LISKA BIOMETRY INC (LSKA) - Description of business

Company Description
, it will be difficult for you to evaluate our business and financial prospects; (c) We have no revenues; (d) Our business is a new business, which subjects us to financial and operational risks; (e) Our operations are subject to all of the risks inherent in a new business enterprise; (f) We are an early stage business in a new and rapidly evolving market; (g) If we fail to keep pace with the rapidly changing market of fingerprint identification, our revenues and financial condition will be negatively affected; (h) We may be unable to overcome competitive forces in industry; (i) We are subject to substantial regulation; (j) We face patent protection risks; (k) Our management has significant control over stockholder matters; and (l) Our operations are subject to possible conflicts of interest;Item 1. DESCRIPTION OF BUSINESSOVERVIEWLiska Biometry develops revolutionary fingerprint biometric solutions enabling fast individual authentication, precise identification searches, and cross-platform data interoperability. Our innovative, scalable technology generates a short, repeatable, unique, numerical identifier from an individual's fingerprint. This short number becomes a precise and universal biometric identifier number (BIN(TM)) capable of being embedded in credit cards, driver's licenses, travel documents such as visas and passports, and a host of other personal identification credentials. Liska's innovative technology allows for seamless, integrated identification searches across disparate databases at all levels of government and law enforcement.Biometric technology is the science involving the identification of individuals through the measurement of distinguishing biological characteristics.Our fingerprint biometric software solutions enable identification of individuals in large ID management systems and disparate legacy databases. Offerings can be used for: o National ID Card Programs o Secure Identification Documents (Visas, Passports) o Transaction Authentication (ATMs, Credit Cards) o Controlled access to secure areas and networks.Our initial business plan was to develop, manufacture, market and integrate computer-based products and services pertaining to the identification of individuals by employing our fingerprint biometric technology. Our current business plan is to: o License our fingerprint biometric software product offering to OEM's, System Integrators and Value Added Resellers; and o Develop customized product applications utilizing the Company's core software technology.MARKET OVERVIEWThe attitudes and needs of governments and private enterprise towards establishing the positive identity of its citizens, employees and foreign visitors using high level security applications dramatically changed as a consequence of the terrorist attacks of September 11, 2001. Identity confirmation, once required only in highly sensitive areas, is now given much more consideration in a myriad of scenarios involving access to borders and many public and private venues.Civil administrative projects involving national security have been accelerated on a worldwide basis; proper and secure identification is viewed as critical to national defense and homeland security. Several national ID and border control projects, such as US VISIT, utilizing biometrics (e. g. fingerprints, facial and iris recognition, palm prints, voice) to identify citizens and control entry of foreign visitors have already progressed beyond conceptual stages toward contract procurement. Increased public awareness, and indeed demand, for more pervasive security protocols has become one of the biggest drivers of the biometrics industry as a whole. In the face of this strong demand, adoption of biometric technology is hindered by several key factors:o The inability of current technology to facilitate rapid identification and verification of subjects; o The lack of efficient methods to allow data interchange and interoperability; and o Strong concerns about privacy, accuracy and data integrity.TECHNOLOGYThe Company's revolutionary fingerprint biometric software solutions build on the established fact that every person's fingerprints are unique to that individual. Our technique captures the invariant elements of an individual's fingerprint pattern and generates a short, repeatable but unique fixed length number that represents the measurement of selected invariant elements of the fingerprint. This short, fixed number that the Company terms the "Biometric Identifier Number" (BIN(TM)) can be encrypted and embedded in machine-readable travel documentation such as visas, passports and drivers licenses for one-to-one authentication. Using a BIN(TM) substantially accelerates accurate identification searches against disparate databases such as immigration data repositories and terrorist/law enforcement watch lists. Importantly and critical to all users and the individual, the BIN(TM) cannot be reverse-engineered, and thus an individual's biometric data integrity is kept private and secured.Utilizing this technology, the Company has