<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1999
REGISTRATION NO. 333-78009
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
BIOMETRIC SECURITY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
WYOMING 6719 98-0204725
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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SUITE 1940 -- 400 BURRARD STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6C 3A6
(604) 687-4144
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT)
------------------------
ROBERT M. KAMM, PRESIDENT
BIOMETRIC SECURITY CORP.
SUITE 1940 -- 400 BURRARD STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6C 3A6
(604) 687-4144
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
ROBERT M. KAMM, PRESIDENT
BIOMETRIC SECURITY CORP.
C/O HATHAWAY, SPEIGHT & KUNZ, LLC
ATTORNEYS AT LAW
2515 WARREN AVENUE
POST OFFICE BOX 1208
CHEYENNE, WYOMING 82003-1208
(307) 634-7723
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JONATHAN C. GUEST DAVID J. RAFFA
PERKINS, SMITH & COHEN, LLP CATALYST CORPORATE FINANCE LAWYERS
ONE BEACON STREET SUITE 1100
BOSTON, MASSACHUSETTS 02108 1055 WEST HASTINGS STREET
TELEPHONE: (617) 854-4000 VANCOUVER, BRITISH COLUMBIA
FACSIMILE: (617) 854-4040 CANADA V6E 2E9
TELEPHONE; (604) 688-6900
FACSIMILE: (604) 443-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: Not Applicable
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(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. [ ]
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.
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<PAGE> 2
PRELIMINARY PROXY STATEMENT/PROSPECTUS
DATED JUNE , 1999
SUBJECT TO COMPLETION
BIOMETRIC SECURITY CORP.
SUITE 1940 -- 400 BURRARD STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6C 3A6
Biometric Security Corp. is issuing this Proxy Statement/Prospectus in
connection with its annual general meeting of shareholders. At this meeting, the
shareholders will vote on the following:
1. Fixing the number of directors at four;
2. Electing four members of the Board of Directors to hold office until
our annual general meeting next year;
3. Approving our appointment of KPMG LLP as our independent auditors for
1999;
4. Authorizing us to grant incentive stock options to our directors,
officers and employees;
5. Authorizing us to consolidate our issued shares (also known as a
reverse stock split), so that one new common share would be issued for every
five existing shares;
6. Authorizing us to transfer our governing jurisdiction from the State of
Wyoming to the Province of British Columbia;
7. Authorizing us, upon the transfer to British Columbia, to reduce our
authorized share capital to one hundred million (100,000,000) common shares
without par value and adopt new corporate governance documents;
8. Authorizing us to change our name to "Safeguard Biometric Corp."; and
9. Other business that may properly come before the meeting.
For more information about these proposed changes, see "Information
Circular for the Annual General Meeting," on page 29.
Our Common Stock is listed on the Vancouver Stock Exchange under the symbol
"BMS" and is also traded from time to time on the over-the-counter market in the
United States under the symbol BMSX.
THERE ARE CERTAIN RISKS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE
STOCK CONSOLIDATION AND THE TRANSFER TO BRITISH COLUMBIA. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
THIS PROXY STATEMENT/PROSPECTUS HAS NOT BEEN APPROVED BY THE SEC OR ANY
STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS
PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. IT'S ILLEGAL FOR ANYONE TO
TELL YOU OTHERWISE.
We are first mailing this Proxy Statement/Prospectus to our stockholders on
or about June , 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................... 1
The Company............................................ 1
Matters to be Voted on................................. 1
Summary of Reverse Stock Split, Transfer from Wyoming
to British Columbia, Reduction of Authorized Capital
and Name Change....................................... 2
Biometric Common Stock................................. 4
Historical Per Share Information....................... 4
RISK FACTORS................................................ 5
THE ANNUAL GENERAL MEETING.................................. 10
THE COMPANY................................................. 12
DESCRIPTION OF PROPERTY..................................... 21
LEGAL PROCEEDINGS........................................... 21
SELECTED FINANCIAL DATA..................................... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 23
EXPERTS..................................................... 28
WHERE YOU CAN FIND MORE INFORMATION......................... 28
INFORMATION CIRCULAR FOR THE ANNUAL GENERAL MEETING OF
SHAREHOLDERS.............................................. 29
PERSONS MAKING THE SOLICITATION............................. 29
APPOINTMENT AND REVOCATION OF PROXIES....................... 29
EXERCISE OF DISCRETION...................................... 29
VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING
SECURITIES................................................ 30
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS................ 31
EXECUTIVE COMPENSATION...................................... 31
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS............... 34
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON..... 35
NUMBER OF DIRECTORS......................................... 35
ELECTION OF DIRECTORS....................................... 35
INDEBTEDNESS OF DIRECTORS, EXECUTIVE AND SENIOR OFFICERS.... 37
APPOINTMENT AND REMUNERATION OF AUDITOR..................... 37
SPECIAL BUSINESS............................................ 37
INCENTIVE STOCK OPTIONS................................ 37
CONSOLIDATION (REVERSE STOCK SPLIT) OF SHARE CAPITAL... 38
TRANSFER OF DOMICILE TO BRITISH COLUMBIA............... 39
CHANGE OF AUTHORIZED CAPITAL........................... 47
CHANGE OF NAME......................................... 47
OTHER BUSINESS.............................................. 48
CONSOLIDATED FINANCIAL STATEMENTS OF BIOMETRIC SECURITY
CORP...................................................... F-1
APPENDIX I -- SPECIAL AND ORDINARY RESOLUTIONS.............. I-1
</TABLE>
<PAGE> 4
SUMMARY
In this summary, we highlight selected information from this document, but
we haven't included all of the information that is important to you. So that you
can better understand the proposals we're asking you to vote on, and how they
would affect your interest in Biometric, you should read carefully this entire
document and the documents to which we refer you. We have included page
references to direct you to more complete descriptions of the topics presented
in this summary. In this document, the plain "$" refers to Canadian dollars, and
"US$" refers to United States dollars.
THE COMPANY (PAGE 12)
Our principal business is our investment in Biometric Identification, Inc.,
a company based in California ("BII"). BII is controlled by Arete Associates, a
research and development contractor also based in California and privately held.
BII designs, manufactures and markets devices for fingerprint identification
using technology based on "biometrics," which is the science of identifying
individuals through their own unique physical characteristics such as
fingerprints and hand shape. BII acquired its technology under a license from
Arete.
In June 1998, we agreed with Arete that we could invest up to US$ 5,000,000
in debentures (debt securities) to be issued by BII. We can convert these
debentures into BII common stock. If we acquire all of these convertible
debentures and convert all of them into BII common stock, we will hold
approximately 45% of its common stock. As of May 31, 1999, Biometric has
invested US$ 3,600,000 in BII debentures. Biometric is currently evaluating
whether to convert its debentures into BII common stock. We have not yet made a
decision about this.
Before we invested in BII, we were in the mineral exploration business. We
still own several properties in Argentina. Since we do not think the precious
metals markets will soon recover from slumping demand, we decided to get out of
the mineral exploration business. We have ceased all of our Argentinean
operations and recently reached a preliminary agreement to sell these
properties. When they are sold, we will have essentially left our former
business.
Please see "Where You Can Find More Information" on page 28 for additional
information about Biometric.
Our main office is located at Suite 1940, 400 Burrard Street, Vancouver,
British Columbia, Canada V6C 3A6, and our telephone number is (604) 687-4144.
MATTERS TO BE VOTED ON:
- Fixing the number of directors at four
- Election of four directors
- Approval of our appointment of independent auditors
- Authorization of incentive stock option grants to directors, officers
and employees
- Authorization of reverse stock split
- Authorization of transfer from Wyoming to British Columbia
- Authorization of our reducing our authorized share capital when we
transfer to British Columbia
- Authorization of corporate name change
We will need a simple majority of shares voted to pass each of these
proposals except for the transfer to British Columbia, which must pass by a
two-thirds majority. On May 31, 1999, our directors and officers together held
2.5% of Biometric's outstanding common stock.
We are providing summary information below about four of these matters: the
reverse stock split; the transfer to British Columbia; the reduction in
authorized share capital; and the name change, because these are unusual
corporate matters.
1
<PAGE> 5
SUMMARY OF REVERSE STOCK SPLIT, TRANSFER FROM WYOMING TO BRITISH COLUMBIA,
REDUCTION OF AUTHORIZED CAPITAL AND NAME CHANGE
We are asking you to vote in person or by proxy to approve the following
four transactions:
1. REVERSE STOCK SPLIT (PAGE 38). The share consolidation (sometimes
referred to as a reverse stock split) we propose for our common
stock would result in your getting one share of common stock for
every five shares you now own. Your percent ownership of Biometric
would not change. Instead, you would have one-fifth the number of
shares you had before.
We would like to complete this reverse stock split to increase the
average trading price of our shares by five times, although the
price may not eventually trade by that much.
2. TRANSFER FROM WYOMING TO BRITISH COLUMBIA (PAGE 39).
The transfer to British Columbia will not change our business,
management or financial condition. Your shareholdings will not
change as a result of the transfer.
We want to return to British Columbia so that we can be governed by
the law of British Columbia, where our main stock trading market
(The Vancouver Stock Exchange) is located. This should make it
simpler and less costly for us to comply with securities laws, since
we and our main stock trading market will both be governed by the
law of British Columbia. This should also make it easier for us to
raise money to buy the BII debentures.
Please see page 40 for a discussion of other differences between the
corporation laws of British Columbia and Wyoming.
3. REDUCTION OF AUTHORIZED CAPITAL (PAGE 47).
If we do transfer to British Columbia, we will have to follow the
laws that apply to British Columbia corporations rather than Wyoming
corporations. We'll change our corporate governing documents only to
conform to British Columbia requirements. For example, we'll reduce
the number of common shares we can issue. Wyoming lets us issue an
unlimited number of common shares, but British Columbia requires us
to have an upper limit, which we would like to set at 100 million
common shares.
4. NAME CHANGE (PAGE 47). The VSE requires a company that does a
reverse stock split to change its name. We are asking you to
authorize us to change our name to "Safeguard Biometric Corp.," or
such other name that would be acceptable to the VSE and the
Registrar of Companies for British Columbia.
Material Federal Income Tax Consequences to Shareholders
Tax matters are often complicated and the tax consequences to you from
these proposed transactions will depend in part on the facts of your own
situation. You should consult your tax advisors, as you think appropriate, for a
full understanding of the tax consequences to you of these proposed
transactions.
1. REVERSE STOCK SPLIT (PAGE 38). The reverse stock split should have
no federal income tax consequences for you.
2. TRANSFER FROM WYOMING TO BRITISH COLUMBIA (PAGE 44).
Tax Consequences for Biometric. The transfer would be treated for
U.S. federal tax purposes as though we had transferred our assets
from a U.S. corporation to a British Columbia corporation. We would
be subject to U.S. federal tax upon our transfer to the extent that
the fair market value of our property exceeds the historic basis,
for U.S. tax purposes, in the property. After we become a Canadian
corporation, we will be subject to U.S. withholding tax on any
dividends paid by a U.S. corporation, as well as a 10% withholding
tax on interest we get from our investments in U.S. debt securities.
Tax Consequences for Shareholders. The transfer will have different
tax consequences for U.S. and Canadian shareholders.
2
<PAGE> 6
U.S. SHAREHOLDERS -- If you are a U.S. resident shareholder, you
would be subject to tax on any increase in share value over your
basis in the shares. "Basis" is essentially the amount you originally
paid for the shares plus certain other amounts, including any gain
you recognized on the shares when we transferred from British
Columbia to Wyoming. After we transfer back into British Columbia,
Canada will impose a 15% withholding tax on any dividends paid to
U.S. resident individual shareholders.
CANADIAN SHAREHOLDERS -- If you are a Canadian resident
shareholder, the tax consequences to you will be based on adjustments
that we will have to make to our own financial statements under
Canadian law. These adjustments, in turn, will affect the tax
treatment of any money we distribute to you. We haven't yet
determined the amount of these adjustments. However, based on
preliminary calculations, we think that you may see a reduction in
the amount of your share investment which can be returned to you on a
tax-free basis.
Please see "Material Tax Consequences of the Consolidation (Reverse Stock
Split)," at page 38, and "Material Tax Consequences of the Transfer to British
Columbia," at page 44, for further discussion about the tax consequences of
these transactions.
No Dissenters Rights of Appraisal
Under both British Columbia and Wyoming corporate law, shareholders who
dissent from certain unusual corporate actions (such as mergers and major asset
sales) have the right to have the value of their shares appraised, and be paid
cash for them. However, you don't have these appraisal rights in connection with
any of the proposed transactions because the proposed transactions are not
considered to be unusual in the sense that shareholder protection, in the form
of appraisal rights, is needed.
Regulatory Approvals
We will have to comply with Wyoming and British Columbia regulatory
requirements in order to complete the transfer to British Columbia.
Under Wyoming law, we will have to:
- post a US$ 50,000 bond, or deposit that amount in an appropriate
Wyoming depository for six months;
- send our audited financial statements to the Wyoming Secretary of
State;
- publish a public notice in Wyoming about our transfer to British
Columbia; and
- pay a special toll charge to the Wyoming Secretary of State based on
our net asset value.
In British Columbia, we will have to file our new corporate governing
documents with the British Columbia Registrar of Companies. These will replace
our Wyoming corporate governing documents.
Our transfer to British Columbia would become effective when:
- the Wyoming Secretary of State issues a Certificate of Transfer
transferring us to British Columbia; and
- the British Columbia Registrar of Companies issues us a Certificate
of Continuance.
Disclosure Obligations (page 43)
Even if we transfer to British Columbia, we will still have to comply with
reporting requirements under United States securities law. However, these
requirements would be reduced because we would no longer be a U.S. company.
3
<PAGE> 7
Whether or not we transfer to British Columbia, we will remain subject to
British Columbia disclosure requirements including:
- publishing news releases;
- filing information about major changes for Biometric;
- sending you quarterly and annual financial statements; and
- filing reports about trading in our shares by our officers, directors
and major shareholders.
Accounting Treatment
These transactions will have no effect on our financial statements, but
after our transfer to British Columbia, we would expect to return to using
Canadian "Generally Accepted Accounting Principles" to prepare our financial
statements.
BIOMETRIC COMMON STOCK
On November 10, 1998 we had 20,834,412 (and at May 31, 1999, we had
45,767,743 [UPDATE PRIOR TO MAILOUT TO SHAREHOLDERS]) outstanding shares of
common stock. We do not have any other kind of stock.
HISTORICAL PER SHARE INFORMATION (CANADIAN DOLLARS)
The following table sets forth certain historical earnings, dividend and
book value per share data for Biometric. The information is only a summary and
you should read it along with the following sections of this document: "Selected
Financial Data" on page 22; our audited financial statements and notes,
beginning on page F-1; and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 23.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Book Value per Share....................... $ 0.18 $ 0.48 $ 0.89 $ 0.35 $ 0.37
Net Income (Loss) per Share.................... $(0.30) $(0.13) $(0.14) $(0.20) $(0.10)
Cash Dividends per Share....................... 0 0 0 0 0
</TABLE>
Market Price Information
Biometric's common shares are listed and posted for trading on the
Vancouver Stock Exchange under the symbol "BMS," and are also traded from time
to time on the over-the-counter market in the United States under the symbol
"BMSX." Biometric's securities issued in offshore transactions pursuant to
Regulation S under the Securities Act are traded in offshore resales governed by
Rule 904 of Regulation S under the symbol "BMS. S" on the VSE.
On May 6, 1999 (the date before Biometric filed a registration statement
with the SEC concerning our proposed reverse stock split, proposed transfer to
British Columbia and other matters discussed in this proxy
statement/prospectus), the closing price of our stock on the VSE was $0.35, and
the closing price of our stock on the over-the-counter market was US$ 0.25.
4
<PAGE> 8
RISK FACTORS
You should read the first two risk factors in deciding whether to approve
our reverse stock split and transfer back to British Columbia. You may also find
it helpful to read the subsequent risk factors so you understand more clearly
the risks of our investment in BII.
This Proxy Statement/Prospectus contains statements that plan for or
anticipate the future. We believe that some of these statements constitute
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and other applicable laws or regulatory policies.
Forward-looking statements include statements about the future of the biometric
identity verification industry, statements about future business plans and
strategies, and most other statements that are not historical in nature. In this
Proxy Statement/Prospectus, forward-looking statements use words like
"anticipate," "plan," "believe," "expect," and "estimate." However, because
forward-looking statements involve future risks and uncertainties, there are
factors, including those discussed below, that could cause actual results to
differ materially from those expressed or implied. We have attempted to identify
the major factors that could cause differences between actual and planned or
expected results, but we may not have identified all of such factors. You
therefore shouldn't place undue reliance on forward-looking statements. Also, we
have no obligation to publicly update forward-looking statements we make in this
Proxy Statement/Prospectus.
RISKS OF APPROVING REVERSE STOCK SPLIT AND RETURN TO BRITISH COLUMBIA
OUR STOCK PRICE MAY DECLINE AFTER THE REVERSE STOCK SPLIT IF INSTITUTIONAL
INVESTORS AREN'T ATTRACTED TO THE STOCK. Even though our shares may begin
trading at five times the pre-reverse-stock-split price, the stock price may
trend down afterwards. That could happen, for example, if the market is
skeptical that the 5-fold increase in trading price makes our company more
attractive to institutional investors. We can't know exactly how much of our
stock is owned by institutions, since many stockholders typically don't own
stock in their own names. However, based on what we know about the buyers in our
recent stock issuances, we believe that a significant portion of them were
institutional investors. This means that if institutional investors lose
interest in our stock, we'll lose a large part of our buying base and market
price support.
OUR STOCK PRICE MAY DECLINE IF U.S. INVESTORS BECOME LESS INTERESTED IN US
WHEN WE NO LONGER HAVE TO FILE AS MUCH INFORMATION WITH THE SEC AS WE DID BEFORE
THE TRANSFER. Our return to British Columbia could make us a less desirable
investment opportunity for U.S. and other investors. This is because the
frequency and amount of reporting we will make to the U.S. Securities and
Exchange Commission will decrease after we leave Wyoming, as the requirements
for non-U.S. companies registered with the SEC are less demanding than those for
U.S. companies.
RISKS RELATED TO OUR INVESTMENT IN BII
FINANCING AND INVESTMENT RISKS
HISTORY OF NET LOSSES; UNCERTAINTY OF ADDITIONAL FINANCING; BIOMETRIC MAY
NOT BE ABLE TO RAISE ENOUGH FUNDS TO COMPLETE ITS INVESTMENT IN BII. Biometric
has incurred losses to date. Our shareholders' deficit as of March 31, 1999, was
$10,212,471. Since we haven't been able to generate significant cash from
operations, we have had to rely on the sale of equity and debt securities for
cash required for investments and operations, among other things. As noted, we
have the right to invest up to US$ 5,000,000 into BII by acquiring its
debentures. At May 31, 1999, we had invested US$ 3,600,000 into BII, leaving
another US$ 1,400,000 to possibly be invested in the future. At April 30, 1999,
our working capital was about $500,000, which isn't enough to make the rest of
the investment in BII. Since Biometric is unlikely to have cash flow in the near
future, we'll have to continue to rely on equity and debt financing for our
operating and investment needs. If we can't raise enough money from equity and
debt financing, we may not be able to complete our investment in BII debentures.
RISK OF LOSS OF SOLE INVESTMENT IN ONE COMPANY; BIOMETRIC DOESN'T HAVE ANY
OTHER INVESTMENTS THAT COULD OFFSET POOR BII RESULTS. We are leaving the
natural resource industry sector in order to enter the technology
5
<PAGE> 9
industry. But we have only identified one company, namely BII, in which to
invest in the short term. Right now, our success depends entirely on the future
of BII. In turn, your investment in us is subject to that risk. BII has a
history of losses, mainly due to the required accounting treatment of research
and development outlays which are required to be expensed in the year incurred.
For the year ended December 31, 1998, BII had a net loss of US$ 3,934,609, and
for the year ended December 31, 1997, BII had a net loss of US$ 1,337,446. For
the four months ended April 30, 1999, BII had a net loss of US$ 1,958,168.
Biometric doesn't have any other investments that might offset BII's recent net
losses.
RISKS DUE TO OUR LACK OF CONTROL OF BII; SINCE BIOMETRIC DOESN'T YET OWN
ANY SHARES IN BII, BIOMETRIC DOESN'T HAVE SHAREHOLDERS' RIGHTS SUCH AS THE RIGHT
TO ELECT BII DIRECTORS. Our investment in BII consists only of its convertible
debentures. Until we exercise our rights to convert these debentures to common
stock of BII, we will not have the voting and other rights provided to the
shareholders of BII through their shareholdings. Although Biometric's new
President, Robert Kamm, is also President of BII, we don't have any control over
BII's shareholders or Board of Directors. We might not always be able to cause
BII to take actions that we think make good business or financial sense.
RISK OF DEFAULT BY BII; BII HAS A LARGE PROPORTION OF DEBT; IF BII CAN'T
MAKE ITS DEBT PAYMENTS, BIOMETRIC COULD LOSE ITS INVESTMENT IN BII. Our BII
convertible debentures are unsecured and do not provide for regular payments of
principal to us. BII currently has a large amount of debt. At December 31, 1998,
BII had outstanding convertible debt totaling US$ 2,709,000, compared to total
assets of US$ 769,974. At April 30, 1999, BII had outstanding convertible debt
totaling US$ 4,422,500, compared to total assets of US$ 1,167,040. All but US$
45,000 of BII's convertible debt is due to related parties, e.g., Biometric and
Arete. If BII can't generate enough cash to pay our principal and interest
payments when due, it may default on our debentures and, if that happens, we
could be forced to begin collection efforts or lose all of our investment.
RISKS RELATING TO BII'S BUSINESS AND OPERATIONS
DIFFICULTIES RAISING MONEY FOR DEVELOPING BUSINESSES; NEITHER BIOMETRIC NOR
BII IS PROFITABLE YET, AND NEITHER COMPANY CAN BE SURE OF RAISING ENOUGH MONEY
FROM OUTSIDE SOURCES. BII is a relatively new business, incorporated in 1995.
In addition, our own business has recently completely changed its direction. As
new and growing businesses, both we and BII don't yet generate profits from our
operations to cover our day-to-day operating costs and to make investments (such
as buying expensive new equipment) that we need to grow our businesses.
Therefore, we need money from outside sources. In the past, both we and BII have
had to sell stock in our companies, and also borrow money, to meet our large and
ongoing needs for capital. If we can't continue to raise enough money from these
sources, neither we nor BII will be able to grow our businesses. We have
invested money in BII, but that won't be enough to keep BII solvent. Further, if
we can't provide more money to BII, and they have to sell more stock to other
people, our ownership interest in BII could be lessened.
BII MAY NOT BE ABLE TO DEVELOP A LARGE ENOUGH MARKET FOR ITS BIOMETRIC
IDENTITY VERIFICATION PRODUCTS; THESE PRODUCTS AREN'T YET IN WIDE USE. The
market for BII's products must grow for it to succeed. Its major products,
namely biometric identity verification ("Bio-ID") products and biometric imaging
products, have not experienced widespread commercial acceptance. In part, this
is because Bio-ID products are a new approach to identity verification and they
have not been widely used.
Factors that could affect whether BII can develop a large market for Bio-ID
products include:
- whether their cost, performance and reliability compare favorably to
competitive products
- whether customers come to understand their benefits
- whether the public will be "put off" by the intrusiveness of the
products and how companies collect and use fingerprint information
NOTE: Some groups have objected to Bio-ID products on civil
liberties grounds, as an invasion of privacy, and legislation has
been proposed to regulate the use of Bio-ID products to prevent such
abuse
6
<PAGE> 10
- whether the public trusts that companies will not abuse the
confidentiality of personal information created from using Bio-ID
products
- whether institutional purchasers (such as banks and retailers) will
install the infrastructure in automatic teller machines and
point-of-sale equipment to use Bio-ID products
- whether BII can develop an international market for its products and
- whether BII successfully markets and promotes its products
BII FACES INTENSE COMPETITION FROM OTHER TECHNOLOGIES AND OTHER,
BETTER-FINANCED COMPANIES. BII faces intense competition from other providers
of sophisticated biometric imaging systems, as well as from providers who use
traditional "low-tech" identification and security systems (e.g., key card,
surveillance systems and passwords). A number of start-up and established
companies develop and market software and hardware for fingerprint biometric
security applications that could compete directly with BII's products. It is
possible that other biometric identification technologies of which we and BII
are aware, could ultimately be more widely adopted. These technologies could
reduce demand for BII's products even if they were demonstrably superior. For
example, a well-financed company with a large customer base and established
distribution channels for its less sophisticated products might marginalize
BII's possibly superior products.
IF BII IS UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE ITS PRODUCTS
COULD BECOME OBSOLETE, OR OTHER COMPANIES COULD EXPLOIT MARKET OPPORTUNITIES
FASTER. The markets for Bio-ID products and biometric imaging systems rapidly
change in response to newer, more advanced products. Unless BII's products keep
up with the demand for sophisticated technology, they could become obsolete.
Even if BII can keep pace, it could fail to predict where the market is going
and thus develop technology that customers do not want to buy. Or BII might
develop desirable products but too slowly and be surpassed by a competitor.
BII DEPENDS ON STRATEGIC RELATIONSHIPS FOR PRODUCT DISTRIBUTION; IF THESE
RELATIONSHIPS DON'T WORK OUT, OR IF THE OTHER COMPANIES DON'T DO ENOUGH TO
MARKET BII PRODUCTS, BII COULD LOSE SALES. BII's business plan depends on
establishing strategic relationships with marketing partners to distribute some
of its products. These may include original equipment manufacturers (known as
OEMs), systems integrators and resellers. It may be difficult for BII to
identify and establish relationships to assure the successful marketing of its
products. Even if BII identifies partners, negotiating deal terms can be a
laborious process. Once an agreement is reached, it could be terminable with
little notice, or disputes could arise as to interpretation. It's also difficult
to control the resources and effort that a partner will devote to the marketing
of BII's products.
IF BII'S PRODUCTS ARE DEFECTIVE OR FAIL TO MEET PERFORMANCE CRITERIA, THIS
COULD REDUCE BII'S PROFITS. Despite careful quality control in design and
production, newly-introduced complex products often have undetected defects
(e.g., software "bugs") or they do not initially meet customer performance
specifications. Even if the defects are ultimately corrected, BII could:
- lose customers
- be forced to divert its employees and resources in order to work with the
dissatisfied customers
- make refunds
- cover breaches in product warranties, or
- conduct a product recall
Because BII's products are designed to improve security, malfunction could
hurt BII's customers. Examples of the impact of product failure include:
- unauthorized persons gaining access to dangerous or sensitive physical
facilities
- the alteration or theft of customer database information, or
- fraudulent financial transactions
7
<PAGE> 11
These failures could result in loss of customers or negative publicity.
Even if defects are minor and readily corrected, BII's efforts at correction
could reduce or even eliminate profits from sales. BII may not be able to
maintain product liability insurance to adequately cover such risks.
BII HAS ONLY LICENSE RIGHTS RATHER THAN OWNERSHIP RIGHTS TO ITS BIO-ID
TECHNOLOGY. BII licenses its technology from Arete under an exclusive
world-wide license. The license has no expiration date, although Arete can
terminate the license if BII materially breaches the license agreement. BII has
not yet accrued or paid any significant royalties to Arete. Only after BII has
paid US$ 1,250,000 of royalties will Arete transfer ownership of the
intellectual property outright to BII. Until then, BII is dependent on Arete's
maintaining its ownership and right to exploit the technology. BII doesn't
control Arete's efforts to protect its rights to these technologies. If Arete
doesn't do enough to protect the technologies, BII would be put at a significant
competitive disadvantage since much of BII's market advantage stems from its use
of technology that's currently unique to Arete.
BII'S PROPRIETARY TECHNOLOGY MAY BE IMPOSSIBLE TO PROTECT OR MAY INFRINGE
ON OTHER TECHNOLOGIES. Subject to its license from Arete, BII's competitive
advantage depends on owning and controlling the right to exploit its technology.
The usual means to protect proprietary rights in technology are through patent,
copyright, trade secret and contract law. Arete holds, and BII expects
eventually to hold, United States and foreign patents covering certain of BII's
products and technologies. Patent protection, however, does not eliminate all
risks. For example:
- the claimed inventions in Arete's patents may not be broad enough to
cover the technology contained in BII's products
- Arete or BII may have their patent applications denied, or
- another person may challenge the validity of the patents or claim they do
not cover a similar invention which such person intends to commercialize
BII also depends on its employees, consultants and other persons to keep
confidential BII's trade secrets and other proprietary information. If any of
these persons reveals this confidential information, BII could lose major
competitive advantages.
