U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-28423
VALIDIAN CORPORATION
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(Exact name of small business issuer as specified in its charter)
NEVADA 58-2541997
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30 Metcalfe Street, Ottawa, Ontario, Canada K1P 5L4
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(Address of principal executive offices)
Issuers' telephone number: 613-230-7211
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes |X|
No |X|
15,737,786 Shares of the registrant's Common Stock were outstanding as of May
10, 2003
Transitional Small Business Disclosure Format: Yes |_| No |X|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VALIDIAN CORPORATION AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
Consolidated Condensed Balance Sheets
(Unaudited)
March 31, December 31,
2003 2002
--------- ------------
Assets
Current assets:
Cash and cash equivalents $ 1,232 $ 156,650
Prepaid expenses 206,343 214,708
----------- -----------
207,575 371,358
Property and equipment (note 2) 11,399 9,825
Total assets $ 218,974 $ 381,183
----------- -----------
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable and accrued liabilities $ 490,218 $ 337,624
Promissory notes payable (note 3) 1,167,151 1,042,151
----------- -----------
Total liabilities 1,657,369 1,379,775
Stockholders' Deficiency:
Common stock, ($0.001 par value
Authorized 50,000,000 shares);
Issued and outstanding 15,737,786 and
15,727,786 shares at March 31, 2003
and December 31, 2002, respectively 15,736 15,726
Additional paid in capital 5,047,272 5,045,282
Deficit accumulated during the
development stage (6,472,969) (6,031,166)
Retained earnings prior to entering
development stage 21,304 21,304
Treasury stock (7,000 shares at
March 31, 2002 and December 31, 2001, at
cost) (49,738) (49,738)
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Total stockholders' deficiency (1,438,395) (998,592)
----------- -----------
Basis of Presentation (note 1)
Commitment (note 5)
Total liabilities and
stockholders' deficiency $ 218,974 $ 381,183
=========== ===========
See accompanying notes to unaudited interim period
consolidated condensed financial statements.
Pg. 2
VALIDIAN CORPORATION AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
Consolidated Condensed Statements of Operations
For the three months ended March 31, 2003 and 2002
And for the Period from August 3, 1999 to March 31, 2003
(Unaudited)
Period from
August 3,
1999 to
March 31,
2003
2003 2002 (note 1)
---- ---- -----------
Operating expenses
Selling, general and administrative $ 254,170 $ 122,461 $ 2,712,844
Research and development 163,144 90,000 3,599,224
Interest 23,456 5,689 193,675
Other (29) -- 8,878
Amortization 1,062 -- 191,331
Gain on sale of property and equipment -- -- (7,442)
Write-off of accounts receivable -- -- 16,715
Write-off of due from related party -- -- 12,575
Loss on cash pledged as collateral for operating lease -- -- 21,926
Write-down of property and equipment -- -- 14,750
Gain on extinguishment of debt -- -- (291,507)
----------- ----------- -----------
441,803 218,150 6,472,969
Net loss $ (441,803) $ (218,150) $(6,472,969)
=========== =========== ===========
Loss per share $(0.03) $(0.01)
----------- -----------
Weighted average number of common
shares outstanding during period 15,732,230 15,577,703
=========== ===========
See accompanying notes to unaudited interim period
consolidated condensed financial statements.