developed and continues to develop, software applications and integrated solutions.CURRENT OFFERINGSThe following is a description of the status of each of the Company's current software offerings:The BIN(TM) 1.0 Descriptor Authentication SoftwareThe Company's BIN(TM) Descriptor Authentication Software is a means of delivering its patent-pending fingerprint Biometric Identifier Number Algorithm as an integrated software solution that can be retrofitted to existing hardware and IT infrastructure deployments for 1:1 biometric authentication and 1:N database search. The BIN(TM) Descriptor Authentication Algorithm is a software application that is licensed to original equipment manufacturers, systems integrators and value added resellers for use within their existing security infrastructure solution or integrated as part of a new application solution.The BIN(TM) 1.0 Descriptor Enrollment SoftwareThe Company's BIN(TM) Descriptor Enrollment Software is a means of delivering its patent-pending fingerprint Biometric Identifier Number Algorithm as an integrated software solution that can be retrofitted to existing hardware and IT infrastructure deployments for biometric and credential enrollment, token generation and database population, with 1:N database watch list search functionality. The BIN(TM) Descriptor Enrollment Algorithm is a software application that is licensed to original equipment manufacturers, systems integrators, and value added resellers for use within their existing security infrastructure solution or integrated as part of a new application solution.The BIN(TM) 1.0 Database Management SoftwareThe Company's BIN(TM) Database Management Software is a means of delivering its patent-pending fingerprint Biometric Identifier Number Algorithm as an integrated software solution that can be retrofitted to existing hardware and IT infrastructure deployments for centralized BIN(TM) based ID management and legacy database interoperability functionality. The BIN(TM) Database Management Algorithm is a software application that is licensed to original equipment manufacturers, systems integrators, and value added resellers for use within their existing security infrastructure solution or integrated as part of a new application solution.ORGANIZATIONAL BACKGROUND AND HISTORYWe are a development stage company that was incorporated in the State of Florida on October 26, 1999. We are authorized to issue 100,000,000 shares of common stock. As of April 17th, 2006, there were 36,023,036 shares of our common stock outstanding. We are authorized to issue 10,000,000 shares of preferred stock, of which no shares are outstanding.We have earned no significant revenues since our inception and, as a result, we have sustained losses since our inception. We have never been the subject of a bankruptcy, receivership or similar proceeding.Our principal executive offices are currently located at 100 Main Street, Suite 230, Dover NH 03820. Our telephone number at this address is 1 877 77 LISKA. On November 2, 2004 we formed a Canadian subsidiary, Liska Biometry (Canada) Inc. to focus on research and development of our products and to manage our Canadian marketing and sales program. On November 23, 2005 we formed Liska Biometry (Saudi Arabia) to focus on the sale of our products throughout the Middle East.BUSINESS DEVELOPMENT:On October 26, 1999, we were incorporated in the State of Florida under the name 3045 Corporation to sell mortgage related products on the Internet.In January 2001, we acquired all of the issued and outstanding common shares of H2O International, Inc. from its shareholders, in exchange for 500,042 shares of our common stock (approximately 83% of our issued and outstanding shares after this issuance), so that we could obtain H2O International, Inc.'s licensing rights to a cleaning process technology for large-scale water and fluid treatment, filtering, and storage facilities, which H2O International, Inc. had obtained from Floran Technologies, Inc. In connection with the acquisition of H2O International, Inc., the following occurred:o We changed our name to Floran International, Inc. to reflect our new proposed business plan based upon the licensing rights held by H2O International, Inc.;o Kim Naimoli, our then sole officer and director and our then majority shareholder, resigned all positions she held with us and sold an aggregate of 925,000 shares of our common stock to Michael Mitchell, Todd Moore and Apollo Holdings LLC, which is owned by Chris Bonvini, in exchange for aggregate proceeds of $425,000;o In January 2001, we appointed Lyndell F. Parks, Frederick J. Jarosz, Terry L. Pancake, Dennis Gordon, Dr. Javaid Sheik, and G. Bryan Thomas to our Board of Directors. We appointed Frederick J. Jarosz as our President; ando We enacted a ten (10) share for one (1) share forward split of our common stock so that our shareholders as of January 9, 2001 received ten (10) shares of our common stock for each share held.On April 30, 2001, Floran Technologies, Inc. notified us that we were in default of our license agreement for failure to make required payments, and Floran terminated