UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
MARCH 1, 2000
ELECTRONIC IDENTIFICATION, INC.
(FORMERLY GIRNE ACQUISITION CORP.)
(Exact name of registrant as specified in its charter)
Nevada 000-27365 95-4739150
(State of (Commission (I.R.S. Employer
organization) File Number) Identification No.)
1200 W. Pender St., Suite 411, Vancouver, BC Canada V6E 2S9
(Address of principal executive offices)
Registrant's telephone number, including area code (604) 684-2004
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 1, 2000, the Company was acquired through a
reorganization agreement with Electronic Identification, Inc., a
Nevada company. The Board of Directors approved the purchase of
the Company by Electronic Identification, Inc.
ITEM 5. OTHER EVENTS
As of March 1, 2000, the Company will change its corporate
address to 1200 W. Pender St., Suite 411, Vancouver, BC Canada
V6E 2S9.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
On March 1, 2000 the sole officer and director of the Company
appointed Terry Kirby as a member of the board of directors
On March 1, 2000, the Company accepted the resignation of Mike M.
Mustafoglu as a member of the board and as the sole officer,
effective immediately. The remaining member of the board decided
not fill the vacancy left by Mr. Mustafoglu. Mr. Kirby was also
appointed as President, Secretary, Treasurer of the Company.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial Statements of Electronic Identification, Inc.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Director of
Electronic Identification, Inc.
We have audited the accompanying balance sheets of Electronic
Identification, Inc. (a development stage enterprise) as at
December 31, 1999 and 1998 and the related statements of
operations, stockholders' deficit and cash flows for each of the
years in the three year period ended December 31, 1999 and for
the period from inception on May 14, 1992 to December 31, 1999.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Electronic Identification, Inc. as at December 31, 1999 and
1998 and the results of its operations and its cash flows for
each of the years in the three year period ended December 31,
1999 and for the period from inception on May 14, 1992 to
December 31, 1999, in accordance with generally accepted
accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in note 2 to the financial statements, the Company has suffered
recurring losses from operations and has a net capital deficiency
that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are
also described in note 2. These financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
Chartered Accountants
Vancouver, Canada
March 31, 2000
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Balance Sheets
(Expressed in U.S. Dollars)
December 31, 1999 and 1998
1999 1998
Assets
Current assets:
Cash $ 8,071 $ 4,615
Accounts receivable 4,280 49,928
Prepaid expenses and deposits 351 340
Due from stockholder (note 9(a)) 65,700 -
Total current assets 78,402 54,883
Restricted cash (note 5) - 47,394
Fixed assets (note 6) 46,670 61,958
Patents (note 7) 10,005 11,873
Total assets $ 135,077 $ 176,108
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued $ 402,310 $ 566,907
liabilities
Due to stockholders, directors and 301,328 173,706
officers (note 9(a))
Total current liabilities 703,638 740,613
Subscriptions received for common - 1,060,000
stock (note 8)
Total liabilities and subscriptions 703,638 1,800,613
received
Stockholders' deficit:
Preferred stock:
Authorized: 5,000,000 stock, with
$0.001 par value
(1998 -2,220,000 stock, with $0.0045
par value)
Issued: nil (1998 - nil)
Common stock (note 10):
Authorized: 70,000,000 stock, with
$0.001 par value
(1998 -11,111,111 stock, with $0.0045
par value)
Issued:17,418,083 stock (1998 - 17,419 42,632
9,473,926)
Additional paid-in capital 10,408,680 6,276,328
Deficit accumulated during the (10,994,6 (7,943,46
