0001016295-01-500046.txt : 20011019
0001016295-01-500046.hdr.sgml : 20011019
ACCESSION NUMBER: 0001016295-01-500046
CONFORMED SUBMISSION TYPE: 10KSB
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010531
FILED AS OF DATE: 20011011
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DELSECUR CORP
CENTRAL INDEX KEY: 0000894498
STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770]
IRS NUMBER: 870438451
STATE OF INCORPORATION: NV
FISCAL YEAR END: 0531
FILING VALUES:
FORM TYPE: 10KSB
SEC ACT: 1934 Act
SEC FILE NUMBER: 033-55254-15
FILM NUMBER: 1756749
BUSINESS ADDRESS:
STREET 1: 1801 MCGILL COLLEGE, SUITE 1330
STREET 2: STE 107
CITY: MONTREAL
STATE: A8
ZIP: H3A2N4
BUSINESS PHONE: 514-282-9000
MAIL ADDRESS:
STREET 1: 1800 E SAHARA
STREET 2: SUITE 107
CITY: LAS VEGAS
STATE: NV
ZIP: 89104
FORMER COMPANY:
FORMER CONFORMED NAME: GRANDEUR INC
DATE OF NAME CHANGE: 19940422
10KSB
1
may200110ksb.txt
YEAR END FILING MAY 31, 2001
Page 1
DELSECUR CORP
Filing Type: 10KSB
Description: Annual Report
Filing Date: Oct. 10, 2001
Period End: May 31, 2001
Primary Exchange: Over the Counter Bulletin Board
Ticker: DLSC
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 31, 2001
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 No. 33-55254-15
DELSECUR CORPORATION.
(Exact name of Small business issuer as specified in its charter)
NEVADA 87-0438451
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by 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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-KSB 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-KSB or any amendment to
this Form 10-KSB. [X]
As of September 5, 2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $12,775,112.40 based on 7,514,772 shares
and a bid price of $1.70.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of May 31, 2001
$.001 PAR VALUE CLASS A COMMON STOCK 14,509,304 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
Form 8-K filed March 10, 1998
Page 1
PART I
ITEM 1. Business.
Certain statements contained in this Annual Report on Form 10-K ("Report"),
including, without limitation, statements containing the words "anticipates",
"expects, "hopeful" and words of similar import, constitute "forward-looking
statements. "Readers should not place undue reliance on these forward-looking
statements. delSECUR's actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including
risks faced by the Company described in this Report, including the "Risk
Factors" section contained in this Item 1, and the other documents delSECUR
files with the Securities and Exchange Commission ("SEC"), including its most
recent reports on Form 8-K and Form 10-Q, and amendments thereto.
The Company was incorporated under the laws of Utah on February 6, 1986 and
subsequently reorganized under the laws of Nevada on December 30, 1993. The
Company's reorganization plan was formulated for the purpose of changing the
state of domicile and provided that the Company form a new corporation in Nevada
which acquired all of the contractual obligations, shareholder rights and
identity of the Utah corporation, and then the Utah corporation was dissolved.
As of December 31, 1997 the Company was in the developmental stage, and its
operations to date had been limited to the sale of shares to Capital General
Corporation and the gifts of shares to the giftees. The Company was then in the
process of investigating potential business ventures which, in the opinion of
management, would provide a source of eventual profit to the Company.
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 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 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(Registered) 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(Registered) 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.
Commercial applications of the del-ID(Registered) 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.
Page 2
Patent protection was pending for the del-ID system in the United States.
Since June 26, 2001, The United States Patent application has been allowed for
issuance by the U.S. Department of Commerce Patent and Trademark Office.
We improved the technology from a proof of concept to totally functional
devices that we called "the first generation". Those del-ID(Registered) devices
will be implemented for dedicated applications with leading corporations. The
secondary done in parallel covers the implementation of a study in a controlled
laboratory environment. During the last two years, an amount of $446,521 was
spent for Research & Development, $184,569 for the year ending May 31, 2000 and
$261,952 for the year ending May 31, 2001.
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(Registered)
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(Registered)
technology, as mentioned on the Press Release issued on April 5th, 2000. The
next step will be the implementation of the totally functional del-ID technology
within their laboratory as agreed with their representatives.
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 (Registered) 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 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
system, as well as royalty payments by such entities for each card and reader
employed in a del-ID system. We anticipate the first commercial revenue
following the issuance of first application results from our technology
showcases.
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 555, 11th Street NW, 6th Floor, Lincoln Square,
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 (Registered) technology by several U.S. Government agencies. This subsi-
diary has no employee and does not have any operations.
The corporation Canadian subsidiary has currently 5 employees of its
officers of the Company.
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.
In December 2000, the Company adopted the delSECUR Corporation Stock Option
Plan for the granting of stock options to directors, officers, employees and
consultants of the Company. The Company has reserved 1,400,000 shares of common
stock for issuance under the Plan, in order to enable certain key employees,
officers, directors and consultants of the Corporation to participate in the
Page 3
growth of the Corporation and thereby provide effective incentives for such
individuals. The Plan shall be managed by the Board of Directors.
In accordance with the terms of the Plan, the beneficiaries may be granted
options to purchase ordinary shares at a price determined by the Board of
Directors. The price may not be below the market price in accordance with the
regulations established by the regulatory bodies having jurisdiction over the
securities of the Corporation. The total amount of common shares of the
Corporation that may be subscribed under the Plan is 1,400,000 shares.
ITEM 2. Properties.
Pursuant to an Agreement dated February 25, 1998 between the company and
delSECUR Inc. the Company acquired, through its subsidiary, world license rights
to the del-ID (Registered) technology described in Item 1 above. The del-ID
(Registered) technology is owned by its inventor, the Company's controlling
shareholder, Pierre de Lanauze.