our license agreement. On June 26, 2001: (a) we changed our name to FTLA, Inc.; (b) we abandoned our business plan which had been based on the license agreement; and (c) Floran Technologies, Inc. returned 90,000 shares to us which we had issued to it as a shareholder in connection with our purchase of H2O International, Inc.'s licensing rights.On May 10, 2001 we enacted a one hundred (100) for one (1) reverse split of our common stock. From May of 2001 until March of 2002 we were inactive.On March 26, 2002, Paragon Management and Marketing, Inc., our majority shareholder at the time, sold 9,000,000 shares of our common stock to Kojon Biometrics, Inc., a Canadian Corporation, in exchange for $100,000. Of this amount, Kojon Biometrics, Inc. paid $40,000 in cash. Paragon Management and Marketing, Inc. exchanged the remaining balance due for 100,000 shares of Kojon Biometric, Inc.'s common stock. Lam Ko Chau, our former President and sole director, was the majority shareholder of Kojon Biometrics, Inc. through his ownership of 3,500,000 shares or 60% of Kojon Biometrics, Inc.'s common stock. Lam Ko Chau was the President and a Director of Kojon Biometrics, Inc. As a result of the transaction:o Kojon Biometrics, Inc. then held 9,000,000 shares of our common stock which represented approximately ninety-one percent (91%) of our common stock;o Lyndell Parks, our then President and Director, and Audra Parks, our then Secretary, Treasurer and Director, resigned all positions they held with us and Lam Ko Chau was appointed as our President and sole member of our Board of Directors to fill the vacancies created by their resignations; ando We changed our name to Liska Biometry, Inc. to reflect our new proposed business plan of fingerprint encoding and authentication.From the March 26, 2002 stock sale to Kojon Biometrics, Inc., Lam Ko Chau was our controlling shareholder, President, and sole director September 15, 2004.At the time Kojon Biometrics, Inc. purchased the 9,000,000 shares, Lam Ko Chau was an officer, director and the majority shareholder of Kojon Biometrics, Inc. through his ownership of 3,500,000 shares or sixty percent (60%) of Kojon Biometrics, Inc.'s common stock. Lam Ko Chau, our former President, founded Kojon Biometrics, Inc. and had been its President and Chief Executive Officer since April 17, 2001. On April 5, 2003, Kojon Biometrics, Inc. distributed the 9,000,000 shares of our common stock it had purchased on March 26, 2002 to its fifteen (15) shareholders.MATERIAL AGREEMENTSLetter of Intent with Digital Card SystemsOn December 21st, 2005 the company entered into a letter of intent to merge its operations with Digital Card Systems of Acton, Massachusetts. The company filed form 8k on December 21st, 2005 which includes the agreement.Definitive AgreementOn February 8th, 2006 the company entered into a definitive agreement to merge operations with Digital Card Systems of Acton, Massachusetts. The company filed form 8k on February 8th, 2006 which includes the entire agreement.Executive Employment AgreementsOn April 1, 2005, we entered into several employment agreements with key individuals: Mr. Chris LeClerc was reinstated to serve as our Chief Executive Officer and Mr. Manoj Hippola was reinstated to serve as the Company's Chief Financial Officer and Chief Operating Officer. As further described below, on March 8th, 2006, Hippola resigned, his successor has not yet been appointedElection of Board of DirectorsOn August 18, 2005, we held our Annual General Meeting in Manchester, NH and elected five directors:General Jean E. Boyle (ret.), was elected Chairman of the Board. General Boyle retired as Chief of Defense Staff of Canada's Armed Forces following a distinguished 30-year military career including serving as Assistant Deputy Minister (Personnel) for National Defense, Commander 1 Canadian Air Division (Europe) and Commandant of the Royal Military College of Canada. Following his retirement, he joined the Boeing Company as Vice-President of International Business Development and as Managing Director of Boeing International - Europe. In 2001, General Boyle joined the SPECTRUM GROUP, a Washington, DC-based strategic consulting organization serving defense, aerospace and high technology companies. He is the President and CEO of JEBtek International located in Ottawa.Brian F. Hynes. is a Partner with Shefsky & Froelich of Chicago, IL where he advises clients on a variety of legal matters ranging from general corporate concerns to litigation, real estate and government relations. He also serves as a principal at Illinois Governmental Consulting Group, LLC, a government relations firm. He has served as litigation counsel for the Illinois Housing Development Authority and is an invited lecturer on matters of municipal importance, including electric deregulation and public medical aid. Mr. Hynes serves on the Board of Directors for the International Visitors' Center of Chicago and Chicago Gateway Green and previously served on the Board of Directors of the Illinois Development Finance Authority and as Commissioner for the Southwest Home Equity Assurance