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
(MAY 31, 2002)
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 April 30, 2002
2. Financial Statements for the Six Months ended April 30, 2002
3. Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quarter ended April 30, 2002
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 X
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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: MAY 31, 2002 BY: /s/ DAVID HACKETT
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DAVID HACKETT, CHIEF FINANCIAL OFFICER
DIVERSINET
# OF SHARES ISSUED AND OUTSTANDING
32,222,084
FOR IMMEDIATE RELEASE:
DIVERSINET CORP. ANNOUNCES
SECOND QUARTER FISCAL 2002 RESULTS
TORONTO, CANADA - MAY 30, 2002 - DIVERSINET CORP. (NASDAQ Small Cap: DVNT), a
leading provider of m-commerce security infrastructure solutions, today
announced its second quarter fiscal 2002 results.
The Company reported an improved net loss of $2,063,000, or $(0.07) per share,
for the quarter ended April 30, 2002, compared to a net loss of $5,079,000, or
$(0.19) per share, in the prior year's second quarter. The net loss reported was
$3,788,000 for the six months ended April 30, 2002, compared to a net loss of
$10,516,000 in the same period in fiscal 2001. The decreased net loss in the
second quarter of 2002 is attributable to cost reduction measures in the fourth
quarter of 2001 that resulted in a decline in expenses from operations during
fiscal 2002 compared to fiscal 2001. The restructuring was aimed at refocusing
the Company's efforts on the most significant market opportunities in Asia and
Europe.
For the quarter ended April 30, 2002, the Company reported revenue of $311,000,
compared to revenue of $127,000 for the quarter ended April 30, 2001. For the
six months ended April 30, 2002, the Company reported revenue of $486,000,
compared to revenue of $698,000 for the six months ended April 30, 2001. The
Company continues to make progress in the Asian market, deriving 57% (0% for
2001) of its revenues from this marketplace for the three months ended April 30
and 53% (57% for 2001) for the six months ended April 30.
Operating expenses decreased to $4,376,000 for the six months ended April 30,
2002, from $11,761,000 for the six months ended April 30, 2001. The Company
ended the quarter with $6,334,000 in cash and has continued to maintain its
operating cash requirements at a similar level to the first quarter of 2002. In
April 2002 the Company completed the issuance and sale of 5,186,708 units in the
capital of the Company at US$0.60 per unit for gross proceeds of US$3,112,022.
During the second quarter of 2002, the Company recorded its first revenues from
the issuance of Mobile e-Cert digital certificates. While the amount of revenue
recorded in the quarter from certificates was very small, the Company achieved a
major milestone.
Also during the second quarter of 2002, Diversinet announced the successful
conclusion of a pilot test with the Hong Kong m-Cert Implementation Forum
(HKMIF) - a forum jointly created by Hong Kong's six local mobile operators to
develop and implement a single mobile digital certificate standard to promote
mobile commerce in Hong Kong. As prime contractor, Diversinet teamed up with
Ericsson, Gemplus, Hewlett-Packard, Hongkong Post, and Intel to pilot a WAP
security solution supporting wireless applications over WAP phones. The
applications used in the pilot were a wireless stock trading application and a
Mobile VPN solution for secure email and PIM access with the Hong Kong
University of Science and Technology.
In May 2002, the Company received Common Criteria (ISO 15408-3) certification
for its Passport Certificate Server Version 4.1.1. Common Criteria, a rigorous
international security standard recognized by 14 countries, evaluates the
trustworthiness of Information Technology security products and systems. This
certification will help to expedite the Company's sales cycle and open the door
to new potential sales, mainly within the government and financial industries.
INVESTOR TELECONFERENCE CALL
Diversinet's executive team will hold a conference call Friday, May 31, 2002 at
8:30 a.m. Eastern Time to discuss second quarter fiscal 2002 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 website,
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your computer must be appropriately configured. The webcast will be available
for 90 days.
ABOUT DIVERSINET CORP.
