UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
Commission File No. 333-94265
Liska Biometry, Inc.
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(Exact Name of small business issuer as specified in its charter)
FLORIDA 06-1562447
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 Main Street Suite 230
Dover, Hew Hampshire, 03082
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(Address of Principal Executive Offices)
1 877 77 LISKA
(Telephone number, including area code, of agent for service)
Copies to:
Virginia K. Sourlis, Esq.
The Galleria
2 Bridge Avenue
Red Bank, NJ 07701
(732) 530-9007
Fax (732) 530-9008
www.SourlisLaw.com
================================================================================
Registrant has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days. |X| Yes |_| No
APPLICABLE ONLY TO CORPORATE ISSUERS
================================================================================
As of March 31, 2005, we had 24,251,084 shares of our common stock outstanding.
LISKA BIOMETRY, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-QSB
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheet (Unaudited) 3
Statements of Operations (Unaudited) 4
Statements of Cash Flows (Unaudited) 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis or Plan of Operations 7
Item 3 - Controls and Procedures 15
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
================================================================================
2
Liska Biometry, Inc.
(A Development Stage Company)
Consolidated Balance Sheet
March 31, 2005
(Unaudited)
Assets
Current assets:
Cash $ 61,408
Prepaid expenses 23,309
Miscellaneous receivables 2,674
-----------
Total Current Assets 87,391
-----------
Fixed assets, net 37,339
-----------
Other assets:
Deposits 20,667
-----------
$ 145,397
===========
Liabilities and stockholders' (deficit)
Current liabilities:
Accounts payable & accrued expenses $ 274,644
Due to investors 85,000
-----------
Total current liabilities 359,644
-----------
Stockholders' (deficit):
Preferred stock, no par value,
10,000,000 shares authorized, none outstanding --
Common stock, no par value,
100,000,000 shares authorized,
24,251,084 shares issued and outstanding 7,371,901
Common stock subscriptions 98,250
Additional paid in capital 1,333,203
Treasury stock (200,000)
Deferred compensation (24,750)
(Deficit) accumulated during the development stage (8,591,520)
-----------
(212,916)
Other comprehensive income:
Currency translation adjustment (1,331)
-----------
(214,247)
-----------
$ 145,397
===========
See the accompanying notes to the consolidated financial statements.
3
Liska Biometry, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
Three Months Ended March 31, 2004 and 2005, and
Inception (August 1, 2000) to March 31, 2005
(Unaudited)
Three Months Three Months Inception
Ended Ended to
March 31, 2004 March 31, 2005 March 31, 2005
------------ ------------ ------------
Sales $ -- $ -- $ 8,000
Cost of goods sold -- -- 892
------------ ------------ ------------
Gross profit -- -- 7,108
------------ ------------ ------------
Operating expenses:
Impairment of license -- -- 58,812
Non cash stock compensation -- 292,145 7,014,718
Selling, general and administrative expenses 50,890 299,981 1,525,348
------------ ------------ ------------
50,890 592,126 8,598,878
------------ ------------ ------------
(Loss) from operations (50,890) (592,126) (8,591,770)
------------ ------------ ------------
Other income (expense):
Other income -- -- 250
------------ ------------ ------------
Net (loss) (50,890) (592,126) (8,591,520)
Other comprehensive income:
Foreign currency translation adjustment 1,738 (3,603) (1,331)
------------ ------------ ------------
Comprehensive (loss) $ (49,152) $ (595,729) $ (8,592,851)
============ ============ ============
Per share information - basic and fully diluted:
Weighted average shares outstanding 15,487,462 23,942,599 6,607,097
============ ============ ============
Net (loss) per share $ (0.00) $ (0.02) $ (1.30)
============ ============ ============
See the accompanying notes to the consolidated financial statements.
