U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to ________________
Commission file no. 000-29201
ELVA, INC.
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(Name of small business registrant in its charter)
Florida 65-0790761
- - - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Lakeview Avenue, Suite 415
West Palm Beach, Florida 33401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (561) 659-6530
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None
- - - ----------------------------- -------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.0001 par value
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(Title of class)
Copies of Communications Sent to:
Donald F. Mintmire, Esq.
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
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Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State registrant's revenues for its most recent fiscal year. $448,696.00
Of the 21,500,000 shares of voting stock of the registrant issued and
outstanding as of December 31, 1999, 6,897,200 shares are held by
non-affiliates. Because of the absence of an established trading market for the
voting stock, the registrant is unable to calculate the aggregate market value
of the voting stock held by non-affiliates as of a specified date within the
past 60 days.
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PART I
Item 1. Description of Business
(a) Development
ELVA, Inc. (the "Company" or "ELVA") was organized as a Florida
corporation on August 15, 1997. The original purpose of the Company was to
develop and apply new and profitable applications of computer technology in the
general marketplace. Introduction to a French company's unique application of
such technology resulted in the entry into a Voluntary Share Exchange Agreement
between the Company and the shareholders of the French company ELVA, S.A.("ELVA,
SA"). Recognizing that ELVA, SA had invaluable technology and computer software
designing assets, the Company's management renamed the Company ELVA, INC. See
Part I, Item 1. "Description of the Business - (b) Business of Registrant". The
United States Company's executive offices are presently located at 222 Lakeview
Avenue, Suite 415, West Palm Beach, Florida 33401 and its telephone number is
(561) 659-6530. It also has offices located at 4540 Campus Drive, Suite 108,
Newport Beach, CA 92660 and its telephone number is (949) 863-0670. Its offices
outside the United States are located at 74,av Edouard Vaillant, 92100 Boulogne,
France and its telephone number is 33-(0)1-41-31-66-77 and at 89 Neil Road,
0888849 Singapore and its telephone number is (65) 326-07-88.
In April 1997, the Company issued 9,000,000 shares of Common Stock,
$0.0001 par value per share as founders shares to its sole officer and director.
For such issuance, the Company relied upon Section 4(2) of the Securities Act of
1933, as amended (the "Act") and Rule 506 of Regulations D promulgated
thereunder ("Rule 506") and Section 517.061(11) of the Florida Code. See Part I,
Item 7. "Certain Relationships and Related Transactions"; and Part II, Item 4.
"Recent Sales of Unregistered Securities."
In October 1997, the Company sold 557,376 shares of common stock,
$.0001 par value per share (the "Common") for cash in the amount of $5,573.76,
pursuant to Section 3(b) of the Securities Act of 1933, as amended (the "Act"),
and Rule 504 of Regulation D promulgated thereunder ("Rule 504")and Section
517.061(11) of the Florida Code. These offerings were made in the State of
Florida. See Part II, Item 4. "Recent Sales of Unregistered Securities."
In November 1997, the Company sold 1,200,000 shares of common stock,
$.0001 par value per share (the "Common Stock") for cash in the amount of
$12,000.00, to fourteen (14) Georgia residents, twelve (12) Florida residents
and three (3) French nationals, pursuant to Section 3(b) of the Securities Act
of 1933, as amended (the "Act"), and Rule 504 of Regulation D promulgated
thereunder ("Rule 504"), Section 10-5-9(13) of the Georgia Code and Section
517.061(11) of the Florida Code. See Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
In June 1998, the Company sold 9,000,000 shares of its common stock,
$.0001 par value per share (the "Common"), to one(1) purchaser for cash in the
amount of $32,500.00. This offering was conducted pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the "Act") and Rule 506 of Regulations D
promulgated thereunder ("Rule 506") and Section 517.061(11) of the Florida Code.
See Part I, Item 7. "Certain Relationships and Related Transactions"; and Part
II, Item 4. "Recent Sales of Unregistered Securities."
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In September 1998, the Company sold 2,700,000 shares of common stock,
$.0001 par value per share (the "Common"), for cash in the amount of $54,000.00,
pursuant to Section 3(b) of the Securities Act of 1933, as amended (the "Act"),
and Rule 504 of Regulation D promulgated thereunder ("Rule 504"). See Part I,
Item 7. "Certain Relationships and Related Transactions"; and Part II, Item 4.
"Recent Sales of Unregistered Securities.
On December 18th, 1998, the Company entered into a Letter of Intent
whereby the Company agreed to acquire the issued and outstanding shares of ELVA,
SA in a share exchange agreement with its shareholders. The terms of the share
exchange agreement by the Company required that 14,160,000 Rule 144 restricted
shares of the Company be issued to the shareholders of ELVA, SA in exchange for
all but 10 of the 26, 336 shares (representing 99.6% of the outstanding stock)
of ELVA, SA stock which is required by French law to be owned by French
citizens. In addition, on December 21, 1998, at the closing of the above
acquisition and pursuant to the Company's Letter of Intent with ELVA, SA the
Company by agreement canceled 9,000,000 shares of common stock formerly issued
to the Company's sole director, President, Secretary and Treasurer. The Company
also by agreement canceled the 557,376 shares of common stock (the "Common
Stock") it sold to three (3) individuals for cash in the amount of $5,573.76.
Lastly, in accordance with the terms of the Company's Letter of Intent, it
repurchased for $32,500.00 in cash the previously purchased 9,000,000 shares of
Rule 144 Common Stock which shares the Company subsequently canceled. See Part
II, Item 4. "Recent Sales of Unregistered Securities". See Part IV. Item 1.
"Index to Exhibits, Material Agreements"; Part I, Item 7. "Certain Relationships
and Related Transactions" and Part II, Item 4. "Recent Sales of Unregistered
Securities".
In conjunction with the acquisition by the Company of ELVA,SA, it
assumed responsibility for repayment of a loan to a third party, Meadlight TMO,
a French company. A condition of the above acquisition entailed the issuance of
3,440,000 shares of the Company's shares of common stock in settlement of a
$204,550 loan made to ELVA,SA. In March, May and September 1999, ELVA, SA, now a
subsidiary of the Company, received additional traunches of this loan from the
now related party in the total amount of approximately $500,000 US dollars. This
additional loan is payable in full on January 1, 2002 and the Company can, at
its option. prepay all or part of this amount without penalty.(See: Part F/S -
Note 5 - Notes to Consolidated Financial Statements -F-9)
Upon completion of the share exchange agreement ELVA, SA and its
shareholders hold 17,200,000 shares of the Company's 21,500,000 issued and
outstanding shares of common stock. The Company also amended its Articles of
Incorporation changing its name to ELVA, INC. effective immediately upon the
closing of the agreement. A new Board of Directors was appointed, new officers
were named for the board and the resignation of the Company's former sole
officer and director was accepted with regret.
There are no preliminary agreements or understandings between the
Company and its officers and directors or affiliates or lending institutions
with respect to any loan agreements or arrangements.
The Company intends to offer additional securities under Rule 506 of
Regulation D under the Act ("Rule 506) to fund its short and medium term
expansion plans. (See Part I, Item 1. Description of Business - (b) Business of
Registrant").
See (b) "Business of Registrant" immediately below for a description of
the Company's proposed business.
(b) Business of Registrant.
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General
One of the main objectives of ELVA is to participate in the
globalization of e-commerce, through providing secure online purchasing and
customer loyalty incentives between individuals and businesses. The latter,
whether they are banks or retailers, telecommunication operators or internet
service providers, issue cards in order to allow for payment and to promote
customer loyalty. ELVA foresees a consumer that can order goods and services
both over the telephone and over the internet anytime and anywhere, with maximum
security, with the same card and more often, with ones preferred retailers and
service suppliers. This system, based on VocaliD(R) smart card issuing, is
described as the Company's " butterfly scheme " through which customer loyalty
is promoted, cross selling and co-marketing occurs naturally producing more
reliability and profitability.
VocaliD(R) is a new technology that marries the security of the smart
card technology with telecommunications simple and basic feature: sound. Any
country can use the Company's VocaliD(R) smart card since a simple telephone is
enough to make it work. From this point forward, the Company's VocaliD(R) smart
card will no longer require smart card readers.
The Company's main goal has always been to conceive, develop and market
an online authentication smart card technology. After three years of research
and development, including the setting of industrial processes, the Company's
VocaliD(R) is ready to enter its first mass production cycle in the year
2000["Y2K"].
The Company believes that its technology may become a standard for
mobile online authentication devices usable by the general public for electronic
secured exchanges including e- commerce. This belief has been bolstered recently
when the Company's VocaliD(R) card was recognized and awarded the " best new
technology of the year " during the " Cartes 98 " exhibition which is
acknowledged by the industry as the most important smart card exhibition
worldwide.
The Company's VocaliD(R) smart card technology has designed and
implemented a memory card product in accordance with a proprietary online
authentication protocol. The Company's smart card, VocaliD(R), can be used from
an ordinary telephone, a magnetic stripe reader, a chip card reader or a
personal computer. The basic function of VocaliD(R) is secure online
authentication. Its proprietary design offers unique solutions for ensuring
secure electronic transactions using the Company's smart card technology. The
Company's research efforts have enabled it to develop secure online
authentication solutions centered on smart card technology. The Company's
proprietary technology enables electronic commerce together with point-of-sale
transactions, telephonic transactions payment and customer loyalty incentives.
The product's registered trade name is VocaliD(R).
The Company believes it is positioned in the market for further
development of the audio sequenced smart card. Near-term marketing efforts are
focused on further solidifying market position and using such position as the
foundation for expansion into additional markets such as the health card and
transportation card markets.
In addition to the development of the VocaliD(R) technology and in
order to provide traditional smart card applications for some clients, the
Company has developed customized software and integrated appropriate hardware
technologies. The Company believes that its ASIC Design engineers have
sufficient expertise in hardware technology and VHDL and Verilog modeling
computer programming languages necessary for such development efforts.
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VocaliD(R), the online Smart Card
A VocaliD(R) smart card is a credit card-sized plastic card in which an
integrated circuit, containing a memory chip is embedded. The authentication
data on the card can be read via the emission of a secure audio sequence
generated by vibration of the card. The use of VocaliD(R) smart card is very
simple: pressing the module with the thumb activates the card that emits the
signal through the telephone set or the computer microphone. Once the remote
server receives the signal, it deciphers the information, with the application
of ELVA's deciphering software. Once the card is authenticated, the server may
ask the card holder to authenticate himself by entering his PIN. Then the
service is open. The above sequence is not reusable for the cryptographic part
of the information is random and synchronizes only with the server.
With a card reader, be it a magnetic stripe or a chip reader,
VocaliD(R) is used as a traditional card. Telephone sets and computers
microphone are the natural readers of VocaliD(R) smart card. The main function
of the card is the universal and secure online authentication; as for the
applications, like customer loyalty tracking, payment systems or whatsoever,
they are exclusively processed by the remote server, whether it's an internet
service or an interactive voice response system. The whole information related
to the card owner is stored in the server data base. Therefore, it is useless to
store anything more than the secure authentication function inside the card
itself. The traditional smart card, based on an off line model, is not used like
this.
ELVA's online vision is the following: the secure authentication key is
VocaliD(R) smart card, the card itself is not multifunction ; it is just highly
secure, online and multi reading without requiring specific readers. Therefore,
VocaliD(R) technology turns existing online systems into secure multi
application systems. The Company believes its solution will truly be readily
available and cost effective from Y2K, everywhere in the world, provided there
are telephones. In addition to this global positioning, ELVA's partners and
managers believe that the VocaliD(R) model meets many of the modern one to one
market data mining requirements in terms of customer loyalty, security and cross
selling within a multi platform environment.