Commission. A member of the Illinois Supreme Court Bar, he holds a BA from the University of Illinois and a JD from Loyola University of Chicago.Christopher J. LeClerc, is the President and Chief Executive Officer of the company. He joined the company from Andover Brokerage LLC, where he was responsible for a 12-member proprietary trading desk specializing in a wide range of investment strategies. He has been a Director of Business Development and Head of OTC trading at Mercer Partners L.P., a New York-based investment bank and securities underwriter. Previously, he has served as financial consultant and equities trader for Merrill Lynch, M.H. Meyerson and ETG LLC.Dr. Javaid I. Sheikh, is the Chief of Staff of the Veterans Affairs Palo Alto Health Care System (VAPAHCS) and is a Professor of Psychiatry and Behavioral Sciences as well as Associate Dean for Veterans Affairs at Stanford University School of Medicine. He is also the Medical Director of the National Center on the Psychology of Terrorism (NCPT). The NCPT works closely with the Naval Postgraduate Institute in Monterey, California, as part of the Homeland Security Leadership Development Program. Dr. Sheikh was listed in the "Best Doctors in America" from 1997 to 2001.G. Bryan Thomas, is the President, Chief Executive Officer and Chairman of Cochran Management Services, Inc. (CCMSI). He joined CCMSI in 1987 and, as Account Executive, was responsible for marketing and program development for large individual self-insured groups and major associations. Promoted to Executive Vice-President and Chief Marketing Officer in 1998, he oversaw all sales and marketing efforts of the company. In addition, he specializes in developing risk financing and cost-containment alternatives for large employers and association insurance plans with emphasis on employee benefits and workers' compensation programs.Employment AgreementsBrian Walsh: In April of 2005 the company entered into an employment contract with Brian Walsh to serve as Vice President of Global Solutions. The approximate annual cost of this position is $80,000Peter Wrage: In October of 2005 the company entered into an employment agreement with Peter Wrage to serve as Vice President of Product Operations. The approximate annual cost of this position is C$93,000Will Hansen: In October of 2005 the company entered into an employment agreement with Will Hansen to serve as Vice President Of Sales (Canada). The approximate annual cost of this position is C$75,000Departure of Principal Officers. Appointment of Principal Officers.On March 8, 2006, Liska issued a press release announcing the resignations of Jean Boyle, Chairman, Manoj Hippola, Chief Financial and Chief Operating Officer, and John Hollander, Corporate Secretary. The resignations were effective immediately. Christopher J. LeClerc, Chief Executive Officer, replaced Mr. Boyle as Chairman of the Board. Brian Hynes replaced John Hollander as Secretary. At present the company is interviewing candidates to replace Mr. Hippola.Technology Licensing AgreementOn September 30, 2004, we announced a one-year, US$5 Million technology licensing agreement with European Launch Pad SA (ELP) of Geneva, Switzerland. We were to provide ELP the right to use and market our proprietary fingerprint biometric services within the United Arab Emirates. On February 15, 2005 Liska Biometry, Inc. terminated the agreement for non-performance.Capital FinancingOn October 26th, 2005 the company issued Mercatus Partners Limited 5,000,000 shares of restricted stock for equity priced at $.275. The funds to date have not yet been received, the shares are currently held in escrow as Brown Brothers Harriman.These transactions were exempt from registration pursuant to Section 4(2) and Regulation S of the Securities Act of 1933, as amended.Investment Banking EngagementOn November 1, 2004, we signed a Letter of Engagement with Westminster Securities Corporation of New York City, NY. to act as advising agent to Liska Biometry, Inc. in its merger negotiations with Digital Card Systems. On December 23rd ,2005 the company engaged Lane Capital Markets to act as placement agent for Liska Biometry Inc, as per the agreement LCM is due $30,000 and was paid 200,000 restricted shares of stock.Unsolicited Tender Offer from Galton BiometricsOn January 12, 2005, the Board of Directors of Liska Biometry, Inc. was notified by Galton Biometrics Inc. of Geneva, Switzerland (`Galton') of its intent to make an unsolicited offer to purchase all of the Company's issued and outstanding shares. Galton concurrently issued a press release announcing its intent. We are unable to determine if Galton made the necessary filing with the SEC prior to making the public announcement of its intent to make the offer.Galton's associated company, European Launch Pad ("ELP"), defaulted on the first payment due under its contractual obligations to Liska pursuant to licensing agreement announced September 30, 2004. As a result of ELP's default, the license agreement was terminated on February 14, 2005. It also appears that Galton relies heavily on Liska's proprietary technology, operating