SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended February 29, 2000
-----------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to ___________
Commission file number 33-55254-15
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delSECUR Corporation
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 87-0438451
- ------------------------------------ ------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1801 McGill College, Suite 1330,
Montreal, Quebec Canada H3A 2N4
(Address of Principal Executive Offices) (Zip Code)
(Issuer's Telephone Number, Including Area Code) (514) 282-9000
---------------
Indicate by a check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of February 29, 2000
- ----------------------- -----------------------------------
$.001 PAR VALUE CLASS A 14,243,411 SHARES
COMMON STOCK
1
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
The accompanying unaudited financial statements (pages F-1 through F-3)
have been prepared in accordance with the instructions to Form 10-QSB and,
therefore, do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows and
stockholders' deficit in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments considered necessary
for a fair presentation of the results of operation and financial position have
been included and all such adjustments are of a normal recurring nature.
Operating results for the nine months ended February 29, 2000 are not
necessarily indicative of the results that can be expected for the year ending
May 31, 2000.
ITEM 2. Management's Plan of Operation.
Pursuant to an Agreement made and entered into on February 25th 1998
the Company issued and delivered on February 26, 1998, 12,848,300 shares of its
Common Stock, in exchange for which issuance, it acquired all of the outstanding
shares of 3127575 Canada Inc. (now delSECUR inc. since January 20, 1999).
Through delSECUR inc., the Company has become the exclusive licensee of the
del-ID(R) technology for personal authentication by means of electronic scanning
of finger characteristics. delSECUR inc., obtained these exclusive rights by the
Exclusive License Agreement dated November 12, 1997 between it and Pierre de
Lanauze, inventor of the del-ID(R) technology.
The transaction was exempt from the registration requirements of the
Securities Act of 1933 by virtue of Section 4(2) thereof. Also, because the
12,848,300 shares were issued solely to non-U.S. persons, the transaction
qualified for exemption under Rules 901 et seq. of Regulation S.
The del-ID(R) technology permits precise and positive authentication of
the identity of any living individual and is applicable to a wide range of
transactions where authentication of the individual is necessary to eliminate
fraud and other improper use of services. The del- ID(R) system collects
biological data from the finger image of the individual and transfers the image
to a unique electronic signature called the "del-gram". The "del-gram" is not a
digitized bitmap image of the finger, but a synthesized subset of biological
data sufficient to authentify the individual. More than authentication, the
del-ID(R) system is offering privacy and unhackability.
Patent protection, file number 08/370,979, is currently pending for the
del-ID(R) system in the United States. As at February 23, 2000, the Company
received written confirmation from its Patent & Trade Mark agents, that the
application is in good standing. The International Preliminary Examination
Report was issued in accordance with the Patent
2
<PAGE>
Cooperation Treaty application (PCT) that included 82 countries. The Examiner
has recognized and acknowledged the inventive step, the novelty and the
industrial applicability by accepting all of the 11 claims represented by the
technology.
In April 1998, delSECUR inc. signed an agreement with the "Centre de
Recherche en Informatique de Montreal (CRIM)" for a scientific evaluation of the
technology. The evaluation holds two topics. The primary one covers theoretical
and accurate applications. The primary topic analysis has been done by the CRIM
in collaboration with a major American University. The CRIM having the
knowledges, mainly for software aspects than hardware, it was decided to give
the technical aspects of the del-ID(R) to C-MAC Electronic Systems Inc. in
Winnipeg. Their mandate was to revise the feasability of the Engineering Models
to be implemented on different dedicated applications. C-MAC Technologies Inc.
confirmed that the existing del-ID(R) prototypes demonstrates that the Proof of
Concept works using common discrete analog and integrated digital IC's. The
first del-ID(R) devices shall go under production in the near future. Those
del-ID(R) devices will be implemented for dedicated applications with leading
corporations. The secondary covers the implementation of a study in a controlled
laboratory environment.
Moreover, culminating several months of discussions with various
agencies and senior levels of the United States Government, the Company is
involved with National Security Agency who has signed a Confidential Agreement.
