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, 2000
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 7, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $54,052,225 based on 7,267,526 shares and a
bid price of $7.4375.
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, 2000
$.001 PAR VALUE CLASS A COMMON STOCK 14,292,411 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
Form 8-K filed March 10, 1998
1
<PAGE>
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. (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.
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.
In April 1998, delSECUR inc. signed an agreement with the "Centre de
Recherche en Informatique de Montreal (CRIM)" for a scientific evaluation of the
technology. The evaluation holds two topics. The primary one covers theoretical
and accurate applications. The primary topic analysis has been done by the CRIM
in collaboration with a major American University. The CRIM having the
knowledge, mainly for software aspects than hardware, it was decided to give the
technical aspects of the del-ID(Registered) 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.
2
<PAGE>
confirmed that the existing del-ID(Registered) prototypes demonstrates that the
Proof of Concept works using common discrete analog and integrated digital IC's.
The first del-ID(Registered) devices shall go under production in the near
future. Those del-ID(Registered) 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(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.
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
<PAGE>
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, 2000.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholders
Matters.
As of September 8, 2000, there were 650 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 sales prices for the common
stock of the Company during the two most recent fiscal years:
NASDAQ-OTC
High Sales Low Sales
Price Price
2000 First Quarter $ 4.0312 $ 1.9375
Second Quarter 6.875 1.875
Third Quarter 12.25 10.9688
Fourth Quarter 18.25 4.50
1999 First Quarter 2.9375 1.5937
Second Quarter 2.125 .625
Third Quarter 1.1875 .4062
Fourth Quarter 3.9375 .52
4
<PAGE>
ITEM 6. Selected Financial Data.
DELSECUR CORPORATION.
SUMMARY OF OPERATIONS
MAY 31, 2000
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Total Assets.................$ 390,948 $ 777,419 $ 845,921 $ 580,249 $ 0
Revenues..................... 0 0 0 0 0
Operating Expenses........... 2,809,448 1,274,955 1,021,133 822,219 0
Net Earnings (Loss) (2,809,448) (1,274,955) (1,021,133) (822,219) 0
Per share data
Earnings (Loss)............ (.20) (0.09) (0.24) (0.82) 0
Average Common Share
Outstanding................ 14,165,615 13,848,300 4,212,075 1,000,000 1,000,000
</TABLE>
As of May 31, 2000 there were 14,292,411 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 $2,809,448 for the year ended May 31,
2000 compared with a loss of $1,274,955 for the year ended May 31, 1999. The
increased loss of about $1,534,493 was mainly due to an increase of $1,537,340
in general and administrative costs and operating fees.
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. The Company did not experience any
problems related to the Year 2000 issue.
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
<PAGE>
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, 2000. 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 61 President, Chairman of the Board, Director
Marc Descheneaux 48 Executive Vice President, Director
Suzanne de Lanauze 38 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 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
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, 2000 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 September 9, 2000, 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
<PAGE>
<TABLE>
<CAPTION>
Amount of
Title Name and Address beneficial Percent
of Class beneficial owner ownership of class
------------------ ---------------------- ---------------------- --------------
DIRECTORS AND OFFICERS
<S> <C> <C>
Common Stock Mr. Pierre de Lanauze 7,006,150 49.02%
1231, Avenue Theroret
Ile Bizard, Quebec,. Canada
H9E 1H7
(Director and Officer)
Common Stock Mr. Mark Descheneaux 10,000 0.07%
1801 McGill College, Suite 1330
Montreal, Quebec, Canada H3A 2N4
(Director and Officer)
Common Stock Ms. Suzanne de Lanauze 8,735 0.06%
1801 McGill College, Suite 1330
Montreal, Quebec, Canada H3A 2N4
(Director and Officer)
Total of all 5% or Greater Shareholders 7,006,150 49.02%
Total of all officers / directors (3 persons) 7,024,885 49.15%
</TABLE>
ITEM 13. Certain Relationships and Related Transactions.
During the year ended May 31, 2000 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, 2000, 1999 and 1998.
Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth quarter of
fiscal year ending May 31, 2000.
