description of Exhibits 40
Signature Page 41
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PART I
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
We caution readers that certain important factors may affect our actual
results and could cause such results to differ materially from any
forward-looking statements that we make in this registration statement. For this
purpose, any statements that are not statements of historical fact may be deemed
to be forward-looking statements. This Registration Statement contains
statements that constitute "forward-looking statements." These forward-looking
statements can be identified by the use of predictive, future-tense or
forward-looking terminology, such as "believes," "anticipates," "expects,"
"estimates," "plans," "may," "will," or similar terms. These statements appear
in a number of places in this Registration Statement and include statements
regarding our intent, belief or current expectations with respect to many
things. Some of these things are:
- trends affecting our financial condition or results of operations for
our limited history;
- our business and growth strategies;
- our technology;
- the Internet; and
- our financing plans.
We caution readers that any such forward-looking statements are not guarantees
of future performance and involve significant risks and uncertainties. In fact,
actual results most likely will differ materially from those projected in the
forward-looking statements as a result of various factors. Some factors that
could adversely affect actual results and performance include:
- our limited operating history;
- our lack of sales to date;
- our need for additional capital funding;
- if our technology and products do not perform as specified;
- if use of the Internet does not continue to grow;
- if new adverse government regulations are enacted;
- if better technology and products are developed by others.
The information contained in the following sections of this registration
statement identify important additional factors that could materially adversely
affect actual results and performance:
- "Part I. Item 1. Description of Business" especially the disclosures
set out under the heading "Risk Factors"; and
- "Part 1. Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations"
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You should carefully consider and evaluate all of these factors. In addition, we
do not undertake to update forward-looking statements after we file this
registration statement with the Securities and Exchange Commission, even if new
information, future events or other circumstances have made them incorrect or
misleading.
ITEM 1. DESCRIPTION OF BUSINESS
SUMMARY AND CORPORATE STRUCTURE
We are an Internet software company. We design, develop and market
middleware products based on our "SOCHRYS(TM) Technology." Middleware is
software than enables two or more different programs to communicate and
interact. Our technology is implemented through what we call the Universal
Computer. The Universal Computer is software which acts as a middleware between
the end-user's host system and the operator's applications environment.
Middleware products based on our technology:
- will allow the implementation of integrated software solutions for
providers of goods and services; and
- will run on most current operating systems linked to the Internet or
any other communication network.
Our technology enables businesses and consumers to enter into:
- electronic commerce
- electronic banking and
- electronic business
on a secure and fast basis. Our technology provides security over the Internet
through a three-level Master/Agents/Client architecture. This three-level
approach places one or more Agents as an insulating level between the two
parties to a transaction, the Master and the Client, so that no Client can
directly communicate to the Master, and the Agents can only act upon the
Master's instructions.
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We operate through our subsidiaries. The following chart illustrates
our corporate structure:
[FLOW CHART]
SOCHRYS.COM, INC.
(Nevada)
100%
GRAPH-O-LOGIC, S.A.
(Swiss)
Development of
Graphic Designs
100% 100%
SOCHRYS TECHNOLOGIES S.A. SOCHRYS TECHNOLOGIES, INC.
(Swiss) (Canadian)
Research and development and Research and development and
marketing in Europe. marketing in North America.
THE INTERNET MARKET
The rapid growth of business over the Internet is propelled by large
and small businesses alike, as they consider the Web as a media to offer their
products and services. Using this distribution channel, businesses can readily
access a worldwide network of customers and develop their business activity
through Internet-based operations.
Many products and services are available for purchase over the
Internet, including
- computer hardware
- software
- entertainment products such as books, videos, games, CDs and
DVDs
- information services such as databases and online newspapers
- financial services such as banking and stock trading and
- professional services such as web design and web hosting.
While the value of electronic trade is already in the billions of dollars,
electronic trade is still a fraction of the total trade for goods and services.
Commerce on the Internet is still at the very
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beginning of the growth curve. We believe that significant growth of commerce on
the Internet will require that more vendors go on-line; and that consumers feel
secure about using the Internet to complete financial transactions.
We also believe that consumer confidence in the security of financial
transactions is a major deterrent to more rapid growth of commerce over the
Internet. Hacking, cracking, viruses, e-mail break-ins and theft of confidential
information over the Internet are ongoing problems.
As discussed below, we believe that our SOCHRYS(TM) Technology
addresses these issues.
OUR SOCHRYS(TM) TECHNOLOGY
SOCHRYS(TM) Technology is based upon the following:
- A MIDDLEWARE positioned between an end-user platform and the
operator's applications environment. It allows messages from the
application to be delivered to the end-user in complete security and
with speed and to be brought back, either directly or through other
participants, to the application server. We call this middleware the
Universal Computer.
- A three-level master-agents-client circular ARCHITECTURE, where:
- The MASTER organizes and supervises the flow of data within
the Universal Computer.
- The AGENTS deliver the corporate services. Each agent is
specialized to execute exclusively one service and act only
upon directives received from the master.
- The CLIENT solely interacts with the system through strict
identification procedures controlled by the provider agent.
The provider agent's sole function is to authenticate the
client and to forward its legitimate requests to the master.
- A VIRTUAL MESSAGING SYSTEM for managing transactions through the
Universal Computer.
- A VIRTUAL OPERATING SYSTEM OR SVOS, to coordinate resources between
the end-user platform and the Universal Computer.
To access our technology, a client must first download SOCHRYS
CLIENT(TM) software to a computer. This software controls the access to the
Universal Computer and its services. Once SOCHRYS CLIENT(TM) software is
installed, the SOCHRYS(TM) Technology provides compatibility and
interoperability between all computers also linked to the Universal Computer at
that point in time. This brings all users into the same computing environment
where they may share the resources of any computer or device connected to the
Universal Computer.
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Our technology provides the following benefits:
- Compatibility
The Universal Computer works with most versions of the Microsoft, Mac
OS, Unix and Linux operating systems. Individual computers using our technology
through the Internet, Intranet or Extranet automatically become compatible with
each other, regardless of their individual operating systems because once
SOCHRYS(TM) Technology is inside of a computer using the SVOS it ensures
compatibility and interoperability between all computers linked to the SVOS at
that point in time.
- Mobility
The Universal Computer works with all main communication protocols:
- TCP/IP,
- IPX,
- SNA,
- Netbios and
- X25.
It uses both modes of communication: synchronous -local, remote, parallel, or
asynchronous -local, remote, parallel, massively parallel. It also encapsulates
the main set of standards, like DCOM/COM or CORBA and proprietary systems.
- Portability
The Universal Computer uses its own executable code file standards,
where all instructions are subsets of one general instruction format, to
generate assembled executable files that run on the Universal Computer. This
ensures that the applications will operate on the different users' platforms. We
plan to implement future evolutions in the host environment technologies in our
technology by upgrading the Universal Computer.
The Universal Computer does not require any dedicated hardware. It can
make use of any type of peripherals connected to it.
- Security
We utilize a three-level architecture of Master - Agents - Client that
prevents any data or software from being hacked, cracked or disassembled. A
number of specific procedures ensure full security.
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THE TARGET MARKET
We plan to license our technology to large organizations that develop,
market, sell or distribute software products where interaction with a
distributed client base is essential. This includes businesses who are or want
to be in the business to small business (B2SME) or business to consumer (B2C)
environment, where we believe security and speed are paramount. Potential
clients will include, among others:
- telecommunication firms
- banks
- large Internet service providers
- international distribution services
- government agencies
- international retailers and
- hotel chains.
These potential clients' applications may run on Microsoft, Mac OS,
Unix or Linux operating systems.
MARKETING STRATEGY
DISTRIBUTION CHANNELS
We have begun a marketing program in North America and Western Europe
to bring our products to the marketplace using three distribution channels.
Direct Sales
Our officers and marketing representatives will make high-level
contacts within target corporations to present the competitive advantages that
the use of our technology can bring to them. We will generate leads through
existing contacts of our management and marketing representatives and through
attendance at and participation in specialized e-commerce and communication
security trade shows.
VAR Channel
In order to rapidly penetrate the market for our technology, we intend
to set up a network of value-added resellers or VARs in selected geographic
areas and industrial sectors. We will select VARs based on their ability to
penetrate specific markets. VARs are independent companies, already selling into
targeted markets and who recognize that their clientele could benefit from our
products.
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Major Customers Channel
We believe, but cannot assure, that major customers that we develop
may act as VARs in their market sector. For example, portal operators could
distribute and implement our product to attract merchants into their portal.
This would represent revenues for us but would not require implementation by us.
Marketing representatives will promote our products within these three
channels. The representatives will respond to queries and expressions of
interest from early adopters of technology in order to generate implementation
sites in the earliest timeframe possible. These early customers and distributors
may have an impact on the product development schedule, as interfaces with their
existing systems will be developed by us for the first few clients while their
staff is being trained.
The representatives will be supported by technical literature on
specific topics such as:
- security
- features and benefits
- integration into current systems
- openness of the architecture
- future developments and
- implementation procedures.
We expect the sales cycle will be from four to eight months in
duration. The territory where most potential clients will reside is expected to
be in North America and in Western Europe. Some three to five representatives
will be hired during the next twelve months, starting in the first quarter of
2001 . We expect that the initial focus will be on direct customers and that
VARs first will be selected on a geographical basis. Marketing began in North
America and Western Europe in the second quarter of 2000.
We anticipate that the main expense factors for this marketing
campaign will be for:
- personnel
- participation in trade shows
- travel and living expenses
- Web site development and maintenance and
- literature preparation and distribution.
For more information, please see "Part I. Item 2. Management
Discussion and Analysis; Plan of Operations."
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OUR SOCHRYS PRODUCTS
At this point in time, our products are not ready for commercial
implementation. Our products will be specific implementations of the Universal
Computer which acts as a middleware between the end-user's host system and the
operator's applications environment. The Universal Computer provides an
infrastructure for exchanging information and executing processes between
computers and various electronic devices across the Internet or any other data
communication network. It encapsulates all components of electronic transactions
as software instead of as an interactive HTML document. This allows a more
efficient use of communication networks on a secure and speedy basis.
We will customize the Universal Computer to meet the needs of
particular business segments. The target market segment, the number of features
and the scope of the license agreements will differentiate our products and
Universal Computer implementations from each other.
We intend to sell our products to customers - corporations and
organizations, that need to install an efficient, secure and fast middleware to
interact with their customers and partners through the Internet.
Typically, we will install and manage the master levels of the
Universal Computer on the customers' premises. The customers may purchase
additional master and agent licenses to meet their requirements over time. They
will customize the end-user application to be loaded on the standard SOCHRYS
Client Desktop, which is a free download from the Internet.
UNIVERSAL COMMERCE
We call the product aimed at the electronic commerce market "Universal
Commerce." Universal Commerce will allow the easy setting up and efficient
running of business-to-consumer electronic commerce portals. Participating
entities such as merchants, banks, transportation companies and credit card
processors will be invited to participate in a portal set up by a major
participant in the industry:
- The portal operator, the major participant, is at the heart of
the operation. It controls the master software and the master
stations in the system.
- The participating entities will develop and customize a number of
intelligent agents to deliver their own professional services.
Agent stations can be located at the participating entity's site
or at the portal operator site. They do not require special
hardware except from a computer station, linked to the Internet.
- The end-users can use any digital platform like computers,
palmtops, mobile phones, television set-top boxes or game
stations, linked to the Internet.
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UNIVERSAL BANKING
We call the product for the e-banking market "Universal Banking." It
will serve the needs of financial institutions that may either want to interact
only with their customers, or to include merchants or other partners for third
party payments. In any case, this product will allow fast and secure
transactions between the bank, end-users and merchants for payment of invoices
and services.
COMPETITION
Virtual Operating Systems. Competitors for virtual operating systems
typically have a common form of implementation, using a "layer" approach that
relies on the host's normal operating system. While these virtual operating
systems make applications more host-independent, they all share the difficulty
and security threats of the underlying operating systems. In contrast, our SVOS
is implemented directly on the host processor and memory and coexists with the
host operating system but the SVOS operations are entirely separate from that of
the host system.
We know of no other supplier who has implemented this approach.
However, we cannot assure that competitive products do not exist or will not be
developed or that our products will be saleable in the marketplace.
Security Features. We compete with a host of suppliers of security
measures products and with internal systems developed by potential clients to
prevent unauthorized access. Security measures include:
- Symmetrical key encryption algorithms such as DES;
- Private and public key encryption algorithms such as RSA and Entrust;
- Browser level protection such as secure socket layer offered by
Netscape and Microsoft;
- System level protection such as the secure electronic transaction
developed by Visa and MasterCard and offered by the credit card
industry and the banking system; and
- Network level protection such as private networks and virtual private
networks.
Our technology provides security features for transmission of data over the
Internet, extranet or intranet as well as on private and public networks.
Typically, our potential clients do not currently use the Internet to exchange
data. They use various systems developed by them for their private purpose to
circulate data on private networks. Alternatively, they circulate data on public
data-only networks like the AT&T World Net.
