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
(JUNE 24, 2003)
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 - Completion of US$3.1 million private placement financing
2. Press Release - Quarter ended April 30, 2003
3. Financial Statements for the Six Months ended April 30, 2003
4. Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quarter ended April 30, 2003
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
------
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
------
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.
- --------------------------
(REGISTRANT)
DATE: JUNE 24, 2003 BY: /s/ DAVID HACKETT
-------------------------------------
DAVID HACKETT, CHIEF FINANCIAL OFFICER
DIVERSINET COMPLETES US$3.1 MILLION PRIVATE PLACEMENT FINANCING
TORONTO, CANADA, JUNE 24, 2003 - DIVERSINET CORP. (OTC BB: DVNT), a leading
provider of secure mobile solutions, today announced that it has received
signed, irrevocable subscriptions for the sale of 5,000,000 unregistered common
shares of the Company at US$0.62 per unit for gross proceeds of US$3,100,000. At
the time of pricing, the 5 day moving average was just less than 62 cents, so
this financing represents a 'no-discount' transaction. The Company received
funds and subscriptions in excess of the maximum. The private placement was a $2
million minimum and a $3.1 million maximum.
The common shares cannot be re-sold in the public markets until a registration
statement has been filed and declared effective by the U.S. Securities and
Exchange Commission.
The shares were purchased by institutional investors, accredited investors in
the United States and management. The proceeds will be used for expanding the
Company's sales efforts, working capital and general operations. After
completion of the private placement there are 9,212,308 shares issued and
outstanding and 10,764,966 shares on a fully diluted basis.
This press release does not represent an offer to buy or to sell any securities.
ABOUT DIVERSINET CORP.
Diversinet is a leading provider of secured mobile solutions to the enterprise,
financial services, and gaming and wagering marketplaces. With demonstrated
expertise in wireless and security, Diversinet delivers secure, reliable and
scalable mobile solutions through security products and professional services
such as application development and integration, consulting, training and
technical support. Diversinet enables customers and their employees to securely
access applications and critical corporate information from anywhere, at anytime
and via any mobile device.
Diversinet is headquartered in Toronto, Canada, with offices in Fremont,
California; Hong Kong, SAR; and London, England. For more information visit
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:
David Hackett
Chief Financial Officer, Diversinet Corp.
Tel: (416) 756-2324, ext. 275
DIVERSINET CORP. ANNOUNCES RECORD QUARTERLY REVENUES
AND SECOND QUARTER FISCAL 2003 RESULTS
Operating cash loss narrows by 64%
Revenue up 696% for first six months
TORONTO, CANADA, JUNE 24, 2003 - DIVERSINET CORP. (OTC BB: DVNT), a leading
provider of secured mobile solutions, today announced its second quarter fiscal
2003 results.
Revenues for the second quarter of fiscal 2003 were $2,649,000, up from $311,000
in the second quarter of fiscal 2002. For the six months ended April 30, 2003,
the Company reported revenue of $3,867,000, compared to revenue of $486,000 for
the six months ended April 30, 2002. The higher revenue was due to the inclusion
of the results for DSS Software Technologies, which was acquired on January 2,
2003.
The net loss for the quarter ended April 30, 2003, was $2,084,000, or $(0.65)
per share, compared to a net loss for the same quarter in fiscal 2002 of
$2,063,000, or $(0.74) per share. The net loss reported was $3,198,000, or
$(0.99) per share for the six months ended April 30, 2003, compared to a net
loss of $3,788,000, or $(1.39) in the same period in fiscal 2002.
Cash used in operating activities was $795,000 in the three months ended April
30, 2003, a decline of 64% from the amount used in the same period of the prior
year. The Company continues to show reduced quarter over quarter usage of cash
in operations from last year and we continue to be vigilant in our cost control
efforts.
By right-sizing our staff and our office space as our product development
efforts reached completion, we have reduced our on-going burn rate by
approximately $100,000 per month, which effect should begin to be seen in the
third quarter and will fully be realized by the fourth quarter.
