<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------


                                AMENDMENT NO. 2


                                       TO


                                   FORM 10-K


                                       ON


                                  FORM 10-K/A
(MARK ONE)


              [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       OR


            [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


        FOR THE TRANSITION PERIOD FROM                TO

                        COMMISSION FILE NUMBER 000-26696

                            BIOMETRIC SECURITY CORP.
                   (FORMERLY KNOWN AS SONOMA RESOURCE CORP.)
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


<TABLE>
<S>                                                            <C>
                    WYOMING                                        98-0204725
         (STATE OR OTHER JURISDICTION                           (I.R.S. EMPLOYER
       OF INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)

        SUITE 1940, 400 BURRARD STREET,                              V6C 3A6
      VANCOUVER, BRITISH COLUMBIA, CANADA                          (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (604) 687-4144
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS  NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------  -----------------------------------------
<S>                  <C>
        N/A                             N/A
</TABLE>

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                        COMMON SHARES WITH NO PAR VALUE
                                (TITLE OF CLASS)

    Indicate by check mark whether the registrant (1) 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  YES [ ]  NO [X]

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [ ]

    The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 1, 1999, based upon the closing price of the common stock on
the Vancouver Stock Exchange for such date, was approximately $6,790,252. Shares
of common stock held by each officer and director and by each person who owns 5%
or more of the outstanding common stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS

    Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.  [ ]

    Not Applicable

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

    The number of outstanding shares of the Registrant's common stock on March
15, 1999 was 32,501,078.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Not Applicable
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

CURRENCY AND EXCHANGE RATES

     All dollar amounts set forth in this report are in Canadian dollars, except
where otherwise indicated. The following table sets forth (i) the rates of
exchange for the Canadian dollar, expressed in U.S. dollars, in effect at the
end of each of the periods indicated; (ii) the average of the exchange rates in
effect on the last day of each month during such periods; (iii) the high and low
exchange rate during such periods, in each case based on the noon buying rate in
New York City for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York.

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                           ---------------------------------------------------
                                            1998       1997       1996       1995       1994
                                           -------    -------    -------    -------    -------
<S>                                        <C>        <C>        <C>        <C>        <C>
Rate at End of Period....................  $0.6504    $0.6999    $0.7301    $0.7323    $0.7103
Average Rate During Period...............   0.6740     0.7197     0.7333     0.7285     0.7321
High Rate................................   0.7105     0.7487     0.7513     0.7527     0.7632
Low Rate.................................   0.6341     0.6945     0.7245     0.7023     0.7103
</TABLE>

     On March 12, 1999, the noon buying rate in New York City for cable transfer
in Canadian dollars as certified for customs purposes by the Federal Reserve
Bank of New York was $0.6564 U.S. = $1.00 Canadian.
<PAGE>   3

                               TABLE OF CONTENTS

<TABLE>
<S>               <C>
PART I
Item 1..........  Business
Item 2..........  Properties
Item 3..........  Legal Proceedings
Item 4..........  Submission of Matters to a Vote of Security Holders
PART II
                  Market for Registrant's Common Equity and Related
Item 5..........  Stockholder Matters
Item 6..........  Selected Financial Data
                  Management's Discussion and Analysis of Financial Condition
Item 7..........  and Results of Operations
Item 7A.........  Quantitative and Qualitative Disclosures About Market Risk
Item 8..........  Financial Statements and Supplementary Data
                  Changes in and Disagreements With Accountants on Accounting
Item 9..........  and Financial Disclosure
PART III
Item 10.........  Directors and Executive Officers of the Registrant
Item 11.........  Executive Compensation
                  Security Ownership of Certain Beneficial Owners and
Item 12.........  Management
Item 13.........  Certain Relationships and Related Transactions
PART IV
                  Exhibits, Financial Statement Schedules, and Reports on Form
Item 14.........  8-K
</TABLE>
<PAGE>   4

                                     PART I

ITEM 1  BUSINESS


DESCRIPTION OF BUSINESS


  Structure of Biometric Security Corp.


     Biometric Security Corp. was incorporated by registration of its memorandum
and articles under the Company Act (British Columbia) on January 16, 1979 under
the name "North American Power Petroleums Inc." Its name was changed to "Sonoma
Resource Corp." on January 5, 1990. Sonoma adopted a new set of Articles
effective as of July 19, 1996.


     On November 10, 1998 Sonoma transferred its domicile from British Columbia
to the State of Wyoming, changed its name from "Sonoma Resource Corp." to
"Biometric Security Corp." and adopted Articles of Continuance governed by
Wyoming law but unchanged from its prior charter except so as to conform to
requirements of the Wyoming corporations statute. On November 12, 1998,
Biometric increased its authorized capital to an unlimited number of common
shares.

     Biometric's executive offices are located at Suite 1940, 400 Burrard
Street, Vancouver, British Columbia, Canada, V6C 3A6. Its registered office and
address for service in British Columbia is care of its solicitors, Catalyst
Corporate Finance Lawyers, Suite 1100, 1055 West Hastings, Vancouver, British
Columbia, Canada V6E 2E9. Biometric's registered office and address for service
in Wyoming is care of its Wyoming attorneys, Hathaway, Speight & Kunz, LLC, 2515
Warren Avenue, P.O. Box 1208, Cheyenne, Wyoming, U.S.A. 82003-1208.


     On December 31, 1998 Biometric owned six subsidiaries, detailed in the
chart below, which are related to its mineral exploration activities in
Argentina. See "Business of Biometric Security Corp. -- Historical Operations:
Mineral Exploration in Argentina" for more information about these activities.
Except for Sonoma Resource de Argentina S.A., further described below, none of
the subsidiaries has any material assets and Biometric plans dissolve them as
soon as possible.



<TABLE>
<CAPTION>
                                                     DATE OF         JURISDICTION OF     PERCENTAGE
              NAME OF SUBSIDIARY                  INCORPORATION       INCORPORATION     OWNERSHIP(1)
              ------------------                  -------------      ---------------    ------------
<S>                                             <C>                  <C>                <C>
Sonoma Resource de Argentina S.A..............  November 30, 1995       Argentina           100%
Castano S.A...................................   August 7, 1996         Argentina           100%
Castano Mining (Barbados) Ltd.................    June 6, 1996          Barbados            100%
Cerro Toro S.A................................   August 5, 1996         Argentina           100%
Cerro Toro Mining (Barbados) Ltd..............    June 6, 1996          Barbados            100%
Sonoma Resource (Bermuda) Ltd.................    June 5, 1996           Bermuda            100%
</TABLE>


---------------

(1) Represents the percentage of voting securities held. None of the
    subsidiaries has any non-voting securities outstanding.


  Business of Biometric Security Corp.

  Historical Operations: Mineral Exploration in Argentina

     Until mid-1998 Biometric's business was exclusively mineral exploration. In
light of the state of the markets for gold and other precious metals, Biometric
made a strategic decision to leave the resource sector and began disposing of
its mineral exploration assets. Biometric made this change because management
believes that the price of gold will remain depressed into the foreseeable
future. That means that Biometric, in common with other precious metal
exploration companies, would have trouble financing its exploration operations,
since this financing is based on cash flow estimates of future production from
mineral properties. With low metals prices, even if mines are put into
production, the cash flows based on those prices may not be high enough to
justify exploration financing.

                                        1
<PAGE>   5

     On December 31, 1998, Biometric's mineral exploration assets were held
indirectly through its wholly-owned subsidiary Sonoma Resource de Argentina S.A.
This subsidiary owned 100% of the Cerro Toro Project located in the San Juan
Province of Argentina and the Apeleg Claim Block located in the Chubut Province
of Argentina, which included 9 properties comprising 93,709 hectares. These
limited Argentina operations were what remained following cutbacks made by
Biometric earlier in 1998, when Biometric had significantly reduced its staff
and overhead in Argentina and had substantially cut back on its exploration
activities.

     In November 1998, Biometric through its subsidiary reached an agreement to
sell up to 100% of its Argentinean properties to Inlet Resources Ltd., a
corporation organized under British Columbia law with executive offices in
Vancouver. In order to grant Inlet an option to acquire 90% of the properties,
Inlet and Biometric entered into a written agreement for the purchase on January
21, 1999, which was approved on February 15, 1999 by the Canadian regulatory
authorities. Under the agreement, Inlet must pay US$ 750,000 and issue 300,000
of its shares to Biometric over a three year period and also complete a work
commitment requiring expenditure of US$ 2,150,000. Under this work commitment,
Inlet must spend a total of US$ 2,150,000 on exploration work over three years,
on the optioned Argentinean properties. If Inlet fails to meet this commitment,
it will lose the right to exercise its option to acquire the properties. Inlet
may acquire the remaining 10% by the payment of US$ 2,000,000 to Biometric. By
March 1, 1999, Biometric had received US$ 150,000 and 100,000 common shares of
Inlet.

     Inlet is a public company whose stock is traded on the Vancouver Stock
Exchange. The closing price for Inlet's stock on June 9, 1999, was $0.07. Inlet
is engaged in the acquisition, exploration, development and subsequent
production relating to mining properties. Biometric had acquired 100,000 shares
of Inlet common stock and has since sold the shares for $11,078. Biometric holds
no Inlet shares at this time. At December 31, 1998, Inlet had 20,174,875 shares
outstanding. If Biometric receives 200,000 shares of Inlet stock, Biometric's
ownership percentage would be approximately 1%.

     When Inlet has met all its obligations under the agreement, Biometric will
have completed its departure from the natural resource sector. It has no plans
to return to this industry.

  Current Activity: Investment in U.S. Fingerprint Technology Company

     On June 12, 1998, Biometric entered into an agreement to acquire up to US$
5,000,000 of convertible debentures to be issued by Biometric Identification,
Inc., a California corporation which is engaged in development of fingerprint
identification technology and related products. Biometric now has no other
activity than its investment in Biometric Identification but, as further
discussed below, is contemplating entering into the same business as Biometric
Identification.

     Biometric Identification is controlled by Arete Associates, a California
corporation having its executive offices in Los Angeles. Arete owns
approximately 80% of the issued and outstanding shares of Biometric
Identification. Employees of Biometric Identification and Arete hold the
remaining shares of Biometric Identification.

     Arete has been a Department of Defense research and development contractor
for over 20 years specializing in sensor systems and pattern recognition
software development. Many of Arete's mathematicians and physicists helped
develop the fingerprint identification technology now being further developed
and commercialized by Biometric Identification. Arete has obtained the
recognition of the technical community through an integration of scientific
knowledge and advanced sensor systems expertise.

                                        2
<PAGE>   6

  Terms of Investment in Biometric Identification Inc.


     Under the Biometric Identification debenture purchase agreement, Biometric
agreed to invest in Biometric Identification by purchasing in a series of
tranches up to US$ 5,000,000 of convertible debentures issuable by Biometric
Identification. The Biometric Identification debentures bear interest at the
lowest "applicable federal rate" required to avoid imputation of interest under
U.S. tax law and, unless converted, will mature and be payable on June 12, 2003,
the fifth anniversary after the closing date of the first three tranches. As of
April 16, 1999, Biometric had purchased US$ 3,500,000 of the debentures, and as
of July 23, 1999, Biometric had purchased all US$ 5,000,000 of the debentures as
shown in the following table:



<TABLE>
<CAPTION>
        DESIGNATION           PRINCIPAL AMOUNT        OUTSIDE PURCHASE DATE
        -----------           ----------------    -----------------------------
<S>                           <C>                 <C>
Tranche A & B...............   US$   350,000      Advanced before June 12, 1998
Tranche C...................   US$   900,000      Advanced on June 12, 1998
Tranche D...................   US$   500,000      Advanced on August 12, 1998
Tranche E:
  First advance.............   US$    75,000      Advanced on November 13, 1998
  Second advance............   US$   250,000      Advanced on November 25, 1998
  Third advance.............   US$   250,000      Advanced on December 18, 1998
  Fourth advance............   US$   550,000      Advanced on January 29, 1999
  Fifth advance.............   US$   125,000      April 16, 1999
Tranche F...................   US$   500,000      April 16, 1999
Tranche G...................   US$ 1,500,000      Completed July 23, 1999
                               -------------
          Total:............   US$ 5,000,000
                               =============
</TABLE>


     Biometric may convert the Biometric Identification debentures at any time
into shares of Biometric Identification common stock. The debentures will be
automatically converted on an initial public offering by Biometric
Identification. As shown in the following table, if Biometric were to
immediately convert all of its Biometric Identification debentures without
Biometric Identification having issued any additional dilutive securities,
Biometric would hold 45% of Biometric Identification's common stock. That
percentage, however, is subject to dilution resulting from share issuances
resulting from exercise of stock options granted or to be granted under
Biometric Identification's incentive stock option plan as well as any subsequent
equity financings undertaken by Biometric Identification in which Biometric does
not participate.

<TABLE>
<CAPTION>
                                               PERCENT UPON
                                              CONVERSION OF
                DESIGNATION                   ENTIRE TRANCHE    CUMULATIVE PERCENTAGE
                -----------                   --------------    ---------------------
<S>                                           <C>               <C>
Tranche A, B & C............................      20.00%                20.00%
Tranches D & E..............................      13.33%                33.33%
Tranches F & G..............................      11.67%                45.00%
</TABLE>

     Biometric has not made a decision whether to exercise its right to convert
the Biometric Identification debentures.

     The Biometric Identification debenture purchase agreement includes
acknowledgements by Biometric and Biometric Identification that they intend to
merge if they determine it is in their interests following analysis of their
mutual business objectives and whether a merger could be advantageously
structured following consideration of tax, securities and other legal matters.
The Biometric Identification debenture purchase agreement has no legally binding
provision requiring the parties to merge, and the parties are not currently
conducting any merger negotiations.

     Rand Edgar Capital Corp., a private British Columbia corporation with
executive offices in Vancouver, British Columbia, arranged for Biometric's
purchase of the Biometric Identification debentures. Rand Edgar Capital is owned
and controlled by two persons, one of whom is the wife of Mr. William Rand, a
director of Biometric.

                                        3
<PAGE>   7

     Rand Edgar Capital originally entered into a memorandum of understanding
with Biometric Identification and with Arete dated March 18, 1998, amended and
replaced May 20, 1998. Rand Edgar Capital assigned its interest in the
memorandum to Biometric on May 21, 1998 upon payment of US$ 145,000 plus
reimbursement of its expenses. On June 12, 1998, Rand Edgar Capital elected that
its fee could be paid in the form of 715,575 common shares of Biometric at $0.30
per share. These shares were issued in pro rata tranches with the closing of
tranches of Biometric's purchase of Biometric Identification debentures. Finders
fee shares issued to date have actually been in the form of special warrants,
each exercisable for one share of Biometric's common stock at $0.30 per share.
As of December 31, 1998, Biometric had issued 250,450 shares to Rand Edgar
Capital in connection with the finder's fee. In addition, as of August 11, 1999,
Biometric issued 465,125 shares to Rand Edgar Capital in respect of the
Biometric Identification debentures that Biometric purchased on November 13 and
25, 1998, December 18, 1998, January 29, 1999, April 16, 1999 and July 23, 1999.
This completes the issuance of all the shares Biometric agreed to issue to Rand
Edgar Capital in connection with the finder's fee.

BUSINESS OF BIOMETRIC IDENTIFICATION INC.


  Overview


     Biometric Identification was incorporated in 1995 as a subsidiary of Arete.
Arete granted Biometric Identification an exclusive world-wide license for all
uses of Arete's fingerprint identification technology, to the full extent of
Arete's rights in the technology. The license agreement provides that Biometric
Identification will pay Arete a license fee of US$ 0.10 per unit for the first
2,500,000 products and US$ 0.05 per unit for the next 20,000,000 products. Upon
the payment of US$ 1,250,000 of royalties, Arete will transfer ownership of the
licensed intellectual property outright to Biometric Identification. Although
the license has no expiration date, Arete can terminate the license on 30 days'
notice if Biometric Identification materially breaches the license agreement.

     Biometric Identification has continued to develop the Arete technology and
undertake its commercialization. Biometric Identification's products use
patented software for positive personal identification. The technology provides
a higher level of security and ease of use compared to traditional older methods
of identification such as personal identification numbers and passwords. The
advantage of Biometric Identification fingerprint identification technology
relative to competitive products derives from its greater accuracy because it
images the entire fingerprint and the rapidity with which it can be integrated
into customer identification systems.

  Biometric Technologies

     Biometrics is the science of identifying an individual through his or her
own unique physical characteristics. The biometrics industry is based upon the
premise that there are substantial commercial markets for positive personal
identification based on the widespread need of employers, governmental agencies,
service companies, among others, for accurate, rapid, cost-efficient and
user-acceptable identification of persons. The existence of passwords for data
access, PINs for ATM and account access, identification cards, photos and
signatures on credit cards provides evidence of this need.

                                        4
<PAGE>   8

     There are six primary forms of biometric technology, as listed below.
Biometric Identification is focusing on fingerprint identification technology.

     - Fingerprint Scanning -- mainly used for retail point of sale and credit
       card transactions, e-commerce and Internet/intranet security

     - Face Recognition -- mainly used for governmental applications such as
       welfare agencies and departments of motor vehicles

     - Hand Geometry -- mainly used for time and attendance monitoring

     - Iris/Retina Scanning -- mainly used for high security applications such
       as nuclear power plants

     - Voice Recognition -- mainly used for remote access applications such as
       remote banking

     - Signature Recognition -- mainly used for document processing in financial
       and insurance industries and in government applications

  Technology and Products

     Biometric Identification's products use a patented fingerprint verification
software. The system registers the entire fingerprint of an individual, saves a
template of it, and then at a later time verifies the individual's identity by
retrieving the template and comparing it with a newly obtained fingerprint
image. Biometric Identification's line of biometric fingerprint identification
products includes those which can be used in stand-alone mode or as part of a
larger application. These products can be integrated into a broad range of
existing applications that require user authentication such as access to
personal computers, computer networks, ATMs, credit card readers and physical
access control systems.

  Competitive Features of Biometric Identification's Fingerprint Identification
Technology

     Verification software is the essential component of fingerprint
identification biometrics. Biometric Identification's software presents
improvements in accuracy of verification and integration with other software and
hardware. Biometric Identification's products are small, versatile and
inexpensive. During 1998, Biometric Identification spent US$ 1,500,000 on
product research and development. Biometric Identification plans to spend
approximately US$ 2 million in 1999.

     Biometric Identification's products are unique among fingerprint
identification systems for three major reasons:


     - Accuracy and Long-Term Reliability of Identification.


     Many fingerprint verification software techniques involve making
identification based on certain features of the fingerprint, known as "minutia",
but not the entire fingerprint. These minutia-based programs can be fooled by
temporary alterations such as changes to the finger due to cuts or swelling. In
contrast, the Biometric Identification technique images the entire two
dimensional ridge structure of the fingerprint so as to create a template for
comparison purposes. The software's comparison technique compensates for image
distortion, dislocation, rotation, sensor noise, finger swelling and scarring.
It is only after performance of these compensatory techniques, and the process
then indicates that the two print images still do not match, that the candidate
print is declared dissimilar to the template.


     Minutia-based systems often have difficulty compensating for distortion and
other factors so that over time they become less reliable in identifying stored
fingerprints. This can require individuals to re-enroll, i.e., create new
templates, and increases the probability of a false rejection.



     Test results confirm that Biometric Identification's identification system
is highly accurate. Less than one usage in a thousand results in a false
positive, i.e., incorrect identity confirmation, or false negative, i.e.,
failure to confirm identity. The system permits enrollment of new users through
one touch in a process completed within less than five seconds. Response time in
usage is usually less than one second. Biometric Identification tests the
accuracy of its fingerprint identification systems using various software
programs that test the


                                        5
<PAGE>   9

products throughout the manufacturing process. The tests include general checks
of systems and circuitry, and tests for tolerance of image quality.


     - Flexibility and Rapidity of Integration into Products.


     Another unique feature of Biometric Identification's products is that the
software, rather than being a permanent, unchangeable part of a computer chip,
is programmable and therefore more flexible for various uses. This means that
the software can be more easily integrated into products developed by original
equipment manufacturers or value added resellers which are sold to the ultimate
user. By comparison, most competitive products rely on so-called "application
specific integrated circuit" technology, sometimes referred to as "software
frozen into silicon," which does not lend itself so readily to customization
because the software is a permanent part of the chip in that technology, and
cannot be changed.

     Biometric Identification has also developed an application software
development kit to assist, for example, value added resellers in integrating
their software with Biometric Identification products. Biometric
Identification's software is compatible with Windows 95 and Windows NT and is
provided in the form of a "dynamic link library" which means that Biometric
Identification's software can link, or communicate, with the user's. This allows
a user to customize the products for purposes of meeting the user specific needs
and enabling capability with its computer environment.


