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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10-SB
General Form for Registration of Securities
Of Small Business Issuers Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
SECURITY BIOMETRICS, INC.
(Name of Small Business Issuer in its charter)
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NEVADA 98-0209119
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
or organization)
214-118 Homer Street
Vancouver BC
Canada V6B 6L5
(Address of principal executive offices) (Zip Code)
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(604) 609-7749
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
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TABLE OF CONTENTS
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Item Page
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................................................... 2
PART I
Item 1. Description of Business......................................................................... 3
(a) Business Development.................................................................... 3
(b) Business of the Issuer.................................................................. 4
(c) Reports to Security Holders............................................................. 21
Risk Factors.................................................................................... 21
Item 2. Management's Discussion and Analysis or Plan of Operation....................................... 27
Item 3. Description of Property......................................................................... 28
Item 4. Security Ownership of Certain Beneficial Owners and Management.................................. 28
Item 5. Directors, Executive Officers, Promoters and Control Persons.................................... 30
Item 6. Executive Compensation.......................................................................... 32
Stock Options............................................................................... 33
Item 7. Certain Relationships and Related Transactions.................................................. 33
Item 8. Description of Securities....................................................................... 33
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters..................................................... 35
Item 2. Legal Proceedings............................................................................... 35
Item 3. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................................................. 35
Item 4. Recent Sales of Unregistered Securities......................................................... 35
Item 5. Indemnification of Directors And Officers....................................................... 36
PART F/S
FINANCIAL STATEMENTS
List of Financial Statements.................................................................... 41
PART III
Item 1. Index to Exhibits............................................................................... 42
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Item 2. Description of Exhibits........................................................................ 42
SIGNATURES................................................................................................... 43
INDEX TO FINANCIAL STATEMENTS................................................................................ F-1
Financial Statements of Security Biometrics, Inc............................................................. F-2
Audited Financial Statements of Security Biometrics, Inc.
for the fiscal years ended June 30, 2000 and 1999............................................................ F-2
Audited Financial Statements of Biometrics Security, Inc.
for the period of inception through to and including September 30, 2000...................................... F-13
Unaudited Consolidated Financial Statements of Security Biometrics, Inc.
for the three month period ended September 30, 2000.......................................................... F-25
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-SB includes forward-looking statements. All statements, other than
statements of historical fact, included in this Form 10-SB, including, without
limitation, statements under "Description of Business" and "Management's
Discussion and Analysis or Plan of Operations" regarding the Company's business
strategy and plans and objectives of management of the Company for future
operations, are forward-looking statements. Although the Company believes that
the expectations reflected in such 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
Company's expectations are disclosed in this Form 10-SB, including, without
limitation, in conjunction with the forward-looking statements included in this
Form 10-SB. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by this section.
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PART I
Item 1. Description of Business.
(a) Business Development
We were incorporated in the State of Nevada on March 12, 1999 as Great
Bear Resources, Inc. On May 25, 1999, we changed our name to Great Bear
Investments Inc. On July 21, 2000, we signed a share exchange agreement whereby
Great Bear Investments agreed to issue 38,257,675 post roll-forward shares for
all of the shares (on a one (1) for one share (1) exchange) of Biometrics
Security, Inc. Biometrics Security then became our 100% wholly owned subsidiary.
On August 11, 2000, we changed our name to Security Biometrics, Inc. On
August 22, 2000, we purchased an option to license DSI Datotech Systems Inc.'s
gesture recognition technology for use in banking and financial transactions
worldwide. We paid DSI $320,000 towards $8 million which may be owed to DSI
pursuant to the execution of the license agreement.
Pursuant to our option to license, DSI will develop for us a gesture
recognition based technology that will demonstrate their potential for biometric
security applications utilizing a personal computer system based multi-touch
gesture recognition. DSI committed to use its best efforts to make this
prototype available to us within 12 months of the delivery of $3,000,000 to DSI.
This $3,000,000 to be paid to DSI is fully creditable towards the $8 million
that we may owe to DSI if we exercise our option to enter into the license
agreement.
Our option to license covers all of DSI's existing proprietary property,
which is all intellectual property rights in the gesture recognition technology,
including without limitation:
- any and all patent applications filed worldwide based upon the
technology, including any and all continuations, divisions and
continuations-in-part thereof, and all patents, inventor's
certificates, utility models and the like issuing there from
worldwide, including any and all re-examinations, reissues,
renewals and extensions thereof;
- any copyrightable or copyrighted works based upon the
technology, including computer software and computer programs;
- any confidential or proprietary know-how and information
regarding the technology;
- any trademarks and trade names associated with the technology,
whether or not registered;
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- and all fixed representations, hardware, hard copies,
computer-readable media and other tangible implementation of the
technology, patent rights, copyrights, trademarks and trade
secret rights, including patent rights in the technology that
are pending as of today.
We approved a forward share split on a (1) one for (4) four basis for
all shareholders of record on August 28, 2000.
We are in the development stage and have not yet realized revenues from
the sale, lease or licensing of our products. Since our inception, we have
expended over $470,000 in cash, issued 38,257,675 shares of common stock and
incurred future cash payment obligations of $7,680,000 for the license and
development of our gesture recognition technology products.
Our principal executive offices are located at 214-118 Homer Street,
Vancouver BC, Canada VB6 6L5 (tel. no. (604) 609-7749). Our common stock is
quoted on the NASD's National Quotation Bureau "Pink Sheets" under the trading
symbol "SBTI."
(b) Business of the Issuer
Our Business
We are a development stage company which was created to specifically
develop, market under license and distribute dynamic biometric technologies
specific to the security applications of banking and financial transactions.
These include, but are not limited to:
- dynamic gesture recognition technology;
- dynamic signature verification; and
- voice recognition.
It is important to note that, gesture recognition technology is a dynamic system
that can be developed to interpret the biometric characteristics of hand
gestures and signatures using sophisticated software algorithms and performed on
the proprietary touchpads, which we believe are superior to existing input and
pointing technologies.
We are seeking to improve and expand the availability of passive and
dynamic biometric security systems to be placed under license for marketing and
distribution to the banking and financial transaction system.
Dynamic Biometric Technology
Dynamic biometric solutions measure operative human characteristics such
as:
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- voice recognition;
- signature recognition;
- keystroke recognition; and
- gesture recognition.
Dynamic biometric technology identifies individuals based on how they do
something. For example, the way someone speaks or writes or types on a keyboard
are considered "dynamic" biometrics.
Signature Recognition
Signature biometrics can either be dynamic or static. Static signature
verification like that exercised for decades in banks only considers the
geometry of written letters. Dynamic signature verification traces the speed,
velocity and pressure exerted during the physical movement of the pen rather
than the resulting static signature. Aspects of the writing or signature remain
relatively constant allowing Dynamic signature verification systems to adopt
over time. Tablet based systems often operate using off the shelf digitizers
allowing signature biometrics to be a cost effective solution for a number of
applications such as computer system access and for dispensing pharmaceuticals.
Voice Recognition
Voice biometrics measure how a speaker says a word rather than what is
said. The voice input received by these devices is determined by the size and
shape of vocal tracts, mouth, nasal cavities, and lips. Some voice systems
identify a specific phrase while higher end systems evaluate speech regardless
of the words spoken.
Gesture Recognition Technology-enabled Delivery Platform: Technology Description
The gesture recognition technology refers to DSI's proprietary method
for human/machine communication, using hand gestures on DSI's proprietary
intelligent multi-sensor touch pad. The gesture recognition technology provides
an alternative, or complementary, input system to keyboards, pointing devices,
joysticks, game pads, touch pads and touch screens.
DSI's gesture recognition technology evolved from previous gesture
recognition technology for specific application to gaming, stenography and
speech impaired applications. This previous technology utilized a three-finger
touch system, protected by several patents. The core components of DSI's gesture
recognition technology are currently the subject of patent applications. The
gesture recognition technology permits a comfortable, natural form of
interaction that is completely eyes-free.
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The gesture recognition technology will enable us to design
human/machine interface that is either alternative to or complementary with
input systems such as:
- keyboards;
- pointing devices;
- joysticks;
- game pads;
- touch pads; and
- touch screens.
The gesture recognition technology can be applied in various ways.
Depending upon the application that has been integrated with the gesture
recognition technology, gestures can command word processing formats to print a
file or be developed to include biometric sampling for security applications,
including home security applications to activate home security systems or the
secure processing of financial transactions.
There are three core components to DSI's gesture recognition technology.
These components include:
- an intelligent multi-touch sensor;
- gesture recognition software systems applications; and
- interface modules.
In all cases, the application of the gesture recognition technology may be by
way of a hardware device (such as a cellular telephone) or through a general
purpose computer running an application (such as a spreadsheet).
Advanced Gesture Recognition Technology Components:
The Multi-Touch Sensor
The sensor is a smart surface that tracks contacts and motion of one or
more fingers of the hand. Specification sheets will be designed for each of the
targeted user categories identified by DSI and they have identified a draft
specification suited to the professional and power user categories. These
specifications will be modified to suit other applications. Some excerpts from
the specifications are as follows:
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Surface: Textured Lexan for application that may require stylus or
fabric.
Active Area: 20 mm x 150 mm sensing.
Proprietary Structure: Approximately 5 mm thick, containing over 1,000
sensors.
Spatial Resolution: Smooth coordinate system, which can be .2 mm for
stylus input.
Time Resolution: Better than 60 Hz sample rate.
Lag: Much less than 100 ms.
Hand Contact Force: 50 g to over 100 g; individual fingers down to 20 g.
Interaction: From 1 up to 10 fingers simultaneously, or a plastic
stylus.
Separation: Minimum 15 mm spacing between finger contacts required.
The unit contains a sensor structure of approximately 440x170x7mm in
size, combined with mixed signal measurement circuits and a digital signal
microprocessor to perform measurement, image processing and communications to
the host. Sensor structure, measurement circuitry and processing multi-touch
algorithm to determine the location and other parameters of simultaneous finger
contacts referred to as "pointers", are proprietary and are the subject of the
DSI's patent applications. The data format for pointers will remain available to
original equipment manufacturers, and defines the interface between the sensor
and the gesture recognition components of the system.
Demonstration units will communicate pointer information through
universal service bus to the driver and the gesture recognition engine on the
host, and requires external power. Products will incorporate remote
communications links, battery power and gesture recognition embedded in the
sensor unit, communicating gesture codes to the host.
Gesture Recognition Software Module
The gesture recognition software module is a proprietary software module
that reads pointer information from a sensor and produces gesture codes. The
module operates independent of any particular sensor, provided the sensor
produces pointer information in the required format. The module is also portable
and independent of any particular operating system, support libraries, and/or
hardware platform. It is suitable for embedding in a custom microchip. The data
format for gesture codes will be made available to original equipment
manufacturers and defines the interface between the gesture recognition and
mapping components of the system.
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In general, the module performs casual processing on the pointer time
series, marks the series into segments, and then classifies each segment by
calculating various features. The sequence of classified segments is assembled
using syntactic analysis into recognized gestures in realtime. The methods of
segmenting, classifying and combining are proprietary, and the subject of DSI's
future patent applications. The plan for gesture recognition includes six
gesture set levels. These gesture set levels are as follows:
- Single digital pointing plus tap- Tap and drag, double tap and
scroll, etc. This is reverse compatible with existing touch pad
products and mice.
- Basic - The basic multi-touch whole hand motion, including
multiple digit shortcuts using two-stroke pie menus for
self-revealing, marking menus.
- Advanced - The advanced multi-touch control gestures, including
rotate, scale, expand and erase are based upon the posture and
relative motion of the digits.
- Character Recognition - This can be elicited using fingers or
stylus. This will include default, and eventually user-definable
characters.
- Signature and Custom - This will include advanced multi-digit
and user-defined gestures, and a system with the ability to
learn by user example and incorporate recognition of some
biometric characteristics.
- Cursive - This will incorporate advanced levels of biometric
characteristics.
Systems & Application Interface Module
The systems and application interface module converts gesture events
into events for the user's application. This can be implemented in several ways,
depending upon the context, as follows:
a) A hardware device that plugs into a keyboard, mouse or game port
and converts gesture events into simulated electrical signals
for the devices. (An example is a game controller.)
b) An operating system level device driver that continuously
converts gesture events into simulated keyboard and mouse
events. (An example is the intelligent touch pad for personal
computer power users.)
c) An existing software application runs in conjunction with a
plug-in. The plug-in includes a multi-touch pad device driver
and converts gesture events into application input events. (An
example will be the intelligent touch pad for existing
high-level professional applications.)
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d) Software applications that integrate the multi-touch pad device
driver. The application performs functions based on gesture
events read from special device drivers. (An example is custom
applications on a personal computer.)
e) A gesture mapping module as well as application code, all
integrated and embedded in a multi-touch pad microprocessor to
create a specialized device. (An example would consist of a
custom portable electronic e-appliance.)
Marketing
Our market penetration strategy focuses on the security and efficient
interface aspects of the banking and financial transactions market segments. We
intend to derive multiple revenue streams from:
- transaction loss reduction profit sharing (Automatic Teller
Machines, debit and credit cards, and e-commerce);
- interaction cost management within the banking and financial
transaction vertical market (double initial control system,
information management, back office, etc.); and
- sublicensing to financial institutions.
We license our gesture recognition from DSI. This technology forms the
core delivery platform for the execution of our business model, around which we
will build our intellectual property management portfolio. Gesture recognition
technology brings full reverse compatibility and improved performance to gesture
recognition technology enabled multi-touch pads that can be utilized for dynamic
signature verification. Within the area of interface efficiency, these are
deemed advanced generation touch pads or mice replacements, and we believe they
greatly enhance keyboard functionality when executing upon the function of
financial transactions.
A key element of our market penetration strategy is incorporating
intelligent gesture recognition technology enabled input devices that will
provide a transparent and ubiquitous delivery platform for minimizing
interaction and transaction costs within the vertical banking and financial
transactions markets. We will initially focus on the three market segments,
where we intend to be first to market. This includes initially developing under
license and marketing:
- Standalone multi-touch DatoPad for power users of gesture
recognition technology enabled professional financial services
software, and subsequently for the on-line banking aftermarket
general user;
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- Gesture recognition technology enabled security biometric
interaction and transaction systems for the banking and
financial services markets; and
- Gesture recognition technology enabled security biometric
hardware and software solutions for the POS markets, integrated
with public and home access transaction systems.
