U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the transition period from _______________ to
________________
Commission File No.
ELECTRONIC IDENTIFICATION, INC.
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(Name of Small Business Issuer in its Charter)
NEVADA
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
411-1200 WEST PENDER STREET XXXXXXXXXXXX
VANCOUVER, B.C. V6E 2S9
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604) 684-8002
Securities registered pursuant to Section 12(b) of the Exchange
Act:
None
Securities registered pursuant to Section 12(g) of the
Exchange Act:
$.01 Par Value Common Stock
---------------------------------
(Title of Class)
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ___
Check if there is no disclosure contained herein of delinquent
filers in
response to Item 405 of Regulation S-B, and will not be
contained, to the best of the Company's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The Issuer's revenues for its year ended December 31, 1999 were
$0.0
As of May 01, 2000, the aggregate market value of the shares of
the issuer's Common Stock held by non-affiliates was
approximately $1.875 per share based upon the closing price per
share as reported on the Nasdaq Bulletin Board over the counter
Market.
There were 17,783,183 outstanding shares of the issuer's Common
Stock on May 01, 2000.
FORWARD-LOOKING STATEMENTS
Statements contained in this Report which are not historical in
nature are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-
looking statements include statements in "Item 1. Business,"
"Item 5. Market for Common Equity and Related Stockholder
Matters," and "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations," which can be
identified by the use of forward-looking terminology such as
"believes," "expects," "may," "should," or "anticipates" or the
negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy.
Such forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ
materially from anticipated results. These risks and
uncertainties include regulatory constraints, changes in laws or
regulations governing the Company's products and international
trade, the ability of the Company to market successfully its
products in an increasingly competitive worldwide market, changes
in the Company's operating or expansion strategy, failure to
consummate or
successfully integrate proposed product developments, the ability
of the Company to manage growth, the general economy of the
United States and the specific global markets in which the
Company competes, the availability of financing from internal and
external sources and
other factors as may be identified from time to time in the
Company's filings with the Securities and Exchange Commission or
in the Company's press releases.
No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The matters
identified in "Item 1. Business-Risk Factors" contain cautionary
statements identifying important factors with respect to such
forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially
from the future results covered in such forward-looking
statements. Other factors could also cause actual results to vary
materially from the future results covered in such forward-
looking statements.
ELECTRONIC IDENTIFICATION, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
ITEM 1. BUSINESS 4
ITEM 2. PROPERTIES 16
ITEM 3. LEGAL PROCEEDINGS 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 17
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. 20
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS 20
ITEM 10. EXECUTIVE COMPENSATION 20
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 20
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 20
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 20
PART I
ITEM 1. BUSINESS
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COMPANY OVERVIEW
The Company was incorporated in Nevada and is a leading developer
and marketer of contactless smart ID card systems ("Smart
Card(s)" or "Smart ID Card System(s)"). Generally the size of a
credit card, Smart Cards add the ability and intelligence to
store and process information with a computer chip embedded
inside the card. Smart Cards are used in a number of corporate
and government applications including (i) access to restricted
areas (replacing keys and paper identification cards), (ii)
public transportation fare collection (replacing bus tokens, taxi
cab charge cards, airline or railway tickets), (iii) point of
sale purchases. Smart Card technology is also used in industrial
applications such as attaching a "Smart Tag" containing the Smart
Card technology to a manufactured product in order to track the
product from the assembly line through quality control,
warehousing, inventory control, distribution and warranty.
The Company's Smart Cards are both "contactless" and
""batteryless" and therefore do not require the use of a magnetic
stripe or insertion into a terminal as is required by contacted
cards ("Contacted Card(s)"), such as credit cards and ATM cards.
Contacted Cards in use today are typically limited to storing
information as opposed to "intelligent" Smart Cards, which have
processing capabilities similar to that of a personal computer.
The Company's Smart Card System involves direct wireless radio
frequency communications and magnetic induction between a chip in
the Smart Card and a terminal. Moreover, the Company's
contactless Smart Card Systems do not require insertion in a
terminal or the use of a keypad and therefore may be used by all
members of the population regardless of age or physical ability
and in both indoor and outdoor locations.
For consumers and providers of goods and services, the Company's
Smart Cards offer the convenience and accuracy of high speed
transaction processing without the requirement of carrying cash,
checks or credit cards, thereby reducing the threat of theft,
inventory shrinkage, and payment fraud resulting from the
handling of cash or the counterfeiting of cash or credit cards.
Goods and services providers do not risk loss from (i) accepting
cash or checks which may be subsequently stolen from them after
payment by consumers or (ii) accepting credit cards which may
have been stolen prior to such payment. Consumer loss is limited
because the Smart Card is programmed to be used to purchase only
specific goods or services. Thus, the Smart Card is not as
attractive to a thief when compared to stolen cash, checks or
credit cards.
The Smart Card is designed to complement credit cards rather than
replace them in that Smart Card applications involve the storage
and handling of substantially more data than credit cards and can
therefore be used for other applications (rather than just
purchase and sale transactions) such as identification of the
user, loyalty programs and other portable data functions.
The Company sells its Smart Card Systems through its own direct
sales force, a combination of joint ventures and strategic
alliances and selective licensing and distributorship
arrangements and agreements with independent Agents in foreign
countries.
Since 1998, the Company has conducted numerous demonstrations of
its technology and may have the potential for implementation on a
larger scale. In some cases, these demonstration phase often
takes 6-12 months or longer. Examples of the Company's Smart Card
demonstration projects (two of which are discussed below as
representative of the Company's potential) include the following:
SUBSEQUENT EVENTS
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.
On March 1, 2000, the Company acquired Girne Acquisition Corp.
("Girne"), a corporation organized and existing under the laws of
the State of Delaware through a reorganization agreement. Under
the terms of the 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 $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 $1.00 per share into 150,000 shares of common stock.
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.
DESCRIPTION OF DEMONSTRATIONS
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The Kingdom of Saudi Arabia-(Dammam): Electronic Visa, Hajj
visa and identification cards, expatriate visa and identification
cards and access control and identification for prisons.
United Arab Emirates - (Abu Dhabi) : National and Expatriate
identification cards, electronic visa cards
The Kingdom of Saudi Arabia expressed interest in smart ID cards
for use in the following areas:
1. Fraud proof identification of prisoners, detainees and staff
in the prisons systems. The use of the company's smart cards will
enable the prison authorities to monitor prisons within the
facility, monitor their movements, record and track the movement
of prisoners from one prison facility to another. There are a
total of 92 prisons in the Kingdom of Saudi Arabia. The intent is
to monitor the prisoners within each prison from a central
headquarters location. All of the prisons will be integrated to a
central monitoring location.
2. The use of company's Identification and visa cards for Hajj
(The annual Muslim pilgrimage). Hardware and software would be
installed at all major embassies throughout the world. Pilgrims
would get their visas issued on the smart card at the embassies
and this smart card would double as a visa card at the same time.
This card would enable the bearer to enter the country for the
sole purpose of attending the Hajj. When the card is issued at
the embassies, the fingerprint and photo of the bearer is
embedded onto the chip in the card and recorded on the integrated
database residing in the Saudi Arabia. When the bearer lands in
Saudi Arabia, the card is read through the use of a reader and
the identity of the bearer if needed can be verified by taking
another fingerprint to find a match to the fingerprint on the
card. If the match is found and , the bearer is waived through,
thus speeding the process at immigration. The bearer holds the
card for further verification at other points at the Hajj
locations if needed or required. When exiting, the bearer of the
card is required to hand over the card to record on the database
the exit of the person.
3. The Kingdom needs a tamper and fraud proof system of
identification for the expatriates in the country. The
expatriates are brought in to work on employer sponsored visas
that are valid for any where from 1-3 years and can be renewed
annually or longer. Our Smart cards can provide this tamper and
fraud proof smart cards that identifies the person and the
information resides on the database.
THE UNITED ARAB EMIRATES:
The UAE has issued Tender documents for consultancy for
Identification cards for both its nationals and expatriates. The
UAE requires 2 identification cards one for the nationals and the
other for the expatriates. The company's cards will be fraud
proof and tamperproof. These cards will be used to identify the
person, have their identification on the national database. The
expatriates will probably have an expiry date on their cards and
will probably specify what benefits they are or are not entitled
to as compared to the nationals. There may also be a requirement
for the company's smart cards to serve as e-visas between the
AGCC countries.
SMART CARD INDUSTRY OVERVIEW
Smart Card products, including the Company's Smart Card
(collectively referred to as "generic smart cards"), are
typically the size of a plastic credit/debit card containing an
integrated circuit chip ("chip") which can process and store
information. Today's generic smart cards typically have the
processing power of an early 1980's vintage personal computer,
minus a keyboard, display and power supply. Because generic smart
cards are really portable computers, they can be programmed to
perform virtually any function which can be implemented by
software in the available memory space. Generic smart cards
benefit directly from ongoing advances in semiconductor
technology making available continuously increasing performance
and features at declining cost.
There are two basic types of generic smart cards, memory cards
and microprocessor cards, each of which can interface between the
generic smart card and a terminal on a contacted or contactless
basis. Memory cards are typically used to store and retrieve
information only and do not have the capability of performing
complex processing of information. Microprocessor cards are true
"smart" cards in that they contain a central processing unit
within a chip which can perform a number of functions, including
complex arithmetic operations required for security. In excess of
90% of all generic smart cards sold in 1995 were memory cards
with contacted interfaces requiring alignment and insertion of
the generic smart card into a terminal to complete an electrical
circuit with the metal contacts on the surface of the card. While
contacted generic smart cards have found broad use in high
volume, cost sensitive applications, such as pay phone systems
which use contacted generic smart cards, they are expensive to
maintain, less reliable and may be considered too slow for
applications such as transportation. To address the perceived
shortcomings of the contacted generic smart card, a contactless
generic smart card was first developed and introduced in the
early 1990's. According to the consulting firm Frost & Sullivan,
more than 676 million generic smart cards were issued in 1996.
According to the U.S. Federal Reserve, 68% of the approximately
360 billion financial transactions completed in 1995 were for
transactions of less than $2.00 each. Electronic commerce using
electronic funds transfer, magnetic stripe cards and generic
smart cards accounted for less than ten percent of all such
transactions, but grew at an annual rate of 17% versus 1% growth
for transactions using cash, coin and checks. The Company
believes that the evolution of personal computers, the Internet
and generic smart cards represent technologies which will
contribute to the growth of electronic commerce in the future.
