<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the quarterly period ended March 31, 1999
---------------------
or
- --- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
Commission File Number 000-26696
-------------------------------------
BIOMETRIC SECURITY CORP.
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Wyoming Pending
------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Suite 1940, 400 Burrard Street,
Vancouver, British Columbia, Canada V6C 3A6
- ----------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (604) 687-4144
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [_] NO [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Not Applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of outstanding shares of the Registrant's common stock on
April 30, 1999 was 44,767,743
<PAGE> 2
CURRENCY AND EXCHANGE RATES
All dollar amounts set forth in this report are in Canadian dollars,
except where otherwise indicated. The following table sets forth (i) the rates
of exchange for the Canadian dollar, expressed in U.S. dollars, in effect at the
end of each of the periods indicated; (ii) the average of the exchange rates in
effect on the last day of each month during such periods; (iii) the high and low
exchange rate during such periods, in each case based on the noon buying rate in
New York City for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York.
<TABLE>
<CAPTION>
Years ending December 31,
- -----------------------------------------------------------------------------------------------------------
Three
months 1998 1997 1996 1995
ended ---- ---- ---- ----
3/31/99
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rate at end of Period $0.6626 $0.6504 $0.6999 $0.7301 $0.7323
- -----------------------------------------------------------------------------------------------------------
Average Rate During Period $0.6610 0.6740 0.7197 0.7333 0.7285
- -----------------------------------------------------------------------------------------------------------
High Rate $0.6724 0.7105 0.7487 0.7513 0.7527
- -----------------------------------------------------------------------------------------------------------
Low Rate $0.6535 0.6341 0.6945 0.7245 0.7023
- -----------------------------------------------------------------------------------------------------------
</TABLE>
On April 30, 1999, the noon buying rate in New York City for cable
transfer in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York was $0.6860 U.S. = $1.00 Canadian.
FORWARD-LOOKING STATEMENTS
Certain of the information contained in this Form 10-Q 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 the Company has attempted to identify
important factors 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.
2
<PAGE> 3
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Financial Statements 4
Consolidated Balance Sheets as at March 31, 1999,
and December 31,1998 4
Consolidated Statements of Operations and Deficit
for the Three Months Ended March 31, 1999,
1998 and 1997 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 18
PART II OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in Securities and Use of Proceeds 19
Item 3 Defaults upon Senior Securities 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 20
Signatures 21
3
<PAGE> 4
PART I -- FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BIOMETRIC SECURITY CORP.
CONSOLIDATED BALANCE SHEET
(Expressed in Canadian Dollars)
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March December 31, March
31, 1999 1998 31, 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
/s/ Patrick W. McCleery /s/ Wayne Johnstone
- ------------------------------- -------------------------------
Director Director
4
<PAGE> 5
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
Offices 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>
5
<PAGE> 6
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>
6
<PAGE> 7
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1. SHARE CAPITAL
a) Authorized: Unlimited (1998 - 100,000,000) common shares without par value.
b) Issued:
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>
7
<PAGE> 8
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 (continued)
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:
NUMBER OF SHARES EXERCISE PRICE EXPIRY DATE
---------------- -------------- -----------
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
==========================
Warrants:
NUMBER OF SHARES EXERCISE PRICE EXPIRY DATE
---------------- -------------- -----------
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
==========================
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
8
<PAGE> 9
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
4. INVESTMENT
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.
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.
9
<PAGE> 10
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(unaudited)
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
ACQUISITION COSTS $ - $ - $ 63,311
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
10
<PAGE> 11
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 and 1997
(unaudited)
- --------------------------------------------------------------------------------
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.
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.
11
<PAGE> 12
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(unaudited)
- --------------------------------------------------------------------------------
8. SUBSEQUENT EVENTS (con't)
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.
<TABLE>
<CAPTION>
Mineral
Exploration and
Development Corporate Total
- -------------------------------------------------------------------------------------------------------------
1999
- ----
<S> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
BIOMETRIC SECURITY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
FOR THE THREE MONTHS ENDED MARCH 31, 1999, 1998 AND 1997
(unaudited)
- --------------------------------------------------------------------------------
9. SEGMENTED INFORMATION (con't)
<TABLE>
<CAPTION>
Mineral
Exploration and
Development Corporate Total
- -------------------------------------------------------------------------------------------------------------
1998
- ----
<S> <C> <C> <C>
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
- ----
<S> <C> <C> <C>
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.
