ELECTRONIC IDENTIFICATION, INC.
A Nevada Corporation
BY-LAWS
ARTICLE I
Principal Executive Office
The principal executive office of Electronic Identification, Inc.
(the "Corporation") shall be at Suite 411, 1200 West Pender
Street, Vancouver, British Columbia, Canada, V6E 2S9. The
Corporation may also have offices at such other places within or
without the State of Nevada as the board of directors shall from
time to time determine.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of
the stockholders shall be held at the principal executive office
or at such other place within or without the State of Nevada as
the board of directors may determine and as designated in the
notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders for the
election of directors and for the transaction of any other
business shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meeting of the stockholders
for any purpose or purposes may be called at any time by the
board of directors, or by a committee of the board of directors
which as been duly designated by the board of directors and whose
powers and authorities, as provided in a resolution of the board
of directors or in these bylaws, include the power and authority
to call such meetings but such special meetings may not be called
by any other person or persons.
SECTION 4. Conduct of Meetings. Annual and special meetings
shall be conducted in accordance with these bylaws or as
otherwise prescribed by the board of directors. The chairman or
the chief executive officer shall preside at such meetings.
SECTION 5. Notice of Meeting. Written notice stating the place,
day and time of the meeting and the purpose or purposes for which
the meeting is called shall be mailed by the secretary or the
officer performing his duties, not less than ten days nor more
than fifty days before the meeting to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the
stock transfer books or records as of the record date prescribed
in Section 6, with postage thereon prepaid. If a stockholder be
present at a meeting, or in writing waive notice thereof before
or after the meeting, notice of the meeting to such stockholder
shall be unnecessary. When any stockholders' meeting, either
annual or special, is adjourned for thirty days or more, notice
of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of
the time and place of any meeting adjourned for less than thirty
days or of the business to be transacted at such adjourned
meeting, other than an announcement at the meeting at which such
adjournment is taken.
SECTION 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any
stockholders' meeting, or any adjournment thereof, or
stockholders entitled to receive payment of any dividend, or in
order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a
date as the record date for any such determination of
stockholders. Such date in any case shall be not more than sixty
days, and in case of a stockholders' meeting, not less than ten
days prior to the date on which the particular action, requiring
such determination of stockholders, is to be taken.
When a determination of stockholders entitled to vote at any
stockholders' meeting has been made as provided in this section,
such determination shall apply to any adjournment thereof.
SECTION 7. Voting Lists. The officer or agent having charge of
the stock transfer books for shares shall make, at least ten days
before each stockholders' meeting, a complete record of the
stockholders entitled to vote at such meeting or any adjournment
thereof, with the address of and the number of shares held by
each. The record, for a period of ten days before such meeting,
shall be kept on file at the principal executive office, whether
within or outside the State of Nevada, and shall be subject to
inspection by any stockholder for any purpose germane to the
meeting at any time during usual business hours. Such record
shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder
for any purpose germane to the meeting during the whole time of
the meeting. The original stock transfer books shall be prima
facie evidence as to the stockholders entitled to examine such
record or transfer books or to vote at any stockholders' meeting.
SECTION 8. Quorum. One-fourth of the outstanding shares entitled
to vote, represented in person or by proxy, shall constitute a
quorum at a stockholders' meeting. If less than one-fourth of the
outstanding shares are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to
time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized
meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
SECTION 9. Proxies. At all stockholders' meetings, a stockholder
may vote by proxy executed in writing by such stockholder or by
his duly authorized attorney in fact. Proxies solicited on behalf
of the management shall be voted as directed by such stockholder
or, in the absence of such direction, as determined by a majority
of the board of directors. No proxy shall be valid after eleven
months from the date of its execution unless otherwise provided
in the proxy.
SECTION 10. Voting. At each election for directors every
stockholder entitled to vote at such election shall be entitled
to one vote for each share of stock held. Unless otherwise
provided by the certificate of incorporation, by statute, or by
these bylaws, a majority of votes of the shares present in person
or by proxy at a lawful meeting and entitled to vote on the
election of directors shall be sufficient to pass on a
transaction or matter, except in the election of directors, which
election shall be determined by a plurality of the votes of the
shares present in person or by proxy at the meeting and entitled
to vote on the election of directors.
SECTION 11. Voting of Shares in the Name of Two or More Persons.
When ownership of stock stands in the name of two or more
persons, in the absence of written directions to the Corporation
to the contrary, at any stockholders' meeting any one or more of
such stockholders may cast, in person or by proxy, all votes to
which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several
persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a
majority of those holding such stock and present in person or by
proxy at such meeting, but no votes shall be cast for such stock
without the direction of such a majority.
SECTION 12. Voting of Shares by Certain Holders. Shares of
capital stock standing in the name of another corporation may be
voted by any officer, agent or proxy as these bylaws of such
corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian or
conservator may be voted by him, either in person or by proxy,
without a transfer of such shares into his name. Shares standing
in the name of a trustee may be voted by him, either in person or
by proxy, but no trustee shall be entitled to vote shares held by
him without a transfer of such shares into his name. Shares
standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his name
if authority to do so is contained in an appropriate order of the
court or other public authority by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote
such shares at any stockholders' meeting until such shares have
been transferred into the name of the pledgee and thereafter such
pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation,
nor shares held by another corporation, if a majority of the
shares entitled to vote for the election of directors of such
other corporation are held by the Corporation, shall be voted at
any stockholders' meeting or counted in determining the total
number of outstanding shares at any given time for purposes of
any meeting.
SECTION 13. Inspectors of Election. In advance of any
stockholders' meeting, the chairman of the board or the board of
directors may appoint any persons, other than nominees for
office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one
or three. If the board of directors appoints either one or three
inspectors, that appointment shall not be altered at the meeting.
If inspectors of election are not so appointed, the chairman of
the board of directors may make an appointment at the meeting. In
case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment in
advance of the meeting or at the meeting by the chairman of the
board of directors or the president of the Corporation.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of
stock and the voting power of each share, the shares of stock
represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies; receiving votes,
ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to
vote; counting and tabulating all votes or consents; determining
the result; and such acts as may be proper to conduct the
election or vote with fairness to all stockholders.
SECTION 14. Nominating Committee. The board of directors or a
committee appointed by the board of directors shall act as
nominating committee for selecting the management nominees for
election as directors. Except in the case of a nominee
substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver
written nominations to the secretary at least twenty days prior
to the date of the annual meeting. Provided such committee makes
such nominations, no nominations for directors except those made
by the nominating committee shall be voted upon at the annual
meeting unless other nominations by stockholders are made in
writing and delivered to the secretary in accordance with the
provisions of the Corporation's certificate of incorporation.
