U. S. Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-SB
ELVA, INC.
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(Name of Registrant in its charter)
Florida 65-0790761
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(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)
Issuer's telephone number: (561) 659-6530
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class to be registered
None None
- ---------------------------------- ---------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
------------------------------------------
(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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TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Management's Discussion and Analysis or Plan of Operation.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners and Management.
Item 5 Directors, Executive Officers, Promoters and Control Persons.
Family Relationships
Business Experience
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Item 6 Executive Compensation.
Compensation of Directors
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
Preferred Stock
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
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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 Issuer". 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.
The Company is filing this Form 10-SB on a voluntary basis so that the
public will have access to the required periodic reports on the Company's
current status and financial condition. The Company will continue to voluntarily
file periodic reports in the Event its obligation to file such reports is not
required under the Securities and Exchange Act of 1934 (the "Exchange Act").
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
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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 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-8)
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.
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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
Issuer").
See (b) "Business of Issuer" immediately below for a description of the
Company's proposed business.
(b) Business of Issuer.
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).
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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.
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 multireading 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
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Three VocaliD(R) features
1. Online multi-access
2. Multi-application
3. Security
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.
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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.
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.
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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.
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 understanding 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.
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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.
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 theater 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.
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BUSINESS STRATEGY
During the year ended December 31, 1998 and the nine months ended September
30, 1999, the Company had revenues of $ 297,000 and $ 271,000 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.
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).
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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
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
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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
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.
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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 theater, festivals etc...
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 and 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 portable 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)
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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
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
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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
several technological sectors such as telecommunications (See Part I, Item 1.
"Description of Business," (b) "Business of Issuer - 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 Issuer", 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.")
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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
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
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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 nine months ended September 30, 1999, and the
year ended December 31, 1998, we had total revenues of $271,000 and $297,000,
respectively. We have generated limited revenues to date. Substantial increases
in our revenues is dependent upon market acceptance of our smart card products
and systems. We incurred significant losses in each period of our operating
history resulting in an accumulated deficit at September 30, 1999 of $900,000.
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
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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
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.
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.
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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
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,
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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.
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
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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.
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
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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.
COMPETITIVE ENVIRONMENT
The market for the Company's products and services is characterized by
rapidly changing technology, evolving industry standards and frequent
introduction of new products and services. The Company's success will partially
depend upon its ability to enhance its existing products and services and to
introduce new competitive products and services with features that meet changing
consumer requirements. In addition, there can be no assurance that services or
technologies developed by one or more of the Company's present or potential
competitors could not render obsolete both present and future products and
services of the Company.
There also can be no assurance that the Company's services will receive or
maintain substantial market acceptance. Changes in customer preferences could
adversely affect levels of market acceptance of the Company's products and
services and the Company's operating results.
The market that the Company operates in is characterized by competition
from new entrants, as well as competition by established participants. Although
the Company believes that it will be able to establish and maintain a sizable
market niche, there can be no assurance that a competitor with greater financial
and human resources than the Company will not enter the Company's market with
products and services similar or identical to those of the Company.
The Company's ability to compete successfully will depend in large part on
its ability to protect any proprietary technology it may develop. The Company
currently has several patents with respect to its product or service designs or
processes, and will moreover attempt to protect its technology by limiting the
people with knowledge of its specifications to those with a need to know and by
having such persons execute confidentiality agreements. The Company will also
rely, to the extent possible, on trade secret law to protect its intellectual
property. There can be no assurance, however, that any intellectual property
protection or trade secret protection will be sufficient to protect the Company
and its business from others seeking to copy or appropriate the Company's
proprietary information.
To establish, maintain or increase the Company's market share position in
the VocaliD(R) smart card industry, we will continually need to enhance our
current product offerings, introduce new product features and enhancements, and
expand our professional service capabilities. We currently compete principally
on the basis of the specialized nature of our technology and ability to
expeditiously install and implement a VocaliD(R) smart card system. Our product
features and functions facilitate integration with a wide range of operating
systems and platforms to insure product quality, ease of use and reliability.
The Company believes it competes favorably in all of these areas.
Our competitors vary in size and in the scope and breadth of the products
and services offered. We may encounter competition from a number of sources,
including 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. We compete against numerous, smaller, privately-held
companies with fewer resources based on breadth of product features and
functionality, as well as larger, publicly-held companies with greater resources
and having greater product and market diversification.
