-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VDgIhE6/4dzWVNQHfwsIH7fn2RPjMhnmBi7UZu2KsUTAf2877Kbeag7bSVsp2DsW 0IpUc5EknVpT5TSfTibizg== 0001016295-99-000129.txt : 19991018 0001016295-99-000129.hdr.sgml : 19991018 ACCESSION NUMBER: 0001016295-99-000129 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19991004 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: SEC FILE NUMBER: 033-55254-15 FILM NUMBER: 99722471 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 YEARLY FILING 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, 1999 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. [] Yes [X ] 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 October 1, 1999, the aggregate market value of the voting stock held by non-affiliates of the registrant was $26,602,425. 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 31,1999 $.001 PAR VALUE CLASS A COMMON STOCK 13,848,300 SHARES DOCUMENTS INCORPORATED BY REFERENCE Form 8-K filed March 10, 1998 1 PART I ITEM 1. Business. 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., 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 (Registered) 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 (Registered) technology. As of July 15th 1999, GRANDEUR INC. changed its name to DELSECUR CORPORATION As of January 20th 1999, 3127575 Canada Inc. changed its name to delSECUR Inc. 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. Patent protection is currently pending for the del-ID 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. 2 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 secondary covers the implementation of a study in a controlled laboratory environment. Here are the following details of the laboratory : - - The basic analysis of the technology ( technical specifications). - Practical applications in simulated commercial environment such as banking, telephony, e-commerce etc. The primary topic analysis has been done by the CRIM in collaboration with a major American University. The positive results have been published and shall be available soon on delSecur's web site at delsecur.com. The secondary topic is presently in the making and will be done in collaboration with major firms who are well recognized in their fields of activity. These major firms will sponsor part of the implementation costs of the laboratory studies. For the time frame and more details about this section, we refer the reader to the delSecur web site. 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. 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 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 (Registered) technology by several U.S. Government agencies. There are currently 12 employees of the Company inclusive of 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. 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. 3 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. ITEM 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to the Company's security holders for a vote during the fiscal year ending May 31, 1999. PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholders Matters. As of October 1, 1999, there were 698 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 has been change for 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 sales prices for the common stock of the Company during the two most recent fiscal years: NASDAQ-OTC High Sales Low Sales Price Price 1998 First Quarter $ 0.00 $ 0.00 Second Quarter 0.00 0.00 Third Quarter 0.00 0.00 Fourth Quarter 2.2812 0.00 1999 First Quarter 2.9375 1.5937 Second Quarter 2.125 .625 Third Quarter 1.1875 .4062 Fourth Quarter 3.9375 .52 4 ITEM 6. Selected Financial Data. DELSECUR CORPORATION. SUMMARY OF OPERATIONS MAY 31, 1999
1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 777,419 $ 845,921 $ 580,249 $ 0 $ 0 Revenues.............. 0 0 0 0 0 Operating Expenses.... 1,274,955 1,021,133 822,219 0 0 Net Earnings (Loss) (1,274,955) (1,021,133) (822,219) 0 0 Per share data Earnings (Loss)..... (0.09) (0.24) (0.82) 0 0 Average Common Share Outstanding......... 13,848,300 4,212,075 1,000,000 1,000,000 1,000,000
As of May 31, 1999 there were 13,848,300 shares outstanding. ITEM 7. 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. 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. This market development strategy will have the further benefit of minimizing capital requirements and, in light of this fact, management believes the financial condition of the Company to be sound and cash resources available to be adequate for present purposes. The Company had a net loss of $1,274,955 for the year ended May 31, 1999 compared with a loss of $1,021,133 for the year ended May 31, 1998. The increased loss of about $254,000 was mainly due to an increase of $142,000 in research and development costs and an increase of $118,000 in general and administrative costs. 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 effects 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 customers, suppliers, or other third parties, will be fully resolved. ITEM 8. Financial Statements and Supplementary Data. See Item 14. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable. 5 ITEM 10. 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, 1999. 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 Pierre de Lanauze 60 President, Chairman of the Board, Director Marc Descheneaux 47 Executive Vice President, Director Suzanne de Lanauze 36 Secretary/Treasurer, Director 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 des Jardins, 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 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 prominent 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 responsibilities 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 11. Executive Compensation. During the year ended May 31, 1999 the Company had no arrangements for the remuneration of its officers and directors, except that they were entitled to receive reimbursement for actual, demonstrable out-of-pocket expenses, including travel expenses if any, made on the Company's behalf in the investigation of business opportunities. The Company will pay compensation to the officers and directors elected in 1998 at a rate yet to be determined by the board of directors. ITEM 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth, as of May 31, 1999, 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. 6