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We offer a different approach to security. We install our Universal
Computer on each client site. This makes the information managed by the virtual
operating system or SVOS inaccessible by any other party. Once inside the SVOS,
a number of the above-mentioned security measures may also be used to interface
with the customers internal systems, although they do not contribute to the
inherent security provided by our technology.
We know of no other supplier who has implemented this approach on PC
environments. However, we cannot assure that competitive products do not exist
or will not be developed or that our products will be saleable in the
marketplace.
RESEARCH AND DEVELOPMENT
We spent the following amounts during the periods mentioned on
research and development activities:
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NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
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2000 1999 1999 1998
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$1,242,263 $201,721 $327,517 $119,135
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For more information, see: "Part I. Item 2. Management Discussion and Analysis;
Plan of Operations."
INTELLECTUAL PROPERTY PROTECTION
We rely on trade secrets and confidentiality agreements. We claim
copyright in specific software products and various elements of the core
SOCHRYS(TM) Technology. We are registering trademarks in North America and in
Europe to cover specific products described herein, as well as some graphic
identification and the SOCHRYS name itself.
We believe, but we cannot assure, that our SOCHRYS(TM) Technology and
its implementation may be patentable. We are preparing a patent application
covering its approach and preferred implementation. The initial patent
applications will cover the U.S. and be expanded to other countries as and when
we penetrate new markets. We are in the process of defining migration paths for
the various products and developing schedules for that migration. This will
define the requirement for additional patent, trademarks and copyright
protection, which we plan to apply for as required in order to prevent
unauthorized use of our technology.
We cannot assure that we will be able to obtain or to maintain the
foregoing intellectual property protection. We also cannot assure that our
technology does not infringe upon the intellectual property rights of others. In
the event that we are unable to obtain the foregoing protection or our
technology infringes intellectual property rights of others, our business and
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results of operations could be materially and adversely affected. For more
information please see "Risk Factors; Proprietary Rights" below.
EMPLOYEES
As of November 24, 2000, we had seventeen full-time employees including
three executive officers, ten software developers and programmers, two in
marketing and sales and two administrative staff. Sixteen of the employees are
located in the Geneva, Switzerland office and one is located in Ottawa, Canada.
In addition, we regularly engage technical consultants and independent
contractors to provide specific advice or to perform certain administrative or
technical functions.
RISK FACTORS
Our business operations and our securities are subject to a number of
substantial risks, including those described below. If any of the these or other
risks actually occur, our business, financial condition and operating results,
as well as the trading price or value of our securities could be materially
adversely affected.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS AND
PROSPECTS DIFFICULT.
Our limited operating history makes it difficult to evaluate our
current business and prospects or to accurately predict our future revenues or
results of operations. Our revenue and income potential are unproven, and our
business plan is constantly evolving. Because the Internet is constantly
changing and software technology is constantly improving, we may need to modify
our business plan to adapt to these changes. Companies in early stages of
development, particularly companies in new and rapidly evolving computer
technology and Internet industry segments, are generally more vulnerable to
risks, uncertainties, expenses and difficulties than more established companies.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE ANTICIPATED LOSSES AND
NEGATIVE CASH FLOW FOR THE FORESEEABLE FUTURE. UNLESS WE ARE ABLE TO
GENERATE PROFITS AND POSITIVE CASH FLOW WE MAY NOT BE ABLE TO CONTINUE
OPERATIONS.
We incurred an operating loss of $2,070,326 and negative cash flow from
operations of $1,623,292 during the nine months ended September 30, 2000. During
the nine months ended September 30, 1999 we incurred an operating loss of
$81,909 and negative cash flow from operations of $2,257. We incurred an
operating loss of $752,186 and negative cash flow from operations of $392,162
during the year ended December 31, 1999. During the year ended December 31, 1998
we generated operating income of $21,659 and positive cash flow from operations
of $55,767. We expect operating losses and negative cash flow to continue for
the foreseeable future and to increase significantly from current levels as we
significantly increase expenditures for:
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- sales and marketing
- technology
- infrastructure research and development and
- general business enhancement.
With increased on-going operating expenses, we will need to generate significant
revenues to achieve profitability. Consequently, we may never achieve
profitability. Even if we do achieve profitability, we may not sustain or
increase profitability on a quarterly or annual basis in the future. If we are
unable to achieve or sustain profitability in the future, we may be unable to
continue our operations.
Our financial statements for the year ended December 31, 1999 have been
prepared on the basis of accounting principles applicable to a going concern.
Our auditors' report on these financial statements includes an additional
explanatory paragraph following the opinion paragraph on our ability to continue
as a going concern. Note 2(a) to these financial statements describes the
reasons why there is substantial doubt about our ability to continue as a going
concern and our plans to address this issue. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Our inability to continue as a going concern would require a restatement of
assets and liabilities on a liquidation basis, which would differ materially
from the going concern basis on which our financial statements were prepared.
WE HAVE AN IMMEDIATE NEED FOR ADDITIONAL CAPITAL TO PROCEED WITH OUR
BUSINESS PLAN. IF WE ARE UNABLE TO OBTAIN SUCH CAPITAL WE MAY BE UNABLE
TO PROCEED WITH OUR BUSINESS PLAN AND WE MAY BE FORCED TO LIMIT OR
CURTAIL OUR OPERATIONS.
We have an immediate need for additional working capital to maintain
our current operations and to proceed with our business plan. For a discussion
of our capital requirements, see the disclosure in "Part I. Item 2. Management
Discussion and Analysis; Plan of Operations." We currently do not have any
commitment from any third party to provide financing and may be unable to obtain
financing on reasonable terms or at all. Furthermore, if we raise additional
working capital through equity, our shareholders will experience dilution. If we
are unable to raise additional financing when needed, we may be unable to grow
or maintain our current level of business operations and, in fact, we may be
forced to limit or curtail our operations.
THE LOSS OF ANY OF OUR EXECUTIVE OFFICERS OR KEY PERSONNEL WOULD LIKELY
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Our future success depends, to a significant extent, on the continued
services of our senior management, including Jean Pierre Hofman, Andre Hensler,
and Paul Claverie. Our loss of any of these senior managers most likely would
have an adverse effect on our business. At present, we do not have any
employment agreements with these personnel nor do we have key man life insurance
on them. In addition, competition for personnel throughout the industry is
intense and we may be unable to retain our current key employees or attract,
integrate or retain other highly qualified employees in the future. If we do not
succeed in attracting new personnel
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or retaining and motivating our current personnel, our business could be
materially adversely affected.
THE MARKET IS HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO COMPETE
SUCCESSFULLY AGAINST OUR CURRENT AND FUTURE COMPETITORS
The market for our products and technology is highly competitive and
subject to rapid change. We face competitive pressures from numerous actual and
potential competitors. Competition is likely to increase significantly as new
companies enter the market and current competitors expand their services. Many
of our current and potential competitors have substantial competitive
advantages, including:
- longer operating histories
- significantly greater financial, technical and marketing
resources
- greater brand name recognition and
- larger existing customer bases.
These competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements and to devote greater
resources to develop, promote and sell their products or services. Services
offered by existing and potential competitors may be perceived by users or
advertisers as being superior to ours. We cannot assure that the Company will be
able to compete.
IF WE ARE UNABLE TO DEVELOP BRAND RECOGNITION, WE MAY BE UNABLE TO
GENERATE SIGNIFICANT REVENUES AND OUR RESULTS OF OPERATIONS MAY BE
MATERIALLY ADVERSELY AFFECTED.
To attract customers we may have to develop a brand identity and
increase public awareness of our technology and products. To increase brand
awareness, we may advertise to the extent that we have adequate financial and
other resources to do so. These activities may, however, not result in
significant revenue and, even if they do, any revenue may not offset the
expenses incurred in building brand recognition. Moreover, despite these
efforts, we may not be able to increase public awareness of our brands, which
would have a material adverse effect on our results of operations.
IF WE ARE UNABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE AND IMPROVE
OUR PRODUCTS AND SERVICES, OUR BUSINESS COULD BE MATERIALLY ADVERSELY
AFFECTED.
The market for Internet solutions and software products and services is
characterized by rapid change, evolving industry standards and frequent
introductions of new technological developments. These new standards and
developments could make our existing or future products or technology obsolete.
Keeping pace with the introduction of new standards and technological
developments could result in significant additional costs or prove difficult or
impossible. Our failure to keep pace with these changes and to continue to
enhance and improve
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the responsiveness, functionality and features of our technology and products
could harm our ability to attract and retain customers. If
- we are not able to improve and expand our technology and products to
keep them state-of-the-art or
- current competitors or new market entrants succeed in developing and
introducing new or enhanced technology and/or products superior to, or
more effective than ours,
our business could be materially and adversely affected.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH COULD RESULT IN THE LOSS OF OUR RIGHTS, LOSS OF BUSINESS
OR INCREASED COSTS.
Our success and ability to compete depend, to a large degree, on our
current technology and, in the future, technology that we might develop or
license from third parties. To protect our technology, we enter into
confidentiality and/or intellectual property agreements with our employees,
consultants and suppliers. We also plan to rely on patent, trademark, trade
secret, and copyright law.
Despite these precautions, it may be possible for unauthorized third
parties to copy or otherwise obtain and use our products, technology or
proprietary information. In addition, effective patent, trademark, trade secret,
and copyright protection may be unavailable or limited in certain foreign
countries. We have registered trademarks in the United States and Canada and are
in the process of registering trademarks in Europe. We are also preparing patent
applications. Litigation may be necessary in the future:
- to enforce our intellectual property rights
- to defend the validity of any patents that we may obtain
- to protect our trade secrets or
- to determine the validity and scope of the proprietary
rights of others.
Such misappropriation or litigation could result in substantial costs and
diversion of resources and the potential loss of intellectual property rights,
which could impair our financial and business condition. Although currently we
are not engaged in any form of litigation proceedings, in the future, we may
receive notice of claims of infringement of other parties' proprietary rights.
Such claims may involve internally developed technology or technology and
enhancements that we may license from third parties. Moreover, although we
sometimes may be indemnified by third parties against claims that licensed
third-party technology infringes the proprietary rights of others, indemnity may
be limited, unavailable, or, where the third party lacks sufficient assets or
insurance, ineffectual. Any such claims could require us to spend time and money
defending against them, and, if they were decided adversely to us, could cause
us:
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- to pay damages
- to be subject to injunctions or
- to halt distribution of our products while we re-engineer them or seek
licenses to necessary technology, which necessary technology will
increase our costs and might not be available on reasonable terms.
Moreover, we could be subject to claims for indemnification resulting
from infringement claims made against our customers, which could increase
defense costs and potential damages. We currently do not have liability
insurance to protect against the risk that our technology or future licensed
third-party technology infringes the proprietary rights of others. Any of these
factors could have a materially adverse effect on our financial condition and
business.
IF OUR ELECTRONIC SECURITY DEVICES ARE BREACHED, OUR BUSINESS WOULD BE
MATERIALLY ADVERSELY AFFECTED.
A key element of our technology and products is our Internet security
feature. If anyone is able to circumvent our security measures, they could
misappropriate proprietary information or cause interruptions or problems with
hardware and software of customers using our products. Any such security
breaches could significantly damage our reputation. In addition, we could be
liable to our customers for the damages caused by such breaches or we could
incur substantial costs as a result of defending claims for those damages. We
may need to expend significant capital and other resources to protect against
such security breaches or to address problems caused by such breaches. Security
measures taken by us may not prevent disruptions or security breaches. We
believe that the three-level architecture of our security system totally
prevents security breaches. In the event that we are incorrect or future events
or developments result in a compromise or breach of the technology we use to
protect a customer's personal information, our financial condition and business
could be materially adversely affected.
WE MAY NEED TO CHANGE THE MANNER IN WHICH WE CONDUCT OUR BUSINESS IF
GOVERNMENT REGULATION INCREASES OR CHANGES.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address issues such as user privacy, pricing,
taxation, content, copyrights, distribution, security, and the quality of
products and services. For example, the Telecommunications Act of 1996 sought to
prohibit transmitting certain types of information and content over the Web.
Several telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online services providers
in a manner similar to long distance telephone carriers and to impose access
fees on these companies. Any imposition of access fees could increase the cost
of transmitting data over the Internet. In addition, the growth and development
of the market for online commerce may lead to more stringent consumer protection
laws, both in the United States and abroad, that may impose additional burdens
on us. The United States Congress recently enacted Internet laws regarding
children's privacy, copyrights, taxation and the transmission of sexually
explicit material. The law of the Internet,
Pg. 15
<PAGE> 18
however, remains largely unsettled, even in areas where there has been some
legislative action. Moreover, it may take years to determine the extent to which
existing laws relating to issues such as property ownership, libel and personal
privacy are applicable to the Web. Any new, or modifications to, existing laws
or regulations relating to the Web could adversely affect our business. If one
or more states or any foreign country successfully asserts that we should
collect sales or other taxes on the provision of our technology or products, our
net sales and results of operations could be harmed. One or more states may seek
to impose sales tax collection obligations on companies which engage in or
facilitate the provision of services on the Internet. A number of proposals have
been made at the state and local level that would impose additional taxes on the
sale of products and services through the Internet. Such proposals, if adopted,
could substantially impair the growth of electronic commerce and could adversely
affect our opportunity to derive financial benefit from the provision of our
products and technology. Legislation limiting the ability of the states to
impose taxes on Internet-based transactions has been enacted by Congress.