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Nevertheless, most of those competitors may become partners and/or ELVA's
licensees and then, they could as well be considered as ELVA's leverages. This
would be due to the high potential of VocaliD(R) that might help smart card
industrialists to enter US market for instance (which they could not do so far),
thanks to an online/readerless positioning.
Many of our current and potential competitors, both privately-held and
publicly-held, have greater financial, technical, marketing and distribution
resources than ours. As a result, they may be able to respond more quickly to
new or emerging technologies, including and changes in customer requirements or
to devote greater resources to the development and distribution of their
products, maybe including VocaliD(R). In addition, because there are relatively
low barriers to entry in the software marketplace, we expect additional
competition from other established or emerging companies as the VocaliD(R) smart
card market continues to expand. Increased competition is likely to result in
pricing pressures, reduced gross margins and loss of market share, any of which
could materially adversely affect our business, financial condition and results
of operations. We also expect that competition will increase as a result of
software industry consolidations. There can be no assurance that we will be able
to compete successfully against current and future competitors or that
competitive pressures we encounter will not materially adversely affect our
business, financial condition and results of operations.
Dependence on Key Customers and Suppliers
The Company is currently dependent upon a limited number of customers, the
loss of whom would have an adverse material impact on operations. [See: Part I.
Item 1. Description of Business - (a) Development Business Strategy Elva's
customers]
Government Regulation
The Company's operations are subject to various federal, state and local
requirements which affect businesses generally, such as taxes, postal
regulations, labor laws, and environment and zoning regulations and ordinances.
Although certain aspects of our services may be subject to Regulation E
promulgated by the Federal Reserve Board, we believe that most of our services
are not subject to Regulation E. Regulation E governs certain electronic funds
transfers made by regulated financial institutions and providers of access
devices and electronic fund transfer systems. Regulation E requires written
receipt for transactions, monthly statements, pre-transaction disclosures and
error resolution procedures. There can be no assurance that the Federal Reserve
Board will not require all of our services to comply with Regulation E, or
revise Regulation E, or adopt new rules and regulations for electronic funds
transfers that could result in an increase in our operating costs, reduce the
convenience and functionality of our services and products, possibly resulting
in reduced market acceptance which would have a material adverse effect on our
business, financial condition or operating results.
We believe that current state and federal regulations concerning electronic
commerce do not apply to our current product line. However, there is a move
towards taxation of Internet use by several states including the State of
Washington. There are some strategic plans under consideration to conduct
commerce on the Internet using our core technology. We have an ongoing
regulatory compliance program pertaining to transactions utilizing smart card
technology and subscribe to industry watch publications that address regulatory
issues.
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Research and Development
The Company continues to make investments in research and development to
continue to development of our smart card technology. Currently the dynamic
nature of the VocaliD(R) smart card technology industry places large research
and development demands on businesses that desire to remain competitive.
Competing with larger firms with substantially greater capital resources, we
have devoted significant portions of available resources to remain abreast of
industry developments and to offer competitive products and services. As of
September 30, 1999, our product development staff consisted of 6 employees
located in France. Our total expenses for product development, deployment and
other operating expenses during 1997, 1998 and the nine months ended September
30, 1999, were$232,000, $34,000 and $ 0 respectively. We anticipate that we will
continue to commit substantial resources to product development in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Reports to Security Holders
The Company will send out audited annual reports to its shareholders if
required by applicable law. Until such time, the Company does not foresee
sending out such reports.
The Company will make certain filings with the SEC as needed, and any
filings the Company makes to the SEC are available and the public may read and
copy any materials the Company files with SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W. Washington, D.C. 20549. The public may also obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC at (http://www.sec.gov).
Item 2. 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
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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
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 - Full Fiscal Years: 1997 & 1998
Financial Condition, Capital Resources and Liquidity
At December 31, 1998, the Company had assets on a consolidated audited
basis totaling $824,500 and liabilities of $ 479,000. 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 $220,000 and $297,000 for the years
ended December 31, 1997 and 1998 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. During 1997, the majority of salary expense was allocated to research and
development, as the employees of the Company were expending the majority of
their time on research and development. In 1998, 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 $132,000 and $231,000 for the years
ended December 31, 1997 and 1998, respectively. The increase of $144,000 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
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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
$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.")
