Attached files
As
filed with the Securities and Exchange Commission on January 29,
2010
Registration
No. 333-________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
(Exact
name of registrant as specified in its charter)
Nevada
|
7379
|
27-1505309
|
(State
or other jurisdiction of
|
(Primary
SIC Number)
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
#1564-1,
Seojin Bldg., 3rd
Floor
Seocho3-Dong
Seocho-Gu,
Seoul, Korea 137-874
(011)
82-2-3471-9340
(Address,
including zip code, and telephone number, including area code, of principal
executive offices)
Resident
Agency Incorporated
377
S. Nevada Street
Carson
City, Nevada 89703
(775)
882-7549
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
With
a copy to:
Richard
C. Fox, Esq.
Fox
Law Offices, P.A.
c/o
131 Court Street, # 11
Exeter,
NH 03833
(603)
778-9910
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated filer o (Do not check if a smaller reporting company)
|
Smaller reporting company x
|
CALCULATION OF REGISTRATION FEE
Title of Class of Securities to be Registered
|
Amount to be
Registered (1)
|
Proposed
Maximum
Aggregate
Price Per Share
|
Proposed
Maximum
Aggregate
Offering Price
|
Amount of
Registration Fee
|
||||||||||||
Common
Stock, $.001 per share (2)
|
17,375,200 | $ | $0.00533 | (3) | $ | 92,609.92 | $ | 6.77 | ||||||||
Total
|
17,375,200 | $ | 92,609.92 | $ | 6.77 |
(1) In the event of a stock
split, stock dividend or similar transaction involving our common stock, the
number of shares registered shall automatically be increased to cover the
additional shares of common stock issuable pursuant to Rule 416 under the
Securities Act of 1933, as amended.
(2) Represents shares of
common stock currently outstanding to be sold by the selling security
holders.
(3) The offering price has
been estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(o). Our common stock is not
currently trading on any national exchange. Therefore, in
accordance with Rule 457, the offering price of $0.00533 was determined by the
price shares of common stock that we sold in a Regulation S offering that was
entered into between September 2009 and January 2010. The price of $0.00533
is a fixed price at which the selling security holders may sell their shares
until our common stock is quoted on the OTC Bulletin Board at which time the
shares may be sold at prevailing market prices or privately negotiated
prices.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
The information in this prospectus is not complete and may be
changed. The selling stockholders named in this prospectus may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and the selling stockholders are not soliciting offers
to buy these securities in any state where the offer or sale is not
permitted.
Subject To Completion, Dated January 29, 2010
|
|
PROSPECTUS
|
Clavis
Technologies International Co., Ltd.
17,375,200
shares of Common Stock
This
prospectus covers the offer and sale of up to 17,375,200 shares of our common
stock from time to time by the selling security holders named in this
prospectus. The shares of common stock covered by this prospectus are
shares that are held, beneficially and of record, by the selling security
holders. We are not offering any shares of common
stock. The selling
security holders
will receive all of the net proceeds from sales of the common stock covered by
this prospectus.
Our
common stock is presently not traded on any national market or securities
exchange or in the over-the-counter market. The sales price to the
public of the shares of our common stock offered by the selling security holders
under this prospectus is fixed at $0.00533 per share until such time as our
common stock is quoted on the Over-The-Counter (OTC) Bulletin Board. Although we
intend to request a registered broker-dealer to apply with the Financial
Industry Regulatory Authority to have our common stock eligible for quotation on
the OTC Bulletin Board, public trading of our common stock may never materialize
or, even if materialized, trading may not be sustained. If our common stock is
quoted on the OTC Bulletin Board, then the sale price to the public will vary
according to prevailing market prices or privately negotiated prices by the
selling security holders. To the best of our knowledge, none of the
selling security holders are broker-dealers, underwriters or affiliates
thereof.
As of
January 28, 2010, we had 62,375,200 shares of common stock issued and
outstanding.
INVESTING
IN OUR SECURITIES IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK AND SHOULD
BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. PLEASE REFER TO “RISK FACTORS” BEGINNING ON PAGE
5.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Our
offices are located at #1564-1, Seojin Bldg., 3rd Fl., Seocho3-Dong, Seocho-Gu,
Seoul, Korea 137-874. Our telephone number is (011)
82-2-3471-9340. Our website can be found at
www.clavistech.com.
The date
of the prospectus is , 2010.
TABLE
OF CONTENTS
About
This Prospectus
|
3
|
Prospectus
Summary
|
4
|
Special
Note Regarding Forward-Looking Statements
|
4
|
Risk
Factors
|
5
|
Use
of Proceeds
|
10
|
Selling
Security Holders
|
10
|
Plan
of Distribution
|
14
|
Description
of Securities
|
16
|
Interest
of Named Experts and Counsel
|
16
|
Description
of Business
|
17
|
Description
of Property
|
39
|
Legal
Proceedings
|
39
|
Market
for Common Equity and Related Stockholder Matters
|
39
|
Where
You Can Find More Information
|
40
|
Index
Financial Statements
|
41
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
42
|
Quantitative
and Qualitative Disclosure About Market Risk
|
60
|
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure
|
60
|
Directors,
Executive Officers, Promoters and Control Persons
|
60
|
Executive
Compensation
|
62
|
Security
Ownership of Certain Beneficial Owners and Management
|
64
|
Certain
Relationships and Related Transactions
|
65
|
Experts
|
65
|
Disclosure
of Commission Position of Indemnification for Securities Act
Liabilities
|
65
|
2
ABOUT
THIS PROSPECTUS
Unless
the context otherwise requires, all references to “Clavis Technologies
International,” “Clavis Nevada,” “we,” “us,” “our,” “our company,” or “the
Company” in this prospectus refer to Clavis Technologies International Co.,
Ltd., a Nevada corporation, and its sole subsidiary, Clavis Technologies Co.,
Ltd., a corporation organized under the laws of the Republic of Korea, for the
applicable periods, considered as a single enterprise.
All
references to “Clavis Korea”, “Clavis Technologies” or “our subsidiary,” refer
to Clavis Technologies Co., Ltd., a corporation organized under the laws of the
Republic of Korea.
You
should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. For further information,
please see the section of this prospectus entitled “Where You Can Find More
Information.” The selling security holders are not making an offer to
sell these securities in any jurisdiction where the offer or sale is not
permitted.
You
should not assume that the information appearing in this prospectus is accurate
as of any date other than the date on the front cover of this prospectus,
regardless of the time of delivery of this prospectus or any sale of a
security. Our business, financial condition, results of operations
and prospects may have changed since those dates.
3
PROSPECTUS
SUMMARY
This
summary highlights important features of this offering and the information
included in this prospectus. This summary does not contain all of the
information that you should consider before investing in our
securities. You should read this prospectus carefully as it contains
important information you should consider when making your investment
decision. See “Risk Factors” on page 6.
About
Clavis Technologies International Co., Ltd.
On
December 1, 2009, we acquired all of the outstanding shares of common stock of
entered into a with Clavis Technologies Co., Ltd., a corporation organized under
the laws of the Republic of Korea, in an exchange of shares of the Registrant’s
common stock for all of the issued and outstanding shares of Clavis Korea under
Section 368(a)(1)(B) of the Internal Revenue Code (the “Share
Exchange”). We are a Nevada corporation with headquarters at 377 S
Nevada Street, Carson City, Nevada 89703.
Clavis
Technologies, Co. Ltd. was incorporated under the laws of Republic of Korea on
January 28, 2003. Clavis is located in Seoul, Korea, and has been engaged in the
development of EPCglobal Network software. Clavis provides ubiquitous computing
solutions using its proprietary Radio Frequency Identification (“RFID”)
middleware which is based on the Electronic Product Code Network and mobile
financial solutions.
Principal
Executive Offices
Our
principal executive offices are located at #1564-1, Seojin Bldg., 3rd Fl.,
Seocho3-Dong, Seocho-Gu, Seoul, Korea 137-874. Our telephone number
is (011) 82-2-3471-9340 and our fax number is
(011) 82-2-3471-9337. Our website address is www.clavistech.com. The
information on our website is not incorporated by reference into this prospectus
and should not be relied upon with respect to this offering.
The
Offering
Shares
of common stock being registered
|
17,375,200
shares of our common stock offered by selling security
holders
|
Total
shares of common stock outstanding as of the date of this
prospectus
|
62,375,200
|
Total
proceeds raised by us from the disposition of the common stock by the
selling security holders or their transferees
|
We
will not receive any proceeds from the sale of shares by the selling
security holders
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus includes forward-looking statements. All statements other than
statements of historical facts contained in this prospectus, including
statements regarding our future results of operations and financial position,
business strategy and plans and objectives of management for future operations,
the development of the market for our products and the acceptance of our
products in these markets, are forward-looking statements. The words “believe,”
“may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and
similar expressions are intended to identify forward-looking statements. We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy, short-term
and long-term business operations and objectives, and financial needs. These
forward-looking statements are subject to a number of risks, uncertainties and
assumptions, including those described in “Risk Factors.” In light of these
risks, uncertainties and assumptions, the forward-looking events and
circumstances discussed in this prospectus may not occur, and actual results
could differ materially and adversely from those anticipated or implied in the
forward-looking statements.
This
prospectus contains industry data and other statistical information regarding
the RFID industry that we obtained from independent publications, government
publications, press releases, reports by market research firms or other
published independent sources. Although we believe these sources are reliable,
we have not independently verified their data.
4
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information before
deciding to invest in our common stock. The risks described below are not the
only ones facing our company. Additional risks not presently known to us or that
we currently consider immaterial may also adversely affect our business. We have
attempted to identify below the major factors that could cause differences
between actual and planned or expected results, but we cannot assure you that we
have identified all of those factors.
If any of
the following risks actually happen, our business, financial condition and
operating results could be materially adversely affected. In this case, the
trading price of our common stock could decline, and you could lose all or part
of your investment.
Risks
Related to Our Company
We
have a history of losses, and we expect to incur additional losses in the
future. We cannot be certain that we will achieve or sustain
profitability.
We have
never been profitable. We have experienced operating losses in the past, and we
expect to continue to incur additional operating losses in the future. We
incurred a net loss of $181,893 for the nine months ended September 30, 2009
(not including any loss or gain from currency translation) and a net loss of
$367,830 and $554,814 for the years ended December 31, 2008 and 2007,
respectively. As of September 30, 2009, we had an accumulated deficit
of $2,620,016. Our ability to achieve or sustain profitability is based on a
number of factors, many of which are out of our control, including the increase
in the use of RFID products by companies generally, and the demand for our RFID
products, in particular. We may never be able to generate sufficient
revenues or sell a sufficient volume of our software or middleware products to
achieve or sustain profitability on a quarterly or annual basis. We
continue to have significant operating expenses, and we expect to continue to
incur considerable product development and administrative expenses as we attempt
to grow our business. We also expect to continue to incur significant
expenditures in our sales and marketing efforts. This continued
spending will have an adverse impact on our operating results if our revenues do
not grow sufficiently to cover the expenditures. If we fail to manage
our cost structure, we may not achieve or sustain profitability. If
our business does not grow because the use of RFID by companies generally, and
our RFID products in particular, do not materialize, we may not achieve or
sustain profitability.
We
rely on a few customers for a significant portion of our sales. If we were to
lose any one of our major customers, our sales and our operating results would
be adversely affected and our stock price would be negatively
affected.
In 2008,
Asiana IDT and KTNetworks accounted for approximately 76% of our annual sales
and in 2009, Korea Pallet Pool Co and KTNetworks accounted for approximately 70%
of our annual sales. KTNetworks accounted for approximately 30% and
21% of our sales in 2008 and 2009, respectively. In 2010 we expect a
substantial portion of our sales to be from two different
customers. While we do not rely on any one repeat customer for a
substantial portion of our sales (not withstanding KTNetworks), we are dependent
on a few big customers for most of our sales. With the global
recession affecting capital spending by businesses, if we are unable to continue
to get additional or repeat business from a few big customers, our sales would
be significantly lower, which would have a negative effect on our stock
price.
Fluctuations
in the valuation of the Korean won could impact costs and/or revenues we
disclose in U.S. dollars, and could result in foreign currency
losses.
We are
exposed to a variety of market risks, including the effects of changes in
currency exchange rates and interest rates. See Part 7A. Quantitative and
Qualitative Disclosures About Market Risk.
Our
operating subsidiary, Clavis Korea, conducts its business in the Koran Won, its
functional currency. For SEC reporting purposes, Clavis Korea’s
financial information must be
translated into U.S. Dollars. Any major changes in the currency
exchange rate between the Korean Won and the U.S. Dollar may have a significant
impact on the results of our operations. In addition, the
valuation of current assets and liabilities that are denominated in a currency
other than U.S. Dollars (such as the assets and liabilities of Clavis Korea,
which are in the Korean Won) can result in currency exchange gains and losses.
We cannot predict the effect of exchange rate fluctuations upon future quarterly
and annual operating results. The effect of currency exchange rate changes may
increase or decrease our costs and/or revenues in any given quarter, and it may
experience currency losses in the future. To date, we have not adopted a hedging
program to protect us from risks associated with foreign currency
fluctuations.
5
The markets we serve are highly
competitive and we may be unable to compete effectively if we are unable to
provide and market innovative and cost-effective products at competitive
prices.
We face
competition from large, multinational companies and other regional companies.
Some of these companies may have substantially greater financial and other
resources than we do. We compete primarily on the basis of efficient
installation capability and the effectiveness of our products to help our
customers manage RFID data. It is possible that our competitors will
be able to offer additional products, services, lower prices, or other
incentives that we cannot offer or that will make our products less
profitable. It is also possible that our competitors will offer
incentive programs or will market and advertise their products in a way that
will impact customers’ preferences, and we may not be able to compete
effectively.
We may be
unable to anticipate the timing and scale of our competitors’ activities and
initiatives, or we may be unable to successfully counteract them, which could
harm our business. In addition, the cost of responding to our competitors’
activities may affect our financial performance for any given reporting
period. Our ability to compete also depends on our ability to attract
and retain key talent, and develop innovative and cost-effective products. A
failure to compete effectively could adversely affect our growth and
profitability.
We
will incur increased costs as a result of being a publicly listed company, which
may negative affect our results of operations because of the added expense and
additional demands on our management.
The
Sarbanes-Oxley Act of 2002, as well as rules promulgated by the SEC requires us
to adopt corporate governance practices applicable to U.S. public companies.
These rules and regulations will increase our legal and financial compliance
costs and make certain compliance and reporting activities more time-consuming.
We also expect it to be more difficult and more expensive for us to obtain and
maintain director and officer liability insurance, which may cause us to accept
reduced policy limits and reduced coverage or to incur substantially higher
costs to obtain the same or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified persons to serve on our board
of directors or as executive officers. We cannot predict or estimate the amount
of additional costs we may incur, but these additional costs and demands on
management time and attention may harm our business and results of
operations.
Our
officers have no experience in managing a public company, which increases the
risk that we will be unable to establish and maintain all disclosure controls
and procedures and internal controls over financial reporting and meet the
public reporting and the financial requirements for our business.
We are
highly dependent on our officers to develop and operate and manage our business.
Although our officers have substantial business experience, they have no
experience in managing a public company. They have no experience in establishing
and maintaining disclosure controls and procedures in compliance with the
securities laws, including the requirements mandated by the Sarbanes-Oxley Act
of 2002. This lack of experience with regard to public company
disclosure controls and procedures may result in our Securities Act filings or
our periodic reports not containing all of the information required to be
contained therein. We would be required to disclose in our periodic
reports any deficiencies in our disclosure controls and procedures, such as the
lack of experience in management in establishing and maintaining disclosure
controls and procedures. Such assessments by our management may cause
negative perception by investors of our common stock and result in a decrease in
the price and/or liquidity of our stock. Additionally, to remedy such
a deficiency, such as hiring and training of personnel and implementation of
multiple-party-review of our filings, would result in significant increase in
our operating expenses and could result in lower earnings. The
standards that must be met for management to assess the internal control over
financial reporting as effective require significant documentation, testing and
possible remediation to meet the detailed standards. We may encounter
problems or delays in completing activities necessary to make an assessment of
our internal control over financial reporting. In addition, the attestation
process by our independent registered public accounting firm is new to us and we
may encounter problems or delays in completing the implementation of any
requested improvements and receiving an attestation of our assessment by our
independent registered public accounting firm. If we cannot assess
our internal control over financial reporting as effective, or our independent
registered public accounting firm is unable to provide an unqualified
attestation report on such assessment, investor confidence and share value may
be negatively impacted.
Increased tensions with North Korea
could adversely affect our operations and the price of our common
stock.
Our
operating subsidiary is based in Seoul, Korea. Relations between
Korea and North Korea have been tense over most of Korea’s history and the
Demilitarized Zone between the two countries is the most fortified border in the
world. Currently, the U.S. maintains approximately 28,500 troops in
the Republic of Korea. The level of tension between Korea and North
Korea has fluctuated and may increase or change abruptly over the years, as a
result of military skirmishes, North Korea’s military build and nuclear facility
program, sanctions imposed by the United States, military exercises by each
Korea and North Korea and missile tests and nuclear tests by North
Korea. We cannot assure you that recent events will not lead to an
escalation of tension with North Korea. Any further increase in geopolitical
tensions, resulting from testing of long-range nuclear missiles, continuing
nuclear programs by North Korea, transition of power in leadership in North
Korea, a break-down in existing contacts or an outbreak in military hostilities
could adversely affect our business, prospects, financial condition and results
of operations and could lead to a decline in the market value of our common
stock.
6
We
may need to raise additional capital, which may not be available on favorable
terms, if at all, which would adversely affect our ability to operate our
business.
The
recent financial and credit crisis has reduced credit availability and liquidity
for many companies. We believe, however, that the strength of our core business,
cash position, access to credit markets, and our ability to generate positive
cash flow will sustain us through the next 12 months. We are working
to reduce our liquidity risk by accelerating efforts to improve working capital
while reducing expenses in areas that will not adversely impact the future
potential of our business. As of September 30, 2009, our cash and cash
equivalents were $579,628 as compared to $865,902 as of December 31,
2008. Cash and cash equivalents decreased in 2009
primarily due to the expenditures of advance payments on
contracts. If we need to raise additional funds due to unforeseen
circumstances or material expenditures or if our operating losses are greater
than expected, we cannot be certain that we will be able to obtain additional
financing on favorable terms, if at all, and any additional financings could
result in additional dilution to our existing stockholders. If we
need additional capital and cannot raise it on acceptable terms, we may not be
able to meet our business objectives, our stock price may fall and you may lose
some or all of your investment.
We
depend on key personnel to manage our business effectively, and if we are unable
to hire, retain or motivate qualified personnel, our ability to design,
manufacture and sell our products could be harmed.
Our
future success depends, in part, on certain key employees, including key
technical personnel, and on our ability to attract and retain highly skilled
personnel. The loss of the services of any of our key personnel, the
inability to attract or retain qualified personnel, or delays in hiring required
personnel, particularly finance, engineering, sales or marketing personnel, may
seriously harm our business, financial condition and results of
operations. Our officers and key employees may terminate their
employment at any time. We do not have key person life insurance policies
covering any of our employees. Our ability to continue to attract and retain
highly skilled personnel will be a critical factor in determining whether we
will be successful in the future. Competition for highly skilled personnel is
frequently intense, especially in Korea. We may not be successful in attracting,
assimilating or retaining qualified personnel to fulfill our current or future
needs.
Adverse
developments in Korea may adversely affect our financial condition and our
results of operations.
Our
financial condition and results of operations are subject to political,
economic, legal and regulatory risks specific to Korea, where most of our assets
are located and where we generate most of our income.
Developments
that could hurt Korea’s economy in the future include:
●
|
financial
and other problems of chaebols (Korean
conglomerates) or their suppliers and their potential adverse impact on
the Korean economy;
|
●
|
a
slowdown in consumer spending, a rising level of household debt and the
resulting slowdown in the Korean overall
economy;
|
●
|
adverse
changes or volatility in foreign currency reserve levels, exchange rates
(including depreciation of U.S. dollar or Yen or revaluation of Renminbi),
interest rates and stock markets;
|
●
|
adverse
developments in the economies in other markets, including countries that
are important export markets for Korea, such as the United States, Japan
and China, or in emerging economies in Asia or elsewhere that could result
in a loss of confidence in the Korean
economy;
|
●
|
social
and labor unrest;
|
●
|
a
decrease in tax revenues and a substantial increase in the Government’s
expenditures for unemployment compensation and other social programs that,
together, would lead to an increased government budget
deficit;
|
●
|
deterioration
in economic or diplomatic relations between Korea and its trading partners
or allies, including deterioration resulting from trade disputes or
disagreements in foreign policy;
and/or
|
●
|
political
uncertainty or increasing strife among or within political parties in
Korea.
|
Additionally,
events related to terrorist attacks, developments in the Middle East, higher oil
and other commodity prices and the outbreak of endemics such as SARS or the H5N1
avian flu in Asia or the H1N1 swine flu in Mexico and other parts of the world
have increased and may continue to increase the uncertainty of global economic
prospects in general and the Korean economy in particular. Any further
deterioration of the Korean economy could further lower demand for by companies
in Korea for our RFID software products, which would in turn negatively impact
our financial condition and results of operations.
7
Risks
Related to Our Industry
Changes
in industry standards and government regulation could adversely affect our
ability to sell our products and impair our operating results.
In order
to encourage widespread market adoption of RFID technology, industry standards
have been developed, and we have designed our products to comply with these
standards. Changes in industry standards, or the development of new industry
standards, may make our products obsolete or negate the improvements we have
made in our products. For example, we are currently focusing a
majority of our product development and our sales and marketing efforts on
products that comply with the EPCglobal Gen 2 standard. If the
EPCglobal Gen 2 standard is not widely accepted by the market, we may not
be able to sell our products and our revenue would decline. Our
ability to compete effectively may depend on our ability to adapt our products
to support relevant industry standards. We may be required to invest
significant effort and to incur significant expense to re-engineer our products
and services to address relevant standards. If our products and/or services do
not meet relevant industry standards, including compliance with any
qualification or certification processes, or if we are delayed in obtaining such
certification, we could miss sales opportunities and our revenue would decline,
adversely affecting our operating results, financial conditions, business and
prospects.
Widespread
market acceptance of RFID products in the application areas that we target has
been slow to develop. If the market for RFID products does not continue to
develop, or develops more slowly than we expect, our business may be
harmed.
The
market for radio frequency identification, or RFID, products in the application
areas that we target is relatively new and, to a large extent, unproven, and it
is uncertain whether RFID products for these applications will achieve and
sustain high levels of demand and market acceptance. To date, the adoption rate
for RFID technology has been slower than anticipated or forecasted by industry
sources. Although RFID holds great potential for companies, such as
making manufacturer’s supply chain management more efficient, the hefty cost of
implementing the technology -- software, customized RFID tags and RFID
readers/scanners -- has slowed its rate of adoption by manufacturers and
retailers, particularly in the current shaky economic climate. The
development of the markets for our RFID products and services will be dependent
upon other businesses and governmental agencies, both in Korea and else where in
Asia, implementing programs and initiatives to deploy RFID systems in their
supply chains and other settings. Any delay, slowdown or failure by
organizations to implement RFID systems throughout their supply chains, or to
adopt them more slowly than we currently anticipate, could materially and
adversely affect our business, operating results, financial condition and
prospects.
If
unauthorized access is obtained to customer RFID systems or data, including
through breach of security measures or unauthorized encoding of RFID tags,
customers may curtail or stop their use of RFID products and, as a result, would
not need our products, which would harm our business, operating results and
financial condition.
RFID tags
may be scanned and read by readers within a certain range. Unauthorized readers
may access a company’s proprietary information, even if security measures such
as shielding devices and encryption are used. For example, criminals seeking to
divert or steal certain pharmaceutical products could seek to identify them as
they pass through the supply chain by looking for cases with EPCs corresponding
to those products. In addition, it has been shown that it is possible to encode
RFID tags so that they may provide unauthorized access to or cause improper
changes in the systems or databases that scan those tags. Security breaches
could expose us to litigation and possible liability. If our customers’ security
measures are breached as a result of third-party action, employee error,
criminal acts by an employee, malfeasance or otherwise, and, as a result,
someone obtains unauthorized access to customer data, our reputation could be
damaged, our business and prospects may suffer and we could incur significant
liability.
Risks
Related to Our Stock
We
could issue additional common stock, which might dilute the book value of our
common stock.
Our board
of directors has authority, without action or vote of our stockholders, to issue
all or a part of our authorized but unissued shares. Such stock issuances could
be made at a price that reflects a discount or a premium from the then-current
trading price of our common stock. In addition, in order to raise capital, we
may need to issue securities that are convertible into or exchangeable for a
significant amount of our common stock. These issuances would dilute
your percentage ownership interest, which would have the effect of reducing your
influence on matters on which our stockholders vote, and might dilute the book
value of our common stock. You may incur additional dilution if holders of stock
options, whether currently outstanding or subsequently granted, exercise their
options, or if warrant holders exercise their warrants to purchase shares of our
common stock.
8
Our
board of directors has the power to designate a series of preferred stock
without shareholder approval that could contain conversion or voting rights that
adversely affect the voting power of holders of our common stock and may have an
adverse effect on our stock price.
Our
Certificate of Incorporation provide for the authorization of 10,000,000 shares
of “blank check” preferred stock. Pursuant to our Certificate of
Incorporation, our Board of Directors is authorized to issue such “blank check”
preferred stock with rights that are superior to the rights of stockholders of
our common stock, at a purchase price then approved by our Board of Directors,
which purchase price may be substantially lower than the market price of shares
of our common stock, without stockholder approval. Though we currently do
not have any plans to issue any such preferred stock, such issuance could give
the holders of such preferred stock voting control of the Company which would
have a negative effect on the voting power of the holders of our common stock
and may cause our stock price to decline.
Our
common stock is considered “a penny stock” and, as a result, it may be difficult
to trade a significant number of shares of our common stock.
The
Securities and Exchange Commission (“SEC”) has adopted regulations that
generally define “penny stock” to be an equity security that has a market price
of less than $5.00 per share, subject to specific
exemptions. Our common stock is presently not traded on any
national market or securities exchange or in the over-the-counter
market. The sales price to the public of the shares of our common
stock offered by the selling security holders under this prospectus is fixed at
$0.00533 per share until such time as our common stock is quoted on the
Over-The-Counter (OTC) Bulletin Board. Once our common stock becomes
eligible for quotation in the OTC bulletin board, we expect that the market
price for shares of our common stock to be less than $5.00 per
share. Consequently, it is likely that the market price for our
common stock will remain less than $5.00 per share for the foreseeable future
and therefore may be a “penny stock” according to SEC rules. This designation
requires any broker or dealer selling these securities to disclose certain
information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers
to sell our common stock and may affect the ability of investors hereunder to
sell their shares. In addition, when, as we expect, our common stock is traded
on the OTC Bulletin Board, investors may find it difficult to obtain accurate
quotations of the stock and may experience a lack of buyers to purchase such
stock or a lack of market makers to support the stock price.
There
is currently no public market for our shares and if such a market materializes,
our stockholders may still not be able to resell their shares at or above the
price at which they purchased their shares.
There is
currently no established public trading market for our securities and an active
trading market in our securities may not develop or, if developed, may not be
sustained. We intend to apply for admission to quotation of our securities on
the OTC Bulletin Board after this prospectus is declared effective by the
SEC. If for any reason our common stock is not quoted on the OTC
Bulletin Board or a public trading market does not otherwise develop, purchasers
of the shares may have difficulty selling their common stock should they desire
to do so. No market makers have committed to becoming market makers
for our common stock and none may do so.
State
securities laws may limit secondary trading, which may restrict the states in
which and conditions under which you can sell the shares offered by this
prospectus.
Secondary
trading in common stock sold in this offering will not be possible in any state
until the common stock is qualified for sale under the applicable securities
laws of the state or there is confirmation that an exemption, such as listing in
certain recognized securities manuals, is available for secondary trading in the
state. If we fail to register or qualify, or to obtain or verify an
exemption for the secondary trading of, the common stock in any particular
state, the 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 our common stock, the liquidity for the common
stock could be significantly impacted thus causing you to realize a loss on your
investment.
We
do not intend to pay dividends for the foreseeable future.
We have
never declared or paid any cash dividends on our common stock and do not intend
to pay any cash dividends in the foreseeable future. We anticipate
that we will retain all of our future earnings for use in the development of our
business and for general corporate purposes. Any determination to pay dividends
in the future will be at the discretion of our board of directors. Accordingly,
investors must rely on sales of their common stock after price appreciation,
which may never occur, as the only way to realize any future gains on their
investments.
9
USE OF PROCEEDS
We will
not receive any proceeds from the sale of the shares by the selling
stockholders.
SELLING
SECURITY HOLDERS
In
September 2009, we sold 15,000,000 shares of our common stock to five purchasers
in a transaction exempt from registration pursuant to Regulation S promulgated
by the SEC pursuant to the Securities Act of 1933, as amended (the “Securities
Act”). The purchase price per share in this Regulation S offering was
$0.00533 and all of the purchasers were non-U.S. persons as defined in
Regulation S.
In
December 2009 and January 2010, we sold an aggregate of 2,375,200 shares of our
common stock to 27 purchasers in a transaction exempt from registration pursuant
to Regulation S promulgated by the SEC pursuant to the Securities
Act. The purchase price per share in this Regulation S offering was
$0.00533 and all of the purchasers were non-U.S. persons as defined in
Regulation S.
This
prospectus covers the sale by the selling stockholders from time to time of
17,375,200 shares of our common stock sold by us in these Regulation S
offerings.
The term
" selling security holder" includes (i) each person and entity that is
identified in the table below (as such table may be amended from time to time by
means of an amendment to the registration statement of which this prospectus
forms a part) and (ii) any transferee, donee, pledgee or other successor of any
person or entity named in the table that acquires any of the shares of common
stock covered by this prospectus in a transaction exempt from the registration
requirements of the Securities Act of 1933 and that is identified in a
supplement or amendment to this prospectus.
We have
listed below:
●
|
the
name of each selling security
holder;
|
●
|
the
number of shares of common stock beneficially owned by each selling
security holder as of the date of this
prospectus;
|
●
|
the
maximum number of shares of common stock being offered by each of the
selling security holders in this offering;
and
|
●
|
the
number of shares of common stock to be owned by each selling security
holder after this offering (assuming sale of such maximum number of
shares) and the percentage of the class which such number constitutes (if
one percent or more).
|
None of
the selling security holders are a registered broker-dealer or an affiliate of a
registered broker-dealer.
During
the last three years, no selling security holder has been an officer, director
or affiliate of our company, nor has any selling security holder had any
material relationship with our company or any of our affiliates during that
period. Each selling security holder represented at the closing of
the private placement that it was acquiring the shares of our common stock for
its own account and not on behalf of any U.S. person, and the resale of such
shares has not been pre-arranged with a purchaser in the United
States.
The
shares of common stock being offered hereby are being registered to permit
public secondary trading, and the selling security holders are under no
obligation to sell all or any portion of their shares included in this
prospectus. The information contained in the following table is
derived from information provided to us by the selling security holders, our
books and records, as well as from our transfer agent.
Unless
otherwise indicated, each person has sole investment and voting power with
respect to the shares indicated. For purposes of this table, a selling security
holder is deemed to have “beneficial ownership” of any shares as of a given date
which such person has the right to acquire within 60 days after such
date.
10
For
purposes of this table, we have assumed that, after completion of the offering,
none of the shares covered by this prospectus will be held by the selling
security holders.