Diversinet is a leading developer of advanced wireless security software,
enabling mobile e-commerce (m-commerce) services with its wireless security
infrastructure solutions. Diversinet's client/server security software
facilitates digital signatures, authentication and encryption with PKI products
specifically designed to perform optimally in wireless environments and devices.
In October of 2001, Diversinet enabled the launch of the first public
Certification Authority in the world to offer mobile individual and business
digital certificates for consumer use. 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 MORE INFORMATION:
DIVERSINET CORP.
Sandra Lemaitre
Tel: (416) 756-2324,ext.324
Email: pr@diversinet.com
CONSOLIDATED FINANCIAL STATEMENTS
DIVERSINET CORP.
For the Six Months Ended April 30, 2002
(Unaudited)
DIVERSINET CORP.
CONSOLIDATED BALANCE SHEETS
[in Canadian dollars]
(Unaudited)
APRIL 30 October 31
2002 2001
$ $
========================================================================
ASSETS
CURRENT
Cash and cash equivalents 6,334,092 3,061,844
Short-term investments - 3,087,680
Accounts receivable 245,231 274,521
Other receivables 31,698 99,469
Prepaid expenses 318,392 596,105
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TOTAL CURRENT ASSETS 6,929,413 7,119,619
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Capital assets, net 2,240,656 2,496,738
- ------------------------------------------------------------------------
TOTAL ASSETS 9,170,069 9,616,357
========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable 824,673 1,191,117
Accrued liabilities 1,260,228 2,329,269
Deferred revenue 47,696 43,843
- ------------------------------------------------------------------------
TOTAL LIABILITIES 2,132,597 3,564,229
========================================================================
SHAREHOLDERS' EQUITY
Share capital 58,766,618 53,992,992
Contributed surplus 97,500 97,500
Deficit (51,826,646) (48,038,364)
- ------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 7,037,472 6,052,128
========================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 9,170,069 9,616,357
========================================================================
DIVERSINET CORP.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
[in Canadian dollars]
Three and six months ended April 30, 2002 and 2001
(Unaudited)
THREE MONTHS APRIL 30 SIX MONTHS APRIL 30
2002 2001 2002 2001
$ $ $ $
- -----------------------------------------------------------------------------------------
REVENUE 311,189 127,268 485,641 697,923
- -----------------------------------------------------------------------------------------
EXPENSES
Research and development 761,015 1,835,640 1,408,633 4,033,469
Sales and marketing 476,420 2,301,957 908,011 4,655,530
General and administrative 1,055,704 649,566 1,792,156 1,822,001
Depreciation and amortization 145,598 627,057 267,474 1,250,475
- -----------------------------------------------------------------------------------------
2,438,737 5,414,220 4,376,274 11,761,475
- -----------------------------------------------------------------------------------------
Loss before the following (2,127,548) (5,286,952) (3,890,633) (11,063,552)
Interest income (64,224) (207,784) (102,351) (547,603)
=========================================================================================
LOSS FOR THE PERIOD (2,063,324) (5,079,168) (3,788,282) (10,515,949)
=========================================================================================
LOSS PER SHARE (0.07) (0.19) (0.14) (0.40)
=========================================================================================
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 27,986,937 26,363,659 27,187,370 26,360,859
=========================================================================================
DEFICIT, BEGINNING OF PERIOD (49,763,322) (34,575,286) (48,038,364) (29,138,505)
Loss for the period (2,063,324) (5,079,168) (3,788,282) (10,515,949)
- -----------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (51,826,646) (39,654,454) (51,826,646) (39,654,454)
=========================================================================================
DIVERSINET CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[in Canadian dollars]
Three and six months ended April 30, 2002 and 2001
(Unaudited)
THREE MONTHS APRIL 30 SIX MONTHS APRIL 30
2002 2001 2002 2001
$ $ $ $
- --------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period (2,063,324) (5,079,168) (3,788,282) (10,515,949)
Add (deduct) items not requiring an outlay of cash:
Depreciation and amortization 145,598 627,057 267,474 1,250,475
Changes in non-cash working capital
items related to operations:
Accounts receivable and other receivables (115,771) 249,205 97,061 941,037
Prepaid expenses 100,899 459,295 277,713 (102,353)
Accounts payable and accrued liabilities (284,912) (116,633) (1,435,485) (468,999)