According to a report by Killen & Associates, "Non-Banks Smart
Card Strategies: New Opportunities To Increase Sales and
Profits," the generic smart card market will triple to 30 billion
transactions by 2005. Furthermore, according to a report by
International Data Corporation, as published by the Smart Card
Forum, a multi- industry group formed to explore the use of
generic smart cards in various applications, the growth in the
number of online buyers and the amount of an average transaction
will drive electronic commerce up from $2.6 billion in 1996 to
more than $220 billion in 2001.
According to market research performed by Dataquest, as published
by the Smart Card Forum, the generic smart card market will grow
to 3.4 billion units by 2001, a rate of 30% each year. Dataquest
has also determined that sales of generic smart cards in Europe
accounted for 90% of worldwide smart card shipments in 1995,
while the Americas accounted for only 2%. By the year 2001, the
ratios are expected to change to 40%, 25% and 20% for Europe,
Asia and the Americas, respectively. Asia, Latin America and
North America are areas generally believed to be of greatest
potential for generic smart card growth in the next three years.
Costs play an important role in this emerging industry. Recent
reports in CARD TECHNOLOGY magazine (September 1997) indicate
that price competition is fierce. Frost & Sullivan reported
average selling prices of Contactless Smart Cards in mid-1996 at
$5.50 per unit at high volume. During 1997, the largest
Contactless Smart Card competitors sold these cards at $2.50 per
unit, if not lower or even below cost, affecting profit margins
on the products.
Generic smart card products and markets have only recently begun
to develop, are rapidly evolving and are characterized by an
increasing number of market entrants who have developed or are
developing a wide variety of products. As is typical in a new and
rapidly evolving industry, demand and market acceptance for new
products are subject to a high level of uncertainty. There is no
assurance that the Company's Smart Cards will become widely
accepted. If the market fails to develop, develops more slowly
than expected or becomes saturated with competitors, or if the
Company's Smart Cards do not achieve market acceptance, the
Company's business, operating results and financial condition may
be materially adversely affected.
STRATEGY
The Company's mission is to achieve sustained leadership in
developing and delivering contactless Smart Card solutions for
electronic identification, access control, security and
immigration, while securing worldwide acceptance and usage of its
technology in Smart Card chips. The following discussions
represent the Company's business strategy.
PRODUCT DEVELOPMENT
The Company believes its compression technology provides distinct
advantages over known competing Smart Card Systems including: (i)
higher speed making possible real-time processing; (ii) lower
power consumption with no battery requirements; and (iii)
reliability with a virtually unlimited card life. The Company
continues to demonstrate its abilities in the fields of radio
frequency ("RF") analog and digital circuit design. The Smart
Cards developed by the Company offers a level of security and
flexibility in contactless operation that could only previously
be achieved in contacted operation.
Key to the success of new generations of Smart Card Systems is
the Company's strength in both the front end and back end
protocol implementation. This core competency is important
because of the continuous evolution of Smart Card standards. The
Company's product development team strives to develop Smart Card
Systems which will not only comply with the evolving standards,
but will also continue to communicate with existing legacy
Systems.
The Company intends to continue to develop Smart Card Systems
Utilizing "Next Generation Architecture" The Next Generation
Architecture evolves into an Internet oriented interface that
will be browser and micro browser (WAP or wireless application
protocol) based.
This will allow the new system to operate in a much smaller
technology footprint moving toward the PDA or handheld size with
a wireless backbone. The next generation will also include the
creation of a driver library to provide support for several card
/ reader and biometric devices. This will assure compatibility
with the political as well as technical interests in the customer
base.
The back end integration problems will also be solved in the next
generation architecture. Customers are looking for a single
smart card to be able to interface with several back end legacy
service delivery systems. These include passports, driver
licenses, healthcare, etc. To achieve this capability a layered
e-business integration backbone will be created. This will
include support for:
1. A formal architecture and development methodology,
2. A distributed application development environment,
3. An integrated management and monitoring capability
4. Required transport technologies (messaging, IIOP, etc),
5. Formatting,
6. Routing,
7. Transformation (including but not limited to XML),
8. Application and legacy technology connectors (adapters)
9. Business process design and automated tracking.
The company -- in addition to its own development staff and in
addition to the core competencies of its strategic alliances is
actively recruiting the leading independent experts in the
disciplines discussed above. However, there is no assurance that
these
development efforts will result in commercially viable products.
The Company incurred R&D expenses of $55,993 in 1999 and $266,689
in 1998. Generally, the costs of R&D activities are borne by the
Company.
MARKETING
The Company promotes and markets its Smart Card Systems on a
worldwide basis using a multi-faceted marketing and sales
strategy.
The Company's near term strategy is designed to address primarily
systems in the identification, access control and security market
segments.
The Company's Smart Card Systems are custom based systems
requiring software modification for varied users. The Company
believes that these Custom system applications offer the greatest
opportunity for its technology for the next several years.
A key component of the Company's marketing strategy is to
leverage its strategic alliances to develop new users and
increase market share in its targeted markets. To that end, the
Company has signed teaming agreements with Hewlett Packard
Company and Bluestone Software and has alliance agreements with
SCI Inc. and CPI Card Group Inc.
The Company also markets its Smart Card Systems technology
commercial organizations in the Middle East, which is the
Company's primary focus for its systems and technology. The
Company has established an Internet web site and electronic mail
capability.
The Company has not recorded any sales to date but is actively
pursuing opportunities in the United Arab Emirates and Saudi
Arabia and it hopes to secure a major contract in that area.
MANUFACTURING AND ASSEMBLY
Since inception, the Company has subcontracted substantially all
of its manufacturing operations. The Company will continue to
contract with third parties to manufacture the Company's Smart
Card products in order to avoid capital intensive investments and
to focus the Company's limited resources on product applications
and software development.
The Company will subcontract assembly of Smart Cards, terminals
and card lamination to multiple companies who specialize in this
kind of contract work. With increasing production volumes, the
Company intends to consolidate its outside contract manufacturing
in order to gain greater economies of scale and to better control
product quality.
COMPETITION
The market for Smart Card products is new, intensely competitive,
quickly evolving and subject to rapid technological change.
Competitors may develop superior products or products of similar
quality for sale at lower prices. Moreover, there can be no
assurance that the Company's Smart Card will not be rendered
obsolete by changing technology or new industry standards. The
Company expects competition to persist and increase in the
future. The Company's current and potential competitors are
primarily subsidiaries of multinational companies with
established Contacted and Contactless Smart Card Products that
have longer operating histories, greater name recognition, larger
customer bases and
significantly greater financial, technical and marketing
resources than the Company. This intense level of competition
could materially adversely affect the Company's future business,
operating results and financial condition. Competitive factors in
the industry include transaction speed, the extent and
flexibility of Smart Card memory, reliability, transaction
accuracy and cost, all of which are discussed below. There can be
no assurance that the Company will be able to compete
successfully against current or future competitors or
that competitive pressures faced by the Company will not
materially adversely affect its business, operating results and
financial condition. Many of the Company's competitors have the
financial resources necessary to enable them to withstand
substantial price and product competition, which are expected to
increase, and to implement extensive advertising and promotional
programs, both generally and in response to efforts by other
competitors to enter into existing markets or introduce new
products.
The industry is also characterized by frequent introductions of
new products. The Company's ability to compete successfully will
be largely dependent on its ability to anticipate and respond to
various competitive factors affecting the Smart Card industry,
including new products which may be introduced, changes in
customer preferences, demographic trends, pricing strategies by
competitors and consolidation in the industry where smaller
companies with leading edge technologies may be acquired by
larger multinational companies.
Contacted Cards represent the Company's primary competition in
electronic commerce applications. Contacted Card competitors
include such multinational firms as Gemplus, Schlumberger and
Group Bull. The Company believes that it is able to compete
favorably against Contacted Cards because the Company's
contactless Smart Cards (i) operate at higher speeds, (ii) do not
require the time and effort involved in inserting the Smart Card
in a terminal or removing the Smart Card from a wallet or purse,
(iii) use reliable solid state electronics with no moving parts,
exposed contact points or magnetic stripes which can be erased by
a magnetic field, and (iv) are lower in cost over the product
life.
The Company also competes against contactless Smart Cards
designed by Philips GmbH, Sony Corporation, Gemplus, Motorola and
Micron Communications, Inc., which use contactless technologies
similar to the Company's technology. The Company believes that
its Smart Cards Systems compete favorably against these other
contactless technologies because the Company's contactless Smart
Cards operate at higher speeds, have higher endurance and the
Company's proprietary compression technology has the ability to
compress and store a lot of information including photo and
fingerprint on the Smart Card and do not require batteries for
power.
PATENTS AND TRADE SECRETS
The Company relies on its own patents, trade secrets and
copyrights as well as the patents, trade secrets and copyrights
of its licensors to protect its Smart Card technology and
compression. Due to rapid changes in the generic smart card
industry, the Company believes that development of trade secrets
and unpatented proprietary knowledge in connection with new
products and technologies are generally as important as patent
and copyright protection in establishing and maintaining a
competitive advantage. To date, the Company has been awarded one
Canadian patent and will pursue additional patents, both in the
U.S. and in certain foreign countries. There can be no assurance
that any of the Company's future patent applications will be
granted, that any current or future patent or patent application
will provide significant protection for the Company's products or
technology, be of commercial benefit to the Company, or that the
validity of such patents or patent applications will not be
challenged. Furthermore, there can be no assurance that any
patent underlying licensed technology will not be challenged.
Moreover, there can be no assurance that foreign patent, trade
secret or copyright laws will protect the Company's technologies
or that the Company will not be vulnerable to competitors who
attempt to copy or use the Company's Smart Card products or
processes.
EMPLOYEES
As of May 01, 2000, the Company has a total of seven consultants.
The Company believes its relations with its consultants are
satisfactory.
RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
AND THE OTHER INFORMATION CONTAINED IN THIS REPORT BEFORE MAKING
AN INVESTMENT DECISION WITH REGARD TO THE COMPANY'S COMMON STOCK.