SECTION 15. New Business. Any new business to be taken up at the
annual meeting shall be stated in writing and filed with the
secretary in accordance with the provisions of the Corporation's
certificate of incorporation. This provision shall not prevent
the consideration and approval or disapproval at the annual
meeting of reports of officers, directors and committees, but in
connection with such reports no new business shall be acted upon
at such annual meeting unless stated and filed as provided in the
Corporation's certificate of incorporation.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the
Corporation shall be under the direction of the board of
directors. The chairman shall preside at all meetings of the
board of directors.
SECTION 2. Number, Term and Election. The number of directors
shall be such number, not less than three nor more than 15
(exclusive of directors, if any, to be elected by holders of
preferred stock), as shall be provided from time to time in a
resolution adopted by the board of directors, provided that no
decrease in the number of directors shall have the effect of
shortening the term of any incumbent director, and provided
further that no action shall be taken to decrease or increase the
number of directors from time to time unless at least two-thirds
of the directors then in office shall concur in said action.
Exclusive of directors, if any, elected by holders of preferred
stock, vacancies in the board of directors, however caused, and
newly created directorships shall be filled by a vote of two-
thirds of the directors then in office, whether or not a quorum,
and any director so chosen shall hold office for a term expiring
at the annual stockholders' meeting at which the term of the
class to which the director has been chosen expires and when the
director's successor is elected and qualified. The board of
directors shall be classified in accordance with the provisions
of Section 3 of this Article III.
SECTION 3. Classified Board. The board of directors (other than
directors which may be elected by the holders of preferred
stock), shall be divided into three classes of directors which
shall be designated Class I, Class II and Class III. The members
of each class shall be elected for a term of three years and
until their successors are elected and qualified. Such classes
shall be as nearly equal in number as the then total number of
directors constituting the entire board of directors shall
permit, exclusive of directors, if any, elected by holders of
preferred stock, with the terms of office of all members of one
class expiring each year. Should the number of directors not be
equally divisible by three, the excess director or directors
shall be assigned to Classes I or II as follows: (1) if there
shall be an excess of one directorship over the number equally
divisible by three, such extra directorship shall be classified
in Class I; and (2) if there be an excess of two directorships
over a number equally divisible by three, one shall be classified
in Class I and the other in Class II. At the organizational
meeting, directors of Class I shall be elected to hold office for
a term expiring at the first annual stockholders' meeting,
directors of Class II shall be elected to hold office for a term
expiring at the second succeeding annual stockholders' meeting
and directors of Class III shall be elected to hold office for a
term expiring at the third succeeding annual meeting thereafter.
Thereafter, at each succeeding annual meeting, directors of each
class shall be elected for three year terms. Notwithstanding the
foregoing, the director whose term shall expire at any annual
meeting shall continue to serve until such time as his successor
shall have been duly elected and shall have qualified unless his
position on the board of directors shall have been abolished by
action taken to reduce the size of the board of directors prior
to said meeting.
Should the number of directors be reduced, the directorship(s)
eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the
position(s) to be abolished. Notwithstanding the foregoing, no
decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Should the number
of directors be increased, other than directors which may be
elected by the holders of preferred stock, the additional
directorships shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the
immediately preceding paragraph.
Whenever the holders of any one or more series of preferred stock
shall have the right, voting separately as a class, to elect one
or more directors , the board of directors shall include said
directors so elected and not be in addition to the number of
directors fixed as provided in this Article III. Notwithstanding
the foregoing, and except as otherwise may be required By Law,
whenever the holders of any one or more series of preferred stock
elect one or more directors , the terms of the director or
directors elected by such holders shall expire at the next
succeeding annual stockholders' meeting.
SECTION 4. Regular Meetings. A regular meeting of the board of
directors shall be held at such time and place as shall be
determined by resolution of the board of directors without other
notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the chairman, the
chief executive officer or one-third of the directors. The person
calling the special meetings of the board of directors may fix
any place as the place for holding any special meeting of the
board of directors called by such persons.
Members of the board of the directors may participate in special
meetings by means of telephone conference or similar
communications equipment by which all persons participating in
the meeting can hear each other. Such participation shall
constitute presence in person.
SECTION 6. Notice. Written notice of any special meeting shall
be given to each director at least two days previous thereto
delivered personally or by telegram or at least seven days
previous thereto delivered by mail at the address at which the
director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid if mailed or when
delivered to the telegraph company if sent by telegram. Any
director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of
directors need be specified in the notice or waiver of notice of
such meeting.
SECTION 7. Quorum. A majority of the number of directors fixed
by Section 2 shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less
than such majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time.
Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 5 of this Article III.
SECTION 8. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall
be the act of the board of directors, unless a greater number is
prescribed by these bylaws, the certificate of incorporation, or
the General Corporation Law of the State of Nevada.
SECTION 9. Action Without a Meeting. Any action required or
permitted to be taken by the board of directors at a meeting may
be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the directors.
SECTION 10. Resignation. Any director may resign at any time by
sending a written notice of such resignation to the home office
addressed to the chairman. Unless otherwise specified therein
such resignation shall take effect upon receipt thereof by the
chairman.
SECTION 11. Vacancies. Any vacancy occurring on the board of
directors shall be filled in accordance with the provisions of
the Corporation's certificate of incorporation. Any directorship
to be filled by reason of an increase in the number of directors
may be filled by the affirmative vote of two-thirds of the
directors then in office or by election at an annual meeting or
at a special meeting of the stockholders held for that purpose.
The term of such director shall be in accordance with the
provisions of the Corporation's certificate of incorporation.
SECTION 12. Removal of Directors. Any director or the entire
board of directors may be removed only in accordance with the
provisions of the Corporation's certificate of incorporation.
SECTION 13. Compensation. Directors, as such, may receive
compensation for service on the board of directors. Members of
either standing or special committees may be allowed such
compensation as the board of directors may determine.
SECTION 14. Age Limitation. No person 70 years or more of age
shall be eligible for election, reelection, appointment or
reappointment to the board. No director shall serve as such
beyond the annual meeting immediately following the director
becoming 70 years of age. This age limitation does not apply to
an advisory director.
ARTICLE IV
Committees of the Board of Directors
The board of directors may, by resolution passed by a majority of
the whole board, designate one or more committees, as they may
determine to be necessary or appropriate for the conduct of the
business, and may prescribe the duties, constitution and
procedures thereof. Each committee shall consist of one or more
directors appointed by the chairman. The chairman may designate
one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of
the committee.
The chairman shall have power at any time to change the members
of, to fill vacancies in, and to discharge any committee of the
board. Any member of any such committee may resign at any time by
giving notice to the Corporation; provided, however, that notice
to the board, the chairman of the board, the chief executive
officer, the chairman of such committee, or the secretary shall
be deemed to constitute notice to the Corporation. Such
resignation shall take effect upon receipt of such notice or at
any later time specified therein; and, unless otherwise specified
therein, acceptance of such resignation shall not be necessary to
make it effective. Any member of any such committee may be
removed at any time, either with or without cause, by the
affirmative vote of a majority of the authorized number of
directors at any meeting of the board called for that purpose.