Name
and Address
of
Selling Stockholder
|
Common
Stock Beneficially
Owned
Prior
to the
Offering
|
Common Stock
Offered
Pursuant to
this Prospectus 1
|
Common Stock
Owned
Upon
Completion
of
this Offering
|
Percentage of
Common
Stock
Owned
Upon
Completion
of
this
Offering
|
||
Mandarin
Global Equity (1)
Kings
Court, 3rd Floor
Bay
Street
Nassau
New
Providence, Bahamas
|
3,000,000
|
3,000,000
|
0
|
*
|
||
Blue
Shade Inc. (2)
P.O.
Box 14
Clarkes
Estate
Cades
Bay
Nevis,
West Indies
|
3,000,000
|
3,000,000
|
0
|
*
|
||
Stoneland
Limited (3)
P.O.
Box 14
Clarkes
Estate
Cades
Bay
Nevis,
West Indies
|
3,000,000
|
3,000,000
|
0
|
*
|
||
Hampton
Bay Holdings Inc. (4)
Kings
Court, 3rd Floor
Bay
Street
Nassau
New
Providence, Bahamas
|
3,000,000
|
3,000,000
|
0
|
*
|
||
Belvedere
Holdings Corp. (5)
Kings
Court, 3rd Floor
Bay
Street
Nassau
New
Providence, Bahamas
|
3,000,000
|
3,000,000
|
0
|
*
|
||
Kashim
Ltd. (6)
31
Don House
Gibraltar
|
100,000
|
100,000
|
0
|
*
|
||
Glenstar
Enterprises Ltd. (7)
Clarkes
Estate
Charlestown
Nevis,
West Indies
|
100,000
|
100,000
|
0
|
*
|
||
Cyrus
Capital Corp. (8)
3rd
Floor
Kings
Court
Nassau,
Bahamas
|
100,000
|
100,000
|
0
|
*
|
||
Shires
Ltd. (9)
15
Leeward Highway
Providenciales,
Turks and Caicos
|
100,000
|
100,000
|
0
|
*
|
||
Irwin
Rapoport
7415
Sherbrooke Street West
Montreal,
Quebec H4B 152
Canada
|
100,000
|
100,000
|
0
|
*
|
||
Mary
Ciappara
Fl.
4, 38 Salina Court
T.
Ashby Street
Marsacala,
Malta
|
100,000
|
100,000
|
0
|
*
|
11
Name
and Address
of
Selling Stockholder
|
Common
Stock Beneficially
Owned
Prior
to the
Offering
|
Common Stock
Offered
Pursuant to
this Prospectus 1
|
Common Stock
Owned
Upon
Completion
of
this Offering
|
Percentage of
Common
Stock
Owned
Upon
Completion
of
this
Offering
|
||
Peggy
Zammit
130
Bloor St. W
Suite
601
Toronto,
Ontario M55 1N5
|
100,000
|
100,000
|
0
|
*
|
||
Paul
Zammit
130
Bloor St. W
Suite
601
Toronto,
Ontario M55 1N5
|
100,000
|
100,000
|
0
|
*
|
||
Shari
McMaster
130
Bloor St. W
Suite
601
Toronto,
Ontario M55 1N5
|
18,800
|
18,800
|
0
|
*
|
||
Elisa
Maguolo
15
Weisman Street
Kefar
Saba, Israel
|
100,000
|
100,000
|
0
|
*
|
||
Avraham
Einhoren
c/o
Electro Tech Ltd.
2
Bloor Street West, Suite 735
Toronto,
Ontario M4W 3R1
Canada
|
100,000
|
100,000
|
0
|
*
|
||
Nama
Einhoren
34
Bavli Street
Tel
Aviv, Israel
|
100,000
|
100,000
|
0
|
*
|
||
Brian
Rapoport
5009
Clanranald, #30
Montreal,
Quebec H3X 253
Canada
|
18,800
|
18,800
|
0
|
*
|
||
Felicia
Cohen5009
Clanranald,
#30
Montreal,
Quebec H3X 253
Canada
|
18,800
|
18,800
|
0
|
*
|
||
Nahid
Shaygan
85
Skymark Drive, #2203
Toronto,
Ontario M24 3P2
Canada
|
100,000
|
100,000
|
0
|
*
|
||
Mohammad
Shaygan
21
– Camino Real
Calle
Winston Churchill
Patilla
Panama
City, Panama
|
100,000
|
100,000
|
0
|
*
|
||
Reza
Shaygan
85
Skymark Drive, #2203
Toronto,
Ontario M24 3P2
Canada
|
100,000
|
100,000
|
0
|
*
|
||
Felisa
Londono Esguerra
Edificio
Monaco, # 9-B
Calle
56
Ave.
Abel Bravo
Panama
City, Panama
|
100,000
|
100,000
|
0
|
*
|
||
Ludovina
C. De Dominguez
Calle
Emilio Castro, #14
Las
Tablas, Panama
|
100,000
|
100,000
|
0
|
*
|
12
Name
and Address
of
Selling Stockholder
|
Common
Stock Beneficially
Owned
Prior
to the
Offering
|
Common Stock
Offered
Pursuant to
this Prospectus 1
|
Common Stock
Owned
Upon
Completion
of
this Offering
|
Percentage of
Common
Stock
Owned
Upon
Completion
of
this
Offering
|
||
Gary
Dominguez
Calle
Emilio Castro, #14
Las
Tablas, Panama
|
100,000
|
100,000
|
0
|
*
|
||
Jacob
Dominguez
Edificio
Monaco, # 9-B
Calle
56
Ave.
Abel Bravo
Panama
City, Panama
|
100,000
|
100,000
|
0
|
*
|
||
Farhad
Amirkhani
1762
Seven Oaks Drive
Mississauga,
Ontario L5K 2N3
Canada
|
100,000
|
100,000
|
0
|
*
|
||
Irwin
Rapoport
5009
Clanranald, #30
Montreal,
Quebec H3X 253
Canada
|
18,800
|
18,800
|
0
|
*
|
||
Ji
Hye Lee
Kkachi
Maeul 1-danji Sunkyoung
Apt
109-2103
Gumi-dong
Bundang-gu
Seongnam-si
Gyeonggi-do 463-743 Korea
|
100,000
|
100,000
|
0
|
*
|
||
Hyun
Ki Kim
Kkachi
Maeul 1-danji Sunkyoung
Apt
109-2103
Gumi-dong
Bundang-gu
Seongnam-si
Gyeonggi-do 463-743 Korea
|
100,000
|
100,000
|
0
|
*
|
||
Jung
Suk Lee
101-110
Woosung Apt. 108-2203
Haengun-dong
Gwankak-gu
Seoul 151-775
Korea
|
100,000
|
100,000
|
0
|
*
|
||
Han
Sang Seo
Sosajukong
Apt 107-1001
Sosa-gu
Bucheo-si
Gyeonggi-do 422-230
Korea
|
100,000
|
100,000
|
0
|
*
|
||
Jae
Tack Han
401
ho
155-15,
Seokchon-dong
Songpa-gu
Seoul
138-843
Korea
|
100,000
|
100,000
|
0
|
*
|
||
TOTAL
|
17,375,200
|
* Amount
less than one percent.
Percentage
calculations are based on 62,375,200 shares of our common stock issued and
outstanding as of January 28, 2010.
______________________
(1)
Mehmet Birol Ensari, the owner of Mandarin Global Equity, has the power to vote
and dispose of the Company’s securities held by Mandarin Global
Equity.
(2)
Wilfred Gatambia Kamau, the owner of Blue Shade Inc., has the power to vote and
dispose of the Company’s securities held by Blue Shade.
(3)
Yaroslava Gryshyna, the owner of Stoneland Limited, has the power to vote and
dispose of the Company’s securities held by Stoneland Limited.
(4) Aysan
Celik, the owner of Hampton Bay Holdings Inc., has the power to vote and dispose
of the Company’s securities held by Hampton Bay Holdings.
(5)
Nadiya Shcherbyna, the owner of Belvedere Holdings Corp., has the power to vote
and dispose of the Company’s securities held by Belvedere Holdings.
(6) Mae
Robins, an officer of Kashim Ltd., has the power to vote and dispose
of the Company’s securities held by Kashim.
(7)
Michael Dwen, an officer of Glenstar Enterprises Ltd., has the power to vote and
dispose of the Company’s securities held by Glenstar Enterprises.
(8)
Abbygail Gibson, an officer of Cyrus Capital Corp., has the power to
vote and dispose of the Company’s securities held by Cyrus Capital.
(9) Ms.
Kofi Bain, an officer of Shires Ltd., has the power to vote and
dispose of the Company’s securities held by Shires.
13
PLAN
OF DISTRIBUTION
As of the
date of this prospectus, there is no market for our securities. After
the date of this prospectus, we expect to have an application filed with the
Financial Industry Regulatory Authority for our common stock to be eligible for
trading on the OTC Bulletin Board. Until our common stock becomes
eligible for trading on the OTC Bulletin Board, the selling security holders
will be offering our shares of common stock at a fixed price of $0.00533 per
share of common stock. After our common stock becomes eligible for
trading on the OTC Bulletin Board, the selling security holders may, from time
to time, sell all or a portion of the shares of common stock on OTC Bulletin
Board or any market upon which the shares of common stock may be listed or
quoted currently the National Association of Securities Dealers OTC Bulletin
Board in the United States, in privately negotiated transactions or otherwise.
After our common stock becomes eligible for trading on the OTC Bulletin Board,
such sales may be at fixed prices prevailing at the time of sale, at prices
related to the market prices or at negotiated prices.
After our
common stock becomes eligible for trading on the OTC Bulletin Board, the shares
of common stock being offered for resale by this prospectus may be sold by the
selling security holders by one or more of the following methods, without
limitation:
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
●
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
●
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
●
|
privately
negotiated transactions;
|
●
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
|
●
|
broker-dealers
may agree with the selling security holders to sell a specified number of
shares at a stipulated price per
share;
|
●
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
●
|
a
combination of any of these methods of sale;
or
|
●
|
any
other method permitted pursuant to applicable
law.
|
The
selling security holders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling security holders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling security holders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance with
FINRA/NASD Rule 2440 in the FINRA Manual; and in the case of a principal
transaction a markup or markdown in compliance with FINRA/NASD
IM-2440. Before our common stock becomes eligible for trading
on the OTC Bulletin Board, broker-dealers may agree with a selling security
holder to sell a specified number of the shares of common stock at a price per
share of $0.00533. After our common stock becomes eligible for
trading on the OTC Bulletin Board, broker-dealers may agree with a selling
security holder to sell a specified number of the shares of common stock at a
stipulated price per share.
In
connection with the sale of shares, the selling security holders may enter into
hedging transactions with broker-dealers or other financial institutions, which
may in turn engage in short sales of the shares in the course of hedging the
positions they assume. The selling security holders may also sell shares short
and deliver these shares to close out their short positions, or loan or pledge
shares to broker-dealers that in turn may sell these shares. The selling
security holders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to that broker-dealer or other
financial institution of shares offered by this prospectus, which shares that
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect that
transaction).
14
We will
be paying certain fees and expenses incurred by us incident to the registration
of the shares.
We will
keep this prospectus effective until the earlier of (i) the date on which
the shares may be resold by the selling security holders without registration
and without regard to any volume limitations by reason of Rule 144 under the
Securities Act or any other rule of similar effect or (ii) all of the
shares have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The shares will be sold only
through registered or licensed brokers or dealers if required under applicable
state securities laws. In addition, in certain states, the shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under
applicable rules and regulations under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), any person engaged in the distribution of the
shares may not simultaneously engage in market making activities with respect to
the common stock for the applicable restricted period, as defined in Regulation
M, prior to the commencement of the distribution. In addition, the selling
security holders will be subject to applicable provisions of the Exchange Act
and the rules and regulations there under, including Regulation M, which may
limit the timing of purchases and sales of the shares by the selling security
holders or any other person. We will make copies of this prospectus available to
the selling security holders and have informed them of the need to deliver a
copy of this prospectus to each purchaser at or prior to the time of the sale
(including by compliance with Rule 172 under the Securities Act).
Blue
Sky Restrictions on Resale
When a
selling security holder wants to sell shares of common stock under this
registration statement, the selling security holders will also need to comply
with state securities laws, also known as "Blue Sky laws," with regard to
secondary sales. All states offer a variety of exemption from
registration for secondary sales. Many states, for example, have an exemption
for secondary trading of securities registered under Section 12(g) of the
Securities Exchange Act of 1934 or for securities of issuers that publish
continuous disclosure of financial and non-financial information in a recognized
securities manual, such as Standard & Poor's. The broker for a selling
security holder will be able to advise a selling security holder which states
our shares of common stock is exempt from registration with that state for
secondary sales.
Any
person who purchases shares of common stock from a selling security holder under
this registration statement who then wants to sell such shares will also have to
comply with Blue Sky laws regarding secondary sales. When the
registration statement becomes effective, and a selling security holder
indicates in which state(s) he desires to sell his shares, we will be able to
identify whether it will need to register or will rely on an exemption there
from.
Penny
Stock Regulations
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
●
|
That
a broker or dealer approve a person’s account for transactions in penny
stocks; and
|
●
|
That
the broker or dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
|
In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
●
|
Obtain
financial information and investment experience objectives of the person;
and
|
●
|
Make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
|
15
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Securities and Exchange Commission
relating to the penny stock market, which, in highlight form:
●
|
Sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
●
|
Specifies
that the broker or dealer received a signed, written
agreement.
|
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
DESCRIPTION
OF SECURITIES
We are
currently authorized to issue 10,000,000 shares of preferred stock having a par
value of $.001 per share and 100,000,000 shares of common stock, having a par
value of $0.001 per share. As of the date of this prospectus, we had
62,375,200 shares of common stock issued and outstanding and no shares of
preferred stock issued and outstanding.
Common
Stock
We are
authorized to issue 100,000,000 shares of common stock, $0.001 par value per
share, of which 62,375,200 shares were issued and outstanding as of January 28,
2010. The holders of outstanding common stock are entitled to receive
dividends out of assets legally available therefore at such times and in such
amounts as our Board may from time to time determine. We have no
present intention of paying dividends on our common stock. Upon liquidation,
dissolution or winding up of the Company, and subject to the priority of any
outstanding preferred stock, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the common stock at
the time outstanding. No holder of shares of common stock has a
preemptive right to subscribe to future issuances of securities by the
Company. There are no conversion rights or redemption or sinking fund
provisions with respect to the common stock. Holders of common stock
are entitled to cast one vote for each share held of record on all matters
presented to stockholders.
INTEREST
OF NAMED EXPERTS AND COUNSEL
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis, or had, or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was
any such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer, or employee.
The
consolidated financial statements of Clavis Technologies International Co., Ltd.
and subsidiaries as of December 31, 2008 and 2007 and for each of the years then
ended has been included herein and in the Registration Statement in reliance
upon the report of Kim & Lee Corporation, CPAs, an independent registered
public accounting firm, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
Certain
legal matters in connection with this offering and Registration Statement are
being passed upon by Fox Law Offices, P.A., Exeter, New Hampshire.
16
DESCRIPTION OF BUSINESS
Overview
Clavis
Technologies International Co., Ltd., a Nevada corporation ("the Company"), was
incorporated in Nevada on September 10, 2009. On December 1, 2009,
the Company entered into a definitive Share Exchange Agreement with Clavis
Technologies Co., Ltd., a Korean corporation (“Clavis Technologies” or “Clavis
Korea”), and the shareholders of Clavis Korea. Pursuant to the
agreement, the Company acquired 100% of the issued and outstanding capital stock
of Clavis Korea in exchange for 45,000,000 shares of the Company’s common stock,
representing approximately 75% of the issued and outstanding stock of the
Company. Clavis Korea was incorporated under the laws of Republic of
Korea on January 28, 2003. Clavis Korea is located in Seoul, Korea, and has been
engaged in the development of global Electronic Product Code (EPC) network
software. The Company’s goal is to be a global player in ubiquitous computing
solutions using its proprietary Radio Frequency Identification (“RFID”)
middleware which is based on the Electronic Product Code Network and mobile
financial solutions.
Clavis
Technologies has been providing RFID-enabled solutions, including business
processes, based on the world standard to various industrial markets as a vendor
of RFID technology since 2003. As Clavis Technologies combines its products,
expertise, partnerships and integration capability into solutions for a wide
range of device computing applications, Clavis Technologies enables its clients
to tap into the wealth of data captured by networked devices such as RFID
readers or handheld devices to extend the quality of valuable information to any
device where companies or their customers need.
Historically,
Clavis Technologies has concentrated on the RFID business as a provider that
sold only RFID middleware. As the RFID market has experienced significant growth
recently, Clavis Technologies has launched its framework-based product packages,
which has been developed since 2003, including added-value RFID applications
that can be customized for a broad range of industries.
Currently,
our results are heavily dependent upon sales to the retail and business to
business markets. Our customers are dependent upon retail sales, which are
susceptible to economic cycles and seasonal fluctuations. Furthermore, as
approximately two-thirds of our revenues and operations are located outside the
U.S., fluctuations in foreign currency exchange rates have a significant impact
on reported results. For the periods ended September 30, 2009 and 2008, the two
largest customers accounted for 70% and 76% of sales,
respectively. In 2008 Asiana IDT, Inc. (46%) and KTNetworks (30.13%)
accounted for approximately 76% of sales. In 2009 Korea Pallet Pool
Co., Ltd. (48%), and KTNetworks (21.4%) accounted for approximately 70% of
sales.
We
believe that some markets we serve are slowing as a result of the global
recession. In response to the current global market conditions, we are moving
forward with initiatives to reduce costs and improve working capital to mitigate
the effects of the economy on our business. We believe that the strength of our
core business and our ability to generate positive cash flow will sustain Clavis
Technologies International through this challenging period.
Our
business plan is to generate sustained revenue growth through selected
investments in product development and marketing. We intend to offset the cost
of these investments through product cost and operating expense reductions.
Revenue growth may also be generated by acquisitions of other companies that we
may identify to expand our product offerings and/or customer base. We
currently do not have any acquisitions targeted during 2010.
What
is RFID
Radio
frequency identification (RFID) is hardly a new technology. The
concept was first developed over 50 years ago as a method of identifying
friendly aircraft during World War Ⅱ. In the past ten years, however,
the technology has received great attention due to a confluence of events,
including technology advancement, heightened security concerns and a greater
emphasis on cost control.
In
general terms, RFID is a means of identifying a person or object using a radio
frequency transmission. In fact, the word transponder is a combination of
transmit and respond. In basic terms, a transponder will identify itself when it
detects a signal from a compatible device, known as a reader or interrogator, in
an RFID system.
In a
typical RFID system, transponders, often called tags, are attached to objects.
Each tag carries with its information: a serial number, model number, color,
place of assembly or any other imaginable data. When these tags pass through a
field generated by a compatible reader, they transmit this information back to
the reader, thereby identifying the object.
17
Tag
technology generally dictates the operating parameters of an RFID system.
Operating frequencies and tag power source are two of the many factors
influencing performance. Some systems can only read tags one-by-one as they pass
a reader on a conveyor belt, while others can identify 50 tags as a forklift
exits a loading dock door. No single combination is best suited for all
applications, despite some manufacturers’ contentions.
Critical
performance variables in an RFID system involve the range at which communication
can be maintained, the size of the information space contained on the tag, the
rate at which the communication with the tag can take place, the physical size
of the tag, the ability of the system to "simultaneously" communication with
multiple tags, and the robustness of the communication with respect to
interference due to material in the path between the reader and the
tag. Several factors determine the level of performance that can be
achieved in these variables. The factors include the legal/regulatory emission
levels allowed in the country of use, whether or not a battery is included in
the tag to assist its communication back to the reader, and the frequency of the
RF carrier used to transport the information between the tag and the
reader.
In the
near future, a majority of items will have RFID tags that identify each
individual unit, case or pallet. Add to this capacity the ability, through
wireless, to track tagged items in real-time and what emerges is a smart network
of connected items each item tagged, tracked, and connected.
RFID
employs Radio Frequency Communications to exchange data between a portable
memory device and a host computer or PLC. An RFID system typically
consists of a "Tag/Label/PCB" containing data storage, an Antenna to communicate
with the Tag, and a Controller to manage the communication between the Antenna
and the PC or PLC; the terms Reader or Reader/Writer are used when the Antenna
and Controller are combined in a single housing.
The
Tag/Label/PCB is commonly attached to a product carrier, tote or even the
product itself, providing a remote database that travels with the
product.
What
is the Difference between Auto-ID and RFID
Automatic
identification, or Auto ID for short, is the broad term given to technologies
that are used to help machines identify objects. There are a host of
technologies that fall under the Auto-ID umbrella, including bar codes, smart
cards, voice recognition and similar technologies. Radio frequency
identification (RFID) is one type of Auto-ID technology. It uses radio waves to
automatically identify individual items.
What
can the EPC network do that existing bar code systems cant
Bar codes
are a line-of-sight technology. That is, a scanner has to “see” the bar code to
read it. That means people usually have to orient the bar code towards a scanner
for it to be read. Also, if a bar code label is ripped, soiled or
falls off, there is no way to scan the item. Radio frequency identification, by
contrast, does not require line of sight. RFID tags can be read as long as they
are within range of a reader. Because radio waves pass through
plastic, RFID tags can be protected from damage and still be read by the RFID
reader.
Because
RFID tags can communicate with readers without line of sight in most cases, RFID
also has the potential to reduce the frequency of inventory running out of
stock. Studies show that, on average, products are not on the store
shelves seven percent (7%) of the time. Every time a customer leaves a store
without buying what they came for because it was not on the shelf, the retailer
and the manufacturer lose out. RFID has the potential to dramatically
reduce out of stock inventory by providing real-time visibility into what is on
the store shelves. It also has the potential to dramatically reduce theft by
alerting store employees to unusual activity at the shelves. It may
also reduce employee theft, counterfeiting, administrative errors, and mass
recalls.
What
is the significant advantage of RFID systems?
The
significant advantage of all types of RFID systems is the non-contact,
non-line-of-sight nature of the technology. Tags can be read through a variety
of substances such as snow, fog, ice, paint, crusted grime, and other visually
and environmentally challenging conditions where barcodes or other optically
read technologies would be useless. RFID tags can also be read in
challenging circumstances at remarkable speeds, in most cases responding in less
than 100 milliseconds. The read/write capability of an active RFID system is
also a significant advantage in interactive applications such as work-in-process
or maintenance tracking. Though it is a costlier technology (compared with
barcode), RFID has become indispensable for a wide range of automated data
collection and identification applications that would not be possible
otherwise.
18
Primary
Components of an RFID system
RFID
systems are comprised of three main components:
●
|
Tags/Labels/PCBs;
|
●
|
Antennas;
and
|
●
|
Controllers
(transceiver with decoder)
|
[A
simple Read/Write RFID system]
Tag/Label/PCB
An RFID
Tag/Label/PCB contains a coil, a programmed silicon chip and in Active
Read/Write systems, a battery.
Tags
Tags come
in a variety of sizes, memory capacities, temperature survivability and ranges.
Tags can be small enough to inject into animals or large enough to cover an
entire desktop. Nearly all tags are encapsulated for durability against shock,
chemicals, moisture and dirt. While tags are immune to most environmental
factors, their Read/Write ranges may be affected by close proximity to metal and
electromagnetic radiation.
Tags can
be powered by an internal battery (often called an "Active Tag") or by inductive
coupling ("Passive Tag"). Passive Tags have zero maintenance requirements and
virtually an unlimited life span. The life span of an Active Tag can be limited
by the battery life, although some Tags offer replaceable batteries or extremely
large capacity batteries.
Labels
Labels
have printed, punched, etched or deposited RF coils on a paper/polyester
substrate with a memory chip. Although less resistant to environmental
conditions than the encapsulated tags, the labels provide distinct, low-cost
benefits in open-loop (or disposable) applications. If the label is
involved in an open-loop system, it is affixed onto the product itself and is
shipped throughout the complete supply chain. The reference to disposability in
this application is the fact that when the item is eventually purchased by the
consumer (e.g. a PC), it is taken out of the supply chain loop. This
is in contrast to reusable Tag applications such as pallet tracking in which the
Tag will remain in the supply chain indefinitely. The low cost makes Labels
extremely attractive for high-volume applications.
PCBs (Printed Circuit
Boards)
PCBs (Printed Circuit Boards)
are meant to be embedded into a product or carrier. Although
impervious to high temperatures, such as is found in plastic pallet
manufacturing, the PCB requires some encapsulation if it is to have direct
contact with outside environmental conditions (e.g. rain, excessive moisture,
etc.). The benefits of RFID PCBs are the low cost and the ability to
endure environments in which Labels would not survive. Plastic pallet
manufacturing provides a good example of applying an RFID PCB. The PCB is placed
inside the plastic pallet prior to the ultrasonically welding phase of the
plastic pallet manufacturing cycle. The PCB converts the pallet to a "Smart
Pallet," and data can be read and written to the pallet throughout the complete
supply chain.
Antennas
An
antenna is a device that uses radio waves to read and write data to the
Tags/Labels/PCBs. Some systems use separate antennas and controllers,
while other systems integrate the antenna and controller into a single reader or
reader/writer. Antennas can be found in all shapes and sizes, including antennas
which can fit into very tight spaces and larger antennas for greater read/write
ranges. In addition, the antennas provide unique solution features.
One such example is the submersible antennas used for media disc drive
applications. The antenna is mounted under de-ionized water to read/write data
to the tags while submerged. Other examples include antennas that offer portals
around conveyors or even dock doors. These portals (also called tunnels and
gates) read or write to Tags/Labels/PCBs as they pass through.
19
Controllers
The
controller manages the communication interface between an antenna and a PC, PLC,
Server or Network Interface Module. The host system interfaces with
the controller and directs the interrogation of the tag via parallel, serial or
bus communications. RFID controllers can also be programmed to
perform process control directly from the data in the tag
memory. Some controllers even feature direct I/O points that can be
activated by the controller, making it possible to lessen the work load of the
host system.
Types
of RFID
Read-Only
In its
simplest form (read-only), RFID is used as a direct replacement for barcode
technology. The advantages it offers include 100% read accuracy, the ability to
survive demanding environments and the elimination of line-of-sight
requirements.
Read
accuracy is often a critical factor in choosing RFID. With fixed
position barcode readers, achieving a first-pass read accuracy of 95% to 98% is
quite respectable. Depending on environmental conditions and maintenance,
barcode read rates often decline to less than 90% over time. In most
environments, RFID can achieve 99.5% to 100% first-pass read
rates. Further, with no moving parts or optical components,
maintenance is not an issue.
The
demands of industrial environments also favor RFID. Some environments require
data collection systems to operate while immersed in fluids, chemicals, dirt and
heat. Examples include applications where tags and antennas transfer data while
completely submerged in water, or even cases where tags pass through paint ovens
at 240°C.
The value
of RFID is further realized when considering line-of-sight requirements. With
RFID, the tag does not have to be visible to the face of the reader. With the
ability to penetrate most non-metallic materials (assuming the proper frequency
is used), RFID tags can be embedded in totes, containers or even products.
Moreover, these containers and products can be sealed in over-pack materials
without any adverse effects on the data capture results.
Read/Write
(Reusable)
In a more
advanced system (read/write), RFID can be used as a dynamic electronic manifest,
allowing users to reduce traffic on networks, link remote production stations
and to backup host PCs or PLCs. As an example of this electronic
manifest, in automotive engine manufacturing, the tag is attached to an engine
carrier. Routing and build instructions are written to the tag. As the engine
and carrier approach the first station, the tag is interrogated by a
reader/writer to determine whether or not the engine should be at the station.
If affirmative, the build information is read off the tag and transferred to the
local processor, there decisions are made on how to instruct the automated
equipment. After the operations are performed, key quality data and/or
production results are stored on the tag. This allows users to later investigate
any quality issues across varying lots. In the case where the operation is
unsuccessful, this failure is also written to the tag. Then, prior to reaching
the next station, the engine is removed from the line and transferred to a
remote rework station. At the rework station, the tag is read to determine how
the engine must be repaired.
In the
electronic industry, several companies are taking the electronic manifests even
further, enabling production operations to continue even if the central server
or host fails. Since a tag can combine with a local processor at a given station
to communicate all build instructions to that station, operations can be
conducted without any dependency on the network.
Read/Write
(Disposable)
In an
even more advanced state, disposable labels are applied to products during
manufacturing and utilized throughout the entire supply chain (from
manufacturing through retail and out to the customers). In essence, the RFID
labels are used to create "smart products" that can communicate with their
surroundings.
Applying
RFID labels directly to television sets illustrates the value of creating "smart
products." During production, RFID labels are applied to the inside of the
televisions' housings. After utilizing the labels during production (as
explained above), the labels accompany the "smart products" into the
warehouse. In the warehouse, the labels are used for either locating
given model or routing different models to intended storage
locations. Further, with the ability of reader/writers to communicate
with multiple labels in the same field, all televisions can be read or written
to as they exit the warehouse, regardless of whether the televisions are stacked
on pallets or transported separately. This enables users to write
destination information to the "smart products" and to record what has been
shipped, providing the trigger for electronic billing. Upon reaching
the retail warehouse, the "smart products" are read upon entering the building,
providing instant receipt into inventory and automatic payment clearance for
suppliers. The "smart products" are then tracked into the retail
outlet where the label is used for anti-theft and real-time
inventory. Finally, as the televisions leave the outlet, key customer
and product configuration information is written to the RFID labels. If a
customer returns a given television set to the Service Center (or affiliated
Service Center), the product's complete record is pulled up on a computer
monitor prior to the customer reaching the service counter, bringing service to
a new level.
20
The
example reveals how "smart products" not only save money throughout the supply
chain, but also add value for the customer. This value-added feature is being
used by manufacturers (and retailers) to distinguish their products against
competitive offerings, enabling the manufacturers to increase sales and/or
margins.
RFID
system performance criteria
The
performance of a Read/Write RFID system is dictated by the following
criteria:
●
|
Tags'
Memory Capacity,
|
●
|
Data
Transfer Speed,
|
●
|
Operating
Range,
|
●
|
Multiple-Tags-in-Field
Capability,
|
●
|
Operating
Temperatures,
|
●
|
RF
Carrier Frequency of the Tag-to-Antenna
Link,
|
●
|
RFID
System Connectivity.
|
Tags'
Memory Capacity -
The general rule with any memory-based system has always been that no
amount of memory is ever sufficient. Invariably, the response to
enlarging the memory capacity of a system is to increase the scope of the
application so that it requires even more memory. The amount of memory available
on Read Only Tags is 20 bits of information. Active Read/Write Tags vary from 64
Bytes to 32KB, meaning that several pages of type-written text can be stored in
a Read/Write Tag. This is usually sufficient to carry build manifests and test
data, as well as allowing room for system growth. The memory of Passive
Read/Write Tags ranges from 48 Bytes to 736 Bytes and provides many distinct
benefits over Active Systems.
[The
correct placement of the Tag in the Antenna's range is critical to good
performance]
Data
Transfer Speed -
Speed is an important factor for most data capture systems. With today's
decreasing production cycle times, the amount of time needed to access or update
the RFID pallet identification system must fit within a very small time window.
Microwave systems can operate at high speeds, but the concerns inherent in
microwave technology can far outweigh any benefits gained from the
speed.