13
<PAGE> 14
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
On June 12, 1998, the Company 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. ("BII"), a private California corporation. The
Company's principal business now consists of its investment in BII.
BII is currently controlled by Arete Associates ("Arete") which is also
a private California corporation. 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 BII fingerprint identification
technology. This technology has been exclusively licensed to BII by Arete.
Pursuant to the BII Agreement, the Company proposes to invest up to US$5,000,000
in convertible debentures to be issued by BII. If all such convertible
debentures are acquired and all rights of conversion are exercised, the Company
will hold approximately 45% of the issued shares of BII. Approximately 83% of
the issued shares of BII are currently held by Arete. The remaining shares are
held primarily by employees of BII and Arete.
As of April 30, 1999, the Company has purchased US$3,500,000 of the
convertible debentures of BII pursuant to the BII Agreement. Under the BII
Agreement, as amended, the Company can acquire another US$1,500,000 of
convertible debentures bringing the total investment in BII to US$5,000,000. If
the Company does not purchase all of the convertible debentures in a particular
tranche by the outside purchase date specified in the following table, the
Company will lose its right to purchase additional convertible debentures.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Designation Principal Amount Outside Purchase Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tranche A & B US$ 350,000 Previously advanced
- -----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Fifth advance US$ 125,000 Advanced on April 16, 1999
- -----------------------------------------------------------------------------------------------------------
Tranche F US$ 500,000 Advanced on April 16, 1999
- -----------------------------------------------------------------------------------------------------------
Tranche G US$ 1,500,000 May 12, 1999
- -----------------------------------------------------------------------------------------------------------
Total: US$ 5,000,000
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The convertible debentures will bear interest at the lowest interest
rate imputed under the U.S. Internal Revenue Code and, if not converted, will
become payable five years after the closing date of the first acquisition, which
was June 12, 1998.
The Company may exercise its rights of conversion at any time. The
convertible debentures will automatically be converted on the earlier of an
initial public offering by BII or the acquisition of BII by a third party. If
all rights of conversion are exercised, the Company will be entitled to receive
the percentages of issued common stock of BII specified in the following table.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
% Upon Conversion
Designation of Entire Tranche Aggregate %(1)
- -----------------------------------------------------------------------------------------------------------
<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>
(1) Total percentage for the Tranche and all prior Tranches.
While the Company is not legally obligated to purchase additional
convertible debentures or to exercise its rights of conversion, the Company's
intention is to acquire all of the convertible debentures under the BII
Agreement and, in due course, if business conditions warrant, to exercise all of
the conversion rights. If all of the convertible debentures are purchased and
all rights of conversion are exercised, the Company will ultimately hold 45% of
the issued shares of the common stock of BII. The interest of the Company may be
subject to dilution resulting from the issuance of shares on exercise of options
granted under BII's stock incentive plan and may be subject to additional
dilution resulting from future grants of stock options or under certain
additional financings which may be undertaken by BII.
The parties have also agreed that BII may be merged into or acquired by
the Company. The parties have agreed to examine this from a tax, securities and
commercial perspective to determine the best structure for this potential
merger.
For additional information on the Company's investment in BII, see the
Company's Form 10-K filed with the Securities and Exchange Commission on March
31, 1999.
CURRENT CAPITAL RESOURCES AND LIQUIDITY
Since inception, the Company's capital resources have been limited.
Since cash generated from operations has been nominal, the Company has had to
rely upon the sale of equity and debt securities for cash required for
investments and operations, among other things. As noted, the Company has
acquired the right to invest up to US$5,000,000 into
15
<PAGE> 16
BII by way of the acquisition of convertible debentures. As at April 30, 1999,
the Company had invested US$3,500,000 into BII, leaving another US$1,500,000 to
possibly be invested in the future. As at April 30, 1999, the Company had
working capital of approximately $500,000. The Company's current working capital
is not sufficient to make the rest of the investment in BII.
Since the Company is unlikely to have cash flow in the near future, the
Company will have to continue to rely upon equity and debt financing during such
period. There can be no assurance that financing, whether debt or equity, will
always be available to the Company in the amount required at any particular time
or for any particular period or, if available, that it can be obtained on terms
satisfactory to the Company. Other than in respect of the BII acquisition, the
Company does not have any commitments for material capital expenditures over
either the near or long term and none are presently contemplated over normal
operating requirements.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
RESULTS OF OPERATIONS
A $0.01 loss per share in the three months ended March 31, 1999,
results from cash and short-term investment earnings of $56,954 less expenses of
$353,880 and mineral property recoveries of $164,855. This is compared to a
$0.01 loss per share in the three months ended March 31, 1998, from cash and
short-term investment earnings of $31,456, expenses of $99,413 and loss on
disposals of $17,726.