INFORMATION CONTAINED IN THIS REPORT CONTAINS "FORWARD-LOOKING
STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "SHOULD" OR
"ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON
OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY. SEE,
E.G., "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "ITEM 1. BUSINESS." NO
ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS COVERED BY THE
FORWARD-LOOKING STATEMENTS WILL BE ACHIEVED. THE FOLLOWING
MATTERS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT
FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS,
INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE
ACTUAL RESULTS TO VARY MATERIALLY FROM THE FUTURE RESULTS COVERED
IN SUCH FORWARD-LOOKING STATEMENTS. OTHER FACTORS COULD ALSO
CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE FUTURE RESULTS
COVERED IN SUCH FORWARD-LOOKING STATEMENTS.
LIMITED OPERATING HISTORY AND LIMITED REVENUES; LOSSES AND
INDEPENDENT PUBLIC ACCOUNTANTS GOING CONCERN OPINION. The Company
began operations in May 1992 and has a limited operating history
upon which potential investors may base an evaluation of its
performance. Since inception, the Company has focused its efforts
and resources on developing its technology and on identifying
products and applications for introduction into the market. The
Company has not generated revenues from its operations and
therefore the Company has historically incurred significant
operating losses and cash flow deficits. For the year ended
December 31, 1999, the Company had no revenues a net loss of
$3,051,195. Moreover, at December 31, 1999, the Company had
working capital of $8,071 and had an accumulated deficit of
$10,994,660. The Report of Independent Public Accountants
covering the Company's December 31, 1999 financial statements,
included elsewhere in this Report, contains an explanatory
paragraph about the Company's ability to continue as a going
concern. There can be no assurance that the Company's operations
will generate sufficient revenues to fund its operations and to
allow it to become profitable. The likelihood of the Company's
success must be considered relative to the problems, experiences,
difficulties, complications and delays frequently encountered in
connection with the operation and development of a new business
and the competitive environment in which the Company operates.
See "Item 7. Financial Statements."
DEVELOPING MARKET; UNPROVEN MARKET FOR THE COMPANY'S SMART CARD
PRODUCTS.
Smart Card products and markets have only recently begun to
develop, are rapidly evolving and are characterized by an
increasing number of market entrants who have developed or are
developing a wide variety of products. As is typical in a new and
rapidly evolving industry, demand and market acceptance for new
products are subject to a high level of uncertainty. There can be
no assurance that the Smart Cards Systems designed by the Company
will become widely accepted. Because the market for the Company's
Smart Cards is new and evolving, it is also difficult to predict
with any assurance the future growth rate, if any, and size of
the market. If a market fails to develop, develops more slowly
than expected or becomes saturated with competitors, or if the
Company's Smart Cards do not achieve market acceptance, the
Company's business, operating results and financial condition may
be materially adversely affected. See "Item 1. Business."
COMPETITION; FREQUENT PRODUCT INTRODUCTIONS.
The market for Smart Card products is new, intensely competitive,
quickly evolving and subject to rapid technological change.
Competitors may develop superior Smart Card products or products
of similar quality for sale at lower prices. Moreover, there can
be no assurance that the Company's Smart Cards will not be
rendered obsolete by changing technology or new industry
standards. The Company expects competition to persist and
increase in the future. The Company's current and potential
competitors are primarily subsidiaries of multinational companies
with established Contacted Card and contactless Smart Card
businesses which have longer operating histories, greater name
recognition, larger customer bases and significantly greater
financial, technical and marketing resources than the Company.
This intense level of competition could materially adversely
affect the Company's future business, operating results and
financial condition.
Competitive factors in the industry include transaction speed,
the extent and flexibility of Smart Card memory, reliability,
transaction accuracy and cost. Current competitors include such
multinational firms as Gemplus, Schlumberger and Group Bull,
which primarily offer Contacted Cards, and Philips GmbH,
Motorola, Sony Corporation and Micron Communications, Inc., which
offer primarily contactless Smart Cards.
There can be no assurance that the Company will be able to
compete successfully against current or future competitors or
that competitive pressures faced by the Company will not
materially adversely affect its business, operating results and
financial condition. Many of the Company's competitors have the
financial resources necessary to enable them to withstand
substantial price and product competition, which are expected to
increase, and to implement extensive advertising and promotional
programs, both generally and in response to efforts by other
competitors to enter into existing markets or introduce new
products. The industry is also characterized by frequent
introductions of new products. The Company's ability to compete
successfully will be largely dependent on its ability to
anticipate and respond to various competitive factors affecting
the industry, including new products which may be introduced,
changes in customer preferences, demographic trends and pricing
strategies by competitors, which could adversely affect the
Company's operating margins.
RISKS OF NEW PRODUCT DEVELOPMENT.
The Company may experience difficulties that could delay or
prevent the development, introduction and marketing of new Smart
Card products. The Company will be substantially dependent in the
near future upon Smart Card products that are currently being
developed. There can be no
assurance that, despite testing by the Company, errors will not
be found in the Company's Smart Card products, or, if errors are
discovered, corrected in a timely manner. If the Company is
unable to develop on a timely basis existing or new Smart Card
products or enhancements to existing products, or if its Smart
Card products do not achieve market acceptance, the Company's
business, operating results and financial condition may be
materially adversely affected.
RISKS ASSOCIATED WITH EXPANSION.
The Company will seek to develop and expand its Smart Card
products and increase its marketing operations. Expansion will
place substantial strains on the Company's management and its
operational, accounting and information resources and systems.
Successful management of growth will require the Company to
improve its financial controls, operating procedures and
information systems, and to hire, train, motivate and manage its
employees and consultants. The Company's failure to manage growth
effectively would have a material adverse effect on its results
of operations and its ability to execute its business strategy.
OBSOLESCENCE AND TECHNOLOGICAL CHANGE.
The markets for Smart Card products are characterized by rapidly
changing technology and evolving industry standards which result
in product obsolescence and short product life cycles.
Accordingly, the Company's success is dependent upon its ability
to anticipate technological changes in the industry and to
continually identify, develop and successfully market new Smart
Card products that satisfy evolving technologies, customer
preferences and industry requirements. There can be no assurance
that competitors will not market Smart Card products which have
perceived advantages over those of the Company or which render
the Company's Smart Card products obsolete or less marketable.
IMPEDIMENTS TO MARKET ACCEPTANCE OF PRODUCTS.
As with other new products designed to replace existing products
or change product designs, potential customers may be reluctant
to integrate the Company's Smart Card products into their systems
unless the products are proven to be both reliable and available
at a competitive price in an assured quantity. Even assuming
product acceptance, the Company's customers may be required to
redesign their systems to effectively use the Company's Smart
Card products. The time and costs necessary for such redesign
could delay or prevent market acceptance of the Company's Smart
Card products. A lack of, or delay in, market acceptance of one
or more of the Company's Smart Card products could adversely
affect the Company's operations.
DEPENDENCE ON MANUFACTURERS AND SUPPLIERS.
The Company's reliance upon outside manufacturers and suppliers
is expected to continue and involves several risks, including
limited control over the availability of components, delivery
schedules, pricing and product quality. The Company may also
experience delays, expenses and lost sales should it be required
to locate and qualify alternative suppliers.
RELIANCE UPON PATENTS AND TRADE SECRETS.
The Company relies on its patents, trade secrets and copyrights
to protect its Smart Card technology. Although the Company
intends to enforce its patents, trade secrets and copyrights
aggressively, there can be no assurance that such protection will
be available in any particular instance or that the Company will
have the financial resources necessary to adequately enforce its
rights. The unavailability of such protection or the inability to
enforce adequately such rights could materially adversely affect
the Company's business and operating results. The Company
operates in a competitive environment in which it would not be
unlikely for a third party to claim that certain of the Company's
present or future Smart Card products or licensed technology may
infringe the patents or rights of such third parties. If any such
infringements exist or arise in the future, the Company may be
exposed to liability for damages and may be required to obtain
licenses relating to technology incorporated into the Company's
products. The Company's inability to obtain such licenses on
acceptable terms or the occurrence of related litigation could
materially adversely affect the Company's operations.
NEED FOR ADDITIONAL FINANCING.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that its current cash
with projected cash flow from its Rights Offering , will be
sufficient to satisfy its contemplated cash requirements for at
least 12 months following the date of this Report. In the event
that the Company's plans change, its assumptions prove to be
inaccurate or its cash flow prove to be insufficient (due to
unanticipated expenses, inadequate revenues, difficulties,
problems or otherwise), the Company may be required to seek
additional financing or curtail its activities. Any issuance of
equity securities would result in dilution to the interests of
the Company's stockholders and any issuance of debt securities
would subject the Company to risks that interest rates may
increase or cash flow may be insufficient to repay such
indebtedness. The Company has no arrangements or understandings
for additional financing and there can be no assurance that
additional financing will be available to the Company if
required.
DEPENDENCE UPON CUSTOM SYSTEM DEVELOPMENT PROJECTS.
The Company will rely upon custom system development projects for
a significant part of its revenues. The inability of the Company
to replace completed projects with new projects will adversely
affect the Company's operations.
DEPENDENCE UPON QUALIFIED PERSONNEL AND EXECUTIVE OFFICERS.
The Company's operations depend in part upon its ability to
retain and hire qualified personnel, of which there can be no
assurance. The Company's operations are also dependent upon the
continued services of Terry Kirby, its Chairman and Chief
Executive Officer, and certain other consultants. The loss of
services of any of the Company's executive officer or consultant,
whether as a result of death, disability or otherwise, could have
a material adverse effect upon the Company's operations. The
Company does not have employment agreements with its executive
officers.
CONTROL BY PRINCIPAL STOCKHOLDERS; AUTHORIZATION AND ISSUANCE OF
PREFERRED STOCK; PREVENTION OF CHANGES IN CONTROL.
There is no one single shareholder who owns 10% or more of the
Company's Common Stock. The Company's Certificate of
Incorporation authorizes the issuance of up to 5,000,000 shares
of Preferred Stock with such rights and preferences as may be
determined from time to time by the Board of Directors.
Accordingly, under the Certificate of Incorporation, the Board of
Directors may, without shareholder approval, issue Preferred
Stock with dividend, liquidation, conversion, voting, redemption
or other rights which could adversely affect the voting power or
other rights of the holders of the Common Stock. The issuance of
any shares of Preferred Stock having rights superior to those of
the Common Stock may result in a decrease in the value or market
price of the Common Stock and could further be used by the Board
of Directors as a device to prevent a change in control of the
Company. The Company has not issued any of the Preferred Shares
to date and has no plans to issue Preferred Shares. The Company
has no other anti-takeover provisions in its Certificate of
Incorporation or Bylaws. Holders of the Preferred Stock may have
the right to receive dividends, certain preferences in
liquidation and conversion rights.
