10QSB 1 feb282001-10qsb.txt QUARTERLY FILING SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended February 28, 2001 ----------------- [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from _________ to ___________ Commission file number 33-55254-15 ----------- delSECUR Corporation (Exact Name of Small Business Issuer as Specified in Its Charter) NEVADA 87-0438451 ------------------------------------ ----------------- (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 1801 McGill College, Suite 1330, Montreal, Quebec Canada H3A 2N4 (Address of Principal Executive Offices) (Zip Code) (Issuer's Telephone Number, Including Area Code) (514) 282-9000 --------------- Indicate by a check mark whether the issuer (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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares of each of the issuer's classes of common equity, as of the latest practicable date: Class Outstanding as of February 28, 2001 ------------------------ ----------------------------------- $.001 PAR VALUE CLASS A 14,509,304 SHARES COMMON STOCK 1 PART I FINANCIAL INFORMATION ITEM 1. Financial Statements. The accompanying unaudited financial statements (pages F-1 through F-3) have been prepared in accordance with the instructions to Form 10-QSB and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows and stockholders' deficit in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operation and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the nine months ended February 28, 2001 are not necessarily indicative of the results that can be expected for the year ending May 31, 2001. ITEM 2. Management's Plan of Operation. Pursuant to an Agreement made and entered into on February 25th 1998 the Company issued and delivered on February 26, 1998, 12,848,300 shares of its Common Stock bearing a restrictive legend to 3127575 Canada Inc. (now delSECUR Inc.), a Canadian Corporation, in exchange for which issuance, it acquired all of the outstanding shares of 3127575 Canada Inc. Through 3127575 Canada Inc., the Company has become the exclusive licensee of the del-ID(R) technology for personal identification by means of electronic scanning of finger characteristics. 3127575 Canada Inc., obtained these exclusive rights by the Exclusive License Agreement dated November 12, 1997 between it and Pierre de Lanauze, inventor of the del-ID(R) technology. The transaction was exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof. Also, because the 12,848,300 shares were issued solely to non-U.S. persons, the transaction qualified for exemption under Rules 901 et seq. of Regulation S. Following the above transaction the former shareholders of delSECUR Inc. owned 92.5% of the outstanding shares of the Company. The del-ID(R) technology permits precise and positive authentication of the identity of any living individual and is applicable to a wide range of financial transactions where authentication of the individual is necessary to eliminate fraud and other improper use of services. The del-ID(R) system collects biological data from the finger image of the individual and transfers the image to a unique electronic signature called the "del-gram". The del-gram is not a digitized bitmap image of the finger, but a synthesized subset of biological data sufficient to identify the individual. 2 Commercial applications of the del-ID(R) technology are numerous and include access to the information highway/internet, identification of employees working from a home office and requiring access to certain databases or information, health cards, social insurance cards, drivers' licenses, passport control encryption and access to confidential files, control of payment by debit or credit payment systems such as credit cards, smartcards, authentication of oral telephone ordering, access control to sensitive areas, hotel room access, cellular and digital telephone controls, automobile entry and protection, census and election control, door locks, vault locks, residential alarm system controls, timesheet management, student file management and many others. Patent protection is currently pending for the del-ID(R) system in the United States. The International Preliminary Examination Report was issued in accordance with the Patent Cooperation Treaty application (PCT) that included 82 countries. The Examiner has recognized and acknowledged the inventive step, the novelty and the industrial applicability by accepting all of the 11 claims represented by the technology. In April 1998, delSECUR inc. signed an agreement with the "Centre de Recherche en Informatique de Montreal (CRIM)" for a scientific evaluation of the technology. The evaluation holds two topics. The primary one covers theoretical and accurate applications. The primary topic analysis has been done by the CRIM in collaboration with a major American University. The CRIM having the knowledge, mainly for software aspects than hardware, it was decided to give the technical aspects of the del-ID(R) to C-MAC Electronic Systems Inc. in Winnipeg. Their mandate was to revise the feasability of the Engineering Models to be implemented on different dedicated applications. C-MAC Technologies Inc. confirmed that the existing del-ID(R) prototypes demonstrates that the Proof of Concept works using common discrete analog and integrated digital IC's. The first del-ID(R) devices shall go under