ARTICLE V
Officers
SECTION 1. Positions. The officers shall be a chairman, a
president, one or more vice presidents, a secretary and a
treasurer, each of whom shall be elected by the board of
directors. The board of directors may designate one or more vice
presidents as executive vice president or senior vice president.
The board of directors may also elect or authorize the
appointment of such other officers as the business may require.
The officers shall have such authority and perform such duties as
the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors,
the officers shall have such powers and duties as generally
pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers shall be
elected annually by the board of directors at the first meeting
of the board of directors held after each annual meeting of the
stockholders. If the election of officers is not held at such
meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until his successor
shall have been duly elected and qualified, until his death or
until he shall resign or shall have been removed in the manner
hereinafter provided. Election or appointment of an officer,
employee or agent shall not of itself create contract rights.
The board of directors may authorize the Corporation to enter
into an employment contract with any officer in accordance with
state law; but no such contract shall impair the right of the
board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by vote of two-
thirds of the board of directors whenever, in its judgment, the
best interests will be served thereby, but such removal, other
than for cause, shall be without prejudice to the contract
rights, if any, of the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be
filled by the board of directors for the unexpired portion of the
term.
SECTION 5. Remuneration. The remuneration of the officers shall
be fixed from time to time by the board of directors, and no
officer shall be prevented from receiving such salary by reason
of the fact that he is also a director.
SECTION 6. Age Limitation. No person 70 or more years of age
shall be eligible for election, reelection, appointment or
reappointment as an officer. No officer shall serve beyond the
annual meeting immediately following the officer becoming 70 or
more years of age.
ARTICLE VI
Contracts, Loans, Checks and Deposits
SECTION 1. Contracts. To the extent permitted by applicable law,
and except as otherwise prescribed by the Corporation's
certificate of incorporation or these bylaws with respect to
certificates for shares, the board of directors or the executive
committee may authorize any officer, employee, or agent to enter
into any contract or execute and deliver any instrument in the
name of and on behalf . Such authority may be general or confined
to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf and no
evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be
general or confined to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of
indebtedness issued in the name shall be signed by one or more
officers, employees or agents in such manner, including in
facsimile form, as shall from time to time be determined by
resolution of the board of directors.
SECTION 4. Deposits. All funds not otherwise employed shall be
deposited from time to time to the credit in any of its duly
authorized depositories as the board of directors may select.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. The shares of capital stock
shall be represented by certificates signed by the chairman of
the board of directors or the president or a vice president and
by the treasurer or an assistant treasurer or the secretary or an
assistant secretary, and may be sealed with the seal or a
facsimile thereof. Any or all of the signatures upon a
certificate may be facsimiles if the certificate is countersigned
by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee. If any officer who has signed
or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before the
certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer at the date of its
issue.
SECTION 2. Form of Share Certificates. All certificates
representing shares of capital stock shall set forth upon the
face or back that the Corporation will furnish to any stockholder
upon request and without charge a full statement of the
designations, preferences, limitations, and relative rights of
the shares of each class authorized to be issued, the variations
in the relative rights and preferences between the shares of each
such series so far as the same have been fixed and determined,
and the authority of the board of directors to fix and determine
the relative rights and preferences of subsequent series.
Each certificate representing shares shall state upon the face
thereof: that the Corporation is organized under the laws of the
State of Delaware; the name of the person to whom issued; the
number and class of shares, the designation of the series, if
any, which such certificate represents; the par value of each
share represented by such certificate, or a statement that the
shares are without par value. Other matters in regard to the form
of the certificates shall be determined by the board of
directors.
SECTION 3. Payment for Shares. No certificate shall be issued
for any share of capital stock until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
issuance of shares of capital stock shall be paid in accordance
with the provisions of the certificate of incorporation.
SECTION 5. Transfer of Shares. Transfer of shares of capital
stock shall be made only on the stock transfer books of the
Corporation. Authority for such transfer shall be given only to
the holder of record thereof or by his legal representative, who
shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed
and filed with the Corporation. Such transfer shall be made only
on surrender for cancellation of the certificate for such shares.
The person in whose name shares of capital stock stand on the
books shall be deemed by the Corporation to be the owner thereof
for all purposes.
SECTION 6. Lost Certificates. The board of directors may direct
a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost,
stolen, or destroyed. When authorizing such issue of a new
certificate, the board of directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner
of such lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged
to have been lost, stolen, or destroyed.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year shall end on the last day of December of each
year. The Corporation shall be subject to an annual audit as of
the end of its fiscal year by independent public accountants
appointed by and responsible to the board of directors.
ARTICLE IX
Dividends
Dividends upon the capital stock, subject to the provisions of
the certificate of incorporation, if any, may be declared by the
board of directors at any regular or special directors' meeting,
pursuant to law. Dividends may be paid in cash, in property or in
stock.
ARTICLE X
Corporation Seal
The corporate seal shall be in such form as the board of
directors shall prescribe.
ARTICLE XI
Amendments
Pursuant to the certificate of incorporation, these bylaws may be
repealed, altered, amended or rescinded by the stockholders only
by vote of not less than three-quarters of the voting power of
the outstanding shares of capital stock entitled to vote
generally in the election of directors (considered for this
purpose as one class) cast at a stockholders' meeting called for
that purpose (provided that notice of such proposed repeal,
alteration, amendment or rescission is included in the notice of
such meeting). In addition, the board of directors may repeal,
alter, amend or rescind these bylaws by vote of two-thirds of the
board of directors at a legal meeting held in accordance with the
provisions of these by-laws.
ARTICLE XI
Miscellaneous
SECTION 1. Reserves. By resolution, the board of directors may
create such reserve or reserves out of the earned surplus of the
Corporation as the directors from time to time, in their
discretion, think proper to provide for contingencies, or to
equalize dividends, or to repair or maintain any property of the
Corporation, or for any other purpose they think beneficial to
the Corporation. The directors may modify or abolish any such
reserve in the manner in which it was created.
SECTION 2. Facsimile Signatures. In addition to the provisions
for the use of facsimile signatures elsewhere specifically
authorized, facsimile signatures of any officer or officers of
the Corporation may be used whenever and as authorized by the
board of directors or a committee thereof.
SECTION 3. Reliance upon Books, Reports and Records. Each
director, each member of any committee designated by the board of
directors, and each officer of the Corporation shall, in the
performance of his duties, be fully protected in relying in good
faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of
its officers, by an independent certified public accountant, or
by an appraiser selected by the board of directors with
reasonable care.