The Company, through delSECUR Inc., owns various computer and office
equipment, furnishings etc., acquired at a cost not exceeding $500,000 USD.
delSECUR Inc. leases office space in downtown Montreal; it has no manufacturing
facilities and does not plan to manufacture its products directly.
ITEM 3. Legal Proceedings.
During the period prior to December 31, 1997 there have been numerous legal
proceedings against the Company and its former Directors and Officers. These
have been fully reported in previous reports filed with the Securities and
Exchange Commission. None of such legal proceedings are currently pending.
No legal proceedings have been incurred as a result of the Agreement dated
February 25th,1998, as described in Item 1 above.
There is two pending legal proceeding described as follows:
1. The claim pending before the Quebec Court of Appeal commenced on or
about January 7, 1999, between three shareholders of delSYNCHRO Inc., appellants
vs. Pierre de Lanauze, delSYNCHRO Inc., delSECUR Corporation, delSECUR Inc., &
Al., respondents. The appellants claim that delSYNCHRO Inc. is the owner of the
{{del-ID system}} developed by Mr. Pierre De Lanauze.; The appellants request
the Court to declare delSYNCHRO owner of the invention known as "del- ID" and
the related rights and consequently that:
a) the license agreement related to the DEL-ID invention signed in
November 1997 between DELSECUR Inc. and delSECUR Corporation be
considered to be signed between delSYNCHRO Inc. and delSECUR
Corporation;
b) the exchange of shares on February 25, 1998 whereby delSECUR
Corp-oration issued 9,854,609 of its shares to shareholders of
DELSECUR Inc. in exchange for the acquisition by delSECUR Corporation
of all the issued shares of DELSECUR Inc. should be amended so that
the 9,854,609 shares of delSECUR Corporation will be issued to the
shareholders of delSYNCHRO Inc. in exchange for the acquisition by
delSECUR Corporation of all the issued shares of delSYNCHRO Inc.
2. Two former consultants, as Plaintiffs/Cross-Defendants, and delSECUR
Inc. and delSECUR Corporation, as Defendants/Cross-Plaintiffs. Plaintiffs were
hired to introduce the Defendants to major financial institutions and strategic
partners. Plaintiffs cancelled their agreement arguing Defendants prevented them
from fulfilling their duties. They claim damages for loss of commissions, value
of shares, stock options and damage to reputation, totalling CDN$3,827,350.
Defendants vigorously deny the claim, arguing Plaintiffs failed their
obligations and are entitled to nothing. Defendants filed a cross-demand
claiming from Plaintiffs CDN $ 329,903.99 in reimbursement of value paid and in
damages.
Page 4
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matter submitted to the Company's security holders for a vote during
the fourth quarter of the fiscal year ending May 31, 2001.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholders Matters.
As of September 5, 2001, there were 646 record holders of the Company's
common stock. The Company has not previously declared or paid any dividends on
its common stock and does not anticipate declaring any dividends in the
foreseeable future.
The Company's common stock commenced trading on the NASD Bulletin Board on
March 31, 1998 under the symbol GDER. The symbol was changed to DLSC following
the name modification as of July 15th 1999. The aggregate market value of the
stock held by been non-affiliates on that date was $25,057,619.
The following table lists the high and low bid prices for the common stock
of the Company during the last two most recent years. These quotations are
inter-dealer prices without retail mark-up, mark-down and may not represent
actual transactions:
NASDAQ-OTC
High Bid Low Bid
Price Price
2001 First Quarter $ 12.8125 $ 5.00
Second Quarter 8.4375 2.8125
Third Quarter 3.60 1.5625
Fourth Quarter 3.26 1.19
2000 First Quarter $ 4.00 $ 1.9375
Second Quarter 6.00 1.875
Third Quarter 18.125 6.625
Fourth Quarter 13.6875 4.437550
The following table lists the recent sales of unregistered securities
During the last fiscal year made by the registrant. In all cases the shares sold
were of its common stock, par value $.01 per share.
Number of
Date of Sale Purchaser Shares Consideration
19-06-00 Sylvain Falardeau 3,380 Services Rendered
19-06-00 James B. Holderman 20,000 Services Rendered
19-06-00 BLC Valeurs Mobilieres 50,000 Services Rendered
14-07-00 Pierre de Lanauze 34,750 Compensation for advance
22-09-00 Michael Mills Productions 3,000 Services Rendered
17-11-00 Lorenzo D'Alesio 4,000 Services Rendered
17-11-00 Pierre de Lanauze 96,763 Compensation for advance
17-11-00 Anthony M. Cieri 5,000 Services Rendered
All of the above transactions were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
All of the individuals or entities who received shares for services
rendered were either employees or consultants or had otherwise rendered services
to the Company at the time the shares were received. In each instance the number
of shares issued was a negotiated amount, based upon the value of the services
as determined by the Company's Board of Directors. These shares have a minimum
holding period of one year.
Page 5
ITEM 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
As a consequence of the Agreement entered into on February 25, 1998, the
management and operations of the Company changed to give effect to the new
business of the Company as described in Item 1.
The financing of current operations will be provided in part by the Balance
to be received of USD $264,553.95 of the Private placement in the initial amount
of USD 750,000. We are also undertaking efforts to proceed with another private
placement of USD $1,000,000. We are hopeful to close the transaction before
mid-October 2001.
If needed, the controlling shareholder, Mr. Pierre de Lanauze, will provide
the appropriate funding to meet the company's operations. This funding arise
from the sales of shares from his personal portfolio. Mr de Lanauze holds
6,975,797 ordinary shares carrying shares certificate number 2010. The total
number of shares issued and outstanding of delSECUR CORPORATION is 14,754,026.