Results of Operations -For the Nine Months Ending September 30, 1999 and 1998
Financial Condition, Capital Resources and Liquidity
For the nine(9) months ended September 30, 1998 and 1999, the Company, had
on a consolidated unaudited basis, general and administrative expenses of
$146,000 and $502,000, respectively. The increase of $365,519 is due primarily
to the shift of the Company's focus from research and development of its product
to researching marketing aspects as well as beginning to market its product.(
See: Part F/S - Consolidated Financial Statements -F- 4)
For the nine(9) months ended September 30, 1998 and 1999, the Company had,
on a consolidated unaudited basis, total operating expenses of $334,000 and
$967,000 of which $618,000 is attributable to an increase in general and
administrative expenses and salaries. Salaries increased because the Company
hired additional staff to assist in the transition from research and development
to marketing its product, which occurred in 1999. The Company hopes to resume
improvements in the existing product and migrating the technology for other
uses. Other income in the nine months ended September 30, 1999, was composed of
the recognition of a quasi-governmental agency award for the development of the
Company's technology. The Company has no unused credit facilities at September
30, 1999.(See: PART F/S - Unaudited Consolidated Statements of Operations -
F-4).
Net Losses
For the nine(9) months ended September 30, 1998 and 1999, the Company
reported a net loss from operations of $132,000 and$696,000 respectively. (See:
PART F/S - Statement of Loss - F-3).
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
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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 September 30, 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.
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.
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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-SB 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 this
Form 10-SB 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-SB 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 3. 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
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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 4. Security Ownership of Certain Beneficial Owners and Management.
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 issuer's voting securities:
- -------------------------------------------------------------------------------
Title of Name and Address Amount and Nature Percent of
Class of Beneficial Owner of Beneficial Owner Class
- -------------------------------------------------------------------------------
Common Stock Cedric Colnot(1) 5,601,543 26.05%
17 rue Jean-Jacques Rousseau
94200 Ivry sur Seine
- -------------------------------------------------------------------------------
Common Stock Patrick Misko(1) 5,040,393 23.44%
538 avenue de l'Hautil
78955 Carrieres sous Poissy
- -------------------------------------------------------------------------------
Common Stock Alain Duffas(1) 1,126,600 5.24%
18 rue Auguste Demmler
92340 Bourg La Reine
- -------------------------------------------------------------------------------
Common Stock Meadlight TMO(1) 3,440,000 16.00%
23/25, avenue Mac Mahon
75017 Paris
- -------------------------------------------------------------------------------
All Executive Officers, Directors 10,641,93 49.49%
- ----------------------------------
(1) Based upon 21,500,000 shares of the Company's Common Stock issued and
outstanding as of October 14, 1999.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
DIRECTORS AND EXECUTIVE OFFICERS
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.
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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 up to the third quarter ended September 30, 1999.
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",
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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.
Item 6. 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.
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 Issuer.")
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
32
<PAGE>
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 8. Description of Securities.
The Company is authorized to issue 50,000,000 shares of Common Stock,
$0.0001 par value. The issued and outstanding shares of Common Stock being
registered hereby are validly issued, fully paid and non-assessable. The holders
of outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the Board
of Directors may from time to time determine.
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, have one vote per share in all matters to be voted upon
by the stockholders. A majority vote is required on all corporate action.
Cumulative voting in the election of directors is not allowed, which means that
the holders of more than 50% of the outstanding shares can elect all the
directors as they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any directors. The shares of Common
Stock have no preemptive, subscription, conversion or redemption rights and can
only be issued as fully paid and non-assessable shares. Upon liquidation,
dissolution or winding-up of the Company, the holders of Common Stock are
entitled to receive a pro rata of the assets of the Company which are legally
available for distribution to stockholders.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of Preferred Stock,
$0.0001 par value. Currently there are no issued and outstanding preferred
shares of the Company.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Market Information
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
33
<PAGE>
Shareholders
The approximate number of holders of record of common equity is 45 as of
January 2000.
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 2. 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 3. Changes in and Disagreements with Accountants.
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.
Item 4. Recent Sales of Unregistered Securities.
In April 1997, the Company issued 9,000,000 shares of Common Stock, $0.0001
par value per shares 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."
34
<PAGE>
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 17,200,000 Rule 144 restricted shares of
the Company be issued to the shareholders of ELVA, SA in exchange for all but
26,326 shares (representing 99% of the outstanding stock) of ELVA, SA stock
which is required by French law to be owned by French citizens of the issued and
outstanding shares of stock in ELVA SA. 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. 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. Lastly, in accordance
with the terms of the Company's Letter of Intent, it repurchased for $32,500.00
in cash previously paid 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".
