-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JW9wx5HSYFm3MHoDzLcfkgE3k65i9yk3pmgOGp0bVtgBOBdqMZr1JbBGYUlHPsR2 A06ZV8lLCKO0HnYxaU31tw== 0000910647-98-000232.txt : 19980817 0000910647-98-000232.hdr.sgml : 19980817 ACCESSION NUMBER: 0000910647-98-000232 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: BSE SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WIDECOM GROUP INC CENTRAL INDEX KEY: 0000922023 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 980139939 STATE OF INCORPORATION: A6 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13588 FILM NUMBER: 98689543 BUSINESS ADDRESS: STREET 1: 72 DEVON ROAD STREET 2: BRAMPTON CITY: ONTARIO, CANADA L4Z STATE: A6 BUSINESS PHONE: 9057120505 MAIL ADDRESS: STREET 1: 72 DEVON ROAD STREET 2: BRAMPTON CITY: ONTARIO, CANADA L4Z STATE: A6 10QSB 1 FORM 10-QSB FOR 1ST QUARTER ============================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [ ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1998. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to Commission file number 1-13588 THE WIDECOM GROUP INC. (Exact Name of Registrant as specified in Its Charter) ONTARIO, CANADA 98-0139939 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 72 DEVON ROAD, UNIT 17-18, L6T 5B4 BRAMPTON, ONTARIO, CANADA (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code (905) 712-0505 Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report. Indicate by check X whether the registrant: (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 periods 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 ___ The number of shares outstanding of registrant's common stock as of August 13, 1998 was 5,978,128 shares. Transitional Small Business Disclosure Format. Yes ___ No X 1 of 9 THE WIDECOM GROUP INC. FORM 10-QSB INDEX Page No. Part I Financial Information Item 1 - Financial Statements Consolidated Balance Sheets - June 30, 1998 and June 30, 1997 3 Consolidated Statements of Operations - Three months ended June 30, 1998 And June 30, 1997 4 Consolidated Statements of Cash Flows - Three months ended June 30, 1998 And June 30, 1997 5 Notes to Consolidated Financial Statements 6-7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Signatures 9 Exhibit 27 - Financial Data 2 of 9 PART I FINANCIAL INFORMATION THE WIDECOM GROUP INC. CONSOLIDATED BALANCE SHEET (in United States dollars)
June 30, --------------------------- 1998 1997 ---- ---- (unaudited) (unaudited) Assets Current assets Cash and cash equivalents $ 290,282 $ 2,103,870 Accounts receivable 601,255 873,054 Research and development grants receivable - 270,531 Prepaid expenses 93,884 89,193 Advance to related parties 175,013 117,184 Inventory (Note 3) 1,685,576 1,394,975 ---------------------------- Total current assets 2,846,010 4,848,807 Capital assets (Note 4) 1,610,852 1,715,130 Investment in affiliates 894,096 1,594,059 ---------------------------- Total assets $ 5,350,958 $ 8,157,996 ============================ Liabilities and Shareholders' Equity Current liabilities Bank indebtedness $ 271,315 $ 358,509 Accounts payable and accrued liabilities 841,800 1,260,434 Convertible debentures (Note 5) 150,000 204,750 ---------------------------- Total current liabilities $ 1,263,115 $ 1,823,693 ---------------------------- Shareholders' equity Common shares $13,252,497 $12,622,985 Contributed surplus 159,825 159,825 Deficit (9,124,622) (6,326,488) Cumulative translation adjustment (199,857) (122,019) ---------------------------- 4,087,843 6,334,303 ---------------------------- Total liabilities and shareholders' equity $ 5,350,958 $ 8,157,996 ============================
See accompanying notes to the consolidated financial statements. 3 of 9 THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in United States dollars)
For the three months ended -------------------------- June 30, June 30, 1998 1997 -------- -------- (unaudited) (unaudited) Product sales $ 617,696 $ 885,633 Cost of product sales 163,689 221,408 ------------------------- Gross profit 454,007 664,225 Research and development grants 99,887 - Interest income 10,393 63,963 ------------------------- Net revenue 564,287 728,188 ------------------------- Expenses Research and development - 87,719 Selling, general and administrative 714,947 968,973 Interest and bank charges 9,417 4,307 Management fees and salaries 75,493 117,603 Amortization 88,122 96,736 Foreign exchange loss 21,182 - ------------------------- Total operating expenses 909,161 1,275,338 ------------------------- Operating income (loss) (344,874) (547,150) ------------------------- Equity in loss of affiliate (131,765) (92,220) Legal settlement costs - (375,000) ------------------------- Earnings (loss) before extraordinary item (476,639) (1,014,370) ========================= Extraordinary item, net of tax - - ------------------------- Net earnings (loss) for the period $ (476,639) $(1,014,370) ========================== Loss per common share before extraordinary item, basic and diluted $ (0.08) $ (0.18) ========================== Loss per common share, basic and diluted $ (0.08) $ (0.18) ========================== Weighted average number of shares outstanding 5,955,178 5,565,251 ==========================
See accompanying notes to the consolidated financial statements. 4 of 9 THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in United States dollars)
