UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT TO THE 1934
ACT REPORTING REQUIREMENTS
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000 Commission File No.
000-27365
2
ELECTRONIC IDENTIFICATION, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0440528
(State of organization) (I.R.S. Employer Identification No.)
1200 West Pender St., Suite 411, Vancouver, BC, Canada V6E 2S9
(Address of principal executive offices)
Registrant's telephone number, including area code (604) 684-8002
Check whether the issuer (1) filed all reports required to be
file by Section 13 or 15(d) of the Exchange Act during the past
12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X
There were 18,994,243 outstanding shares of the issuer's Common
Stock on June 30, 2000.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited financial statements as of June 30, 2000.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Company)
Balance Sheet
(Expressed in U.S. Dollars)
As At June 30, 2000 and December 31, 1999
<TABLE>
<S> <C> <C>
Jun. 30, 2000 Dec. 31, 1999
------------ ------------
Assets
------
Current Assets
Cash 842 8,071
Accounts Receivable 5,596 4,280
Prepaid Expenses and Deposits 350 351
Due from Stockholder (note 6(a)) 0 65,700
---------- ---------
Total Current Assets 6,788 78,402
---------- ---------
Other Assets
Fixed Assets (note 4) 45,925 46,670
Patents (note 5) 11,264 10,005
Acquisition of Girne Acquisition Corp. (note 7) 580,347 0
---------- ---------
Total Other Assets 637,536 56,675
---------- ---------
Total Assets 644,324 135,077
---------- ---------
Liabilities and Stockholders' Equity
-----------------------------------
-
Current Liabilities
Accounts Payable and Accrued Liabilities 310,414 402,310
Due to Stockholders, Directors and Officers (note
6(a)) 234,010 301,328
----------- ----------
Total Current Liabilities 544,424 703,638
----------- ----------
Stockholders' Equity (Deficit)
Common Stock (note 8) 17,574 17,419
Paid-In Capital 11,940,792 10,408,680
Foreign Exchange Gain (Loss) 8,765 0
Current Earnings (Loss) (800,645) (3,051,195)
Retained Earnings (Loss) (11,066,586) (7,943,465)
------------ -----------
Total Stockholders' Equity (Deficit) 99,900 (568,561)
------------ -----------
Future operations (note 2)
Contingencies (note 9)
Year 2000 issue (note12)
Subsequent events (note 13)
Total Liabilities and Stockholders' Equity 644,324 135,077
========== =========
</TABLE>
Unaudited - See accompanying notes to financial statements
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Company)
Statement of Income (Loss)
(Expressed in U.S. Dollars)
For the Period April 1 to June 30, 2000 and for the Year Ended
December 31, 1999
<TABLE>
<S> <C> <C>
Three Month
Period Ended Year Ended
Jun. 30, 2000 Dec. 31, 1999
------------- ------------
Revenue
--------
Revenue 0 0
Interest and Other Income 0 990
--------- ----------
Total Revenue 0 990
--------- ----------
Expenses
--------
General and Administration
Administration Fees 4,012 22,215
Bank Charges and Interest (5) 1,348
Consulting and Contract Services 215,203 731,799
Foreign Exchange Loss (15) (36,744)
Legal and Professional 154,157 150,909
Office 2,996 23,647
Rent 2,539 10,098
Stock Administration 1,496 13,495
Telephone 2,145 2,772
Travel and Accommodation 3,144 2,558
--------- ----------
Total General and Administration 385,672 922,097
--------- ----------
Marketing and Sales
Consulting and Contract Services 382,747 123,561
Entertainment and Promotion 6,796 19,190
Investor Relations 0 99,618
Office 163 4,080
Salaries and Benefits 0 2,287
Telephone and Internet 0 2,772
Travel and Accommodation 17,152 52,367
--------- ----------
Total Marketing and Sales 406,858 303,875
--------- ----------
Research and Development
Consulting and Contract Services 6,094 53,013
Supplies 712 0
Travel and Accommodation 597 2,980
--------- -----------
Total Research and Development 7,403 55,993
--------- -----------
Depreciation and Amortization 0 18,311
Interest on Long-Term Debt 712 493,586
--------- -----------
Loss before the undernoted (800,645) (1,792,872)
Loss due to settlement of debt by
issuance of common stock 0 (1,258,323)
--------- -----------
Loss for the period (800,645) (3,051,195)