Pg. 3
VALIDIAN CORPORATION AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
Consolidated Condensed Statements of CASH FLOWS
For the three months ended March 31, 2003 and 2002
And for the Period from August 3, 1999 to March 31, 2003
(Unaudited)
Period from
August 3,
1999 to
March 31,
2003
2003 2002 (note 1)
---- ---- -----------
Cash flows from operating activities:
Net loss $ (441,803) $(218,150) $(6,472,969)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Amortization of property and equipment 1,062 -- 191,331
Consulting fees 2,000 71,775 203,775
Interest expense 23,456 5,689 196,756
Currency translation adjustment on liquidation
of investment in foreign subsidiary -- -- (26,212)
Gain on sale of property and equipment -- -- (7,442)
Gain on extinguishment of debt -- -- (291,507)
Write-off of accounts receivable -- -- 16,715
Write-off of due to related party -- -- 12,575
Loss on cash pledged as collateral for operating lease -- -- 21,926
Write-down of property and equipment -- -- 14,750
Increase (decrease) in cash resulting from changes in:
Prepaid expenses 8,365 (20,209) (48,681)
Due to a related party -- -- (5,178)
Accounts payable and accrued liabilities 129,138 52,497 1,999,066
---------- --------- -----------
Net cash used in operating activities (277,782) (108,398) (4,195,095)
Cash flows from investing activities:
Additions to property and equipment (2,636) -- (322,482)
Proceeds on sale of property and equipment -- -- 176,890
Cash pledged as collateral for operating lease -- -- (21,926)
---------- --------- -----------
Net cash used in investing activities (2,636) (--) (167,518)
Cash flows from financing activities:
Increase in due from related party -- -- 12,575
Issuance of common shares -- -- 2,030,000
Share issuance costs -- -- (96,750)
Redemption of common stock -- -- (49,738)
Issuance of promissory notes 125,000 110,000 2,430,528
Repayment of promissory notes -- -- (16,000)
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Net cash provided by financing activities 125,000 110,000 4,310,615
Effects of exchange rates on cash and cash equivalents -- -- 18,431
---------- --------- -----------
Net increase (decrease) in cash and cash equivalents (155,418) 1,804 (33,567)
Cash and cash equivalents:
Beginning of period 156,650 704 34,799
---------- --------- -----------
End of period $ 1,232 $ 2,508 $ 1,232
========== ========= ===========
See accompanying notes to unaudited interim period
consolidated condensed financial statements.
Pg. 4
VALIDIAN CORPORATION AND SUBSIDIARIES
A DEVELOPMENT STAGE ENTERPRISE
Notes to Consolidated Condensed Financial Statements
March 31, 2003
(Unaudited)
Validian Corporation (the "Company") was incorporated in the State of
Nevada on April 12, 1989 as CCC Funding Corp. The Company went through
several name changes before being renamed to Validian Corporation on
January 28, 2003.
Since August 3, 1999, the efforts of the Company have been devoted to the
development of a high speed, highly secure method of transacting business
using the internet. As of the date of these financial statements, no
software applications were ready for commercial use. Prior to August 3,
1999, the Company provided consulting services for web site
implementation, multimedia CD design, computer graphic publication, as
well as implementation of dedicated software solutions used in connection
with the French Minitel and the internet. As the Company commenced
development activities on this date, it is considered for financial
accounting purposes to be a development stage enterprise and August 3,
1999 is the commencement of the development stage.
1. Basis of Presentation
The accompanying consolidated condensed financial statements include the
accounts of Validian Corporation and its wholly owned subsidiaries
(collectively, the "Company") after elimination of all significant
intercompany balances and transactions. The financial statements have been
prepared in conformity with generally accepted accounting principles in
the United States which require management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. While management has based its assumptions and
estimates on the facts and circumstances currently known, final amounts
may differ from such estimates.
The interim financial statements contained herein are unaudited but, in
the opinion of management, include all adjustments (consisting only of
normal recurring entries) necessary for a fair presentation of the
financial position and results of operations of the Company for the
periods presented. The results of operations for the three months ended
March 31, 2003 are not necessarily indicative of the operating results for
the full fiscal year ending December 31, 2003. Moreover, these financial
statements do not purport to contain complete disclosure in conformity
with generally accepted accounting principles used in the United States
and should be read in conjunction with the Company's audited financial
statements at and for the year ended December 31, 2002.
The consolidated condensed financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has no revenues, has negative working capital of $1,449,794 as at March
31, 2003, and has incurred a loss of $441,803 and negative cash flow from
operations of $277,782 for the quarter. The Company has accumulated a
deficit of $6,472,969 during the development stage, and has a
stockholders' deficiency of $1,438,395. In addition, the Company expects
to continue to incur operating losses for the foreseeable future and has
no lines of credit or other financing facilities in place. To date, the
Company has been able to finance its operations on a month-to-month basis
from investors who recognize the advancement of the Company's research and
development activities.
If the Company obtains further financing, it expects to incur research and
development expenditures of approximately $800,000 for the year ending
December 31, 2003 and anticipates further growth in operations,
infrastructure and personnel. The Company also anticipates an increase in
operating expenses to support its growth plans. The Company currently has
no lines of credit or other financing facilities in place. In the event
the Company cannot raise the funds necessary to support its research and
development activities, it will reduce its activities.
Pg. 5
All of the factors above raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans to address
these issues include continuing to raise capital through the private
placement of equity and renegotiating the repayment terms of accounts
payable, accrued liabilities and promissory notes payable. The Company's
ability to continue as a going concern is subject to management's ability
to successfully implement the above plans. Failure to implement these
plans could have a material adverse effect on the Company's position and
or results of operations and may result in ceasing operations. The
consolidated financial statements do not include adjustments that would be
required if the assets are not realized and the liabilities settled in the
normal course of operations.