4
Liska Biometry, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2004 and 2005, and
Inception (August 1, 2000) to March 31, 2005
(Unaudited)
Thee Months Thee Months Inception
Ended Ended to
March 31, March 31, March 31,
2004 2005 2005
----------- ----------- -----------
Cash flows from operating activities:
Net cash (used in) operating activities $ (42,245) $ (218,102) $(1,106,558)
----------- ----------- -----------
Cash flows from investing activities:
Net cash (used in) investing activities -- (16,579) (91,114)
----------- ----------- -----------
Cash flows from financing activities:
Capital contributions -- -- 8,878
Common shares issued and subscriptions for cash 50,000 48,000 1,272,202
Common shares repurchased for cash -- -- (200,000)
Net proceeds from investor loans -- 2,448 178,000
----------- ----------- -----------
Net cash provided by financing activities 50,000 50,448 1,259,080
----------- ----------- -----------
Net increase (decrease) in cash 7,755 (184,233) 61,408
Beginning - cash balance 843 245,641 --
----------- ----------- -----------
Ending - cash balance $ 8,598 $ 61,408 $ 61,408
=========== =========== ===========
Supplemental cash flow information:
Cash paid for income taxes $ -- $ -- $ --
=========== =========== ===========
Cash paid for interest $ -- $ -- $ --
=========== =========== ===========
See the accompanying notes to the consolidated financial statements.
5
LISKA BIOMETRY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
(UNAUDITED)
(1) Basis Of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP) for interim
financial information and Item 310(b) of Regulation S-B. They do not include all
of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements of the Company as of December 31,
2004 and for the two years then ended, and the period from inception (August 1,
2000) to December 31, 2004, including notes thereto included in the Company's
Form 10-KSB.
(2) Earnings Per Share
The Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings
(loss) per share is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. Diluted earnings
(loss) per share is calculated by dividing net income (loss) by the weighted
average number of common shares and dilutive common stock equivalents
outstanding. During periods when they would be anti-dilutive common stock
equivalents, if any, are not considered in the computation.
(3) Commitments and Contingencies
During the periods covered by these financial statements the Company issued
shares of common stock without registration under the Securities Act of 1933.
Although the Company believes that the sales did not involve a public offering
of its securities and that the Company did comply with the "safe harbor"
exemptions from registration, it could be liable for rescission of the sales if
such exemptions were found not to apply and this could have a material negative
impact on the Company's financial position and results of operations. In
addition, the Company issued shares of common stock pursuant to Form S-8
registration statements. The Company believes that it complied with the
requirements of Form S-8 in regard to these issuances, however if it were
determined that there were violations of the provisions of Form S-8 the Company
could be subject to enforcement proceedings.
During the periods covered by these financial statements the Company entered
into several employment, consulting and other agreements with third parties.
Although the Company obtained settlement releases from a majority of the
parties, settlement releases were not entered into with some of these parties or
the settlement releases were verbal agreements. Future contingencies, which
cannot be estimated by management, may exist for the above matters including but
not limited to issuance of capital stock and other financial obligations and may
have a material negative impact on the Company's financial position and results
of operations.
At March 31, 2005, the Company and it's subsidiary had entered into employment
contracts of varying terms ending from April through September 2005 with four
officers for annual compensation aggregating approximately $250,000, of which
one contract for $53,300 was subsequently cancelled. In addition these officers
received an aggregate of 2,630,000 shares of common stock (see Note 4). The term
of each of the contracts commences on the date the Company receives a minimum of
$100,000 in funding and terminates one year thereafter. One of these officers
has also received options to purchase a total of 400,000 common shares as a
result of reaching certain performance targets during the contract term that
ends September 2005.
6
At March 31, 2005 the Company had entered into consulting contracts of varying
terms ending from January through September 2005 with various consultants for
varying fees depending upon services rendered.
(4) Stockholders' (Deficit)
During the three months ended March 31, 2005 the Company issued 621,346 shares
of common stock which had been subscribed for at December 31, 2004.