The VocaliD(R)'s natural environment is characterized by six trends and
three VocaliD(R) features:
Six trends
1. Online exchanges explosion (call centers, IVR, hot lines, internet)
2. Globalization of card concepts in daily life
3. Tremendous endeavors of smart card manufacturers to market their
products worldwide
4. Evolution of stakes and techniques in marketing, bringing about more
and more customer loyalty programs
5. Increase in one to one strategies with customers and product/service
providers
6. Development of multi service options and co branding
Three VocaliD(R) features
1. Online multi access
2. Multi application
3. Security
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THE SMART CARD INDUSTRY
Smart cards were first developed in the late 1960's in France. At
present smart card technology is established and used in Europe and Asia.
According to Ovum Ltd., the market for smart card units will reach 2.7 billion
by 2003. The largest markets will be in the prepayment applications, followed by
access control, and electronic cash applications. According to a recent study
from Dataquest, the overall market for memory and microprocessor-based cards
will grow from 544 million units in 1995 to 3.4 billion units by 2001. Of that
figure, microprocessor-based smart cards, which accounted for only 84 million
units in 1995 will grow to 1.2 billion units in 2001.(Source: Microsoft
Corporation: HTTP://WWW.MICROSOFT.COM/WINDOWSCE/SMARTCARD/BACKGROUND.ASP.)
According to research firm, SJB Research, the smart card market is growing at a
rate close to 50% a year, with three to four billion cards expected to be issued
in 2000. (Source: Smart Card Central: HTTP://WWW.SMARTCARD RESEARCH.COM/REPORTS
/SJB.HTML.) Furthermore, Killen & Associates, Inc., also a research firm,
projects that the smart card market will grow from a world wide total of 250
million transactions in 1996 to 25 billion in 2005. (Source: Killen Associates,
Inc., quoted in the SMART CARD FORUM, HTTP://WWW.SMARTCRD.COM/INFO/MORE/FACTOID.
HTM.) The smart card market in North America totaled 13 million cards in 1996
and is expected to grow to 273 million by 2001 and the projection for 2005 is an
estimated 543 million cards in North America. (Source: Schlumberger Public
Relations Department, "Schlumberger Electronic transactions," quoted in SMART
CARD FORUM, HTTP://WWW.SMARTCRD.CWOM/ INFO/MORE/FACTOID.HTM.)
At first mainly installed in pay telephones, smart cards are now being
used for mobile phones, customer loyalty tracking, payment, transportation, car
parking, arcade games and vending machines. Any coin operated machine can be
converted to a smart card format. Other applications include automated teller
machines, point-of-sale terminals, personal computers, electronic ticketing and
automatic fare collection. Theoretically, smart cards can be utilized
everywhere; however, one of the main problems of traditional off line-based
smart card systems is the need for specific readers, which are expensive and
restrictive.
PAYMENT VEHICLE CARDS -- The most familiar of these cards are the stored-value
payment vehicles, commonly known as electronic purse or wallet cards, credit,
debit and automated teller machine cards, all of which are disposable or value
reloadable. Some library applications use the same structure using tokens or
units instead of a monetary value.
ACCESS AND SECURITY KEY CARDS -- These cards are used to store and access
identification and authentication information, including biometrics and
encryption technology, such as digital certificates, for control of physical
access, online access and for facilitating secured commerce on intranets and the
Internet.
INFORMATION MANAGEMENT CARDS -- These cards enable the storage and manipulation
of data of all kinds, including emergency information, medical history, account
management information, expense tracking and various loyalty programs. Such
cards may be used to track and cross-reference consumer purchasing habits to
provide marketing information to retailers, distributors and manufacturers of
various products and services.
The manufacturing cost of a traditional smart card varies from less
than $1 to approximately $10 depending on the amount of information the card
holds and the complexity of the microchip or its operating system. Similarly,
the cost of a reader device can vary from $50 to $2,000, depending on the
complexity and functionality of the terminal.
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VocaliD(R) is the fourth step in plastic card technology.
Company analysis of the foregoing data indicates that VocaliD(R) smart
card technology represents the next step in the evolution of
credit/debit/loyalty instruments and related products and services. VocaliD(R)
Smart card systems differ from other payment mechanisms in their ability to set
up secure online authentication models without requiring specific card readers.
Moreover, the philosophy of the system is the following: "let the remote server
carry out the processing part". This means that the card supplies the mobility
and a part of the security of the system while the server supplies the other
part of the latter and 100% of the applications. The sophisticated encryption
algorithms and other security mechanisms that the chip employs provide secure
information protection.
Each smart card has an integrated circuit embedded, which gives it
power to perform many different functions. With a smart card, consumers will
have the capability to make secure purchases, pay for phone calls or
transportation as well as make credit and debit purchases. Historically,
magnetic stripe cards, which represent the first technological step, were
followed by chip cards, that works in contact with the reader. A new interesting
recent family of chip cards is contactless smart cards which are the third
technological step. Those are slowly emerging in specific fields like
transportation where the card does not need to be in contact with the reader.
There are two main differences between magnetic stripe cards and chip
cards: The first type are not very secure (criminals duplicate information from
the magnetic stripe of a credit or debit card and use such clones for their own
benefit) and work "on line". The second type are really secure but works "off
line". What they have in common is that they both require specific card readers
; therefore, they cannot be used anytime nor anywhere (at home for example).
The next step in plastic card evolution is " acoustic" technology. The
latter is a chip card technology that works "online", offers a chip card
security and can be used with or without specific readers (since it works with a
simple telephone or a computer microphone). These are the features that make
VocaliD(R) the universal online authentication smart card. These features are
patented by ELVA. VocaliD(R) is the first and still the only acoustic ISO chip
card in the world.
That is the solution for reliable, fast and convenient security for any
transaction anytime and anywhere. The Company believes that VocaliD(R) is
already a standard in several aspects: it utilizes the ISO 7816 standard; its
manufacturing is based on existing smart card processes and available equipment;
and its marketing medium is already widely used and accepted by the general
public as well as user friendly.
As a result of the Company's advanced authentication protocol,
VocaliD(R) enables higher value online services over the internet, by telephone
and in real life stores.
The Company believes widespread acceptance and use of VocaliD(R) smart
card technology will occur following the transition from magnetic stripe only
infrastructure to one that includes both magnetic stripe and audio sequenced
smart cards which do not require new readers. This may be the most acceptable
means to meet, on a worldwide scale, the eventual and unavoidable convergence of
traditional purchase in stores and electronic remote services.
The Company believes its technology will open up new opportunities with
regard to the way people interact with financial institutions, healthcare
providers, retailers and others by enabling an individual to exchange
information and payment through the smart card VocaliD(R) microchip technology.
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Most information based industries are candidates for VocaliD(R)smart card
conversion and utilization.
The Company believes it is well positioned to take advantage of the
developing VocaliD(R) smart card technology and utilization based upon a number
of factors. These factors include:(i) our engineering know-how, patents,
software tools and technical support, (ii) our knowledge and under- standing of
the technology and the market, (iii) our successful development and
implementation of our product, (iv) our commitment to quality and innovation in
our product line, and (v) our ability to create applications quickly in for a
rapidly changing industry.
COMPETITIVE ADVANTAGES
The Company believes its exclusive acoustic interface to be unique in
terms of its ability to be universal read. When traditional smart card, based on
off line secured functions require specific card readers, VocaliD(R) requires
none. Its economic advantage is that the Company does not have to install
expensive card readers everywhere.
Other acoustic authentication devices exist, but none of them are smart
cards ; since they are not ISO format devices, they are more expensive than
VocaliD(R) (whose manufacturing is based on the smart card process with standard
industrial equipment). Moreover, other acoustic authentication devices cannot be
used in magnetic stripe or chip readers, which means that they are not
universal. The Company believes that its VocaliD(R) allows for the merging of
e-commerce with the real world in terms of secure authentication and global
marketing while being cost effective, widely available and usable at the same
time.
The Company's VocaliD(R) product utilizes object-oriented computer
software programming applications. This methodology allows Company engineers and
programmers to create sets of reusable programming language blocks, or building
blocks, that may be combined to form a complex system. Our software design
developmental efforts have produced a library of reusable individual software
language blocks for a variety of personal computer and smart card devices. Using
this extensive collection of programming language blocks or building blocks
provides:(i) a simpler system design which reduces system maintenance costs, as
well as allowing for the reusability of these programming language blocks across
a more divers range of smart card and VocaliD(R) smart card systems, (ii) the
ability to respond rapidly to customers that have a specialized range of smart
card and VocaliD(R) smart card needs; and (iii) the ability to seamlessly
integrate our proprietary software with many operating systems,
office-management and point-of-sale systems.
The Company continues to have a significant commitment to innovation
and quality in the development of products. A stringent set of standards is
adhered to by the Company. These standards include (i) compatibility with other
operating systems: our engineers design our software products to be compatible
with all major operating SYSTEMS for the various system architectures. The
Company believes that the compatibility of our products is key to market
acceptance and will provide a distinct advantage; (ii) market driven
enhancements and product offerings: our product design and architecture provide
flexibility and adaptability to emerging technologies; and (iii) support for
industry standards: our engineers follow strict adherence to industry standards
as promulgated by the International Standards Organization. We also follow
different operating SYSTEMS standards and recommended configurations when
developing our products for those operating SYSTEMS.
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Offline Disadvantages vs. Online Advantages
Traditional smart cards are " off line ". This means that their chip
carries out several functions in addition to the authentication one. Therefore,
the information is located at two different places: in the card and in a data
base which means, most of the time that data desynchronization occurs.
Another problem is that if we need to change the application or to add
new ones, new cards must be issued since the previous ones are unable to upgrade
(like a computer could for instance). This means new developments and of course,
additional costs.
Moreover, in an offline smart card the chip never works without
specific readers ; without it they cannot be processed, read or scanned. Chip
readers are expensive and will probably never be found at every place they are
needed. In addition, the security level is not the same at each use: in a store
equipped with a reader, the chip will be used, but at home, over the internet,
the card holder will have to enter numbers and codes unless his computer is
fitted with a reader.
VocaliD(R) is " online ". This means that the chip shares the
authentication function with a remote server that carries out all card related
applications. The information and applications, stored only in a database inside
a remote server, are updated in real time, at each use. New applications never
require the issuing of new cards since they are located in the server and
upgraded at the same place (not in the card).
Moreover, with VocaliD(R), the online secure authentication function
can be processed on line without requiring a chip reader, thanks to its acoustic
interface. Therefore, VocaliD(R) can enter any country immediately (not only the
ones equipped with smart card readers) and ensure a smart card security at each
use.
How can an off line smart card offer a customer loyalty program in
addition to phone applications, home banking services and theatre reservation
with the same level of security and from everywhere the holder stands ? With a
very big chip and a card reissuing-based model at each new function issue. The
Company's VocaliD(R) system can provide the above with the same chip card all
the time, used from any telephone or multimedia computer, or even with a card
reader (provided it is used online). The VocaliD(R) card never has to be changed
(as long as the embedded battery supplies enough power to make it work: 2/3
years)
North America is the online part of the world and has no significant
number of smart card readers. The Company believes North America is ready for
the VocaliD(R) system.
BUSINESS STRATEGY
During the fiscal year ended December 31, 1999 and 1998, the Company
had revenues of $ 448,696 and $ 297,153 respectively. Our VocaliD(R) smart card
technology shall focus on e- commerce environments including home banking and
telecommunication services. This technology is capable of being customized for
other markets. The Company is encouraged by the results of these initial
programs, and the Company believes that such programs will lead to the national
introduction and installation of such products.
The Company's objective is to develop VocaliD(R) until the card reaches
international leadership and becomes a leading provider of smart card solutions
across a wide range of applications.
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Our strategy is mainly the following:
To focus on product development in order to widely open the technology and
ensure its evolution. That means that ELVA will reinforce its engineering
know-how, patents, software tools and technical support and innovation in
the area of VocaliD(R) smart card. This includes the industrial processes
related to quality, productivity and profitability.
To ensure the availability of the VocaliD(R)smart card cards to meet the
market demand and the conducting of pilot tests in all areas. The Company
will not wait for partners or licensees to assist in developing the market
ELVA intends to introduce its VocaliD(R) technology through an operating
cooperation with its historical and current partners around the world. ELVA
will, within a few months following introduction, become more involved with
the VocaliD(R) manufacturing matters and maintain a license policy toward
the smart card industry worldwide.