under a sub-license agreement with ELP. Said sub-license agreement became null and void upon the termination date of the ELP license agreement.Liska's Board of Directors has reviewed Galton's offer and has determined that acceptance of its offer is not in the best interest of Liska or its shareholders.Termination of Technology LicenseOn January 14, 2005 we informed Mr. Edward Fitzpatrick, President of European Launch Pad SA (`ELP) that ELP was in violation of the technology licensing agreement dated September 29, 2004 for failure to make requisite payments in accordance with said agreement. The technology license was officially terminated on February 14th, 2005. Pursuant to said termination, Mr. Fitzpatrick, ELP and the recipient of a sub-license, Galton Biometrics, Ltd., were advised of the following:1. All rights granted under the Agreement are immediately relinquished2. To immediately cease and discontinue use of the Company's Trade Marks, trade names, designations and slogans owned or used by the Company and take no action that would make it appear to the public that you are authorized to use the trade names or name.3. Immediately deliver to the Company all price lists, bulletins, manuals, catalogues, and other literature and publications relating to sales and product information.4. Immediately cease promoting and marketing the Services as described in the Agreement.At April 19, 2005, Mr. Fitzpatrick, ELP and Galton Biometrics, Ltd., have failed to acknowledge termination of the agreement or act on the aforementioned.Strategic Alliance with Marcomm Fibre-Optics, Inc.On February 22, 2005, Liska Biometry (Canada) Inc., a wholly-owned subsidiary of the Company, announced a strategic alliance with Marcomm Fibre-Optics, Inc. of Ottawa, Canada. The strategic alliance and co-marketing arrangement will allow us to integrate our BIN(TM) Descriptor Software applications with Marcomm's high-level security software, DYNATROL. Marcomm Fibre Optics, Inc, a privately held Canadian company, is a leading provider of fully integrated security systems and services to government and large institutional clients. Its proprietary DYNATROL software solution provides a platform for the transparent integration of independent peripheral security and operating systems, such as CCTV, Access Control, PLC, Alarm Monitoring, DVR's, Intercom, VOIP, Fire Alarm, Building Automation, Lighting Control, Output Control, and Locking Control systems into one fully redundant central control and display interface. Marcomm's client list includes: o House of Commons, Parliament Hill o Department of National Defense o Senate of Canada, Parliament Hill o Royal Canadian Mounted Police (RCMP) o Public Works Canada o Nuclear Facilities o Municipal Water Purification Facilities o Correctional Services Canada o Canadian Museum Association o Secure-Note Printing FacilitiesMATERIAL RISKSWe are subject to the following risks:OUR ABILITY TO CONTINUE AS A GOING CONCERN IS CONTINGENT UPON OUR ABILITY TO ATTAIN PROFITABLE OPERATIONS AND SECURE FINANCING; IF WE FAIL TO DO SO, WE WILL BE FORCED INTO LIQUIDATION AND YOU WILL LOSE YOUR ENTIRE INVESTMENT.Our independent auditors, Stark Winter Schenkein & Co. LLP, have issued their report and opinion regarding our balance sheet as of December 31, 2005, and related statements of operations, stockholders' (deficit) and cash flows for the years ended December 31, 2004 and 2005, expressing substantial doubt about our ability to continue as a going concern. For the year ended December 31, 2005 and for the period from our inception to December 31, 2005, we incurred net losses of $2,942,852 and $10,942,245 respectively. Accordingly, our ability to continue as going concern is contingent upon our ability to attain profitable operations and secure financing and must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive forces in which we operate. Although we will attempt to obtain equity financing for our operations, if we fail to do so, we may be unable to pay our obligations, pursue our Plan of Operations, or attain revenue-producing operations, and we will be forced into liquidation, in which case you will lose your entire investment.BECAUSE WE HAVE NO OPERATING HISTORY PERTAINING TO OUR BIOMETRICS BASED BUSINESS, IT WILL BE DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND FINANCIAL PROSPECTS.Although we have formulated our Plan of Operations, we cannot implement a biometrics based business into our operations until we have adequate financing. Because we have not fully implemented our Plan of Operations, you will have difficulty evaluating our business and future prospects.OUR BUSINESS IS A NEW BUSINESS, WHICH SUBJECTS US TO FINANCIAL AND OPERATIONAL RISKS.Our operations are subject to all of the risks inherent in a new business enterprise. We currently have no revenues or products and we have no operating history. As a new business enterprise, we are subject to risks of cash shortages, substantial product development expenses and increasing losses. We do not anticipate positive cash flow at any time in the foreseeable future; even if we obtain positive cash