Management is of the opinion that the Company's del-ID technology, while as
yet untested in the marketplace, represents a viable business opportunity in a
number of different fields of government and business activity. Given the well
publicized worldwide requirement for ID authentication systems and the paucity
of suitable alternatives available, it is the intention of management to proceed
by way of co-ventures, joint ventures, sublicense agreements and similar
arrangements with major entities, including governments at all levels, that can
benefit from implementing the technology in their existing operations. The
Company has no present intention to manufacture del-ID products; instead,
products will be manufactured by licensed outside suppliers/users.
The last twelve months have been dedicated to finalizing the technology
del-ID(registered) advancing from a concept version all the way to pre-commer-
cialization edition devices. We actually have a functional reader to create the
abstract image from a living finger with the enrolment software and diagnostics
both operational. We have also developed an application a smart card.
We are now in the process to implement technologies showcases with banks,
government and industries. We have already letter of intent to this effect.
We have gained much intelligence and credibility when the patent has been
allowed to Mr. De Lanauze on the del-ID(registered) technology by the U.S.
Patent Office. delSECUR can confirm to hold the exclusive, world-wide license of
a unique technology of which the intellectual property is official recognized.
For a potential licensee this is a factor in their decision to commit to
commercialisation and legally with delSECUR.
There is a momentum to replace personal identification number (PIN) and
passwords by a more secure technology. We are in relation with potential users
and their interest in the del-ID(registered) technology make the management team
confident to generate incomes in the actual fiscal year.
The Company had a net loss of $2,896,904 for the year ended May 31, 2001
compared with a loss of $2,809,448 for the year ended May 31, 2000. The
increased loss of about $87,456 was mainly due to an increase of $77,383 in
research and development costs and operating fees.
Page 6
ITEM 7. Financial Statements and Supplementary Data.
See Item 13.
DELSECUR CORPORATION.
SUMMARY OF OPERATIONS
MAY 31, 2001
2001 2000 1999 1998 1997
------------- ------------- ------------- ------------- -----------
Total Assets.................$ 428,585 390,948 $ 777,419 $ 845,921 $ 580,249
Revenues..................... 0 0 0 0 0
Operating Expenses........... 2,896,904 2,809,448 1,274,955 1,021,133 822,219
Net Earnings (Loss) (2,896,904) (2,809,448) (1,274,955) (1,021,133) (822,219)
Per share data
Earnings (Loss)............ (0.20) (.20) (0.09) (0.24) (0.82)
Average Common Share
Outstanding................ 14,454,026 14,165,615 13,848,300 4,212,075 1,000,000
As of May 31, 2001 there were 14,509,304 shares outstanding.
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
ITEM 9. Directors and Executive Officers of the Registrant.
The following table shows the positions held by the Company's officers and
directors during the year ended May 31, 2001. Directors are appointed annually
and serve until the next annual meeting of the Company's stockholders, and until
their successors have been elected and have qualified. Officers are appointed to
their positions, and continue in such positions, at the discretion of the
directors.
On December 14,1998, following the resignation of Mr. J. Randall McCormick
(May 4th 1998) and Mrs. Julie Gaucher (December 14th 1998) new Directors and
Officers were appointed, who will serve until the next annual meeting of the
Company's stockholders. These new Directors and Officers are as follows:
Name Age Position Since
Pierre de Lanauze 62 President, CEO, Director March, 1998
Marc Descheneaux 49 Executive Vice President, Director March, 1998
Suzanne de Lanauze 39 Secretary/Treasurer, Director March, 1998
PIERRE DE LANAUZE is a graduate of the Cinq Mars School in Montreal,
Canada. He has been active in the audio-video business for the past 20 years. In
this field he has been involved in projects for Expo' 67 in Montreal, Walt
Disney Studios, the Canadian Broadcast Corporation and the Canadian Department
of National Defense. In 1986 he founded DelSynchro, Inc. to market motion
picture dubbing technologies he developed. Mr. de Lanauze has also developed
three other technologies which pertain to the dubbing and subtitling of motion
pictures, and video security. Mr. de Lanauze has been developing the del-ID
technology since January 1995. His responsibilities at the Company are to
further develop and implement the del-ID technology.
MARC DESCHENEAUX, B.A.A., received his undergraduate Baccalaureat degree in
business Administration in 1977. After obtaining a graduate degree in
International Commerce from the Universite de Paris-Nord in 1979, Mr.
Descheneaux was employed as an investment analyst with what is now the Canadian
Development Bank. From 1979 to 1983 he was a Director of Industrial Credit with
Mouvement Desjardins, a Canadian financial institution. Subsequently, Mr.
Descheneaux has held management positions with two large Canadian wholesaling
companies, Metro Richelieu and Groupe Ro-Na. In 1997, after two years as a
Page 7
business consultant, Mr. Descheneaux joined the management team of Mr. Pierre de
Lanauze at 3127575 Canada Inc. As Executive Vice President Mr. Descheneaux will
oversee general management and adiministration, daily operations and marketing
of the Company's technologies.
SUZANNE DE LANAUZE, graduated from Campus Pont-Viau, Laval in 1979. From
1992 to 1995 she was a secretary and paralegal at Colby Monet Demers Delage and
Crevier, a Montreal law firm. In 1995 Ms.de Lanauze became an administrative
assistant to Pierre de Lanauze President of del Synchro Inc. In 1997 she became
Director of Administration of 3127575 Canada Inc. Ms. De Lanauze's responsibi-
lities at the Company consist of overall office management as well as legal
secretarial functions. Ms. de Lanauze is the daughter of Pierre de Lanauze.