production in the near future. Those del-ID(R) devices will be implemented for dedicated applications with leading corporations. The secondary covers the implementation of a study in a controlled laboratory environment. Moreover, culminating several months of discussions with various agencies and senior levels of the United States Government, the Company is involved with National Security Agency who has signed a Confidential Agreement. The signing of the agreement will permit delSECUR inc. to disclose its core del-ID(R) technology to NSA for testing and evaluation as a national and international means of protection against computer hacking. They have to make recommendations to the US Federal Government. The signing of this Confidentiality Agreement confirmed the uniqueness and innovative aspects of the del-ID(R) technology, as mentioned on the Press Release issued on April 5th, 2000. Commercial applications of the del-ID(R) technology are numerous and include access to the information highway/internet, identification of employees working from a home office and requiring access to certain databases or information, health cards, social insurance cards, drivers' licenses, passport control encryption and access to confidential files, control of payment by debit or credit payment systems such as credit cards, 3 smartcards, authentication of oral telephone ordering, access control to sensitive areas, hotel room access, cellular and digital telephone controls, automobile entry and protection, census and election control, door locks, vault locks, residential alarm system controls, timesheet management, student file management and many others. The Company expects to encounter substantial competition in the business in which it proposes to engage. It is likely that the competing entities will have significantly greater experience, resources, facilities, contacts and managerial expertise than the Company and will, consequently, be in a better position than the Company to obtain access to and to engage in the proposed business. The Company may not be in a position to compete with larger and more experienced entities. Business opportunities in which the Company may ultimately participate are likely to be very risky and extremely speculative. The Company will not manufacture del-ID(R) cards or card readers directly. This will tend to minimize the capital requirements of the Company, its principal activities being limited to marketing the del-ID(R) system to manufacturers and/or users internationally. Anticipated sources of revenue are license fees payable by government agencies and corporate entities for the right to manufacture, use or sell cards and card readers incorporating the del-ID(R) system, as well as royalty payments by such entities for each card and reader employed in a del-ID(R) system. We anticipate the first commercial revenue in twelve months from the present. delSECUR Corporation announced July 1st 1999 the creation of a new wholly owned subsidiary, delSECUR USA Inc., incorporated in Delaware and with its principal offices located at 801 Pennsylvania Avenue, Suite 800, Washington D.C. 20004. This subsidiary has been created specifically to manage all delSECUR operations in the United States. The decision to locate the offices in Washington D.C. was made following the recent expressions of interest in the del-ID (R) technology by several U.S. Government agencies. The Agreement dated February 25, 1998 and the Exclusive License Agreement dated November 12, 1997 were attached as Exhibits A and B to the Company's electronic filing of Form 8-K on March 10, 1998. As of February 28, 2001, the Company's balance sheet showed an accumulated deficit of $8,461,185, an increase of $2,489,938 during the nine months. Operations to date have been financed principally by loans from senior management and others. Additional unsecured loan facilities continue to be available and are believed by management to be sufficient to finance operations over the next several months, pending the anticipated initial receipt of contract revenues during the second half of the current fiscal year. The Company had a net loss of $2,489,938 for the nine months ended February 28, 2001 compared with a loss of $1,802,397 for the same period for the prior year. The main 4 increase from 2000 was an additional $425,000 spent for promotion. About $2,073,000 of expenses and $331,000 of liabilities were paid by issuing 216,893 shares of common stock. The Company will continue to seek marketing opportunities for product licensing with governmental agencies and corporate entities on a world-wide basis. As the Company will be engaged in securing licensing contracts for use of its existing del-ID(R) technology, no significant expansion of the physical plant, equipment or number of employees is foreseen for the period of the next twelve months. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. delSECUR Corporation Date: April 23, 2001 By: /s/ Pierre de Lanauze ------------------ ----------------------------------------- Pierre de Lanauze, President, Chairman of the Board and Director 5 delSECUR CORPORATION AND SUBSIDIARY (A Development Stage Company) CONSOLIDATED BALANCE SHEETS (expressed in Canadian dollars)