NO DIVIDENDS.
The Company has not paid any dividends on its Common Stock and
does not intend to pay dividends in the foreseeable future.
POSSIBLE VOLATILITY OF SECURITIES PRICES.
The market price of the Common Stock may be highly volatile.
Factors such as the Company's operating results or public
announcements by the Company or its competitors may have a
significant effect on the market price of the securities. In
addition, market prices for the securities of many small
capitalization companies have experienced wide fluctuations due
to variations in quarterly operating results, general economic
conditions and other factors beyond the Company's control.
LIMITATIONS ON LIABILITY OF DIRECTORS.
The Company's Certificate of Incorporation substantially limits
the liability of the Company's directors to the Company and its
stockholders for breach of fiduciary or other duties to the
Company.
ITEM 2. PROPERTIES
The Company's headquarters are located in an 5,700 square foot
rented facility which it shares with another company in
Vancouver, British Columbia. The current rent is included and
forms part of a monthly billing that includes accounting
services, secretarial services, and consulting services at a base
monthly amount of $20,270. The Company believes its existing
facility is adequate for its current needs and that suitable
additional or substitute space will be available as needed on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is subject to litigation incidental
to its business. The Company is not presently a party to any
material litigation. Such claims, if successful, could result in
damage awards exceeding, perhaps substantially, applicable
insurance coverage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no such matters were submitted during the last quarter
of 1999
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on NASD Over The Counter
Bulletin Board under the symbol "EISQ"
The following table sets forth, for the periods indicated the
range of high and low sales prices per share of the Company's
Common Stock, as reported on NASD Over The Counter Bulletin
Board.
<TABLE>
<S> <C> <C>
Low High
Quarter End
1999
First Quarter .46 .50
(Ending March 31,
1999)
Second Quarter .50 .5469
Third Quarter .2969 .4375
Fourth Quarter .3125 .3594
</TABLE>
2000
As of May 01, 2000, the last reported sale price of the Company's
Common Stock was $1.875 per share.
The Company has not declared or paid dividends on its Common
Stock since its formation, and the Company does not anticipate
paying dividends in the foreseeable future. Although the Company
does not currently have a credit facility, future credit
facilities, if any, are likely to prohibit the payment of
dividends. Declaration or payment of dividends, if any, in the
future, will be at the discretion of the Board of Directors and
will depend on the Company's then current financial condition,
results of operations, capital requirements and other factors
deemed relevant by the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain selected financial data,
which should be read in conjunction with, and are qualified in
their entirety by, the financial statements and related notes
thereto.
STATEMENT OF OPERATIONS DATA
<TABLE>
<S> <C> <C> <C>
1997 1998 1999
Revenues $54,996 $0 $0
Loss from (3,250,429 (2,149,795 (1,792,872
operations ) ) )
Net loss (3,521,956 (3,082,864 (3,051,195
) ) )
Net loss per share $(1.81) $(.67) $(.22)
- - Basic and Diluted
Weighted average 1,951,000 4,635,712 13,951,357
shares outstanding
</TABLE>
- -----------------------------------------------------------------
- ------
BALANCE SHEET DATA AT DECEMBER 31,
<TABLE>
<S> <C> <C> <C>
1997 1998 1999
Cash 0 4,615 8,071
Working Capital 735,594 685,730 625,236
(deficit)
Total assets 218,904 176,108 135,077
Total liabilities 2,295,985 1,800,613 703,638
Stockholders' 2,077,081 1,624,505 568,561
deficit
</TABLE>
- -----------------------------------------------------------------
- -------
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31,
1998
REVENUES. Revenues were nil for both years. The Company has
conducted demonstrations of its technology that may have the
potential for implementation on a larger scale. In some cases,
these demonstration projects are "rolled out" for full scale
implementation, however the demonstration phase often takes 6-12
months or longer.
RESEARCH AND DEVELOPMENT EXPENSES ("R&D"). R&D decreased by 79%
to $55,993 in 1999 from $266,689 in 1998. R&D efforts relating to
the Company's Smart Card Systems continued to expand from 1996
through 1998. During 1999, the Company concentrated its efforts
primarily in demonstrating its technology and signing strategic
alliances. The reduction in R&D costs were as a result of letting
go of one technical consultant.
GENERAL AND ADMINISTRATIVE EXPENSES ("G&A"). G&A increased 3.8%
to $922,097 for 1999 from $888,857 for 1998. This increase is
primarily attributable to expenses incurred for consulting and
contract services increased approximately $364,040, as the
Company replaced employees with consultants. Legal and
professional fees decreased approximately $25,377 as the Company
amicably settled a lot of the claims against it. There was a
decrease of $107,275 in rent, office expenses, telephone and
travel and accommodation as the Company closed down its San Jose,
California offices. There was also a gain of $36,744 in foreign
exchange transactions between US and Canadian currency
transactions.
SALES AND MARKETING EXPENSES. Sales and marketing expenses
decreased 69.8% to $303,875 in 1999 from $1,006,689 in 1998. This
decrease is due to the reduction in investor relations programs.
The Company also discontinued with its sales and marketing
program for SACS (Secure Access Control System) a Firewall
protection software. As a result, the Company reduced its costs
for consulting, entertainment and promotion, and telephone by
$358,057. The closure of the San Jose, California office further
reduced rent and salaries by $201,445.
DEPRECIATION AND AMORTIZATION EXPENSE. The Company's primary
assets are its compression technology and the demonstration and
testing equipment that includes computers etc.
INTEREST ON LONG TERM DEBT. During 1999, the Company incurred
$493,586 in interest which is made up by the effective premium
equal to the intrinsic value calculated based on the difference
between the quoted market price of the Company's common stock and
the conversion price on conversions of debt.
NET LOSS. The Company as of December 31, 1999, has approximately
$8,500,000 in non-capital losses which may be deducted in the
calculation of taxable income of future periods until their
expiry to December 31, 2006.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital has been to finance
expansion of research and development of new Smart Card products,
sales and marketing of its products and operations.
CASH FLOW
The Company had cash and cash equivalents of $8,071 and $4,615 as
of December 31, 1999 and 1998, respectively.
CAPITALIZATION
The Company's capitalization of $10,426,099 as of December 31,
1999 is comprised entirely of stockholders' equity, $703,638 of
short-term debt and $(568,561) in stockholders' deficit.
The Company has generated substantial operating losses since
inception and has yet to generate revenues to fund its
operations. The Company has not yet completed a significant
number of substantial sales transactions covering the application
of its products and, as a result, an uncertainty exists as to
whether the Company will be able to successfully market and sell
its products to third parties at sufficient prices and volumes to
fund its operations. During 1996 and 1998, the Company
experienced significant cash flow deficits and liquidity
shortages and funded its operations primarily through the
issuance of Its common stock for debt and related party
borrowings.
During 2000, the Company anticipates that operating revenues will
be achieved through a combination of product sales and
development contracts. In addition, the Company also anticipates
that it will maintain its current level of operating expenses,
including research and development expenditures which are
required for the Company to further develop and market its
products and achieve successful operations. However, there is no
assurance the Company will be successful in developing and
marketing its products or that the Company's operations will
generate sufficient revenues to fund its operations and to allow
it to become profitable.
Management of the Company intends to fund its 2000 operations
through a combination of product sales and possible offerings of
its common stock. There is no assurance that sales of common
stock will occur or that additional proceeds will be received
from such offerings. The Company currently does not have an
available source for short-term borrowings.
These factors, among others, raise substantial doubt about the
ability of the Company to continue as a going concern. The
financial statements do not include any adjustments relating to
the recoverability of assets and carrying amounts of liabilities
that might be necessary should the Company be unable to continue
as a going concern.
The Company must also maintain certain requirements in order to
be listed on NASD Over the Counter Bulletin Board.
Year 2000
The Company utilizes software and related technologies throughout
its business and relies on many suppliers of services and
materials that are in compliant with year 2000 issue.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, which are included in this
report on pages
F-1 through F-22, are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The Registrant has not changed accountants since its formation,
and Management has had no disagreements with the findings of its
accountants.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Terry Kirby is and has been Officer, Chairman, CEO Director
of the Company since it's inception. Since 1996, Mr. Kirby has
also served as President of Crescendo Corporate Development,
Inc., a company involved in bringing advanced technologies to
promotion and investor relations. From 1996 to 1997, he was Vice-
President, Corporate Development of Alpine Exploration
Corporation, currently Sheegi Resources on the CDNX, a company
involved in precious metals exploration in Western Africa. From
1994 to 1996 was responsible for all aspects of Corporate
Development for Kensington Resources Ltd., traded on the CDNX,
involved in joint venture diamond exploration program in
Saskatchewan with Monopros, a De Beers company. From 1993 to
1994, Mr. Kirby was Vice-President, International Sales and
Marketing, as well as quality control / quality assurance for Hot
In-Place Asphalt Recycling Inc, an International company
providing rehabilitation methods to various government agencies
from 1989 to 1992, and principal of R.W. Blacktop, companies
involved in providing environmentally and economically sound
asphalt highway resurfacing solutions. From 1986 to 1989, Mr.
Kirby was Managing Partner of First Marketing Inc. which
developed Kingman Island, an interactive theme park in
Washington, D.C. and Harbour Front, a redevelopment project on
Toronto's waterfront. From 1983 to 1986, he was Director,
Corporate Sponsorships, EXPO '86 the World Exposition in
Vancouver, BC Canada.
ITEM 10. EXECUTIVE COMPENSATION
The Company's sole officer and director receive no compensation
for his respective services rendered to the Company
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
There are no persons known to the Company, as of May 1, 2000, to
be a beneficial owner of five percent (5%) or more of the
Company's common stock, and none of the directors or officers own
any of the Company's common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships nor related transactions to report.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
a) 2.1 Articles of Incorporation
CERTIFICATE OF INCORPORATION
OF
EI2, INC.
ARTICLE I
Name
The name of the Corporation is EI2, Inc.