BII DEPENDS ON ITS KEY TECHNOLOGY PERSONNEL AND ON ITS RELATIONSHIP WITH
ARETE. BII's competitive position depends on its ability to find and keep
employees who have special knowledge about designing, manufacturing and
marketing Bio-ID products. Its senior management has many years of experience in
the Bio-ID field. For example:
- Dr. Stephen Lubard, founder and Chairman of BII, is an engineer with over
20 years of experience in managing highly technical projects and
developing software and computer systems for solving complex image
processing problems
- Robert Kamm, Chief Executive Officer, is an experienced technology
entrepreneur and has started two previous technology companies
- Parker Eagerton, Vice President of Operations, has considerable
experience in the areas of devising cost-effective manufacturing
strategies and assuring that products are engineered and designed with
manufacturing in mind
It would be very difficult and time-consuming for BII to locate personnel
with the combination of skills and attributes required to carry out its
strategy.
BII also depends on its relationships with Arete. For example, Arete has
agreed to provide engineering services for BII, in exchange for payments from
BII. Under this agreement, Arete provides BII with the equivalent of services of
four full-time engineers, and Arete will use its best efforts to supply
additional engineering assistance as needed. If Arete can't provide enough
engineering assistance, BII could lose access to technology that would enable it
to compete in the marketplace.
8
<PAGE> 12
POSSIBLE FAILURES BY THIRD PARTIES TO COMPLY WITH Y2K ISSUES. The Year
2000 issue refers to certain negative impacts on business systems that could be
caused by the arrival of the new millennium. Best known is the possible
inability of computer software to recognize the year 2000 as a date. Unless the
software is fixed, date-sensitive systems may begin to fail prior to January 1,
2000. Failures may range from relatively minor processing inaccuracies to
catastrophic system malfunctions. Failures may affect not only systems used to
process everyday business information, but also the imbedded computers that
control plant machinery, robotics, office equipment, elevators and building
climate and security systems.
Biometric does not expect to experience significant Year 2000 issues,
because we use standard commercial programs and systems that have been designed
or upgraded to comply with requirements imposed by the transition into the next
millennium. We are contacting our main suppliers to make sure that they are also
Year 2000 compliant, a process we expect to complete by the third quarter of
1999.
BII has evaluated the products and services that it offers, as well as its
information technology infrastructure, and has determined that they are Year
2000 compliant. BII's business involves integrating its products with those of
original equipment managers and value added resellers. If any of those companies
is not Year 2000 compliant, their product sales, and consequently BII's sales,
could drop.
OUR STOCK IS LOW-PRICED STOCK SUBJECT TO "PENNY STOCK" RULES;
BROKER-DEALERS MAY BE LESS WILLING TO DEAL IN PENNY STOCKS SUCH AS OURS IF THEY
FIND THE NEW "PENNY STOCK" LAWS TOO BURDENSOME. Our common stock would be
classified as "penny stock" under United States securities laws. The laws
relating to penny stocks were changed in 1990 because of alleged abuses in the
penny stock market. The new laws require broker-dealers who sell penny stocks to
meet burdensome requirements that might limit their willingness to deal in those
stocks. For example, a broker-dealer selling a penny stock must:
- give the customer written information about the market for penny stocks
including a discussion of how such stocks are traded, and the risks of
the penny stock market. This information must also describe the
broker-dealer's duties to the customer and let the customer know about
his or her rights and remedies if the broker-dealer violates these
duties.
- give penny stock customers written monthly account statements that list
their holdings and estimated market values.
If broker-dealers find these requirements too burdensome and therefore are less
willing to deal in penny stocks, this might limit market activity for all penny
stocks, including Biometric's common stock. This could limit your ability to
sell your stock when you want and at a satisfactory price.
9
<PAGE> 13
THE ANNUAL GENERAL MEETING
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by Biometric's management from Biometric's shareholders
to be voted at the annual general meeting of Biometric's shareholders. Our Board
of Directors has determined that the proposed transactions are in the best
interests of our shareholders and unanimously recommends that you elect the
director nominees and that you vote "for" each of the other proposals to be
presented at the meeting. Please see the Information Circular for the annual
general meeting, at page 29.
The annual general meeting will be held at Biometric's principal office
located at Suite 1940 - 400 Burrard Street, Vancouver, British Columbia, Canada,
on Friday, July 30, 1999, at 10:00 a.m. (local time in Vancouver, B.C.). At this
meeting, we will ask you to:
- fix the number of directors at four
- elect directors
- approve our appointment of independent auditors
- authorize us to grant incentive stock options
- approve the reverse stock split
- approve the transfer to British Columbia
- approve the reduction of Biometric's authorized share capital
- approve the adoption of new corporate governance documents and
- approve the change in the Biometric's name.
If you wish to present a shareholder proposal at our annual general meeting
in 2000, your proposal must be received by January 31, 2000, in order to be
considered for inclusion in our proxy statement and form of proxy relating to
that meeting. Please direct your proposals to the Corporate Secretary, at our
address shown above.
VOTING SECURITIES; RECORD DATE (PAGE 30)
You are entitled to vote at the annual general meeting if you owned shares
of Biometric's common stock as of the close of business on June 25, 1999.
On June 25, 1999, there were outstanding 45,767,743 [UPDATE PRIOR TO
MAILOUT TO SHAREHOLDERS] shares of Biometric's common stock, and no other types
of stock. You will have one vote for each share of Biometric's common stock you
owned at that date.
VOTES REQUIRED
Biometric will need the following percentages of favorable votes to approve
the proposals:
- At least a majority of shares voted at a meeting, whether in person
or by proxy, at which a quorum is present, must fix the number of
directors at four, elect each of the director nominees and approve
the appointment of the independent auditor, the granting of incentive
stock options, the reverse stock split, the reduction in Biometric's
authorized share capital upon the transfer to British Columbia, and
the change in Biometric's name.
- At least two-thirds of the shares present at a meeting, whether in
person or by proxy, at which a quorum is present, must approve the
transfer to British Columbia.
On May 31, 1999, Biometric's directors and officers together held 2.5% [TO
BE UPDATED PRIOR TO MAILOUT TO SHAREHOLDERS] of Biometric's outstanding common
stock.
10
<PAGE> 14
APPOINTMENT AND REVOCATION OF PROXIES (PAGE 29)
The persons named in the accompanying proxy form are either an officer or
director of Biometric. However, if you wish to appoint an alternate proxy, you
may appoint any person you choose, including someone who is not a Biometric
shareholder.
A PROXY WILL NOT BE VALID UNLESS THE COMPLETED, DATED AND SIGNED FORM OF
PROXY IS DELIVERED TO EITHER:
- Pacific Corporate Trust Corporation, Suite 830, 625 Howe Street,
Vancouver, British Columbia, Canada V6C 3B8 not less than 48 hours
(excluding Saturdays, Sundays and holidays) before the time for holding
the annual general meeting, or
- the Chair of the meeting before the start of the annual general meeting.
If you provide your properly executed proxy before the annual general
meeting, and you do not revoke the proxy, your proxy will be voted in accordance
with the instructions indicated in your proxy. If you provide no voting
instructions, your proxy will be voted "for" Biometric's director nominees and
"for" approval and adoption of the above proposals.
YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS USE BY SIGNING A
REVOCATION NOTICE AND DELIVERING IT TO EITHER:
- BIOMETRIC'S REGISTERED OFFICE, AT SUITE 1100, 1055 WEST HASTINGS STREET,
VANCOUVER, BRITISH COLUMBIA, CANADA V6E 2E9 OR
- THE CHAIR OF THE MEETING ON THE DAY OF THE ANNUAL GENERAL MEETING OR ANY
ADJOURNMENT OF IT AND VOTING IN PERSON.
Biometric will pay for all costs of this proxy solicitation.
11
<PAGE> 15
THE COMPANY
DESCRIPTION OF BUSINESS
Biometric Security Corp. believes that certain information contained in
this Proxy Statement/Prospectus constitutes "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 and other
applicable laws or regulatory policies. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results to be materially different from any future results, performance
or achievements expressed or implied by such forward looking statements.
Although Biometric has attempted to identify important factors, including those
listed under "Risk Factors" below, that could cause actual results to differ
materially, there may be other factors that can cause actual results not to be
as anticipated, estimated or intended. There can be no assurance that such
statements will prove to be accurate as actual results and future events could
differ materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on forward-looking statements.
Structure of the Company
Biometric Security Corp. was incorporated by registration of its memorandum
and articles under the Company Act (British Columbia) on January 16, 1979 under
the name "North American Power Petroleums Inc." Its name was changed to "Sonoma
Resource Corp." on January 5, 1990. Sonoma adopted a new set of Articles
effective as of July 19, 1996.
On November 10, 1998 Sonoma transferred its domicile from British Columbia
to the State of Wyoming, changed its name from "Sonoma Resource Corp." to
"Biometric Security Corp." and adopted Articles of Continuance governed by
Wyoming law (but unchanged from its prior charter except so as to conform to
requirements of the Wyoming corporations statute). On November 12, 1998,
Biometric increased its authorized capital to an unlimited number of common
shares.
Biometric's executive offices are located at Suite 1940, 400 Burrard
Street, Vancouver, British Columbia, Canada, V6C 3A6. Its registered office and
address for service in British Columbia is care of its solicitors, Catalyst
Corporate Finance Lawyers, Suite 1100, 1055 West Hastings, Vancouver, British
Columbia, Canada V6E 2E9. Biometric's registered office and address for service
in Wyoming is care of its Wyoming attorneys, Hathaway, Speight & Kunz, LLC, 2515
Warren Avenue, P.O. Box 1208, Cheyenne, Wyoming, U.S.A. 82003-1208.
On December 31, 1998 Biometric owned seven subsidiaries, six of which
(detailed in the chart below) are related to its mineral exploration activities
in Argentina (see Business of the Company -- Historical Operations: Mineral
Exploration in Argentina). Except for Sonoma Resource de Argentina S.A. (further
described below), none of the subsidiaries has any material assets and Biometric
plans dissolve them as soon as possible.
<TABLE>
<CAPTION>
DATE OF JURISDICTION OF PERCENTAGE
NAME OF SUBSIDIARY INCORPORATION INCORPORATION OWNERSHIP(1)
------------------ ------------- --------------- ------------
<S> <C> <C> <C>
Sonoma Resource de Argentina S.A. November 30, 1995 Argentina 100%
Castano S.A. August 7, 1996 Argentina 100%
Castano Mining (Barbados) Ltd. June 6, 1996 Barbados 100%
Cerro Toro S.A. August 5, 1996 Argentina 100%
Cerro Toro Mining (Barbados) Ltd. June 6, 1996 Barbados 100%
Sonoma Resource (Bermuda) Ltd. June 5, 1996 Bermuda 100%
</TABLE>
- ---------------
(1) Represents the percentage of voting securities held. None of the
subsidiaries has any non-voting securities outstanding.
The seventh subsidiary, Supron Energy Corp., an inactive British Columbia
corporation and a natural resources company, has no activities or assets, and
Biometric plans to dissolve it as soon as possible.
12
<PAGE> 16
BUSINESS OF THE COMPANY
Historical Operations: Mineral Exploration in Argentina
Until mid-1998 Biometric's business was exclusively mineral exploration. In
light of the state of the markets for gold and other precious metals, Biometric
made a strategic decision to leave the resource sector and began disposing of
its mineral exploration assets. Biometric made this change because management
believes that the price of gold will remain depressed into the foreseeable
future. That means that Biometric, in common with other precious metal
exploration companies, would have trouble financing its exploration operations,
since this financing is based on cash flow estimates of future production from
mineral properties. With low metals prices, even if mines are put into
production, the cash flows based on those prices may not be high enough to
justify exploration financing.
On December 31, 1998, Biometric's mineral exploration assets were held
indirectly through its wholly-owned subsidiary Sonoma Resource de Argentina S.A.
This subsidiary owned 100% of the Cerro Toro Project located in the San Juan
Province of Argentina and the Apeleg Claim Block located in the Chubut Province
of Argentina, which included 9 properties comprising 93,709 hectares. These
limited Argentina operations were what remained following cutbacks made by
Biometric earlier in 1998, when Biometric had significantly reduced its staff
and overhead in Argentina and had substantially cut back on its exploration
activities.
In November 1998, Biometric through its subsidiary reached an agreement to
sell up to 100% of its Argentinean properties to Inlet Resources Ltd., a
corporation organized under British Columbia law with executive offices in
Vancouver. In order to grant Inlet an option to acquire 90% of the properties,
Inlet and Biometric entered into a written agreement for such purchase on
January 21, 1999, which was approved on February 15, 1999 by the Canadian
regulatory authorities. Under the agreement, Inlet must pay US$ 750,000 and
issue 300,000 of its shares to Biometric over a three year period and also
complete a work commitment requiring expenditure of US$ 2,150,000. Under this
work commitment, Inlet must spend a total of US$ 2,150,000 on exploration work
over three years, on the optioned Argentinean properties. If Inlet fails to meet
this commitment, it will lose the right to exercise its option to acquire the
properties. Inlet may acquire the remaining 10% by the payment of US$ 2,000,000
to Biometric. By March 1, 1999, Biometric had received US$ 150,000 and 100,000
common shares of Inlet.
Inlet is a public company whose stock is traded on the Vancouver Stock
Exchange. The closing price for Inlet's stock on June 9, 1999, was $0.07. Inlet
is engaged in the acquisition, exploration, development and subsequent
production relating to mining properties. Biometric had acquired 100,000 shares
of Inlet common stock and has since sold the shares for $11,078. Biometric holds
no Inlet shares at this time. At December 31, 1998, Inlet had 20,174,875 shares
outstanding. If Biometric receives 200,000 shares of Inlet stock, Biometric's
ownership percentage would be approximately 1%.
When Inlet has met all its obligations under the agreement, Biometric will
have completed its departure from the natural resource sector. It has no plans
to return to this industry.
Current Activity: Investment in U.S. Fingerprint Technology Company
On June 12, 1998, Biometric entered into an agreement (the "BII Agreement")
to acquire up to US$ 5,000,000 of convertible debentures to be issued by
Biometric Identification, Inc., a California corporation ("BII"), which is
engaged in development of fingerprint identification technology and related
products. Biometric now has no other activity than its investment in BII but, as
further discussed below, is contemplating entering into the same business as
BII.
BII is controlled by Arete Associates, a California corporation having its
executive offices in Los Angeles. Arete owns 80% of the issued and outstanding
shares of BII. Employees of BII and Arete hold the remaining shares of BII.
Arete has been a Department of Defense research and development contractor
for over 20 years specializing in sensor systems and pattern recognition
software development. Many of Arete's mathematicians and physicists helped
develop the fingerprint identification technology now being further developed
and
13
<PAGE> 17
commercialized by BII. Arete has obtained the recognition of the technical
community through an integration of scientific knowledge and advanced sensor
systems expertise.
Terms of Investment in Biometric Identification Inc.
Under the BII Agreement, Biometric agreed to invest in BII by purchasing in
a series of tranches up to US$ 5,000,000 of convertible debentures issuable by
BII. The BII debentures bear interest at the lowest "applicable federal rate"
required to avoid imputation of interest under U.S. tax law and, unless
converted, will mature and be payable on June 12, 2003, the fifth anniversary
after the closing date of the first three tranches. If Biometric fails to close
its purchases of debentures by the due date for any tranche, it loses its rights
to purchase subsequent tranches of debentures unless BII waives such
noncompliance. As of May 31, 1999, Biometric had purchased US$ 3,600,000 of the
debentures in accordance as the following table:
<TABLE>
<CAPTION>
DESIGNATION PRINCIPAL AMOUNT OUTSIDE PURCHASE DATE
----------- ---------------- -----------------------------
<S> <C> <C>
Tranche A & B US$ 350,000 Advanced before June 12, 1998
Tranche C US$ 900,000 Advanced on June 12, 1998
Tranche D US$ 500,000 Advanced on August 12, 1998
Tranche E:
First advance US$ 75,000 Advanced on November 13, 1998
Second advance US$ 250,000 Advanced on November 25, 1998
Third advance US$ 250,000 Advanced on December 18, 1998
Fourth advance US$ 550,000 Advanced on January 29, 1999
Fifth advance US$ 125,000 April 16, 1999
Tranche F US$ 500,000 April 16, 1999
Tranche G US$ 1,500,000 May 12, 1999*
Total: US$ 5,000,000
</TABLE>
- ---------------
* Biometric has not yet purchased all of this tranche, and currently anticipates
its purchases to be completed on or about July 12, 1999.
Biometric may convert the BII debentures at any time into shares of BII
common stock. The debentures will be automatically converted on an initial
public offering by BII. As shown in the following table, if Biometric were to
purchase all the BII debentures and immediately convert them without BII having
issued any additional dilutive securities, Biometric would hold 45% of BII's
common stock. That percentage, however, is subject to dilution resulting from
share issuances resulting from exercise of stock options granted or to be
granted under BII's incentive stock option plan as well as any subsequent equity
financings undertaken by BII in which Biometric does not participate.
<TABLE>
<CAPTION>
PERCENT UPON
CONVERSION OF
DESIGNATION ENTIRE TRANCHE CUMULATIVE PERCENTAGE
----------- -------------- ---------------------
<S> <C> <C>
Tranche A, B & C............................ 20.00% 20.00%
Tranches D & E.............................. 13.33% 33.33%
Tranches F & G.............................. 11.67% 45.00%
</TABLE>
Biometric has not made a decision whether to exercise its right to convert
the BII debentures.
The BII Agreement includes acknowledgements by Biometric and BII that they
intend to merge if they determine it is in their interests following analysis of
their mutual business objectives and whether a merger could be advantageously
structured following consideration of tax, securities and other legal matters.
The BII Agreement has no legally binding provision requiring the parties to
merge, and the parties are not currently conducting any merger negotiations.
14
<PAGE> 18
Rand Edgar Capital Corp., a private British Columbia corporation with
executive offices in Vancouver, British Columbia, arranged for Biometric's
purchase of the BII debentures. RECC is owned and controlled by two persons, one
of whom is the wife of Mr. William Rand, a director of Biometric.
RECC originally entered into a Memorandum of Understanding with BII and
with Arete dated March 18, 1998, amended and replaced May 20, 1998. RECC
assigned its interest in the memorandum to Biometric on May 21, 1998 upon
payment of US$ 145,000 plus reimbursement of its expenses. On June 12, 1998,
RECC elected that such fee could be paid in the form of 715,575 common shares of
Biometric at $0.30 per share. These shares were and are issued in pro rata
tranches with the closing of tranches of Biometric's purchase of BII debentures.
Finders fee shares issued to date have actually been in the form of special
warrants, each exercisable for one share of Biometric's common stock at $0.30
per share. As of December 31, 1998, Biometric had issued 250,450 shares to RECC
in connection with the finder's fee. In addition, Biometric has committed (but
not yet issued) 161,005 shares for issuance to RECC in respect of the BII
debentures that Biometric purchased on November 13 and 25, 1998, December 18,
1998, and January 29, 1999.
BUSINESS OF BIOMETRIC IDENTIFICATION INC.
Overview
BII was incorporated in 1995 as a subsidiary of Arete. Arete granted BII an
exclusive world-wide license for all uses of Arete's fingerprint identification
technology, to the full extent of Arete's rights in the technology. The license
agreement provides that BII will pay Arete a license fee of US$ 0.10 per unit
for the first 2,500,000 products and US$ 0.05 per unit for the next 20,000,000
products. Upon the payment of US$ 1,250,000 of royalties, Arete will transfer
ownership of the licensed intellectual property outright to BII. Although the
license has no expiration date, Arete can terminate the license on 30 days'
notice if BII materially breaches the license agreement.
BII has continued to develop the Arete technology and undertake its
commercialization. BII's products use patented proprietary software for positive
personal identification. The technology provides a higher level of security and
ease of use compared to traditional older methods of identification such as
personal identification numbers and passwords. The advantage of BII fingerprint
identification technology relative to competitive products derives from its
greater accuracy because it images the entire fingerprint and the rapidity with
which it can be integrated into customer identification systems.
Biometric Technologies
Biometrics is the science of identifying an individual through his or her
own unique physical characteristics. The biometrics industry is based upon the
premise there are substantial commercial markets for positive personal
identification based on the widespread need of employers, governmental agencies,
service companies, among others, for accurate, rapid, cost-efficient and
user-acceptable identification of persons. The existence of passwords for data
access, PINs for ATM and account access, identification cards, photos and
signatures on credit cards provides evidence of this need.
15
<PAGE> 19
There are six primary forms of biometric technology: fingerprint scanning,
face recognition, hand geometry, iris/retina scanning, voice print and signature
recognition. BII is focusing on fingerprint identification technology. Each
other type of biometric technology has disadvantages not shared by fingerprint
identification technology, as shown in the following chart:
<TABLE>
<CAPTION>
TECHNOLOGY MAIN USES ADVANTAGES DISADVANTAGES
<S> <C> <C> <C>
Fingerprint Scanning Retail point of sale Highly accurate Can be considered
and credit card No memorization of marginally intrusive
transactions PINs or passwords
Potential perception
e-commerce Minimally intrusive of law enforcement
Internet/intranet relationship
security Easy to use
Face Recognition Governmental Relatively Can be considered
applications (welfare inexpensive intrusive
agencies, departments
of motor vehicles) Easy to use Requires large
amounts of data
storage capability
because image of
entire face
Hand Geometry Time and attendance Relatively easy to Requires large
monitoring use equipment, and the
equipment is easily
vandalized
Iris/Retina Scanning High security Extremely accurate Expensive
applications such as
nuclear power plants Can be considered
intrusive
Voice Recognition Remote access Relatively Slow in application
applications such as inexpensive
remote banking Can be affected by
physical condition or
emotional state
Signature Recognition Document processing Relatively Can be affected by
in financial and inexpensive physical condition or
insurance industries emotional state
and in government
applications Accuracy has been
questioned
</TABLE>
Technology and Products
BII's products use a proprietary patented fingerprint verification
software. The system registers the entire fingerprint of an individual, saves a
template of it, and then at a later time verifies the individual's identity by
retrieving the template and comparing it with a newly obtained fingerprint
image. BII's line of biometric fingerprint identification products includes
those which can be used in stand-alone mode or as part of a larger application.
These products can be integrated into a broad range of existing applications
that require user authentication such as access to personal computers, computer
networks, ATMs, credit card readers and physical access control systems.
Competitive Features of BII Fingerprint Identification Technology
Verification software is the essential component of fingerprint
identification biometrics. BII's software presents improvements in accuracy of
verification and integration with other software and hardware. BII's
16
<PAGE> 20
products are small, versatile and inexpensive. During 1998, BII spent US$
1,500,000 on product research and development. BII plans to spend approximately
US$ 3 million in 1999.
BII's products are unique among fingerprint identification systems for
three major reasons:
- - Accuracy and Long-Term Reliability of Identification.
Many fingerprint verification software techniques involve making
identification based on certain features of the fingerprint, known as "minutia",
but not the entire fingerprint. These minutia-based programs can be fooled by
temporary alterations such as changes to the finger due to cuts or swelling. In
contrast, the BII technique images the entire two dimensional ridge structure of
the fingerprint so as to create a template for comparison purposes. The
software's comparison technique compensates for image distortion, dislocation,
rotation, sensor noise, finger swelling and scarring. It is only after
performance of these compensatory techniques, and the process then indicates
that the two print images still do not match, that the candidate print is
declared dissimilar to the template.
Minutia-based systems often have difficulty compensating for distortion and
other factors such that over time they become less reliable in identifying
stored fingerprints. This can require individuals to re-enroll (i.e., create new
templates) and increases the probability of a false rejection.
Test results confirm that BII's identification system is highly accurate.
Less than one usage in a thousand results in a false positive (i.e., incorrect
identity confirmation) or false negative (i.e., failure to confirm identify).
The system permits enrollment of new users through one touch in a process
completed within less than five seconds. Response time in usage is usually less
than one second. BII tests the accuracy of its fingerprint identification
systems using various software programs that test the products throughout the
manufacturing process. The tests include general checks of systems and
circuitry, and tests for tolerance of image quality.
- - Flexibility and Rapidity of Integration into Products.
Another unique feature of BII's products is that the software, rather than
being a permanent, unchangeable part of a computer chip, is programmable and
therefore more flexible for various uses. This means that the software can be
more easily integrated into products developed by original equipment
manufacturers (known as OEMs) or value added resellers (VARs) which are sold to
the ultimate user. By comparison, most competitive products rely on so-called
"application specific integrated circuit" technology (sometimes referred to as
"software frozen into silicon") which does not lend itself so readily to
customization.
BII has also developed an application software development kit to assist,
for example, VARs in integrating their software with BII products. BII's
software is compatible with Windows 95 and NT and is provided in the form of a
"dynamic link library" which means that BII's software can link, or communicate,
with the user's. This allows a user to customize the products for purposes of
meeting the user specific needs and enabling capability with its computer
environment.
- - Small and Inexpensive Products.
BII's products use silicon sensor technology, which enables its products to
be designed to function in very small sizes. BII is the first company to
complete the integration of its software into a self-contained system the size
of a business card, as included in its Veriprint 1100 product, discussed below.
BII PRODUCTS
BII has developed three main products. The first is BII's core software
technology and the next two represent customer-ready applications. BII's product
line of biometric fingerprint identification products includes products which
can be deployed in stand-alone more or as part of a larger application. BII does
not manufacture its own products but instead "outsources" its manufacturing so
as to control costs.
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Currently, BII's major outside manufacturer is PrimeTech Electronics, Inc.
This relationship is not exclusive for either BII or PrimeTech, and BII believes
that it can readily find other outside manufacturers if PrimeTech were to be
unavailable to manufacture BII products. BII purchases silicon sensors, its
primary manufacturing component, either directly from the large silicon sensor
companies (Siemens, Harris, ST Micro, Veridicom and Thomson CSF Semiconducteurs
Specifiques), or through PrimeTech. BII purchases its board parts (that is, the
collection of printed or soldered circuitry on which the sensors would be
placed) from PrimeTech. BII has not entered into written purchasing or supply
contracts with any of these companies.
BII's existing product line is summarized below. All of these products are
available for retail sale:
1. BII FINGERPRINT IDENTIFICATION SOFTWARE -- The core software which
is the "engine" of BII's product applications and features the
following:
- BII's patented fingerprint verification software that, as
discussed above, focuses on fingerprint ridge patterns rather
than minutia
- detection of latex/rubber fake fingers used to "fool" less
sophisticated identification systems
- performs both matching (one-to-one) and searching (one-to-many)
in a database
2. VERIPRINT 2100 OPTICAL TERMINAL -- Complete biometric terminal
with case, keypad and light emitting diode screen. This product is
presently an "optically based sensor" product. Each unit sells for
US$ 800 to US$ 900. The product has been available since 1997 and
there are now approximately 3,500 units being used in connection
with time and attendance and access control applications.
BII hopes to achieve "silicon sensor" integration during 1999
which is superior to an optically based sensor product because use
of silicon enables the product to become much smaller without loss
of performance.
3. VERIPRINT 1100 SILICON SENSOR, INTEGRATION COMPONENT -- Introduced
in 1998, this is the first ever use of "silicon sensor" technology
in a self-contained programmable fingerprint system including
template storage for up to 1500 persons. The product is smaller
than a business card and no thicker than a half dollar, so that it
can be easily integrated into OEM products such as readers and
keyboards. This sells for less than US$ 340 retail. Applications
include safeguarding Internet access, electronic commerce and
other sensitive data applications.
In addition to its existing products, BII is also working on a new product,
the Veriprint 2200, which BII expects to begin marketing in 1999. This product
is to be a hybrid of the Veriprint 1100 and the Veriprint 2100 in that it will
incorporate the silicon sensor technology of the Veriprint 1100, and will
include a case, keypad and screen display similar to the Veriprint 2100. The
Veriprint 2200 will contain a limited amount of storage for the fingerprint
templates.
BII's plans for additional future revenue include licensing its proprietary
fingerprint identification software to large original equipment manufacturers in
such areas as smart card technology, electronic commerce, and computer
equipment. BII does not currently license its technology to any OEMs, but its
software is currently being tested by several OEMs in anticipation of forming a
licensing relationship in the future.