SECTION 4. Time Periods. In any provision of these by-laws
which requires that an act be done or not done within or during a
period of a specified number of days prior to an event, calendar
days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
CERTIFICATE OF ADOPTION The undersigned, the duly elected and
acting secretary of this Corporation, hereby certifies that the
foregoing by-laws were duly adopted by unanimous written action
of the incorporator and consented to by the original shareholders
and directors of this Corporation, as of the 24th day of April,
1999.
/s/Terry Kirby
Terry Kirby,
Secretary
C) Financial Statements
Report of Independent Auditors, KPMG, LLP, dated March
31, 2000.
Balance Sheet as at December 31, 1999 and December 31,
1998.
Statement of Operations for each of the years in the
three year period ended December 31, 1999 and for
the period from inception on May 14, 1992 to
December 31, 1999.
Statement of Stockholders' Equity for each of the years
in the three year period ended December 31, 1999 and
for the period from inception on May 14, 1992 to
December 31, 1999.
Statement of Cash Flows for each of the years in the
three year period ended December 31, 1999 and for
the period from inception on May 14, 1992 to
December 31, 1999.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Director of
Electronic Identification, Inc.
We have audited the accompanying balance sheets of Electronic
Identification, Inc. (a development stage enterprise) as at
December 31, 1999 and 1998 and the related statements of
operations, stockholders' deficit and cash flows for each of the
years in the three year period ended December 31, 1999 and for
the period from inception on May 14, 1992 to December 31, 1999.
These 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 in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. 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. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Electronic Identification, Inc. as at December 31, 1999 and
1998 and the results of its operations and its cash flows for
each of the years in the three year period ended December 31,
1999 and for the period from inception on May 14, 1992 to
December 31, 1999, in accordance with generally accepted
accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in note 2 to the financial statements, the Company has suffered
recurring losses from operations and has a net capital deficiency
that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are
also described in note 2. These financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
/s/ KPMG, LLP
Chartered Accountants
Vancouver, Canada
March 31, 2000
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Balance Sheets
(Expressed in U.S. Dollars)
December 31, 1999 and 1998
<TABLE>
<S> <C> <C>
1999 1998
Assets
Current assets:
Cash $ 8,071 $ 4,615
Accounts receivable 4,280 49,928
Prepaid expenses and deposits 351 340
Due from stockholder (note 9(a)) 65,700 -
Total current assets 78,402 54,883
Restricted cash (note 5) - 47,394
Fixed assets (note 6) 46,670 61,958
Patents (note 7) 10,005 11,873
Total assets $ 135,077 $ 176,108
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued $ 402,310 $ 566,907
liabilities
Due to stockholders, directors and 301,328 173,706
officers (note 9(a))
Total current liabilities 703,638 740,613
Subscriptions received for common stock - 1,060,000
(note 8)
Total liabilities and subscriptions 703,638 1,800,613
received
Stockholders' deficit:
Preferred stock:
Authorized: 5,000,000 stock, with
$0.001 par value
(1998 -2,220,000 stock, with $0.0045
par value)
Issued: nil (1998 - nil)
Common stock (note 10):
Authorized: 70,000,000 stock, with
$0.001 par value
(1998 -11,111,111 stock, with $0.0045
par value)
Issued:17,418,083 stock (1998 - 17,419 42,632
9,473,926)
Additional paid-in capital 10,408,68 6,276,328
0
Deficit accumulated during the (10,994,6 (7,943,46
development stage 60) 5)
Total stockholders' deficit (568,561) (1,624,50
5)
Future operations (note 2)
Contingencies (note 11)
Year 2000 Issue (note 15)
Subsequent events (note 16)
Total liabilities and stockholders' $ 135,077 $ 176,108
deficit
</TABLE>
See accompanying notes to financial statements
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Operations
(Expressed in U.S. Dollars)
<TABLE>
<S> <C> <C> <C> <C>
Years Years Years Period from
ended ended ended inception on
December December December May 14, 1992
31, 1999 31, 1998 31, 1997 to December
31, 1999
Revenue:
Revenue $ - $ - $ 54,996 $ 254,996
Interest and other income 990 2,993 - 4,996
990 2,993 54,996 259,992
Expenses:
General and administrative 922,097 888,857 1,177,754 3,522,159
(schedule)
Sales and marketing 303,875 1,006,689 981,140 2,381,916
(schedule)
Research and development 55,993 266,689 756,859 1,597,568
(schedule)
Interest on long-term debt 493,586 216,026 316,000 1,025,612
(note 14)
Depreciation and 18,311 44,527 41,541 130,837
amortization
Write-off of leasehold - - 32,131 32,131
improvements (note 6)
1,793,862 2,422,788 3,305,425 8,690,223
Loss before the undernoted (1,792,87 (2,419,79 (3,250,42 (8,430,231)
2) 5) 9)
Loss due to settlement of
debt by
issuance of common stock (1,258,32 (663,068) - (1,921,391)
(note 3(f)) 3)
Equity loss in and write-
down of investment in
and advances to RFID
Datachip Technologies
Inc. (note 4) - (1) (271,527) (358,835)
Write-off of advances - - - (284,203)
Loss for the period $ $ $ $
(3,051,19 (3,082,86 (3,521,95 (10,994,660)
5) 4) 6)
Loss per common share
information:
Basic and diluted $ (0.22) $ (0.67) $ (1.81)
Weighted average number of
common
shares outstanding (note 13,951,35 4,635,715 1,951,000
10(a)) 7
</TABLE>
See accompanying notes to financial statements
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Stockholders' Deficit
(Expressed in U.S. Dollars)
<TABLE>
<S> <C> <C> <C> <C>
Common (note Additional Deficit
stock 10(a)) paid in accumulate
Capital d during
the
developmen
t stage
Shares Amount
Balance, May 14, 1992 - $ - $ - $ -
(inception)
Loss for the period - - - (185)
Stock issued for cash 3,111,111 700 - -
Balance, December 31, 1992 3,111,111 700 - (185)
Loss for the period - - - (80)
Balance, December 31, 1993 3,111,111 700 - (265)
Loss for the period - - - (80)
Balance, December 31, 1994 3,111,111 700 - (345)
Loss for the period - - - (25,627)
Stock issued for cash 444,445 15,300 4,700 -
Balance, December 31, 1995 3,555,556 16,000 4,700 (25,972)
Loss for the period - - - (1,312,673
)
Stock returned to Company for (2,275,55 (10,240) 10,240 -
cancellation 6)
Stock issued for secured notes 222,222 1,000 182,810 -
receivable
Stock issued for cash 214,005 963 962,160 -
Balance, December 31, 1996 1,716,227 7,723 1,159,910 (1,338,645
)
Loss for the period - - - (3,521,956
)
Stock issued for cash 222,222 1,000 999,000 -
Stock issued on settlement of 639,027 2,875 497,124 -
convertible debentures
Stock issued to settle 50,380 227 24,773 -
expenses
Intrinsic value of beneficial
conversion of liabilities
(note 14) - - 316,000 -
Stock issue costs - - (225,112) -
Balance, December 31, 1997 2,627,856 11,825 2,771,695 (4,860,601
)
Loss for the period - - - (3,082,864
)
Stock issued on settlement of 383,334 1,725 342,691 -
accounts payable
Stock issued for cash 2,605,336 11,723 758,520 -
Stock issued on settlement of 298,033 1,341 151,249 -
notes payable
Stock issued on settlement of
convertible
debentures 1,944,590 8,751 678,880 -
Stock issued on settlement of 250,000 1,126 131,733 -
legal claims
Stock issued on settlement of 355,555 1,600 114,902 -
loan payable
Stock issued to settle 1,009,222 4,541 435,323 -
expenses
Intrinsic value of beneficial
conversion of liabilities
(note 14) - - 175,653 -
Settlement of debt by issuance
of common stock
(note 3(f)) - - 663,068 -
Cancellation of redeemable
common stock issued
to RFID Datachip Technologies - - 226,670 -
Inc.