During the quarter, Diversinet licensed its wireless security software to the
Hong Kong Institute of Vocational Education (HKIVE). The software will be used
to train and give students hands-on experience installing and configuring
wireless security in a final year project in the Higher Diploma in Computer and
Information Engineering course. Diversinet's wireless security software was
chosen since it is the same wireless security technology employed by Hongkong
Post Mobile e-Cert digital certificates. Mobile e-Certs, which are built on
Diversinet's advanced wireless security technology, electronically verifies and
authenticates each party involved in a wireless transaction. During the quarter
we signed a US$200,000 licence deal, however we will be recognizing the revenue
upon confirmation of receipt of the payment.
In second quarter of fiscal 2003, Diversinet's systems integration subsidiary
DSS entered into new product and project development agreements with Sun
Microsystems, a provider of industrial-strength Internet hardware, software and
services; Williams-Sonoma, a nationwide retailer of products for the home;
MENTURA, a provider of educational and family DVD rentals by mail; Semaphore
Partners, who assists sales, marketing and customer management professionals in
Fortune 1000 companies acquire, convert and retain customers through
technology-enabled solutions; and Eveo, the developer of a web-based rich media
publishing platform that enables marketers to quickly and affordably, create,
publish, and track rich media presentations, e-mails, interactive audio/video,
newsletters, and promotional micro-sites.
Also during the quarter, Anthony Marcon was appointed VP, Financial Services.
Prior to joining Diversinet, Anthony worked at CertaPay Inc., E*Trade Canada and
HSBC in various sales and business development roles. Anthony has extensive
experience in developing and structuring deals with leading financial
institutions in North America, Europe and the Asia Pacific regions.
Subsequent to the quarter end, the Company completed the issue and sale of
5,000,000 common shares in the capital of the Company at US$0.62 per share for
gross proceeds of US$3,100,000. With this financing, the Company expects to have
sufficient cash resources for the foreseeable future.
ABOUT DIVERSINET CORP.
Diversinet is a leading provider of secured mobile solutions to the enterprise,
financial services, and gaming and wagering marketplaces. With demonstrated
expertise in wireless and security, Diversinet delivers secure, reliable
and scalable mobile solutions through security products and professional
services such as application development and integration, consulting, training
and technical support. Diversinet enables customers and their employees to
securely access applications and critical corporate information from anywhere,
at anytime and via any mobile device.
Diversinet is headquartered in Toronto, Canada, with offices in Fremont,
California; Hong Kong, SAR; and London, England. For more information visit
www.diversinet.com.
- ------------------
###
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.
David Hackett
Tel: (416) 756-2324, ext. 275
DIVERSINET CORP.
CONSOLIDATED BALANCE SHEETS
[in Canadian dollars]
APRIL 30 October 31
2003 2002
$ $
========================================================================
(UNAUDITED)
ASSETS
CURRENT
Cash and cash equivalents 842,772 953,272
Short-term investments - 2,887,352
Accounts receivable 1,479,947 416,070
Other receivables 97,724 24,952
Prepaid expenses 399,170 120,608
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TOTAL CURRENT ASSETS 2,819,613 4,402,254
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Capital assets, net 1,464,069 1,877,012
Goodwill 1,417,374 -
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TOTAL ASSETS 5,701,056 6,279,266
========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable 1,365,606 551,306
Accrued liabilities 1,422,350 1,093,352
Current portion of promissory note 432,000 -
Current portion of notes payable 13,860 -
Deferred revenue 25,778 14,452
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TOTAL CURRENT LIABILITIES 3,259,594 1,659,110
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Promissory note 432,000 -
Notes payable 5,040 -
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TOTAL LIABILITIES 3,696,634 1,659,110
========================================================================
SHAREHOLDERS' EQUITY
Share capital 58,949,961 58,957,962
Share purchase warrants 589,824 -
Contributed surplus 97,500 97,500
Deficit (57,632,863) (54,435,306)
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TOTAL SHAREHOLDERS' EQUITY 2,004,422 4,620,156
========================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 5,701,056 6,279,266
========================================================================
DIVERSINET CORP.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