During the three months ended March 31, 2005, the Company issued 345,571 shares
of common stock and agreed to issue an additional 125,000 shares of common stock
for services including services rendered or to be rendered pursuant to
employment and consulting contracts. The shares were valued at their fair market
value of $179,478 all of which has been charged to operations. A further $42,667
previously recorded as deferred compensation and $70,000 representing the fair
value of options issued to a consultant at December 31, 2004 has been amortized
to operations during the period.
During the three months ended March 31, 2005, the Company also accepted
subscriptions for 160,000 shares of common stock for cash aggregating $48,000.
During the period ended March 31, 2005, the Company issued 650,000 options to
purchase common shares at an exercise price of $.39 per share.
SFAS 123 requires the Company to provide proforma information regarding net
income and earnings per share as if compensation cost for the Company's stock
option plans had been determined in accordance with the fair value based method
prescribed in SFAS 123. The fair value of the option grants is estimated on the
date of grant utilizing the Black-Scholes option pricing model with the
following weighted average assumptions for grants during the period ended March
31, 2005: expected life of options of 10 years, expected volatility of 208%,
risk-free interest rate of 3% and no dividend yield. The weighted average fair
value at the date of grant for options granted during the period ended March 31,
2005 approximated $.39 per option. These results may not be representative of
those to be expected in future years.
Under the provisions of SFAS 123, the Company's net income (loss) and earnings
(loss) per share would have been reduced (increased) to the pro forma amounts
indicated below for the period ended March 31, 2005:
Net (loss)
As reported $(592,126)
Pro forma $(655,126)
Basic and diluted (loss) per share
As reported $(.02)
Pro forma $(.03)
7
A summary of stock option activity is as follows:
Weighted Weighted
average average
Number exercise fair
of shares price value
--------- --------- ---------
Balance at December 31, 2004 350,000 $ .64 $ 1.00
Granted 650,000 $ .39 $ .39
Exercised/Forfeited --
---------
Balance at March 31, 2005 1,000,000
=========
The following table summarizes information about fixed-price stock options at
March 31, 2005:
Outstanding
Weighted Weighted Weighted-
Average Average Average Exercisable
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------ ------------ ------------ ------------ ------------ ------------
$.39 650,000 10 years $ .39 -- $ .39
$.64 to $.65 350,000 10 years $ .64 350,000 $ 1.00
(5) Basis of Reporting
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.
The Company has experienced a significant loss from operations as a result of
its investment necessary to achieve its operating plan, which is long-range in
nature. For the three months ended March 31, 2005 and the period from inception
to March 31, 2005, the Company incurred net losses of $592,126 and $8,591,520
respectively and has working capital and stockholder deficits of $272,253 and
$214,247 respectively at March 31, 2005. In addition, the Company has no revenue
generating operations.
The Company's ability to continue as a going concern is contingent upon its
ability to attain profitable operations and secure financing. In addition, the
Company's ability to continue as a going concern must be considered in light of
the problems, expenses and complications frequently encountered by entrance into
established markets and the competitive environment in which the Company
operates.
The Company is pursuing equity financing for its operations. Failure to secure
such financing or to raise additional capital or borrow additional funds may
result in the Company depleting its available funds and not being able pay its
obligations.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
8
(6) Subsequent Events
During April 2005 the Company issued options to purchase 295,000 shares of its
common stock for a period of ten years at a price of $.32 per share to six
employees for services rendered. These options vest one year from the date of
issuance.
During April 2005 and May 2005, the Company issued 281,818 shares of common
stock for cash aggregating $80,000 and 178,333 shares of common stock with a
fair value of $59,567 for services rendered. In addition 160,000 shares
subscribed for cash at March 31, 2005 for $48,000 were issued.
During April 2005, the Company renewed employment contracts with two officers
for annual compensation aggregating approximately $175,000. In addition, these
officers are to receive an aggregate of 200,000 shares of common stock upon
signing, 550,000 shares of restricted common stock and 550,000 stock options
pursuant to performance milestones. The terms of the contracts commence on the
date the Company receives a minimum of $2,000,000 in funding and terminates one
year thereafter.