Deferred revenue (2,852) (123,076) 3,853 (30,733)
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CASH USED IN OPERATING ACTIVITIES (2,220,362) (3,983,320) (4,577,666) (8,926,522)
==============================================================================================================
FINANCING ACTIVITIES
Issue of common shares, common share
purchase options and warrants for cash 4,773,626 10,529 4,773,626 43,793
- --------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 4,773,626 10,529 4,773,626 43,793
==============================================================================================================
INVESTING ACTIVITIES
Short-term investments - - 3,087,680 -
Additions to capital assets (2,190) (157,252) (11,392) (633,016)
- --------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,190) (157,252) 3,076,288 (633,016)
==============================================================================================================
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS DURING THE PERIOD 2,551,074 (4,130,043) 3,272,248 (9,515,745)
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD 3,783,018 17,806,884 3,061,844 23,192,586
==============================================================================================================
CASH AND CASH EQUIVALENTS,
END OF THE PERIOD 6,334,092 13,676,841 6,334,092 13,676,841
==============================================================================================================
DIVERSINET CORP.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts expressed in Canadian dollars)
Six months ended April 30, 2002
Diversinet Corp. (the "Company"), an Ontario corporation, develops and markets
security software products, utilizing public-key infrastructure technology
primarily for use within wireless mobile e-commerce applications, such as
banking, stock trading, gaming and health care.
1. Basis of presentation:
In the opinion of management, the unaudited consolidated financial statements of
the Company have been prepared on a consistent basis with the October 31, 2001
audited consolidated financial statements and include all material adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial position of the Company at April 30, 2002 and the statement of loss
and deficit and cash flows for the six months ended April 30, 2002 in accordance
with Canadian generally accepted accounting principles (GAAP). The disclosures
contained in these unaudited interim consolidated financial statements do not
include all requirements of generally accepted accounting principles for annual
financial statements. The unaudited interim consolidated financial statements
should be read in conjunction with the annual consolidated financial statements
for the year ended October 31, 2001.
2. Future Operations:
These interim financial statements have been prepared on a going concern basis,
which assumes the Company will continue in operation in the foreseeable future
and be able to realize assets and satisfy liabilities in its normal course of
business. Certain conditions and events exist that cast doubt on the Company's
ability as a going concern.
The Company has incurred significant losses and used significant amounts of cash
in operating activities in recent years.
Continued operations depend upon the Company's ability to generate future
profitable operations and /or obtain additional financing to fund future
operations and, ultimately, to generate positive cash flows from operating
actiivities. There can be no assurance that the Company will be successful in
obtaining additional financing. The Company raised $4,773,626 during the
quarter through a private placement which is described in the share capital note
below.
Should the Company be unable to generate positive cash flows from operations or
secure additional financing in the future, the application of the going concern
principle for financial statement reporting purposes may no longer be
appropriate. These interim financial statements do not include any adjustments
related to the valuation or classification of recorded asset amounts or the
amounts or classification of liabilities that may be necessary should the
Company be unable to continue as a going concern.
3. Interest in joint venture
On June 4, 2001, the Company entered into an agreement with an Asian company to
estiblish a joint venture to conduct certain of the Company's Asian activities.
Each party holds a 50% interest in the joint venture. These financial
statements reflect the Company's proportionate interest in the joint venture's
assets, liabilities, revenue and expenses.
The following amounts included in the consolidated financial statements
represent the Company's proportionate interest in the joint venture at April 30,
2002. Operations in the joint venture began this quarter with a small amount of
revenue from issuing certificates being recorded.