     - Small and Inexpensive Products.


     Biometric Identification's products use silicon sensor technology to take a
picture of the fingerprint. Silicon sensor technology is smaller than a quarter
coin, which allows Biometric Identification to embed it in very small devices.
Biometric Identification is the first company to complete the integration of its
software into a self-contained system the size of a business card, as included
in its Veriprint 1100 product, discussed below. Biometric Identification's
products require only microprocessors to run their software. This makes them
less expensive than competitors' products, which have to be run on PCs since
their software requires other PC components such as hard drive and memory cards,
rather than the PC's microprocessor alone.

  Biometric Identification's Products

     Biometric Identification has developed three main products. The first is
Biometric Identification's core software technology and the next two represent
customer-ready applications. Biometric Identification's product line of
biometric fingerprint identification products includes products which can be
deployed in stand-alone mode or as part of a larger application. Biometric
Identification does not manufacture its own products but instead "outsources"
its manufacturing so as to control costs.


     Currently, Biometric Identification's major outside manufacturer is
PrimeTech Electronics, Inc. This relationship is not exclusive for either
Biometric Identification or PrimeTech, and Biometric Identification believes
that it can readily find other outside manufacturers if PrimeTech were to be
unavailable to manufacture Biometric Identification products. Biometric
Identification purchases silicon sensors, its primary manufacturing component,
either directly from the large silicon sensor companies such as Infineon
Corporation (formerly a division of Siemens), Harris, ST Micro, Veridicom and
Thomson CSF Semiconducteurs Specifiques, or through PrimeTech. Biometric
Identification purchases its board parts, meaning the collection of printed or
soldered circuitry on which the sensors are placed, from PrimeTech. Biometric
Identification has not entered into written purchasing or supply contracts with
any of these companies.


     Biometric Identification's existing product line is summarized below. All
of these products are available for retail sale:

          1.  BIOMETRIC IDENTIFICATION FINGERPRINT IDENTIFICATION
              SOFTWARE -- The core software which is the "engine" of Biometric
              Identification's product applications and features the following:

             - Biometric Identification's patented fingerprint verification
               software that, as discussed above, focuses on fingerprint ridge
               patterns rather than minutia

             - detection of latex/rubber fake fingers used to "fool" less
               sophisticated identification systems

                                        6
<PAGE>   10

             - performs both matching (one-to-one) and searching (one-to-many)
               in a database

          2.  VERIPRINT 2100 OPTICAL TERMINAL -- Complete biometric terminal
              with case, keypad and small liquid crystal display. This product
              is presently an "optically based sensor" product, meaning that it
              uses light or optics to sense or "see" the fingerprint. Each unit
              sells for US$ 800 to US$ 900. The product has been available since
              1997 and there are now approximately 3,500 units being used in
              connection with time and attendance and access control
              applications.

              Biometric Identification hopes during the first half of 2000 to
              achieve "silicon sensor" integration which is superior to an
              optically based sensor product because use of silicon enables the
              product to become much smaller without loss of performance.

          3.  VERIPRINT 1100 SILICON SENSOR, INTEGRATION COMPONENT -- Introduced
              in 1998, this is the first ever use of "silicon sensor" technology
              in a self-contained programmable fingerprint system including
              template storage for up to 4,000 persons. The product is smaller
              than a business card and no thicker than a half dollar, so that it
              can be easily integrated into equipment manufacturer products such
              as readers and keyboards. Biometric Identification sells this to
              equipment manufacturers for approximately US$ 200-400 per unit,
              depending on volume. Applications include safeguarding Internet
              access, electronic commerce and other sensitive data applications.

     In addition to its existing products, Biometric Identification is also
working on a new product, the Veriprint 2200, which Biometric Identification
expects to begin marketing in 2000. This product is to be a hybrid of the
Veriprint 1100 and the Veriprint 2100 in that it will incorporate the silicon
sensor technology of the Veriprint 1100, and will include a case, keypad and
screen display similar to the Veriprint 2100. The Veriprint 2200 will contain a
limited amount of storage for the fingerprint templates.

     Biometric Identification's plans for additional future revenue include
licensing its proprietary fingerprint identification software to large original
equipment manufacturers in such areas as smart card technology, electronic
commerce, and computer equipment. Biometric Identification does not currently
license its technology to any equipment manufacturers, but its software is
currently being tested by several equipment manufacturers in anticipation of
forming a licensing relationship in the future.


  Product Integration


     Biometric Identification has integrated its products with newly-introduced
silicon sensor-based technology and is working with five vendors of the
integrated system: Veridicom, Inc., ST Micro Electronics, Thomson CSF
Semiconducteurs Specifiques, Infineon Corporation (formerly a division of
Siemens) and AuthenTec Inc. Biometric Identification has also completed product
integration with several other manufacturers such as Radionics, Inc.,
Westinghouse Security Electronics, Inc., Chubb Security, Simplex, Northern
Computer and Apollo Computer. The integration process is time-consuming and
expensive because it generally involves two levels of integration: first, the
hardware must be designed to accommodate the company's products; then the
software must be integrated with the hardware.

     Biometric Identification has not entered into written supply, production or
distribution contracts with any of the companies that integrate Biometric
Identification's products with theirs. Biometric Identification typically enters
into non-disclosure agreements with these companies, and provides other
documents concerning the product integration process such as product
specifications and integration timetables.

  Market for Products


  Market Overview


     The biometrics industry started with forensic applications using
fingerprints for law enforcement and government security applications. In the
last 30 years, electronic fingerprinting has evolved as an alternative storage
and retrieval medium to paper and ink.

     Biometric Identification believes that the fingerprint identification
segment is a large and widely accepted method of biometric identification. New
technologies, such as Biometric Identification's products, are

                                        7
<PAGE>   11

overcoming the historical problems of inaccuracy, false rejections and user
nonacceptance that have limited the use of this tool for biometric
identification and have held back long term market growth. With advances in
computer technology, including cost reduction, miniaturization, and growing
familiarity of the public with computer-based solutions, there is much greater
potential for commercial investment in this area, particularly as prices further
decline following ongoing technology development and increasingly widespread
commercial implementation.


  Biometric Identification's Market Focus


     There are many applications for electronic fingerprint devices, including:

     - point-of-sale devices

     - electronic commerce

     - access control, and

     - computer security.

     Although Biometric Identification's technology can be used in almost any
environment requiring highly accurate and rapid identification of persons, it
would be much more expensive and time consuming to focus initially on
applications in so-called open systems, which involve large numbers of ever
changing users and sites. Examples of open systems include the credit card and
electronic commerce industries. Because there is extensive demand for
application in closed systems, which are less time-intensive and expensive to
implement, Biometric Identification has decided to focus its efforts on these in
the short term. Examples of closed systems include access control for company
personnel, time and attendance records for employees, and access and usage
security for computer networks.

  Time and Attendance Records

     There is high demand for closed system identification controls. Many
industries, such as manufacturing, retail, and service, with large numbers of
wage workers desire to reduce the fraud associated with "buddy punching," which
refers to clocking in and out for an absent co-worker. Buddy punching is
relatively easy because cards and personal identification numbers are not
intrinsically linked to the card holder.

     Biometric Identification currently provides its time and attendance
products to companies such as Stromberg Corporation, Control Module, Inc. and
Synel Corporation.

  Building Access Control

     Another promising closed system for Biometric Identification products is in
controlling entry of persons to buildings and office suites. The need is growing
in the large U.S. service economy involving large numbers of office workers who
are highly concentrated in urban areas with a strong perceived need to prevent
extremely costly vandalism and theft or alteration of records. Large
corporations, sensitive government locations, law and other professional firms,
hospitals, banks, correctional institutions, airports and educational
institutions are all examples of institutions with large office security
requirements.

     The introduction of biometric devices in this market has been limited,
despite the considerable size of this marketplace, likely due to cost and system
integration impediments. The electronic access control market is dominated by
card and proximity reader devices placed on entries to control and limit access.
Biometric Identification's discussions at trade shows and with access control
companies demonstrate that if biometric solutions could approach the cost level
of card and proximity reader devices, then a biometric solution could become the
primary application. Biometric Identification has designed its Veriprint 1100
product line to meet these cost levels. Also, Biometric Identification's product
require less customer administrative oversight than for a card reader system
because there is no longer any need to record and physically control
identification cards.

                                        8
<PAGE>   12

     Biometric Identification has completed or is nearing completion of
integrating its product with those of large card identification companies such
as Westinghouse Security Electronics Inc. and Radionics, Inc. For example,
Westinghouse and Radionics have integrated Biometric Identification's V2100
product with their access control systems.

     Biometric Identification is presently working with Radionics, Inc., one of
the largest home security companies in the U.S., in order to integrate Biometric
Identification biometrics into their access control and intrusion systems.

  Computer Security


     As corporations and other organizations have decentralized their computer
operations by widely installing PCs, the points of access to networked systems
and sensitive databases have greatly increased. Although PCs may substantially
improve employee productivity, their proliferation presents a far larger
security risk because access points are now so numerous. Networked PC systems
are expected to grow as computer-based management of information increases
worldwide. The rapid expansion of PC networked systems provides an important
area of market growth for biometric products. Organizations now have concerns
about a range of computer security issues such as protection of privacy of
personnel and customer data, prevention of theft of competitively advantageous
information including trade secrets, and prevention of deliberate damage to and
corruption of data and systems.


     Biometric Identification expects the commercial and governmental network
security market to be one of the largest sources of demand for its biometric
products. There may be also be a developing market of home users who would be
willing to purchase inexpensive and compact security devices such as those of
Biometric Identification.

  Identification of Government Service Recipients

     In U.S. government applications, public agencies use biometrics to verify
the identity of persons who wish to receive a service from the agency or pass
through an application process. Examples include welfare agencies, departments
of motor vehicles, and the U.S. Immigration and Naturalization Service.
Biometric Identification believes that there is interest in this area from
governments due to concerns about fraud.

     Biometric Identification also provides products for non-U.S. governments.
For example, Biometric Identification's Veriprint 2100 system is being used by
the Venezuelan legislature in verification terminals that allow members of the
Chamber of Deputies and Senate, and their authorized surrogates, to vote
electronically from their desks.

  Marketing and Distribution Channels

     The favorable performance of Biometric Identification products, combined
with aggressive pricing, has enabled Biometric Identification to secure
relationships with several large companies. Biometric Identification desires
that once integration is completed with each equipment manufacturer's products,
the equipment manufacturer will then introduce Biometric Identification products
into their distribution channels.

     Biometric Identification has been executing its sales strategy through its
sales team and has been actively marketing its product since September 1997.
Since then, Biometric Identification has developed a list of alliances with key
customers including Westinghouse, Radionics, Thomson CSF, Gemplus and Keysource.
Biometric Identification has no customer that accounts for 10% or more of its
revenues where the loss of that customer would significantly hurt Biometric
Identification.

     Biometric Identification is targeting both large and small companies.
Although the larger companies offer long term sales potential, the innovative
smaller value added resellers and equipment manufacturers are more often the
first to adopt new technologies and create early stage demand from consumers.
Early users sometimes divert business from industry leaders which creates
incentive for the big companies to follow suit. Biometric Identification is also
going to target systems integrators and large consulting firms that thrive on
introducing new technologies to their customers.

                                        9
<PAGE>   13

     To date, Biometric Identification has focused on the time and attendance
and access control markets. During 1999, it intends to expand its marketing
efforts to include direct contact with financial institutions, "smart" and
credit card companies, electronic commerce and computer equipment companies
where interest in biometrics is growing.

     Biometric Identification has retained a small marketing company located in
the United Kingdom as a representative for Biometric Identification in the
European market area. Biometric Identification wishes to secure several sales
representatives to assist Biometric Identification in introducing its products
into the European and Asian marketplaces.

  Competition

     Biometric Identification competes with other providers of biometric
identification services to the commercial markets it serves in time and
attendance monitors, access control and computer security. In addition,
Biometric Identification competes with providers of non-biometric identification
services. Biometric Identification believes that the principal methods of
competition in the identification verification industry are providing function,
ease of integration and an affordable price. Many of Biometric Identification's
actual and potential competitors have greater financial, marketing and other
resources than Biometric Identification possesses.

  Patents, Trademarks, and Copyrights

     Arete has provided an exclusive license to Biometric Identification for its
five pending patents in fingerprint sensing systems and methods. The patent
applications have been filed during the past three years with the U.S. patent
office and three have proceeded to filings under the Patent Cooperation Treaty.
Of these, one has proceeded to national stage filings in Brazil, Japan and
Canada, and with the European Patent Office. Effective January 8, 1999, a patent
on key technology elements of ridge recognition was issued in the United States.

                                       10
<PAGE>   14

RISK FACTORS


     This Form 10-K contains statements that plan for or anticipate the future.
We believe that some of these statements are "forward-looking" statements.
Forward-looking statements include statements about the future of the biometric
identity verification industry, statements about future business plans and
strategies, and most other statements that are not historical in nature. In this
Form 10-K, forward-looking statements use words like "anticipate," "plan,"
"believe," "expect," and "estimate." However, because forward-looking statements
involve future risks and uncertainties, there are factors, including those
discussed below, that could cause actual results to differ materially from those
expressed or implied. We have attempted to identify the major factors that could
cause differences between actual and planned or expected results, but we may not
have identified all of those factors. You therefore shouldn't place undue
reliance on forward-looking statements. Also, we have no obligation to publicly
update forward-looking statements we make in this Form 10-K.



Financing and Investment Risks


     OUR ONLY MAJOR ASSET IS OUR INVESTMENT IN BIOMETRIC IDENTIFICATION
DEBENTURES. WE HAVE NO OTHER INVESTMENTS THAT COULD OFFSET POOR RESULTS OF
BIOMETRIC IDENTIFICATION, WHICH HAS A HISTORY OF NET LOSSES. IF BIOMETRIC
IDENTIFICATION CONTINUES TO LOSE MONEY, IT COULD LOSE INVESTMENT VALUE, WHICH IN
TURN COULD CAUSE YOUR INVESTMENT IN BIOMETRIC TO LOSE VALUE.   Right now, our
success depends entirely on the future of Biometric Identification. In turn,
your investment in us is subject to that risk. Biometric Identification has a
history of losses, mainly due to the required accounting treatment of research
and development outlays which Biometric Identification has to expense in the
year incurred. For the year ended December 31, 1998, Biometric Identification
had a net loss of US$ 3,934,609, and for the year ended December 31, 1997,
Biometric Identification had a net loss of US$ 1,337,446. For the four months
ended April 30, 1999, Biometric Identification had a net loss of US$ 1,958,168.
We are leaving the natural resource industry sector in order to enter the
technology industry. But we have only identified one company, namely Biometric
Identification, in which to invest in the short term. We don't have any other
investments that might offset Biometric Identification's recent net losses.


     BIOMETRIC DOESN'T CONTROL BIOMETRIC IDENTIFICATION. SINCE BIOMETRIC DOESN'T
YET OWN ANY SHARES IN BIOMETRIC IDENTIFICATION, BIOMETRIC DOESN'T HAVE
SHAREHOLDERS' RIGHTS SUCH AS THE RIGHT TO ELECT BIOMETRIC IDENTIFICATION
DIRECTORS, SO WE MAY NOT BE ABLE TO CAUSE BIOMETRIC IDENTIFICATION TO TAKE
ACTIONS THAT WE THINK MAKE GOOD BUSINESS OR FINANCIAL SENSE.  Our investment in
Biometric Identification consists only of its convertible debentures that don't
have voting rights, so we currently have little to no control over Biometric
Identification management policies. Until we exercise our rights to convert
these debentures to common stock of Biometric Identification, we will not have
the voting and other rights provided to the shareholders of Biometric
Identification through their shareholdings. Although Biometric's new President,
Robert Kamm, is also President of Biometric Identification, we don't have any
control over Biometric Identification's shareholders or board of directors. We
might not always be able to cause Biometric Identification to take actions that
we think make good business or financial sense.


     BIOMETRIC IDENTIFICATION HAS A LARGE AMOUNT OF DEBT FOR A COMPANY ITS SIZE
AND COULD DEFAULT IN ITS PAYMENT OF OBLIGATIONS. IF BIOMETRIC IDENTIFICATION
CAN'T MAKE ITS DEBT PAYMENTS, BIOMETRIC COULD LOSE ITS INVESTMENT IN BIOMETRIC
IDENTIFICATION.  Our Biometric Identification convertible debentures are
unsecured and do not provide for regular payments of principal to us. If
Biometric Identification can't generate enough cash to pay our principal and
interest payments when due, it may default on our debentures and, if that
happens, we could be forced to begin collection efforts or lose all of our
investment. Biometric Identification currently has a large amount of debt. At
December 31, 1998, Biometric Identification had outstanding convertible debt
totaling US$ 2,709,000, compared to total assets of US$ 769,974. At April 30,
1999, Biometric Identification had outstanding convertible debt totaling US$
4,422,500, compared to total assets of US$ 1,167,040.

     NEITHER BIOMETRIC NOR BIOMETRIC IDENTIFICATION IS PROFITABLE YET, AND
NEITHER COMPANY CAN BE SURE OF RAISING ENOUGH MONEY FROM OUTSIDE SOURCES, SO WE
MAY NOT BE ABLE TO GROW OUR BUSINESSES OR EVEN RAISE ENOUGH FUNDS NECESSARY TO
CONTINUE OPERATING OUR BUSINESSES.  Biometric Identification is a relatively new

                                       11
<PAGE>   15

business, incorporated in 1995. In addition, our own business has recently
completely changed its direction. As new and growing businesses, both we and
Biometric Identification don't yet generate profits from our operations to cover
our day-to-day operating costs and to make investments, such as buying expensive
new equipment, that we need to grow our businesses. Therefore, we need money
from outside sources and if we can't raise enough money, we and Biometric
Identification may not be able to keep operating our businesses. In the past,
both we and Biometric Identification have had to sell stock in our companies,
and also borrow money, to meet our large and ongoing needs for capital. If we
can't continue to raise enough money from these sources, neither we nor
Biometric Identification will be able to grow our businesses and we may not even
be able to cover our own day-to-day operating needs. We have invested money in
Biometric Identification, but that won't be enough to keep Biometric
Identification solvent. Further, if we can't provide more money to Biometric
Identification, and they have to sell more stock to other people, our ownership
interest in Biometric Identification could be lessened.


Risks Relating to Biometric Identification's Business and Operations


     BIOMETRIC IDENTIFICATION MAY NOT BE ABLE TO DEVELOP A LARGE ENOUGH MARKET
FOR ITS BIOMETRIC IDENTITY VERIFICATION PRODUCTS; THESE PRODUCTS AREN'T YET IN
WIDE USE. UNLESS THIS MARKET GROWS, BIOMETRIC IDENTIFICATION MIGHT NOT BE ABLE
TO SUCCEED.  If biometric identity verification products don't become generally
accepted in the marketplace, Biometric Identification could become one of
several competitors in a small market, and might not be able to generate enough
revenues and profits to grow beyond its current size. Its major products, namely
biometric identity verification products and biometric imaging products, have
not experienced widespread commercial acceptance. In part, this is because
biometric identity verification products are a new approach to identity
verification and they have not been widely used.

     Factors that could affect whether Biometric Identification can develop a
large market for biometric identity verification products include:


        - whether their cost, performance and reliability compare favorably to
          competitive products


        - whether customers come to understand their benefits

        - whether the public will be "put off" by the intrusiveness of the
          products and how companies collect and use fingerprint information

         NOTE:  Some groups have objected to biometric identity verification
         products on civil liberties grounds, as an invasion of privacy, and
         legislation has been proposed to regulate the use of biometric identity
         verification products to prevent such abuse


        - whether the public trusts that companies will not abuse the
          confidentiality of personal information created from using biometric
          identity verification products



        - whether institutional purchasers such as banks and retailers will
          install the infrastructure in automatic teller machines and
          point-of-sale equipment to use biometric identity verification
          products



        - whether Biometric Identification can develop an international market
          for its products and



        - whether Biometric Identification successfully markets and promotes its
          products


     BECAUSE BIOMETRIC IDENTIFICATION IS MUCH SMALLER THAN MANY OF ITS
COMPETITORS, IT MAY LACK THE RESOURCES TO CAPTURE AN INCREASED MARKET SHARE.
ALSO, BIOMETRIC IDENTIFICATION'S LOW-TECH COMPETITORS CAN DEVOTE LESS RESOURCES
TO PRODUCT DEVELOPMENT AND MORE RESOURCES TO MARKETING WHICH COULD ALSO REDUCE
BIOMETRIC IDENTIFICATION'S MARKET SHARE.  Biometric Identification is a small
company with a history of net losses. It may not be able to compete for market
share equally with some of the larger companies in the fingerprint
identification industry which, unlike Biometric Identification, can generate
large amounts of funds for use in product development and marketing. Further, in
addition to competing with other providers of sophisticated biometric imaging
systems, Biometric Identification also competes with providers who use
traditional "low-tech" identification and security systems, e.g., key card,
surveillance systems and passwords.