ITEM 10. Executive Compensation.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted Securities
Name and Other Annual Stock underlying LTIP All Other
Principal Salary Bonus Compensation Award(s) options/ SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
-------------------------------------------------------------------------------------------------------------------------
Pierre de 31/05/01 141,500 Nil Nil Nil 500,000 Nil Nil
Lanauze, 31/05/00 130,000 Nil Nil Nil Nil Nil Nil
President & CEO 31/05/99 130,000 Nil Nil Nil Nil Nil Nil
Marc Descheneaux 31/05/01 85,000 Nil Nil Nil 300,000 Nil Nil
Execituve 31/05/00 91,465 Nil Nil Nil Nil Nil Nil
Vice-President 31/05/99 81,950 Nil Nil Nil Nil Nil Nil
Suzanne de 31/05/01 55,000 Nil Nil Nil 300,000 Nil Nil
Lanauze, General 31/05/00 40,000 Nil Nil Nil Nil Nil Nil
Manager 31/05/99 40,000 Nil Nil Nil Nil Nil Nil
Jean-Francois 31/05/01 60,000 Nil Nil Nil 100,000 Nil Nil
Gregoire, 31/05/00 60,000 Nil Nil Nil Nil Nil Nil
Integration, 31/05/99 60,000 Nil Nil Nil Nil Nil Nil
Vice-President
Page 8
Option/SAR Grants in Last Fiscal Year
Individual Grants
---------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Percent of total
Securities options/SARs
-
Underlying Granted to Exercise
-
options/SARs Employees in or base Expiration
-
Name Granted (#) Fiscal Year price ($/Sh) Date
---- ----------- ----------- ------------ ----
Pierre de Lanauze 500,000 500,000 Nil March 2011
Marc Descheneaux 300,000 300,000 Nil March 2011
Suzie de Lanauze 300,000 300,000 Nil March 2011
Jean-Fracois Gregoire 100,000 100,000 Nil March 2011
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of September 5, 2001, information
regarding the beneficial ownership of shares by each person known by the Company
to own five percent or more of the outstanding shares, by each of the directors
and by the officers and directors as a group.
Amount of
Title Name and Address beneficial Percent
of Class beneficial owner ownership of class
------------------ ---------------------- ---------------------- --------------
DIRECTORS AND OFFICERS
Common Stock Mr. Pierre de Lanauze 6,975,797 48.00%
1231, Avenue Theroret
Ile Bizard, Quebec,. Canada
H9E 1H7
(Director and Officer)
Common Stock Mr. Mark Descheneaux 10,000 0.0006%
1801 McGill College, Suite 1330
Montreal, Quebec, Canada H3A 2N4
(Director and Officer)
Common Stock Ms. Suzanne de Lanauze 8,735 0.0006%
1801 McGill College, Suite 1330
Montreal, Quebec, Canada H3A 2N4
(Director and Officer)
Total of all 5% or Greater Shareholders 7,514,772 51.80%
Total of all officers / directors (3 persons) 6,994,532 48.20%
ITEM 12. Certain Relationships and Related Transactions.
During the year ended May 31, 2001 no officer, director, nominee for
election as a director, or associate of such officer, director or nominee is, or
was, in debt to the Company. The Company is in debt with Pierre de Lanauze,
President and CEO of the Company, regarding the balance due on the distribution
rights for an amount of $1,545,700 and for the advance made to the Company for
an amount of $235,000.
PART IV
ITEM 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Financial Statements and Financial Statement Schedules.
Financial Statements - May 31, 2001, 2000 and 1999.
Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth quarter of fiscal
year ending May 31, 2001.
Page 9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DELSECUR CORPORATION.
Date: October 10, 2001 By: /s/ Pierre de Lanauze
Pierre de Lanauze, President, Chairman of the
Board and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: October 10, 2001 By: /s/ Pierre de Lanauze
Pierre de Lanauze, President, Chairman
of the Board and Director
Date: October 10, 2001 By: /s/ Suzanne de Lanauze
Suzanne de Lanauze,
Secretary/Treasurer and Director
Date: October 10, 2001 By: /s/ Marc Descheneaux
Marc Descheneaux
Executive Vice President, Director
Page 10
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
June 27, 2001
Independent Auditors' Report
To the Stockholders of
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
We have audited the consolidated balance sheets of delSECUR Corporation and
Subsidiary (note 1) (development stage enterprises) as at May 31, 2000 and 2001
and the consolidated statements of loss, deficit and cash flows for each of the
years in the three-year period ended May 31, 2001. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform 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 May 31, 2000 and
2001 and the results of its operations and its cash flows for each of the years
in the three-year period ended May 31, 2001 in accordance with generally
accepted accounting principles in the United States of America.