Prepaid expenses $ 9,743
Accounts receivable 4,800
Capital assets 523,139
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Total assets $ 537,682
================================================================================
================================================================================
Accounts payable $ 40,000
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Total liabilities $ 40,000
================================================================================
================================================================================
Revenue $ 4,800
Expenses 46,592
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Net Loss $ (41,792)
================================================================================
4. Segmented information
The Company operates in a single reportable operating segment, that being the
sale of security software and related services. For all periods reported,
significantly all the assets related to the Company's operations were located in
Canada. In each of the six months ended April 30, 2002 and 2001, two customers
contributed in excess of 10% of total revenue for the period, one was the same
customer as in the previous year.
Revenue is attributable to geographic location based on the location of the
customer, as follows:
THREE MONTHS APRIL 30 SIX MONTHS APRIL 30
2002 2001 2002 2001
$ $ $ $
==========================================================================
SALES
United States 19,805 99,951 28,744 237,901
Asia 177,029 - 257,122 400,422
Canada 114,355 3,302 199,775 10,052
Other - 24,015 - 49,548
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311,189 127,268 485,641 697,923
==========================================================================
5. Share capital
The following details the changes in issued and outstanding shares, compensation
options and warrants for the six months ended April 30, 2001 and 2002:
=============================================================================================
Compensation options and Common shares
warrants
- ---------------------------------------------------------------------------------------------
Number Amount Number Amount
- ---------------------------------------------------------------------------------------------
Balance, April 30, 2001 413,500 - 26,350,760 53,887,264
Stock options exercised and shares issued - 63,116 105,728
- ---------------------------------------------------------------------------------------------
Balance, October 31, 2001 413,500 - 26,413,876 53,992,992
Private placement 4,515,541 - 5,420,708 4,773,626
- ---------------------------------------------------------------------------------------------
Balance, April 30, 2002 4,929,041 - 31,834,584 $58,766,618
=============================================================================================
On April 4, 2002, the Company completed a private placement of 5,186,708 units
at a price of U.S. $0.60 per unit for gross proceeds before expenses of
$4,979,235 (U.S. $3,112,022). Each unit was comprised of one (1) common share
and three-quarters (3/4) of one common share purchase warrant. Each warrant
will entitle the holder thereof to acquire one (1) common share at a price of
U.S. $0.72 per common share for a period of up to three years from April 4,
2002.
The placement agents received commissions of US$140,400 plus out-of-pocket
expenses (approximately US$7,500). The placement agent also received
compensation options entitling them to purchase up to 234,000 units at a price
of US$0.60 per unit at any time prior to April 30, 2002. On April 8, 2002, the
Company was notified of the placement agent's decision to purchase 234,000 units
and the company issued 234,000 common shares and 175,500 common share purchase
warrants.
Additional common share purchase warrants of 450,000 were issued to the
placement agents as compensation.
There are an unlimited number of authorized common shares with no par
value.
Number of common share options granted under the Company's stock
option plan 3,339,007
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
When used herein, the words "may", "will", "expect", "anticipate", "continue",
"estimate", "project", "intend", "plan" and similar expressions are intended to
identify forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, regarding events, conditions and
financial trends that may affect the Company's future plans of operations,
business strategy, operating results and financial position. All statements,
other than statements of historical facts, included or incorporated by reference
in this Form 6-K which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
business strategy, expansion and growth of the Company's business and
operations, and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. Such statements are not guarantees of
future performance and are subject to risks and significant uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors. The occurrence of
any unanticipated events may cause actual results to differ from those expressed
or implied by the forward-looking statements contained herein. You are
cautioned not to place undue reliance on these statements, which speak only as
of the date of this report.
Please find enclosed the Consolidated Balance Sheets as at April 30, 2002 and
October 31, 2001 and the Consolidated Statements of Loss and Deficit and the
Consolidated Statements of Cash Flows for the three months and the six months
ended April 30, 2002 and 2001 and the Notes to Interim Consolidated Financial
Statements for Diversinet Corp.