flow, we cannot give assurances that we will be operating at break-even levels at that time or in the future.FUTURE GROWTH BEYOND PRESENT CAPACITY WILL REQUIRE SIGNIFICANT EXPENDITURES FOR EXPANSION, MARKETING AND RESEARCH AND DEVELOPMENT.We are an early stage business in a new and rapidly evolving market, which makes it difficult for investors to determine whether we will accomplish our objectives. We have only recently begun our biometrics business and it will not become operational until we receive adequate funding, if ever. As a result, we have no operating history on which you may base an evaluation of our business and prospects. You should consider our prospects in light of the risks, uncertainties, expenses and difficulties we will face as an early stage business, given that we operate in new and rapidly evolving markets and that we are using a new and unproven business model. These risks may include our potential inability to reach profitability and our lack of operating history.IF WE FAIL TO KEEP PACE WITH THE RAPIDLY CHANGING MARKET OF FINGERPRINT IDENTIFICATION, OUR REVENUES AND FINANCIAL CONDITION WILL BE NEGATIVELY AFFECTED.We believe that the market for our potential products is rapidly changing with evolving industry standards. Our future success will depend in part upon our ability to introduce new products and features to meet changing customer requirements and emerging industry standards. There can be no assurance that we will successfully complete the development of future products or that our current or future products will achieve market acceptance. Any delay or failure of these products to achieve market acceptance would adversely affect our business. In addition, there can be no assurance that products or technologies developed by others will not render our products or technologies non-competitive or obsolete.WE MAY BE UNABLE TO OVERCOME COMPETITIVE FORCES IN OUR INDUSTRY, WHICH WOULD NEGATIVELY AFFECT OUR OPERATIONS AND OUR ABILITY TO GENERATE REVENUES.We are in competition with numerous competitors in the fingerprint identification field. These companies offer technologies for the same purposes to which we plan to develop and market our technologies. These companies have substantially greater financial and other resources available to them. There can be no assurance that we can compete successfully with such other companies. Competitive pressures or other factors could cause us to lose market share if it develops at all, or result in significant price erosion, all of which would have a material adverse effect on our results of operations. For further information regarding our competition, please see page 16 of this Form 10-KSB.WE ARE SUBJECT TO SUBSTANTIAL REGULATION, WHICH MAY INCREASE OUR COSTS AND NEGATIVELY AFFECT OUR POTENTIAL PROFITABILITY.Our operations may be subject to varying degrees of federal, state or local laws and regulations. Our operations may be subject to federal, state and local laws and regulations controlling the development of technologies. Any of these regulations may increase our costs and negatively affect our potential profitability.WE FACE PATENT PROTECTION RISKS THAT MAY NEGATIVELY AFFECT OUR BRAND NAME REPUTATION, REVENUES AND POTENTIAL PROFITABILITY.Even though we have applied for patent protection of a method and system for fingerprint encoding and authentication with the United States Patent and Trademark Office, that government agency may never approve of this patent. Our patent may violate the proprietary rights of others, which may subject us to damage awards or judgments prohibiting the use of our technology. There is no assurance that any of our rights in any of our intellectual property will be enforceable, even if registered, against any prior users of similar intellectual property. In addition, if we fail to provide adequate proprietary protection, our names, our brand name reputation, revenues and potential profitability may be negatively affected.OUR MANAGEMENT HAS SIGNIFICANT CONTROL OVER STOCKHOLDER MATTERS, WHICH MAY AFFECT THE ABILITY OF MINORITY STOCKHOLDERS TO INFLUENCE OUR ACTIVITIES.Officer and director Christopher J. LeClerc has beneficial ownership 9.5% of our outstanding common stock. As such, Mr. LeClerc controls the outcome of all matters submitted to a vote by the holders of our common stock, including the election of our directors, amendments to our Articles of Incorporation and approval of significant corporate transactions. Additionally, Mr. LeClerc could delay, deter or prevent a change in our control that might be beneficial to our other stockholders.Former officer and director Lam Ko Chau, owns 12.7% of our outstanding common stock. As such, Mr. Chau controls the outcome of all matters submitted to a vote by the holders of our common stock, including the election of our directors, amendments to our Articles of Incorporation and approval of significant corporate transactions. Additionally, Mr. Chau could delay, deter or prevent a change in our control that might be beneficial to our other stockholders.BECAUSE OUR STOCK IS A PENNY STOCK FOR WHICH THERE MAY NEVER BE A MARKET, ANY