However, this legislation, known as the Internet Tax Freedom Act of 1998,
imposes only a three-year moratorium ending on October 21, 2001 on state and
local taxes on electronic commerce where such taxes are discriminatory and on
Internet access unless such taxes were generally imposed and actually enforced
before October 1, 1998. Failure to renew this legislation would allow various
states to impose taxes on Internet-based commerce.
OUR OPERATING RESULTS MAY PROVE UNPREDICTABLE, AND MAY FLUCTUATE
SIGNIFICANTLY.
Our operating results are likely to fluctuate significantly in the
future due to a variety of factors, many of which are outside of our control.
Because our operating results may be volatile and difficult to predict, future
operating results may fall below the expectations of securities analysts and
investors. In this event, the trading price of our common stock may fall
significantly. Factors that may cause operating results to fluctuate
significantly include the following:
- new technology or products introduced by us or by our
competitors;
- the timing and uncertainty of sales cycles and seasonal
declines in sales; and
- general economic conditions, as well as economic conditions
specific to users of our products and technology.
OUR COMMON STOCK PRICE MAY BE VOLATILE.
The market prices of securities of Internet and technology companies
are extremely volatile and sometimes reach unsustainable levels that bear no
relationship to the past or present operating performance of such companies.
Factors that may contribute to the volatility of the trading price of our common
stock include, among others:
- our quarterly results of operations;
- the variance between our actual quarterly results of
operations and predictions by stock analysts;
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<PAGE> 19
- financial predictions and recommendations by stock analysts
concerning Internet companies and companies competing in our
market in general, and concerning us in particular;
- public announcements of technical innovations relating to
our business, new products or technology by us or our
competitors, or acquisitions or strategic alliances by us or
our competitors;
- public reports concerning our products or technology or
those of our competitors; and
- the operating and stock price performance of other companies
that investors or stock analysts may deem comparable to us.
In addition to the foregoing factors, the trading prices for equity
securities in the stock market in general, and of Internet-related companies in
particular, have been subject to wide fluctuations that may be unrelated to the
operating performance of the particular company affected by such fluctuations.
Consequently, broad market fluctuations may have an adverse effect on the
trading price of our common stock, regardless of our results of operations.
THERE IS A LIMITED MARKET FOR OUR COMMON STOCK. IF A SUBSTANTIAL AND
SUSTAINED MARKET FOR OUR COMMON STOCK DOES NOT DEVELOP, OUR
SHAREHOLDERS' ABILITY TO SELL THEIR SHARES MAY BE MATERIALLY AND
ADVERSELY AFFECTED.
Our common stock is tradable in the over-the-counter market and is
quoted on the "Pink Sheets." There is only a limited market for our common stock
and there can be no assurance that this market will be maintained or broadened.
If a substantial and sustained market for our common stock does not develop, our
shareholders ability to sell their shares may be materially adversely affected.
The Common Stock was quoted on the OTC Electronic Bulletin Board until
December 1, 1999. On January 4, 1999, the Securities and Exchange Commission
approved NASD rule amendments requiring companies to report their current
financial information to the Securities and Exchange Commission as a condition
to continuing to have their securities quoted on the OTC Electronic Bulletin
Board. To do this, a company quoted on the OTC Electronic Bulletin Board needs
to register its securities under the Securities Exchange Act of 1934, commonly
referred to as the Exchange Act, within the NASD's phase-in schedule. Pursuant
to the NASD's phase-in schedule, we needed to be a reporting company by no later
than December 1999. We have filed this registration statement to register our
common stock under the Exchange Act. We anticipate that:
- when the Securities and Exchange Commission has no further
substantive comments on our registration statement and
- a broker-dealer is willing to list our common stock on the
OTC Electronic Bulletin Board, as to which we can give no
assurance,
our common stock will be quoted on the OTC Electronic Bulletin Board again.
Pg. 17
<PAGE> 20
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE STOCK PRICE TO FALL.
As of November 27, 2000, we had outstanding 12,612,924 shares of common
stock of which approximately 8,564,001 shares were "restricted securities" as
that term is defined under Rule 144 promulgated under the Securities Act of
1933. These restricted shares are eligible for sale under Rule 144 at various
times. No prediction can be made as to the effect, if any, that sales of shares
of common stock or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of our common stock may be sold in the public market may
adversely affect prevailing market prices for the common stock and could impair
our ability to raise capital through the sale of our equity securities.
WE DO NOT INTEND TO PAY DIVIDENDS IN THE NEAR FUTURE.
Our board of directors determines whether to pay dividends on our
issued and outstanding shares. The declaration of dividends will depend upon our
future earnings, our capital requirements, our financial condition and other
relevant factors. Our board does not intend to declare any dividends on our
shares for the foreseeable future.
OUR COMMON STOCK MAY BE DEEMED TO BE A "PENNY STOCK." AS A RESULT,
TRADING OF OUR SHARES MAY BE SUBJECT TO SPECIAL REQUIREMENTS THAT COULD
IMPEDE OUR SHAREHOLDERS' ABILITY TO RESELL THEIR SHARES.
Our common stock is a "penny stock" as that term is defined in Rule
3a51-1 of the Securities and Exchange Commission because it is selling at a
price below five dollars per share. In the future, if we are unable to list our
common stock on NASDAQ or a national securities exchange or the per share sale
price is not at least $5.00, our common stock may continue to be deemed to be a
"penny stock". Penny stocks are stocks:
i. with a price of less than five dollars per share;
ii. that are not traded on a recognized national exchange;
iii. whose prices are not quoted on the NASDAQ automated quotation system;
or
iv. of issuers with net tangible assets less than
- -$2,000,000 if the issuer has been in continuous operation for at
least three years; or
- -$5,000,000 if in continuous operation for less than three years,
or
v. of issuers with average revenues of less than $6,000,000 for the last
three years.
Section 15(g) of the Exchange Act, and Rule 15g-2 of the Securities and Exchange
Commission, require broker-dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Moreover, Rule 15g-9 of
the Securities and Exchange Commission requires broker-dealers in
Pg. 18
<PAGE> 21
penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stock to that investor. This procedure requires
the broker-dealer:
i. to obtain from the investor information concerning his or her
financial situation, investment experience and investment
objectives;
ii. to determine reasonably, based on that information, that
transactions in penny stocks are suitable for the investor and
that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock
transactions;
iii. to provide the investor with a written statement setting forth
the basis on which the broker-dealer made the determination in
(ii) above; and
iv. to receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's
financial situation, investment experience and investment
objectives.
Compliance with these requirements may make it more difficult for holders of our
common stock to resell their shares to third parties or to otherwise dispose of
them.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR SHAREHOLDERS OWN A
SIGNIFICANT PERCENTAGE OF OUR VOTING STOCK. AS A RESULT, THEY EXERCISE
SIGNIFICANT CONTROL OVER OUR BUSINESS AFFAIRS AND POLICY.
As of November 27, 2000, our executive officers, directors and holders
of 5% or more of our outstanding common stock together beneficially owned
approximately 57.9%, a majority of the outstanding common stock if they
exercised all of the warrants held by them. These shareholders are able to
significantly influence all matters requiring approval by shareholders,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying, deterring or preventing a change in control and may make some
transactions more difficult or impossible to complete without the support of
these shareholders.
WE EXPECT TO GENERATE SOME REVENUES AND INCUR SOME OPERATING EXPENSES
OUTSIDE OF THE UNITED STATES. IF APPLICABLE CURRENCY EXCHANGE RATES
FLUCTUATE OUR REVENUES AND RESULTS OF OPERATIONS MAY BE MATERIALLY AND
ADVERSELY AFFECTED.
We expect that some portion of our revenues will be based on sales
provided outside of the United States. In addition, we expect that a significant
portion of our operating expenses will be incurred outside of the United States.
As a result, our financial performance will be affected by fluctuations in the
value of the U.S. dollar to foreign currency. At the present time, we have no
plan or policy to utilize forward contracts or currency options to minimize this
exposure, and even if these measures are implemented there can be no assurance
that such arrangements will be available, be cost effective or be able to fully
offset such future currency risks.
Pg. 19
<PAGE> 22
OTHER RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS COULD ADVERSELY
AFFECT OUR BUSINESS OPERATIONS AND OUR RESULTS OF OPERATIONS.
There are certain risks inherent in doing business on an international
level, such as:
- unexpected changes in regulatory requirements, export and
import restrictions, export and import controls relating to
encryption technology that may limit sales sometime in the
future;
- tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles;
- problems in collecting accounts receivable;
- political instability;
- fluctuations in currency exchange rates;
- software piracy;
- seasonal reductions in business activity during the summer
months in Europe and elsewhere; and
- potentially adverse tax consequences.
Any of these factors could adversely impact the success of our international
operations. One or more of such factors may impair our future international
operations and our overall financial condition and business prospects.
OUR CORPORATE HISTORY
We were incorporated in Nevada on April 12, 1989 as CCC Funding Corp.
to seek out one or more potential business ventures. We changed our name as
follows:
<TABLE>
<CAPTION>
Date New Name
---- --------
<S> <C>
February 3, 1992 American Gold Group Inc.
August 26, 1992 American Group, Inc.
December 23, 1993 Global Science Corp.
August 9, 1999 Sochrys.com Inc.
</TABLE>
Our articles of incorporation were revoked by the State of Nevada
effective January 1, 1996 for failure to file a list of officers and directors
and pay the requisite filing fees. The State of Nevada reinstated our articles
of incorporation on February 10, 1999.
On February 24, 1999, we acquired certain mining property located in
Fresno, California known as the Jack Thorn Property from Western Continental,
Inc. for $27,500 worth of our common stock - 91,667 post reverse split shares.
Pg. 20
<PAGE> 23
On April 6, 1999, we effected a reverse split of our issued and
outstanding shares of common stock on a one-for-300 basis. All references to our
shares of common stock in this registration statement retroactively give effect
to this reverse split unless the text specifically indicates otherwise.
On June 23, 1999, our former directors and the holders of a majority
of our issued and outstanding shares of common stock, determined not to maintain
the Jack Thorn Property and to write off the costs of acquiring the property.
On August 3, 1999, our former directors and the holders of a majority
of our issued and outstanding shares of common stock, approved the acquisition
of 100% of the issued and outstanding shares of stock of Graph-O-Logic, S.A. for
8,459,000 shares of our common stock and warrants to purchase an aggregate of
2,000,000 shares over a four year period. 1,000,000 of the warrants are
exercisable at $2.00 per share and the other 1,000,000 warrants are exercisable
at $5.00 per share. In addition, Jean Pierre Hofman and Andre Hensler, two
Executive Officers of Graph-O-Logic, S.A., were elected to our board of
directors.
We consummated the acquisition of Graph-O-Logic, S.A. on August 30,
1999 at which time all of our former executive officers and directors other than
Messrs. Hofman and Hensler resigned and were replaced by a slate chosen by
Graph-O-Logic, S.A.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In this section, we explain our consolidated financial condition and
results of operations for the nine month periods ended September 30, 2000 and
September 30, 1999 and for the years ended December 31, 1999 and December 31,
1998. As you read this section, you may find it helpful to refer to our
Consolidated Financial Statements at the end of this registration statement.
Until we acquired our subsidiary, Graph-O-Logic, S.A., we had no
material or substantive business operations. Since then, our business has been
the business of the subsidiary. Accordingly, in this section we focus solely on
the historical business operations of the subsidiary and our current business
plan and operations.
PLAN OF OPERATIONS
We are a development stage enterprise. As such, our historic results
of operations are unlikely to provide a meaningful understanding of the
activities expected to take place during the period through December 31, 2001.
Our SOCHRYS(TM) Technology based products have not reached the stage of being
saleable and we have yet to make a commercial sale. Our major initiatives
through December 31, 2001 are:
Pg. 21
<PAGE> 24
- completing the development of our SOCHRYS(TM) Technology based
products; and
- marketing the products and developing and improving product
agents to perform specialized functions common to many e-commerce
sites.
For more information, please see "Part 1. Item 1: Description of
Business; Technology."
Marketing Plans: We have started the marketing process in the second
quarter of 2000, with our primary focus being potential customers located in the
United States and Western Europe. The potential customers are more fully
described in "Part 1. Item 1: Description of Business; The Target Market."
Marketing activities are multi-faceted.