[in Canadian dollars]
Three and six months ended April 30, 2003
(Unaudited)
THREE MONTHS APRIL 30 SIX MONTHS APRIL 30
2003 2002 2003 2002
$ $ $ $
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REVENUE
Software products 29,604 311,189 313,556 485,641
Consulting services 2,619,550 - 3,553,363 -
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2,649,154 311,189 3,866,919 485,641
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Cost of sales 2,252,551 - 3,039,116 -
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GROSS MARGIN 396,603 311,189 827,803 485,641
EXPENSES
Research and development 531,978 761,015 969,535 1,408,633
Sales and marketing 381,561 476,420 780,984 908,011
General and administrative 1,227,054 1,055,704 1,839,120 1,792,156
Depreciation and amortization 365,458 145,598 502,838 267,474
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2,506,061 2,438,737 4,092,477 4,376,274
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Loss before the following (2,109,448) (2,127,548) (3,264,674) (3,890,633)
Interest income (25,907) (64,224) (67,117) (102,351)
=========================================================================================
LOSS FOR THE PERIOD (2,083,541) (2,063,324) (3,197,557) (3,788,282)
=========================================================================================
LOSS PER SHARE (0.65) (0.74) (0.99) (1.39)
=========================================================================================
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 3,222,308 2,798,694 3,222,308 2,718,737
=========================================================================================
DEFICIT, BEGINNING OF PERIOD (55,549,322) (49,763,322) (54,435,306) (48,038,364)
Loss for the period (2,083,541) (2,063,324) (3,197,557) (3,788,282)
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DEFICIT, END OF PERIOD (57,632,863) (51,826,646) (57,632,863) (51,826,646)
=========================================================================================
DIVERSINET CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[in Canadian dollars]
Three and six months ended April 30, 2003
(Unaudited)
Three months April 30 Six months April 30
2003 2002 2003 2002
$ $ $ $
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OPERATING ACTIVITIES
Loss for the period (2,083,541) (2,063,324) (3,197,557) (3,788,282)
Add (deduct) items not requiring an outlay of cash:
Depreciation and amortization 365,458 145,598 502,838 267,474
Changes in non-cash working capital items
related to operations:
Accounts receivable and other receivables 493,549 (115,771) 2,449,185 97,061
Prepaid expenses 146,904 100,899 (220,344) 277,713
Accounts payable and accrued liabilities 295,293 (284,912) (392,648) (1,435,485)
Deferred revenue (12,962) (2,852) 11,326 3,853
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CASH USED IN OPERATING ACTIVITIES (795,299) (2,220,362) (847,200) (4,577,666)
===========================================================================================================
FINANCING ACTIVITIES
Issue of common shares, common purchase options,
warrants for cash and share consolidation costs (8,001) 4,773,626 (8,001) 4,773,626
Notes payable (87,131) - (1,359,305) -
Promissory notes payable (82,140) - (82,140) -
Bank indebtedness (380,000) - (380,000) -
Deferred financing costs 200 - (27,401) -
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CASH PROVIDED BY FINANCING ACTIVITIES (557,072) 4,773,626 (1,856,847) 4,773,626
===========================================================================================================
INVESTING ACTIVITIES
Short-term investments - - 2,887,352 3,087,680
Acquisition, net of cash received (13,549) - (351,152) -
Additions to capital assets 58,210 (2,190) 57,347 (11,392)
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CASH PROVIDED BY INVESTING ACTIVITIES 44,661 (2,190) 2,593,547 3,076,288
===========================================================================================================
NET INCREASE IN CASH AND CASH
EQUIVALENTS DURING THE PERIOD (1,307,710) 2,551,074 (110,500) 3,272,248
Cash and cash equivalents,
beginning of the period 2,150,482 3,783,018 953,272 3,061,844
===========================================================================================================
CASH AND CASH EQUIVALENTS,
END OF THE PERIOD 842,772 6,334,092 842,772 6,334,092
===========================================================================================================
DIVERSINET CORP.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts expressed in Canadian dollars)
Three and six months ended April 30, 2003
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. The Company, through its
subsidiary, DSS Software Technologies, provides consulting services to
businesses in Silicon Valley and professional software consultants to IS/IT
departments.