Amount of Title Name and Address beneficial Percent of Class beneficial owner ownership of class DIRECTORS AND OFFICERS Common Stock Mr. Pierre De Lanauze 7,338,600 52.9% 1231, Avenue Theroret Ile Bizard, Quebec,. Canada H9E 1H7 (Director and Officer) Total of all 5% or Greater Shareholders 7,338,600 52.9%
ITEM 13. Certain Relationships and Related Transactions. During the year ended May 31, 1999 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 or engaged in any other transactions, with the Company. PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Financial Statements and Financial Statement Schedules. Financial Statements - May 31, 1999, 1998 and 1997. Reports on Form 8-K. There were no reports on Form 8-K filed during the fourth quarter of fiscal year ending May 31, 1999. The Company filed a Form 8-K on March 10, 1998 which reported: Item I: change in control of the Company; Item 6: Registration and appointment of Directors; Item 9; Sales of equity securities pursuant to Registration S. 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: September 29,1999 By: 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: September 29, 1999 By: Pierre de Lanauze Pierre de Lanauze, President, Chairman of the Board and Director Date: September 29, 1999 By: Suzanne de Lanauze Suzanne de Lanauze, Secretary/Treasurer and Director Date: September 29, 1999 By: Marc Descheneaux Marc Descheneaux Executive Vice President, Director 7 July 22, 1999 INDEPENDENT AUDITORS' REPORT To the Stockholders of delSECUR Corporation and Subsidiary (development stage enterprises) We have audited the consolidated balance sheets of delSECUR Corporation and Subsidiary (development stage enterprises) as at May 31, 1999 and 1998 and the consolidated statements of loss, deficit and cash flows for each of the years in the three-year period ended May 31, 1999. 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, 1999 and 1998 and the results of its operations and its cash flows for each of the years in the three-year period ended May 31, 1999 in accordance with generally accepted accounting principles in the United States of America. PriceWaterhouseCoopers LLP Chartered Accountants delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) CONSOLIDATED BALANCE SHEETS (expressed in Canadian dollars)
May 31 1998 1999 --------------- --------------- Assets Current assets Cash $ 3,197 $ 14,473 Sales taxes receivable 132,653 35,508 Prepaid expenses 6,820 30,858 Advances to a common control company, 137,649 170,736 without interest (Note 3) Advances to a director, without interest 387,107 357,420 --------------- --------------- 667,426 608,995 Property and equipment (Note 4) 178,494 168,423 License (Note 5) 1 1 --------------- --------------- $ 845,921 $ 777,419 =============== =============== Liabilities Current liabilities Trade accounts payable $ 94,618 $ 311,929 Accrued liabilities 98,200 34,927 Advances from a common control company, without interest 146,207 189,877 Due to a director 1,413,300 1,474,000 Demand loans, bearing interest at monthly rate varying from 0.5% to 1% 265,123 247,987 --------------- --------------- 2,017,448 2,258,720 Deferred credit - 6,900 Commitments and contingencies (Notes 10 and 11) Stockholders' Deficit Common stock, $0.001 par value Authorized 100,000,000 shares Issued and outstanding (Note 6) 13,848,300 shares 19,715 19,715 Additional paid-up capital (Note 7) 695,602 1,653,883 Deficit accumulated during the development stage (1,886,844) (3,161,799) --------------- --------------- (1,171,527) (1,488,201) --------------- --------------- $ 845,921 $ 777,419 =============== ===============
Approved by the Board Director Director 1 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) CONSOLIDATED STATEMENTS OF LOSS (expressed in Canadian dollars)
From date of inception to Year ended May 31 May 31 1997 1998 1999 1999 --------------- --------------- --------------- --------------- Revenue Interest $ - $ - $ - $ 5,000 Management income - - - 3,000 --------------- --------------- --------------- --------------- - - - 8,000 Expenses Depreciation 21,129 68,817 60,671 150,618 Interest expense - 20,132 22,150 47,326 Research and development 135,348 99,978 242,130 477,456 General and administrative expenses 665,742 832,206 950,004 2,451,133 --------------- --------------- --------------- --------------- 822,219 1,021,133 1,274,955 3,126,533 --------------- --------------- --------------- --------------- Net loss $ (822,219) $ (1,021,133) $ (1,274,955) $ (3,118,533) =============== =============== =============== =============== Net loss per weighted average share $ (0.82) $ (0.24) $ (0.09) =============== =============== =============== Weighted average number of common shares used to compute net loss per weighted average share 1,000,000 4,212,075 13,848,300 =============== =============== ===============