development stage 60) 5)
Total stockholders' deficit (568,561) (1,624,50
5)
Future operations (note 2)
Contingencies (note 11)
Year 2000 Issue (note 15)
Subsequent events (note 16)
Total liabilities and stockholders' $ 135,077 $ 176,108
deficit
See accompanying notes to financial statements
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Operations
(Expressed in U.S. Dollars)
Years Years Years Period
ended ended ended from
December December December inception
31, 1999 31, 1998 31, 1997 on May
14, 1992
to
December
31, 1999
Revenue:
Revenue $ - $ - $ 54,996 $ 254,996
Interest and other income 990 2,993 - 4,996
990 2,993 54,996 259,992
Expenses:
General and administrative 922,097 888,857 1,177,75 3,522,159
(schedule) 4
Sales and marketing 303,875 1,006,68 981,140 2,381,916
(schedule) 9
Research and development 55,993 266,689 756,859 1,597,568
(schedule)
Interest on long-term debt 493,586 216,026 316,000 1,025,612
(note 14)
Depreciation and amortization 18,311 44,527 41,541 130,837
Write-off of leasehold - - 32,131 32,131
improvements (note 6)
1,793,86 2,422,78 3,305,42 8,690,223
2 8 5
Loss before the undernoted (1,792,8 (2,419,7 (3,250,4 (8,430,23
72) 95) 29) 1)
Loss due to settlement of
debt by
issuance of common stock (1,258,3 (663,068 - (1,921,39
(note 3(f)) 23) ) 1)
Equity loss in and write-down
of investment in
and advances to RFID Datachip
Technologies
Inc. (note 4) - (1) (271,527 (358,835)
)
Write-off of advances - - - (284,203)
Loss for the period $ $ $ $
(3,051,1 (3,082,8 (3,521,9 (10,994,6
95) 64) 56) 60)
Loss per common share
information:
Basic and diluted $ (0.22) $ (0.67) $ (1.81)
Weighted average number of
common
shares outstanding (note 13,951,3 4,635,71 1,951,00
10(a)) 57 5 0
See accompanying notes to financial statements
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Stockholders' Deficit
(Expressed in U.S. Dollars)
Common (note Additio Deficit
stock 10(a)) nal accumulat
paid in ed during
Capital the
developme
nt stage
Shares Amount
Balance, May 14, 1992 - $ - $ - $ -
(inception)
Loss for the period - - - (185)
Stock issued for cash 3,111,111 700 - -
Balance, December 31, 1992 3,111,111 700 - (185)
Loss for the period - - - (80)
Balance, December 31, 1993 3,111,111 700 - (265)
Loss for the period - - - (80)
Balance, December 31, 1994 3,111,111 700 - (345)
Loss for the period - - - (25,627)
Stock issued for cash 444,445 15,300 4,700 -
Balance, December 31, 1995 3,555,556 16,000 4,700 (25,972)
Loss for the period - - - (1,312,67
3)
Stock returned to Company for (2,275,55 (10,240 10,240 -
cancellation 6) )
Stock issued for secured notes 222,222 1,000 182,810 -
receivable
Stock issued for cash 214,005 963 962,160 -
Balance, December 31, 1996 1,716,227 7,723 1,159,910 (1,338,64
5)
Loss for the period - - - (3,521,95
6)
Stock issued for cash 222,222 1,000 999,000 -
Stock issued on settlement of 639,027 2,875 497,124 -
convertible debentures
Stock issued to settle 50,380 227 24,773 -
expenses
Intrinsic value of beneficial
conversion of liabilities
(note 14) - - 316,000 -
Stock issue costs - - (225,112) -
Balance, December 31, 1997 2,627,856 11,825 2,771,695 (4,860,60
1)
Loss for the period - - - (3,082,86
4)
Stock issued on settlement of 383,334 1,725 342,691 -
accounts payable
Stock issued for cash 2,605,336 11,723 758,520 -
Stock issued on settlement of 298,033 1,341 151,249 -
notes payable
Stock issued on settlement of
convertible
debentures 1,944,590 8,751 678,880 -
Stock issued on settlement of 250,000 1,126 131,733 -
legal claims
Stock issued on settlement of 355,555 1,600 114,902 -
loan payable
Stock issued to settle 1,009,222 4,541 435,323 -
expenses
Intrinsic value of beneficial
conversion of liabilities
(note 14) - - 175,653 -
Settlement of debt by issuance
of common stock
(note 3(f)) - - 663,068 -
Cancellation of redeemable
common stock issued
to RFID Datachip Technologies - - 226,670 -
Inc.