To continue development of marketing, sales efforts and expertise in the
area of VocaliD(R) smart cards to maintain demand and to offer this
expertise to future partners such as smart card manufacturers, system
integrators, value added resellers.
The Company's market focus will be on VocaliD(R) smart card
applications in consumer situations that require card usage on a weekly or more
frequent basis or on an event basis.
Although we expect to market smart card SYSTEMS directly through our
management and employees, we intend to obtain the assistance of a network of
prescribers to enhance rapid growth. These additional unrelated third parties
will enable the Company to more rapidly market the VocaliD(R) smart card system.
In addition, the Company will seek licensing arrangements and strategic
marketing alliances or other arrangements with SYSTEMS integrators, value-added
resellers and other smart card vendors and manufacturers. Fulfillment of product
orders and installations will be managed directly by both our staff and these
partners and licensees.
ELVA's customers
Semiconductor manufacturers like ATMEL are ELVA's clients for the
design of secure components. The Company's VocaliD(R)'s customers are, on one
hand, smart card manufacturers which should become ELVA's licensees and, on the
other hand, VocaliD(R) card issuers, companies that we call " end users " such
as internet service providers, telecommunication operators, banks (who offer
home banking services) and retailers, ready to use VocaliD(R) technology for
their global loyalty schemes (online and in stores).
Marketing
In most industry sectors, a company who wants to improve its customer
relationships needs to merge its marketing tools like the web site, the call
center and other phone applications or even online private access issues.
Moreover, in the retail sector, these electronic tools must be married to the
real world stores by the same authentication and loyalty device. The Company
believes that VocaliD(R) is the solution, due to its secure multi reading
features provided with exactly the same security level.
The Company believes that if it is able to attain recognition as the
industry standard in such large markets as e-commerce, home banking, and value
added telecommunication services, VocaliD(R) volumes may reach hundreds of
millions of cards within the next four years. The leverage related to an
industrial partners' commitment to VocaliD(R) technology will be important in
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order for the Company to meet this possible market demand. However, there is no
assurance that the Company will be able to attain industry standard recognition.
The Company however has chosen to offer VocaliD(R) through license
contracts worldwide. New market entries and strong relationships will
strategically create the company's technology exposure to any geographic region.
Such a licensing and partnership policy is being establish at present by the
Company with smart card manufacturers, system integrators and several different
vendors.
Marketing campaigns targeting end users are scheduled to begin in Y2K.
Moreover, a partnership program aimed at cooperation with system integrators
will soon be issued. ELVA's marketing structure, strategy and actions were
established in Europe during 1999 and are now being extended to North America
and Asia.
Pilot tests in cooperation with end users in the telecommunication and
internet sectors are in the planning stages. The first version of the online
smart card as an industrial product is anticipated to be tested by several
market leaders before the end of the second quarter [Q2] of 2000.
CURRENT AND FUTURE MARKETS FOR VocaliD(R)
The Company believes the following industries are best suited for
VocaliD(R) smart card technology and have commenced research and development
efforts aimed at meeting perceived needs of such industries.
To date our marketing efforts have been limited to the following market
segments:
o telecommunications among which rechargeable value added calling cards
o e-commerce applications
o home banking.
The Company believes the following industries will be best suited for
VocaliD(R) smart card technology in the future:
Retail Industry
The Company believes that the Retailing Industry can be embraced and
enhanced by VocaliD(R) smart card technology. The retail sector encompasses
everything from locally owned stores to national department stores. Retailers
have been made acutely aware of the value of their contact with the consumer.
The key to repeat business is to accurately identify, and then satisfy, customer
needs. Smart cards are capable of enabling retailers to track customer behavior
and base marketing decisions mined from this valuable information. This
technology can also reduce the risk of fraud, improve inventory management and
offer the customer convenience and better service. With VocaliD(R), affinity
programs can be highly improved by the combination of e-commerce, exchanges by
phone and traditional purchasing within a unique secure environment.
Health Care Industry
The Company believes that the healthcare industry, with its millions
of participants, voluminous, individualized information and payment requirements
can benefit significantly from smart card technology. Smart cards can be
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designed to provide patient identification, medical record storage and
retrieval, as well as electronic benefit transfers, determination of eligibility
and drug interaction information. In an emergency situation, a quick assessment
of vital information such as allergies, prescriptions and immunizations is
critical for effective healthcare delivery. Additionally, patient cards can be
used to improve and streamline administrative and billing procedures as well as
insurance reimbursement.
Every insurance company, HMO, PPO, hospital association, and
independent provider association which serves the United States health care
market can benefit from the use of a smart card system. Only authentication of
the patient and thus of its medical files allow an efficient medical
intervention. VocaliD(R) is the only ISO smart card enabling a universal secure
authentication of the patient anywhere anytime, be it by telephone, over the
internet, at home, on the street or at the hospital, in the card holder's
country or abroad.
The Company believes its advantage in this market will be based upon
its position as the first to provide a universal smart card reading mode which
can communicate with existing online systems. The opportunity to reduce health
care costs, improve the quality of health care services, and facilitate the
payments process through a more user friendly medium makes the use of a
VocaliD(R) smart card system very attractive and viable.
Events Market
There are approximately 10,000 festivals in the United States each
year. [Source: Festivals.com LLC, available from HTTP://WWW.FESTIVALS.COM. ] The
scope of these of these festivals ranges from air shows, art, food and music
festivals, to state fairs and sporting events. One of our significant advantages
in the festival-fair market is that the product can be sold profitably and
implemented with minimum cost and development effort. Given the large number of
festivals that occur each year, the opportunity for steady and reliable cash
flows form the sale of this product could be considerable.
Main VocaliD(R) applications are identified in the telecommunication,
internet and online / traditional combined retail sectors:
o VocaliD(R) can be a rechargeable secure calling card aimed at offering
the online access to value added services from any telephone set,
o an internet authentication card,
o a loyalty card,
o and of course a combination of the above features in home banking and
retail sectors for instance.
VocaliD(R) is an ISO card with an acoustic interface. This means that a
company may, from now on, issue a single card in order to entitle its customers
to have secure private access to all its services (IVR information, hot lines,
customer loyalty program, miscellaneous database uses, transactions both in
stores and on the web site...).
VocaliD(R) technology is also a solution for citizen applications such
as universal health cards, provided the information is stored and updated in a
remote server and accessible on line (and not within the card's chip with a
specific reader). It can also entitle access, reservation and payment for city
services such as theatre, festivals etc...
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LICENSE AGREEMENTS AND INTELLECTUAL PROPERTY RIGHTS
We regard our technology as proprietary and license our products
(hardware and software) generally under written license agreements executed by
licensees.
We have registered several patents and some patent applications are
pending.
Patents : ELVA holds 2 French patents and has 1 patent application
(duration : from the date of registration, 20 years):
# 97 08939 on 1997, July 15th for a method an system for voice
transmission of a binary data sequence from a piezoelectric transducer
Foreign patent applications pending: PCT/FR 98/01422 (7/03/98)
# 97 013902 on 1997, November 5th for a method to emit acoustic
signals from a smart card, and card to implement this method
Foreign patent applications pending: PCT/FR98/0235 (11/04/98)
French patent application # 99 09074 on 1999, July 13th for a<< smart
card to emit acoustic signals
ELVA has the exclusive rights to use 2 French patents (duration : upon
the date of expiration of the patents) :
# 95 15735 on 1995, December 29th for a portab device for access to at
least one service provided by a server
Foreign patent applications pending: European patent #96944092 0 (12/27/96)
96 01872 on 1996, february 15th for a method for enabling a server to
authorize access to a service from portable devices having electronic
microcircuits, E.G devices of the smart card type>>
Foreign patent applications pending:
Canada : #2,246,301 (08/12/98)
Europe : #97905199 2 (02/13/97)
USA : #09/125,222 (02/13/97)
Japan : #529050/97 (08/13/98)
The Company also relies on a combination of copyright, trademark and
trade secret laws to protect our products. We require employee and third-party
non-disclosure and confidentiality agreements as well. Despite these
precautions, it may be possible for unauthorized parties to copy certain
portions of our products or reverse engineer or obtain and use information that
we regard as proprietary.
Because the software development industry is characterized by rapid
technological change, we believe that factors, such as (i) the technological and
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creative skills of our personnel, (ii) new product developments, (iii) frequent
product enhancements, (iv) name recognition, and (v) reliable product
maintenance are important to establishing and maintaining a technology
leadership position and improve the various legal protections available for our
technology.
RISK FACTORS
Before making an investment decision, prospective investors in the
Company's Common Stock should carefully consider, along with other matters
referred to herein, the following risk factors inherent in and affecting the
business of the Company.
1. Dependence on Management: The possible success of the Company is
expected to be largely dependent on the continued services of the main managers
of the Company, whether they are shareholders or not. Virtually all decisions
concerning the customers and users, advertisers, and potential strategic
partners to begin to contact, the type of services to promote and direct
marketing material to disseminate, and the establishment of a customer profile
database by the Company will be made or significantly influenced by the
management team. Mr. Colnot, Mr. Misko and Mr. Parienti are expected to devote
such time and effort to the business and affairs of the Company as may be
necessary to perform his responsibilities as an executive officer of ELVA. The
loss of the services of the current managers would adversely affect the conduct
of the Company's business and its prospects for the future. ELVA, INC. presently
holds no significant key-man life insurance on the life of, and has no
employment contract or other agreement with Mr. Colnot, Mr. Misko or Mr.
Parienti.
2. We have a short history of operations.. We have a limited operating
history upon which you can base your evaluation of our prospects and the
potential value of our common stock. Our operating activities have been focused
on the development of the smart card technology and products. Accordingly, we
have incurred substantial operating losses. Our prospects and the potential
value of our common stock must be considered risky. We face the uncertainties,
expenses, delays and difficulties associated with establishing a new business in
the rapidly evolving smart card industry, plus the risks of shifting from
development to commercialization and marketing of our smart card products and
technologies.
3. Minimal Customer Base. While ELVA intends to engage in the business
of providing of VocaliD(R) Smart Card Systems and Services the Company currently
has few users and one customer, ATMEL CORPORATION of Colorado Springs, Colorado.
Further, the very limited funding currently available to the Company will not
permit it to commence business operations in the industry except on a very
limited scale. There can be no assurance that the debt and/or equity financing,
which is expected to be required by the Company in order for ELVA to continue in
business after the expiration of the next twelve (12) months, will be available.
The Company has no users or customers presently and there can be no assurance
that it will be successful in obtaining such in its initial prospective
marketing area encompassing the U.S. ELVA does not expect to have long- term
contracts with any customers; thus, management believes that the Company must,
in order to survive, ultimately obtain the loyalty of a large volume of
customers. The Company could be expected to experience substantial difficulty in
attracting the high volume of customers in the prospective target market which
would enable ELVA to achieve commercial viability. The Company will be dependent
upon Mr. Colnot, who has approximately 10 (ten) years of experience in the
industry, Mr. Misko who has approximately 10 (ten) years of experience as an
officer for several companies in the computer industry, Mr. Parienti who has
approximately 10 (ten) years of experience in marketing and communications in
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several technological sectors such as telecommunications (See Part I, Item 1.
"Description of Business," (b) "Business of Registrant - Business Strategy; and
- - - - Sales and Marketing.")
4. High Risks and Unforeseen Costs Associated with ELVA's Entry into
the VocaliD(R) Smart Card Systems and Services Industry. There can be no
assurance that the costs for the establishment of a customer base or for the
obtaining of a substantial volume of services directly with consumers by ELVA
will not be significantly greater than those estimated by Company management.
Therefore, the Company may expend significant unanticipated funds or significant
funds may be expended by ELVA without development of a commercially viable
business. There can be no assurance that cost overruns will not occur or that
such cost overruns will not adversely affect the Company. (See Part I, Item 1.
"Description of Business," (b) "Business of Registrant", and "Seasonality.")