                                       12
<PAGE>   16

Biometric Identification could lose market share to these low-tech companies as
well, since they may be able to concentrate more resources on marketing rather
than product development. A number of start-up and established companies develop
and market software and hardware for fingerprint biometric security applications
that could compete directly with Biometric Identification's products. It is also
possible that other biometric identification technologies of which we and
Biometric Identification are aware, could ultimately be more widely adopted.
These technologies could reduce demand for Biometric Identification's products
even if they were demonstrably superior. For example, a well-financed company
with a large customer base and established distribution channels for its less
sophisticated products might marginalize Biometric Identification's possibly
superior products.

     IF BIOMETRIC IDENTIFICATION IS UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL
CHANGE ITS PRODUCTS COULD BECOME OBSOLETE, OR OTHER COMPANIES COULD EXPLOIT
MARKET OPPORTUNITIES FASTER, POSSIBLY CAUSING BIOMETRIC IDENTIFICATION TO LOSE
MARKET SHARE.  Unless Biometric Identification's products keep up with the
demand for sophisticated technology, they could become obsolete. The markets for
biometric identity verification products and biometric imaging systems rapidly
change in response to newer, more advanced products. Even if Biometric
Identification can keep pace, it could fail to predict where the market is going
and thus develop technology that customers do not want to buy. Or Biometric
Identification might develop desirable products but too slowly and be surpassed
by a competitor.


     BIOMETRIC IDENTIFICATION DEPENDS ON STRATEGIC RELATIONSHIPS FOR PRODUCT
DISTRIBUTION. IF THESE RELATIONSHIPS DON'T WORK OUT, OR IF THE OTHER COMPANIES
DON'T DO ENOUGH TO MARKET BIOMETRIC IDENTIFICATION PRODUCTS, BIOMETRIC
IDENTIFICATION COULD LOSE SALES.  Biometric Identification's business plan
depends on establishing strategic relationships with marketing partners, such as
equipment manufacturers, systems integrators and resellers, to distribute some
of its products. It may be difficult for Biometric Identification to identify
and establish relationships to assure the successful marketing of its products.
Even if Biometric Identification identifies partners, negotiating deal terms can
be a laborious process. Once an agreement is reached, it could be terminable
with little notice, or disputes could arise as to interpretation. It's also
difficult to control the resources and effort that a partner will devote to the
marketing of Biometric Identification's products.



     IF BIOMETRIC IDENTIFICATION'S PRODUCTS ARE DEFECTIVE OR FAIL TO MEET
PERFORMANCE CRITERIA, THIS COULD REQUIRE BIOMETRIC IDENTIFICATION TO DIVERT
RESOURCES AND INCUR COSTS TO CORRECT THE PROBLEM, WHICH WOULD REDUCE PROFITS.
ALSO, PRODUCT MALFUNCTIONS COULD ALIENATE CUSTOMERS, POSSIBLY RESULTING IN LOSS
OF CUSTOMERS OR NEGATIVE PUBLICITY.  Despite careful quality control in design
and production, newly-introduced complex products often have undetected defects,
such as software "bugs," or they do not initially meet customer performance
specifications. This could require Biometric Identification to divert resources
from product development and marketing and concentrate instead on correcting the
problems, possibly incurring additional costs as well, which could result in
reduced sales and profits. Even if the defects are ultimately corrected,
Biometric Identification could:



     - lose customers



     - be forced to divert its employees and resources in order to work with the
       dissatisfied customers



     - make refunds



     - cover breaches in product warranties, or



     - conduct a product recall



     Because Biometric Identification's products are designed to improve
security, malfunction could hurt Biometric Identification's customers. Examples
of the impact of product failure include:



     - unauthorized persons gaining access to dangerous or sensitive physical
       facilities



     - the alteration or theft of customer database information, or



     - fraudulent financial transactions



     These failures could result in loss of customers or negative publicity.
Even if defects are minor and readily corrected, Biometric Identification's
efforts at correction could reduce or even eliminate profits from sales.
Biometric Identification may not be able to maintain product liability insurance
to adequately cover such risks.


                                       13
<PAGE>   17


     BIOMETRIC IDENTIFICATION HAS ONLY A LICENSE TO USE, RATHER THAN OUTRIGHT
OWNERSHIP OF, ITS BIOMETRIC IDENTITY VERIFICATION TECHNOLOGY. IF ARETE, THE
OWNER OF THE INTELLECTUAL PROPERTY RELATING TO THE BIOMETRIC IDENTIFICATION
TECHNOLOGY, DOES NOT ADEQUATELY PROTECT THE RIGHTS IT LICENCES TO BIOMETRIC
IDENTIFICATION, BIOMETRIC IDENTIFICATION WOULD BE AT A SIGNIFICANT COMPETITIVE
DISADVANTAGE THAT WOULD ADVERSELY AFFECT ITS BUSINESS OPERATIONS AND FINANCIAL
CONDITION. Biometric Identification licenses its technology from Arete under an
exclusive world-wide license. The license has no expiration date, although Arete
can terminate the license if Biometric Identification materially breaches the
license agreement. Biometric Identification has not yet accrued or paid any
significant royalties to Arete. Only after Biometric Identification has paid US$
1,250,000 of royalties will Arete transfer ownership of the intellectual
property outright to Biometric Identification. Until then, Biometric
Identification is dependent on Arete's maintaining its ownership and right to
exploit the technology. Biometric Identification doesn't control Arete's efforts
to protect its rights to these technologies. If Arete doesn't do enough to
protect the technologies, Biometric Identification would be put at a significant
competitive disadvantage since much of Biometric Identification's market
advantage stems from its use of technology that's currently unique to Arete.



     BIOMETRIC IDENTIFICATION'S PROPRIETARY TECHNOLOGY MAY BE IMPOSSIBLE TO
PROTECT OR MAY INFRINGE ON OTHER TECHNOLOGIES. IF BIOMETRIC IDENTIFICATION CAN'T
ESTABLISH OR MAINTAIN OWNERSHIP AND CONTROL OF THESE TECHNOLOGIES, COMPETITORS
COULD EXPLOIT THE TECHNOLOGIES AND ENCROACH ON BIOMETRIC IDENTIFICATION'S MARKET
SHARE. IT IS ALSO POSSIBLE THAT OTHERS MAY CLAIM RIGHTS IN THE TECHNOLOGIES AND
SUCCESSFULLY SUE BIOMETRIC IDENTIFICATION FOR INFRINGEMENT OF PROPRIETARY
TECHNOLOGY RIGHTS.  Subject to its license from Arete, Biometric
Identification's competitive advantage depends on owning and controlling the
right to exploit its technology, such as its unique fingerprint identification
technology that images the entire fingerprint, in contrast with typical
fingerprint identification methods that image only several points on the
fingerprint. If Biometric Identification is unable to fully exploit the rights
to technologies such as its fingerprint identification technology, competitors
could gain rights to the same or similar technologies and exploit those rights
to the detriment of Biometric Identification's market share. It is also possible
that a competitor may challenge Biometric Identification's rights in some of its
technologies, and if that happens, it could be costly for Biometric
Identification to defend its rights. It might even ultimately lose its rights to
those technologies if the competitor's challenge succeeds. The usual means to
protect proprietary rights in technology are through patent, copyright, trade
secret and contract law. Arete holds, and Biometric Identification expects
eventually to hold, United States and foreign patents covering certain of
Biometric Identification's products and technologies. Patent protection,
however, does not eliminate all risks. For example:


     - the claimed inventions in Arete's patents may not be broad enough to
       cover the technology contained in Biometric Identification's products

     - Arete or Biometric Identification may have their patent applications
       denied, or

     - another person may challenge the validity of the patents or claim they do
       not cover a similar invention which that person intends to commercialize

     Biometric Identification also depends on its employees, consultants and
other persons to keep confidential Biometric Identification's trade secrets and
other proprietary information. If any of these persons reveals this confidential
information, Biometric Identification could lose major competitive advantages.

     BIOMETRIC IDENTIFICATION DEPENDS ON ITS KEY TECHNOLOGY PERSONNEL TO DEVELOP
ITS PRODUCTS AND MANUFACTURING AND MARKETING STRATEGY, AND DEPENDS ON ITS
RELATIONSHIP WITH ARETE FOR ENGINEERING SERVICES. IF BIOMETRIC IDENTIFICATION
WERE TO LOSE KEY TECHNOLOGY PERSONNEL, ITS PRODUCT DEVELOPMENT COULD SLOW DOWN
AND CUSTOMERS THAT INTEGRATE ITS PRODUCTS WITH THEIRS MIGHT PERMANENTLY REPLACE
BIOMETRIC IDENTIFICATION AS A SUPPLIER. THIS WOULD HURT SALES AND PROFITS.
SIMILARLY, IF ARETE WERE NOT ABLE TO SUPPLY ENGINEERING SERVICES, THIS COULD
ALSO HURT PRODUCT DEVELOPMENT AND SALES, SINCE BIOMETRIC IDENTIFICATION DEPENDS
IN PART ON THESE SERVICES TO HELP DEVELOP ITS PRODUCTS AND MANUFACTURING
METHODS.  Biometric Identification's competitive position depends on its ability
to find and keep employees who have special knowledge about designing,
manufacturing and marketing biometric identity verification products. Loss of
any of these key personnel could slow down product development, potentially
hurting Biometric Identification's ability to compete and maintain its customer
base. For example, Biometric Identification's products are often specifically
developed

                                       14
<PAGE>   18

for incorporation into its customers' products, and its personnel have developed
an in-depth understanding of the customers' product and market needs. Loss of
these people could cause Biometric Identification to lose customers, perhaps
permanently. This would significantly hurt sales.

     Biometric Identification's senior management has many years of experience
in the biometric identity verification field. For example:

     - Dr. Stephen Lubard, founder and Chairman of Biometric Identification, is
       an engineer with over 20 years of experience in managing highly technical
       projects and developing software and computer systems for solving complex
       image processing problems

     - Robert Kamm, Chief Executive Officer, is an experienced technology
       entrepreneur and has started two previous technology companies

     It would be very difficult and time-consuming for Biometric Identification
to locate personnel with the combination of skills and attributes required to
carry out its strategy.

     Biometric Identification also depends on the engineering assistance it
receives from its parent, Arete. For example, Arete has agreed to provide
engineering services for Biometric Identification, in exchange for payments from
Biometric Identification. Under this agreement, Arete provides Biometric
Identification with the equivalent of services of four full-time engineers, and
Arete will use its best efforts to supply additional engineering assistance as
needed. If Arete can't provide enough engineering assistance, Biometric
Identification could lose access to technology that would enable it to compete
in the marketplace, which could also hurt sales.

     POSSIBLE FAILURES BY THIRD PARTIES TO COMPLY WITH Y2K ISSUES COULD
COMPROMISE THEIR OWN PRODUCT SALES AND, TO THE EXTENT THEIR PRODUCTS INCLUDE
BIOMETRIC IDENTIFICATION PRODUCTS, COULD HURT SALES OF THOSE PRODUCTS AS
WELL.  Biometric Identification's business involves integrating its products
with those of original equipment manufacturers and value added resellers. If any
of those companies is not Year 2000 compliant, their product sales, and
consequently Biometric Identification's sales, could drop. The Year 2000 issue
refers to possible negative impacts on business systems that could be caused by
the arrival of the new millennium. Best known is the possible inability of
computer software to recognize the year 2000 as a date. Unless the software is
fixed, date-sensitive systems may begin to fail prior to January 1, 2000.
Failures may range from relatively minor processing inaccuracies to catastrophic
system malfunctions. Failures may affect not only systems used to process
everyday business information, but also the imbedded computers that control
plant machinery, robotics, office equipment, elevators and building climate and
security systems.

     Biometric does not expect to experience significant Year 2000 issues,
because we use standard commercial programs and systems that have been designed
or upgraded to comply with requirements imposed by the transition into the next
millennium. We are contacting our main suppliers to make sure that they are also
Year 2000 compliant, a process we expect to complete by the third quarter of
1999.

     Biometric Identification has evaluated the products and services that it
offers, as well as its information technology infrastructure, and has determined
that they are Year 2000 compliant.

     However, even though we and Biometric Identification believe that we are
Year 2000 compliant, we can't control Year 2000 compliance by third parties. To
the extent those parties are not Year 2000 compliant, that could hurt Biometric
Identification's sales and therefore its investment value.

     OUR STOCK IS LOW-PRICED STOCK SUBJECT TO "PENNY STOCK" RULES;
BROKER-DEALERS MAY BE LESS WILLING TO DEAL IN PENNY STOCKS SUCH AS OURS IF THEY
FIND THE NEW "PENNY STOCK" LAWS TOO BURDENSOME. THIS COULD CAUSE THE MARKET FOR
BIOMETRIC STOCK TO BE LESS ACTIVE, WHICH IN TURN COULD MAKE IT HARDER FOR YOU TO
SELL YOUR BIOMETRIC STOCK WHEN YOU WANT AND AT A SATISFACTORY PRICE.  Our common
stock would be classified as "penny stock" under United States securities laws.
These laws impose special rules on broker-dealers trading in penny stocks that
are not applicable to other stocks. If broker-dealers find these requirements
too burdensome and therefore are less willing to deal in penny stocks, this
might limit market activity for all penny stocks, including Biometric's common
stock. This could limit your ability to sell your stock when you want and at a
satisfactory price.

                                       15
<PAGE>   19

     The laws relating to penny stocks were changed in 1990 because of alleged
abuses in the penny stock market. The new laws require broker-dealers who sell
penny stocks to meet potentially burdensome requirements. For example, a
broker-dealer selling a penny stock must:

     - give the customer written information about the market for penny stocks
       including a discussion of how those stocks are traded, and the risks of
       the penny stock market. This information must also describe the
       broker-dealer's duties to the customer and let the customer know about
       his or her rights and remedies if the broker-dealer violates these
       duties.

     - give penny stock customers written monthly account statements that list
       their holdings and estimated market values.

If broker-dealers find these requirements too burdensome, that might limit their
willingness to deal in penny stocks such as ours, possibly resulting in a less
active market which could lower the value of your investment in our common
stock.

ITEM 2  PROPERTIES

     Biometric occupies approximately 2,300 square feet of leased space at Suite
1940, 400 Burrard Street, Vancouver, British Columbia under a lease expiring
October 31, 2000. A total of four Biometric employees operate out of its
Vancouver office.

     Biometric Identification occupies one administration office in California
and sales offices in Dayton, Ohio and London, England.

     Biometric Identification's California offices occupy a total of
approximately 4,200 square feet and are located at 5000 Van Nuys Blvd., Sherman
Oaks, California.

ITEM 3  LEGAL PROCEEDINGS


     Other than as disclosed below, no material legal proceedings are pending to
which Biometric is a party or of which any of its properties is subject.



     Effective as of November 10, 1998, in compliance with the "continuation"
procedure provided for under the Company Act (British Columbia), Biometric
continued into the State of Wyoming (the "Continuation"), where it is now
governed by the Wyoming Business Corporations Act. Biometric's management has
subsequently determined that Biometric should continue back to British Columbia.
In order to solicit shareholder approval for such continuation, on March 5,
1999, Biometric filed a preliminary proxy statement with the SEC, as required by
the U.S. Securities Exchange Act of 1934. The preliminary proxy statement was
reviewed by the staff of the SEC in accordance with rules promulgated under the
Exchange Act. Based on that review, the SEC staff informally advised Biometric
that the staff believes that the original Continuation was an event that would
have required, under the U.S. Securities Act of 1933, the filing of a
registration statement with the SEC. The SEC staff further advised that it would
consider arguments that registration was not so required. Biometric requested
its special counsel for U.S. securities matters to conduct further analysis in
response to the SEC staff's advice. Following such analysis U.S. counsel
concluded that there are substantial arguments that under applicable law the
effectuation of the Continuation should not have required the filing of a
registration statement. Upon request of Biometric, U.S. counsel prepared a
written submission, dated March 19, 1999, to present these arguments to the SEC
staff.



     In response to this submission, on March 25, 1999, the SEC staff orally
advised Biometric's U.S. counsel that the staff was maintaining its original
position that the Continuation required registration under the Securities Act.
Biometric decided to resolve this matter by filing a registration statement
under the Securities Act for a repurchase offer in which Biometric is offering
U.S. persons who owned Biometric common stock at the time Biometric transferred
its corporate domicile to Wyoming, the right to have their shares repurchased by
Biometric at their fair market value on the date of the shareholder vote
concerning Biometric's transfer to Wyoming. The registration statement was filed
with the SEC on May 7 1999, and is subject to SEC comments. During the period
between the Continuation and the effective date of the registration statement,
which will occur only after Biometric has successfully responded to all comments
of the SEC staff regarding


                                       16
<PAGE>   20


the registration statement, including amendments, persons who were shareholders
of Biometric at the time of the Continuation may have common law remedies for a
possible violation of the registration requirement under the Securities Act.
Biometric's exposure in that event is difficult to quantify because its
shareholders were, prior to the Continuation, provided their statutory right of
dissent under the Company Act (British Columbia) to be paid the fair market
value of their shares if they dissented from the Continuation. No holder of
Biometric shares exercised such dissent right. Under the offer in rescission to
be issued by Biometric, holders of Biometric shares at the time of the
Continuation would be offered the right to have their shares repurchased by
Biometric at their fair market value at the time of the Continuation.


ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


     On October 9, 1998, at an extraordinary general meeting, Biometric's
shareholders voted to continue Biometric in the state of Wyoming, to change the
company's name to Biometric Security Corp., and to increase its authorized
capital to an unlimited number of common shares. The shareholder vote for the
continuance was 4,883,862 votes in favor, 24,226 votes against, and 440
abstentions. The shareholder vote for the name change was 4,895,524 votes in
favor, 12,664 votes against, and 400 abstentions. The shareholder vote for the
increase in common shares was 4,901,744 votes in favor, 6,824 votes against, and
zero abstentions.



     Effective November 10, 1998, Biometric's change of name and continuance
into in the state of Wyoming had been completed. Effective November 12, 1998,
the increase of Biometric's authorized capital to an unlimited number of common
shares had taken place.


                                       17
<PAGE>   21

                                    PART II

ITEM 5  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


     Biometric's common shares are quoted for trading on the Vancouver Stock
Exchange under the symbol "BMS" and are also traded from time to time on the
over-the-counter market in the United States under the symbol "BMSX."
Biometric's securities issued in offshore transactions under Regulation S of the
Securities Act are traded in offshore resales governed by Rule 904 of Regulation
S under the symbol "BMS. S" on the VSE. As of March 15, 1999, there were
32,501,078 Common Shares issued and outstanding, held by 2,203 shareholders of
record. The following table sets out the range of high and low closing prices as
reported on the VSE for the fiscal periods indicated:


<TABLE>
<CAPTION>
                                                                HIGH        LOW
                                                              (CDN. $)    (CDN. $)
                                                              --------    --------
<S>                                                           <C>         <C>
FISCAL YEAR ENDED DEC. 31, 1997
  First Quarter.............................................    1.15        1.05
  Second Quarter............................................    0.86        0.50
  Third Quarter.............................................    0.46        0.30
  Fourth Quarter............................................    0.33        0.27
FISCAL YEAR ENDED DEC. 31, 1998
  First Quarter.............................................    0.27        0.16
  Second Quarter............................................    0.52        0.18
  Third Quarter.............................................    0.36        0.16
  Fourth Quarter............................................    0.25        0.18
</TABLE>


     On March 15, 1999, the closing price of the common shares on the VSE was
$0.25.



     Commencing March 22, 1999 Biometric's common shares are also being traded
from time to time on the over-the-counter market in the United States. During
the quarter ended March 31, 1999, the high closing price was US$ 0.13 and the
low closing price was US$ 0.12. These OTC quotations reflect inter-dealer
quotations, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.


  Dividend Record and Policy


     Biometric has not paid any dividends since incorporation and it has no
plans to pay dividends in the immediate future. Biometric expects to retain any
earnings to finance further growth and, when appropriate, retire debt.
Biometric's directors will determine if and when dividends should be declared
and paid in the future based on Biometric's financial position at the relevant
time. All of Biometric's common shares are entitled to an equal share in any
dividends declared and paid.