During May 2005 the Company filed a Form S-8 registration statement registering
a total of 635,000 shares of common stock to be issued pursuant to employment
and consulting contracts.
================================================================================
Item 2 Management's Discussion and Analysis or Plan of Operation
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking" statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 and is subject to the safe harbor created by those sections. We intend
to identify forward-looking statements in this report by using words such as
"believes," "intends," "expects," "may," "will," "should," "plan," "projected,"
"contemplates," "anticipates," "estimates," "predicts," "potential," "continue,"
or similar terminology. These statements are based on the Company's beliefs as
well as assumptions the Company made using information currently available to
us. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise. Because these statements reflect the Company's current
views concerning future events, these statements involve risks, uncertainties,
and assumptions. Actual future results may differ significantly from the results
discussed in the forward-looking statements. These risks include changes in
demand for the Company's products, changes in the level of operating expenses,
changes in general economic conditions that impact consumer behavior and
spending, product supply, the availability, amount, and cost of capital for the
Company and the Company's use of such capital, and other risks discussed in this
report. Additional risks that may affect our performance are discussed under
"Risk Factors Associated with Our Business" in our Form 10-KSB for the fiscal
year ended December 31, 2004. Readers are cautioned not to place undue reliance
on the forward-looking statements contained in this report. We disclaim any
obligation to update forward-looking statements. All references to "we", "our",
"us", of refer to Liska Biometry, Inc., and it predecessors, operating
divisions, and subsidiaries.
9
CRITICAL ACCOUNTING POLICIES
There were no changes to the Company's critical accounting policies in the first
quarter of 2005. Critical accounting policies are those applications of
accounting principles or practices that require considerable judgment,
estimation, or sensitivity analysis by management.
================================================================================
PLAN OF OPERATIONS
We plan to accomplish the following in our Plan of Operations over a period of
12 months. At the present time we do not have sufficient cash resources to
conduct our Plan of Operations. We have not had sufficient cash resources to
conduct our Plan of Operations since we adopted our new business plan of
fingerprint encoding and authentication. Therefore, our Plan of Operations is
contingent upon receiving adequate financing to meet costs of $2,791,000 and
will not commence until we receive such financing.
Our Plan of Operations (on a consolidated basis) to Date:
RESEARCH AND DEVELOPMENT
In January 2003 we developed a preliminary demonstration model of our proposed
fingerprint technology, which provided only a conceptual guide for future
development. We continued our development throughout 2003 and attempted to
improve our core technology and implement changes in our core software; however,
most of our development occurred from September 2004 to March 2005, in which we
made further changes to our core software. As reflected below in our Future Plan
of Operations, we will continue to develop our core technology pending adequate
financing.
DEVELOPED SOFTWARE ALGORITHMS
Using third party live-scan fingerprint scanners, we can now demonstrate the
proof of concept of our proprietary software concepts, illustrating the
differentiating features of embedded software algorithms - that is, the
capability to measure the stable content of a fingerprint image and to express
it as a short numeric output. A final workable prototype model is contingent
upon us receiving financing, which we may be unable to obtain. We have expended
approximately $6,000 for the aforementioned.
APPOINTED EXECUTIVE MANAGEMENT TEAM
We have filled the following executive management positions to our consolidated
operation:
Annual Salary
Position (Consolidated Basis)
Chief Executive $90,000
Chief Financial Officer and President $85,000
of Liska Biometry (Canada) Inc.
We estimate that our annual salary expenditures for these positions will be
$175,000.
10
CAPITAL EXPENDITURES
We have purchased capital equipment for our research and development and general
operations, which consists primarily of computer hardware. We estimate the
remaining cost of our needed equipment to be approximately $78,500.
HIRED VICE PRESIDENT OF PRODUCT OPERATIONS
We have hired one individual who is responsible for the product operations
oversight of the Company. The annual salary costs associated with this position
is approximately $70,000.