Stock issue costs - - (174,056) -
Balance, December 31, 1998, 9,473,926 42,632 6,276,328 (7,943,465
carried forward )
</TABLE>
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Stockholders' Deficit, Continued
(Expressed in U.S. Dollars)
<TABLE>
<S> <C> <C> <C> <C>
Common (note Additiona Deficit
stock 10(a)) l paid in accumulated
Capital during the
development
stage
Shares Amount
Balance, December 31, 1998, 9,473,926 $ 42,632 $ 6,276,328 $
brought forward (7,943,465)
Loss for the period - - - (3,051,195)
Stock issued on the settlement
of subscriptions
received for common stock 3,440,000 15,480 1,044,520 -
Stock issued to settle 2,012,000 5,782 369,531 -
expenses
Stock issued on settlement of 500,000 2,250 97,750 -
notes payable
Stock issued on settlement of
convertible
debentures 1,992,157 3,392 398,640 -
Intrinsic value of beneficial
conversion of
liabilities (note 14) - - 474,117-
Settlement of debt by issuance
of common stock
(note 3(f)) - - 1,258,323 -
Authorized par value change
resulting in an
increase in additional paid-in - (52,117) 52,117 -
capital
Stock issue costs - - (48,474) -
Compensatory benefit of stock - - 485,828 -
options (note 10(d))
Balance, December 31, 1999 17,418,08 $ 17,419 $ $
3 10,408,680 (10,994,660)
</TABLE>
See accompanying notes to financial statements.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<S> <C> <C> <C> <C>
Years Years ended Years ended Period from
ended December December inception on
December 31, 1998 31, 1997 May 14, 1992
31, 1999 December 31,
1999
Cash flows from operating
activities:
Loss for the period $(3,051,19 $(3,082,864 $(3,521,956 $(10,994,660
5) ) ) )
Items not involving cash:
Depreciation and amortization 18,311 44,527 41,541 130,837
Loss due to settlement of debt
by issuance
of common stock (note 3(f)) 1,258,323 663,068 - 1,921,391
Equity loss in and write-down
of investment
in and advances to RFID
Datachip
Technologies Inc. (note 4) - 1 271,527 358,835
Write-off of leasehold - - 32,131 32,131
improvements
Write-off of advances - - - 284,203
Write-down of fixed assets - 35,252 - 35,252
Loss on disposal of fixed - 10,771 - 10,771
assets
Acquisition of in-process
research and
Development - - - 340,108
Expenses settled with the
issuance of
notes payable - - 154,131 154,131
Expenses settled with the 375,313 439,864 24,999 840,176
issuance of stock
Intrinsic value of beneficial
conversion of
liabilities into common stock 474,117 175,653 316,000 965,770
(note 14)
Compensatory benefit of stock
options
(note 10(d)) 485,828 - - 485,828
Changes in non-cash operating
working capital:
Accounts receivable 45,648 (34,979) 210,435 (4,280)
Notes receivable - - 18,139 -
Prepaid expenses and deposits (11) 14,436 9,774 (351)
Restricted cash 47,394 3,522 (50,916) -
Accounts payable and accrued (65,752) 324,375 396,248 725,934
liabilities
Due to stockholders, directors 61,922 (108,333) 282,040 235,629
and officers
Accounts payable to be settled
with
common stock - - 291,006 291,006
Net cash used in operating (350,102) (1,514,707) (1,524,901) (4,187,289)
activities
Cash flows from financing
activities:
Subscriptions received for - 564,260 142,740 1,060,000
common stock
Net proceeds on issuance of - 596,188 774,888 2,354,899
common stock
Net proceeds on issuance of 353,558 400,961 758,261 1,512,780
convertible debentures
Issuance of loan payable - - 104,858 104,858
Net cash provided by financing 353,558 1,561,409 1,780,747 5,032,537
activities
Cash flows from investing
activities:
Bank overdraft - (15,968) 15,968 -
Purchase of fixed assets - (12,709) (155,150) (251,101)
Acquisition of patent - (13,410) - (13,410)
Advances to RFID Datachip - - (132,165) (132,165)
Technologies Inc. (note 4)
Other advances - - - (440,501)
Net cash used in investing - (42,087) (271,347) (837,177)
activities
Increase (decrease) in cash 3,456 4,615 (15,501) 8,071
Cash, beginning of period 4,615 - 15,501 -
Cash, end of period $ 8,071 $ 4,615 $ - $ 8,071
</TABLE>
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Cash Flows (continued)
(Expressed in U.S. Dollars)
<TABLE>
<S> <C> <C> <C> <C>
Years Years Years Period
ended ended ended from
December December December inception
31, 1999 31, 1998 31, 1997 on May 14,
1992
December
31, 1999
Supplemental non-cash investing
and financing activities:
Stock issued on the settlement
of subscriptions
received for common stock $ $ $ $
1,060,000 1,060,000
Stock issued on settlement of - 344,416 - 344,416
accounts payable
Stock issued on settlement of 100,000 152,590 - 252,570
notes payable
Stock issued on settlement of
convertible
debentures 402,032 687,631 500,000 1,589,663
Stock issued on settlement of - 132,858 - 132,858
legal claims
Stock issued on settlement of - 116,502 - 116,502
loan payable
Common stock issued on 375,313 439,864 24,999 840,176
settlement of expenses
Cancellation of redeemable - 226,670 - 226,670
common stock
Intrinsic value of beneficial
conversion of
liabilities into common stock 474,117 175,653 316,000 965,770
(note 14)
Loss due to settlement of debt
by
issuance of common stock (note 1,258,323 663,068 - 1,921,391
3(f))
Issuance of common stock in
exchange for
secured notes - - - 183,810
Issuance of redeemable common - - - 226,670
stock
Authorized par value change
resulting in an
increase in additional paid in 52,117 - - 52,117
capital
Supplemental cash flow
information:
Cash paid for taxes $ - $ - $ - $ -
Cash paid for interest 28,921 27,382 - 56,303
</TABLE>
See accompanying notes to financial statements.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
1. General:
On April 23, 1999, Electronic Identification, Inc. (the "Company"
or "El 2 ") signed an Agreement and Plan of Merger with RFID
Systems Corp. ("RFID"). This merger was completed on May 3, 1999.