ARTICLE II
Duration
The Corporation is to have perpetual existence.
ARTICLE III
Registered Office and Agent
The address of its registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County
of Newcastle, State of Delaware. The name of its registered agent
at such address is The Cmpany Corporation..
ARTICLE IV
Purposes
The purpose for which the Corporation is organized is to
transact all lawful business for which corporations may be
incorporated pursuant to the laws of the State of Delaware. The
Corporation shall have all the powers of a corporation organized
under the General Corporation Law of the State of Delaware.
ARTICLE V
Capital Stock
The aggregate number of shares of all classes of capital
stock which the Corporation has authority to issue is 50,000,000
of which 45,000,000 are to be shares of common stock, $.001 par
value per share, and 5,000,000 are to be shares of serial
preferred stock, $.001 par value per share. Shares of capital
stock may be issued by the Corporation from time to time as
approved by the board of directors of the Corporation without the
approval of the stockholders except as otherwise provided in this
Article V or the rules of a national securities exchange, if
applicable. The consideration for share issuance of shall be paid
to or received by the Corporation in full before their issuance
and shall not be less than the par value per share. The
consideration for the issuance of the shares shall be cash,
services rendered, personal property (tangible or intangible),
real property, leases of real property or any combination of the
foregoing. In the absence of actual fraud in the transaction, the
judgment of the board of directors as to the value of such
consideration shall be conclusive. Upon payment of such
consideration such shares shall be deemed to be fully paid and
nonassessable. In the case of a stock dividend, that part of the
surplus of the Corporation which is transferred to stated capital
upon the issuance of shares as a stock dividend shall be deemed
to be the consideration for their issuance.
A description of the different classes and series (if any)
of the Corporation's capital stock, and a statement of the
relative powers, designations, preferences and rights of the
shares of each class and series (if any) of capital stock, and
the qualifications, limitations or restrictions thereof, are as
follows:
A. Common Stock. Except as provided in this Certificate, the
holders of common stock shall exclusively posses all voting
power. Subject to the provisions of this Certificate, each
holder of shares of common stock shall be entitled to one
vote for each share held.
Whenever there shall have been paid, or declared and set
aside for payment, to the holders of the outstanding shares
of any class or series of stock having preference over the
common stock as to the payment of dividends, the full amount
of dividends and sinking fund or retirement fund or other
retirement payments, if any, to which such holders are
respectively entitled in preference to the common stock,
then dividends may be paid on the common stock, and on any
class or series of stock entitled to participate therewith
as to dividends, out of any assets legally available for the
payment of dividends, but only when and as declared by the
board of directors.
In the event of any liquidation, dissolution or winding up
of the Corporation, after there shall have been paid, or
declared and set aside for payment, to the holders of the
outstanding shares of any class having preference over the
common stock in any such event, the full preferential
amounts to which they are respectively entitled, the holders
of the common stock and of any class or series of stock
entitled to participate therewith, in whole or in part, as
to distribution of assets shall be entitled, after payment
or provision for payment of all debts and liabilities of the
Corporation, to receive the remaining assets of the
Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative
powers, preferences and rights as, and shall be identical in
all respects with, all the other shares of common stock of
the Corporation.
B. Serial Preferred Stock. Except as provided in this
Certificate, the board of directors is authorized, by
resolution or resolutions from time to time adopted, to
provide for the issuance of serial preferred stock in series
and to fix and state the powers, designations, preferences
and relative, participating, optional or other special
rights of the shares of each such series, and the
qualifications, limitation or restrictions thereof,
including, but not limited to determination of any of the
following:
(1) the distinctive serial designation and the number of
shares constituting such series;
(2) the rights in respect of dividends, if any, to be paid
on the shares of such series, whether dividends shall
be cumulative and, if so, from which date or dates, the
payment or date or dates for dividends, and the
participating or other special rights, if any, with
respect to dividends;
(3) the voting powers, full or limited, if any, of the
shares of such series;
(4) whether the shares of such series shall be redeemable
and, if so, the price or prices at which, and the terms
and conditions upon which such shares may be redeemed;
(5) the amount or amounts payable upon the shares of such
series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation;
(6) whether the shares of such series shall be entitled to
the benefits of a sinking or retirement fund to be
applied to the purchase or redemption of such shares,
and, if so entitled, the amount of such fund and the
manner of its application, including the price or
prices at which such shares may be redeemed or
purchased through the application of such funds;
(7) whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or
classes or any other series of the same or any other
class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the
adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(8) the subscription or purchase price and form of
consideration for which the shares of such series shall
be issued; and
(9) whether the shares of such series which are redeemed or
converted shall have the status of authorized but
unissued shares of serial preferred stock and whether
such shares may be reissued as shares of the same or
any other series of serial preferred stock.
Each share of each series of serial preferred stock shall
have the same relative powers, preferences and rights as,
and shall be identical in all respects with, all the other
shares of the Corporation of the same series, except the
times from which dividends on shares which may be issued
from time to time of any such series may begin to accrue.
ARTICLE VI
Preemptive Rights
No holder of any of the shares of any class or series of
stock or of options, warrants or other rights to purchase shares
of any class or series of stock or of other securities of the
Corporation shall have any preemptive right to purchase or
subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock or carrying
any right to purchase stock may be issued pursuant to resolution
of the board of directors to such persons, firms, corporations or
associations, whether or not holders thereof, and upon such terms
as may be deemed advisable by the board of directors in the
exercise of its sole discretion.
ARTICLE VII
Repurchase of Shares
The Corporation may from time to time, pursuant to
authorization by the board of directors and without action by the
stockholders, purchase or otherwise acquire shares of any class,
bonds, debentures, notes, scrip, warrants, obligations, evidences
or indebtedness, or other securities of the Corporation in such
manner, upon such terms, and in such amounts as the board of
directors shall determine; subject, however, to such limitations
or restrictions, if any, as are contained in the express terms of
any class of shares of the Corporation outstanding at the time of
the purchase or acquisition in question or as are imposed by law.
ARTICLE VIII
Meetings of Stockholders; Cumulative Voting
A. No action that is required or permitted to be taken by the
stockholders of the Corporation at any annual or special
meeting of stockholders may be effected by written consent
of stockholders in lieu of a meeting of stockholders, unless
the action to be effected by written consent of stockholders
and the taking of such action by such written consent have
expressly been approved in advance by the board of
directors.
B. Special meetings of the stockholders of the Corporation 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 the bylaws of the
Corporation, include the power and authority to call such
meetings but such special meetings may not be called by
another person or persons.
C. There shall be no cumulative voting by stockholders of any
class or series in the election of directors of the
Corporation.
D. Meetings of stockholders may be held at such place as the
bylaws may provide.
ARTICLE IX
Notice for Nominations and Proposals
A. Nominations for the election of directors and proposals for
any new business to be taken up at any annual or special
meeting of stockholders may be made by the board of
directors or by any stockholder of the Corporation entitled
to vote generally in the election of directors. In order for
a stockholder of the Corporation to make any nominations
and/or proposals at an annual meeting or such proposals at a
special meeting, he or she shall give notice thereof in
writing, delivered or mailed by first class United States
mail, postage prepaid, to the Secretary of the Corporation
of not less than thirty days nor more than sixty days prior
to any such meeting; provided, however, that if less than
forty days' notice of the meeting is given to stockholders,
such written notice shall be delivered or mailed, as
prescribed, to the Secretary of the Corporation not later
than the close of the tenth day following the day on which
notice of the meeting was mailed to stockholders. Each such
notice given by a stockholder with respect to nominations
for the election of directors shall set forth (1) the name,
age, business address and, if known, residence address of
each nominee proposed in such notice, (2) the principal
occupation or employment of each such nominee, and (3) the
number of shares of stock of the Corporation which are
beneficially owned by each such nominee. In addition, the
stockholder making such nomination shall promptly provide
any other information reasonably requested by the
Corporation.
B. Each such notice given by a stockholder to the Secretary
with respect to business proposals to bring before a meeting
shall set forth in writing as to each matter: (1) a brief
description of the business desired to be brought before the
meeting and the reasons for conducting such business at the
meeting; (2) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such
business; (3) the class and number of shares of the
Corporation which are beneficially owned by the stockholder;
and (4) any material interest of the stockholder in such
business. Notwithstanding anything in this Certificate to
the contrary, no business shall be conducted at the meeting
except in accordance with the procedures set forth in this
Article.
C. The Chairman of the annual or special meeting of
stockholders may, if the facts warrant, determine and
declare to such meeting that a nomination or proposal was
not made in accordance with the foregoing procedure, and, if
he should so determine, he shall so declare to the meeting
and the defective nomination or proposal shall be
disregarded and laid over for action at the next succeeding
adjourned, special or annual meeting of the stockholders
taking place thirty days or more thereafter. This provision
shall not require the holding of any adjourned or special
meeting of stockholders for the purpose of considering such
defective nomination or proposal.
ARTICLE X
Directors
A. Number; Vacancies. The number of directors of the
Corporation 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 of the Corporation), 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 meeting
of stockholders 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.
B. Classified Board. Other than directors which may be elected
by the holders of preferred stock, the board of directors
shall be divided in to 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 first annual
meeting of stockholders, directors of Class I shall be
elected to hold office for a term expiring at the third
succeeding annual meeting of stockholders, directors of
Class I shall be elected to hold office for a term expiring
at the third annual meeting of stockholders, 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 of the Corporation 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 of the
Corporation be increased, other than for 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 of the Corporation shall have the right, voting separately
as a class, to elect one or more directors of the Corporation,
the board of directors shall consist of said directors so elected
in addition to the number of directors fixed as provided in this
Article X. Notwithstanding the foregoing, and except as otherwise
may be required by law, whenever the holders of any one or more
series of preferred stock of the Corporation, the terms of the
director or directors elected by such holders shall expire at the
next succeeding annual meeting of stockholders.
ARTICLE XI
Removal of Directors
Notwithstanding any other provision of this Certificate or
the bylaws, any director or the entire board of directors may be
removed, at any time, but only for cause and only by the
affirmative vote of the holders of at least 75% of the voting
power of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose.
Notwithstanding the foregoing, whenever the holders of any one or
more series of preferred stock of the Corporation shall have the
right, voting separately as a class, to elect one or more
directors of the Corporation, the preceding provisions of this
Article XI shall not apply with respect to the director or
directors elected by such holders of preferred stock.