INVESTMENT IN OUR STOCK IS A HIGH-RISK INVESTMENT AND IS SUBJECT TO RESTRICTIONS ON MARKETABILITY; YOU MAY BE UNABLE TO SELL YOUR SHARES.Broker-dealer practices in connection with transactions in penny stocks are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks, like shares of our stock, generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on NASDAQ. The penny stock rules require a broker-dealer, prior to transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, broker-dealers who sell these securities to persons other than established customers and "accredited investors" must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security subject to the penny stock rules, and investors in our stock may find it difficult to sell their shares.REVENUES:We have had no revenues in connection with our fingerprint encoding business.OUR CUSTOMERS:As of December 31, 2005, and as of the date of this Form 10-KSB, we have had no customers. Although we plan to engage in the fingerprint encoding and authentication business, there are no assurances that we will develop any customers for our products. Because our customers potentially include United States government agencies, including branches of the United States military, there is a risk that we will become dependent upon one or a few customers.GEOGRAPHIC MARKETS:As of December 31, 2005, and as of the date of this Form 10-KSB, we have developed our marketing plan for our fingerprint encoding and authentication business; these markets at present include North America and the Middle East.TARGET MARKETS:Our target markets include the following:Our target markets include federal, state, and local government agencies, including:o All branches of the United States military; o Federal Bureau of Investigation; o Office of Homeland Security; o Immigration and Naturalization Service; o Local police and sheriff's departments; o Department of Defense Biometrics Management Office o United States Army Communication Electronics Command; o National Security Agency; o Justice Department Management Office; o Airport authorities; o State corrections departments; o State judiciary departments; o Education departments; and o State Probation and Parole departments.Corporationso Financial institutions; o Transportation Industry o Childcare; o Securities and gaming agencies; and o Large retail organizations.MARKETING:As of April 17th, 2006 we have developed a marketing program for our proposed fingerprint encoding and authentication operations. At present we have four employees working to execute the plan, two members handle the US, one member, Canada, and one member the Middle East. In June of 2005 we also engaged Jebtek International to assist the company in its implementation of the company's marketing program.SOURCES AND AVAILABILITY OF RAW MATERIALS/PRINCIPAL SUPPLIERS:We will rely upon third party manufacturers to manufacture our hardware computer technology components that comprise our fingerprint biometric applications and other products. As such, we do not anticipate being dependent upon raw materials or suppliers for our proposed fingerprint encoding and authentication operations.PATENTS, TRADEMARKS AND LICENSES:On August 16, 2001, Lam Ko Chau, our former President, filed a provisional United States (U.S.) patent application in the U.S. Patent and Trademark Office (USPTO), entitled "Method and System for Fingerprint Encoding and Authentication" and having serial number No. 60/312,371. On October 1, 2001, Lam Ko Chau, our former President, filed a non-provisional U.S. patent application in the USPTO, entitled "Method and System for Fingerprint Encoding and Authentication", having serial number No. 09/965,809 and claiming the benefit of said provisional U.S. patent application. On August 15, 2002, Lam Ko Chau, our former President, filed a PCT International Patent Application with the Canadian Intellectual Property Office (CIPO) acting as Receiving Office under the Patent Cooperation Treaty (PCT), entitled "Method and System for Fingerprint Encoding and Authentication", having serial number PCT/CA02/01274 and claiming priority from said provisional U.S. patent application and said non-provisional U.S. patent application. A Petition to Make Special (PTMS) was filed in the USPTO on December 23, 2002 in order to accelerate the examination proceedings in respect of said non-provisional U.S. patent application and said petition was granted on September 2, 2003. On February 27, 2003, Lam Ko Chau, our former President, assigned the right, title and interest in and to all of the aforementioned patent applications to Liska Biometry, Inc. for consideration of $1. On July 18, 2003, we assigned the right, title and interest in and to all of the aforementioned patent applications to Liska Biometry Inc., a Florida Corporation for consideration of $1. The two aforementioned assignments were recorded with the USPTO on March 20, 2003 and on July 23, 2003, respectively. On February 16, 2004, said PCT International Patent Application entered the National Phase in Canada in the name of Liska Biometry, Inc. On June 25, 2004, we received word