El 2 is a corporation organized and existing under the laws of
the State of Nevada. At that date, El 2 was an inactive shell
company. RFID was a development stage enterprise and was
developing automatic identification and data collection systems
utilizing radio frequency identification technology. El 2 is
continuing in this line of business.
El 2 had 1,000 shares of common stock outstanding. Under the
terms and conditions of the Agreement, each issued and
outstanding share of common stock of RFID was converted into one
common stock of the Company.
This transaction has been accounted for as a recapitalization of
RFID, effectively as if RFID had issued common shares to acquire
the net monetary assets El 2 . The net monetary assets acquired
by El 2 were as follows:
<TABLE>
<S> <C>
Total assets $ 176,108
Total liabilities 1,800,61
3
</TABLE>
Under re-capitalization accounting, these financial statements
reflect the assets, liabilities, revenues and expenses of RFID
from its inception on May 14, 1992 combined with these of El 2
from the date the merger was completed.
Pursuant to this Agreement, and subject to regulatory approval,
each stockholder of RFID who sent in their stock certificates for
transfer into certificates representing shares of the Company
prior to May 31, 1999, will receive a right to purchase, for
every ten shares owned and tendered, an additional share of
common stock at 75% of the market price of the Company stock as
of the date of exercise. The rights will be exercisable for
thirty days after filing of the registration statement with the
Securities Exchange Commission. Rights outstanding at December
31, 1999 are 1,169,295.
2. Future operations:
These financial statements have been prepared on the going
concern basis under which an entity is considered to be able to
realize on its assets and satisfy its liabilities in the ordinary
course of business. During the period since inception on May 14,
1992, the Company has incurred losses aggregating $10,994,660. At
December 31, 1999, the Company has a working capital deficiency
of $625,236 and a stockholders' deficit (net capital deficiency)
of $568,561.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 2
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
2. Future operations (continued):
The Company's ability to meet its obligations as they come due is
primarily dependent upon securing additional financing, whether
from operations or otherwise. Management continues to pursue
additional sources of financing; however, there can be no
guarantee that the required additional financing will be
obtained. Failure to identify and obtain such financing may limit
the Company's ability to satisfy its obligations as they come due
which may, in turn, impair the Company's ability to continue as a
going concern. This could negatively impact the recoverability of
the carrying value of assets.
These financial statements do not include any adjustments
relating to the recoverability of assets and amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. If the Company
is unable to continue as a going concern, assets and liabilities
would require restatement on a liquidation basis, which would
differ materially from the going concern basis.
3. Significant accounting policies:
(a) Basis of presentation:
These financial statements are prepared in accordance with
generally accepted accounting principles in the United States.
The Company has not produced significant revenues and is a
Development Stage Company as defined by Financial Accounting
Standard No. ("FAS") 7.
(b) Foreign currency translation:
The Company's functional and reporting currency is the United
States dollar. Transactions undertaken in a currency other than
the United States dollar are remeasured into United States
dollars using exchange rates at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies
are remeasured at each balance sheet date at the exchange rate
prevailing at the balance sheet date. Gains and losses arising on
remeasurement or settlement of foreign currency denominated
transactions or balances are included in the determination of
income. Foreign currency transactions are primarily undertaken in
Canadian dollars. The Company does not enter into derivative
instruments to offset the impact of foreign currency
fluctuations.
(c) Use of estimates:
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates which affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the balance sheet dates, and the recognition of
revenues and expenses for the reporting periods. Areas where
significant estimates have been applied include the assessment of
the ultimate liability arising out of legal contingencies and the
recoverability of capital and intangible assets. Actual results
could differ from these estimates.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 3
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
3. Significant accounting policies (continued):
(d) Fixed assets:
Fixed assets are carried at cost less accumulated amortization.
Amortization is calculated annually as follows:
<TABLE>
<S> <C> <C>
Assets Basis Rate
Furniture and equipment Straight-line 20%
Computers and technology Declining- 30%
equipment balance
</TABLE>
The Company reviews and assesses the underlying value of fixed
assets as the situation dictates to determine whether a provision
for impairment should be recorded. Such determination is made by
comparing the carrying value of fixed assets to the future cash
flow (undiscounted) expected to result. When these cash flows are
less than the carrying value, impairment is calculated by
reference to the fair value of the specific assets.
(e) Patents:
Patents are recorded at cost and amortized using the straight-
line method over a period of five years.
(f) Common stock issuances:
During fiscal 1999, common stock of the Company was issued in
settlement of the indebtedness. A loss of $1,258,323 (1998 -
$663,068) occurred on this settlement equal to the difference
between the market value of common stock issued and the carrying
value of the debt.
Stock issue costs are accounted for as a reduction in the
proceeds from the issuance of common stock.
(g) Research and development costs:
Research and development costs are expensed as incurred.
(h) Stock-based compensation:
The Company has elected to apply the intrinsic value principles
of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for its stock options on options
granted to employees and directors. Under APB 25, compensation
expense is only recorded to the extent that the exercise price is
less than the market value of the underlying stock on the date of
grant. For stock options granted to non-employees, the fair value
of the options at their date of grant will be recognized. Values
assigned to options will be charged against income over their
vesting period. Fair value information with respect to options
granted to employees and directors is disclosed in accordance
with FAS 123, "Accounting for Stock-Based Compensation".
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 4
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
3. Significant accounting policies (continued):
(i) Comprehensive loss:
The Company has adopted FAS 130, "Comprehensive Income", which
requires disclosure of comprehensive income or loss. The
Company's net loss is equal to comprehensive loss for all
periods.
(j) Income taxes:
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carry forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. To the
extent that the realization of deferred tax assets is not
considered to be more likely than not, a valuation allowance is
provided.
(k) Loss per common share:
Loss per common share is calculated based on the weighted average
number of common shares outstanding, which excludes subscribed
but unissued shares. The number of shares used for loss per share
purposes gives retroactive effect to the reverse stock split on
May 4, 1998 (note 10 (a)).
As the effect of outstanding warrants is anti-dilutive, diluted
loss per share does not differ from basic loss per share.
4. Investment in and advances to RFID Datachip Technologies Inc.
("Datachip"):
During 1996, the Company acquired 49.9% of the issued and
outstanding common stock of Datachip, an unrelated party prior to
the transaction, by way of a stock exchange. Datachip received
50,371 redeemable common stock of the Company valued at $4.50 per
stock (as adjusted for reverse stock split (note 10(a)). During
fiscal 1997, management determined that a permanent impairment in
the value of its investment had occurred and as a result, the
investment in Datachip was written down to a nominal value.