5. Ability to Grow. The Company expects to grow through internal
growth. The Company plans to expand its business from its current location and
by entry into other markets. There can be no assurance that the Company will be
able to create a market presence, or if such market presence is created, to
profitably expand its market presence or successfully enter other markets. The
ability of the Company to grow will depend on a number of factors, including the
availability of working capital to support such growth, existing and emerging
competition and the Company's ability to maintain sufficient profit margins in
the face of an increasingly competitive industry. The Company must also manage
costs in a changing regulatory environment, adapt its infrastructure and systems
to accommodate growth and recruit and train qualified personnel.
6. No Dividends. While payments of dividends on the Common Stock rests
with the discretion of the Board of Directors, there can be no assurance that
dividends can or will ever be paid. Payment of dividends is contingent upon,
among other things, future earnings, if any, and the financial condition of the
Company, capital requirements, general business conditions and other factors
which cannot now be predicted. It is highly unlikely that cash dividends on the
Common Stock will be paid by the Company in the foreseeable future.
7. No Cumulative Voting. The election of directors and other questions
will be decided by a majority vote. Since cumulative voting is not permitted and
one-third of the Company's outstanding Common Stock constitute a quorum,
investors who purchase shares of the Company's Common Stock may not have the
power to elect even a single director and, as a practical matter, the current
management will continue to effectively control the Company.
8. Control by Present Shareholders. The present shareholders of the
Company's Common Stock will, by virtue of their percentage share ownership and
the lack of cumulative voting, be able to elect the entire Board of Directors,
establish the Company's policies and generally direct its affairs. Accordingly,
persons investing in the Company's Common Stock will have no significant voice
in Company management, and cannot be assured of ever having representation on
the Board of Directors. (See Part I, Item 4. "Security Ownership of Certain
Beneficial Owners and Managers.")
9. Potential Anti-Takeover and Other Effects of Issuance of Preferred
Stock May Be Detrimental to Common Shareholders. Potential Anti-Takeover and
Other Effects of Issuance of Preferred Stock May Be Detrimental to Common
Shareholders. The Company is authorized to issue up to 10,000,000 shares of
preferred stock. $.0001 par value per share (hereinafter referred to as the
"Preferred Stock"); none of which shares has been issued. The issuance of
Preferred Stock does not require approval by the shareholders of the Company's
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Common Stock. The Board of Directors, in its sole discretion, has the power to
issue shares of Preferred Stock in one or more series and to establish the
dividend rates and preferences, liquidation preferences, voting rights,
redemption and conversion terms and conditions and any other relative rights and
preferences with respect to any series of Preferred Stock. Holders of Preferred
Stock may have the right to receive dividends, certain preferences in
liquidation and conversion and other rights; any of which rights and preferences
may operate to the detriment of the shareholders of the Company's Common Stock.
Further, the issuance of any shares of Preferred Stock having rights superior to
those of the Company's Common Stock may result in a decrease in the value of
market price of the Common Stock provided a market exists, and additionally,
could be used by the Board of Directors as an anti-takeover measure or device to
prevent a change in control of the Company.
10. No Secondary Trading Exemption. In the event a market develops in
the Company's shares, of which there can be no assurance, secondary trading in
the Common Stock will not be possible in each state until the shares of Common
Stock are qualified for sale under the applicable securities laws of the state
or the Company verifies that an exemption, such as listing in certain recognized
securities manuals, is available for secondary trading in the state. There can
be no assurance that the Company will be successful in registering or qualifying
the Common Stock for secondary trading, or availing itself of an exemption for
secondary trading in the Common Stock, in any state. If the Company fails to
register or qualify, or obtain or verify an exemption for the secondary trading
of, the Common Stock in any particular state, the shares of Common Stock could
not be offered or sold to, or purchased by, a resident of that state. In the
event that a significant number of states refuse to permit secondary trading in
the Company's Common Stock, a public market for the Common Stock will fail to
develop and the shares could be deprived of any value.
11. Possible Adverse Effect of Penny Stock Regulations on Liquidity of
Common Stock in any Secondary Market. In the event a market develops in the
Company's shares, of which there can be no assurance, then if a secondary
trading market develops in the shares of Common Stock of the Company, of which
there can be no assurance, the Common Stock is expected to come within the
meaning of the term "penny stock" under 17 CAR 240.3a51-1 because such shares
are issued by a small company; are low-priced (under five dollars); and are not
traded on NASDAQ or on a national stock exchange. The Securities and Exchange
Commission has established risk disclosure requirements for broker-dealers
participating in penny stock transactions as part of a system of disclosure and
regulatory oversight for the operation of the penny stock market. Rule 15g-9
under the Securities Exchange Act of 1934, as amended, obligates a broker-dealer
to satisfy special sales practice requirements, including a requirement that it
make an individualized written suitability determination of the purchaser and
receive the purchaser's written consent prior to the transaction. Further, the
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 require a
broker- dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure instrument that provides information about penny
stocks and the risks in the penny stock market. Additionally, the customer must
be provided by the broker-dealer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and the salesperson in the
transaction and monthly account statements showing the market value of each
penny stock held in the customer's account. For so long as the Company's Common
Stock is considered penny stock, the penny stock regulations can be expected to
have an adverse effect on the liquidity of the Common Stock in the secondary
market, if any, which develops.
12. We have had limited revenues, incurred significant losses and have
an accumulated deficit. During the twelve months ended December 31, 1999, and
the year ended December 31, 1998, we had total revenues of $448,696 and
$297,153, respectively. We have generated limited revenues to date. Substantial
increases in our revenues is dependent upon market acceptance of our smart card
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products and systems. We incurred significant losses in each period of our
operating history resulting in an accumulated deficit at December 31, 1999 of
$1,156,318. We will continue to have a high level of operating expenses. We will
be required to make significant expenditures in further development and
marketing of our smart card products and systems. Consequently, we anticipate
continuing to incur significant and increasing losses within the next two years,
if ever, that we are able to generate sufficient revenues to support our
development and marketing activities. We cannot assure you that our smart card
products and systems will gain market acceptance, or that we will be able to
successfully implement our business strategy, generate meaningful revenues or
achieve profitable operations. If we do not achieve or sustain profitable
operations, we could be required to reduce significantly or suspend our
operations, including research and development activities, seek a merger partner
or sell additional securities on terms that are highly dilutive to the
purchasers of our common stock pursuant to the offering.
13. Although we can count on significant revenues from previous
development of chips and on design contracts with ours clients for the future
development of chips, from which we expect royalties, our VocaliD(R) smart card
products and technology are expected to provide most of our sales in the
foreseeable future. Our operating results will therefore depend on continued and
increased market acceptance of our smart card products and technology, and our
ability to modify our products and technology to meet the needs of our
customers. Any reduction in demand for, or increasing competition with respect
to, these products will have a material adverse effect on our financial
condition and results of operations.
14. We are dependent on our executive officers and key personnel. Our
success to date has been largely dependent upon the skills and efforts of the
current executive officers and other key employees. We do not have employment
agreements between ELVA, INC. and our executive officers and other key
employees. The loss of services of any of our executive officers or other key
personnel could have an adverse effect on our operations.
15. There are many uncertainties related to our business plan. The
successful implementation of our business plan will be largely dependent upon
market acceptance of our smart card technology. This will depend in part on our
ability to market or continue to market successfully our smart card systems.
This marketing will involve persuading potential customers or clients of the
perceived benefits of our products and services, and to develop and
commercialize further applications of our smart card technology. Successful
marketing of the online smart card technology will depend on, among other
things, (i) our ability to enter into marketing and licensing or other
arrangements on a timely basis and on favorable terms; (ii) establishing
satisfactory arrangements with sales representatives and marketing consultants;
(iii) hiring and retaining skilled management as well as financial, technical,
marketing and other personnel; (iv) managing successfully our growth (including
monitoring operations, controlling costs and maintaining effective quality,
inventory and service controls); and (v) obtaining adequate financing when and
as needed.
We have limited experience in developing new products based on
innovative technology. There is limited information available concerning the
performance of our technologies or market acceptance of our products. We provide
no assurance that we will be successful in implementing our business plan or
that unanticipated expenses or problems or technical difficulties will not occur
which would result in material implementation delays, or that the Company will
have sufficient capacity to satisfy any increased demand for our VocaliD(R)
smart card products and technologies resulting from the implementation of our
plan of operation.
16. Need for additional Capital Resources. Our capital requirements
have been and will continue to be significant. Our future capital requirements
will depend on many factors. These factors include (i) the extent and timing of
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acceptance of our products, (ii) the progress of our research and development,
(iii) the cost of increasing our sales and marketing activities, (iv) our
operating results and, (v) the status of competing products.
Also, further development of our smart card products to meet the
requirements and specifications of a particular customer may require significant
investment in research and development. This investment may be much in advance
of the actual installation and commencement of revenues from such installation.
Although our capital requirements cannot be accurately predicted, we
may require additional financing within the next few months in order to ensure
the setting of our strategy and the Company's growth. If and when needed, we may
not be able to obtain additional financing or if available such financing may be
on terms not satisfactory or advantageous to ou shareholders, including those
purchasing our common stock in the offering. Our inability to obtain needed
financing could have a material adverse effect on our financial condition or
results of operations. We could be required to reduce significantly or suspend
our operations, including research and development activities, seek a merger
partner or sell additional securities on terms that are highly dillutive to the
purchasers of our common stock pursuant to the offering.
17. VocaliD(R) sales are lengthy, and fluctuations may occur in results
of operations. The purchase of a VocaliD(R) smart card system generally involves
a significant commitment of capital with attendant delays frequently associated
with large capital expenditures and implementation procedures within an
organization. Accordingly, our product sales cycle varies by customer and
industry, and may extend for periods of 12 months or more, depending upon, among
other things, the time required by the customer to:(i) complete a pilot test of
the VocaliD(R) smart card system, (ii) make a determination regarding purchase
of the system, (iii) negotiate payment terms, and (iv) complete the
installation.
The sales cycle associated with the purchase of our VocaliD(R) smart
card system is typically lengthy and subject to a number of significant risks.
These risks include (i) the customers' or clients' budgetary constrains, (ii)
internal acceptance reviews, (iii) competition, (iv) hardware and software
vendors' inability promptly to provide quality products and services, (v)
technological factors, and (vi) market acceptance.
We have limited or no control of these risks. Because we determine our
expenditure levels in advance of each quarter, our ability to reduce costs
quickly in response to an unforeseen revenue shortfall is limited. Therefore,
operating results would be adversely affected if projected revenues for a given
quarter are not achieved. Due to the foregoing and because of the relatively
fixed nature of certain of our costs our quarterly operating results are likely
to vary significantly in the future, period-to-period comparisons of our results
of operations may not necessarily be meaningful, in any event, such comparisons
may not be indicative of future performance. It is also likely that in some
future quarter our operating results will be below the expectations of public
market analysts and investors, which, in turn, could have a severe adverse
effect on the price of our common stock.
18. We obtain the hardware components utilized in conjunction with our
smart card technology from manufacturers and suppliers. The chip and the battery
aimed at being embedded in VocaliD(R) smart card are currently supplied by two
manufacturers. We believe that in the future, these components will be generally
available from several suppliers. Also, although a component may be available
from more than one supplier, we could incur delays in switching suppliers, which
could have a material adverse effect on our sales and results of operations.
Accordingly, the inability or unwillingness of a vendor to continue to supply
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components to us, whether because of labor unrest, natural disaster or the
vendor's production constraints or desire to favor other customers, could have a
material adverse effect on our results of operations.
19. The Company may not be able to successfully manage our growth. In
the event we experience substantial growth, such growth will challenge our
management and operating resources, require the hiring of more technical, sales
and marketing, support and administrative personnel, and customer service
capabilities, and directly cause the Company to expand management information
systems.
In addition, there can be no assurance that the Company will be able to
attract and retain the necessary personnel to accomplish our growth strategies
and/or not experience constraints that will adversely affect our ability to
satisfy customer demand in a timely fashion and/or to satisfactorily support our
customers. If the Company is unable to manage growth effectively, business and
results of operations could be materially and adversely affected.