Competition
In order to achieve commercial sales of our biometric products, we must
compete with many well-established United States and foreign manufacturers in
the biometrics market. Key manufacturers competing in the dynamic signature
verification market include Checkmate Electronics Inc., PenOP Inc., SOFTPRO,
Xenetek, and Ink Tools. These manufacturers exemplify the fact that the
development of strong alliance partners is a key success factor in this field.
Checkmate has a strategic marketing agreement with IBM. PenOP has a series of
agreements with Microsoft, Netscape, Adobe and Eastman Systems. SOFTPRO has
multiple international distribution agreements with UNISYS. Ink Tools has a
strategic alliance with Palm Corporation. In any new technology (especially
where consistent industry profitability is several years away), the ability to
make agreements with tenured high tech companies is a key concern. The ability
to partner is further leveraged when successful pilot programs are promoted
effectively.
Leading manufacturers of voice recognition systems include
InterVoice-Brite, Inc., Orga, Veritel, VeriVoice, and ITT Industries.
Increasingly, companies in this field are becoming adept at several input
technologies. As the prices of input devices fall, the value proposition shifts
to software attributes like the logic of comparing input data to the digital
template, file storage, and verification times. For retail banking transactions,
authentication time against a large data base is a critical consideration.
Several of the technology segments surveyed now offer acceptably low input
device prices and sufficiently fast authentication times.
All of these companies have developed products and are authorized to
sell products. All of our principal competitors are significantly larger, well
established and are better capitalized than us, all of which could adversely
affect our ability to compete.
Material Acquisitions
On August 22, 2000, Biometrics Security signed an option agreement with
DSI. Pursuant to the option agreement, Biometrics Security purchased from DSI
all of DSI's existing proprietary property, which is all intellectual property
rights in the gesture recognition technology, including without limitation:
- any and all patent applications filed worldwide based upon the
technology, including any and all continuations, divisions and
continuations-in-part thereof,
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and all patents, inventor's certificates, utility models and the
like issuing there from worldwide, including any and all
re-examinations, reissues, renewals and extensions thereof;
- any copyrightable or copyrighted works based upon the
technology, including computer software and computer programs;
- any confidential or proprietary know-how and information
regarding the technology;
- any trademarks and trade names associated with the technology,
whether or not registered; and
- and all fixed representations, hardware, hard copies,
computer-readable media and other tangible implementation of the
technology, patent rights, copyrights, trademarks and trade
secret rights, including patent rights in the technology that
are pending as of today;
for $320,000. Thereafter, Biometrics Security has agreed to pay DSI $3,000,000
by July 22, 2001 to develop its gesture recognition technology.
Within 12 months after the payment of the $3,000,000 to DSI, DSI has
agreed to fully develop its gesture recognition technology. Biometrics Security
will have three months from the date DSI's gesture recognition technology is
fully developed to exercise the option to enter into an exclusive license in
DSI's gesture recognition technology for $8,000,000, less the amounts previously
paid by Biometrics Security to DSI. DSI will also get 20% of the common stock
Biometrics Security upon exercise of the option.
The option agreement terminates on the occurrence of any of the
following:
- Biometrics Security or DSI becomes bankrupt;
- Biometrics Security does not pay $3,000,000 to DSI by July 22,
2001; or
- Biometrics Security does not exercise the option.
Patents, Copyrights and Trade Secrets
Both we and DSI rely on a combination of patent, trade secret,
copyright and trademark law, non-disclosure agreements, and technical security
measures to protect our products. Notwithstanding their safeguards, it is
possible for our or DSI's competition to obtain these trade secrets and to
imitate our products. Furthermore, others may independently develop products
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similar or superior to those developed or planned by DSI. While we or DSI may
obtain patents with respect to certain of its products, we or DSI may not have
sufficient resources to defend such patents, such patents may not afford all
necessary protection and competitors may develop equivalent or superior products
which may not infringe such patents.
DSI's intellectual property includes the following United States Patents
for its multi-touch sensor:
- United States Method Patent No. 5,203,704, expiring December 21, 2010;
- United States Design Patent No. D354,735, expiring January 24, 2009;
and
- United States Core Patent No. 5,808,567, expiring May 17, 2013,
as well as two international core patent filings in process.
Employees
As of December 15, 2000, we had three (3) full-time employees and two
(2) part-time employees, none of whom is represented by any labor union.
Markets for Biometric Products
We intend to initially market our products to large banking and
financial institutions in the United States and Canada, as well as other
countries. In the United States, most of the Federal Bureau of Investigations'
financial institution fraud caseload during the late 1980's and early 1990's
related to insiders. Since the middle 1990's there has been a resurgence in
external fraud in the form of check fraud, counterfeit negotiable instruments,
and identity fraud. Of the 2,505 convictions executed by the FBI in 1998, 1,123
were of bank employees and bank officers. Inside fraud frequently includes
multiple transactions by loan brokers, appraisers, accountants and real estate
attorneys who sometimes layer fraudulent transactions with genuine transactions.
Currently, the FBI is fully supportive of ink less fingerprinting to curb check
fraud and counterfeit negotiable instruments.
Large financial institutions tend to attract more fraud across all
categories than smaller institutions. Criminals target larger financial
institutions because they have a wider set of products, and more retail
locations, which can be struck simultaneously. Smaller financial institutions
are not immune but tend to have a more intuitive grasp of normal transactions at
the teller level for each of its customers.
Identity fraud in the United States is a big driver for security
countermeasures. In 1998 it is estimated that the $6 billion being lost annually
could be attributed to:
- fraudulent welfare disbursements ($1 billion);
- credit card transactions ($1 billion);
- cell phone crime ($1 billion); and
- ATM transactions ($3 billion).
Financial Transactions:
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ATM
The ubiquitous automated teller or "ATM" in the United States and the
automated banker or "ABM" in Canada has eclipsed bank tellers as the workhorse
for retail financial transactions in Canada and the United States. There are
over 15,000 bank-operated ABMs in Canada and Canadians have access to over
23,506 other ABMs through the Interac network. The average Canadian logs over 50
ABM transactions per year. The penetration of ATM machines in the United States
has been similar with over 240,000 units executing transactions worth over 900
million dollars per month.
Cheque Payment
In the United States, cheques are still the dominant form of non-cash
consumer transaction. However, alternative non-cash forms are growing more
quickly. Americans use checks for 3/4 of all non-cash transactions according to
the Check Payment Systems Association, but the volume of cheque-based
transactions is increasing annually by only 2-3%.
Cheques are a tenured transaction medium, which are popular in part
because they have been around for such a long time. Internationally there are
over 65 billion checks written each year.
Bank procedure aimed at minimizing cheque fraud is always tempered by
the need to avoid arbitrary or time-consuming procedures, which may alienate
customers. For example, banks have tried locating Magnetic Ink Character
Recognition, the machine-readable numbers at the bottom of modern-day cheques,
readers at each teller stand. While unit costs have dropped to the point where
this is now economic, the processing time required to confirm numbers is too
slow. Banks cannot afford to inconvenience customers for the marginal savings in
reduced fraud. The clear message from a systems standpoint for biometric vendors
is the need for speedy authentication in order to avoid inconveniencing bank
customers.
Several software programs in use today compare financial account
activity against existing profiles for individual accounts and flag abnormal
activity. Variables this type of software monitors include flagging transactions
where the same identification is used to cash multiple checks during a limited
time period, duplicate check numbers, check numbers out of a range, unusual
deposit sizes, and low or no magnetic ink. However, even these kinds of software
profiles can be circumvented. Aspects of these software programs can be beaten.
For example, if persons committing the fraud have several runners executing
fraudulent cheques simultaneously at the same branch computer systems do not
have the reaction time necessary to flag an abnormal profile.
Credit Cards
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The convenience of credit cards has positioned them as the backbone of
emerging consumer transactions on the Internet.
Like cheques, credit cards have several printing features, which curb
more obvious counterfeiting and criminal misuse. Like cheques, credit cards rely
on static signature verification. Among the existing security measures on credit
cards are signature panels that sometimes include the credit card number. Other
key credit card security features include Bank Identification Numbers and
holograms.
The Bank Identification Number repeats the first four raised digits on
the credit card. The last 4 raised credit card digits of modern credit cards now
generally run through a hologram, which is difficult to counterfeit. At the
point of sale, merchants can tilt the card to verify the appearance of the
hologram.
Despite these measures, crime rings are capable of counterfeiting credit
cards. Recent criminal investigations in San Francisco have revealed the use of
blank plastic stock for fake identification and credit cards along with magnetic
stripe readers.
The ability to execute a credit card transaction verbally over a
telephone is an often exploited, weak spot for this medium of exchange. All
thieves need to know is a number and a date and a fraudulent transaction can be
executed. Some reactive security measures have evolved to remedy the most
blatant abuse of telephone-based transactions. Recognition systems like those
developed by HNC Software Inc., monitor ongoing transactions against a profile
of common card usage. These are similar to the profiling software packages used
to monitor cheque account activity.
A nascent form of credit card fraud involves the swapping of stolen
credit card numbers in Internet chat rooms. Participants in this trade buy and
sell stolen credit cards numbers and often exchange anonymous computer and
postal addresses. Participants in the trade range from small time crooks to
professional hackers who may steal thousands of credit card numbers at a time
from poorly secured eCommerce sites. Online theft of credit card numbers takes
several forms, which include packet sniffing. Some criminals establish phoney
websites that extend amazing bargains which attempt to trick unwary shoppers
into giving away credit information.
Current American law curbs the ability of law enforcement to monitor
chat rooms without some third party pointing out a specific illegal incident.
Although the players in this form of fraud are mainly adolescents, remedying
this form of fraud has highlighted American financial security shortcomings.
Specifically, as of February 2000, United States credit card companies and card
issuing banks had not yet determined a method for reporting this kind of
activity.
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Debit/Point of Sale
In the United States there are an estimated 200 million debit cards in
circulation. Many factors have driven the popularity of debit cards including
the ability of non-financial institutions to brand themselves using what was
formerly a bank card.
A debit card or ATM transaction is generally a three-step process that
occurs over dedicated telephone lines. At the point of sale, a processor ensures
that a personal identification number in encrypted and sends an electronic
message to the network service provider's processor. The network service
provider queries the financial institution's processor to ensure that the
personal identification number is correct and that there are sufficient funds
for the transfer. The network service provider relays this information to the
point of sale where the physical transaction takes place. The entire point of
sale transaction generally takes five to ten seconds to authorize. Later in the
day, the network service provider will provide a summary settlement to the
financial institution and the merchant at the point of sale.
Small banks on average experience a couple of thousand dollars of losses
per year while larger banks generally experience about a hundred thousand
dollars worth of losses.
eCommerce
ECommerce is a transaction medium that is rapidly gaining mainstream
acceptance in North America. To a great extent, actual transactions use network
backbones established by credit card companies who are keen to capitalize on
their use as a default medium with new Internet specific media. The increasing
pervasiveness of transactions over personal computers and the promise of
transactions over mobile platforms have inspired security measures both at the
log on stage and at the network level.
Currently, credit cards are the backbone payment system for e-tailers.
Web companies pay a premium to conduct credit card based transactions with
consumers, and the fraud that does occur appears to be a manageable cost of
doing business. In a June 2000 survey conducted by ActivMedia Research, of 736
web businesses surveyed only 3% indicated that fraud was a regular and
substantial problem. This finding is at odds with an August 2000 survey by
Gartner Group which determined that 1.15% of all online transactions are
fraudulent while only 0.6-0.9% of all off line transactions are fraudulent. Many
variables may account for the different findings, but a likely reason is that
e-tailers are less experienced than traditional retailers and may consider a
given level of fraud the cost of doing business using an emerging medium.
Network service providers recognize that these pioneering retailers are
prepared to pay a premium to use their systems. In Gartner's survey of 160
companies, it was determined that on average credit card companies, which are
the current backbone of Internet transactions, offer e-tailers discount rates of
2.5% plus 30 cents per transaction versus an average of 1.5% plus 30
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cents to traditional retailers. Additional costs faced by e-tailers include the
cost to enter Internet payment gateways which can add as much as $0.50 per
transaction.
The Gartner survey also found that e-tailers pay more than traditional
retailers when it comes to handling charge-backs. According to the survey,
e-tailers spend four times as much as traditional retailers when it comes to
resolving this customer service function. The reason for this is that in
traditional transactions there is a signed sales slip, which verifies the
transaction and takes the onus off the retailer. Online transactions have no
such documentation.
Besides the correlation between increased anonymity and increased
propensity for fraud, it may be that traditional retailers simply have more
experience and expertise at handling various customer service issues. In the
ActivMedia survey, Lands End was quoted as saying that since it had launched its
online catalogue it had experienced no increase in fraudulent activity.
Public Key is a very likely companion to emerging biometrics servicing
secured online transactions. Existing American and Canadian legislation
recognizing the validity of digital signatures is an important consideration. As
of May of 1999, the Canadian Payments Association announced its intention of
becoming the root Certification Authority for a Public Key system in Canada so
that individuals and businesses would be able to make secure transactions over
the Internet. The root Certification Authority qualifies certification
authorities with the power to issue digital certificates to clients wishing to
conduct transactions over the Internet. By March of 2000 the Canadian Payments
Association had completed technical specifications for a Canadian Public Key
system and was awaiting requests for proposal from its members.
Fraud schemes on the Internet have been with us for several years now.
Security, confidentiality, and privacy questions undermine the credibility of
the Internet as a medium for financial exchange. Measures like Public Key and
biometric safeguards may be either the key to cleaning up this medium or the
forerunners of safeguards on a private (more secure) parallel version of the
Internet. For the record, initial fraud schemes on the Internet, which relate to
consumers merit mention. Going back to 1997, the American Institute of Certified
Public Accountants determined that the following 10 fraud schemes were most
common at that time:
- On-line services - Work at home schemes
- Merchandise sale - Prizes and sweepstakes
- Auctions - Credit card offers
- Pyramid schemes - Books
- Internet business opportunities - Magazine subscriptions
Banking and Electronic Transaction Software
Banks are spending heavily on security and Internet services because new
services mean a whole new set of service charges. Killen & Associates has
projected that banks expect that
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expanded Web-based cash management services should increase bank revenues by $80
billion by 2004.
