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 November 30, 2000
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[ ] 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
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(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
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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 November 30, 2000
------------------------- -----------------------------------
$.001 PAR VALUE CLASS A 14,509,304 SHARES
COMMON STOCK
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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 six months ended November 30, 2000 are not necessarily
indicative of the results that can be expected for the year ending May 31, 2001.
ITEM 2. Management's Plan of Operation.
Pursuant to an Agreement made and entered into on February 25th 1998
the Company issued and delivered on February 26, 1998, 12,848,300 shares of its
Common Stock bearing a restrictive legend to 3127575 Canada Inc. (now delSECUR
Inc.), a Canadian Corporation, in exchange for which issuance, it acquired all
of the outstanding shares of 3127575 Canada Inc. Through 3127575 Canada Inc.,
the Company has become the exclusive licensee of the del-ID(R) technology for
personal identification by means of electronic scanning of finger
characteristics. 3127575 Canada Inc., obtained these exclusive rights by the
Exclusive License Agreement dated November 12, 1997 between it and Pierre de
Lanauze, inventor of the del-ID(R) technology.
The transaction was exempt from the registration requirements of the
Securities Act of 1933 by virtue of Section 4(2) thereof. Also, because the
12,848,300 shares were issued solely to non-U.S. persons, the transaction
qualified for exemption under Rules 901 et seq. of Regulation S.
Following the above transaction the former shareholders of delSECUR
Inc. owned 92.5% of the outstanding shares of the Company.
The del-ID(R) technology permits precise and positive authentication of
the identity of any living individual and is applicable to a wide range of
financial transactions where authentication of the individual is necessary to
eliminate fraud and other improper use of services. The del-ID(R) system
collects biological data from the finger image of the individual and transfers
the image to a unique electronic signature called the "del-gram". The del-gram
is not a digitized bitmap image of the finger, but a synthesized subset of
biological data sufficient to identify the individual.
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Commercial applications of the del-ID(R) technology are numerous and
include access to the information highway/internet, identification of employees
working from a home office and requiring access to certain databases or
information, health cards, social insurance cards, drivers' licenses, passport
control encryption and access to confidential files, control of payment by debit
or credit payment systems such as credit cards, smartcards, authentication of
oral telephone ordering, access control to sensitive areas, hotel room access,
cellular and digital telephone controls, automobile entry and protection, census
and election control, door locks, vault locks, residential alarm system
controls, timesheet management, student file management and many others.
Patent protection is currently pending for the del-ID(R) system in the
United States. The International Preliminary Examination Report was issued in
accordance with the Patent Cooperation Treaty application (PCT) that included 82
countries. The Examiner has recognized and acknowledged the inventive step, the
novelty and the industrial applicability by accepting all of the 11 claims
represented by the technology.
In April 1998, delSECUR inc. signed an agreement with the "Centre de
Recherche en Informatique de Montreal (CRIM)" for a scientific evaluation of the
technology. The evaluation holds two topics. The primary one covers theoretical
and accurate applications. The primary topic analysis has been done by the CRIM
in collaboration with a major American University. The CRIM having the
knowledge, mainly for software aspects than hardware, it was decided to give the
technical aspects of the del-ID(R) to C-MAC Electronic Systems Inc. in Winnipeg.
Their mandate was to revise the feasability of the Engineering Models to be
implemented on different dedicated applications. C-MAC Technologies Inc.
confirmed that the existing del-ID(R) prototypes demonstrates that the Proof of
Concept works using common discrete analog and integrated digital IC's. The
first del-ID(R) devices shall go under production in the near future. Those
del-ID(R) devices will be implemented for dedicated applications with leading
corporations. The secondary covers the implementation of a study in a controlled
laboratory environment.
Moreover, culminating several months of discussions with various
agencies and senior levels of the United States Government, the Company is
involved with National Security Agency who has signed a Confidential Agreement.