OPERATING RESULTS
We reported an improved net loss of $2,063,000 for the three months ended April
30, 2002 compared to a net loss of $5,079,000 in the prior year's second
quarter. The net loss was $3,788,000 for the six months ended April 30, 2002
compared to a net loss of $10,516,000 in the same period in fiscal 2001. The
decreased net loss in the second quarter of 2002 is attributable to cost
reduction measures. We completed operating cost reductions in the fourth
quarter of 2001 that resulted in a decline in expenses from operations during
fiscal 2002 compared to fiscal 2001. These reductions included workforce
reductions in the United States and Canada, closure of offices in the United
States and the discontinuance of non-core programs particularly in the marketing
area. The restructuring was aimed at refocusing our efforts on the most
significant market opportunities in Asia and Europe.
For the three months ended April 30, 2002, we reported revenue of $311,000
compared to revenue of $127,000 for the quarter ended April 30, 2001. For the
six months ended April 30, 2002, we reported revenue of $486,000 compared to
revenue of $698,000 for the six months ended April 30, 2001. We continue to
make progress in the Asian market; for the three months ended April 30 we
derived 57% (0% for 2001) and for the six months ended April 30 we derived 53%
(57% for 2001) of our revenues from this marketplace. During the quarter we
recognized our first revenues from the issuance of digital m-certificates and
while the amount was not material, it demonstrates the usage of our technology
solutions in the wireless environment.
Research and development expenses decreased to $761,000 in the three months
ended April 30, 2002 from $1,836,000 in three months ended April 30, 2001
resulting primarily from wages, occupancy, and travel cost decreases resulting
from head count reductions completed in the last quarter of fiscal 2001.
Research and development expenses decreased to $1,409,000 in the six months
ended April 30, 2002 from $4,033,000 in same period of fiscal 2001.
Sales and marketing expenses were $476,000 in the second quarter of fiscal 2002
compared to $2,302,000 in the second quarter of fiscal 2001. Sales and marketing
expenses were $908,000 in the first six months of fiscal 2002 compared to
$4,656,000 in the same period of fiscal 2001. The Company continues to focus a
significant portion of its efforts in the Asian and European markets. The
launch of the Hongkong Post's Mobile e-Cert in fiscal 2001 and the appointment
of Hutchison as the first Registration Authority have generated interest in our
products in the Asian region as noted in the first paragraph of this section.
We expect that activity in this region will continue to increase during the
remainder of fiscal 2002.
General and administrative expenses were $1,056,000 for the second quarter of
2002 compared to $650,000 incurred during the second quarter of 2001. During
the second quarter of 2001 we had foreign exchange gains of $698,000 which were
not repeated in the second quarter of 2002. General and administrative expenses
were $1,792,000 for the first six months of 2002 compared to $1,822,000 incurred
during the first two quarters of 2001. After consideration for the foreign
exchange gain incurred in fiscal 2001, the Company's September 2001 cost
reduction plan has helped reduce costs by approximately $728,000 from year to
date 2001 to 2002.
Depreciation and amortization expense in the second quarter of fiscal 2002
decreased to $146,000 from $627,000 in the second quarter of fiscal 2002.
Depreciation and amortization expense in the first two quarters of fiscal 2002
decreased to $267,000 from $1,250,000 for the same period of fiscal 2002. The
Company's deferred development and purchased technology costs are now fully
amortized and the reduction in additions to capital assets has resulted in
reduced amortization for the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $2,231,000 in the three months ended April
30, 2002, a decline of 44% from the amount used in the same period of the prior
year. Cash used during the quarter was comprised of the net loss of $2,063,000,
less net depreciation and amortization of $146,000. Other non-cash items
include a decrease in accounts payable and accrued liabilities of $285,000, an
increase in receivables of $126,000, a decrease in deferred revenue of $3,000
and a decrease in prepaid expenses of $101,000. Cash used in operating
activities was $3,983,000 in the quarter ended April 30, 2001, attributable to
the net loss of $5,079,000 less net depreciation and amortization of $627,000.
Other non-cash items include a decrease in accounts payable and accrued
liabilities of $117,000, a decrease in deferred revenue of $123,000, a decrease
in receivables of $249,000 and a decrease in prepaid expenses of $459,000.