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.
The facts relied upon the by the Company to make the federal exemption
available include the following: (i) the aggregate offering price for the
offering of the shares of Common Stock did not exceed $1,000,000, less the
aggregate offering price for all securities sold within the twelve months before
the start of and during the offering of the shares in reliance on any exemption
under Section 3(b) of, or in violation of Section 5(a) of, the Act; (ii) no
general solicitation or advertising was conducted by the Company in connection
with the offering of any of the shares; (iii) the fact that the Company has not
been since its inception (a) subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended; (b) an "investment
Company" within the meaning of the Investment Company Act of 1940, as amended;
or (c) a development stage Company that either has no specific business plan or
purpose or has indicated that its business plan is to engage in a merger or
acquisition with an unidentified company or companies, or other entity or
person; and (iv) the required number of manually executed originals and true
copies of Form D were duly and timely filed with the U.S. Securities and
Exchange Commission.
The facts relied upon to make the Georgia Exemption available include the
following: (i) the aggregate number of persons purchasing the Company's stock
during the 12 month period ending on the date of issuance did not exceed fifteen
35
<PAGE>
(15) persons; (ii) neither the offer nor the sale of any of the shares was
accomplished by a public solicitation or advertisement; (iii) each certificate
contains a legend stating "These securities have been issued or sold in reliance
of paragraph (13) of Code Section 10-5-9 of the Georgia Securities Act of 1973
and may not be sold or transferred except in a transaction which is exempt under
such act or pursuant to an effective registration under such act"; and (iv) each
purchaser executed a statement to the effect that the securities purchased have
been purchased for investment purposes. Offerings made pursuant to this section
of the Georgia Securities Act have no requirement for an offering memorandum or
disclosure document.
The facts relied upon to make the Florida exemption available include the
following: (i) sales of the shares of Common Stock were not made to more than 35
persons; (ii) neither the offer nor the sale of any of the shares was
accomplished by the publication of any advertisement; (iii) all purchasers
either had a preexisting personal or business relationship with one or more of
the executive officers of ELVA or, by reason of their business or financial
experience, could be reasonably assumed to have the capacity to protect their
own interests in connection with the transaction; (iv) each purchaser
represented that he was purchasing for his own account and not with a view to or
for sale in connection with any distribution of the shares; and (v) prior to
sale, each purchaser had reasonable access to or was furnished all material
books and records of the Company, all material contracts and documents relating
to the proposed transaction, and had an opportunity to question the executive
officers of the Company. Pursuant to Rule 3E-500.005, in offerings made under
Section 517.061(11) of the Florida Statutes, an offering memorandum is not
required; however each purchaser (or his representative) must be provided with
or given reasonable access to full and fair disclosure of material information.
An issuer is deemed to be satisfied if such purchaser or his representative has
been given access to all material books and records of the issuer; all material
contracts and documents relating to the proposed transaction; and an opportunity
to question the appropriate executive officer. In the regard, the appropriate
executive officer of the Company supplied such information and was available for
such questioning.
Item 5. Indemnification of Directors and Officers.
Article XI of the Company's Articles of Incorporation contains provisions
providing for the indemnification of directors and officers of the Company as
follows:
(a) The corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is otherwise serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, has no reasonable cause to believe his conduct is unlawful. The
termination of any action, suit or proceeding, by judgment, order, settlement,
conviction upon a plea of nolo contendere or its equivalent, shall not of itself
create a presumption that the person did not act in good faith in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe the action was unlawful.
36
<PAGE>
(b) The corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action or
suit by or in the right of the corporation, to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in, or not, opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation, unless, and only to the extent that, the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability, but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
which such court deems proper.
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections (a) and (b) of this Article,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith.
(d) Any indemnification under Section (a) or (b) of this Article (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the officer, director
and employee or agent is proper in the circumstances, because he has met the
applicable standard of conduct set forth in Section (a) or (b) of this Article.
Such determination shall be made (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (ii) if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote and represented at a meeting
called for purpose.
(e) Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition or such action, suit or proceeding, as authorized in
Section (d) of this Article, upon receipt of an understanding by or on behalf of
the director, officer, employee or agent to repay such amount, unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article.
(f) The Board of Directors may exercise the corporation's power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under this Article.