ARTICLE XII
Acquisition of Capital Stock
A. For the purpose of this Article:
(1) The term "Act" shall mean the Securities Exchange Act
of 1934, as amended, and any successor statute.
(2) The term "acting in concert" shall mean (i) knowing
participation in a joint activity or conscious parallel
action towards a common goal whether or not pursuant to
an express agreement, and (ii) a combination or pooling
of voting or other interest in the Corporation's
outstanding shares of capitol stock for a common
purpose, pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether
written or otherwise.
(3) The term "acquire," "acquisition" or "acquiring" with
respect to the acquisition of any security of the
Corporation shall refer to the acquisition of such
security by any means whatsoever, including without
limitation, an acquisition of such security by gift, by
operation of law, by will or by intestacy, whether
voluntarily or involuntarily.
(4) The term "Code" means the Internal Revenue Code of
1986, as amended, and any successor statute.
(5) The term "Common Stock" means all Common Stock of the
Corporation and any other securities issued by the
Corporation (other than the Warrants) which are treated
as stock for purposes of Section 382 of the Code.
(6) The term "Fair Market Value" of the Common Stock shall
mean the average of the daily closing prices of the
Common Stock for 15 consecutive trading days commencing
20 trading days before the date of such computation The
closing price is the last reported sale price on the
principal securities exchange on which the Common Stock
is listed or, if the Common Stock is not listed on any
national securities exchange, the NASDAQ National
Marked System, or, if the Common Stock is not
designated for trading on the NASDAQ National Market
System, the average of the closing bid and asked prices
as reported on NASDAQ or, if not so reported, as
furnished by the National Quotation Bureau
Incorporated. In the absence of such a quotation, the
Corporation shall determine the current market rice on
a reasonable and appropriate basis of the average of
the daily closing prices for 15 consecutive trading
days commencing 20 trading days before the date of such
computation.
(7) The term "own," "owing," "ownership" or "owning" refer
to the ownership of securities within the meaning of
Section 382 of the Code after taking into account the
attribution rules of Section 382(l)(3) of the Code and
the regulations promulgated hereunder (except insofar
as such attribution would be inconsistent with
provisions of this Article XII relating to Warrants).
(8) The term "Person" shall mean any individual, firm,
corporation, partnership, joint venture or other entity
and shall include any group composed of such person and
any other person with whom such person or any Affiliate
or Associate (as those terms are defined in Rule 12b-2
of the General Rules and Regulations under the Act) of
such person has any agreement, arrangement or
understanding, directly or indirectly, for the purposes
of acquiring, holding, voting or disposing of Common
Stock or Warrants, and any other person who is a member
of such group.
(9) The term "Transfer Agent" shall mean the transfer agent
with respect to the Common Stock nominated and
appointed by the Board of Directors from time to time.
(10) The term "Warrant" shall mean any securities issued or
assumed by the Corporation, or any securities issuable
by the Corporation in respect to issued securities
which are convertible into, or which include the right
to acquire, shares of Common Stock, whether or not the
right to make such conversion or acquisition is subject
to any contingencies, including, without limitation,
warrants, options, calls, contracts to acquire
securities, convertible debt instruments or any other
interests treated as an option pursuant to Section
382(l)(3) of the Code.
(11) The term "Warrant Agent" shall mean any warrant agent
for any Warrants nominated and appointed by the Board
of Directors from time to time.
B.
(1) If, at any time during the ten years from the effective
date of this Certificate, any Person shall acquire the
beneficial ownership (as determined pursuant to Rules
13d-3 and 13d-5 under the Act) of more than 20% of any
class of Common Stock, then the record holders of
Common stock beneficially owned by such acquiring
Person shall have only the voting rights set forth in
this paragraph B on any matter requiring their vote or
consent. With respect to each vote in excess of 20% of
the voting power of the outstanding shares of Common
Stock which such record holders would otherwise be
entitled to cast without giving effect to this
paragraph B, the record holders in the aggregate shall
be entitled to cast only one-hundredth of a vote. A
Person who is a record owner of shares of Common Stock
that are beneficially owned simultaneously by more than
one person shall have, with respect to such shares, the
right to cast the least number of votes that such
person would be entitled to cast under this paragraph B
by virtue of such shares being so beneficially owned by
any of such acquiring Persons. The effect of the
reduction in voting power required by this paragraph B
shall be given effect in determination the presence of
a quorum for purposes of convening a meeting of the
stockholders of the Corporation..
(2) The limitation on voting rights prescribed by this
paragraph B shall terminate and be of no force and effect as of
the earliest to occur of:
(i) the date that any person becomes the beneficial owner
of shares of stock representing at least 75% of the total number
of votes entitled to be cast in respect of all outstanding shares
of stock, before giving effect to the reduction in votes
prescribed by this paragraph B; or
(ii) the date (the "Reference Date") one day prior to the
date on which, as a result of such limitation of voting rights,
the Common Stock will be delisted from (including by ceasing to
be temporarily or provisionally authorized for listing with) the
New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "AMEX"), or be no longer authorized for inclusion
(including by ceasing to be provisionally or temporarily
authorized for inclusion) on the National Association of
Securities Dealers, Inc. Automated Quotation System/National
Market System ("NASDAQ/NMS"); provided, however, that (a) such
termination shall not occur until the earlier of (x) the 90th day
after the Reference Date or (y) the first day on or after a
Reference Date that there is not pending a proceeding under the
rules of the NYSE, the AMEX or the NASDAQ/NMS or any other
administrative or judicial proceeding challenging such delisting
or removal of authorization of the Common Stock, an application
for listing of the Common stock with the NYSE or the AMEX or for
authorization for the Common Stock to be including on the
NASDAQ/NMS, or an appeal with respect to any such application,
and (b) such termination shall not occur by virtue of such
delisting or lack of authorization if on or prior to the earlier
of the 90th day after the Reference Date or the day on which no
proceeding, application or appeal of the type described in (y)
above is pending, the Common Stock is approved for listing or
continued listing on the NYSE or the AMEX or authorized for
inclusion or continued inclusion on the NASDAQ/NMS (including any
such approval or authorization which is temporary or
provisional). Nothing contained herein shall be construed so as
to prevent the Common Stock from continuing to be listed with the
NYSE or AMEX or continuing to be authorized for inclusion on the
NASDAQ/NMS in the event that the NYSE, AMEX or NASDAQ/NMS, as the
case may be, adopts a rule or is governed by an order, decree,
ruling or regulation of the Securities and Exchange Commission
which provides in whole or in part that companies having common
stock with differential voting rights listed on the NYSE or the
Amex or authorized for inclusion on the NASDAQ/NMS may continue
to be so listed or included.
C. The restrictions contained in this Article XII shall
not apply to (1) any underwriter or member of an underwriting or
selling group involving a public sale or resale of securities of
the Corporation or a subsidiary thereof; provided, however, that
upon completion of the sale or resale of such securities, no such
underwriter or member of such selling group is a beneficial owner
of more than 4.9% of any class of equity security of the
Corporation, (2) any revocable proxy granted pursuant to a proxy
solicitation in compliance with section 14 of the Act by a
stockholder of the Corporation or (3) any employee benefit plans
of the Corporation. In addition, the Continuing Directors of the
Corporation, the officers and employees of the Corporation and
its subsidiaries, the directors of subsidiaries of the
Corporation, the employee benefit plans of the Corporation and
its subsidiaries, entities organized or established by the
Corporation or any subsidiary thereof pursuant to the terms of
such plans and trustees and fiduciaries with respect to such
plans acting in such capacity shall not be deemed to be a group
with respect to their beneficial ownership of voting stock of the
Corporation solely by virtue of their being directors, officers
or employees of the Corporation or a subsidiary thereof or by
virtue of the Continuing Directors of the Corporation, the
officers and employees of the Corporation and its subsidiaries
and the directors of subsidiaries of the Corporation being
fiduciaries or beneficiaries of an employee benefit plan of the
Corporation or a subsidiary of the Corporation. Notwithstanding
the foregoing, no director, officer or employee of the
Corporation or any of its subsidiaries or group of any of them
shall be exempt from the provisions of this Article XII should
any such person or group become a beneficial owner of more than
20% of any class of equity security of the Corporation.
D. A majority of the Continuing Directors, as defined in
Article XIII, shall have the power to construe and apply the
provisions of paragraphs B, C and D of this Article XII and
to make all determinations necessary or desirable to
implement such provisions, including but not limited to
matters with respect to (1) the number of shares
beneficially owned by any person, (2) whether a person has
an agreement, arrangement or understanding with another as
to the matters referred to in the definition of beneficial
ownership, (3) the application of any other definition or
operative provision of this Article XII to the given facts
or (4) any other matter relating to the applicability or
effect of paragraphs B, C and D of this Article XII. Any
constructions, applications, or determinations made by the
Continuing Directors pursuant to paragraphs B, C and D of
this Article XII in good faith and on the basis of such
information and assistance as was then reasonably available
for such purpose shall be conclusive and binding upon the
Corporation and its stockholders.
E. All certificates evidencing ownership of Common Stock or
ownership of Warrants of the Corporation shall bear a
conspicuous legend in compliance with the General
Corporation Law of Delaware describing the restrictions on
transfers set forth in this Article XII.
F. If any provision of this Article XII or any application of
any such provision is determined to be invalid by any
federal or state court having jurisdiction over the issues,
the validity of the remaining provisions shall not be
affected and other applications of such provision shall be
affected only to the extent necessary to comply with the
determination of such court.
ARTICLE XIII
Approval of Certain Business Combinations
The stockholder vote required to approve Business
Combinations (as hereinafter defined) shall be as set forth in
this section.
A..
