UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13A-16 AND L5D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(SEPTEMBER 24, 2001)
DIVERSINET CORP.
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(Name of Registrant)
2225 Sheppard Avenue East, Suite 1700, Toronto, Ontario M2J 5C2
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(Address of principal executive offices)
1. Press Release - Quarter ended July 31, 2001
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Quarter ended July 31, 2001
Indicate by check mark whether the Registrant files or will file annual reports
under cover of Form 20-F or Form 40-F
Form 20-F X Form 40-F
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Indicate by check mark whether the Registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
YES NO XXX
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 6-K to be signed on its behalf by the
undersigned, thereunto duly authorized
DIVERSINET CORP. - SEC FILE NO.0-23304
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(REGISTRANT)
DATE: SEPTEMBER 24, 2001 BY: ________________________________________
RICHARD PALMER, VICE PRESIDENT & CFO
DIVERSINET
# OF SHARES ISSUED AND OUTSTANDING
26,413,876
FOR IMMEDIATE RELEASE:
DIVERSINET CORP. ANNOUNCES
THIRD QUARTER FISCAL 2001 RESULTS
TORONTO, CANADA - SEPTEMBER 20, 2001 - Diversinet Corp. (NASDAQ Small Cap:
DVNT), a leading provider of m-commerce security infrastructure solutions, today
announced its third quarter fiscal 2001 results.
The Company recorded revenues of $247,000 in the three months ended July 31,
2001, compared to $864,000 in the same period in the prior year. The net loss
for the three months ended July 31, 2001 was $4,980,000, or $(0.19) per share,
compared to a net loss for the same quarter in fiscal 2000 of $4,445,000, or
$(0.19) per share. The increased net loss in fiscal 2001 is attributable to
reduced revenue compared to the same period in the prior year.
During the quarter, the Company continued facilitating the initial deployment of
its security solution. The Company entered into a joint venture agreement with
an Asian company to manage certain of the Company's key Asian operations. The
Company will hold a 50% interest in the joint venture. During the quarter the
Company recorded revenue of $200,000 from the sale of software and professional
services provided to the joint venture. The terms of the joint venture will
require each party to contribute $1,450,000 to the venture over the next twelve
months. These funds will be used for the purchase of fixed assets and to fund
initial operating costs of the joint venture. The Company intends to expend an
additional $440,000 during its fiscal fourth quarter relating to initial
deployment costs in the Asian region.
The information technology slowdown that resulted in a deferral of purchases by
the Company's potential customers through the first two quarters of the fiscal
year has continued through the Company's fiscal third quarter, resulting in
reduced revenue compared to the same quarter in the prior year. In addition, the
market for wireless security solutions has progressed faster in Asia and Europe
than it has in North America. Accordingly, during September, the Company
refocused its resources on the Asian and European markets. As part of this
process, in September the Company completed certain cost reduction measures that
will result in a $500,000 reduction of its monthly cash requirements for
operations from the $1,200,000 experienced in the third quarter to approximately
$700,000 per month commencing in October. Related severance costs in the amount
of $730,000 will be expensed in the Company's fiscal fourth quarter.
The cost reductions were primarily achieved in the Company's North American
sales, marketing and administrative functions. These difficult decisions and the
resultant staff reduction will allow the Company to channel its resources
towards projects that have the highest probability of deployment through such
relationships as e-Scotia and the Hongkong Post. The Company wishes to thank its
current and former employees for their contributions to the Company's progress.
For the nine months ended July 31, 2001, Diversinet reported revenue of $945,000
compared to revenue of $1,493,000 for the nine months ended July 31, 2000. The
Company reported a net loss of $15,496,000, or $(0.59) per share, for the nine
months ended July 31, 2001, compared to $11,232,000, or $(0.48) per share, for
the same period last year.
The Company had $10,031,000 of cash on hand as of July 31, 2001. Cash consumed
during the quarter amounted to $3,646,000. Cash requirements have declined each
quarter through the fiscal year, from $5,385,702 in the first quarter, to
$4,130,043 in the second quarter, to $3,646,000 in the third quarter of fiscal
2001. As a result of the cost reduction measures completed in September,
operating cash requirements will decline commencing in October. Total cash
requirements in the fourth quarter should approximate the amount consumed in the
third quarter. Commencing in the first quarter of fiscal 2002, the Company
expects cash requirements to decline by approximately 50% compared to the third
quarter of fiscal 2001. Accordingly, as recurring revenues start to scale from
the Company's future deployments, breakeven cashflows will be reached at an
earlier point in time.