Marketing leads are being developed by direct identification of
potential customers, through trade shows and through personal contacts of
management and the marketing representatives. We expect to spend $100,000 in
attending and exhibiting at trade shows through December 31, 2001. We anticipate
that preparations of promotional literature, including technical evaluations of
the products and testimonials from users of the products, and distribution of
promotional literature at the trade shows and by direct mailings to the
individuals identified as the decision makers and decision influencers will cost
an additional $50,000.
Marketing representatives, who will be compensated on a salary and
commission basis, will then follow up these leads, with the objective of more
fully explaining the products and their benefits to the potential customer. We
estimate the cost of this initiative, including travel and sales support, to be
$750,000.
Pilot projects to demonstrate the utility and benefits of the products
to the customer are expected to be funded at a break-even level by the customer.
In summary, the marketing program is expected to cost between $900,000
and $1,000,000 through December 31, 2000.
Developing and Improving Product Agents: While we direct a
considerable portion of our activities and budget to marketing, we will continue
developing the core functions of the products and additional product agents and
improving existing ones. For more information please see "Part I. Item 1.
Description of Business; Our SOCHRYS(TM) Technology."
We will improve and further develop our products based upon responses
we get from potential customers. The cost of developing these is primarily a
function of the activity currently planned and thus will be subject to a high
degree of control. We estimate that the cost of this continued research and
development effort will be $1,500,000 through December 31, 2001. In addition, we
expect to spend $900,000 on our general and administrative expenses through
December 31, 2001.
In the past, we obtained financing from the exercise of our Series A
warrants and the proceeds from loans. Until such time as we generate sufficient
revenues from the licensing of
Pg. 22
<PAGE> 25
our software applications we will continue to be dependent on raising
substantial amounts of additional capital through any one of a combination of
debt offerings or equity offerings, including but not limited to:
- debt instruments, including demand notes similar to those discussed below
in "Liquidity and Capital Resources";
- private placements of common stock;
- exercise of Series 'B' warrants at an exercise price of $3.00 per share;
- exercise of Series 'C' warrants at an exercise price of $5.00 per share; or
- funding from potential clientele or future industry partners.
There can be no assurance that any such financings can be obtained. In
the event that we are not able to raise sufficient funds to conduct all of the
foregoing activities, we will scale back the level of activities we undertake to
match the funds available. In this regard, please see "Risk Factors; Immediate
need for Additional Capital" in Item 1 above.
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to our
consolidated statements of operations for each of the two fiscal years in the
period ended December 31, 1999 and with respect to the consolidated balance
sheets as at December 31, 1999 and 1998, are derived from our audited
consolidated financial statements included at the end of this registration
statement. Consolidated balance sheet data as of September 30, 2000 and
September 30, 1999 and consolidated statements of operations data for the nine
months ended September 30, 2000 and September 30, 1999 are derived from our
unaudited interim consolidated financial statements also included at the end of
this registration statement. The unaudited interim consolidated financial
statements as of and for the nine months ended September 30, 2000 and September
30, 1999 reflect all adjustments which, in our opinion, are necessary for a fair
presentation of our results of operations and our financial position You should
read the following selected financial data in conjunction with our consolidated
financial statements and the notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31,
------------------------------ -----------------------
2000 1999 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS DATA
Revenues $ -- $ 169,753 $ 168,371 $ 310,666
Cost of consulting revenue -- -- 84,000 148,000
----------- ----------- ----------- -----------
-- 169,753 84,371 162,666
Research and development 1,242,263 201,721 327,517 119,135
General and administrative 728,579 9,071 429,835 3,238
Amortization 85,920 35,349 58,696 15,522
Other expenses 13,564 5,521 20,509 3,112
----------- ----------- ----------- -----------
Net income (loss) (2,070,326) (81,909) $ (752,186) $ 21,659
</TABLE>
Pg. 23
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C>
CASH FLOWS DATA
Net cash from (used in) operations $(1,623,292) $ (2,257) $ (392,162) $ 55,767
Net cash used in investing activities (248,253) -- (216,276) (67,495)
Net cash from financing activities 1,763,000 30,000 755,250 --
Effects of exchange rates on cash (27,417) -- 17,760 (3,496)
----------- ----------- ----------- -----------
Net increase (decrease) in cash (135,962) 27,743 $ 164,572 $ (15,224)
BALANCE SHEET DATA
Cash $ 35,666 $ 34,799 $ 171,628 $ 7,056
Total current assets 97,995 34,799 184,461 46,856
Equipment (net) 241,423 55,086 183,600 59,147
Total assets 470,857 90,142 394,989 106,003
Total current liabilities 1,142,426 18,598 146,815 2,730
Stockholders' equity (deficiency) (671,569) 71,544 248,174 103,273
</TABLE>
RESULTS OF OPERATIONS
In this section, we discuss our earnings for the periods indicated and
the factors affecting them that resulted in changes from one period to the
other.
To date, our principal operations have been conducted in Switzerland.
Our revenues are earned in Swiss francs and our expenses are incurred in Swiss
francs. Our financial statements have been conformed to US GAAP and presented in
US dollars for purposes of this registration statement. The rates of exchange
between the Swiss franc and US dollar set out below were used to convert the
various financial statement balances from Swiss francs to US dollars. In the
following tables we set forth:
- the rates of exchange for the US dollar, expressed in Swiss francs
(CH), in effect at the end of each of the periods indicated;
- the average of the exchange rates in effect during such periods
NINE MONTHS ENDING SEPTEMBER 30
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Rate at end of Period 0.5771CH 0.6665CH
Average Rate During Period 0.5998CH 0.6724CH
</TABLE>
Pg. 24
<PAGE> 27
YEARS ENDING DECEMBER 31
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Rate at end of Period 1.60CH 1.37CH
Average Rate During Period 1.50CH 1.45CH
</TABLE>
THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUE: We generated no revenues during the nine months ended
September 30, 2000. This is down from the $169,753 we generated during the nine
months ended September 30, 1999. During the nine months ended September 30, 1999
we provided consulting services to a related party. For more information on the
related party, please see "Part I. Item 7. Certain Relationships and Related
Transactions". The services provided were not related to the development of
SOCHRYS(TM) Technology based products. The decrease in revenues is a result of
our shift of focus in August 1999 from providing consulting services to
directing all of our attention towards the completion of the software
applications for a high speed, highly secure method of transacting business on
the Internet. We believe that if we are successful in our development and
marketing efforts, we will generate a source of revenues in the future from
sales and/or licensing of our software applications.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses
consist primarily of personnel costs and consulting expenses directly associated
with the development of our software applications. During the nine months ended
September 30, 2000, we spent $1,242,263, an increase of $1,040,542 (516%) in
developing our Universal Computer Technology, and implemented it into two
products: Universal Commerce and Universal Banking. In addition, we continued to
develop related software applications. During the nine months ended September
30, 1999 we spent $201,721 on research and development directed towards the
early stages of the core software for the Universal Computer. In August 1999 we
made the strategic decision to direct all of our efforts towards the development
of the software applications. We have significantly increased our research and
development team. During the nine months ended September 30, 2000 we had an
average of 22 people working directly on the project, compared to only 6 in the
comparable period in 1999. This increase in staffing is the primary reason for
the increase in research and development costs.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative
expenses consist primarily of personnel costs, professional fees,
communications, occupancy costs and other miscellaneous costs associated with
supporting our research and development activities. During the nine months ended
September 30, 2000 we spent $728,579 as compared to $9,071 during the nine
months ended September 30, 1999. This increase of $719,508 (7,931%) is a
reflection of
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<PAGE> 28
our increased activity as we shifted our focus from a consulting service to
research and development activities.
AMORTIZATION: Amortization expense was $85,920 during the nine months
ended September 30, 2000, an increase of $50,571, approximately 143%, over the
$35,349 charged to expense during the nine months ended September 30, 1999. This
significant increase resulted from our acquisition of a significant quantity of
computer equipment during the last 12 months.
EFFECTS OF EXCHANGE RATES ON CASH: The reporting currency for our
financial statements is the United States dollar. The functional currency for
our operating subsidiaries is the Swiss franc. Accordingly, the assets and
liabilities of these subsidiaries are included in the financial statements by
translating them from Swiss francs to United States dollars at the exchange
rates applicable at the end of reporting period. Revenues and expenses are
translated from Swiss francs to United States dollars at the average monthly
exchange rates during the period. The exchange rates used are disclosed above.
Translation gains and losses are accumulated as a separate component of
shareholders' equity. During the nine months ended September 30, 2000, we
recorded translation losses of $27,417 compared to $5,532 in translation gains
we recorded during the nine months ended September 30, 1999. This $32,949
difference relates predominantly to the increase in our assets and liabilities,
which increased by $1,071,478 during the last 12 months, offset by a decline of
approximately 11% in the value of the Swiss franc as compared to the US dollar.
NET LOSS: We incurred a loss of $2,070,326 ($0.17 per share) for the nine months
ended September 30, 2000, compared to a loss of $81,909 ($0.01 per share) for
the nine months ended September 30, 1999. Our revenues and future profitability
and future rate of growth are substantially dependent on our ability to:
- identify clients willing to install beta sites for our Universal
Commerce and Universal Banking products;
- operate successfully these beta sites, integrating our technology into
their operations;
- modify the software applications based on the results of the beta site
results;
- license the software applications to a sufficient number of clients;
- modify the successful software applications, over time, to provide
enhanced benefits to existing users; and
- successfully develop related software applications.
THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUES: We generated revenues of $168,371 during the year ended
December 31, 1999, a decrease of 46% from the $311,666 generated during the year
ended December 31, 1998. We had only one contract from which we derived revenues
in each of these periods. The contract was with a related party. For more
information on this related party, please see "Part I. Item 7. Certain
Relationships and Related Transactions". Pursuant to this contract we provided
various software solutions to our customer. This contract was not related to the
development of
Pg. 26
<PAGE> 29
the SOCHRYS(TM) Technology based products. The decrease in revenues is a result
of our decision to change from being a consulting service to an enterprise
devoted exclusively to the development and marketing of products based on our
technology.
COST OF CONSULTING REVENUES: During the year ended December 31, 1999 we
incurred costs of $84,000 to generate our consulting revenues. This is compared
to $148,000 during the year ended December 31, 1998. In both 1998 and 1999 these
consulting costs were paid to a related party. The cost to generate consulting
revenues, as a percentage of consulting revenues rose marginally from 48% during
the year ended December 31, 1998 to 50% during the year ended December 31, 1999.
SALARIES AND RESEARCH AND DEVELOPMENT COSTS: During the year ended
December 31, 1999, we spent $187,728 on salaries to employees working on
research and development projects. We incurred an additional $139,789 to support
research and development activities. During the year ended December 31, 1998, we
did not spend any funds on salaries to employees working on research and
development projects. We did spend $119,135 for research and development
activities. This $208,382 increase, approximately 174%, in total research and
development spending is a result of the change in focus of the business
discussed above.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative
expenses consist of such items as office related expenses, consulting fees and
salaries that have not been allocated to research and development activities.
During the year ended December 31, 1999, we incurred $429,835 of general and
administrative charges, compared to $3,238 during the year ended December 31,
1998. Our general and administrative costs were low during the year ended
December 31, 1998 and the first nine months of 1999 because we shared our
facilities with related companies until the September 1999. During August 1999
we increased our administrative staff significantly to support our increased
development and marketing activities. In addition, we recorded consulting fee
expenses of $130,000, which represents the value of the Series B warrants issued
to a consulting firm in August 1999.
AMORTIZATION: Amortization expense was $58,696 during the year ended
December 31, 1999. An increase of $43,174, approximately 278%, over the $15,522
charged to expense during the year ended December 31, 1998. We believe that this
significant increase resulted from our acquisition of $189,348 of computer
equipment during 1999.
EFFECTS OF EXCHANGE RATES ON CASH: The reporting currency for our
financial statements is the United States dollar. The functional currency for
our operating subsidiaries is the Swiss franc. Accordingly, the assets and
liabilities of these subsidiaries are included in the financial statements by
translating them from Swiss francs to United States dollars at the exchange
rates applicable at the end of reporting period. Revenues and expenses are
translated from Swiss francs to United States dollars at the average monthly
exchange rates during the year. Translation gains and losses are accumulated as
a separate component of shareholders' equity. During the year ended December 31,
1999, we recorded translation gains of $17,760 compared to the $3,496 in
translation losses we recorded during the year ended December 31, 1998. This
Pg. 27
<PAGE> 30
$21,256 difference relates predominantly to the increase in our assets and
liabilities, which increased by $288,986 during the year ended December 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had negative working capital of $1,044,431
compared to positive working capital of $37,646 at December 31, 1999. This
significant decrease in working capital resulted primarily from an increase in
accounts payable and accrued liabilities and the indebtedness we incurred as a
result of $585,000 in debt financing. We had $35,666 of cash on hand at
September 30, 2000 compared to $171,628 at December 31, 1999.