Stock issue costs - - (174,056) -
Balance, December 31, 1998, 9,473,926 42,632 6,276,328 (7,943,46
carried forward 5)
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Stockholders' Deficit, Continued
(Expressed in U.S. Dollars)
Deficit
accumulated
Additional during the
Common stock (note 10(a)) paid-in development
Shares Amount capital stage
Common (note Additio Deficit
stock 10(a)) nal accumulat
paid in ed during
Capital the
developme
nt stage
Shares Amount
Balance, December 31, 1998, 9,473,926 $ $ $
brought forward 42,632 6,276,328 (7,943,46
5)
Loss for the period - - - (3,051,19
5)
Stock issued on the settlement
of subscriptions
received for common stock 3,440,000 15,480 1,044,520 -
Stock issued to settle 2,012,000 5,782 369,531 -
expenses
Stock issued on settlement of 500,000 2,250 97,750 -
notes payable
Stock issued on settlement of
convertible
debentures 1,992,157 3,392 398,640 -
Intrinsic value of beneficial
conversion of
liabilities (note 14) - - 474,117-
Settlement of debt by issuance
of common stock
(note 3(f)) - - 1,258,323 -
Authorized par value change
resulting in an
increase in additional paid-in - (52,117 52,117 -
capital )
Stock issue costs - - (48,474) -
Compensatory benefit of stock - - 485,828 -
options (note 10(d))
Balance, December 31, 1999 17,418,08 $ $ $
3 17,419 10,408,68 (10,994,6
0 60)
See accompanying notes to financial statements.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Cash Flows
(Expressed in U.S. Dollars)
Years Years Years Period
ended ended ended from
December December December inception
31, 1999 31, 1998 31, 1997 on May
14, 1992
December
31, 1999
Cash flows from operating
activities:
Loss for the period $ $ $ $
(3,051,1 (3,082,86 (3,521,95 (10,994,6
95) 4) 6) 60)
Items not involving cash:
Depreciation and amortization 18,311 44,527 41,541 130,837
Loss due to settlement of debt by
issuance
of common stock (note 3(f)) 1,258,32 663,068 - 1,921,391
3
Equity loss in and write-down of
investment
in and advances to RFID Datachip
Technologies Inc. (note 4) - 1 271,527 358,835
Write-off of leasehold - - 32,131 32,131
improvements
Write-off of advances - - - 284,203
Write-down of fixed assets - 35,252 - 35,252
Loss on disposal of fixed assets - 10,771 - 10,771
Acquisition of in-process research
and
Development - - - 340,108
Expenses settled with the issuance
of
notes payable - - 154,131 154,131
Expenses settled with the issuance 375,313 439,864 24,999 840,176
of stock
Intrinsic value of beneficial
conversion of
liabilities into common stock 474,117 175,653 316,000 965,770
(note 14)
Compensatory benefit of stock
options
(note 10(d)) 485,828 - - 485,828
Changes in non-cash operating
working capital:
Accounts receivable 45,648 (34,979) 210,435 (4,280)
Notes receivable - - 18,139 -
Prepaid expenses and deposits (11) 14,436 9,774 (351)
Restricted cash 47,394 3,522 (50,916) -
Accounts payable and accrued (65,752) 324,375 396,248 725,934
liabilities
Due to stockholders, directors and 61,922 (108,333) 282,040 235,629
officers
Accounts payable to be settled
with
common stock - - 291,006 291,006
Net cash used in operating (350,102 (1,514,70 (1,524,90 (4,187,28
activities ) 7) 1) 9)
Cash flows from financing
activities:
Subscriptions received for common - 564,260 142,740 1,060,000
stock
Net proceeds on issuance of common - 596,188 774,888 2,354,899
stock
Net proceeds on issuance of 353,558 400,961 758,261 1,512,780
convertible debentures
Issuance of loan payable - - 104,858 104,858
Net cash provided by financing 353,558 1,561,409 1,780,747 5,032,537
activities
Cash flows from investing
activities:
Bank overdraft - (15,968) 15,968 -
Purchase of fixed assets - (12,709) (155,150) (251,101)
Acquisition of patent - (13,410) - (13,410)
Advances to RFID Datachip - - (132,165) (132,165)
Technologies Inc. (note 4)
Other advances - - - (440,501)
Net cash used in investing - (42,087) (271,347) (837,177)
activities
Increase (decrease) in cash 3,456 4,615 (15,501) 8,071
Cash, beginning of period 4,615 - 15,501 -
Cash, end of period $ 8,071 $ 4,615 $ - $ 8,071
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Statements of Cash Flows (continued)
(Expressed in U.S. Dollars)
Years Years Years Period
ended ended ended from
December December December inception
31, 1999 31, 1998 31, 1997 on May
14, 1992
December
31, 1999
Supplemental non-cash investing
and financing activities:
Stock issued on the settlement of
subscriptions
received for common stock $ $ $ $
1,060,00 1,060,000
0
Stock issued on settlement of - 344,416 - 344,416
accounts payable
Stock issued on settlement of 100,000 152,590 - 252,570
notes payable
Stock issued on settlement of
convertible
debentures 402,032 687,631 500,000 1,589,663