20. Competition for qualified employees is intense. Our success and
growth will continue to depend in large part on our ability to attract and
retain talented and qualified employees, including highly skilled management
personnel. Competition in the recruiting of highly-qualified personnel is
intense. We may experience difficulty in recruiting talented and qualified
employees, particularly for further development of out smart card technology.
Our inability to recruit additional qualified personnel could have a material
adverse effect on our business, financial condition and results of operations.
We provide no assurance that we will be able to attract, motivate and retain
personnel with the skills and experience needed to successfully manage our
business and operations.
21. Uncertainties exist regarding Y2K preparedness. There has been
significant awareness raised regarding the potential disruption to business
operations worldwide resulting from the inability of current technology to
process the change in the year 1999 to 2000. We have not currently experienced
any significant adverse effects or material unbudgeted costs resulting
therefrom. Nevertheless, we cannot provide any assurance in this regard, and any
such significant costs or effect could materially and adversely affect our
operations and financial condition.
22. Competition within the Smart Card Industry is intense. The smart
card industry in the United States is an emerging business characterized by an
increasing and substantial number of new market entrants. These market entrants
have introduced or are developing an array of new products and services relating
to electronic transactions and information processing. Each of these entrants is
positioning its products and services as the preferred method of effectuating
highly individualized, easy-to-use electronic transaction and information
processing.
This market is therefore characterized by intense competition. More
specifically, we compete with numerous well-established companies. These
companies include International Business Machines, Inc., ICL, 3GI, CyberMark,
Touch Technology International, Inc., Sun MicroSystems, Inc., Technology @ Work,
Bull, Card Europe, Gemplus, Innovatron, Philips Electronics, Aladdin Systems,
Pathways Group, Inc., MONDEX, MasterCard, Microsoft, Motorola, Schlumberger,
Siemens, DigiCash, Leapfrog, Inc., and Visa, which design, manufacture and/or
market smart card systems. We believe that our smart card products compete on
the basis of enhanced security, flexibility, salability, cost-effectiveness and
quality. Although, our smart card systems incorporate new concepts, they may be
unsuccessfully marketed even if they are superior to those of our competitors.
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Certain competitors may be developing technologies or products which we
are unaware. These products may be functionally similar or superior to our
products. Most of our competitors possess substantially greater financial,
marketing, personnel and other resources than us. They may also have established
reputations relating to the design, development, marketing and service of smart
card systems.
As the market for smart card systems grows, new competitors are likely
to emerge. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business and results of operations. There can be no
assurance that we will be able to compete successfully, competitors will not
develop technologies or products that render our systems obsolete or less
marketable, or that we will be able to success- fully enhance our products or
develop new products when necessary.
23. Market acceptance to VocaliD(R) Smart Card Technology is not
certain. The smart card industry in the United States is an emerging business.
The use of smart cards in many other countries is much more progressed. The
success of VocaliD(R) smart card industry domestically depends, in a certain
part, on the ability of ELVA, to convince governmental authorities, commercial
enterprises and other potential system sponsors or users to adopt this smart
card system. The VocaliD(R) smart card system would improve and enhance magnetic
stripe card system and replace existing or alternative systems such as
paper-based systems, and would change the way certain transaction and
information processing tasks are accomplished.
Due to the large capital and infrastructure investment made by debit
and credit card issuers and significantly lower costs associated with the use of
basic magnetic stripe cards, there is no assurance that our smart card
technology will prove to be economically viable for a sufficient number of
sponsors and users. In such event, many potential system sponsors or users may
be reluctant to convert to VocaliD(R) smart card technology. Accordingly, there
can be no assurance that there will be significant market opportunities for
VocaliD(R) in the United States or that the acceptance of VocaliD(R) card-based
systems in other countries will be sustained. As such, demand for and market
acceptance of our smart card systems are subject to a high level of uncertainty.
Also, because the software products incorporated in our smart card
products and systems are complex, our software products may contain errors or
failures when installed, updated or enhanced. There can be no assurance that,
despite testing, errors will not be found in our products after the delivery,
resulting in loss of or delay in market acceptance.
24. The Company has limited VocaliD(R) marketing experience. We may
rely on unrelated third parties to assist in marketing our smart card technology
and applications. However, we anticipate that companies with smart card
marketing experience are very limited. Following the offering, we will have
limited financial, personnel and other resources to undertake extensive
worldwide marketing activities. Potential system sponsors or users of our smart
card systems must be persuaded that the costs of adopting and implementing smart
card systems are justified by the benefits to be derived therefrom. Achieving
market acceptance of our products and systems will require significant efforts
and expenditures to create awareness, demand and interest by potential system
sponsors and users, and others regarding the perceived benefits of our smart
card technologies. There is no assurance that we will be able to meet our
current objectives, succeed in positioning our cards and systems as a preferred
method of delivering electronic transaction and information processing, or
achieve significant market acceptance of our products.
21
<PAGE>
25. VocaliD(R) Smart Card Technology is subject to swift change and
obsolescence. The computer application software market is subject to rapid
technological change, frequent new product introductions, and evolving
technologies and industry standards that may render existing products and
services obsolete. We can not provide any assurance that our products and
systems will not suffer such obsolescence. Furthermore, our research and
development efforts are subject to all of the risks inherent in the development
of new products and technology, including unanticipated delays, expenses and
difficulties. There is no assurance that our products and systems will
satisfactorily perform the functions for which they are designed, that our
products and systems will meet applicable price or performance objectives, or
that unanticipated technical or that other problems will not occur which would
result in increased costs or material delays in development.
Because of the rapid pace of technological change in the application
software industry, any developed market position in the smart card industry or
other markets that we may enter could be eroded rapidly by product advancements.
Our software applications rely primarily on internally developed software tools
and applications. If alternative software development tools and applications
were to be redesigned and generally accepted in the marketplace, we could be at
a competitive disadvantage relative to companies employing such alternative
developmental tools and applications. Our VocaliD(R) smart card products and
systems must keep pace with technological developments, conform to evolving
technologies and standards, and address increasingly sophisticated client needs.
Such developments may require substantial additional capital
investments by us in product development and testing. We can not provide any
assurance that we will have sufficient resources to make the necessary research
and development investments. Also, there can be no assurance that we will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products, the new products and product
enhancements will meet the requirements of the marketplace and achieve market
acceptance, or that our current or future products will conform to industry
requirements.
26. Intellectual Property Right Infringement. Our success in the smart
card industry is largely dependent upon our smart card technology. Our products
and systems are licensed to customers and sponsors. These license agreements
contain provisions protecting against the unauthorized use, copying and transfer
of the licensed program. We also rely on a combination of patents, know how,
trade secret, copyright and trademark laws, and non-disclosure agreements to
protect our proprietary rights in our products and technology. There is no
assurance that such measures are sufficient to protect our proprietary
technology. There is also no assurance that our competitors will not
independently develop technologies that are substantially equivalent or superior
to our technologies.
We believe that our services and products do not infringe on the
intellectual property rights of others and are not aware of any asserted claims.
However, there is no assurance that a person will not assert a claim against us
for violating such person's technology property rights. It is also possible that
any such assertion may require us to enter into royalty arrangements, resulting
in possible extensive and costly litigation, or possibly even prohibit us from
marketing our products. Furthermore, the intellectual property issues relating
to our products in general have not been addressed by judicial authorities in
many instances. Such adverse actions or decisions made by such authorities could
create uncertainty, and our business, financial condition and results of
operations could be materially and adversely affected.
22
<PAGE>
Item 2. Description of Property:
The United States corporate headquarters of ELVA are located at 222
Lakeview Avenue, Suite 415, West Palm Beach, Florida 33401. This facility is
available to the Company, for the sole purpose of satisfying state of Florida
corporation requirements. In United States, ELVA is also located at 4540 Campus
Drive Suite 108, Newport Beach, California 92660, and its telephone number is
949-863- 0670. Its offices outside the United States are located at 74,av
Edouard Vaillant, 92100 Boulogne, France, and its telephone number is
33-(0)1-41-31-66-77. The Company also has an office at 89 Neil Road, 0888849
Singapore, and its telephone number is (65) 326-07-88
Item 3. Legal Proceedings.
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. The Company is
not currently a party to any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal
year ended December 31, 1999, covered by this report to a vote of the Company's
shareholders, through the solicitation of proxies or otherwise.
PART II
Item 5. Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters.
<TABLE>
<S> <C> <C>
Market Information
2000 HIGH LOW
- - - ------- --- ---
March 31, 2000 4 1/8 4 1/8
1999 HIGH LOW
- - - ------- ---- ---
December 31, 1999 4 1/8 3 7/8
September 30, 1999 N/A N/A
June 30, 1999 N/A N/A
March 31, 1999 N/A N/A
1998 HIGH LOW
- - - ------ ---- ----
December 31, 1998 N/A N/A
September 30, 1998 N/A N/A
June 30, 1998 N/A N/A
March 31, 1998 N/A N/A
1997 HIGH LOW
- - - ----- ---- ----
December 31, 1997 N/A N/A
Inception to September 30, 1997 N/A N/A
</TABLE>
23
<PAGE>
Shareholders
The approximate number of holders of record of common equity is 45 as of
December 31, 1999.
Dividends
The Company has never declared or paid any cash dividends on its common
stock and does not intend to declare any dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Management's Discussion and Analysis or Plan of Operation
12 Month Plan of Operations
The Company's plan of operations for the next twelve (12) months is for it
to further refine its marketing and sales strategy (See Part I, Item 1) and to
develop a web site for its primary VocaliD(R) Smart Card System product. An
average initial funding of $ 400,000 has been committed for such work. The
Company plans to continually refine its strategy for capitalizing on recent
trends within the Smart Card industry and to exploit such trends to its
advantage. The Company plans to develop new and varied VocaliD(R) Smart Card
systems, concepts and ventures in addition to its current VocaliD(R) Smart Card
development plans.
The Company plans believes it can capitalize on the general Internet trend
of increasing consumer usage and increasing levels of e-commerce transactions
through providing the market the Company's VocaliD(R) Smart Card, which the
Company believes will increase levels of person-to- person communication and
which may directly increase levels of advertising and Web site linkage revenues.
The Company believes that it is well positioned to profit from such
opportunities.
The Company's business strategy is to develop its VocaliD(R) Smart Card
system to provide consumers with versatile high quality, easy to use, personal
and secure communications. The Company believes the ease of use and versatility
of its online Smart Card system will differentiate itself among the array of off
line smart card options. The Company believes that this differentiation strategy
will allow it to carve out a profitable market niche. In addition to the primary
revenue stream derived from fees earned through the usage of the Company's
VocaliD(R) Smart Card, the Company believes that its market niche will allow it
to successfully gain consumer "hits" to its VocaliD(R) Smart Card system Web
site; such "hits" are the major factor in determining advertising revenue over
the Internet (through banner ad sales) and will allow the Company to realize an
additional revenue stream through charging advertising fees for banner ad
placements. Therefore, while the Company plans to generate its primary revenue
by charging fees for the use of its VocaliD(R) Smart Card system, it may also
generate significant revenue by attracting interest ("hits") to its VocaliD(R)
Smart Card Web site.
The Company plans to seek out strategic alliances, joint venture partners,
and business partners with other high-technology firms in which shared resources
of such could provide enhanced shareholder value. The Company plans to
continually scan the environment for such partnering opportunities. Particular
attention will be paid to the possibilities of developing international
24
<PAGE>
corporate strategic alliances, partnering with successful U.S. technology
start-ups, and finding merger and acquisition candidates or counter-parties with
firms operating in the U.S. and/or abroad.
Results of Operations - Fiscal Years: 1998 & 1999
Financial Condition, Capital Resources and Liquidity
At December 31, 1999, the Company had assets on a consolidated audited
basis totaling $635,964 and liabilities of $ 1,015,256. Since the Company's
inception, it has received $ 50,000 in cash contributed as consideration for the
issuance of shares of Common Stock and ELVA, SA has received $442,000 in cash as
consideration for the issuance of shares of Common Stock.