Virtual Private Networks are enabling e-banking to expand by offering
secure networks for employees, customers, suppliers, and business partners.
Virtual Private Networks encrypt transmitted information using complex
algorithms to hide sensitive data from outsiders.
When Virtual Private Networks first came out, they were adopted slowly
by the banking community. Demand for Virtual Private Networks picked up in 1998,
when a set of international standards was confirmed. Just as Web-based
procurement has saved manufacturers money over older EDI systems, Virtual
Private Networks is proving to be cheaper for banks than existing communications
platforms, which work around leased lines and telephone equipment. Infonetics
Research estimates that setting up and maintaining 350 users with an average of
31 hours of monthly Internet time apiece will save a bank $500,000.
Online banking is swiftly charging from its position as an extravagant
application used by a select few to a mainstream application utilized by the
growing number of Internet users. To attest to this, in the United States alone,
there were 6.6 million households banking online in 1998. By 2003, that number
will increase substantially to more than 32 million.
According to a report published by International Data Corp., a
combination of factors is driving the explosive growth in online banking. To
begin with, there has been a proliferation of low-cost personal computers and
other networking devices in the home market, which is causing a surge in the
number of Internet users. Because many of the security concerns have been
alleviated, these Internet users are becoming more and more comfortable using
the Internet as a transaction-based medium.
Secondly, the increasing number of banks offering Web-based banking
services is also triggering the market's growth. It is estimated that the number
of banks offering online banking services will increase from 1,150 (base year
1998) to 15,845 by 2003, primarily via the Web. It is important to note that
these numbers represent 6% and an incredible 86%, respectively, of all United
States commercial banks and credit unions.
According to IDC, online banking is evolving through three phases. The
first phase offers functionality similar to what is available through telephone
banking systems - access to account balances and transaction data. The access is
provided through a dial-up or browser-based service. The second phase emphasizes
interactive technologies such as online bill payment and personalized reminder
services. The third phase involves direct marketing of credit and lending
services, personalized financial management features, and services such as
securities trading and insurance offerings.
A strong link exists between banking, bill payments, and the Internet.
The banking sector is quickly realizing that online banking may be the critical
service driver that enables them to
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maintain a dominant market position, and offer customers wider and more
effective, and cost efficient access to financial services.
Banking and Financial Transaction Fraud
In terms of need, initial implementations will probably flow from the
highest value/highest risk transactions down to progressively lower value/lower
risk transactions. Using this rationale, corporate cash management should be the
first candidate. Ben Miller the publisher of the Personal Identification
Newsletter has commented if you're sending a message to swap a $100 million
derivative you want to be surer someone with the necessary authority said it.
After corporate cash management, credit cards are the next most likely step for
implementation.
Identity Theft
Identity theft occurs when a person uses someone else's personal
identification to obtain credit, loans, services, rentals or mortgages. Beyond
the obvious vulnerability of unshredded documents, the American over reliance on
social security numbers means that dishonest clerks at accountancies, legal
firms, financial institutions, hospitals, courts and schools can help to fuel
this trade.
The identity theft organization (www.identitytheft.org) claims that
500,000 Americans are targeted by this type of crime each year, and that 25% of
credit card fraud now involves some form of identity theft.
Identity theft is an emerging form of credit fraud where thieves working
from an identification like a drivers license create a paper person who
registers several sets of credit cards. Once the fake person is created, the
thieves misuse the newly minted credit cards with no intention of repaying the
sponsoring financial institutions. With this crime, the original person whose
identification has been stolen looses their good credit rating and the
sponsoring financial institution is defrauded. As of October 1999, 15 states in
the United States recognized identity theft as a felony with more states
planning similar legislation.
Banking and Financial Transaction Security Measures
Financial institutions are reticent to report incidents of internal
theft for public relations purposes. Atalla Inc, a hardware security division at
Tandem, claims that 70% of banking fraud is conducted with an insider. Therefore
internal security represents a large opportunity. Some limited reporting has
occurred on the types of internal crimes these institutions generally
experience. In banks, these problems generally involve junior employees that
either steal customer cheques or enter into arrangements with criminals.
Sometimes professional criminals find work in the accounts payable (or even the
mail room) of corporations. When corporations have sloppy internal controls,
these kinds of theft can occur for several months.
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Banking and Financial Biometric Initiatives
Some estimates going back to 1998 suggest that banks need chequing
account deposits of $200 per account as a hedge against all forms of fraud. The
primary reason transaction fraud is so significant is the proliferation of
access points (ATMs, telephone banking, Internet etc.) available to conduct
financial transactions. As the volume of individuals and transactions continue
to increase through these access points, so to will the technology needed to
secure these transactions.
Several major financial services institutions are currently piloting a
variety of biometric technologies. In addition to the obvious applications, such
as account access or internal network security, a variety of other novel
solutions are being deployed and investigated. These solutions are being
deployed at the ATM and teller level, in web-based applications, and in
securities transactions. As more customers and clients decide to transact
business remotely, industry observers believe there will be an increasing need
to authenticate users on both ends.
And while certificate-based infrastructures can determine that a certain
Personal computer or organization is on the other end, and a Private Key
infrastructure can determine that a message has not been modified or read into a
transaction, only biometrics can determine that a given individual authorized or
initiated a transaction.
As with electronic bill presentment, the need to find consensus between
businesses, financial institutions and consumers has a delaying effect. The
International Biometrics Group has noted some major developments in the
financial services world listed below. Some of these initiatives have been
actively pursued and some will never proceed beyond pilot projects.
- ING Direct is providing finger-scan biometric authentication for
online banking customers.
- BACOB Bank in Belgium is piloting voice verification for
customer account access.
- Chase Bank is piloting finger scan technology.
- Bank United has integrated iris recognition into a number of its
ATM's.
- Wells Fargo owns a 40% stake in InnoVentry, which provides
biometric face verification at its check-cashing ATM's.
- Charles Schwab is piloting biometric technologies for account
access.
- A Mexican institution is distributing payroll and executing
automated purchases with smart cards and biometrics.
- The FSTC (Financial Services Technology Consortium) is
participating in IBG's major round of IT Security and e-commerce
testing this summer.
The roll out of Mr. Payroll machines since 1997-8 has been successful
for several reasons including management commitment to the concept and public
acceptance of an unobtrusive biometric identifier. Moreover, Mr. Payroll did not
start with the massive investment in legacy
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systems, which are issues for major banks and credit card companies. Mr. Payroll
has a clearly defined target market, which is working class households that do
not have chequing accounts. According to information provided by the company and
attributed to the Federal Reserve Bank, 41% of American working class households
do not have chequing accounts. These people need to cash paychecks and this is
where Mr. Payroll becomes involved. Mr. Payroll uses a touch pad as an on switch
and facial recognition in place of a PIN number.
Since the success of the initial roll out, InnoVentry Corp. the
technical supplier to Mr. Payroll, has installed 500 Mr. Payroll and RPM
machines in retail locations including Kroger, Circle K, HEB Pantry Foods,
Wal-Mart, K-Mart, Texaco and RaceTrac. RPM machines. InnoVentry has been backed
by Wells Fargo & Co and as of September 2000 claims 760,000 customer and over 2
million cheques cashed over the last 2 years.
Bank of America, Bank One, Chase Manhattan, Citibank, Wachovia, Wells
Fargo and the Federal Reserve System are piloting a static signature
verification scheme that would work in conjunction with online verification. The
initiative is called Automated Imaged Signature Comparison. Check imaging at the
point of sale is the primary thrust of the initiative. First and foremost,
cheque imaging safeguards banks and merchants against losses due to insufficient
funds and closed accounts, which are the largest sources of loss. This safeguard
is expected to increase the general acceptability of cheques at the point of
sale. An ancillary benefit of check imaging is the reduction handling which
reduces the transaction costs of processing cheques.
Static image verification which increases the security of the imaged
cheque. In the past, manual signature verification was applied in an ad hoc
manner if the teller or merchant at the point of sale found the customer's
behavior or appearance questionable. Automated verification of the signature
takes this manual procedure and applies it to each and every transaction. While
the principal motivation is safeguarding against insufficient funds and closed
accounts, the cost of signature verification has dropped to the point where it
can be added on as an ancillary safeguard.
With software and hardware at acceptable cost levels what remains is the
development of consensus around a smaller set of solutions and commitment to a
network platform. During this hiatus, the impetus seems to be to get involved in
as many new pilot programs as possible. Activity and engagement through such
initiatives as voluntary trials opens the door to wider consumer understanding
and imaginative administrative thought when it comes to linking new biometric
technologies with legacy systems.
However, at some point, a combination of low unit costs and potential
cost savings reach a point where major players commit to a new way of doing
business. In this instance, electronic bill presentment is an excellent model
for the adoption of biometric technology for mainstream financial transactions.
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Year 2000
We have conducted a review to identify, evaluate and implement changes
to computer systems and applications necessary to achieve a year 2000 date
conversion with no disruption to business operations. Based on initial review,
the total cost is not expected to have a material effect on our results of
operation or financial statements. However, we cannot assure you that the
systems of other companies on which we may rely will be timely converted or that
such failure to convert by another company would not have an adverse effect on
our systems.
(c) Reports to Security Holders
On May 26, 2000, we filed a Form 10-SB with the Securities and
Exchange Commission. On June 21, 2000, we filed Amendment No. 1 to Form 10-SB
with the Securities and Exchange Commission. Since that time we have filed the
following with the Securities and Exchange Commission:
- Annual Report on Form 10-KSB for the fiscal year ended June 30,
2000;
- Quarterly Report on Form 10-QSB for the quarter ended September
30, 2000; and
- Current Report on Form 8-K filed on October 27, 2000.
We file reports, proxy statements and other information with the SEC.
You may read and copy any document we file at the Public Reference Room of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Regional Offices of the SEC at Seven World Trade Center, Suite 1300, New
York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call 1-800-SEC-0330 for further information
concerning the Public Reference Room. Our filings will be available to the
public from the SEC's website at www.sec.gov. We will distribute to our
stockholders annual reports containing audited financial statements.
RISK FACTORS
In addition to other information contained elsewhere in this document,
the reader of this registration statement on Form 10-SB should consider
carefully the factors set forth below.
RISKS RELATED TO OUR BUSINESS
WE ARE A START-UP COMPANY, WE HAVE HAD NO OPERATIONS, AND WE EXPECT TO
ENCOUNTER RISKS AND DIFFICULTIES FREQUENTLY FACED BY START-UP COMPANIES IN NEW
AND RAPIDLY EVOLVING MARKETS. Our operations to date have consisted primarily of
development of our business plan, and otherwise organizing our operations. An
investor in the shares of our
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common stock must consider the risks and difficulties frequently encountered by
start-up companies in new and rapidly evolving markets. These challenges include
our:
- Need to establish our brand name awareness;
- Need to attract and retain customers at a reasonable cost;
- Need to manage changing and expanding operations;
- Need to compete effectively;
- Need to establish ourselves as an important participant an the
evolving market;
- Need to hire and retain experienced personnel; and
- Dependence on new, evolving and unproven software and related
technologies.
We may have limited insight into other trends that may emerge and affect
our business, because we are a start-up company and our market is in an early
stage of development. We cannot be certain that our business strategy will be
successful or that we will successfully address these risks. Any failure to do
so would seriously harm our business and operating results.
WE HAVE NOT HAD ANY SALES, WE MAY NEVER ACHIEVE A SIGNIFICANT LEVEL OF
SALES AND WE MAY NEVER BECOME PROFITABLE. As a start-up company, our ability to
generate sales is uncertain, even if we are successful in our product
development. Our profitability will depend on achieving a critical level of
sales. Therefore, even if we are able to generate sales, our sales may be
insufficient to enable us to achieve profitability.
AFTER COMPLETION OF THE OFFERING, WE WILL NEED ADDITIONAL CAPITAL TO
CONTINUE TO OPERATE AND EXPAND OUR BUSINESS. We have working capital of $284,000
available. This working capital should permit us to continue to operate our
business for approximately six months. We expect to conduct a private offering
of approximately $30,000,000 after we commence our operations. It is possible
that we will not succeed in raising that amount or any additional capital. If we
are unable to raise sufficient additional capital, we may be unable to satisfy
our continuing working capital requirements from operations or other sources.
Our inability to raise additional capital would also inhibit our ability to
achieve of our business plan.
WE ARE DEPENDENT ON DSI DATOTECH SYSTEMS INC. We are dependent upon the
efforts and abilities of DSI Datotech Systems Inc.'s technical groups to succeed
in the gesture recognition technologies banking and financial transactions
markets. We cannot assure you that we can be successful in operating in this
business without the full co-operation of DSI Datotech Systems Inc.
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WE WILL NEED TO MANAGE CHANGING AND EXPANDING OPERATIONS. Our business
plan anticipates that we will expand our operations. This anticipated growth to
future operations will place a significant strain on our management systems and
resources. Our ability to successfully offer products and services and implement
our business plan in a rapidly evolving market requires an effective planning
and management process. We expect that we will need to continue to improve our
transaction-processing, operational, financial and managerial controls and
reporting systems and procedures, and will need to continue to expand, train and
manage our work force. Furthermore, we expect that we will be required to manage
multiple relationships with various customers and other third parties. We cannot
be certain that our planned personnel, systems, procedures and controls will be
adequate to support our future operations and technical requirements, that
management will be able to hire, train, retain, motivate and manage required
personnel, or that our management will be able to successfully identify, manage
and exploit existing and potential market opportunities.
OUR MARKET IS UNPREDICTABLE AND MAY NOT BE ACCEPTED BY CUSTOMERS AND THE
PUBLIC. Our success will depend on the growth of the gesture recognition
technologies banking and financial transactions markets. Without the acceptance
of the public and vendors, we may be unable to achieve and sustain
profitability. The gesture recognition technologies banking and financial
transactions market is a new and rapidly evolving market whose demand and market
acceptance has yet come to full fruition. Biometric products have not gained
widespread commercial acceptance. Our business will most likely not grow unless
the market for biometric products expands both domestically and internationally.