PRODUCT INTEGRATION
BII has integrated its products with newly-introduced solid state
technology and is working with five vendors of the integrated system: Veridicom,
Inc., ST Micro, Thomson CSF, Siemens and AuthenTec Inc. BII has also completed
product integration with several other manufacturers such as Radionics, Inc.,
Westinghouse Security Electronics, Inc., Chubb Security, Simplex, Northern
Computer and Apollo Computer. The integration process is time-consuming and
expensive because it generally involves two levels of integration: first, the
hardware must be designed to accommodate the company's products; then the
software must be integrated with the hardware.
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BII has not entered into written supply, production or distribution
contracts with any of the companies that integrate BII's products with theirs.
BII typically enters into non-disclosure agreements with these companies, and
provides other documents concerning the product integration process such as
product specifications and integration timetables.
Market for Products
MARKET OVERVIEW
The biometrics industry started with forensic applications using
fingerprints for law enforcement and government security applications. In the
last 30 years, electronic fingerprinting has evolved as an alternative storage
and retrieval medium to paper and ink.
BII believes that the fingerprint identification segment is the largest and
most widely accepted method of biometric identification. New technologies, such
as BII's products, are overcoming the historical problems of inaccuracy, false
rejections and user nonacceptance that have limited the use of this tool for
biometric identification and have held back long term market growth. With
advances in computer technology, including cost reduction, miniaturization, and
growing familiarity of the public with computer-based solutions, there is much
greater potential for commercial investment in this area, particularly as prices
further decline following ongoing technology development and increasingly
widespread commercial implementation.
BII'S MARKET FOCUS
There are many applications for electronic fingerprint devices, including
point-of-sale devices, electronic commerce, access control, and computer
security. Although BII's technology can be used in almost any environment
requiring highly accurate and rapid identification of persons, it would be much
more expensive and time consuming to focus initially on applications in
so-called open systems, which involve large number of ever changing users and
sites. Examples of open systems include the credit card and electronic commerce
industries. Because there is extensive demand for application in closed systems,
which are less time-intensive and expensive to implement, BII has decided to
focus its efforts on these in the short term. Examples of closed systems include
access control for company personnel, time and attendance records for employees,
and access and usage security for computer networks.
Time and Attendance Records
There is high demand for closed system identification controls. Many
industries (manufacturing, retail, service) with large numbers of wage workers
desire to reduce the fraud associated with "buddy punching" (clocking in and out
for an absent co-worker). Buddy punching is relatively easy because cards and
person identification numbers ("PINs") are not intrinsically linked to the card
holder.
BII currently provides its time and attendance products to companies such
as Stromberg Corporation, Control Module, Inc. and Synel Corporation.
Building Access Control
Another promising closed system for BII products is in controlling entry of
persons to buildings and office suites. The need is growing in the large U.S.
service economy involving large numbers of office workers who are highly
concentrated in urban areas with a strong perceived need to prevent extremely
costly vandalism and theft or alteration of records. Large corporations,
sensitive government locations, law and other professional firms, hospitals,
banks, correctional institutions, airports and educational institutions are all
examples of institutions with large office security requirements.
The introduction of biometric devices in this market has been limited,
despite the considerable size of this marketplace, likely due to cost and system
integration impediments. The electronic access control market is dominated by
card and proximity reader devices placed on entries to control and limit access.
BII's discussions
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at trade shows and with access control companies demonstrate that if biometric
solutions could approach the cost level of card and proximity reader devices,
then a biometric solution could become the primary application. BII has designed
its Veriprint 1100 product line to meet these cost levels. Also, BII's product
require less customer administrative oversight than for a card reader system
because there is no longer any need to record and physically control
identification cards.
BII has completed or is nearing completion of integrating its product with
those of large card identification companies such as Westinghouse Security
Electronics Inc. and Radionics, Inc. For example, Westinghouse and Radionics
have integrated BII's V2100 product with their access control systems.
Computer Security
As corporations and other organizations have decentralized their computer
operations by widely installing personal computers ("PCs"), the points of access
to networked systems and sensitive databases have greatly increased. Although
PC's may substantially improve employee productivity, their proliferation
presents a far larger security risk because access points are now so numerous.
Networked PC systems are expected to grow as computer-based management of
information increases worldwide. The rapid expansion of PC networked systems
provides an important area of market growth for biometric products.
Organizations now have concerns about a range of computer security issues such
as protection of privacy of personnel and customer data, prevention of theft of
competitively advantageous information (e.g., trade secrets), and prevention of
deliberate damage to and corruption of data and systems.
BII expects the commercial and governmental network security market to be
one of the largest sources of demand for its biometric products. There may be
also be a developing market of home users who would be willing to purchase
inexpensive and compact security devices such as those of BII.
BII is presently working with Radionics, Inc., one of the largest home
security companies in the U.S., in order to integrate BII biometrics into their
access control and intrusion systems
Identification of Government Service Recipients
In U.S. government applications, public agencies use biometrics to verify
the identity of persons who wish to receive a service from the agency or pass
through an application process. Examples include welfare agencies, departments
of motor vehicles, and the U.S. Immigration and Naturalization Service. BII
believes that there is interest in this area from governments due to concerns
about fraud.
BII also provides products for non-U.S. governments. For example, BII's
Veriprint 2100 system is being used by the Venezuelan legislature in
verification terminals that allow members of the Chamber of Deputies and Senate,
and their authorized surrogates, to vote electronically from their desks.
MARKETING AND DISTRIBUTION CHANNELS
The favorable performance of BII products, combined with aggressive
pricing, has enabled BII to secure relationships with several large companies.
BII desires that once integration is completed with each OEM's products, the OEM
will then introduce BII products into their distribution channels.
BII has been executing its sales strategy through its sales team and has
been actively marketing its product since September 1997. Since then, BII has
developed a list of alliances with key customers including Westinghouse,
Radionics, Thomson CSF, Gemplus and Keysource.
BII is targeting both large and small companies. Although the larger
companies offer long term sales potential, the innovative smaller VARs and OEMs
are more often the first to adopt new technologies and create early stage demand
from consumers. Early users sometimes divert business from industry leaders
which creates incentive for the big companies to follow suit. BII is also going
to target systems integrators and large consulting firms that thrive on
introducing new technologies to their customers.
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To date, BII has focused on the time and attendance and access control
markets. During 1999, it intends to expand its marketing efforts to include
direct contact with financial institutions, "smart" and credit card companies,
electronic commerce and computer equipment companies where interest in
biometrics is growing.
BII has retained a small marketing company located in the United Kingdom as
a representative for BII in the European market area. BII wishes to secure
several sales representatives to assist BII in introducing its products into the
European and Asian marketplaces.
COMPETITION
BII competes with other providers of biometric identification services to
the commercial markets it serves in time and attendance monitors, access control
and computer security. In addition, BII competes with providers of non-biometric
identification services. BII believes that the principal methods of competition
in the identification verification industry are providing function, ease of
integration and an affordable price. Many of BII's actual and potential
competitors have greater financial, marketing and other resources than BII
possesses.
Patents, Trademarks, and Copyrights
Arete has provided an exclusive license to BII for its five pending patents
in fingerprint sensing and algorithms. The patent applications have been filed
during the past three years with the U.S. patent office and three have proceeded
to filings under the Patent Cooperation Treaty. Of these, one has proceeded to
national stage filings in Brazil, Japan and Canada, and with the European Patent
Office. Effective January 8, 1999, a patent on key technology elements of ridge
recognition is in the process of being issued in the United States.
DESCRIPTION OF PROPERTY
Biometric occupies approximately 2,300 square feet of leased space at Suite
1940, 400 Burrard Street, Vancouver, British Columbia under a lease expiring
October 31, 2000. A total of four Biometric employees operate out of its
Vancouver office.
BII occupies two administration offices in California, an engineering
office in Tucson, Arizona and sales offices in Dayton, Ohio and London, England.
BII's California offices occupy a total of approximately 4,200 square feet
and are located at 5000 Van Nuys Blvd., Sherman Oaks, California and 324 E-11th
Street, Tracy, California. A total of 25 employees and consultants operate out
of the California offices. A total of 10 employees and consultants operate out
of the Arizona, Ohio, and London offices.
LEGAL PROCEEDINGS
Other than as disclosed below, no material legal proceedings are pending to
which Biometric is a party or of which any of its properties is subject.
Effective as of November 10, 1998, in compliance with the "continuation"
procedure provided for under the Company Act (British Columbia), Biometric
transferred its domicile into the State of Wyoming, where it is now governed by
the Wyoming Business Corporations Act. Biometric's management has subsequently
determined that Biometric should transfer its domicile back to British Columbia.
In order to solicit shareholder approval for this transfer, Biometric filed on
March 5, 1999, as required by the Securities Exchange Act of 1934, a preliminary
proxy statement with the SEC which was reviewed by the SEC staff. Based on its
review, the staff informally advised Biometric that the staff believes that
Biometric's transfer to Wyoming was an event that would have required the filing
of a registration statement with the SEC, under the Securities Act of 1933.
In response to the SEC's advice, on May 7, 1999, Biometric filed a
registration statement under the Securities Act on Form S-4 for a repurchase
offer with respect to the shares deemed to have been offered in
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connection with the transfer to Wyoming. Repurchase offerees may be able to sue
Biometric for a possible violation of the registration requirement under the
Securities Act. Biometric's exposure in that event is difficult to quantify
because its shareholders were provided their statutory right of dissent under
the Company Act (British Columbia) to be paid the fair market value of their
shares if they dissented from the transfer to Wyoming. No shareholder exercised
that dissent right.
SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
Biometric's consolidated statements of operations for each of the three fiscal
years in the period ended December 31, 1998 and with respect to the consolidated
balance sheets at December 31, 1998 and 1997, and with respect to Biometric's
consolidated statements of operations for each of the three months ended March
31, 1999 and 1998, and with respect to the consolidated balance sheets at March
31, 1999 and 1998, are derived from Biometric's audited consolidated financial
statements as of December 31, 1998 and unaudited interim consolidated financial
statements as of March 31, 1999, included on pages F-1 - F-27. Consolidated
statement of operations data for the years ended December 31, 1995 and 1994, and
balance sheet data at December 31, 1996, 1995 and 1994 have been derived from
Biometric's audited consolidated financial statements that are not included in
this Proxy Statement/Prospectus. (These financial statements, which included a
note reconciling differences between U.S. and Canadian Generally Accepted
Accounting Principles ("GAAP"), were filed with Biometric's Annual Reports on
Form 20-F.)
You should read the following selected financial consolidated financial
data in conjunction with Biometric's consolidated financial statements and the
notes on pages F-1 - F-27. Historical operating results are not necessarily
indicative of the results in any future period.
As a result of Biometric's transfer into Wyoming, Biometric adopted U.S.
GAAP and restated prior years figures to be in accordance with U.S. GAAP. Since
Biometric's functional currency is Canadian dollars, all amounts are in Canadian
dollars.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE FISCAL YEARS ENDED DEC. 31,
--------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- -------- -------- -------- -------
(STATED IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE DATA)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................ $ 57 $ 31 $ 159 $ 175 $ 102 $ 211 $ 36
Net income (loss)...... $ (132) $ (86) $ (5,684) $ (2,200) $ (1,259) $ (1,142) $ (406)
Net income (loss) per
share................ $ (0.01) $ (0.01) $ (0.30) $ (0.13) $ (0.14) $ (0.20) $ (0.10)
Cash dividends declared
per share............ $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Working capital........ $ 112 $ 2,990 $ 10 $ 3,072 $ 6,369 $ 1,936 $ 1,846
Total assets........... $ 4,763 $ 8,131 $ 4,007 $ 8,274 $ 10,451 $ 2,721 $ 2,010
Total liabilities...... $ 113 $ 225 $ 299 $ 283 $ 571 $ 91 $ 143
Share capital.......... $ 14,862 $ 12,388 $ 13,789 $ 12,388 $ 12,077 $ 3,567 $ 1,662
Retained earnings
(deficit)............ $ (10,212) $ (4,482) $ (10,080) $ (4,397) $ (2,197) $ (937) $ 204
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
As noted above, Biometric believes that the statements in this Proxy
Statement/Prospectus that relate to future plans, events or performance are
forward-looking statements. Actual results could differ materially due to a
variety of factors, including the factors described under "Risk Factors." We
have no obligation to publicly update these forward-looking statements to
reflect events or circumstances after the date of this Proxy
Statement/Prospectus or to reflect the occurrence of unanticipated events.
NOTE: WE USE THE NAME "BIOMETRIC" FOR DISCUSSIONS OF ALL PERIODS IN THIS
SECTION, EVEN THOUGH BIOMETRIC ASSUMED ITS CURRENT NAME ONLY IN NOVEMBER
1998.
Current Capital Resources and Liquidity
Since inception, Biometric's capital resources have been limited. Since
cash generated from operations has been nominal, Biometric has had to rely upon
the sale of equity and debt securities for cash required for investments and
operations, among other things. Biometric has acquired the right to invest up to
US$ 5,000,000 into BII by way of the acquisition of convertible debentures (see
"The Company -- Business of the Company"). As at May 31, 1999, Biometric had
invested US$ 3,600,000 into BII, leaving another US$ 1,400,000 for potential
future investment. On April 30, 1999, Biometric had working capital of
approximately $500,000. Biometric's current working capital is not sufficient to
make the rest of the investment in BII, nor are Biometric's working capital or
cash flows sufficient to fund ongoing operations and other commitments. The
ability of Biometric to settle its liabilities as they come due and to fund its
commitments and ongoing operations is dependent upon the ability of Biometric to
obtain additional equity or debt financing. If Biometric cannot raise the
necessary financing directly by way of debt, equity or other means, the lack of
capital may force it to curtail its purchase of debentures of BII and its
operating activities. There is no assurance that Biometric will obtain any such
financing.
Other than the BII acquisition, Biometric does not have any commitments for
material capital expenditures over the near or long term, and none are presently
contemplated over normal operating requirements.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Results of Operations
A $0.01 loss per share in the quarter ended March 31, 1999 resulted from
cash and short-term investment earnings of $56,954 plus a gain on the sale of
the Argentine properties to Inlet Resources Ltd. of $164,855 less expenses of
$353,880. This is compared to a $0.01 loss per share in the quarter ended March
31, 1998 from cash and short-term investment earnings of $31,456 less expenses
of $99,413 and a loss on the disposal of equipment of $17,726. At March 1, 1999,
Biometric had received US$ 150,000 and 100,000 common shares of Inlet. Biometric
has since sold these shares for $11,078, or approximately $0.11 per share, which
was the quoted market price for Inlet shares on the date of sale. The cash and
shares originally received from Inlet, net of expenses incurred, has been
reflected in the statement of operations.
Administrative costs in 1999 increased 255% over the 1998 quarter,
primarily as a result of Biometric incurring increased legal and audit fees,
foreign exchange and finder's fees.
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<PAGE> 27
Liquidity and Capital Resources
During the quarter ended March 31, 1999 Biometric incurred a reduction in
cash from operations, financing and investments of $89,964. The loss for the
period was $132,071.
During the quarter ended March 31, 1999 Biometric completed private
placements totaling 11,666,666 units. These private placements were for proceeds
(before costs) of $1,750,000, of which $660,592 had been advanced to Biometric
prior to December 31, 1998. In addition, Biometric received $15,000 on the
exercise of warrants and $75,000 for share subscriptions. During the period
Biometric repaid a short-term $150,775 loan payable that was outstanding at
December 31, 1998.
During the quarter ended March 31, 1999 Biometric invested an additional
$783,326 (US$ 550,000) including interest of $55,922 in debentures of BII.
Balance Sheets
Total cash and short-term investments at March 31, 1999 were $155,218 as
compared to $245,182 at December 31, 1998, and working capital increased to
$112,264 as at March 31, 1999 compared to $10,478 as at December 31, 1998. The
increase in cash and working capital is largely attributable to Biometric's
completing two private placements that raised cash proceeds of $1,750,000 less
$660,592 received by Biometric before December 31, 1998 and the related costs of
completing the financing.
At March 31, 1999 a total of $4,476,467 (U.S. $2,875,000) including
$135,911 has been invested in debentures of BII. This is compared to $3,637,219
(U.S. $2,325,000) including interest of $79,989 that had been invested at
December 31, 1998.
At March 31, 1999 Biometric had no loans payable and had repaid the
$150,775 short term loan that was outstanding at December 31, 1998.
At March 31, 1999 Biometric had received $75,000 in share subscriptions for
a private placement that was completed after March 31, 1999 and had completed
the private placement it had received $660,592 for prior to December 31, 1998.
Subsequent Events
- On June 10, 1999, Biometric announced a $2,000,000 Private Placement. The
private placement will consist of 10,000,000 units, brokered on a best
efforts basis, at a price of $0.20 per unit for total proceeds of
$2,000,000. Each unit will consist of one common share and one two-year
non-transferable share purchase warrant. Each warrant is exercisable at a
price of $0.20 per share in the first year and $0.23 per share in the
second year. Remuneration paid to the broker for acting as agent will
consist of a 10% commission ($200,000) payable in cash and a two year
broker's warrant exercisable into a maximum of 1,500,000 shares of
Biometric. The broker's warrants are exercisable at a price of $0.20 per
share in the first year and $0.23 per share in the second year.
- Biometric completed a $1,750,000 Private Placement on April 15, 1999. The
private placement consisted of 11,666,665 units, brokered on a best
efforts basis, at a price of $0.15 per unit for total proceeds of
$1,750,000. Each unit consisted of one common share and one two-year
non-transferable share purchase warrant. Each warrant is exercisable at a
price of $0.15 per share in the first year and $0.17 per share in the
second year. Remuneration paid to the broker for acting as agent
consisted of a 10% commission ($160,000) payable in cash and a two year
broker's warrant exercisable into (1,600,000) shares of Biometric. The
broker's warrants are exercisable at a price of $0.15 per share in the
first year and $0.17 per share in the second year.
- Biometric invested an additional US$ 625,000 in BII debentures.
- Biometric announced an Annual General Meeting of the shareholders, at
which time the shareholders will be asked to vote on Biometric's proposal
to continue to the Province of British Columbia and to
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<PAGE> 28
consolidate Biometric's share capital on the basis of one
post-consolidated share for each five pre-consolidated shares.
FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
Results of Operations
A $0.30 loss per share in the fiscal year ended December 31, 1998 resulted
from cash and short-term investment earnings of $159,118 less expenses of
$1,250,578 and mineral property write-offs of $4,592,237. This is compared to a
$0.13 loss per share in the fiscal year ended December 31, 1997 from cash and
short-term investment earnings of $175,185, expenses of $759,182, and mineral
property write-offs of $1,615,898.
Administrative costs in 1998 increased 67% over 1997, primarily as a result
of Biometric incurring increased professional fees and finders fees.
Liquidity and Capital Resources
During 1998 Biometric had a reduction in cash from operations, financing
and investments of $3,084,928. The loss for the year was $5,683,697, which
consisted largely of the write-down of mineral properties.
During 1998, Biometric completed a 3,375,000 unit private placement that
raised proceeds of $506,250 and a 660,000 unit private placement that raised
proceeds of $99,000. In addition, Biometric raised $23,000 from the exercise of
100,000 stock options. Biometric also issued 250,450 Common Shares at a deemed
value of $75,135 for finders fees in connection with the BII debentures.
During 1998, Biometric invested $3,557,230 (net of interest income of
$79,989) in BII debentures, disposed of equipment used in Argentina for proceeds
of $151,512 and recovered $185,335 of security deposits.
Balance Sheets
Total cash and short-term investments at December 31, 1998 were $245,182 as
compared to $3,330,110 at December 31, 1997 and working capital decreased to
$10,478 as at December 31, 1998 compared to $3,072,259 as at December 31, 1997.
The decrease in cash and working capital is largely attributable to Biometric's
investment of $3,637,219 (including interest of $79,989) in convertible
debentures of BII during the year.
Equipment and leasehold improvements totaled $60,758 at December 31, 1998
as compared to $248,213 at December 31, 1997. The decrease is a result of
Biometric selling off equipment in 1998.
Mineral properties totaled nil at December 31, 1998 as compared to
$4,670,516 at December 31, 1997. The decrease is a result of Biometric changing
its business from mineral exploration to its investment in Biometric
Identification Inc.
Share capital totaled $13,128,263 at December 31, 1998 as compared to
$12,387,691 at December 31, 1997. The increase is a result of Biometric issuing
shares for cash proceeds of $628,250 and shares for services having a value of
$112,322.
Shares subscribed totaled $660,592 at December 31, 1998 as compared to nil
at December 31, 1997 as investors had advanced Biometric $660,592 as funds
advanced for a private placement that was completed after the year-end.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Results of Operations
A $0.13 loss per share in the fiscal year ended December 31, 1997 resulted
from cash and short-term investment earnings of $175,185 less expenses of
$759,182 and mineral property write-offs of $1,615,898. This
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<PAGE> 29
is compared to a $0.14 loss per share in the fiscal year ended December 31, 1996
from cash and short-term investment earnings of $102,147, expenses of $826,609
and mineral property write-offs of $534,853.
Administrative costs in 1997 decreased 13% over 1996 as a result of
Biometric cutting back promotional, travel, consultants and other costs.
Liquidity and Capital Resources
During the year ended December 31, 1997, Biometric had an increase in cash
of $1,587,977 primarily as a result of its financing activities. The loss for
the year was $2,199,895, which consisted largely of the write-down of mineral
properties. During 1997, Biometric completed a special warrant placement of
5,000,000 units that raised net proceeds of $5,106,645 (see 1996 liquidity and
capital resources below). Biometric raised $184,000 from the exercise of 200,000
warrants, and $126,400 from the exercise of 120,000 options.
During 1997 Biometric incurred expenditures on mineral properties totaling
$3,033,103 and purchased equipment and leasehold improvements of $79,658.
Balance Sheets
Total cash and short-term investments at December 31, 1997 were $3,330,110
as compared to $1,742,133 (excluding $5,106,645 of cash in escrow) at December
31, 1996. Working capital decreased to $3,072,259 as at December 31, 1997
compared to $6,369,429 as at December 31, 1996. Share capital increased
primarily as a result of the closing of the 5,000,000 unit special warrant
offering announced in October 1996. Advances on share subscriptions decreased
from $5,106,645 to nil as a result of the completion of the 5,000,000 unit
special warrant financing.
Biometric expended a total of $3,171,103 of mineral property costs in
Argentina that was initially capitalized during 1997.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Results of Operations
A $0.14 loss per share in the fiscal year ended December 31, 1996 resulted
from cash and short-term investment earnings of $102,147 less expenses of
$826,609 and mineral property write-offs of $534,853. This is compared to a
$0.20 loss per share in the fiscal year ended December 31, 1995 from cash and
short-term investment earnings of $210,620, expenses of $606,230 and resource
property write-downs of $746,371.
Administrative costs in 1996 increased 36.4% over 1995 as a result of
Biometric's move to new office premises, the hiring of additional personnel,
advertising, promotional, exploration and travel costs incurred to support
Biometric's mineral projects.
Liquidity and Capital Resources
During the year ended December 31, 1996, Biometric increased its cash by
$99,492 primarily as a result of its financing activities which raised
$3,403,506 by private placements and the exercise of warrants and options.
The loss for the year was $1,259,315, which included a $534,853 write-off
of mineral properties.
On October 22, 1996, Biometric announced the private placement of 5,000,000
Special Warrants at an issue price of $1.10 per Special Warrant. Each Special
Warrant entitled the holder to acquire, without further consideration, one unit
comprising one common share and one-half of a share purchase warrant. Each whole
warrant entitled the holder to purchase one additional share at $1.30 per share
for a two year period. At December 31, 1996, Biometric held in escrow the
proceeds from the sale of Special Warrants of $5,106,645, net of commissions and
other offering costs, pending completion of a prospectus qualifying the common
shares and share purchase warrants for distribution.
26
<PAGE> 30
Biometric also granted the underwriters 250,000 special compensation
options as partial compensation for the placement of the Special Warrants. Each
special compensation option entitled the underwriter to acquire, without further
consideration, one compensation option. Each compensation option was exercisable
for one unit at a price of $1.10 per unit to January 31, 1999. Each unit
consists of one common share and one-half of a share purchase warrant, with each
whole warrant entitling the underwriter to purchase one additional share for
$1.30 per share to January 31, 1999.
In January 1997, Biometric issued the 5,000,000 shares and 5,000,000
one-half share purchase warrants upon exercise of the 5,000,000 Special
Warrants. Biometric also issued 250,000 compensation options to the underwriter
upon the exercise of 250,000 special compensation options. In addition, the net
proceeds from the sale of Special Warrants, together with interest earned
thereon, were released to Biometric.
Biometric received additional financing during 1996 from: the net proceeds
of $1,486,568 from three private placements during 1996 totaling 1,537,000
common shares; $1,828,138 from the exercise of 2,022,250 warrants; and $88,800
from the exercise of 110,000 options granted to employees.
During 1996 Biometric incurred expenditures on mineral properties totaling
$2,998,643, purchased equipment and leasehold improvements totaling $223,643.
Also during 1996, Biometric sold marketable securities for proceeds of $193,527
and paid a security deposit of $138,000.
Balance Sheets
Total cash and short-term investments at December 31, 1996 were $1,742,133
(excluding $5,106,645 of cash in escrow) as compared to $1,796,691 at December
31, 1995. Working capital increased to $6,369,429 as at December 31, 1996
compared to $1,935,574 as at December 31, 1995.
A total of $2,998,691 in mineral property costs were expended in Argentina
and initially capitalized during 1996.
During 1996 Biometric expended $223,643 on equipment and leasehold
improvements giving it a total of $257,743 in equipment net of depreciation at
December 31, 1996. This compares to $42,600 for equipment and leaseholds at
December 31, 1995.
At December 31, 1996 Biometric had $138,000 in a security deposit related
to a mineral property it was exploring in 1996.
At December 31, 1996 Biometric had accounts payable of $570,752 largely
related to the exploration work it was carrying out in South America.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to certain negative impacts on business systems
that could be caused by the arrival of the new millennium. Best known is the
possible inability of computer software to recognize the year 2000 as a date.
Unless the software is fixed, date-sensitive systems may begin to fail prior to
January 1, 2000.
Biometric does not expect to experience significant Year 2000 issues,
because it uses standard commercial programs and systems that have been designed
or upgraded to comply with requirements imposed by the transition into the next
millennium. Biometric is contacting its main suppliers to make sure that they
are also Year 2000 compliant, a process Biometric expects to complete by the
third quarter of 1999.
BII has evaluated the products and services that it offers, as well as its
information technology infrastructure, and has determined that they are Year
2000 compliant. BII's business involves integrating its products with those of
original equipment managers and value added resellers. If any of those companies
is not Year 2000 compliant, their product sales, and consequently BII's sales,
could drop. BII is contacting these companies to determine the state of their
Year 2000 compliance. BII expects to complete this process by the third quarter
of 1999.
27
<PAGE> 31
EXPERTS
Biometric's consolidated financial statements as of December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998
included in this Proxy Statement/Prospectus, have been so included in reliance
on the report of KPMG LLP, independent chartered accountants, given on the
authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Biometric has filed with the SEC a Registration Statement on Form S-4,
including amendments, under the Securities Act with respect to its Common Stock
as discussed herein. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement and its exhibits and
schedules. For further information about Biometric and its Common Stock, please
see the Registration Statement and the exhibits and schedules filed with it.
Statements contained in this Proxy Statement/Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete. In
each instance, we refer you to the copy of the contract or document filed as an
exhibit to the Registration Statement, and each such statement is qualified in
all respects by such reference.
Biometric files annual, quarterly and special reports and other information
with the SEC. You may read and copy any document filed by Biometric, including
the Registration Statement and its exhibits and schedules, at the SEC's Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information about its Public Reference Room.
These SEC filings are also available to the public at the SEC's web site at
"www.sec.gov."
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<PAGE> 32
INFORMATION CIRCULAR
BIOMETRIC SECURITY CORP.
SUITE 1940 - 400 BURRARD STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6C 3A6
(all information as at [MAY 31], 1999 unless otherwise noted)
PERSONS MAKING THE SOLICITATION
BIOMETRIC IS DELIVERING THIS INFORMATION CIRCULAR SO THAT ITS MANAGEMENT
MAY SOLICIT PROXIES OF SHAREHOLDERS FOR USE AT THE ANNUAL GENERAL MEETING OF
BIOMETRIC'S SHAREHOLDERS TO BE HELD ON FRIDAY, JULY 30, 1999 AT THE TIME AND
PLACE AND FOR THE PURPOSES SET FORTH IN THE ACCOMPANYING NOTICE OF MEETING.
