SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended February 28, 2002
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[] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to ___________
Commission file number 33-55254-15
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delSECUR Corporation
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 87-0438451
- -------------------------------- -----------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1801 McGill College, Suite 1330,
Montreal, Quebec Canada H3A 2N4
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(Address of Principal Executive Offices) (Zip Code)
(Issuer's Telephone Number, Including Area Code) (514) 282-9000
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Indicate by a check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of February 28, 2002
- ------------------------ -----------------------------------
$.001 PAR VALUE CLASS A 14,809,304 Shares
COMMON STOCK
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PART I
FINANCIAL INFORMATION
Certain statements contained in this Quarterly Report on Form 10-QSB ("Report"),
including, without limitation, statements containing the words "anticipates",
"expects, "hopeful" and words of similar import, constitute "forward-looking
statements. "Readers should not place undue reliance on these forward-looking
statements. delSECUR's actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including
risks faced by the Company described in this report, and the other documents
delSECUR files with the Securities and Exchange Commission ("SEC"), including
its most recent reports on Form 8-K and Form 10-QSB, and amendments thereto."
ITEM 1. Financial Statements.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows and stockholders' deficit in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operation and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the nine
months ended February 28, 2002 are not necessarily indicative of the results
that can be expected for the year ending May 31, 2002.
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delSECUR CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)
February 28, May 31,
2002 2001
---------------------- ---------------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash $ 0 $ 0
Subscription receivable 98,230 0
Sales taxes receivable 26,466 44,806
Prepaid expenses 36,055 37,239
Receivable-related party 185,000 185,000
---------------------- ---------------------
TOTAL CURRENT ASSETS 345,751 267,045
OTHER ASSETS
Property and equipment 126,276 161,539
License from related party 1 1
---------------------- ---------------------
126,277 161,540
---------------------- ---------------------
$ 472,028 $ 428,585
====================== =====================
LIABILITIES & DEFICIT
CURRENT LIABILITIES
Bank overdraft $ 1,898 $ 1,083
Accounts payable 407,542 218,029
Accrued liabilities 181,844 108,073
Payable-related party 184,907 184,907
Payable - officer 1,602,000 1,545,700
Payable - director 245,776 235,000
Loans payable 183,000 190,000
Deposit on shares not yet issued 0 375,000
---------------------- ---------------------
TOTAL CURRENT LIABILITIES 2,806,967 2,857,792
Deferred credit 2,682 3,832
STOCKHOLDERS' DEFICIT
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 14,809,304
shares (14,509,304 at May 31, 2001) 21,154 20,698
Additional paid-in capital 7,456,814 6,414,414
Deficit accumulated during the development
stage (9,815,589) (8,868,151)
---------------------- ---------------------
TOTAL STOCKHOLDERS' DEFICIT (2,337,621) (2,433,039)
---------------------- ---------------------
$ 472,028 $ 428,585
====================== =====================
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delSECUR CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in Canadian dollars)
(Unaudited)
Three Months Ended Nine Months Ended From Date of
February 28, February 28, inception to
2002 2001 2002 2001 2/28/02
---------------- --------------- --------------- --------------- ---------------
Net sales $ 0 $ 0 $ 0 $ 0 $ 0
Cost of sales 0 0 0 0 0
---------------- --------------- --------------- --------------- ---------------
GROSS PROFIT 0 0 0 0 0
Other income 0 0 0 0 8,000
Depreciation and amortization 11,754 11,853 35,263 32,261 285,105
Interest expense 5,490 5,850 16,820 17,550 115,146
Research and development 50,489 64,011 133,225 163,530 1,057,202
Loss on settlement of shares 0 0 0 331,396 426,486
General and administrative expenses 266,617 257,858 762,130 1,945,201 7,896,384