========= ===========
</TABLE>
Unaudited - See accompanying notes to financial statements
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Company)
Statement of Cash Flows
(Expressed in U.S. Dollars)
For the Period April 1 to June 30, 2000 and for the Year Ended
December 31, 1999
<TABLE>
<S> <C> <C>
Three Month
Period Ended Year Ended
Jun. 30, 2000 Dec. 31, 1999
------------ ---------
Cash flows from operating activities:
Loss for the period (800,645) (3,051,195)
Items not involving cash:
Depreciation and amortization 0 18,311
Foreign exchange gain 120,086 0
Loss due to settlement of debt by
issuance of common stock 0 1,258,323
Expenses and debt settled with the issuance of 576,973 375,313
stock
Intrinsic value of beneficial conversion
of liabilities into c/s 0 474,117
Compensatory benefit of stock options 0 485,828
Foreign exchange adjustment to common stock (198) 0
Changes in non-cash operating working capital:
Accounts receivable 3,597 45,648
Foreign exchange adjustment to prepaid
expenses and deposits 4 (11)
Restricted cash 0 47,394
Accounts payable and accrued liabilities (22,198) (65,752)
Due to stockholders, directors and officers 122,892 61,922
-------- -------
Net cash provided by (used in) operating activities 511 (350,102)
-------- ---------
Cash flows from financing activities:
Net proceeds on issuance of convertible debentures 0 353,558
-------- -------
Net cash provided by financing activities 0 353,558
-------- -------
Cash flows from investing activities:
Acquisition of fixed assets (11,448) 0
Foreign exchange adjustment to patents 126 0
Foreign exchange adj. to acquisition
of Girne Acquisition Corp. 6,477 0
-------- -------
Net cash provided by (used in) used in investing
activities (4,845) 0
-------- -------
Increase (decrease) in cash (4,334) 3,456
Cash, beginning of period 5,176 4,615
-------- -------
Cash, end of period 842 8,071
======== =======
</TABLE>
Unaudited - See accompanying notes to financial statements
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 1
(Expressed in U.S. Dollars)
Period ended June 30, 2000
1. General:
On April 23, 1999, Electronic Identification, Inc. (the
"Company" or "El2") signed an Agreement and Plan of Merger with
RFID Systems Corp. ("RFID"). This merger was completed on May 3,
1999.
EI2 is a corporation organized and existing under the laws
of the State of Nevada. At that date, El2 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.
EI2 is continuing in this line of business.
EI2 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 of EI2. The
net monetary assets acquired by EI2 were as follows:
<TABLE>
<S> <C>
Total assets $ 176,108
Total liabilities $1,800,613
</TABLE>
Under recapitalization accounting, these financial
statements reflect the assets, liabilities, revenues and expenses
of RFID from its inception on May 14, 1992 combined with those of
EI2 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 June 30, 2000 are
1,205,083.
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 $11,858,466. At June 30, 2000, the Company has a
working capital deficiency of $537,636 and a stockholders'
equity balance of $99,900.
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
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 2
(Expressed in U.S. Dollars)
Period ended June 30, 2000
2. Future operations (continued):
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.
(d) Fixed assets:
Fixed assets are carried at cost less accumulated
depreciation. Depreciation is calculated annually as follows:
<TABLE>
<S> <C> <C>
Assets Basis Rate
Furniture and equipment Straight-line 20%
Computers and technology equipment Declining-balance 30%
</TABLE>
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 3
(Expressed in U.S. Dollars)
Period ended June 30, 2000
3. Significant accounting policies (continued):
(d) Fixed assets (continued):
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".
(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.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 4
(Expressed in U.S. Dollars)
Period ended June 30, 2000
3. Significant accounting policies (continued):
(j) Income taxes (continued):
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.