While it is expected that the solicitation will be made primarily by mail,
proxies may be solicited personally or by telephone by Biometric directors,
officers and employees.
Biometric is paying for all costs of this solicitation.
APPOINTMENT AND REVOCATION OF PROXIES
The individuals named in the accompanying form of proxy are directors or
officers of Biometric. A SHAREHOLDER WISHING TO APPOINT SOME OTHER PERSON (WHO
NEED NOT BE A SHAREHOLDER) TO ATTEND AND ACT ON THE SHAREHOLDER'S BEHALF AT THE
MEETING HAS THE RIGHT TO DO SO, EITHER BY INSERTING THE PERSON'S NAME IN THE
BLANK SPACE IN THE PROXY AND STRIKING OUT THE TWO PRINTED NAMES, OR BY
COMPLETING ANOTHER PROXY. A Proxy will not be valid unless it is completed,
dated, signed and delivered to Pacific Corporate Trust Company, Suite 830 - 625
Howe Street, Vancouver, British Columbia, Canada V6C 3B8 no later than 48 hours
(excluding Saturdays, Sundays and holidays) before the Meeting, or is delivered
to the Chair of the Meeting prior to the Meeting.
A shareholder who has given a Proxy may revoke it in a writing signed by
the shareholder or by the shareholder's attorney authorized in writing or, if
the shareholder is a corporation, by a duly authorized officer or attorney of
the corporation, and delivered either to the registered office of Biometric
(Suite 1100, 1055 West Hastings Street, Vancouver, British Columbia, Canada V6E
2E9) at any time up to and including the last business day before the day of the
Meeting or to the Chair of the Meeting on the day of the Meeting.
A revocation of a Proxy does not affect any matter on which a vote has been
taken prior to the revocation.
EXERCISE OF DISCRETION
If the instructions in a Proxy are certain, the shares represented by the
proxy will be voted on any poll by the person(s) named in the Proxy. If a choice
with respect to any matter to be acted upon is specified in the Proxy, the
shares will be voted or withheld from voting in accordance with the
specifications so made.
IF A SHAREHOLDER NEGLECTS TO SPECIFY A CHOICE IN THE PROXY, HIS SHARES WILL
BE VOTED IN ACCORDANCE WITH THE NOTES TO THE PROXY.
The enclosed proxy, when completed and delivered and not revoked, confers
discretionary authority to vote on any amendments or variations of matters
identified in the Notice of Meeting and on other matters that may come before
the Meeting. At the time of this Information Circular, Biometric's management
does not know of any amendment, variation or other matter that may be presented
to the Meeting.
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<PAGE> 33
VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES
As at May 31, 1999, Biometric has issued and outstanding 45,767,743 [UPDATE
PRIOR TO MAILOUT TO SHAREHOLDERS] fully paid and non-assessable common shares
without par value, each share carrying the right to one vote. BIOMETRIC HAS NO
OTHER CLASSES OF VOTING SECURITIES.
Any shareholder of record at the close of business on June 25, 1999 who
either personally attends the Meeting or who has completed and delivered a Proxy
in the manner, subject to the provisions described above, shall be entitled to
vote or to have such shareholder's shares voted at the Meeting.
To the knowledge of Biometric's management, as of May 31, 1999, no person
beneficially owns more than five percent (5%) of any class of Biometric's voting
securities other than as set forth below. The following table sets forth the
total amount of any class of Biometric's voting securities owned by each of its
executive officers and directors and by its executive officers and directors, as
a group, as of May 31, 1999. [UPDATE PRIOR TO MAILOUT TO SHAREHOLDERS]
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS(1) OWNERSHIP(2) OF CLASS
------------------- ------------ ----------
<S> <C> <C>
Robert M. Kamm(3)........................................... -- --%
Chester Idziszek............................................ 335,000(4) *
William A. Rand............................................. 2,148,450(5) 4.6%
Wayne Johnstone............................................. 479,700(6) 1.0%
Saundra J. Zimmer........................................... 95,000(7) *
All executive officers and directors as a group (5
persons).................................................. 3,058,150(2) 6.4%(2)
</TABLE>
- ---------------
* Less than one percent.
(1) The address for each of these persons is Suite 1940, 400 Burrard Street,
Vancouver, British Columbia, Canada V6C 3A6.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares owned
by a person and the percentage ownership of that person, shares of common
stock subject to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of May 31, 1999, are deemed
outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person.
Biometric makes no representation that any of these options or warrants will
be exercised.
(3) Mr. Kamm succeeded Patrick McCleery as Biometric's President on May 31, 1999
and also became a Director of Biometric on that date. Mr. McCleery
beneficially owns 6,185,958 shares (12.5% of the class, calculated in
accordance with Note (2) above). These include currently exercisable options
and warrants, and options and warrants exercisable within sixty days hereof
to purchase an aggregate of 1,420,000 shares as to Mr. McCleery and
2,323,000 shares as to Mrs. McCleery, with respect to which Mr. McCleery
disclaims any beneficial ownership. They also include 1,283,000 shares
beneficially owned by Mrs. McCleery, with respect to which Mr. McCleery
disclaims any beneficial ownership. Biometric makes no representation that
any of these options or warrants will be exercised.
(4) Includes currently exercisable options and options exercisable within sixty
days hereof to purchase an aggregate of 285,000 shares. Biometric makes no
representation that any of these options will be exercised.
(5) Includes currently exercisable options and options exercisable within sixty
days hereof to purchase an aggregate of 285,000 shares. Also includes
901,950 shares and, in addition, warrants currently exercisable to purchase
961,500 shares, beneficially owned by Rand Edgar Capital Corp., a private
British Columbia company, which is owned by the wives of Mr. Rand and Brian
Edgar and of which Mr. Rand was a director, with respect to which Mr. Rand
disclaims any beneficial ownership. Biometric makes no representation that
any of these options or warrants will be exercised.
(6) Includes currently exercisable options and warrants, and options and
warrants exercisable within sixty days hereof to purchase an aggregate of
291,050 shares. Also includes 10,000 shares owned by
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<PAGE> 34
Mrs. Johnstone, with respect to which Mr. Johnstone disclaims any beneficial
ownership. Biometric makes no representation that any of these options or
warrants will be exercised.
(7) Includes currently exercisable options and options exercisable within sixty
days hereof to purchase an aggregate of 95,000 shares. Ms. Zimmer does not
own any shares of Biometric's common stock. Biometric makes no
representation that any of these options will be exercised.
To the knowledge of Biometric's management, there are no arrangements whose
operation may at a subsequent date result in a change of control of Biometric.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
If you want to present a proposal at the Annual General Meeting of
Shareholders in 2000, we must receive your proposal by January 31, 2000, so we
can consider it for inclusion in Biometric's proxy statement and form of proxy
relating to that Meeting. Please send your proposals to Biometric's Corporate
Secretary, at Biometric's address: Suite 1940, 400 Burrard Street, Vancouver,
British Columbia, Canada V6C 3A6.
EXECUTIVE COMPENSATION
Set out below are particulars of compensation paid to the following persons
(the "Named Executive Officers"):
(a) Biometric's chief executive officer;
(b) each of Biometric's four most highly compensated executive officers
who were serving as executive officers at the end of the most recently
completed fiscal year and whose total salary and bonus exceeds US$
100,000 per year; and
(c) any additional individuals for whom disclosure would have been
provided under (b) except that the individual was not serving as an
executive officer of Biometric at the end of the most recently
completed fiscal year.
On December 31, 1998, the end of its last full fiscal year, Biometric had
one Named Executive Officer, Patrick W. McCleery, then the Chairman of the
Board, President and a director of Biometric. Accordingly, the only person
treated in the following charts is Mr. McCleery.
SUMMARY OF COMPENSATION
The following table is a summary of compensation paid to Mr. McCleery
during Biometric's last three fiscal years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
RESTRICTED
SHARES
SECURITIES OR
FISCAL OTHER ANNUAL UNDER RESTRICTED
NAME AND YEAR COMPENSATION OPTIONS SHARE LTIP ALL OTHER
POSITION OF PRINCIPAL ENDING SALARY BONUS (CDN. $)(1) GRANTED UNITS PAYOUTS COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PATRICK W. MCCLEERY 1998 0 0 $120,059 420,000 0 N/A 0
Chairman of the Board and 1997 0 0 $127,122 0 0 N/A 0
President 1996 0 0 $117,196 359,761 0 N/A 0
</TABLE>
(1) Other annual compensation included consulting fees in connection with Mr.
McCleery's managerial activities, and corporate finance advisory fees paid
to Mr. McCleery.
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<PAGE> 35
LONG-TERM INCENTIVE PLANS -- AWARDS IN MOST RECENTLY COMPLETED FISCAL YEAR
Biometric has no long-term incentive plan in place. A "Long-Term Incentive
Plan" is a plan under which awards are made based on performance over a period
longer than one fiscal year. It is different from a plan for options, SARs
(stock appreciation rights) or restricted share compensation.
OPTIONS/SARS GRANTED DURING THE MOST RECENTLY COMPLETED FISCAL YEAR
During its last fiscal year Biometric granted the following incentive stock
options to Mr. McCleery . Biometric did not grant any SARs (stock appreciation
rights) during this period.
<TABLE>
<CAPTION>
MARKET VALUE
OF SECURITIES
UNDERLYING
SECURITIES % OF TOTAL OPTIONS ON
UNDER EXERCISE OR OPTIONS THE DATE OF
OPTIONS BASE PRICE GRANTED TO GRANT (CDN$/
DATE OF GRANTED (CDN$/ EMPLOYEES IN SECURITY)
NAME GRANT (#) SECURITY) FISCAL YEAR (1) EXPIRATION DATE
<S> <C> <C> <C> <C> <C> <C>
PATRICK W. MCCLEERY Jan. 28, 1998 420,000 $0.23 23.5% $0.23 January 28, 2001
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
OPTION TERM
NAME 5%($) 10%($)
<S> <C> <C>
PATRICK W. MCCLEERY $9,950 $20,286
</TABLE>
(1) Calculated as the closing price of Biometric's shares on the Vancouver Stock
Exchange on the date of the grant.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY
COMPLETED FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
The following table sets out incentive stock options exercised by Mr.
McCleery during the last fiscal year, as well as the fiscal year end value of
stock options held by him. During this period, he held no outstanding SARs.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SECURITIES AGGREGATE UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE FISCAL YEAR-END FISCAL YEAR-END ($)
EXERCISE REALIZED (CDN$) EXERCISABLE/UNEXERCISABLE EXERCISABLE/
NAME (#) (1) (#) UNEXERCISABLE (2)
<S> <C> <C> <C> <C>
PATRICK W. MCCLEERY 0 0 420,000/0 0/0
</TABLE>
(1) Based on the difference between the option exercise price and the closing
market price of Biometric's shares, on the date of exercise.
(2) In-the-Money Options are those where the market value of the underlying
securities as at the most recent fiscal year end exceeds the option exercise
price. The closing market price of Biometric's shares on December 31, 1998
(i.e., fiscal year end) was Cdn.$0.18.
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS
Effective May 31, 1999, Patrick McCleery resigned as Chairman, President
and a director of Biometric. Mr. McCleery and Biometric have made an agreement,
dated May 31, 1999, that Mr. McCleery will be paid $4,000 per month plus
severance pay of $6,000 per month, plus benefits and stock options as determined
by the Board of Directors. This agreement expires on June 30, 2001. There are no
employment contracts between Biometric and any of its officers. Biometric has no
defined benefit or actuarial plans.
COMPENSATION OF DIRECTORS
Mr. McCleery's compensation was disclosed above. Biometric did not pay any
cash compensation to any other Biometric director for his services as a director
during the fiscal year ended December 31, 1998.
Biometric has no standard arrangement to compensate directors for their
services in their capacity as directors except for the granting from time to
time of incentive stock options in accordance with the policies of the Vancouver
Stock Exchange. During the last fiscal year, Biometric granted its directors,
other than Mr. McCleery, incentive stock options to purchase a total of 665,000
Biometric common shares. It granted 285,000 to William Rand, 285,000 to Chester
Idziszek, and 95,000 to Wayne Johnstone. These options are exercisable up to the
close of business on January 28, 2001 (sometimes referred to as an "expiry
date").
All of the existing stock options are non-transferable and terminate on the
earlier of the expiry date or the 30th day after the date on which the director,
officer or employee, as the case may be, terminates his position
32
<PAGE> 36
at Biometric. If a director is forced to resign or is removed by special
resolution, or if a senior officer or other employee is fired for cause, his
options expire on the day of removal or firing.
The outstanding options will be adjusted if Biometric consolidates,
subdivides or similarly changes its share capital.
During the fiscal year ended December 31, 1998 Biometric paid $56,561 to
Rand Edgar Investment Corp. and Wayne Johnstone for consulting fees. Rand Edgar
Investment Corp. is owned equally by William A. Rand, a director of Biometric,
and Brian Edgar.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Biometric has no committee that performs the function of a compensation
committee. None of Biometric's officers or directors serves on a committee
making compensation decisions of any other entity. Directors generally
participate in compensation-related matters.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Biometric currently has no compensation committee, nor is any compensation
program in place for the executive officers of Biometric.
Biometric's President determines the compensation paid to the Corporate
Secretary. The Board of Directors determines the President's compensation.
PERFORMANCE GRAPH
The graph below compares the five-year cumulative total return (assuming
$100 invested on December 31, 1993) of Biometric's Common Stock to the Vancouver
Stock Exchange Index.
<TABLE>
<CAPTION>
BIOMETRIC SECURITY VSE COMPOSITE PMT
------------------ -----------------
<S> <C> <C>
12/31/1993 100.00 100.00
12/30/1994 150.00 72.00
12/29/1995 200.00 75.00
12/31/1996 293.00 112.00
12/31/1997 45.00 58.00
12/31/1998 28.00 37.00
</TABLE>
33
<PAGE> 37
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
Except as disclosed below, since the start of the last completed fiscal
year, no insider of Biometric, nominee for director, or any associate or
affiliate of an insider or nominee, had any material interest, direct or
indirect, in any transaction or any proposed transaction which has materially
affected or would materially affect Biometric.
Effective May 31, 1999, Patrick McCleery resigned as Chairman, President
and a director of Biometric. Mr. McCleery and Biometric have made an agreement,
dated May 31, 1999, that Mr. McCleery will be paid $4,000 per month plus
severance pay of $6,000 per month, plus benefits and stock options as determined
by the Board of Directors. This agreement expires on June 30, 2001.
In June 1998, Biometric agreed to acquire an interest in Biometric
Identification, Inc., a private California corporation. The BII acquisition was
arranged by Rand Edgar Capital Corp., a private company controlled by the
spouses of Brian Edgar and William Rand. Mr. Rand is a director of Biometric.
RECC originally entered into a memorandum of understanding with BII and with
Arete Associates, a private California company, dated March 18, 1998, amended
and replaced May 20, 1998. RECC assigned its interest in the amended memorandum
to Biometric on May 21, 1998 in exchange for a fee of US$ 145,000, plus
reimbursement of its expenses. As of June 12, 1998, RECC elected to take its fee
in the form of 715,575 common shares of Biometric to be issued at a price of
$0.30 per share (for a total value of US$ 145,000) Biometric's closing stock
price on the VSE on June 12, 1998, was $0.28. These shares were to be issued in
pro rata tranches in accordance with the tranche advances being made by
Biometric to BII. These finders fee shares were actually issued in the form of
special warrants at a price of $0.30 per special warrant. Each special warrant
is exercisable without the payment of any additional consideration into one
common share of Biometric. RECC elected to take shares valued at US$ 145,000
instead of cash in order to help Biometric conserve its cash. "Special warrants"
can be converted to shares at the holder's option. As at December 31, 1998,
Biometric had issued 250,450 shares to RECC under the terms of this agreement.
For further information about this acquisition, please see "The
Company -- Description of Business", below.
During 1998, RECC loaned Biometric a total of $250,000. The loan is
unsecured and was due on December 26, 1998. A total of $99,225 of the loan was
repaid on December 29, 1998, and the balance of the loan of $150,775 was repaid
after December 31, 1998. Biometric also allotted 65,789 shares at a deemed price
of $0.19 per share at December 31, 1998, as allowed for under the rules of the
Vancouver Stock Exchange, as consideration for the loan. Biometric's closing
stock price on the VSE on December 31, 1998, was $0.17.
Pursuant to a private placement completed on January 29, 1999. Patrick
McCleery and Wayne Johnstone and RECC and Wendy McCleery participated in the
offering of units at $0.15 per unit. Each unit consisted of one common share and
one non-transferable share purchase warrant, and each warrant was exercisable
for a period of two years at a price of $0.15 in the first year and $0.17 in the
second year. Mr. McCleery subscribed for 500,000 units, Mr. Johnstone for 96,050
units, Mrs. McCleery for 823,000 units and RECC for 661,500 units. Biometric's
closing stock price on the VSE on January 29, 1999, was $0.20.
Pursuant to a private placement completed on April 15, 1999, Patrick
McCleery and Wendy McCleery participated in an offering of units at $0.15 per
unit. Each unit consisted of one common share and one non-transferable share
purchase warrant, and each warrant was exercisable for a period of two years at
a price of $0.15 in the first year and $0.17 in the second year. Mr. McCleery
subscribed for 500,000 units and Mrs. McCleery for 500,000 units. Biometric's
closing stock price on the VSE on April 15, 1999, was $0.25.
Pursuant to a private placement completed on May 15, 1998, Wendy McCleery,
Wayne Johnstone and RECC participated in an offering of special warrants at a
price of $ 0.15 per special warrant. Each warrant was exchangeable, at no
additional cost, into one common share and one non-transferable share purchase
warrant that was exercisable for a period of two years at a price of $0.15 in
the first year and $0.17 in the second year. Mrs. McCleery subscribed for
1,000,000 special warrants, RECC subscribed for 300,000 special warrants and Mr.
Johnstone subscribed for 100,000 special warrants. Biometric's closing stock
price on the VSE on May 15, 1998, was $0.22.
During the fiscal year ended December 31, 1998, Biometric paid a total of
$56,561 to Rand Edgar Investment Corp. and Wayne Johnstone for consulting fees.
Rand Edgar Investment Corp. is owned equally
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<PAGE> 38
by William A. Rand, a director of Biometric, and Brian Edgar. Also during that
fiscal year, Biometric paid $120,059 in consulting fees to Patrick McCleery.
Please see "Executive Compensation -- Summary of Compensation." The terms of
these consulting arrangements were as fair to Biometric as those that Biometric
could have obtained from unrelated third parties and arm's-length negotiation.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No person has any material interest, direct or indirect, by way of
beneficial ownership of securities or otherwise, in matters to be acted upon at
the Meeting. The term "person" includes each person: (a) who has been a
director, senior officer or insider of Biometric at any time during and after
Biometric's last fiscal year; (b) who is a proposed nominee for election as a
director of Biometric; or (c) who is an associate or affiliate of a person
included in subparagraphs (a) or (b).
NUMBER OF DIRECTORS
Management of Biometric is seeking shareholder approval of a resolution
fixing the number of directors of Biometric at four for the ensuing year.
Approval of this resolution requires the vote of a majority of the shareholders
entitled to vote at the Meeting.
ELECTION OF DIRECTORS
The term of office of each of the present directors expires at the Meeting.
BIOMETRIC'S MANAGEMENT WILL PRESENT THE PERSONS NAMED BELOW AS THE NOMINEES FOR
ELECTION AT THE MEETING. Management believes that each of these nominees will be
able to serve as a director. Each director elected will hold office until
Biometric's next annual general meeting or until his or her successor is elected
or appointed, unless his or her office is earlier vacated in accordance with the
Articles of Biometric or with the provisions of the Wyoming Business Corporation
Act.
The following table contains useful information about the nominees.
<TABLE>
<CAPTION>
COMMON SHARES
HELD (DOES NOT
NAME, AGE, OCCUPATION(1), PRESENT POSITION(S) DATE(S) SERVED INCLUDE OPTIONS
RESIDENT COUNTRY(2) WITH BIOMETRIC AS A DIRECTOR OR WARRANTS)(2)
<S> <C> <C> <C>
Robert M. Kamm, 42(3) President and Director Since May 31, 1999 None
Business Executive
U.S.A.
Chester Idziszek, 51 Director Since March 1, 1995 50,000
Business Executive
Canada
William A. Rand, 56(3) Director Since November 1, 1995 901,950(4)
Business Executive
Canada
Wayne Johnstone, 44(3) Director Since June 30, 1998 188,650
Chartered Accountant
Canada
</TABLE>
(1) Each nominee not elected at the last annual general meeting has held the
principal occupation or employment for at least five years.
(2) Biometric relies on the nominees for information as to country of residence,
principal occupation and number of shares beneficially owned by the nominees
(directly or indirectly or over which control or direction is exercised).
(3) Members of Biometric's Audit Committee.
(4) These shares are held by Rand Edgar Capital Corp., a private British
Columbia company of which Mr. Rand had been a director, but is not a
shareholder.
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The employees and consultants forming Biometric's management team and
directors and their resumes are described briefly below.
Robert Kamm, President and Director
Mr. Kamm, age 42, has been President of Biometric since May 31, 1999 and a
Director since that date. He is also Chief Executive Officer and a Director of
BII. He has served BII in those capacities since March 1998. Mr. Kamm is an
experienced technology entrepreneur and has started two previous technology
companies. From May 1997 to March 1998, Mr. Kamm was Chief Operating Officer and
Chief Financial Officer of VideoActive Corp. From January 1996 to May 1997, he
was Senior Vice President of Monument Mortgage, and from June 1994 to June 1995
he was President of Online Mortgage Documents. Prior to obtaining his M.B.A.,
Mr. Kamm was employed by General Motors Corporation's fuel systems division in
manufacturing engineering management. In this role, Mr. Kamm was responsible for
divisional investment planning and was also integrally involved in the
development of GM's fuel injection product line. Mr. Kamm received a B.S. degree
in Economics and Marketing from Alfred University in 1979, and received an
M.B.A. in Finance from the University of California (Los Angeles) in 1985.
Chester Idziszek, Director
Mr. Idziszek, age 51, is a Director of Biometric. Mr. Idziszek devotes
approximately 10% of his time to Biometric. Mr. Idziszek has served Biometric in
this capacity since March 1, 1995. Mr. Idziszek is also the President and CEO
and a director of Adrian Resources Ltd., and a director of: Oromine Explorations
Ltd., Braddick Resources Ltd., Cross Lake Minerals Ltd., Fresco Developments
Ltd. and Norcan Resources Ltd. He is also President and a director of Madison
Enterprises Corporation, Buffalo Diamonds Ltd., Hyperion Resources Corp. and
Maracote International Resources Inc. (formerly, Cherry Lane Fashion Group). He
was a director of Arequipa Resources Ltd. between July 1993 and August 1996. In
addition, from 1990 to 1992, he was the Chief Executive Officer, President and a
Director of Prime Equities International Corporation. Mr. Idziszek was also
President of Prime Explorations Ltd. from 1987 to 1990. In addition, he has been
a director and/or officer of numerous other junior mining and resource companies
trading on the Vancouver Stock Exchange (these companies include Image Data
International, La Plata Gold Corporation, Barrier Technology, Haddington
Resources Ltd., Arlo Resources Ltd., Minamerica Corporation and Waseco Resources
Inc.) Of these companies, Adrian Resources Ltd., Madison Enterprises Corporation
and Maracote International Resources Inc. each have a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934. Mr.
Idziszek has a B.Sc. (Geology) degree from University of Waterloo (1971) and an
M.Sc. (Appl. Min. Expl.) degree from the University of Waterloo.
William A. Rand, Director
Mr. Rand, age 56, is a Director of Biometric. Mr. Rand devotes
approximately 10% of his time to Biometric. Mr. Rand has served Biometric in
this capacity since November 1, 1995. Mr. Rand is a Director of Rand Edgar
Investment Corp., an investment firm in Vancouver, B.C. which provides advisory
services to Biometric. Prior to that, Mr. Rand was a partner in a law firm and
practiced securities law. Mr. Rand currently sits on the board of a number of
publicly traded mineral resource companies (these companies include Citation
Resources Inc., Consolidated Team Resources Corp., Dome Ventures, Inc.,
Broadlands Resources Corp., International Curator Resources Ltd., International
Uranium Corp., Lexacal Investment Corp., Lundin Oil AB, Red Sea Oil Corporation,
Santa Catalina Mining Corp., South Atlantic Resources Corp., Tanganyika Oil Co.
Ltd., and Tenke Mining Corp.). Of the companies for which Mr. Rand is a
director, Broadlands Resources Ltd., International Curator Resources Ltd.,
International Uranium Corp., Lundin Oil AB and Tenke Mining Corp. each have a
class of securities registered under Section 12 of the Exchange Act. Mr. Rand
has considerable expertise in organizing and managing emerging public mineral
resource exploration companies. Mr. Rand has a B.Comm. degree from McGill
University (1963), an LLB degree from Dalhousie University (1966) and an LLM
degree from the London School of Economics (1977).
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<PAGE> 40
Wayne Johnstone, Director
Mr. Johnstone, age 44, is a Director of Biometric. Mr. Johnstone devotes
approximately 70% of his time to Biometric. Mr. Johnstone has served Biometric
in this capacity since June 30, 1998 and was a Director of Biometric's
predecessor, Sonoma Resource Corp., from August, 1989 to November, 1995. Mr.
Johnstone is a self-employed chartered accountant providing consulting and
accounting services to various publicly traded companies. Prior to that Mr.
Johnstone served as a senior accountant for Viceroy Resource Corp. and
controller of Baja Gold Inc. (a company which merged with Viceroy Resource
Corp.) from February, 1994 to December, 1996. Prior to that Mr. Johnstone served
as an accountant for Weston Mineral Services Ltd., a private British Columbia
company. Mr. Johnstone has a B.Comm. degree from The University of British
Columbia (1978).
Saundra Zimmer, Secretary
Ms. Zimmer, age 36, is the Secretary of Biometric and is employed by
Biometric on essentially a full time basis. Ms. Zimmer devotes approximately 75%
of her time to Biometric. Ms. Zimmer has served Biometric as Secretary since
June 21, 1995 and was previously Secretary of Biometric from August 1989 and May
1993. Ms. Zimmer has been the Administrative Assistant of Biometric since August
1, 1995 and before that from 1986 and 1990. From 1990 to 1995, she was the
Administrative Assistant of Rich Coast Resources Ltd. She has been a director of
Alantra Venture Corp. since March 1998, and Corporate Secretary of Kaieteur
Resource Corporation since November 1, 1995.
INDEBTEDNESS OF DIRECTORS, EXECUTIVE AND SENIOR OFFICERS
During the last completed fiscal year, no director, executive officer,
senior officer or nominee for director of Biometric or any of their associates
has been indebted to Biometric or any of its subsidiaries, nor has any of these
individuals been indebted to another entity which indebtedness is the subject of
a guarantee, support in agreement, letter of credit or other similar arrangement
or understanding provided by Biometric or any of its subsidiaries.
APPOINTMENT AND REMUNERATION OF AUDITOR
Shareholders will be asked to approve the appointment of KPMG LLP,
Chartered Accountants, as Biometric's auditor to hold office until the next
annual general meeting of the shareholders at a remuneration to be fixed by the
directors. KPMG was first appointed auditor of Biometric on June 12, 1984.
SPECIAL BUSINESS
INCENTIVE STOCK OPTIONS
Director, officer and employee stock options (commonly referred to as
incentive stock options) are a means of rewarding future services provided to
Biometric and are not intended as a substitute for salaries or wages or as a
means of compensation for past services rendered.
Management proposes to present to the shareholders at the Meeting a
resolution to grant to Biometric's directors, officers, employees and
consultants incentive stock options to purchase Biometric common shares, for
such periods, in such amounts and at such prices per share as the board of
directors may agree upon, all in accordance with the regulatory bodies and stock
exchanges having jurisdiction over Biometric. Approval of this resolution
requires a majority vote of the shareholders entitled to vote at the Meeting.
The Vancouver Stock Exchange requires that a company receive the approval of its
shareholders prior to the exercise of the incentive stock options granted to its
insiders.
For the form of resolution being proposed for the grant of incentive stock
options, see Appendix I attached to this Information Circular.
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<PAGE> 41
CONSOLIDATION (REVERSE STOCK SPLIT) OF SHARE CAPITAL
GENERAL
Management will present to the shareholders at the Meeting a resolution to
consolidate its share capital as described below. Approval of this resolution
requires a majority vote of the shareholders entitled to vote at the Meeting.