OUR SUCCESS IS DEPENDENT ON ATTRACTION AND RETAINING KEY PERSONNEL. Our
success depends on our executive officers and their staying with us or, in the
event they do not, retaining replacement personnel with the commensurate
experience and acumen. The loss of services of our executive officers could
adversely affect us. In addition, as we grow, it will need to attract additional
key personnel to sustain growth. We cannot assure you that we will be able to
attract sufficiently qualified personnel to fulfill our plan of operation. Our
inability to attract qualified personnel could adversely affect us.
OUR MARKET IS HIGHLY COMPETITIVE. We compete in a market that is highly
competitive and expect competition to intensify in the future. We currently or
potentially compete with a variety of companies. Our competitors have
significantly greater financial, technical, marketing and other resources than
ours. All of these companies have existed for a longer period, have greater
financial resources, have established marketing relationships with leading
strategic partners and have secured greater presence in distribution channels.
Some of these companies may also commence or expand their presence in the
gesture recognition technologies banking and financial transactions markets.
We also believe we may face a significant competitive challenge from our
competitors forming alliances with each other. The combined resources of these
partnerships could pose a significant competitive challenge to us.
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Increased competition could result in price reductions, fewer customer
orders, reduced gross margins and loss of market share.
In addition, the biometrics market is in its very early stages and
growing rapidly. We cannot assure you that new competitors will not enter the
market or that such new competitors will not have superior technology to ours.
Our product also competes with non-biometric technologies such as traditional
key, card, surveillance systems and passwords.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED AND UNCERTAIN. We may
rely on a combination of patent, trademark, trade secret and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
These legal protections afford only limited protection for our intellectual
property and trade secrets. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to obtain and use information that we
regard as proprietary.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets and determine the validity and
scope of the proprietary rights of others. If third parties prepare and file
applications in the United States that claim patents, trademarks, trade secrets
and copyrights that we use or have registered, we may oppose those applications
and be required to participate in proceedings before the United States Patent
and Trademark Office to determine priority of rights to the patents, trademarks,
trade secrets and copyrights, which could result in substantial costs to us. Any
litigation or adverse priority proceeding could result in substantial costs and
diversion of resources and could seriously harm our business and operating
results. Finally, we may in the future sell our products internationally, and
the laws of many countries do not protect our proprietary rights to as great an
extent as do the laws of the United States. Our means of protecting our
proprietary rights may not be adequate, and our competitors could independently
develop similar technology.
WE MAY BE FOUND TO INFRINGE PROPRIETARY RIGHTS OF OTHERS. Third parties
may claim infringement by us with respect to past, current or future
technologies. We expect that participants in our markets will be increasingly
subject to infringement claims as the number of services and competitors in our
industry segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND WE MAY NOT BE
ABLE TO REMAIN COMPETITIVE. The gesture recognition technologies banking and
financial transactions market is a highly technical field with numerous and
frequent changes taking place at a rapid pace. We are attempting to keep in step
with such changes. However, our business may be adversely affected by our
competitors' development of enhanced or improved technology. We
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may lack sufficient financial resources to undertake the revamping of our
existing technology and equipment to stay in competition with others.
OUR PRODUCTS MAY NOT BE ACCEPTED BY THE PUBLIC BECAUSE OF CONCERN FOR
PRIVACY. Certain groups have publicly objected to the use of biometric products
for some applications on civil liberties grounds. Legislation has been proposed
to regulate the use of biometric security products. In the event that
legislation is passed prohibiting or restricting certain uses of biometrics,
such legislation could have a material adverse effect on our business.
OUR REVENUES AND OPERATION RESULTS MAY VARY DUE TO THE TIMING OF ORDERS
FOR OUR PRODUCTS. Our revenues and operating results will likely vary
significantly from quarter to quarter. Most of our revenues will most likely be
derived from a relatively small number of large orders. Accordingly, revenues in
a particular quarter will depend on the timing and size of major orders.
OUR LENGTHY SALES CYCLE COULD HAVE A SIGNIFICANT EFFECT ON OUR REVENUES
AND OPERATION RESULTS. Products in the biometric industry often have a lengthy
sales cycle while potential customers evaluate and receive approvals for
purchase. We could suffer a severe negative impact if we fail to receive an
order for a product after expending significant funds and effort in an attempt
to secure an order. If we fail to ship one or more large orders as forecasted
for a fiscal quarter, our total revenues and operating results for that quarter
could be materially and adversely affected.
OUR GROWTH WILL BE DEPENDENT ON OUR ABILITY TO MAKE INTERNATIONAL SALES.
There are certain risks inherent in international commerce including:
- regional economic conditions;
- export restrictions;
- fluctuations in foreign currencies and the United States
dollar;
- loss of revenue, property and equipment from
expropriation, nationalization, war, insurrection,
terrorism and other political risks;
- the overlap of different tax structures;
- seasonal reductions in business activity;
- risks of increases in taxes and other government fees;
- involuntary renegotiation of contracts with foreign
governments.
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OUR PRODUCTS MAY FAIL TO MEET CUSTOMERS PERFORMANCE CRITERIA. Our
products are complex and may contain undetected or unresolved defects when sold
or may not meet customer's performance criteria. Performance failure may cause:
- loss of market share;
- delay in or loss of market acceptance;
- additional warranty expense; or
- product recall.
The negative effects of any failure could result in a material adverse effect on
our business.
WE MAY NOT HAVE THE RESOURCES TO SATISFY FUTURE TECHNOLOGY REQUIREMENTS
IMPOSED BY REGULATORY AGENCIES, CAUSING OUR SALES VOLUME TO DETERIORATE AND A
DECREASE IN OUR STOCK PRICE. Our continued participation in the gesture
recognition technologies banking and financial transactions market may require
the investment of substantial resources in upgrading our products and technology
to enable us to compete and to satisfy evolving regulatory and statutory
standards. We cannot assure you that such resources will be available to us or
that the pace of product and technology development established by management
will be appropriate to the competitive requirements of the marketplace. In the
event that we are unable to meet or exceed new or additional regulatory and
statutory standards, our product sales and financial resources may deteriorate.
RISKS ASSOCIATED WITH OUR SECURITIES
WE DO NOT INTEND TO PAY DIVIDENDS TO OUR STOCKHOLDERS. We have never
paid any dividends to our stockholders. We currently intend to retain any future
earnings for funding growth and, therefore, do not expect to pay any dividends
in the foreseeable future.
INVESTORS MAY NOT FREELY TRANSFER THEIR SHARES OF OUR COMMON STOCK. Our
shares of common stock have not been registered under the Securities Act or the
securities laws of the various states, and an investor's shares of common stock
may not be resold unless the sale is made under an effective registration
statement under the Securities Act and such state laws or exemptions from
registration requirements are available. As a result, an investor must bear the
economic risk of an investment in us indefinitely.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis of financial conditions, results
of operation and plan of operation should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-SB.
Our wholly-owned subsidiary, Biometrics Security, has an option to
license the gesture recognition technology from DSI, which will form the core
products of our business. Our plan is to develop this technology into revenue
and profit producing operations.
Pursuant to the option agreement, Biometrics Security purchased from DSI
all of DSI's existing proprietary property, which is all intellectual property
rights in the gesture recognition technology for the banking, financial and
transactions markets, including without limitation:
- any and all patent applications filed worldwide based upon the
technology, including any and all continuations, divisions and
continuations-in-part thereof, and all patents, inventor's
certificates, utility models and the like issuing there from
worldwide, including any and all re-examinations, reissues,
renewals and extensions thereof;
- any copyrightable or copyrighted works based upon the
technology, including computer software and computer programs;
- any confidential or proprietary know-how and information
regarding the technology;
- any trademarks and trade names associated with the technology,
whether or not registered; and
- and all fixed representations, hardware, hard copies,
computer-readable media and other tangible implementation of the
technology, patent rights, copyrights, trademarks and trade
secret rights, including patent rights in the technology that
are pending as of today;
for $320,000. Thereafter, Biometrics Security will pay DSI $3,000,000 by July
22, 2001 to develop its gesture recognition technology.
Within 12 months after the payment of the $3,000,000 to DSI, DSI has
agreed to fully develop its gesture recognition technology for the banking,
financial and transaction markets. Biometrics Security will have three months
from the date DSI's gesture recognition technology is fully developed to
exercise the option to enter into an exclusive license in DSI's gesture
recognition technology for $8,000,000, less the amounts previously paid by
Biometrics Security
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to DSI. DSI will also get 20% of the common stock Biometrics Security upon
exercise of the option.
The option agreement terminates on the occurrence of any of the
following:
- Biometrics Security or DSI becomes bankrupt;
- Biometrics Security does not pay $3,000,000 to DSI by July 22,
2001; or
- Biometrics Security does not exercise the option.
We are a development stage company and have not, to date, generated any
revenues nor does our plan contemplate such revenues during the next twelve
months. Accordingly, we have since inception funded our operations and capital
expenditures primarily through private placements of debt and equity securities.
See "Recent Sales of Unregistered Securities". We are required to seek
additional financing on an ongoing basis to execute our business plan. We cannot
assure you that such financing will continue to be available at all, or on terms
acceptable to us. Our products are in the early stage of development. Other
factors which will affect our ultimate commercial success include the
competitive environment, the impact of technological change, dependence on key
personnel and reliance on third party relationships.
Our ability to generate revenues and positive cash flow will depend on
several factors, including the nature and speed of the development process,
advancement of site testing and public and commercial approval of our products.
Item 3. Description of Property.
Our principal executive offices are located in Vancouver, Canada.
We lease approximately 400 square feet of space for our executive
offices at 214-118 Homer Street, Vancouver, British Columbia, Canada. The lease
is for a term expiring September 30, 2002, at a rent of $1,498 per month.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of November 15, 2000 the beneficial
ownership of our common stock, our only class of voting securities, by (i) each
person who is known to be the beneficial owner of more than 5% of our common
stock, (ii) each of our directors and each of our three highest paid executive
officers and (iii) all our officers and directors as a group. Unless otherwise
indicated, the persons listed in the table have sole voting power over the
shares of common stock.
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<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership(1) Class(1)
------------------------------------ ----------------------- --------
<S> <C> <C>
George Gould 125,000(2) *%
2970 Venables Street
Vancouver, BC Canada
W. David Angus 62,500(3) *%
1155 Rene-Levesque Boulevard
Montreal, PQ Canada
Kenneth Barr 125,000(2) *%
1668 Valley Ridge Crescent
Pickering, ON Canada
Allan Gibbins 62,500(3) *%
212 Westridge Drive
Kleinburg, ON Canada
Stephen J. Henry 125,000(2) *%
7924 Limewood Place
Vancouver, BC Canada
Robert Egery 62,500(3) *%
480 Elizabeth
Beaconsfield, PQ Canada
Gesture Recognition Technologies 37,500,000(4) 73.9%
International Limited
c/o CIBC Trust and Merchant
Bank (Barbados) Limited
Bank Warrens Street
Michaels Bar
Barbados
All Officers and Directors
As a Group (6 persons) 562,500(5) *%
</TABLE>
----------------
* Indicates less than 1%
(1) Based on 50,757,675 shares outstanding as of November 15, 2000.
Includes all shares currently outstanding and, as to each person
named, those which are not outstanding but which such person has
the right to acquire within 60 days.
(2) Includes options to purchase 125,000 shares of our common stock
which are currently exercisable. Does not include options to
purchase 125,000 shares of our common stock which are not
currently exercisable.
29
<PAGE> 31
(3) Includes options to purchase 62,500 shares of our common stock
which are currently exercisable. Does not include options to
purchase 187,500 shares of our common stock which are not
currently exercisable.
(4) Gotham Trust is the sole shareholder of Gesture Recognition
Technologies International Limited. Jason Taylor and Candice
Taylor are the trustees of Gotham Trust.
(5) Includes options to purchase an aggregate of 562,500 shares of
our common stock and does not include options to purchase an
aggregate of 937,500 shares of our common stock referred to in
notes (2) and (3) above.
Item 5. Directors, Executive Officers, Promoters and Control Persons
Our current executive officers, directors and significant employees are
as follows:
<TABLE>
<CAPTION>
Name Age Position Or Area of Expertise
---- --- -----------------------------
<S> <C> <C>
George Gould 62 President and Director
Stephen J. Henry 62 Corporate Secretary
W. David Angus 53 Director
Kenneth Barr 53 Director
Allan Gibbins 53 Director
Robert Egery 48 Director
</TABLE>
Each director is elected to hold office until the next annual meeting of
stockholders and until his successor is elected and qualified. All officers
serve at the discretion of the Board of Directors.
The following sets forth with respect to each of our directors and
executives such persons business experience during at least the past five years:
George Gould, President and Director.
Mr. Gould began his career in the Financial Services Industry in 1961.
In March 1973 he entered the banking business with the Canadian unit of HSBC and
held several senior
30
<PAGE> 32
management positions there until July 2000. Mr. Gould has been the President of
GT Financing and Insurance Specialists Ltd. Since August 2000.
Stephen J. Henry, Corporate Secretary
Mr. Henry has served as President and Director of SJ Henry Holdings,
Ltd., since March 1994. He graduated from the University of British Columbia
with a B.Sc. in Pharmacy in 1961. Mr. Henry was a Commissioned Officer in the
Royal Canadian Armored Corps. and has been extensively involved in a number of
successful entrepreneurial enterprises.
W. David Angus, Director
The Honourable W. David Angus, Q.C. has practiced law with the law firm
of Stikeman Elliott since February 1963. He was appointed Queens Counsel in
December 1984. He is a senior partner and head of the Shipping and Insurance
Department in the Montreal office.
Senator Angus was summoned to the Senate of Canada in 1993. Senator
Angus is a member of the Standing Senate Committee on "Banking, Trade and
Commerce" and a member of the Standing Senate Committee on "Transport and
Communications."