1. 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
activities. There can be no assurance that the Company will be successful in
obtaining additional financing.
Should the Company be unable to generate positive cash flows from operations or
secure additional financing in the foreseeable 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.
2. Significant accounting policies
a) 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, 2002
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, 2003 and the statement of loss
and deficit and cash flows for the six months ended April 30, 2003 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, 2002.
b) Goodwill
The Company uses the purchase method of accounting for business combinations.
The Company evaluates all business combinations for intangible assets that must
be recognized and reported apart from goodwill. Goodwill acquired in business
combinations after June 30, 2001 is not amortized and will be tested for
impairment on at least an annual basis.
c) Stock-based compensation
Effective November 1, 2002, the Company adopted the new CICA Handbook section
3870, "Stock-Based Compensation and Other Stock-Based Payments", which requires
that a fair value based method of accounting be applied to all stock-based
payments to non-employees and to direct awards of stock to employees. There was
no impact on the consolidated financial statements on adoption of the section.
However, the standard permits the Company to continue its existing policy of
recording no compensation cost on the grant of stock options to employees with
the addition of pro-forma information as if the fair value method has been
applied (note 6).
3. Acquisition
In January 2003, the Company acquired 100% of the outstanding shares of DSS
Software Technologies, a consulting services provider. The aggregate purchase
price was $2,022,573 consisting of $473,070 (U.S.$300,000) in cash, $13,539 in
the costs associated with the acquisition, $946,140 (U.S.$600,000) of promissory
note payable in instalments of U.S.$300,000 on January 2, 2004 and U.S.$300,000
on January 2, 2005 and 120,000 share purchase warrants with a value of $589,824
(U.S.$374,040). The share purchase warrants vest equally on January 2, 2003,
2004 and 2005 and are exercisable at U.S.$3.75 per share for five years.
Additional future cash consideration in the amount of $1,892,280
(U.S.$1,200,000) is payable based on the achievement of certain financial
targets over the next three years and will be recorded with an increase to
goodwill when the targets have been met. The acquisition was accounted for
using the purchase method and the purchase price was allocated as follows:
Fair value of net capital assets acquired 147,242
Working capital 457,957
Goodwill 1,417,374
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Purchase price 2,022,573
================================================================================
4. Interest in joint venture
On June 4, 2001, the Company entered into an agreement with an Asian company to
establish 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,
2003. There were no operations in the joint venture this quarter.
================================================================================
Capital assets 358,862
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Total assets $358,862
================================================================================
================================================================================
Accounts payable 195,652
Accrued liabilities 1,254
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Total liabilities $196,906
================================================================================
5. Segmented information
The Company operates in two reportable operating segments, that being the sale
of security software products and consulting services. At April 30, 2003, assets
in the security software products segment was $2,741,452 and in the consulting
services segment was $2,941,607. At April 30, 2003, 48% (100%-October 31, 2002)
of the assets were attributable to the security software products segment and
the remaining balance were attributable to the consulting services segment. All
goodwill has been assigned to the consulting services reporting unit. At April
30, 2003, 95% [100% - October 31, 2002] of the capital assets were located in
Canada and 5% [nil - October 31, 2002] were located in the United States. Two
customers contributed 32% and 23% respectively of total revenue for the three
month period ended April 30, 2003, two different customers contributed 37% and
31% of revenue for the three month period ended April 30, 2002.