Management would like the consent of the shareholders to not proceed with the
consolidation (even if the resolution for the consolidation is passed by the
shareholders at the Meeting) if management subsequently concludes that it would
not be in the best interests of Biometric to proceed with the consolidation.
Approval of the resolution by the shareholders will authorize Biometric to
consolidate its issued share capital on the basis of one new common share
without par value for every existing five common shares without par value. Thus,
the principal effect of the consolidation will be to decrease to one-fifth
( 1/5) the number of issued and outstanding shares. As the consolidation only
affects Biometric's issued share capital, it will have no effect on Biometric's
authorized share capital.
Management believes that a reverse stock split, and resulting share price
increase, may improve investors' perception of Biometric stock. Biometric's
stock currently trades in the $.20 - $.30 range, and this may be a disincentive
for investors, particularly institutional investors, to purchase the stock since
these investors typically focus on higher-priced stocks. Institutional
shareholders are an important part of Biometric's shareholder base. Biometric
does not know exactly how much Biometric stock is owned by institutions, since
many stockholders typically do not hold stock in their own names. However, based
on management's knowledge of the buyers in Biometric's recent stock issuances,
management believes that at a significant portion of the purchasers were
institutional investors.
On May 31, 1999, the total number of Biometric's issued and outstanding
shares is 45,767,743 [UPDATE PRIOR TO MAILOUT TO SHAREHOLDERS.] Since there are
currently 31,373,331 stock options and warrants outstanding, the total of
Biometric's issued and outstanding shares at the date of the consolidation may
be different than the total on the date of this Information Circular. The shares
of Biometric subject to outstanding options and warrants at the date of the
approval of the consolidation will also be proportionately reduced.
On June 23, 1999, the closing price of Biometric's common shares trading on
the Vancouver Stock Exchange was $0.22 per share. After the consolidation the
market will adjust the market price of the shares. Theoretically, the share
price should increase by five times. However, experience shows that the share
price usually settles at some price less than the consolidation multiple times
the then current market price.
For the form of resolution being proposed for the reverse stock split, see
Appendix I attached to this Information Circular.
MATERIAL TAX CONSEQUENCES OF THE CONSOLIDATION (REVERSE STOCK SPLIT)
The following is a summary of the United States federal income tax
consequences of the Reverse Stock Split based on current law, including the
United States Internal Revenue Code of 1986, as amended, and is for general
information only. The tax treatment of a shareholder may vary depending upon the
particular facts and circumstances of such shareholder. Certain shareholders,
including insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, non-resident aliens, foreign corporations and persons who do not
hold common shares of Biometric as a capital asset, may be subject to special
rules not discussed below.
THIS SUMMARY OF U.S. TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND
IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE
TO ANY HOLDER OR PROSPECTIVE HOLDER OF BIOMETRIC'S COMMON SHARES. ACCORDINGLY,
HOLDERS AND PROSPECTIVE HOLDERS OF BIOMETRIC'S COMMON SHARES SHOULD CONSULT
THEIR OWN TAX ADVISORS ABOUT THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES OF THE CONSOLIDATION.
The receipt of new common shares (excluding fractional shares) in the
reverse stock split should be a non-taxable transaction under the Code for
federal income tax purposes. Consequently, a shareholder receiving new common
shares should not realize either gain or loss, or any other type of income as a
result of the reverse stock split. In addition, the aggregate tax basis of such
shareholder's common shares prior to the
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<PAGE> 42
reverse stock split will carry over in computing the tax basis of the
shareholder's new common shares. Each shareholder must allocate his cost basis
in his common shares ratably among the aggregate of (i) total number of new
common shares owned following the reverse stock split and (ii) any fractional
share.
TRANSFER OF DOMICILE TO BRITISH COLUMBIA
INTRODUCTION
Biometric was incorporated under the British Columbia Company Act. On
November 10, 1998, it transferred its domicile to the State of Wyoming, U.S.A.,
changed its name to Biometric Security Corp. and adopted Wyoming Articles of
Continuance. On November 12, 1998, Biometric increased its authorized capital to
an unlimited number of common shares.
Management is proposing to transfer Biometric out of the State of Wyoming
into British Columbia, the result of which will be that Biometric will cease to
be a Wyoming corporation governed by the provisions of the Wyoming Business
Corporation Act and will become a company governed by the provisions of the
British Columbia Company Act. The transfer is subject to regulatory approval.
To effect the transfer under Wyoming law, Biometric's shareholders must
adopt a resolution by two thirds ( 2/3) or more of the shareholders entitled to
vote at the Meeting. In addition, Biometric must post a US$ 50,000 surety bond
or deposit of such amount in an appropriate Wyoming depository for six months,
furnish the Wyoming Secretary of State with audited financial statements
certified by an independent certified public accountant with an office in the
United States, publish a public notice in Wyoming as to the proposed transfer to
British Columbia for the protection of creditors and minority stockholders, and
pay a special toll charge to the Wyoming Secretary of State of an amount based
on the net value of Biometric's assets.
To effect the continuation under the laws in British Columbia, Biometric
will file an instrument of continuation with the British Columbia Registrar of
Companies. The instrument of continuation includes the Memorandum and Articles
which will become Biometric's new charter documents, the equivalent of which
under Wyoming law are Articles and By-Laws, respectively. The transfer will be
effective on the date the Wyoming Secretary of State issues a certificate of
transfer transferring Biometric to British Columbia and the issuance by the
British Columbia Registrar of Companies a Certificate of Continuance. The
effective date of the continuation is proposed to be on or about August 3, 1999.
Management would also like the consent of the shareholders not to proceed
with the transfer (even if passed by the shareholders at the Meeting) and
management subsequently concludes that it would not be in the best interests of
Biometric to proceed with such matters.
For the form of resolution being proposed for the transfer, see Appendix I
attached to this Information Circular.
A copy of the instrument of continuation, which includes a copy of the
proposed new British Columbia Memorandum and Articles, may be reviewed at the
offices of Biometric's solicitors, Catalyst Corporate Finance Lawyers, 1100 -
1055 West Hastings Street, Vancouver, British Columbia, V6E 2E9. A copy may also
be obtained from Biometric upon request.
The transfer to British Columbia will not result in any change of
Biometric's business, assets, liabilities, net worth or management, nor will it
impair the rights of any creditors of Biometric. A particular shareholder's
holdings will not change. The transfer is not, in itself, a reorganization,
amalgamation or merger.
The major purpose of Biometric's proposal to transfer its domicile of
incorporation from Wyoming, U.S.A. to British Columbia, Canada is to enable
Biometric to have its affairs governed by the law of the jurisdiction in which
its principal trading market is located. Biometric's shareholders are primarily
located in Canada, and Biometric expects that most of its financing efforts will
be based in Canada as well as other non-U.S. jurisdictions. At Biometric's
present stage of development, the costs outweigh the benefits of access to U.S.
capital markets. The transfer to British Columbia will provide Biometric with
greater ease in securing financing for, among other things, Biometric's
acquisition of Biometric Identification, Inc. ("BII") which was approved by
Biometric's shareholders at the Annual General Meeting held on June 30, 1998.
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<PAGE> 43
Moreover, upon reconsideration of Biometric's recent transfer to Wyoming,
management believes that dual compliance with Canadian and U.S. securities laws
is expensive. Since Biometric has no present intention to terminate its
Vancouver Stock Exchange listing, management wants to reduce costs by
transferring its domicile from the U.S. to Canada.
THE PROVISIONS OF THE BRITISH COLUMBIA COMPANY ACT ("BCCA") AND THE WYOMING
BUSINESS CORPORATIONS ACT ("WBCA")
On the completion of the transfer, Biometric will be a British Columbia
corporation subject to the provisions of the BCCA. The following is a discussion
of the material provisions of the BCCA, as well as a discussion of the material
provisions of Biometric's new British Columbia Articles. This discussion
includes, where relevant, a summary of certain differences between the BCCA and
the WBCA. However, the following summary is not intended to be exhaustive and
its focus is primarily upon shareholder rights and safeguards. NOTHING THAT
FOLLOWS SHOULD BE CONSTRUED AS LEGAL ADVICE TO ANY PARTICULAR SHAREHOLDER OF
BIOMETRIC AND SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN LEGAL ADVISORS
RESPECTING ALL OF THE IMPLICATIONS OF THE TRANSFER TO BRITISH COLUMBIA.
THE CONSTATING DOCUMENTS
The constating documents are the constitution of a company which set out
the corporate governance procedures for the management of a company's affairs.
Under the WBCA, a Wyoming corporation is required to have constating documents
made up of Articles and By-Laws. Under the BCCA, a British Columbia corporation
is required to have constating documents made up of a Memorandum and Articles.
Biometric's existing Articles set forth its name and authorized share capital
and will be replaced by Biometric's new Memorandum. The new Articles will
prescribe the corporate governance procedures such as how directors' and
shareholders' meetings are held, how the books and records must be maintained,
how Biometric must conduct its corporate affairs, etc.
AMENDMENTS TO CONSTATING DOCUMENTS
Both the BCCA and the WBCA require shareholders to approve substantive
changes to the constating documents of a corporation. However, the requisite
majority of votes necessary to approve substantive changes to the constating
documents under the BCCA is 75% (3/4) of the votes cast whereas under the WBCA a
simple majority of shareholders entitled to vote on the proposed resolution is
required. In the case of certain fundamental changes, such as the alteration of
special rights and restrictions attached to issued shares or a proposed
amalgamation or continuation to another jurisdiction, a resolution similarly
approved by each class of shares is also required.
SHARE CAPITAL
Upon the completion of the transfer and the adoption of the proposed new
Memorandum and Articles, Biometric's authorized share capital will consist of
one hundred million (100,000,000) common shares without par value. The company
will continue to have only one kind and class of shares and there will be no
changes to the current rights or restrictions attached to these shares. All of
the current issued and outstanding common shares of Biometric will be retained
without any further action by the shareholders.
All of the common shares of Biometric will rank equally as to voting
rights, participation in a distribution of the assets of Biometric on a
liquidation, dissolution or winding-up of Biometric and the entitlement to
dividends. The holders of the common shares will be entitled to receive notice
of all meetings of shareholders and to attend and vote the shares at the
meetings. Each common share continues to carry with it the right to one vote.
In the event of the liquidation, dissolution or winding-up of Biometric or
other distribution of its assets, the holders of the common shares will be
entitled to receive, on a pro rata basis, all of the assets remaining after
Biometric has paid out its liabilities. Distribution in the form of dividends,
if any, will be set by the board of directors.
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Provision as to the modification, amendment or variation of the rights
attached to the common shares of Biometric will be contained in Biometric's new
Articles and the BCCA. Generally speaking, substantive changes to the share
capital require the approval of the shareholders by a resolution adopted by at
least 75% of the votes cast.
APPOINTMENT OF DIRECTORS
Under the BCCA and Biometric's proposed new Articles, the directors of
Biometric will be elected by the shareholders at each annual general meeting and
typically hold office until the next annual general meeting at which time they
may be re-elected or replaced. The new Articles will permit the directors to
appoint directors to fill any vacancies that may occur on the board. The
Articles will also permit the directors to add additional directors to the board
between successive annual general meetings so long as the number appointed does
not exceed more than 30% of the number of directors appointed at the last annual
general meeting. Individuals appointed as directors to fill vacancies on the
board or added as additional directors hold office like any other director until
the next annual general meeting at which time they may be re-elected or
replaced. A director may be removed between annual meetings by way of a
resolution adopted by at least 75% of the votes cast at a meeting of the
shareholders called for that purpose.
MANAGEMENT
The board of directors are responsible for the overall management of
Biometric. However, they are permitted to delegate much of their responsibility
to Biometric's officers and employees and to committees formed by the board.
Under the BCCA, Biometric must have, at a minimum, a President and a Secretary
who must not be the same individual. As a "reporting issuer" in British
Columbia, Biometric will continue to be required to have an audit committee.
The directors and senior officers are required, under the BCCA, to act
honestly, in good faith and with a view to the best interests of Biometric. The
directors have a fiduciary responsibility to Biometric and they are required to
disclose conflicts of interests.
RIGHTS OF SHAREHOLDERS
In addition to the voting, dividend and liquidation rights attached to the
common shares as described under "Share Capital" above, the BCCA affords
shareholders certain rights such as the right to call a shareholders' meeting
and to review the minute books of a corporation.
Under the BCCA, a shareholder or a director may, with court approval,
commence a legal action on behalf of a corporation (a derivative action). Such
an action may be brought to enforce a right, duty or obligation owed to the
corporation by another person or to obtain damages for any breach of that right,
duty or obligation.
The BCCA also provides a shareholder of a corporation the right to apply to
a court on the grounds that the corporation is acting or proposes to act in a
way that is prejudicial to the shareholder (an oppression action). On such an
application, the court may make such order as it sees fit, including an order to
prohibit any act proposed by the corporation. The WBCA does not contain a
comparable provision.
Under the BCCA, a shareholder or director of a corporation may also defend
any action brought against the corporation, provided court approval is obtained.
Court approval is also required to discontinue, settle or dismiss any action
brought under any of these provisions.
The WBCA provides that a shareholder or a director may commence or defend a
legal action on behalf of a corporation (a derivative action) to enforce a
right, duty or obligation owed to a corporation by another party
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<PAGE> 45
or to obtain damages for any breach of that right, duty or obligation. A
shareholder is entitled to commence a derivative action if:
(a) The shareholder was a shareholder of the corporation at the time of
the act or omission complained of, or became a shareholder through
transfer by operation of law from one who was a shareholder at the
time; and
(b) The shareholder fairly and adequately represents the interests of the
corporation in enforcing the rights of the corporation.
Court approval is also required to discontinue, settle or dismiss any
action brought under any of these provisions.
DISSENT RIGHTS UNDER THE WBCA
The WBCA provides that shareholders of a Wyoming corporation are entitled
to dissent from certain actions proposed to be taken by the corporation.
Such corporate actions include:
(a) consummation of a plan of merger or consolidation to which the
corporation is a party if:
(i) shareholder approval is required for the merger or the
consolidation by the WBCA or the articles of incorporation and the
shareholder is entitled to vote on the merger or consolidation; or
(ii) the corporation is a subsidiary that is merged with its parent
under the WBCA;
(b) consummation of a plan of share exchange to which the corporation is
the party whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale
or exchange, including a sale in dissolution, but not a sale pursuant
to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed
to the shareholders within one year after the date of sale;
(d) an amendment of the articles of the corporation that materially and
adversely affects rights in respect of a dissenter's shares because
it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption
or repurchase, of the shares;
(iii) alters or abolishes a pre-emptive right of the holder of the
shares to acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
or
(v) reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for
cash under the WBCA; and
(e) any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, by-laws, or a resolution of the
board of directors, provides that voting or non-voting shareholders
are entitled to dissent and obtain payment for their shares.
A shareholder who exercises a right of dissent is entitled to be paid the
fair value of his or her shares as determined by agreement of the parties or
failing which, by order of the court.
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DISSENT RIGHTS UNDER THE BCCA
The BCCA provides that shareholders are entitled to dissent in respect of
certain actions proposed to be taken by a British Columbia corporation, if the
corporation proposes to:
(a) amend its articles to add, change or remove any provisions restricting
or constraining the issue, transfer or ownership of shares;
(b) amend its articles to add, change or remove any restrictions on the
business the corporation may carry on;
(c) amalgamate with another corporation other than its holding corporation
or wholly-owned subsidiary;
(d) continue out of the jurisdiction of the BCCA;
(e) sell, lease or exchange all or substantially all of its property;
(f) offer financial assistance for the purpose of purchasing shares or
convertible debt obligations of the corporation or on the security of
a pledge of or charge on shares of the corporation given by that
person to the corporation, or in any other case, unless there are
reasonable grounds for believing that, or the directors are of the
opinion that, the giving of financial assistance is in the best
interests of the corporation;
(g) convert from a specially limited corporation (as defined in the BCCA);
and
(h) transfer or sell the whole or part of its business or property to
another corporation when it is being wound-up and for the transfer or
sale, the members of the corporation being wound-up receive shares,
debentures or other title interests from the other corporation.
A shareholder may exercise a right of dissent and is entitled to be paid
the fair value of the shareholder's shares as determined by agreement of the
parties or failing which, by order of the court.
DISCLOSURE OBLIGATIONS
Following the transfer to British Columbia, Biometric will remain a
"reporting issuer" in British Columbia and as such it will remain obliged to
prepare and issue news releases in British Columbia, file material change
reports with the British Columbia Securities Commission, prepare, file and
provide to shareholders unaudited quarterly and audited annual financial
statements, and otherwise comply with the British Columbia Securities Act.
Biometric's insiders (existing and future) will continue to be subject to the
insider trading and reporting requirements of the British Columbia Securities
Act.
Similarly, following the transfer, Biometric, while it continues to qualify
as "foreign private issuer", as such term is defined under the Securities
Exchange Act of 1934 (U.S.), will remain a "reporting issuer" in the United
States subject to the requirements of the Exchange Act. Accordingly, it will
file an annual report on Form 20-F with the U.S. Securities and Exchange
Commission within six months after the close of each fiscal year and will report
on Form 6-K as to certain events material to Biometric, as specified in the
regulations under the Exchange Act, promptly after public announcement of any
such event is made. Biometric will no longer be subject to the Exchange Act
requirements imposed on "U.S. reporting issuers" such as quarterly reports on
Form 10-Q, annual reports on Form 10-K, and compliance with the proxy
solicitation and insider trading reporting rules.
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MATERIAL TAX CONSEQUENCES OF THE TRANSFER TO BRITISH COLUMBIA
UNITED STATES INCOME TAX CONSEQUENCES OF THE TRANSFER TO BRITISH COLUMBIA
The following is a general summary of certain United States federal income
tax consequences, under current law, generally applicable to a U.S. holder (as
described below) of Biometric's common shares with respect to the transfer.
(Please refer to "Canadian Income Tax Consequences of the Transfer to British
Columbia" below for a discussion of certain Canadian income tax consequences.)
This summary does not address all potentially relevant United States federal
income tax matters and does not take into account or anticipate any state, local
or foreign tax considerations.
The following summary is based upon the sections of the Internal Revenue
Code of 1986, U.S. Treasury Regulations, published Internal Revenue Service
rulings, published administrative positions of the IRS and court decisions that
are currently applicable, any or all of which could be materially and adversely
changed, possibly on a retroactive basis, at any time.
This commentary is generally applicable to a holder of Biometric's common
shares who is a U.S. citizen or U.S. resident individual, a U.S. domestic
corporation or partnership, or a U.S. trust or estate. This summary does not
address the tax consequences to persons subject to specific provisions of United
States federal income tax law. This summary is applicable to shareholders of
Biometric who hold their shares in the company as capital property and who deal
at arm's length with Biometric.
THIS SUMMARY OF U.S. TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND
IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE
TO ANY HOLDER OR PROSPECTIVE HOLDER OF BIOMETRIC'S COMMON SHARES. ACCORDINGLY,
HOLDERS AND PROSPECTIVE HOLDERS OF BIOMETRIC'S COMMON SHARES SHOULD CONSULT
THEIR OWN TAX ADVISORS ABOUT THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES OF THE TRANSFER.
Discussion
A. Consequences to Biometric
General
Biometric's transfer to Canada from the United States would be treated, for
tax purposes only, as a transfer by Biometric of all of its property to a
fictional, newly incorporated wholly-owned British Columbia subsidiary ("BCco")
in exchange for BCco shares. Immediately following such exchange would be a
deemed distribution of BCco shares to the Biometric shareholders and an exchange
by them of their shares of Biometric for BCco shares. The final result would be
that BCco would have all the assets and liabilities of Biometric and the same
shareholders as Biometric but would, for U.S. tax purposes, be a Canadian
corporation rather than a U.S. corporation.
Deemed Transfer of Assets to BCco
Generally, the exchange of property by a corporation solely for stock or
securities in another corporation (BCco) would not require the recognition of
gain or loss to the exchanging corporation, pursuant to the U.S. tax code.
However, the tax code renders the exchange of assets of Biometric for the shares
of BCco taxable in the U.S. because BCco is a foreign corporation. As a result,
Biometric would be taxable on the disposition of its property to the extent that
the fair market value of such property exceeds the historic basis, for U.S. tax
purposes, in such property.
There are no exceptions from the U.S. emigration tax which apply to a U.S.
corporation emigrating from the United States. Consequently, Biometric would be
taxable in the U.S. on its emigration to the extent that the fair market value
of its property exceeds its basis, for U.S. tax purposes, in the property.
Biometric would pay tax on the amount of any gain at regular U.S. corporate tax
rates.
44
<PAGE> 48
Dividend and Interest Withholding Tax
After Biometric emigrates from the United States and becomes a Canadian
corporation it would be subject to a U.S. withholding tax on any dividends paid
by another U.S. corporation. The withholding tax of 15% is reduced to 5% if
Biometric holds 10% or more of the voting shares of the corporation paying the
dividend. In addition, a 10% U.S. withholding tax would apply to interest
received from Biometric's investments in U.S. debentures.
U.S. State Tax
Biometric has not researched the U.S. state tax consequences of the
transfer to Canada.
B. Consequences to Shareholders
U.S. Resident Shareholders
The deemed distribution of BCco stock in exchange for the Biometric shares
discussed above would be a taxable disposition of such shares formerly held by
the U.S. resident shareholders. The gain to the U.S. resident shareholders from
the deemed disposition would be equal to the fair market value of BCco shares
received over the basis of the disposed shares. The fair market value of BCco
shares should equal the fair market value of property transferred to BCco, net
of liabilities. To the extent that this fair market value amount exceeds the
U.S. shareholders' basis in their Biometric shares, a capital gain would result.
The U.S. shareholders' basis in their Biometric shares would have been increased
by any gain recognized on the earlier immigration of Biometric to the United
States from Canada. Any capital gain on the Biometric shares would be taxable to
the U.S. resident individual shareholders at personal capital gains tax rates
(20% tax rate for shares held longer than 12 months). U.S. corporate
shareholders would be taxable in the U.S. at regular U.S. corporate tax rates.
Dividend Withholding Tax
After Biometric emigrates from the United States, any dividends paid to
U.S. resident individual shareholders would be subject to 15% Canadian
withholding tax.
Canadian Resident Shareholders
Under the 1980 Canada-U.S. Income Tax Convention and the U.S. tax code, the
Canadian resident shareholders would only be taxable in the U.S. on the
disposition of the Biometric shares if Biometric was a "U.S. real property
interest" for U.S. tax purposes. In general, a U.S. real property interest is
defined to mean a private corporation 50% of whose value is derived from U.S.
real property. As 50% or more of Biometric's value is not derived from U.S. real
property and Biometric is a public corporation, the Canadian resident
shareholders would not be subject to U.S. tax on the emigration of Biometric to
Canada.
CANADIAN INCOME TAX CONSEQUENCES OF THE TRANSFER TO BRITISH COLUMBIA
This commentary summarizes the Canadian income tax consequences, for both
shareholders and Biometric, of the transfer to British Columbia.
This summary is based on the current provisions of the Canadian Income Tax
Act, the regulations to the Tax Act and any proposed amendments to it publicly
announced before the date of this Information Circular. It is assumed that any
proposed amendments will be enacted in their present form and that no other
relevant amendments will come into force. However, there can be no certainty in
this regard.
The summary does not take into account or anticipate any other changes in
law, whether by judicial, governmental or legislative decision or action, nor
does it take into account the tax legislation of any province, state or other
local jurisdiction. Tax law and regulations, the judicial interpretation of them
and the administrative practices of tax authorities are constantly changing, and
some of these could be changed in a manner that will fundamentally alter the tax
consequences to Biometric or to any particular shareholder.
45
<PAGE> 49
The tax summary is generally applicable to Biometric shareholders who are
individuals (except where expressly noted otherwise), who hold their Biometric
shares as capital property and who deal at arm's length with Biometric. This
summary generally does not address the tax consequences of entities subject to
specific provisions of Canadian income tax law.
NO ADVANCE TAX RULING OR INTERPRETATION HAS BEEN SOUGHT FROM ANY TAX
AUTHORITY WITH RESPECT TO ANY OF THE TRANSACTIONS DISCUSSED HEREIN.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO CONSTITUTE
ADVICE TO ANY PARTICULAR SHAREHOLDER. EACH SHAREHOLDER SHOULD SEEK INDEPENDENT
ADVICE BASED UPON THE PARTICULAR CIRCUMSTANCES OF THAT SHAREHOLDER.
Summary
Several rules in Canadian tax legislation affecting corporations
immigrating to Canada are in the process of being changed. Several of these
changes will affect Biometric and the effect of the proposed rules has been
incorporated in the discussion below as if they had the effect of law.
The Tax Act requires a corporation to have a deemed year end occurring
immediately before immigrating to Canada and a new year beginning immediately
thereafter. Therefore, Biometric will have a year end immediately before
immigrating and a new taxation period beginning immediately thereafter.
Biometric will be able to choose any year end it desires as long as the year
does not exceed 53 weeks.
The Tax Act requires that at the year end noted above, the immigrating
company is deemed to dispose of all its property at fair market value on the day
of the immigration. Accordingly, Biometric will be deemed to have disposed of
all its assets at the fair value at the day of immigration; however, management
expects that Biometric will not be subject to significant gains because the cost
amount of its assets, namely the convertible debentures in BII, will have a fair
value close to its cost amount. If a gain exists, the gain will not be taxable
in Canada except in certain circumstances. These circumstances include the
disposition of taxable Canadian property and assets used in a business in
Canada. Based on a review of Biometric's balance sheet as at September 30, 1998
it does not appear that Biometric owns any assets that would fall into these
circumstances.
The Tax Act states that a corporation is deemed to reacquire, at fair
market value, the assets deemed disposed as noted above. Therefore, Biometric
will reacquire, at fair market value, all its assets owned at the date of
immigration. The cost amounts of these assets to Biometric will equal the fair
market value at the date of immigration.
Biometric is not currently a foreign affiliate of any resident of Canada
(i.e., no shareholder owns, either individually or as part of a related group,
10% or more of the shares of Biometric). Based on this, the rules in the Tax Act
relating to foreign affiliates will not apply to Biometric.
Paid-up Capital
On immigrating to Canada, the Tax Act requires that the paid-up capital of
a corporation be reviewed in order to determine whether or not it will need to
be adjusted for income tax purposes. The adjustment is required when there is a
difference between the paid-up capital and the net of the assets and liabilities
of the company. The adjustment is calculated by taking the deemed fair market
value on the deemed disposition reduced by all the debts owing by the
corporation (referred to as the "net book value") and subtracting from the net
book value the paid-up capital. When this amount is negative (indicating that
the net book value is less than the paid-up capital), the Tax Act requires that
the paid-up capital be reduced by the negative amount. This will reduce the
amount of capital that an immigrating company can return tax-free to its
shareholders.
If the calculated amount is positive, indicating that the net book value
exceeds the paid-up capital, the Tax Act allows a corporation to elect to
increase the paid-up capital by the positive amount. Where a corporation chooses
to increase its paid-up capital, it must do so by notifying the Minister of its
intentions by electing within 90 days of immigrating. Where a corporation makes
this election, the shareholders of a
46
<PAGE> 50
corporation will be deemed to have received a dividend equal to the positive
amount. Depending on the particular taxpayer, this deemed dividend may be
taxable in Canada.
In Biometric's case, a preliminary review of the balance sheet as at
September 30, 1998 indicates that the net book value minus the paid-up capital
would result in a negative adjustment of approximately $10 million. This would
have the effect of reducing Biometric's paid-up capital from approximately $12
million to $2 million, thereby reducing the amount of capital that can be
returned to the shareholders on a tax-free basis by approximately $10 million.
In order to determine the actual adjustment required, it will be necessary to
review financial information at the date of immigration. A review by legal
counsel of the paid-up capital otherwise calculated may also be required.
Transferred Corporation
The Tax Act states that where a corporation has incorporated in one
jurisdiction and has been granted articles of continuance in another
jurisdiction the corporation shall be deemed to have been incorporated in the
new jurisdiction and not have been incorporated in the old jurisdiction. This
rule allows foreign companies that have been granted articles of continuance
into Canada the ability to access certain tax-free rollovers, wind-ups and
amalgamations afforded to residents of Canada. This provision will deem
Biometric to be incorporated in Canada and not in Wyoming for the purposes of
the Tax Act. Consequently, Biometric will, for tax purposes, qualify as a
Canadian corporation. However, Biometric may not need to rely on this provision
as it was incorporated in Canada prior to acquiring articles of continuance to
Wyoming. Biometric may be in the position where its incorporation in Canada
deems it to be a resident in any event.