HIRED A CHIEF SOFTWARE ARCHITECT
We have hired an individual who is responsible for leading the research and
development of the Company's intellectual property and core software algorithms
The annual salary costs associated with this position is approximately $65,000.
HIRED A CHIEF ENGINEER
We have hired an individual who is responsible for implementing the technology
integration and designing the Company's product applications.
The annual salary costs associated with this position is approximately $65,000.
HIRED HUMAN RESOURCE MANAGER
We have hired one individual who is responsible for all human
resource/administrative functions of the Company.
The annual salary costs associated with this position is approximately $50,000.
HIRED A FINANCIAL CONTROLLER/ SENIOR FINANCIAL ADVISOR
We have hired one individual on a part-time basis who is responsible for the
financial accounting, audit procedures and the internal financial controls as
well as advising the executive management on the financial management of the
Company.
The annual salary costs associated with this position is approximately $60,000.
HIRED ENGINEERING TEAM
We have hired individuals to fill the following positions:
o Senior Technical Support Engineer
o Senior Security Systems Engineer
o Network Communication and Security Development Engineer
o Senior Software Programmer
o One part-time programmer
The estimated annual salary cost associated with these positions is $238,000.
11
HIRED A SENIOR VICE-PRESIDENT OF OPERATIONS AND DIRECTOR OF BUSINESS DEVELOPMENT
We hired an individual who is responsible for implementing the US-based sales,
marketing, and business development initiatives of the Company and implementing
operational strategies in concert with the CEO and CFO of the Company. This
individual oversees the operational implementation of the Company's business
plan and manages its US-based operational units.
The estimated annual salary costs associated with this position is approximately
$70,000.
HIRED A BOOKKEEPER
We hired an individual on a part-time basis who is responsible for the
day-to-day bookkeeping and financial upkeep of the Canadian Company
The estimated annual salary costs associated with this position is approximately
$24,000.
HIRED AN ADMINISTRATOR
We hired an individual to be responsible for all of the administrative functions
at the Company's head office in Dover, New Hampshire.
The estimated annual salary costs associated with this position is approximately
$40,000.
Our Future Plan of Operations:
HIRE A DIRECTOR OF TECHNICAL SERVICES
We plan to hire an individual who will be responsible for implementing technical
strategies in concert with the Director of Business Development. This individual
will support the U.S. business development team
The estimated annual salary costs associated with this position is approximately
$55,000.
HIRE A CHIEF TECHNOLOGY OFFICER
We plan to hire an individual who will be responsible for overseeing all of the
Company's R&D functions at its facilities in Ottawa, Canada.
The estimated annual salary costs associated with this position is approximately
$50,000.
HIRE AN ADMINISTRATOR
We plan to hire an individual who will be responsible for all of the
administrative functions at the Company's R&D facilities in Ottawa, Ontario.
The estimated annual salary costs associated with this position is approximately
$27,500.
HIRE TWO ADDITIONAL SENIOR PROGRAMMERS
We plan to hire two individuals who will be responsible for programming code.
The estimated annual salary costs associated with these two positions is
approximately $60,000.
12
GENERAL & ADMINISTRATIVE EXPENSES
We intend to expend funds for general and administrative expenses such as:
insurance expense, rent expense, legal expenses, professional fees, telephony
and internet access, travel & entertainment, payroll expenses, professional fees
and offices expenses.
The estimated annual costs associated with these expenditures is approximately
$857,000
DEVELOP AND INITIATE MARKETING EFFORT
Our Director of Business Development will survey the key markets and customers,
and use systems, planning initiatives and oversight bodies to develop a strategy
for market penetration. Generally this strategy will include targeting the
following market segment verticals:
o Government Sector - national identification programs, driver's
licenses
o Travel and Transportation - visas, travel documentation
o Financial Sector- bank account access
o Foreign Security Markets - Europe, Middle East, Africa
o Transportation Industry - North America
Marketing expenditures will focus on the broad dissemination of our test
results. We will attempt to increase our market recognition, provide promotional
sampling of our products and target key customers. We will attempt to develop
strategic partners to collaborate on our marketing and technological integration
efforts. Such strategic partners may include the following:
o Fingerprint biometrics hardware system vendors;
o Systems Integrators, defense contractors
o Original Equipment Manufacturers (OEMs), Channel Partners
o Other distribution channels that target military and commercial
security markets.