(g) The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under these Amended Articles of Incorporation, the Bylaws, agreements,
vote of the shareholders or disinterested directors, or otherwise, both as to
action in his official capacity and as to action in another capacity while
37
<PAGE>
holding such office and shall continue as to person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the heirs
and personal representative of such a person.
The Company has no agreements with any of its directors or executive
offices providing for indemnification of any such persons with respect to
liability arising out of their capacity or status as officers and directors.
At present, there is no pending litigation or proceeding involving a
director or executive officer of the Company as to which indemnification is
being sought.
PART F/S
The Financial Statements of ELVA required by Item 310 of Regulation SB
commence on page F-1 hereof in response to Part F/S of this Registration
Statement on Form 10-SB and are incorporated herein by this reference.
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
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Elva, Inc.
West Palm Beach, Florida
We have audited the accompanying consolidated balance sheet of Elva, Inc., (the
"Company") as of December 31, 1998 and the related consolidated statements of
operations and comprehensive income(loss), stockholders' equity and cash flows
for the years ended December 31, 1998 and 1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and the results of their operations and their cash flows for
the years ended December 31, 1998 and 1997, 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
October 26, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
Elva, Inc.
Consolidated Balance Sheets
December 31, 1998 September 30, 1999
------------------- ------------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 293,604 $ 110,276
Accounts receivable 60,398 57,110
VAT tax receivable 133,087 89,864
------------------- ------------------
Total current assets 487,089 $ 257,250
------------------- ------------------
PROPERTY AND EQUIPMENT
Computers and equipment 26,168 73,701
-
Less accumulated depreciation (15,736) (17,402)
------------------- ------------------
Net property and equipment 10,432 56,299
------------------- ------------------
OTHER ASSETS
Deposits and other assets 10,976 17,159
Patent 349,099 329,202
Less accumulated amortization (33,065) (41,826)
------------------- ------------------
Net other assets 327,010 304,535
------------------- ------------------
Total Assets $ 824,531 $ 618,084
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 40,370 $ 52,901
Accrued Expenses
Trade 72,090 98,606
Payroll taxes 36,497 94,179
Current portion of long-term debt 3,557 0
Advances from shareholder 11,563 7,067
Conditional government subsidy 100,246 72,000
Note payable - Supplier 0 1,199
Total current liabilities 264,323 325,952
------------------- ------------------
LONG-TERM DEBT
Conditional government subsidy 200,246 144,474
Other long-term debt 14,230 12,895
Long-term debt - related party 0 523,852
------------------- ------------------
Total long-term debt 214,476 681,221
------------------- ------------------
Total Liabilities 478,799 1,007,173
------------------- ------------------
Minority interest in consolidated subsidiary 136 0
------------------- ------------------
STOCKHOLDERS' EQUITY/(DEFICIENCY)
Preferred stock, $0.0001 par value, authorized 10,000,000 shares; 0
issued and outstanding at December 31, 1998 and September 30, 1999 0 0
Common stock, $0.0001 par value, authorized 50,000,000 shares;
21,500,000 shares issued and outstanding at
December 31, 1998 and September 30, 1999 2,150 2,150
Additional paid-in capital 828,265 828,401
Accumulated comprehensive income(loss) (52,103) (117,766)
Deficit (432,470) (1,101,874)
------------------- ------------------
Total stockholders' equity/(deficiency) 345,842 (389,089)
------------------- ------------------
Total Liabilities and Stockholders' Equity/(Deficiency) $ 824,531 $ 618,084
=================== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
Elva, Inc.