Stock issued on settlement of - 132,858 - 132,858
legal claims
Stock issued on settlement of loan - 116,502 - 116,502
payable
Common stock issued on settlement 375,313 439,864 24,999 840,176
of expenses
Cancellation of redeemable common - 226,670 - 226,670
stock
Intrinsic value of beneficial
conversion of
liabilities into common stock 474,117 175,653 316,000 965,770
(note 14)
Loss due to settlement of debt by
issuance of common stock (note 1,258,32 663,068 - 1,921,391
3(f)) 3
Issuance of common stock in
exchange for
secured notes - - - 183,810
Issuance of redeemable common - - - 226,670
stock
Authorized par value change
resulting in an
increase in additional paid in 52,117 - - 52,117
capital
Supplemental cash flow
information:
Cash paid for taxes $ - $ - $ - $ -
Cash paid for interest 28,921 27,382 - 56,303
See accompanying notes to financial statements.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
1. General:
On April 23, 1999, Electronic Identification, Inc. (the "Company"
or "El 2 ") signed an Agreement and Plan of Merger with RFID
Systems Corp. ("RFID"). This merger was completed on May 3, 1999.
El 2 is a corporation organized and existing under the laws of
the State of Nevada. At that date, El 2 was an inactive shell
company. RFID was a development stage enterprise and was
developing automatic identification and data collection systems
utilizing radio frequency identification technology. El 2 is
continuing in this line of business.
El 2 had 1,000 shares of common stock outstanding. Under the
terms and conditions of the Agreement, each issued and
outstanding share of common stock of RFID was converted into one
common stock of the Company.
This transaction has been accounted for as a recapitalization of
RFID, effectively as if RFID had issued common shares to acquire
the net monetary assets El 2 . The net monetary assets acquired
by El 2 were as follows:
Total assets $ 176,108
Total liabilities 1,800,61
3
Under re-capitalization accounting, these financial statements
reflect the assets, liabilities, revenues and expenses of RFID
from its inception on May 14, 1992 combined with these of El 2
from the date the merger was completed.
Pursuant to this Agreement, and subject to regulatory approval,
each stockholder of RFID who sent in their stock certificates for
transfer into certificates representing shares of the Company
prior to May 31, 1999, will receive a right to purchase, for
every ten shares owned and tendered, an additional share of
common stock at 75% of the market price of the Company stock as
of the date of exercise. The rights will be exercisable for
thirty days after filing of the registration statement with the
Securities Exchange Commission. Rights outstanding at December
31, 1999 are 1,169,295.
2. Future operations:
These financial statements have been prepared on the going
concern basis under which an entity is considered to be able to
realize on its assets and satisfy its liabilities in the ordinary
course of business. During the period since inception on May 14,
1992, the Company has incurred losses aggregating $10,994,660. At
December 31, 1999, the Company has a working capital deficiency
of $625,236 and a stockholders' deficit (net capital deficiency)
of $568,561.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 2
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
2. Future operations (continued):
The Company's ability to meet its obligations as they come due is
primarily dependent upon securing additional financing, whether
from operations or otherwise. Management continues to pursue
additional sources of financing; however, there can be no
guarantee that the required additional financing will be
obtained. Failure to identify and obtain such financing may limit
the Company's ability to satisfy its obligations as they come due
which may, in turn, impair the Company's ability to continue as a
going concern. This could negatively impact the recoverability of
the carrying value of assets.
These financial statements do not include any adjustments
relating to the recoverability of assets and amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. If the Company
is unable to continue as a going concern, assets and liabilities
would require restatement on a liquidation basis, which would
differ materially from the going concern basis.
3. Significant accounting policies:
(a) Basis of presentation:
These financial statements are prepared in accordance with
generally accepted accounting principles in the United States.
The Company has not produced significant revenues and is a
Development Stage Company as defined by Financial Accounting
Standard No. ("FAS") 7.