that the U.S. Patent Office had granted U.S. patent 6,757,411 on the above-identified application. As of March 22, 2005, said the Canadian National Phase patent application was pending before, with no official actions having yet been received.On November 23, 2004, Manoj Hippola, our Chief Financial Officer and Chief Operating Officer, filed, on behalf of the Company, a trademark application with the Canadian Patent and Trademark Office for `BIN" the Company's acronym for Biometric Identifier Number having docket number 1 240 590.On December 16, 2004, Dr. Peter Wrage, our Vice President of Product Operations, filed, on behalf of Liska, a non-provisional United States (U.S.) patent application in the U.S. Patent and Trademark Office (USPTO), entitled "Method and Apparatus for Determining a Stable Repeatable Code From Biometric Information" having docket number 246-03 US. A Petition to Make Special (PTMS) was filed concurrently with the USPTO on December 16, 2004 in order to accelerate the examination proceedings in respect of said non-provisional U.S. patent application.On December 16, 2004, Dr. Peter Wrage, our Vice President of Product Operations, filed, on behalf of Liska, a non-provisional United States (U.S.) patent application in the U.S. Patent and Trademark Office (USPTO), entitled "Database Employing Biometric Indexing and Method Therefore" having docket number 246-04 US. A Petition to Make Special (PTMS) was filed concurrently with the USPTO on December 16, 2004 in order to accelerate the examination proceedings in respect of said non-provisional U.S. patent application.Our ability to compete in the biometrics industry will depend on our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We will rely upon patent, trademark, copyright, trade secret and contract law to establish and protect our proprietary rights; however, there are no assurances that we will have adequate protection of our proprietary rights or that our proprietary rights will not be challenged. The loss or circumvention of our proprietary rights would have a material adverse affect upon our operations and financial condition.COMPETITION:The markets for our potential products are increasingly competitive. Our competitors have substantially longer operating histories, greater name recognition, larger customer bases and greater financial and technical resources than us. Because we are financially and operationally smaller than our competitors, we will encounter difficulties in capturing market share. Our competitors are able to conduct extensive marketing campaigns and create more attractive pricing of their target markets than we are. In addition, we do not have an established brand name or reputation while our competitors have significantly greater brand recognition, customer bases, operating histories and financial and other resources. In addition, our markets are characterized by rapid technological change, which lead to frequent introductions of new features in products to respond to changing consumer needs and preferences. Our competitors will have greater financial and operational resources by which to respond to these consumer needs and preferences. At the present time, we have not formulated a plan to overcome the competitive advantages of our competitors, and we will not do so until we develop our product or products.REGULATORY MATTERS/EFFECT OF EXISTING GOVERNMENTAL REGULATIONS:As of December 31, 2005 and through the date of this Form 10-KSB, we have not been subject to government regulations pertaining to our business. Our future operations will be subject to extensive and ever changing federal, state and local laws and regulations.COST OF COMPLIANCE WITH ENVIRONMENTAL MATTERS:As of December 31, 2005 and through the date of this Form 10-KSB, we were not subject to environmental regulations or costs. Because the fingerprint encoding and authentication business does not involve the emission of pollutants or other dangerous substances, we do not anticipate being subject to environmental regulations or costs relating to our proposed fingerprint encoding and authentication operations.RESEARCH AND DEVELOPMENT:During fiscal year 2005, we spent $941,321 on research and development.EMPLOYEES:As of April 17, 2006, on a consolidated basis we had eleven (11) employees, of whom four (4) were engaged in research, development and engineering, four (4) in sales, marketing and field service and three (3) in general administration, finance and legal. The Company also has two engineering consultants who work on a part time basis.REPORTS TO SECURITY HOLDERS:We are subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, we file annual, quarterly and other reports and information with the Securities and Exchange Commission. You may read and copy these reports and other information we file at the Securities and Exchange Commission's public reference rooms in Washington, D.C.; New York, New York; and Chicago, Illinois. Our filings are also available to the publicfrom commercial document retrieval services and the Internet website maintained by the Securities and Exchange Commission at www.sec.gov.I