NET CASH FLOW FROM OPERATIONS: During the nine months ended September
30, 2000, we used $1,623,292 in operations, compared to using $2,257 during the
nine months ended September 30, 1999. This decrease of $1,621,035 in cash from
operations during the nine months ended September 30, 2000 is primarily the
result of the $2,070,326 loss incurred during the nine months ended September
30, 2000 offset by $85,920 of amortization expenses and $361,114 of cash from
changes to working capital accounts. During the year ended December 31, 1999, we
used $392,162 in operations, compared to generating $55,767 during the year
ended December 31, 1998. This decrease of $447,929 in cash from operations
during the year ended December 31, 1999 is a primarily the result of the
$752,186 loss incurred during the year ended December 31, 1999 offset by
$171,328 of cash from changes to working capital accounts.
NET CASH USED IN INVESTING ACTIVITIES: During the nine months ended
September 30, 2000, we invested $143,742 in computer equipment and office
furniture and pledged as a cash collateral deposit on an operating lease a
further $104,511. During the year ended December 31, 1999, we invested $189,348
in computer equipment and office furniture and pledged as a cash collateral
deposit on an operating lease a further $26,928.
NET CASH FROM FINANCING ACTIVITIES: During the nine months ended
September 30, 2000, we raised a net of $1,763,000 by issuing 620,000 common
shares pursuant to the exercise of 620,000 Series A warrants at an exercise
price of $2.00 per warrant, less costs of $62,000. In addition we raised an
additional $585,000 in unsecured demand notes that bear interest at 12%.
Interest charges are accrued and capitalized and payable on demand. During the
year ended December 31, 1999, we raised a net of $755,250 by issuing 395,000
common shares pursuant to the exercise of 395,000 Series A warrants at an
exercise price of $2.00 per warrant, less costs of $34,750.
Since graph-O-Logic S.A. commenced operations in February 1995 through
July 1999 we generated revenues from consulting contracts and used the funds in
excess of that required to perform the consulting services to fund the
development of the software applications. Since August 1999 we have directed our
efforts towards the development of our Universal Commerce and Universal Banking
and other related software applications. In May 2000, we started to actively
market our Universal Commerce and Universal Business products.
Pg. 28
<PAGE> 31
For information concerning our capital requirements see "Plan of
Operations" above.
ITEM 3. DESCRIPTION OF PROPERTIES
We maintain two offices. Our principal executive office is located at
Route de Jussy 29, CH 1226 Thonex-Geneva, Switzerland; the telephone number is
41-22-869-2070. Our United States office is located at 4651 Roswell Road, Suite
B-106, Atlanta, Georgia 30342; the telephone number is (404) 256-1963.
Our Geneva offices are leased from a non-affiliated party for a period
of three years beginning November 1, 1999 through October 31, 2002. The lease
covers two separate floors and 10 spaces in the parking garage. The applicable
annual charges are provided separately for each space rented:
<TABLE>
<CAPTION>
ANNUAL APPROX. APPROX.
RENTAL US DOLLAR LEASE US DOLLAR
SPACE SPACE RENT UTILITIES COST EQUIVALENT DEPOSIT EQUIVALENT
(Square (Square (Swiss (Swiss (Swiss (Swiss
Meters) Footage) Francs) Francs) Francs) (USD) Francs)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2nd Floor 230 2,476 88,008 7,200 95,208 63,472 14,380 9,587
4th Floor 352 3,789 57,504 5,160 62,664 41,776 22,000 14,667
Garage 10 Not 21,000 Not 21,000 14,000
spaces Applicable Applicable
------- ------
119,248 24,253
======= ======
</TABLE>
Providing the terms and conditions of the lease have been met, the
lease may be renewed yearly by written request six months prior to expiration.
The termination of the lease may be considered with six-months' notice but
subject to the regular fulfillment of the terms of the lease.
Our Atlanta office is leased from a non-affiliated party per oral
arrangement on a month by month basis. The lease provides shared access to and
usage of 1,000 square feet.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of November 27, 2000,
with respect to
- any person known by us to own beneficially more than 5% of our
common stock;
- common stock beneficially owned by each of our officers and
directors; and
- the amount of common stock beneficially owned by our officers and
directors as a group.
Pg. 29
<PAGE> 32
<TABLE>
<CAPTION>
Name & Address of Number of Shares Approximate Percent
Beneficial Owner Beneficially Owned of Common Stock
Outstanding (1)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Jean Pierre Hofman (4)(6)* 3,400,000 27.0%
Andre Hensler (4)(6)* 3,500,000 (2) 27.5%
Paul Claverie (4)(6)* 3,500,000 (2) 27.5%
Suzette Cousineau (5)(6) 3,420,000 (3) 27.1%
Antoine Veit (5)(6) 3,500,000 (2) 27.5%
Waycross Corp. (6) 3,400,000 27.0%
29 Rue des Deux Communes
1226 Thonex-Geneva
Switzerland
Valdosta Corp. (7) 2,400,000 19.0%
P.O. Box 30592
Cayside, 2nd Floor, Harbour Drive
Georgetown, Grand Cayman
Cayman Islands, BWI
VMX Group Ltd. (8) 675,000 5.2%
27 Rue de Saint Prix
Saint Leu La Foret
95320 France
G. C. Payne Ltd. (9) 675,000 5.2%
P.O. Box 811
CH-6301 Zug, Switzerland
Insight Corporation (10) 650,000 5.0%
Leugate 18
8052 Zurich,
Switzerland
All Executive Officers and Directors
As a Group (three Persons) 3,600,000 (6)(11) 28.1%
</TABLE>
----------
* Executive Officer and Director.
Pg. 30
<PAGE> 33
(1) Based upon 12,612,924 shares of common stock issued and outstanding as
of November 27, 2000 and includes for each person the shares issuable
upon exercise of the warrants owned by them.
(2) Includes 100,000 shares of common stock issuable to each of Messrs.
Hensler, Claverie and Veit upon exercise of the warrants owned by them.
(3) Includes 20,000 shares of common stock issuable upon exercise of the
warrants owned by Ms. Cousineau.
(4) Our executive officer and/or director with an address at our Geneva,
Switzerland office.
(5) An employee of ours with an address at our Geneva, Switzerland office.
(6) Waycross Corporation is a corporation incorporated under the laws of
the Cayman Islands. Jean Pierre Hofman, Andre Hensler, Paul Claverie,
Suzette Cousineau and Antoine Veit have beneficial interests in
Waycross Corporation. Accordingly, the 3,400,000 shares owned of record
by Waycross Corporation have been included as beneficially owned by
each of the foregoing individuals, and by all officers and directors
and employees as a group.
(7) A portfolio management corporation incorporated under the laws of the
Cayman Islands.
(8) A portfolio management corporation incorporated under the laws of the
Cayman Islands. Includes 325,000 shares of common stock issuable upon
exercise of the warrants owned by VMX Group Ltd.
(9) A portfolio management corporation incorporated under the laws of the
Cayman Islands. Includes 325,000 shares of common stock issuable upon
exercise of the warrants owned by G.C. Payne Ltd.
(10) A portfolio management corporation incorporated under the laws of the
Cayman Islands. Includes 350,000 shares of common stock issuable upon
exercise of the warrants owned by Insight Corporation.
(11) Includes 100,000 shares of common stock issuable to each of Messrs.
Hensler and Claverie upon exercise of the warrants owned by them.
Pg. 31
<PAGE> 34
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jean Pierre Hofman 53 Chairman, President, Chief Executive
Officer and Director
Andre Hensler 56 Chief Financial Officer and Director
Paul Claverie 59 Secretary/Treasurer and Director
</TABLE>
JEAN PIERRE HOFMAN has been a director since August 3, 1999; our
chairman, president and chief executive officer since October 12, 1999 and
chairman, president and chief executive officer of Graph-O-Logic, S.A., and its
predecessors, since 1984. He overseas key management and strategic decisions and
plays an important role in new product development strategy. Since 1996, he
focused the research and development on creating our Universal Computer.
Previously, he managed the development and marketing of software, which used
multi-thread, interoperable objects interfaced in a multi-windows environment.
From 1970 to 1984, Mr. Hofman developed software as a consultant for such
companies as L'Oreal, Volkswagen and the Diamond Stock Exchange of Antwerp. Mr.
Hofman is a professional engineer from the INSEE Institute in Belgium.
ANDRE HENSLER has been a Director since August 3, 1999; our chief
financial officer since October 12, 1999; and chief financial officer of
Graph-O-Logic, S.A. since April 1995. He has experience in finance and strategic
planning, developing and implementing financial and management control systems,
and enhancing the reliability and timing of information for decision making. He
also has had direct responsibility for mergers and acquisitions, cash management
and foreign exchange operations, handling of commercial credits, capital markets
and trade finance business. Since 1991, he has also been the managing director
of a Swiss finance company. Earlier, he was First Vice-president of SBP Finance
S.A., Vice President of Banque Paribas (Suisse) S.A. and held various positions
of increasing responsibility with the Union Bank of Switzerland. He holds a
bachelor's degree of commercial and business administration from Ecole
Superieure de Commerce, Switzerland and a language degree from Cambridge
University.
PAUL CLAVERIE has been our secretary/treasurer and a director since
October 12, 1999 and secretary/treasurer of Graph-O-Logic, S.A. since 1996. He
has experience in corporate administration and finance. He is responsible for
administrative management, human resources, planning, information systems and
accounting operations. From 1995 to 1996, he was president of Minicom France
S.A., a French software company. Previously, he held financial management
positions of increasing responsibility at Tissus Lauer - Manufacture des Tapis
de Cogolin S.A., where he was elected to the board and was named manager of its
holding company, SEDI. Earlier, he was the chief financial officer at
Cooperative Vinicole de Grimaud. Mr. Claverie holds a bachelors degree in
commerce from the Ecole Superieure de Commerce et d'Administration in Marseille.
Pg. 32
<PAGE> 35
ITEM 6. EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid or to be paid
by us or Graph-O-Logic, S.A., as well as certain other compensation paid or
accrued, during the fiscal years indicated, to the chief executive officer for
such period in all capacities in which he served. No other executive officer
received total annual salary and bonus in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------------------
Annual Compensation
--------------------------------------
(a) (b) ( c) (d) (e) (f) (g) (h) (i)
------------------ --------- ------------ ----------- ------------- ------------ ------------- ------------ -------------
Other Securities All
Name and Annual Restricted Underlying LTIP Other
Principal Compensa- Stock Options/ Payouts Compensa-
Position Year Salary($) Bonus($) tion ($) Award ($) SARs ($) tion
------------------ --------- ------------ ----------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hofman, Jean 1999 $80,000 0 0 0 0 0 0
Pierre 1998 $51,000 0 0 0 0 0 0
Chairman, CEO & 1997 $51,000 0 0 0 0 0 0
Pres.
------------------ --------- ------------ ----------- ------------- ------------ ------------- ------------ -------------
</TABLE>
Directors are not compensated for acting in their capacity as
directors. Directors are reimbursed for their accountable expenses incurred in
attending meetings and conducting their duties.
There are no employment agreements between us and any of our executive
officers. (See "Part 1. Item 1. Description of Business; Risk Factors-Dependence
on Key Personnel.")
For further information concerning warrants owned by executive
officers, directors and employees See: "Part II. Item 4. Recent Sales of
Unregistered Securities."
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the nine months ended September 30, 2000 there were no related
party transactions.
During the year ended December 31, 1999, we received $168,371 for
consulting services from Sochrys B.V. and we incurred $84,000 of research and
development costs under the contract with Servitel N.V. Sochrys B.V. and
Servitel N.V. are controlled by Jean Pierre Hofman, one of our executive
officers, directors and principal shareholders.
During the year ended December 31, 1998, we received $310,666 for
consulting services and we incurred $148,000 of research and development costs
under the contract with Sochrys B.V.
Pg. 33
<PAGE> 36
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 50,000,000 shares of common stock, $.001 par
value per share. Each outstanding share is entitled to one vote, either in
person or by proxy, on all matters that may be voted upon by the owners thereof
at meetings of the shareholders.
At present, the holders of our common stock
- have equal ratable rights to dividends from funds legally
available therefor, when, and if declared by our board of
directors;
- are entitled to share ratably in all of our assets available
for distribution to holders of common stock upon our
liquidation, dissolution or winding up of the affairs;
- do not have preemptive, subscription or conversion rights, or
redemption or sinking fund provisions applicable thereto; and
- are entitled to one non-cumulative vote per share on all
matters on which shareholders may vote at all meetings of
shareholders.
Preferred Stock
We are authorized to issue 5,000,000 shares of preferred stock, $.001
par value per share, none of which have been issued as of the date of this
registration statement. Our board of directors is empowered to determine the
relative rights, privileges and obligations, including
- voting rights,
- dividend rights,
- conversion features and
- liquidation preferences
of holders of the preferred stock without shareholder approval.