/s/ PriceWaterhouseCoopers LLP
Chartered Accountants
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Consolidated Balance Sheets
As at May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
2000 2001
$ $
Assets
Current assets
Cash 8,755 -
Sales taxes receivable 27,139 44,806
Prepaid expenses 31,873 37,239
Advances to a common control company, without interest (note 3) 185,960 185,000
-----------------------------------------
253,727 267,045
Fixed assets (note 4) 137,220 161,539
License (note 5) 1 1
-----------------------------------------
390,948 428,585
-----------------------------------------
Liabilities
Current liabilities
Bank overdraft - 1,083
Trade accounts payable 114,234 218,029
Accrued liabilities 90,862 108,073
Advances from a common control company, without interest 185,157 184,907
Balance due on distribution right (note 5) 1,497,800 1,545,700
Advances from a director, without interest (note 6) 342,942 235,000
Demand loans, bearing interest at a monthly rate varying from 0.5% to 1% 195,000 190,000
Deposit on shares not yet issued - 375,000
-----------------------------------------
2,425,995 2,857,792
-----------------------------------------
Deferred credit 5,366 3,832
-----------------------------------------
Commitments and contingencies (notes 13 and 14)
Stockholders' Deficiency
Common stock, US$0.001 par value
Authorized
100,000,000 Shares
Issued and outstanding (note 7)
14,509,304 Shares (2000 - 14,292,411) 20,371 20,698
Additional paid-up capital (note 9) 3,910,463 6,414,414
Deficit accumulated during the development stage (5,971,247) (8,868,151)
-----------------------------------------
(2,040,413) (2,433,039)
-----------------------------------------
390,948 428,585
-----------------------------------------
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Consolidated Statements of Loss
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Years ended May 31, From date of
inception to
-----------------------------------------------------------
May 31,
1999 2000 2001 2001
$ $ $ $
Revenue
Interest - - - 5,000
Management income - - - 3,000
-------------------------------------------------------------------------------
- - - 8,000
-------------------------------------------------------------------------------
Expenses
Depreciation 60,671 52,274 46,951 249,843
Interest expense 22,150 27,700 23,300 98,326
Research and development (net of tax credits
of nil for 2001; 2000 - $28,588;
1999 - nil) 242,130 184,569 261,952 923,977
Loss on settlement of shares - 95,090 331,396 426,486
General and administrative expenses 950,004 2,449,815 2,233,305 7,134,253
-------------------------------------------------------------------------------
1,274,955 2,809,448 2,896,904 8,832,885
-------------------------------------------------------------------------------
Net loss (1,274,955) (2,809,448) (2,896,904) (8,824,885)
-------------------------------------------------------------------------------
Net loss per weighted average share (basic
and diluted) (note 10) (0.09) (0.20) (0.20)
-----------------------------------------------------------
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Consolidated Statements of Deficit
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Years ended May 31, From date of
inception to
-----------------------------------------------------------
May 31,
1999 2000 2001 2001
$ $ $ $
Deficit accumulated during the development
stage -
Beginning of year (1,886,844) (3,161,799) (5,971,247) -
Net loss (1,274,955) (2,809,448) (2,896,904) (8,824,885)
Amount from additional paid-up capital (note
9) - - - (43,266)
-------------------------------------------------------------------------------
Deficit accumulated during the development
stage -
End of year (3,161,799) (5,971,247) (8,868,151) (8,868,151)
-------------------------------------------------------------------------------
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Years ended May 31, From date of
inception to
-----------------------------------------------------------
May 31,
1999 2000 2001 2001
$ $ $ $
Cash flows provided by (used in)
Operating activities
Net loss (1,274,955) (2,809,448) (2,896,904) (8,824,885)
Adjustments to reconcile loss to net cash
provided by operating activities
Depreciation of property and equipment 60,671 52,274 46,951 249,842
Provision on common control company
advances - 15,000 5,000 310,402
Loss on foreign exchange fluctuation 60,700 23,800 47,900 132,400
Amortization of deferred credit (766) (1,534) (1,534) (3,834)
Free rent 7,666 - - 7,666
Services rendered paid for with common
shares - 1,565,341 2,403,951 3,969,292
Changes in
Sales taxes receivable 97,145 8,369 (17,667) (44,806)
Prepaid expenses (24,038) (1,015) (5,366) (37,239)
Advances to a common control company (33,087) (30,224) (4,040) (495,402)
Director loan 29,687 700,362 (107,942) 235,000
Trade accounts payable 217,311 (197,695) 103,795 218,029
Accrued liabilities (63,273) 55,935 17,211 108,073
Advances from a common control company 43,670 (4,720) (250) 184,907
-------------------------------------------------------------------------------
(879,269) (623,555) (408,895) (3,990,555)
-------------------------------------------------------------------------------
Financing activities
Loan 188,500 - - 601,850
Repayment of loan (205,636) (52,987) (5,000) (411,850)
Loan from a director - - - 2,085,250
Increase in bank overdraft - - 1,083 1,083
Contribution from a director 958,281 691,613 100,000 1,749,894
Share issues - 282 327 709
Deposit on shares - - 375,000 375,000
-------------------------------------------------------------------------------
941,145 638,908 471,410 4,401,936
-------------------------------------------------------------------------------
Investing activities
Additions to fixed assets (50,600) (21,071) (71,270) (411,381)
-------------------------------------------------------------------------------
Increase (decrease) in cash during the year 11,276 (5,718) (8,755) -
Cash - Beginning of year 3,197 14,473 8,755 -
-------------------------------------------------------------------------------
Cash - End of year 14,473 8,755 - -
-------------------------------------------------------------------------------
Non-cash financing and investing activities
Repayment of a loan to a shareholder (note 9) - - - (2,085,250)
-------------------------------------------------------------------------------
Acquisition of license (note 5) - - - (1,413,299)
-------------------------------------------------------------------------------
Supplemental cash flow information
Cash paid for interest 22,150 27,700 23,300 98,326
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
1 Incorporation and nature of operations
delSECUR Corporation, a development stage enterprise, was incorporated
under the laws of the State of Utah on February 6, 1986 and subsequently
incorporated under the laws of the State of Nevada on December 31, 1993
under the name of Grandeur Inc. Effective May 28, 1999, the company legally
changed its name to delSECUR Corporation. Through its subsidiary, DELSECUR
Inc., the company is at the commercialization stage of the "DEL ID"
project.
Pursuant to an agreement made and entered into on February 25, 1998,
delSECUR Corporation (the "company") issued and delivered on February 26,
1998 12,848,300 shares of its common stock in exchange for which issuance
it acquired all of the outstanding shares of DELSECUR Inc.