Even if successful in obtaining financing in the near term,, the Company
cannot be certain that cash generated from its future operations will be
sufficient to satisfy its liquidity requirements in the longer term, and
it may need to continue to raise capital by selling additional equity or
by obtaining credit facilities. The Company's future capital requirements
will depend on many factors, including, but not limited to, the market
acceptance of its products, the level of its promotional activities and
advertising required to generate product sales. No assurance can be given
that any such additional funding will be available or that, if available,
it can be obtained on terms favorable to the Company.
2. Property and equipment
Property and equipment consists of computer hardware and software, and is
stated at cost less accumulated amortization. These assets are being
amortized on a straight-line basis over their estimated useful life of
three years.
3. Promissory notes payable
March 31, Dec 31,
2003 2002
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Promissory notes payable, bearing
interest at 12%, due on demand,
unsecured $ 667,151 $ 542,151
Promissory notes payable, bearing
interest at 5%, maturing on October 7,
2003, convertible into common shares at
any time, unsecured 500,000 500,000
---------- ----------
$1,167,151 $1,042,151
========== ==========
The holder of the 5% promissory notes may, at any time, convert all or
part of the outstanding principal and accrued interest into common shares
at the lesser of (i) the ratio of 1 common share for each $0.33 of
obligation converted; or (ii) the ratio of shares with a value equal to
the price per share at which common shares have last been issued to a
third party dealing at arms length with the Company.
During the period from April 1 to May 8, 2003, the Company issued a
further $197,000 of 12% demand notes, having terms as described above for
the 12% demand notes issued prior to March 31, 2003.
Pg. 6
4. Common stock transactions
During the three months ended March 31, 2003 the Company issued 10,000
shares of its common stock, valued at $2,000 ($0.20 per common share) to
an unrelated company in consideration for consulting services rendered.
5. Commitment
During the three months ended March 31, 2003, the Company entered into a
fixed-price contract with a supplier for consulting services totalling
$30,000. The Company will recognize the remaining expense of $11,000 as
services are rendered by the supplier, which is expected to occur during
the three months ending June 30, 2003.
Pg. 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION
The discussion in this Form 10-QSB contains both historical information and
forward-looking information. The forward-looking information, which generally is
information stated to be anticipated, expected or projected by us, involves
known and unknown risks, uncertainties and other factors which may cause our
actual results and performance to be materially different from any future
results and performance expressed or implied by such forward-looking
information. Potential risks and uncertainties include, without limitation and
in addition to other factors discussed in this report:
o the uncertainties inherent in the development of new software
applications;
o our need for additional capital funding;
o the need for acceptance of our software applications by third party
payers; and
o rapid developments in technology, including developments by competitors.
We are a software development company focused on developing and commercializing
products based on our technology that provides a multi-platform development
environment and facilitates secure communications on the internet.
RESULTS OF OPERATIONS
The Three Months Ended March 31, 2003 Compared to the Three Months Ended March
31, 2002
Revenue: We generated no revenues during the three months ended March 31, 2003,
nor did we generate any revenues during the three months ended March 31, 2002.
As of August 1999 we directed all of our attention towards the completion of the
software applications discussed above. We believe that if we are successful in
our development and marketing efforts, we will generate a source of revenues in
the future from sales and/or licensing of our software applications.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses consist primarily of personnel costs, professional fees,
communications, occupancy costs and other miscellaneous costs associated with
supporting our research and development and sales and marketing activities.
During the three months ended March 31, 2003 we spent $254,170, as compared to
$122,461 during the three months ended March 31, 2002. This increase of $131,709
(108%) is primarily a result of our increased efforts in the sale and marketing
of our products. Our current marketing program was commenced during the third
quarter of 2002, with the objective of increasing the beta sites and positioning
ourselves within the marketplace, in order to obtain future commercial sales of
our products once their development has been completed.
Research and Development Expenses: Research and development expenses consist
primarily of personnel costs and consulting expenses directly associated with
the development of our software applications. During the three months ended
March 31, 2003 we spent $163,144, an increase of $73,144 (81%) over the $90,000
we spent during the three months ended March 31, 2002, developing our software
applications. This increase occurred as a result of additional senior level
personnel being added to our development team, commencing in the third quarter
of 2002.