---------------- --------------- --------------- --------------- ---------------
334,350 339,572 947,438 2,489,938 9,780,323
---------------- --------------- --------------- --------------- ---------------
NET LOSS $ (334,350) $ (339,572) $ (947,438) $ (2,489,938) $ (9,772,323)
================ =============== =============== =============== ===============
BASIC AND DILUTED (LOSS) PER
COMMON SHARE
Net income (loss) per weighted
average share $ (.02) $ (.02) $ (.06) $ (.17)
================ =============== =============== ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 14,793,919 14,380,493 14,793,919 14,380,493
================ =============== =============== ===============
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delSECUR CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)
(Unaudited)
Nine Months Ended From Date of
February 28, inception to
2002 2001 2/28/2002
--------------- --------------- ------------------
OPERATING ACTIVITIES
Net (loss) $ (947,438) $ (2,489,938) $ (9,772,323)
Adjustments to reconcile net (loss) to cash
provided (used) by operating activities:
Depreciation 35,263 32,261 285,106
Amortization of deferred credit (1,150) (1,150) (4,984)
Free rent 0 0 7,666
Stock issued for services 0 2,072,671 3,969,292
Loss on settlement of shares 0 331,606 0
Related party advances 0 0 310,402
Foreign exchange fluctuation 56,300 38,300 188,700
Changes in assets and liabilities:
Subscription receivable (98,230) 0 (98,230)
Sales tax receivable 18,340 (1,658) (26,466)
Prepaid expenses 1,184 (10,347) (36,055)
Receivable - related party 0 (4,040) (495,402)
Accounts payable 189,513 9,978 407,542
Accrued liabilities 73,771 (15,429) 181,844
Payable - related party 0 (250) 184,907
Payable - director 10,776 (268,053) 245,776
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NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (661,671) (306,049) (4,652,225)
INVESTING ACTIVITIES
Purchase of property & equipment 0 (56,675) (411,382)
--------------- --------------- ------------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 0 (56,675) (411,382)
FINANCING ACTIVITIES
Loan 0 0 601,850
Repayment of loan (7,000) 0 (418,850)
Loan from director 0 0 2,085,250
Increase in Bank overdraft 815 0 1,898
Stock sold 456 0 1,165
Contribution by director (100,000) 0 1,649,894
Deposit on shares (375,000) 375,000 0
Increase in paid-in capital 1,142,400 0 1,142,400
--------------- --------------- ------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 661,671 375,000 5,063,607
--------------- --------------- ------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 0 12,276 0
Cash and cash equivalents at beginning of year 0 8,755 0
--------------- --------------- ------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 0 $ 21,031 $ 0
=============== =============== ==================
NON-CASH FINANCING
& INVESTING ACTIVITIES
Repayment of a loan to a shareholder $ 0 $ 0 $ (2,085,250)
Acquisition of license 0 0 (1,413,299)
Cash paid for interest $ 14,510 $ 17,550 $ 112,836
During the nine months ended February 28, 2002, the Company issued 300,000
shares of common stock for $1,142,400, of which $98,230 is receivable at
February 28, 2002.
During the nine months ended February 28, 2001, the Company issued 216,671
shares of common stock for services of $2,072,553 and to settle liabilities of
$331,606.
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ITEM 2. Management's Plan of Operation.
Pursuant to an Agreement made and entered into on February 25th 1998 the
Company issued and delivered on February 26, 1998, 12,848,300 shares of its
Common Stock bearing a restrictive legend to 3127575 Canada Inc. (now delSECUR
Inc.), a Canadian Corporation, in exchange for which issuance, it acquired all
of the outstanding shares of 3127575 Canada Inc. Through 3127575 Canada Inc.,
the Company has become the exclusive licensee of the del-ID technology for
personal identification by means of electronic scanning of finger
characteristics. 3127575 Canada Inc., obtained these exclusive rights by the
Exclusive License Agreement dated November 12, 1997 between it and Pierre de
Lanauze, inventor of the del-ID technology.
The transaction was exempt from the registration requirements of the
Securities Act of 1933 by virtue of Section 4(2) thereof. Also, because the
12,848,300 shares were issued solely to non- U.S. persons, the transaction
qualified for exemption under Rules 901 et seq. of Regulation S.