Pg. 34
<PAGE> 37
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
(a) Marketing Information -- The principal U.S. market in which our
common stock, all of which are of one class, are traded or will trade is in the
over-the-counter market. The stock was quoted on the OTC Bulletin Board under
the symbol: "SOCH" until December 1, 1999, after which it became quotable on the
Pink Sheets. Our stock is not traded or quoted on any automated quotation
system.
The following table sets forth the range of high and low bid and asked
quotes of our common stock per quarter during the fiscal years ended December
31, 1998 and 1999 and the first three quarters of fiscal 2000 as reported by the
OTC Bulletin Board. These quotes reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessary represent actual
transactions.
<TABLE>
<CAPTION>
MARKET PRICE OF COMMON STOCK
BID ASK
QUARTER ENDING HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1998
January 1 to March 31* n/b n/b 0.625 0.625
April 1 to June 30* n/b n/b 0.625 0.625
July 1 to September 30* n/b n/b 0.625 0.625
October 1 to December 31* n/b n/b 0.625 0.625
1999
January 1 to March 31* 0.01 0.001 1.00 0.25
April 1 to April 6* 0.01 0.01 1.00 1.00
April 7 to June 30 0.125 0.125 10.125 10.125
July 1 to September 30 5.625 0.125 10.125 3.375
October 1 to December 31 6.75 1.25 7.25 3.50
2000
January 1 to March 31 7.25 2.75 7.75 4.00
April 1 to June 30 7.25 2.00 7.75 3.15
July 1 to September 30 5.80 3.00 6.125 3.25
</TABLE>
Pg. 35
<PAGE> 38
* Prior to the one-for-300 reverse split of the issued and outstanding shares of
common stock effected on April 6, 1999.
(b) Holders -- There were approximately 136 holders of record of our common
stock as of November 27, 2000 inclusive of those brokerage firms and/or clearing
houses holding our securities for their clientele, with each such brokerage
house and/or clearing house being considered as one holder. The aggregate number
of shares of common stock outstanding as of November 27, 2000 was 12,612,924
shares.
(c) Dividends - We have not paid or declared any dividends upon our common stock
since inception and, by reason of its present financial status and its
contemplated financial requirements, we do not contemplate or anticipate paying
any dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
We are not presently a party to any material litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Except as set out below, there have been no changes in or disagreements
with accountants with respect to accounting and/or financial statements.
On March 1, 2000, we dismissed Crouch, Bierwolf and Chisholm as our
certifying accountant and on March 1, 2000, we retained KPMG LLP as our
certifying accountant. Crouch's reports on our financial statements for the
three months ended March 31, 1999 and the fiscal years ended December 31, 1998
and 1997 did not contain an adverse opinion or disclaimer of opinion, nor were
they modified as to uncertainty, audit scope or accounting principles.
The decision to engage KPMG as set forth above and to dismiss Crouch
was approved by our board of directors.
In connection with the audits of our financial statements for the three
months ended March 31, 1999 and the fiscal years ended December 31, 1998 and
1997 and during the period commencing April 1, 1999 through February 29, 2000,
there were no disagreements with Crouch on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to the satisfaction of Crouch, would have
caused them to make reference to the subject matter of the disagreement in
connection with its report.
On March 1, 2000, our subsidiary, Graph-O-Logic S.A., dismissed
Fiduciaire Bujard as its certifying accountant and on March 1, 2000,
Graph-O-Logic S.A. retained KPMG LLP as its certifying accountant. Fiduciaire
Bujard's reports on Graph-O-Logic S.A.'s financial statements for the fiscal
years ended December 31, 1998, 1997 and 1996 did not contain an adverse opinion
Pg. 36
<PAGE> 39
or disclaimer of opinion, nor were they modified as to uncertainty, audit scope
or accounting principles.
The decision to engage KPMG as set forth above and to dismiss
Fiduciaire Bujard was approved by the board of directors of Graph-O-Logic S.A.
In connection with the audits of the financial statements of
Graph-O-Logic S.A. for the fiscal years ended December 31, 1998, 1997 and 1996,
and during the period commencing January 1, 1999 through February 29, 2000,
there were no disagreements with Fiduciaire Bujard on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements, if not resolved to the satisfaction of
Fiduciaire Bujard, would have caused them to make reference to the subject
matter of the disagreement in connection with its report.
On March 1, 2000, the Company's subsidiary, Sochrys Technologies S.A.,
dismissed Fiduciaire Bujard as its certifying accountant and on March 1, 2000,
Sochrys Technologies S.A. retained KPMG LLP as its certifying accountant.
Although Fiduciaire had been appointed the certifying accountant for Sochrys
Technologies S.A., no reports have been prepared to date as Sochrys Technologies
S.A. was incorporated August 23, 1999.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the period August 3, 1999 through December 31, 1999, we issued
an aggregate of 395,000 shares pursuant to the exercise of 395,000 Series A
warrants at an exercise price of $2.00 per warrant.
During the period January 1, 2000 through November 24, 2000, we issued
an aggregate of 620,000 shares pursuant to the exercise of 620,000 Series A
Warrants at an exercise price of $2.00 per share.
In August 1999, we issued an aggregate of 8,459,000 shares of our
common stock and 2,000,000 common stock purchase warrants to purchase 100% of
the issued and outstanding shares of Graph-O-Logic, S.A.'s common stock pursuant
to Section 4(2) of the Act. Jean Pierre Hofman, the record holder of 99 common
shares and Andre Hensler, the record holder of 1 common share, held these common
shares for beneficial owners. On completion of our acquisition of Graph-O-Logic
S.A., these beneficial owners took title to the common stock and Series A and
Series C warrants as disclosed in the table below.
Pg. 37
<PAGE> 40
<TABLE>
<CAPTION>
SERIES A
BENEFICIAL OWNER COMMON WARRANTS SERIES C WARRANTS
(NON U.S. PERSONS) SHARES @ $2.00 @ $5.00
<S> <C> <C> <C>
Waycross Corp. 3,400,000 -- --
Valdosta Corp. 2,400,000 -- --
G.C. Payne 350,000 350,000 325,000
Insight 350,000 300,000 350,000
VMX 350,000 350,000 325,000
Wind Star Corp. 659,000 -- --
--------- --------- ---------
Total 8,459,000 1,000,000 1,000,000
</TABLE>
In August 1999, we also issued Series B warrants to purchase an
aggregate of 730,000 shares of our common stock to certain directors, executive
officers, employees and consultants in consideration for services rendered and
to be rendered. These Series B warrants may be exercised at any time within four
years from the date of issue at an exercise price of $3.00 and also carry
cashless exercise provisions. The Series B warrants were issued pursuant to
Regulation S under the Act.
The following table lists the Series B warrants issued to directors,
executive officers and employees:
<TABLE>
<CAPTION>
NAME NUMBER
---- ------
<S> <C>
Andre Hensler 100,000
Paul Claverie 100,000
Antoine Veit 100,000
Andre Maisonneuve 20,000
Suzette Cousineau 20,000
</TABLE>
The remaining 390,000 Series B warrants are held by Capital House a Finance and
Investment Corporation. We recorded an expense of $130,000 in the year ended
December 31, 1999 related to the issuance of these warrants.
In April 1999, we issued 3,000,000 shares of our common stock for an
aggregate of $30,000 pursuant to Rule 504 of Regulation D under the Securities
Act of 1933.
In February 1999, we issued 91,667 shares of our common stock in
exchange for certain mining rights pursuant to Section 4(2) of the Act.
Pg. 38
<PAGE> 41
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.7502 of the Nevada Revised Statutes contains various
provisions entitling our directors, officers, employees or agents to
indemnification from judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees, as the result of an action or proceeding,
whether civil, criminal, administrative or investigative, in which they may be
involved by reason of being or having been a director, officer, employee or
agent of ours. To be indemnified, such persons must have acted in good faith and
in a manner reasonably believed to be in or not opposed to our best interests.
With respect to any criminal action or proceeding, such persons must not have
had any reasonable cause to believe that the conduct complained of was unlawful.
PART F/S
See our consolidated financial statements at the end of this registration
statement.
Pg. 39
<PAGE> 42
PART III
ITEMS 1 & 2. Index to Exhibits and Description of Exhibits.
Exhibits
2.a. Our Articles of Incorporation*
2.b. Amendments to our Articles of Incorporation*
2.c. Our By-Laws*
2.d. Translation summary of material terms of Articles of Incorporation for
Graph-O-Logic S.A.*
2.e. Articles of Incorporation of Sochrys Technologies Inc.
2.f. Translation summary of material terms of Articles of Incorporation for
Sochrys Technologies S.A.*
3.a. Text of Common Stock Certificate*
4.a. Text of Class A Warrants*
4.b. Text of Class B Warrants*
4.c. Text of Class C Warrants*
6.a. Translation summary of Lease Agreement for Geneva Offices*
6.b. Consulting Agreement dated August 30, 1999 between us and Capital House
A Finance and Investment Corporation.*
* Previously filed.
Pg. 40
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused amendment no. 2 to this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOCHRYS.COM INC
Dated: November 29 , 2000 By: s/Jean Pierre Hofman
Jean Pierre Hofman
Chief Executive Officer
Pg. 41
<PAGE> 44
Consolidated Condensed Financial Statements of
SOCHRYS.COM INC.
(A Development Stage Enterprise)
Nine Months ended September 30, 2000
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Condensed Balance Sheets September 30, 2000
and December 31, 1999 F-2
Consolidated Condensed Statements of Operations for the six months ended
September 30, 2000 and 1999 and the period from August 3, 1999
to September 30, 2000 F-3
Consolidated Condensed Statements of Cash Flows for the six months ended
September 30, 2000 and 1999 and the period from August 3, 1999
to September 30, 2000 F-4
Notes to Consolidated Condensed Financial Statements F-5
</TABLE>
F-1
<PAGE> 45
SOCHRYS.COM, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,666 $ 171,628
Other current assets 62,329 12,833
----------- -----------
Total current assets 97,995 184,461
Fixed assets (at cost, net of accumulated amortization) 241,423 183,600
Cash pledged as collateral for operating lease 131,439 26,928
----------- -----------
Total assets $ 470,857 $ 394,989
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 557,426 $ 141,637
12% demand notes payable 585,000 --
Due to a related party -- 5,178
----------- -----------
Total current liabilities 1,142,426 146,815
----------- -----------
Total liabilities 1,142,426 146,815
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, ($0.001 par value.) Authorized 5,000,000 shares;
Issued and outstanding nil shares at September 30, 2000 and
nil shares at December 31, 1999
Common stock, ($0.001 par value.) Authorized 50,000,000 shares;
Issued and outstanding 12,612,924 shares at September 30, 2000 and
11,992,924 shares at December 31, 1999 12,612 11,992
Additional paid in capital 2,131,257 953,877
Accumulated other comprehensive income (loss) (23,006) 4,411
Deficit accumulated during the development stage (2,813,736) (743,410)
Retained earnings prior to entering development stage 21,304 21,304
----------- -----------
Total shareholders' equity (671,569) 248,174
----------- -----------
Total liabilities and shareholders' equity $ 470,857 $ 394,989
=========== ===========
</TABLE>
See accompanying notes to unaudited interim period consolidated condensed
financial statements.
F-2
<PAGE> 46
SOCHRYS.COM, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
AND THE PERIOD FROM AUGUST 3, 1999 THROUGH SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS PERIOD FROM
ENDED AUGUST 3, 1999 TO
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 (NOTE 1)
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Consulting revenues $ -- $ 169,753 $ --
Software revenues -- -- --
------------ ------------ ------------
Total Revenues -- 169,753 --
Operating expenses (income):
Research and development 1,242,263 201,721 1,516,621
General and administrative (note 1) 728,579 9,071 1,156,950
Interest and foreign currency translations gains 13,564 5,521 27,738
Amortization 85,920 35,349 112,247
------------ ------------ ------------
2,070,326 251,662 2,813,736
Net loss $ (2,070,326) $ (81,909) $ (2,813,736)
============ ============ ============
Basic net loss per share $ (0.17) $ (0.01) $ (0.29)
============ ============ ============
Weighted average number of common shares
outstanding during period 12,730,543 8,459,000 9,633,165
============ ============ ============
</TABLE>
See accompanying notes to unaudited interim period consolidated condensed
financial statements.