(1) Except as otherwise expressly provided in this Article
XIII, and in addition to any other vote required by
law, the affirmative vote required by law, the
affirmative vote of the holders of (i) at least 75% of
the voting power of the outstanding shares entitled to
vote thereon (and, if any class or series of shares is
entitled to vote thereon separately the affirmative
vote of the holders of at least 75% of the outstanding
shares of each such class or series), and (ii) at least
a majority of the outstanding shares entitled to vote
thereon, not including shares deemed beneficially owned
by a Related Person (as hereinafter defined), shall be
required in order to authorize any of the following:
(a) any merger or consolidation of the Corporation or
a subsidiary of the Corporation with or into a
Related person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other
disposition, including without limitation, a
mortgage or pledge, of all or any Substantial Part
(as hereinafter defined) of the assets of the
Corporation (including without limitation any
voting securities of a subsidiary) or of a
subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person
with or into the Corporation or a subsidiary of
the Corporation;
(d) any sale, lease, exchange, transfer or other
disposition of all or any Substantial Part of the
assets of a Related Person to the Corporation or a
subsidiary of the Corporation;
(e) the issuance of any securities of the Corporation
or a subsidiary of the Corporation to a Related
Person other than on a pro rata basis to all
holders of capital stock of the Corporation of the
same class or classes held by the Related person,
pursuant to a stock split, stock dividend or
distribution or warrants or rights, and other than
in connection with the exercise or conversion of
securities exercisable for or convertible into
securities of the Corporation or any of its
subsidiaries which securities have been
distributed pro rata to all holders of capital
stock of the Corporation;
(f) the acquisition by the Corporation or a subsidiary
of the Corporation of any securities of a Related
Person;
(g) any reclassification of the common stock of the
Corporation, or any recapitalization involving the
common stock of the Corporation or any similar
transaction (whether or not with or into or
otherwise involving a Related Person) that has the
effect directly or indirectly, of increasing by
more than 1% the proportionate share of the
outstanding shares of any class of equity or
convertible securities of the Corporation or any
subsidiary that are directly or indirectly owned
by any Related Person; and
(h) any agreement, contract or other arrangement
providing for any of the transactions described in
this Article XIII.
(2) Such affirmative vote shall be required notwithstanding
any other provision of this Certificate, any provision
of law, or any agreement with any regulatory agency or
national securities exchange which might otherwise
permit a lesser vote or no vote; provided, however,
that in no instance shall the provisions of this
Article XIII require the vote of greater than 85% of
the voting power of the outstanding shares entitled to
vote thereon for the approval of a Business
Combination.
(3) The term "Business Combination" as used in this Article
XIII shall mean any transaction which is referred to in
any one or more of subparagraphs A(1)(a) through (h)
above.
B. The provisions of paragraph A shall not be applicable to any
particular Business Combination, and such Business
Combination shall require only such affirmative vote as is
required by any other provision of this Certificate, any
provision of law, or any agreement with any regulatory
agency or national securities exchange, if the Business
Combination shall have been approved in advance by a two-
thirds vote of the Continuing Directors (as hereinafter
defined; provided, however, that such approval shall only be
effective if obtained at a meeting at which a continuing
Director Quorum (as hereinafter defined) is present.
C. For the purposes of this Article XIII the following
definitions apply:
(1) The term "Related Person" shall mean and include (i)
any individual, corporation, partnership or other
person or entity which together with its "affiliates"
or "associates" (as those terms are defined in the Act)
"beneficially owns" (as that there is defined in the
Act) in the aggregate 10% or more of the outstanding
shares of the common stock of the Corporation; and (ii)
any "affiliate" or "associate" (as those terms are
defined in the Act) of any such individual,
Corporation, partnership or other person or entity;
provided, however, that the term "Related Person" shall
not include the Corporation, any subsidiary of the
Corporation, any employee benefit plan, employee stock
plan of the Corporation or of any subsidiary of the
Corporation, or any trust established by the
Corporation in connection with the foregoing, or any
person or entity organized, appointed, established or
holding shares of capital stock of the Corporation for
or pursuant to the terms of any such plan, nor shall
such term encompass shares of capital stock of the
Corporation held by any of the foregoing (whether or
not held in a fiduciary capacity or otherwise). Without
limitation, any shares of the common stock of the
Corporation which any Related Person has the right to
acquire pursuant to any agreement, or upon exercise or
conversion rights, warrants or options, or otherwise,
shall be deemed "beneficially owned" by such Related
Person.
(2) The term "Substantial Part" shall mean more than 25% of
the total assets of the entity at issue, as of the end
of its most recent fiscal year ending prior to the time
the determination is made.
(3) The term "Continuing Director" shall mean any member of
the board of directors who is unaffiliated with and who
is not the Related Person and was a member of the board
prior to the time that the Related Person became a
Related Person, and any successor of a Continuing
Director who is unaffiliated with and who is not the
Related Person and is recommended to succeed a
Continuing Director by a majority of Continuing
Directors then on the board.
(4) The term "Continuing Director Quorum" shall mean two-
thirds of the Continuing Directors capable of
exercising the powers conferred on them.
ARTICLE XIV
Evaluation of Business Combinations
In connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and
of the stockholders, when evaluating a Business Combination (as
defined in Article XIII) or a tender or exchange offer, the board
of directors shall, in addition to considering the adequacy of
the amount to be paid in connection with any such transaction,
consider all of the following factors and any other factors which
it deems relevant; (A) the social and economic effects of the
transaction on the Corporation and its subsidiaries, employees
and customers, creditors and other elements of the communities in
which the Corporation and its subsidiaries operate or are
located; (B) the business and financial condition and earnings
prospects of the acquiring person or entity, including, but not
limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection
with the acquisition and other likely financial obligations of
the acquiring person or entity and the possible effect of such
conditions upon the Corporation and obligations of the acquiring
person or entity and the possible effect of such conditions upon
the Corporation and its subsidiaries and the other elements of
the communities in which the Corporation and its subsidiaries
operate or are located; and (C) the competence, experience, and
integrity of the acquiring person or entity and its or their
management.
ARTICLE XV
Indemnification
A. Persons. The Corporation shall indemnify, to the extent
provided in paragraphs B, D or F:
(1) any person who is or was a director, officer, employee,
or agent of the Corporation; and
(2) any person who serves or served at the Corporation's
written request as a director, officer, employee,
agent, partner or trustee of another corporation,
partnership, joint venture, trust or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending
or completed action or suit by or in the right of the
Corporation against a person named in paragraph A by reason
of his holding a position named in paragraph A, the
Corporation shall indemnify him if he satisfies the standard
in paragraph C, for expenses (including attorneys' fees but
excluding amounts paid in settlement) actually and
reasonably incurred by him in connection with the defense or
settlement of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened,
pending or completed action or suit by or in the right of
the Corporation, a person named in paragraph A shall be
indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the
subject of the suit or action, and in a manner he
reasonably believed to be in, or not opposed to, the
best interests of the Corporation, including, but not
limited to, the taking of any and all actions in
connection with the Corporation's response to any
tender offer or any offer or proposal of another party
to engage in a Business Combination (as defined in
Article XIII) not approved by the board of directors.
However, he shall not be indemnified in respect of any
claim, issue or matter as to which he has been adjudged
liable to the Corporation unless (and only to the
extent that) the court in which the suit was brought
shall determine, upon application, that despite the
adjudication but in view of all the circumstances, he
is fairly and reasonably entitled to indemnity for such
expenses as the court shall deemed proper.
D. Extent -- Nonderivative Suits. In case of a threatened,
pending or completed suit, action or proceeding (whether
civil, criminal, administrative or investigative), other
than a suit by or in the right of the Corporation, together
hereafter referred to as a "nonderivative suit," against a
person named in paragraph A by reason of his holding a
position named in paragraph A, the Corporation shall
indemnify him if he satisfies the standard in paragraph E,
for amounts actually and reasonably incurred by him in
connection with the defense or settlement of the
nonderivative suit, including, but not limited to (1)
expenses (including attorneys' fees), (2) amounts paid in
settlement, (3) judgments, and (4) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative
suit, a person named in paragraph A shall be indemnified
only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the
subject of the nonderivative suit and in a manner he
reasonably believed to be in, or not opposed to, the
best interests of the Corporation, including, but not
limited to, the taking of any and all actions in
connection with the Corporation's response to any
tender offer or any offer or proposal of another party
to engage in a Business Combination (as defined in
Article XIII) not approved by the board of directors
and, with respect to any criminal action or proceeding,
he had no reasonable cause to believe his conduct was
unlawful. The termination of a nonderivative suit by
judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent shall not, in
itself, create a presumption that the person failed to
satisfy the standard of this paragraph E(2).
F. Determination That Standard Has Been Met. A determination
that the standard of paragraph C or E has been satisfied may
be made by a court; or, except as stated in paragraph C(2)
(second sentence), the determination may be made by:
(1) the board of directors by a majority vote of a quorum
consisting of directors of the Corporation who were not
parties to the action, suit or proceeding; or
(2) independent legal counsel (appointed by a majority of
the disinterested directors of the Corporation, whether
or not a quorum) in a written opinion; or
(3) the stockholders of the Corporation.
G. Proration. Anyone making a determination under
paragraph F may determine that a person has met the standard as
to some matters but not as to others, and may reasonably prorate
amounts to be indemnified.
H. Advance Payment. The Corporation may, but shall not be
obligated to, pay in advance any expenses (including attorneys'
fees) which may become subject to indemnification under
paragraphs A through G if:
(1) the board of directors authorizes the specific payment;
and
(2) the person receiving the payment undertakes in writing
to repay the same if it is ultimately determined that
he is not entitled to Indemnification by the
Corporation under paragraphs A through G.
I. Nonexclusive. The indemnification and advance payment of
expenses provided by paragraphs A through H shall not be
exclusive of any other rights to which a person may be
entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. Continuation. The indemnification provided by this Article
XV shall be deemed to be a contract between the Corporation
and the persons entitled to indemnification thereunder, and
any repeal or modification of this Article XV shall not
affect any rights or obligations then existing with respect
to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought
based in whole or in part upon any such state of facts. The
indemnification and advance payment provided by paragraphs A
through H shall continue as to a person who has ceased to
hold a position named in paragraph A and shall inure to his
heirs, executors and administrators.
K. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who holds or who has held
any position named in paragraph A, against any liability
incurred by him in any such position, or arising out of his
status as such, whether or not the Corporation would have
power to indemnify him against such liability under
paragraphs A through H.
L. Savings Clause. If this Article XV or any portion hereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless
indemnify each director, officer, employee, and agent of the
Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in
settlement with respect to any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative,
including an action by or in the right of the Corporation to
the full extent permitted by any applicable portion of this
Article XV that shall not have been invalidated and to the
full extent permitted by applicable law.