Cash used in operating activities was $4,578,000 in the six months ended April
30, 2002, a decline of 49% from the amount used in the same period of the prior
year. Cash used during the quarter was comprised of the net loss of $3,788,000,
less net depreciation and amortization of $267,000. Other non-cash items
include a decrease in accounts payable and accrued liabilities of $1,436,000, a
decrease in receivables of $97,000, an increase in deferred revenue of $4,000
and a decrease in prepaid expenses of $278,000. Cash used in operating
activities was $8,927,000 in the six months ended April 30, 2001, attributable
to the net loss of $10,516,000 less net depreciation and amortization of
$1,250,000. Other non-cash items include a decrease in accounts payable and
accrued liabilities of $469,000, an increase in prepaid expenses of $102,000, a
decrease in deferred revenue of $31,000 and a decrease in receivables of
$941,000.
Cash provided by financing activities in the three months ended April 30, 2002
was $4,784,000. In April 2002 the Company completed the issue and sale of
5,186,708 units in the capital of the Company at US$0.60 per unit for gross
proceeds of US$3,112,022. Each unit is comprised of one common share and
three-quarters of one common share purchase warrant. Each warrant will entitle
the holder thereof to acquire one common share at a price of US$0.72 per common
share for a period of up to three years. Cash provided by financing activities
in the quarter ended April 30, 2001, was $11,000 as a result of proceeds
received from issuing common shares under an employee stock option exercise.
Cash provided by financing activities in the six months ended April 30, 2002 was
$4,774,000 representing the net proceeds from the private placement described
above. Cash provided by financing activities in the six months ended April 30,
2001, was $44,000 as a result of proceeds received from issuing common shares
under an employee stock option exercise.
Cash used in investing activities in the three months ended April 30, 2002 and
2001 consisted of $2,000 and $157,000 respectively attributable to capital asset
additions.
Cash provided by investing activities in the six months ended April 30, 2002 was
3,077,000 consisting of $3,088,000 received from proceeds of a short term
investment offset by $11,000 spent of capital asset additions. Cash used in
investing activities in the six months ended April 30, 2001 consisted of
$633,000 attributable to capital asset additions.
We believe that our cash and cash equivalents as at April 30, 2002 of $6,334,000
will be sufficient to meet our short-term working capital requirements for the
remainder of the fiscal year. If necessary, we plan to raise additional amounts
to meet our working capital requirements through private or public financings,
strategic relationships or other arrangements. However, additional funding may
not be available on terms attractive to us, or at all. If we enter into
strategic relationships to raise additional funds, we may be required to
relinquish rights to certain of our technologies. Our failure to either raise
capital when needed or to generate revenues would leave us with insufficient
resources to continue our business.
RISKS AND UNCERTAINTIES
Our Company is subject to a number of risks and uncertainties that could cause
actual results to differ materially from those predicted or anticipated. These
risks are described in our F-3 and annual Form 20-F filed with the SEC in the
United States and filed on SEDAR in Canada. We encourage you to review these
filings in order to evaluate an investment in our securities. Some key risks
that could cause actual results to differ materially from those predicted or
anticipated are listed below.
Financial resources: The attached consolidated financial statements are
prepared on a going concern basis that assumes that the Company will continue in
operation in the foreseeable future and be able to realize its assets and
discharge its liabilities in the normal course of business. The projected cash
flows for the company are based upon assumptions that include, amongst others, a
revenue stream from mobile business and the success of future external financing
initiatives. Should these projects be delayed then the present working capital
would not be sufficient for the company to continue in the normal course of
operations.
In recognition of these concerns, management is considering various revenue and
cost management alternatives and may consider raising additional cash through
external financing activities. It is not possible at this time to predict with
any assurance the success of these initiatives.
Our ability to continue operations may be dependent on our ability to obtain
additional financing. Although we have made progress in developing our products
and have completed initial consumer deployments, our revenue from operations is
not sufficient to cover our operating expenses at present and is unlikely to be
sufficient within fiscal 2002. We have obtained funding for operations from
private equity placements in the past, but there is no assurance we will be able
to do so again in the near future despite the progress of the business. Our
failure to either raise capital when needed or to generate revenues would leave
us with insufficient resources to continue our business.