UNREGISTERED SALES OF SECURITIES DURING THE LAST THREE FISCAL YEARS


  For the Period Ended December 31, 1998


     On December 29, 1998, Biometric commenced a private placement of 11,666,666
units (the "Units") to qualified investors at a price of $0.15 per Unit. Each
Unit offered consisted of one common share and one non-transferable share
purchase warrant. Each warrant is exercisable for a period of two years from
closing and will entitle the holder to purchase one common share at a price of
$0.15 per share during the first year after closing and at a price of $0.17 per
share during the second year after closing. For that offering, Goepel McDermid
Inc. (the "Agent") acted as agent and placed 6,666,666 Units. Biometric placed
5,000,000 Units directly. The Agent received a commission of 10% of the gross
proceeds raised from its portion of the offering, which was paid in cash
($100,000). As additional compensation, the Agent was granted a warrant to
acquire up to 1,000,000 shares of Biometric, which is that number of shares
equal to 15% of the number of Units placed by it for a period of two years at a
price of $0.15 per share during the first year after closing and at a price of
$0.17 per share during the second year after closing. The price of the Units was
determined by Biometric and the Agent with reference to the recent trading
prices of Biometric's common shares on the VSE. The offering commenced on
December 29, 1998 and closed on January 29, 1999. Biometric received $1,750,000
in total proceeds.


                                       18
<PAGE>   22


     On September 10, 1998, Biometric completed a private placement of 660,000
units at $0.15 per unit. Each unit consisted of one common share and one
non-transferable share purchase warrant. Each warrant is exercisable at a price
of $0.15 per share if purchased on or before September 10, 1999, or at a price
of $0.17 per share if purchased from and including September 11, 1999 to
September 10, 2000. Biometric received $99,000 in cash proceeds.



     On May 15, 1998, Biometric completed a private placement of 3,375,000
special warrants at a price of $0.15 per special warrant. Each special warrant
is exchangeable, at no additional cost, into one common share and one
non-transferable share purchase warrant that allows the holder to purchase one
common share at a price of $0.15 per share if exercised within the first year
and $0.17 per share if exercised within the second year. Biometric received
$506,250 in cash proceeds.



     All of the 1998 transactions were effected in reliance upon the exemption
from United States securities law registration requirements provided by
Regulation S under the Securities Act because none of the securities were
offered or sold in the United States or to "U.S. persons" other than
"distributors" as those terms are defined in Regulation S.


  For the Period Ended December 31, 1997


     In January 1997, Biometric issued the 5,000,000 shares and 5,000,000
one-half share purchase warrants upon exercise of the 5,000,000 Special Warrants
offered in October 1996 (and described below). 250,000 compensation options were
also issued to the underwriter upon the exercise of 250,000 special compensation
options. In addition, the net proceeds of $5,106,645 from the sale of Special
Warrants, together with $39,286 in interest earned thereon, were released to
Biometric. This transaction was effected in reliance upon the exemption from
United States securities law registration requirements provided by Regulation S
under the Securities Act because none of the securities were offered or sold in
the United States or to "U.S. persons" other than "distributors" as those terms
are defined in Regulation S.


  For the Period Ended December 31, 1996


     On October 22, 1996, Biometric completed the private placement of 5,000,000
Special Warrants at an issue price of $1.10 per Special Warrant. The offering
was underwritten by Loewen Ondaatje McCutcheon Ltd. Each Special Warrant
entitled the holder to acquire, without further consideration, one unit
comprising one common share and one-half of a share purchase warrant, with each
whole warrant entitling the holder to purchase one additional share at $1.30 per
share for a two year period. Biometric also granted the underwriter 250,000
special compensation options as partial compensation for the placement of the
Special Warrants. Each special compensation option entitled the underwriter to
acquire, without further consideration, one compensation option. Each
compensation option is exercisable for one unit at a price of $1.10 per unit to
January 31, 1999. Each unit consists of one common share and one-half of a share
purchase warrant, with each whole warrant entitling the underwriter to purchase
one additional share for $1.30 per share to January 31, 1999. All but one of the
purchasers in this private placement were non-U.S. persons, so the offers and
sales of securities to those persons were effected in reliance on the
registration exemption provided by Regulation S. The remaining purchaser was a
U.S. limited partnership. With respect to that purchaser, the offer and sale
were effected in reliance upon the exemption from registration requirements
provided by Section 4(2) of the Securities Act on the basis that the transaction
did not involve any public offering.



     On August 21, 1996 Biometric entered into subscription agreements for the
private placement of an aggregate of 1,400,000 units of Biometric at a price of
$1.10 per unit. Each unit consisted of one common share of Biometric and one
non-transferable share purchase warrant entitling the holder to purchase an
additional common share of Biometric for a period of two years at a price of
$1.25 per share. Biometric received $1,540,000 in cash proceeds. All but one of
the purchasers in this private placement were non-U.S. persons, so the offers
and sales of securities to those persons were effected in reliance on the
registration exemption provided by Regulation S. The remaining purchaser was a
U.S. corporation. With respect to that purchaser, the offer and sale were
effected in reliance upon the exemption from registration requirements


                                       19
<PAGE>   23


provided by Section 4(2) of the Securities Act on the basis that the transaction
did not involve any public offering.



     On January 26, 1996, Biometric entered into a subscription agreement with
Federico Brown pursuant to which Mr. Brown purchased, by way of private
placement, a total of 37,000 units of Biometric at a price of $1.28 per unit.
Each unit consisted of one common share of Biometric and one non-transferable
share purchase warrant to purchase an additional share of Biometric for a period
of two years at a price of $1.28 per share during the first year of the term and
$1.47 per share during the second term. At the time of the private placement,
Mr. Brown was an employee of Biometric. Biometric received $47,360 in cash
proceeds. This transaction was effected in reliance upon the registration
exemption provided by Regulation S, because the securities were not offered or
sold in the United States, and Mr. Brown was not at the time a "U.S. person."



     On February 20, 1996, the VSE approved a private placement, announced on
December 5, 1995, of 100,000 units of Biometric at a price of $0.80 per unit.
Daniel J. Kunz, at the time the President and a director of Biometric, was the
sole participant in the private placement. Each unit in the private placement
consisted of one common share and one non-transferable share purchase warrant
entitling Mr. Kunz to purchase a further common share of Biometric for two years
at a price of $0.80 per share during the first year and $0.92 per share during
the second year. This transaction was effected in reliance upon the exemption
from registration requirements provided by Section 4(2) of the Securities Act on
the basis that the transaction did not involve any public offering.



ITEM 6  SELECTED FINANCIAL DATA



     The selected consolidated financial data set forth below with respect to
Biometric's consolidated statements of operations for each of the three fiscal
years in the period ended December 31, 1998 and with respect to the consolidated
balance sheets at December 31, 1998 and 1997, are derived from Biometric's
audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. Consolidated statement of operations data for the years
ended December 31, 1995 and 1994, and balance sheet data at December 31, 1996,
1995 and 1994 have been derived from audited consolidated financial statements
of Biometric not included in this Annual Report on Form 10-K. These financial
statements, which included a note reconciling differences between U.S. and
Canadian GAAP, were filed with Biometric's Annual Reports on Form 20-F.



     The following selected financial consolidated financial data should be read
in conjunction with the consolidated financial statements for Biometric and the
notes thereto appearing in Item 8 of this Annual Report on Form 10-K. Historical
operating results are not necessarily indicative of the results that may be
expected in any future period.



     As a result of Biometric's Continuation into the State of Wyoming,
Biometric has adopted U.S. GAAP and restated prior years figures to be in
accordance with U.S. GAAP. As the functional currency of Biometric is Canadian
dollars, all amounts are in Canadian dollars.



<TABLE>
<CAPTION>
                                                     FOR THE FISCAL YEARS ENDED DEC. 31,
                                      ------------------------------------------------------------------
                                         1998           1997          1996          1995         1994
                                      -----------    ----------    ----------    ----------    ---------
                                       (STATED IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE DATA)
                                      ------------------------------------------------------------------
<S>                                   <C>            <C>           <C>           <C>           <C>
Revenue.............................   $      79      $    175      $    102      $    211      $    36
Net income (loss)...................   $  (7,125)     $ (2,200)     $ (1,259)     $ (1,142)     $  (406)
Net income (loss) per share.........   $   (0.38)     $  (0.13)     $  (0.14)     $  (0.20)     $ (0.10)
Cash dividends declared per share...   $       0      $      0      $      0      $      0      $     0
Working capital.....................   $      10      $  3,072      $  6,369      $  1,936      $ 1,846
Total assets........................   $   2,567      $  8,274      $ 10,451      $  2,721      $ 2,010
Total liabilities...................   $     299      $    283      $    571      $     91      $   143
Share capital.......................   $  13,789      $ 12,388      $ 12,077      $  3,567      $ 1,662
Retained earnings (deficit).........   $ (11,521)     $ (4,397)     $ (2,197)     $   (937)     $   204
</TABLE>


                                       20
<PAGE>   24

ITEM 7  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

  Current Capital Resources and Liquidity


     Since inception, Biometric's capital resources have been limited. Since
cash generated from operations has been nominal, Biometric has had to rely upon
the sale of equity and debt securities for cash required for investments and
operations, among other things. In 1998, Biometric acquired the right to invest
up to US$ 5,000,000 into Biometric Identification by way of the acquisition of
convertible debentures. See Item 1 -- Business of Biometric Security Corp. for a
discussion of the terms of this investment. As at December 31, 1998, Biometric
had invested US$ 2,325,000 in Biometric Identification debentures. Biometric
completed its purchase of the US$ 5,000,000 of Biometric Identification
debentures on July 23, 1999. Biometric's working capital or cash flows are not
sufficient to fund ongoing operations and other commitments. The ability of
Biometric to settle its liabilities as they come due and to fund its commitments
and ongoing operations is dependent upon the ability of Biometric to obtain
additional equity or debt financing. If Biometric cannot raise the necessary
financing directly by way of debt, equity or other means, the lack of capital
may force it to curtail its operating activities and potential investment
activities. There is no assurance that Biometric will obtain any such financing.



     Biometric does not currently have any commitments for material capital
expenditures over the near or long term, and none are presently contemplated
over normal operating requirements.



FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997



  Results of Operations



     A $0.38 loss per share in the fiscal year ended December 31, 1998 resulted
from cash and short-term investment earnings of $79,129 less expenses of
$1,287,586, mineral property write-offs of $4,592,237 and an equity loss in the
operations of Biometric Identification of $1,275,000. This is compared to a
$0.13 loss per share in the fiscal year ended December 31, 1997 from cash and
short-term investment earnings of $175,185, expenses of $759,182, and mineral
property write-offs of $1,615,898.



     Administrative costs in 1998 increased 79% over 1997, primarily as a result
of Biometric incurring increased professional fees and finders fees.



  Liquidity and Capital Resources



     During 1998 Biometric had a reduction in cash from operations, financing
and investments of $3,084,928. The loss for the year was $7,124,561, which
consisted largely of the write-down of mineral properties and an equity loss in
Biometric Identification.



     During 1998, Biometric completed a 3,375,000 unit private placement that
raised proceeds of $506,250 and a 660,000 unit private placement that raised
proceeds of $99,000. In addition, Biometric raised $23,000 from the exercise of
100,000 stock options. Biometric also issued 250,450 common shares at a deemed
value of $75,135 for finders fees in connection with the Biometric
Identification debentures.



     During 1998, Biometric invested $3,471,355, in Biometric Identification
convertible debentures, disposed of equipment used in Argentina for proceeds of
$151,512 and recovered $185,335 of security deposits.



  Balance Sheets



     Total cash and short-term investments at December 31, 1998 were $245,182 as
compared to $3,330,110 at December 31, 1997 and working capital decreased to
$10,478 as at December 31, 1998 compared to $3,072,259 as at December 31, 1997.
The decrease in cash and working capital is largely attributable to Biometric's
investment of $3,471,355 in convertible debentures of Biometric Identification
during the year.



     At December 31, 1998 a total of $3,471,355 (US$ 2,325,000) had been
invested in convertible debentures of Biometric Identification. Effective June
1999, Biometric determined that it had the ability to exercise significant
influence over the activities of Biometric Identification, and in accordance
with Account-


                                       21
<PAGE>   25


ing Principles Board Opinion No. 18, Biometric's financial statements for 1998
have been restated to reflect this change. Accordingly, Biometric's investment
in the Biometric Identification convertible debentures has been accounted for by
the equity method and Biometric has reduced its investment by $1,275,000, which
is its share of Biometric Identification's losses to December 31, 1998 and the
amortized portion of the excess of Biometric's investment over its share of
Biometric Identification's net assets. The excess of Biometric's investment over
its share of net assets is being amortized on a straight-line basis over five
years.



     Equipment and leasehold improvements totaled $60,758 at December 31, 1998
as compared to $248,213 at December 31, 1997. The decrease is a result of
Biometric selling off equipment in 1998.



     Mineral properties totaled nil at December 31, 1998 as compared to
$4,670,516 at December 31, 1997. The decrease is a result of writing off the
deferred costs in June 1998, when it was determined there was little prospect of
further work being carried out on the properties and Biometric changed its
business from mineral exploration to its investment in Biometric Identification.
In November 1998, subsequent to writing off the deferred costs, Biometric
granted Inlet Resources Ltd. an option to purchase up to a 100% interest in
Biometric's Argentine mineral properties.



     Share capital totaled $13,128,263 at December 31, 1998 as compared to
$12,387,691 at December 31, 1997. The increase is a result of Biometric issuing
shares for cash proceeds of $628,250 and shares for services having a value of
$112,322.



     Shares subscribed totaled $660,592 at December 31, 1998 as compared to nil
at December 31, 1997 as investors had advanced Biometric $660,592 as funds
advanced for a private placement that was completed after the year-end.


  Subsequent Events


     Subsequent to December 31, 1998,



     - Biometric completed a $1,750,000 Private Placement on April 15, 1999. The
       private placement consisted of 11,666,665 units, brokered on a best
       efforts basis, at a price of $0.15 per unit for total proceeds of
       $1,750,000. Each unit consisted of one common share and one two-year
       non-transferable share purchase warrant. Each warrant is exercisable at a
       price of $0.15 per share in the first year and $0.17 per share in the
       second year. Remuneration paid to the broker for acting as agent
       consisted of a 10% commission ($160,000) payable in cash and a two year
       broker's warrant exercisable into 1,600,000 shares of Biometric. The
       broker's warrants are exercisable at a price of $0.15 per share in the
       first year and $0.17 per share in the second year.



     - In May 1999 Biometric filed a registration statement with the SEC
       offering U.S. persons who owned Biometric common stock at the time
       Biometric transferred its corporate domicile to Wyoming, the right to
       have their shares repurchased by Biometric at their fair market value on
       the date of the shareholder vote concerning Biometric's transfer to
       Wyoming. A provision of $657,052 for this contingent liability has been
       recorded in Biometric's accounts as of June 30, 1999, as a reduction of
       share capital. Any amount not repurchased by Biometric on expiry of the
       repurchase offer will be reclassified to share capital. See Item
       3 -- Legal Proceedings for further discussion of the repurchase offer.



     - Biometric completed a $2,000,000 private placement on July 22, 1999. The
       private placement consisted of 10,000,000 units, brokered on a best
       efforts basis, at a price of $0.20 per unit for total proceeds of
       $2,000,000. Each unit consists of one common share and one two-year
       non-transferable share purchase warrant. Each warrant is exercisable at a
       price of $0.20 per share in the first year and $0.23 per share in the
       second year. Remuneration paid to the broker for acting as agent
       consisted of a $186,000 commission payable in cash and a two year
       broker's warrant exercisable into a maximum of 1,500,000 shares of
       Biometric. The broker's warrants are exercisable at a price of $0.20 per
       share in the first year and $0.23 per share in the second year.



     - Biometric invested an additional US$ 2,675,000 in Biometric
       Identification debentures.


                                       22
<PAGE>   26


     - Biometric announced an annual general meeting of the shareholders, at
       which time the shareholders will be asked to vote on Biometric's proposal
       to transfer its domicile to British Columbia and to consolidate
       Biometric's share capital on the basis of one post-consolidated share for
       each five pre-consolidated shares.


YEARS ENDED DECEMBER 31, 1997 AND 1996

  Results of Operations

     A $0.13 loss per share in the fiscal year ended December 31, 1997 resulted
from cash and short-term investment earnings of $175,185 less expenses of
$759,182 and mineral property write-offs of $1,615,898. This is compared to a
$0.14 loss per share in the fiscal year ended December 31, 1996 from cash and
short-term investment earnings of $102,147, expenses of $826,609 and mineral
property write-offs of $534,853.

     Administrative costs in 1997 decreased 13% over 1996 as a result of
Biometric cutting back promotional, travel, consultants and other costs.

  Liquidity and Capital Resources


     During the year ended December 31, 1997, Biometric had an increase in cash
of $1,587,977 primarily as a result of its financing activities. The loss for
the year was $2,199,895, which consisted largely of the write-down of mineral
properties. During 1997, Biometric completed a special warrant placement of
5,000,000 units that raised net proceeds of $5,106,645. See 1996 liquidity and
capital resources below. Biometric raised $184,000 from the exercise of 200,000
warrants, and $126,400 from the exercise of 120,000 options.


     During 1997 Biometric incurred expenditures on mineral properties totaling
$3,033,103 and purchased equipment and leasehold improvements of $79,658.

  Balance Sheets


     Total cash and short-term investments at December 31, 1997 were $3,330,110
as compared to $1,742,133, excluding $5,106,645 of cash in escrow, at December
31, 1996. Working capital decreased to $3,072,259 as at December 31, 1997
compared to $6,369,429 as at December 31, 1996. Share capital increased
primarily as a result of the closing of the 5,000,000 unit special warrant
offering announced in October 1996. Advances on share subscriptions decreased
from $5,106,645 to nil as a result of the completion of the 5,000,000 unit
special warrant financing.


     Biometric expended a total of $3,171,103 of mineral property costs in
Argentina that was initially capitalized during 1997.

YEARS ENDED DECEMBER 31, 1996 AND 1995

  Results of Operations

     A $0.14 loss per share in the fiscal year ended December 31, 1996 resulted
from cash and short-term investment earnings of $102,147 less expenses of
$826,609 and mineral property write-offs of $534,853. This is compared to a
$0.20 loss per share in the fiscal year ended December 31, 1995 from cash and
short-term investment earnings of $210,620, expenses of $606,230 and resource
property write-downs of $746,371.

     Administrative costs in 1996 increased 36.4% over 1995 as a result of
Biometric's move to new office premises, the hiring of additional personnel,
advertising, promotional, exploration and travel costs incurred to support
Biometric's mineral projects.

  Liquidity and Capital Resources

     During the year ended December 31, 1996, Biometric increased its cash by
$99,492 primarily as a result of its financing activities which raised
$3,403,506 by private placements and the exercise of warrants and options.

                                       23
<PAGE>   27

     The loss for the year was $1,259,315, which included a $534,853 write-off
of mineral properties.

     On October 22, 1996, Biometric announced the private placement of 5,000,000
special warrants at an issue price of $1.10 per special warrant. Each special
warrant entitled the holder to acquire, without further consideration, one unit
comprising one common share and one-half of a share purchase warrant. Each whole
warrant entitled the holder to purchase one additional share at $1.30 per share
for a two year period. At December 31, 1996, Biometric held in escrow the
proceeds from the sale of special warrants of $5,106,645, net of commissions and
other offering costs, pending completion of a prospectus qualifying the common
shares and share purchase warrants for distribution.

     Biometric also granted the underwriters 250,000 special compensation
options as partial compensation for the placement of the special warrants. Each
special compensation option entitled the underwriter to acquire, without further
consideration, one compensation option. Each compensation option was exercisable
for one unit at a price of $1.10 per unit to January 31, 1999. Each unit
consists of one common share and one-half of a share purchase warrant, with each
whole warrant entitling the underwriter to purchase one additional share for
$1.30 per share to January 31, 1999.

     In January 1997, Biometric issued the 5,000,000 shares and 5,000,000
one-half share purchase warrants upon exercise of the 5,000,000 special
warrants. Biometric also issued 250,000 compensation options to the underwriter
upon the exercise of 250,000 special compensation options. In addition, the net
proceeds from the sale of special warrants, together with interest earned
thereon, were released to Biometric.

     Biometric received additional financing during 1996 from: the net proceeds
of $1,486,568 from three private placements during 1996 totaling 1,537,000
common shares; $1,828,138 from the exercise of 2,022,250 warrants; and $88,800
from the exercise of 110,000 options granted to employees.