Read
Only Speed - The
speed of a Read Only RFID system is dictated by the length of the code, the
speed of data transfer from the tag, the range at which they will operate, the
RF carrier frequency of the tag to antenna link, and the modulation technique
used to transfer data. This speed will vary according to the specific products
used in each application. For instance, the EMS Read Only system transmits its
data in a 20-bit frame at a rate of 8750 bits per second.
Passive
Read/Write Speed
- The speed of a Passive Read/Write RFID system is based on the same
criteria as Read Only systems, except now one must consider the speed of data
transfer both to and from the tag. Speed will again vary according to the
specific products used in each application. For instance, the EMS HMS system
transfers data at a rate of 1000 bytes per second.
Active
Read/Write Speed
- The speed of an Active Read/Write system is based on the same criteria
as a Passive Read/Write system, unless the Passive system relies on charging a
capacitor in the Tag to enable communication. Importantly, a typical
low-frequency Read/Write system will operate at speeds of only 100 or 200 bytes
transferred per second. Since several hundred bytes may be transferred at a
station, the transfer of the information could take several seconds longer than
the entire mechanical operation. EMS has solved this concern with our line of
high speed, low frequency Read/Write RFID products. By incorporating
several unique and proprietary techniques, our engineers have designed a
low-frequency system with speeds higher than that of most microwave systems. The
HS-Series transfers data at speeds of over 3000 bytes per second. In a station
transferring 600 bytes of information, the information transfer would take up to
six seconds using older technologies, but only 200 milliseconds with the
HS-Series products.
21
Operating
Range - The
Read/Write range for presently available systems varies from less than one inch
to over 29 inches; increased Read/Write ranges of up to eight feet using low
frequency 13.56Mhz. Oftentimes in an RFID application, the need to
have long read/write distances can be quickly overcome by choosing the most
appropriate antenna. For instance, the FastTrack™ Conveyor Antenna is designed
to be mounted on a conveyor between the rollers or even in place of the rollers.
An RFID tag can then be mounted on the bottom of a tote, pallet or even the
product itself, ensuring the tag passes directly over the Conveyor Antenna. In
this example, read/write range requirements are greatly reduced since the Tag is
placed on the bottom of the tote and effortlessly slides over the Conveyor
Antenna to achieve 100% reading accuracy each time.
Multiple-Tags-In-Field
Capability -
Depending upon the tag and antenna configuration, reading and writing
data to Multiple-Tags-In-Field is possible with the FastTrack™
family. The FastTrack™ Tunnel Antenna was specifically designed to
read many tags simultaneously. In post office applications,
FastTrack™ Labels are placed inside envelopes which are then placed inside
tagged letter sacks. As the sacks pass through the Tunnel Antenna,
data is simultaneously read and written to all Tags.
Operating
Temperatures -
EMS is considered the foremost expert on high-temperature RFID
applications, and has numerous high-temperature installations throughout the
world. EMS' field-proven history in high-temperature applications originated
with the Passive Read Only ES-Series Tags. Designed to survive up to
401°F (240°C), in addition to sub-freezing levels of -40°F
(-40°C). The third generation of high-temperature Tags provides an
additional benefit to any high-temperature application -- the Tags are
disposable. The FastTrack™ LRP250HT-FLX Tags incorporate a
patent-pending manufacturing process which makes these flexible labels the best
solution for any high-temperature application. Using their adhesive backing,
simply attach RFID FLX Tags to products (automobiles for example). The tags will
then remain with the products throughout the entire production cycle, and can
even be used for after sale information at the retail level.
RF
Carrier Frequency of the Tag-to-Antenna Link - A very important
consideration in choosing an RFID system is the carrier frequency band used to
transfer information between the tag and antenna. The FCC restricts operation to
frequencies in either the very low (50 to 500 kHz), medium (13.56 MHz) or
microwave (0.9 to 2.5 Gigahertz) range. The microwave systems have the advantage
of potentially longer range, but exhibit a crippling phenomenon known as
"Standing Wave Nulls." Standing Wave Nulls are dead areas within the
reading field in which the Tag cannot be accessed. These arise due to
the short wavelengths of microwave radiation (12 to 30
centimeters). When the signal bounces between metal at a distance
equal to a multiple of its half wavelength, it forms a standing wave pattern
with some points where there is an insufficient signal to operate the tag. This
is the same phenomenon that causes "cold spots" in food cooked in microwave
ovens. The solution for the microwave oven industry is to move the food on a
rotating platter so that the location of the null is not constant. Similarly,
microwave-based RFID systems have tried mechanically manipulating the antenna
using a "modulator," but this method has proven impractical.
The
location of nulls is unpredictable, since nulls will change depending on the
configuration of metal in the field. In practical terms, this indicates that in
a microwave system the tag cannot be reliably operated while standing still,
since it could be located in a null area. Lower frequency systems do
not exhibit this concern. In addition, these systems are not affected by
moisture in the reading field. This high tolerance to different operating
environments tends to make low and medium frequency systems the preferred
solutions for most applications.
EPC
Network (Auto-ID)
The
concept of EPC Network comes from Auto-ID and these words are used
interchangeably.
Automatic
identification, or Auto-ID for short, is the broad term given to a host of
technologies that are used to help machines identify objects. Auto
identification is often coupled with automatic data capture. That is, companies
want to identify items, capture information about them and somehow get the data
into a computer without having employees type it in.
The aim
of most Auto-ID systems is to increase efficiency, reduce data entry errors, and
free up staff to perform more value-added functions. There are a host of
technologies that fall under the Auto-ID umbrella. These include bar codes,
smart cards, voice recognition, some biometric technologies (retinal scans, for
instance), optical character recognition, radio frequency identification (RFID)
and others.
22
The EPC
Network (Auto-ID) is comprised of five fundamental elements:
EPC
- The Electronic Product
Code (EPC) is the next generation of product identification. Like the U.P.C.
(Universal Product Code) or bar code, the EPC is divided into numbers that
identify the manufacturer, product, version and serial number. But, the EPC uses
an extra set of digits to identify unique items. The EPC is the only information
stored on the EPC tag. This keeps the cost of the tag down and provides
flexibility, since an infinite amount of dynamic data can be associated with the
serial number in the database.
EPC
Tags and Readers
- The EPC Network is an RFID-based system that uses radio frequency to
communicate between readers and tags. The EPC (a number for uniquely identifying
an item) is stored on a special tag. These tags will be applied during the
manufacturing process. In turn, using radio waves, the tags will “communicate”
their EPCs to readers, which will then pass the information along to a computer
or local application system.
Object
Name Service (ONS) -
The vision of an open, global network for tracking goods requires some
special network architecture. Since only the EPC is stored on the tag, computers
need some way of matching the EPC to information about the associated item.
That’s the role of the Object Name Service (ONS), an automated networking
service similar to the Domain Name Service (DNS) that points computers to sites
on the World Wide Web.
Physical
Markup Language (PML) -
The Physical Markup Language (PML) is a new standard “language” for
describing physical objects. When finalized, it will be based on the widely
accepted extensible Markup Language (XML). Together with the EPC and ONS, PML
completes the fundamental components needed to automatically link information
with physical products. The EPC identifies the product; the PML describes the
product; and the ONS links them together. Standardizing these components will
provide “universal connectivity” between objects in the physical
world.
ALE
(Application Level Events) - ALE is software technology
designed to manage and move information in a way that does not overload existing
corporate and public networks. ALE uses a distributed architecture, meaning it
runs on different computers distributed through an organization, rather than
from one central computer. ALEs are organized in a hierarchy and act as the
nervous system of the new EPC Network, managing the flow of
information.
With this
new EPC network, computers will be able to “see” physical objects, allowing
manufacturers to be able to track and trace items automatically throughout the
supply chain. This technology will revolutionize the way companies manufacture,
sell and buy products.
Below is
an example of an ALE:
Adding
Identity to Products
SuperCola,
Inc. adds a Radio Frequency Identification (RFID) tag to every cola can it
produces. Each tag is cheap - it costs about five cents - and contains a
unique Electronic Product Code, or EPC. This is stored in the tag's
microchip that, at 400 microns square, is smaller than a grain of sand.
The tag also includes a tiny radio
antenna.
|
23
Adding
Identity to Cases
These
tags will allow the cola cans to be identified, counted and tracked in a
completely automated, cost-effective fashion. The cans are packed into
cases - which feature their own RFID tags - and loaded onto tagged
palettes.
|
|
Reading
Tags
As
the palettes of cola leave the manufacturer; an RFID reader positioned
above the loading dock door hits the smart tags with radio waves, powering
them. The tags "wake up" and start broadcasting their individual EPCs.
Like a good kindergarten teacher, the reader only allows one tag to talk
at a time. It rapidly switches them on and off in sequence, until its read
them.
|
|
ALE
at Work
The
reader is wired into a computer system running ALE. It sends ALE the EPCs
it's collected, and ALE goes to work. The system sends a query over the
internet to an Object Name Service (ONS) database, which acts like a
reverse telephone directory - it receives a number and produces an
address.
|
|
ONS
at Work
The
ONS server matches the EPC number (the only data stored on an RFID tag) to
the address of a server which has extensive information about the product.
This data is available to, and can be augmented by, ALE systems around the
world.
|
24
PML
at Work
This
second server uses PML, or Physical Markup Language, to store
comprehensive data about manufacturers' products. It recognizes the
incoming EPCs as belonging to cans of SuperCola, Inc.'s Cherry
Hydro.
|
|
Because it knows the location of the reader, which sent the query, the system now also knows which plant produced the cola. If an incident involving a defect or tampering arose, this information would make it easy to track the source of the problem - and recall the products in question. | |
Efficiency
in Distribution
The
palettes of cola arrive at the shipping service's distribution center.
Thanks to RFID readers in the unloading area, there's no need to open
packages and examine their contents. ALE provides a description of the
cargo, and the cola is quickly routed to the appropriate
truck.
|
|
Efficiency
in Inventory
The
delivery arrives at SpeedyMart, who has been tracking the shipment thanks
to its own ALE connection. SpeedyMart also has loading dock readers. As
soon as the cola arrives, SpeedyMart's retail systems are automatically
updated to include every can of Cherry Hydro that arrived. In this manner,
SpeedyMart can locate its entire Cherry Hydro inventory automatically,
accurately and without incurring cost.
|
|
Overstocking
Eliminated
What's
more, SpeedyMart's retail shelves also feature integrated readers. When
the cans of cola are stocked, the shelves "understand" what's being put in
them. Now, when a customer grabs a six-pack of Cherry Hydro, the
diminished shelf will route a message to SpeedyMart's automated
replenishment systems - which will order more Cherry Hydro from SuperCola,
Inc. With such a system, the need to maintain costly "safety volumes" of
Cherry Hydro in remote warehouses is
eliminated.
|
25
Consumer
Convenience
Auto-ID
makes the customer's life easier, too. Rather than wait in line for a
cashier, she simply walks out the door with her purchases. A reader built
into the door recognizes the items in her cart by their individual EPCs; A
swipe of the debit or credit card and the customer is on her
way.
|
Benefits
of RFID
Here are
some of the ways companies will benefit from having the ability to track
individual items.
●
|
Fewer
Instances of Inventory Running Out of
Stock;
|
●
|
Better
Merchandising and Promotions;
|
●
|
Faster
Checkout;
|
●
|
Lower
Inventory;
|
●
|
Reduced
Shrinkage;
|
●
|
Anti-Counterfeiting;
|
●
|
Better
Asset Utilization;
|
●
|
Targeted
Recalls; and
|
●
|
More
Efficient Recycling
|
Fewer
Out of Stocks - Retailers and their suppliers have long struggled with
how to make sure an item is always on the shelf when a customer wants to buy it.
Today's inventory systems record only what's been sold and what's on the
premises. They provide no visibility into what's on - or not on -- the shelves.
And in the case of clothes, where items have to be stocked in a specific order,
inventory systems provide no information about what is in stock but not in the
right place. As a result, sales are lost even when the goods are at the store
because they are not where a customer can find them.
RFID has
the potential to dramatically reduce out of stocks. One day, readers installed
on store shelves will automatically track every time an item is picked up, or
put back. When stock on the shelf gets low, the system can automatically alert
staff to bring out more product from the back room. When the storeroom is
running low, the distribution center or manufacturer can be alerted
automatically to send replenishments. And an inventory system based on RFID
technology could alert a store manager when items are put in the wrong location
by staff or customers. It would also eliminate human error at each point where
goods are received or handled by staff.
Better
Merchandising and Promotions - Readers on the stores shelves will provide
the first extensive real-time view of customer behavior in the store. By
recording how often an item is picked up, purchased or put back, retailers and
their suppliers will have instant feedback on promotions. The information can be
broken down by product, store, region or chain, providing the means to better
tailor promotions to a specific market segment.
Faster
Checkout - Customers hate long lines. RFID has the potential to virtually
eliminate checkout lines by making it possible to scan a shopping cart full of
goods in seconds. Self-service checkout systems are already catching on in the
United States and Europe, and RFID has the potential to make those systems
virtually foolproof.
Lower
Inventory - Every company would like to reduce its inventory without
jeopardizing potential sales. RFID makes this possible by providing real-time
information about not just what's in the store, warehouse and factory, but what
material is in the supply pipeline. Knowing with absolute certainty what goods
are available and where they are located will give companies that confidence to
reduce inventory along every link in the supply chain.
26
Reduced
Shrinkage - According to the National Retail Security Survey conducted
annually by the University of Florida, nearly 2 percent of total sales in United
States is lost each year due to "shrinkage" - employee and customer theft,
vendor fraud and administrative error. RFID can reduce vendor fraud and
administrative error by automatically matching the Electronic Product Codes of
items arriving or being shipped with those scheduled. It can reduce employee
theft by providing real-time information about the movement of
products.
Perhaps
RFID's biggest impact in this area, however, will be reducing shoplifting. By
analyzing customer behavior at the shelf, companies will be able to spot unusual
activity that could signal a theft is about to occur. Let's say the data shows
customers typically pick up one or two packs of a particular item at a time. If
a reader on the shelf detects that six units have been snapped up, it could
alert staff of the unusual activity before a suspected shoplifter is out the
door.
Anti-Counterfeiting
- Manufacturers can greatly reduce losses from counterfeiting by assigning a
specific ID number to every item they produce. Any item without an RFID tag is
immediately spotted as a fake. And even if a counterfeiter managed to produce
phony RFID tags for counterfeit goods, retailers, police and customs officials
could refer to the manufacturer's database to find that the Electronic Product
Codes in question are bogus, or are duplicates of existing codes.
Better
Asset Utilization - Any company that invests in hard assets
wants to get the most out of them. But today's tracking systems don't provide
data about individual units, so it's impossible to know how they are deployed or
how they could be used more effectively. RFID changes that by providing
real-time information about each unit's location and status. Companies that have
implemented expensive proprietary RFID systems to track high-value assets have
found that these systems can dramatically increase asset
utilization
Targeted
Recalls - When a product has to be recalled, a company typically has to
recall all units sold, even if the problem affects only a small fraction of
them. That's because there is no way to distinguish which units have the faulty
part. With RFID, companies will be able to save millions of dollars by having
targeted recalls because they will be able to identify which specific units have
a problem.
More
Efficient Recycling - Because items can be tracked from the time they are
made until the time they are recycled, RFID technology has the potential to
improve recycling. Items are more easily sorted. And specific instructions for
recycling items that require special care can be stored in a product's PML
file.
RFID
Market
Background
In recent
years, the most RFID markets have experienced considerable growth in the size of
orders experienced by companies in this market segment. For example,
there was a 900 million China ID card commitment delivered in 2008, which is
more than ten times anything that came before. In 2007, UPM Raflatac
landed an order to supply 30 million RFID tickets a months to Moscow transport
system. In August 2006, Confidex secured an order in China for 125
million smart tickets. Prior to that order, the largest single orders
worldwide for such tickets were 50 million and 20 million units in 2005 and
2004, respectively. In March 2006, Savi Technology won a $25 million order from
the US Military for RFID systems; the previous largest order for military RFID
systems was $111 million. In August 2006, RF Code secured an order from SYMX in
the U.S. for $30 million real-time monitoring software (“RTLS”), which was much
larger than any previous orders for RTLS.
We expect
the usage of RFID to migrate to East Asia as the dominant manufacturing
territory. As the manufacture of RFID hardware and software moves to
East Asia, it is expect that the execution of services such as system
integration will move there as well. China already has 85% of the
world’s manufacturing capacity, for products of all sorts and it will tag
exports to Western requirements. China is already executing the largest RFID
order by value (over one billion national identification cards for adults equal
to six billion dollars (including systems)). China has a policy of
making its own requirements throughout the RFID value chain as soon as
possible. RFID is leapfrogging technologies such as magnetic stripes
and barcodes.
RFID
Market size
In 2009
the value of the entire RFID market was expected to be $5.56 billion, up from
$5.25 billion in 2008. This includes tags, readers and software/services for
RFID cards, labels, fobs and all other form factors. By far the biggest segment
of this is RFID cards, and $2.57 billion of the total $5.56 billion being spent
on all other forms of RFID - from RFID labels to active tags.
27
$
Billions
Source:
RFID Forecasts 2007-2017, IDTechEx, 2007
The
tagging of pallets and cases as demanded by retailers (mostly in the U.S.) will
use approximately 225 million RFID labels in 2009. RFID in the form
of tickets used for transit will require 350 million RFID tags in 2009. The
tagging of animals (such as pigs and sheep) is now substantial as it becomes a
legal requirement in many more territories, with 105 million RFID tags being
used for this sector in 2009. In total, 2.35 billion tags will be sold in 2009
versus 1.97 billion in 2008.
As a
summary from the latest research by IDTechEx, by 2017, the market value will be
over five times the size of the market compared to 2007, but the number of tags
supplied will be over 350 times that of 2007, driven by the development of lower
cost tags and installed infrastructure which will enable high volumes of
articles to be tagged.
Source: RFID Forecasts 2007-2017, IDTechEx, 2007
28
Opportunities in the RFID Market
We expect
the future emphasis for RFID products to shift towards process based
solutions. End user processes are highly diverse and require RFID
systems to integrate with their existing AIDC infrastructure. Such
process-centric solutions need to have high levels of flexibility incorporated
into the design to ensure that customized requirements are taken care
of. Even within manufacturing sectors, there is a higher focus
towards monitoring work-in-progress (WIP). High process efficiency
levels have a direct impact on the overall productivity and profitability of the
enterprise. Whatever be the vertical / application market
opportunity, end-users are likely to exhibit faster adoption rates when there is
a clear convergence of RFID technology and existing business processes in
place.
Source: RFID Opportunities, Frost & Sullivan, 2007
The
pharmaceutical industry is expected to emerge as an important vertical industry
for RFID in the next 12 months. The regulatory environment requiring compliance
with various state e-pedigree laws is among the biggest drivers for the vertical
market. Large distributors are leading the way in terms of deployment and
utilizing RFID data to drive their internal processes forward. Early
adopters and pharmaceutical manufacturers are continuing their RFID projects and
this is likely to further increase traction within the vertical
market.
Healthcare
distribution chains are another area of opportunity. Innovative uses of the
technology include hospitals deploying RFID-enabled refrigerators for
consignment of high value drugs that are extremely sensitive to temperature
changes. The appliances enable constant monitoring of the drug’s quality.
Combining RFID / RTLS systems with existing Wi-Fi networks and hospital
infrastructure systems is also expected to continue adoption rates in
2010. Patient tracking applications are likely to present a good
opportunity for products that integrate both RFID and barcodes (2D
technology).
29
The
retail supply chain will continue to incite interest and large suppliers are
expected to see most of the deployments in the short term. RFID
vendors are likely to witness greater success by targeting suppliers who work
with mandated retailers or retailers that have adopted the technology at the
store level. Tagging at the manufacturing / supplier facility alone will not
result in true value since the downstream benefit is not there when retailers
have not invested in RFID. High value categories such as apparel, footwear and
media are likely to have higher adoption rates of RFID technology. The
opportunity in the vertical lies in delivering RFID solutions that can be
integrated and scaled up with the existing retail network in place.
In-store
and point-of scale (POS) applications are emerging as key areas of interest for
RFID deployments. Retailers are evaluating RFID applications that enhance the
overall shopping experience for the customer. The momentum is particularly
strong in Europe and Asia where there is a higher emphasis on item level
tagging. By tagging individual items at the store level, RFID-enabled mirrors
and electronic displays enable the customer to view, select, and locate related
/ different items within the store.
Aerospace
is also a significant market to watch out for in the next few months. The
decision by Airbus to implement RFID systems based on its earlier pilot program
is a positive driver for the overall adoption within the vertical
market. Airport baggage handling applications are another
volume-driven RFID opportunity that is expected to witness pilot programs and
deployments next year. Recent projects in Milan, Argentina, UK,
Australia and Thailand reflect the technology’s gaining popularity outside North
America.
The
strong need for track and trace capabilities in chemical and petroleum
industries is expected to increase the demand for RFID within these markets.
Most petroleum products need to be certified according to the American Petroleum
Institute which requires manufacturers to provide a documented history of the
product. Efforts by the Chemical Industry Data Exchange (CIDX) in
aligning itself closely with EPCglobal are expected to support chemical
companies in furthering their RFID deployments.
Our
Products
URIS
Network Group - Total system of EPCglobal Network
Clavis
Technologies URIS Network Group is a RFID integrated solution for customizing
RFID data into enterprise applications by progressively collecting and managing
RFID data stream. Clavis Technologies RFID Framework is a proprietary framework
from Clavis Technologies that integrates and manages a whole system, and
complies with EPCglobal standards. Therefore, because URIS Network Group is
built upon the Clavis Technologies RFID framework, it ensures performance
enhancement and system monitoring, diagnosis, and recovery.
URISware
URISware
is ALE (Application Level Event)-compliant RFID Middleware software
solution. It transforms RFID data into user readable information
which are then translated, filtered, and grouped by data patterns. Finally,
URISware combines
refined data sets and broadcasts them upon entry of corresponding reporting and
event triggering conditions.
30
The
architecture of URISware
The
advantages of our URISware are:
Stability
|
●
|
Uses
Clavis Technologies own URIS Framework to realize the optimized RFID
middleware
|
● |
Reliable
stability by using lightweight system that minimizes use of
resource
|
|
● |
Maximizes
convenience of operators and administers and system stability by
auto-monitoring, diagnosis and recovery
|
|
● |
Transaction
circumstance for multi-tier under the distributed system
structure
|
|
● |
Efficiently
manage the process by PTM (Process Transaction
Manager)
|
|
Compatibility
|
●
|
Supports
varied codes (64bit/96bit/128bit etc.)
|
● |
Provides
interfaces to connect with varied solutions (ERP, WMS, Legacy system
etc.)
|
|
● |
Provides
varied communications protocols (TCP/IP, HTTP, TCP, SMTP
etc.)
|
|
Scalability
|
●
|
Supports
integration of EPC Global Architecture-based products and URIS products by
Plug-in
|
● |
Applies
user-defined business models
|
|
Standards
|
●
|
EPCglobal
Network ALE Specifications
|
Compliance
|
● |
EPCglobal
TDS(Tag Data Standard) Specifications
|
● |
EPCglobal
TDT(Tag Data Translation) Specifications
|
|
● |
ISO
and Mobile RFID Specifications
|
URIS
Network Group has gradually specialized in these industries.
Logistics, Manufacturing,
and Retail
We
developed a single window-based integrated solution to track moving quantities
of products globally and to provide Discovery Services, tracking products’
histories per each domain in logistics, manufacturing, and retail industry that
should be tied to show whole flow of Supply Chain Management (SCM).
Aerospace
We have
focused on Ultra High Frequency (UHF) RFID system to handle passengers’ baggage
accurately and promptly as well as provide passengers with convenient services
such as a carousel indicator system, showing a passenger’s seat
number, when his or her baggage arrives on a carousel and specialized
EPCIS, showing the tracking information of baggage in real time for
aviation.
Casino
Unlike
prior RFID-based casino solutions which focused on HF RFID, we have developed
the UHF RFID casino solution to apply various applications without considering a
read rage in RFID system. In additions, we have developed RFID-based casino
hardware with Alien Technology Asia (ATA) to operate with our UHF RFID casino
solution. This system will change manual works (e.g. reports of rolling game,
betting management) into automated works.
31
Education
We have
provided efficient turnkey RFID solutions, including other technologies that
universities and institutes require, to build u-Lab or u-practical room with
real demo programs that are based on our various implementation
cases.
Asset Management (For All Industries)
We have
developed RFID-based asset management solutions which are integrated with R3 and
ERP of SAP to be implemented system wide. This solution can accept
barcode system simultaneously so companies can use this system with
flexibility.
URISpagent
URISpagent
is a hardware device interface software system. It controls RFID Readers and
sensors, collects tag and sensory information to build RFID data set and then
reports a list of formatted RFID message to data consuming servers.
The
architecture of URISpagent
The
advantages of our URISpagent are:
Stability
|
●
|
Uses
Clavis Technologies own URIS Framework to realize the optimized
RFID system
|
● |
Reliable
stability by using lightweight system that minimizes use of
resource
|
|
● |
Maximizes
convenience of operators and administers and system stability by
auto-monitoring, diagnosis and recovery
|
|
● |
Transaction
circumstance for multi-tier under the distributed system
structure
|
|
● |
Efficiently
manages the process by PTM (Process Transaction
Manager)
|
|
Compatibility
|
●
|
Supports
varied vendors’ RFID devices (Alien, Symbol, LS Industrial Systems
etc.)
|
● |
Supports
varied codes (64bit/96bit/128bit etc.)
|
|
● |
Provides
varied communications protocols (TCP/IP, HTTP, TCP
etc.)
|
|
Scalability
|
●
|
Supports
integration of EPC Global Architecture-based products and URIS products by
Plug-in
|
● |
Applies
user-defined business models
|
|
Standards
|
●
|
EPCglobal
Network ALE Specifications
|
Compliance
|
● |
EPCglobal
TDS (Tag Data Standard) Specifications
|
● |
EPCglobal
TDT (Tag Data Translation) Specifications
|
|
● |
ISO
and Mobile RFID
Specifications
|
32
URISors
URISors
is an object name service software solution. It points an Electronic Product
Code (EPC) querier to network addresses where information on the EPC is stored.
Also it defines and manages corresponding EPC information of RFID tags to
support the automated networking service.
The
architecture of URISors
The
advantages of our URISors are:
Stability
|
●
|
Uses
Clavis Technologies own URIS Framework to realize the optimized RFID ONS
(Object Name Service)
|
● |
Reliable
stability by using lightweight system that minimizes use of
resource
|
|
● |
Maximizes
convenience of operators and administers and system stability by
auto-monitoring, diagnosis and recovery
|
|
● |
Transaction
circumstance for multi-tier under the distributed system
structure
|
|
● |
Efficiently
manages the process by PTM (Process Transaction
Manager)
|
|
Compatibility
|
●
|
Supports
varied codes (EPC, ISO, UCODE, GS, IATA, mobile code
etc.)
|
● |
Provides
varied communications protocols (HTTP, TCP, UDP
etc.)
|
|
Scalability
|
●
|
Supports
integration of EPC Global Architecture-based products and URIS products by
Plug-in
|
● |
Applies
user-defined business models
|
|
Standards
|
●
|
EPCglobal
Network ONS
|
Compliance
|
● |
EPCglobal
TDS (Tag Data Standard) Specifications
|
● |
NIDA(National
Internet Development Agency of Korea)
ODS
|
URISwis
URISwis
is an information service solution. It consists of EPC information server and an
interface for accessing EPC-related information. The information server contains
EPC-related information and business data such as date of manufacture, date of
expiration, and price. The interface is EPCIS-compliant and consists of a Query
and Capture Interface to extract and provide EPC and business
information.
33
The
architecture of URISwis
The
advantages of our URISwis are:
Stability
|
●
|
RFID
EPCIS uses Clavis Technologies own URIS Framework to realize the optimized
RFID system
|
● |
Reliable
stability by using lightweight system that minimizes use of
resource
|
|
● |
Maximizes
convenience of operators and administers by the web-based management
console
|
|
Compatibility
|
● |
Has
independent Capture/Query Interface for any kinds of
languages
|
● |
Provides
Web Service interfaces to connect with varied solutions (ERP, WMS, Legacy
system etc.)
|
|
|
●
|
Provides
varied communications protocols (HTTP, SOAP
etc.)
|
Scalability
|
●
|
Supports
expansion attributes for event
types
|
● |
Supports
Capture Interfaces of standards and user-defined master
data
|
|
● |
Queries
event and master data by varied parameters
|
|
Standards
|
●
|
EPCglobal
Network EPCIS Specifications
|
Compliance
|
● |
HTTP
POST for the Capture Interface
|
● |
SOAP
standard for the web service
binding
|
URIS RTLS Solution
URIS RTLS
Solution is real-time monitoring software that tracks a location and condition
of each active RFID tag, alerts based on non-approval situations, backs up data
of tracking histories of active RFID tags, and records other movements or
changes after office hours. We have focused our URIS RTLS solutions
on hospitals’ services such as patient monitoring systems and company security
systems for visitor tracking systems that restrict access to facilities and
information.
URIS
Mobile RFID Platform
Clavis
Technologies’ URIS Mobile RFID Platform is a mobile RFID integration software
solution to accommodate a various kind of code systems such as EPC and
mCode. A RFID-Equipped cell phone reads and transforms a RFID tag code by
its corresponding coding scheme. Our URIS platform consists of Service
Gateway, ODS Resolver, History Manager and Tag Manager. We have developed
our URIS Mobile RFID platform to provide the mobile search services by mobile
phone attached a RFID Reader that can catch up data around users to search
information in real time. We will l also provide Mobile RFID Gateway
to integrate with the mobile internet easily and rapidly.
34
The
architecture of URIS Mobile RFID Platform
URIS
Service Gateway
Service
gateway detects and translates code information from tags as well as
authenticates who is user. There are three components, (1) Event Detection,
which detects information, such as EPC, mCode, micro-mCode, and mini-mCode, from
terminals, (2) Code Translator, which translates code information (EPC, mCode,
micro-mCode, and mini-mCode) into URN/FQDN form and (3) User Authentication,
which checks the user authentication based on user information which
came from terminals.
URIS
ODS Resolver
ODS
Resolver searches for location of server which has object/service information
related with Tag code. It has DNS Controller which can provide URL
list of object/service information which is equivalent to RFID tag codes in DNS
and directory service that manages object/service /URL information.
URIS
History Manager
History
Manager manages code/history information recorded in RFID tags and generates
serial numbers. There are 4 components: (1) Event Processor for
receiving/ recording/ inquiring issued/ sensed events which came from Tag
Manager and terminals, (2) Serial Generator that generates and manages serial
numbers, (3) Object Information for collecting/ saving/ inquiring
information of RFID tag codes, and (4) Tracking Information
for providing history information service to see integrated history
information which is distributed.
URIS
Tag Manager
Each code
system (EPC, mCode, micro-mCode and mini-mCode) is managed by Tag Manager
(registration, issuing, and disusing). Tag Manager has a Code
Generator that generates code which is compatible with each code system (EPC,
mCode, micro-mCode and mini-mCode), Tag Register (which can generate and disuse
codes as well as manages the code system), and Tag Printing that prints managed
codes with a tag printer.
u-Financial
Solutions
Our
u-Financial Solution has focused on u-Financial Portal system that provides
m-Banking and m-Stock by mobile phone, PDA and other portable devices in retail
market. In the business to business market, we have developed
u-Voucher, authenticated by RFID or 2D barcode that can be used to provide
payment services of public institutions.
m-Banking
Solution
Clavis
Technologies released the m-banking solution based on two different platforms,
each providing the same services – such as inquiring view of accounts, accounts
transaction history, view of checks and exchange rates; transferring service;
credit card service; and other typical banking services.