Senator Angus is a Member of the Montreal, Quebec and Canadian Bar
Associations. He is Honourary Life Member of the Canadian Maritime Law
Association, of which he was the President from 1989 to 1992. Senator Angus also
serves as a Governor of the International Maritime Law Institute, Malta. He is
an Associate Member and Past Chairman of the Association of Average Adjusters of
Canada. He is also an Associate Member of the U.K., and U.S. Associations of
Average Adjusters and of the Canadian Board of Marine Underwriters.
Senator Angus serves on the Board of Directors of Air Canada, AON Reed
Stenhouse Inc, Eastern Canada Towing Limited, Eastern Canadian Tug Owners
Association, Madeg Holdings Inc, Nymox Pharmaceutical Corporation (non-executive
Chairman) Systech Retail Systems Inc, AutoSkill International Inc. and
3DVisit.com Inc. (non-executive Chairman).
Kenneth Barr, Director
In May 1999, Mr. Barr was appointed President and CEO of Combined
Telecom Inc. (CTI). CTI is a Canadian facilities-based, national competitive
local exchange carrier offering local network access, Internet and data
networking, enhanced messaging, wireless services and fully managed scalable
telecom solutions. CTI is a wholly owned subsidiary of Tricaster Capital
Corporation, a North American merchant bank specializing in telecommunications
and e-business opportunities. Mr. Barr served as President - Business
Communications Systems for Lucent Technologies, Canada from March 1993 until
April 1999. During this same period, he was Executive Vice President and Chief
Operating Officer of the Canadian holding company for Lucent Technologies
(Canada) which has over 800 employees and several hundred million in
31
<PAGE> 33
annual revenues. In previous positions, Mr. Barr has directed organizations of
up to 300 people and spearheaded numerous domestic and international sales and
marketing efforts, major seminars and world symposiums. Mr. Barr has also held
positions with Canadian high-technology firms such as Vice President of T.T.S.
and Nortel's Director of Marketing. Mr. Barr brings to our Board of Directors
more than 30 years of business judgment in successfully bringing new
high-technology products to market.
Allan Gibbins, Director
Mr. Gibbins was interim Vice President, General Manager beginning in
June 1992 and was appointed President and Chief Executive Officer of Hubbell
Canada Inc., a subsidiary of Hubbell Incorporated (HUB-A, HUB-B: NYSE), in
September 1993. Sales of Hubbell Canada exceed $100 million annually. He is the
Chairman of the Electrical, Electronic Manufacturers Association of Canada
(EEMAC). From September 1988 to May 1992, Mr. Gibbins was Vice President and
General Manager of Nutone Electrical Inc. Prior to that he held senior
management positions with duPont Canada Inc. for 16 years. After his education
at Concordia University in Montreal, Canada (B.Sc. Chemistry with Honours), Mr.
Gibbins has had many years of experience in sales and marketing in such diverse
industries as electrical, electronic, plastics, textile fibers, paint and
chemicals. He has outstanding skills in merger and acquisition negotiation,
financial control systems, restructuring, training and team building.
Robert Egery, Director
Mr. Egery has served as President and Chief Executive Officer of DSI
Datotech Systems, Inc. since December 2000. From August 1998 to December 2000,
Mr. Egery was Vive President of Bombardier Aerospace. Prior to that, he was Vice
President of Business Development for Lockheed Martin from August 1994 to August
1998 and Vice President of Marketing and Contracts for Honeywell/Allied Signal.
Mr. Egery brings a strong track record and over 20 years of experience in the
high technology sector to us.
A native of Montreal, Mr. Egery (B.Comm. B.Eng.) has particular
experience in managing enterprises through their growth phase in international
high-tech environments.
Item 6. Executive Compensation
To date, no compensation has been awarded to, earned by or paid to any
of our executive officers exceeding $100,000.
Compensation of Directors; Employment Contracts
Our directors are not compensated for their service on the Board of
Directors. In addition, we have no employment contracts with any of our
executive officers.
32
<PAGE> 34
Stock Options
No stock options have been granted to our officers, directors, employees
and consultants during the fiscal year ended June 30, 2000.
2000 Stock Option Plan. Our 2000 Stock Option Plan was adopted by the
Board of Directors of the Company in August, 2000. A total of 5,100,000 shares
of our common stock has been reserved for issuance under the Plan. The Plan
provides for grants to directors, officers and employees of stock options which
are intended to qualify as either "Incentive Stock Options" or "Non-qualified
Stock Options" within the meaning of Section 422 of the Internal Revenue Code,
as amended. The Plan is administered by the Board of Directors or by a committee
appointed by the Board. The administrator determines the terms of options and
stock purchase rights granted, including the exercise price and the number of
shares subject to the option or stock purchase right. The exercise price of
incentive stock options granted under the Plan is $1.00 per share. The maximum
term of options granted under the Plan is five years. As of the date of this
registration statement, there were 2,200,000 outstanding options to purchase
shares of our common stock under the Plan.
Item 7. Certain Relationships and Related Transactions
Gotham Trust is the sole shareholder of Gesture Recognition Technologies
International Limited. Jason Taylor and Candice Taylor are the trustees of
Gotham Trust. Gesture Recognition Technologies International Limited initially
owned the option agreement to enter into the license agreement with DSI Datatech
Systems, Inc. Pursuant to a letter of intent dated August 1, 2000, Gesture
Recognition Technologies International Limited assigned the license agreement to
Biometrics Security, Inc. in exchange for 37,500,000 shares of our common stock.
Item 8. Description of Securities
Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.001 per share. As of November 15, 2000, there were
50,757,675 shares of our common stock outstanding and 111 holders of record.
Our articles of incorporation also authorize us to issue preferred stock
in one or more series and in such amounts as may be determined by our board of
directors. The designations, voting rights, amounts of preference upon
distribution of assets, rates of dividends, premiums of redemption, conversion
rights and other variations, if any, the qualifications, limitations or
restrictions, if any, of our preferred stock may be determined by our board of
directors. As of November 15, 2000, no series of preferred stock has been
created.
Each of the shares of our common stock has equal dividend, liquidation
and voting rights. Holders of shares of our common stock are entitled to one
vote per share on all matters to be voted upon by shareholders. Holders of our
common stock are entitled to receive dividends
33
<PAGE> 35
when, and if, declared by our Board of Directors from funds legally available
therefore. The shares of our common stock are not redeemable, have no conversion
rights and carry no preemptive or other rights to subscribe for additional
shares.
34
<PAGE> 36
PART II
Item 1. Market Price of And Dividends on The Registrant's Common Equity
And Other Shareholder Matters.
Market Information
Our common stock is quoted on the National Quotation Bureau "Pink
Sheets" under the symbol "SBTI". The following table presents the high and low
closing bid quotations for our common stock as reported by the National
Quotation Bureau for each quarter beginning July 27, 2000 when the stock was
first quoted. Such prices reflect inter-dealer quotations without adjustments
for retail mark-up, markdown or commissions, and do not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
CLOSING BID
-------------------------------------
PERIOD LOW HIGH
------ --- ----
<S> <C> <C>
July 27, 2000 - September 29, 2000 $4.00 $ 14.00
October 1, 2000 - December 15, 2000 $5.00 $ 6.25
</TABLE>
We have approximately 111 record holders of our common stock.
Dividends
We have never declared or paid any cash dividends. It is our present
policy to retain earnings to finance the growth and development of the business
and, therefore, we do does not anticipate paying dividends on its common stock
in the foreseeable future.
Item 2. Litigation
We nor any of our subsidiaries is a party to any material legal
proceeding, nor, to our knowledge, is any litigation threatened against us or
our subsidiaries.
Item 3. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
Item 4. Recent Sales of Unregistered Securities.
The following sets forth certain information regarding sales of, and
other transactions with respect to, our securities issued during the past three
years (or since inception), which sales
35
<PAGE> 37
and other transactions were not registered pursuant to the Securities Act of
1933, as amended. Unless otherwise indicated, no underwriters were used in such
transactions.
1) On March 22, 1999, we sold 2,000,000 shares of our common stock
at $.005 per share to non-United States persons. These shares were privately
offered and issued in an offering exempted from registration under Regulation D,
Rule 504 of the Securities Act for a total net proceeds of $10,000.
2) On May 26, 1999, we sold 855,000 shares of our common stock at
$.03 per share to our directors. We received a total net proceeds of $26,650.
3) On June 6, 1999, we issued 70,000 shares of our common stock to
Curtis L. Mears. These shares were issued for consulting services rendered to
us. These shares were privately offered and issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act for a total net
proceeds of $3,500.
4) On September 30, 1999, we sold 200,000 shares of our common
stock at $.05 per share to non-United States persons. These shares were
privately offered and issued in an offering exempted from registration under
Regulation D, Rule 504 of the Securities Act for a total net proceeds of
$10,000.
With respect to the sales made in reliance on the exemption afforded by
Section 4(2) of the Securities Act, (i) no advertising or general solicitation
was employed in offering the securities, (ii) the securities were offered to a
limited number of individuals and the transfer thereof was appropriately
restricted by us, (iii) all purchasers were sophisticated investors who were
capable of evaluating the merits and risks of the investment and had access to
the type of information that would be included in a registration statement with
respect to the securities and (iv) each purchaser represented that the
securities were acquired for investment and not with a view to re-sale in
contravention of the registration provisions of the Securities Act of 1933.
Item 5. Indemnification of Directors and Officers.
The following statutes and by-law provisions are the only statutes,
charter provisions, by-laws, contracts or other arrangements known to the
registrant that insure or indemnify a controlling person, director or officer of
the registrant in any manner against liability which he or she may incur in his
or her capacity as such.
Article TWELFTH of our Articles of Incorporation provide that:
No director or officer of the Corporation shall be personally liable to
the Corporation or any of its stockholders for damages for breach of fiduciary
duty as a director or officer involving any act or omission of any such director
or officer; provided, however, that the foregoing provision shall not eliminate
or limit the liability of a director or officer (i) for acts or omissions
36
<PAGE> 38
which involve intentional misconduct, fraud or a knowing violation of law, or
(H) the payment of dividends in violation of Section 78.300 of the Nevada
Revised Statutes. Any repeal or modification of this Article by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director or officer of the Corporation
for acts or omissions prior to such repeal or modification.
Article V of our By-laws provide that:
The corporation shall indemnify any and all of its Directors and
Officers, and its former Directors and Officers, or any person who may have
served at the corporation's request as a Director or Officer of another
corporation in which it owns shares of capital stock or of which it is a
creditor, against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit or proceeding in which they, or
any of them, are made parties, or a party, by reason of being or having been
Director(s) or Officer(s) of the corporation, or of such other corporation,
except, in relation to matters as to which any such Director or Officer or
former Director or Officer or person shall be adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the performance of duty.
Such indemnification shall not be deemed exclusive of any other rights to which
those indemnified may be entitled, under By-Law, agreement, vote of shareholders
or otherwise.
Section 78.751 of the Nevada General Corporation Law, provides that:
1. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the
37
<PAGE> 39
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys' fees actually and reasonably
incurred by him in connection with the defense or settlement of the action or
suit if he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation. Indemnification
may not be made for any claim, issue or matter as to which such a person has
been adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that the court in
which the action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by
a court or advanced pursuant to subsection 5, must be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties
to the act, suit or proceeding cannot be obtained, by independent legal counsel
in a written opinion.
5. The articles of incorporation, the bylaws or an agreement made
by the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do not affect
any rights to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
38
<PAGE> 40
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Section 78.752 of the GCL provides that:
1. A corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses incurred by him in his
capacity as a director, officer, employee or agent, or arising out of his status
as such, whether or not the corporation has the authority to indemnify him
against such liability and expenses.
2. The other financial arrangements made by the corporation
pursuant to subsection 1 may include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the corporation.
(d) The establishment of a letter of credit, guaranty or
surety.
No financial arrangement made pursuant to this subsection nay provide protection
for a person adjudged by a court of competent jurisdiction, after exhaustion of
all appeals therefrom, to be liable for intentional misconduct, fraud or a
knowing violation of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
3. Any insurance or other financial arrangement made on behalf of a
person pursuant
39
<PAGE> 41
to this section may be provided by the corporation or any other person approved
by the board of directors, even if all or part of the other person's stock or
other securities is owned by the corporation.
4. In the absence of fraud:
(a) The decision of the board of directors as to the
propriety of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section and the choice of the person to
provide the insurance or other financial arrangement is conclusive; and
(b) The insurance or other financial arrangement:
(1) Is not void or voidable; and
(2) Does not subject any director approving it to
personal liability for his action, even if a director approving the insurance or
other financial arrangement is a beneficiary of the insurance or other financial
arrangement.
5. A corporation or its subsidiary which provides self-insurance
for itself or for another affiliated corporation pursuant to this section is not
subject to the provisions of Title 57 of the The Nevada Revised Statutes.
40
<PAGE> 42
PART F/S
Financial Statements
List of Financial Statements
Audited Financial Statements (Security Biometrics Inc.) for the fiscal years
ended June 30, 2000 and 1999
Report of Independent Certified Public Accountants
Balance Sheets
Statements of Loss
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Audited Financial Statements
Audited Financial Statements (Biometrics Security Inc) for the period of
inception through to and including September 30, 2000
Independent Auditor's Report
Balance Sheet as of September 30, 2000
Statement of Deficit
Statement of Operations
Cash Flow Statement
Notes to Audited Financial Statements
Consolidated Financial Statements for the Three Month Period Ended September 20,
2000 (unaudited)
Balance Sheets
Statements of Operations
Statements of Cash Flows
Notes to Unaudited Financial Statements
41
<PAGE> 43
PART III
Item 1. Index to Exhibits.
The Exhibit Index specifying the sequential page number of each
Exhibit filed herewith appears immediately after the financial
statements.
Item 2. Description of Exhibits.
2.1 Certificate of Amendment to Articles of Incorporation of
Registrant. Incorporated by reference to Exhibit 2.1 from the
Registrant's Registration Statement on Form 10-SB (File No.
0-23859) filed on May 26, 2000.
2.2 Articles of Incorporation of Registrant. Incorporated by
reference to Exhibit 2.2 from the Registrant's Registration
Statement on Form 10-SB filed on May 26, 2000.
2.3 Certificate of Amendment to the Articles of Incorporation of
Registrant.