     During 1996 Biometric incurred expenditures on mineral properties totaling
$2,998,643, purchased equipment and leasehold improvements totaling $223,643.
Also during 1996, Biometric sold marketable securities for proceeds of $193,527
and paid a security deposit of $138,000.

  Balance Sheets


     Total cash and short-term investments at December 31, 1996 were $1,742,133,
excluding $5,106,645 of cash in escrow, as compared to $1,796,691 at December
31, 1995. Working capital increased to $6,369,429 as at December 31, 1996
compared to $1,935,574 as at December 31, 1995.


     A total of $2,998,691 in mineral property costs were expended in Argentina
and initially capitalized during 1996.

     During 1996 Biometric expended $223,643 on equipment and leasehold
improvements giving it a total of $257,743 in equipment net of depreciation at
December 31, 1996. This compares to $42,600 for equipment and leaseholds at
December 31, 1995.

     At December 31, 1996 Biometric had $138,000 in a security deposit related
to a mineral property it was exploring in 1996.

     At December 31, 1996 Biometric had accounts payable of $570,752 largely
related to the exploration work it was carrying out in South America.

YEAR 2000 COMPLIANCE

     The Year 2000 issue refers to possible negative impacts on business systems
that could be caused by the arrival of the new millennium. Best known is the
possible inability of computer software to recognize the year 2000 as a date.
Unless the software is fixed, date-sensitive systems may begin to fail prior to
January 1, 2000.

     Biometric does not expect to experience significant Year 2000 issues,
because it uses standard commercial programs and systems that have been designed
or upgraded to comply with requirements imposed by the transition into the next
millennium. Biometric is contacting its main suppliers to make sure that they
are also Year 2000 compliant, a process Biometric expects to complete by the
third quarter of 1999.
                                       24
<PAGE>   28

     Biometric Identification has evaluated the products and services that it
offers, as well as its information technology infrastructure, and has determined
that they are Year 2000 compliant. Biometric Identification's business involves
integrating its products with those of original equipment managers and value
added resellers. If any of those companies is not Year 2000 compliant, their
product sales, and consequently Biometric Identification's sales, could drop.
Biometric Identification is contacting these companies to determine the state of
their Year 2000 compliance. Biometric Identification expects to complete this
process by the third quarter of 1999.

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not Applicable.

ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<S>  <C>                                                           <C>
1.   Auditors' Report to the Shareholders........................  27
2.   Consolidated Balance Sheets as at December 31, 1998 and       28
       1997......................................................
3.   Consolidated Statements of Operations and Deficit for the     29
       Years Ended December 31, 1998, 1997 and 1996..............
4.   Consolidated Statements of Cash Flows for the Years Ended     30
       December 31, 1998, 1997
       and 1996..................................................
5.   Notes to Consolidated Financial Statements..................  31
</TABLE>


                                       25
<PAGE>   29

                      CONSOLIDATED FINANCIAL STATEMENTS OF

                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
                        (EXPRESSED IN CANADIAN DOLLARS)

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

                                       26
<PAGE>   30


                      AUDITORS' REPORT TO THE SHAREHOLDERS



     We have audited the consolidated balance sheets of Biometric Security Corp.
(formerly Sonoma Resource Corp.) as at December 31, 1998 and 1997 and the
consolidated statements of operations and deficit and cash flows for each of the
years in the three year period ended December 31, 1998. These consolidated
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. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.



     In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 1998 in accordance with
generally accepted accounting principles in the United States.



     As discussed in notes 2(e) and 5, during 1999, the Company changed the
method of accounting for its investment in convertible debentures of Biometric
Identification Inc. from the fair value method, as an available-for-sale
investment, to the equity method. In accordance with Accounting Principles Board
Opinion No. 18, the consolidated financial statements for 1998 have been
restated to reflect the Company's share of the losses of Biometric
Identification Inc. since acquisition, and to eliminate the foreign exchange
translation gains and intercorporate interest income related thereto.



                                            /s/  KPMG LLP


                                            Chartered Accountants



Vancouver, Canada


February 23, 1999, except as to notes 2(e),


  5 and 15(c), which are as of September 7, 1999


                                       27
<PAGE>   31


                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)


                          CONSOLIDATED BALANCE SHEETS


                        (EXPRESSED IN CANADIAN DOLLARS)


                           DECEMBER 31, 1998 AND 1997



<TABLE>
<CAPTION>
                                                                  1998           1997
                                                              ------------    ----------
                                                              (RESTATED --
                                                                NOTE 5)
<S>                                                           <C>             <C>
                           ASSETS
Current assets:
     Cash...................................................  $   245,182     $3,330,110
     Amounts receivable.....................................       55,076         19,002
     Prepaid expenses.......................................        9,257          6,252
                                                              -----------     ----------
                                                                  309,515      3,355,364
Equipment and leasehold improvements (note 3)...............       60,758        248,213
Mineral properties (note 4).................................           --      4,670,516
Investment (note 5).........................................    2,196,355             --
                                                              -----------     ----------
                                                              $ 2,566,628     $8,274,093
                                                              ===========     ==========
            LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable and accrued liabilities...............  $   148,262     $  283,105
     Loan payable (note 6)..................................      150,775             --
                                                              -----------     ----------
                                                                  299,037        283,105
Shareholders' equity:
     Share capital (note 7):
          Authorized:
          Unlimited (1997 -- 100,000,000) common shares
          Issued:
          20,834,412 (1997 -- 16,448,962) common shares.....   13,128,263     12,387,691
     Advances on share subscriptions (note 7(b))............      660,592             --
     Deficit................................................  (11,521,264)    (4,396,703)
                                                              -----------     ----------
                                                                2,267,591      7,990,988
Continuing operations (note 1)
Commitments and contingencies (notes 5 and 13)
Subsequent events (notes 5, 6, 7 and 14)
                                                              -----------     ----------
                                                              $ 2,566,628     $8,274,093
                                                              ===========     ==========
</TABLE>



On behalf of the Board:



                         , Director



                         , Director



          See accompanying notes to consolidated financial statements.


                                       28

<PAGE>   32


                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)


               CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



<TABLE>
<CAPTION>
                                                             1998          1997          1996
                                                         ------------   -----------   -----------
                                                         (RESTATED --
                                                           NOTE 5)
<S>                                                      <C>            <C>           <C>
Revenue:
     Interest and other income.........................  $     79,129   $   175,185   $    62,670
     Gain on disposal of marketable securities.........            --            --        39,477
                                                         ------------   -----------   -----------
                                                               79,129       175,185       102,147
General and administrative expenses:
     Business consultants..............................        78,306        87,345       158,305
     Depreciation and depletion........................         9,858        67,100         8,500
     Finder's fee (note 5).............................        99,822            --            --
     Foreign exchange loss (gain)......................         5,834       (20,198)      (20,630)
     Interest and bank charges.........................        14,449         2,159         2,507
     Legal, audit and accounting.......................       563,234       141,256        66,461
     Management fees...................................       120,059       127,121       164,451
     Office expense....................................       113,851       113,570       136,891
     Public listing....................................        66,153        37,035        38,080
     Salaries, wages and administration................        56,129        61,979        68,841
     Travel, accommodation and promotion...............       159,891       103,332       203,203
                                                         ------------   -----------   -----------
                                                            1,287,586       720,699       826,609
                                                         ------------   -----------   -----------
                                                           (1,208,457)     (545,514)     (724,462)
Other expenses:
     Write-off of mineral properties (note 4)..........     4,592,237     1,615,898       534,853
     Share of loss of Biometric Identification Inc.
       (note 5)........................................     1,275,000            --            --
     Mineral exploration...............................            --        16,395            --
     Loss on disposal of equipment.....................        48,867        22,088            --
                                                         ------------   -----------   -----------
                                                            5,916,104     1,654,381       534,853
                                                         ------------   -----------   -----------
Loss for the year......................................    (7,124,561)   (2,199,895)   (1,259,315)
Deficit, beginning of year.............................    (4,396,703)   (2,196,808)     (937,493)
                                                         ------------   -----------   -----------
Deficit, end of year...................................  $(11,521,264)  $(4,396,703)  $(2,196,808)
                                                         ============   ===========   ===========
Loss per share.........................................  $      (0.38)  $     (0.13)  $     (0.14)
                                                         ============   ===========   ===========
Weighted average number of shares......................    18,825,977    16,170,395     8,933,410
                                                         ============   ===========   ===========
</TABLE>


          See accompanying notes to consolidated financial statements.
                                       29
<PAGE>   33


                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



                     CONSOLIDATED STATEMENTS OF CASH FLOWS


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



<TABLE>
<CAPTION>
                                                              1998          1997          1996
                                                          ------------   -----------   -----------
                                                          (RESTATED --
                                                            NOTE 5)
<S>                                                       <C>            <C>           <C>
Cash flows from operating activities:
  Loss for the year.....................................  $(7,124,561)   $(2,199,895)  $(1,259,315)
  Adjustments to reconcile loss for the year to net cash
     used in operating activities:
       Write-off of mineral properties..................    4,592,237      1,615,898       534,853
       Share of loss of Biometric Identification Inc....    1,275,000             --            --
       Loss on disposal of equipment....................       48,867         22,088            --
       Depreciation and depletion.......................        9,858         67,100         8,500
       Non-cash fees and expenses.......................      112,322             --            --
       Gain on disposal of marketable securities........           --             --       (39,477)
       Decrease (increase) in amounts receivable........      (36,074)        29,846       107,230
       Decrease (increase) in prepaid expenses..........       (3,005)        36,303        31,331
       Increase (decrease) in accounts payable and
          accrued liabilities...........................     (134,844)      (287,647)      479,671
                                                          -----------    -----------   -----------
Net cash used in operating activities...................   (1,260,200)      (716,307)     (137,207)
Cash flows from investing activities:
  Proceeds on sale of marketable securities.............           --             --       193,527
  Equipment and leasehold improvements..................      (22,781)       (79,658)     (223,643)
  Proceeds on disposal of equipment and leasehold
     improvements.......................................      151,512             --            --
  Mineral properties....................................     (145,306)    (3,033,103)   (2,998,691)
  Security deposit (paid) recovered.....................      185,335             --      (138,000)
  Proceeds on sale of mineral properties................       38,250             --            --
  Investment............................................   (3,471,355)            --            --
                                                          -----------    -----------   -----------
Net cash used in investing activities...................   (3,264,345)    (3,112,761)   (3,166,807)
Cash flows from financing activities:
  Loan payable..........................................      250,000             --            --
  Repayment of loan payable.............................      (99,225)            --            --
  Issuance of common shares.............................      628,250      5,417,045     3,403,506
  Advances on share subscriptions.......................      660,592             --            --
                                                          -----------    -----------   -----------
Net cash provided by financing activities...............    1,439,617      5,417,045     3,403,506
                                                          -----------    -----------   -----------
Increase (decrease) in cash.............................   (3,084,928)     1,587,977        99,492
Cash, beginning of year.................................    3,330,110      1,742,133     1,642,641
                                                          -----------    -----------   -----------
Cash, end of year.......................................  $   245,182    $ 3,330,110   $ 1,742,133
                                                          ===========    ===========   ===========
</TABLE>



---------------



Supplementary cash flow information (note 9)



          See accompanying notes to consolidated financial statements.


                                       30

<PAGE>   34


                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



1.  CONTINUING OPERATIONS:



     The Company was incorporated under the laws of British Columbia, Canada.
During 1998, the Company changed its principal business activity from the
exploration and development of resource properties to an investment holding
company, with its principal holding being its investment in Biometric
Identification Inc. ("BII") (note 5). BII's principal business activity is the
development, manufacture and marketing of fingerprint identification systems in
the United States. BII has not yet achieved profitable operations. In connection
with this change in business activity during 1998, the Company changed its name
from Sonoma Resource Corp. to Biometric Security Corp., and on November 10,
1998, the Company was continued under the laws of the State of Wyoming (also see
note 14(a)).



     These financial statements have been prepared in accordance with accounting
principles applicable to a going concern, which assumes that the Company will
realize its assets and discharge its liabilities in the ordinary course of
business. At December 31, 1998, the Company has a net working capital position
of approximately $10,000, which is not sufficient to meet its commitments or
fund ongoing operations. The ability of the Company to settle its liabilities as
they come due and to fund its commitments and ongoing operations is dependent
upon the ability of the Company to obtain additional equity financing (also see
notes 7(b) and 14(b)). The recoverability of the Company's investment in BII is
dependent upon the establishment of profitable commercial operations in BII, the
ability of the Company to obtain additional debt or equity financing to complete
the acquisition of BII or the proceeds from the disposition of the Company's
interest in BII.



2.  SIGNIFICANT ACCOUNTING POLICIES:



  (a) Basis of presentation:



     These consolidated financial statements have been prepared in accordance
with accounting principles and practices that are generally accepted in the
United States, which conform, in all material respects, with those generally
accepted in Canada, except as explained in note 15.



  (b) Basis of consolidation:



     The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are directly or indirectly wholly-owned, and
include (with the jurisdiction of incorporation in brackets):



          Sonoma Resource de Argentina S.A. (Argentina)


        Sonoma Resource (Bermuda) Ltd. (Bermuda)


        Cerro Toro Mining (Barbados) Ltd. (Barbados)


        Cerro Toro S.A. (Argentina)


        Castano Mining (Barbados)


        Castano S.A. (Argentina)



     All intercompany balances and transactions have been eliminated.



  (c) Equipment and leasehold improvements:



     Equipment and leasehold improvements are stated at cost and depreciated
over their estimated useful lives on a declining-balance basis at 15% per year.



  (d) Mineral properties:



     Mineral property acquisition costs and related exploration and development
expenditures are deferred until the property is placed into production, sold or
abandoned. These costs will be amortized over the

                                       31
<PAGE>   35

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



estimated life of the property following commencement of commercial production
or written off if the property is sold, allowed to lapse or abandoned.
Administration expenditures are expensed in the period incurred.



     Mineral property acquisition costs include the cash consideration and the
fair market value of common shares issued for mineral property interests. A
property acquired under an option agreement or by joint venture, where payments
are made at the sole discretion of the Company, is recorded in the accounts at
the time of payment.



     On an on-going basis, the Company evaluates the status of its mineral
properties based on results to date to determine the nature of exploration and
development work that is warranted in the future. If there is little prospect of
further work on a property being carried out, the deferred costs related to that
property are written down to their estimated recoverable amount.



     The amounts shown for mineral properties reflect costs incurred to date,
less write-offs and recoveries, and are not intended to reflect present or
future values.



  (e) Investments:



     At December 31, 1998, the investment in convertible debentures of BII (note
5) was classified by the Company as an available-for-sale investment, although
the Company intends to hold these debt securities until conversion or maturity.
Available-for-sale investments are carried at fair value, with any unrealized
holding gain or loss excluded from earnings and reported as a net amount in a
separate component of shareholders equity until realized. Interest income is
recognized in earnings when earned.



     During 1999, the Company determined that it had the ability to exercise
significant influence over the operating, financing and investing activities of
BII. In addition, the Company determined that the investment in convertible
debentures could be considered to be similar in nature to an equity investment
in BII. As a result of these two factors, the Company changed the method of
accounting for its investment in BII from the fair value method, as an
available-for-sale investment, to the equity method, effective in June 1999. In
accordance with Accounting Principles Board ("APB") Opinion No. 18 "The Equity
Method of Accounting for Investments in Common Stock", the Company's financial
statements for 1998 have been restated to reflect this change.



     Under the equity method, the cost of the investment is adjusted for the
Company's share of post-acquisition earnings or losses of BII, as if the Company
had converted its BII debentures into shares of BII at the time of each
acquisition. The excess of the cost of its investment over the Company's share
of the net assets of BII, which has been allocated by the Company to BII's
technology rights, is being amortized on a straight-line basis over five years.
The Company has recorded $1,275,000 as its share of the loss of BII during the
period ended December 31, 1998. In addition, previously reported foreign
exchange translation gains of $85,875 relating to this investment have been
reversed, and accrued interest income of $79,989 has been eliminated in
connection with this change. The overall result of this change was to reduce
investment as at December 31, 1998 by $1,440,864, increase loss for the year
ended December 31, 1998 by $1,440,864, or $0.08 per share, and increase deficit
as at December 31, 1998 by $1,440,864.



  (f) Stock options:



     The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, in accounting for its stock
options. As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price.


                                       32
<PAGE>   36

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



  (g) Loss per share:



     Basic loss per share is calculated using the weighted average number of
shares outstanding during the year. Diluted loss per share has not been
presented as the effect on basic loss per share would be anti-dilutive.



  (h) Foreign currency translation:



     Transactions of the Company and its subsidiaries that are denominated in
foreign currencies are recorded in Canadian dollars at exchange rates in effect
at the related transaction dates. Monetary assets and liabilities denominated in
foreign currencies are adjusted to reflect exchange rates at the balance sheet
date. Exchange gains and losses arising on the translation of monetary assets
and liabilities are included in the determination of operations for the year.



  (i) Use of estimates:



     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant areas requiring the use of management estimates
relate to the determination of impairment of mineral properties and equipment,
useful lives for depreciation and the carrying value of the investment in BII.
Actual results could differ from those estimates.



  (j) Comparative figures:



     Certain of the prior years' comparative figures have been reclassified to
conform with the presentation adopted for 1998.



3.  EQUIPMENT AND LEASEHOLD IMPROVEMENTS:



<TABLE>
<CAPTION>
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
Equipment...................................................  $ 67,759    $ 71,320
Automotive equipment........................................        --     209,179
Leasehold improvements......................................    19,138      15,941
                                                              --------    --------
                                                                86,897     296,440
Accumulated depreciation....................................   (26,139)    (48,227)
                                                              --------    --------
                                                              $ 60,758    $248,213
                                                              ========    ========
</TABLE>


                                       33
<PAGE>   37

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



4.  MINERAL PROPERTIES:



     The continuity of mineral property acquisition costs, exploration and
development expenditures, write-offs and deferred expenditures at year end is as
follows:



<TABLE>
<CAPTION>
                                                                      CHUBUT AND
                                         CERRO TORO      CASTANO       SAN LUIS
                                       PROPERTIES(A)    GROUP(B)    PROPERTIES(C)    OTHER(C)      TOTAL
                                       --------------   ---------   --------------   ---------   ----------
<S>                                    <C>              <C>         <C>              <C>         <C>
Balance, December 31, 1997...........    $3,983,092     $      --      $687,424      $     --    $4,670,516
  Exploration and development
     expenditures:
       Access costs..................           772            --            --            --           772
       Assays........................            --            --         2,882            --         2,882
       Communication.................            --            --           332            --           332
       Contract labour and
          supervision................         5,737            --            --            --         5,737
       Data acquisition and
          analysis...................           941            --           596            --         1,537
       Equipment and field
          supplies...................         5,231            --           259            --         5,490
       Field administration..........        21,674            --            --            --        21,674
       Field car rental and
          transportation.............         3,271            --           389            --         3,660
       Geological and geophysical....        40,471            --        28,810            --        69,281
       Insurance.....................         5,762            --            --            --         5,762
       Legal and other...............        19,552            --         6,687            --        26,239
       Travel and accommodation......         1,669            --           271            --         1,940
                                         ----------     ---------      --------      --------    ----------
                                            105,080            --        40,226            --       145,306
                                         ----------     ---------      --------      --------    ----------
                                          4,088,172            --       727,650            --     4,815,822
  Recovery of security deposit.......            --      (185,335)           --            --      (185,335)
  Deposit received on option
     agreement.......................            --            --            --       (38,250)      (38,250)
  Write-offs.........................    (4,088,172)      185,335      (727,650)       38,250    (4,592,237)
                                         ----------     ---------      --------      --------    ----------
  Balance, December 31, 1998.........    $       --     $      --      $     --      $     --    $       --
                                         ==========     =========      ========      ========    ==========
</TABLE>


                                       34
<PAGE>   38

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



<TABLE>
<CAPTION>
                                                                      CHUBUT AND
                                        CERRO TORO      CASTANO        SAN LUIS
                                      PROPERTIES(A)     GROUP(B)    PROPERTIES(C)    OTHER(C)      TOTAL
                                      --------------   ----------   --------------   ---------   ----------
<S>                                   <C>              <C>          <C>              <C>         <C>
Balance, December 31, 1996..........    $1,591,602     $1,000,818      $217,877      $305,014    $3,115,311
Acquisition costs...................         7,610        165,308        55,726        31,637       260,281
Exploration and development
  expenditures:
     Access costs...................        66,273             --        27,030            --        93,303
     Assays.........................       109,858             --            --            --       109,858
     Camp...........................         2,121             --            --            --         2,121
     Communication..................        15,802             --            --            --        15,802
     Contract drilling..............     1,203,985             --            --            --     1,203,985
     Contract labour and
       supervision..................        82,045             --        16,685            --        98,730
     Data acquisition and
       analysis.....................        19,512             --         2,364        22,516        44,392
     Equipment and field supplies...       156,120             --        42,676           512       199,308
     Field administration...........       149,318             --           860            --       150,178
     Field car rental and
       transportation...............        77,563             --        15,021           364        92,948
     Geological and geophysical.....       394,316          1,400       200,277        30,280       626,273
     Insurance......................        23,369             --         1,308           707        25,384
     Legal and other................        19,852             --        33,002        55,620       108,474
     Travel and accommodation.......        63,746             --        74,598         1,722       140,066
                                        ----------     ----------      --------      --------    ----------
                                         2,383,880          1,400       413,821       111,721     2,910,822
                                        ----------     ----------      --------      --------    ----------
                                         3,983,092      1,167,526       687,424       448,372     6,286,414
Write-offs..........................            --     (1,167,526)           --      (448,372)   (1,615,898)
                                        ----------     ----------      --------      --------    ----------
Balance, December 31, 1997..........    $3,983,092     $       --      $687,424      $     --    $4,670,516
                                        ==========     ==========      ========      ========    ==========
</TABLE>



A brief description of the Company's mineral properties is as follows:



  (a) Cerro Toro Properties:



     On February 15, 1995, the Company filed three exploration permits with the
regulatory authorities in San Juan Province, Argentina covering 1,845 hectares
located in San Juan Province. The Company was subsequently notified that 100% of
the rights of ownership established by the procedures of the Province belong to
the Company.