The Company's revenues of approximately $297,153 and $448,696 for the
years ended December 31, 1998 and 1999 are from one source, ATMEL CORPORATION.
The Company substantially completed its research and development during fiscal
1997, with a minimum amount of refinement of research and development in early
fiscal 1998. In 1999, the employees changed to marketing its completed product
and General and Administrative expenses increased due to the shift in focus by
the Company from research and development to marketing its product to potential
new customers.
The Company experienced a net loss of $231,045 and $723,712 for the
years ended December 31, 1998 and 1999, respectively. The increase of
approximately $498,000 in General and Administrative accounted for the increase
in the Company's loss. This occurred due to the Company's transition from
research and development to marketing.
The Company's principal source of liquidity has consisted of
conditional government subsidies and the sale of common stock for cash.
The Company's working capital is presently minimal and there can be no
assurance that the Company's financial condition will improve. The Company is
expected to continue to have minimal working capital or a working capital
deficit as a result of current liabilities. In April 1997, the Company issued
9,000,000 founders shares of the Company's Common Stock to its sole executive
officer and director for the fair value of services rendered on behalf of the
Company. These 9,000,000 founders shares were returned to the Company upon the
resignation of its sole executive officer and director and were subsequently
reissued to his successor. During October and November 1997, the Company issued
and sold an aggregate of 1,756, 376 shares of Common Stock to Florida, Georgia
and European residents for cash consideration totaling $17,574. No underwriter
was employed in connection with the offering and sale of the shares. The Company
claimed the exemption from registration in connection with each of the offerings
provided under Section 3(b) of the Act and Rule 504 of Regulation D promulgated
thereunder. In June, 1998, the Company issued and sold an aggregate of 9,000,000
shares of Common Stock to one individual for cash consideration totaling
$32,000. No underwriter was employed in connection with the offering and sale of
the shares. The Company claimed the exemption from registration in connection
with each of the offerings provided under Section 3(b) of the Act and Rule 504
of Regulation D promulgated thereunder. In September, 1998, the Company issued
and sold an aggregate of 2,700,000 shares of Common Stock to European residents
for cash consideration totaling $54,000. No underwriter was employed in
connection with the offering and sale of the shares. The Company claimed the
exemption from registration in connection with each of the offerings provided
under Section 3(b) of the Act and Rule 504 of Regulation D promulgated
thereunder. In conjunction with the Company's acquisition of ELVA, SA, a French
corporation, it issued 3,440,000 shares to a third party in settlement of a
25
<PAGE>
$204,550 loan the third party had made to ELVA, SA. Even though management
believes, without assurance, that it will obtain sufficient capital with which
to implement its business plan on a limited scale, the Company is not expected
to continue in operation without an infusion of capital. In order to obtain
additional equity financing, management may be required to dilute the interest
of existing shareholders or forego a substantial interest of its future
revenues, if any. (See Part I, Item 1. "Description of Business"; See Part I,
Item 4. "Security Ownership of Certain Beneficial Owners and Managers" and Part
I, Item 7. "Certain Relationships and Related Transactions.")
Net Losses
For the twelve months (12) ended December 31, 1999 and 1998, the
Company reported a net loss from operations of $723,712 and $231,045
respectively.(See: PART F/S - Statement of Loss - F-4.)
The ability of the Company to continue as a going concern is dependent
upon its ability to obtain clients who will utilize the Company's VocaliD(R)
product and whether the Company can attract an adequate number of clients. The
Company believes that in order to be able to expand its initial operations in
terms of sales and marketing, it must rent new offices in USA and abroad, hire
staff and acquire through purchase or lease computer and office equipment to
maintain accurate financial accounting and client data. Further, the Company
believes that the type of equipment necessary for the operation is readily
accessible at competitive rates. The Company is already registered with the
Secretary of State of California to do business and is anticipating the
penetration of the North American market from its California office.
To implement such plan, also during this initial phase, the Company
intends to initiate a self- directed private placement under Rule 506 in order
to raise the funds required by its development among which the financial means
related to new staff, equipment and offices. Those needs are currently estimated
by the management staff. The Company expects to accomplish its fund raising
objective before June 1, 2000. No underwriters have been contacted and no known
investors have been contacted with respect to such fund raising. In the event
such placement is successful, the Company believes that it will have sufficient
operating capital to meet the initial expansion goals and operating costs for a
period of one (1) year.
Employees
Next year, ELVA intends to hire new persons in North America, Asia and
Europe in order to widen its marketing worldwide and to ensure the evolution of
the technology.
At December 31, 1999, at ELVA had a total of 13 employees, of which 4
were employed in sales and marketing, 6 were employed in product development, 1
was employed in professional services and customer support, one was employed in
internal operations support, and 2 was employed in administration and finance.
Our future performance depends in significant part upon the continued service of
our key technical and management personnel, and our continuing ability to
attract and retain highly qualified and motivated personnel in all areas of our
operations. Competition for such personnel is intense. We provide no assurance
that we can retain key managerial and technical employees or that we can
attract, assimilate or retain other highly qualified personnel in the future.
Our employees are not represented by a labor union. We have not experienced any
work stoppages and consider our employee relations to be good.
26
<PAGE>
The Company will attempt to maintain diversity within its customer and
advertising base in order to decrease its exposure to downturns or volatility in
any particular market segment. As part of this selection strategy, the Company
intends to offer its services to those consumers and strategic partners which
have a reputation for reputable dealings and, eliminating customers and
advertisers that it believes present a higher credit risk. Where feasible, the
Company will evaluate beforehand each customer, supplier, partner, strategic
partner, and advertiser for their creditworthiness.
Research and Development Plans
For the next twelve months there is a plan for funding extensive
research and development efforts if, in fact, the Company is successful with its
planned 506 Private Offering. The Company's goal is to enhance the technology
features in terms of personalization and security. The Company's planned
research and development is also expected to evaluate the migration of the
technology to other platforms and utilizations. For that purpose, the chip
capabilities and the software environment will both be enlarged and improved in
order to supply a more efficient access to the technology for each end user and
for any application. Other investments related to the manufacturing process are
scheduled, too. Therefore, the Company foresees significant changes in the
number of employees.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording mechanism including date sensitive software which uses only
two digits to represent the year, may recognize the date using 00 as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
The Company determined that the Year 2000 impact is not material to the
Company and that it will not impact its business, operations or financial
condition since all of the internal software utilized by the Company has the
capability of being upgraded to support Year 2000 versions. The Company did not
experience any material impact to its business, operations or financial
condition as a result of the change over to the year 2000. The Company also did
not experience any material impact to its business as a result of experiences of
other companies on which the Company's systems may rely.
The Company believes that it has disclosed all required information
relative to Year 2000 issues relating to its business and operations. However,
there can be no assurance that the systems of other companies on which the
Company's systems rely also will be timely converted or that any such failure to
convert by another company would not have an adverse affect on the Company's
systems.
Forward-Looking Statements
This Form 10-KSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference in
27
<PAGE>
this Form 10-KSB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
demand for the Company's products and services, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results or developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, general economic
market and business conditions; the business opportunities (or lack thereof)
that may be presented to and pursued by the Company; changes in laws or
regulation; and other factors, most of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this Form
10-KSB are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
The Company assumes no obligations to update any such forward-looking
statements.
Item 7. Financial Statements.
The Financial Statements of ELVA, Inc., and Notes to Financial
Statements together with the Independent Auditor's Report of Durland and
Company, CPA's, P.A., required by this Item 7 commence on page F-1 hereof and
are incorporated herein by this reference. The Financial Statements filed as
part of this Annual Report on Form 10-KSB are listed in the Index to Financial
Statements below:
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . .. F-2
Consolidated Balance Sheets..................................................F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)........F-4
Consolidated Statements of Stockholders' Equity (Deficiency).................F-5
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-7
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Elva, Inc.
West Palm Beach, Florida
We have audited the accompanying consolidated balance sheets of Elva,
Inc., (the "Company") as of December 31, 1999 and 1998 and the related
consolidated statements of operations and comprehensive income (loss),
stockholders' equity (deficiency) and cash flows for the years ended December
31, 1999 and 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1999 and 1998 and the results of their operations and their
cash flows for the years ended December 31, 1999 and 1998, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
4 to the consolidated financial statements, the Company has experienced net
losses since inception. The Company's financial position and operating results
raise substantial doubt about its ability to continue as a going concern.
Management's plans with regard to these matters are also described in Note 4.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Durland & Company
Durland & Company, CPAs, P.A.
Palm Beach, Florida
March 13, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
Elva, Inc.
Consolidated Balance Sheets
December 31,
1999 1998
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 97,476 $ 293,604
Accounts receivable 55,958 60,398
VAT tax receivable 42,251 133,087
------------- -------------
Total current assets 195,685 487,089
------------- -------------
PROPERTY AND EQUIPMENT
Computers and equipment 72,036 26,168
Less accumulated depreciation (28,843) (15,736)
------------- -------------
Net property and equipment 43,193 10,432
------------- -------------
OTHER ASSETS
Deposits and other assets 16,134 10,976
Income tax credit receivable 111,791 0
Patent 313,092 349,099
Less accumulated amortization (43,931) (33,065)
------------- -------------
Net other assets 397,086 327,010
------------- -------------
Total Assets $ 635,964 $ 824,531
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY ( DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 46,006 $ 40,370
Accrued Expenses
Trade 34,919 72,090
Payroll taxes 126,644 36,497
Current portion of long-term debt 2,450 3,557
Advances from shareholder 0 11,563
Conditional government subsidy 95,365 100,246
------------- -------------
Total current liabilities 305,384 264,323
------------- -------------
LONG-TERM DEBT
Conditional government subsidy 190,729 200,246
Other long-term debt 9,802 14,230
Long-term debt - related party 509,341 0
------------- -------------
Total long-term debt 709,872 214,476
------------- -------------
Total Liabilities 1,015,256 478,799
------------- -------------
Minority interest in consolidated subsidiary 0 136
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $0.0001 par value, authorized
10,000,000 shares; none issued and outstanding 0 0
Common stock, $0.0001 par value, authorized
50,000,000 shares; 21,500,000 issued and
outstanding shares 2,150 2,150
Additional paid-in capital 828,401 828,401
Accumulated comprehensive income(loss) (53,525) (52,349)
Deficit (1,156,318) (432,606)
------------- -------------
Total stockholders' equity (deficiency) (379,292) 345,596
------------- -------------
Total Liabilities and Stockholders' Equity (Deficiency)$ 635,964 $ 824,531
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
Elva, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
Year Ended December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
REVENUES $ 448,696 $ 297,153
--------------- ---------------
OPERATING EXPENSES
Salaries 536,834 206,541
Advertising 63,228 32,723
Royalty expense - related parties 24,363 0
Depreciation and amortization 33,564 22,499
General and administrative 732,901
234,873
Research and development 0 33,819
--------------- ---------------
Total operating expenses 1,390,890 530,455
--------------- ---------------
Operating Loss (942,194) (233,302)
--------------- ---------------
OTHER INCOME (EXPENSE):
Other income 0 6,587
Interest income 459 1,643
Interest expense (14,586) (233)
Foreign currency transaction gain (loss) 11,534 (5,604)
--------------- ---------------
Total other income (expense) (2,593) 2,393
--------------- ---------------
Net loss before tax credit and minority interest (944,787) (230,909)
Foreign income tax credit 220,939 0
Minority interest in consolidated subsidiary 136 (136)
income (loss)
--------------- ---------------
Net loss (723,712) (231,045)
Other comprehensive income (loss):
Foreign currency translation gain (loss) (1,039) (2,521)
--------------- ---------------
Comprehensive loss $ (724,751) $ (233,566)
=============== ===============
Net loss per common share $ (0.03) $ (0.01)
=============== ===============
Weighted average number of common shares outstanding 21,500,000 21,500,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
Elva, Inc.