In addition, we will acquire other market information and contacts by joining
key industry group and hiring industry analysts, attending trade shows,
traveling to meet potential clients/partners and designing print media/web based
promotional strategies. The annual cost associated with this marketing effort is
approximately $405,000.
EXPAND OUR PRODUCT APPLICATIONS INITIATIVES AND RESEARCH AND DEVELOPMENT
We will continue to develop our initial proprietary software algorithms, with
several iterations planned for 2005. Our goal in this regard is to reach the
proof of concept stage, illustrating the differentiating features of these new
embedded software algorithms, focusing on real-time fingerprint biometric
database search. The annual cost associated with expanding the product
application and R&D functions is approximately $385,000.
13
SUMMARY OF ESTIMATED COSTS
- --------------------------------------------- -------------
Executive Management $ 175,000
- --------------------------------------------- -------------
Capital Expenditures 78,500
- --------------------------------------------- -------------
VP Product Operations 70,000
- --------------------------------------------- -------------
Chief Software Architect 65,000
- --------------------------------------------- -------------
Chief Engineer 65,000
- --------------------------------------------- -------------
Develop Software Algorithms 6,000
- --------------------------------------------- -------------
Human Resource Manager 60,000
- --------------------------------------------- -------------
Financial Controller/Sr. Financial Advisor 60,000
- --------------------------------------------- -------------
Engineering Team 238,000
- --------------------------------------------- -------------
Director of Business Development 70,000
- --------------------------------------------- -------------
Bookkeeper 24,000
- --------------------------------------------- -------------
Administration Team 67,500
- --------------------------------------------- -------------
Director of Technical Services 55,000
- --------------------------------------------- -------------
Initiate Marketing Effort 405,000
- --------------------------------------------- -------------
Chief Technology Officer 50,000
- --------------------------------------------- -------------
Senior Programmers 60,000
- --------------------------------------------- -------------
General & Administrative 857000
- --------------------------------------------- -------------
Expand Product Application Initiatives 385000
- --------------------------------------------- -------------
- --------------------------------------------- -------------
TOTAL $ 2,791,000
- --------------------------------------------- -------------
================================================================================
REVENUES
We cannot determine whether our revenues, if any, will ever be sufficient to
produce a positive cash flow or result in net profits. You should carefully
consider the discussion appearing below under "Liquidity and Capital Resources".
We earned no revenues during Fiscal Year 2004 or in connection with our business
plan of fingerprint encoding and authentication. We do not expect to earn
significant operating revenues in the foreseeable future. Our losses are
expected to continue, principally as a result of our estimated expenditures of
$960,900, as reflected above.
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2005, we had limited cash resources of only $61,408. We do not
have any other internal sources of working capital. We did not receive any
revenues during our Fiscal Year 2004 or in our first quarter of 2005. We do not
anticipate earning revenues until such time that we obtain financing to
implement our Plan of Operations, if ever. Even if we complete our Plan of
Operations, there are no assurances that we will successfully develop a
marketable product.
During Fiscal Year 2004 and our first quarter of 2005, our operating expenses
have exceeded our revenues, which has been $0. We have insufficient working
capital to fund our planned growth and ongoing operating expenses. As a result,
we expect to continue to experience significant negative operating cash flow for
the foreseeable future. Our existing working capital will not be sufficient to
fund the continued implementation of our Plan of Operations during the next 12
months and to meet our general operating expenses. If we do not have sufficient
working capital to implement our Plan of Operations, we may have to cease
operations.