35
The
system overview of m-Banking Solution
m-Stock
Solution
Clavis
Technologies released the m-stock solution based on WIPI (Wireless Internet
Platform For Interoperability), the Korean Wireless Internet Standard, providing
such services as Quotes, Pre-Order, ECN (Electronic Communication Network) and
Account services.
Product
Upgrades and Diversification
URIS
Network Group
Following the Latest Updated
World Specification
The first
version of URIS is made by C# and based on .NET. Clavis Technologies
has prepared the new version URIS based on JAVA to support UNIX and Linux
platforms to provide extensible services for all kind commercialized operation
systems and platforms. Clavis Technologies plans to upgrade the URIS core
transaction engine supporting EPC Network specification Version 1.1 to be the
global RFID solution.
Expanding Enterprise
Application Interfaces
Clavis
Technologies expects to upgrade the business logics of URIS Network Group for
each step of the enterprise RFID section supporting applications of industries
of Government, Aerospace, CPG, Heath Care, Logistics, Manufacturing, and Retail
based on customers’ needs as well as Clavis Technologies’ knowledge
accumulated since 2003. Considering various Database
Management System (DBMS) and backend systems, these interfaces will be modulized
to integrate easily and rapidly with minimizing errors.
Enhancing Voluminous
Transaction Capability
Because
of the voluminous transactions that we expect will be appearing in the specific
industrial area (i.e., distribution, logistics, etc.) in near future, Clavis
Technologies has enhanced the transaction capability to develop an advanced RFID
application platform to deploy in any industry stably and
immediately.
URIS
RTLS Solution
Handling an extensive scale
of Active RFID tags’ data
Based on
customers’ requirement, Clavis Technologies expects to upgrade the data
processing to provide data storage of a big scale of active RFID tags’ data as
well as various monitoring and reporting functions especially in small areas or
limited areas where consumer security is a high priority.
Ultra-Wideband (UWB)
Application
Clavis
Technologies will gradually focus on this application as UWB becomes more widely
used. UWB allows for high data throughput with low power consumption for
distances of less than 10 meters, or about 30 feet, which is very applicable to
the digital home requirements.
36
URIS
Mobile RFID Platform
Developing the Mobile RFID
Middleware
Clavis
Technologies expects to develop the new version RFID middleware that can be
embedded in mobile or PDA, as a personal device, that can provide people with
the unique and individual RFID services comparing with enterprise services in
near future.
u-Financial Solution
Developing the m-Payment
Platform
Clavis
Technologies expects to develop various m-Payment platforms (i.e.,
Transportation card, Credit card, Debit card, Point card, Cashback Credit card,
e-Purse, Micro-payment etc.) to provide unlimited payment ways by a mobile
handset.
Developing u-Voucher
Solution
Clavis
Technologies expects to develop u-voucher solution based on 2D bar codes by
mobile internet and RFID tags by mobile RFID system to provide fast and easy
payment service to users.
Developing the m-Financial
Portal Service Platform
Clavis
Technologies will upgrade m-banking solution depending on mobile system
applications that banks plan to deploy in their works firstly and then develop
the m-Financial portal service platform, especially enhanced for m-Payment ways,
integrated Clavis Technologies m-banking service platforms with other
companies’’ m-stock service platforms.
Strategic
Relationships
EPCglobal
The
EPCglobal consortium develops industry standards for the use of RFID technology
in supply chains. EPCglobal is the organization entrusted by industry to
establish and support the EPCglobal Network™. The EPCglobal
consortium also is involved in the development of EPCglobal Standards via
EPCglobal’s Action & Working Groups and the EPCglobal Certification and
Accreditation Program testing. We joined EPCglobal’s Action &
Working Groups in 2004 as a solution partner.
ETRI
(Electronics and Telecommunications Research Institute)
Established
in 1976, ETRI is a non-profit government-funded research organization that
has been
at the forefront of technological excellence for more than 25 years. It has
relationship with us for core technology of RFID Middleware.
IBM Korea
We
developed SCM based on Auto-ID System for Sales of IBM Korea in
Korea. Our RFID middleware is customized for IBM platforms such as
DB2 and Websphere,
RFID
Systems and Mobile RFID System
We have
provided RFID middleware and hardware and consulting on RFID systems with many
major Korean corporations. We are also developing with Korea’s major
telecommunication companies, SK Telecom and KTF, new mobile Internet
business. In addition, we have taken a leadership role with
major Korean financial institutions developing mobile banking
capabilities.
Competitors
Some of
our main competitors are Reva Systems, GlobeRanger, OATSystems and
RedPrairie. Some of these competitors have substantially greater
financial and personnel resources than we do.
Reva
systems
Reva
Systems develops radio-frequency identification (RFID) network infrastructure
products that enable customers to rapidly deploy scalable solutions in any
environment. Reva's standards-based Tag Acquisition Processor (TAP)
appliances facilitate improved system performance, manageability and security
while significantly lessening implementation time and
complexity. Reva products are delivered by a global network of
partners and deployed worldwide across a range of innovative applications
spanning industries such as Aerospace, Contract Manufacturing, Discrete
Manufacturing, Consumer Packaged Goods, Retail, Consumer Electronics, Logistics,
and Healthcare/Life Sciences. Reva was founded in 2004, and is
headquartered in Chelmsford, Mass.
37
GlobeRanger
GlobeRanger
is a provider of RFID and mobility software solutions. GlobeRanger
owns an innovative platform, iMotion, which provides the critical software
infrastructure that transforms real-time data, from the edge of the enterprise,
into actionable information. iMotion serves as the foundation for GlobeRanger
and its partners to rapidly develop, deploy, and manage RFID and mobile
applications. Founded in 1999, GlobeRanger is headquartered in
Richardson, Texas.
OATSystems
OATSystems,
Inc. founded in 2001, is the developer of deployed standards-based RFID
solutions. OATSystems has worked closely with MIT's Auto-ID Center, to develop
many of the key standards and technologies that make commercial deployments of
RFID possible. OATSystems' Senseware - the company's flagship product - provides
a complete and powerful standards-based RFID solution for companies in the
retail, CPG, manufacturing, pharmaceutical, and logistics markets. Checkpoint
Systems, Inc. (NYSE: CKP), a leading manufacturer and marketer of
identification, tracking, security and merchandising solutions for the retail
industry and its supply chain, acquired OATSystems in June 2009, and OATSystems
is operating as a division of Checkpoint.
RedPrairie
RedPrairie,
founded in 2003, developed RFID-enabled suite of supply chain execution
solutions and applications for international trade logistics, mobile resource
management, supply chain security and inventory optimization to address the
broader needs for global supply chain management and security. RFID technology
is an integral part of RedPrairie’s supply chain suite. RedPrairie
has also created RFID Igniter™ and RFID Accelerator™. These applications can be
easily integrated (“bolted on”) with any ERP or distribution
system.
Marketing
To market
our products and services, we plan to leverage our relationships with RFID
organizations, primarily EPCglobal, as well as our prior customers and major
RFID hardware vendors. We have a good working relationship with
a number of Korean companies, such as LG Electronics and SK Telecom, from which
we hope to leverage additional business both within Korea and in Southeast
Asia.
We expect
to sell our products and services through three channels:
1.
|
Direct
to end user through our own sales
force;
|
2.
|
Through
a third party that will purchase our products on an ad hoc basis;
and/or
|
3.
|
In
conjunction with our number of strategic
partners.
|
Our
objective is to generate approximately 30% of our sales from direct selling
efforts and approximately 70% of sales to be generated through third parties
(such as existing and prior customers as well as vendors and strategic
partners).
Our
Research and Development
URIS
Network Group
As a main
product in our company, we have prepared URIS Network Group to specialize in the
EPC Interface based on global standards to apply them to real industrial fields
more efficiently and to get the certification from EPCglobal. In
additions, we plan to provide URIS duplex Monitoring System (MTS) that monitors
RFID hardware and EPCglobal Network servers as well as notices the system
administrator to check up when an error is happened.
URIS
RTLS Solution
We plan
to develop a RTLS Data Hub system that can accept both technologies, Active RFID
and UWB, to process the collected data from various RTLS hardware
simultaneously. The user interface of the monitoring system program will be
improved by using Flex and Flash to improve the legibility of the user data.
Such technology show efficient results when large-scale tags are used in a
specific space.
Mobile
RFID Platform
We are
interested in mobile RFID client software that can be embedded in a mobile phone
to process RFID tags data with integrating a mobile software platform. This is a
critical technology of Mobile RFID system and takes part as a significant
mechanism. We plan to engraft the integrated technology between EPCIS and
Discovery Service to realize mobile search services integrated with RFID tags
and objects’ information.
38
u-Financial Solution
The
technological development strategy of u-Financial Solution accepts a mobile
payment mechanism using the biological information of the user in order to
promote the security of the original u-Financial Portal. We plan to accept a
mobile payment technology that allows financial payment less than US$30 using
credit card information inserted in a portable device’s chip and contains
biological identification mechanisms (e.g., fingerprint or iris) to strengthen
the security level.
Employees
As of
December 31, 2009, we had 14 full-time employees, three of whom are
involved primarily in financial management and administration of our
company.
DESCRIPTION
OF PROPERTY
We lease
approximately 2,665 square feet for our executive offices located at #1564-1,
Seojin Bldg., 3rd Fl., Seocho3-Dong, Seocho-Gu, Seoul, Korea 137-874. We have
extended our lease until January 30, 2010. We expect to renew this
lease prior to or soon after the end of such lease term. Our monthly
rent is approximately $4,000. We believe this space is suitable for
our present operations and adequate for foreseeable expansion of our
business.
LEGAL
PROCEEDINGS
We are
not currently a party in any legal proceedings.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Admission
to Quotation on the OTC Bulletin Board
We intend
to have our common stock be quoted on the OTC Bulletin Board. If our securities
are not quoted on the OTC Bulletin Board, a security holder may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of our securities. The OTC Bulletin Board differs from national and regional
stock exchanges in that it:
(1) is
not situated in a single location but operates through communication of bids,
offers and confirmations between broker-dealers, and
(2)
securities admitted to quotation are offered by one or more Broker-dealers
rather than the "specialist" common to stock exchanges.
To
qualify for quotation on the OTC Bulletin Board, an equity security must have
one registered broker-dealer, known as the market maker, willing to list bid or
sale quotations and to sponsor the company listing. We expect to have an
agreement with Pennaluna & Company, Inc., a registered broker-dealer, as the
market maker, willing to list bid or sale quotations and to sponsor the Company
listing. If it meets the qualifications for trading securities on the OTC
Bulletin Board our securities will trade on the OTC Bulletin Board until a
future time, if at all, that we apply and qualify for admission to quotation on
the NASDAQ Global Market. We may not now and it may never qualify for
quotation on the OTC Bulletin Board or be accepted for listing of our securities
on the NASDAQ Global Market.
Our
Transfer Agent
We have
appointed Olde Monmouth Stock Transfer Company, with offices at 200 Memorial
Parkway, Atlantic Highlands, New Jersey 07716, phone number 732-872-2727, as
transfer agent for our shares of common stock. The transfer agent is responsible
for all record-keeping and administrative functions in connection with our
shares of common stock.
Dividend
Policy
We have
never declared or paid any cash dividends on our shares of common stock nor do
we anticipate paying any in the foreseeable future. Furthermore, we expect to
retain any future earnings to finance our operations and expansion. The payment
of cash dividends in the future will be at the discretion of our Board of
Directors and will depend upon our earnings levels, capital requirements, any
restrictive loan covenants and other factors the Board considers
relevant.
39
Holders
of Common Stock
As of
January 28, 2010, the shareholders' list of our shares of common stock showed 64
registered shareholders and 62,375,200 shares issued and
outstanding.
Securities
authorized for issuance under equity compensation plans
We
currently do not have any equity compensation plans.
WHERE YOU CAN FIND MORE
INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock to be sold in this
offering. This prospectus, which constitutes part of the registration statement,
does not include all of the information contained in the registration statement
and the exhibits, schedules and amendments to the registration
statement.
Some
items are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to us and our common stock,
we refer you to the registration statement and to the exhibits and schedules to
the registration statement filed as part of the registration
statement. Statements contained in this prospectus about the contents
of any contract or any other document filed as an exhibit are not necessarily
complete and, and in each instance, we refer you to the copy of the contract or
other documents filed as an exhibit to the registration
statement. Each of these statements is qualified in all respects by
this reference.
You may
read and copy the registration statement of which this prospectus is a part at
the SEC’s public reference room, which is located at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. You can request
copies of the registration statement by writing to the SEC and paying a fee for
the copying cost. Please call the SEC at 1-800-SEC-0330 for more
information about the operation of the SEC’s public reference
room. In addition, the SEC maintains an Internet website, located at
www.sec.gov, which contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. You may
access the registration statement of which this prospectus is a part at the
SEC’s Internet website.
Upon the
effectiveness of the registration statement of which this prospectus is a part,
we will become subject to the full informational and periodic reporting
requirements of the Exchange Act. We will fulfill our obligations
with respect to such requirements by filing periodic reports and other
information with the SEC. We intend to furnish our stockholders with
annual reports containing consolidated financial statements certified by an
independent registered public accounting firm. We also maintain a website at
www.clavistech.com. Our website is not a part of this
prospectus.
40
FINANCIAL STATEMENTS
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
TABLE
OF CONTENTS
Page
|
|
1. Report
of Independent Registered Public Accounting Firm
|
F-1
|
2. Balance
Sheets as of December 31, 2008 and 2007
|
F-2
|
3. Statements
of Operations and Comprehensive Loss for the years ended December 31, 2008
and 2007
|
F-3
|
4. Statements
of Stockholders’ Deficit and Other Comprehensive Loss for the years ended
December 31, 2008 and 2007
|
F-4
|
5. Statements
of Cash Flows for the years ended December 31, 2008 and
2007
|
F-5
|
6. Notes
to Consolidated Financial Statements
|
F-6
|
7. Interim
Balance Sheets (unaudited) as of September 30, 2009 and December 31,
2008
|
F-17
|
8. Interim
Statements of Operations and Comprehensive Loss (unaudited) for the three
and nine months ended September 30, 2009
|
F-18
|
9. Interim
Statements of Cash Flows (unaudited) for the nine months ended September
30, 2009
|
F-19
|
10. Notes
to Interim Consolidated Financial Statements
|
F-20
|
41
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Clavis
Technologies International Co., Ltd.
We have
audited the accompanying consolidated balance sheets of Clavis Technologies
International Co., Ltd. and subsidiaries (a Nevada corporation,
the "Company") as of December 31, 2008 and 2007, and the related consolidated
statements of operations and comprehensive loss, stockholders' equity (deficit),
and cash flows for the years ended. 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 the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purposes
of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, 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, 2008 and 2007, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered losses and has a working capital
deficit which raises substantial doubt about its ability to continue as a going
concern. Management’s plan in regard to these matters is also described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Kim
and Lee Corporation, CPAs
Los
Angeles, California
December
9, 2009
F-1
CLAVIS TECHNOLOGIES INTERNATIONAL
CO., LTD. AND SUBSIDIARIES
BALANCE
SHEETS
DECEMBER
31, 2008 AND 2007
ASSETS
|
||||||||
2008
|
2007
|
|||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 865,902 | $ | 1,054,137 | ||||
Accounts
receivable
|
784 | 1,058 | ||||||
Inventory
|
11,945 | 45,031 | ||||||
Prepaid
expenses and other assets
|
627 | 28,934 | ||||||
Total
Current Assets
|
879,258 | 1,129,160 | ||||||
PROPERTY
AND EQUIPMENT, net
|
22,488 | 54,426 | ||||||
SECURITY
DEPOSIT
|
39,620 | 53,430 | ||||||
TOTAL
ASSETS
|
$ | 941,366 | $ | 1,237,016 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
2008 | 2007 | |||||||
CURRENT
LIABILITIES
|
||||||||
Notes
payable
|
$ | 434,628 | $ | 368,667 | ||||
Accounts
payable
|
353,307 | 564,191 | ||||||
Advance
from stockholders
|
228,673 | 86,476 | ||||||
Advance
payments on contracts
|
844,685 | 1,000,279 | ||||||
Accrued
severance benefit
|
87,791 | 163,221 | ||||||
Other
current liabilities
|
42,492 | 46,478 | ||||||
Total
Current Liabilities
|
1,991,576 | 2,229,312 | ||||||
COMMITMENTS
|
||||||||
STOCKHOLDERS'
DEFICIT
|
||||||||
Common
stock, ₩ 5,000
par value (functional currency);
|
||||||||
2,000,000
shares authorized; 201,000 shares issued and outstanding
|
1,027,441 | 1,027,441 | ||||||
Additional
paid-in capital
|
133,702 | 133,702 | ||||||
Accumulated
other comprehensive income (loss)
|
226,769 | (83,147 | ) | |||||
Accumulated
deficit
|
(2,438,122 | ) | (2,070,292 | ) | ||||
Total
Stockholders' Deficit
|
(1,050,210 | ) | (992,296 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 941,366 | $ | 1,237,016 |
See notes
to consolidated financial statements.
F-2
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD. AND SUBSIDIARIES
STATEMENTS
OF OPERATIONS AND COMPREHENSIVE LOSS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
|
2007
|
|||||||
REVENUES
|
||||||||
Hardware
|
$ | 258,129 | $ | 811,950 | ||||
Software
and service
|
424,551 | 611,457 | ||||||
682,680 | 1,423,407 | |||||||
COST
OF SALES
|
||||||||
Hardware
|
215,982 | 729,588 | ||||||
Software
and service
|
400,397 | 590,603 | ||||||
616,379 | 1,320,191 | |||||||
GROSS
PROFIT
|
66,301 | 103,216 | ||||||
EXPENSES
|
||||||||
Professional
fees
|
67,700 | 71,551 | ||||||
Research
and development
|
- | 247,616 | ||||||
Office
and general
|
58,931 | 65,679 | ||||||
Salaries
and employee benefits
|
184,859 | 229,185 | ||||||
Depreciation
|
7,698 | 12,289 | ||||||
Total
Expenses
|
319,188 | 626,320 | ||||||
LOSS
FROM OPERATIONS
|
(252,887 | ) | (523,104 | ) | ||||
OTHER
INCOME (EXPENSES)
|
||||||||
Interest
expense, net
|
(103,068 | ) | (38,260 | ) | ||||
Miscellaneous
income (expense)
|
(11,875 | ) | 6,550 | |||||
Total
Other Expenses
|
(114,943 | ) | (31,710 | ) | ||||
LOSS
BEFORE INCOME TAXES
|
(367,830 | ) | (554,814 | ) | ||||
Provision
for income taxes
|
- | - | ||||||
NET
LOSS
|
(367,830 | ) | (554,814 | ) | ||||
Foreign
currency translation adjustment
|
309,916 | 18,603 | ||||||
TOTAL
COMPREHENSIVE LOSS
|
$ | (57,914 | ) | $ | (536,211 | ) | ||
LOSS
PER SHARE
|
$ | (1.83 | ) | $ | (5.80 | ) | ||
WEIGHTED
AVERAGE NUMBER OF
|
||||||||
COMMON
STOCKS OUTSTANDING
|
201,000 | 95,658 |
See notes
to consolidated financial statements.
F-3
CLAVIS TECHNOLOGIES INTERNATIONAL
CO., LTD. AND SUBSIDIARIES
STATEMENT
OF STOCKHOLDERS' DEFICIT AND OTHER COMPREHENSIVE LOSS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||
Common
Stock
|
Paid-in
|
Comprehensive
|
Accumulated
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Income
(Loss)
|
Deficit
|
Total
|
|||||||||||||||||||
Balance,
January 1, 2007
|
2,000,000 | $ | 147,000 | $ | 147,000 | $ | (101,750 | ) | $ | (1,515,478 | ) | $ | (1,323,228 | ) | ||||||||||
Issuance
of common stocks (net of $13,298 issuance costs)
|
- | 867,143 | - | - | - | 867,143 | ||||||||||||||||||
Foreign
currency translation
adjustment
|
- | - | - | 18,603 | - | 18,603 | ||||||||||||||||||
Net
loss for the year ended December 31, 2007
|
- | - | - | - | (554,814 | ) | (554,814 | ) | ||||||||||||||||
Balance,
December 31, 2007
|
2,000,000 | 1,014,143 | 147,000 | (83,147 | ) | (2,070,292 | ) | (992,296 | ) | |||||||||||||||
Foreign
currency translation
adjustment
|
- | - | - | 309,916 | - | 309,916 | ||||||||||||||||||
Net
loss for the year ended December 31, 2008
|
- | - | - | - | (367,830 | ) | (367,830 | ) | ||||||||||||||||
Balance,
December 31, 2008
|
2,000,000 | $ | 1,014,143 | $ | 147,000 | $ | 226,769 | $ | (2,438,122 | ) | $ | (1,050,210 | ) |
See notes
to consolidated financial statements.
F-4
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD. AND SUBSIDIARIES
STATEMENTS
OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
|
2007
|
|||||||
CASH
FLOWS FROM OPERATIONG ACTIVITIES:
|
||||||||
Net
loss
|
$ | (367,830 | ) | $ | (554,814 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
Depreciation
|
20,907 | 33,672 | ||||||
Change
in assets and liabilities (net of acquisition):
|
||||||||
Accounts
receivable
|
- | 250,141 | ||||||
Inventory
|
25,092 | 25,949 | ||||||
Prepaid
expenses and other assets
|
24,368 | 31,344 | ||||||
Accounts
payable
|
(76,109 | ) | (108,229 | ) | ||||
Accrued
liabilities and other liabilities
|
9,392 | (134,502 | ) | |||||
Deferred
revenue
|
- | (154,152 | ) | |||||
Accrued
severance payable
|
(38,892 | ) | 43,881 | |||||
Net
Cash Used in Operating Activities
|
(403,072 | ) | (566,710 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceed
from contracts
|
635,327 | 870,909 | ||||||
Expenditures
of advance payments on contracts
|
(520,788 | ) | (664,235 | ) | ||||
Repayment
of advance payments on contracts
|
(130,563 | ) | - | |||||
Proceeds
from notes payable
|
779,899 | 648,177 | ||||||
Payments
on notes payable
|
(498,207 | ) | (328,282 | ) | ||||
Advances
from stockholders
|
220,268 | 390,699 | ||||||
Repayment
to stockholders
|
(27,752 | ) | (965,766 | ) | ||||
Proceed
from issuance of common stock, net
|
- | 867,143 | ||||||
Net
Cash Provided by Financing Activities
|
458,184 | 818,645 | ||||||
NET
INCREASE IN CASH AND CASH EQUIVALENT
|
55,112 | 251,935 | ||||||
EFFECT
OF CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
|
(243,347 | ) | 12,993 | |||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
1,054,137 | 789,209 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
$ | 865,902 | $ | 1,054,137 | ||||
SUPPLEMENTAL
CASH FLOW INFORMATION
|
||||||||
Cash
Payments For:
|
||||||||
Interest
|
$ | 108,332 | $ | 38,760 |
See notes
to consolidated financial statements.
F-5
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
Note
1 – Nature of Business and Going Concern
(a) Description
of Business
Clavis
Technologies International Co., Ltd. (“Clavis” or the “Company") incorporated in
the state of Nevada on September 10, 2009, primarily owns and manages its
subsidiary which has been engaged in the business of developing global
Electronic Product Code (EPC) network software. The Company’s goal is
to expand its business in ubiquitous computing solutions using its proprietary
Radio Frequency Identification (“RFID”) middleware, which is based on the EPC
(electronic product code) network and mobile financial solutions.
On
December 1, 2009, the Company entered into a definitive Share Exchange Agreement
with Clavis Technologies Co., Ltd., a Korean corporation (“Clavis Korea”),
formerly known as Allixon Co., Ltd. and the shareholders of Clavis
Korea. Pursuant to the agreement, the Company acquired 100% of the
issued and outstanding capital stock of Clavis Korea in exchange for 45,000,000
shares (approximately 75%) of the Company’s common stock. This
transaction was a reverse-takeover by Clavis Korea whereby Clavis Korea’s
shareholders acquired the control of the Company.
Upon
completion of the share exchange, the business operations of Clavis Korea
constituted all of the business operations of the Company. Clavis
Korea, located in Seoul Korea, was incorporated under the laws of Republic of
Korea in January 2003 and has been providing RFID-enabled solutions, including
business processes, based on the EPCGlobal world standard to various industrial
markets as a pioneer vendor of RFID.
(b)
Going Concern
The
Company’s financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has experienced recurring losses
which have resulted in an accumulated deficit of ($2,438,123) and a working
capital deficit of approximately ($1,112,000) as of December 31,
2008.
The
Company’s ability to continue as a going concern is contingent upon its ability
to secure additional financing, increase sales of its product and attain
profitable operations.
Although
the Company plans to pursue additional equity financing, there can be no
assurance that the Company will be able to secure financing when needed or
obtain such on terms satisfactory to the Company, if at all.
The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result from the outcome of this
uncertainty. It is the intent of management to continue to raise
additional funds to sustain operations and to pursue acquisitions of operating
companies in order to generate future profits for the Company.
F-6
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
Note
2 – Significant
Accounting Policies
The
following summary of significant accounting polices of the Company is presented
to assist in understanding the Company’s financial statements. The financial
statements and notes are representations of the Company’s management, who is
responsible for their integrity and objectivity. These accounting
policies conform to the accounting principles generally accepted in the United
States of America, and have been consistently applied in the preparation of the
financial statements.
(a)
Basis
of Presentation
The
consolidated financial statements include the accounts of Clavis Technologies
International Co., Ltd. and its wholly owned subsidiaries. Intercompany
transactions and balances have been eliminated in
consolidation. These financial statements have been prepared with the
assumption that the Company will be able to realize its assets and discharge its
liabilities in the normal course of business.
(b)
Unit
of Estimates
Preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
related notes to financial statements. These estimates are based on
management's best knowledge of current events and actions the Company may
undertake in the future. Actual results may ultimately differ from estimates,
although management does not believe such changes will materially affect the
financial statements in any individual year.
(c)
Foreign
Currency Translation
Where the
functional currency of the Company's foreign subsidiaries is the local currency,
all assets and liabilities are translated into U.S. dollars, in accordance with
Statement of Financial Accounting Standards (“SFAS”) No 52, Foreign Currency Translation,
using the exchange rate on the balance sheet date, and revenues and expenses are
translated at average rates prevailing during the period. Accounts
and transactions denominated in foreign currencies have been re-measured into
functional currencies before translated into U.S. dollars. Foreign
currency transaction gains and losses are included as a component of other
income and expense. Gains and losses from foreign currency
translation are included as a separate component of comprehensive
income.
In
accordance with Statement of Financial Accounting Standards No. 95, Statement of Cash Flows, cash
flows from the Company's foreign subsidiaries are calculated based upon the
local currencies. As a result, amounts related to assets and liabilities
reported on the statements of cash flows will not necessarily agree with changes
in the corresponding balances on the balance sheets.
Since the
subsidiary's financial statements must be translated into U.S. Dollars, major
changes in the currency exchange rate between the foreign denominations and U.S.
Dollars may have a significant impact on the operations of the Company.
Although the Company does not anticipate the currency exchange rate to be
significantly different over the next twelve months, no such assurances can be
given.
F-7
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
(d) Cash and Cash Equivalents
Cash
includes currency, checks issued by others, other currency equivalents, current
deposits and passbook deposits held by financial institutions. For financial
statement purposes, we consider all highly liquid debt instruments with
insignificant interest rate risk and maturity of three months or less when
purchased to be cash equivalent. Cash equivalents consist primarily
of cash deposits in money market funds that are available for withdrawal without
restriction. The investments that mature within three months from the
investment date are also included as cash equivalents.
Cash
deposits in the amounts of $846,593 and $1,027,653 at December 31, 2008 and
2007, respectively, are reserved to be spent for the contracts as discussed in
Note 7.
(e)
Accounts
Receivable
Trade
accounts receivable are presented at face value less allowance for doubtful
accounts. The allowance for doubtful accounts is the Company’s best
estimate of probable credit losses in the existing accounts receivable. The
Company determines the allowance based on Company’s historical experience and
review of specifically identified accounts and ageing data. The
Company reviews its allowance for doubtful accounts
periodically. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery
is considered remote.
(f)
Inventory
Inventories
are stated at lower of cost or market. Cost is computed on a first
in, first out basis for raw materials and supplies. Work-in-process,
manufactured finished goods and merchandise goods are stated at the lower of
cost or net realizable value, where cost is computed using weighted average
method and net realizable value is determined by deducting applicable selling
expenses from selling price.
(g)
Property
and Equipment
Property
and equipment, including renewals and betterments, are stated at cost.
Cost of renewals and betterment that extend the economic useful lives of the
related assets are capitalized. Expenditures for ordinary repairs and
maintenance are charged to expense as incurred. Gain or loss on sale or
disposition of assets is included in the statement of operations.
Depreciation
is provided using the straight-line method over the following estimated useful
lives of the assets.
Equipment
|
5
years
|
Furniture
and fixture
|
5
years
|
Computer
software
|
5
years
|
In
accordance with Statement of Financial Accounting Standards No. 144, the Company
records impairment of long-lived assets to be held and used or to be disposed of
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying
amount.
F-8
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
(h)
Research
and Development
Research
and development costs are expensed as incurred. Research and development expense
consist primarily of salaries and related personnel costs and subcontract
fees.
(i)
Revenue
Recognition
Revenue
is derived from the sale of hardware and the sale of software and services.
Services consist of customer service and technical support.
Revenues
from the sale of computer hardware is recognized when goods are shipped to
customers since title has passed to the customer, persuasive evidence of an
arrangement exists, performance has occurred, all customer-specified test
criteria have been met and collectability is reasonably assured. The company has
no significant obligations after product shipment other than its standard
manufacturing warranty. The Company records a provision for future warranty
costs based on management’s best estimate of probable claims under its product
warranties. The provision is based on the terms of the warranty which vary by
customer, product, and historical experience. The Company regularly evaluates
this provision.
Software
sales are recognized when installation is complete or other customer-specified
post-shipment obligations have been satisfied and collectability is reasonably
assured. For those software sales not requiring installation or if installation
costs are insignificant, the Company recognizes revenue upon
shipment.
Revenues
relating to customer service and technical support are recognized as the
services are rendered ratably over the period of the related contract and when
collectability is reasonably assured.
(j)
Financial
Instruments
Unless
otherwise noted, it is management’s opinion that the Company is not exposed to
significant interest, currency or credit risks arising from the financial
instruments. The fair value of the financial instruments approximates their
carrying values, unless otherwise noted.
Concentration of Credit
Risk
SFAS No.
105, Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentration of Credit Risk, requires disclosure of any
significant off-balance-sheet risk and credit risk concentration. Financial
instruments that potentially subject the Company to credit risk consist of cash
equivalents, short-term investments, accounts receivable and loan receivables.
Cash equivalents and short-term investments are maintained with high quality
institutions, the composition and maturities of which are regularly monitored by
management. The Company diversifies its investments to reduce the exposure to
loss from any single issuer, sector or bank.
The
Company provides credit to its customers in the normal course of
operations. It carries out, on a continuing basis, credit checks of
its customers, and maintains allowance for credit losses contingent upon
management’s forecasts. For loan receivables, the Company determines,
on a continuing basis, the probable losses and sets up a provision for losses
based on the estimated realizable value. Concentration of credit risk
arises when a group of customers having similar characteristics such that their
ability to meet their obligations is expected to be affected similarly by
changes in economic conditions.