2 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) CONSOLIDATED STATEMENTS OF DEFICIT (expressed in Canadian dollars)
From date of inception to Year ended May 31 May 31 1997 1998 1999 1999 --------------- --------------- --------------- --------------- Deficit accumulated during the development stage, beginning of year $ (226) $ (822,445) $ (1,886,844) $ - Net loss (822,219) (1,021,133) (1,274,955) (3,118,533) Amount from additional paid-up capital (Note 7) - (43,266) - (43,266) --------------- --------------- --------------- --------------- Deficit accumulated during the development stage, end of year $ (822,445) $ (1,886,844) $ (3,161,799) $ (3,161,799) =============== =============== =============== ===============
3 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) CONSOLIDATED STATEMENTS OF CASH FLOWS (expressed in Canadian dollars)
From date of inception to Year ended May 31 May 31 1997 1998 1999 1999 --------------- --------------- --------------- --------------- Operating activities Net loss $ (822,219) $ (1,021,133) $ (1,274,955) $ (3,118,533) Adjustments to reconcile loss to net cash provided by operating activities Depreciation of property and 21,129 68,817 60,671 150,617 equipment Provision on common control 290,402 - - 290,402 company advances Loss on foreign exchange - - 60,700 60,700 fluctuation Amortization of deferred credit - - (766) (766) Free rent - - 7,666 7,666 Changes in Sales taxes receivable (71,731) (60,922) 97,145 (35,508) Prepaid expenses (62,020) 55,200 (24,038) (30,858) Advances to a common control company (466,332) 91,073 (33,087) (461,138) Director loan (17,381) (369,726) 29,687 (357,420) Trade accounts payable 43,585 51,033 217,311 311,929 Accrued liabilities 14,747 80,453 (63,273) 34,927 Advances from a common control company 101,912 44,295 43,670 189,877 --------------- --------------- --------------- --------------- (967,908) (1,060,910) (879,269) (2,958,105) Financing activities Loan 239,350 124,000 188,500 601,850 Repayment of loan (50,000) (98,227) (205,636) (353,863) Loan from a director 1,000,000 1,085,250 - 2,085,250 Contribution from a director - - 958,281 958,281 Share issues - - - 100 --------------- --------------- --------------- --------------- 1,189,350 1,111,023 941,145 3,291,618 Investing activities Additions to property and equipment (140,863) (127,577) (50,600) (319,040) --------------- --------------- --------------- --------------- Increase (decrease) in cash during the year 80,579 (77,464) 11,276 14,473 Cash, beginning of year 82 80,661 3,197 - --------------- --------------- --------------- --------------- Cash, end of year $ 80,661 $ 3,197 $ 14,473 $ 14,473 =============== =============== =============== ===============
4 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) CONSOLIDATED STATEMENTS OF CASH FLOWS ...continued (expressed in Canadian dollars)
From date of inception to Year ended May 31, May 31 1997 1998 1999 1999 --------------- --------------- --------------- --------------- Non-cash financing and investing activities Repayment of a loan to a shareholder (Note 7) $ - $ (2,085,250) $ - $ (2,085,250) --------------- --------------- --------------- --------------- Acquisition of license (Note 5) $ - $ (1,413,299) $ - $ (1,413,299) --------------- --------------- --------------- --------------- Supplemental cash flow information Cash paid for interest $ - $ 8,200 $ 22,150 $ 30,350 --------------- --------------- --------------- ---------------
5 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three-year period ended May 31, 1999 (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., it is involved in the research, development and commercialization 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 bearing a restrictive legend to DELSECUR Inc., formerly known as 3127575 Canada Inc., a Canadian corporation, in exchange of 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 (nil at February 26, 1998), accompanied by a recapitalization. The historical financial statements prior to February 28, 1998 are those of DELSECUR Inc. 2 Significant accounting policies The 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 The consolidated financial statements include the accounts of the company and its subsidiary. Accounting methods The company recognizes income 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 common shares outstanding during each year. Property and equipment and depreciation Property and equipment 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. 6 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...continued For the three-year period ended May 31, 1999 (expressed in Canadian dollars) 2 Significant accounting policies ...continued 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. Use of estimates The 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, advances to a common control company and director loan included in current assets, trade accounts payable, accrued liabilities, advances from a common control company, due to a director and demand loans included in current liabilities. The fair value of these financial instruments is not significantly different than 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. 7 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...continued For the three-year period ended May 31, 1999 (expressed in Canadian dollars) 3 Advances to a common control company
1998 1999 --------------- --------------- Balance, beginning of year $ 519,124 $ 428,051 Payments net of charges (charges net of payments) (91,073) 33,087 --------------- --------------- 428,051 461,138 Provision on common control company advances (290,402) (290,402) --------------- --------------- Balance, end of year $ 137,649 $ 170,736 =============== ===============