Following the above transaction the former shareholders of delSECUR Inc.
owned 92.5% of the outstanding shares of the Company.
The del-ID(Registered) technology permits precise and positive
authentication of the identity of any living individual and is applicable to a
wide range of financial transactions where authentication of the individual is
necessary to eliminate fraud and other improper use of services. The del-
ID(Registered) system collects biological data from the finger image of the
individual and transfers the image to a unique electronic signature called the
"del-gram". The del-gram is not a digitized bitmap image of the finger, but a
synthesized subset of biological data sufficient to identify the individual.
Commercial applications of the del-ID(Registered) technology are numerous
and include access to the information highway/internet, identification of
employees working from a home office and requiring access to certain databases
or information, health cards, social insurance cards, drivers' licenses,
passport control encryption and access to confidential files, control of payment
by debit or credit payment systems such as credit cards, smartcards,
authentication of oral telephone ordering, access control to sensitive areas,
hotel room access, cellular and digital telephone controls, automobile entry and
protection, census and election control, door locks, vault locks, residential
alarm system controls, timesheet management, student file management and many
others.
Patent protection was pending for the del-ID system in the United States.
Since June 26, 2001, The United States Patent application has been allowed for
issuance by the U.S. Department of Commerce Patent and Trademark Office.
We improved the technology from a proof of concept to totally functional
devices that we called "the first generation". Those del-ID(Registered) devices
will be implemented for dedicated applications with leading corporations. The
secondary done in parallel covers the implementation of a study in a controlled
laboratory environment. During the last two years, an amount of $446,521 was
spent for Research & Development, $184,569 for the year ending May 31, 2000 and
$261,952 for the year ending May 31, 2001. Research and development expenses
were $133,225 and $163,530 for the nine months ended February 28, 2002 and 2001
respectively.
Moreover, culminating several months of discussions with various agencies
and senior levels of the United States Government, the Company is involved with
National Security Agency who has signed a Confidential Agreement. The signing of
the agreement will permit delSECUR Inc. to disclose its core del-ID(Registered)
technology to NSA for testing and evaluation as a national and international
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means of protection against computer hacking. They have to make recommendations
to the US Federal Government. The signing of this Confidentiality Agreement
confirmed the uniqueness and innovative aspects of the del-ID(Registered)
technology, as mentioned on the Press Release issued on April 5th, 2000. The
next step will be the implementation of the totally functional del-ID technology
within their laboratory as agreed with their representatives.
The Company expects to encounter substantial competition in the business in
which it proposes to engage. It is likely that the competing entities will have
significantly greater experience, resources, facilities, contacts and managerial
expertise than the Company and will, consequently, be in a better position than
the Company to obtain access to and to engage in the proposed business. The
Company may not be in a position to compete with larger and more experienced
entities. Business opportunities in which the Company may ultimately participate
are likely to be very risky and extremely speculative.
The Company will not manufacture del-ID (Registered) cards or card readers
directly. This will tend to minimize the capital requirements of the Company,
its principal activities being limited to marketing the del-ID system to
manufacturers and/or users internationally. Anticipated sources of revenue are
license fees payable by government agencies and corporate entities for the right
to manufacture, use or sell cards and card readers incorporating the del-ID
system, as well as royalty payments by such entities for each card and reader
employed in a del-ID system. We anticipate the first commercial revenue
following the issuance of first application results from our technology
showcases.
delSECUR Corporation announced July 1st 1999 the creation of a new wholly
owned subsidiary, delSECUR USA Inc., incorporated in Delaware and with its
principal offices located at 555, 11th Street NW, 6th Floor, Lincoln Square,
Washington D.C. 20004.
This subsidiary has been created specifically to manage all delSECUR
operations in the United States. The decision to locate the offices in
Washington D.C. was made following the recent expressions of interest in the
del-ID (Registered) technology by several U.S. Government agencies. This
subsidiary has no employees and does not have any operations.
The corporation's Canadian subsidiary has currently 5 employees who are
officers of the Company.