CHANGE OF AUTHORIZED CAPITAL
The WBCA permits Wyoming corporations to have an authorized share capital
consisting of an unlimited number of shares. The BCCA requires a corporation to
have a stated authorized share capital. Therefore, in order to effect the
transfer to British Columbia, management is also asking the shareholders to
approve the change in its authorized capital to one hundred million
(100,000,000) common shares without par value. To effect this change,
Biometric's shareholders must adopt a resolution approved by two thirds ( 2/3)
or more of the shareholders entitled to vote at the Meeting.
Management would also like the consent of the shareholders to not proceed
with the change in the authorized share capital (even if the resolution is
passed by the shareholders at the Meeting) and management subsequently concludes
that it would not be in the best interests of Biometric to proceed with such
matters.
For the form of resolution being proposed for the change of authorized
capital, see Appendix I attached to this Information Circular.
CHANGE OF NAME
Pursuant to the policies of the Vancouver Stock Exchange (the exchange on
which Biometric's shares are listed for trading), a corporation must change its
name concurrently with a consolidation of its issued share capital. Therefore,
in the course of effecting the transfer to British Columbia, Biometric must
change its name as required by the stock exchange policy. The most
administratively efficient and cost effective date for Biometric to change its
name is at the time of its transfer. Therefore, management is asking
shareholders to approve the change of name from "Biometric" to "Safeguard
Biometric Corp." which will be effective upon the transfer of Biometric into the
Province of British Columbia. To effect this change, Biometric's shareholders
must adopt a resolution approved by at least a majority vote of the shareholders
entitled to vote at the meeting.
Management would also like the consent of the shareholders to not proceed
with the name change (even if the resolution is passed by the shareholders) at
the Meeting and management subsequently concludes that it would not be in the
best interests of Biometric to proceed with such matters.
47
<PAGE> 51
For the form of resolution being proposed for the name change, see Appendix
I attached to this Information Circular.
OTHER BUSINESS
Management is not aware of any matters to come before the Meeting other
than those set forth in the Notice of Meeting. If any other matter properly
comes before the Meeting, it is the intention of the persons named in the Proxy
to vote the shares represented thereby in accordance with their best judgment on
such matter.
ON BEHALF OF THE BOARD
"Robert M. Kamm"
--------------------------------
ROBERT M. KAMM
President
48
<PAGE> 52
BIOMETRIC SECURITY CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements as of December 31, 1998
Auditors' Report to the Shareholders................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997.................................................. F-3
Consolidated Statements of Operations and Deficit for
the years ended
December 31, 1998, 1997 and 1996..................... F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1998,
1997 and 1996........................................ F-5
Notes to Consolidated Financial Statements............. F-6
Unaudited Interim Financial Statements as of March 31, 1999
Unaudited Interim Consolidated Balance Sheets as of
March 31, 1999,
December 31, 1998, and March 31, 1998................ F-19
Unaudited Interim Consolidated Statements of Operations
and Deficit for
the three months ended March 31, 1999, 1998 and
1997.................................................. F-20
Unaudited Interim Consolidated Statements of Cash Flows
for the three
months ended March 31, 1999, 1998 and 1997........... F-21
Notes to Unaudited Interim Consolidated Financial
Statements............................................ F-22
</TABLE>
F-1
<PAGE> 53
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Biometric Security Corp.
(formerly Sonoma Resource Corp.) as at December 31, 1998 and 1997 and the
consolidated statements of operations and deficit and cash flows for each of the
years in the three year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 1998 in accordance with
generally accepted accounting principles in the United States.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
February 23, 1999
F-2
<PAGE> 54
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 245,182 $3,330,110
Amounts receivable..................................... 55,076 19,002
Prepaid expenses....................................... 9,257 6,252
----------- ----------
309,515 3,355,364
Equipment and leasehold improvements (note 3)............... 60,758 248,213
Mineral properties (note 4)................................. -- 4,670,516
Investment (note 5)......................................... 3,637,219 --
----------- ----------
$ 4,007,492 $8,274,093
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............... $ 148,262 $ 283,105
Loan payable (note 6).................................. 150,775 --
----------- ----------
299,037 283,105
Shareholders' equity:
Share capital (note 7):
Authorized:
Unlimited (1997 -- 100,000,000) common shares
Issued:
20,834,412 (1997 -- 16,448,962) common shares..... 13,128,263 12,387,691
Advances on share subscriptions (note 7(b))............ 660,592 --
Deficit................................................ (10,080,400) (4,396,703)
----------- ----------
3,708,455 7,990,988
Continuing operations (note 1)
Commitments and contingencies (notes 5 and 13)
Subsequent events (notes 5, 6, 7 and 14)....................
----------- ----------
$ 4,007,492 $8,274,093
=========== ==========
</TABLE>
On behalf of the Board:
, Director
, Director
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 55
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Revenue:
Interest and other income......................... $ 159,118 $ 175,185 $ 62,670
Gain on disposal of marketable securities......... -- -- 39,477
------------ ----------- -----------
159,118 175,185 102,147
General and administrative expenses:
Business consultants.............................. 78,306 87,345 158,305
Depreciation and depletion........................ 9,858 67,100 8,500
Finder's fee (note 5)............................. 99,822 -- --
Foreign exchange gain............................. (80,041) (20,198) (20,630)
Interest and bank charges......................... 14,449 2,159 2,507
Legal, audit and accounting....................... 563,234 141,256 66,461
Management fees................................... 120,059 127,121 164,451
Office expense.................................... 113,851 113,570 136,891
Public listing.................................... 66,153 37,035 38,080
Salaries, wages and administration................ 56,129 61,979 68,841
Travel, accommodation and promotion............... 159,891 103,332 203,203
------------ ----------- -----------
1,201,711 720,699 826,609
------------ ----------- -----------
(1,042,593) (545,514) (724,462)
Other expenses:
Write-off of mineral properties (note 4).......... 4,592,237 1,615,898 534,853
Mineral exploration............................... -- 16,395 --
Loss on disposal of equipment..................... 48,867 22,088 --
------------ ----------- -----------
4,641,104 1,654,381 534,853
------------ ----------- -----------
Loss for the year...................................... (5,683,697) (2,199,895) (1,259,315)
Deficit, beginning of year............................. (4,396,703) (2,196,808) (937,493)
------------ ----------- -----------
Deficit, end of year................................... $(10,080,400) $(4,396,703) $(2,196,808)
============ =========== ===========
Loss per share......................................... $ (0.30) $ (0.13) $ (0.14)
============ =========== ===========
Weighted average number of shares...................... 18,825,977 16,170,395 8,933,410
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 56
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the year..................................... $(5,683,697) $(2,199,895) $(1,259,315)
Adjustments to reconcile loss for the year to net cash
used in operating activities:
Write-off of mineral properties.................. 4,592,237 1,615,898 534,853
Loss on disposal of equipment.................... 48,867 22,088 --
Depreciation and depletion....................... 9,858 67,100 8,500
Accrued interest income on investment............ (79,989) -- --
Non-cash fees and expenses....................... 112,322 -- --
Gain on disposal of marketable securities........ -- -- (39,477)
Decrease (increase) in amounts receivable........ (36,074) 29,846 107,230
Decrease (increase) in prepaid expenses.......... (3,005) 36,303 31,331
Increase (decrease) in accounts payable and
accrued liabilities........................... (134,844) (287,647) 479,671
----------- ----------- -----------
Net cash used in operating activities................... (1,174,325) (716,307) (137,207)
Cash flows from investing activities:
Proceeds on sale of marketable securities............. -- -- 193,527
Equipment and leasehold improvements.................. (22,781) (79,658) (223,643)
Proceeds on disposal of equipment and leasehold
improvements....................................... 151,512 -- --
Mineral properties.................................... (145,306) (3,033,103) (2,998,691)
Security deposit (paid) recovered..................... 185,335 -- (138,000)
Proceeds on sale of mineral properties................ 38,250 -- --
Investment............................................ (3,557,230) -- --
----------- ----------- -----------
Net cash used in investing activities................... (3,350,220) (3,112,761) (3,166,807)
Cash flows from financing activities:
Loan payable.......................................... 250,000 -- --
Repayment of loan payable............................. (99,225) -- --
Issuance of common shares............................. 628,250 5,417,045 3,403,506
Advances on share subscriptions....................... 660,592 -- --
----------- ----------- -----------
Net cash provided by financing activities............... 1,439,617 5,417,045 3,403,506
----------- ----------- -----------
Increase (decrease) in cash............................. (3,084,928) 1,587,977 99,492
Cash, beginning of year................................. 3,330,110 1,742,133 1,642,641
----------- ----------- -----------
Cash, end of year....................................... $ 245,182 $ 3,330,110 $ 1,742,133
=========== =========== ===========
</TABLE>
- ---------------
Supplementary cash flow information (note 9)
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 57
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. CONTINUING OPERATIONS:
The Company was incorporated under the laws of British Columbia, Canada.
During 1998, the Company changed its principal business activity from the
exploration and development of resource properties to an investment holding
company, with its principal holding being its investment in Biometric
Identification Inc. ("BII") (note 5). BII's principal business activity is the
development, manufacture and marketing of fingerprint identification systems in
the United States. BII has not yet achieved profitable operations. In connection
with this change in business activity during 1998, the Company changed its name
from Sonoma Resource Corp. to Biometric Security Corp., and on November 10,
1998, the Company was continued under the laws of the State of Wyoming (also see
note 14(a)).
These financial statements have been prepared in accordance with accounting
principles applicable to a going concern, which assumes that the Company will
realize its assets and discharge its liabilities in the ordinary course of
business. At December 31, 1998, the Company has a net working capital position
of approximately $10,000, which is not sufficient to meet its commitments or
fund ongoing operations. The ability of the Company to settle its liabilities as
they come due and to fund its commitments and ongoing operations is dependent
upon the ability of the Company to obtain additional equity financing (also see
notes 7(b) and 14(b)). The recoverability of the Company's investment in BII is
dependent upon the establishment of profitable commercial operations in BII, the
ability of the Company to obtain additional debt or equity financing to complete
the acquisition of BII or the proceeds from the disposition of the Company's
interest in BII.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These consolidated financial statements have been prepared in accordance
with accounting principles and practices that are generally accepted in the
United States, which conform, in all material respects, with those generally
accepted in Canada, except as explained in note 15.
(b) Basis of consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are directly or indirectly wholly-owned, and
include (with the jurisdiction of incorporation in brackets):
Sonoma Resource de Argentina S.A. (Argentina)
Sonoma Resource (Bermuda) Ltd. (Bermuda)
Cerro Toro Mining (Barbados) Ltd. (Barbados)
Cerro Toro S.A. (Argentina)
Castano Mining (Barbados)
Castano S.A. (Argentina)
All intercompany balances and transactions have been eliminated.
(c) Equipment and leasehold improvements:
Equipment and leasehold improvements are stated at cost and depreciated
over their estimated useful lives on a declining-balance basis at 15% per year.
(d) Mineral properties:
Mineral property acquisition costs and related exploration and development
expenditures are deferred until the property is placed into production, sold or
abandoned. These costs will be amortized over the
F-6
<PAGE> 58
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
estimated life of the property following commencement of commercial production
or written off if the property is sold, allowed to lapse or abandoned.
Administration expenditures are expensed in the period incurred.
Mineral property acquisition costs include the cash consideration and the
fair market value of common shares issued for mineral property interests. A
property acquired under an option agreement or by joint venture, where payments
are made at the sole discretion of the Company, is recorded in the accounts at
the time of payment.
On an on-going basis, the Company evaluates the status of its mineral
properties based on results to date to determine the nature of exploration and
development work that is warranted in the future. If there is little prospect of
further work on a property being carried out, the deferred costs related to that
property are written down to their estimated recoverable amount.
The amounts shown for mineral properties reflect costs incurred to date,
less write-offs and recoveries, and are not intended to reflect present or
future values.
(e) Investments:
The investment in BII (note 5) is classified by the Company as a
held-to-maturity investment, as BII is not a public company and the Company
intends to hold the debt securities until maturity, or until conversion.
Held-to-maturity investments are recorded at cost. A decline in value of
held-to-maturity investments that is deemed to be other than temporary results
in a reduction in the carrying amount to fair value. The impairment would be
charged to earnings in the period such determination is made and a new cost
basis for the investment is established. Dividend and interest income are
recognized when earned.
(f) Stock options:
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, in accounting for its stock
options. As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price.
(g) Loss per share:
Basic loss per share is calculated using the weighted average number of
shares outstanding during the year. Diluted loss per share has not been
presented as the effect on basic loss per share would be anti-dilutive.
(h) Foreign currency translation:
Transactions of the Company and its subsidiaries that are denominated in
foreign currencies are recorded in Canadian dollars at exchange rates in effect
at the related transaction dates. Monetary assets and liabilities denominated in
foreign currencies are adjusted to reflect exchange rates at the balance sheet
date. Exchange gains and losses arising on the translation of monetary assets
and liabilities are included in the determination of operations for the year.
(i) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant areas requiring the use of management estimates
relate to the determination of impairment of mineral properties and equipment,
useful
F-7
<PAGE> 59
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
lives for depreciation and the carrying value of the investment in BII. Actual
results could differ from those estimates.
(j) Comparative figures:
Certain of the prior years' comparative figures have been reclassified to
conform with the presentation adopted for 1998.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Equipment................................................... $ 67,759 $ 71,320
Automotive equipment........................................ -- 209,179
Leasehold improvements...................................... 19,138 15,941
-------- --------
86,897 296,440
Accumulated depreciation.................................... (26,139) (48,227)
-------- --------
$ 60,758 $248,213
======== ========
</TABLE>
4. MINERAL PROPERTIES:
The continuity of mineral property acquisition costs, exploration and
development expenditures, write-offs and deferred expenditures at year end is as
follows:
<TABLE>
<CAPTION>
CHUBUT AND
CERRO TORO CASTANO SAN LUIS
PROPERTIES(a) GROUP(b) PROPERTIES(c) OTHER(c) TOTAL
-------------- --------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997........... $3,983,092 $ -- $687,424 $ -- $4,670,516
Exploration and development
expenditures:
Access costs.................. 772 -- -- -- 772
Assays........................ -- -- 2,882 -- 2,882
Communication................. -- -- 332 -- 332
Contract labour and
supervision................ 5,737 -- -- -- 5,737
Data acquisition and
analysis................... 941 -- 596 -- 1,537
Equipment and field
supplies................... 5,231 -- 259 -- 5,490
Field administration.......... 21,674 -- -- -- 21,674
Field car rental and
transportation............. 3,271 -- 389 -- 3,660
Geological and geophysical.... 40,471 -- 28,810 -- 69,281
Insurance..................... 5,762 -- -- -- 5,762
Legal and other............... 19,552 -- 6,687 -- 26,239
Travel and accommodation...... 1,669 -- 271 -- 1,940
---------- --------- -------- -------- ----------
105,080 -- 40,226 -- 145,306
---------- --------- -------- -------- ----------
4,088,172 -- 727,650 -- 4,815,822
Recovery of security deposit....... -- (185,335) -- -- (185,335)
Deposit received on option
agreement....................... -- -- -- (38,250) (38,250)
Write-offs......................... (4,088,172) 185,335 (727,650) 38,250 (4,592,237)
---------- --------- -------- -------- ----------
Balance, December 31, 1998......... $ -- $ -- $ -- $ -- $ --
========== ========= ======== ======== ==========
</TABLE>
F-8
<PAGE> 60
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
CHUBUT AND
CERRO TORO CASTANO SAN LUIS
PROPERTIES(a) GROUP(b) PROPERTIES(c) OTHER(c) TOTAL
-------------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.......... $1,591,602 $1,000,818 $217,877 $305,014 $3,115,311
Acquisition costs................... 7,610 165,308 55,726 31,637 260,281
Exploration and development
expenditures:
Access costs................... 66,273 -- 27,030 -- 93,303
Assays......................... 109,858 -- -- -- 109,858
Camp........................... 2,121 -- -- -- 2,121
Communication.................. 15,802 -- -- -- 15,802
Contract drilling.............. 1,203,985 -- -- -- 1,203,985
Contract labour and
supervision.................. 82,045 -- 16,685 -- 98,730
Data acquisition and
analysis..................... 19,512 -- 2,364 22,516 44,392
Equipment and field supplies... 156,120 -- 42,676 512 199,308
Field administration........... 149,318 -- 860 -- 150,178
Field car rental and
transportation............... 77,563 -- 15,021 364 92,948
Geological and geophysical..... 394,316 1,400 200,277 30,280 626,273
Insurance...................... 23,369 -- 1,308 707 25,384
Legal and other................ 19,852 -- 33,002 55,620 108,474
Travel and accommodation....... 63,746 -- 74,598 1,722 140,066
---------- ---------- -------- -------- ----------
2,383,880 1,400 413,821 111,721 2,910,822
---------- ---------- -------- -------- ----------
3,983,092 1,167,526 687,424 448,372 6,286,414
Write-offs.......................... -- (1,167,526) -- (448,372) (1,615,898)
---------- ---------- -------- -------- ----------
Balance, December 31, 1997.......... $3,983,092 $ -- $687,424 $ -- $4,670,516
========== ========== ======== ======== ==========
</TABLE>
A brief description of the Company's mineral properties is as follows:
(a) Cerro Toro Properties:
On February 15, 1995, the Company filed three exploration permits with the
regulatory authorities in San Juan Province, Argentina covering 1,845 hectares
located in San Juan Province. The Company was subsequently notified that 100% of
the rights of ownership established by the procedures of the Province belong to
the Company.
During 1998, all deferred expenditures relating to the Cerro Toro
Properties were written off.
(b) Castano Group:
In 1996, the Company entered into a purchase/option agreement to acquire
100% of the rights and interests in the Castano Group of mineral properties
located in San Juan Province, Argentina. In 1997, the Company terminated the
purchase/option agreement in accordance with the provisions provided therein and
wrote off the remaining deferred expenditures on the Castano Group. During 1998,
the Company recovered a security deposit that had previously been written off.
(c) Other Argentina properties:
During 1995, the Company staked and applied for a number of cateos and
manifestaciones within Cordova, San Luis, Chubut and Santa Cruz provinces, all
of which were of a grass roots nature. At
F-9
<PAGE> 61
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
December 31, 1997, the Company had staked and applied for 13 cateos and 20
manifestaciones in the San Luis and Chubut provinces.
In 1997, the Company wrote-off costs incurred relating to properties in
provinces other than San Luis and Chubut that the Company did not intend to
pursue.
As the Cordova and San Luis cateos and manifestaciones were not renewed
during 1999, all deferred expenditures relating to these properties were written
off during 1998.
During 1998, the Company entered into a letter agreement to grant Inlet
Resources Ltd. ("Inlet") an option to purchase up to a 100% interest in the
Company's Argentine properties. Under the terms of the agreement, the Company
granted Inlet an option to purchase up to 90% of the properties, over a three
year period, with a buyout of the remaining 10% for U.S. $2,000,000. During the
first year, the agreement requires Inlet to pay the Company U.S. $150,000 in
stages, issue the Company 100,000 shares and complete a U.S. $650,000 work
program, to earn a 50% interest in the properties. During the second and third
years, the agreement provides that Inlet will pay the Company a total of U.S.
$600,000 in stages, issue 200,000 shares and complete work commitments totalling
U.S. $1,500,000 to earn an additional 40% interest in the properties. To
December 31, 1998, the Company received a cash deposit of U.S. $25,000 relating
to the option agreement.
5. INVESTMENT:
<TABLE>
<S> <C>
Investment, at cost......................................... $3,557,230
Accrued interest receivable............................... 79,989
----------
$3,637,219
==========
</TABLE>
During 1998, the Company entered into an agreement to purchase convertible
debentures entitling the Company to acquire up to a 45% interest in Biometric
Identification Inc. ("BII"), a private California-based company in the business
of developing, manufacturing and marketing fingerprint recognition technology.
Under the terms of the agreement, the Company has the right to acquire up to
U.S. $5,000,000 of convertible debentures to be issued by BII. If all such
debentures are acquired and converted into shares of BII, the Company will hold
approximately 45% of the issued shares of BII.
This investment was initiated by a related party which assigned its
interest to the Company in exchange for a fee up to U.S. $145,000, plus
reimbursement of its expenses. The related party elected to take this fee in the
form of 715,575 common shares at a deemed price of $0.30 per share. These shares
will be issued in pro-rata tranches on the same basis the debentures are
purchased by the Company.
The debentures have a term of five years from the date of the closing of
the first acquisition and bear interest at the lowest interest rate imputed
under the U.S. Internal Revenue Code.
F-10
<PAGE> 62
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
At December 31, 1998, the Company had acquired debentures of BII totalling
U.S. $2,325,000 in accordance with the terms of the agreement and had issued
250,450 shares and allotted 82,292 shares, at a total value of $99,822, to the
related party. Additional debenture acquisitions and share issuances for finders
fees under the terms of the original agreement are scheduled as follows:
<TABLE>
<CAPTION>
DEBENTURE
DATES AMOUNTS (U.S. $) SHARES
- ----- ---------------- -------
<S> <C> <C>
February 1, 1999 (paid).............................. $ 550,000 78,713
February 22, 1999.................................... 125,000 17,889
March 12, 1999....................................... 500,000 71,558
May 12, 1999......................................... 1,500,000 214,673
---------- -------
$2,675,000 382,833
========== =======
</TABLE>
Subsequent to December 31, 1998, the debenture acquisitions scheduled to be
made on February 22, 1999 and March 12, 1999 were deferred, by mutual agreement,
until April 2, 1999.
6. LOAN PAYABLE:
During 1998, a company controlled by a director loaned the Company a total
of $250,000. The loan is unsecured, non-interest bearing and was due on December
26, 1998. A total of $99,225 of the loan was repaid on December 29, 1998, and
the balance of the loan of $150,775 was repaid subsequent to December 31, 1998.
The Company also allotted 65,789 shares at a deemed price of $0.19 per
share at December 31, 1998, as allowed for under the rules of the Vancouver
Stock Exchange, as consideration for the loan.
7. SHARE CAPITAL:
(a) Issued:
<TABLE>
<CAPTION>
NUMBER
OF SHARES AMOUNT
---------- -----------
<S> <C> <C>
Balance at December 31, 1996............................... 11,128,962 $ 6,970,646
Issued during the year for cash by way of:
Private placement of special warrants, net of issue
costs............................................... 5,000,000 5,106,645
Exercise of warrants.................................. 200,000 184,000
Exercise of options................................... 120,000 126,400
---------- -----------
Balance at December 31, 1997............................... 16,448,962 12,387,691
Issued during the year for cash by way of:
Private placements.................................... 4,035,000 605,250
Exercise of options................................... 100,000 23,000
Issued during the year for finder's fee (note 5)........... 250,450 75,135
---------- -----------
20,834,412 13,091,076
Allotted during the year for:
Finder's fee (note 5)................................. 82,292 24,687
Carrying charges (note 6)............................. 65,789 12,500
---------- -----------
Balance at December 31, 1998............................... 20,982,493 $13,128,263
========== ===========
</TABLE>
During 1997, the Company issued the 5,000,000 common shares and 5,000,000
one-half share purchase warrants upon exercise of 5,000,000 previously issued
special warrants. In addition, 250,000 compensation options were issued to the
underwriter upon the exercise of 250,000 special compensation options granted to
the underwriter in connection with this special warrant private placement. Each
compensation option entitles
F-11
<PAGE> 63
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
the underwriter to acquire a unit, consisting of one share and one-half of a
share purchase warrant, at an exercise price of $1.10 per share prior to January
20, 1999. Each whole warrant entitles the underwriter to acquire one share at an
exercise price of $1.30 prior to January 20, 1999. Subsequent to December 31,
1998, these compensation options expired unexercised.
During 1998, the Company completed a 3,375,000 unit private placement at a
price of $0.15 per unit and a 660,000 unit private placement at a price of $0.15
per unit. Each unit consisted of one common share and one non-transferable share
purchase warrant. Each warrant is exercisable for a period of two years and
entitles the holder to purchase one additional common share at a price of $0.15
per share in the first year and $0.17 per share in the second year.
(b) Advances on share subscriptions:
At December 31, 1998, the Company had received advances on share
subscriptions for 4,403,950 units at $0.15 per unit in connection with:
- - a brokered private placement of 6,666,666 units at $0.15 per unit for total
proceeds of $1,000,000; and
- - a non-brokered private placement of 5,000,000 units at $0.15 per unit for
total proceeds of $750,000.
Each unit consists of one common share and one non-transferable share
purchase warrant exercisable for a period of two years. Each warrant will be
exercisable at a price of $0.15 per share in the first year and $0.17 per share
in the second year. The agent will be paid a 10% commission payable in cash and
brokers' warrants exercisable into shares of the Company for a period of two
years not exceeding 15% of the number of units issued to investors pursuant to
the private placements. The brokers' warrants will be exercisable at a price of
$0.15 per share the first year and $0.17 per share in the second year.
Subsequent to December 31, 1998, the Company received the additional
$1,089,408 of proceeds, paid the $100,000 commission, issued the 11,666,666
shares and share purchase warrants and issued the 1,000,000 brokers' warrants.
(c) Share purchase warrants:
The continuity of share purchase warrants during 1998 is as follows:
<TABLE>
<CAPTION>
BALANCE, BALANCE,
EXERCISE DECEMBER 31, EXPIRED OR DECEMBER 31,
EXPIRY DATE PRICE 1997 GRANTED EXERCISED CANCELLED 1998
- ----------- -------- ------------ ------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
January 26, 1998........... $ 1.47 37,000 -- -- (37,000) --
August 21, 1998............ 1.25 1,400,000 -- -- (1,400,000) --
October 22, 1998........... 1.30 2,500,000 -- -- (2,500,000) --
October 22, 1998/1999...... 0.15/0.17 -- 660,000 -- -- 660,000
March 31, 1999/2000........ 0.15/0.17 -- 3,375,000 -- -- 3,375,000
--------- --------- --- ---------- ---------
3,937,000 4,035,000 -- (3,937,000) 4,035,000
========= ========= === ========== =========
</TABLE>
F-12
<PAGE> 64
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The continuity of share purchase warrants during 1997 is as follows:
<TABLE>
<CAPTION>
BALANCE, BALANCE,
EXERCISE DECEMBER 31, EXPIRED OR DECEMBER 31,
EXPIRY DATE PRICE 1996 GRANTED EXERCISED CANCELLED 1997
- ----------- -------- ------------ ------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
January 26, 1997/1998..... $1.28/1.47 37,000 -- -- -- 37,000
June 22, 1997............. 0.92 700,000 -- (100,000) (600,000) --
June 29, 1997............. 0.92 300,000 -- -- (300,000) --
September 14, 1997........ 0.92 150,000 -- -- (150,000) --
December 5, 1997.......... 0.92 100,000 -- (100,000) -- --
August 21, 1998........... 1.25 1,400,000 -- -- -- 1,400,000
October 22, 1998.......... 1.30 -- 2,500,000 -- -- 2,500,000
--------- --------- -------- ---------- ---------
2,687,000 2,500,000 (200,000) (1,050,000) 3,937,000
========= ========= ======== ========== =========
</TABLE>
(d) Stock options:
(i) Continuity:
The continuity of stock options during 1998 is as follows:
<TABLE>
<CAPTION>
BALANCE, BALANCE,
EXERCISE DECEMBER 31, EXPIRED OR DECEMBER 31,
EXPIRY DATE PRICE 1997 GRANTED EXERCISED CANCELLED 1998
- ----------- -------- ------------ ------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
April 27, 1998............ $1.00 100,000 -- -- (100,000)(a) --
September 14, 1998........ 0.34 30,000 -- -- (30,000)(a) --
October 30, 1999.......... 1.33 387,261 -- -- (387,261)(a) --
January 21, 2000.......... 0.34 130,000 -- -- (130,000)(a) --
January 21, 2000.......... 1.36 390,000 -- -- (390,000)(a) --
July 6, 2000.............. 0.32 -- 50,000 -- -- 50,000
August 28, 2000........... 0.20 -- 100,000 -- -- 100,000
January 28, 2001.......... 0.23 -- 1,640,000(a) (100,000) (285,000) 1,255,000
--------- --------- -------- ---------- ---------
1,037,261 1,790,000 (100,000) (1,322,261) 1,405,000
========= ========= ======== ========== =========
</TABLE>
- ---------------
(a) During 1998, these 1,037,261 outstanding options were cancelled and replaced
with the 1,640,000 options at $0.23 per share expiring January 28, 2001.