F-9
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
(k) Income Tax
The Company accounts for income taxes
pursuant to the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in the Company’s financial statements in accordance with
SFAS No. 109.
The
calculation of the Company's tax provision involves the application of complex
tax rules and regulations within multiple jurisdictions throughout the
world. The Company's tax liabilities include estimates for all
income-related taxes that the Company believes are probable and that can be
reasonably estimated. To the extent that the Company’s estimates are
understated, additional charges to the provision for income taxes would be
recorded in the period in which the Company determines such
understatement. If the Company's income tax estimates are overstated,
income tax benefits will be recognized when realized.
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. FIN 48 prescribes a
recognition threshold and measurement attributes for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return.
(l)
Earnings
(Loss) per Share
SFAS No.
128, Earnings per Share
requires disclosure on the financial statements of basic and diluted earnings
per share. Basic earning (loss) per share is computed by dividing the
net earning (loss) by the weighted average number of shares of common stock
outstanding during the year. Diluted earning (loss) per share is
determined using the weighted average number of common shares outstanding during
the year, adjusted for the dilutive effect of common stock
equivalents, consisting of shares that might be issued upon exercise of common
stock options and warrants.
(m) Impairment
of Long-lived Assets
In
accordance with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets, long-lived assets, such as property and
equipment, and purchased intangible assets subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of are separately presented in the
balance sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The assets and
liabilities of a disposal group classified as held for sale are presented
separately in the appropriate asset and liability sections of the balance
sheet.
For the
years ended December 31, 2008 and 2007, no events or circumstances occurred for
which an evaluation of the recoverability of long-lived assets was
required. There can be no assurance however, that market conditions
will not change or demand for the Company’s products and services will continue,
which could result in impairment of long-lived assets in the
future.
F-10
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
(n)
Other
Comprehensive Income (Loss)
The
Company records its other comprehensive income under SFAS No. 130, Reporting of Comprehensive
Income. SFAS 130 which establishes standards for reporting and
presentation of comprehensive income and its components. The Company’s other
comprehensive income represents foreign currency translation
adjustment.
(o)
Recent
Accounting Pronouncements
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (“SAB No 108”). SAB No. 108 provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
Under SAB No. 108, the Company should quantify errors using both a balance
sheet and income statement approach (“dual approach”) and evaluate whether
either approach results in a misstatement that is material when all relevant
quantitative and qualitative factors are considered. The adoption of SAB 108
does not have material impact on the Company’s financial
statements.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities ("SFAS No. 159"), which permits entities
to measure financial instruments and certain other items at fair value that are
not currently required to be measured at fair value. An entity would report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The decision about whether to elect the fair value option is applied
instrument by instrument, with a few exceptions; the decision is irrevocable;
and it is applied only to entire instruments and not to portions of instruments.
SFAS No. 159 requires disclosures that facilitate comparisons (a) between
entities that choose different measurement attributes for similar assets and
liabilities and (b) between assets and liabilities in the financial statements
of an entity that selects different measurement attributes for similar assets
and liabilities. SFAS No. 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year provided the entity also elects to apply the
provisions of SFAS No. 157 "Fair Value Measurements.” Upon implementation, an
entity shall report the effect of the first remeasurement to fair value as a
cumulative-effect adjustment to the opening balance of retained earnings. Since
the provisions of SFAS No. 159 are applied prospectively, any potential impact
will depend on the instruments selected for fair value measurement at the time
of implementation.
In
October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a
Financial Asset When the Market for that Asset Is Not Active, which
amends SFAS 157 by incorporating "an example to illustrate key considerations in
determining the fair value of a financial asset" in an inactive
market. FSP 157-3 is effective upon issuance and should be applied to
prior periods for which financial statements have not been
issued. The adoption of FSP 157-3, effective October 2008, had no
impact on the Company's results of operation or financial position.
F-11
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
(p) Effect of Newly Issued But Not Yet Effective Accounting Standards
In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements (“SFAS 160”). SFAS 160 requires all
entities to report noncontrolling (i.e. minority) interests in subsidiaries as
equity in the Consolidated Financial Statements and to account for transactions
between an entity and noncontrolling owners as equity transactions if the parent
retains its controlling financial interest in the subsidiary. SFAS 160 also
requires expanded disclosure that distinguishes between the interests of the
controlling owners and the interests of the noncontrolling owners of a
subsidiary. SFAS 160 is effective for the Company’s financial statements for the
year beginning on January 1, 2009, and earlier adoption is not permitted.
The adoption of SFAS 160 is not expected to have a material impact on the
Company’s financial condition and results of operations.
In
December 2007, the FASB issued Statement No. 141R, (revised 2007) Business Combinations
("SFAS 141R"). SFAS 141R replaces the current standard on business
combinations and has significantly changed the accounting for and reporting of
business combinations in consolidated financial statements. This statement
requires an entity to measure the business acquired at fair value and to
recognize goodwill attributable to any noncontrolling interests (previously
referred to as minority interests) rather than just the portion attributable to
the acquirer. The statement will also result in fewer exceptions to the
principle of measuring assets acquired and liabilities assumed in a business
combination at fair value. In addition, the statement requires payments to third
parties for consulting, legal, audit, and similar services associated with an
acquisition to be recognized as expenses when incurred rather than capitalized
as part of the business combination. SFAS 141R is effective for fiscal
years beginning on or after December 15, 2008.
In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities an Amendment of FASB Statement
No. 133 ("SFAS 161"). SFAS 161 amends Statement 133 by
requiring expanded disclosures about an entity's derivative instruments and
hedging activities, but does not change Statement 133's scope or accounting.
This statement requires increased qualitative, quantitative, and credit-risk
disclosures. SFAS 161 also amends Statement No. 107 to clarify that
derivative instruments are subject to Statement 107's
concentration-of-credit-risk disclosures. SFAS 161 is effective for fiscal
years beginning on or after November 15, 2008. The adoption of
SFAS 161 will require the Company to provide additional disclosures about
derivative instruments and hedging activities beginning January 1,
2009.
In May
2008, the FASB issued SFAS No. 162 ("SFAS 162"), The Hierarchy of Generally Accepted
Accounting Principles. This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement will be effective 60 days following the
SEC's approval of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. The
adoption of SFAS 162 is not expected to have a significant impact on the
Company's results of operations and financial position.
In
November 2008, the FASB Emerging Issues Task Force ("EITF") issued EITF Issue
No. 08-6 ("EITF 08-6"), Equity
Method Investment Accounting Considerations. EITF 08-6 address questions
that have risen about the application of the equity method of accounting for
investments after the effective date of both SFAS 141(R), Business Combination, and
SFAS No. 160, Non-controlling
Interests in Consolidated Financial Statements. EITF is
effective for fiscal years beginning on or after December 15, 2008. The adoption
of EITF 08-6 is not expected to have a significant impact on the Company's
results of operations and financial position.
F-12
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
Note
3 – Accounts Receivable
Accounts
receivable are stated net of an allowance for doubtful accounts. The allowances
for doubtful accounts were $983 and $1,325 at December 31, 2008 and 2007,
respectively.
Property
and equipment consists of the following at December 31:
2008
|
2007
|
|||||||
Equipment
|
$ | 89,111 | $ | 120,173 | ||||
Computer
software
|
26,247 | 35,396 | ||||||
Furniture
and fixture
|
8,645 | 11,658 | ||||||
124,003 | 167,227 | |||||||
Accumulated
depreciation
|
(101,515 | ) | (112,801 | ) | ||||
Net
property and equipment
|
$ | 22,488 | $ | 54,426 |
Depreciation
expenses for the years ended December 31, 2008 and 2007 were $20,907 and
$33,672, respectively.
Note
5 – Notes Payable
The
Company has an operating line of credit of $39,000, with interest at the
lender’s prime (7.02% and 5.57% as of December 31, 2008 and 207, respectively)
plus 2.53%. This credit line matures on June 25, 2010 and is guaranteed by the
Korea Credit Guarantee Fund. Amount outstanding as of December 31, 2008 and 2007
was $31,696 and $48,087, respectively.
In
January 2008, the Company obtained a bank loan of $320,580, pledging a real
property of unrelated party. The loan bears interest at 11.50% and matured in
November 2008.
The
Company obtained bank loans of $323,693 in 2008, pledging the cash deposits in
bank. The interest rate ranges at the lender’s prime (3.94% as of December 31,
2008) plus from 2.58% to 4.02% and matures on December 31, 2009 and January 15,
2010, respectively.
In
November 2008, the Company had a borrowing from unrelated party. The borrowing
bears interest at 14.0% and matures on May 14, 2009. As of December 31, 2008,
the past due balance is $79,239.
F-13
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
Note 6 – Advances from Stockholders
The
advances from the Company’s directors and stockholders, in the amount of
$228,673 and $86,476 as of December 31, 2008 and 2007 respectively, are
unsecured, non-interest bearing, and have no fixed terms of
repayment.
Note
7 – Advance Payments on Contracts
On December 1, 2004 and
December 1, 2007, the Company entered into the three-year and the two-year
Industry Development Contracts (the “Contracts”) with Korea Global ID
Corporation (“KGIC”), a corporation controlled by the Korean government, to
develop wireless recognition software and middleware technology. Under the terms
of the Contracts, the Company is contractually obligated to spend the following
approximate amounts on labor and other expenses over the course of the
Contracts:
Labor
|
Other
|
Total
|
||||||||||
Year
ended November 30, 2005
|
$ | 165,000 | $ | 66,000 | $ | 231,000 | ||||||
Year
ended November 30, 2006
|
$ | 148,000 | $ | 111,000 | $ | 259,000 | ||||||
Year
ended November 30, 2007
|
$ | 160,000 | $ | 160,000 | $ | 320,000 | ||||||
Year
ended November 30, 2008
|
$ | 203,000 | $ | 120,000 | $ | 323,000 | ||||||
Year
ended November 30, 2009
|
$ | 203,000 | $ | 120,000 | $ | 323,000 |
Pursuant
to the Contracts, the Company received funding from KGIC in the amount of
$635,327 and $870,909 during the years ended December 31, 2008 and 2007,
respectively.
The
Company is permitted to defer any unused funds received from KGIC to future
years. However, upon completion of the Contracts, the Company is required to (1)
submit a final report to KGIC, (2) return 20% of the total funds received back
to KGIC and (3) return any unused portion of the funding received back to KGIC
in addition to the 20% requirement within two months of the expiration of the
Contracts.
The
Company has received approximately $3,131,000 from KGIC, of which $465,154
remains unspent, and has also allocated approximately 20% of the total amount
received or $379,531, which is to be returned to KGIC as of December 31,
2008.
Advance
payments on contracts consist of the following as of December
31:
2008
|
2007
|
|||||||
KGIC
unspent funds
|
$ | 465,154 | $ | 595,737 | ||||
KGIC
repayable fund
|
379,531 | 404,542 | ||||||
Total
|
$ | 844,685 | $ | 1,000,279 |
F-14
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
Note 8 – Loss per Share
The
following reconciles the numerators and denominators of the basic and diluted
per share computation for the years ended December 31:
2008
|
2007
|
|||||||
Numerator
for basic and diluted loss per share:
|
||||||||
Net
loss
|
$ | (367,830 | ) | $ | (554,814 | ) | ||
Denominator:
|
||||||||
Basic
and diluted weighted average shares
outstanding
|
201,000 | 95,658 | ||||||
Basic
and diluted loss per share
|
$ | (1.83 | ) | $ | (5.80 | ) |
Note
9 – Income Taxes
The
provision for income taxes has been computed as follows for the years ended
December 31:
2008
|
2007
|
|||||||
Expected
income tax recovery at the statutory rate
|
$ | (62,973 | ) | $ | (146,872 | ) | ||
Tax
effect of expenses that are not deductible for income tax
purposes (net of other amounts deductible for tax purposes)
|
60,381 | 50,548 | ||||||
(2,592 | ) | (96,324 | ) | |||||
Valuation
allowance
|
2,592 | 96,324 | ||||||
Provision
for income taxes
|
$ | - | $ | - |
The
Company has deferred income tax assets as follows as of December
31:
2008
|
2007
|
|||||||
Deferred
income tax assets
|
||||||||
Research
and development expenses amortized over 5
years for tax purposes
|
$ | 168,000 | $ | 105,000 | ||||
Loss
carryforwards
|
282,000 | 222,000 | ||||||
Valuation
allowance for deferred income tax assets
|
(450,000 | ) | (327,000 | ) | ||||
$ | - | $ | - |
F-15
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
The Company has net operating losses for tax purposes available to be applied against income in future years. Due to the losses incurred in the current year and expected future operating results, management determined that it is more likely than not that the deferred tax asset resulting from the tax losses available for carryforward and stock option compensation expense will not be realized through the reduction of future income tax payments, accordingly a 100% valuation allowance has been recorded for deferred income tax assets.
Note
10 – Commitments
The
Company is committed to lease obligations for its offices expiring January 30,
2010. Rental expenses incurred for the year ended December 31, 2008 and 2007 was
approximately $51,000 and $59,000, respectively. Future minimum annual payments
under the lease are as follows for the years ended December 31:
2009
|
$ | 55,865 |
2010
|
$ | 4,691 |
Note
11 – Concentration and Uncertainty
(a)
Concentration
in Sales to a Few Customers
For the
years ended December 31, 2008 and 2007, the two largest customers accounted for
70% and 65% of sales, respectively.
(b)
Operation
in Foreign Country
Substantially,
all of the Company’s operations are in Republic of Korea. The Company’s
operations are subject to various political, economic, and other risks and
uncertainties inherent in the country in which the Company operates. Among other
risks, the Company’s operations are subject to the risks of political conditions
and governmental regulations.
Note
12 – Subsequent Events
(a)
Notes
Payable
In April
2009, the Company secured an operating line of credit of $70,000. The
line of credit bears interest at variable interest at the respective bank's
prime rate plus 3.50% and matures on April 22, 2010.
In
October 2009, the Company borrowed approximately $104,000 from unrelated
parties. The borrowings bear interest at 12.0% and matures in April
2011.
(b)
Stock
Issue
The
Clavis Korea raised an additional capital of $365,752 by issuing 44,800 common
shares of Clavis Korea during August to October 2009.
F-16
CLAVIS TECHNOLOGIES INTERNATIONAL
CO., LTD. AND SUBSIDIARIES
INTERIM
BALANCE SHEETS
(UNAUDITED)
ASSETS
|
||||||||
September
30, 2009
|
December
31, 2008
|
|||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 579,628 | $ | 865,902 | ||||
Accounts
receivable
|
841 | 784 | ||||||
Inventory
|
19,429 | 11,945 | ||||||
Prepaid
expenses and other assets
|
10,060 | 627 | ||||||
Total
Current Assets
|
609,958 | 879,258 | ||||||
PROPERTY
AND EQUIPMENT, net
|
12,677 | 22,488 | ||||||
SECURITY
DEPOSIT
|
42,554 | 39,620 | ||||||
TOTAL
ASSETS
|
$ | 665,189 | $ | 941,366 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
September
30, 2009
|
December
31, 2008
|
|||||||
CURRENT
LIABILITIES
|
||||||||
Notes
payable
|
$ | 529,593 | $ | 434,628 | ||||
Accounts
payable
|
219,942 | 353,308 | ||||||
Advance
from stockholders
|
260,179 | 228,673 | ||||||
Advance
payments on contracts
|
380,867 | 844,685 | ||||||
Accrued
severance benefit
|
129,791 | 87,791 | ||||||
Other
current liabilities
|
10,273 | 42,492 | ||||||
Total
Current Liabilities
|
1,530,645 | 1,991,577 | ||||||
COMMITMENTS
|
||||||||
STOCKHOLDERS'
DEFICIT
|
||||||||
Common
stock, $0.001 par
value; 110,000,000 shares authorized;
|
||||||||
15,000,000
shares issued and outstanding at September 30, 2009;
|
||||||||
₩ 5,000 par
value (functional currency); 2,000,000 shares authorized;
|
||||||||
201,000
shares issued and outstanding at December 31, 2008
|
15,000 | 1,027,441 | ||||||
Additional
paid-in capital
|
1,591,895 | 133,702 | ||||||
Accumulated
other comprehensive income
|
147,665 | 226,769 | ||||||
Accumulated
deficit
|
(2,620,016 | ) | (2,438,123 | ) | ||||
Total
Stockholders' Deficit
|
(865,456 | ) | (1,050,211 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 665,189 | $ | 941,366 |
See notes
to consolidated financial statements.
F-17
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD. AND SUBSIDIARIES
INTERIM
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three
Months
Ended
|
Three
Months
Ended
|
Nine
Months
Ended
|
Nine
Months
Ended
|
|||||||||||||
September
30, 2009
|
September
30, 2008
|
September
30, 2009
|
September
30, 2008
|
|||||||||||||
REVENUES
|
||||||||||||||||
Hardware
|
$ | 9,171 | $ | 128,330 | $ | 126,888 | $ | 275,832 | ||||||||
Software
and service
|
62,211 | 83,122 | 264,171 | 393,238 | ||||||||||||
71,382 | 211,452 | 391,059 | 669,070 | |||||||||||||
COST
OF SALES
|
||||||||||||||||
Hardware
|
2,543 | 103,476 | 41,277 | 230,794 | ||||||||||||
Software
and service
|
71,983 | 103,866 | 251,678 | 335,569 | ||||||||||||
74,526 | 207,342 | 292,955 | 566,363 | |||||||||||||
GROSS
PROFITS (LOSS)
|
(3,144 | ) | 4,110 | 98,104 | 102,707 | |||||||||||
EXPENSES
|
||||||||||||||||
Professional
fees
|
123,518 | 3,398 | 152,423 | 26,953 | ||||||||||||
Office
and general
|
15,598 | 15,452 | 39,938 | 42,303 | ||||||||||||
Salaries
and employee benefits
|
33,035 | 54,665 | 76,231 | 163,255 | ||||||||||||
Depreciation
|
1,178 | 2,016 | 3,162 | 6,233 | ||||||||||||
Total
Expenses
|
173,329 | 75,531 | 271,754 | 238,744 | ||||||||||||
LOSS
FROM OPERATIONS
|
(176,473 | ) | (71,421 | ) | (173,650 | ) | (136,037 | ) | ||||||||
OTHER
INCOME (EXPENSES)
|
||||||||||||||||
Interest
expense, net
|
(9,792 | ) | (15,287 | ) | (28,166 | ) | (45,247 | ) | ||||||||
Miscellaneous
income (expense)
|
(138 | ) | (236 | ) | 19,923 | (4,932 | ) | |||||||||
Total
Other Expenses
|
(9,930 | ) | (15,523 | ) | (8,243 | ) | (50,179 | ) | ||||||||
LOSS
BEFORE INCOME TAXES
|
(186,403 | ) | (86,944 | ) | (181,893 | ) | (186,216 | ) | ||||||||
Provision
for income taxes
|
- | - | - | - | ||||||||||||
NET
LOSS
|
(186,403 | ) | (86,944 | ) | (181,893 | ) | (186,216 | ) | ||||||||
Foreign
currency translation adjustment
|
(89,738 | ) | 141,943 | (79,104 | ) | 252,900 | ||||||||||
TOTAL
COMPREHENSIVE LOSS
|
$ | (276,141 | ) | $ | 54,999 | $ | (260,997 | ) | $ | 66,684 | ||||||
LOSS
PER SHARE
|
$ | (0.01 | ) | $ | (0.43 | ) | $ | (0.01 | ) | $ | (0.93 | ) | ||||
WEIGHTED
AVERAGE NUMBER OF COMMON STOCKS OUTSTANDING
|
15,000,000 | 201,000 | 15,000,000 | 201,000 |
See notes
to consolidated financial statements.
F-18
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD. AND SUBSIDIARIES
INTERIM
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine
Months
Ended
|
Nine
Months
Ended
|
|||||||
September
30, 2009
|
September
30, 2008
|
|||||||
CASH
FLOWS FROM OPERATIONG ACTIVITIES:
|
||||||||
Net
loss
|
$ | (181,893 | ) | $ | (186,216 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
Depreciation
|
11,719 | 16,756 | ||||||
Change
in assets and liabilities (net of acquisition):
|
||||||||
Inventory
|
(5,968 | ) | 26,812 | |||||
Prepaid
expenses and other assets
|
(8,534 | ) | 21,509 | |||||
Accounts
payable
|
(143,032 | ) | 19,926 | |||||
Accrued
liabilities and other liabilities
|
(31,777 | ) | (15,557 | ) | ||||
Accrued
severance payable
|
32,147 | (26,287 | ) | |||||
Net
Cash Used in Operating Activities
|
(327,338 | ) | (143,057 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Expenditures
of advance payments on contracts
|
(473,972 | ) | (402,770 | ) | ||||
Repayment
of advance payments on contracts
|
- | (130,563 | ) | |||||
Proceeds
from notes payable
|
59,259 | 422,876 | ||||||
Payments
on notes payable
|
(4,215 | ) | (192,075 | ) | ||||
Advances
from stockholders
|
62,241 | 28,182 | ||||||
Repayment
to stockholders
|
(48,675 | ) | (77,434 | ) | ||||
Proceed
from issuance of common stock, net
|
445,752 | - | ||||||
Net
Cash Used in Financing Activities
|
40,390 | (351,784 | ) | |||||
NET
DECREASE IN CASH AND CASH EQUIVALENT
|
(286,948 | ) | (494,841 | ) | ||||
EFFECT
OF CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
|
674 | (163,496 | ) | |||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
865,902 | 1,054,137 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 579,628 | $ | 395,800 | ||||
SUPPLEMENTAL
CASH FLOW INFORMATION
|
||||||||
Cash
Payments For:
|
||||||||
Interest
|
$ | 31,881 | $ | 50,100 |
See notes
to consolidated financial statements.
F-19
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1 – Nature of Business and Going Concern
(a) Description
of Business
Clavis
Technologies International Co., Ltd. (“Clavis” or the “Company") incorporated in
the state of Nevada on September 10, 2009, primarily owns and manages its
subsidiary which has been engaged in the business of developing
global Electronic Product Code (EPC) network software. The Company’s
goal is to expand its business to be a global player in ubiquitous computing
solutions using its proprietary Radio Frequency Identification (“RFID”)
middleware which is based on the EPC network and mobile financial
solutions.
On
December 1, 2009, the Company entered into a definitive Share Exchange Agreement
with Clavis Technologies Co., Ltd., a Korean corporation (“Clavis Korea”),
formerly known as Allixon Co., Ltd. and the shareholders of Clavis
Korea. Pursuant to the agreement, the Company acquired 100% of the
issued and outstanding capital stock of Clavis Korea in exchange for 45,000,000
shares (approximately 75%) of the Company’s common stock. This
transaction was a reverse-takeover by Clavis Korea whereby Clavis Korea’s
shareholders acquired the control of the Company.
Upon
completion of the share exchange, the business operations of Clavis Korea
constituted virtually all of the business operations of the
Company. Clavis Korea, located in Seoul Korea, was incorporated under
the laws of Republic of Korea in January 2003 and has been providing
RFID-enabled solutions, including business processes, based on the world
standard to various industrial markets as a pioneer vendor of RFID.
(b)
Going Concern
The
Company’s financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has experienced recurring losses
which have resulted in an accumulated deficit of ($2,620,016) and a working
capital deficit of approximately ($1,001,000) as of September 30, 2009.
The
Company’s ability to continue as a going concern is contingent upon its ability
to secure additional financing, increase sales of its product and attain
profitable operations.
Although
the Company plans to pursue additional equity financing, there can be no
assurance that the Company will be able to secure financing when needed or
obtain such on terms satisfactory to the Company, if at all.
The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result from the outcome of this
uncertainty. It is the intent of management to continue to raise
additional funds to sustain operations and to pursue acquisitions of operating
companies in order to generate future profits for the Company.
F-20
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
2 – Significant Accounting Policies
The
following summary of significant accounting polices of the Company is presented
to assist in understanding the Company’s financial statements. The financial
statements and notes are representations of the Company’s management, who is
responsible for their integrity and objectivity. These accounting
policies conform to the accounting principles generally accepted in the United
States of America, and have been consistently applied in the preparation of the
financial statements.
(l)
Basis
of Presentation
The
consolidated financial statements include the accounts of Clavis Technologies
International Co., Ltd. and its wholly owned subsidiaries. Intercompany
transactions and balances have been eliminated in
consolidation. These financial statements have been prepared with the
assumption that the Company will be able to realize its assets and discharge its
liabilities in the normal course of business.
(m) Unit
of Estimates
Preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
related notes to financial statements. These estimates are based on
management's best knowledge of current events and actions the Company may
undertake in the future. Actual results may ultimately differ from estimates,
although management does not believe such changes will materially affect the
financial statements in any individual year.
(n)
Foreign
Currency Translation
Where the
functional currency of the Company's foreign subsidiaries is the local currency,
all assets and liabilities are translated into U.S. dollars, in accordance with
Statement of Financial Accounting Standards (“SFAS”) No 52, Foreign Currency Translation,
using the exchange rate on the balance sheet date, and revenues and expenses are
translated at average rates prevailing during the period. Accounts
and transactions denominated in foreign currencies have been re-measured into
functional currencies before translated into U.S. dollars. Foreign
currency transaction gains and losses are included as a component of other
income and expense. Gains and losses from foreign currency
translation are included as a separate component of comprehensive
income.
In
accordance with Statement of Financial Accounting Standards No. 95, Statement of Cash Flows, cash
flows from the Company's foreign subsidiaries are calculated based upon the
local currencies. As a result, amounts related to assets and liabilities
reported on the statements of cash flows will not necessarily agree with changes
in the corresponding balances on the balance sheets.
Since the
subsidiary's financial statements must be translated into U.S. Dollars, major
changes in the currency exchange rate between the foreign denominations and U.S.
Dollars may have a significant impact on the operations of the Company.
Although the Company does not anticipate the currency exchange rate to be
significantly different over the next twelve months, no such assurances can be
given.
F-21
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(o)
Cash
and Cash Equivalents
Cash
includes currency, checks issued by others, other currency equivalents, current
deposits and passbook deposits held by financial institutions. Cash equivalents
consist primarily of cash deposits in money market funds that are available for
withdrawal without restriction. The investments that mature within
three months from the investment date are also included as cash
equivalents.
Cash
deposits in the amounts of $495,460 and $846,593, at September 30, 2009 and
December 31, 2008, respectively, are reserved to be spent for the contracts as
discussed in Note 7.
(p) Accounts
Receivable
Trade
accounts receivable are presented at face value less allowance for doubtful
accounts. The allowance for doubtful accounts is the Company’s best
estimate of probable credit losses in the existing accounts
receivable. The Company determines the allowance based on Company’s
historical experience and review of specifically identified accounts and ageing
data. The Company reviews its allowance for doubtful accounts
periodically. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery
is considered remote.
(q) Inventory
Inventories
are stated at lower of cost or market. Cost is computed on a first
in, first out basis for raw materials and supplies. Work-in-process,
manufactured finished goods and merchandise goods are stated at the lower of
cost or net realizable value, where cost is computed using weighted average
method and net realizable value is determined by deducting applicable selling
expenses from selling price.
(r)
Property
and Equipment
Property
and equipment, including renewals and betterments, are stated at cost.
Cost of renewals and betterment that extend the economic useful lives of the
related assets are capitalized. Expenditures for ordinary repairs and
maintenance are charged to expense as incurred. Gain or loss on sale or
disposition of assets is included in the statement of operations.
Depreciation
is provided using the straight-line method over the following estimated useful
lives of the assets.
Equipment
|
5
years
|
Furniture
and fixture
|
5
years
|
Computer
software
|
5
years
|
In
accordance with Statement of Financial Accounting Standards No. 144, the Company
records impairment of long-lived assets to be held and used or to be disposed of
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying
amount.
F-22
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(s) Research and Development
Research
and development costs are expensed as incurred. Research and development expense
consist primarily of salaries and related personnel costs and subcontract
fees.
(t)
Revenue
Recognition
Revenue
is derived from the sale of hardware and the sale of software and services.
Services consist of customer service and technical support.
Revenues
from the sale of computer hardware is recognized when goods are shipped to
customers since title has passed to the customer, persuasive evidence of an
arrangement exists, performance has occurred, all customer-specified test
criteria have been met and collectability is reasonably assured. The company has
no significant obligations after product shipment other than its standard
manufacturing warranty. The Company records a provision for future warranty
costs based on management’s best estimate of probable claims under its product
warranties. The provision is based on the terms of the warranty which vary by
customer, product, and historical experience. The Company regularly evaluates
this provision.
Software
sales are recognized when installation is complete or other customer-specified
post-shipment obligations have been satisfied and collectability is reasonably
assured. For those software sales not requiring installation or if installation
costs are insignificant, the Company recognizes revenue upon
shipment.
Revenues
relating to customer service and technical support are recognized as the
services are rendered ratably over the period of the related contract and when
collectability is reasonably assured.
(u)
Financial
Instruments
Unless
otherwise noted, it is management’s opinion that the Company is not exposed to
significant interest, currency or credit risks arising from the financial
instruments. The fair value of the financial instruments approximates their
carrying values, unless otherwise noted.
Concentration of Credit
Risk
SFAS No.
105, Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentration of Credit Risk, requires disclosure of any
significant off-balance-sheet risk and credit risk concentration. Financial
instruments that potentially subject the Company to credit risk consist of cash
equivalents, short-term investments, accounts receivable and loan receivables.
Cash equivalents and short-term investments are maintained with high quality
institutions, the composition and maturities of which are regularly monitored by
management. The Company diversifies its investments to reduce the exposure to
loss from any single issuer, sector or bank.
The
Company provides credit to its customers in the normal course of
operations. It carries out, on a continuing basis, credit checks of
its customers, and maintains allowance for credit losses contingent upon
management’s forecasts. For loan receivables, the Company determines,
on a continuing basis, the probable losses and sets up a provision for losses
based on the estimated realizable value. Concentration of credit risk
arises when a group of customers having similar characteristics such that their
ability to meet their obligations is expected to be affected similarly by
changes in economic conditions.
F-23
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(v)
Income
Tax
The
Company accounts for income taxes pursuant to the FASB issued Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes, (“FIN 48”). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in the Company’s financial statements
in accordance with SFAS No. 109.
The
calculation of the Company's tax provision involves the application of complex
tax rules and regulations within multiple jurisdictions throughout the
world. The Company's tax liabilities include estimates for all
income-related taxes that the Company believes are probable and that can be
reasonably estimated. To the extent that the Company’s estimates are
understated, additional charges to the provision for income taxes would be
recorded in the period in which the Company determines such
understatement. If the Company's income tax estimates are overstated,
income tax benefits will be recognized when realized.
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. FIN 48 prescribes a
recognition threshold and measurement attributes for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return.
(q) Earnings
(Loss) per Share
SFAS No.
128, Earnings per Share
requires disclosure on the financial statements of basic and diluted earnings
per share. Basic earning (loss) per share is computed by dividing the
net earning (loss) by the weighted average number of shares of common stock
outstanding during the year. Diluted earning (loss) per share is
determined using the weighted average number of common shares outstanding during
the year, adjusted for the dilutive effect of common stock
equivalents, consisting of shares that might be issued upon exercise of common
stock options and warrants.