"The Company continues to move forward with its business plan achieving
significant progress in both Canada and Asia, while taking steps to continue to
reduce cash requirements," said Nagy Moustafa, President & CEO of Diversinet.
"As planned, the Company has lowered its operating expenses and cash
requirements over the past few quarters. Steps to substantially reduce future
cash requirements have been completed in September and the Company is now
positioned to focus on deployment opportunities with significant future
potential."
The Company is in an early stage in an emerging market and its present revenues
are predominantly from license sales and related Professional Services revenue.
Accordingly, the Company's revenues can fluctuate widely from one period to the
next, and results from one period may not be indicative of future prospects.
HIGHLIGHTS FOR Q3, 2001
During the third quarter of fiscal 2001, Diversinet made significant progress in
developing a worldwide security infrastructure. In addition to entering into the
joint venture, the Company entered into agreements with two prominent
Certificate Authorities (CAs), Scotiabank's e-commerce subsidiary e-Scotia in
North America, and through the joint venture, the Hongkong Post in Asia. These
agreements are instrumental in the Company's infrastructure plan, as CAs are a
fundamental aspect of PKI security.
e-Scotia, backed by the strength of one of North America's leading financial
institutions, is a world-class provider of PKI-enabled security and trusted
e-commerce security solution services. The Scotiabank agreement grants e-Scotia
a worldwide license to integrate Diversinet's wireless security solutions into
the e-Scotia infrastructure in order to provide end-to-end wireless security
services for mobile commerce applications.
The Hongkong Post will operate mobile Certificate Authority services under the
name of Hongkong Post Mobile e-Cert CA, utilizing Diversinet's wireless security
products. The new government recognized Mobile e-Certs will enable subscribers
to carry out secure mobile transactions with insurance protection. The security
infrastructure is currently being piloted with a targeted production date of
fall 2001.
Subsequent to the agreement with the Hongkong Post, Diversinet launched its new
OneWPKI program centering around the new Diversinet-enabled Mobile e-Certs. The
program is structured so that enterprises, mobile operators, and the Hongkong
Post work together to develop a common, standardized wireless security and
mobile commerce network in Hongkong.
During the third quarter of fiscal 2001, the Company also entered into
agreements to have its security technology embedded into AU-System, RIM and
SchlumbergerSema's next-generation products. These agreements will continue to
expand the availability of Diversinet's leading wireless device coverage.
The Company continues to make progress towards the initial deployment of its
wireless security infrastructure, with a formal service launch anticipated by
the end of the Company's fourth quarter fiscal 2001.
CONSOLIDATED BALANCE SHEETS
[in Canadian dollars]
(Unaudited)
JULY 31 October 31
2001 2000
$
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ASSETS
CURRENT
Cash and cash equivalents 10,031,290 23,192,586
Accounts receivable 242,639 1,657,748
Other receivables 130,741 154,644
Prepaid expenses 609,582 567,470
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TOTAL CURRENT ASSETS 11,014,252 25,572,448
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Capital assets, net 2,140,202 1,855,966
Purchased technology, net 180,994 723,975
Deferred development costs, net - 618,726
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TOTAL ASSETS 13,335,448 28,771,115
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable 714,320 420,140
Accrued liabilities 3,136,932 3,421,380
Deferred revenue 28,040 83,336
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TOTAL LIABILITIES 3,879,292 3,924,856
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SHAREHOLDERS' EQUITY
Share capital 53,992,992 53,887,264
Contributed surplus 97,500 97,500
Deficit (44,634,336) (29,138,505)
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TOTAL SHAREHOLDERS' EQUITY 9,456,156 24,846,259
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DIVERSINET CORP.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
[in Canadian dollars]
Three and nine months ended July 31, 2001
(Unaudited)
THREE MONTHS JULY 31 NINE MONTHS JULY 31
2001 2000 2001 2000
$ $ $ $
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REVENUE 246,841 864,375 944,764 1,493,157
EXPENSES
Research and development 1,554,576 1,747,656 5,588,045 3,746,982
Sales and marketing 1,928,914 1,991,636 6,584,447 4,078,833
General and administrative 1,547,158 1,084,632 3,369,156 3,194,842
Depreciation and amortization 319,065 582,926 1,569,540 1,990,743
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5,349,713 5,406,850 17,111,188 13,011,400
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Loss before the following (5,102,872) (4,542,475) (16,166,424) (11,518,243)
Interest income, net (122,990) (97,614) (670,593) (286,190)
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LOSS FOR THE PERIOD (4,979,882) (4,444,861) (15,495,831) (11,232,053)
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LOSS PER SHARE (0.19) (0.19) (0.59) (0.48)