(b) Foreign currency translation:
The Company's functional and reporting currency is the United
States dollar. Transactions undertaken in a currency other than
the United States dollar are remeasured into United States
dollars using exchange rates at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies
are remeasured at each balance sheet date at the exchange rate
prevailing at the balance sheet date. Gains and losses arising on
remeasurement or settlement of foreign currency denominated
transactions or balances are included in the determination of
income. Foreign currency transactions are primarily undertaken in
Canadian dollars. The Company does not enter into derivative
instruments to offset the impact of foreign currency
fluctuations.
(c) Use of estimates:
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates which affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the balance sheet dates, and the recognition of
revenues and expenses for the reporting periods. Areas where
significant estimates have been applied include the assessment of
the ultimate liability arising out of legal contingencies and the
recoverability of capital and intangible assets. Actual results
could differ from these estimates.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 3
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
3. Significant accounting policies (continued):
(d) Fixed assets:
Fixed assets are carried at cost less accumulated amortization.
Amortization is calculated annually as follows:
Assets Basis Rate
Furniture and equipment Straight- 20%
line
Computers and technology Declining- 30%
equipment balance
The Company reviews and assesses the underlying value of fixed
assets as the situation dictates to determine whether a provision
for impairment should be recorded. Such determination is made by
comparing the carrying value of fixed assets to the future cash
flow (undiscounted) expected to result. When these cash flows are
less than the carrying value, impairment is calculated by
reference to the fair value of the specific assets.
(e) Patents:
Patents are recorded at cost and amortized using the straight-
line method over a period of five years.
(f) Common stock issuances:
During fiscal 1999, common stock of the Company was issued in
settlement of the indebtedness. A loss of $1,258,323 (1998 -
$663,068) occurred on this settlement equal to the difference
between the market value of common stock issued and the carrying
value of the debt.
Stock issue costs are accounted for as a reduction in the
proceeds from the issuance of common stock.
(g) Research and development costs:
Research and development costs are expensed as incurred.
(h) Stock-based compensation:
The Company has elected to apply the intrinsic value principles
of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for its stock options on options
granted to employees and directors. Under APB 25, compensation
expense is only recorded to the extent that the exercise price is
less than the market value of the underlying stock on the date of
grant. For stock options granted to non-employees, the fair value
of the options at their date of grant will be recognized. Values
assigned to options will be charged against income over their
vesting period. Fair value information with respect to options
granted to employees and directors is disclosed in accordance
with FAS 123, "Accounting for Stock-Based Compensation".
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 4
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
3. Significant accounting policies (continued):
(i) Comprehensive loss:
The Company has adopted FAS 130, "Comprehensive Income", which
requires disclosure of comprehensive income or loss. The
Company's net loss is equal to comprehensive loss for all
periods.
(j) Income taxes:
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carry forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. To the
extent that the realization of deferred tax assets is not
considered to be more likely than not, a valuation allowance is
provided.
(k) Loss per common share:
Loss per common share is calculated based on the weighted average
number of common shares outstanding, which excludes subscribed
but unissued shares. The number of shares used for loss per share
purposes gives retroactive effect to the reverse stock split on
May 4, 1998 (note 10 (a)).
As the effect of outstanding warrants is anti-dilutive, diluted
loss per share does not differ from basic loss per share.
4. Investment in and advances to RFID Datachip Technologies Inc.
("Datachip"):
During 1996, the Company acquired 49.9% of the issued and
outstanding common stock of Datachip, an unrelated party prior to
the transaction, by way of a stock exchange. Datachip received
50,371 redeemable common stock of the Company valued at $4.50 per
stock (as adjusted for reverse stock split (note 10(a)). During
fiscal 1997, management determined that a permanent impairment in
the value of its investment had occurred and as a result, the
investment in Datachip was written down to a nominal value.
During fiscal 1998, pursuant to a legal settlement, the Company
returned all common stock of Datachip for consideration equal to
the return and cancellation of the redeemable common stock
previously issued, and wrote-off the balance of the carrying
value of its investment in Datachip.