THREE MONTHS APRIL 30, 2003 SIX MONTHS APRIL 30, 2003
$ $ $ $ $ $
===========================================================================================================
SOFTWARE CONSULTING TOTAL SOFTWARE CONSULTING TOTAL
PRODUCTS PRODUCTS
Revenue 29,604 2,619,550 2,649,154 1,241,882 2,625,037 3,866,919
Cost of sales 2,252,551 2,252,551 3,039,116 3,039,116
- -----------------------------------------------------------------------------------------------------------
Gross margin 29,604 366,999 396,603 1,241,882 (414,079) 827,803
- -----------------------------------------------------------------------------------------------------------
Research and development 531,978 969,535
Sales and marketing 381,561 780,984
General and administrative 1,227,054 1,839,120
Depreciation and amortization 365,458 502,838
- -----------------------------------------------------------------------------------------------------------
Loss before interest income (2,109,448) (3,264,674)
===========================================================================================================
All revenue was generated from one operating segment, software products, during
the six month period ended April 30, 2002.
THREE MONTHS APRIL 30 SIX MONTHS APRIL 30
2003 2002 2003 2002
$ $ $ $
=============================================================================
REVENUE
United States 2,625,037 19,805 3,553,363 28,744
Asia 20,765 177,029 303,890 257,122
Canada 3,352 114,355 9,666 199,775
- -----------------------------------------------------------------------------
2,649,154 311,189 3,866,919 485,641
=============================================================================
6. Share capital
a) As at April 30, 2003, the following were outstanding:
Number of common shares 3,222,308
Number of common share options granted under the Company's stock option plan 317,391
On January 28, 2003 the Company completed a reverse stock split of its issued
and outstanding common shares whereby every ten shares of common stock were
exchanged for one share of common stock. All common share amounts in the
financial statements have been restated to give effect to the stock split.
b) Stock-Based compensation
For companies electing not to adopt the fair value measurement for stock-based
compensation for employee grants, the pronouncement required the disclosure of
proforma loss and loss per share information. The Company has elected to
present the proforma information as if the Company had accounted for its stock
options issued from December 15, 1995 under the fair value method. A summary of
the required proforma disclosure of the impact on the consolidated statements of
loss is presented in the table below:
THREE MONTHS APRIL 30 SIX MONTHS APRIL 30
2003 2003
$ $
=================================================================================================
Loss for the period (2,083,541) (3,197,557)
Compensation expense related to the fair value of stock options 1,046,174 2,637,385
- -------------------------------------------------------------------------------------------------
Proforma loss for the period (3,129,715) (5,834,942)
Proforma loss per common share: Basic and diluted (0.97) (1.81)
=================================================================================================
Weighted average number of common shares 3,222,308 3,222,308
The fair value of each option granted has been determined using the
Black-Scholes option-pricing model. Assumptions used when valuing the options at
their date of grant using the Black-Scholes option pricing model include:
risk-free interest rate of 3.092%, estimated life of three years, expected
divided yield of 0% and volatility of 150%.
The Company granted 58,700 options (2002 - 173,500) during the six month period
ended April 30, 2003.
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, 2003 and
October 31, 2002 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, 2003 and 2002 and the Notes to Interim Consolidated Financial
Statements for Diversinet Corp. On January 2, 2003 we completed the acquisition
of DSS Software Technologies (DSS) and the DSS results are included as of the
acquisition date.
DSS is a software solutions and consulting provider serving businesses in the
Silicon Valley with skilled and professional software consultants. DSS's
consultants work in information services and information technology departments
for a wide variety of companies performing functions such as system
administration, database administration, software development, web development,
data conversion, ERP - CRM implementation, migrations, upgrades, integrations
and developing interfaces. DSS's current technical expertise is focused on
Oracle, CRM (Siebel), ERP, Java development and architecture.
Subsequent to the quarter end, the Company completed the issue and sale of
5,000,000 common shares in the capital of the Company at US$0.62 per shares for
gross proceeds of US$3,100,000. With this financing, the Company expects to have
sufficient cash resources for the remainder of the fiscal year and into the 2004
fiscal year.