For accounting purposes, the transaction is treated as an issuance of
shares by DELSECUR Inc. for the net monetary assets of the company (at
February 26, 1998 - nil), accompanied by a recapitalization.
The historical financial statements prior to February 28, 1998 are those of
DELSECUR Inc.
2 Significant accounting policies
These consolidated financial statements are expressed in Canadian dollars
and have been prepared in accordance with accounting principles generally
accepted in the United States of America.
Consolidation
These consolidated financial statements include the accounts of the company
and its subsidiary.
Accounting methods
The company recognizes revenue and expenses based on the accrual method of
accounting.
Dividend policy
The company has not yet adopted any policy regarding payment of dividends.
Cash and cash equivalents
For financial statement purposes, the company considers all highly liquid
investments with an original maturity of three months or less when
purchased to be cash equivalents.
Earnings (loss) per share
Earnings or loss per common share is computed by dividing net earnings
(loss) by the weighted average number of common shares outstanding during
each year.
(1)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Fixed assets and depreciation
Fixed assets are recorded at cost. Depreciation is calculated using the
declining balance method at a rate of 30% for computer equipment and 20%
for office equipment.
The carrying value of the property and equipment is evaluated whenever
significant events or changes occur that might indicate an impairment
through comparison of the carrying value to the net recoverable amount.
Research and development costs
Research costs, which include all costs incurred to establish technological
feasibility, and development costs are charged to operations in the year in
which they are incurred.
License
The license is recorded at its carrying value.
Income taxes
The company uses the assets and liabilities approach for financial
accounting and reporting of income taxes. Under this method, deferred tax
assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the financial
statements or tax returns. Deferred tax assets and liabilities are measured
using tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period in which the change occurs.
Tax credits
The company is entitled to scientific research and experimental development
tax credits granted by the Canadian federal government and the government
of the Province of Quebec. Tax credits are accounted for as a reduction of
the related expenditures in the year in which they are incurred subject to
a valuation allowance for non-refundable tax credits when it is more likely
than not that the tax credits will not be realized.
Stock-based compensation costs
The company accounts for employee stock-based compensation costs using the
intrinsic value method as set out in APB 25, "Accounting for Stock Issued
to Employees", and related interpretations. Options granted to parties
other than employees providing services to the company are accounted for
using the fair value method based either on the fair value of services
provided or on the fair value of the options granted. In accordance with
SFAS 123, "Accounting for Stock-based Compensation", the company provides
pro forma disclosures of net earnings (loss) and net earnings (loss) per
common share as if the fair value based method of accounting had been used.
(2)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
Use of estimates
These financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on
informed estimates and judgements of management with consideration given to
materiality. Actual results could differ from those estimates.
Fair value of financial instruments
Due to their short-term maturity, the carrying values of certain financial
instruments were assumed to approximate their fair values. The financial
instruments include: sales taxes receivable and advances to a common
control company included in current assets, trade accounts payable, accrued
liabilities, advances from a common control company, balance due on
distribution right and demand loans included in current liabilities.
The fair value of these financial instruments is not significantly
different from their carrying amounts.
Credit risk
The company's exposure to credit risk is as indicated by the carrying
amounts of the financial assets.
The company may be exposed to losses in the future if the debtors fail to
pay. Significant portions of the amounts receivable are from related
parties.
Translation of foreign currencies
Monetary assets and liabilities are translated at the year-end exchange
rate. Any gain or loss due to exchange fluctuation is charged to the
statement of loss.
Recent accounting pronouncements
In 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133", and SFAS 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" has been issued. delSECUR Corporation must
adopt the statements on June 1, 2001. The statements outline accounting and
reporting standards for derivative instruments and hedging activities.
Under the standard, all derivatives will be recognized at fair value and
will be accounted for depending on the intended use of each derivative and
its designation as a hedge. The adoption of the statement will have no
impact on the balance sheet and the statement of loss.
(3)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
After the year ended May 31, 2001, the Financial Accounting Standards Board
approved for issuance SFAS 141, "Business Combinations" and SFAS 142,
"Goodwill and Other Intangible Assets". SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after
June 30, 2001. As a result, the pooling-of-interests method will be
prohibited. SFAS 142 changes the accounting for goodwill from an
amortization method to an impairment only approach. Thus, amortization of
goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of this statement, which for delSECUR will be June 1,
2002. However, for any acquisitions completed after June 30, 2001, goodwill
and intangible assets with an indefinite life will not be amortized.
It is expected that SFAS 141 and SFAS 142 will not have an impact on the
company's business, results of operations and financial condition.
3 Advances to a common control company
2000 2001
$ $
Balance - Beginning of year 461,138 491,362
Payments net of charges 30,224 4,040
-----------------------------------------
491,362 495,402
Provision on common control company advances (305,402) (310,402)
-----------------------------------------
Balance - End of year 185,960 185,000
-----------------------------------------
(4)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
4 Fixed assets
2000
----------------------------------------------------------------
Accumulated
Cost depreciation Net
$ $ $
Computer equipment 314,164 194,994 119,170
Office equipment 25,949 7,899 18,050
----------------------------------------------------------------
340,113 202,893 137,220
----------------------------------------------------------------
2001
----------------------------------------------------------------
Accumulated
Cost depreciation Net
$ $ $
Computer equipment 385,433 238,334 147,099
Office equipment 25,949 11,509 14,440
----------------------------------------------------------------
411,382 249,843 161,539
----------------------------------------------------------------
5 License
On November 12, 1997, the principal stockholder of the company and owner of
an invention consisting of an apparatus and method, including related
software, for scanning and storing an optical representation of a finger's
capillary lines entered into an agreement with the company whereby he
granted the company the exclusive right to commercialize the invention
which shall include, among other things, manufacturing and marketing the
invention under the terms and conditions contained therein for the
consideration of US$1,000,000 (CA$1,545,700 as at May 31, 2001). In
addition to these considerations, the company agrees to pay the owner a
royalty equal to 2% of all revenues derived by the company, directly or
indirectly, from the invention, provided the royalty shall be renegotiated
to a lesser amount if the U.S. patent is not issued.