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WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 26,369,817 23,302,110 26,363,878 23,334,135
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DEFICIT, BEGINNING OF PERIOD (39,654,454) (20,898,489) (29,138,505) (14,111,297)
Loss for the period (4,979,882) (4,444,861) (15,495,831) (11,232,053)
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DEFICIT, END OF PERIOD (44,634,336) (25,343,350) (44,634,336) (25,343,350)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[in Canadian dollars]
Three and nine months ended July 31, 2001
(Unaudited)
THREE MONTHS JULY 31 NINE MONTHS JULY 31
2001 2001
$ $
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OPERATING ACTIVITIES
Loss for the period (4,979,882) (4,444,861) (15,495,831) (11,232,053)
Add (deduct) items not requiring
an outlay of cash:
Depreciation and amortization 319,065 582,926 1,569,540 1,990,743
Foreign exchange gain on debenture (78,864)
Interest on debenture 4,833
Changes in non-cash working capital
items related to operations:
Accounts receivable and other receivables 497,976 (226,008) 1,439,012 (560,495)
Prepaid expenses 60,238 (54,455) (42,112) (271,905)
Accounts payable and accrued liabilities 479,543 1,228,358 9,732 1,423,891
Deferred Revenue (24,563) 35,451 (55,296) 95,841
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CASH USED IN OPERATING ACTIVITIES (3,647,623) (2,878,589) (12,574,955) (8,628,009)
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FINANCING ACTIVITIES
Issue of common shares, common share
purchase options and warrants for cash 61,935 20,962,591 105,728 26,839,891
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CASH PROVIDED BY FINANCING ACTIVITIES 61,935 20,962,591 105,728 26,839,891
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INVESTING ACTIVITIES
Additions to capital assets (59,863) (854,669) (692,069) (1,225,142)
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CASH USED IN INVESTING ACTIVITIES (59,863) (854,669) (692,069) (1,225,142)
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS DURING THE PERIOD (3,645,551) 17,229,333 (13,161,296) 16,986,740
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD 13,676,841 7,160,819 23,192,586 7,403,412
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CASH AND CASH EQUIVALENTS,
END OF THE PERIOD 10,031,290 24,390,152 10,031,290 24,390,152
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INVESTOR TELECONFERENCE CALL
Diversinet's executive team will hold a conference call Friday, September 21,
2001 at 9:00 a.m. Eastern Time to discuss third quarter fiscal 2001 results.
Investors should contact Sandra Lemaitre, Diversinet Corp., at 416-756-2324,
ext.324 for the dial-in-number. Investors are encouraged to listen to the live
call from the home page and investor relation's portion of the Company's Web
site: http://www.diversinet.com. In order to hear this conference call on the
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website, your computer must be appropriately configured. The webcast will be
available for 90 days.
ABOUT DIVERSINET CORP.
Diversinet is enabling mobile e-commerce (m-commerce) services with its wireless
security infrastructure solutions. The Company has been confirmed by the Yankee
Group (reference; The Yankee Group Report: Wireless/Mobile Technologies, Vol. 1,
No. 7, September 2000, by Emily Williams and David Berndt), as having the
leading product technology for the delivery of end-to-end wireless security
infrastructure solutions to wireless device makers, ASPs and operators,
application software developers and network infrastructure providers. For more
information on Diversinet, visit the Company's web site at www.diversinet.com.
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###
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this press
release (as well as information included in oral statements or other written
statements made or to be made by the company) contains statements that are
forward-looking, such as statements relating to anticipated future revenues of
the company and success of current product offerings. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ materially from those expressed in any forward-looking statements made by
or on behalf of the company. For a description of additional risks and
uncertainties, please refer to the company's filings with the Securities and
Exchange Commission.
FOR DIVERSINET INQUIRIES
Diversinet Corp.
Sandra Lemaitre
Tel: (416) 756-2324, ext.324
Email: pr@dvnet.com
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - QUARTER ENDED JULY 31, 2001
Operating Results
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Diversinet recorded revenue of $247,000 in the three months ended July 31,
2001 compared to $864,000 in the three months ended July 31, 2000. Revenue was
$945,000 in the nine months ended July 31, 2001 compared to $1,493,000 in the
nine months ended July 31, 2000. The Company's revenue is currently derived
primarily from the sale of licenses for its software products and related
professional services. License sale revenues are unpredictable in nature and
past performance is not indicative of future revenue. Once deployments occur
and recurring revenues commence, the company's revenue will be more predictable.