Consolidated Statements of Operations
Year Ended Nine Months Ended
December 31, September 30,
------------------------------------- ---------------------------------------
1997 1998 1998 1999
---------------- ---------------- ----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 220,311 $ 297,153 $ 202,299 $ 271,223
---------------- ---------------- ----------------- -----------------
OPERATING EXPENSES
Salaries 15,719 206,541 126,592 388,292
Advertising 215 32,723 11,158 60,333
Depreciation and amortization 23,078 22,499 17,034 15,939
General and administrative 91,478 234,873 148,867 531,376
Research and development 231,790 33,819 33,819 0
---------------- ---------------- ----------------- -----------------
Total operating expenses 362,280 530,455 337,470 995,940
---------------- ---------------- ----------------- -----------------
Operating Loss (141,969) (233,302) (135,171) (724,717)
---------------- ---------------- ----------------- -----------------
OTHER INCOME AND EXPENSE
Other income 6,544 6,587 0 53,252
Interest income 1,481 1,643 1,614 404
Interest expense (6) (233) (60) (1,609)
Foreign currency transaction gain (loss) 1,644 (5,604) (3,835) 3,266
---------------- ---------------- ----------------- -----------------
Total other income and expense 9,663 2,393 (2,281) 55,313
---------------- ---------------- ----------------- -----------------
Net loss (132,306) (230,909) (139,733) (669,404)
Other comprehensive income(loss):
Foreign currency translation gain(loss) (49,828) (2,275) 0 (65,663)
---------------- ---------------- ----------------- -----------------
$ (182,134) $ (233,184) $ (139,733) $ (735,067)
================ ================ ================= =================
Net loss per common share $ (0.01) $ (0.01) $ (0.01) $ (0.03)
================ ================ ================= =================
Weighted average number of common
shares outstanding 14,160,000 21,500,000 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
Additional Comprehensive Stockholders'
Number of Common Paid-in Income Equity
Shares Stock Capital (Loss) Deficit (Deficiency)
------------- --------------- ---------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE, January 1, 1997 20,000 $ 400,882 $ 0 $ 0 $ (69,255)$ 331,627
Year ended December 31, 1997:
Sale of common stock for cash 6,336 110,435 49,236 0 0 159,671
Other comprehensive income(loss) 0 0 0 (49,828) 0 (49,828)
Net loss 0 0 0 0 (132,306) (132,306)
------------- --------------- ---------------- --------------- ------------- ------------
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 (2,275) 0 (2,275)
Net loss 0 0 0 0 (230,909) (230,909)
------------- --------------- ---------------- --------------- ------------- ------------
BALANCE, December 31, 1998 21,500,000 2,150 828,401 (52,103) (432,470) 345,978
Nine months ended
September 30, 1999 (unaudited):
Other comprehensive income(loss) 0 0 0 (65,663) 0 (65,663)
Net loss 0 0 0 0 (669,404) (669,404)
------------- --------------- ---------------- --------------- ------------- ------------
BALANCE, September 30,1999(unaudited) 21,500,000 $ 2,150 $ 828,401 $ (117,766)$ (1,101,874)$ (389,089)
============= =============== ================ =============== ============= ============
</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 Nine Months Ended
December 31, September 30,
-------------------------------------- ----------------------------------
1997 1998 1998 1999
----------------- ---------------- ---------------- -------------
(unaudited) unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (132,306) $ (230,909) $ (135,856) $ (669,404)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 7,580 5,332 2,960 1,666
Amortization 15,497 17,166 14,074 8,761
Amortization of conditional government subsidy 0 0 0 (83,772)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (38,110) (22,288) (15,248) 3,288
(Increase) decrease in VAT receivable (7,416) (125,671) (7,658) 43,223
(Increase) decrease in deposits and other assets 3,249 (4,030) (5,324) (6,183)
Increase (decrease) in accounts payable (1,541) 38,802 26,690 12,531
Increase (decrease) accrued expense - trade 1,037 55,140 18,926 26,516
Increase (decrease) payroll taxes 72,898 14,981 8,470 57,682
(Increase) decrease foreign currency (102,788) 8,059 10,334 (65,663)
translation gain (loss) ----------------- ---------------- --------------- -------------
Net cash provided (used) by operating activities (181,900) (243,418) (82,632) (673,713)
----------------- ---------------- --------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
(Purchase) maturity investments (90,724) 90,724 (3,104) 0
Purchase of property and equipment (3,570) (11,850) (6,265) (47,533)
(Increase expenditure) decrease application patent 19,310 (55,988) (44,171) 19,897
----------------- ---------------- --------------- -------------
Net cash provided (used) by investing activities (74,984) 22,886 (53,540) (27,636)
----------------- ---------------- --------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Shareholder advances 0 11,443 1,830 0
Shareholder advance repayments (820) 0 0 (4,896)
Receipt of conditional government subsidy 53,183 170,682 133,033 0
Increase long-term debt 16,700 1,087 1,105 522,517
Increase Note payable - supplier 0 0 0 1,199
Issuance of common stock for cash 218,930 272,650 27,214 0
----------------- ---------------- --------------- -------------
Net cash provided by financing activities 287,993 455,862 163,182 518,021
----------------- ---------------- --------------- -------------
Net increase (decrease) in cash and equivalents 31,109 235,330 27,010 (183,328)
CASH and equivalents, beginning of period 27,165 58,274 58,274 293,604
----------------- ---------------- --------------- -------------
CASH and equivalents, end of period $ 58,274 $ 293,604 $ 85,284 $ 110,276
================= ================ =============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Non-Cash Financing Activities:
Common stock issued to settle long-term debt $ 0 $ 204,550 $ 0 $ 0
================= ================ =============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
Elva, Inc.