Our quarterly operating results have varied substantially in the past and are
likely to vary substantially from quarter to quarter in the future due to a
variety of factors. In particular, our period-to-period operating results are
significantly dependent upon the completion date of license agreements. In this
regard, the purchase of our products often requires our customers to make a
significant capital investment, which customers may view as a discretionary cost
and, therefore, a purchase that can be deferred or cancelled due to budgetary or
other business reasons. Estimating future revenues is also difficult because we
ship our products upon receipt of a signed license agreement and, therefore, we
do not have a backlog. Thus, quarterly license revenues are heavily dependent
upon agreements finalized and software shipped within the same quarter.
Moreover, we have generally recorded a significant portion of our total
quarterly revenues in the third month of a quarter, with a concentration of
these revenues in the last half of that third month. This concentration of
revenues is influenced by customers' tendencies to make significant capital
expenditures at the end of a fiscal quarter. We expect these revenue patterns
to continue for the foreseeable future, until recurring revenue becomes a
significant portion of total revenue. Despite the uncertainties in our revenue
patterns, our operating expenses are based upon anticipated revenue levels and
such expenses are incurred on an approximately ratable basis throughout the
quarter. As a result, if expected revenues are delayed or otherwise not
realized in a quarter for any reason, our business, operating results and
financial condition would be adversely affected in a significant way.
Continued quotation on the Nasdaq SmallCap Market requires that we maintain a
minimum bid price of U.S.$1.00 for continued listing but allows a grace period
of 180 days. On March 19, 2002 we received notice from Nasdaq that we had not
met the minimum U.S. $1.00 per share requirement and may be subject to delisting
should, prior to September 16, 2002, our share price not close at $1.00 or more
for a minimum of ten consecutive trading days. Following this initial grace
period, issuers that demonstrate compliance with the core initial listing
standards will be afforded an additional 180-day grace period within which to
regain compliance with the minimum U.S. $1.00 per share requirement.
Commercial deployment: The ability of the Company to continue operations is
also dependent on the acceptance of its security products and the adoption of
transaction-based applications over wireless networks as an accepted method of
commerce in sufficient volume for us to generate enough revenues to fund our
expenses and capital requirements. The wireless mobile commerce market is in a
very early stage and it may not develop to a sufficient level to support our
business.
Market conditions: The general economic conditions may have a significant impact
on our ability to generate sales for our products. During fiscal 2001, we
experienced decreased activity from our potential customers and generally the
adoption of wireless services has not proceeded as rapidly as previously
expected. As a result, our revenue declined from fiscal 2001 levels and may
decline even further in the near future.
Foreign exchange: Our functional currency is the Canadian dollar. Sales
generated outside Canada are generally denominated in U.S. dollars. During
fiscal 2001, we incurred most of our expenses in Canadian dollars, but we also
incurred a significant portion of our expenses in foreign currencies including
U.S. dollars, Pound Sterling and Hong Kong dollars. Changes in the value of
these currencies relative to the Canadian dollar may result in currency losses
that may have an adverse effect on our operating results. During fiscal 2001 we
maintained a portion of our cash resources in U.S. dollar term deposits. Upon
completion of our cost reductions during September 2001, our exposure to U.S.
expenses was significantly reduced and we transferred our remaining U.S. dollar
cash resources to Canadian dollar deposits. With the completion of our recent
financing in April 2002, we again have a portion of our cash resources in U.S.
dollar term deposits.
Litigation: Our Company has been named as a defendant in various proceedings
arising in the course of our Company's activities and arising from transactions
relating to a previous business operated by our Company. Litigation arising from
these matters may be time consuming, distracting and expensive. An adverse
resolution to any of these proceedings may have a material adverse impact on our
business and financial condition.
OTHER
During the quarter John McMahon and Tony Werner resigned from the Board of
Directors.