Consolidated Statements of Stockholders' Equity (Deficiency)
Accumulated Total
Number Common Additional Comprehensive Stockholders'
of Stock Paid-in Income Equity
Shares Capital (Loss) Deficit (Deficiency)
------------ ----------- ------------ ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
December 31, 1997 26,336 $ 511,317 $ 49,236 $ (49,828)$ (201,561)$ 309,164
Year ended December 31, 1998:
12/98 - Reverse merger 18,033,664 (509,511) 574,959 0 0 (65,448)
12/98 - Stock issued to settle debt 3,440,000 344 204,206 0 0 204,550
Other comprehensive income (loss) 0 0 0 (2,521) 0 (2,521)
Net loss 0 0 0 0 (231,045) (231,045)
------------ ----------- ------------ ---------------- --------------- -------------
BALANCE, December 31, 1998 21,500,000 2,150 828,401 (52,349) (432,606) 345,596
Year ended December 31, 1999:
Other comprehensive income (loss) 0 0 0 (1,175) 0 (1,175)
Net loss 0 0 0 0 (723,712) (723,712)
------------ ----------- ------------ ---------------- --------------- -------------
BALANCE, December 31, 1999 21,500,000 $2,150 $828,401 $(53,524) $(1,156,318) $ (379,291)
============ =========== ============ ================ =============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
Elva, Inc.
Consolidated Statements of Cash Flows
Year Ended December 31,
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (723,712) $ (231,045)
Adjustments to reconcile net loss to net cash used by operating activities:
Minority interest in consolidated subsidiary income (136) 136
Depreciation 13,107 5,332
Amortization 10,866 17,166
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 4,440 (22,288)
(Increase) decrease in VAT receivable 90,836 (125,671)
(Increase) decrease in deposits and other assets (5,158) (4,030)
(Increase) decrease in income tax credit receivable (111,791) 0
Increase (decrease) in accounts payable 5,636 38,802
Increase (decrease) accrued expense - trade (37,171) 55,140
Increase (decrease) payroll taxes 90,147 14,981
(Increase) decrease foreign currency translation gain (loss) (6,057) 8,059
-------------- --------------
Net cash provided (used) by operating activities (668,993) (243,418)
-------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES:
(Purchase) maturity investments 0 90,724
Purchase of property and equipment (45,868) (11,850)
(Increase expenditure) decrease application patent 36,007 (55,988)
-------------- --------------
Net cash provided (used) by investing activities (9,861) 22,886
-------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Shareholder advances 0 11,443
Shareholder advance repayments (11,563) 0
Receipt of conditional government subsidy (9,517) 170,682
Proceeds of long term debt - related party 509,341 1,087
Debt payments (5,535) 0
Issuance of common stock for cash 0 272,650
-------------- --------------
Net cash provided by financing activities 482,726 455,862
-------------- --------------
Net increase (decrease) in cash and equivalents (196,128) 235,330
CASH and equivalents, beginning of period 293,604 58,274
-------------- --------------
CASH and equivalents, end of period $ 97,476 $ 293,604
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-Cash Financing Activities:
Common stock issued to settle long-term debt $ 0 $ 204,550
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
Elva, Inc.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Principles
TheCompany Elva, Inc., (the "Company"), is a Florida chartered
corporation which conducts business from its offices in West Palm
Beach, Florida, Los Angeles, California, Paris, France and Singapore.
The Company was incorporated on August 15, 1997 as Computer Research
Technologies, Inc., and changed its name to Elva, Inc. on January 25,
1999. Prior to the acquisition of ELVA, SA, the Company was principally
seeking financing to allow it to begin its planned operations. The
Company is principally involved in the smart card technology industry
through its French subsidiary, ELVA, SA. The following summarize the
more significant accounting and reporting policies and practices of the
Company:
a) Use of estimates In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
statements of financial condition, and revenues and expenses for the
year then ended. Actual results may differ significantly from those
estimates.
b) Significant acquisition In December 1998, Elva, Inc. issued
14,160,000 shares of common stock to acquire substantially all the
issued and outstanding shares of the common stock of ELVA, SA, a French
corporation, in a reverse merger, which was accounted for as a
reorganization of ELVA, SA. There remains a four-tenths of one percent
minority interest in ELVA, SA, which is owned by two of the major
stockholders of Elva, Inc. as a result of this acquisition. This
minority interest is required under French corporate law.
c) Principles of consolidation The consolidated financial statements
include the accounts of Elva, Inc., and its wholly owned subsidiary.
Inter-company balances and transactions have been eliminated.
d) Net loss per common share Basic net loss per weighted average common
share is computed by dividing the net loss by the weighted average
number of common shares outstanding during the period.
e) Property and equipment All property and equipment are recorded at
cost and depreciated over their estimated useful lives, using the
straight-line method. Upon sale or retirement, the costs and related
accumulated depreciation are eliminated from their respective accounts,
and the resulting gain or loss is included in the results of
operations. Repairs and maintenance charges which do not increase the
useful lives of the assets are charged to operations as incurred.
Depreciation expense was $13,107 and $5,332 for the years ended
December 31, 1999 and 1998, respectively.
f) Cash and equivalents The company considers investments with an
initial maturity of three months or less as cash equivalents.
g) Patents The Company acquired two French patents, Nos. 95-15735 and
96-01872, from the founders of ELVA, SA. The Company is amortizing the
cost of these patents over the remaining life of the patents. Patents
in France have a 20 year life. Amortization expense was $10,866 and
$17,166 for the years ended December 31, 1999 and 1998, respectively.
h) Revenue recognition The Company's sole source of revenue has been
from licensing its patented technology. The Company records revenue
when earned under its licensing agreement. The Company intends to
license its technology to others as well, rather than to manufacture
the VOCALID cards for sale. The Company believes that it would be
prohibitively expensive for it to establish its own manufacturing
facilities and to do so would distract it from its efforts at getting
its technology accepted as the world standard.
F-7
<PAGE>
Elva, Inc.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Principles, continued
i) Foreign currency transaction and translation gains(losses) The
principal operating entity of the Company is its subsidiary, ELVA, SA,
which is located in France. The functional currency of ELVA, SA is the
French Franc, (FF). ELVA, SA has only one customer which is located in
the US. ELVA, SA bills this customer in FF and is paid in US Dollars,
(USD). ELVA, SA records a transaction gain or loss at the time of
receipt of payment consisting of the difference between the amount of
FF billed and the amount of FF the USD payment is converted into. On a
consolidated basis the Company's reporting currency is the US Dollar.
j) Research & development Research & development expenses are expensed
in the period incurred.
k) Software development costs The software developed by the Company is
used exclusively by licensors of the Company's technology. As such, the
Company is not selling the software. Costs incurred in developing the
software have been expensed in the period in which incurred.
l) VAT tax receivable In France, as in many other countries, the
government charges a Value Added Tax, (VAT), that is similar in nature
to sales tax in the US. There are three major differences. First is
that VAT is charged at each point of sale. Second is that there are no
exemptions from the collection of VAT. Finally, each company files a
VAT return with the government monthly reflecting the gross VAT
collected and VAT paid. If the VAT paid is greater than the amount
collected, the Company receives a refund from the government
approximately five months later.
(2) Stockholders' Equity The Company has authorized 50,000,000 shares of
$0.0001 par value common stock and 10,000,000 shares of $0.0001 par
value preferred stock. Rights and privileges of the preferred stock are
to be determined by the Board of Directors prior to issuance. The
Company has 21,500,000, shares of common stock issued and outstanding
at December 31, 1998 and September 30, 1999.
In September 1997, the Company issued 9,000,000 shares to its founder
for services rendered to the Company valued at $9,000. In April 1998,
the Company completed a Regulation D Rule 504 Placement for 1,757,376
shares in exchange for $17,574 cash. In April 1998, a majority
shareholder donated 9,000,000 shares of common stock to the Company. In
June 1998, 9,000,000 shares were issued for $32,500 in cash. During the
third quarter of 1998, the Company issued 2,700,000 shares of common
stock for $54,000 in cash. In December 1998, 9,557,376 shares were
donated to the Company. In December 1998, the Company issued 14,160,000
shares for 26,326 of the 26,336 shares issued and outstanding of ELVA,
SA, a French corporation. Additionally, in conjunction with this
acquisition, the Company issued 3,440,000 shares to a third party in
settlement of a $204,550 loan the third party had made to ELVA, SA. As
the common stock of the Company was not listed at the date of
acquisition, the fair value of the stock issued to settle this debt was
not determinable and the Company elected to use the loan amount
outstanding to value this transaction.
(3) Income Taxes Deferred income taxes (benefits) are provided for certain
income and expenses which are recognized in different periods for tax
and financial reporting purposes. The Company had net operating loss
carry-forwards for income tax purposes of approximately $1,156,000,
which expire $68,000 on December 31, 2011, $132,000 on December 31,
2117, $232,000 on December 31, 2118 and $724,000 on December 31, 2119.
The amount recorded as a deferred tax asset, cumulative as of December
31, 1999 and 1999, is approximately $462,000 and $173,000,
respectively, which represents the amount of tax benefits of the loss
carry-forwards. The Company has established a valuation allowance for
this deferred tax asset of $462,000 and $173,000, as the Company has no
history of profitable operations.
F-8
<PAGE>
Elva, Inc.
Notes to Consolidated Financial Statements
(3) Income Taxes, continued The significant components net deferred tax asset as
of December 31, 1999, are:
Net operating losses $ 462,000
Valuation allowance (462,000)
------------------
Net deferred tax asset $ 0
==================
The Company's subsidiary, ELVA, SA, applied for research and
development income tax credits with the French government for the years
ended December 31, 1999, 1998 and 1997. The credits are applied for on
the Company's annual income tax return in mid-1998, 1999 and 2000. The
amounts applied for were approximately $94,800, $15,300 and $94,400 for
1999, 1998 and 1997, respectively. In the 4th quarter of 1999, ELVA, SA
was notified by the French government of the approval of the
application for 1997, and that payment by the government would occur in
late 2000. The Company assigned this receivable to its bank in exchange
for cash in the amount of approximately $94,400. It is now expected
that the government will approve the 1998 and 1999 credits. They are
expected to be paid $15,300 in 2001 and $94,800 in 2002. These credits
reduce the income tax benefit of its net operating loss carry-forwards
for the French subsidiary on a one for one basis.
(4) Going Concern As shown in the accompanying consolidated financial
statements, the Company incurred net losses totaling $724,000 and
$231,000 for the years ended December 31, 1999 and 1998, and reflects a
stockholders' deficiency of approximately $379,000 as of December 31,
1999. These conditions raise substantial doubt as to the ability of the
Company to continue as a going concern. The ability of the Company to
continue as a going concern is dependent upon increasing sales and
obtaining additional capital and financing. The Company has retained a
registered broker/dealer to raise additional funds for the Company in
an amount up to $5,000,000. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
(5) Related Party Transactions
(a) Patents The Company acquired two French patents, Nos. 95-15735 and
96-01872, from the founders of ELVA, SA for 21,069 shares of common
stock of ELVA, SA valued at $320,700, based on their historical cost,
and approximately $3,333 per month, for the life of the patents as
royalty payments, beginning in March 1997. These ELVA, SA shares were
part of the original issue shares of ELVA, SA, and accordingly had no
fair market value at that time. After approximately 8 months, the
principals realized that the Company did not have the cash flow to
continue to make the payments to them and continue to develop the
marketing efforts and suspended the payments. In February 1999, the
Company and the founders entered into a new agreement which called for
total additional payment of approximately $116,700, with an initial
payment of approximately $25,000, and quarterly payments of
approximately $11,500, beginning on February 1, 2000. This new
agreement also encompassed the international patent application filed
with the World Organization of Intellectual Property, principally for
the US, Canada, Europe and Japan. It also encompasses the trademark
"VOCALID," No. 96-605347, registered at INPI in January 11, 1996.