Pg. 8
Net Loss: We incurred a loss of $441,803 ($0.03 per share) for the three months
ended March 31, 2003, compared to $218,150 ($0.01 per share) for the three
months ended March 31, 2002. Our revenues and future profitability and future
rate of growth are substantially dependent on our ability to:
o complete the development of products based on our technology;
o identify clients willing to install beta sites for our products;
o operate successfully these beta sites, integrating our technology into
their operations;
o modify the software applications based on the results of the beta site
trials;
o license the software applications to a sufficient number of clients;
o modify the successful software applications, over time, to provide
enhanced benefits to existing users;
o successfully develop related software applications.
LIQUIDITY AND CAPITAL RESOURCES
General: Since inception we have funded our operations from private placements
of debt and equity, including the exercise of warrants issued by us in August
1999. In addition, until September 1999 we derived revenues from consulting
contracts with affiliated parties, the proceeds of which were used to fund
operations. Until such time as we are able to generate adequate revenues from
the licensing of our software applications we cannot assure that cash from the
issuance of debt securities, the exercise of existing warrants and the
placements of additional equity securities will be sufficient to fund our
research and development and general and administrative expenses.
During the period from April 1 to May 8, 2003 we issued $197,000 of 12% demand
notes as described in Note 3 to the financial statements. At this time we have
no other committed sources of equity or debt, and need to locate such sources on
an on-going basis. Failure to raise the funds necessary to support our
activities could have a material adverse effect on our position and or results
of operations and may result in ceasing operations.
Sources of Capital: In August 1999 we made a transition in business strategies.
Prior to August 1999 we provided consulting services in addition to developing
our core technology. Since then, we have directed all of our efforts to
developing of our software applications. Our principal source of capital for
funding our business activities subsequent to August 1999 has been the private
placements of equity, primarily from the exercise of the warrants we issued in
August 1999.
During the three months ended March 31, 2003 we issued $125,000 of 12% demand
notes to partially fund operations. Also during the three months ended March 31,
2003 the Company issued 10,000 shares of its common stock, valued at $2,000
($0.20 per common share) to an unrelated company in consideration for marketing
services rendered.
Uses of Capital: Since commencing operations in February 1995 through July 1999
we generated revenues from consulting contracts and used the funds in excess of
that required to perform the consulting services to fund the development of the
software applications. Since August 1999 we have directed our efforts towards
the development of our software applications. In May 2000, we started to
actively market our software applications. We commenced our current marketing
program during the third quarter of 2002, and have added three full-time
marketing and sales personnel plus two sales agents to assist in this effort.
The objective of this program is to increase the beta sites and to gain market
recognition for our company and our products, in order to generate future
commercial sales of our products in the earliest time-frame possible once the
development of our products has been completed.
Pg. 9
Item 3. CONTROLS AND PROCEDURES
Our management, including the Chief Executive Officer and the Chief Financial
Officer, have conducted an evaluation of the effectiveness of disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in other factors that could significantly
affect internal controls, subsequent to the date the Chief Executive Officer and
Chief Financial Officer completed their evaluation.
Pg. 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2003 the Company issued 10,000 shares of
its common stock, valued at $2,000 ($0.20 per common share) to an unrelated
company in consideration for consulting services rendered.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K
We filed a report on Form 8-K with the Commission on February 6,
2003 and incorporated herein by reference.
Pg. 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
VALIDIAN CORPORATION
By: /s/ Andre Maisonneuve
-----------------------------
Andre Maisonneuve
Chairman, President,
Chief Executive Officer
& Chief Financial Officer
Dated: May 14, 2003
Pg. 12
CERTIFICATIONS
Certifications pursuant to Securities and Exchange Act of 1934 Rule 13a-14 as
adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002:
I, Andre Maisonneuve, Chief Executive Officer of Validian Corporation (the
"Company") certify that:
(1) I have reviewed this quarterly report on Form 10-QSB of the Company;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the periods covered by this
quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
(4) The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the Registrant's ability to record, process,
summarize and report financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
(6) The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/S/ Andre Maisonneuve
------------------------------
Andre Maisonneuve
Chief Executive Officer
May 14, 2003
Pg. 13
I, Andre Maisonneuve, Chief Financial Officer of Validian Corporation (the
"Company") certify that:
(1) I have reviewed this quarterly report on Form 10-QSB of the Company;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the periods covered by this
quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
(4) The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the Registrant's ability to record, process,
summarize and report financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
(6) The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/S/ Andre Maisonneuve
------------------------------
Andre Maisonneuve
Chief Financial Officer
May 14, 2003
Pg. 14