2.4 By-Laws of the Registrant. Incorporated by reference to Exhibit
2.2 from the Registrant's Registration Statement on Form 10-SB
filed on May 26, 2000.
10.1 Stock Exchange Agreement between the shareholders of Biometrics
Security Inc. and the shareholders of the Registrant dated July
21, 2000. Incorporated by reference to Exhibit 6.1 from the
Registrant's Registration Statement on Form 10-SB filed on May
26, 2000.
10.2 Consulting Agreement between the Registrant and LK&Z Advisory
International, Inc. Incorporated by reference to Exhibit 6.2
from the Registrant's Registration Statement on Form 10-SB filed
on May 26, 2000.
10.3 Exclusive License and Option Agreement between Biometrics
Security Inc. and DSI Datatech Systems, Inc. Incorporated by
reference to Exhibit 6.3 from the Registrant's Registration
Statement on Form 10-SB filed on May 26, 2000.
10.4 Consulting contract between the Registrant and Curtis L. Mearns.
Incorporated by reference to Exhibit 6.1 of the Registrant's
Registration Statement on Form 10-SB filed on May 26, 2000.
21 Biometrics Security, Inc.
27 Financial Data Schedule
42
<PAGE> 44
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
By: /s/ George Gould
-----------------------------
Name: George Gould
Title: President
Date: December 27, 2000
43
<PAGE> 45
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF SECURITY BIOMETRICS, INC.
<TABLE>
<S> <C>
Audited Financial Statements (Security Biometrics Inc.) for the fiscal year ended June 30, 2000 and 1999
Report of Independent Certified Public Accountants......................................................F-2
Balance Sheets..........................................................................................F-3
Statements of Loss......................................................................................F-4
Statements of Stockholders' Equity......................................................................F-5
Statements of Cash Flows................................................................................F-6
Notes to Audited Financial Statements...................................................................F-7
Audited Financial Statements (Biometrics Security Inc.) for the period of inception through to and including
September 30, 2000
Independent Auditor's Report............................................................................F-13
Balance Sheet as of September 30, 2000..................................................................F-14
Statement of Deficit....................................................................................F-15
Statement of Operations.................................................................................F-16
Cash Flow Statement.....................................................................................F-17
Notes to Audited Financial Statements...................................................................F-18
Consolidated Financial Statements for the Three Month Period Ended September 30, 2000 (unaudited)
Balance Sheets..........................................................................................F-25
Statements of Loss......................................................................................F-26
Statements of Cash Flows................................................................................F-27
Notes to Unaudited Financial Statements.................................................................F-28
</TABLE>
F-1
<PAGE> 46
[BATEMAN & CO., INC., P.C. LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders
Security Biometrics, Inc.
(Formerly Great Bear Investments, Inc.)
We have audited the accompanying balance sheets of Security Biometrics, Inc.
(formerly Great Bear Investments, Inc.) (a development stage enterprise) as of
June 30, 2000 and 1999, and the related statements of loss, stockholders'
equity, and cash flows for the periods then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides 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 Security Biometrics, Inc.
(formerly Great Bear Investments, Inc.) (a development stage enterprise) as of
June 30, 2000 and 1999, and the results of its operations and cash flows for the
periods then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company is not currently engaged in a business and
has suffered losses from development stage activities to date, which raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 5. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ BATEMAN & CO., INC., P.C.
BATEMAN & CO., INC., P.C.
Houston, Texas
October 10, 2000
F-2
<PAGE> 47
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,262 $ 25,650
Prepaid expenses - 2,954
--------- --------
Total current assets 2,262 28,604
--------- --------
Total assets $ 2,262 $ 28,604
========= ========
LIABILITIES
Current liabilities
Accounts payable and accrued expenses $ 4,126 $ -
Accounts payable, related party 10,548
--------- --------
Total current liabilities 14,674 -
========= ========
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Common stock, $.001 par value,
100,000,000 shares authorized,
3,125,000 and 2,925,000 shares
issued and outstanding 3,125 2,925
Capital in excess of par value 46,025 36,225
Deficit accumulated during the
development stage (61,562) (10,546)
--------- --------
Total stockholders' equity (12,412) 28,604
--------- --------
Total liabilities and stockholders'
equity $ 2,262 $ 28,604
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-3
<PAGE> 48
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF LOSS FOR THE PERIODS ENDED
JUNE 30, 2000 AND 1999
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION, INCEPTION,
MARCH 12, 1999 MARCH 12, 1999
THROUGH YEAR ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30,
2000 2000 1999
--------------- ------------ --------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
-------------- ----------- ------------
General and administrative
expenses 61,562 51,016 10,546
-------------- ----------- ------------
Total operating expenses 61,562 51,016 10,546
-------------- ----------- ------------
(Loss) before taxes (61,562) (51,016) (10,546)
-------------- ----------- ------------
Provision (credit) for taxes on
income:
Current - - -
Deferred - - -
-------------- ----------- ------------
Total provision (credit) for
taxes on income - - -
-------------- ----------- ------------
Net (loss) $ (61,562) $ (51,016) $ (10,546)
============== =========== ============
Basic earnings (loss) per
common share $ (0.02) $ (0.01)
=========== ============
Weighted average number of
shares outstanding 3,075,273 1,923,740
=========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE> 49
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE PERIODS ENDED
JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
CAPITAL IN DURING THE
COMMON STOCK EXCESS OF DEVELOPMENT
SHARES AMOUNT PAR VALUE STAGE TOTAL
--------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Inception, March 12, 1999 - $ - $ - $ - $ -
Stock issued for cash 2,855,000 2,855 32,795 - 35,650
Stock issued for services 70,000 70 3,430 - 3,500
Development stage net (loss) - - - (10,546) (10,546)
--------- ------ ---------- ----------- --------
BALANCES, JUNE 30, 1999 2,925,000 $2,925 $36,225 $ (10,546) $ 28,604
--------- ------ ---------- ----------- --------
Stock issued for cash 200,000 $ 200 $ 9,800 $ - $ 10,000
Development stage net (loss) - - - (51,016) (51,016)
--------- ------ ---------- ----------- --------
BALANCES, JUNE 30, 2000 3,125,000 3,125 46,025 (61,562) (12,412)
========= ====== ========== =========== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-5
<PAGE> 50
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED
JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION, INCEPTION,
MARCH 12, 1999 MARCH 12, 1999
THROUGH YEAR ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30,
2000 2000 1999
-------------- ----------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (61,562) $ (51,016) $ (10,546)
Adjustments to reconcile net (loss) to cash
provided (used) by developmental stage activities:
Stock issued for services 3,500 - 3,500
Decrease (increase) in prepaid expenses - 2,954 (2,954)
(Decrease) increase in accounts payable and accrued liabilities 4,126 4,126 -
(Decrease) increase in accounts payable, related party 10,548 10,548 -
-------------- ----------- --------------
Net cash provided (used) by operating
activities (43,388) (33,388) (10,000)
-------------- ----------- --------------
Cash flows from investing activities: - - -
-------------- ----------- --------------
Cash flows from financing activities:
Proceeds from sale of common stock 45,650 10,000 35,650
-------------- ----------- --------------
Net cash provided (used) by financing activities 45,650 10,000 35,650
-------------- ----------- --------------
Net increase (decrease) in cash and equivalents 2,262 (23,388) 25,650
Cash and equivalents, beginning of period - 25,650 -
-------------- ----------- --------------
Cash and equivalents, end of period $ 2,262 $ 2,262 $ 25,650
============== =========== ==============
Supplemental cash flow disclosures:
Cash paid for interest $ - $ - $ -
Cash paid for income taxes - - -
Non-cash financing and investing activities:
Stock issued for services 3,500 - 3,500
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-6
<PAGE> 51
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
-------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Following is a summary of the Company's organization and significant accounting
policies:
ORGANIZATION AND NATURE OF BUSINESS -- Security Biometrics, Inc. (the
Company) is a Nevada corporation, incorporated on March 12, 1999 as Great
Bear Resources, Inc.; it changed its name to Great Bear Investments,
Inc. on May 12, 1999, and then subsequently changed its name to Security
Biometrics, Inc. on August 11, 2000 (see "Subsequent events"). The
Company is based in Vancouver, British Columbia, Canada, and has adopted
a fiscal year end of June 30.
During the year ended June 30, 2000, it was the Company's intent to be an
internet-based entertainment company that provides a virtual casino
entertainment complex, known as CasinoInterPlex, as a central meeting
place for Web Gamblers. This planned complex is an interchange
environment that allows Web Gamblers to visit other CasinoInterPlex
sites. It also will provide e-commerce related solutions to collect and
distribute earnings on behalf of all participants of the CasinoInterPlex
revenue sharing program. Although its business activities have not yet
commenced, the CasinoInterPlex business revenue is expected to be derived
from license fees, earnings participation and the CasinoInterPlex owned
and operated web sites. The company has obtained a registered web site
name and is in the process of obtaining a casino license.
Subsequent to June 30, 2000, the Company acquired all of the outstanding
stock of Biometrics Security, Inc. (see "Subsequent events"). Biometrics
Security, Inc. intends to develop, market under license, and distribute
dynamic biometric technologies specific to the security applications of
banking and financial transactions. These include but are not limited
to dynamic gesture recognition technology (GRT), and dynamic signature
verification (DSV). It is intended that these systems will use
sophisticated software algorithms and be performed on proprietary
touchpads.
To date, the Company's activities have been limited to its formation and
the raising of equity capital. Biometrics Security, Inc. is also a
development stage company. In its current development stage, management
anticipates incurring substantial additional losses as it implements
its business plan.
BASIS OF PRESENTATION -- The accounting and reporting policies of the
Company conform to generally accepted accounting principles applicable to
development stage enterprises.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. The Company's periodic filings with the Securities and
Exchange Commission include, where applicable, disclosures of estimates,
assumptions, uncertainties and concentrations in products and markets
which could affect the financial statements and future operations of the
Company.
F-7
<PAGE> 52
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
-------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS -- For purposes of the statement of cash flows,
the Company considers all cash in banks, money market funds, and
certificates of deposit with a maturity of less than three months to be
cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
-- The Company has adopted Statement of Financial Accounting Standards
number 119, Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments. The carrying amounts of cash, accounts
payable, and accrued expenses approximate fair value because of the short
maturity of these items. These fair value estimates are subjective in
nature and involve uncertainties and matters of significant judgment,
and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect these estimates. The Company does
not hold or issue financial instruments for trading purposes, nor does it
utilize derivative instruments in the management of its foreign exchange,
commodity price or interest rate market risks.
FEDERAL INCOME TAXES -- Deferred income taxes are reported for timing
differences between items of income or expense reported in the financial
statements and those reported for income tax purposes in accordance with
Statement of Financial Accounting Standards number 109 Accounting for
Income Taxes, which requires the use of the asset/liability method of
accounting for income taxes. Deferred income taxes and tax benefits 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 for tax loss and credit
carryforwards. 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 Company provides deferred taxes for the estimated future tax
effects attributable to temporary differences and carryforwards when
realization is more likely than not.
NET INCOME PER SHARE OF COMMON STOCK -- The Company has adopted FASB
Statement Number 128, Earnings per Share, which became effective for
periods ending after December 15, 1997, and simplified the standards for
computing earnings per share; it also makes them comparable to
international EPS standards. It replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. In the
accompanying financial statements, basic earnings per share of common
stock is computed by dividing net income by the weighted average number
of shares of common stock outstanding during the period. The Company did
not have a complex capital structure requiring the computation of diluted
earnings per share.
NOTE 2 -- CAPITAL STOCK:
Since its inception, the Company has issued shares of its common stock as
follows:
<TABLE>
<CAPTION>
PRICE PER
DATE DESCRIPTION SHARES SHARE AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
03/31/99 Shares issued for cash 2,000,000 $0.005 $10,000
05/26/99 Shares issued for cash 855,000 0.030 25,650
</TABLE>
F-8
<PAGE> 53
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
06/07/99 Shares issued for services 70,000 0.050 3,500
--------- --------
06/30/99 Cumulative total 2,925,000 $39,150
09/30/99 Shares issued for cash 200,000 0.050 10,000
--------- --------
06/30/00 Cumulative total 3,125,000 $49,150
========= ========
</TABLE>
The Company's articles of incorporation also authorize it to issue preferred
stock in one or more series and in such amounts as may be determined by the
Board of Directors. At June 30, 2000, no preferred stock series had been
created.
NOTE 3 - FEDERAL INCOME TAX:
The Company follows Statement of Financial Accounting Standards Number 109
(SFAS 109), Accounting for Income Taxes. Deferred income taxes reflect the net
effect of (a) temporary difference between carrying amounts of assets and
liabilities for financial purposes and the amounts used for income tax
reporting purposes, and (b) net operating loss carryforwards. No net provision
for refundable Federal income tax has been made in the accompanying statement
of loss because no recoverable taxes were paid previously. Similarly, no
deferred tax asset attributable to the net operating loss carryforward has been
recognized, as it is not likely to be realized.
The current provision for refundable Federal income tax consists of the
following:
<TABLE>
<CAPTION>
2000 1999
------------------------
<S> <C> <C>
Refundable Federal income tax attributable to:
Current operations $17,400 $3,500
Less, Limitation due to absence of prior
year taxable income (17,400) (3,500)
------------------------
Net refundable amount -- --
========================
</TABLE>
The cumulative tax effect at the expected rate of 34% of significant items
comprising the Company's net deferred tax amounts as of June 30, 2000 and 1999,
are as follows:
2000 1999
------------------------
Deferred tax asset attributable to:
Net operating loss carryover $20,900 $3,500
Less, Valuation allowance (20,900) (3,500)
------------------------
Net deferred tax asset -- --
========================
At June 30, 2000, the Company had unused net operating loss carryovers which
may be used to offset future taxable income and which expire as follows:
<TABLE>
<CAPTION>
EXPIRES JUNE 30, AMOUNT
--------------------------------------- -------------
<S> <C>
2014 $10,546
</TABLE>
F-9
<PAGE> 54
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
2015 51,016
-----------
Total net operating loss carryover $61,562
===========
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS:
The Company paid $31,358 during the year ended June 30, 2000 and $7,046 during
the period ended June 30, 1999, in professional fees to an officer for legal
services. Prepaid expenses include $-0- and $2,954, paid to the same officer of
the company for legal services in the periods ended June 30, 2000 and 1999,
respectively.