Administrative costs in the first three months of 1999 increased 256%
over 1998, primarily as a result of the Company incurring increased professional
fees, finders fees, and foreign exchange.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations has not to date satisfied all of the
Company's operational requirements and cash commitments. The Company has not yet
completed its capital budget and therefore cannot project accurately capital
expenditures; however, with working capital of approximately $112,264 as at
March 31, 1999, the Company does not presently have sufficient financial
resources to acquire the remaining debentures in BII anticipated to be acquired
pursuant to the agreement with BII. In the past, the Company relied on sales of
debt and equity securities to meet its cash requirements to the extent that they
exceeded cash flow from operations. If the Company cannot raise the necessary
financing directly by way of debt, equity or other means, it may be forced to
curtail its purchase of debentures of BII and its operating activities. At this
time, the Company is seeking but does not have specific arrangements to obtain
the necessary financing. There is no assurance that the Company will be
successful in obtaining any such financing.
During the first three months of 1999, the Company:
a) Completed a Private Placement on January 29, 1999, which
consisted of:
i) a best efforts brokered private placement of
6,666,666 units at $0.15 per unit for total proceeds
of $1,000,000.
ii) a non-brokered private placement of 5,000,000 units
at $0.15 per unit for total proceeds of $750,000.
16
<PAGE> 17
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
($100,000) payable in cash and a two year broker's warrant
exercisable into 1,000,000 shares of the Company. 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.
b) Announced a $1,750,000 Private Placement on February 2, 1999,
which was completed 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 the Company. 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.
c) Invested an additional US$550,000 in BII debentures.
d) Announced an extraordinary general meeting to the shareholders
of the Company to be held on April 12, 1999, at which time the
shareholders would vote on the Company's proposal to continue
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 date
was subsequently postponed and has not yet been rescheduled.
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.
As at March 31, 1999, a total of $4,476,467 (US$2,875,000), including
accrued interest of $135,911 had been invested in debentures of BII.
RISK OF YEAR 2000 NONCOMPLIANT SYSTEMS
The year 2000 issue is a general term used to refer to certain business
implications of the arrival of the new millennium. In simple terms, these
implications arise largely because it has been normal practice for computer
hardware and software to use only two digits rather than four to record the year
in date fields. On January 1, 2000, when the year is designated as "00", many
computer systems could either fail completely or create erroneous data as a
result of misinterpretation of the year. In some cases, date sensitive systems
may begin to fail prior to January 1, 2000. The results of failures may range
from relatively minor processing inaccuracies to catastrophic system
malfunctions. Failures may affect not only hardware and software used to process
every day business information but
17
<PAGE> 18
also the imbedded computers that control plant machinery, robotics, office
equipment, elevators and building climate and security systems.
The Company does not anticipate that it will experience significant
year 2000 issues, because it utilizes commercial programs and systems that are
standard, Year 2000 compliant, business products. The Company is in the process
of contacting its principal suppliers to make sure that they are also Year 2000
compliant and anticipates that it will have completed its assessment of
suppliers by the third quarter of 1999.
The Company has asked BII to evaluate the products and services that
BII offers, as well as its information technology infrastructure, to determine
whether BII or its customers may have exposure to Year 2000 problems, and to
make inquiries of BII's key suppliers, to determine their readiness with respect
to Year 2000 problems.
The Year 2000 problem is pervasive and complex and there can be no
assurance that the Company and BII have been or will be able to identify all of
the Year 2000 issues that may affect their products, services or internal
computer systems, or that any remedial efforts undertaken by the Company and BII
will adequately address any potential Year 2000 problems.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Other than as disclosed below, no material legal proceedings are
pending to which the Company is a party or of which any of its properties is the
subject.
Effective as of November 10, 1998, in compliance with the
"continuation" procedure provided for under the Company Act (British Columbia),
the Company continued into the State of Wyoming (the "Continuation"), where it
is now governed by the Wyoming Business Corporations Act. The Company's
management has subsequently determined that the Company should continue back to
British Columbia. In order to solicit shareholder approval for such
continuation, the Company filed on March 5, 1999, as required by the Securities
Exchange Act of 1934 (the "Exchange Act"), a preliminary proxy statement with
the U.S. Securities and Exchange Commission (the "SEC") which was reviewed by
the staff (the "Staff") of the SEC in accordance with rules promulgated under
the Exchange Act. Based on such review, the Staff informally advised the Company
that the Staff believes the original Continuation was an event that would have
required, under the Securities Act of 1933 (the "Securities Act"), the filing of
a registration statement with the SEC.