4 Property and equipment
1999 Accumulated Net book Cost depreciation value --------------- ---------------- --------------- Computer equipment $ 293,091 $ 147,231 $ 145,860 Office equipment 25,949 3,386 22,563 --------------- ---------------- --------------- $ 319,040 $ 150,617 $ 168,423 =============== ================ =============== 1998 Accumulated Net book Cost depreciation value --------------- ---------------- --------------- Computer equipment $ 268,440 $ 89,946 $ 178,494 =============== ================ ===============
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 to 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 (CDN$1,474,000) as at May 31, 1999. 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. 8 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...continued For the three-year period ended May 31, 1999 (expressed in Canadian dollars) 6 Common stock
1997 1998 1999 From date of inception to May 31, 1999 Number $ Number $ Number $ Number $ ----------- -------- ---------- -------- ---------- -------- ---------- -------- Balance at beginning of year 1,000,000 $ 1,424 1,000,000 $ 1,424 13,848,300 $ 19,715 - $ - Issuances of common stock February 6, 1986 - - - - - - 1,000,000 1,424 February 26, 1998 (Note 1) - - 12,848,300 18,291 - - 12,848,300 18,291 ----------- -------- ---------- -------- ---------- -------- ---------- -------- 1,000,000 $ 1,424 13,848,300 $ 19,715 13,848,300 $ 19,715 13,848,300 $ 19,715 =========== ======== ========== ======== ========== ======== ========== ========
7 Additional paid-up capital
From date of inception to 1997 1998 1999 May 31, 1999 ---------- -------------- -------------- ---------------- Balance, beginning of year $ (1,324) $ (1,324) $ 695,602 $ - Issuance of capital at inception - - - (1,324) Add: Loans forgiven - 2,085,250 - 2,085,250 Add: Contribution from a director - - 958,281 958,281 Deduct: License (Note 5) - (1,413,299) - (1,413,299) ---------- -------------- -------------- ---------------- (1,324) 670,627 1,653,883 1,628,908 Amount transferred to deficit - 43,266 - 43,266 Recapitalization on February 26, 1998 (Note 1) - (18,291) - (18,291) ---------- -------------- -------------- ---------------- Balance, end of year $ (1,324) $ 695,602 $ 1,653,883 $ 1,653,883 ========== ============== ============== ================
9 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...continued For the three-year period ended May 31, 1999 (expressed in Canadian dollars) 8 Income tax The company has accumulated losses for income tax purposes totalling approximately $2,329,800 and research and development expenses totalling approximately $240,700. The company recognized a deferred tax asset of $885,300 related to these items. In addition, the company created a valuation allowance equal to this deferred tax asset to bring down its value to nil. The undeducted research and development expenses can be carried forward indefinitely. The non-capital loss can be deducted from future years' taxable income and expires as follows: Tax loss ------------------ 2003 $ 200 2004 $ 408,000 2005 $ 849,700 2006 $ 1,071,900 ------------------ 9 Related party transactions During the three-year period, the company made some transactions with two companies owned by the principal stockholder.
1997 1998 1999 -------------- -------------- -------------- Expenses $ 458,300 $ 168,858 $ 77,850 Acquisition of capital assets $ - $ - $ 40,855 -------------- -------------- --------------
The expenses occurred in the normal course of the company's activities and are measured at fair value, which represents the exchange value. The capital assets were acquired from corporations under common control at a cost equal to the net book value of the vendor. 10 Contingency 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: (a) the licence 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; 10 delSECUR CORPORATION AND SUBSIDIARY (Note 1) (development stage enterprises) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...continued For the three-year period ended May 31, 1999 (expressed in Canadian dollars) 10 Contingency ...continued (b) 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. Management believes that the resolution of the litigations in which Delsynchro Inc. is involved would not have a material adverse effect on the financial condition or results of operations of the company. 11 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 base rent for the next five years is as follows: 2000 $21,444 2001 $21,444 2002 $21,444 2003 $21,444 2004 $10,722 12 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 effects 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 customers, suppliers, or other third parties, will be fully resolved. 13 Comparative figures Certain of the 1997 and 1998 comparative figures have been reclassified to conform with the financial statement presentation adopted for the current year. 11 EX-27 2 FDS - MAY 31, 1999
5 This schedule contains summary financial information extracted from delSecur Corporation May 31, 1999 financial statements and is qualified in its entirety by reference to such financial statements. 0000894498 delSecur Corporation Canadian Dollars YEAR MAY-31-1999 MAY-31-1999 .67705 14,473 0 563,664 0 0 608,995 319,040 (150,617) 777,419 2,258,720 0 0 0 19,715 (1,507,916) 777,419 0 0 0 0 1,274,955 0 22,150 (1,274,955) 0 (1,274,955) 0 0 0 (1,274,955) (.09) (.09)
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