February 28, May 31, 2001 2000 ---------------------- --------------------- ASSETS (Unaudited) (Audited) CURRENT ASSETS Cash $ 21,031 $ 8,755 Sales taxes receivable 28,797 27,139 Prepaid expenses 42,220 31,873 Receivable-related party 190,000 185,960 ---------------------- -------------------- TOTAL CURRENT ASSETS 282,048 253,727 OTHER ASSETS Property and equipment 161,634 137,220 License from related party 1 1 ---------------------- -------------------- 161,635 137,221 ---------------------- -------------------- $ 443,683 $ 390,948 ====================== ==================== LIABILITIES & DEFICIT CURRENT LIABILITIES Accounts payable $ 124,211 $ 114,234 Accrued liabilities 75,433 90,862 Payable-related party 184,907 185,157 Payable - officer 1,536,100 1,497,800 Deposit on stockq 375,000 0 Payable - director 74,889 342,942 Loans payable 195,000 195,000 ---------------------- -------------------- TOTAL CURRENT LIABILITIES 2,565,540 2,425,995 Deferred credit 4,216 5,366 STOCKHOLDERS' DEFICIT Common Stock $.001 par value: Authorized - 100,000,000 shares Issued and outstanding 14,509,304 shares (14,292,411 at May 31, 2000) 20,698 20,371 Additional paid-in capital 6,314,414 3,910,463 Deficit accumulated during the development stage (8,461,185) (5,971,247) ---------------------- -------------------- TOTAL STOCKHOLDERS' DEFICIT (2,126,073) (2,040,413) ---------------------- -------------------- $ 443,683 $ 390,948 ====================== ====================
F - 1 delSECUR CORPORATION AND SUBSIDIARY (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS (expressed in Canadian dollars) (Unaudited)
Three Months Ended Nine Months Ended From Date of February 28, February 28, inception to 2001 2000 2001 2000 02/28/01 ---------------- --------------- --------------- --------------- --------------- Net sales $ 0 $ 0 $ 0 $ 0 $ 0 Cost of sales 0 0 0 0 0 ---------------- --------------- --------------- --------------- --------------- GROSS PROFIT 0 0 0 0 0 Other income 0 0 0 0 8,000 Depreciation and amortization 11,853 19,968 32,261 36,811 235,152 Interest expense 5,850 9,750 17,550 18,463 92,576 Research and development 64,011 10,257 163,530 98,845 825,555 Loss on settlement of shares 0 0 331,396 95,090 426,486 General and administrative expenses 257,858 167,823 1,945,201 1,553,188 6,846,150 ---------------- --------------- --------------- --------------- --------------- 339,572 207,798 2,489,938 1,802,397 8,425,919 ---------------- --------------- --------------- --------------- --------------- NET LOSS $ (339,572) $ (207,798) $ (2,489,938) $ (1,802,397) $ (8,417,919) ================ =============== =============== =============== =============== Basic and diluted loss per share Net income (loss) per weighted average share $ (.02) $ (.01) $ (.17) $ (.13) ================ =============== =============== =============== Weighted average number of common shares used to compute net income (loss) per weighted average share 14,380,493 14,243,411 14,380,493 14,243,411 ================ =============== =============== ===============
F - 2 delSECUR CORPORATION AND SUBSIDIARY (A Development Stage Company) STATEMENTS OF CASH FLOWS (expressed in Canadian dollars) (Unaudited)
Nine Months Ended From Date of February 28, inception to 2001 2000 02/28/2001 --------------- --------------- ------------------ OPERATING ACTIVITIES Net (loss) $ (2,489,938) $ (1,802,397) $ (8,417,919) Adjustments to reconcile net (loss) to cash provided (used) by operating activities: Depreciation 32,261 36,811 235,152 Amortization of deferred credit (1,150) (1,150) (3,450) Free rent 0 0 7,666 Stock issued for services 2,072,671 983,431 3,638,012 Loss on settlement of shares 331,606 0 331,606 Related party advances 0 0 305,402 Foreign exchange fluctuation 38,300 (24,400) 122,800 Changes in assets and liabilities: Sales tax receivable (1,658) 12,703 (28,797) Prepaid expenses (10,347) 1,084 (42,220) Officer loan 0 357,420 0 Receivable - related party (4,040) (34,381) (495,402) Accounts payable 9,978 (219,953) 124,212 Accrued liabilities (15,429) (147) 75,433 Payable - related party (250) (8,071) 184,907 Payable - director (268,053) 53,097 74,889 --------------- --------------- ------------------ NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (306,049) (645,953) (3,887,709) INVESTING ACTIVITIES Purchase of property & equipment (56,675) (11,003) (396,786) --------------- --------------- ------------------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (56,675) (11,003) (396,786) FINANCING ACTIVITIES Loan 0 0 601,850 Repayment of loan 0 (22,987) (406,850) Loan from director 0 0 2,085,250 Deposit on stock 375,000 0 375,000 Stock sold 0 282 382 Contribution to paid-in capital by director 0 691,613 1,649,894 --------------- --------------- ------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 375,000 668,908 4,305,526 --------------- --------------- ------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,276 11,952 21,031 Cash and cash equivalents at beginning of year 8,755 14,473 0 --------------- --------------- ------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,031 $ 26,425 $ 21,031 =============== =============== ================== Cash paid for interest $ 17,550 $ 21,450 $ 47,900 =============== =============== ==================
During the nine months ended February 28, 2001, the Company issued 216,893 shares of common stock for services of $2,072,671 and to settle liabilities of $331,606. During the nine months ended February 29, 2000, the Company issued 204,000 shares of common stock for services of $983,431. F - 3