F-3
<PAGE> 47
SOCHRYS.COM, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
AND THE PERIOD FROM AUGUST 3, 1999 ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
NINE AUGUST 3,
MONTHS 1999 TO
ENDED SEPTEMBER
SEPTEMBER 30, 30, 2000
2000 1999 (NOTE 1)
----------- ----------- -----------
<S> <C> <C> <C>
Net loss $(2,070,326) $ (81,909) $(2,813,736)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH USED IN
Operating activities:
Amortization of fixed assets 85,920 35,349 112,427
Consulting fees -- 130,000
Increase (decrease) in cash resulting from changes in:
Current assets (49,496) 39,802 (62,329)
Accounts payable and accrued liabilities 410,610 4,501 533,648
----------- ----------- -----------
Net cash used in operating activities (1,623,292) (2,257) (2,099,990)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (143,742) -- (271,262)
Cash pledged as collateral for operating lease (104,511) -- (131,439)
----------- ----------- -----------
Net cash used in investing activities (248,253) -- (402,701)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from demand notes 585,000 -- 585,000
Issuance of common shares 1,240,000 30,000 2,030,000
Share issuance costs (62,000) -- (96,750)
----------- ----------- -----------
Net cash provided by financing activities 1,763,000 30,000 2,518,250
Effects of exchange rates on cash and cash equivalents (27,417) -- (14,692)
----------- ----------- -----------
Net Increase (decrease) in cash and cash equivalents (135,962) 27,743 867
Cash and cash equivalents:
Beginning of period 171,628 7,056 34,799
----------- ----------- -----------
End of Period $ 35,666 $ 34,799 $ 35,666
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ -- $--
Income taxes $ -- $ -- $--
</TABLE>
See accompanying notes to unaudited interim period consolidated condensed
financial statements
F-4
<PAGE> 48
SOCHRYS.COM, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
for the nine months ended September 30, 2000
(Unaudited)
SOCHRYS.com Inc. (the "Company") was incorporated in the State of Nevada on
April 12, 1989 as CCC Funding Corp. The Company went through several name
changes before being renamed SOCHRYS.com Inc on August 9, 1999.
1. Basis of Presentation
The accompanying consolidated condensed financial statements include the
accounts of Sochrys.com, Inc. and its wholly owned subsidiaries
(collectively, the "Company") after elimination of all significant
intercompany balances and transactions. The financial statements have
been prepared in conformity with generally accepted accounting principles
in the United States which require management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. While management has based its assumptions and
estimates on the facts and circumstances currently known, final amounts
may differ from such estimates.
The interim financial statements contained herein are unaudited but, in
the opinion of management, include all adjustments (consisting only of
normal recurring entries) necessary for a fair presentation of the
financial position and results of operations of the Company for the
periods presented. The results of operations for the nine months ended
September 30, 2000 are not necessarily indicative of the operating
results for the full fiscal year ending December 31, 2000. Moreover,
these financial statements do not purport to contain complete disclosure
in conformity with generally accepted accounting principles used in the
United States and should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 1999
included herewith.
Since August 3, 1999, the efforts of the Company have been devoted to the
development of a high speed, highly secure method of transacting business
using the internet. As of the date of these financial statements, no
software applications were ready for commercial use. Prior to August 3,
1999, the Company provided consulting services for web site
implementation, multimedia CD design, computer graphic publication, as
well as implementation of dedicated software solutions used in connection
with the French Minitel and the internet, and was an active operating
company which had commenced principal operations in 1995. As at August 3,
1999, the Company commenced development on activities unrelated to the
business operations occurring prior to that date. Since August 3, 1999,
substantially all of the Company's efforts have been directed towards the
development of this new business. Accordingly, August 3, 1999 has been
identified as the commencement of the development stage and these
consolidated financial statements present cumulative from inception of
the development stage financial information in the
F-5
<PAGE> 49
consolidated statements of operations and cash flows. As the Company was
not in the development stage prior to August 3, 1999, the cumulative from
inception information excludes the operating results and cash flows of
the Company for this period.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting
Comprehensive Income" ("FAS 130"), which established standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. Comprehensive income
(or loss) is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. For the nine months ended September 30, 2000 the
Company's comprehensive loss was $2,120,313.
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") which established
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company is not
a party to any transactions that are contemplated by FAS 133.
2. FOREIGN CURRENCY TRANSLATION
The reporting currency for the financial statements of the Company is the
United States dollar. The functional currency for the Company's wholly
owned subsidiaries, Graph-O-Logic S.A. and Sochrys Technologies S.A. is
the Swiss franc. Accordingly, these subsidiaries assets and liabilities
are included in the financial statements by translating them in the
reporting currency at the exchange rates applicable at the end of the
reporting period. The statements of operations and cash flows are
translated at the average monthly exchange rates during the reporting
period. Translation gains or losses are accumulated as a separate
component of shareholders' equity. Currency transaction gains or losses
arising from transactions in currencies other than the Swiss franc are
included in the statement of operations for each period.
F-6
<PAGE> 50
3. RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 1999 the Company performed
consulting services to a related party, generating $169,753 in revenue.
This amounts was receivable at September 30, 1999. There were no such
services during the nine months ended September 30, 2000.
4. COMMON STOCK TRANSACTIONS
During the nine months ended September 30, 2000 the Company issued
620,000 shares of its common stock as a result of the exercise of 620,000
Series 'A' warrants. The Series 'A' warrant exercise price is $2.00 per
common share.
F-7
<PAGE> 51
Consolidated Financial Statements of
SOCHRYS.COM INC.
(A Development Stage Enterprise)
Year ended December 31, 1999
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Auditors' Report to the Board of Directors F-9
Consolidated Balance Sheet December 31, 1999 and 1998 F-10
Consolidated Statement of Operations, years ended
December 31, 1999 and 1998 and for the period from
August 3 1999 to December 31, 1999 F-11
Consolidated Statement of Changes in Shareholders' Equity
(Deficit) and Comprehensive Loss F-12
Consolidated Statement of Cash Flows, years ended December 31, 1999 and 1998 and
for the period from August 3, 1999 to December 31, 1999 F-13
Notes to Consolidated Financial Statements F-14
</TABLE>
F-8
<PAGE> 52
AUDITORS' REPORT TO THE BOARD OF DIRECTORS
We have audited the accompanying consolidated balance sheets of SOCHRYS.com Inc.
and subsidiaries (a Development Stage Enterprise) as of December 31, 1999 and
1998 and the related consolidated statements of operations, changes in
shareholders' equity (deficit) and comprehensive income (loss) and cash flows
for the years then ended and the period from August 3, 1999 to December 31,
1999. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SOCHRYS.com Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended and the period from
August 3, 1999 to December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2(a) to the
financial statements, all of the Company's revenues have come from sales of
services to related parties and its economic viability is dependent on its
ability to finalize its principal products, generate future external sales and
finance future operational expenses that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2(a). The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
KPMG LLP
Chartered Accountants
Ottawa, Canada
April 26, 2000
F-9
<PAGE> 53
SOCHRYS.COM INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
December 31, 1999, with comparative figures for 1998
(In U.S. dollars)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 171,628 $ 7,056
Prepaid expenses 12,833 --
Accounts receivable -- 39,800
--------- ---------
184,461 46,856
Cash pledged as collateral for operating lease 26,928 --
Fixed assets (note 4) 183,600 59,147
--------- ---------
$ 394,989 $ 106,003
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,643 $ 1,351
Accrued liabilities 99,994 1,379
Due to a related party (note 5) 5,178 --
--------- ---------
146,815 2,730
Shareholders' equity (note 6):
Preferred stock ($0.001 par value. Authorized 5,000,000 shares;
Issued and outstanding nil shares in 1999 and nil shares in 1998) -- --
Common stock ($0.001 par value. Authorized 50,000,000 shares;
Issued and outstanding 11,992,924 shares in 1999 and
8,459,000 shares in 1998) 11,992 8,459
Additional paid-in capital 953,877 72,160
Accumulated other comprehensive income (loss) 4,411 (7,426)
Deficit accumulated during the development stage (743,410) 30,080
Retained earnings prior to entering development stage 21,304 --
--------- ---------
248,174 103,273
Commitments and contingencies (note 12)
--------- ---------
$ 394,989 $ 106,003
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 54
SOCHRYS.COM INC.
(A Development Stage Enterprise)
Consolidated Statements of Operations
Year ended December 31, 1999, with comparative figures for 1998
(In U.S. dollars)
<TABLE>
<CAPTION>
Period from
August 3,
1999 to
December 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Consulting revenues (note 5) $ 168,371 $ 310,666 $ --
Cost of consulting revenues (note 5) 84,000 148,000 --
----------- ----------- -----------
84,371 162,666 --
Expenses:
Research and development 327,517 119,135 274,358
General and administrative (note 7) 429,835 3,238 428,371
Amortization 58,696 15,522 26,507
----------- ----------- -----------
816,048 137,895 729,236
----------- ----------- -----------
Operating earnings (loss) (731,677) 24,771 (729,236)
Other income (expenses):
Interest (5,461) (825) 874
Other (15,048) 536 (15,048)
----------- ----------- -----------
(20,509) (289) (14,174)
----------- ----------- -----------
Earnings (loss) before income taxes (752,186) 24,482 (743,410)
Income tax expense (note 11) -- (2,823) --
----------- ----------- -----------
Net earnings (loss) $ (752,186) $ 21,659 $ (743,410)
=========== =========== ===========
Net earnings (loss) per common share
- basic and diluted (note 8) $ (0.08) $ --
Weighted average common shares outstanding 9,843,135 8,459,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 55
SOCHRYS.COM INC.
(A Development Stage Enterprise)
Consolidated Statements of Changes in Shareholders' Equity (Deficit) and
Comprehensive Loss
Year ended December 31, 1999, with comparative figures for 1998
(In U.S. dollars)
<TABLE>
<CAPTION>
Retained
Earnings Deficit
Prior to Accumulated Accumulated
Common Stock Additional Entering During Other
Amount Paid-in Development Development Comprehen-
Number Capital Stage Stage sive Loss Total
-------------------------- ------------ -------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 8,459,000 $8,459 $72,160 $8,421 $ - $(13,095) $75,945
1998 (note 3)
Comprehensive income:
Net earnings - - - 21,659 - - 21,659
Currency translation
Adjustment - - - - - 5,669 5,669
-------------------------- ------------ -------------- -------------- ------------- -------------- ------------- --------------
Comprehensive income - - 27,328
-------------------------- ------------ -------------- -------------- ------------- -------------- ------------- --------------
Balances at December
31, 1998 8,459,000 8,459 72,160 30,080 - (7,426) 103,273
Reverse acquisition
(note 3) 3,152,924 3,153 26,847 - - - 30,000
Fair value of warrants
issued to unrelated
parties (note 7) - - 130,000 - - - 130,000
Shares issued for
Warrants 380,000 380 759,620 - - - 760,000
Shares issuance costs - - (34,750) - - - (34,750)
Comprehensive income:
Net Loss - - - (8,776) (743,410) - (752,186)
Currency translation
Adjustment - - - - - 11,837 11,837
-------------------------- ------------ -------------- -------------- ------------- -------------- ------------- --------------
Comprehensive loss (740,349)
-------------------------- ------------ -------------- -------------- ------------- -------------- ------------- --------------
Balances as of
December 31, 1999 11,992,924 $11,992 $953,877 $21,304 $(743,410) $4,411 $248,174
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 56
SOCHRYS.COM INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Year ended December 31, 1999, with comparative figures for 1998
(In U.S. dollars)
<TABLE>
<CAPTION>
Period from
August 3,
1999 to
December 31,
1999 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(752,186) $ 21,659 $(743,410)
Items not involving cash:
Amortization of fixed assets 58,696 15,522 26,507
Consulting fees (note 7) 130,000 -- 130,000
Increase (decrease) in cash resulting from changes in:
Accounts receivable 39,520 14,774 --
Prepaid expenses (12,833) 1,465 (12,833)
Accounts payable 144,641 2,140 23,044
Accrued liabilities -- 207 99,994
--------- --------- ---------
Net cash used in operating activities (392,162) 55,767 (476,698)
Cash flows from investing activities:
Purchase of fixed assets (189,348) (67,495) (127,520)
Cash pledged as collateral for operating lease (26,928) -- (26,928)
--------- --------- ---------
Net cash used in investing activities (216,276) (67,495) (154,448)
Cash flows from financing activities:
Issuance of common shares 790,000 -- 790,000
Share issuance costs (34,750) -- (34,750)
--------- --------- ---------
Net cash provided by financing activities 755,250 -- 755,250
Effects of exchange rates on cash and
cash equivalents 17,760 (3,496) 12,725
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 164,572 (15,224) 136,829
Cash and cash equivalents, beginning of period 7,056 22,280 34,799
--------- --------- ---------
Cash and cash equivalents, end of period $ 171,628 $ 7,056 $ 171,628
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ -- $ --
Income taxes -- 2,823
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE> 57
SOCHRYS.COM INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Year ended December 31, 1999
(In U.S. dollars)
1. GENERAL:
SOCHRYS.com Inc. (the "Company") was incorporated in the State of Nevada on
April 12, 1989 as CCC Funding Corp. The Company went through several name
changes before being renamed to SOCHRYS.com Inc on August 9, 1999.