For the three months ended -------------------------- June 30, June 30, 1998 1997 -------- -------- (Unaudited) (Unaudited) Cash provided by (used in) Operating activities Loss for the period before Extraordinary item $(476,639) $(1,014,370) Add (deduct) items not requiring a cash outlay Amortization 88,122 96,736 Foreign exchange loss 21,182 Equity in loss of affiliate 131,765 92,220 Net changes in non-cash working capital balances related to operations (Increase) in accounts receivable (41,731) (116,563) Decrease in R & D grants receivable - 425,351 (Increase) in inventory (311,505) (194,937) Increase (decrease) in accounts payable and accrued liabilities 194,361 (91,889) (Increase) decrease in prepaid expenses (7,961) 11,127 --------------------------- (402,406) (792,325) --------------------------- Investing activities Purchase of capital assets (5,683) (65,367) --------------------------- (5,683) (65,367) --------------------------- Financing activities Increase (decrease) in bank indebtedness 77,899 28,558 Shares issued for cash - 2,150,499 Convertible debentures - 250,000 --------------------------- 77,899 2,429,057 --------------------------- Effect of exchange rate changes on cash (72,361) (98,981) --------------------------- Net increase (decrease) in cash during the period (402,551) 1,472,384 Cash and equivalents, beginning of period 692,833 631,486 --------------------------- Cash and equivalents, end of period $ 290,282 $2,103,870 ===========================
See accompanying notes to the consolidated financial statements. 5 of 9 THE WIDECOM GROUP INC. Item 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Presentation of Interim Information In the opinion of Management the accompanying unaudited financial statements include all normal adjustments necessary to present fairly the financial position at June 30, 1998, and the results of operations for the three months ended June 30, 1998 and 1997 and cash flows for the three months ended June 30, 1998. Interim results are not necessarily indicative of results for full year. The condensed consolidated financial statements and notes are presented as permitted by Form 10-QSB and do not contain certain information included in the Company's audited consolidated financial statements and notes for the fiscal year March 31, 1998. 2. Financial Statements The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany balances, transactions and stockholdings have been eliminated. 3. Inventories Inventories are summarized as follows:-
June June 30, 1998 30, 1997 -------- -------- Raw materials $ 908,884 $ 875,602 Work in progress 158,203 388,624 Finished goods 618,489 130,749 -------------------------- Total inventories $1,685,576 $1,394,975 ==========================
6 of 9 4. Capital Assets Capital assets consist of:
June 30, 1998 June 30, 1997 --------------------------- --------------------------- Accumulated Accumulated Cost Amortization Cost Amortization ---- ------------ ---- ------------ Machinery, plant and Computer equipment $1,868,227 $ 888,893 $1,592,823 $ 486,201 Furniture and fixtures 111,076 45,939 95,369 34,210 Prototype and jigs 297,444 107,429 415,094 255,649 Land 57,830 - 61,121 - Building under construction 318,536 - 326,783 - ---------------------------------------------------------- $2,653,113 $1,042,261 $2,491,190 $ 776,060 ========================================================== Net book value $1,610,852 $1,715,130 ========== ==========
5. Convertible Debentures On May 19, 1997, the Company completed a private offering of $250,000 of convertible debentures maturing on May 19, 1998. The convertible debentures bear interest of 8% per annum. In addition, 50,000 warrants also issued in conjunction with these convertible debentures. The holder of the debentures has the right to convert at a conversion price equal to the lower of $5 or 80% of the average closing bid price of the Company's shares over the past 20 trading days. On February 11, 1998, $50,000 principal plus accrued interest was converted into 58,967 common shares. The warrants are exercisable over 3 years at an exercise price of $4 per share. The value attributable to warrants is not material. Included in accounts payable is accrued interest on the debenture of $17,545. On April 24, 1998 the debenture holder converted another $50,000 principal plus interest in to 68,850 of common shares. The Company is currently in default for the repayment of its remaining $150,000 debentures that came due on May 19, 1998. 6. Contingent Liabilities (a) Statement of claims have been filed against the Company in 1997 alleging breach of contract and demanding specific performance, claiming 240,000 shares and 160,00 warrants (after the stock back-split). The President had transferred 100,000 common shares issued to individuals who provided marketing and related services in 1992 and 1993. The individuals had attempted to transfer 172,860 common shares to third parties. The Company's President has entered into an indemnification agreement with the Company whereby he would return up to 160,000 common shares for cancellation to the extent the Company is required to issue any such additional shares. (b) The Company has a dispute with legal firm for non-payment of invoices for legal services for total of approximately $77,000. The Company has accrued approximately $32,000 for these services. (c) A Statement of Claim has been filed against the Company in 1998 for breach of sales and royalty agreement and breach of trademark and copyright issues in the amount of approximately $15.85 million. The Company believes it has a good and meritorious defense to this claim. Loss, if any, on the claims in paragraph (b) and (c) will be recorded when settlement is probable and the amount of the settlement is estimable. 