5. Restricted cash:
As a result of legal action taken against the Company, $47,394
was garnished in 1997 from the Company's bank account and held in
trust with the Company's attorney. In 1999, pursuant to a legal
settlement, the funds were delivered to the successful
subscribers.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 5
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
6. Fixed assets:
Accumulated Net book
December 31, 1999 Cost amortizatio value
n
Furniture and equipment $ $ 4,308 $ 13,754
18,062
Computers and technology 70,603 37,687 32,916
equipment
$ $ 41,995 $ 46,670
88,665
Accumulated Net book
December 31, 1998 Cost amortizatio value
n
Furniture and equipment $ $ 1,227 $ 18,370
19,597
Computers and technology 69,033 25,445 43,588
equipment
$ $ 26,672 $ 61,958
88,630
During fiscal 1997, the Company wrote-off leasehold improvements
which were located in their Mountain View, California and
Kelowna, British Columbia premises due to the vacating or
anticipated vacating of these premises.
7. Patents:
Year ended Year ended
December 31, December 31,
1999 1998
Cost $ 14,756 $ 13,410
Less accumulated 4,751 1,537
amortization
$ 10,005 $ 11,873
8. Subscriptions received for common stock:
Subscriptions received for common stock represent funds received
in advance of stock issuance.
9. Related party transactions:
(a) Due to (due from) stockholders, directors and officers:
Amounts due to (due from) stockholders, directors and officers
represent amounts owed to, or receivable from, the stockholders,
directors and officers or companies controlled by the
stockholders, directors or officers. These amounts generally
arose from management fees or expenses paid on behalf of the
Company by the stockholders, directors and officers, and a loan
provided by a stockholder. The amounts are non-interest bearing,
unsecured and have no specific terms of repayment.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 6
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
9. Related party transactions (continued):
(b) Transactions with directors and officers:
During the year, the Company was charged a total of $nil (1998 -
$602,721; 1997 -$ 245,105; 1996 - $nil) for management and
consulting services by the director and officers of the Company.
In 1998, the Company settled $238,548 of the $602,721 by issuing
641,667 shares of common stock of the Company.
10. Common stock:
(a) Reverse stock split:
On May 4, 1998, the Company resolved to consolidate the number of
preferred and common stock outstanding by a ratio of 4.5 old for
one new common stock. The effect of this reverse stock split has
been applied retroactively to these financial statements.
(b) Stock purchase warrants:
Activity during the year ended December 31, 1999 is as follows:
Expiry Date Exercis Outstan Granted Exercis Expire/ Outstan
e price ding ed cancele ding
Decembe d Decembe
r, 1998 r, 1999
June 20, $2.93 4,444 - - - 4,444
2002
Activity during the year ended December 31, 1998 is as follows:
Expiry Exerci Outstandi Grante Exercis Expire/ Outstandi
Date se ng d ed cancele ng
price December, d December,
1997 1998
June 5, $6.75 26,000 - - (26,000 -
1998 )
July 23, 2.93 4,444 - - (4,444) -
1998
Upon 0.0045 333,333 (333,33 -
terminatio 3)
n of
management
service
contracts
Earlier of 2.93 4,444 - - - 4,444
December
18, 1998
or
terminatio
n of
management
service
contract
June 20, 434,888 - - (430,44 4,444
2002 4)
(c) Non-cash consideration:
Shares issued for non-cash consideration are valued at their
market price at the date of agreement for issuance.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 7
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
10. Common stock (continued):
(d) Stock options:
The Company has reserved 3,200,000 common stock pursuant to a
stock option plan. Options to purchase common stock of the
Company may be granted by the Board of Directors and vest
immediately.
Stock option activity during the year ended December 31,1999 is
as follows:
Expiry Weight Weighte Outsta Granted Exerc Expir Outstan
Date ed d nding ised e/ ding
averag average Decemb cance Decembe
e fair er, led r, 1999
exerci value 1998
se
price
February $0.45 $0.25 - 3,125,0 - - 3,1
24, 2002 00 25,
000
There was no stock option activity during the year ended December
31, 1998. As options granted in 1999 have an exercise price equal
to the market price at the date of grant, there was no
compensation expense recorded for employees and directors in
1999.
The weighted average fair value of options was calculated using
the Black-Scholes option pricing formula.