The continuity of stock options during 1997 is as follows:
<TABLE>
<CAPTION>
BALANCE, BALANCE,
EXERCISE DECEMBER 31, EXPIRED OR DECEMBER 31,
EXPIRY DATE PRICE 1996 GRANTED EXERCISED CANCELLED 1997
- ----------- -------- ------------ ------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
February 16, 1997........... $0.90 40,000 -- (40,000) -- --
January 30, 1998............ 0.91 50,000 -- -- (50,000) --
April 27, 1998.............. 1.00 100,000 -- -- -- 100,000
September 14, 1998.......... 1.10 70,000 -- (40,000) (30,000)(b) --
September 14, 1998.......... 0.34 -- 30,000(b) -- -- 30,000
December 8, 1998............ 0.97 373,635 -- -- (373,635) --
July 31, 1999............... 1.12 10,000 -- -- (10,000) --
September 25, 1999.......... 1.16 50,000 -- (40,000) (10,000) --
October 30, 1999............ 1.33 387,261 -- -- -- 387,261
January 21, 2000............ 1.36 -- 620,000 -- (230,000)(b) 390,000
January 21, 2000............ 0.34 -- 230,000(b) -- (100,000) 130,000
--------- ------- -------- ---------- ---------
1,080,896 880,000 (120,000) (803,635) 1,037,261
========= ======= ======== ========== =========
</TABLE>
- ---------------
(b) During 1997, these options were repriced to $0.34 per share.
F-13
<PAGE> 65
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(ii) Compensation expense:
The Company's Board of Directors grants stock options to its officers,
directors and key employees in accordance with the rules prescribed by the
Vancouver Stock Exchange. Stock options are granted with an exercise price equal
to the stock's quoted value on the Vancouver Stock Exchange at the date of
grant. Stock options granted generally have varying terms of up to three years
and vest and become fully exercisable from the date of grant.
The per share weighted-average fair value of stock options granted during
1998, 1997 and 1996 was $0.16, $0.17 and $0.89 on the date of grant, using the
Black Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield..................................... 0% 0% 0%
Risk-free interest rate..................................... 6.2% 5.0% 6.1%
Expected life (years)....................................... 2 2 2
Expected volatility over expected life...................... 139% 139% 139%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for granting stock
options and accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation ("FAS 123"), the Company's loss for the year would have increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Loss for the year:
As reported............................ $(5,683,697) $(2,199,895) $(1,259,315)
Compensation expense under FAS 123..... 286,558 152,888 458,384
----------- ----------- -----------
Pro forma loss for the year................. $(5,970,255) $(2,352,783) $(1,717,699)
=========== =========== ===========
Pro forma loss per share.................... $ (0.32) $ (0.15) $ (0.19)
=========== =========== ===========
</TABLE>
8. FINANCIAL INSTRUMENTS:
The fair values of the Company's cash, amounts receivable, accounts payable
and accrued liabilities and loan payable approximate their carrying amounts
because of the immediate or short term to maturity of these financial
instruments.
9. NON-CASH FINANCING AND INVESTING ACTIVITIES:
The Company has the following non-cash financing and investing activities:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Financing activities:
Shares issued and allotted for finders fee.... $ 99,822 $ -- $ --
Shares allotted as consideration for loan
payable..................................... 12,500 -- --
-------- -------- --------
$112,322 $ -- $ --
======== ======== ========
Investing activities:
Accrued interest income on investment......... $(79,989) $ -- $ --
======== ======== ========
</TABLE>
F-14
<PAGE> 66
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
10. SEGMENTED INFORMATION:
During 1998, the Company adopted the accounting standards related to
segment disclosures recently approved by the accounting standard-setting bodies
in the United States and Canada. The information presented below is consistent
with these standards. The Company has not allocated general and administrative
expenses from the corporate segment.
(a) Operating segments:
The Company has determined its operating segments to be mineral exploration
and development, and corporate, which includes holding investments, based on the
way management organizes and manages its business.
<TABLE>
<CAPTION>
MINERAL
EXPLORATION AND
1998 DEVELOPMENT CORPORATE TOTAL
- ---- --------------- ----------- -----------
<S> <C> <C> <C>
Revenue............................................ $ -- $ 159,118 $ 159,118
General and administrative expenses................ -- 1,201,711 1,201,711
Other expenses..................................... 4,592,237 48,867 4,641,104
----------- ----------- -----------
Loss for the year.................................. $(4,592,237) $(1,091,460) $(5,683,697)
=========== =========== ===========
Capital expenditures (recovered)................... $ (78,279) $ 3,428,299 $ 3,350,220
=========== =========== ===========
Identifiable assets................................ $ -- $ 4,007,492 $ 4,007,492
=========== =========== ===========
1997
Revenue............................................ $ -- $ 175,185 $ 175,185
General and administrative expenses................ -- 720,699 720,699
Other expenses..................................... 1,632,293 22,088 1,654,381
----------- ----------- -----------
Loss for the year.................................. $(1,632,293) $ (567,602) $(2,199,895)
=========== =========== ===========
Capital expenditures............................... $ 3,033,103 $ 79,658 $ 3,112,761
=========== =========== ===========
Identifiable assets................................ $ 4,670,516 $ 3,603,577 $ 8,274,093
=========== =========== ===========
1996
Revenue............................................ $ -- $ 102,147 $ 102,147
General and administrative expenses................ -- 826,609 826,609
Other expenses..................................... 534,853 -- 534,853
----------- ----------- -----------
Loss for the year.................................. $ (534,853) $ (724,462) $(1,259,315)
=========== =========== ===========
Capital expenditures............................... $ 3,136,691 $ 30,116 $ 3,166,807
=========== =========== ===========
</TABLE>
(b) Geographic information:
As previously disclosed (note 4), all of the Company's mineral exploration
and development activities during 1996 through 1998 were in Argentina.
Except for the Company's investment in BII (note 5) and related accrued
interest income and foreign exchange gain, substantially all of the Company's
corporate activities during 1996 through 1998 were in Canada.
11. RELATED PARTY TRANSACTIONS:
During 1998, fees of $156,620 (1997 -- $233,348; 1996 -- $324,500) were
charged by certain directors or companies controlled by them for management,
consulting, accounting and administrative services.
F-15
<PAGE> 67
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Management believes the costs of related party services approximate amounts that
would have been paid for similar services rendered by unrelated parties.
Included in accounts payable and accrued liabilities at December 31, 1998
is $15,044 (1997 -- $35,332) payable to a director and a company controlled by a
director related to the above fees.
12. INCOME TAXES:
As at December 31, 1998, the Company has approximately $3,000,000 of losses
for Canadian income tax purposes that expire between 2000 and 2005 and that may
be available to reduce taxable income in Canada in future years. In addition,
the Company had deducted approximately $8,000,000 for book purposes in excess of
amounts deducted for tax purposes, primarily for expenditures incurred on the
Company's mineral properties and equipment. The Company has taken a valuation
allowance of the full amount of the tax benefit thereon due to the uncertainty
of whether these deferred tax assets will be realized.
13. CONTINGENCIES:
(a) Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effect of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of investees, suppliers or other
third parties, will be fully resolved.
(b) Contingent liability:
As disclosed elsewhere in these financial statements (notes 1 and 14(a)),
the Company continued its jurisdiction of incorporation from British Columbia to
the State of Wyoming, effective November 10, 1998, and has proposed to continue
from Wyoming back into British Columbia in 1999. In the course of their review
of the Company's proposal, the United States Securities and Exchange Commission
(the "SEC") has advised the Company that they believe the original continuance
to Wyoming was an event that would have required the filing of a registration
statement with the SEC. As a result, the Company appears to have been in
technical violation of the U.S. Securities Act of 1933 (the "Act") and United
States holders of shares of the Company, at the time of the original continuance
to Wyoming may have common law remedies under the Act. In addition, the Company
may be required to offer such United States holders of shares of the Company the
right to have their shares repurchased by the Company at their fair market value
at the time of the original continuance.
The Company is currently reviewing its options to resolve this matter. No
provision has been recorded in the accounts for any contingent loss, as the
outcome is not determinable at this time.
14. SUBSEQUENT EVENTS:
(a) Corporate continuance:
Subsequent to December 31, 1998, the Company announced an extraordinary
general meeting of the shareholders of the Company to be held on April 12, 1999,
at which time the shareholders will vote on the Company's proposal to continue
the Company to the Province of British Columbia and to consolidate the
F-16
<PAGE> 68
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Company's share capital on the basis of one post-consolidated share for each
five pre-consolidated shares. The meeting date was subsequently postponed and
has not yet been rescheduled.
(b) Private placement:
Subsequent to December 31, 1998, the Company announced, subject to
regulatory approval, a best-efforts brokered private placement of up to
11,666,666 units at $0.15 per unit to raise gross proceeds of up to $1,750,000.
Each unit will consist of one common share and one non-transferable share
purchase warrant exercisable at $0.15 per share in the first year and $0.17 per
share in the second year. The agent will be paid a 10% commission, payable in
cash, and up to 1,750,000 brokers' warrants exercisable at $0.15 per share in
the first year and $0.17 per share in the second year.
15. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:
Accounting practices under United States and Canadian generally accepted
accounting principles ("GAAP"), as they affect the Company, are substantially
the same, except for the following:
(a) Unrealized gains for trading securities:
Investments held principally for the purpose of selling them in the near
term are considered trading securities. Under Canadian GAAP, unrealized gains on
trading securities are not recorded in the accounts until realized. Under United
States GAAP, unrealized gains and losses for trading securities are included in
earnings. Accordingly, under Canadian GAAP, the gain on disposal of marketable
securities during 1996 would be recorded as $72,400, as under Canadian GAAP, the
$32,923 unrealized holding gain at December 31, 1995 would not have been
included in earnings in 1995.
(b) Stock-based compensation:
Canadian GAAP for stock-based compensation is similar to that provided in
APB Opinion No. 25 under United States GAAP (note 2(f)), although FAS 123
requires additional disclosure of the effects of accounting for stock-based
compensation using the fair value method (note 7(c)). Accordingly, under
Canadian GAAP, there would be no material differences in the consolidated
financial statements in respect of stock-based compensation.
(c) Foreign currency translation:
Canadian GAAP requires that non-current, foreign currency denominated
monetary items that have a fixed or ascertainable life extending beyond the end
of the following fiscal year should be translated into Canadian dollars at the
exchange rate in effect at the transaction date and adjusted to reflect the
current exchange rate at each balance sheet date, with any gain or loss relating
to the initial translation and balance sheet date adjustment being deferred and
amortized over the remaining life of the item. United States GAAP requires such
gains or losses to be included in operations in the period. Accordingly, under
Canadian GAAP, the foreign exchange gain of $85,875 relating to the revaluation
of the investment recorded at December 31, 1998 would initially be recorded as a
deferred credit on the consolidated balance sheet and amortization of $9,551
would be recorded for the 1998 fiscal year.
F-17
<PAGE> 69
BIOMETRIC SECURITY CORP.
(FORMERLY SONOMA RESOURCE CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
A reconciliation of the effects of the differences between Canadian GAAP
and United States GAAP on the balance sheets and statements of operations and
deficit is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Total liabilities under United States GAAP.................. $299,037 $283,105
Deferred foreign exchange gain, net of amortization of
$9,551.................................................... 76,324 --
-------- --------
Total liabilities under Canadian GAAP....................... $375,361 $283,105
======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Shareholders' equity under United States GAAP............... $3,708,455 $7,990,988
Adjustments:
Deferral of foreign exchange gain...................... (85,875) --
Amortization of deferred foreign exchange gain......... 9,551 --
---------- ----------
(76,324) --
---------- ----------
Shareholders' equity under Canadian GAAP.................... $3,632,131 $7,990,988
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Loss for the year under United States
GAAP..................................... $ (5,683,697) $(2,199,895) $(1,259,315)
Adjustments:
Deferral of foreign exchange gain..... (85,875) -- --
Amortization of deferred foreign
exchange gain....................... 9,551 -- --
Realized gain on disposal of trading
securities.......................... -- -- 32,923
------------ ----------- -----------
(76,324) -- 32,923
------------ ----------- -----------
Loss for the year under Canadian GAAP...... (5,760,021) (2,199,895) (1,226,392)
Deficit, beginning of year under Canadian
GAAP..................................... (4,396,703) (2,196,808) (970,416)
------------ ----------- -----------
Deficit, end of year under Canadian GAAP... $(10,156,724) $(4,396,703) $(2,196,808)
------------ ----------- -----------
Loss per share under Canadian GAAP......... $ (0.31) $ (0.13) $ (0.14)
============ =========== ===========
</TABLE>
F-18
<PAGE> 70
BIOMETRIC SECURITY CORP.
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1999 1998 1998
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................ $ 155,218 $ 245,182 $ 3,189,539
Accounts receivable............................. 63,393 55,076 19,201
Prepaid expenses, deposits and exploration
advances..................................... 7,005 9,257 6,252
------------ ------------ -----------
225,616 309,515 3,214,992
Equipment and leasehold improvements.............. 61,161 60,758 177,801
Mineral Properties................................ -- -- 4,737,805
Investment (Note 4)............................... 4,476,467 3,637,219 --
------------ ------------ -----------
$ 4,763,244 $ 4,007,492 $ 8,130,598
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................ $ 113,352 $ 148,262 225,293
Loan payable.................................... -- 150,775 --
------------ ------------ -----------
113,352 299,037 225,293
------------ ------------ -----------
SHAREHOLDERS' EQUITY
Share capital (Note 1).......................... 14,787,363 13,128,263 12,387,691
Shares subscribed............................... 75,000 660,592 --
Deficit........................................... (10,212,471) (10,080,400) (4,482,386)
------------ ------------ -----------
4,649,892 3,708,455 7,905,305
------------ ------------ -----------
$ 4,763,244 $ 4,007,492 $ 8,130,598
============ ============ ===========
</TABLE>
On Behalf of the Board of Directors
<TABLE>
<S> <C>
/s/ PATRICK W. MCCLEERY /s/ WAYNE JOHNSTONE
- -------------------------------------------- --------------------------------------------
Director Director
</TABLE>
F-19
<PAGE> 71
BIOMETRIC SECURITY CORP.
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
REVENUE
Interest......................................... $ 56,954 $ 31,456 $ 51,964
------------ ----------- -----------
EXPENSES
Advertising...................................... -- -- 26,719
Audit and legal.................................. 105,500 11,589 37,372
Business consultants............................. 43,150 12,750 30,236
Depreciation..................................... 2,383 6,927 10,500
Finder's fee (Note 4)............................ 23,615 -- --
Foreign exchange................................. 48,381 -- (6,007)
Interest and bank charges........................ 675 289 948
Management fees.................................. 32,100 30,000 30,000
Office expenses.................................. 33,846 15,847 37,699
Listing costs.................................... 11,749 2,294 7,130
Salaries, wages and administration............... 22,059 14,965 27,860
Travel and accommodation......................... 30,422 4,752 27,625
------------ ----------- -----------
353,880 99,413 230,082
------------ ----------- -----------
(296,926) (67,957) (178,118)
GAIN ON SALE OF PROPERTIES......................... 164,855 -- --
LOSS ON DISPOSAL OF ASSETS......................... -- (17,726) --
------------ ----------- -----------
NET LOSS........................................... (132,071) (85,683) (178,118)
DEFICIT, BEGINNING OF PERIOD....................... (10,080,400) (4,396,703) (2,196,808)
------------ ----------- -----------
DEFICIT, END OF PERIOD............................. $(10,212,471) $(4,482,386) $(2,374,926)
============ =========== ===========
LOSS PER SHARE..................................... $ (0.01) $ (0.01) $ (0.01)
============ =========== ===========
</TABLE>
F-20
<PAGE> 72
BIOMETRIC SECURITY CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- -----------
<S> <C> <C> <C>
OPERATIONS
Loss for the period................................. $(132,071) $ (85,683) $ (178,118)
Items not involving cash:
Depreciation..................................... 2,383 6,927 10,500
Loss on disposal of assets....................... -- 17,726 --
Changes in non-cash working capital items........ (40,975) (58,011) (380,991)
Accrued interest on investment................... (55,922) -- --
Non-cash fees.................................... 23,615 -- --
--------- ---------- -----------
(202,970) (119,041) (548,609)
========= ========== ===========
FINANCING
Issue of common shares, net......................... 974,893 -- 5,417,045
Repayment of loan................................... (150,775) -- --
Advance on share subscription....................... 75,000 -- --
--------- ---------- -----------
899,118 -- 5,417,045
========= ========== ===========
INVESTMENTS
Capital assets...................................... (2,786) (11,064) (75,831)
Mineral properties.................................. -- (67,289) (1,291,165)
Proceeds on disposal of fixed assets................ -- 56,823 --
Increase in investment (Note 4)..................... (783,326) -- --
--------- ---------- -----------
(786,112) (21,530) (1,366,996)
--------- ---------- -----------
CHANGE IN CASH........................................ (89,964) (140,571) 3,501,440
CASH, BEGINNING OF PERIOD............................. 245,182 3,330,110 1,742,133
--------- ---------- -----------
CASH, END OF PERIOD................................... $ 155,218 $3,189,539 $ 5,243,573
========= ========== ===========
</TABLE>
F-21
<PAGE> 73
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(UNAUDITED)
1. SHARE CAPITAL
a) Authorized: Unlimited (1998 -- 100,000,000) common shares without par
value.
b) Issued:
<TABLE>
<CAPTION>
SHARES AMOUNT
---------- -----------
<S> <C> <C>
Balance, March 31, 1996............................ 7,645,962 $ 3,742,787
Exercise of warrants............................... 1,983,000 1,790,851
Exercise of options................................ 100,000 77,800
Private placement.................................. 1,400,000 1,540,000
Share issue costs.................................. (180,792)
---------- -----------
Balance, December 31, 1996......................... 11,128,962 6,970,646
Issued during the year for cash by way of:
Private placement of special warrants, net of
issue costs................................... 5,000,000 5,106,645
Exercise of warrants............................. 200,000 184,000
Exercise of options.............................. 120,000 126,400
---------- -----------
Balance, December 31, 1997......................... 16,448,962 12,387,691
Issued during the year for cash by way of:
Private placements............................... 4,035,000 605,250
Exercise of options.............................. 100,000 23,000
Issued during the year for finder's fee............ 250,450 75,135
---------- -----------
20,834,412 13,091,076
Allotted during the year for:
Finder's fee..................................... 82,292 24,687
Carrying charges................................. 65,789 12,500
---------- -----------
Balance, December 31, 1998......................... 20,982,493 13,128,263
Issued during the period for cash by way of:
Private placements............................... 11,666,666 1,750,000
Exercise of warrants............................. 100,000 15,000
---------- -----------
32,749,159 14,893,263
Allotted during the period for:
Finder's fee..................................... 78,715 23,615
Share issue costs.................................. (129,515)
---------- -----------
Balance, March 31, 1999............................ 32,827,874 $14,787,363
========== ===========
</TABLE>
F-22
<PAGE> 74
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(UNAUDITED)
c) During the period ended March 31, 1999 the Company completed brokered
and non-brokered private placements that totalled 11,666,666 units at $0.15 per
unit for gross proceeds of $1,750,000. Each unit consisted of one common share
and one non-transferable share purchase warrant exercisable at $0.15 per share
in the first year and $0.17 per share in the second year. The agent for the
brokered private placement was paid a 10% commission totalling $100,000 and
1,000,000 broker warrants exercisable at $0.15 per share in the first year and
$0.17 per share in the second year.
d) At March 31, 1999 the company reserved in respect of options and
warrants:
Options:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE EXPIRY DATE
- ---------------- -------------- -----------
<S> <C> <C>
1,255,000 $0.23 January 28, 2001
50,000 $0.32 July 6, 2000
100,000 $0.20 August 28, 2000
---------
1,405,000
=========
</TABLE>
Warrants:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE EXPIRY DATE
- ---------------- -------------- -----------
<S> <C> <C>
3,275,000 $0.17 March 31, 2000
660,000 $0.15 September 10, 1999
$0.17 September 10, 2000
12,666,666 $0.15 January 29, 2000
$0.17 January 29, 2001
----------
16,601,666
==========
</TABLE>
2. RELATED PARTY TRANSACTIONS
Fees of $60,188 (1998 -- $30,000; 1997 -- $81,125) were charged by
directors or companies affiliated with them for management, consulting and
administrative services.
3. DIRECTORS
Mr. P. McCleery
Mr. W. Rand
Mr. C. Idziszek
Mr. W. Johnstone
4. INVESTMENT
<TABLE>
<S> <C>
Investment, at cost...................................... $4,340,556
Accrued interest receivable............................ 135,911
----------
$4,476,467
==========
</TABLE>
During 1998 a company entered into an agreement to purchase convertible
debentures entitling the Company to acquire up to a 45% interest in Biometric
Identification Inc. ("BII"), a private California-based company in the business
of developing, manufacturing and marketing fingerprint recognition technology.
F-23
<PAGE> 75
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(UNAUDITED)
Under the terms of the agreement, the company has the right to acquire up to US
$5,000,000 of convertible debentures to be issued by BII. If all such debentures
are acquired and converted into shares of BII, the Company will hold
approximately 45% of the issued shares of BII.
This investment was initiated by a related party which assigned its
interest to the Company in exchange for a fee up to US $145,000, plus
reimbursement of its expenses. The related party elected to take this fee in the
form of 715,575 common shares as a deemed price of $0.30 per share. These shares
will be issued in pro-rata tranches on the same basis the debentures are
purchased by the Company.
The debentures have a term of five years from the date of the closing of
the first acquisition and bear interest at the lowest interest rate imputed
under the U.S. Internal Revenue Code.
At March 31, 1999 the Company had acquired debentures of BII totalling US
$2,875,000 in accordance with the terms of the agreement and had issued 250,450
shares and allotted 161,007 shares at a total value of $123,437, to the related
party. Additional debenture acquisitions and share issuances for finders fees
under the terms of the original agreement are scheduled as follows:
<TABLE>
<CAPTION>
DEBENTURE
DATES AMOUNT (US $) SHARES
----- ------------- -------
<S> <C> <C>
April 16, 1999...................................... $ 125,000 17,889
April 16, 1999...................................... 500,000 71,558
May 12, 1999........................................ 1,500,000 214,673
---------- -------
$2,125,000 304,120
========== =======
</TABLE>
Subsequent to March 31, 1999, the debenture acquisitions scheduled to be made on
April 16, 1999, were made and the Company is in the process of negotiating an
extension to the May 12, 1999, acquisition.
5. LOAN PAYABLE
During 1998, a company affiliated with a director loaned the Company a
total of $250,000. The loan was unsecured, non-interest bearing and was due on
December 26, 1998. A total of $99,225 of the loan was repaid on December 29,
1999, and the balance of the loan of $150,775 was repaid subsequent to December
31, 1998. The Company allotted 65,789 shares at a deemed price of $0.19 per
share at December 31, 1998, as allowed for under the rules of the Vancouver
Stock Exchange, as consideration for the loan.
6. MINERAL PROPERTIES
During the year ended December 31, 1998 the Company changed its principal
business activity from mineral exploration to the development of fingerprint
identification systems and wrote-off its mineral exploration expenditures.
F-24
<PAGE> 76
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---------- ----------
<S> <C> <C> <C>
ACQUISITION COSTS................................... $-- $ -- $ 63,311
-- ---------- ----------
EXPLORATION AND DEVELOPMENT EXPENDITURES
Assays............................................ -- 1,926 28,501
Communication..................................... -- 332 19,816
Contract drilling, excavation and trenching....... -- -- 701,034
Contract labour and supervision................... -- -- 61,459
Data acquisition and analysis..................... -- 1,368 29,134
Equipment and field supplies...................... -- 3,174 100,138
Field administration.............................. -- 8,930 42,408
Field car rental and transportation............... -- 1,699 30,718
Geological and geophysical........................ -- 38,974 145,956
Insurance......................................... -- 2,994 8,014
Legal and other................................... -- 7,287 27,255
Travel and accommodation.......................... -- 605 33,421
-- ---------- ----------
-- 67,289 1,227,854
== ========== ==========
-- 67,289 1,291,165
MINERAL PROPERTIES, BEGINNING....................... -- 4,670,516 3,115,311
-- ---------- ----------
MINERAL PROPERTIES, ENDING.......................... $-- $4,737,805 $4,406,476
== ========== ==========
</TABLE>
The Company continues to hold several Argentine properties and has entered
into an agreement to grant Inlet Resources Ltd. ("Inlet") an option to purchase
up to a 100% interest in these properties. Under the terms of the agreement, the
Company granted Inlet an option to purchase up to 90% of the properties, over a
three year period, with a buyout of the remaining 10% for US $2,000,000. During
the first year the agreement required Inlet to pay the Company US $150,000 in
stages, issue the Company 100,000 shares and complete a US $650,000 work program
to earn a 50% interest in the properties. During the second and third years the
agreement provides that Inlet will pay the Company a total of US $600,000 in
stages, issue 200,000 shares and complete work commitments totalling US
$1,500,000 to earn an additional 40% interest in the properties. To March 31,
1999 the Company received US $150,000 and 100,000 shares relating to the option
agreement.
7. CONTINGENCIES:
a) Uncertainty due to the Year 2000 Issue:
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effect of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Company,
including those related to the efforts of investees, suppliers or other
third parties, will be fully resolved.
F-25
<PAGE> 77
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(UNAUDITED)
b) Contingent Liability:
The Company continued its jurisdiction of incorporation from British
Columbia to the State of Wyoming, effective November 10, 1998, and has
proposed to continue from Wyoming back into British Columbia in 1999. In
the course of their review of the Company's proposal, the United States
Securities and Exchange Commission (the "SEC") had advised the Company that
they believe the original continuance to Wyoming was an event that would
have required the filing of a registration statement with the SEC. As a
result, the Company appears to have been in technical violation of the U.S.
Securities Act of 1933 (the "Act") and holders of shares of the Company, at
the time of the original continuance to Wyoming may have common law
remedies under the Act. In addition, the Company is required to offer the
U.S. holders of shares of the Company the right to have their shares
repurchased by the Company at their fair market value at the time of the
original continuance and may be required to offer non-U.S. holders the same
right of repurchase.
No provision has been recorded in the accounts for any contingent
loss, as the outcome is not determinable at this time.
8. SUBSEQUENT EVENTS
a) Corporate Continuance:
During the quarter the Company announced an extraordinary general
meeting of the shareholders of the Company to be held on April 12, 1999, at
which time the shareholders were to vote on the Company's proposal to
continue the Company to the Province of British Columbia and to consolidate
the Company's share capital on the basis of one post-consolidated share for
each five pre-consolidated shares. The meeting was subsequently postponed
and has not yet been re-scheduled.
b) Private Placement:
Subsequent to March 31, 1999 the Company completed a brokered private
placement of 11,666,665 units at $0.15 per unit to raise gross proceeds of
up to $1,750,000. Each unit consisted of one common share and one
non-transferable share purchase warrant exercisable at $0.15 per share in
the first year and $0.17 per share in the second year. The agent will be
paid a 10% commission, payable in cash, and 1,600,000 broker warrants
exercisable at $0.15 per share in the first year and $0.17 per share in the
second year.
9. SEGMENTED INFORMATION
During 1998, the Company adopted the accounting standards related to
segment disclosures recently approved by the accounting standard-setting bodies
in the United States and Canada. The information presented below is consistent
with these standards. The Company has not allocated general and administrative
expenses from the corporate segment.
a) Operating Segments:
The Company has determined its operating segments to be mineral
exploration and development, and corporate which includes holding
investments, based on the way management organizes and manages its
business.