The signing of the agreement will permit delSECUR inc. to disclose its core
del-ID(R) technology to NSA for testing and evaluation as a national and
international means of protection against computer hacking. They have to make
recommendations to the US Federal Government. The signing of this
Confidentiality Agreement confirmed the uniqueness and innovative aspects of the
del-ID(R) technology, as mentioned on the Press Release issued on April 5th,
2000.
Commercial applications of the del-ID(R) technology are numerous and
include access to the information highway/internet, identification of employees
working from a home office and requiring access to certain databases or
informations, health cards, social insurance cards, drivers' licenses, passport
control encryptions 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. Therefore it is to our advantage to associate ourselves to
such major firms by gaining credibility and recognition. This enables us to use
their know how, their resources and networking.
3
<PAGE>
The Company will not manufacture its devices. This will tend to
minimize the capital requirements of the Company, its principal activities being
limited to marketing the del-ID(R) system to manufacturers and/or users
internationally. Anticipated sources of revenue are license fees payable by
government agencies and corporate entities for the right to manufacture, use or
sell cards and card readers incorporating the del-ID(R) system, as well as
royalty payments by such entities for each card and reader employed in a
del-ID(R) system.
As of February 29, 2000, the Company's balance sheet showed an
accumulated deficit of $4,964,196, an increase of $1,802,397 during the nine
months. Operations to date have been financed principally by loans from senior
management and others. Additional unsecured loan facilities continue to be
available and are believed by management to be sufficient to finance operations
over the next several months, pending the anticipated initial receipt of
contract revenues during the second half of the 2000 fiscal year.
The Company had a net loss of $1,802,397 for the nine months ended
February 29, 2000 compared with a loss of $868,978 for the same period for the
prior year. The main increase from 1999 was approximately $955,000 spent for
promotion. About $983,000 of expenses were paid by issuing 204,000 shares of
common stock.
The Company will continue to seek marketing opportunities for product
licensing with governmental agencies and corporate entities on a world-wide
basis.
As the Company will be engaged in securing licensing contracts for use
of its existing del-ID(R) technology, no significant expansion of the physical
plant, equipment or number of employees is foreseen for the period of the next
twelve months.
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems many
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.
4
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
delSECUR Corporation
Date: April 18, 2000 By:
-----------------
Pierre de Lanauze, President,
Chairman of the Board and Director
5
<PAGE>
delSECUR CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
---------------------- --------------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 26,425 $ 14,473
Sales taxes receivable 22,805 35,508
Prepaid expenses 29,774 30,858
Receivable-related party 205,117 170,736
Receivable - officer 0 357,420
---------------------- --------------------
TOTAL CURRENT ASSETS 284,121 608,995
OTHER ASSETS
Property and equipment 142,615 168,423
License from related party 1 1
---------------------- --------------------
142,616 168,424
---------------------- --------------------
$ 426,737 $ 777,419
====================== ====================
LIABILITIES & DEFICIT
CURRENT LIABILITIES
Accounts payable $ 91,976 $ 311,929
Accrued liabilities 34,780 34,927
Payable-related party 181,806 189,877
Payable - officer 1,449,600 1,474,000
Payable - director 53,097 0
Loans payable 225,000 247,987
---------------------- --------------------
TOTAL CURRENT LIABILITIES 2,036,259 2,258,720
Deferred credit 5,750 6,900
STOCKHOLDERS' DEFICIT
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 14,243,411
shares (13,848,300 at May 31, 1999) 20,110 19,715
Additional paid-in capital 3,328,814 1,653,883
Deficit accumulated during the
development stage (4,964,196) (3,161,799)
---------------------- --------------------
TOTAL STOCKHOLDERS' DEFICIT (1,615,272) (1,488,201)