The signing of the agreement will permit delSECUR inc. to disclose its core
del-ID(R) technology to NSA for testing and evaluation as a national and
international means of protection against computer hacking. They have to make
recommendations to the US Federal Government. The signing of this
Confidentiality Agreement confirmed the uniqueness and innovative aspects of the
del-ID(R) technology, as mentioned on the Press Release issued on April 5th,
2000.
Commercial applications of the del-ID(R) technology are numerous and
include access to the information highway/internet, identification of employees
working from a home office and requiring access to certain databases or
information, health cards, social insurance cards, drivers' licenses, passport
control encryption and access to confidential files, control of payment by debit
or credit payment systems such as credit cards,
3
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smartcards, authentication of oral telephone ordering, access control to
sensitive areas, hotel room access, cellular and digital telephone controls,
automobile entry and protection, census and election control, door locks, vault
locks, residential alarm system controls, timesheet management, student file
management and many others.
The Company expects to encounter substantial competition in the
business in which it proposes to engage. It is likely that the competing
entities will have significantly greater experience, resources, facilities,
contacts and managerial expertise than the Company and will, consequently, be in
a better position than the Company to obtain access to and to engage in the
proposed business. The Company may not be in a position to compete with larger
and more experienced entities. Business opportunities in which the Company may
ultimately participate are likely to be very risky and extremely speculative.
The Company will not manufacture del-ID(R) cards or card readers
directly. This will tend to minimize the capital requirements of the Company,
its principal activities being limited to marketing the del-ID(R) system to
manufacturers and/or users internationally. Anticipated sources of revenue are
license fees payable by government agencies and corporate entities for the right
to manufacture, use or sell cards and card readers incorporating the del-ID(R)
system, as well as royalty payments by such entities for each card and reader
employed in a del-ID(R) system. We anticipate the first commercial revenue in
twelve months from the present.
delSECUR Corporation announced July 1st 1999 the creation of a new
wholly owned subsidiary, delSECUR USA Inc., incorporated in Delaware and with
its principal offices located at 801 Pennsylvania Avenue, Suite 800, Washington
D.C. 20004.
This subsidiary has been created specifically to manage all delSECUR
operations in the United States. The decision to locate the offices in
Washington D.C. was made following the recent expressions of interest in the
del-ID (R) technology by several U.S. Government agencies.
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.
As of November 30, 2000, the Company's balance sheet showed an
accumulated deficit of $8,121,613, an increase of $2,150,366 during the six
months. Operations to date have been financed principally by loans from senior
management and others. Additional unsecured loan facilities continue to be
available and are believed by management to be sufficient to finance operations
over the next several months, pending the anticipated initial receipt of
contract revenues during the second half of the current fiscal year.
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The Company had a net loss of $2,150,366 for the six months ended
November 30, 2000 compared with a loss of $1,594,599 for the same period for the
prior year. The main increase from 1999 was an additional $417,000 spent for
promotion. About $2,073,000 of expenses and $331,000 of liabilities were paid by
issuing 216,893 shares of common stock.
The Company will continue to seek marketing opportunities for product
licensing with governmental agencies and corporate entities on a world-wide
basis.