During fiscal 1998, pursuant to a legal settlement, the Company
returned all common stock of Datachip for consideration equal to
the return and cancellation of the redeemable common stock
previously issued, and wrote-off the balance of the carrying
value of its investment in Datachip.
5. Restricted cash:
As a result of legal action taken against the Company, $47,394
was garnished in 1997 from the Company's bank account and held in
trust with the Company's attorney. In 1999, pursuant to a legal
settlement, the funds were delivered to the successful
subscribers.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 5
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
6. Fixed assets:
<TABLE>
<S> <C> <C> <C>
Accumulated Net book
December 31, 1999 Cost amortizatio value
n
Furniture and equipment $ $ 4,308 $ 13,754
18,062
Computers and technology 70,603 37,687 32,916
equipment
$ $ 41,995 $ 46,670
88,665
</TABLE>
<TABLE>
<S> <C> <C> <C>
Accumulated Net book
December 31, 1998 Cost amortizatio value
n
Furniture and equipment $ $ 1,227 $ 18,370
19,597
Computers and technology 69,033 25,445 43,588
equipment
$ $ 26,672 $ 61,958
88,630
</TABLE>
During fiscal 1997, the Company wrote-off leasehold improvements
which were located in their Mountain View, California and
Kelowna, British Columbia premises due to the vacating or
anticipated vacating of these premises.
7. Patents:
<TABLE>
<S> <C> <C>
Year ended Year ended
December 31, December 31,
1999 1998
Cost $ 14,756 $ 13,410
Less accumulated 4,751 1,537
amortization
$ 10,005 $ 11,873
</TABLE>
8. Subscriptions received for common stock:
Subscriptions received for common stock represent funds received
in advance of stock issuance.
9. Related party transactions:
(a) Due to (due from) stockholders, directors and officers:
Amounts due to (due from) stockholders, directors and officers
represent amounts owed to, or receivable from, the stockholders,
directors and officers or companies controlled by the
stockholders, directors or officers. These amounts generally
arose from management fees or expenses paid on behalf of the
Company by the stockholders, directors and officers, and a loan
provided by a stockholder. The amounts are non-interest bearing,
unsecured and have no specific terms of repayment.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 6
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
9. Related party transactions (continued):
(b) Transactions with directors and officers:
During the year, the Company was charged a total of $nil (1998 -
$602,721; 1997 -$ 245,105; 1996 - $nil) for management and
consulting services by the director and officers of the Company.
In 1998, the Company settled $238,548 of the $602,721 by issuing
641,667 shares of common stock of the Company.
10. Common stock:
(a) Reverse stock split:
On May 4, 1998, the Company resolved to consolidate the number of
preferred and common stock outstanding by a ratio of 4.5 old for
one new common stock. The effect of this reverse stock split has
been applied retroactively to these financial statements.
(b) Stock purchase warrants:
Activity during the year ended December 31, 1999 is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Expiry Date Exercis Outstanding Granted Exercis Expire Outstandi
e price December, ed / ng
1998 cancel December,
ed 1999
June 20, $2.93 4,444 - - - 4,444
2002
</TABLE>
Activity during the year ended December 31, 1998 is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Expiry Date Exercis Outstandin Granted Exercis Expire/ Outstanding
e price g ed canceled December,
December, 1998
1997
June 5, $6.75 26,000 - - (26,000 -
1998 )
July 23, 2.93 4,444 - - (4,444) -
1998
Upon 0.0045 333,333 (333,333) -
termination
of
management
service
contracts
Earlier of 2.93 4,444 - - - 4,444
December 18,
1998 or
termination
of
management
service
contract
June 20, 434,888 - - (430,444) 4,444
2002
</TABLE>
(c) Non-cash consideration:
Shares issued for non-cash consideration are valued at their
market price at the date of agreement for issuance.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 7
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
10. Common stock (continued):
(d) Stock options:
The Company has reserved 3,200,000 common stock pursuant to a
stock option plan. Options to purchase common stock of the
Company may be granted by the Board of Directors and vest
immediately.
Stock option activity during the year ended December 31,1999 is
as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Expiry Weight Weighte Outstandi Granted Exercise Expire/ Outstandi
Date ed d ng d canceled ng
averag average December, December,
e fair 1998 1999
exerci value
se
price
February $0.45 $0.25 - 3,125,00 - - 3,125,00
24, 2002 0 0
</TABLE>
There was no stock option activity during the year ended December
31, 1998. As options granted in 1999 have an exercise price equal
to the market price at the date of grant, there was no
compensation expense recorded for employees and directors in
1999.
The weighted average fair value of options was calculated using
the Black-Scholes option pricing formula.
Had the compensation benefit been determined based on the fair
value at the grant dates of the stock options and charged to
earnings consistent with the measurement provision of FAS 123,
the impact would be as follows:
<TABLE>
<S> <C> <C> <C> <C>
Year ended Year ended Year ended Period from
December 31, December December inception on
1999 31, 1998 31, 1997 May 14, 1992
to December
31, 1999
Loss for the $(3,051,195) $(3,082,864 $(3,521,95 $(10,994,660)
period, as reported ) 6)
Estimated fair (292,743) - - (292,743)
value of option
grants to employees
Pro forma loss $(3,343,938) $(3,082,864 $(3,521,95 $(11,287,403
) 6 )
Loss per share $(0.24) $(0.67) $(1.81
</TABLE>
The fair value of the stock option grants have been estimated
using the Black-Scholes Option-Pricing model with the following
assumptions: dividend yield - 0%; risk-free interest rate-
5.875%, expected option life - 3 years, expected volatility -
80%.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 8
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
11. Contingencies:
The Company has determined that it is not possible, at this time,
to predict the final outcome of the following legal
contingencies. The Company has accrued its best estimate of
potential damages that may be awarded pursuant to these legal
contingencies. Any adjustment to that amount will be recorded in
the period determinable.
(a) Chemoco NV ("Chemoco"):
During 1997, the Company contracted with Chemoco to provide
services to the Company. As advance consideration of the services
to be provided by Chemoco, individuals related to the Company
transferred 155,556 common stock of the Company to Chemoco. It is
the Company's belief that Chemoco did not fulfill its obligations
for the services to be provided and as a result, the transfer of
common stock from individuals related to the Company to Chemoco
was canceled. On September 15, 1999, Chemoco commenced an action
against the Company and a former officer of the Company claiming
for the delivery of 700,000 shares of the Company, or in the
alternative, damages for the Company not delivering the said
shares to the Plaintiff. Since the commencement of the action and
the filing of the Statement of Defense in November 1999, the
solicitors for the Plaintiff have filed a Notice of Intention to
withdraw as solicitors in this matter. The outcome of this claim
is unknown. It is management's belief that any claim that may
arise from this situation is without merit.