---------------------- --------------------
$ 426,737 $ 777,419
====================== ====================
</TABLE>
F - 1
<PAGE>
delSECUR CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended From Date of
February 29, February 29, inception to
2000 1999 2000 1999 02/29/00
---------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales $ 0 $ 0 $ 0 $ 0 $ 0
Cost of sales 0 0 0 0 0
---------------- --------------- --------------- --------------- ---------------
GROSS PROFIT 0 0 0 0 0
Other income 0 0 0 0 8,000
Depreciation and amortization 19,968 16,534 36,811 44,099 187,428
Interest expense 9,750 9,200 18,463 17,200 65,789
Research and development 10,257 26,931 98,845 255,228 576,301
General and administrative expenses 167,823 151,897 1,648,278 552,451 4,099,412
---------------- --------------- --------------- --------------- ---------------
207,798 204,562 1,802,397 868,978 4,928,930
---------------- --------------- --------------- --------------- ---------------
NET LOSS $ (207,798) $ (204,562) $ (1,802,397) $ (868,978) $ (4,920,930)
================ =============== =============== =============== ===============
Net income (loss) per weighted
average share $ (.01) $ (.01) $ (.13) $ (.06)
================ =============== =============== ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 14,243,411 13,848,300 14,243,411 13,848,300
================ =============== =============== ===============
</TABLE>
F - 2
<PAGE>
delSECUR CORPORATION AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended From Date of
February 29, inception to
2000 1999 02/29/00
--------------- --------------- -------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) $ (1,802,397) $ (868,978) $ (4,920,930)
Adjustments to reconcile net (loss) to cash used
by operating activities:
Depreciation 36,811 44,099 187,428
Amortization of deferred credit (1,150) 7,411 (1,916)
Free rent 0 0 7,666
Stock issued for services 983,431 0 983,431
Related party advances 0 0 290,402
Foreign exchange fluctuation (24,400) 0 36,300
Changes in assets and liabilities:
Sales tax receivable 12,703 39,344 (22,805)
Prepaid expenses 1,084 (28,079) (29,774)
Officer loan 357,420 14,762 0
Receivable - related party (34,381) 6,463 (495,519)
Accounts payable (219,953) 279,714 91,976
Accrued liabilities (147) (54,095) 34,780
Payable - related party (8,071) 68,605 181,806
Payable - director 53,097 0 53,097
--------------- --------------- ------------------
NET CASH USED
BY OPERATING ACTIVITIES (645,953) (490,754) (3,604,058)
INVESTING ACTIVITIES
Purchase of property & equipment (11,003) (50,601) (330,043)
--------------- --------------- ------------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (11,003) (50,601) (330,043)
FINANCING ACTIVITIES
Loan 0 168,500 601,850
Repayment of loan (22,987) (162,136) (376,850)
Loan from director 0 0 2,085,250
Stock sold 662,895 0 662,995
Increase in bank overdraft 0 32,013 0
Contribution to paid-in capital by director 29,000 499,781 987,281
--------------- --------------- ------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 668,908 538,158 3,960,526
--------------- --------------- ------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 11,952 (3,197) 26,425
Cash and cash equivalents at beginning of year 14,473 3,197 0
--------------- --------------- ------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 26,425 $ 0 $ 26,425
=============== =============== ==================
Cash paid for interest $ 21,450 $ 14,200 $ 51,800
=============== =============== ==================
</TABLE>
F - 3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from delSECUR CORPORATION February 29, 2000 consolidated
financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000894498
<NAME> delSECUR CORPORATION
<CURRENCY> Canadian dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> FEB-29-2000
<EXCHANGE-RATE> .69023
<CASH> 26,425
<SECURITIES> 0
<RECEIVABLES> 227,922
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 284,121
<PP&E> 330,044
<DEPRECIATION> 187,429
<TOTAL-ASSETS> 426,737
<CURRENT-LIABILITIES> 2,036,259
<BONDS> 0
0
0
<COMMON> 20,110
<OTHER-SE> (1,635,382)
<TOTAL-LIABILITY-AND-EQUITY> 426,737
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,802,397
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,463
<INCOME-PRETAX> (1,802,397)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,802,397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,802,397)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
</TABLE>