This transaction was measured at its carrying value of $1. The excess of
the consideration payable over the carrying value at the date of the
transaction was recorded against additional paid-up capital and deficit.
On June 26, 2001, the company received a notice of allowance for the
application of the U.S. patent.
(5)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
6 Advances from a director
As indicated in note 1 to these financial statements, the company is a
development stage enterprise and has yet to earn revenue. The current
funding of the operation is provided by the principal stockholder of the
company. The balance due at May 31, 2000 has been settled through the
issuance of 34,750 shares as at July 14, 2000 and 96,763 shares as at
November 8, 2000. These shares have a minimum holding period of one year.
7 Common stock
1999 2000 2001 From date of
inception to
May 31, 2001
----------------------- ---------------------------------------------- -----------------------
Number Amount Number Amount Number Amount Number Amount
$ $ $ $
Balance - Beginning of 3,848,300 19,715 3,848,300 19,715 14,292,411 20,371 - -
----------------------------------------------------------------------------------------------
Issuances of common stock
February 6, 1986 - - - - - - 1,000,000 1,424
February 26, 1998
(note 1) - - - - - - 12,484,300 18,291
Stocks issued in
exchange for
cash (*)
October 5, 1999
($3.67 per
share -
$293,960) - - 80,000 119 - - 80,000 119
October 25, 1999
($3.32 per
share -
$368,935) - - 111,111 163 - - 111,111 163
----------------------------------------------------------------------------------------------
- - 191,111 282 - - 14,039,411 19,997
----------------------------------------------------------------------------------------------
Promotional services
June 8, 1999 ($4.79
per share -
$479,150) - - 100,000 147 - - 100,000 147
October 5, 1999
($5.40 per
share -
$129,766) - - 24,000 35 - - 24,000 35
October 25, 1999
($4.15 per
share -
$136,990) - - 33,000 49 - - 33,000 49
December 1, 1999
($9.94 per
share -
$348,064) - - 35,000 52 - - 35,000 52
April 5, 2000
($16.70 per
share -
$233,843) - - 14,000 21 - - 14,000 21
June 19, 2000
($16.64 per
share -
$332,741) - - - - 20,000 30 20,000 30
June 19, 2000
($16.64 per
share -
$831,852) - - - - 50,000 74 50,000 74
November 13, 2000
($5.11 per
share -
$20,434) - - - - 4,000 6 4,000 6
----------------------------------------------------------------------------------------------
- - 206,000 304 74,000 110 280,000 414
----------------------------------------------------------------------------------------------
(6)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
1999 2000 2001 From date of
inception to
May 31, 2001
----------------------- ---------------------------------------------- -----------------------
Number Amount Number Amount Number Amount Number Amount
$ $ $ $
Salaries
June 8, 1999 ($5.51
per share -
$55,100) - - 10,000 15 - - 10,000 15
----------------------------------------------------------------------------------------------
Loss on settlement of
shares
June 8, 1999 ($3.52
per share -
$95,090) - - 27,000 40 - - 27,000 40
June 19, 2000
($16.64 per
share -
$56,233) - - - - 3,380 5 3,380 5
July 14, 2000
($17.72 per
share -
$615,709) - - - - 34,750 51 34,750 51
November 8, 2000
($5.11 per
share -
$494,317) - - - - 96,763 149 96,763 149
----------------------------------------------------------------------------------------------
- - 27,000 40 134,893 205 161,893 245
----------------------------------------------------------------------------------------------
Other services
June 8, 1999 ($4.79
per share -
$49,715) - - 10,000 15 - - 10,000 15
September 13, 2000
($9.15 per
share -
$27,448) - - - - 3,000 5 3,000 5
November 13, 2000
($5.11 per
share -
$25,543) - - - - 5,000 7 5,000 7
----------------------------------------------------------------------------------------------
- - 10,000 15 8,000 12 18,000 27
----------------------------------------------------------------------------------------------
13,848,300 19,715 14,292,411 20,371 14,509,304 20,698 14,509,304 20,698
----------------------------------------------------------------------------------------------
(*) All shares issued, either for cash or other consideration, have been
accounted for at the par value of US$0.001. Any other amounts have
been accounted for as additional paid-up capital. The amounts assigned
to non-cash consideration have been determined at the quoted market
value at date of issuance.
8 Stock option plan
In December 2000, the company adopted the delSECUR Corporation 2000 Stock
Plan (the "Plan"). The Plan provides for the granting of stock options to
directors, officers, employees and consultants of the company. The company
has reserved 1,400,000 shares of common stock for issuance under the Plan.
The exercise price under the Plan shall be determined by the Board on the
date an option is granted provided, however, that such price may not be
less than the market price of the shares on the grant date. Options granted
under the Plan do not have a defined vesting period; however, the Board may
subject the exercise of the options to certain conditions.
(7)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
During the year, 1,200,000 options were granted at a price equal to the
market value on the day immediately preceding the date the options were
granted. The fair value of options granted during the year was estimated
using the Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest rate of 5.35%, no dividends,
expected lives of three years and volatility of 125%.