Additionally, the company paid a relative of an officer and director of the
company $500 in 2000, for accounting services provided to the Company.
NOTE 5 - UNCERTAINTY, GOING CONCERN:
At June 30, 2000, the Company is not currently engaged in a business and has
suffered losses from development stage activities to date. Although management
is currently attempting to implement its business plan (see Note 1 above) and
is seeking additional sources of equity or debt financing, there is no
assurance these activities will be successful. Accordingly, the Company must
rely on its officers and directors to perform essential functions without
compensation until a business operation can be commenced. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 6 - COMMITMENTS:
The Company's principal place of business and corporate offices occupy
approximately 400 square feet of shared office space with several other
businesses. The company leases this space at $150 per month on a month to month
lease. The Company incurred rent expense of $2,100 during the year ended June
30, 2000.
NOTE 7 - SUBSEQUENT EVENTS:
On August 11, 2000, the Company changed its name to Security Biometrics, Inc.,
and was issued a new stock trading symbol, "SBTL"
On July 21, 2000, the Company effected a 1 for 4 stock split, under which
shareholders would receive 4 shares of stock for each 1 share then held. Then,
also on July 21, 2000, the Company signed a Letter of Intent with Biometrics
Security, Inc. to acquire all of the outstanding stock of Biometrics Security,
Inc. in exchange for 39,000,000 post-split shares of restricted stock.
Biometrics Security, Inc. is a newly formed corporation, which was created to
develop, market and sell static and dynamic biometric technologies specific to
the security applications of banking and financial transactions. As Biometrics
Security, Inc. is in the development stage, its business activities are
primarily related to expenses incurred in the formation of the company and the
raising of capital.
At September 15, 2000, the subsidiary, Biometrics Security, Inc. had:
-- Raised capital of approximately $450,000 through the sale of shares;
F-10
<PAGE> 55
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
- Acquired an option to license DSI Datotech Systems, Inc. gesture
recognition technology, which include the interfaces and software for
executing banking and financial transactions. The option was
acquired for initial cash consideration of $320,000, which is fully
creditable towards the $8,000,000 that may be owed to Datotech
pursuant to the execution of the License Agreement. The Company is
obligated to pay Datotech $3,000,000 within eleven months of signing
the Option Agreement. The balance of the $8,000,000 license
agreement must be paid within three months of delivery of a
reasonably acceptable prototype device using Datotech technology.
In addition, he Company will issue a perpetual non-dilutive twenty
percent (20%) Common Share Interest in Security Biometrics, Inc., or
the assignee of the Option and License Agreements upon the signing of
the Licensing Agreement.
- Cash resources remaining of $108,000.
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board has issued several new accounting
pronouncements, which may affect the Company in future years.
FASB Statement Number 130, Reporting Comprehensive Income, became effective for
fiscal years beginning after December 15, 1997, and establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company had no comprehensive income other than
net income during the current period.
FASB Statement Number 131, Disclosures about Segments of an Enterprise and
Related Information, became effective for fiscal years beginning after December
15, 1997, and establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. As the Company has only one
business segment, the pronouncement had no material effect during the current
period.
FASB Statement Number 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, became effective for fiscal years beginning after
December 15, 1997, and revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures. Since the Company has no pension or postretirement benefit plans,
the pronouncement had no effect in the current year.
FASB Statement Number 133, Accounting for Derivative Instruments and Hedging
Activities, becomes effective for fiscal years beginning after June 15, 1999,
and establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
F-11
<PAGE> 56
SECURITY BIOMETRICS, INC.
(FORMERLY GREAT BEAR INVESTMENTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
contracts, (collectively referred to as derivatives) and for hedging
activities. The Company does not believe this pronouncement will have a
material effect on its financial statements in the near future.
FASB Statement Number 134, Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise, becomes effective for fiscal years beginning after December 15,
1998. It is not expected to apply to the Company.
Emerging Issues Task Force Issue No. 00-2, Accounting for Web Site Development
Costs (EITF 00-2), becomes effective for periods beginning after June 30, 2000,
and establishes accounting and reporting standards for costs incurred to
develop a web site based on the nature of each cost. In general, the
pronouncement requires that costs incurred to develop a web site be capitalized
and amortized to expense over the expected useful life of the site. Currently,
the Company has not incurred web site development costs that require
capitalization. To the extent the Company begins to incur such costs in the
future, the Company will adopt the EITF 00-2's disclosure requirements in the
quarterly and annual financial statements for the year ending March 31, 2001.
F-12
<PAGE> 57
AUDITOR'S REPORT
To The Board of Directors:
We have audited the balance sheet of Biometrics Security Inc. (A Development
Stage Company) as at September 30, 2000 and the statements of operations,
deficit and cash flows for the period then ended. 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 audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly in all material
respects, the financial position of the Company as at September 30, 2000 and the
results of its operations and its cash flows for the period then ended in
accordance with United States generally accepted accounting principles.
Vancouver, BC /s/ Buckley Dodds
October 16, 2000 Chartered Accountants
F-13
<PAGE> 58
BIOMETRICS SECURITY INC.
(A Development Stage Company)
BALANCE SHEET
AS AT SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
ASSETS
September 30,
2000
<S> <C>
CURRENT
Cash $ 148,454
Share subscription receivable (Note 6) 225,000
---------
373,454
Property Plant and equipment (note 3) 691
LICENCING COSTS (Note 4) 320,010
DUE FROM RELATED PARTY (Note 5) 52,609
---------
$ 746,764
=========
LIABILITIES
CURRENT
Accounts payable 7,513
---------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 757,685
DEFICIT (18,434)
---------
739,251
---------
$ 746,764
=========
</TABLE>
APPROVED BY THE DIRECTORS:
/s/ Steven Henry Director
/s/ George Gould Director
See accompanying notes to the financial statements
F-14
<PAGE> 59
BIOMETRICS SECURITY INC.
(A Development Stage Company)
STATEMENT OF DEFICIT
FOR THE PERIOD FROM THE DATE OF INCORPORATION TO SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
September 30,
2000
<S> <C>
BALANCE, beginning of period $ --
NET LOSS FOR THE PERIOD (18,434)
--------
BALANCE, end of period $(18,434)
========
</TABLE>
See accompanying notes to the financial statements
F-15
<PAGE> 60
BIOMETRICS SECURITY INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM THE DATE OF INCORPORATION TO SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
September 30,
2000
<S> <C>
EXPENSES
Market research $ 10,922
Professional fees 5,183
Rent 2,020
Repairs and maintenance 147
Telephone 65
Bank charges 54
Office expense 43
---------
18,434
---------
NET LOSS FOR THE PERIOD $ (18,434)
=========
BASIC EARNINGS (LOSS) PER COMMON SHARE $ (0.07)
=========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 266,343
=========
</TABLE>
See accompanying notes to the financial statements
F-16
<PAGE> 61
BIOMETRICS SECURITY INC.
(A Development Stage Company)
CASH FLOW STATEMENT
FOR THE PERIOD FROM THE DATE OF INCORPORATION TO SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
September 30,
2000
<S> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss for the period $ (18,434)
---------
Changes in non-cash working capital items
Accounts payable 7,513
---------
(10,921)
---------
FINANCING ACTIVITIES
Issuance of share capital 532,685
Due from related party (52,609)
---------
480,076
---------
INVESTING ACTIVITIES
Purchase of option on licence (320,010)
Purchase of capital assets (691)
---------
(320,701)
---------
INCREASE IN CASH 148,454
CASH, BEGINNING OF PERIOD --
---------
CASH, END OF PERIOD $ 148,454
=========
Supplemental cash flow disclosures:
Cash paid for interest $ --
Cash paid for income taxes $ --
</TABLE>
See accompanying notes to the financial statements
F-17
<PAGE> 62
BIOMETRICS SECURITY INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
NOTE 1 BUSINESS DESCRIPTION
The Company, which operates out of Vancouver B.C., was incorporated in
the State of Nevada on July 26, 2000 and is engaged in developing,
marketing and selling Biometric Technologies designed specifically for
banking and financial transaction security applications. The
technology, which is able to interpret hand gestures or signatures,
includes: dynamic gesture recognition technology (GRT), static
biometric finger or palms prints, retinal scans and voice recognition
systems.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies are in accordance with accounting
principles generally accepted in the United States.
a) Property Plant and Equipment
Property Plant and Equipment are recorded and are amortized in the
following manner: Furniture 20% Declining Balance
b) Earnings (Loss) per Share
Earnings (loss) per share is provided in accordance with the Statement
of Financial Accounting Standards No. 128 (SFAS), "Earnings Per Share".
As the calculation of fully diluted EPS is anti-dilutive only basic EPS
is presented. Basic earnings (loss) per share is computed by dividing
the loss available to common shareholders by the weighted average
number of common shares outstanding for the period.
c) Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles of the United States requires management
to make estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
d) Income Taxes
The Company accounts for income taxes using the liability method. Under
this method deferred income tax liabilities and assets are computed
based on the tax liability or benefit in future years of the reversal
of temporary differences in the recognition of income or reduction of
expenses between financial and tax reporting. Deferred tax assets
and/or liabilities are classified as current and noncurrent based on
the classification of the related asset or liability for financial
reporting purposes, or based on the expected reversal date for deferred
taxes that are not related to an asset or liability. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. As the Company has not
reached its first year-end, no disclosure is presented.
F-18
<PAGE> 63
BIOMETRICS SECURITY INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
NOTE 3 PROPERTY PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE AMORTIZATION
---- ------------ ----- ------------
FURNITURE
AND
EQUIPMENT
---------
<S> <C> <C> <C> <C>
Opening
Balance $ -- $ -- $ -- $ --
Purchases 691 -- 691
Provision -- -- -- --
-----------------------------------------------------------
Closing
Balance $691 $ -- $ 691 $ --
===========================================================
</TABLE>
NOTE 4 LICENCING COSTS
The licencing costs relate to the option agreement signed with DSI
Datotech Systems Inc. (Note 9(a). As the fair value of the option
agreement is not determinable the shares issued in exchange for the
option have been recorded at a nominal value. They will be amortized
over the projected life of the asset once a prototype is delivered and
commercial use is made of the technology.
NOTE 5 DUE FROM RELATED PARTY
The amount due from related party is due from Security Biometrics Inc.
(Note 9b) and is without interest or states terms of repayment.
F-19
<PAGE> 64
BIOMETRICS SECURITY INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
NOTE 6 SHARE CAPITAL
Share capital is represented by the following:
<TABLE>
<CAPTION>
Authorized: 3,500,000 Common shares, no par value
500,000 Preferred shares each share
carrying 75 votes to every one vote
per common share. Each one Preferred
share can be converted to 75
common shares.
Issued: For the period ended
September 30, 2000
Common shares
-------------
NUMBER OF
SHARES VALUE
------ -----
Class A common shares
<S> <C> <C>
Issued for cash on incorporation 10 $ 10
Issued for cash 532,665 532,665
Share subscriptions 225,000 225,000
-------------- --------------
757,675 $ 757,675
============== =============
</TABLE>
225,000 shares that were subscribed for and committed before, but paid
for after the period ended have been recognized as a receivable under
EITS 85-1.
<TABLE>
<CAPTION>
Preferred shares
----------------
For the period ended
September 30, 2000
NUMBER OF
SHARES VALUE
------ -----
<S> <C> <C>
Balance beginning of year -- $ --
Issued for option agreement 500,000 10
-------------- -----------------
500,000 $ 10
============== =================
</TABLE>
In exchange for the 500,000 preferred shares issued, Biometrics
Security Inc. received the opportunity to enter into the option
agreement outlined in Note 9(a).
F-20
<PAGE> 65
BIOMETRICS SECURITY INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
NOTE 7 FINANCIAL INSTRUMENTS
The Company has adopted Statement of Financial Accounting Standards
number 119, "Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments". The carrying amount of cash, share
subscriptions receivable, and accounts payable approximate fair value
because of the short maturity of these items. These fair value
estimates are subjective in nature and involve uncertainties and
matters of subjective judgement, and therefore, cannot be determined
with precision. Changes in assumptions could significantly affect these
estimates. The company does not hold or issue financial instruments for
trading purposes, nor does it utilize derivative instruments in the
management of its foreign exchange, commodity price or interest rate
market risks.
NOTE 8 COMMITMENTS
The Company has a commitment under a 12 month consulting agreement for
public relations services in the amount of $2,500 U.S. per month plus
20,000 free trading common shares to be issued at a rate of 5000 common
shares per quarter.
NOTE 9 SIGNIFICANT EVENTS
a) The company has entered into an option agreement with DSI
Datotech Systems Inc, a Vancouver based company, to acquire a
license agreement to use their multi-touch gesture recognition
and individual gesture patterns system. The option calls for a
payment of $320,000 by October 22, 2000 and further $3,000,000
by July 22, 2001. DSI Datotech Systems Inc. agrees on a best
effort basis, to make a prototype available to the company
within 12 months of receiving the $3,000,000. The company then
has the option to enter into a worldwide licensing agreement
with DSI Datotech Systems Inc. for a price of $8,000,000 and
20% of the share capital of the company. The sum of $3,320,000
will be credited to the $8,000,000 and the balance of
$4,680,000 is due 3 months after the prototype is delivered.
The first payment of $320,000 required under the option
agreement was paid in the period ended September 15, 2000. The
company issued 500,000 convertible shares in exchange for the
assignment of the option agreement from a related party.
b) Effective August 2, 2000 the company, has entered into a
"Stock Exchange Agreement" with Security Biometrics Inc.
("SBI") hereby the 500,000 preferred shares of the company are
exchanged for 37,500,000 common shares of SBI and each common
share of the company was exchanged for 1 common share of SBI.
Effectively this exchange made the company a wholly owned
subsidiary of SBI.
F-21
<PAGE> 66
BIOMETRICS SECURITY INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
NOTE 10 UNCERTAINTY TO THE YEAR 2000 ISSUE
The year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using the year 2000 dates 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 changes 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.