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 9, 2000 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: September 9, 2000 By: /s/ Pierre de Lanauze
Pierre de Lanauze, President, Chairman
of the Board and Director
Date: September 9, 2000 By: /s/ Suzanne de Lanauze
Suzanne de Lanauze,
Secretary/Treasurer and Director
Date: September 9, 2000 By: /s/ Marc Descheneaux
Marc Descheneaux
Executive Vice President, Director
7
<PAGE>
July 7, 2000
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, 1999 and 2000
and the consolidated statements of loss, deficit and cash flows for each of the
years in the three-year period ended May 31, 2000. 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
2000 and the results of its operations and its cash flows for the years then
ended in accordance with generally accepted accounting principles in the United
States of America.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Consolidated Balance Sheets
As at May 31, 1999 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
1999 2000
$ $
Assets
Current assets
<S> <C> <C>
Cash 14,473 8,755
Sales taxes receivable 35,508 27,139
Prepaid expenses 30,858 31,873
Advances to a common control company, without interest (note 3) 170,736 185,960
Advances to a director, without interest 357,420 -
-----------------------------------------
608,995 253,727
Property and equipment (note 4) 168,423 137,220
License (note 5) 1 1
-----------------------------------------
777,419 390,948
-----------------------------------------
Liabilities
Current liabilities
Trade accounts payable 311,929 114,234
Accrued liabilities 34,927 90,862
Advances from a common control company, without interest 189,877 185,157
Balance due on distribution right (note 5) 1,474,000 1,497,800
Advances from a director, without interest (note 6) - 342,942
Demand loans, bearing interest at a monthly rate varying from 0.5% to 1% 247,987 195,000
-----------------------------------------
2,258,720 2,425,995
-----------------------------------------
Deferred credit 6,900 5,366
-----------------------------------------
Commitments and contingencies (notes 10 and 11)
Stockholders' Deficit
Common stock, US$0.001 par value
Authorized
100,000,000 shares
Issued and outstanding (note 7)
14,292,411 shares (1999 - 13,848,300) 19,715 20,371
Additional paid-up capital (note 9) 1,653,883 3,910,463
Deficit accumulated during the development stage (3,161,799) (5,971,247)
-----------------------------------------
(1,488,201) (2,040,413)
-----------------------------------------
777,419 390,948
-----------------------------------------
</TABLE>
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Consolidated Statements of Loss
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Year ended May 31, From date of
inception to
May 31,
1998 1999 2000 2000
$ $ $ $
<S> <C> <C> <C> <C>
Revenue
Interest - - - 5,000
Management income - - - 3,000
-------------------------------------------------------------------------------
- - - 8,000
-------------------------------------------------------------------------------
Expenses
Depreciation 68,817 60,671 52,274 202,892
Interest expense 20,132 22,150 27,700 75,026
Research and development (net of tax credits
of $28,588 for year ended May 31, 2000
and nil for years ended May 31, 1999
and May 31, 1998) 99,978 242,130 184,569 662,025
Loss on settlement of shares - - 95,090 95,090
General and administrative expenses 832,206 950,004 2,449,815 4,900,948
-------------------------------------------------------------------------------
1,021,133 1,274,955 2,809,448 5,935,981
-------------------------------------------------------------------------------
Net loss (1,021,133) (1,274,955) (2,809,448) (5,927,981)
-------------------------------------------------------------------------------
Net loss per weighted average share (0.24) (0.09) (0.20)
-----------------------------------------------------------
Weighted average number of common shares
used to compute net loss per weighted
average share 4,212,075 13,848,300 14,165,615
-----------------------------------------------------------
</TABLE>
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Consolidated Statements of Deficit
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Year ended May 31, From date of
inception to
May 31,
1998 1999 2000 2000
$ $ $ $
<S> <C> <C> <C> <C>
Deficit accumulated during the development
stage -
Beginning of year (822,445) (1,886,844) (3,161,799) -
Net loss (1,021,133) (1,274,955) (2,809,448) (5,927,981)
Amount from additional paid-up capital (note
9) (43,266) - - (43,266)
-------------------------------------------------------------------------------
Deficit accumulated during the development
stage -
End of year (1,886,844) (3,161,799) (5,971,247) (5,971,247)
-------------------------------------------------------------------------------
</TABLE>
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Year ended May 31, From date of
inception to
May 31,
1998 1999 2000 2000
$ $ $ $
<S> <C> <C> <C> <C>
Cash flows provided by (used in)
Operating activities
Net loss (1,021,133) (1,274,955) (2,809,448) (5,927,981)
Adjustments to reconcile loss to net cash
provided by operating activities