During the fiscal third quarter, the Company entered into an agreement with an
Asian company to establish a joint venture, owned equally by the parties, for
the purpose of conducting certain of the Company's Asian activities. During the
quarter the Company recorded revenue of $200,000 from the sale of software and
professional services provided to the joint venture.
The net loss for the three months ended July 31, 2001 was $4,980,000 compared to
the three months ended July 31, 2000 of $4,445,000 primarily due to decreased
revenue earned in this period. The net loss for the nine months ended July 31,
2001 was $15,496,000 as compared to the nine months ended July 31, 2000 of
$11,232,000. The increased loss for the nine months is due to an expanded scope
of operations in the current year as compared to the same period in the prior
year.
During September, the Company completed certain cost reduction measures
that will result in a $500,000 reduction of its monthly cash requirements for
operations from the $1,200,000 experienced in the third quarter to approximately
$700,000 per month commencing in October. The $730,000 cost of these measures
will be expensed in the Company's fiscal fourth quarter. The cost reductions
were primarily achieved in the Company's North American sales, marketing and
administrative functions.
Research and development expenses decreased to $1,555,000 in the three
months ended July 31, 2001 compared to $1,748,000 in the three months ended July
31, 2000, primarily attributable to a reduction in non-wage related costs such
as travel and occupancy.
Sales and marketing expenses were $1,929,000 in the three months ended July 31,
2001 compared to $1,992,000 in the three months ended July 31, 2000. Sales and
marketing expenses in the three months ended July 31, 2001 remained comparable
to the same period in the prior year as savings from reduced costs in the
Company's North American sales offices were offset by investment in expansion of
the Company's London and Hong Kong offices in response to activities in their
regions.
General and administrative expenses were $1,547,000 in the three months ended
July 31, 2001 compared to $1,085,000 in the three months ended July 31, 2000.
The company maintains its cash reserves in U.S. denominated interest-bearing
deposits. Accordingly, the company records exchange gains or losses each quarter
related to the change in exchange rates between Canada and the U.S. In the
three months ended July 31, 2001 the company recorded a foreign exchange loss of
$447,000 compared to a foreign exchange gain of $130,000 for the three months
ended July 31, 2000. Absent the variance due to non-cash foreign exchange
translation, general and administration costs declined during the period
compared to the prior year. This is a result of on going cost control
activities for the company.
Interest income increased slightly to $123,000 for the three months ended July
31, 2001 as compared to interest income of $98,000 for the comparable period in
the prior year. Proceeds from the issuance of common shares were recorded late
in July 2000, resulting in a higher quarter end cash balance compared to this
year. Excluding this, average cash balances were higher in the current quarter
compared to the same period in the prior year, resulting in higher interest
income in the current period.
Depreciation and amortization expense in the three months ended July 31, 2001
decreased to $319,000 from $583,000 in the comparable period in 2000. The
Company's deferred development costs are now fully amortized resulting in
reduced amortization expense.
Liquidity and Capital Resources
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Cash and cash equivalents as at July 31, 2001 were $10,031,000 compared to
$24,390,000 as at July 31, 2000. The cash resources at July 31, 2000 reflect
the receipt of proceeds from the issuance of common shares of the Company,
during July of 2000. Excluding cash proceeds received from the issuance of
common shares, the use of cash during the third quarter of fiscal 2001 declined
marginally to $3,707,000, compared to $3,733,000 in the same period in the prior
year. The use of cash in the third quarter declined for the second straight
quarter, as the result of continued cost controls implemented by management. The
terms of the joint venture entered into by the Company during the third quarter
will require each party to contribute $1,450,000 to the venture over the next
twelve months. These funds will be used for the purchase of fixed assets and to
fund initial operating costs of the joint venture. The Company intends to expend
an additional $440,000 during its fiscal fourth quarter relating to initial
deployment costs in the Asian region.
Risks and Uncertainties
-------------------------
The ability of the Company to continue operations is dependent on the
commercialization of its security infrastructure products and the Company's
ability to obtain additional financing to fund future operations. Although the
Company reduced its cash requirements during September, 2001with savings
commencing in October, 2001, the Company will continue to experience losses for
the foreseeable future and expects that it will need to raise additional
financing within the next six months. In addition there are risks associated
with the fact that the Company has limited experience in the wireless internet
security software field and the Company is subject to the risks inherent in this
business. The Company is dependent on the adoption of transaction-based
applications over wireless networks as an accepted method of commerce. Our
licensing revenues are dependent on our customers' acceptance and use of our
software products and we expect our sales cycle to be lengthy. Due to the early
stage in our marketplace, it is difficult to accurately forecast future revenues
and there is a possibility that the Company may not achieve profitability in the
foreseeable future.