     In June 1998, the Company determined there was little prospect of further
work being carried out on the properties. Accordingly, all deferred expenditures
relating to the Cerro Toro Properties were written off at that time.



  (b) Castano Group:



     In 1996, the Company entered into a purchase/option agreement to acquire
100% of the rights and interests in the Castano Group of mineral properties
located in San Juan Province, Argentina. In 1997, the Company terminated the
purchase/option agreement in accordance with the provisions provided therein and
wrote off the remaining deferred expenditures on the Castano Group. During 1998,
the Company recovered a security deposit that had previously been written off.


                                       35
<PAGE>   39

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



  (c) Other Argentina properties:



     During 1995, the Company staked and applied for a number of cateos and
manifestaciones within Cordova, San Luis, Chubut and Santa Cruz provinces, all
of which were of a grass roots nature. At December 31, 1997, the Company had
staked and applied for 13 cateos and 20 manifestaciones in the San Luis and
Chubut provinces.



     In 1997, the Company wrote-off costs incurred relating to properties in
provinces other than San Luis and Chubut that the Company did not intend to
pursue.



     As the Cordova and San Luis cateos and manifestaciones were not renewed
during 1999, all deferred expenditures relating to these properties were written
off during 1998.



     During November 1998, the Company entered into a letter agreement to grant
Inlet Resources Ltd. ("Inlet") an option to purchase up to a 100% interest in
the Company's Argentine properties. Under the terms of the agreement, the
Company granted Inlet an option to purchase up to 90% of the properties, over a
three year period, with a buyout of the remaining 10% for U.S. $2,000,000.
During the first year, the agreement requires Inlet to pay the Company U.S.
$150,000 in stages, issue the Company 100,000 shares and complete a U.S.
$650,000 work program, to earn a 50% interest in the properties. During the
second and third years, the agreement provides that Inlet will pay the Company a
total of U.S. $600,000 in stages, issue 200,000 shares and complete work
commitments totalling U.S. $1,500,000 to earn an additional 40% interest in the
properties. To December 31, 1998, the Company received a cash deposit of U.S.
$25,000 relating to the option agreement.



5.  INVESTMENT:



<TABLE>
<CAPTION>
                                                                  1998
                                                              ------------
                                                              (RESTATED --
                                                               SEE BELOW)
<S>                                                           <C>
Investment, at cost.........................................   $3,471,355
Share of losses of BII......................................    1,275,000
                                                               ----------
                                                               $2,196,355
                                                               ==========
</TABLE>



     During 1998, the Company entered into an agreement to purchase convertible
debentures entitling the Company to acquire up to a 45% interest in Biometric
Identification Inc. ("BII"), a private California-based company in the business
of developing, manufacturing and marketing fingerprint recognition technology.
Under the terms of the agreement, the Company has the right to acquire up to
U.S. $5,000,000 of convertible debentures to be issued by BII. If all such
debentures are acquired and converted into shares of BII, the Company will hold
approximately 45% of the issued shares of BII.



     This investment was initiated by a related party which assigned its
interest to the Company in exchange for a fee up to U.S. $145,000, plus
reimbursement of its expenses. The related party elected to take this fee in the
form of 715,575 common shares at a deemed price of $0.30 per share. These shares
will be issued in pro-rata tranches on the same basis the debentures are
purchased by the Company.



     The debentures have a term of five years from the date of the closing of
the first acquisition and bear interest at the lowest interest rate imputed
under the U.S. Internal Revenue Code.


                                       36
<PAGE>   40

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



     At December 31, 1998, the Company had acquired debentures of BII totalling
U.S. $2,325,000 in accordance with the terms of the agreement and had issued
250,450 shares and allotted 82,292 shares, at a total value of $99,822, to the
related party. Additional debenture acquisitions and share issuances for finders
fees under the terms of the original agreement are scheduled as follows:



<TABLE>
<CAPTION>
                                                          DEBENTURE
DATES                                                  AMOUNTS (U.S. $)   SHARES
-----                                                  ----------------   -------
<S>                                                    <C>                <C>
February 1, 1999 (paid)..............................     $  550,000       78,713
February 22, 1999....................................        125,000       17,889
March 12, 1999.......................................        500,000       71,558
May 12, 1999.........................................      1,500,000      214,673
                                                          ----------      -------
                                                          $2,675,000      382,833
                                                          ==========      =======
</TABLE>



     At December 31, 1998, the fair value of the Company's investment in
debentures of BII is estimated to approximate its carrying value.



     Subsequent to December 31, 1998, the debenture acquisitions scheduled to be
made on February 22, 1999 and March 12, 1999 were deferred, by mutual agreement,
until April 2, 1999, and the May 12, 1999 scheduled acquisition was deferred
until July 23, 1999. All of the remaining scheduled acquisitions were made.



     As discussed in note 2(e), during 1999, the Company changed the method of
accounting for its investment in BII to the equity method, and in accordance
with APB No. 18, has restated the consolidated financial statements for 1998 to
reflect the Company's share of losses of BII since acquisition, to reverse
previously reported foreign exchange translation gains related to the
investment, and to eliminate intercorporate interest income, as if the Company
had always accounted for its investment in BII using the equity method.



     Summarized financial information for the Company's share of BII is as
follows (note: balance sheet amounts represent the Company's 28.2% effective
ownership interest as at December 31, 1998 and statement of operations amounts
represent the Company's 23.8% effective ownership interest during the period
June 12, 1998 to December 31, 1998):



<TABLE>
<CAPTION>
                                                              DECEMBER 31, 1998
                                                              -----------------
<S>                                                           <C>
Working capital.............................................     $      787
Capital assets..............................................         11,821
Intangible assets...........................................      2,277,562
Convertible debentures payable to others....................        (93,765)
                                                                 ----------
Net assets..................................................     $2,196,355
                                                                 ==========
</TABLE>



<TABLE>
<CAPTION>
                                                                 PERIOD FROM
                                                              JUNE 12, 1998 TO
                                                              DECEMBER 31, 1998
                                                              -----------------
<S>                                                           <C>
Revenues....................................................     $   166,000
Expenses, including amortization of excess purchase price...      (1,441,000)
                                                                 -----------
Loss for the period.........................................     $(1,275,000)
                                                                 ===========
</TABLE>


                                       37
<PAGE>   41

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



6.  LOAN PAYABLE:



     During 1998, a company controlled by a director loaned the Company a total
of $250,000. The loan is unsecured, non-interest bearing and was due on December
26, 1998. A total of $99,225 of the loan was repaid on December 29, 1998, and
the balance of the loan of $150,775 was repaid subsequent to December 31, 1998.



     The Company also allotted 65,789 shares at a deemed price of $0.19 per
share at December 31, 1998, as allowed for under the rules of the Vancouver
Stock Exchange, as consideration for the loan.



7.  SHARE CAPITAL:



  (a) Issued:



<TABLE>
<CAPTION>
                                                               NUMBER
                                                             OF SHARES       AMOUNT
                                                             ----------    -----------
<S>                                                          <C>           <C>
Balance at December 31, 1996...............................  11,128,962    $ 6,970,646
Issued during the year for cash by way of:
     Private placement of special warrants, net of issue
       costs...............................................   5,000,000      5,106,645
     Exercise of warrants..................................     200,000        184,000
     Exercise of options...................................     120,000        126,400
                                                             ----------    -----------
Balance at December 31, 1997...............................  16,448,962     12,387,691
Issued during the year for cash by way of:
     Private placements....................................   4,035,000        605,250
     Exercise of options...................................     100,000         23,000
Issued during the year for finder's fee (note 5)...........     250,450         75,135
                                                             ----------    -----------
                                                             20,834,412     13,091,076
Allotted during the year for:
     Finder's fee (note 5).................................      82,292         24,687
     Carrying charges (note 6).............................      65,789         12,500
                                                             ----------    -----------
Balance at December 31, 1998...............................  20,982,493    $13,128,263
                                                             ==========    ===========
</TABLE>



     During 1997, the Company issued the 5,000,000 common shares and 5,000,000
one-half share purchase warrants upon exercise of 5,000,000 previously issued
special warrants. In addition, 250,000 compensation options were issued to the
underwriter upon the exercise of 250,000 special compensation options granted to
the underwriter in connection with this special warrant private placement. Each
compensation option entitles the underwriter to acquire a unit, consisting of
one share and one-half of a share purchase warrant, at an exercise price of
$1.10 per share prior to January 20, 1999. Each whole warrant entitles the
underwriter to acquire one share at an exercise price of $1.30 prior to January
20, 1999. Subsequent to December 31, 1998, these compensation options expired
unexercised.



     During 1998, the Company completed a 3,375,000 unit private placement at a
price of $0.15 per unit and a 660,000 unit private placement at a price of $0.15
per unit. Each unit consisted of one common share and one non-transferable share
purchase warrant. Each warrant is exercisable for a period of two years and
entitles the holder to purchase one additional common share at a price of $0.15
per share in the first year and $0.17 per share in the second year.


                                       38
<PAGE>   42

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



  (b) Advances on share subscriptions:



     At December 31, 1998, the Company had received advances on share
subscriptions for 4,403,950 units at $0.15 per unit in connection with:



- a brokered private placement of 6,666,666 units at $0.15 per unit for total
  proceeds of $1,000,000; and



- a non-brokered private placement of 5,000,000 units at $0.15 per unit for
  total proceeds of $750,000.



     Each unit consists of one common share and one non-transferable share
purchase warrant exercisable for a period of two years. Each warrant will be
exercisable at a price of $0.15 per share in the first year and $0.17 per share
in the second year. The agent will be paid a 10% commission payable in cash and
brokers' warrants exercisable into shares of the Company for a period of two
years not exceeding 15% of the number of units issued to investors pursuant to
the private placements. The brokers' warrants will be exercisable at a price of
$0.15 per share the first year and $0.17 per share in the second year.



     Subsequent to December 31, 1998, the Company received the additional
$1,089,408 of proceeds, paid the $100,000 commission, issued the 11,666,666
shares and share purchase warrants and issued the 1,000,000 brokers' warrants.



  (c) Share purchase warrants:



     The continuity of share purchase warrants during 1998 is as follows:



<TABLE>
<CAPTION>
                                            BALANCE,                                              BALANCE,
                              EXERCISE    DECEMBER 31,                            EXPIRED OR    DECEMBER 31,
EXPIRY DATE                    PRICE          1997         GRANTED    EXERCISED    CANCELLED        1998
-----------                   --------    ------------     -------    ---------   ----------    ------------
<S>                          <C>          <C>             <C>         <C>         <C>           <C>
January 26, 1998...........  $     1.47        37,000            --       --         (37,000)            --
August 21, 1998............        1.25     1,400,000            --       --      (1,400,000)            --
October 22, 1998...........        1.30     2,500,000            --       --      (2,500,000)            --
October 22, 1998/1999......   0.15/0.17            --       660,000       --              --        660,000
March 31, 1999/2000........   0.15/0.17            --     3,375,000       --              --      3,375,000
                                            ---------     ---------      ---      ----------      ---------
                                            3,937,000     4,035,000       --      (3,937,000)     4,035,000
                                            =========     =========      ===      ==========      =========
</TABLE>



     The continuity of share purchase warrants during 1997 is as follows:



<TABLE>
<CAPTION>
                                           BALANCE,                                              BALANCE,
                             EXERCISE    DECEMBER 31,                            EXPIRED OR    DECEMBER 31,
EXPIRY DATE                   PRICE          1996         GRANTED    EXERCISED    CANCELLED        1997
-----------                  --------    ------------     -------    ---------   ----------    ------------
<S>                         <C>          <C>             <C>         <C>         <C>           <C>
January 26, 1997/1998.....  $1.28/1.47        37,000            --         --            --         37,000
June 22, 1997.............        0.92       700,000            --   (100,000)     (600,000)            --
June 29, 1997.............        0.92       300,000            --         --      (300,000)            --
September 14, 1997........        0.92       150,000            --         --      (150,000)            --
December 5, 1997..........        0.92       100,000            --   (100,000)           --             --
August 21, 1998...........        1.25     1,400,000            --         --            --      1,400,000
October 22, 1998..........        1.30            --     2,500,000         --            --      2,500,000
                                           ---------     ---------   --------    ----------      ---------
                                           2,687,000     2,500,000   (200,000)   (1,050,000)     3,937,000
                                           =========     =========   ========    ==========      =========
</TABLE>


                                       39
<PAGE>   43

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



  (d) Stock options:



     (i) Continuity:



     The continuity of stock options during 1998 is as follows:



<TABLE>
<CAPTION>
                                          BALANCE,                                              BALANCE,
                            EXERCISE    DECEMBER 31,                            EXPIRED OR    DECEMBER 31,
EXPIRY DATE                   PRICE         1997         GRANTED    EXERCISED    CANCELLED        1998
-----------                 --------    ------------     -------    ---------   ----------    ------------
<S>                         <C>         <C>             <C>         <C>         <C>           <C>
April 27, 1998............    $1.00         100,000            --         --      (100,000)(a)          --
September 14, 1998........     0.34          30,000            --         --       (30,000)(a)          --
October 30, 1999..........     1.33         387,261            --         --      (387,261)(a)          --
January 21, 2000..........     0.34         130,000            --         --      (130,000)(a)          --
January 21, 2000..........     1.36         390,000            --         --      (390,000)(a)          --
July 6, 2000..............     0.32              --        50,000         --            --         50,000
August 28, 2000...........     0.20              --       100,000         --            --        100,000
January 28, 2001..........     0.23              --     1,640,000(a) (100,000)    (285,000)     1,255,000
                                          ---------     ---------   --------    ----------      ---------
                                          1,037,261     1,790,000   (100,000)   (1,322,261)     1,405,000
                                          =========     =========   ========    ==========      =========
</TABLE>


---------------

(a) During 1998, these 1,037,261 outstanding options were cancelled and replaced
    with the 1,640,000 options at $0.23 per share expiring January 28, 2001.



     The continuity of stock options during 1997 is as follows:



<TABLE>
<CAPTION>
                                            BALANCE,                                             BALANCE,
                              EXERCISE    DECEMBER 31,                           EXPIRED OR    DECEMBER 31,
EXPIRY DATE                     PRICE         1996        GRANTED    EXERCISED    CANCELLED        1997
-----------                   --------    ------------    -------    ---------   ----------    ------------
<S>                           <C>         <C>             <C>        <C>         <C>           <C>
February 16, 1997...........    $0.90          40,000          --     (40,000)           --             --
January 30, 1998............     0.91          50,000          --          --       (50,000)            --
April 27, 1998..............     1.00         100,000          --          --            --        100,000
September 14, 1998..........     1.10          70,000          --     (40,000)      (30,000)(b)          --
September 14, 1998..........     0.34              --      30,000(b)       --            --         30,000
December 8, 1998............     0.97         373,635          --          --      (373,635)            --
July 31, 1999...............     1.12          10,000          --          --       (10,000)            --
September 25, 1999..........     1.16          50,000          --     (40,000)      (10,000)            --
October 30, 1999............     1.33         387,261          --          --            --        387,261
January 21, 2000............     1.36              --     620,000          --      (230,000)(b)     390,000
January 21, 2000............     0.34              --     230,000(b)       --      (100,000)       130,000
                                            ---------     -------    --------    ----------      ---------
                                            1,080,896     880,000    (120,000)     (803,635)     1,037,261
                                            =========     =======    ========    ==========      =========
</TABLE>


---------------


(b) During 1997, these options were repriced to $0.34 per share.



     (ii) Compensation expense:



     The Company's Board of Directors grants stock options to its officers,
directors and key employees in accordance with the rules prescribed by the
Vancouver Stock Exchange. Stock options are granted with an exercise price equal
to the stock's quoted value on the Vancouver Stock Exchange at the date of
grant. Stock options granted generally have varying terms of up to three years
and vest and become fully exercisable from the date of grant.


                                       40
<PAGE>   44

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



     The per share weighted-average fair value of stock options granted during
1998, 1997 and 1996 was $0.16, $0.17 and $0.89 on the date of grant, using the
Black Scholes option-pricing model with the following weighted-average
assumptions:



<TABLE>
<CAPTION>
                                                              1998   1997   1996
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Expected dividend yield.....................................    0%     0%     0%
Risk-free interest rate.....................................  6.2%   5.0%   6.1%
Expected life (years).......................................    2      2      2
Expected volatility over expected life......................  139%   139%   139%
</TABLE>



     The Company applies APB Opinion No. 25 in accounting for granting stock
options and accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation ("FAS 123"), the Company's loss for the year would have increased
to the pro forma amounts indicated below:



<TABLE>
<CAPTION>
                                                  1998           1997           1996
                                              ------------    -----------    -----------
                                              (RESTATED --
                                                NOTE 5)
<S>                                           <C>             <C>            <C>
Loss for the year:
     As reported............................  $(7,124,561)    $(2,199,895)   $(1,259,315)
     Compensation expense under FAS 123.....      286,558         152,888        458,384
                                              -----------     -----------    -----------
Pro forma loss for the year.................  $ 7,411,119     $(2,352,783)   $(1,717,699)
                                              ===========     ===========    ===========
Pro forma loss per share....................  $     (0.39)    $     (0.15)   $     (0.19)
                                              ===========     ===========    ===========
</TABLE>



8.  FINANCIAL INSTRUMENTS:



     The fair values of the Company's cash, amounts receivable, accounts payable
and accrued liabilities and loan payable approximate their carrying amounts
because of the immediate or short term to maturity of these financial
instruments.



9.  NON-CASH FINANCING AND INVESTING ACTIVITIES:



     The Company has the following non-cash financing and investing activities:



<TABLE>
<CAPTION>
                                                       1998        1997        1996
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Financing activities:
     Shares issued and allotted for finders fee....  $ 99,822    $     --    $     --
     Shares allotted as consideration for loan
       payable.....................................    12,500          --          --
                                                     --------    --------    --------
                                                     $112,322    $     --    $     --
                                                     ========    ========    ========
Investing activities:
     Accrued interest income on investment.........  $(79,989)   $     --    $     --
                                                     ========    ========    ========
</TABLE>



10.  SEGMENTED INFORMATION:



     During 1998, the Company adopted the accounting standards related to
segment disclosures recently approved by the accounting standard-setting bodies
in the United States and Canada. The information presented below is consistent
with these standards. The Company has not allocated general and administrative
expenses from the corporate segment.


                                       41
<PAGE>   45

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



  (a) Operating segments:



     The Company has determined its operating segments to be mineral exploration
and development, and corporate, which includes holding investments, based on the
way management organizes and manages its business.