ARTICLE XVI
Limitations on Directors' Liability
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except: (a) for any
breach of the director's duty of loyalty to the Corporation or
its stockholders, (B) for acts or omissions that are not in good
faith or that involve intentional misconduct or a knowing
violation of law, (C) under Section 174 of the General
Corporation Law of the State of Delaware, or (D) for any
transaction from which the director derived any improper personal
benefit. If the General Corporation law of the State of Delaware
is amended after the date of filing of this Certificate to
further eliminate or limit the personal liability of directors,
then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at
the time of such repeal or modification.
ARTICLE XVII
Amendment of Bylaws
In furtherance and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized to
adopt, repeal, alter, amend and rescind the bylaws by a vote of
two-thirds of the board of directors. Notwithstanding any other
provision of this Certificate or the bylaws, and in addition to
any affirmative vote required by law (and notwithstanding the
fact that some lesser percentage may be specified by law), the
bylaws shall be adopted, repealed, altered, amended or rescinded
by the stockholders of the Corporation only by the vote of the
holders of not less than 75% of the voting power of the
outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors (considered for
this purpose as one class) cast at a meeting of stockholders
called for that purpose or by proxy (provided that notice of such
proposed adoption, repeal, alteration, amendment or rescission is
included in the notice of such meeting r in such proxy) or, as
set forth above, by the board of directors.
ARTICLE XVIII
Amendment of Certificate of Incorporation
Subject to the provisions hereof, the Corporation reserves
the right to repeal, alter, amend or rescind any provision
contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders
herein are granted subject to this reservation. Notwithstanding
the foregoing at any time and from time to time, the provisions
set forth in Articles VIII, IX, X, XI, XII, XIII, XIV, XV, XVI,
XVII and this Article XVIII may be repealed, altered, amended or
rescinded in any respect only if the same is approved by the
affirmative vote of the holders of not less than 75% of the
voting power of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of
directors (considered for this purpose as a single class) cast at
a meeting of the stockholders called for that purpose or by proxy
(provided that notice of such proposed adoption, repeal,
alteration, amendment or rescission is included in the notice of
such meeting or in such proxy).
ARTICLE XIX
The name and address of the incorporator is:
Terry Kirby [or is someone else at a different address
preferable]
411-1200 West Pender Street
Vancouver, British Columbia V6E 2S9
Canada
I, THE UNDERSIGNED, being the incorporator, for the purpose
of forming a corporation pursuant to the General Corporation Law
of Delaware, do make and file this Certificate of Incorporation,
hereby declaring and certifying that the facts herein stated are
true, and accordingly have hereunto set my hand this ___ day of
[needs to be filled in]., 1999.
/s/Terry Kirby
Terry Kirby
b) 2.2 By-Laws
EI2, INC.
A Delaware Corporation
BY LAWS
ARTICLE I
Principal Executive Office
The principal executive office of Cuisine Cornucopia, Inc. (the
"Corporation") shall be at
[needs to be filled in]..
. The Corporation may also have offices at such other places
within or without the State of
[needs to be filled in]. 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
Delaware 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 New York, 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 Delaware.
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 bylaws.
c) Reports on Form 8-K:
On March 7, 2000, the Company filed a Form 8-K announcing that
the Company was acquired by Electronic Identification, Inc.
through a reorganization agreement. Electronic Identification
was the surviving company and shall maintain Girne's reporting
status. A final amendment to this 8-K was filed on May 8,
2000.
FINANCIAL STATEMENTS
Reports of Independent Auditors, KPMG, LLP dated March
31, 2000.
Balance Sheet as of 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.
Notes to Financial Statements
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 - 1,060,000
stock (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
ended ended ended from
December December December inception
31, 1999 31, 1998 31, 1997 on May
14, 1992
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 1,177,75 3,522,159
(schedule) 4
Sales and marketing 303,875 1,006,68 981,140 2,381,916
(schedule) 9
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 amortization 18,311 44,527 41,541 130,837
Write-off of leasehold - - 32,131 32,131
improvements (note 6)
1,793,86 2,422,78 3,305,42 8,690,223
2 8 5
Loss before the undernoted (1,792,8 (2,419,7 (3,250,4 (8,430,23
72) 95) 29) 1)
Loss due to settlement of
debt by
issuance of common stock (1,258,3 (663,068 - (1,921,39
(note 3(f)) 23) ) 1)
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 $ $ $ $
(3,051,1 (3,082,8 (3,521,9 (10,994,6
95) 64) 56) 60)
Loss per common share
information:
Basic and diluted $ (0.22) $ (0.67) $ (1.81)
Weighted average number of
common
shares outstanding (note 13,951,3 4,635,71 1,951,00
10(a)) 57 5 0
</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 Additio Deficit
stock 10(a)) nal accumulat
paid in ed during
Capital the
developme
nt 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 - - - (1,312,67
3)
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 (1,338,64
5)
Loss for the period - - - (3,521,95
6)
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 (4,860,60
1)
Loss for the period - - - (3,082,86
4)
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 (7,943,46
carried forward 5)
</TABLE>
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Stockholders' Deficit, Continued
(Expressed in U.S. Dollars)
Deficit
accumulated
Additional during the
Common stock (note 10(a)) paid-in development
Shares Amount capital stage
<TABLE>
<S> <C> <C> <C> <C>
Common (note Additio Deficit
stock 10(a)) nal accumulat
paid in ed during
Capital the
developme
nt stage
Shares Amount
Balance, December 31, 1998, 9,473,926 $ $ $
brought forward 42,632 6,276,328 (7,943,46
5)
Loss for the period - - - (3,051,19
5)
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 $ $ $
3 17,419 10,408,68 (10,994,6
0 60)
</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 Years Period
ended ended ended from
December December December inception
31, 1999 31, 1998 31, 1997 on May
14, 1992
December
31, 1999
Cash flows from operating
activities:
Loss for the period $ $ $ $
(3,051,1 (3,082,86 (3,521,95 (10,994,6
95) 4) 6) 60)
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)) 1,258,32 663,068 - 1,921,391
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 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 assets - 10,771 - 10,771
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 issuance 375,313 439,864 24,999 840,176
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 and 61,922 (108,333) 282,040 235,629
officers
Accounts payable to be settled
with
common stock - - 291,006 291,006
Net cash used in operating (350,102 (1,514,70 (1,524,90 (4,187,28
activities ) 7) 1) 9)
Cash flows from financing
activities:
Subscriptions received for common - 564,260 142,740 1,060,000
stock
Net proceeds on issuance of common - 596,188 774,888 2,354,899
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 $ $ $ $
1,060,00 1,060,000
0
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 loan - 116,502 - 116,502
payable
Common stock issued on settlement 375,313 439,864 24,999 840,176
of expenses
Cancellation of redeemable common - 226,670 - 226,670
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 1,258,32 663,068 - 1,921,391
3(f)) 3
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- 20%
line
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 Outstan Granted Exercis Expire/ Outstan
e price ding ed cancele ding
Decembe d Decembe
r, 1998 r, 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 Exerci Outstandi Grante Exercis Expire/ Outstandi
Date se ng d ed cancele ng
price December, d December,
1997 1998
June 5, $6.75 26,000 - - (26,000 -
1998 )
July 23, 2.93 4,444 - - (4,444) -
1998
Upon 0.0045 333,333 (333,33 -
terminatio 3)
n of
management
service
contracts
Earlier of 2.93 4,444 - - - 4,444
December
18, 1998
or
terminatio
n of
management
service
contract
June 20, 434,888 - - (430,44 4,444
2002 4)
</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 Outsta Granted Exerc Expir Outstan
Date ed d nding ised e/ ding
averag average Decemb cance Decembe
e fair er, led r, 1999
exerci value 1998
se
price
February $0.45 $0.25 - 3,125,0 - - 3,1
24, 2002 00 25,
000
</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
December December December from
31, 1999 31, 1998 31, 1997 inception
on May 14,
1992 to
December
31, 1999
Loss for the $(3,051,19 $(3,082,86 $(3,521,95 $(10,994,6
period, as 5) 4) 6) 60)
reported
Estimated fair (292,743) - - (292,743)
value of option
grants to
employees
Pro forma loss $(3,343,93 $(3,082,86 $(3,521,95 $(11,287,4
8) 4) 6 03)
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)
Period from
inception on
May 14, 1992 to
<TABLE>
<S> <C> <C> <C> <C>
Year Year Year Year
ended ended ended ended
December Decembe Decembe December
31, 1999 r 31, r 31, 31, 1999
1998 1997
General and
administrative:
Administrative fees $ 22,215 $ $ - $ 46,452
24,237
Bad debts - - 54,515 75,778
Bank charges and 1,348 1,949 41,193 45,288
interest
Consulting and contract 731,799 367,759 - 1,119,55
services 9
Legal and professional 150,909 176,286 408,551 765,100
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 (gain) (36,744) 87,472 35,543 86,271
loss
$ 922,097 $ $ $
888,857 1,177,7 3,522,15
54 9
Sales and marketing:
Advertising $ - $ - $ $ 16,749
16,749
Consulting and contract 123,561 402,477 443,324 979,423
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 Internet 2,772 16,528 - 19,300
Travel and 52,367 38,585 240,368 337,903
accommodation
$ 303,875 $ $ $
1,006,6 981,140 2,381,91
89 6
Research and
development:
Acquired in-process
research and
development $ - $ - $ - $
340,108
Consulting and contract 53,013 142,505 - 195,518
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 1,597,56
8
</TABLE>
c) Financial Data Schedule
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 8,071 4,615 0
<SECURITIES> 0 0 0
<RECEIVABLES> 4,280 49,928 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 78,402 54,883 0
<PP&E> 0 0 0
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 135,077 176,108 0
<CURRENT-LIABILITIES> 703,638 1,800,613 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 17,419 42,632 0
<OTHER-SE> (585,980) (1,624,137) 0
<TOTAL-LIABILITY-AND-EQUITY> 135,077 176,108 0
<SALES> 0 0 0
<TOTAL-REVENUES> 990 2,993 54,996
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 1,793,862 2,422,788 3,305,425
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (1,792,872) (2,419,795) (3,250,429)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (1,792,872) (2,419,795) (3,250,429)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,792,872) (2,419,795) (3,250,429)
<EPS-BASIC> (0.22) (0.67) (1.81)
<EPS-DILUTED> 0 0 0