As the Company will be engaged in securing licensing contracts for use
of its existing del-ID(R) technology, no significant expansion of the physical
plant, equipment or number of employees is foreseen for the period of the next
twelve months.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
delSECUR Corporation
Date: January 16, 2001 By:/s/ Pierre de Lanauze
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Pierre de Lanauze, President,
Chairman of the Board and Director
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delSECUR CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
November 30, May 31,
2000 2000
---------------------- ---------------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 9,092 $ 8,755
Sales taxes receivable 23,934 27,139
Prepaid expenses 34,752 31,873
Receivable-related party 186,810 185,960
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TOTAL CURRENT ASSETS 254,588 253,727
OTHER ASSETS
Property and equipment 128,748 137,220
License from related party 1 1
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128,749 137,221
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$ 383,337 $ 390,948
====================== ====================
LIABILITIES & DEFICIT
CURRENT LIABILITIES
Accounts payable $ 101,034 $ 114,234
Accrued liabilities 70,259 90,862
Payable-related party 184,907 185,157
Payable - officer 1,542,200 1,497,800
Payable - director 71,839 342,942
Loans payable 195,000 195,000
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TOTAL CURRENT LIABILITIES 2,165,239 2,425,995
Deferred credit 4,599 5,366
STOCKHOLDERS' DEFICIT
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 14,509,304
shares (14,292,411 at May 31, 2000) 20,698 20,371
Additional paid-in capital 6,314,414 3,910,463
Deficit accumulated during the
development stage (8,121,613) (5,971,247)
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TOTAL STOCKHOLDERS' DEFICIT (1,786,501) (2,040,413)
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$ 383,337 $ 390,948
====================== ====================
</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 Six Months Ended From Date of
November 30, November 30, inception to
2000 1999 2000 1999 11/30/00
---------------- --------------- --------------- --------------- ---------------
<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 10,545 8,421 20,408 16,843 223,299
Interest expense 4,450 2,863 11,700 8,713 86,726
Research and development 55,619 59,071 99,519 88,588 761,544
Loss on settlement of shares 98,555 95,090 331,396 95,090 426,486
General and administrative expenses 364,055 536,945 1,687,343 1,385,365 6,588,292
---------------- --------------- --------------- --------------- ---------------
533,224 702,390 2,150,366 1,594,599 8,086,347
---------------- --------------- --------------- --------------- ---------------
NET LOSS $ (533,224) $ (702,390) $ (2,150,366) $ (1,594,599) $ (8,078,347)
================ =============== =============== =============== ===============
Basic and diluted loss per share
Net income (loss) per weighted
average share $ (.04) $ (.05) $ (.15) $ (.11)
================ =============== =============== ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 14,380,493 14,243,411 14,380,493 14,243,411
================ =============== =============== ===============
</TABLE>
F - 2
<PAGE>
delSECUR CORPORATION AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended From Date of
November 30, inception to
2000 1999 9/30/2000
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OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) $ (2,150,366) $ (1,594,599) $ (8,078,347)
Adjustments to reconcile net (loss) to cash provided
(used) by operating activities:
Depreciation 20,408 16,843 223,299
Amortization of deferred credit (767) (767) (3,067)
Free rent 0 0 7,666
Stock issued for services 2,072,553 983,431 3,637,894
Loss on settlement of shares 331,396 0 331,396
Related party advances 0 0 305,402
Foreign exchange fluctuation 44,400 (1,200) 128,900
Changes in assets and liabilities:
Sales tax receivable 3,205 (34,351) (23,934)
Prepaid expenses (2,879) 10,334 (34,752)
Officer loan 0 357,420 0
Receivable - related party (850) (37,349) (492,212)
Accounts payable (13,199) (198,427) 101,035
Accrued liabilities (20,603) (1,012) 70,259
Payable - related party (250) (8,071) 184,907
Payable - director (271,103) 90,136 71,839
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NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 11,945 (417,612) (3,569,715)
INVESTING ACTIVITIES
Purchase of property & equipment (11,935) 0 (352,046)
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NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (11,935) 0 (352,046)
FINANCING ACTIVITIES
Loan 0 0 601,850
Repayment of loan 0 (12,987) (406,850)
Loan from director 0 0 2,085,250
Stock sold 327 662,895 709
Contribution to paid-in capital by director 0 29,000 1,649,894
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 327 678,908 3,930,853
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INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 337 261,296 9,092
Cash and cash equivalents at beginning of year 8,755 14,473 0
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 9,092 $ 275,769 $ 9,092
=============== =============== ==================
Cash paid for interest $ 11,700 $ 11,700 $ 42,050
=============== =============== ==================
</TABLE>
During 2000, the Company issued 216,893 shares of common stock for services of
$2,072,553 and to settle liabilities of $331,396. During 1999, the Company
issued 204,000 shares of common stock for services of $983,431.
F - 3