<TABLE>
<CAPTION>
                                                         MINERAL
                                                     EXPLORATION AND
1998                                                   DEVELOPMENT       CORPORATE         TOTAL
----                                                 ---------------    ------------    ------------
                                                                        (RESTATED --    (RESTATED --
                                                                          NOTE 5)         NOTE 5)
<S>                                                  <C>                <C>             <C>
Revenue............................................    $        --      $    79,129     $    79,129
General and administrative expenses................             --        1,287,586       1,287,586
Other expenses.....................................      4,592,237        1,323,867       5,916,104
                                                       -----------      -----------     -----------
Loss for the year..................................    $(4,592,237)     $(2,532,324)    $(7,124,561)
                                                       ===========      ===========     ===========
Capital expenditures (recovered)...................    $   (78,279)     $ 3,342,624     $ 3,264,345
                                                       ===========      ===========     ===========
Identifiable assets................................    $        --      $ 2,566,628     $ 2,566,628
                                                       ===========      ===========     ===========
1997
Revenue............................................    $        --      $   175,185     $   175,185
General and administrative expenses................             --          720,699         720,699
Other expenses.....................................      1,632,293           22,088       1,654,381
                                                       -----------      -----------     -----------
Loss for the year..................................    $(1,632,293)     $  (567,602)    $(2,199,895)
                                                       ===========      ===========     ===========
Capital expenditures...............................    $ 3,033,103      $    79,658     $ 3,112,761
                                                       ===========      ===========     ===========
Identifiable assets................................    $ 4,670,516      $ 3,603,577     $ 8,274,093
                                                       ===========      ===========     ===========
1996
Revenue............................................    $        --      $   102,147     $   102,147
General and administrative expenses................             --          826,609         826,609
Other expenses.....................................        534,853               --         534,853
                                                       -----------      -----------     -----------
Loss for the year..................................    $  (534,853)     $  (724,462)    $(1,259,315)
                                                       ===========      ===========     ===========
Capital expenditures...............................    $ 3,136,691      $    30,116     $ 3,166,807
                                                       ===========      ===========     ===========
</TABLE>



  (b) Geographic information:



     As previously disclosed (note 4), all of the Company's mineral exploration
and development activities during 1996 through 1998 were in Argentina.



     Except for the Company's investment in BII (note 5) and related share of
losses, substantially all of the Company's corporate activities during 1996
through 1998 were in Canada.



11.  RELATED PARTY TRANSACTIONS:



     During 1998, fees of $156,620 (1997 -- $233,348; 1996 -- $324,500) were
charged by certain directors or companies controlled by them for management,
consulting, accounting and administrative services. Management believes the
costs of related party services approximate amounts that would have been paid
for similar services rendered by unrelated parties.



     Included in accounts payable and accrued liabilities at December 31, 1998
is $15,044 (1997 -- $35,332) payable to a director and a company controlled by a
director related to the above fees.


                                       42
<PAGE>   46

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



12.  INCOME TAXES:



     As at December 31, 1998, the Company has approximately $3,000,000 of losses
for Canadian income tax purposes that expire between 2000 and 2005 and that may
be available to reduce taxable income in Canada in future years. In addition,
the Company had deducted approximately $8,000,000 for book purposes in excess of
amounts deducted for tax purposes, primarily for expenditures incurred on the
Company's mineral properties and equipment. The Company has taken a valuation
allowance of the full amount of the tax benefit thereon due to the uncertainty
of whether these deferred tax assets will be realized.



13.  CONTINGENCIES:



  (a) Uncertainty due to the Year 2000 Issue:



     The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
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. The effect of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of investees, suppliers or other
third parties, will be fully resolved.



  (b) Contingent liability:



     As disclosed elsewhere in these financial statements (notes 1 and 14(a)),
the Company continued its jurisdiction of incorporation from British Columbia to
the State of Wyoming, effective November 10, 1998, and has proposed to continue
from Wyoming back into British Columbia in 1999. In the course of their review
of the Company's proposal, the United States Securities and Exchange Commission
(the "SEC") has advised the Company that they believe the original continuance
to Wyoming was an event that would have required the filing of a registration
statement with the SEC. As a result, the Company appears to have been in
technical violation of the U.S. Securities Act of 1933 (the "Act") and United
States holders of shares of the Company, at the time of the original continuance
to Wyoming may have common law remedies under the Act. In addition, the Company
may be required to offer such United States holders of shares of the Company the
right to have their shares repurchased by the Company at their fair market value
at the time of the original continuance.



     The Company is currently reviewing its options to resolve this matter. No
provision has been recorded in the accounts for any contingent loss, as the
outcome is not determinable at this time.



14.  SUBSEQUENT EVENTS:



  (a) Corporate continuance:



     Subsequent to December 31, 1998, the Company announced an extraordinary
general meeting of the shareholders of the Company to be held on April 12, 1999,
at which time the shareholders will vote on the Company's proposal to continue
the Company to the Province of British Columbia and to consolidate the Company's
share capital on the basis of one post-consolidated share for each five
pre-consolidated shares. The meeting date was subsequently postponed and has not
yet been rescheduled.


                                       43
<PAGE>   47

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



  (b) Private placement:



     Subsequent to December 31, 1998, the Company announced, subject to
regulatory approval, a best-efforts brokered private placement of up to
11,666,666 units at $0.15 per unit to raise gross proceeds of up to $1,750,000.
Each unit will consist of one common share and one non-transferable share
purchase warrant exercisable at $0.15 per share in the first year and $0.17 per
share in the second year. The agent will be paid a 10% commission, payable in
cash, and up to 1,750,000 brokers' warrants exercisable at $0.15 per share in
the first year and $0.17 per share in the second year.



15.  DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:



     Accounting practices under United States and Canadian generally accepted
accounting principles ("GAAP"), as they affect the Company, are substantially
the same, except for the following:



  (a) Unrealized gains for trading securities:



     Investments held principally for the purpose of selling them in the near
term are considered trading securities. Under Canadian GAAP, unrealized gains on
trading securities are not recorded in the accounts until realized. Under United
States GAAP, unrealized gains and losses for trading securities are included in
earnings. Accordingly, under Canadian GAAP, the gain on disposal of marketable
securities during 1996 would be recorded as $72,400, as under Canadian GAAP, the
$32,923 unrealized holding gain at December 31, 1995 would not have been
included in earnings in 1995.



  (b) Stock-based compensation:



     Canadian GAAP for stock-based compensation is similar to that provided in
APB Opinion No. 25 under United States GAAP (note 2(f)), although FAS 123
requires additional disclosure of the effects of accounting for stock-based
compensation using the fair value method (note 7(c)). Accordingly, under
Canadian GAAP, there would be no material differences in the consolidated
financial statements in respect of stock-based compensation.



  (c) Equity method of accounting for investments



     Under Canadian GAAP, an investor changing from the cost to the equity
method of accounting for investments would record its share of the earnings or
losses of the investee only from the time the investor obtained the ability to
exercise significant influence over the investee. The investor's share of
earnings or losses of the investee prior to this time would not be recorded in
the accounts of the investor under Canadian GAAP. United States GAAP requires an
investor to restate prior period's financial statements to record the investor's
share of the earnings or losses of the investee, as if the investor had always
accounted for its investment in the investee using the equity method.
Accordingly, under Canadian GAAP, the $1,275,000 share of loss of BII recorded
for 1998 would not be recorded, and the intercorporate interest for 1998 of
$79,989 would not have been eliminated.



  (d) Foreign currency translation:



     Canadian GAAP requires that non-current, foreign currency denominated
monetary items that have a fixed or ascertainable life extending beyond the end
of the following fiscal year should be translated into Canadian dollars at the
exchange rate in effect at the transaction date and adjusted to reflect the
current exchange rate at each balance sheet date, with any gain or loss relating
to the initial translation and balance


                                       44
<PAGE>   48

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



sheet date adjustment being deferred and amortized over the remaining life of
the item. Under Canadian GAAP, the Company's investment in convertible
debentures of BII, prior to the change to the equity method of accounting for
such investments, would have been translated in this manner. United States GAAP
requires such gains or losses to be included in operations in the period.
Canadian and United States GAAP for foreign currency translation of investments
accounted for by the equity method are comparable. Accordingly, the foreign
exchange gain of $85,875 relating to the revaluation of the investment that was
previously reported under Canadian GAAP at December 31, 1998, would be retained
in the investment balance, but the effect would be recorded as a deferred credit
on the consolidated balance sheet and amortization of $9,551 would be recorded
for the 1998 fiscal year, under Canadian GAAP.



     A reconciliation of the effects of the differences between Canadian GAAP
and United States GAAP on the balance sheets and statements of operations and
deficit is summarized as follows:



<TABLE>
<CAPTION>
                                                                  1998           1997
                                                              ------------    ----------
                                                              (RESTATED --
                                                                NOTE 5)
<S>                                                           <C>             <C>
Total assets under United States GAAP.......................   $2,566,628     $8,274,093
Adjustments to increase investment to reverse share of
  losses of BII.............................................    1,275,000             --
                                                               ----------     ----------
To record foreign exchange translation gain.................       85,875             --
To reverse intercorporate interest eliminated...............       79,989             --
                                                                              ----------
Total assets under Canadian GAAP............................   $4,007,492     $8,274,093
                                                               ==========     ==========
</TABLE>



<TABLE>
<CAPTION>
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
Total liabilities under United States GAAP..................  $  299,037    $  283,105
Deferred foreign exchange gain, net of amortization of
  $9,551....................................................      76,324            --
                                                              ----------    ----------
Total liabilities under Canadian GAAP.......................  $  375,361    $  283,105
                                                              ==========    ==========
</TABLE>



<TABLE>
<CAPTION>
                                                                  1998           1997
                                                              ------------    ----------
                                                              (RESTATED --
                                                                NOTE 5)
<S>                                                           <C>             <C>
Shareholders' equity under United States GAAP...............   $2,267,591     $7,990,988
Adjustments:
     Reverse intercorporate interest eliminated.............       77,989             --
     Amortization of deferred foreign exchange gain.........        9,551             --
     Reverse share of losses of BII.........................    1,275,000             --
                                                               ----------     ----------
                                                                1,364,540             --
                                                               ----------     ----------
Shareholders' equity under Canadian GAAP....................   $3,632,131     $7,990,988
                                                               ==========     ==========
</TABLE>


                                       45
<PAGE>   49

                            BIOMETRIC SECURITY CORP.


                        (FORMERLY SONOMA RESOURCE CORP.)



           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


                        (EXPRESSED IN CANADIAN DOLLARS)


                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



<TABLE>
<CAPTION>
                                                 1998           1997           1996
                                             ------------    -----------    -----------
                                             (RESTATED --
                                               NOTE 5)
<S>                                          <C>             <C>            <C>
Loss for the year under United States
  GAAP.....................................  $ (7,124,561)   $(2,199,895)   $(1,259,315)
Adjustments:
     Reverse intercorporate interest
       eliminated..........................        79,987             --             --
     Amortization of deferred foreign
       exchange gain.......................         9,551             --             --
     Realized gain on disposal of trading
       securities..........................            --             --         32,923
     Reverse share of losses of BII........     1,275,000             --             --
                                             ------------    -----------    -----------
                                                1,364,540             --         32,923
                                             ------------    -----------    -----------
Loss for the year under Canadian GAAP......    (5,760,021)    (2,199,895)    (1,226,392)
Deficit, beginning of year under Canadian
  GAAP.....................................    (4,396,703)    (2,196,808)      (970,416)
                                             ------------    -----------    -----------
Deficit, end of year under Canadian GAAP...  $(10,156,724)   $(4,396,703)   $(2,196,808)
                                             ------------    -----------    -----------
Loss per share under Canadian GAAP.........  $      (0.31)   $     (0.13)   $     (0.14)
                                             ============    ===========    ===========
</TABLE>


                                       46
<PAGE>   50

ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     Not Applicable.

                                    PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


     The following table sets forth the names, ages, positions and offices of
directors and officers of Biometric as of December 31, 1998.



<TABLE>
<CAPTION>
          NAME            AGE              POSITIONS AND OFFICES WITH BIOMETRIC
          ----            ---              ------------------------------------
<S>                       <C>        <C>
Patrick W. McCleery(1)    59         Chairman, President and Director
Chester Idziszek          51         Director
William A. Rand(1)        56         Director
Wayne Johnstone(1)        44         Director
Saundra Zimmer            36         Corporate Secretary
</TABLE>


---------------


(1) Member of Biometric's Audit Committee.



MANAGEMENT OF BIOMETRIC



     The management team and the directors of Biometric as of December 31, 1998,
are described briefly below.


Patrick W. McCleery, Chairman, President and Director


     Mr. McCleery is the Chairman, President and a Director of Biometric and is
employed by Biometric on a full time basis. Mr. McCleery devotes approximately
100% of his time to Biometric. Mr. McCleery has served Biometric as President
since September 11, 1997, as Chairman since November 1, 1995 and as a Director
since February, 1984. Mr. McCleery has been a director and/or senior officer of
several publicly listed junior resource issuers (these companies included
International All-North Resources Ltd. (formerly, All-North Resources Ltd.) and
Medsana Medical Systems Inc. (formerly, Northfork Ventures Inc.)).


Chester Idziszek, Director


     Mr. Idziszek is a director of Biometric. Mr. Idziszek devotes approximately
10% of his time to Biometric. Mr. Idziszek has served Biometric in this capacity
since March 1, 1995. Mr. Idziszek is also the President and CEO and a director
of Adrian Resources Ltd., and a director of: Oromin Explorations Ltd., Braddick
Resources Ltd., Cross Lake Minerals Ltd. and Fresco Developments Ltd. He is also
President and a director of Madison Enterprises Corporation, Buffalo Diamonds
Ltd., Hyperion Resources Corp. and Maracote International Resources Inc., which
was formerly Cherry Lane Fashion Group. He was a director of Arequipa Resources
Ltd. between July 1993 and August 1996. In addition, from 1990 to 1992, he was
the Chief Executive Officer, President and a director of Prime Equities
International Corporation. Mr. Idziszek was also President of Prime Explorations
Ltd. from 1987 to 1990. In addition, he has been a director and/or officer of
numerous other junior mining and resource companies trading on the Vancouver
Stock Exchange. These companies include Image Data International, La Plata Gold
Corporation, Barrier Technology, Haddington Resources Ltd., Arlo Resources Ltd.,
Minamerica Corporation and Waseco Resources Inc. Of these companies, Adrian
Resources Ltd., Madison Enterprises Corporation and Maracote International
Resources Inc. each have a class of securities registered under Section 12 of
the Securities Exchange Act of 1934. Mr. Idziszek has a B.Sc. (Geology) degree
from University of Waterloo (1971) and an M.Sc. (Appl. Min. Expl.) degree from
the University of Waterloo.


                                       47
<PAGE>   51

William A. Rand, Director


     Mr. Rand is a director of Biometric. Mr. Rand devotes approximately 10% of
his time to Biometric. Mr. Rand has served Biometric in this capacity since
November 1, 1995. Mr. Rand is a director of Rand Edgar Investment Corp., an
investment firm in Vancouver, B.C. which provides advisory services to
Biometric. Prior to that, Mr. Rand was a partner in a law firm and practiced
securities law. Mr. Rand currently sits on the board of a number of publicly
traded mineral resource companies. These companies include Consolidated Team
Resources Corp., Dome Ventures, Inc., Broadlands Resources Corp., International
Curator Resources Ltd., International Uranium Corp., Lexacal Investment Corp.,
Lundin Oil AB, Red Sea Oil Corporation, Santa Catalina Mining Corp., South
Atlantic Resources Corp., Tanganyika Oil Co. Ltd., and Tenke Mining Corp. Of the
companies for which Mr. Rand is a director, Broadlands Resources Ltd.,
International Curator Resources Ltd., International Uranium Corp., Lundin Oil AB
and Tenke Mining Corp. each have a class of securities registered under Section
12 of the Exchange Act. Mr. Rand has considerable expertise in organizing and
managing emerging public mineral resource exploration companies. Mr. Rand has a
B.Comm. degree from McGill University (1963), an LLB degree from Dalhousie
University (1966) and an LLM degree from the London School of Economics (1977).



Wayne Johnstone, Director



     Mr. Johnstone is a director of Biometric. Mr. Johnstone devotes
approximately 70% of his time to Biometric. Mr. Johnstone has served Biometric
in this capacity since June 30, 1998 and was a director of Biometric's
predecessor, Sonoma Resource Corp., from August 1989 to November 1995. He has
served as Corporate Secretary of Alantra Venture Corp. since June 1999. Mr.
Johnstone is a self-employed chartered accountant providing consulting and
accounting services to various publicly traded companies. Prior to that Mr.
Johnstone served as a senior accountant for Viceroy Resource Corp. and
controller of Baja Gold Inc., a company which merged with Viceroy Resource
Corp., from February 1994 to December 1996. Prior to that Mr. Johnstone served
as an accountant for Weston Mineral Services Ltd., a private British Columbia
company. Mr. Johnstone has a B.Comm. degree from The University of British
Columbia (1978).


Saundra Zimmer, Secretary


     Ms. Zimmer is the Secretary of Biometric and is employed by Biometric on
essentially a full time basis. Ms. Zimmer devotes approximately 75% of her time
to Biometric. Ms. Zimmer has served Biometric as Secretary since June 21, 1995
and was previously Secretary of Biometric from August 1989 and May 1993. Ms.
Zimmer has been the Administrative Assistant of Biometric since August 1, 1995
and before that from 1986 and 1990. From 1990 to 1995, she was the
Administrative Assistant of Rich Coast Resources Ltd. She has been a director of
Alantra Venture Corp. since March 1998, and Corporate Secretary of Kaieteur
Resource Corporation since November 1, 1995.



     Effective May 31, 1999, Patrick McCleery resigned as Chairman, President
and a director of Biometric. Also effective May 31, 1999, Robert M. Kamm
succeeded Mr. McCleery as President of Biometric, and became a director of
Biometric. Effective July 29, 1999, Biometric appointed Robert Chase as Chief
Financial Officer and a director of Biometric.



     Other than receiving stock options from time to time, the directors of
Biometric are not compensated for serving as directors. See Item 11 -- Executive
Compensation -- Compensation of Directors and Remuneration of Senior Officers.
See Item 12 -- Security Ownership of Certain Beneficial Owners and Management
for particulars of the shares held by the directors and senior officers.


APPOINTMENT OF DIRECTORS


     The directors of Biometric are elected by the shareholders at each annual
general meeting and typically hold office until the next annual general meeting
at which time they may be re-elected or replaced.


                                       48
<PAGE>   52


     The articles of Biometric permit the directors to appoint directors to fill
any casual vacancies that may occur on the board. The articles also permit the
directors to add additional directors to the board between successive annual
general meetings so long as the number appointed does not exceed more than
one-third of the number of directors appointed at the last annual general
meeting. Individuals appointed as directors to fill casual vacancies on the
board or added as additional directors hold office as does any other director
until the next annual general meeting at which time they may be re-elected or
replaced.


  Section 16(a) Beneficial Ownership Reporting Compliance


     On February 2, 1999, Forms 3 were filed late for Patrick W. McCleery, then
President and Director; William A. Rand, Director; Chester Idziszek, Director;
Wayne D. Johnstone, Director, and Saundra J. Zimmer, Corporate Secretary. On
February 26, 1999, Forms 4 were filed late for Patrick W. McCleery, then
President and Director (reporting periods -- November 1998; December 1998) and
Wayne D. Johnstone, Director (reporting periods -- November 1998; January 1999).
On February 26, 1999, Forms 5 were filed late for Patrick W. McCleery, then
President and Director; William A. Rand, Director; Chester Idziszek, Director;
Wayne D. Johnstone, Director, and Saundra J. Zimmer, Corporate Secretary.



MANAGEMENT OF BIOMETRIC IDENTIFICATION



     As of March 1, 1999, Biometric Identification had a total of 35 employees
and consultants (See "Personnel of Biometric Identification" below). The
directors and management team of Biometric Identification and their resumes are
described briefly below.


Stephen Lubard, Chairman


     Dr. Lubard is Chairman and founder of Biometric Identification. He is also
one of the founders and Chief Executive Officer of Arete. It was Dr. Lubard's
efforts that took the Veriprint from concept to a manufactured product in less
than one year. In addition to Biometric Identification, Dr. Lubard formed Arete
Image Software in 1996, a commercial software company marketing to the
entertainment industry. Dr. Lubard brings over 20 years of experience in
managing highly complex projects and development of software and systems for
solving complex image processing problems. Dr. Lubard holds a Ph.D. in aerospace
engineering from the University of Maryland.


Robert Kamm, Chief Executive Officer

     Mr. Kamm is an experienced technology entrepreneur and has started two
previous technology companies. In 1988, Mr. Kamm co-founded a value-added
software company called Online Mortgage Documents ("Online") as the company's
President. Online provided a mortgage document preparation service similar to
CompuTax's tax preparation service for certified public accountants. In 1996,
Mr. Kamm co-founded VideoActive Corp. ("VideoActive") and served as the
company's Chief Operating Officer and Chief Financial Officer. VideoActive was
formed to create a digital Pay Per View ("PPV") movie/video service for
implementation within the cable industry. VideoActive is a
technology/entertainment company whose PPV movie service relies on unique
Digital Video Server technology internally developed by VideoActive. Mr. Kamm is
co-author of a software-oriented patent which is currently pending. Mr. Kamm
left VideoActive when the company retained an individual with an extensive
cable/entertainment background to take the company to the next level. Mr. Kamm
has an MBA in Finance from UCLA.