(r)
Impairment
of Long-lived Assets
In
accordance with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets, long-lived assets, such as property and
equipment, and purchased intangible assets subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of are separately presented in the
balance sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The assets and
liabilities of a disposal group classified as held for sale are presented
separately in the appropriate asset and liability sections of the balance
sheet.
F-24
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the
periods ended September 30, 2009 and 2008, no events or circumstances occurred
for which an evaluation of the recoverability of long-lived assets was
required. There can be no assurance however, that market conditions
will not change or demand for the Company’s products and services will continue,
which could result in impairment of long-lived assets in the
future.
(s)
Other
Comprehensive Income (Loss)
The
Company records its other comprehensive income under SFAS No. 130, Reporting of Comprehensive
Income. SFAS 130 which establishes standards for reporting and
presentation of comprehensive income and its components. The Company’s other
comprehensive income represents foreign currency translation
adjustment.
(t)
Recent
Accounting Pronouncements
In June
2009, the FASB issued the FASC Accounting Standards Codification
(“Codification”) as the single source of authoritative U.S. generally accepted
accounting principles (“GAAP”) recognized by FASB to be applied by
non-governmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (“SEC”) under authority of the federal
securities laws are also sources of authoritative GAAP for SEC
registrants. The Codification is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Company adopted the Codification in the third quarter of
2009, and the adoption did not have any impact on its results of operations or
financial position.
Note
3 – Accounts Receivable
Accounts
receivable are stated net of an allowance for doubtful accounts. The allowances
for doubtful accounts were $1,053 and $983 at September 30, 2009 and December
31, 2008, respectively.
Note
4 – Property and Equipment
Property
and equipment consists of the following at September 30, 2009 and December 31,
2008:
September
30, 2009
|
December
31, 2008
|
|||||||
Equipment
|
$ | 95,521 | $ | 89,111 | ||||
Computer
software
|
28,135 | 26,247 | ||||||
Furniture
and fixture
|
9,947 | 8,645 | ||||||
133,603 | 124,003 | |||||||
Accumulated
depreciation
|
(120,926 | ) | (101,515 | ) | ||||
Net
property and equipment
|
$ | 12,677 | $ | 22,488 |
Depreciation
expenses for the periods ended September 30, 2009 and 2008 were $11,719 and
$16,756, respectively.
F-25
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
5 – Notes Payable
The
Company has an operating line of credit of $42,500, with interest at the
lender’s prime (6.17% and 7.02% as of September 30, 2009 and December 31, 2008,
respectively) plus 2.53%. This credit line matures on June 25, 2010 and is
guaranteed by the Korea Credit Guarantee Fund. Amount outstanding as of
September 30, 2009 and December 31, 2008 was $33,976 and $31,696,
respectively.
The
Company has bank loans of $410,678 and $323,693 as of September 30, 2009 and
December 31, 2008, respectively, pledging the cash deposits in bank. The
interest rate ranges at the lender’s prime (2.73% and 3.94% as of September 30,
2009 and December 31, 2008, respectively) plus from 2.58% to 4.02% and matures
in April 2010.
In
November 2008, the Company had a borrowing from unrelated party. The borrowing
bears interest at 14.0% and matures on May 14, 2009. As of September 30, 2009
and December 31, 2008, the past due balance is $84,939 and $79,239,
respectively.
Note
6 – Advances from Stockholders
The
advances from the Company’s directors and stockholders, in the amount of
$260,179 and $228,673 as of September 30, 2009 and December 31, 2008,
respectively, are unsecured, non-interest bearing, and have no fixed terms of
repayment.
Note
7 – Advance Payments on Contracts
On
December 1, 2004 and December 1, 2007, the Company entered into the three-year
and the two-year Industry Development Contracts (the “Contracts”) with Korea
Global ID Corporation (“KGIC”), a corporation controlled by the Korean
government, to develop wireless recognition software and middleware technology.
Under the terms of the Contracts, the Company is contractually obligated to
spend the following approximate amounts on labor and other expenses over the
course of the Contracts:
Labor
|
Other
|
Total
|
||||||||||
Year
ended November 30, 2005
|
$ | 165,000 | $ | 66,000 | $ | 231,000 | ||||||
Year
ended November 30, 2006
|
$ | 148,000 | $ | 111,000 | $ | 259,000 | ||||||
Year
ended November 30, 2007
|
$ | 160,000 | $ | 160,000 | $ | 320,000 | ||||||
Year
ended November 30, 2008
|
$ | 203,000 | $ | 120,000 | $ | 323,000 | ||||||
Year
ended November 30, 2009
|
$ | 203,000 | $ | 120,000 | $ | 323,000 |
The
Company is permitted to defer any unused funds received from KGIC to future
years. However, upon completion of the Contracts, the Company is required to (1)
submit a final report to KGIC, (2) return 20% of the total funds received back
to KGIC and (3) return any unused portion of the funding received back to KGIC
in addition to the 20% requirement within two months of the expiration of the
Contracts.
The
Company has received approximately $3,131,000 from KGIC, of which $16,401
remains unspent, and has also allocated approximately 20% of the total amount
received or $364,466, which is to be returned to KGIC as of September 30,
2009.
F-26
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Advance
payments on contracts consist of the following as of September 30, 2009 and
December 31, 2008:
September
30, 2009
|
December
31, 2008
|
|||||||
KGIC
unspent funds
|
$ | 16,401 | $ | 465,154 | ||||
KGIC
repayable fund
|
364,466 | 379,531 | ||||||
Total
|
$ | 380,867 | $ | 844,685 |
Note
8 – Loss per Share
The
following reconciles the numerators and denominators of the basic and diluted
per share computation for the periods ended September 30, 2009 and
2008:
September
30, 2009
|
September
30, 2008
|
|||||||
Numerator
for basic and diluted loss per share:
|
||||||||
Net
loss
|
$ | (181,893 | ) | $ | (186,216 | ) | ||
Denominator:
|
||||||||
Basic
and diluted weighted average shares outstanding
|
15,000,000 | 201,000 | ||||||
Basic
and diluted loss per share
|
$ | (0.012 | ) | $ | (0.93 | ) |
Note
9 – Income Taxes
The
provision for income taxes has been computed as follows for the periods ended
September 30, 2009 and 2008:
September
30, 2009
|
September
30, 2008
|
|||||||
Expected
income tax recovery at the statutory rate
|
$ | (36,044 | ) | $ | (31,880 | ) | ||
Tax
effect of expenses that are not deductible for income tax purposes (net of
other amounts deductible for tax purposes)
|
34,560 | 30,568 | ||||||
(1,484 | ) | (1,312 | ) | |||||
Valuation
allowance
|
1,484 | 1,312 | ||||||
Provision
for income taxes
|
$ | - | $ | - |
F-27
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Company has deferred income tax assets as follows as of September 30, 2009 and
December 31, 2008:
September
30, 2009
|
December
31, 2008
|
|||||||
Deferred
income tax assets
|
||||||||
Research
and development expenses amortized over
5 years for tax purposes
|
$ | 163,000 | $ | 168,000 | ||||
Loss
carryforwards
|
317,000 | 282,000 | ||||||
Valuation
allowance
|
(480,000 | ) | (450,000 | ) | ||||
$ | - | $ | - |
The
Company has net operating losses for tax purposes available to be applied
against income in future years. Due to the losses incurred in the current year
and expected future operating results, management determined that it is more
likely than not that the deferred tax asset resulting from the tax losses
available for carryforward and stock option compensation expense will not be
realized through the reduction of future income tax payments, accordingly a 100%
valuation allowance has been recorded for deferred income tax
assets.
Note
10 – Commitment
The
Company is committed to lease obligations for its offices expiring January 30,
2010. Rental expenses incurred for the periods ended September 30, 2009 and 2008
was approximately $32,000 and $38,000, respectively.
Future
minimum annual payments under the lease are as follows for the years ended
December 31:
2009
|
$ | 13,966 | |
2010
|
$ | 4,691 |
Note
11 – Shares reserved for Issuance
In
September 2009, Clavis Korea reserved 7,466 common stocks of Clavis Korea for a
stock subscription and received proceed of $41,511.
Note
12 – Concentration and Uncertainty
(c)
Concentration
in Sales to a Few Customers
For the
periods ended September 30, 2009 and 2008, the two largest customers accounted
for 70% and 76% of sales, respectively.
(d)
Operation
in Foreign Country
Substantially,
all of the Company’s operations are in Republic of Korea. The Company’s
operations are subject to various political, economic, and other risks and
uncertainties inherent in the country in which the Company operates. Among other
risks, the Company’s operations are subject to the risks of political conditions
and governmental regulations.
F-28
CLAVIS
TECHNOLOGIES INTERNATIONAL CO., LTD.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
13 – Subsequent Events
(c)
Note
Payable
In
October 2009, the Company borrowed approximately $104,000 from unrelated
parties. The borrowings bear interest at 12.0% and matures in April
2011.
(d)
Stock
Issue
The
Clavis Korea raised an additional capital of $365,752 by issuing 44,800 common
shares of Clavis Korea during August to October 2009.
F-29
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESUTLS OF
OPERTIONS
The
following section highlights significant factors impacting the consolidated
operations and financial condition of the Company and its subsidiaries. The
following discussion should be read in conjunction with Item 6. “Selected
Financial Data” and Item 8. “Financial Statements and Supplementary
Data.”
Overview
Clavis
Technologies International Co., Ltd., a Nevada corporation ("the Company"), was
incorporated in Nevada on September 10, 2009. On December 1, 2009,
the Company entered into a definitive Share Exchange Agreement with Clavis
Technologies Co., Ltd., a Korean corporation (“Clavis Technologies” or “Clavis
Korea”), and the shareholders of Clavis Korea. Pursuant to the
agreement, the Company acquired 100% of the issued and outstanding capital stock
of Clavis Korea in exchange for 45,000,000 shares of the Company’s common stock,
representing approximately 75% of the issued and outstanding stock of the
Company. Clavis Korea was incorporated under the laws of Republic of
Korea on January 28, 2003. Clavis Korea is located in Seoul, Korea, and has been
engaged in the development of global Electronic Product Code (EPC) network
software. The Company’s goal is to be a global player in ubiquitous computing
solutions using its proprietary Radio Frequency Identification (“RFID”)
middleware which is based on the Electronic Product Code Network and mobile
financial solutions.
Clavis
Technologies has been providing RFID-enabled solutions, including business
processes, based on the world standard to various industrial markets as a vendor
of RFID technology since 2003. As Clavis Technologies combines its products,
expertise, partnerships and integration capability into solutions for a wide
range of device computing applications, Clavis Technologies enables its clients
to tap into the wealth of data captured by networked devices such as RFID
readers or handheld devices to extend the quality of valuable information to any
device where companies or their customers need.
Historically,
Clavis Technologies has concentrated on the RFID business as a provider that
sold only RFID middleware. As the RFID market has experienced significant growth
recently, Clavis Technologies has launched its framework-based product packages,
which has been developed since 2003, including added-value RFID applications
that can be customized for a broad range of industries.
Currently,
our results are heavily dependent upon sales to the retail and business to
business markets. Our customers are dependent upon retail sales, which are
susceptible to economic cycles and seasonal fluctuations. Furthermore, as
approximately two-thirds of our revenues and operations are located outside the
U.S., fluctuations in foreign currency exchange rates have a significant impact
on reported results. For the periods ended September 30, 2009 and 2008, the two
largest customers accounted for 70% and 76% of sales,
respectively. In 2008 Asiana IDT, Inc. (46%) and KTNetworks (30.13%)
accounted for approximately 76% of sales. In 2009 Korea Pallet Pool
Co., Ltd. (48%), and KTNetworks (21.4%) accounted for approximately 70% of
sales.
We
believe that some markets we serve are slowing as a result of the global
recession. In response to the current global market conditions, we are moving
forward with initiatives to reduce costs and improve working capital to mitigate
the effects of the economy on our business. We believe that the strength of our
core business and our ability to generate positive cash flow will sustain Clavis
Technologies International through this challenging period.
Our
business plan is to generate sustained revenue growth through selected
investments in product development and marketing. We intend to offset the cost
of these investments through product cost and operating expense reductions.
Revenue growth may also be generated by acquisitions of other companies that we
may identify to expand our product offerings and/or customer base. We
currently do not have any acquisitions targeted during 2010.
42
Products
URIS
Network Group - Total system of EPCglobal Network
Clavis
Technologies URIS Network Group is a RFID integrated solution for customizing
RFID data into enterprise applications by progressively collecting and managing
RFID data stream. Clavis Technologies RFID Framework is a proprietary framework
from Clavis Technologies that integrates and manages a whole system, and
complies with EPCglobal standards. Therefore, because URIS Network Group is
built upon the Clavis Technologies RFID framework, it ensures performance
enhancement and system monitoring, diagnosis, and recovery.
URISware
URISware
is ALE (Application Level Event)-compliant RFID Middleware software
solution. It transforms RFID data into user readable information
which are then translated, filtered, and grouped by data patterns. Finally,
URISware combines
refined data sets and broadcasts them upon entry of corresponding reporting and
event triggering conditions.
The
advantages of our URISware are:
Stability
|
· Uses
Clavis Technologies own URIS Framework to realize the optimized RFID
middleware
· Reliable
stability by using lightweight system that minimizes use of
resource
· Maximizes
convenience of operators and administers and system stability by
auto-monitoring, diagnosis and recovery
· Transaction
circumstance for multi-tier under the distributed system
structure
· Efficiently
manage the process by PTM (Process Transaction
Manager)
|
|
Compatibility
|
· Supports
varied codes (64bit/96bit/128bit etc.)
· Provides
interfaces to connect with varied solutions (ERP, WMS, Legacy system
etc.)
· Provides
varied communications protocols (TCP/IP, HTTP, TCP, SMTP
etc.)
|
|
Scalability
|
· Supports
integration of EPC Global Architecture-based products and URIS products by
Plug-in
· Applies
user-defined business models
|
|
Standards
Compliance
|
· EPCglobal
Network ALE Specifications
· EPCglobal
TDS(Tag Data Standard) Specifications
· EPCglobal
TDT(Tag Data Translation) Specifications
· ISO
and Mobile RFID Specifications
|
URISpagent
URISpagent
is a hardware device interface software system. It controls RFID Readers and
sensors, collects tag and sensory information to build RFID data set and then
reports a list of formatted RFID message to data consuming servers.
The
advantages of our URISpagent are:
Stability
|
· Uses
Clavis Technologies own URIS Framework to realize the optimized
RFID system
· Reliable
stability by using lightweight system that minimizes use of
resource
· Maximizes
convenience of operators and administers and system stability by
auto-monitoring, diagnosis and recovery
· Transaction
circumstance for multi-tier under the distributed system
structure
· Efficiently
manages the process by PTM (Process Transaction
Manager)
|
43
Compatibility
|
· Supports
varied vendors’ RFID devices (Alien, Symbol, LS Industrial Systems
etc.)
· Supports
varied codes (64bit/96bit/128bit etc.)
· Provides
varied communications protocols (TCP/IP, HTTP, TCP
etc.)
|
|
Scalability
|
· Supports
integration of EPC Global Architecture-based products and URIS products by
Plug-in
· Applies
user-defined business models
|
|
Standards
Compliance
|
· EPCglobal
Network ALE Specifications
· EPCglobal
TDS (Tag Data Standard) Specifications
· EPCglobal
TDT (Tag Data Translation) Specifications
· ISO
and Mobile RFID Specifications
|
URISors
URISors
is an object name service software solution. It points an Electronic Product
Code (EPC) querier to network addresses where information on the EPC is stored.
Also it defines and manages corresponding EPC information of RFID tags to
support the automated networking service.
The
advantages of our URISors are:
Stability
|
· Uses
Clavis Technologies own URIS Framework to realize the optimized RFID ONS
(Object Name Service)
· Reliable
stability by using lightweight system that minimizes use of
resource
· Maximizes
convenience of operators and administers and system stability by
auto-monitoring, diagnosis and recovery
· Transaction
circumstance for multi-tier under the distributed system
structure
· Efficiently
manages the process by PTM (Process Transaction
Manager)
|
|
Compatibility
|
· Supports
varied codes (EPC, ISO, UCODE, GS, IATA, mobile code etc.)
· Provides
varied communications protocols (HTTP, TCP, UDP etc.)
|
|
Scalability
|
· Supports
integration of EPC Global Architecture-based products and URIS products by
Plug-in
· Applies
user-defined business models
|
|
Standards
Compliance
|
· EPCglobal
Network ONS
· EPCglobal
TDS (Tag Data Standard) Specifications
· NIDA(National
Internet Development Agency of Korea)
ODS
|
URISwis
URISwis
is an information service solution. It consists of EPC information server and an
interface for accessing EPC-related information. The information server contains
EPC-related information and business data such as date of manufacture, date of
expiration, and price. The interface is EPCIS-compliant and consists of a Query
and Capture Interface to extract and provide EPC and business
information.
The
advantages of our URISwis are:
Stability
|
· RFID
EPCIS uses Clavis Technologies own URIS Framework to realize the optimized
RFID system
· Reliable
stability by using lightweight system that minimizes use of
resource
· Maximizes
convenience of operators and administers by the web-based management
console
|
|
Compatibility
|
· Has
independent Capture/Query Interface for any kinds of
languages
· Provides
Web Service interfaces to connect with varied solutions (ERP, WMS, Legacy
system etc.)
· Provides
varied communications protocols (HTTP, SOAP
etc.)
|
44
Scalability
|
· Supports
expansion attributes for event types
· Supports
Capture Interfaces of standards and user-defined master data
· Queries
event and master data by varied parameters
|
|
Standards
Compliance
|
· EPCglobal
Network EPCIS Specifications
· HTTP
POST for the Capture Interface
· SOAP
standard for the web service
binding
|
URIS
RTLS Solution
URIS RTLS
Solution is real-time monitoring software that tracks a location and condition
of each active RFID tag, alerts based on non-approval situations, backs up data
of tracking histories of active RFID tags, and records other movements or
changes after office hours.
URIS
Mobile RFID Platform
Clavis
Technologies’ URIS Mobile RFID Platform is a mobile RFID integration software
solution to accommodate a various kind of code systems such as EPC and
mCode. A RFID-Equipped cell phone reads and transforms a RFID tag
code by its corresponding coding scheme. Our URIS platform consists
of Service Gateway, ODS Resolver, History Manager and Tag Manager.
URIS
Service Gateway
Service
gateway detects and translates code information from tags as well as
authenticates who is user. There are three components, (1) Event Detection,
which detects information, such as EPC, mCode, micro-mCode, and mini-mCode, from
terminals, (2) Code Translator, which translates code information (EPC, mCode,
micro-mCode, and mini-mCode) into URN/FQDN form and (3) User Authentication,
which checks the user authentication based on user information which
came from terminals.
URIS
ODS Resolver
ODS
Resolver searches for location of server which has object/service information
related with Tag code. It has DNS Controller which can provide URL
list of object/service information which is equivalent to RFID tag codes in DNS
and directory service that manages object/service /URL information.
URIS
History Manager
History
Manager manages code/history information recorded in RFID tags and generates
serial numbers. There are 4 components: (1) Event Processor for
receiving/ recording/ inquiring issued/ sensed events which came from Tag
Manager and terminals, (2) Serial Generator that generates and manages serial
numbers, (3) Object Information for collecting/ saving/ inquiring
information of RFID tag codes, and (4) Tracking Information
for providing history information service to see integrated history
information which is distributed.
URIS
Tag Manager
Each code
system (EPC, mCode, micro-mCode and mini-mCode) is managed by Tag Manager
(registration, issuing, and disusing). Tag Manager has a Code
Generator that generates code which is compatible with each code system (EPC,
mCode, micro-mCode and mini-mCode), Tag Register (which can generate and disuse
codes as well as manages the code system), and Tag Printing that prints managed
codes with a tag printer.
u-Financial
Solution
m-Banking
Solution
Clavis
Technologies released the m-banking solution based on two different platforms,
each providing the same services – such as inquiring view of accounts, accounts
transaction history, view of checks and exchange rates; transferring service;
credit card service; and other typical banking services.
45
m-Stock
Solution
Clavis
Technologies released the m-stock solution based on WIPI (Wireless Internet
Platform For Interoperability), the Korean Wireless Internet Standard, providing
such services as Quotes, Pre-Order, ECN (Electronic Communication Network ) and
Account services.
Product
Upgrades and Diversification
URIS
Network Group
Following the Latest Updated
World Specification
The first
version of URIS is made by C# and based on .NET. Clavis Technologies
has prepared the new version URIS based on JAVA to support UNIX and Linux
platforms to provide extensible services for all kind commercialized operation
systems and platforms. Clavis Technologies plans to upgrade the URIS core
transaction engine supporting EPC Network specification Version 1.1 to be the
global RFID solution.
Expanding Enterprise
Application Interfaces
Clavis
Technologies expects to upgrade the business logics of URIS Network Group for
each step of the enterprise RFID section supporting applications of industries
of Government, Aerospace, CPG, Heath Care, Logistics, Manufacturing, and Retail
based on customers’ needs as well as Clavis Technologies’ knowledge
accumulated since 2003. Considering various Database
Management System (DBMS) and backend systems, these interfaces will be modulized
to integrate easily and rapidly with minimizing errors.
Enhancing Voluminous
Transaction Capability
Because
of the voluminous transactions that we expect will be appearing in the specific
industrial area (i.e., distribution, logistics, etc.) in near future, Clavis
Technologies has enhanced the transaction capability to develop an advanced RFID
application platform to deploy in any industry stably and
immediately.
URIS
RTLS Solution
Handling an extensive scale
of Active RFID tags’ data
Based on
customers’ requirement, Clavis Technologies expects to upgrade the data
processing to provide data storage of a big scale of active RFID tags’ data as
well as various monitoring and reporting functions especially in small areas or
limited areas where consumer security is a high priority.
Ultra-Wideband (UWB)
Application
Clavis
Technologies will gradually focus on this application as UWB becomes more widely
used. UWB allows for high data throughput with low power consumption for
distances of less than 10 meters, or about 30 feet, which is very applicable to
the digital home requirements.
URIS
Mobile RFID Platform
Developing the Mobile RFID
Middleware
Clavis
Technologies expects to develop the new version RFID middleware that can be
embedded in mobile or PDA, as a personal device, that can provide people with
the unique and individual RFID services comparing with enterprise services in
near future.
u-Financial
Solution
Developing the m-Payment
Platform
Clavis
Technologies expects to develop various m-Payment platforms (i.e.,
Transportation card, Credit card, Debit card, Point card, Cashback Credit card,
e-Purse, Micro-payment etc.) to provide unlimited payment ways by a mobile
handset.
Developing u-Voucher
Solution
Clavis
Technologies expects to develop u-voucher solution based on 2D bar codes by
mobile internet and RFID tags by mobile RFID system to provide fast and easy
payment service to users.
46
Developing the m-Financial Portal Service Platform
Clavis
Technologies will upgrade m-banking solution depending on mobile system
applications that banks plan to deploy in their works firstly and then develop
the m-Financial portal service platform, especially enhanced for m-Payment ways,
integrated Clavis Technologies m-banking service platforms with other
companies’’ m-stock service platforms.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles (GAAP) in the United
States of America. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and the related disclosure of contingent
assets and liabilities.
In Note 2
to the Company’s annual and interim consolidated financial statements, the
Company describes the significant accounting policies used in the preparation of
those consolidated financial statements. Certain of these significant accounting
policies are considered to be critical accounting policies. A critical
accounting policy is defined as one that is both material to the presentation of
our consolidated financial statements and requires management to make difficult,
subjective or complex judgments that could have a material effect on our
financial condition or results of operations.
Specifically,
these policies have the following attributes: (1) we are required to make
assumptions about matters that are highly uncertain at the time of the estimate;
and (2) different estimates we could reasonably have used, or changes in the
estimate that are reasonably likely to occur, would have a material effect on
our financial condition or results of operations. Estimates and assumptions
about future events and their effects cannot be determined with certainty. On an
on-going basis, we evaluate our estimates on historical experience and on
various other assumptions believed to be applicable and reasonable under the
circumstances. These estimates may change as new events occur, as additional
information is obtained and as our operating environment changes. These changes
have historically been minor and have been included in the consolidated
financial statements as soon as they became known. Senior management reviews the
development and selection of our accounting policies and estimates with the
Audit Committee. The critical accounting policies have been consistently applied
throughout the accompanying financial statements.
We
believe the following accounting policies are critical to the preparation of our
consolidated financial statements:
Revenue
Recognition. We recognize revenue in accordance with Staff Accounting
Bulletin (“SAB”) No. 104, “Revenue Recognition,” which states that revenue is
realized or realizable and earned when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred or services
have been rendered; the price to the buyer is fixed or determinable; and
collectability is reasonably assured. We enter into contracts to sell our
products and services, and, while the majority of our sales agreements contain
standard terms and conditions, there are agreements that contain multiple
elements or non-standard terms and conditions. As a result, significant contract
interpretation is sometimes required to determine the appropriate accounting,
including whether the deliverables specified in a multiple element arrangement
should be treated as separate units of accounting for revenue recognition
purposes, and, if so, how the price should be allocated among the elements and
when to recognize revenue for each element. Unearned revenue is recorded when
payments are received in advance of performing our service obligations and is
recognized over the service period.
For
arrangements with multiple elements, we determine the fair value of each element
and then allocate the total arrangement consideration among the separate
elements. We recognize revenue when installation is complete or other
post-shipment obligations have been satisfied. Equipment leased to customers
under sales-type leases is accounted for as the equivalent of a sale. The
present value of such lease revenues is recorded as net revenues, and the
related cost of the equipment is charged to cost of revenues. The deferred
finance charges applicable to these leases are recognized over the terms of the
leases. Rental revenue from equipment under operating leases is recognized over
the term of the lease. Installation revenue from EAS equipment is recognized
when the systems are installed. Service revenue is recognized, for service
contracts, on a straight-line basis over the contractual period, and, for
non-contract work, as services are performed. Software license fee revenues are
recognized in accordance with Statement of Position (“SOP”) 97-2, “Software
Revenue Recognition”, as amended by SOP 98-9, “Modification of SOP 97-2,
Software Revenue Recognition with Respect to Certain Transactions.” Revenues
from software license agreements are recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant vendor
obligations are remaining to be fulfilled, the fee is fixed and determinable,
and collection is probable. Revenue from software contracts that require
significant production, modification, customization, or implementation is
recognized in accordance with SOP 81-1, “Accounting For Performance of
Construction-Type and Certain Production-Type Contracts”. Revenue from these
arrangements for both licenses and professional services are recognized together
using the percentage of completion method based upon the ratio of labor incurred
to total estimated labor to complete each contract. In instances where there is
a term license combined with services, revenue is recognized ratably over the
term. We record estimated reductions to revenue for customer incentive
offerings, including volume-based incentives and rebates. We record revenues net
of an allowance for estimated return activities. Return activity was immaterial
to revenue and results of operations for all periods presented.
47
We
believe the following judgments and estimates have a significant effect on our
consolidated financial statements:
Allowance for
Doubtful Accounts. We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. These allowances are based on specific facts and circumstances
surrounding individual customers as well as our historical experience. The
adequacy of the reserves for doubtful accounts is continually assessed by
periodically evaluating each customer’s receivable balance, considering our
customers’ financial condition and credit history, and considering current
economic conditions. Historically, our reserves have been adequate to cover all
losses associated with doubtful accounts. If the financial condition of our
customers were to deteriorate, impairing their ability to make payments,
additional allowances may be required. If economic or political conditions were
to change in the countries where we do business, it could have a significant
impact on the results of operations, and our ability to realize the full value
of our accounts receivable. Furthermore, we are dependent on customers in the
retail markets. Economic difficulties experienced in those markets could have a
significant impact on our results of operations and our ability to realize the
full value of our accounts receivables. Accounts receivable are
stated net of an allowance for doubtful accounts. The allowances for doubtful
accounts were $983 and $1,325 at December 31, 2008 and 2007,
respectively. The allowances for doubtful accounts were $1,053 at
September 30, 2009.
Inventory
Valuation. We write down our inventory for estimated obsolescence or
unmarketable items equal to the difference between the cost of the inventory and
the estimated net realizable value based upon assumptions of future demand and
market conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be
required. In 2008 our inventory markdown was $-0- compared to $-0- in
2007. For the three and nine months ended September 30, 2009, our
inventory markdowns were $-0- and $-0-, respectively.
Valuation of
Long-lived Assets. Our long-lived assets include property, plant, and
equipment, goodwill, and identified intangible assets. With the exception of
goodwill and indefinite-lived intangible assets, long-lived assets are
depreciated or amortized over their estimated useful lives, and are reviewed for
impairment whenever changes in circumstances indicate the carrying value may not
be recoverable. Recoverability is determined based upon our estimates of future
undiscounted cash flows. If the carrying value is determined to be not
recoverable an impairment charge would be necessary to reduce the recorded value
of the assets to their fair value. The fair value of the long-lived assets other
than goodwill is based upon appraisals, quoted market prices of similar assets,
or discounted cash flows.
Goodwill
and indefinite-lived intangible assets are subject to tests for impairment at
least annually or whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. We test for impairment on
an annual basis as of fiscal month end October of each fiscal year, relying on a
number of factors including operating results, business plans, and anticipated
future cash flows. Our management uses its judgment in assessing whether
goodwill has become impaired between annual impairment tests. Reporting units
are primarily determined as the geographic areas comprising our business
segments, except in situations when aggregation of the reporting units is
appropriate pursuant to FAS 142. Recoverability of goodwill is evaluated using a
two-step process. The first step involves a comparison of the fair value of a
reporting unit with its carrying value. If the carrying amount of the reporting
unit exceeds the fair value, then the second step of the process involves a
comparison of the implied fair value and carrying value of the goodwill of that
reporting unit. If the carrying value of the goodwill of a reporting unit
exceeds the fair value of that goodwill, an impairment loss is recognized in an
amount equal to the excess.
48
The
implied fair value of our reporting units is dependent upon our estimate of
future discounted cash flows and other factors. Our estimates of future cash
flows include assumptions concerning future operating performance and economic
conditions and may differ from actual future cash flows. Estimated future cash
flows are adjusted by an appropriate discount rate derived from our market
capitalization plus a suitable control premium at the date of evaluation. The
financial and credit market volatility directly impacts our fair value
measurement through our weighted average cost of capital that we use to
determine our discount rate and through our stock price that we use to determine
our market capitalization. Therefore, changes in the stock price may also affect
the amount of impairment recorded. Market capitalization is determined by
multiplying the shares outstanding on the assessment date by the average market
price of our common stock over a 30-day period before each assessment date. We
use this 30-day duration to consider inherent market fluctuations that may
affect any individual closing price. We believe that our market capitalization
alone does not fully capture the fair value of our business as a whole, or the
substantial value that an acquirer would obtain from its ability to obtain
control of our business. As such, in determining fair value, we add a control
premium to our market capitalization. To estimate the control premium, we
considered our unique competitive advantages that would likely provide synergies
to a market participant. In addition, we considered external market factors
which we believe contributed to the decline and volatility in our stock price
that did not reflect our underlying fair value.
We have
not made any material changes in the methodology used in the assessment of
whether or not goodwill is impaired during the past three fiscal years.
Determining the fair value of a reporting unit is a matter of judgment and often
involves the use of significant estimates and assumptions. The use of different
assumptions would increase or decrease estimated discounted future cash flows
and could increase or decrease an impairment charge. If the use of these assets
or the projections of future cash flows change in the future, we may be required
to record impairment charges. An erosion of future business results in any of
the business units could create impairment in goodwill or other long-lived
assets and require a significant charge in future periods. (See Note 2 of the
annual and interim Consolidated Financial Statements.)