Since August 3, 1999, the efforts of the Company have been devoted to the
development of a high speed, highly secure method of transacting business
using the internet. As of the date of these financial statements, no
software applications were ready for commercial use. Prior to August 3,
1999, the Company provided consulting services for web site implementation,
multimedia CD design, computer graphic publication, as well as
implementation of dedicated software solutions used in connection with the
French Minitel and the internet, and was an active operating company which
had commenced principal operations in 1995. As at August 3, 1999, the
Company commenced development on activities unrelated to the business
operations occurring prior to that date. Since August 3, 1999,
substantially all of the Company's efforts have been directed towards the
development of this new business. Accordingly, August 3, 1999 has been
identified as the commencement of the development stage and these
consolidated financial statements present cumulative from inception of the
development stage financial information in the consolidated statements of
operations and cash flows. As the Company was not in the development stage
prior to August 3, 1999, the cumulative from inception information excludes
the operating results and cash flows of the Company for this period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States and
include the accounts of Sochrys.com Inc. and its wholly-owned
subsidiaries, Sochrys Technologies Inc., Graph-O-Logic S.A. and Sochrys
Technologies S.A.
The consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has incurred
a loss of $752,186 for the year and has incurred negative cash flow
from operations of $392,162. In addition, all of the Company's revenues
were generated from sales to related parties which no longer exist
since the Company has reentered the development stage. The Company
expects to continue to incur operating losses for the foreseeable
future.
The Company expects to incur research and development expenditures of
approximately $1,500,000 for the year ending December 31, 2000 and
anticipates further growth in operations,
F-14
<PAGE> 58
(a) Basis of presentation (continued):
infrastructure and personnel. The Company also anticipates growth in
operating expenses to support its growth plans. The Company currently
has no lines of credit or other financing facilities in place. In the
event the Company cannot raise the funds necessary to fund its research
and development activities, it will reduce its activities.
All of the factors above raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans to address
these issues include continuing to raise capital through the private
placement of equity. Until such time as the Company generates
sufficient revenues from the licensing of their software applications,
they will continue to be dependent on raising substantial amounts of
additional capital through any one of a combination of debt offerings
or equity offerings, including but not limited to debt instruments,
including demand notes; private placements of common stock; exercise of
Series 'B' warrants at an exercise price of $3.00 per share; exercise
of Series 'C' warrants at an exercise price of $5.00 per share; or
funding from potential clientele or future industry partners. In
addition, the Company currently is in technical discussions with
prospective customers for the licensing and joint marketing and
distribution of the product. The largest expense to the Company is
compensation costs. As such, the management is proposing to implement
an Employee Stock Option Plan to attract and maintain quality employees
and lower cash compensation costs.
The Company's ability to continue as a going concern is subject to
management's ability to successfully implement the above plans. Failure
to implement these plans could have a material adverse effect on the
Company's position and or results of operations and may necessitate a
reduction in operating activities. The consolidated financial
statements do not include adjustments related to the ultimate
resolution of this uncertainty.
The Company regularly reviews the carrying values of its fixed assets
by comparing the carrying amount of the asset to the expected future
cash flows to be generated by the asset. If the carrying value exceeds
the amount recoverable, a write-down is charged to the statement of
operations.
In the longer term, the Company cannot be certain that cash generated
from its future operations will be sufficient to satisfy its liquidity
requirements and it may need to continue to raise capital by selling
additional equity or by obtaining credit facilities. The Company's
future capital requirements will depend on many factors, including, but
not limited to, the market acceptance of its software, the level of its
promotional activities and advertising required to support its
software. No assurance can be given that any such additional funding
will be available or that, if available, it can be obtained on terms
favourable to the Company.
(b) Principles of consolidation:
The consolidated financial statements include the financial statements
of the Company and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated
(c) Cash and cash equivalents:
Cash and cash equivalents include liquid investments with original
maturity dates of three months or less.
F-15
<PAGE> 59
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Fixed assets:
Fixed assets are stated at cost less accumulated amortization.
Amortization is charged on a straight-line basis over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
Asset Useful life
----- -----------
<S> <C>
Furniture and equipment 3 years
Personal computers and purchased computer software 3 years
</TABLE>
The Company regularly reviews the carrying values of its fixed assets
by comparing the carrying amount of the asset to the expected future
cash flows to be generated by the asset. If the carrying value exceeds
the amount recoverable, a write-down is charged to the statement of
operations.
(e) Income taxes:
Deferred income taxes are determined using the liability method,
whereby deferred income tax is recognized on temporary differences
using enacted tax rates that are expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Temporary differences between the carrying values
of assets or liabilities used for tax purposes and those used for
financial reporting purposes arise in one period and reverse in one or
more subsequent periods. In assessing the realizability of deferred tax
assets, management considers known and anticipated factors impacting
whether some portion or all of the deferred tax assets will not be
realized. To the extent that the realization of deferred tax assets is
not considered to be more likely than not, a valuation allowance is
provided.
(f) Research and development:
Costs related to research, design and development of software products
are charged to research and development expenses as incurred. Software
development costs are capitalized beginning when a product's
technological feasibility has been established, which generally occurs
upon completion of a working model, and ending when a product is
available for general release to customers. To date, completion of a
working model of the Company's product has not occurred. As a result,
the Company has not capitalized any software development costs
(g) Foreign currency translation:
The reporting currency for the financial statements of the Company is
the United States dollar. The functional currency for the Company's
wholly-owned subsidiaries, Graph-O-Logic S.A. and Sochrys Technologies
S.A. is the Swiss franc. Accordingly, their assets and liabilities are
included in the financial statements by translating them into the
reporting currency at the exchange rates applicable at the end of the
reporting period. The statements of operations and cash flows are
translated at the average monthly exchange rates during the year.
Translation gains or losses are accumulated as a separate component of
shareholders' equity. Currency
F-16
<PAGE> 60
transaction gains or losses arising from transactions in currencies
other than the Swiss franc are included in the statement of operations
for each period.
(h) Revenue recognition:
Consulting revenue, which includes revenue earned on a time and
materials basis, is recognized on a percentage of completion basis as
services are delivered.
(i) Comprehensive income:
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS No. 130
established standards for reporting and presentation of comprehensive
income (loss) and its components in a full set of financial statements.
Comprehensive income (loss) consists of net earnings and currency
translation adjustments and is presented in the statement of changes in
shareholders' equity and comprehensive income. The statement requires
only additional disclosures in the financial statements; it does not
affect the Company's financial position or results of operations.
(j) Stock option plan:
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, in
accounting for its fixed plan stock options. As such, compensation
expense would be recorded on the date of grant only if the current
market price of the underlying stock issued to employees and directors
exceeded the exercise price.
Options issued to unrelated parties are recorded at fair value as
prescribed by SFAS 123, Accounting for Stock-Based Compensation.
(k) Use of estimates:
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, as well as disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results may differ from those estimates.
3. REVERSE ACQUISITION:
Effective August 3, 1999, the Company acquired 100% of the issued and
outstanding shares of Graph-O-Logic. This transaction has been treated as a
recapitalization of SOCHRYS by Graph-O-Logic, effectively as if
Graph-O-Logic had issued shares for consideration equal to the net monetary
assets of SOCHRYS.
Under this accounting, the consolidated financial statements of the entity
are considered a continuation of the financial statements of Graph-O-Logic.
As such, the net assets of Graph-O-Logic have remained at their carrying
value and the net assets of SOCHRYS.com Inc. have been recorded at their
fair value. In addition, the comparative figures reflect the results of
operations of Graph-O-Logic for the fiscal year ended December 31, 1998.
F-17
<PAGE> 61
The fair value of the assets and liabilities of SOCHRYS.com Inc. acquired
were as follows:
<TABLE>
<S> <C>
Cash $ 30,000
=============
Consideration given:
Issuance of 3,153,924 common shares $ 30,000
=============
</TABLE>
4. FIXED ASSETS:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------
Accumulated Net book Net book
Cost amortization value value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Furniture and
equipment $ 99,952 $ 13,825 $ 86,127 $ --
Computer hardware
and software 186,869 89,396 97,473 59,147
-------- -------- -------- --------
$286,821 $103,221 $183,600 $ 59,147
======== ======== ======== ========
</TABLE>
Cost and accumulated amortization at December 31, 1998 amount to $97,813
and $44,524 respectively.
5. TRANSACTIONS AND BALANCES WITH RELATED PARTIES:
The amount due to a related party is due to an officer of the Company and
has no terms of repayment. Subsequent to year end, this amount was repaid.
Included in the statement of operations are the following amounts with
respect to transactions with shareholders or related companies.
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Consulting services $168,371 $310,666
Cost of consulting services 84,000 148,000
======== ========
</TABLE>
Transactions with related parties consist primarily of the provision of
consulting services to Sochrys B.V. and consulting services from Servitel
N.V., entities under common control.
6. SHARE CAPITAL:
Prior to the acquisition (note 3), the Company effected a reverse split of
its issued and outstanding common shares on a one-for-300 basis.
The share capital and additional paid-in-capital have been restated to
reflect the reverse split as if it had occurred on January 1, 1998.
F-18
<PAGE> 62
7. WARRANTS:
During the year, the Company issued 1,000,000 Series A warrants to purchase
1,000,000 common shares at an exercise price of $2 per share. The Series A
warrants expire August 31, 2003. During the year, 380,000 warrants were
exercised for 380,000 common shares.
In addition, the Company issued 340,000 Series B warrants to directors,
officers and employees and 390,000 Series B warrants to unrelated parties
to purchase a total of 730,000 common shares at an exercise price of $3 per
share for services rendered and to be rendered. The Series B warrants are
exercisable at any time and expire August 31, 2003. No compensation expense
was recognized for the Class B warrants issued to directors, officers and
employees as the exercise price was greater than their fair market value at
the time. 1,000,000 Series C warrants to purchase 1,000,000 common shares
were also issued at an exercise price of $5 per share. The Series C
warrants expire August 31, 2003. At December 31, 1999, none of the Series B
or C warrants had been exercised.
Subsequent to year-end, an additional 350,000 Series A warrants were
exercised for 350,000 common shares.
Included in general and administrative expenses is $130,000 (1998 - $nil)
of consulting fees which represents the fair value of the Series B warrants
granted to unrelated parties and accounted for in accordance with SFAS No.
123.
The Company applies APB Opinion No. 25 in accounting for warrants issued to
directors, officers and employees and, accordingly, no compensation cost
has been recognized for these warrants in the financial statements. Had the
Company determined compensation costs based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net earnings
(loss) and basic net earnings (loss) per share would have been reduced to
the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Net earnings (loss) As reported $ (752,186) $ 21,659
Pro forma (867,186) 21,659
Net earnings (loss) per common share - basic and diluted
As reported $ (0.08) -
Pro forma (0.09) -
------------- -------------
</TABLE>
F-19
<PAGE> 63
8. NET EARNINGS (LOSS) PER SHARE:
The net earnings (loss) per common share is presented in accordance with
the Statement of Financial Accounting Standards No. 128, Earnings per
Share. As the Company incurred a net loss during the year ended December
31, 1999, the loss per common share is based on the weighted average common
shares outstanding. At December 31, 1998, there were no instruments
outstanding that could dilute basic earnings per share.
The following outstanding instruments could potentially dilute basic
earnings per share in the future:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Series A warrants 620,000 -
Series B warrants 730,000 -
Series C warrants 1,000,000 -
--------------------------------------------------------------------------------
</TABLE>
9. FINANCIAL INSTRUMENTS:
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities and due to a related party
approximates fair value due to the short maturity of these instruments.
10. BENEFIT PLANS:
The Company maintains a defined contribution pension plan for the benefits
of its employees. This plan is maintained by an insurance company, and
provides for benefit payments in the event of covered individual death, or
invalidity.
Company payments to the plan are determined and funded annually based upon
the terms of the plan. Contributions under this plan amounted to $19,230
and $11,082, in 1999 and 1998, respectively.
11. INCOME TAXES:
Income tax expense attributable to income (loss) from continuing operations
was $Nil and $2,823 for the years ended December 31, 1999 and 1998,
respectively, and differed from the amounts computed by applying the U.S.,
federal income tax rate of 35% to pretax income from continuing operations
as a result of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Income tax expense (recovery) based on "expected" tax recovery $(217,765) $ 8,569
Unrecognized loss carryforwards resulting
in a change in the valuation allowance 217,765 --
Foreign rate differences -- (5,746)
--------- ---------
$ -- $ 2,823
--------- ---------
</TABLE>
F-20
<PAGE> 64
11. INCOME TAXES (CONTINUED):
The tax effects of temporary differences that give rise to significant
components of deferred tax assets include the following at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- ---------
<S> <C> <C>
Gross deferred tax assets being net operating
loss carryforwards $ 217,765 $ -
Valuation allowance (217,765) -
------------- ----------
$ - $ -
============= ==========
</TABLE>
12. COMMITMENTS AND CONTINGENCIES:
The Company leases equipment and office space under operating leases. The
future minimum lease payments under non-cancelable operating leases are as
follows at December 31, 1999.
<TABLE>
<CAPTION>
<S> <C>
2000 $ 145,000
2001 140,000
2002 140,000
-------------
$ 425,000
=============
</TABLE>
Rent expense for 1999 was $31,222 (1998 - $1,188).
F-21