Had the compensation benefit been determined based on the fair
value at the grant dates of the stock options and charged to
earnings consistent with the measurement provision of FAS 123,
the impact would be as follows:
Year ended Year ended Year ended Period
December December December from
31, 1999 31, 1998 31, 1997 inception
on May 14,
1992 to
December
31, 1999
Loss for the $(3,051,19 $(3,082,86 $(3,521,95 $(10,994,6
period, as 5) 4) 6) 60)
reported
Estimated fair (292,743) - - (292,743)
value of option
grants to
employees
Pro forma loss $(3,343,93 $(3,082,86 $(3,521,95 $(11,287,4
8) 4) 6 03)
Loss per share $(0.24) $(0.67) $(1.81
The fair value of the stock option grants have been estimated
using the Black-Scholes Option-Pricing model with the following
assumptions: dividend yield - 0%; risk-free interest rate-
5.875%, expected option life - 3 years, expected volatility -
80%.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 8
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
11. Contingencies:
The Company has determined that it is not possible, at this time,
to predict the final outcome of the following legal
contingencies. The Company has accrued its best estimate of
potential damages that may be awarded pursuant to these legal
contingencies. Any adjustment to that amount will be recorded in
the period determinable.
(a) Chemoco NV ("Chemoco"):
During 1997, the Company contracted with Chemoco to provide
services to the Company. As advance consideration of the services
to be provided by Chemoco, individuals related to the Company
transferred 155,556 common stock of the Company to Chemoco. It is
the Company's belief that Chemoco did not fulfill its obligations
for the services to be provided and as a result, the transfer of
common stock from individuals related to the Company to Chemoco
was canceled. On September 15, 1999, Chemoco commenced an action
against the Company and a former officer of the Company claiming
for the delivery of 700,000 shares of the Company, or in the
alternative, damages for the Company not delivering the said
shares to the Plaintiff. Since the commencement of the action and
the filing of the Statement of Defense in November 1999, the
solicitors for the Plaintiff have filed a Notice of Intention to
withdraw as solicitors in this matter. The outcome of this claim
is unknown. It is management's belief that any claim that may
arise from this situation is without merit.
(b) Former director claim:
On June 29, 1999, a former director of the Company commenced an
action against the Company claiming, inter alia, for a
declaration that he was entitled to 100,000 warrants of the
Company exercisable at $0.375 per share and a further declaration
that he was entitled to 600,000 warrants exercisable at $0.25 per
share. The warrant agreement was originally issued to the
Director to protect him against any potential claims. When the
director left the Company, the Board of Directors canceled the
warrant agreement for this director and all other directors. The
claim also includes damages for breach of contract and interest
with costs. The Company has filed a defense denying any claims of
the former director in and to the warrants alleged. To date, no
further activity has been commenced and the outcome is unknown.
(c) Other cancelled agreements:
In 1996, the Company cancelled agreements with two third parties.
To date, no litigation has been commenced or threatened regarding
these cancelled agreements. It is the opinion of management that
the termination of these agreements was warranted and, in the
event of litigation, would be deemed to be warranted. Further, it
is management's belief that any claim that may arise from these
situations are without merit.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 9
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
12. Income taxes:
The Company has non-capital losses carried forward of
approximately $8,500,000 which may be deducted in the calculation
of taxable income of future periods until their expiry to
December 31, 2006.
Due to the uncertainty as to the utilization of deferred tax
assets, a valuation allowance has been
made to the extent of deferred tax assets at the year end.
Years ended December 31,
1999 1998
Deferred tax assets:
Losses carried forward $ $
3,500,000 3,000,000
Evaluation allowance at 100% (3,500,00 (3,000,00
0) 0)
Net deferred tax asset $ - $ -
Current income tax expense $ - $ -
Deferred tax expense $ - $ -
13. Fair value of financial instruments:
At December 31, 1999, the Company's financial instruments include
cash, accounts receivable, due from stockholders, accounts
payable and accrued liabilities, due to stockholders, directors
and officers. Due to their short-term to maturity or ability for
prompt liquidation, the carrying values of cash, accounts
receivable, accounts payable and accrued liabilities approximates
their fair value. The fair value of due to (due from)
stockholders, directors and officers cannot be determined due to
their related party nature (note 9(a)). Due to the nature of the
relationship between the Company and the related parties and the
lack of a ready market for such indebtedness, it is not possible
to estimate the current fair value of this indebtedness. The
Company has not entered into off-balance sheet derivative
instruments.