14
We have no alternative Plan of Operations. In the event that we do not receive
financing, if our financing is inadequate or if we do not adequately implement
an alternative Plan of Operations that enables us to conduct operations without
having received adequate financing, we may have to liquidate our business and
undertake any or all of the following actions:
o Sell or dispose of our assets, if any;
o Pay our liabilities in order of priority, if we have available cash
to pay such liabilities;
o If any cash remains after we satisfy amounts due to our creditors,
distribute any remaining cash to our shareholders in an amount equal
to the net market value of our net assets;
o File a Certificate of Dissolution with the State of Florida dissolve
our corporation and close our business; and
o Make the appropriate filings with the Securities and Exchange
Commission so that we will no longer be required to file periodic
and other required reports with the Securities and Exchange
Commission, if, in fact, we are a reporting company at that time
Based upon our current assets, however, we will not have the ability to
distribute any cash to our shareholders.
If we have any liabilities that we are unable to satisfy and we qualify for
protection under the U.S. Bankruptcy Code, we may voluntarily file for
reorganization under Chapter 11 or liquidation under Chapter 7. Our creditors
may also file a Chapter 7 or Chapter 11 bankruptcy action against us. If our
creditors or we file for Chapter 7 or Chapter 11 bankruptcy, our creditors will
take priority over our shareholders. If we fail to file for bankruptcy under
Chapter 7 or Chapter 11 and we have creditors, such creditors may institute
proceedings against us seeking forfeiture of our assets, if any.
We do not know and cannot determine which, if any, of these actions we will be
forced to take.
If any of these foregoing events occur, you could lose your entire investment in
our shares.
There is substantial doubt about our ability to continue as a going concern as
we have suffered recurring losses from operations and have no established source
of revenue. Accordingly, our independent auditors included an explanatory
paragraph in their report on our December 31, 2004 financial statements
regarding concerns about our ability to continue as a going concern. Our
financial statements contain additional note disclosures describing the
circumstances that lead to this disclosure by our independent auditors.
================================================================================
Item 3 Controls and Procedures
We maintain and are currently undertaking actions to improve disclosure controls
and procedures designed to ensure that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the specified time periods.
As of the end of the period covered by this report, the Corporation's Chief
Executive Officer and Chief Financial Officer ("CEO and CFO") evaluated the
effectiveness of the Corporation's disclosure controls and procedures. Based on
the evaluation, our CEO and CFO have discovered a potential material weakness in
our disclosure controls as they relate to the documents supporting the issuance
of equity securities. Our CEO and CFO believe that the weaknesses did not affect
the reporting or disclosure in our annual or quarterly reports due to controls
put in place during the current quarter and compensating controls, such as the
detailed review of these areas subsequent to the time at which the agreements
were entered into and during the preparation of our quarterly and annual
reports.
15
These weaknesses are currently being addressed and actions are currently
being taken to improve our disclosure controls and procedures; and our CEO and
CFO have concluded that our disclosure controls and procedures, combined with
compensating controls are effective as of the end of the period covered by this
report in that information required to be disclosed in this 10KSB has been
recorded, processed, summarized and reported properly within the current fiscal
year. Although there was a change in our disclosure controls and procedures
during the quarter, there were no changes in our internal control over financial
reporting that occurred during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
The following is a summary of the weakness and deficiency that has been
identified and addressed:
o Deficiency related to the documentation, review and approval of
certain sales under a Regulation S sale of securities by our
authorized broker/dealer agents. At our most recent year-end, we
identified a deficiency in controls related to documentation, review
and approval of sales made under a series of Regulation S
transactions. Such deficiencies resulted in our inability to obtain
supporting documentation confirming the investor's intention to
subscribe to the shares sold despite having received the funds from
the broker/agent and despite having the certificates issued by our
transfer agent. This deficiency did not exist for the private
placements affected during the year.