Income
Taxes. In determining income for financial statement purposes, we must
make certain estimates and judgments. These estimates and judgments affect the
calculation of certain tax liabilities and the determination of recoverability
of certain of the deferred tax assets, which arise from temporary differences
between tax and financial statement recognition of revenue and expense. We
record a valuation allowance to reduce our deferred tax assets to the amount
that it is more likely than not to be realized. In assessing the realizability
of deferred tax assets, we consider future taxable income by tax jurisdictions
and tax planning strategies. If we were to determine that we would be able to
realize deferred tax assets in the future in excess of the net recorded amount,
an adjustment to the valuation allowance would increase income in the period
such determination was made. Likewise, should we determine that we would not be
able to realize all or part of our net deferred tax assets in the future, an
adjustment to the valuation allowance would decrease income in the period such
determination was made. (See Note 9 of the annual and interim Consolidated
Financial Statements.)
Changes
in tax laws and rates could also affect recorded deferred tax assets and
liabilities in the future. We are not aware of any such changes that would have
a material effect on our results of operations, cash flows or financial
position.
In
addition, the calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations in a multitude of
jurisdictions across our global operations. We record tax liabilities for the
anticipated settlement of tax audit issues in the U.S. and other tax
jurisdictions based on our estimate of whether, and the extent to which,
additional taxes will be due. Our income tax expense includes amounts intended
to satisfy income tax assessments that result from these audit issues in
accordance with Financial Accounting Standards Board (FASB) Interpretation No.
48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109” (FIN 48). Determining the income tax expense for these
potential assessments and recording the related assets and liabilities requires
management judgments and estimates. Due to the complexity of some of these
uncertainties, the ultimate resolution may result in a payment that is different
from our estimate of tax liabilities. If payment of these amounts ultimately
proves to be greater or less than the recorded amounts, the change of the
liabilities would result in tax expense or benefit being recognized in that
period. We evaluate our uncertain tax positions in accordance with FIN 48. We
believe that our reserve for uncertain tax positions, including related
interest, is adequate.
Pension
Plans. We do not have unfunded pension plans either inside or outside the
U.S.
49
Stock
Compensation. We recognize stock-based compensation expense for all
share-based payment awards granted after December 25, 2005 and granted prior to
but not yet vested as of December 25, 2005, in accordance with Statement of
Financial Accounting Standards (SFAS) 123R “Share-Based Payment” (SFAS 123R).
Under the fair value recognition provisions of SFAS 123R, we recognize
share-based compensation, net of an estimated forfeiture rate, and only
recognize compensation cost for those shares expected to vest. For awards
granted after the SFAS 123R adoption date we recognize the expense on a
straight-line basis over the requisite service period of the award. For
non-vested awards granted prior to the adoption date, we continue to use the
ratable expense allocation method. Prior to SFAS 123R adoption, we accounted for
share-based payments under Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (APB 25) and accordingly, recognized
compensation expense only when we granted options with a discounted exercise
price.
Determining
the fair value of share-based payment awards requires the input of highly
subjective assumptions, including the expected life of the share-based payment
awards and stock price volatility. The assumptions used in calculating the fair
value of share-based payment awards represent management’s best estimates, but
these estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and we use different assumptions, our
share-based compensation expense could be materially different in the future. In
addition, we are required to estimate the expected forfeiture rate and only
recognize expense for those shares expected to vest. If our actual forfeiture
rate is materially different from our estimate, the share-based compensation
expense could be significantly different from what we have recorded in the
current period. As of December 31, 2008, there was $-0- of unrecognized
stock-based compensation expense related to nonvested stock options and
restricted stock units, respectively. As of September 30, 2009, there was $-0-
of unrecognized stock-based compensation expense related to nonvested stock
options and restricted stock units, respectively.
Liquidity
and Capital Resources
Our
liquidity needs have related to, and are expected to continue to relate to,
acquisitions, capital investments, product development costs, potential future
restructuring related to the rationalization of the business, and working
capital requirements. We have met our liquidity needs over the last four years
primarily through cash generated from sale of equity capital, our operations and
advances from our stockholders. Based on an analysis of liquidity utilizing
conservative assumptions for 2009, we believe that cash provided from operating
activities and funding available under our current credit agreements should be
adequate to service debt and working capital needs, meet our capital investment
requirements, other potential restructuring requirements, and product
development requirements.
The
recent financial and credit crisis has reduced credit availability and liquidity
for many companies. We believe, however, that the strength of our core business,
cash position, access to credit markets, and our ability to generate positive
cash flow will sustain us through this challenging period. We are working to
reduce our liquidity risk by accelerating efforts to improve working capital
while reducing expenses in areas that will not adversely impact the future
potential of our business. As of September 30, 2009, our cash and cash
equivalents were $579,628 as compared to $865,902 as of December 31,
2008. Cash and cash equivalents decreased in 2009
primarily due to the expenditures of advance payments on contracts.
As of
December 31, 2008, our cash and cash equivalents were $865,902 compared to
$1,054,137 as of December 31, 2007. Cash and cash equivalents decreased in 2008
primarily due to fluctuations in cash from operating activities and outstanding
accounts. Cash from financing activities decreased to $458,184 in 2008 compared
to $818,645 in 2007 due primarily to repayments of government grants. The net
advancements from stock holders of $192,516 helped to increase cash on hand in
2008 compared to a net decrease in cash flows of $575,067 from 2007 in the same
category. Depreciation expenses remained fairly constant over the two
years reported with $20,907 in 2008 and $33,672 in 2007. The effects of currency
exchange rates on cash and cash equivalents decreased in 2008 to $243,347 loss
from a gain of $12,993 in 2007. Our stockholders’ deficit in 2008 increased to
$1,050,210 from $992,296. As of December 31, 2008, our working capital
deficiency was $1,112,318 compared to $1,100,152 as of December 31,
2007.
During
2008, we did not execute any stock repurchases. Prior to 2008, no shares were
repurchased under any repurchase plan. As of December 31, 2008, 2,000,000 shares
remain available for sale under the current treasury program. Common stock
obtained by the Company through any repurchase program will be re-added to our
treasury stock holdings.
We
continue to reinvest in the Company through our investment in our technology and
process improvement. Most R&D expenses consist mainly of salaries, related
personnel costs and subcontract fees. In 2008, our investment in research and
development was limited and we did not apply any new funds to that area compared
to $247,616 in 2007. These amounts are reflected in the cash generated from
operations, as we expense our research and development as it is incurred. In
2009, we anticipate spending very limited amount of research and development as
our research projects are winding down and completed.
50
No
significant cash flows activities incurred in the property and equipment during
2008. Likewise, we anticipate very minimal capital expenditure in
2009 other than maintaining normal wear and tear of the existing
equipment.
We have
never paid a cash dividend. We do not anticipate paying any cash dividends in
the near future.
As we
continue to implement our strategic plan in a volatile global economic
environment, our focus will remain on operating our business in a manner that
addresses the reality of the current economic marketplace without sacrificing
the capability to effectively execute our strategy when economic conditions and
the retail environment stabilize. Based upon an analysis of liquidity using our
current forecast, management believes that our anticipated cash needs can be
funded from cash and cash equivalents on hand, the availability of cash under
the $70,000 revolving credit facility, and cash generated from future operations
for the 2009 fiscal year.
Off-Balance
Sheet Arrangements
We do not
utilize material off-balance sheet arrangements apart from operating leases that
have, or are reasonably likely to have, a current or future effect on our
financial condition, changes in financial condition, revenue or expenses,
results of operations, liquidity, capital expenditures or capital resources. We
use operating leases as an alternative to purchasing certain property, plant,
and equipment. Our future rental commitment under all non-cancelable operating
leases was $60,556 as of December 31, 2008. The scheduled timing of these rental
commitments is detailed in our “Contractual Obligations” section. As
of September 30, 2009, our future rental commitment under all non-cancelable
operating leases were $18,657 as compared to $60,556 as of December 31,
2008.
Contractual
Obligations
Our
contractual obligations and commercial commitments at December 31, 2008 are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligation
|
|
|
|
|
|
Due
in less
|
|
|
Due
in
|
|
|
Due
in
|
|
Due
after
|
||||
(dollar
amounts in thousands)
|
|
Total
|
|
|
than
1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
5
years
|
|||||
|
||||||||||||||||||
Long-term
debt (1)
|
|
$
|
|
|
$
|
|
|
$
|
|
$
|
|
$
|
||||||
Capital
leases (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating
leases
|
|
|
60,600
|
|
|
|
55,900
|
|
|
|
4,700
|
|
|
-
|
|
|
-
|
|
Pension
obligations (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Acquisition
obligation (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Inventory
purchase commitments (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total
contractual cash obligations
|
|
$
|
60,600
|
|
|
$
|
55,900
|
|
|
$
|
4,700
|
|
$
|
-
|
|
$
|
-
|
Our
contractual obligations and commercial commitments at September 30, 2009 are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligation
|
|
|
|
|
|
Due
in less
|
|
|
Due
in
|
|
|
Due
in
|
|
Due
after
|
||||
(dollar
amounts in thousands)
|
|
Total
|
|
|
than
1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
5
years
|
|||||
|
||||||||||||||||||
Long-term
debt (1)
|
|
$
|
|
|
$
|
|
|
$
|
|
$
|
|
$
|
||||||
Capital
leases (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating
leases
|
|
|
18,700
|
|
|
|
18,700
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Pension
obligations (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Acquisition
obligation (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Inventory
purchase commitments (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total
contractual cash obligations
|
|
$
|
18,700
|
|
|
$
|
18,700
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
The table
above excludes our gross liability for uncertain tax positions, including
accrued interest and penalties since we cannot predict with reasonable
reliability the timing of cash settlements to the respective taxing
authorities.
51
Severance
Payable
We
maintain an accrued severance benefit payable account and the outstanding
severance payable were $87,791 and $163,221, respectively.
Foreign
Currency Translation
Where the
functional currency of the Company's foreign subsidiaries is the local currency,
all assets and liabilities are translated into U.S. dollars, in accordance with
Statement of Financial Accounting Standards (“SFAS”) No 52, Foreign Currency
Translation, using the exchange rate on the balance sheet date, and revenues and
expenses are translated at average rates prevailing during the period. Accounts
and transactions denominated in foreign currencies have been re-measured into
functional currencies before translated into U.S. dollars. Foreign currency
transaction gains and losses are included as a component of other income and
expense. Gains and losses from foreign currency translation are included as a
separate component of comprehensive income. In accordance with Statement of
Financial Accounting Standards No. 95, Statement of Cash Flows, cash flows from
the Company's foreign subsidiaries are calculated based upon the local
currencies. As a result, amounts related to assets and liabilities reported on
the statements of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheets. Since the subsidiary's financial
statements must be translated into U.S. Dollars, major changes in the currency
exchange rate between the foreign denominations and U.S. Dollars may have a
significant impact on the operations of the Company. Although the Company does
not anticipate the currency exchange rate to be significantly different over the
next twelve months, no such assurances can be given.
Results
of Operations
(All
comparisons are with the previous year, unless otherwise stated.)
Net
Revenues
Our unit
volume is driven by product offerings, number of direct sales personnel,
recurring sales and, to some extent, pricing. Our base of installed systems
provides a source of recurring revenues from the sale of disposable tags,
labels, and service revenues.
Our
customers are somewhat dependent on business to business and governmental sales,
which are seasonal, subject to significant fluctuations, and difficult to
predict. In addition, current economic trends have particularly
strongly affected our customers, and consequently our net revenues may be
impacted. Such seasonality and fluctuations impact our sales. Historically, we
have experienced lower sales in the first half of each year.
52
Analysis
of Statement of Operations
The
following table presents for the periods indicated certain items in the
consolidated statement of operations as a percentage of total revenues and the
percentage change in dollar amounts of such items compared to the indicated
prior period:
2008
|
2007
|
2008
vs 2007
%
Change
|
||||||||||
REVENUES
|
||||||||||||
Hardware
|
$ | 258,129 | $ | 811,950 | (68.21 | ) | ||||||
Software
and service
|
424,551 | 611,457 | (30.57 | ) | ||||||||
682,680 | 1,423,407 | (52.04 | ) | |||||||||
COST
OF SALES
|
||||||||||||
Hardware
|
215,982 | 729,588 | (70.40 | ) | ||||||||
Software
and service
|
400,397 | 590,603 | (32.21 | ) | ||||||||
616,379 | 1,320,191 | (53.31 | ) | |||||||||
GROSS
PROFIT
|
66,301 | 103,216 | (35.77 | ) | ||||||||
EXPENSES
|
||||||||||||
Professional
fees
|
67,700 | 71,551 | (5.38 | ) | ||||||||
Research
and development
|
- | 247,616 | (100.00 | ) | ||||||||
Office
and general
|
58,931 | 65,679 | (10.27 | ) | ||||||||
Salaries
and employee benefits
|
184,859 | 229,185 | (19.34 | ) | ||||||||
Depreciation
|
7,698 | 12,289 | (37.36 | ) | ||||||||
Total
Expenses
|
319,188 | 626,320 | (49.04 | ) | ||||||||
LOSS
FROM OPERATIONS
|
(252,887 | ) | (523,104 | ) | (51.65 | ) | ||||||
OTHER
INCOME (EXPENSES)
|
||||||||||||
Interest
expense, net
|
(103,068 | ) | (38,260 | ) | 169.39 | ) | ||||||
Miscellaneous
income (expense)
|
(11,875 | ) | 6,550 | (281.30 | ) | |||||||
Total
Other Expenses
|
(114,943 | ) | (31,710 | ) | 262.48 | ) | ||||||
LOSS
BEFORE INCOME TAXES
|
(367,830 | ) | (554,814 | ) | (33.70 | ) | ||||||
Provision
for income taxes
|
- | - | ||||||||||
NET
LOSS
|
(367,830 | ) | (554,814 | ) | (33.70 | ) | ||||||
Foreign
currency translation adjustment
|
309,916 | 18,603 | 1565.95 | ) | ||||||||
TOTAL
COMPREHENSIVE LOSS
|
$ | (57,914 | ) | $ | (536,211 | ) | (89.20 | ) | ||||
LOSS
PER SHARE
|
$ | (1.83 | ) | $ | (5.80 | ) | (68.45 | ) | ||||
WEIGHTED
AVERAGE NUMBER OF
COMMON
STOCKS OUTSTANDING
|
201,000 | 95,658 | N/A | |||||||||
N/A —
Comparative percentages are not meaningful.
53
Fiscal 2008 compared to Fiscal 2007
INTERIM
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
||||||||
(UNAUDITED)
|
Three
Months
Ended
September
30,
2009
|
Three
Months
Ended
September
30,
2008
|
Nine
Months
Ended
September
30,
2009
|
Nine
Months
Ended
September
30,
2008
|
|||||||||||||
REVENUES
|
||||||||||||||||
Hardware
|
$ | 9,171 | $ | 128,330 | $ | 126,888 | $ | 275,832 | ||||||||
Software
and service
|
62,211 | 83,122 | 264,171 | 393,238 | ||||||||||||
71,382 | 211,452 | 391,059 | 669,070 | |||||||||||||
COST
OF SALES
|
||||||||||||||||
Hardware
|
2,543 | 103,476 | 41,277 | 230,794 | ||||||||||||
Software
and service
|
71,983 | 103,866 | 251,678 | 335,569 | ||||||||||||
74,526 | 207,342 | 292,955 | 566,363 | |||||||||||||
GROSS
PROFITS (LOSS)
|
(3,144 | ) | 4,110 | 98,104 | 102,707 | |||||||||||
EXPENSES
|
||||||||||||||||
Professional
fees
|
123,518 | 3,398 | 152,423 | 26,953 | ||||||||||||
Office
and general
|
15,598 | 15,452 | 39,938 | 42,303 | ||||||||||||
Salaries
and employee benefits
|
33,035 | 54,665 | 76,231 | 163,255 | ||||||||||||
Depreciation
|
1,178 | 2,016 | 3,162 | 6,233 | ||||||||||||
Total
Expenses
|
173,329 | 75,531 | 271,754 | 238,744 | ||||||||||||
LOSS
FROM OPERATIONS
|
(176,473 | ) | (71,421 | ) | (173,650 | ) | (136,037 | ) | ||||||||
OTHER
INCOME (EXPENSES)
|
||||||||||||||||
Interest
expense, net
|
(9,792 | ) | (15,287 | ) | (28,166 | ) | (45,247 | ) | ||||||||
Miscellaneous
income (expense)
|
(138 | ) | (236 | ) | 19,923 | (4,932 | ) | |||||||||
Total
Other Expenses
|
(9,930 | ) | (15,523 | ) | (8,243 | ) | (50,179 | ) | ||||||||
LOSS
BEFORE INCOME TAXES
|
(186,403 | ) | (86,944 | ) | (181,893 | ) | (186,216 | ) | ||||||||
Provision
for income taxes
|
- | - | - | - | ||||||||||||
NET
LOSS
|
(186,403 | ) | (86,944 | ) | (181,893 | ) | (186,216 | ) | ||||||||
Foreign
currency translation adjustment
|
(89,738 | ) | 141,943 | (79,104 | ) | 252,900 | ||||||||||
TOTAL
COMPREHENSIVE LOSS
|
$ | (276,141 | ) | $ | 54,999 | $ | (260,997 | ) | $ | 66,684 | ||||||
LOSS
PER SHARE
|
$ | (0.01 | ) | $ | (0.43 | ) | $ | (0.01 | ) | $ | (0.93 | ) | ||||
WEIGHTED
AVERAGE NUMBER OF
COMMON
STOCKS OUTSTANDING
|
15,000,000 | 201,000 | 15,000,000 | 201,000 | ||||||||||||
54
Net
Loss
During
2008, net loss decreased by $186,984, or 33.70%, from $554,814 to
$367,830. For the nine months ended September 30, 2009, our net
losses were $181,893 as compared to $186,216 for the nine months ended September
30, 2008. For the three months ended September 30, 2009, out net
losses were $186,403.
|
|
|
|
|
|
|
|
|
|
Dollar
Amount
|
|
|
Percentage
|
|
||||
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
||||
|
|
December
31,
|
|
|
December
31,
|
|
|
Fiscal
2008
|
|
|
Fiscal
2008
|
|
||||||
|
|
2008
|
|
|
2007
|
|
|
vs.
|
|
|
vs.
|
|
||||||
Year
ended
|
|
(Fiscal
2008)
|
|
|
(Fiscal
2007)
|
|
|
Fiscal
2007
|
|
|
Fiscal
2007
|
|
||||||
|
||||||||||||||||||
|
||||||||||||||||||
Comprehensive
Loss
|
|
$
|
(57,914)
|
|
|
$
|
(536,211)
|
|
|
$
|
478,297
|
|
|
|
(89.20)
|
%
|
Gross
Profit
During
2008, gross profit decreased by $36,915, or 35.77%, from $103,216 to $66,301.
Gross profit, as a percentage of net revenues, increased from 7.25% to 9.71%.
For the nine months ended September 30, 2009, our gross profits were $98,104 as
compared to $102,707 for the nine months ended September 30,
2008. For the three months ended September 30, 2009, our gross losses
were $3,144 .
Selling,
General, and Administrative Expenses
Selling,
general, and administrative (SG&A) expenses decreased $307,132, or 49.04%,
during 2008. The decrease are mainly due to the limited investment in research
and development. SG&A expenses were additionally decreased due to decreases
in employees and the efforts to decrease the expenses. For the nine months ended
September 30, 2009, our SG&A were $271,754 as compared to $238,744 for the
nine months ended September 30, 2008. For the three months ended
September 30, 2009, our SG&A were $173,329.
55
Impairment
of Long-lived Assets
In
accordance with SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets, long-lived assets, such as property and equipment, and
purchased intangible assets subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Assets to be disposed of are
separately presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer depreciated.
The assets and liabilities of a disposal group classified as held for sale are
presented separately in the appropriate asset and liability sections of the
balance sheet. For the years ended December 31, 2008 and 2007, no events or
circumstances occurred for which an evaluation of the recoverability of
long-lived assets was required. In the 3 and 9 month periods of 2009
the company did not see any other impairments on long-lived
assets. There can be no assurance however, that market
conditions will not change or demand for the Company’s products and services
will continue, which could result in impairment of long-lived assets in the
future.
Litigation
Settlement
Litigation
Settlement expenses were not incurred in the business operations. We
do not anticipate any additional charges related to issues.
Interest
Income and Interest Expense
Net
interest expenses for 2008 increased by $64,808 from the comparable period in
2007. The increase in interest expense was due to increase in notes
payable. For the nine month ended September 30, 2009, our net
interest expenses were $28,166 as compared to $45,247 for the nine months ended
September 30, 2008. For the three months ended September 30, 2009,
our net interest expenses were $9,792.
Other
Gain (Loss), net
Other
gain (loss), net was a loss of $11,875 for 2008 compared to a net gain of $6,550
for 2007. The increase in other expenses for 2008 was due primarily to increase
in miscellaneous expenses. For the nine month ended September 30, 2009, our
gains were $19,923 as compared to our loss of $4,932 for the nine months ended
September 30, 2008. For the three months ended September 30, 2009,
our losses were $138.
Income
Taxes
The
Company accounts for income taxes pursuant to the FASB issued Interpretation No.
48, Accounting for Uncertainty
in Income Taxes, (“FIN 48”). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in the Company’s financial statements in
accordance with SFAS No. 109.
The
calculation of the Company's tax provision involves the application of complex
tax rules and regulations within multiple jurisdictions throughout the world.
The Company's tax liabilities include estimates for all income-related taxes
that the Company believes are probable and that can be reasonably estimated. To
the extent that the Company’s estimates are understated, additional charges to
the provision for income taxes would be recorded in the period in which the
Company determines such understatement. If the Company's income tax estimates
are overstated, income tax benefits will be recognized when
realized.
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment. FIN 48 prescribes a recognition
threshold and measurement attributes for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return.
56
The
provision for income taxes has been computed as follows for the
periods ended September 30, 2009 and 2008:
Three
months ended
September
30,
|
Nine
months ended
September
30,
|
|||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||
Expected
income tax recovery at the statutory rate
|
$ | (30,756 | ) | $ | (14,346 | ) | $ | (36,044 | ) | $ | (31,880 | ) | ||||||
Tax
effect of expenses that are not deductible for income tax purposes
(net
of other amounts deductible for tax purposes)
|
29,491 | 13,755 | 34,560 | 30,568 | ||||||||||||||
(1,266 | ) | (590 | ) | (1,484 | ) | (1,312 | ) | |||||||||||
Valuation
allowance
|
1,266 | 590 | 1,484 | 1,312 | ||||||||||||||
Provision
for income taxes
|
$ | - | $ | - | $ | - | $ | - |
The
Company has deferred income tax assets as follows as of September 30, 2009 and
December 31, 2008:
September
30, 2009
|
December
31, 2008
|
|||||||||
Deferred
income tax assets
|
||||||||||
Research
and development expenses amortized over
5 years for tax purposes
|
$ | 163,000 | $ | 168,000 | ||||||
Loss
carryforwards
|
317,000 | 282,000 | ||||||||
Valuation
allowance
|
(480,000 | ) | (450,000 | ) | ||||||
$ | - | $ | - |
The
Company has net operating losses for tax purposes available to be applied
against income in future years. Due to the losses incurred in the current year
and expected future operating results, management determined that it is more
likely than not that the deferred tax asset resulting from the tax losses
available for carryforward and stock option compensation expense will not be
realized through the reduction of future income tax payments, accordingly a 100%
valuation allowance has been recorded for deferred income tax
assets.
Other
Matters
Recently
Adopted Accounting Standards
(p)
Effect of Newly Issued But Not Yet Effective Accounting Standards
In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements (“SFAS 160”). SFAS 160 requires all entities
to report noncontrolling (i.e. minority) interests in subsidiaries as equity in
the Consolidated Financial Statements and to account for transactions between an
entity and noncontrolling owners as equity transactions if the parent retains
its controlling financial interest in the subsidiary. SFAS 160 also requires
expanded disclosure that distinguishes between the interests of the controlling
owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160
is effective for the Company’s financial statements for the year beginning on
January 1, 2009, and earlier adoption is not permitted. The adoption of SFAS 160
is not expected to have a material impact on the Company’s financial condition
and results of operations. In December 2007, the FASB issued Statement No. 141R,
(revised 2007) Business Combinations ("SFAS 141R"). SFAS 141R replaces the
current standard on business combinations and has significantly changed the
accounting for and reporting of business combinations in consolidated financial
statements. This statement requires an entity to measure the business acquired
at fair value and to recognize goodwill attributable to any noncontrolling
interests (previously referred to as minority interests) rather than just the
portion attributable to the acquirer. The statement will also result in fewer
exceptions to the principle of measuring assets acquired and liabilities assumed
in a business combination at fair value. In addition, the statement requires
payments to third parties for consulting, legal, audit, and similar services
associated with an acquisition to be recognized as expenses when incurred rather
than capitalized as part of the business combination. SFAS 141R is effective for
fiscal years beginning on or after December 15, 2008. In March 2008, the FASB
issued Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities an Amendment of FASB Statement No. 133 ("SFAS 161"). SFAS 161 amends
Statement 133 by requiring expanded disclosures about an entity's derivative
instruments and hedging activities, but does not change Statement 133's scope or
accounting. This statement requires increased qualitative, quantitative, and
credit-risk disclosures. SFAS 161 also amends Statement No. 107 to clarify that
derivative instruments are subject to Statement 107's concentration-of-credit
risk disclosures. SFAS 161 is effective for fiscal years beginning on or after
November 15, 2008. The adoption of SFAS 161 will require the Company to provide
additional disclosures about derivative instruments and hedging activities
beginning January 1, 2009. In May 2008, the FASB issued SFAS No. 162 ("SFAS
162"), The Hierarchy of Generally Accepted Accounting Principles. This statement
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
57
nongovernmental
entities that are presented in conformity with generally accepted accounting
principles in the United States. This statement will be effective 60 days
following the SEC's approval of the PCAOB amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles. The adoption of SFAS 162 is not expected to have a significant
impact on the Company's results of operations and financial position. In
November 2008, the FASB Emerging Issues Task Force ("EITF") issued EITF Issue
No. 08-6 ("EITF 08-6"), Equity Method Investment Accounting Considerations. EITF
08-6 address questions that have risen about the application of the equity
method of accounting for investments after the effective date of both SFAS
141(R), Business Combination, and SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements. EITF is effective for fiscal years beginning
on or after December 15, 2008. The adoption of EITF 08-6 is not expected to have
a significant impact on the Company's results of operations and financial
position.
New
Accounting Pronouncements and Other Standards
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (SFAS 141R). SFAS 141R retains the underlying concepts of SFAS 141
in that all business combinations are still required to be accounted for at fair
value under the acquisition method of accounting, but SFAS 141R changed the
method of applying the acquisition method in a number of significant aspects.
Acquisition costs will generally be expensed as incurred; noncontrolling
interests will be valued at fair value at the acquisition date; in-process
research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date, until either abandoned or completed,
at which point the useful lives will be determined; restructuring costs
associated with a business combination will generally be expensed subsequent to
the acquisition date; and changes in deferred tax asset valuation allowances and
income tax uncertainties after the acquisition date generally will affect income
tax expense. SFAS 141R is effective on a prospective basis for all business
combinations for which the acquisition date is on or after the beginning of the
first annual period subsequent to December 15, 2008, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax
contingencies. SFAS 141R amends SFAS No. 109, “Accounting for Income Taxes”
(SFAS 109) such that adjustments made to valuation allowances on deferred taxes
and acquired tax contingencies associated with acquisitions that closed prior to
the effective date of SFAS 141R would also apply the provisions of SFAS 141R.
SFAS 141R also establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. For the Company,
SFAS 141R will be effective for business combinations occurring after December
31, 2008. Upon adoption, SFAS 141R will not have a significant impact on our
financial position and results of operations; however, any business combination
entered into after the adoption may significantly impact our financial position
and results of operations when compared to acquisitions accounted for under
existing U.S. Generally Accepted Accounting Principles (GAAP) and result in more
earnings volatility and generally lower earnings due to the expensing of deal
costs and restructuring costs of acquired companies. Also, since we have
significant acquired deferred tax assets for which full valuation allowances
were recorded at the acquisition date, SFAS 141R could significantly affect the
results of operations if changes in the valuation allowances occur subsequent to
adoption. As of December 31, 2008, such deferred tax valuation allowances
amounted to $450,000. For additional discussion on deferred tax valuation
allowances, refer to Note 9 of the Consolidated Financial Statements in the 2008
Form 10-K.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of Accounting Research Bulletin
No. 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. This statement requires the recognition of a noncontrolling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent’s equity. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. SFAS 160 is effective for
fiscal years beginning after December 15, 2008. As of December 31, 2008, we had
no minority interest which was included in the long-term liabilities section of
our Consolidated Balance Sheet. If needed we would incorporate presentation and
disclosure requirements as outlined in SFAS 160 in the Company’s Quarterly
Report on Form 10-Q for the period ending March 29, 2009.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (SFAS 161). SFAS 161 changes the disclosure requirements
for derivative instruments and hedging activities. We will be required to
provide enhanced disclosures about (a) how and why derivative instruments are
used, (b) how derivative instruments and related hedged items are accounted for
under SFAS No. 133, “Accounting for Derivative Instruments and Certain Hedging
Activities” (SFAS 133), and its related interpretations, and (c) how derivative
instruments and related hedged items affect our financial position, financial
performance, and cash flows. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company will adopt this standard in the first fiscal quarter of
2009 and believes that upon adoption, there will be no material impact on the
Company’s consolidated results of operations and financial
condition.
58
In April
2008, the FASB issued Staff Position FSP FAS 142-3, “Determination of the Useful
Life of Intangible Assets” (FSP FAS 142-3). FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible Assets”. The intent of FSP FAS 142-3 is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under other accounting principles generally accepted in the
United States of America. FSP FAS 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is prohibited. We do not expect FSP
FAS 142-3 to have a material impact on our accounting for future acquisitions of
intangible assets.
In June
2008, the FASB issued Staff Position FSP EITF No. 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities” (FSP EITF 03-6-1). FSP EITF 03-6-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method. FSP EITF 03-6-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Upon adoption, a company is required to retrospectively
adjust its earnings per share data (including any amounts related to interim
periods, summaries of earnings and selected financial data) to conform to the
provisions in FSP EITF 03-6-1. Early application of FSP EITF 03-6-1 is
prohibited and will be adopted by us in the first fiscal quarter of 2009. We do
not expect that the adoption of FSP EITF 03-6-1 will have a material impact on
our calculation of EPS.
In
November 2008, the FASB ratified Staff Position FSP EITF 08-6, “Equity Method
Investment Accounting Considerations,” (EITF 08-6). EITF 08-6 clarifies that the
initial carrying value of an equity method investment should be determined in
accordance with SFAS No. 141(R). Other-than-temporary impairment of an equity
method investment should be recognized in accordance with FSP No. APB 18-1,
“Accounting by an Investor for Its Proportionate Share of Accumulated Other
Comprehensive Income of an Investee Accounted for under the Equity Method in
Accordance with APB Opinion No. 18 upon a Loss of Significant Influence.” EITF
08-6 is effective on a prospective basis in fiscal years beginning on or after
December 15, 2008 and interim periods within those fiscal years, and will be
adopted by us in the first quarter of fiscal year 2009. The adoption of EITF
08-6 will not have a material impact on our consolidated results of operations
and financial condition.