4. Fixed assets:
<TABLE>
<S> <C> <C> <C>
Accumulated Net book
June 30, 2000 Cost amortization value
Furniture and equipment $13,577 $4,187 $9,390
Computers and technology equipment 74,551 38,016 36,535
$88,128 $42,203 $45,925
</TABLE>
5. Patents:
<TABLE>
<S> <C> <C> <C>
Accumulated Net book
June 30, 2000 Cost amortization value
Patents $15,445 $4,181 $11,264
</TABLE>
6. Related party transactions:
(a) Due to stockholders, directors and officers:
Amounts due to stockholders, directors and officers represent
amounts owed to the stockholders, directors and officers or
companies controlled by the stockholders, directors or
officers. These amounts generally arose from invoices 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.
(b) Transactions with directors and officers:
During this period, the Company was charged a total of $nil
for management and consulting services by the directors and
officers of the Company.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 5
(Expressed in U.S. Dollars)
Period ended June 30, 2000
7. Girne Acquisition Corp.:
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.
8. 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:
Stock purchase warrant activity during the period ended June
30, 2000 is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Outstanding Outstanding
Expiry Exercise Dec. 31, Expired/ June 30,
date price 1999 Granted Exercised canceled 2000
------
June 20,
2002 $2.93 4,444 - - - 4,444
</TABLE>
(c) Non-cash consideration:
Shares issued for non-cash consideration are valued at their
market price at the date of agreement for issuance.
(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 period ended June 30, 2000
is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted Weighted
Average average Outstanding
Expiry Exercise Fair Outstanding Expired/ June 30,
date price value Dec.31,1999 Granted Exercised cancelled 2000
Feb.
24,
2002 $0.45 $0.25 3,125,000 75,000 - - 3,200,000
</TABLE>
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 6
(Expressed in U.S. Dollars)
Period ended June 30, 2000
9. 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 7
(Expressed in U.S. Dollars)
Period ended June 30, 2000
10. 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.
11. Fair value of financial instruments:
At June 30, 2000, the Company's financial instruments include
cash, accounts receivable, accounts payable and accrued
liabilities, and 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 stockholders, directors
and officers cannot be determined due to their related party
nature (note 6(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.
12. 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.
13. Subsequent events:
Subsequent to the end of the reporting period, there are no
subsequent events to report.
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
NOTE REGARDING PROJECTIONS AND FORWARD LOOKING STATEMENTS
This statement includes projections of future results and
"forward-looking statements" as that term is defined in Section
27A of the Securities Act of 1933 as amended (the "Securities
Act"), and Section 21E of the Securities Exchange Act of 1934 as
amended (the "Exchange Act"). All statements that are included in
this Registration Statement, other than statements of historical
fact, are forward-looking statements. Although Management
believes that the expectations reflected in these forward-looking
statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from the
expectations are disclosed in this Statement, including, without
limitation, those expectations reflected in forward-looking
statements contained in this Statement.
PLAN OF OPERATION
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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
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.
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company did not issue or sell stock during the quarter which
was not registered under the Securities Act (see below under Item
5 for the issuance of registered stock). At the end of the
quarter there were 18,994,243 shares of common stock outstanding.
ITEM 5. OTHER INFORMATION
Registration of Stock
On June 28, 2000, the Company filed a Form S-8 to register
500,000 shares of its common stock to be issued to four
individuals as consultants to the Company.
On July 19, 2000, the Company filed a Form S-8 to register
408,000 shares of its common stock to be issued to a consultant
to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 3.1 The exhibit consisting of the Company's Articles of
Incorporation is attached to the Company's Amended Form 10-QSB,
filed on June 20, 2000. This exhibit is incorporated by reference
to that Form.
Exhibit 3.2 The exhibit consisting of the Company's By-Laws is
attached to the Company's Amended Form 10-QSB, filed on June 20,
2000. This exhibit is incorporated by reference to that Form.
27 FINANCIAL DATA SCHEDULE
Reports on Form 8-K:
On March 7, 2000, the Company filed a Form 8-K announcing that
it had acquired Girne Acquisition Corp. and would retain the
reporting status of the acquired entity. On May 5, 2000, the
Company filed an Amended Form 8-K to include the financials
regarding the above-referenced acquisition. On August 9, 2000,
the Company filed an Amended Form 8-K to disclose the change
in the Company's accountant.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant has duly caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Electronic Identification, Inc.
By: /s/ Terry Kirby
Terry Kirby,
President/Secretary/Treasurer
Date: August 11, 2000