As a result of the findings above, we have implemented and will continue
to implement the following actions:
o We have appointed a part-time financial controller to support the
preparation of financial statements and reports to be filed with the
SEC.
o We are establishing procedures to improve our review and processing
of non-accounting documentation and contracts, and specifically will
require adequate documentation be provided concurrently with any
future share subscriptions, regardless of type.
o We intend to periodically review our internal procedures and
controls to ensure additional enhancements to our internal controls
are installed as necessary to meet our operational needs. Outside
consultants will be engaged to advise our management as areas of
concern are identified.
o We intend to establish a Code of Ethics.
Our management is committed to a sound internal control environment. We
believe we have committed adequate resources to the aforementioned reviews and
remedies. We believe that we have addressed the issue identified above, and we
believe that we are in the process of further improving our infrastructure,
personnel, processes and controls to help ensure that we are able to produce
accurate disclosures and financial statements with appropriate supporting
documentation on a timely basis.
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PART II OTHER INFORMATION
Item 2 Changes in Securities
During March 2005, we issued 345,571 shares for services pursuant to employment
contract milestones and conditions.
During April 2005, we issued 178,333 shares for services rendered.
During May 2005, we issued 635,000 shares for services rendered pursuant to
employment contract milestones and conditions.
The Company sold the following unregistered securities following the three
months ended March 31, 2005:
Date of Description of Number of Purchase
Issuance Securities Issued Shares Issued Price
4/11/2005 Common shares 35,000 $10,500
4/11/2005 Commons shares 75,000 $22,500
4/11/2005 Common shares 50,000 $15,000
4/11/2005 Common Shares 100,000 $30,000
5/5/2005 Common Shares 181,818 $50,000
The issuance of these securities is claimed to be exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, as
transactions by an issuer not involving a public offering.
Item 6 Exhibits and Reports on Form 80K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1 Articles of Incorporation (1)
3.2 By-Laws (2)
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a), promulgated under C the Securities Exchange Act
of 1934, as amended.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a), promulgated under C the Securities Exchange Act
of 1934, as amended.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to C Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to C Section 906 of the
Sarbanes-Oxley Act of 2002.
17
- ------------
(1) Denotes previously filed exhibits: filed on January 7, 2000 with 3045
Corporation's Form SB-2 registration statement, file # 333-94265.
(2) Denotes previously filed exhibits: filed on May 30, 2003 with Liska
Biometry, Inc.'s Form 10-KSB for the period ended December 31, 2001.
We hereby incorporate the following additional documents by reference: (a) our
Form 10-KSB for the year ended December 31, 2004 which was filed on April 21,
2005, December 31, 2003, which was filed on April 7, 2004, for the year, ended
December 31, 2002, which was filed on July 28, 2003; and for the year, ended
December 31, 2001 which was filed on May 30, 2003; (b) our Registration
Statement on Form SB-2 and all amendments thereto which was filed on January 7,
2000 and amended on February 8, 2000, March 1, 2000, March 14, 2000, April 3,
2000, and April 4, 2000; (c) our Forms 10-QSB for the periods ended March 31,
2004 which was filed on May 19, 2004; September 30, 2003 which was filed on
November 14, 2003; June 30, 2003 which was filed on August 15, 2003; March 31,
2003 which was filed on August 15, 2003; September 30, 2002 which was filed on
July 28, 2003; June 30, 2002 which was filed on May 30, 2003; March 31, 2002
which was filed on May 30, 2002; June 30, 2001 which was filed on April 4, 2002;
September 30, 2001 which was filed on April 4, 2002; March 31, 2001 which was
filed on May 21, 2001; August 31, 2000 which was filed on September 15, 2000;
May 31, 2000 which was filed on June 20, 2000; and February 29, 2000 which was
filed on April 14, 2000.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LISKA BIOMETRY, INC.
Dated: May 13, 2005
By: /s/ Christopher J. LeClerc
------------------------------
Christopher J. LeClerc
President and CEO
(Principal Executive Officer)
By: /s/ Manoj Hippola
------------------------------
Manoj Hippola
Chief Financial Officer
(Principal Accounting Officer)
18