NOTE 11 INCOME TAXES
The Company follows Statement of Financial Accounting Standards Number
109 (SAFS 109), "Accounting for Income Taxes". Deferred income taxes
reflect the net effect of a) temporary differences between carting
amounts of assets and liabilities for financial purposes and the
amounts used for income tax reporting purposes, and b) net operating
loss carryforwards. No provision for refundable Federal income tax has
been made as the company has not yet reached its first fiscal year end.
Similarly, no deferred tax asset attributable to the net operating loss
has been recognized, as it is not likely to be realized.
The tax effect at the expected rate of 34% of significant items
comprising the Company's net deferred tax amounts as of September 30,
2000, is as follows:
<TABLE>
<S> <C>
Deferred tax asset attributable to:
Net loss for the period $(18,434)
Less, Valuation allowance $(18,434)
--------
Net deferred tax asset $ --
--------
</TABLE>
F-22
<PAGE> 67
BIOMETRICS SECURITY INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
NOTE 12 - NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board has issued several new
accounting pronouncements, which may affect the Company in future
years.
FASB Statement Number 130, Reporting Comprehensive Income, became
effective for fiscal years beginning after December 15, 1997, and
establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a
full set of general-purpose financial statements. This Statement
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. The Company had no comprehensive income
other than net income during the period.
FASB Statement Number 131, Disclosures about Segments of an Enterprise
and Related Information, became effective for fiscal years beginning
after December 15, 1997, and establishes standards for the way that
public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. As the Company has only one
business segment, the pronouncement had no material effect during the
period.
FASB Statement Number 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits, became effective for fiscal years
beginning after December 15, 1997, and revises employers' disclosures
about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It standardizes
the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on
changes in the benefit obligations and fair values of plan assets that
will facilitate financial analysis, and eliminates certain
disclosures. Since the Company has no pension or postretirement
benefit plans, the pronouncement had no effect in the period.
FASB Statement Number 133, Accounting for Derivative Instruments and
Hedging Activities, becomes effective for fiscal years beginning after
June 15, 1999, and establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives)
and for hedging activities. The Company does not believe this
pronouncement will have a material effect on its financial statements
in the near future.
FASB Statement Number 134, Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise, becomes effective for fiscal years
beginning after December 15, 1998. It is not expected to apply to the
Company.
F-23
<PAGE> 68
BIOMETRICS SECURITY INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNITED STATES DOLLARS)
NOTE 12 - NEW ACCOUNTING PRONOUNCEMENTS (Continued):
Emerging Issues Task Force Issue No. 00-2, Accounting for Web Site
Development Costs (EITF 00-2). Becomes effective for periods beginning
after June 30, 2000, and establishes accounting and reporting
standards for costs incurred to develop a web site based on the nature
of each cost. In general, the pronouncement requires that costs
incurred to develop a web site be capitalized and amortized to expense
over the expected useful life of the site. The Company has not
incurred web site development costs.
F-24
<PAGE> 69
SECURITY BIOMETRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
SEPTEMBER 30, 2000 (UNAUDITED) AND JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
ASSETS (UNAUDITED) (AUDITED)
------------- -----------
<S> <C> <C>
Current assets:
Cash $ 149,109 $ 2,262
Stock subscriptions receivable 225,000 -
--------- --------
Total current assets 374,109 2,262
--------- --------
Property and equipment 691 -
--------- --------
Other assets:
Gesture recognition technology licensing costs 320,010 -
--------- --------
Total other assets 320,010 -
--------- --------
Total assets $ 694,810 $ 2,262
========= ========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 10,545 $ 4,126
Accounts payable, related party 19,405 10,548
--------- --------
Total current liabilities 29,950 14,674
--------- --------
Total liabilities 29,950 14,674
--------- --------
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 100,000,000 shares authorized,
50,757,675 and 3,125,000 shares issued and outstanding 50,758 3,125
Capital in excess of par value 662,133 46,025
Capital in excess of par value - stock options 571,875 -
Deficit accumulated during the development stage (619,906) (61,562)
--------- --------
Total stockholders' equity 664,860 (12,412)
--------- --------
Total liabilities and stockholders' equity $ 694,810 $ 2,262
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-25
<PAGE> 70
SECURITY BIOMETRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF LOSS FOR THE PERIODS ENDED
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION,
JULY 25,2000 PERIODS ENDED
THROUGH SEPTEMBER 30,
SEPTEMBER 30, ------------------------
2000 2000 1999
-------------- ------------ -------
<S> <C> <C> <C>
Revenues $ - $ - $ -
----------- ----------- -------
General and administrative expenses:
Stock options compensation expense 571,875 571,875 -
Other administrative expenses 48,031 48,031 -
----------- ----------- -------
Total operating expenses 619,906 619,906 -
----------- ----------- -------
(Loss) before taxes (619,906) (619,906) -
----------- ----------- -------
Provision (credit) for taxes on income:
Current - - -
Deferred - - -
----------- ----------- -------
Total provision (credit) for taxes on income - - -
----------- ----------- -------
Net (loss) $ (619,906) $ (619,906) $ -
=========== =========== =======
Basic earnings (loss) per common share $ (0.02) $ -
=========== =======
Weighted average number of shares outstanding 27,886,239 -
=========== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-26
<PAGE> 71
SECURITY BIOMETRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION,
JULY 25, 2000 PERIODS ENDED
THROUGH SEPTEMBER 30,
SEPTEMBER 30, --------------------------
2000 2000 1999
------------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $(619,906) $(619,906) $ -
Adjustments to reconcile net (loss) to cash provided (used) by developmental
stage activities:
Stock options compensation expense 571,875 571,875
Changes in current assets and liabilities:
Accounts payable and accrued expenses 10,545 10,545 -
Accounts payable, related party 19,405 19,405 -
--------- --------- ---------
Net cash flows from operating activities (18,081) (18,081) -
--------- --------- ---------
Cash flows from investing activities:
Purchase of equipment (691) (691) -
Purchase of gesture recognition technology license (320,010) (320,010) -
--------- --------- ---------
Net cash flows from investing activities (320,701) (320,701) -
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from sale of common stock 487,891 487,891 -
--------- --------- ---------
Net cash flows from financing activities 487,891 487,891 -
--------- --------- ---------
Net increase (decrease) in cash and equivalents 149,109 149,109 -
Cash and equivalents, beginning of period - - -
--------- --------- ---------
Cash and equivalents, end of period $ 149,109 $ 149,109 $ -
========= ========= =========
Supplemental cash flow disclosures:
Cash paid for interest $ - $ - $ -
Cash paid for income taxes - - -
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-27
<PAGE> 72
SECURITY BIOMETRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
The accompanying unaudited interim financial statements include all adjustments
which in the opinion of management are necessary in order to make the
accompanying financial statements not misleading, and are of a normal recurring
nature. However, the accompanying unaudited financial statements do not include
all of the information and footnotes necessary for a complete presentation of
financial position, results of operations, cash flows and stockholders' equity
in conformity with generally accepted accounting principles. Except as disclosed
herein, there has been no material change in the information disclosed in the
notes to the financial statements included in the Company's Form 10-KSB as of
the year ended June 30, 2000. Operating results for the three months ended
September 30, 2000, are not necessarily indicative of the results that can be
expected for the year ended June 30, 2001.
NOTE 1 - MERGER WITH BIOMETRICS SECURITY, INC.:
On August 1, 2000, the Company signed a Letter of Intent with Biometrics
Security, Inc. to acquire all of the outstanding stock of Biometrics Security,
Inc. ("BSI") in exchange for 38,257,675 post-split shares of restricted stock.
Biometrics Security, Inc. is a newly formed corporation, which was created to
develop, market and sell static and dynamic biometric technologies specific to
the security applications of banking and financial transactions. As Biometrics
Security, Inc. is in the development stage, its business activities are
primarily related to expenses incurred in the formation of the company and the
raising of capital.
The acquisition of BSI was completed on August 25, 2000, and after the
acquisition, BSI shareholders owned more than 50% of the outstanding shares of
Security Biometrics, Inc. Therefore, pursuant to the rules of the Securities and
Exchange Commission, the transaction has been accounted for as a "reverse
merger." Accordingly, the accompanying consolidated statements of operations and
consolidated statements of cash flows reflect the historical operations and cash
flows of BSI (including those of Security Biometrics, Inc. ("SBI" or "The
Company") after August 25, 2000, the effective date of the merger), whereas
previous reports filed by the Company reflected operations and cash flows of
only Security Biometrics, Inc. The audited balance sheet of SBI as of June 30,
2000, as reported in its annual Form 10-K, is presented for comparative
purposes.
NOTE 2 - STOCK SUBSCRIPTIONS RECEIVABLE:
Prior to August 25, 2000, the date of acquisition and the resulting reverse
merger, Biometrics Security, Inc. had issued 757,675 shares of its Class A
Common Stock in exchange for cash of $532,665 and stock subscription agreements
totaling $225,000. The stock subscriptions were collected on October 31, 2000.
The stock subscriptions receivable have been reflected in the accompanying
balance sheet as a receivable in accordance with Emerging Issues Task Force
Issue No. 85-1.
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation,
computed on the 20% double declining balance method over the estimated useful
life of the assets. Estimated useful lives of depreciable assets range from five
to seven years.
NOTE 4 - LICENSING COSTS:
In July, 2000, the Company's subsidiary acquired an option to license DSI
Datotech Systems, Inc. gesture recognition technology, which include the
interfaces and software for executing banking and financial transactions. The
option was acquired for initial cash consideration of $320,000, which is fully
creditable towards the $8,000,000 that may be owed to Datotech pursuant to the
execution of the License
F-28
<PAGE> 73
SECURITY BIOMETRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
Agreement. Also, BSI issued 10 shares of its common stock as additional
consideration. The Company is obligated to pay Datotech $3,000,000 July 22,
2001. The balance of the $8,000,000 license agreement must be paid within three
months of delivery of a reasonably acceptable prototype device using Datotech
technology. In addition, the Company will issue a perpetual non-dilutive twenty
percent (20%) Common Share Interest in Security Biometrics, Inc., or the
assignee of the Option and License Agreements upon the signing of the Licensing
Agreement
NOTE 5 - STOCK OPTIONS:
In August, 2000, the Company adopted the 2000 Stock Option Plan. The Plan sets
aside 5,100,000 shares of common stock options for issuance to employees,
directors, officers and consultants to the company. The Plan has a five year
term.
During the quarter ended September 30, 2000, the Company granted options to six
officers, directors and consultants to purchase 975,000 shares of the Company's
common stock at $1.00 per share under the Plan. The options are exercisable as
follows:
- As to 25% of the Shares subject to the Option, or any portion thereof,
during the period commencing from the Date of the Grant and ending on
the Expiry Date;
- As to a further 25% of the shares subject to the Option, or any portion
thereof, during the period commencing six months from the Date of Grant
and ending on the Expiry Date;
- As to a further 25% of the shares subject to the Option, or any portion
thereof, during the period commencing 12 months from the Date of Grant
and ending on the Expiry Date;
- As to the balance, if any, of the Shares subject to the Option, or any
portion thereof, during the period commencing 18 months from the Date of
Grant and ending on the Expiry Date.
At September 30, 2000, none of these options had been exercised. The transaction
was recorded by a charge to compensation expense for $571,875, which was
calculated using the Black-Scholes Option Pricing Model.
NOTE 6 - CAPITAL STOCK:
Since its inception, the Company has issued shares of its common stock as
follows:
<TABLE>
<CAPTION>
PRICE PER
DATE DESCRIPTION SHARES SHARE AMOUNT
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
03/31/99 Shares issued for cash 2,000,000 $0.005 $10,000
05/26/99 Shares issued for cash 855,000 0.030 25,650
06/07/99 Shares issued for services 70,000 0.050 3,500
---------------- ------------------
06/30/99 Cumulative total 2,925,000 $39,150
09/30/99 Shares issued for cash 200,000 0.050 10,000
---------------- ------------------
06/30/00 Cumulative total 3,125,000 $49,150
08/11/00 4 for 1 stock split 9,375,000 0.000 -
08/25/00 Stock issued for all outstanding stock of
Biometric Security, Inc. 38,257,675 757,612
09/30/00 Expenses in connection with purchase of
Biometric Security, Inc. - - (29,047)
</TABLE>
F-29
<PAGE> 74
SECURITY BIOMETRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
09/30/00 Effect of reverse merger with Biometric
Security, Inc. - - (64,824)
---------------- ------------------
09/30/00 Cumulative total 50,757,675 712,891
================ ==================
</TABLE>
The Company's articles of incorporation also authorize it to issue preferred
stock in one or more series and in such amounts as may be determined by the
Board of Directors. At September 30, 2000, no preferred stock series had been
created.
NOTE 7 - FEDERAL INCOME TAX:
The Company follows Statement of Financial Accounting Standards Number 109 (SFAS
109), Accounting for Income Taxes. Deferred income taxes reflect the net effect
of (a) temporary difference between carrying amounts of assets and liabilities
for financial purposes and the amounts used for income tax reporting purposes,
and (b) net operating loss carryforwards. No net provision for refundable
Federal income tax has been made in the accompanying statement of loss because
no recoverable taxes were paid previously. Similarly, no deferred tax asset
attributable to the net operating loss carryforward has been recognized, as it
is not likely to be realized.
The current provision for refundable Federal income tax consists of the
following:
<TABLE>
<CAPTION>
2000 1999
------------------------
<S> <C> <C>
Refundable Federal income tax attributable to:
Current operations $211,000 $ -
Less, Limitation due to absence of prior
year taxable income (211,000) -
------------------------
Net refundable amount - -
========================
</TABLE>
The cumulative tax effect at the expected rate of 34% of significant items
comprising the Company's net deferred tax amounts as of September 30, 2000 and
1999, are as follows:
<TABLE>
<CAPTION>
2000 1999
-----------------------
<S> <C> <C>
Deferred tax asset attributable to:
Net operating loss carryover $211,000 $ -
Less, Valuation allowance (211,000) -
-----------------------
Net deferred tax asset - -
=======================
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS:
The Company paid $29,047 during the quarter ended September 30, 2000 in
professional fees to an officer for legal services.
F-30