OPERATING RESULTS
We reported a similar net loss of $2,084,000 for the three months ended April
30, 2003 compared to a net loss of $2,063,000 in the prior year's second
quarter. The net loss was $3,198,000 for the six months ended April 30, 2003
compared to a net loss of $3,788,000 in the same period in fiscal 2002. During
the quarter we increased our depreciation and amortization of leasehold
improvements by $231,000 in anticipation of our subleasing of part of our
Toronto office space, effective July 1, 2003. The decreased net loss in the
first six months of 2003 is attributable to our continued efforts in cost
control and in part to the acquisition of DSS effective January 2, 2003.
For the three months ended April 30, 2003, we reported revenue of $2,649,000
compared to revenue of $311,000 for the quarter ended April 30, 2002. The
current period revenue is made up of DSS revenues of $2,619,000 and Diversinet
revenues of $30,000. While we signed a US$200,000 licence deal in the second
quarter, we will be recognising the revenue upon confirmation of receipt of the
payment.
Cost of sales for the three months ended April 30, 2003 was $2,253,000
(representing a gross margin of 14% on DSS revenues) compared with $0 for the
quarter ended April 30, 2002. Cost of sales for the six months ended April 30,
2003 was $3,039,000 (representing a gross margin of 14% on DSS revenues)
compared with $0 for the six months ended April 30, 2002. The cost of sales
represents the direct costs associated for DSS completing the consulting
services revenue. As we integrate DSS and Diversinet and
start to focus DSS towards wireless application consulting, we expect that the
gross margins on DSS revenues will improve.
Research and development expenses decreased to $532,000 in the three months
ended April 30, 2003 from $761,000 in the three months ended April 30, 2002
resulting primarily as a result of continued efforts to reduce costs. Research
and development expenses decreased to $970,000 in the six months ended April 30,
2003 from $1,409,000 in same period of fiscal 2002.
Sales and marketing expenses were $382,000 in the second quarter of fiscal 2003
compared to $476,000 in the second quarter of fiscal 2002. Sales and marketing
expenses were $781,000 in the first six months of fiscal 2003 compared to
$908,000 in the same period of fiscal 2002. The decrease is due in part to a
reduction in travel costs and license fees. During the six months of fiscal 2003
we expanded the sales team adding experienced sales people in Hong Kong, the
United States and Canada. We believe that selective additions to the sales team
will benefit the Company through increased revenues in the short to medium term.
General and administrative expenses were $1,227,000 for the second quarter of
2003 compared to $1,056,000 incurred during the second quarter of 2002. Foreign
exchange gains were $10,000 for the three months compared to losses of $13,000
for the respective period in 2002. General and administrative expenses were
$1,839,000 for the first six months of 2003 compared to $1,792,000 incurred
during the first two quarters of 2002. Overall Diversinet G&A costs have been
reduced from last year, however with the acquisition of DSS, the additional of
the DSS infrastructure has caused the overall G&A to increase modestly.
Depreciation and amortization expense in the second quarter of fiscal 2003
increased to $365,000 from $146,000 in the second quarter of fiscal 2002. During
the quarter the Company increased its depreciation for leasehold improvements in
anticipation of our subleasing of certain of its office space in Toronto to be
effective July 1, 2003. Depreciation and amortization expense in the first two
quarters of fiscal 2003 increased to $503,000 from $267,000 for the same period
of fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $795,000 in the three months ended April
30, 2003, a decline of 64% from the amount used in the same period of the prior
year. Cash used during the quarter was comprised of the net loss of $2,084,000,
less net depreciation and amortization of $365,000. Other non-cash items include
an increase in accounts payable and accrued liabilities of $295,000, a decrease
in receivables of $494,000, a decrease in deferred revenue of $13,000 and a
decrease in prepaid expenses of $147,000. Cash used in operating activities was
$2,220,000 in the quarter ended April 30, 2002, attributable to 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 $116,000, a decrease in deferred revenue
of $3,000 and a decrease in prepaid expenses of $101,000.