(b) Former director claim:
On June 29, 1999, a former director of the Company commenced an
action against the Company claiming, inter alia, for a
declaration that he was entitled to 100,000 warrants of the
Company exercisable at $0.375 per share and a further declaration
that he was entitled to 600,000 warrants exercisable at $0.25 per
share. The warrant agreement was originally issued to the
Director to protect him against any potential claims. When the
director left the Company, the Board of Directors canceled the
warrant agreement for this director and all other directors. The
claim also includes damages for breach of contract and interest
with costs. The Company has filed a defense denying any claims of
the former director in and to the warrants alleged. To date, no
further activity has been commenced and the outcome is unknown.
(c) Other cancelled agreements:
In 1996, the Company cancelled agreements with two third parties.
To date, no litigation has been commenced or threatened regarding
these cancelled agreements. It is the opinion of management that
the termination of these agreements was warranted and, in the
event of litigation, would be deemed to be warranted. Further, it
is management's belief that any claim that may arise from these
situations are without merit.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 9
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
12. Income taxes:
The Company has non-capital losses carried forward of
approximately $8,500,000 which may be deducted in the calculation
of taxable income of future periods until their expiry to
December 31, 2006.
Due to the uncertainty as to the utilization of deferred tax
assets, a valuation allowance has been made to the extent of
deferred tax assets at the year end.
Years ended December 31,
<TABLE>
<S> <C> <C>
1999 1998
Deferred tax assets:
Losses carried forward $ $
3,500,000 3,000,000
Evaluation allowance at 100% (3,500,00 (3,000,00
0) 0)
Net deferred tax asset $ - $ -
Current income tax expense $ - $ -
Deferred tax expense $ - $ -
</TABLE>
13. Fair value of financial instruments:
At December 31, 1999, the Company's financial instruments include
cash, accounts receivable, due from stockholders, accounts
payable and accrued liabilities, due to stockholders, directors
and officers. Due to their short-term to maturity or ability for
prompt liquidation, the carrying values of cash, accounts
receivable, accounts payable and accrued liabilities approximates
their fair value. The fair value of due to (due from)
stockholders, directors and officers cannot be determined due to
their related party nature (note 9(a)). Due to the nature of the
relationship between the Company and the related parties and the
lack of a ready market for such indebtedness, it is not possible
to estimate the current fair value of this indebtedness. The
Company has not entered into off-balance sheet derivative
instruments.
14. Interest on long-term debt:
Interest on long-term debt includes $474,117 (1998 - $175,653;
1997 - $316,000) of amortization of the effective premium equal
to the intrinsic value calculated based on the difference between
the quoted market price and the conversion price on conversions
of debt.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 10
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
15. 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. Although the change in date has occurred, it
is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to
customers, suppliers, or other third parties, have been fully
resolved.
16. Subsequent events:
(a) Subsequent to year end, 366,667 shares of common stock of the
Company were issued on settlement of $276,000 of amounts due to a
stockholder.
(b) On March 1, 2000, the Company acquired, through a
reorganization agreement, Girne Acquisition Corp. ("Girne"), a
corporation organized and existing under the laws of the State of
Delaware. At that date, Girne was an inactive shell company.
Under the terms and conditions of the reorganization agreement,
each issued and outstanding share of common stock of Girne was
exchanged pro rata for an aggregate of 1,000 shares of voting
common stock of the Company at $0.001 par value per share. The
Company issued 300,000 shares of common stock for the acquisition
of Girne, consisting of 150,000 common shares at a deemed value
of $2.9375 per share and converting $150,000 of cash payable to
the shareholders of Girne at a deemed value of $1.00 per share
into 150,000 shares of common stock. For accounting purposes,
this transaction will be accounted for as a re-capitalization, as
if the Company had issued common shares for the net monetary
assets of Girne. Pursuant to the reorganization agreement, the
Company is the surviving corporation and will continue under its
present name as a corporation in the State of Nevada.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Schedules of General and Administrative, Sales and Marketing,
and Research and Development Expenses
(Expressed in U.S. Dollars)
<TABLE>
<S> <C> <C> <C> <C>
Period
from
inception
on
May 14,
1992 to
Year ended Year ended Year ended Year
December December December ended
31, 1999 31, 1998 31, 1997 December
31, 1999
General and
administrative:
Administrative fees $ 22,215 $ 24,237 $ - $ 46,452
Bad debts - - 54,515 75,778
Bank charges and 1,348 1,949 41,193 45,288
interest
Consulting and 731,799 367,759 - 1,119,559
contract services
Legal and 150,909 176,286 408,551 765,100
professional
Office 23,647 66,604 9,113 135,130
Rent 10,098 52,758 44,559 123,480
Salaries and benefits - 72,975 424,593 766,458
Stock administration 13,495 11,829 1,613 26,937
Telephone 2,772 9,518 25,504 51,373
Travel and 2,558 17,470 132,570 280,333
accommodation
Foreign exchange (36,744) 87,472 35,543 86,271
(gain) loss
$ 922,097 $ 888,857 $ 1,177,754 $
3,522,159
Sales and marketing:
Advertising $ - $ - $ 16,749 $ 16,749
Consulting and 123,561 402,477 443,324 979,423
contract services
Entertainment and 19,190 84,575 24,077 140,188
promotion
Investor relations 99,618 245,107 36,987 381,712
Office 4,080 15,685 43,076 77,982
Rent - 94,230 31,438 137,318
Salaries and benefits 2,287 109,502 145,121 291,341
Telephone and 2,772 16,528 - 19,300
Internet
Travel and 52,367 38,585 240,368 337,903
accommodation
$ 303,875 $ $ 981,140 $
1,006,689 2,381,916
Research and
development:
Acquired in-process
research and
development $ - $ - $ - $ 340,108
Consulting and 53,013 142,505 - 195,518
contract services
Office - 7,437 91,832 101,142
Salaries and benefits - 94,883 506,601 727,739
Supplies - 6,004 144,794 182,817
Travel and 2,980 15,860 13,632 50,244
accommodation
$ 55,993 $ 266,689 $ 756,859 $
1,597,568
</TABLE>
D) Reports on Form 8-K
On March 7, 2000, Electronic Identification, Inc. filed a Form 8-
K announcing that the Company acquired Girne Acquisition Corp., a
corporation organized and existing under the laws of the State of
Delaware, through a reorganization agreement. Pursuant to this
reorganization agreement, Electronic Identification is the
surviving company, will continue under its present name as a
corporation in the State of Nevada, and shall maintain Girne's
reporting status. A final amendment to this Form 8-K was filed
on May 8, 2000.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Electronic Identification, Inc.
By: /s/ Terry Kirby
Terry Kirby, President