7 of 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company's revenues are derived from product sales, which are recognized when products are shipped. Prior to January 1996 the company was eligible for substantial research and development grants. As of January 1, 1996 grants are made as a reduction of taxes payable. Research and development grants are cash payments and credits against taxes payable received or receivable from the Federal government as an incentive to conduct research and development in Canada. As no taxes are payable in the quarter, no grants have been recognized. During the quarter, the Company earned $10,393 interest on short-term investments compared to $63,963 earned in the same period of 1997. Results of Operations Quarter Ended June 30,1998 Compared to Quarter Ended June 30,1997 Revenues for the quarter ended June 30,1998 were $727,796, a decrease of $221,800 or 23.36% as compared to $949,596 for the quarter ended June 30,1997. Sales for the quarter ended June 30,1998 were $617,696, a decrease of $267,937 as compared to $885,633 for the quarter ended June 30,1997. Operating expenses for the quarter ended June 30,1998 were $909,161, a decrease of $366,177, or 28.71 %, as compared to $1,275,338 for the quarter ended June 30,1997. Research and development expenses decreased from $87,719 for the quarter ended June 30,1997 to $nil for the quarter ended June 30,1998. Selling, general and administrative expenses for the quarter ended June 30,1998, decreased by $254,026 and decreased as a percentage of revenues from 102.0% to 98.23%. The Company continues to incur legal, administration, and other related costs associated with its warrant call. The Company's share of the loss incurred by the research and development consortium (3994340 Canada Inc.) that had been formed on October 2nd. 1996, for the quarter ended June 30,1998, amounted to $131,765 as compared to $92,220 for the quarter ended June 30,1997. Liquidity and Capital Resources The Company's primary cash requirements have been to fund research and development activities, the acquisition of inventories and to meeting operating expenses incurred in connection with the commercialization of its products. Until the Company's initial public offering, the Company had satisfied its working capital requirements principally through the issuance of debt and equity securities, government sponsored research and development grants and reimbursement and cash flow from operations. At June 30, 1998, the Company had working capital of $1,582,895, as compared to $3,025,114 at June 30, 1997. However, the Company had only approximately $290,000 in unrestricted cash available. Accordingly, the Company has experienced short term capital deficiencies during the last fiscal year and has entered into a letter of intent with an investment banking firm to arrange $2,000,000 in debt and equity financing during the second quarter of fiscal 1999. There can be no assurance, however, that the financing will be consummated. In addition, the Company is currently in default in payment of $150,000 of convertible debentures that were due May 18, 1998. The Company is attempting to arrange for a purchase and extension of these notes or, in the alternative, will repay the notes out of the proceeds from the financing. The Company's cash requirements in connection with the manufacture and marketing of its products will be significant. The Company does not have any material commitments for capital expenditures. The Company believes, based on its currently proposed plans and assumptions relating to its operations, projected cash flow from operations will be sufficient to satisfy its contemplated cash requirements for the foreseeable future. In the event that the Company's plans or assumptions change, or prove to be incorrect, or if the projected cash flows otherwise prove to be insufficient to fund operations (due to unanticipated expenses, delays, problems or otherwise), the Company could be required to seek additional financing sooner than currently anticipated. There can be no assurance that this additional financing will be available to the Company when needed on commercially reasonable terms, or at all. 8 of 9 Exhibits 27 - Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WIDECOM GROUP INC. August 14, 1998 /s/Suneet S. Tuli Date Suneet S. Tuli, Executive Vice President /s/Willem J.Botha Willem J. Botha, Chief Financial Officer 9 of 9 EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR MAR-31-1998 APR-01-1998 JUN-30-1998 290,282 0 601,255 19,590 1,685,576 2,846,010 2,653,113 1,042,261 5,350,958 1,263,115 0 0 0 13,252,497 0 5,350,958 617,696 727,976 163,689 909,161 131,765 0 9,417 (476,639) 0 (476,639) 0 0 0 (476,639) (0.08) (0.08)
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