F-26
<PAGE> 78
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MINERAL
EXPLORATION AND
DEVELOPMENT CORPORATE TOTAL
--------------- ---------- -----------
<S> <C> <C> <C>
1999
Revenue..................................... $ -- $ 56,954 $ 56,954
General and administrative.................. -- 353,880 353,880
Gain on sale of assets...................... 164,855 -- 164,855
---------- ---------- -----------
(Loss) Gain for the period.................. $ 164,855 $ (296,926) $ (132,071)
---------- ---------- -----------
Capital expenditures........................ $ -- $ 786,112 $ 786,112
---------- ---------- -----------
Identifiable assets......................... $ -- $4,763,244 $ 4,763,244
---------- ---------- -----------
1998
Revenue..................................... $ -- $ 31,456 $ 31,456
General and administrative.................. -- 99,413 99,413
Loss on sale of assets...................... -- (17,726) (17,726)
---------- ---------- -----------
(Loss) Gain for the period.................. $ -- $ (85,683) $ (85,683)
---------- ---------- -----------
Capital expenditures (recoveries)........... $ 67,289 $ (45,759) $ 21,530
---------- ---------- -----------
Identifiable assets......................... $4,737,805 $3,392,793 $ 8,130,598
---------- ---------- -----------
1997
Revenue..................................... $ -- $ 51,964 $ 51,964
General and administrative.................. -- 230,082 230,082
Gain on sale of properties.................. -- -- --
---------- ---------- -----------
(Loss) Gain for the period.................. $ -- $ (178,118) $ (178,118)
---------- ---------- -----------
Capital expenditures (recoveries)........... $1,291,165 $ 75,831 $ 1,366,996
---------- ---------- -----------
Identifiable assets......................... $4,406,476 $5,938,147 $10,344,623
---------- ---------- -----------
</TABLE>
b) Geographic Information:
All of the Company's mineral exploration and development activities
during 1997 through 1999 were in Argentina.
Except for the Company's investment in BII and related accrued
interest income and foreign exchange loss, substantially all of the
Company's corporate activities during 1997 through 1999 were in Canada.
F-27
<PAGE> 79
APPENDIX I -- SPECIAL AND ORDINARY RESOLUTIONS
TEXT OF SPECIAL AND ORDINARY RESOLUTIONS
APPROVAL OF INCENTIVE STOCK OPTIONS
The following Ordinary Resolution authorizes the Company to, in the
absolute discretion of the directors, implement a stock option plan and to grant
incentive stock options to insiders of the Company, either individually or under
a stock option plan.
"WHEREAS the Company wishes to implement a stock option plan and grant to
directors, officers, employees and consultants of the Company, who may be
insiders of the Company (as that term is defined in the Securities Act (British
Columbia) ("Insiders")), incentive stock options, either individually or under a
stock option plan;
RESOLVED, as Ordinary Resolutions that:
1. the directors are authorized in their absolute discretion to implement a
stock option plan and to grant to directors, officers, employees and
consultants of the Company, who may be Insiders of the Company, incentive
stock options, either individually or under a stock option plan,
exercisable into an aggregate number of common shares of the Company, not
to exceed the prescribed number of the outstanding capital of the Company,
from time to time, within the policy of the Vancouver Stock Exchange;
2. incentive stock options previously granted to Insiders of the Company be
ratified, approved and confirmed;
3. the directors be authorized to amend incentive stock options held by
Insiders of the Company during the ensuing year; and
4. no further shareholder approval will be required prior to the exercising of
these options or amended options by Insiders for the ensuing year."
APPROVAL OF CONSOLIDATION OF SHARE CAPITAL (REVERSE STOCK SPLIT)
The following Ordinary Resolution authorizes the Company to consolidate its
issued share capital (sometimes referred to as a reverse stock split) on the
basis of one new common share without par value for every existing five common
shares without par value (the "Consolidation").
Management would like the consent of the shareholders to not proceed with
the Consolidation in the event that the Ordinary Resolution respecting the
consolidation of the Company's share capital is passed by the shareholders at
the Meeting and management subsequently concludes that it would not be in the
best interests of the Company to proceed with the Consolidation. In this regard,
management will ask the shareholders to approve the following Ordinary
Resolution:
"WHEREAS Management proposes that the Company consolidate its issued share
capital on the basis of one new common share without par value for every five
existing common shares without par value (the "Consolidation");
AND WHEREAS management proposes to present an Ordinary Resolution to the
shareholders at the Meeting with respect to the Consolidation and may
subsequently decide that it is not in the best interests of the Company to
proceed with such matters;
RESOLVED, as Ordinary Resolutions, that:
1. all of the issued common shares without par value be consolidated on the
basis of one new common share without par value for every five existing
common shares without par value;
2. the directors of the Company be hereby authorized, in their discretion, to
abandon the Consolidation without further approval of the shareholders; and
I-1
<PAGE> 80
3. the directors and officers of the Company, or any one of them, be hereby
authorized and directed to perform all such acts, deeds and things and
execute, under the seal of the Company or otherwise, all such documents,
agreements and other writings as may be required to give effect to the true
intent of this resolution."
APPROVAL OF CONTINUATION
The following Special Resolution authorizes the Company to complete the
transfer of the Company out of Wyoming and the continuation of the Company into
British Columbia (the "Continuation").
"WHEREAS the Company proposes to transfer out of the State of Wyoming under
the jurisdiction of the Wyoming Business Corporations Act ("WBCA") and continue
into British Columbia (the "Continuation") under the jurisdiction of the British
Columbia Company Act (the "BCCA");
AND WHEREAS the management proposes to present a Special Resolution to the
shareholders at the Meeting with respect to the Continuation and may
subsequently decide that it is not in the best interests of the Company to
proceed with such matters;
RESOLVED, as Special Resolutions, that:
1. the Company be hereby authorized to make application to the Wyoming
Secretary of State (the "Wyoming Secretary") for approval of the proposed
transfer of the Company out of Wyoming and to the B.C. Registrar of
Companies (the "B.C. Registrar") for approval of the proposed continuation
of the Company into British Columbia continuing the Company as if it had
been incorporated under the BCCA;
2. the Company approve and, upon the Continuation, adopt the Memorandum (the
"British Columbia Memorandum") in the form approved by the directors of the
Company, the British Columbia Memorandum to come into effect when the B.C.
Registrar issues a Certificate of Continuation continuing the Company as if
it had been incorporated under the BCCA and the Wyoming Secretary issues a
Certificate of Transfer to transfer the Company out of the State of
Wyoming;
3. the Company approve and, upon the Continuation, adopt the Articles (the
"British Columbia Articles") in the form approved by the directors of the
Company, the British Columbia Articles to come into effect when the B.C.
Registrar issues a Certificate of Continuation continuing the Company as if
it had been incorporated under BCCA and the Wyoming Secretary issues a
Certificate of Transfer to transfer the Company out of the State of
Wyoming;
4. the directors of the Company be hereby authorized, in their discretion, to
abandon or amend the application for continuation of the Company under the
BCCA without further approval of the shareholders; and
5. the directors and officers of the Company, or any one of them, be hereby
authorized and directed to perform all such acts, deeds and things and
execute, under the seal of the Company or otherwise, all such documents,
agreements and other writings as may be required to give effect to the true
intent of this resolution."
APPROVAL OF CHANGE OF AUTHORIZED CAPITAL
Pursuant to the proposed continuation, management proposes to change the
authorized capital of the Company and, accordingly, the following Ordinary
Resolution will be presented to shareholders at the meeting for approval.
"WHEREAS the Company wishes to change its authorized capital upon
continuation into the Province of British Columbia (the "Continuation");
RESOLVED, as Ordinary Resolutions, that:
1. the Company change its authorized capital upon continuation of the Company
into British Columbia;
I-2
<PAGE> 81
2. the Company approve and, upon the Continuation, adopt the Memorandum (the
"British Columbia Memorandum") in the form approved by the directors of the
Company having the effect, among other things, of changing the authorized
capital of the Company to one hundred million (100,000,000) common shares
without par value, in substitution for the existing Articles of
Incorporation of the Company and its existing authorized capital, the
change of authorized capital to come into effect when the British Columbia
Memorandum is submitted to the B.C. Registrar and the B.C. Registrar issues
a Certificate of Continuation continuing the Company as if it had been
incorporated under the British Columbia Company Act and the Wyoming
Secretary of State releases a Certificate of Transfer to transfer the
Company out of the State of Wyoming;
3. the directors of the Company be hereby authorized, in their discretion, to
abandon the change of the Company's authorized capital without further
approval of the shareholders; and
4. the directors and officers of the Company, or any one of them, be hereby
authorized and directed to perform all such acts, deeds and things and
execute, under the seal of the Company or otherwise, all such documents,
agreements and other writings as may be required to give effect to the true
intent of this resolution."
APPROVAL OF NAME CHANGE
Pursuant to the proposed transfer of the Company out of Wyoming and the
continuation of the Company into British Columbia (the "Continuation"),
management proposes to change the name of the Company and, accordingly, the
following Ordinary Resolution will be presented to shareholders at the Meeting
for approval.
"WHEREAS the Company wishes to change its name to "Safeguard Biometric
Corp." upon continuation into the Province of British Columbia (the
"Continuation");
RESOLVED, as Ordinary Resolutions, that:
1. the Company change its name upon continuation of the Company into British
Columbia, to "Safeguard Biometric Corp." or such other name as may be
resolved by the board of directors of the Company in their absolute
discretion, and which may be acceptable to the regulatory authorities;
2. the Company approve and, upon the Continuation, adopt the Memorandum (the
"British Columbia Memorandum") in the form approved by the directors of the
Company having the effect, among other things, of changing the name of the
Company to "Safeguard Biometric Corp.", or such other name as may be
approved by the B.C. Registrar of Companies (the "B.C. Registrar"), in
substitution for the existing Articles of Incorporation of the Company and
its existing name, the change of name to come into effect when the British
Columbia Memorandum is submitted to the B.C. Registrar and the B.C.
Registrar issues a Certificate of Continuation continuing the Company as if
it had been incorporated under the British Columbia Company Act and the
Wyoming Secretary of State releases a Certificate of Transfer to transfer
the Company out of the State of Wyoming;
3. the directors of the Company be hereby authorized, in their discretion, to
abandon the change of the Company's name without further approval of the
shareholders; and
4. the directors and officers of the Company, or any one of them, be hereby
authorized and directed to perform all such acts, deeds and things and
execute, under the seal of the Company or otherwise, all such documents,
agreements and other writings as may be required to give effect to the true
intent of this resolution."
I-3
<PAGE> 82
PROXY
THIS PROXY IS SOLICITED BY MANAGEMENT OF BIOMETRIC SECURITY CORP. (THE
"CORPORATION") FOR USE AT THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS (THE
"MEETING") TO BE HELD ON FRIDAY, JULY 30, 1999 AT 10:00 A.M. (LOCAL TIME IN
VANCOUVER, B.C.) AND ANY ADJOURNMENT THEREOF.
The undersigned shareholder of the Company hereby appoints ROBERT M. KAMM,
President of the Company, or failing this person, SAUNDRA ZIMMER, the Secretary
of the Company, or in the place of both of the foregoing,
- ------------------------------------ (PLEASE PRINT NAME), as proxyholder for and
on behalf of the undersigned, with power of substitution, to attend, act and
vote for and in the name of the undersigned at the Meeting and at every
adjournment thereof, with respect to all or
- ------------------of the common shares of the Company registered in the name of
the undersigned. Unless otherwise expressly stated herein by the undersigned,
receipt of this proxy duly executed and dated, revokes any former proxy given to
attend and vote at the meeting and at any adjournment thereof. UNLESS THE
UNDERSIGNED DIRECTS OTHERWISE, THE NOMINEE IS HEREBY INSTRUCTED TO VOTE THE
COMMON SHARES OF THE COMPANY HELD BY THE UNDERSIGNED AS FOLLOWS:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----- -------- -------
<C> <S> <C> <C> <C> <C>
<CAPTION>
FOR AGAINST ABSTAIN
----- ------- -------
<C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<C> <S> <C> <C> <C>
1. To fix the number of directors at four [ ] [ ] [ ]
FOR WITHHOLD
----- --------
2. To elect Robert M. Kamm, Chester Idziszek,
William A. Rand and Wayne Johnstone
directors of the Company [ ] [ ]
3. To approve the appointment of KPMG LLP as independent
auditors for the year 1999 [ ] [ ]
FOR AGAINST ABSTAIN
----- -------- -------
4. To approve granting to the directors, officers,
employees and consultants of the Company of incentive
stock options to purchase common shares of the [ ] [ ] [ ]
Company
5. To approve the consolidation (reverse stock split) of
the Company's issued share capital on the basis of
one new common share without par value for every five
existing common shares without par value [ ] [ ] [ ]
6. To approve the continuation (transfer) of the Company
into the Province of British Columbia [ ] [ ] [ ]
7. To approve, upon the Company's transfer to British
Columbia, a reduction in the Company's authorized
capital to 100,000,000 common shares without par value [ ] [ ] [ ]
8. To approve a change of the name of the Company, upon
the continuation [ ] [ ] [ ]
9. To approve the transaction of other business [ ] [ ] [ ]
</TABLE>
THE UNDERSIGNED SHAREHOLDER HEREBY REVOKES ANY PROXY PREVIOUSLY GIVEN TO
ATTEND AND VOTE AT THE MEETING.
SIGNATURE:
------------------------------------------------------------ DATE:
------------------------------------------------------------
(PROXY MUST BE SIGNED AND DATED)
If someone other than the named shareholder signs this Proxy on behalf of
the named shareholder, documentation acceptable to the Chairman of the
Meeting must be deposited with this Proxy granting signing authority to
the person signing the proxy.
To be used at the Meeting, this Proxy must be received at the offices of
PACIFIC CORPORATE TRUST COMPANY by mail or by fax not less than 48 hours
(excluding Saturdays, Sundays and holidays) prior to the Meeting or
delivered to the Chairman of the Meeting on the day of the Meeting prior
to its commencement. The mailing address of PACIFIC CORPORATE TRUST
COMPANY, IS SUITE 830 - 625 HOWE STREET, VANCOUVER, BRITISH COLUMBIA, V6C
3B8 and its fax number is (604) 689-8144.
<PAGE> 83
1. IF THE SHAREHOLDER'S SECURITIES ARE HELD BY AN INTERMEDIARY (E.G. A BROKER)
AND THE SHAREHOLDER WISHES TO ATTEND THE MEETING TO VOTE ON THE RESOLUTIONS,
please insert the shareholder's name in the blank space provided, do not
indicate a voting choice by any resolution, sign and date and return the
Proxy in accordance with the instructions provided by the intermediary.
Please contact the intermediary if there are any questions. At the Meeting a
vote will be taken on each of the resolutions as set out on this Proxy and
the shareholder's vote will be counted at that time.
2. IF THE SHAREHOLDER CANNOT ATTEND THE MEETING BUT WISHES TO vote on the
resolutions, the shareholder can APPOINT ANOTHER PERSON, who need not be a
shareholder of the Company, to vote according to the shareholder's
instructions. To appoint someone other than the nominees named by management,
please insert your appointed proxyholder's name in the space provided, sign
and date and return the Proxy. Where no choice on a resolution is specified
by the shareholder, this Proxy confers discretionary authority upon the
shareholder's appointed proxyholder to vote for or against or withhold vote
with respect to that resolution, provided that with respect to a resolution
relating to a director nominee or auditor, the proxyholder only has the
discretion to vote or not vote for such nominee.
3. IF THE SHAREHOLDER CANNOT ATTEND THE MEETING BUT WISHES TO vote on the
resolutions and to APPOINT ONE OF THE NOMINEES NAMED BY MANAGEMENT as
proxyholder, please leave the wording appointing a nominee as shown, sign and
date and return the Proxy. Where no choice is specified by a shareholder on a
resolution shown on the Proxy, a nominee of management acting as proxyholder
will vote the securities as if the shareholder had specified an affirmative
vote.
4. The securities represented by this Proxy will be voted or withheld from
voting in accordance with the instructions of the shareholder on any ballot
of a resolution that may be called for and, if the shareholder specifies a
choice with respect to any matter to be acted upon, the securities will be
voted accordingly. With respect to any amendments or variations in any of
the resolutions shown on the Proxy, or matters which may properly come
before the Meeting, the securities will be voted by the nominee appointed as
the proxyholder, in its sole discretion, sees fit.
5. If the shareholder votes by completing and returning the Proxy, the
shareholder may still attend the Meeting and vote in person should the
shareholder later decide to do so. To vote in person at the Meeting, the
shareholder must revoke the Proxy in writing as set forth in the Information
Circular.
6. This Proxy is not valid unless it is dated and signed by the shareholder or
by the shareholder's attorney duly authorized by the shareholder in writing,
or, in the case of a corporation, by its duly authorized officer or attorney
for the corporation. If the Proxy is executed by an attorney for an
individual shareholder or joint shareholders or by an officer or an attorney
of a corporate shareholder, the instrument so empowering the officer or the
attorney, as the case may be, or a notarial copy thereof, must accompany the
Proxy.
7. To be valid, this Proxy, duly dated and signed, must arrive at the office of
the Registrar and Transfer Agent of the Company not less than 48 hours
(excluding Saturdays, Sundays and holidays) prior to the time for holding
the Meeting, or delivered to the Chairman of the Meeting prior to the
commencement of the Meeting.
---
---
---
---
<PAGE> 84
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
Notice is hereby given that the Annual General Meeting (the "Meeting") of
the shareholders of Biometric Security Corp. (the "Company") will be held on
Friday, July 30, 1999 at Suite 1940 - 400 Burrard Street, Vancouver, British
Columbia, Canada, at the hour of 10:00 a.m. (local time in Vancouver, B.C.) for
the following purposes:
1. To pass a resolution adopted by a majority (greater than 50%) of the shares
entitled to vote at the meeting (an "Ordinary Resolution") to fix the
number of directors at four;
2. To pass an Ordinary Resolution to elect four members of the Board of
Directors to hold office until the Annual General Meeting of Shareholders
in 2000;
3. To pass an Ordinary Resolution to act upon the ratification of the
appointment of KPMG LLP as independent auditors for the year 1999;
4. To pass an Ordinary Resolution to approve the granting to the directors,
officers and employees of the Company of incentive stock options to
purchase common shares of the Company;
5. To pass an Ordinary Resolution authorizing the consolidation of the issued
share capital of the Company on the basis of one new common share without
par value for every five existing common shares without par value;
6. To pass a resolution adopted by two thirds (2/3) or more of the shares
entitled to vote at the meeting (a "Special Resolution") authorizing the
Company to change its jurisdiction of incorporation from the State of
Wyoming to the Province of British Columbia by way of filing an Instrument
of Continuance and adopting a Memorandum and Articles prepared in
accordance with the British Columbia Company Act;
7. To pass an Ordinary Resolution authorizing the Company to reduce its
authorized share capital to one hundred million (100,000,000) common shares
without par value upon the Company's continuation into British Columbia;
8. To pass an Ordinary Resolution authorizing the Company to change the
Company's name to "Safeguard Biometric Corp." upon the Company's
continuation into British Columbia; and
9. To approve the transaction of such other business as may properly come
before the Meeting.
ACCOMPANYING THIS NOTICE IS A PROXY STATEMENT/PROSPECTUS CONTAINING AN
INFORMATION CIRCULAR AND A FORM OF PROXY.
Shareholders unable to attend the Meeting in person should read the notes
to the enclosed Proxy and complete and return the Proxy to the Company's
Registrar and Transfer Agent, Pacific Corporate Trust Company, Suite 830, 625
Howe Street, Vancouver, B.C., Canada V6C 3B8, not less than 48 hours (excluding
Saturdays, Sundays and holidays) before the Meeting or to the Chair of the
Meeting prior to the commencement of the Meeting.
The enclosed Proxy is solicited by management of the Company and you may
amend it, if you wish, by inserting in the space provided the name of the person
you wish to represent you as proxyholder at the Meeting.
DATED at Vancouver, British Columbia, this day of , 1999.
BY ORDER OF THE BOARD
"Robert M. Kamm"
--------------------------------
ROBERT M. KAMM
President
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Upon its continuation to Wyoming in 1998, the Company retained its By-Laws
as then in effect. The Company's By-Laws provide that, subject to the provisions
of the British Columbia Company Act, the Directors may, with court approval,
cause the Company to indemnify a Director or former Director of the Company or a
director or former director of a corporation of which the Company is or was a
member, and the heirs and personal representatives of any such person, against
all costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, actually and reasonably incurred by him, including an amount
paid to settle an action or satisfy a judgment in a civil, criminal or
administrative action or proceeding to which he is made a party by reason of
being or having been a Director of the Company or a director of such
corporation, including any action or proceeding brought by the Company or any
such corporation. Each Director of the Company on being elected or appointed
shall be deemed to have contracted with the Company on the terms of the
foregoing indemnity.
The By-Laws also provide that, subject to the provisions of the British
Columbia Company Act, the Directors may cause the Company to indemnify any
officer, employee or agent of the Company or of a corporation of which the
Company is or was a member (notwithstanding that he is also a Director) and his
heirs and personal representatives against all costs, charges and expenses
whatsoever incurred by him and resulting from his actions as an officer,
employee or agent of the Company or of such corporation. In addition the Company
shall indemnify the Secretary or an Assistant Secretary of the Company (if he or
she shall not be a full time employee of the Company and notwithstanding that he
or she is also a Director) and his or her heirs and personal representatives
against all costs, charges and expenses whatsoever incurred by him or her and
arising out of the functions assigned to the Secretary by the British Columbia
Company Act or the Company's By-Laws. Each such Secretary and Assistant
Secretary on being appointed shall be deemed to have contracted with the Company
on the terms of the foregoing indemnity.
Relevant Wyoming statutory provisions are as follows:
Section 17-16-851 of the Wyoming Business Corporation Act ("WBCA") provides
that a corporation may indemnify an individual who is a party to a proceeding
because he is a director against liability incurred in the proceeding if, among
other factors: (i) he conducted himself in good faith; and (ii) he reasonably
believed that his conduct was in or at least not opposed to the corporation's
best interests; and (iii) in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. Such indemnification must
be authorized by directors, legal counsel or shareholders as provided in Section
17-16-855.
Unless ordered by a court under WBCA Section 17-16-854(a)(iii), a
corporation may not indemnify a director under Section 17-16-851: (i) in
connection with a proceeding by or in the right of the corporation, except for
reasonable expenses incurred in connection with the proceeding if it is
determined that the director has met the standard of conduct as set forth in the
preceding paragraph; or (ii) in connection with any proceeding with respect to
conduct for which he was adjudged liable on the basis that he received a
financial benefit to which he was not entitled.
Pursuant to Section 17-16-852 of the WBCA, a corporation is required to
indemnify a director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he was a director
of the corporation against reasonable expenses incurred by him in connection
with the proceeding.
Pursuant to Section 17-16-853 of the WBCA, a corporation may, before final
disposition of a proceeding, advance funds to pay for or reimburse reasonable
expenses incurred by a director who is a party to a proceeding because he is a
director, if he delivers to the corporation: (i) a written affirmation of his
good faith belief that he has met the standard of conduct described in WBCA
Section 17-16-851; and (ii) his written undertaking to repay any funds advanced
if he is not entitled to mandatory indemnification under
II-1
<PAGE> 86
Section 17-16-852 (above) and it is determined that he has not met the standard
of conduct described in WBCA Section 17-16-851.
Section 17-16-854 of the WBCA provides for a director who is a party to a
proceeding because he is a director to apply for indemnification or an advance
for expenses to the court conducting the proceeding or another court of
competent jurisdiction. If the court determines that the director is entitled to
indemnification or advance for expenses, it may also order the corporation to
pay the director's reasonable expenses incurred in connection with obtaining
court-ordered indemnification or advance for expenses.
Section 17-16-856 of the WBCA provides that a corporation may indemnify and
advance expenses to an officer of the corporation who is a party to a proceeding
because he is an officer of the corporation: (i) to the same extent as a
director; and (ii) if he is an officer but not a director, to such further
extent as may be provided by the articles of incorporation, the by-laws, a
resolution of the board of directors or contract, except for: (A) liability in
connection with a proceeding by or in the right of the corporation other than
for reasonable expenses incurred in connection with the proceeding; or (B)
liability arising out of conduct that constitutes: receipt by him of a financial
benefit to which he is not entitled; an intentional infliction of harm on the
corporation or the shareholders; or (C) an intentional violation of criminal
law; and (iii) a corporation may also indemnify and advance expenses to a
current or former officer, employee or agent who is not a director to the
extent, consistent with public policy, that may be provided by its articles of
incorporation, by-laws, general or specific action of its board of directors or
contract. An officer of a corporation who is not a director is entitled to
mandatory indemnification under Section 17-16-852 of the WBCA, and may apply to
a court under Section 17-16-854 of the WBCA for indemnification or an advance
for expenses, in each case to the same extent to which a director may be
entitled to indemnification or advance for expenses under those provisions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
Registrant's Articles of Continuance into the State of
*3.1 Wyoming.
*3.2 Registrant's By-Laws, as amended.
*3.3 Registrant's Articles of Amendment re Authorized Stock.
*10.1 BII Agreement, dated June 12, 1998.
*10.2 Inlet Resources, Ltd. Agreement, dated January 21, 1999.
**21 Subsidiaries of the Registrant.
23 Consent of KPMG LLP, independent auditors.
24.1 Power of Attorney.
24.2 Power of Attorney.
*27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
** Filed as an exhibit to the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1998.
(b) Financial Statement Schedules.
II-2
<PAGE> 87
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (sec.230.424(b) of this
chapter) 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.
(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 of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into this proxy
statement/prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 Act
and is, therefore, unenforceable. In the event that 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 such
director, officer or controlling person in connection with the securities being
registered, 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 Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Vancouver,
British Columbia, Canada, on June 29, 1999.
BIOMETRIC SECURITY CORP.
By: *
----------------------------------
Robert M. Kamm
President and Director
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 indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director (Principal June 29, 1999
- ----------------------------------------------- Executive Officer)
Robert M. Kamm
** Director June 29, 1999
- -----------------------------------------------
Chester Idziszek
/s/ WAYNE JOHNSTONE Director (Principal Financial and June 29, 1999
- ----------------------------------------------- Accounting Officer)
Wayne Johnstone
/s/ WILLIAM A. RAND Director June 29, 1999
- -----------------------------------------------
William A. Rand
*By: /s/ SAUNDRA J. ZIMMER
------------------------------------------
Name: Saundra J. Zimmer
Title: Attorney-in-Fact
**By: /s/ WAYNE JOHNSTONE
-----------------------------------------
Name: Wayne Johnstone
Title: Attorney-in-Fact
</TABLE>
II-4
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<S> <C>
Registrant's Articles of Continuance into the State of
*3.1 Wyoming.
*3.2 Registrant's By-Laws, as amended.
*3.3 Registrant's Articles of Amendment re Authorized Stock.
*10.1 BII Agreement, dated June 12, 1998.
*10.2 Inlet Resources, Ltd. Agreement, dated January 21, 1999.
**21 Subsidiaries of the Registrant.
23 Consent of KPMG LLP, independent auditors.
24.l Power of Attorney.
24.2 Power of Attorney.
*27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
** Filed as an exhibit to the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1998.
<PAGE> 1
EXHIBIT 23
To the Board of Directors
Biometric Security Corp.:
We consent to the use of our report dated February 23, 1999, on the
consolidated balance sheets of Biometric Security Corp. as at December 31, 1998
and 1997, and the consolidated statements of operations and deficit and cash
flows for each of the years in the three year period ended December 31, 1998,
included in the Registration Statement on Form S-4 (No. 333-78009) and related
Proxy Statement/Prospectus of Biometric Security Corp., and to the reference to
our firm under the heading "Experts" in the Registration Statement.
KPMG LLP
Chartered Accountants
Vancouver, Canada
June 29, 1999
<PAGE> 1
POWER OF ATTORNEY
of
ROBERT KAMM
KNOW ALL MEN BY THESE PRESENTS that the individual whose signature appears
below hereby constitutes and appoints Saundra Zimmer his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all pre- or
post-effective amendments to a Registration Statement on Form S-4 for the
registration of common stock of Biometric Security Corp., Commission File No.
333-78009 (the "Registration Statement"), and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing which he or
she may deem necessary or advisable to be done in connection with the
Registration Statement, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or any substitute or substitutes for him or her, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 25th
day of June, 1999.
/s/ Robert Kamm
--------------------------------------
Robert Kamm
<PAGE> 1
POWER OF ATTORNEY
of
CHESTER IDZISZEK
KNOW ALL MEN BY THESE PRESENTS that the individual whose signature appears
below hereby constitutes and appoints Wayne Johnstone his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all pre- or
post-effective amendments to a Registration Statement on Form S-4 for the
registration of common stock of Biometric Security Corp., Commission File No.
333-78009 (the "Registration Statement"), and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing which he or
she may deem necessary or advisable to be done in connection with the
Registration Statement, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or any substitute or substitutes for him or her, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 23rd
day of June, 1999.
/s/ Chester Idziszek
--------------------------------------
Chester Idziszek