Depreciation of property and equipment 68,817 60,671 52,274 202,891
Provision on common control company
advances - - 15,000 305,402
Loss on foreign exchange fluctuation - 60,700 23,800 84,500
Amortization of deferred credit - (766) (1,534) (2,300)
Free rent - 7,666 - 7,666
Services rendered paid for with common
shares - - 1,565,341 1,565,341
Changes in
Sales taxes receivable (60,922) 97,145 8,369 (27,139)
Prepaid expenses 55,200 (24,038) (1,015) (31,873)
Advances to a common control
company 91,073 (33,087) (30,224) (491,362)
Director loan (369,726) 29,687 700,362 342,942
Trade accounts payable 51,033 217,311 (197,695) 114,234
Accrued liabilities 80,453 (63,273) 55,935 90,862
Advances from a common control
company 44,295 43,670 (4,720) 185,157
-------------------------------------------------------------------------------
(1,060,910) (879,269) (623,555) (3,581,660)
-------------------------------------------------------------------------------
Financing activities
Loan 124,000 188,500 - 601,850
Repayment of loan (98,227) (205,636) (52,987) (406,850)
Loan from a director 1,085,250 - - 2,085,250
Contribution from a director - 958,281 691,613 1,649,894
Share issues - - 282 382
-------------------------------------------------------------------------------
1,111,023 941,145 638,908 3,930,526
-------------------------------------------------------------------------------
Investing activities
Additions to property and equipment (127,577) (50,600) (21,071) (340,111)
-------------------------------------------------------------------------------
Increase (decrease) in cash during the year (77,464) 11,276 (5,718) 8,755
Cash - Beginning of year 80,661 3,197 14,473 -
-------------------------------------------------------------------------------
Cash - End of year 3,197 14,473 8,755 8,755
-------------------------------------------------------------------------------
Non-cash financing and investing activities
Repayment of a loan to a shareholder (note 9) (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 27,700 58,050
</TABLE>
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Notes to Consolidated Financial Statements
May 31, 1999 and 2000
--------------------------------------------------------------------------------
(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 stage of 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 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
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.
(1)
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Notes to Consolidated Financial Statements
May 31, 1999 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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.
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)
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Notes to Consolidated Financial Statements
May 31, 1999 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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 advances to a director 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, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The standard, which must be applied
prospectively, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The adoption of SFAS 133 is not expected to
have any material impact on the company's disclosure or accounting.
(3)
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Notes to Consolidated Financial Statements
May 31, 1999 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
3 Advances to a common control company
<TABLE>
<CAPTION>
1999 2000
$ $
<S> <C> <C>
Balance - Beginning of year 428,051 461,138
Payments net of charges 33,087 30,224
-----------------------------------------
461,138 491,362
Provision on common control company advances (290,402) (305,402)
-----------------------------------------
Balance - End of year 170,736 185,960
-----------------------------------------
4 Property and equipment
1999
----------------------------------------------------------------
Accumulated
Cost amortization Net
$ $ $
Computer equipment 293,091 147,231 145,860
Office equipment 25,949 3,386 22,563
----------------------------------------------------------------
319,040 150,617 168,423
----------------------------------------------------------------
2000
----------------------------------------------------------------
Accumulated
Cost amortization Net
$ $ $
Computer equipment 314,164 194,994 119,170
Office equipment 25,949 7,899 18,050
----------------------------------------------------------------
340,113 202,893 137,220
----------------------------------------------------------------
</TABLE>
(4)
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Notes to Consolidated Financial Statements
May 31, 1999 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
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 (CDN$1,497,800 as at May 31, 2000). In
addition to these considerations, the company agrees to pay to 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.
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 earned 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
issue of 34,750 shares as at July 14, 2000. These shares have a minimum
holding period of one year.