The Agreement dated February 25, 1998 and the Exclusive License Agreement
dated November 12, 1997 were attached as Exhibits A and B to the Company's
electronic filing of Form 8-K on March 10, 1998.
In December 2000, the Company adopted the delSECUR Corporation Stock Option
Plan for the granting of stock options to directors, officers, employees and
consultants of the Company. The Company has reserved 1,400,000 shares of common
stock for issuance under the Plan, in order to enable certain key employees,
officers, directors and consultants of the Corporation to participate in the
growth of the Corporation and thereby provide effective incentives for such
individuals. The Plan shall be managed by the Board of Directors.
In accordance with the terms of the Plan, the beneficiaries may be granted
options to purchase ordinary shares at a price determined by the Board of
Directors. The price may not be below the market price in accordance with the
regulations established by the regulatory bodies having jurisdiction over the
securities of the Corporation. The total amount of common shares of the
Corporation that may be subscribed under the Plan is 1,400,000 shares.
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The financing of current operations will be provided in part by the Balance
to be received of USD $65,000 of the Private placements in the initial amount of
USD $750,000. We are hopeful to close the transaction before the end of April
2002.
If needed, the controlling shareholder, Mr. Pierre de Lanauze, will provide
the appropriate funding to meet the company's operations. This funding arise
from the sales of shares from his personal portfolio. Mr. de Lanauze holds
6,975,797 ordinary shares carrying shares certificate number 2010. The total
number of shares issued and outstanding of delSECUR CORPORATION is 14,809,304.
Management is of the opinion that the Company's del-ID technology, while as
yet untested in the marketplace, represents a viable business opportunity in a
number of different fields of government and business activity. Given the well
publicized worldwide requirement for ID authentication systems and the paucity
of suitable alternatives available, it is the intention of management to proceed
by way of co-ventures, joint ventures, sublicense agreements and similar
arrangements with major entities, including governments at all levels, that can
benefit from implementing the technology in their existing operations. The
Company has no present intention to manufacture del-ID products; instead,
products will be manufactured by licensed outside suppliers/users.
The last twelve months have been dedicated to finalizing the technology
del-ID(registered) advancing from a concept version all the way to
pre-commercialization edition devices. We actually have a functional reader to
create the abstract image from a living finger with the enrolment software and
diagnostics both operational. We have also developed an application for a smart
card.
We are now in the process to implement technologies showcases with banks,
government and industries. We have already letter of intent to this effect.
We have gained much intelligence and credibility when the patent has been
allowed to Mr. De Lanauze on the del-ID(registered) technology by the U.S.
Patent Office. delSECUR can confirm to hold the exclusive, world-wide license of
a unique technology of which the intellectual property is official recognized.
For a potential licensee this is a factor in their decision to commit to
commercialization and legally with delSECUR.
There is a momentum to replace personal identification number (PIN) and
passwords by a more secure technology. We are in relation with potential users
and their interest in the del-ID(registered) technology make the management team
confident to generate incomes in the actual fiscal year.
As of February 28, 2002, the Company's balance sheet showed an accumulated
deficit of $9,815,589, an increase of $947,438 during the nine months.
Operations to date have been financed principally by loans from senior
management and others and sales of common stock. Additional unsecured loan
facilities continue to be available and are believed by management to be
sufficient to finance operations over the next several months, pending the
anticipated initial receipt of contract revenues during the second half of the
current fiscal year.
The Company had a net loss of $947,438 for the nine months ended February
28, 2002 compared with a loss of $2,489,938 for the same period for the prior
year. The main decrease from 2001 was reducing promotion expenses by about $1.17
million.
The Company will continue to seek marketing opportunities for product
licensing with governmental agencies and corporate entities on a world-wide
basis.
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As the Company will be engaged in securing licensing contracts for use of
its existing del- ID(R) technology, no significant expansion of the physical
plant, equipment or number of employees is foreseen for the period of the next
twelve months.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
delSECUR Corporation
Date: April 25, 2002 By:/s/ Pierre de Lanauze
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Pierre de Lanauze, President,
Chairman of the Board and Director
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