A summary of the status of the Plan as of May 31, 2001 and the changes
during the year ended May 31, 2001 is presented below:
Outstanding - Beginning of year -
Granted 1,200,000
Exercised -
Cancelled -
------------------
Outstanding - End of year 1,200,000
------------------
Options exercisable - End of year 1,200,000
------------------
The options have an average remaining life of 9 years, 7 months and the
exercise price of each option is US$2.00. The weighted average fair value
of an option granted during the year is US$1.49.
9 Additional paid-up capital
From date of
inception to
May 31,
1999 2000 2001 2001
$ $ $ $
Balance - Beginning of year 695,602 1,653,883 3,910,463 -
Issuance of capital at inception - - - (1,324)
Add: Increase of contributed surplus
from issuance of shares - 1,564,967 2,403,951 3,968,918
Add: Loans forgiven - - - 2,085,250
Add: Contribution from a director 958,281 691,613 100,000 1,749,894
Deduct: License (note 5) - - - (1,413,299)
-------------------------------------------------------------------------------
1,653,883 3,910,463 6,414,414 6,389,439
Amount transferred to deficit - - - 43,266
Recapitalization on February 26, 1998
(note 1) - - - (18,291)
-------------------------------------------------------------------------------
Balance - End of year 1,653,883 3,910,463 6,414,414 6,414,414
-------------------------------------------------------------------------------
(8)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
10 Loss per common share
Basic loss per common share was calculated by dividing the net loss by the
weighted average number of common shares outstanding during the year. As a
result of the net losses for the year ended May 31, 2001, the effect of
converting options was antidilutive.
The following table details the weighted average number of common shares
outstanding:
1999 2000 2001
Weighted average number of common shares
outstanding - basic 13,848,300 14,165,615 14,454,026
Weighted average effect of dilutive securities
Employee stock options - - 76,271
----------------------------------------------------------------
Weighted average number of common shares
outstanding - diluted 13,848,300 14,165,615 14,530,297
----------------------------------------------------------------
11 Income taxes
The company's net deferred tax asset is comprised of the following:
2000 2001
$ $
Net operating loss carryforwards 1,621,400 1,997,100
Research and development tax credits 76,200 250,100
Difference between carrying value versus tax basis for:
Fixed assets (26,200) (67,100)
Advances to a common control company 77,900 78,200
License 350,900 326,300
Research and development expenses 135,100 283,100
Foreign currency translation - 50,600
-----------------------------------------
2,235,300 2,918,300
Less: Valuation allowance 2,235,300 2,918,300
-----------------------------------------
- -
-----------------------------------------
(9)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
The provision for income taxes varies from the expected provision at the
statutory rate for the following reasons:
1999 2000 2001
% % %
Combined basic federal and provincial
statutory tax rate (45) (45) (45)
Deduction for active business income earned in
Quebec 7 7 7
Valuation allowance 36 37 37
Permanent differences including amortization
of goodwill and
non-deductible items 2 1 1
----------------------------------------------------------------
Provision for income taxes per the financial
statements - - -
----------------------------------------------------------------
Due to the uncertainty regarding the realization of the favourable tax
attributes in future tax returns, the company has recognized a valuation
allowance against its deferred tax assets. At such time as it is determined
that it is more likely than not that the deferred tax assets are
realizable, the valuation allowance will be reduced.
As of May 31, 2001, the company has net operating loss carryforwards
available to reduce its future taxable income of approximately $5,257,800
and $5,471,800 for federal and provincial income tax purposes respectively.
These losses will expire between 2003 and 2007 if not utilized beforehand.
12 Related party transactions
During the three-year period, the company made the following transactions
with two companies owned by the principal stockholder:
1999 2000 2001
$ $ $
Expenses 77,850 - -
Acquisition of fixed assets 40,855 - -
The expenses occurred in the normal course of the company's activities and
were measured at the exchange value.
The fixed assets were acquired from companies under common control at a
cost equal to the net book value of the vendor.
(10)
delSECUR Corporation and Subsidiary (note 1)
(development stage enterprises)
Notes to Consolidated Financial Statements
May 31, 2000 and 2001
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
13 Contingencies
a) An application was filed by three minority shareholders of Delsynchro
Inc., a common control company, which requested the Court to declare
Delsynchro owner of the invention known as "DEL ID" and the related
rights and consequently that:
i) the license agreement related to the DEL ID invention signed in
November 1997 between DELSECUR Inc. and delSECUR Corporation be
considered to be signed between Delsynchro Inc. and delSECUR
Corporation;
ii) the exchange of shares on February 25, 1998 whereby delSECUR
Corporation issued 9,854,609 of its shares to shareholders of
DELSECUR Inc. in exchange for the acquisition by delSECUR
Corporation of all the issued shares of DELSECUR Inc. should be
amended so that the 9,854,609 shares of delSECUR Corporation will
be issued to the shareholders of Delsynchro Inc., a common
control company, in exchange for the acquisition by delSECUR
Corporation of all the issued shares of Delsynchro Inc.
During the year, the company received a judgement in its favour. The
case is still pending as the plaintiffs intend to appeal.
Management believes that the resolution of the litigation in which
Delsynchro Inc. is involved would not have a material adverse effect
on the financial condition or results of operations of the company.
b) An application was filed by two former consultants to the company
requesting an important sum of money for damages resulting from an
alleged breach of contract. The company has responded with an
application against the same two former consultants for breach of
contract and libel. Management believes that the resolution of the
litigation will not have an adverse effect on the financial condition
or results of operations of the company.
14 Contractual obligations
The company has signed a rental contract whereby it must pay a base rent as
well as additional fees. The contract expires in November 2003. The rent
expense is $19,917 (2000 - $19,907; 1999 - $44,360). The base rent for the
next three years is as follows:
$
2002 21,444
2003 21,444
2004 10,722
(11)