In
November 2008, the FASB ratified EITF 08-7, “Accounting for Defensive Intangible
Assets,” (EITF 08-7). EITF 08-7 applies to defensive assets which are acquired
intangible assets which the acquirer does not intend to actively use, but
intends to hold to prevent its competitors from obtaining access to the asset.
EITF 08-7 clarifies that defensive intangible assets are separately identifiable
and should be accounted for as a separate unit of accounting in accordance with
SFAS No. 141(R) and SFAS No. 157, “Fair Value Measurements,” or SFAS No. 157.
EITF 08-7 is effective for intangible assets acquired in fiscal years beginning
on or after December 15, 2008 and will be applied by us to intangible assets
acquired on or after December 29, 2008.
In
November 2008, the FASB ratified EITF No. 08-8, “Accounting for an Instrument
(or an Embedded Feature) with a Settlement Amount That Is Based on the Stock of
an Entity’s Consolidated Subsidiary,” (EITF 08-8). EITF 08-8 clarifies whether a
financial instrument for which the payoff to the counterparty is based, in whole
or in part, on the stock of an entity’s consolidated subsidiary is indexed to
the reporting entity’s own stock and therefore should not be precluded from
qualifying for the first part of the scope exception in paragraph 11 (a) of SFAS
No. 133, “ Accounting for Derivative Instruments and Hedging Activities” or from
being within the scope of EITF No. 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and, Potentially Settled in, a Company’s Own Stock.”
EITF 08-8 is effective for fiscal years beginning on or after December 15, 2008,
and interim periods within those fiscal years, and will be adopted by us in the
first quarter of fiscal year 2009. The adoption of EITF 08-8 will not have a
material impact on our consolidated results of operations and financial
condition.
In
December 2008, the FASB issued FASB Staff Position (FSP) No.132 (R)-1,
“Employers’ Disclosures about Pensions and Other Postretirement Benefits” (FSP
132R-1). FSP 132R-1 requires enhanced disclosures about the plan assets of a
Company’s defined benefit pension and other postretirement plans. The enhanced
disclosures required by this FSP are intended to provide users of financial
statements with a greater understanding of: (1) how investment allocation
decisions are made, including the factors that are pertinent to an understanding
of investment policies and strategies; (2) the major categories of plan assets;
(3) the inputs and valuation techniques used to measure the fair value of plan
assets; (4) the effect of fair value measurements using significant unobservable
inputs (Level 3) on changes in plan assets for the period; and (5) significant
concentrations of risk within plan assets. This FSP is effective for us for the
fiscal year ending December 27, 2009.
59
In
December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46R-8, “Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities.” The FSP, which is effective in the
first reporting period ending after December 15, 2008, requires additional
disclosures concerning continuing involvement in transfers of financial assets.
The FSP also requires additional disclosures concerning an enterprise’s
involvement with variable interest entities and qualifying special purpose
entities under certain conditions, none of which apply to the Company. This
standard involves disclosures only, and did not impact our consolidated results
of operations and financial condition.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market
Risk Factors
Fluctuations
in interest and foreign currency exchange rates affect our financial position
and results of operations. We have not entered into forward exchange contracts
denominated in foreign currency to reduce the risks of currency fluctuations on
short-term inter-company receivables and payables. We have historically not used
financial instruments to minimize our exposure to currency fluctuations on our
net investments in and cash flows derived from our foreign
subsidiaries.
Where the
functional currency of the Company's foreign subsidiaries is the local currency,
all assets and liabilities are translated into U.S. dollars, in accordance with
Statement of Financial Accounting Standards (“SFAS”) No 52, Foreign Currency
Translation, using the exchange rate on the balance sheet date, and revenues and
expenses are translated at average rates prevailing during the period. Accounts
and transactions denominated in foreign currencies have been re-measured into
functional currencies before translated into U.S. dollars. Foreign currency
transaction gains and losses are included as a component of other income and
expense. Gains and losses from foreign currency translation are included as a
separate component of comprehensive income. In accordance with Statement of
Financial Accounting Standards No. 95, Statement of Cash Flows, cash flows from
the Company's foreign subsidiaries are calculated based upon the local
currencies. As a result, amounts related to assets and liabilities reported on
the statements of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheets. Since the subsidiary's financial
statements must be translated into U.S. Dollars, major changes in the currency
exchange rate between the foreign denominations and U.S. Dollars may have a
significant impact on the operations of the Company. Although the Company does
not anticipate the currency exchange rate to be significantly different over the
next twelve months, no such assurances can be given.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our
executive officers and directors and their ages as of January __, 2010 are as
follows:
Name
|
|
Age
|
|
Position
|
||
Hwan
Sup Lee
|
|
39
|
|
Chief
Executive Officer, President and Director
|
||
So
Lim Lee
|
|
34
|
|
Chief
Financial Officer and Director
|
||
Kiyoung
You
|
35
|
Chief
Marketing Officer, Secretary and Director
|
Mr. Hwan Sup Lee has been the
Chief Executive Officer, President and sole director of the Company since its
incorporation on September 10, 2009. Mr. Lee has served as the Chief
Executive Officer and Chief Technical Officer of our subsidiary, Clavis
Technologies Co., Ltd., since January 2003. From May 2001 to June
2002, he served as the Chief Technical Officer of Witnet International, a
software development company. From 1995 to 1991, Mr. Lee was an
Application Developer and Manager at Daesang Information Technology,
an IT services firm based in Seoul, Korea. Mr. Lee has no family
relationship to Ms. So Lim Lee.
60
Ms. So Lim Lee has been the
Chief Financial Officer of the Company since its incorporation on September 10,
2009 and she has been a director since January 22, 2010. Ms. So Lim
Lee has also served as the Chief Financial Officer of our subsidiary, Clavis
Technologies Co., Ltd., since September 2008. From February 2005 to
August 2008, she was the General Manager of the Finance Department at Multi-Q
Inc., a logistics company in Seoul, Korea. From March 2004 to January
2005, Ms. Lee served as the Manager of the Finance Department at Promotive
Corp., a Korean distributor. From July 2002 to February 2004, she was
the Assistant Manager of the Finance Department at JAVA Feel, an online game
company. From August 2000 to July 2002 Ms. Lee was Assistant Manager
of the Finance Department at SAPI, a private institute in Seoul
Korea. Ms. Lee has no family relationship to Mr. Hwan Sup
Lee.
Ms. Kiyoung You has served as
our Chief Marketing Officer and Secretary since our incorporation on September
10, 2009 and she has been a director since January 22, 2010. She also
has served as the Chief Marketing Officer of our subsidiary, Clavis Technologies
Co., Ltd., since January 2003. From July 2001 to August 2002,
she was the General Manager of the Marketing Department at JAVA Feel, an online
gaming company. From August 2000 to July 2001, Ms. Lee was a research
assistant at the Consumer Policy Research Bureau of the Korean Consumer
Agency. From August 1999 to August 2000, she was a Professors and
Department Assistant at the Department of Consumer Economics at Sookmyung
Women’s University. From October 1998 to October 1999,
Ms. Lee worked in the Marketing Department at Lasse Ltd., a cosmetics
company.
Board
of directors committees and other information
During
our fiscal year ended December 31, 2009, our Board consisted of a sole director,
Mr. Hwan Sup Lee. In accordance with Nevada corporate law, our
business and affairs are managed under the direction of the
Board. Our By laws provide that if we have more than three
shareholders our board must have at least three members. We are
currently seeking candidates to fill the two vacancies on our Board and we
expect to fill such vacancies as promptly as possible.
The
Company's Board consisted of a sole director during the fiscal year ended
December 31, 2009 and, therefore, no Board meetings were held and all
resolutions were adopted by unanimous written consent.
Policy
Regarding Director Attendance At Annual Meetings
The
Company does not have a formal policy regarding the Board attendance at annual
meetings. During fiscal 2010, we shall adopt such a
policy.
Stockholder
Communications With the Board
The Board
currently does not have a formal process for stockholders to send communications
to the Board. Nevertheless, the Board desires that the views of shareholders are
heard by the Board and that appropriate responses are provided to shareholders
on a timely basis. The Board does not recommend that formal communication
procedures be adopted at this time because it believes that informal
communications are sufficient to communicate questions, comments and
observations that could be useful to the Board. However, shareholders wishing to
normally communicate with the Board may send communications directly to: c/o
Clavis Technologies Co., Ltd., 1564-1, Seojin Bldg., 3rd
Floor, Seocho3-Dong, Seocho-Gu, Seoul, Korea 137-874,
Attention: Corporate Secretary.
Code
of Ethics
We have
not adopted a code of ethics that applies to all of our directors, officers
(including our chief executive officer and chief financial officer, and any
person performing similar functions) and employees. We expect to
adopt such Code of Ethics during fiscal 2010.
Section 16(a) beneficial reporting
compliance
Upon the
effectiveness of the registration statement in which this prospectus is
contained, our executive officers, directors and shareholders beneficially
owning more than 10% of our common stock will be required under the Exchange Act
to file reports of beneficial ownership of our common stock with the Securities
and Exchange Commission. Copies of those reports must also be
furnished to us. During the preceding twelve months, none of our
executive officers, directors and shareholders beneficially owning more than 10%
of our common stock were required to file such reports of beneficial ownership
under the Exchange Act.
61
Committees
Since the
Company's Board consists of a sole director, the board did not establish any
committees, including, but not limited to a separately-designated standing audit
committee. Currently, the Company’s Board of Directors acts as the audit
committee. We do not have a director that qualifies as an “audit
committee financial expert” within the applicable definition of the Securities
and Exchange Commission.
Until we
fill the vacancies on our Board, the functions of an audit committee,
compensation committee and a nominating and governance committee shall be
performed by the sole director
Board
of Directors:
None of
the directors, executive officers and key employees shares any familial
relationship.
Independence
of Directors
Our sole
director is our Chief Executive Officer and, therefore, does not qualify as an
independent director under Rule 10A-3 of the Securities Exchange Act of 1934 and
as defined in NASD Marketplace Rule 4200(15).
EXECUTIVE
COMPENSATION
The
following information summarizes the compensation paid to our Named Executive
Officers for the fiscal years ended December 31, 2008 and
2007.
SUMMARY
COMPENSATION TABLE
Name
and Principal Position
|
Year
|
Salary
($)
(1)
|
Bonus
($)
|
Option
Awards
($)
(1)
|
All
Other
Compensation
($)
|
Total
($)
|
||||||||||||||||
Hwan
Sup Lee
|
2008
|
53,629 | -- | -- | -- | 53,629 | ||||||||||||||||
Chief
Executive Officer and President
|
2007
|
53,629 | -- | -- | -- | 53,629 | ||||||||||||||||
So
Lim Lee
|
2008
|
25,818 | -- | -- | -- | 25,818 | ||||||||||||||||
Chief
Financial Officer
|
2007
|
25,818 | -- | -- | -- | 25,818 | ||||||||||||||||
Kiyoung
You
|
2008
|
41,306 | -- | -- | -- | 41,306 | ||||||||||||||||
Chief
Marketing Officer and Secretary
|
2007
|
41,306 | -- | -- | -- | 41,306 |
(1) Based
on the currency exchange rate between Korean Won and the U.S. Dollar as of
January 27, 2010 (US$1 = 1,161.97 Korean Won).
62
Material Terms of Employment Contracts of Named Executive Officers
Hwan
Sup Lee, Chief Executive Officer and President
Our
subsidiary, Clavis Korea, entered into an employment agreement with Hwan Sup
Lee, our Chief Executive Officer and President, on June 25,
2009. Under this employment agreement, Mr. Lee will be the Chief
Executive Officer of Clavis Korea. This employment agreement
continues until terminated by either party. Under his employment
agreement Mr. Lee receives an annual salary of approximately $53,629 (60,000,000
Won) and he is entitled to ten days of vacation per year. If Mr. Lee
cannot perform his duties due to illness or incapacity for a period of eight (8)
weeks, then Mr. Lee’s compensation will be reduced by 15%. His
compensation will be adjusted to his regular salary upon his return to
work. If Mr. Lee is absent from work for any reason for a continuous
period of more than one week, Clavis Korea then has the option of terminating
his employment immediately. Clavis Korea may terminate Mr. Lee’s
employment, with or without cause, upon 30 days prior notice (except as provided
in the prior sentence regarding disability or illness). Such 30 day
notice is also required if Mr. Lee’s employment is terminated in connection with
a sale or liquidation of Clavis Korea or its entry into bankruptcy
proceedings. Mr. Lee is not entitled to any severance payment in the
event of a sale or change of control of Clavis Korea. Mr. Lee may
terminate his employment with Clavis Korea upon 30 days prior
notice. Mr. Lee is subject to a confidentiality clause that prohibits
him from disclosing any of Clavis Korea’s confidential or proprietary
information during and after the term of his employment
agreement. Mr. Lee is also subject to a two (2) year non-compete
after the termination of his employment with Clavis Korea.
So
Lim Lee, Chief Financial Officer
Our
subsidiary, Clavis Korea, entered into an employment agreement with So Lim Lee,
our Chief Financial Officer, on June 25, 2009. Under this employment
agreement, Ms. Lee will be the Chief Financial Officer of Clavis
Korea. This employment agreement continues until terminated by either
party. Under her employment agreement Ms. Lee receives an annual
salary of approximately $172,095 (200,000,000 Won) and she is entitled to ten
days of vacation per year. If Ms. Lee cannot perform her duties due
to illness or incapacity for a period of eight (8) weeks, then Ms. Lee’s
compensation will be reduced by 15%. Her compensation will be
adjusted to her regular salary upon her return to work. If Ms. Lee is
absent from work for any reason for a continuous period of more than one week,
Clavis Korea then has the option of terminating her employment
immediately. Clavis Korea may terminate Ms. Lee’s employment, with or
without cause, upon 30 days prior notice (except as provided in the prior
sentence regarding disability or illness). Such 30 day notice is also
required if Ms. Lee’s employment is terminated in connection with a sale or
liquidation of Clavis Korea or its entry into bankruptcy
proceedings. Ms. Lee is not entitled to any severance payment in the
event of a sale or change of control of Clavis Korea. Ms. Lee may
terminate her employment with Clavis Korea upon 30 days prior
notice. Ms. Lee is subject to a confidentiality clause that prohibits
her from disclosing any of Clavis Korea’s confidential or proprietary
information during and after the term of her employment
agreement. Ms. Lee is also subject to a two (2) year non-compete
after the termination of her employment with Clavis Korea.
Kiyoung
You, Chief Marketing Officer and Secretary
Our
subsidiary, Clavis Korea, entered into an employment agreement with Kiyoung You,
our Chief Marketing Officer and Secretary, on June 25, 2009. Under
this employment agreement, Ms. You will be the Chief Marketing Officer of Clavis
Korea. This employment agreement continues until terminated by either
party. Under her employment agreement, Ms. You receives an annual
salary of approximately $41,306 (48,000,000 Won) and she is entitled to ten days
of vacation per year. If Ms. You cannot perform her duties due to
illness or incapacity for a period of eight (8) weeks, then Ms. You’s
compensation will be reduced by 15%. Her compensation will be
adjusted to her regular salary upon her return to work. If Ms. You is
absent from work for any reason for a continuous period of more than one week,
Clavis Korea then has the option of terminating her employment
immediately. Clavis Korea may terminate Ms. You’s employment, with or
without cause, upon 30 days prior notice (except as provided in the prior
sentence regarding disability or illness). Such 30 day notice is also
required if Ms. You’s employment is terminated in connection with a sale or
liquidation of Clavis Korea or its entry into bankruptcy
proceedings. Ms. You is not entitled to any severance payment in the
event of a sale or change of control of Clavis Korea. Ms. You may
terminate her employment with Clavis Korea upon 30 days prior
notice. Ms. You is subject to a confidentiality clause that prohibits
her from disclosing any of Clavis Korea’s confidential or proprietary
information during and after the term of her employment
agreement. Ms. You is also subject to a two (2) year non-compete
after the termination of her employment with Clavis Korea.
Outstanding
Equity Awards at Year End
We
currently do not have any equity compensation plans. We have not made
any equity awards to any of our officers or directors. We do not have
any outstanding options or other forms of equity compensation.
Director
Compensation
We
currently do not pay any compensation to our sole director for his service on
the Board. Upon filling the vacancies on our Board, we may in the
future determine to pay our directors' fees, grant them equity compensation
and/or reimburse our directors for expenses related to their
activities.
63
Equity
Compensation Plan Information
We
currently do not have any equity compensation plans. We have not made
any equity awards to any of our officers or directors. We do not have
any outstanding options or other forms of equity compensation.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of January 28, 2010, certain information
concerning the beneficial ownership of our common stock, by (i) each person
known by us to own beneficially five per cent (5%) or more of the
outstanding shares of each class, (ii) each of our directors and executive
officers, and (iii) all of our executive officers and directors as a
group.
The
number of shares beneficially owned by each 5% stockholder, director or
executive officer is determined under the rules of the Securities and Exchange
Commission, or SEC, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under those rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting power or investment power and also any shares that the individual
or entity has the right to acquire within 60 days after January 28, 2010 through
the exercise of any stock option, warrant or other right, or the conversion of
any security. Unless otherwise indicated, each person or entity has
sole voting and investment power (or shares such power with his or her spouse)
with respect to the shares set forth in the following table. The inclusion in
the table below of any shares deemed beneficially owned does not constitute an
admission of beneficial ownership of those shares.
Name
and Address(1)
|
Shares
of
Common
Stock
Beneficially
Owned
|
Percent of
Common
Stock
(2)
|
||||||||
Directors
and Executive Officers
|
||||||||||
Hwan
Sup Lee
|
10,700,000 | 17.20 | % | |||||||
So
Lim Lee
|
200,000 | * | ||||||||
Kiyoung
You
|
2,000,000 | (3) | 3.2 | % | ||||||
Beneficial
Owners
|
||||||||||
Eung
San Kim
|
7,700,000 | 12.3 | % | |||||||
Suk
Ho Seo
|
5,000,000 | (4) | 8.0 | |||||||
Tai
Jong Jeoung
|
4,000,000 | (5) | 6.4 | |||||||
All
executive officers and directors as a group
(3 persons)
|
12,900,000 | 20.7 | % |
*
|
Less
than 1%.
|
|
(1)
|
Except
as otherwise indicated in the table, the address for each named person is
c/o Clavis Technologies Co., Ltd., #1564-1, Seojin Bldg., 3rd
Floor, Seocho3-Dong, Seocho-Gu, Seoul, Korea 137-874.
|
|
(2)
|
For
each named person and group included in this table, percentage ownership
of our common stock is calculated by dividing the number of shares of our
common stock beneficially owned by such person or group by the sum of
(i) 62,375,200 shares of our common stock outstanding as of January
28, 2010 and (ii) the number of shares of our common stock that such
person has the right to acquire within 60 days after January 28,
2010.
|
|
(3)
|
Includes
1,500,000 shares held by Ms. You’s husband.
|
|
(4)
|
Includes
400,000 shares held by Mr. Seo’s children and 1,600,000 shares held by Mr.
Seo’s wife.
|
|
(5)
|
Includes
1,200,000 shares held by Mr. Jeoung’s
wife.
|
64
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have
received advances from our directors and stockholders, in the amount of $260,179
and $228,673 as of September 30, 2009 and December 31, 2008,
respectively. These advances are unsecured, non-interest bearing, and
have no fixed terms of repayment.
EXPERTS
The
financial statements included in this prospectus for the year ended December 31,
2008 have been so included in reliance on the report of Kim and Lee Corporation,
CPAs, an independent registered public accounting firm, given on the authority
of said firm as experts in auditing and accounting.
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The
Nevada Private Corporations Law generally provides that a corporation is
empowered to indemnify any person who is made a party to any threatened, pending
or completed action, suit or proceeding 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, in any of such capacities of another
corporation or other enterprise, if such director, officer, employee or agent
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, had no reasonable cause to believe his conduct
was unlawful. Under Nevada law, a director or officer may not be indemnified
where his act or failure to act constitutes a breach of his or her fiduciary
duty and such breach involved intentional misconduct, fraud, or a knowing
violation of law. This statute describes in detail the right of corporations
such as our Company to indemnify any such person.
Our
Articles of Incorporation and our By laws provide generally for mandatory
indemnification of our directors and officers to the fullest extent permitted
under the Nevada Private Corporations Law if they have been successful in the
defense of any claim asserted against them, and permissive indemnification for
any claim asserted against them if it appears they acted in good faith and in a
manner not opposed to the best interests of the Company. We are also permitted
to indemnify all other persons whom we requested to act on behalf of the Company
in the same manner. Our Articles of Incorporation permit us to advance expenses
on behalf of any person, including officers and directors, with regard to any
action or proceeding, provided that we receive an undertaking to repay all such
advances if it is determined that such person was not entitled to be indemnified
by us.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
If a
claim for indemnification against such liabilities (other than the payment by us
of expenses incurred or paid by a director, officer or controlling person of our
company in the successful defense of any action, suit or proceeding) is asserted
by any of our directors, officers or controlling persons in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of that issue.
65
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.
|
Other
Expenses of Issuance and
Distribution.
|
The
following table sets forth the expenses payable by us in connection with this
offering of securities described in this registration statement. All amounts
shown are estimates. The Registrant will bear all expenses shown
below.
Accounting
fees and expenses
|
$ | 60,000 | ||||
Legal
fees and expenses
|
$ | 22,000 | * | |||
Printing
and engraving expenses
|
$ | 2,000 | * | |||
Other
|
$ | 500 | * | |||
Total
|
$ | 84,000 | * |
*Estimate
Item 14.
|
Indemnification
of Directors and Officers.
|
The
registrant’s By-laws, as amended to date, provide for indemnification of
officers and directors to the fullest extent permitted by Section 7502 of
Chapter 78 of the Nevada Revised Statutes (“NRS”) (as from time to time
amended), provided such officer or director acts in good faith and in a manner
which such person reasonably believes to be in or not opposed to the best
interests of the registrant, and with respect to any criminal matter, had no
reasonable cause to believe such person’s conduct was unlawful.
NRS
78.7502 states:
“1. A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except 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 or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys’ fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he:
|
(a)
|
Is
not liable pursuant to NRS 78.138;
or
|
|
(b)
|
Acted
in good faith and in a manner which 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 no reasonable cause to believe his
conduct was unlawful.
|
The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the person is liable
pursuant to NRS 78.138 or did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, or that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. A
corporation may 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 amounts paid in
settlement and attorneys’ fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if
he:
|
(a)
|
Is
not liable pursuant to NRS 78.138;
or
|
|
(b)
|
Acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the
corporation.
|
Indemnification
may not be made for any claim, issue or matter as to which such a person has
been adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that the court in
which the action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper.
II-1
3. To the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1 and 2, or in defense of any claim, issue
or matter therein, the corporation shall indemnify him against expenses,
including attorneys’ fees, actually and reasonably incurred by him in connection
with the defense.”
The
registrant’s By-laws also provide that to the fullest extent permitted by NRS
78.751 (as from time to time amended), the registrant shall pay the expenses of
officers and directors of the Corporation incurred in defending a civil or
criminal action, suit or proceeding, as they are incurred and in advance of the
final disposition of such matter, upon receipt of an undertaking in form and
substance acceptable to the board of directors for the repayment of such
advances if it is ultimately determined by a court of competent jurisdiction
that the officer or director is not entitled to be indemnified.
NRS
78.751 states:
“1. Any
discretionary indemnification pursuant to NRS 78.7502, unless ordered by a court
or advanced pursuant to subsection 2, may be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances. The
determination must be made:
|
(a)
|
By
the stockholders;
|
|
(b)
|
By
the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or
proceeding;
|
|
(c)
|
If
a majority vote of a quorum consisting of directors who were not parties
to the action, suit or proceeding so orders, by independent legal counsel
in a written opinion; or
|
|
(d)
|
If
a quorum consisting of directors who were not parties to the action, suit
or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
|
2. The
articles of incorporation, the bylaws or an agreement made by the corporation
may provide that the expenses of officers and directors incurred in defending a
civil or criminal action, suit or proceeding must be paid by the corporation as
they are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
3. The
indemnification pursuant to NRS 78.7502 and advancement of expenses authorized
in or ordered by a court pursuant to this section:
|
(a)
|
Does
not exclude any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under the articles of
incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except
that indemnification, unless ordered by a court pursuant to NRS 78.7502 or
for the advancement of expenses made pursuant to subsection 2, may not be
made to or on behalf of any director or officer if a final adjudication
establishes that his acts or omissions involved intentional misconduct,
fraud or a knowing violation of the law and was material to the cause of
action.
|
|
(b)
|
Continues
for a person who has ceased to be a director, officer, employee or agent
and inures to the benefit of the heirs, executors and administrators of
such a person.”
|
In
addition, the registrant maintains directors’ and officers’ liability insurance
which insures against liabilities that its directors and officers may incur in
such capacities.
Reference
is made to “Undertakings,” below, for the registrant’s undertakings in this
registration statement with respect to indemnification of liabilities arising
under the Securities Act of 1933, as amended (the “Securities
Act”).
Item 15.
|
Recent
Sales of Unregistered Securities.
|
The
following information relates to all securities issued or sold by the Registrant
within the past three years and not registered under the Securities Act. Each of
the transactions described below was conducted in reliance upon the exemptions
from registration provided in Regulation S promulgated under the Securities Act.
There were no underwriters employed in connection with any of the transactions
set forth in this Item 15.
On
September 14, 2009 we issued, we sold 15,000,000 shares of our common stock to
five (5) non-U.S. persons for an aggregate purchase price of
$80,000. This transaction was exempt from the registration provisions
of the Securities Act pursuant to Regulation S as an offshore transaction with
non-U.S. persons (as such term is defined in Rule 902 of Regulation
S).
II-2
On
December 1, 2009, we entered into a definitive Share Exchange Agreement with
Clavis Technologies Co., Ltd., a Korean corporation (“Clavis Korea”) and the
shareholders of Clavis Korea. Pursuant to the agreement, we acquired
100% of the issued and outstanding capital stock of Clavis Korea in exchange for
45,000,000 shares (approximately 75%) of our common stock. This
transaction was a reverse-takeover by Clavis Korea whereby Clavis Korea’s
shareholders acquired the control of us. This transaction was exempt
from the registration provisions of the Securities Act pursuant to Regulation S
as an offshore transaction with non-U.S. persons (as such term is defined in
Rule 901 of Regulation S)
In
December 2009 and January 2010, we sold 1,375,200 shares of our common stock to
27 purchasers for an aggregate purchase price of $10,001.02. This
transaction was exempt from the registration provisions of the Securities Act
pursuant to Regulation S as an offshore transaction with non-U.S. persons (as
such term is defined in Rule 902 of Regulation S).
Item 16. Exhibits.
The
following exhibits are filed herewith or incorporated by reference
herein:
Exhibit
Number
|
Description
|
3.1
|
Articles
of Incorporation
|
3.2
|
By-laws
|
5.1
|
Opinion
of Fox Law Offices, P.A. (including the consent of such firm) regarding
the legality of the securities being offered.
|
10.1
|
Share
Exchange Agreement, dated as of December 1, 2009, by and among Clavis
Technologies International Co., Ltd., Clavis Technologies Co., Ltd.
(“Clavis Korea”) and the shareholders of Clavis Korea.
|
10.2
|
Employment
Agreement, dated as of June 25, 2009, by and between Clavis Korea and Hwan
Sup Lee
|
10.3
|
Employment
Agreement, dated as of June 25, 2009, by and between Clavis Korea and So
Lim Lee
|
10.4
|
Employment
Agreement, dated as of June 25, 2009, by and between Clavis Korea and
Kiyoung You
|
10.5*
|
Loan
Agreement, dated November 14, 2008, by and between Seong Hun Han and
Clavis Korea
|
10.6*
|
Agreement
with Woori Bank, dated April 22, 2009
|
10.7
|
Authorization
Letter, dated April 1, 2009, from Alien Technology Asia
|
10.8*
|
Office
Lease, dated January 17, 2005, by and between Clavis Korea and Jin Su
Seo
|
10.9*
|
Industrial
Development Agreement, dated December 1, 2007, by and between Clavis Korea
and Korea Global ID Corporation
|
23.1
|
Consent
of Kim & Lee, an independent registered public accounting
firm.
|
23.3
|
Consent
of Fox Law Offices, P.A. (included as part of Exhibit 5.1
hereto).
|
24
|
Powers
of Attorney (included on signature
page).
|
______________________
*Summary
in English of material terms of agreement which is in Korean.
Item 17.
|
Undertakings.
|
Insofar
as indemnification by the registrant for liabilities arising under the
Securities Act, may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions referenced in Item 14 of this
registration statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act, and will be governed by the final
adjudication of such issue.
The
undersigned registrant hereby undertakes that:
1. To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
II-3
(i) To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price set
forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
2. That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and this offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof;
3. To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of this
offering;
4. That,
for the purpose of determining liability under the Securities Act to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness; provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement
that was made in the registration or prospectus that was part of the
registration statement or made in any such document immediately prior to such
date of first use; and
5. That,
for the purpose of determining liability of the registrant under the Securities
Act to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) any
preliminary prospectus or prospectus of an undersigned registrant relating to
this offering required to be filed pursuant to Rule 424;
(ii) any
free writing prospectus relating to this offering prepared by, or on behalf of,
the undersigned registrant or used or referred to by the undersigned
registrant;
(iii) the
portion of any other free writing prospectus relating to this offering
containing material information about an undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
(iv) any
other communication that is an offer in this offering made by the undersigned
registrant to the purchaser.
6. The
undersigned registrant hereby undertakes to file, during any period in which
offers or sales are being made, a supplement to the prospectus included in this
Registration Statement which sets forth, with respect to a particular offering,
the specific number of shares of common stock to be sold, the name of the
holder, the sales price, the name of any participating broker, dealer,
underwriter or agent, any applicable commission or discount and any other
material information with respect to the plan of distribution not previously
disclosed.
II-4
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant
has duly caused this Amendment No. 1 on Form S-1 to the Registration Statement
on Form S-3 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Seoul, Republic of Korea on January 29,
2010.
CLAVIS TECHNOLOGIES INTERNATIONAL CO., LTD. | |||
|
By:
|
/s/ HWAN SUP LEE | |
Name: Hwan Sup Lee | |||
Title: Chief Executive Officer and President | |||
POWER OF
ATTORNEY
Each
person whose signature appears below hereby constitutes and appoints Hwan Sup
Lee and Kiyoung You as his or her true and lawful attorney-in-fact and agent,
with full power of substitution and revocation, to sign on his or her behalf,
individually and in each capacity stated below, all amendments and
post-effective amendments to this Registration Statement and to file the same,
with all exhibits thereto and any other documents in connection therewith, with
the Securities and Exchange Commission under the Securities Act of 1933,
granting unto each such attorney-in-fact and agent full power and authority to
do an perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming each act that said attorney-in-fact and agent
may lawfully do or cause to be done by virtue thereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
stated.
Signature
|
Title
|
Date
|
||
/S/
HWAN SUP LEE
Hwan
Sup Lee
|
Chief
Executive Officer, President and Director
(Principal
Executive Officer)
|
January
29, 2010
|
||
/S/
SO LIM LEE
So
Lim Lee
|
Chief
Financial Officer and Director
(Principal
Financial and Accounting Officer)
|
January
29, 2010
|
||
/S/
KIYOUNG YOU
Kiyoung
You
|
Director
|
January 29, 2010 |
II-5