14. Interest on long-term debt:
Interest on long-term debt includes $474,117 (1998 - $175,653;
1997 - $316,000) of amortization of the effective premium equal
to the intrinsic value calculated based on the difference between
the quoted market price and the conversion price on conversions
of debt.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Notes to Financial Statements, page 10
(Expressed in U.S. Dollars)
Years ended December 31, 1999, 1998 and 1997
15. Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something
other than a date. Although the change in date has occurred, it
is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to
customers, suppliers, or other third parties, have been fully
resolved.
16. Subsequent events:
(a) Subsequent to year end, 366,667 shares of common stock of the
Company were issued on settlement of $276,000 of amounts due to a
stockholder.
(b) On March 1, 2000, the Company acquired, through a
reorganization agreement, Girne Acquisition Corp. ("Girne"), a
corporation organized and existing under the laws of the State of
Delaware. At that date, Girne was an inactive shell company.
Under the terms and conditions of the reorganization agreement,
each issued and outstanding share of common stock of Girne was
exchanged pro rata for an aggregate of 1,000 shares of voting
common stock of the Company at $0.001 par value per share. The
Company issued 300,000 shares of common stock for the acquisition
of Girne, consisting of 150,000 common shares at a deemed value
of $2.9375 per share and converting $150,000 of cash payable to
the shareholders of Girne at a deemed value of $1.00 per share
into 150,000 shares of common stock. For accounting purposes,
this transaction will be accounted for as a re-capitalization, as
if the Company had issued common shares for the net monetary
assets of Girne. Pursuant to the reorganization agreement, the
Company is the surviving corporation and will continue under its
present name as a corporation in the State of Nevada.
ELECTRONIC IDENTIFICATION, INC.
(Formerly RFID Systems Corp.)
(A Development Stage Enterprise)
Schedules of General and Administrative, Sales and Marketing,
and Research and Development Expenses
(Expressed in U.S. Dollars)
Period from
inception on
May 14, 1992 to
Year Year Year Year
ended ended ended ended
December Decembe Decembe December
31, 1999 r 31, r 31, 31, 1999
1998 1997
General and
administrative:
Administrative fees $ 22,215 $ $ - $ 46,452
24,237
Bad debts - - 54,515 75,778
Bank charges and 1,348 1,949 41,193 45,288
interest
Consulting and contract 731,799 367,759 - 1,119,55
services 9
Legal and professional 150,909 176,286 408,551 765,100
Office 23,647 66,604 9,113 135,130
Rent 10,098 52,758 44,559 123,480
Salaries and benefits - 72,975 424,593 766,458
Stock administration 13,495 11,829 1,613 26,937
Telephone 2,772 9,518 25,504 51,373
Travel and 2,558 17,470 132,570 280,333
accommodation
Foreign exchange (gain) (36,744) 87,472 35,543 86,271
loss
$ 922,097 $ $ $
888,857 1,177,7 3,522,15
54 9
Sales and marketing:
Advertising $ - $ - $ $ 16,749
16,749
Consulting and contract 123,561 402,477 443,324 979,423
services
Entertainment and 19,190 84,575 24,077 140,188
promotion
Investor relations 99,618 245,107 36,987 381,712
Office 4,080 15,685 43,076 77,982
Rent - 94,230 31,438 137,318
Salaries and benefits 2,287 109,502 145,121 291,341
Telephone and Internet 2,772 16,528 - 19,300
Travel and 52,367 38,585 240,368 337,903
accommodation
$ 303,875 $ $ $
1,006,6 981,140 2,381,91
89 6
Research and
development:
Acquired in-process
research and
development $ - $ - $ - $
340,108
Consulting and contract 53,013 142,505 - 195,518
services
Office - 7,437 91,832 101,142
Salaries and benefits - 94,883 506,601 727,739
Supplies - 6,004 144,794 182,817
Travel and 2,980 15,860 13,632 50,244
accommodation
$ 55,993 $ $ $
266,689 756,859 1,597,56
8
(b) Pro Forma Financial Information
Operations of Girne Acquisition Corp. are deminimous and
pro forma statements of operations are the same as
submitted by Electronic Identification, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized.
Electronic Identification, Inc.
By: /s/ Terry Kirby
Terry Kirby,
President/Secretary/Treasurer
Date: March 6, 2000