Notes to Consolidated Financial Statements
(Information with respect to the nine months ended
September 30, 1998 and 1999 is unaudited)
(1) Summary of Significant Accounting Principles
The Company Elva, Inc., (the "Company"), is a Florida chartered
corporation which conducts business from its offices in West Palm
Beach, Florida and Paris, France. 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, S.A. 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, S.A., a
French corporation, in a reverse merger, which was accounted for as
a reorganization of ELVA, S.A. 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 $7,676, $6,740, $2,479 and $1,666
for the periods ended December 31, 1997 and 1998 and September 30,
1998 and 1999, 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, No.s 95-15735
and 96-01872, from the founders of ELVA, S.A. 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 $14,656, $18,409, $14,656 and $8,761 for the periods ended
December 31, 1997 and 1998 and September 30, 1998 and 1999,
respectively.
h) Interim financial information The financial statements for the
nine months ended September 30, 1999 and 1998 are unaudited and
include all adjustments which in the opinion of management are
necessary for fair presentation, and such adjustments are of a
normal and recurring nature. The results for the nine months are not
indicative of a full year results.
i) 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
F-7
<PAGE>
Elva, Inc.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Principles, continued
i) Revenue recognition, continued 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.
j) 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.
k) Research & development Research & development expenses are
expensed in the period incurred.
l) Software development costs The software developed by the Company
exclusively for use 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.
m) 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 $1,102,000, which expire $69,000 on December 31, 2011,
$132,000 on December 31, 2117, $232,000 on December 31, 2118 and
$669,000 on December 31, 2119.
The amount recorded as a deferred tax asset, cumulative as of
December 31, 1998 and September 30, 1999,
F-8
<PAGE>
Elva, Inc.
Notes to Consolidated Financial Statements
(3) Income Taxes, continued is approximately $173,000 and $440,800,
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 $173,000 and $440,800 as
the Company has no history of profitable operations.
The significant components net deferred tax asset as of December 31,
1998, are:
Net operating losses $ 173,000
-----------
Total 173,000
Valuation allowance (173,000)
-----------
Net deferred tax asset $ 0
===========
(4) Going Concern As shown in the accompanying consolidated financial
statements, the Company incurred net losses totaling $231,000 for
the year ended December 31, 1998 and $669,000 for the nine months
ended September 30, 1999 and reflects a stockholders' deficiency of
approximately $389,000 as of September 30, 1999, (unaudited). 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, No.s 95-15735
and 96-01872, from the founders of ELVA, S.A. 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, S.A. 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 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
$5,000 and $4,000 in 1999 and 2000. The Company is obligated under
the lease for its office space for payments of $33,000, $33,000 and
$16,600 in 1999, 2000 and 2001, respectively. The Company can, at
its option, elect to extend this lease
F-9
<PAGE>
Elva, Inc.
Notes to Consolidated Financial Statements
(6) Commitments, continued for up to two additional three-year periods.
The Company's rent expense was approximately $13,000 and
approximately $25,000 for the years ended December 31, 1997 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
$23,000 and approximately $35,000 of the grants against salary
expense for years ending December 31, 1997 and 1998, respectively.
F-10
<PAGE>
Part III
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
3(i).1 Amended Articles of Incorporation of ELVA, INC. f/k/a/ Computer
Research Technology, Inc., filed January 29, 1999.
3(ii).1 Bylaws of ELVA, INC. f/k/a/ Computer Research Technology, Inc
10.1 Letter of Intent dated December 19, 1998 between Computer Research
Technologies, Inc. and ELVA,SA.
27.1* Financial Data Schedule
- --------------
* filed herewith
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: 23 March 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
- ------------ ------------ ------
23 March 2000 By: /s/ Cedric Colnot
-------------------------
Cedric Colnot President & Director
23 March 2000 By: /s/ Patrick Misko
-------------------------
Patrick Misko Vice-President & Director
<TABLE> <S> <C>
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<NAME> ELVA, INC.
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<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
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0
0
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</TABLE>