Cash used in operating activities was $847,000 in the six months ended April 30,
2003, a decline of 81% from the amount used in the same period of the prior
year. Cash used during the quarter was comprised of the net loss of $3,198,000,
less net depreciation and amortization of $503,000. Other non-cash items include
a decrease in accounts payable and accrued liabilities of $393,000, a decrease
in receivables of $2,449,000, an increase in deferred revenue of $11,000 and an
increase in prepaid expenses of $220,000. Cash used in operating activities was
$4,578,000 in the six months ended April 30, 2002, attributable to 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 financing activities in the three months ended April 30, 2003, was
$557,000 representing a decrease in the notes payable of $87,000, a decrease in
the promissory notes payable of $82,000, repayment of the $380,000 bank
indebtedness and $8,000 spent on share consolidation costs. Cash used in
financing activities in the quarter ended April 30, 2002, was $4,774,000. 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 used in financing activities in the six months ended April 30, 2003 was
$1,856,000 representing a decrease in the notes payable of $1,359,000, a
decrease in the promissory notes payable of $82,000, repayment of the $380,000
bank indebtedness, an increase in deferred financing costs of $27,000 and $8,000
spent on share consolidation costs. 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 investing activities in the three months ended April 30, 2003
was $45,000 and consisted of $58,000 of proceeds of a capital asset sale and
additional cost of $14,000 incurred for the acquisition of DSS. Cash used in
investing activities in the three months ended April 30, 2002 was $2,000
attributable to capital asset additions.
Cash provided by investing activities in the six months ended April 30, 2003 was
$2,594,000 consisting of $2,887,000 received from proceeds of a short term
investment and $57,000 of proceeds from the sale of capital assets. 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.
With the completion of our recent financing after the quarter end, we believe
that our cash and cash equivalents as at April 30, 2003 of $843,000 and the
additional amounts from the financing will be sufficient to meet our short-term
working capital requirements for the remainder of the fiscal year and into the
2004 fiscal year.
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 2003. 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 DSS signing new consulting services contracts and
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
rateable 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 Over the Counter Bulletin Board. If the Company's
shares do not continue to be listed on the OTC BB, holders of the common shares
will have difficulty selling their shares. Since April 30, 2003 the Company has
been trading on the Over the Counter Bulletin Board under the symbol "DVNT.OB".
As a result there may only be a limited trading market for the common shares and
shareholders could find it difficult to dispose of, or obtain accurate
quotations, for the common shares. No assurance can be given that the Company's
common shares will be come listed on the Nasdaq SmallCap market or a stock
exchange in the future.
Furthermore, the Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure in connection with trades in any stock defined as
a "penny stock". The Commission has adopted regulations that define a penny
stock to be any equity security that has a market price, as defined in those
regulations, of less than U.S. $5.00 per share, subject to certain exceptions.
The Company's common shares are currently penny stock.
The liquidity of the Company's common shares may be materially and adversely
affected if the Company's common shares continue to be deemed to be penny stock
in the future due to the burdensome administration requirements imposed by these
rules.
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 2002 and 2003
year to date, 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 product 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. Furthermore
with the acquisition of DSS, the majority of DSS's revenues and costs from
operations are denominated in U.S. dollars. During fiscal 2002 and 2003 year to
date, we incurred most of our expenses in Canadian dollars, but we also incurred
a 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. With the completion of our recent
financing in April 2002, we have had 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.
CERTIFICATIONS
Certification of Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
In connection with the Quarterly Report of Diversinet Corp. (the "Company") on
Form 6-K for the quarter ended April 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Nagy Moustafa,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge and belief:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and The information contained in the Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: June 24, 2003
/s/ Nagy Moustafa
Nagy Moustafa
President & CEO
The foregoing certification is provided solely for purposes of complying with
the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is not being
filed as part of the Report or as a separate disclosure document.
Certification of Principal Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
In connection with the Quarterly Report of Diversinet Corp. (the "Company") on
Form 6-K for the quarter ended April 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, David Hackett, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to
the best of my knowledge, such knowledge being limited by the fact that I was
not an officer of the Company until March 26, 2002 and belief:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: June 24, 2003
/s/ David Hackett
David Hackett
Chief Financial Officer
The foregoing certification is provided solely for purposes of complying with
the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is not being
filed as part of the Report or as a separate disclosure document.