Parker Eagerton

     Mr. Eagerton is the Vice-President of Operations and has over 20 years
manufacturing experience. Mr. Eagerton's career includes experience with Alcatel
Corporation where he was responsible for establishing a plant location in Mexico
and most recently for Solectron Corporation, a turnkey manufacturer
("Solectron"). At Solectron, Mr. Eagerton was a Senior Manufacturing Advisor and
was responsible to Sun for the manufacturing strategy of its new fibre channel
product. Mr. Eagerton has expertise in the areas of devising

                                       49
<PAGE>   53

cost effective manufacturing strategies and assuring that products are
engineered and designed with manufacturing in mind.

David Gittelson


     Mr. Gittelson is Vice-President of Sales for Biometric Identification and
has over ten years' experience selling sophisticated electronics systems to
major organizations in the security and telecommunication fields. He has worked
closely with major companies such as MCI, Sprint, ADT, Ameritech and Wells Fargo
to tailor large orders to their specifications.


Mel Wieting


     Mr. Wieting is Vice-President of Engineering for Biometric Identification
and has 15 years of experience in software and hardware engineering. He worked
for 14 years at Lawrence Livermore National Laboratory, where he worked on and
managed projects involving the design and development of complex computer based
electronic systems. Mr. Wieting specializes in overall systems design and is an
experienced programmer.



PERSONNEL OF BIOMETRIC IDENTIFICATION



     As of March 1, 1999, Biometric Identification had a total of 35 full-time
employees and consultants. Of these, five (5) employees serve in a management
and administration capacity, thirteen (13) employees serve in a sales and
marketing capacity, sixteen (16) employees serve in an engineering and research
and development capacity, and one (1) employee serves in a manufacturing
capacity. These employees operate out of the following offices of Biometric
Identification:


<TABLE>
<CAPTION>
                                                                ENGINEERING,
                                        MGMT. &     SALES &      RESEARCH &
OFFICE LOCATION                         ADMIN.     MARKETING    DEVELOPMENT     MANUFACTURING   TOTAL
---------------                         -------    ---------    ------------    -------------   -----
<S>                                     <C>        <C>          <C>             <C>             <C>
Sherman Oaks, CA......................       4           5              9               0           18
Tracy, CA.............................       1           2              3               1            7
Tucson, AZ............................       0           0              4               0            4
Dayton, Ohio..........................       0           1              0               0            1
London, England and other sales
  staff...............................       0           5              0               0            5
                                         -----      ------         ------          ------       ------
Totals:...............................       5          13             16               1           35
                                         =====      ======         ======          ======       ======
</TABLE>

ITEM 11  EXECUTIVE COMPENSATION


     We are required to set out particulars of compensation paid to the
following persons:



     (a)Biometric's chief executive officer during the most recently completed
        fiscal year;



     (b)each of Biometric's four most highly compensated executive officers who
        were serving as executive officers at the end of the most recently
        completed fiscal year and whose total salary and bonus exceeds US$
        100,000 per year; and



     (c)any additional individuals for whom disclosure would have been provided
        under (b) except that the individual was not serving as an executive
        officer of Biometric at the end of the most recently completed fiscal
        year.


     On December 31, 1998, the end of its last full fiscal year, Biometric
employed only one person meeting any of those requirements, namely, Patrick W.
McCleery, then the Chairman of the Board, President and a director of Biometric.
Accordingly, the only person treated in the following charts is Mr. McCleery.

                                       50
<PAGE>   54

Summary of Compensation

     The following table is a summary of compensation paid to Mr. McCleery
during Biometric's last three fiscal years.

<TABLE>
<CAPTION>

                                             ANNUAL COMPENSATION             LONG TERM COMPENSATION
                                                                                AWARDS            PAYOUTS
                                                                                     RESTRICTED
                                                                                       SHARES
                                                                        SECURITIES       OR
                               FISCAL                    OTHER ANNUAL     UNDER      RESTRICTED
NAME AND                        YEAR                     COMPENSATION    OPTIONS       SHARE       LTIP      ALL OTHER
POSITION OF PRINCIPAL          ENDING   SALARY   BONUS   (CDN. $)(1)     GRANTED       UNITS      PAYOUTS   COMPENSATION
<S>                            <C>      <C>      <C>     <C>            <C>          <C>          <C>       <C>
PATRICK W. MCCLEERY             1998      0        0      $120,059       420,000         0          N/A          0
Chairman of the Board and       1997      0        0      $127,122             0         0          N/A          0
President                       1996      0        0      $117,196       359,761         0          N/A          0
</TABLE>

(1) Other annual compensation included consulting fees in connection with Mr.
    McCleery's managerial activities, and corporate finance advisory fees paid
    to Mr. McCleery.

Long-Term Incentive Plans -- Awards in Most Recently Completed Fiscal Year


     Biometric has no long-term incentive plan in place. A "Long-Term Incentive
Plan" is a plan under which awards are made based on performance over a period
longer than one fiscal year. It is different from a plan for options, SARs, or
stock appreciation rights, or restricted share compensation.



Options and Stock Appreciation Rights Granted During the Most Recently Completed
Fiscal Year


     During its last fiscal year Biometric granted the following incentive stock
options to Mr. McCleery. Biometric did not grant any stock appreciation rights
during this period.
<TABLE>
<CAPTION>

                                                                                        MARKET VALUE
                                                                                        OF SECURITIES
                                                                                         UNDERLYING
                                           SECURITIES                    % OF TOTAL      OPTIONS ON
                                             UNDER       EXERCISE OR      OPTIONS        THE DATE OF
                                            OPTIONS      BASE PRICE      GRANTED TO     GRANT (CDN$/
                            DATE OF         GRANTED        (CDN$/       EMPLOYEES IN      SECURITY)
NAME                         GRANT            (#)         SECURITY)     FISCAL YEAR          (1)         EXPIRATION DATE
<S>                      <C>               <C>           <C>            <C>             <C>              <C>
PATRICK W. MCCLEERY      Jan. 28, 1998      420,000         $0.23          23.5%            $0.23        January 28, 2001

<CAPTION>

                           POTENTIAL
                          REALIZABLE
                           VALUE AT
                            ASSUMED
                        ANNUAL RATES OF
                          STOCK PRICE
                       APPRECIATION FOR
                          OPTION TERM
NAME                   5%($)     10%($)
<S>                    <C>       <C>
PATRICK W. MCCLEERY    $9,950    $20,286
</TABLE>

(1) Calculated as the closing price of Biometric's shares on the Vancouver Stock
    Exchange on the date of the grant.


Aggregated Options and Stock Appreciation Rights Exercised During the Most
Recently

Completed Fiscal Year and Fiscal Year End Option/SAR Values

     The following table sets out incentive stock options exercised by Mr.
McCleery during the last fiscal year, as well as the fiscal year end value of
stock options held by him. During this period, he held no outstanding stock
appreciation rights.

<TABLE>
<CAPTION>

                                                                                                        VALUE OF UNEXERCISED
                                  SECURITIES          AGGREGATE          UNEXERCISED OPTIONS AT        IN-THE-MONEY OPTIONS AT
                                  ACQUIRED ON           VALUE                FISCAL YEAR-END             FISCAL YEAR-END ($)
                                   EXERCISE        REALIZED (CDN$)      EXERCISABLE/UNEXERCISABLE           EXERCISABLE/
NAME                                  (#)                (1)                       (#)                    UNEXERCISABLE (2)
<S>                               <C>              <C>                  <C>                            <C>
PATRICK W. MCCLEERY                 0                     0                     420,000/0                        0/0
</TABLE>

(1) Based on the difference between the option exercise price and the closing
    market price of Biometric's shares, on the date of exercise.

(2) In-the-Money Options are those where the market value of the underlying
    securities as at the most recent fiscal year end exceeds the option exercise
    price. The closing market price of Biometric's shares on December 31, 1998
    (i.e., fiscal year end) was Cdn.$0.18.

                                       51
<PAGE>   55

Termination of Employment, Change in Responsibilities and Employment Contracts


     Effective May 31, 1999, Patrick McCleery resigned as Chairman, President
and a director of Biometric. Also effective May 31, 1999, Robert M. Kamm
succeeded Mr. McCleery as President of Biometric, and became a director of
Biometric. Mr. McCleery and Biometric have made an agreement, dated May 31,
1999, that Mr. McCleery will be paid $4,000 per month plus severance pay of
$6,000 per month, plus benefits and stock options as determined by the board of
directors. This agreement expires on June 30, 2001. There are no employment
contracts between Biometric and any of its officers. Effective July 29, 1999,
Biometric appointed Robert Chase as Chief Financial Officer, at a remuneration
of $10,000 per month payable to Lexacal Investment Corp., of which Mr. Chase is
President, Chief Executive Officer and a director. Biometric has no defined
benefit or actuarial plans.


Compensation of Directors

     Mr. McCleery's compensation was disclosed above. Biometric did not pay any
cash compensation to any other Biometric director for his services as a director
during the fiscal year ended December 31, 1998.

     Biometric has no standard arrangement to compensate directors for their
services in their capacity as directors except for the granting from time to
time of incentive stock options in accordance with the policies of the Vancouver
Stock Exchange. During the last fiscal year, Biometric granted its directors,
other than Mr. McCleery, incentive stock options to purchase a total of 665,000
Biometric common shares. It granted 285,000 to William Rand, 285,000 to Chester
Idziszek, and 95,000 to Wayne Johnstone. These options are exercisable up to the
close of business on January 28, 2001.

     All of the existing stock options are non-transferable and terminate on the
earlier of the expiration date or the 30th day after the date on which the
director, officer or employee, as the case may be, terminates his position at
Biometric. If a director is forced to resign or is removed by special
resolution, or if a senior officer or other employee is fired for cause, his
options expire on the day of removal or firing.

     The outstanding options will be adjusted if Biometric consolidates,
subdivides or similarly changes its share capital.

     During the fiscal year ended December 31, 1998 Biometric paid $56,561 to
Rand Edgar Investment Corp. and Wayne Johnstone for consulting fees. Rand Edgar
Investment Corp. is owned equally by William A. Rand, a director of Biometric,
and Brian Edgar.


ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



     To the knowledge of Biometric's management as of March 1, 1999, no person
beneficially owned more than five percent of any class of Biometric's voting
securities other than as set forth below. The following table sets forth the
total amount of any class of Biometric's voting securities owned by each of its
executive officers and directors and by its executive officers and directors, as
a group, as of March 1, 1999.


<TABLE>
<CAPTION>
                                                               AMOUNT AND
                                                               NATURE OF
                                                               BENEFICIAL     PERCENTAGE
NAME AND ADDRESS(1)                                           OWNERSHIP(2)     OF CLASS
-------------------                                           ------------    ----------
<S>                                                           <C>             <C>
Patrick W. McCleery.........................................   4,335,958(3)      12.3%
Chester Idziszek............................................     335,000(4)       1.0%
William A. Rand.............................................   2,148,450(5)       6.4%
Wayne Johnstone.............................................     479,700(6)       1.5%
Saundra J. Zimmer...........................................      95,000(7)      *
All executive officers and directors as a group (5
  persons)..................................................   7,394,108(2)      19.9%(2)
</TABLE>

---------------

 *  Less than one percent.

(1) The address for each of these persons is Suite 1940, 400 Burrard Street,
    Vancouver, British Columbia, Canada V6C 3A6.

(2) Beneficial ownership is determined in accordance with the rules of the
    Securities and Exchange Commission. In computing the number of shares owned
    by a person and the percentage ownership of that person, shares of Common
    Stock subject to options and warrants held by that person that are currently
    exercisable or

                                       52
<PAGE>   56


    exercisable within 60 days of March 1, 1999, are deemed outstanding. Such
    shares, however, are not deemed outstanding for the purposes of computing
    the percentage ownership of any other person.



(3) Includes currently exercisable options and warrants, and options and
    warrants exercisable within sixty days hereof to purchase an aggregate of
    920,000 shares as to Mr. McCleery and 1,823,000 shares as to Mrs. McCleery,
    with respect to which Mr. McCleery disclaims any beneficial ownership. Also
    includes 933,000 shares beneficially owned by Mrs. McCleery, with respect to
    which Mr. McCleery disclaims any beneficial ownership.



(4) Includes currently exercisable options and options exercisable within sixty
    days hereof to purchase an aggregate of 285,000 shares.



(5) Includes currently exercisable options and options exercisable within sixty
    days hereof to purchase an aggregate of 285,000 shares. Also includes
    901,950 shares and, in addition, warrants currently exercisable to purchase
    961,500 shares, beneficially owned by Rand Edgar Capital Corp., a private
    British Columbia company, which is owned by the wives of Mr. Rand and Brian
    Edgar and of which Mr. Rand was a director, with respect to which Mr. Rand
    disclaims any beneficial ownership.



(6) Includes currently exercisable options and warrants, and options and
    warrants exercisable within sixty days hereof to purchase an aggregate of
    291,050 shares. Also includes 10,000 shares owned by Mrs. Johnstone, with
    respect to which Mr. Johnstone disclaims any beneficial ownership.



(7) Includes currently exercisable options and options exercisable within sixty
    days hereof to purchase an aggregate of 95,000 shares. Ms. Zimmer does not
    own any shares of Biometric's Common Stock.



     To the knowledge of Biometric's management, there are no arrangements the
operation of which may at a subsequent date result in a change of control of
Biometric.


ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     Certain directors of Biometric are officers and/or directors of, or are
associated with, other publicly traded companies and such associations could
give rise to conflicts of interest from time to time. Given that most of these
companies are natural resource companies, such conflicts seem unlikely.
Nevertheless, the directors are required by law to act honestly and in good
faith with a view to the best interests of Biometric and its shareholders and to
disclose any personal interest which they may have in any material transaction
which is proposed to be entered into with Biometric and to abstain from voting
as a director for the approval of any such transaction.



     The only material transactions between Biometric or any of its subsidiaries
and any director, senior officer, principal shareholder or any associates or
affiliates of the foregoing, within the past fiscal year, are as follows:



     In June 1998, Biometric agreed to acquire an interest in Biometric
Identification, Inc., a private California corporation. The Biometric
Identification acquisition was arranged by Rand Edgar Capital Corp., a private
company controlled by the spouses of Brian Edgar and William Rand. Mr. Rand is a
director of Biometric. Rand Edgar Capital originally entered into a memorandum
of understanding with Biometric Identification and with Arete Associates, a
private California company, dated March 18, 1998, amended and replaced May 20,
1998. Rand Edgar Capital assigned its interest in the amended memorandum to
Biometric on May 21, 1998 in exchange for a fee of US$145,000, plus
reimbursement of its expenses. As of June 12, 1998, Rand Edgar Capital elected
to take its fee in the form of 715,575 common shares of Biometric to be issued
at a price of $0.30 per share for a total value of US$145,000. Biometric's
closing stock price on the VSE on June 12, 1998, was $0.28. These shares were to
be issued in pro rata tranches in accordance with the tranche advances being
made by Biometric to Biometric Identification. These finders fee shares were
actually issued in the form of special warrants at a price of $0.30 per special
warrant. Each special warrant is exercisable without the payment of any
additional consideration into one common share of Biometric. Rand Edgar Capital
elected to take shares valued at US$145,000 instead of cash in order to help
Biometric conserve its cash. "Special warrants" can be converted to shares at
the holder's option. As at December 31, 1998, Biometric had issued 250,450
shares to Rand Edgar Capital under the terms of this agreement. As of August 11,
1999, Biometric issued the remaining 465,125 shares to Rand Edgar Capital under
the terms of this agreement. For further information about this acquisition,
please see Item 1 -- Business of Biometric Security Corp.


                                       53
<PAGE>   57


     During 1998, Rand Edgar Capital loaned Biometric a total of $250,000. The
loan is unsecured and was due on December 26, 1998. A total of $99,225 of the
loan was repaid on December 29, 1998, and the balance of the loan of $150,775
was repaid after December 31, 1998. As of August 11, 1999, Biometric also issued
65,789 shares at a deemed price of $0.19 per share as allowed for under the
rules of the Vancouver Stock Exchange, as consideration for the loan. The value
of these shares was based on Biometric's closing stock price on the VSE on
November 25, 1998, the date the loan was made, which was $0.19.



     As part of a private placement completed on May 15, 1998, Wendy McCleery,
Wayne Johnstone and Rand Edgar Capital participated in an offering of special
warrants at a price of $ 0.15 per special warrant. Each warrant was
exchangeable, at no additional cost, into one common share and one
non-transferable share purchase warrant that was exercisable for a period of two
years at a price of $0.15 in the first year and $0.17 in the second year. Mrs.
McCleery subscribed for 1,000,000 special warrants, Rand Edgar Capital
subscribed for 300,000 special warrants and Mr. Johnstone subscribed for 100,000
special warrants. Biometric's closing stock price on the VSE on May 15, 1998,
was $0.22.


     During the fiscal year ended December 31, 1998, Biometric paid a total of
$56,561 to Rand Edgar Investment Corp. and Wayne Johnstone for consulting fees.
Rand Edgar Investment Corp. is owned equally by William A. Rand, a director of
Biometric, and Brian Edgar. Also during that fiscal year, Biometric paid
$120,059 in consulting fees to Patrick McCleery. Please see "Executive
Compensation -- Summary of Compensation" for more information about Mr.
McCleery's compensation when he was Chairman of Biometric. The terms of these
consulting arrangements were as fair to Biometric as those that Biometric could
have obtained from unrelated third parties and arm's-length negotiation.

                                       54
<PAGE>   58

                                    PART IV

ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)1. and (a)2.  Financial Statements

     This information is contained in Item 8 of this Annual Report on Form 10-K.

(a)3.  Exhibits

      *3.1   Registrant's Articles of Continuance into the State of Wyoming.

      *3.2   Registrant's By-Laws, as amended.

      *3.3   Registrant's Articles of Amendment re Authorized Stock.


     *10.1   Biometric Identification Agreement, dated June 12, 1998.


     *10.2   Inlet Resources, Ltd. Agreement, dated January 21, 1999.

      21     Subsidiaries of the Registrant.


      27.1   Financial Data Schedule.


(b) Reports on Form 8-K


    No reports on Form 8-K were filed by Biometric during the three months ended
    on December 31, 1998.


(c) Financial Data Schedule.
---------------
* Previously filed.

                                       55
<PAGE>   59

                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this amended report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Vancouver,
British Columbia, Canada, on September 13, 1999.


                                            BIOMETRIC SECURITY CORP.

                                            By:                 *

                                              ----------------------------------
                                              Robert M. Kamm
                                              President and Director


     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this amended report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.



<TABLE>
<CAPTION>
                SIGNATURE                                   TITLE                         DATE
                ---------                                   -----                         ----
<C>                                         <S>                                    <C>

                    *                       President and Director (Principal      September 13, 1999
------------------------------------------  Executive Officer)
              Robert M. Kamm

                    **                      Director                               September 13, 1999
------------------------------------------
             Chester Idziszek

           /s/ ROBERT F. CHASE              Chief Financial Officer and Director   September 13, 1999
------------------------------------------  (Principal Financial and Accounting
             Robert F. Chase                Officer)

           /s/ WAYNE JOHNSTONE              Director                               September 13, 1999
------------------------------------------
             Wayne Johnstone

           /s/ WILLIAM A. RAND              Director                               September 13, 1999
------------------------------------------
             William A. Rand

*By: /s/ SAUNDRA J. ZIMMER
     -------------------------------------
     Name: Saundra J. Zimmer
     Title: Attorney-in-Fact

**By: /s/ WAYNE JOHNSTONE
      ------------------------------------
      Name: Wayne Johnstone
      Title: Attorney-in-Fact
</TABLE>


                                       56
<PAGE>   60

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBITS
--------
<C>       <S>

    *3.1  Registrant's Articles of Continuance into the State of
          Wyoming.
    *3.2  Registrant's By-Laws, as amended.
    *3.3  Registrant's Articles of Amendment re Authorized Stock.
   *10.1  Biometric Identification Agreement, dated June 12, 1998.
   *10.2  Inlet Resources, Ltd. Agreement, dated January 21, 1999.
      21  Subsidiaries of the Registrant.
    27.1  Financial Data Schedule.
</TABLE>


---------------

* Previously filed.