(5)
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Notes to Consolidated Financial Statements
May 31, 1999 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
7 Common stock
<TABLE>
<CAPTION>
1998 1999 2000 From date of
inception to
May 31, 2000
----------------------- ---------------------------------------------- -----------------------
Number $ Number $ Number $ Number $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - Beginning of 13,848,300 13,848,300
year 1,000,000 1,424 19,715 19,715 - -
Issuances of common stock
February 6, 1986 - - - - - - 1,000,000 1,424
February 26, 1998 12,848,300 12,848,300
(note 1) 18,291 - - - - 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) - - - - 111,000 163 111,000 163
----------------------------------------------------------------------------------------------
- - - - 191,000 282 191,000 282
----------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------
- - - - 206,000 304 206,000 304
----------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------
Other services
June 8, 1999 ($4.79
per share -
$49,715) - - - - 10,000 15 10,000 15
----------------------------------------------------------------------------------------------
13,848,300 19,715 13,848,300 19,715 14,292,411 20,371 14,292,411 20,371
----------------------------------------------------------------------------------------------
</TABLE>
(*) 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.
(6)
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Notes to Consolidated Financial Statements
May 31, 1999 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
8 Stock option plan
In March 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.
The Plan is subject to the shareholders' approval at the company's annual
meeting and also the approval of the regulatory authorities.
9 Additional paid-up capital
<TABLE>
<CAPTION>
1998 1999 2000 From date of
inception to
May 31,
2000
$ $ $ $
<S> <C> <C> <C> <C>
Balance - Beginning of year (1,324) 695,602 1,653,883 -
Issuance of capital at inception - - - (1,324)
Add: Increase of contributed surplus
from issuance of shares - - 1,564,967 1,564,967
Add: Loans forgiven 2,085,250 - - 2,085,250
Add: Contribution from a director - 958,281 691,613 1,649,894
Deduct: License (note 5) (1,413,299) - - (1,413,299)
-------------------------------------------------------------------------------
670,627 1,653,883 3,910,463 3,885,488
Amount transferred to deficit 43,266 - - 43,266
Recapitalization on February 26, 1998
(note 1) (18,291) - - (18,291)
-------------------------------------------------------------------------------
Balance - End of year 695,602 1,653,883 3,910,463 3,910,463
-------------------------------------------------------------------------------
</TABLE>
(7)
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Notes to Consolidated Financial Statements
May 31, 1999 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
10 Income taxes
The company's net deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
1999 2000
$ $
<S> <C> <C>
Net operating loss carryforwards 911,500 1,621,400
Research and development tax credits 71,700 76,200
Depreciation (28,400) (26,200)
Write-down of advances to a common control company 74,100 77,900
Write-down of license 377,300 350,900
Research and development expenses 99,100 135,100
-----------------------------------------
1,505,300 2,235,300
Less: Valuation allowance 1,505,300 2,235,300
-----------------------------------------
- -
-----------------------------------------
</TABLE>
The provision for income taxes varies from the expected provision at the
statutory rate for the following reasons:
<TABLE>
<CAPTION>
1998 1999 2000
% % %
<S> <C> <C> <C>
Combined basic federal and provincial
statutory tax rate (45) (45) (45)
Deduction for active business income earned in
Quebec 7 7 7
Valuation allowance 37 36 37
Permanent differences including amortization
of goodwill and
non-deductible items 1 2 1
----------------------------------------------------------------
Provision for income taxes per the financial
statements - - -
----------------------------------------------------------------
</TABLE>
Due to uncertainty surrounding 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, 2000, the company has net operating loss carryforwards
available to reduce its future taxable income of approximately $4,193,000
and $4,380,000 for federal and provincial income tax purposes
respectively. The federal and provincial net operating losses will expire
between 2003 and 2007 if not utilized beforehand.
(8)
<PAGE>
delSECUR Corporation and Subsidiary (note 1)
Notes to Consolidated Financial Statements
May 31, 1999 and 2000
--------------------------------------------------------------------------------
(expressed in Canadian dollars)
11 Related party transactions
During the three-year period, the company made the following transactions
with two companies owned by the principal stockholder:
<TABLE>
<CAPTION>
1998 1999 2000
$ $ $
<S> <C> <C>
Expenses 168,858 77,850 -
Acquisition of capital assets - 40,855 -
</TABLE>
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 companies under common control at a
cost equal to the net book value of the vendor.
12 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 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
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 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.
(9)
<PAGE>
13 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 four years is as follows:
$
2001 21,444
2002 21,444
2003 21,444
2004 10,722
(10)