In response to the SEC's advice, on May 7, 1999, the Company filed a
registration statement under the Securities Act on Form S-4 (the "Registration
Statement") for a repurchase offer with respect to the shares deemed to have
been offered in connection with the Continuation. Repurchase offerees may have
common law remedies for a possible violation of the registration requirement
under the Securities Act. The exposure of the Company in that event is difficult
to quantify because such 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 Continuation. No shareholder
exercised such dissent right.
18
<PAGE> 19
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Securities During the Last Three Months
-------------------------------------------------------------
During the three months ended March 31, 1999, the Company:
a) Completed a Private Placement on January 29, 1999, which
consisted of:
i) a best efforts brokered private placement of 6,666,666
units at $0.15 per unit for total proceeds of $1,000,000.
ii) a non-brokered private placement of 5,000,000 units at
$0.15 per unit for total proceeds of $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
($100,000) payable in cash and a two year broker's warrant
exercisable into 1,000,000 shares of the Company. 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.
b) Announced a $1,750,000 Private Placement on February 2, 1999,
which was completed 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 the Company. 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.
Both offerings were effected in reliance upon the exemption from
United States securities law registration requirements provided by
Regulation S under the Securities Act of 1933, because none of the
securities were offered or sold in the United States or to "U.S.
persons" other than "distributors" (as such quoted terms are defined in
Regulation S).
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
As disclosed in the Company's Form 10-K filed on March 31, 1999, the
Company has reached an agreement to sell up to a 100% interest in 9 mineral
properties comprising 93,709 hectares, located in the San Juan, Chubut, and
Santa Cruz provinces of Argentina, to Inlet Resources Ltd. ("Inlet"). In order
to acquire a 90% interest in the properties, Inlet must pay US$750,000 and issue
300,000 shares to the Company over a three year period and complete a
US$2,150,000 work commitment. Inlet may acquire the remaining 10% by the payment
of US$2,000,000 to the Company. A formal agreement was signed by the parties on
January 21, 1999, and was approved as at February 15, 1999, by the Canadian
regulatory authorities. To April 30, 1999, the Company received US$150,000 and
100,000 common shares of Inlet in accordance with the agreement.
On May 7,1999, the Company filed its Registration Statement with the
SEC in connection with the repurchase offer. See "Item 1. Legal Proceedings."
Also on May 7, 1999, the Company filed a second, different combined
proxy/registration statement on Form S-4, relating to the registration under the
Securities Act of the Company's common stock in connection with the Company's
proposed continuation from Wyoming to British Columbia, Canada, and for purposes
of soliciting proxies in connection with its annual general meeting of
shareholders.
19
<PAGE> 20
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.1 Registrant's Articles of Continuance into the State of
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, 1998*
* Filed with the Company's Form 10-K on March 31, 1999
b. Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended March
31, 1999.
c. Financial Data Schedule
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf of the
undersigned thereunto duly authorized.
BIOMETRIC SECURITY CORP.
/s/ Patrick W. McCleery
---------------------------
Date: May 14, 1999 Patrick W. McCleery
President, CEO and Director
Date: May 14, 1999 /s/ Wayne Johnstone
---------------------------
Wayne Johnstone
Principal Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BIOMETRIC SECURITY CORP. QUARTERLY FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> .6626
<CASH> 155,218
<SECURITIES> 0
<RECEIVABLES> 70,398
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 225,616
<PP&E> 61,161<FN>
<DEPRECIATION> 2,383
<TOTAL-ASSETS> 4,763,244
<CURRENT-LIABILITIES> 113,352
<BONDS> 0
0
0
<COMMON> 14,862,363
<OTHER-SE> (10,212,471)
<TOTAL-LIABILITY-AND-EQUITY> 4,763,244
<SALES> 0
<TOTAL-REVENUES> 56,954
<CGS> 0
<TOTAL-COSTS> 353,880
<OTHER-EXPENSES> (164,855)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (132,071)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (132,071)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
<FN>
Convertible debentures $4,476,467
</FN>
</TABLE>