(b) Long-term debt In 1998, ELVA, SA received approximately $204,500
from a third party as a loan. In December 1998, as part of the reverse
merger, Elva, Inc. issued 3,440,000 shares of common stock in
settlement of this debt. In March, May and September 1999, ELVA
received additional traunches of this loan from the now related party,
in the total amount of approximately $500,000. This loan is payable in
full on January 1, 2002. The Company can, at its option, prepay all or
part of this amount without penalty. The loan agreement does not carry
a stated interest rate, although it references accrued interest. The
Company is accruing interest at a rate of 10%, until it can get
documentation from the lender as to the correct rate. The
F-9
<PAGE>
Elva, Inc.
Notes to Consolidated Financial Statements
(5) Related Party Transactions (Continued)
b) Long-term debt (continued) Company also received a $16,000
conditional loan from an unrelated company, under which the Company
would not be liable for repayment if the Company hired at least one
former technical employee of the other company. The Company has not
done so and is repaying this loan at a rate of $3,000 per year. The
repayment schedule is per the original agreement.
(6) Commitments The Company is committed under two operating leases, one
for its office space and the other for an automobile. Under the
automobile lease the Company is obligated to pay approximately $4,000
in 2000. The Company is obligated under the lease for its office space
for payments of $33,000 and $16,600 in 2000 and 2001, respectively. The
Company can, at its option, elect to extend this lease for up to two
additional three-year periods. The Company leases its office space in
Los Angeles and Singapore on a month-to-month basis. The Company's rent
expense was approximately $62,250 and $25,000 for the years ended
December 31, 1999 and 1998 respectively.
(7) Concentration of customers The Company's sole source of revenue to date
has been one customer, a US based company. Accordingly, its revenue and
related accounts receivable at all periods presented are all related to
this single source. The Company is endeavoring to expand its customer
base.
(8) Conditional government subsidies The Company has received several
government grants which are conditional as to repayment. The grants are
to be applied as reductions of salaries and employment taxes paid to
new employees. They are intended by the government to induce increases
in employment, as France has experienced high unemployment over the
last few years. To date the Company has been increasing employment and
applying accumulated grants as offsets to salary expense and at present
is not yet obligated to repay any of these grants. The Company does not
expect to have to repay any of the grant amounts. These grants, if
required to be repaid, do not require the payment of interest. The term
for adding the required employees under these grants is three years.
The Company has amortized approximately $15,500 and $35,000 of the
grants against salary expense for the years ending December 31, 1999
and 1998, respectively.
F-10
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
Because the Company has been generally inactive since its inception, it has
not had independent accountants until the retention of Durland & Company, CPAs,
P.A., 340 Royal Palm Way, 3rd Floor, Palm Beach, Florida 33480. There has been
no change in the Company's independent accountant during the period commencing
with the Company's retention of The Durland & Company, CPAs, P.A. through the
date hereof.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
Executive Officers and Directors
The following table sets forth certain information with respect to each of our
executive officers and directors. Our directors are generally elected at the
annual shareholders' meeting and hold office until the next annual shareholders'
meeting or until their successors are elected and qualified. Executive officers
are elected by our board of directors and serve at its discretion. Our bylaws
authorize the board of directors to be constituted of not less than one and such
number as our board of directors may determine by resolution or election. Our
board of directors currently consists of four members.
NAME AGE POSITION
- - - ------------- ------ -----------------
Cedric Colnot 36 President and Chairman of the Board
Patrick Misko 38 Vice President
Serge Parienti 36 Vice president and Treasurer
There are no family relationships between or among the executive officers and
directors of the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934:
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers and directors and persons who own more than 10% of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (hereinafter referred to as the "Commission")
initial statements of beneficial ownership, reports of changes in ownership and
annual reports concerning their ownership, of Common Stock and other equity
securities of the Company on Forms 3, 4 and 5, respectively. Executive officers,
directors and greater than 10% shareholders are required by Commission
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, Mr. Colnot, Mr. Misko and Meadlight TMO
comprise all of the Company's executive officers, directors and greater than 10%
beneficial owners of its common Stock, and have complied with Section 16(a)
filing requirements applicable to them during the Company's fiscal year ended
December 31, 1999.
29
<PAGE>
Business Experience
Officers and Directors
The following is a brief description of the business background of our executive
officers, and directors:
Cedric Colnot,: President and Chairman of the board of ELVA, INC. and ELVA, SA
Graduate of the EFREI high school and of a microelectronics University, he has
spent 4 years working for INNOVATRON as a specialist in security and
microelectronics projects. He also registered 4 patents for this company. Then
he joined NEWTEK, a semiconductors distributor as international suppliers
manager. His previous function was Director of Research and Development in the
smart card field. Experienced in the areas of smart cards and vocal
identification, he has achieved a merge of these technologies to design
VocaliD(R).
Patrick Misko: Vice-President of ELVA, INC. And CEO of ELVA, SA
Graduate of Accounting and Economy Universities, he managed a voice server
company for 3 years. Then he joined Olivetti as key account manager for
computing and vocal products. His previous function was Director of sales in the
computer industry and in IVR (interactive vocal response) field. He knows the
market of vocal identification card as well as its major players, such as
manufacturers, integrators and VAR's.
Serge Parienti: Vice-President and Treasurer of ELVA, INC. And Marketing
Director of ELVA, SA
Graduate of a bio industry high school, he made a special study of industrial
marketing and communication. He has spent 8 years as a consultant in several
sectors among which: strategic advisor for the "Academie des Sciences",
marketing and communication advisor in telecommunications (France and
Switzerland), high technology, pharmaceutics (France and Israel), and
biotechnology sector. Just before joining ELVA, he was outstandingly involved in
internet related to projects. He is also manager of MEADLIGHT TMO, a major
ELVA's shareholder.
Zakaria En-Nana: Sales director of ELVA, SA
Zakaria NANA has served as Director Sales & Licensing Policy since August 1999.
Prior to joining ELVA, Zakaria NANA worked at Leading Smart Card Technology
Providers: Innovatron Data Systems belonging to the Smart Card Inventor's Group,
where Zakaria was in charge of the "Franchising & Licensing" activities. Through
an Acquisition, Zakaria NANA joined the Ingenico Group (Word Leader in Smart
Card based Payment Systems) Through a Merger, Zakaria NANA took in charge the
Smart Card Business Development of Bull Corp (World Leader in Smart Card
Technology) within its international network : Asia Africa Easten Europe .
Zakaria NANA started his career as a Sales Engineer in IBM since 1989. Mr. NANA
holds a Master Degree in Business Administration from Reims University and
received an Executive Program Certificate from INSEAD. He is also the Principal
Accounting Officer of the Company.
30
<PAGE>
All directors hold office until the next annual meeting of the Company's
shareholders and until their successors have been elected and qualify. Officers
serve at the pleasure of the Board of Director. Mr. Adams, Ms. Garrett and Ms.
Travis will devote such time and effort to the business and affairs of the
Company as may be necessary to perform their responsibilities as executive
officers and/or directors of the Company.
Aside from the above officers and directors, there are no other persons
whose activities will be material to the operations of the Company at this time.
Mr. Adams is the sole "promoter" of the Company as such term is defined under
the Act.
Item 10. Executive Compensation.
At such time as ELVA commences operations, it is expected that the
Board of Directors will approve the payment of salaries in a reasonable amount
to its officer for his services. At such time, the Board of Directors may, in
its discretion, approve the payment of additional cash or non-cash compensation
for services to the Company.
The Company does not provide officers with pension, stock appreciation rights,
long-term incentive or other plans but has the intention of implementing such
plans in the future.
Compensation of Directors
The Company has no standard arrangements for compensating the directors
of the Company for their attendance at meetings of the Board of Directors.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of December 31,
1999, regarding the ownership of the Company's Common Stock by each shareholder
known by the Company to be the beneficial owner of more than five per cent of
its outstanding shares of Common Stock, each director and all executive officers
and directors as a group. Except as otherwise indicated, each of the
shareholders has sole voting and investment power with respect to the shares of
Common Stock beneficially owned.
31
<PAGE>
Security Ownership of Certain Beneficial Owners
The following shareholding information relates to any person
or group who is known to be the beneficial owner of more than five percent of
any class of the registrant's voting securities:
- - - ----------------------------------------------------------------------------
Title Name and Address Amount and Nature Percent of
of Class of Beneficial Owner of Beneficial Owner Class
- - - ----------------------------------------------------------------------------
Common Cedric Colnot(1) 5,601,543 26.05%
17 rue Jean-Jacques Rousseau
94200 Ivry sur Seine
- - - ----------------------------------------------------------------------------
Common Patrick Misko(1) 5,040,393 23.44%
538 avenue de l'Hautil
78955 Carrieres sous Poissy
- - - ----------------------------------------------------------------------------
Common Alain Duffas(1) 1,126,600 5.24%
18 rue Auguste Demmler
92340 Bourg La Reine
- - - ----------------------------------------------------------------------------
Common Meadlight TMO(1) 3,440,000 16.00%
23/25, avenue Mac Mahon
75017 Paris
- - - ----------------------------------------------------------------------------
All Executive Officers, Directors 10,641,936 49.49%
- - - ----------------------------------
(1) Based upon 21,500,000 shares of the Company's Common Stock issued and
outstanding as of December 31, 1999.
Item 12. Certain Relationships and Related Transactions.
At the current time, the Company has no provision to issue any
additional securities to management, promoters or their respective affiliates or
associates. At such time as the Board of Directors adopts an employee stock
option or pension plan, any issuance would be in accordance with the terms
thereof and proper approval. Although the Company has a very large amount of
authorized but unissued Common Stock and Preferred Stock which may be issued
without further shareholder approval or notice, the Company intends to reserve
such stock for the Rule 506 offerings contemplated to implement continued
expansion, for acquisitions and for properly approved employee compensation at
such time as such plan is adopted. (See Part I, Item 1. "Description of Business
- - - - (b) Business of Registrant.")
In conjunction with the acquisition by the Company of ELVA,SA, it
assumed responsibility for repayment of a loan to a third party, Meadlight TMO,
a French company. A condition of the above acquisition entailed the issuance of
3,440,000 shares of the Company's shares of common stock in settlement of a
$204,550 loan made to ELVA,SA. In March, May and September 1999, ELVA, SA, now a
32
<PAGE>
subsidiary of the Company, received additional traunches of this loan from the
now related party in the total amount of approximately $500,000 US dollars. This
additional loan is payable in full on January 1, 2002 and the Company can, at
its option. prepay all or part of this amount without penalty.(See: Part F/S -
Note 5 - Notes to Consolidated Financial Statements -F-8)
Item 13. Exhibits and Reports on Form 8-K.
(a) The exhibits required to be filed herewith by Item 601 of Regulation
S-B, as described in the following index of exhibits, are incorporated herein by
reference, as follows:
Exhibit No. Description
- - - -------------------------------------------------------------------------------
Item 1. Index to Exhibits
- - - --------- -----------------------
3(i).1 Articles of Incorporation of ELVA, INC. f/k/a/ Computer Research
Technology, Inc., effective August 15, 1997 (1)
3(i).1 Amended Articles of Incorporation of ELVA, INC. f/k/a/ Computer
Research Technology, Inc., filed January 29, 1999. (1)
3(ii).1 Bylaws of ELVA, INC. f/k/a/ Computer Research Technology, Inc (1)
10.1 Letter of Intent dated December 19, 1998 between Computer Research
Technologies, Inc. and ELVA,SA. (1)
27.1* Financial Data Schedule
- - - --------------
* filed herewith
(1) Incorporated herein by reference to the Registration Statement on Form
10-SB Amendment 1 of ELVA , Inc., filed with the U.S. Securities and
Exchange Commission.
(b) No Reports on Form 8-K were filed during the fiscal year ended December 31,
1999, covered by this Annual Report on Form 10-KSB.
33
<PAGE>
SIGNATURES
-------------------
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ELVA, INC.
(Registrant)
Date: 14th April, 2000 /s/ Cedric Colnot
---------------------
Cedric Colnot, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: Signature Title
- - - ------ ------------ -----
14 April, 2000 By: /s/ Cedric Colnot
--------------------------
Cedric Colnot President & Director
14 April, 2000 By: /s/ Patrick Misko
--------------------------
Patrick Misko Vice-President & Director
34
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