-----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, MOvp/5a1cO2/o8HA/oBOlrm+KquZABk0z05zSYeoWaQmeVL+WOZgI+7b7JyEbGGO G5xHzflHDtQf6t48pIKylw== 0000910647-98-000303.txt : 19981118 0000910647-98-000303.hdr.sgml : 19981118 ACCESSION NUMBER: 0000910647-98-000303 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98752081 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 BODY OF FORM 10-QSB FOR 2ND QUARTER =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 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, BRAMPTON, ONTARIO, CANADA L6T 5B4 - ------------------------------------------------------------------- (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 November 12, 1998 was 7,154,598 shares. THE WIDECOM GROUP INC. FORM 10-QSB INDEX Page No. -------- Part I Financial Information Item 1 - Financial Statements Consolidated Balance Sheets - September 30, 1998 and September 30, 1997 3 Consolidated Statements of Operations - Three and Six months ended September 30, 1998 and September 30, 1997 4 Consolidated Statements of Cash Flows - Three and Six months ended September 30, 1998 and September 30, 1997 5 Notes to Consolidated Financial Statements 6-8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II Other Information Item 2 Changes in Securities 9 Item 2 Reports on Form 8 - K 9 Signatures 10 PART I FINANCIAL INFORMATION THE WIDECOM GROUP INC. CONSOLIDATED BALANCE SHEET (in United States dollars)
September 30, 1998 1997 ---- ---- (unaudited) (unaudited) ============================================================================ Assets Current assets Cash and cash equivalents $ 392,849 $ 1,440,814 Accounts receivable 585,571 891,845 Research and development grants receivable - 271,099 Prepaid expenses 89,140 100,338 Advance to related parties 167,767 117,430 Inventory (Note 3) 1,730,296 1,752,621 --------------------------- Total current assets 2,965,623 4,574,147 Capital assets (Note 4) 1,506,737 1,655,485 Investment in affiliates 790,778 1,529,802 --------------------------- Total assets $ 5,263,138 $ 7,759,434 ============================================================================ Liabilities and Shareholders' Equity Current liabilities Bank indebtedness 305,398 316,380 Accounts payable and accrued liabilities 768,554 1,258,464 Loan from related parties (Note 5) 13,333 - Convertible debentures (Note 6) 150,000 205,180 --------------------------- Total current liabilities 1,237,285 1,780,024 --------------------------- Shareholders' equity Common shares (Note 7) $13,452,497 $12,622,985 Contributed surplus 159,825 159,825 Deficit (9,377,072) (6,801,738) Cumulative translation adjustment (209,397) (1,662) --------------------------- 4,025,853 5,979,410 --------------------------- Total liabilities and shareholders' equity $ 5,263,138 $ 7,759,434 ============================================================================
See accompanying notes to the consolidated financial statements. THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in United States dollars)
For the three For the three For the six For the six Months ended Months ended Months ended Months ended September 30, September 30, September 30, September 30, 1998 1997 1998 1997 (unaudited) (unaudited) (unaudited) (unaudited) - --------------------------------------------------------------------------------------------------------------- Product sales $ 635,955 $ 854,761 $1,254,050 $ 1,738,656 Cost of product sales 168,470 203,717 332,323 438,369 ----------------------------------------------------------- Gross profit 467,485 651,044 921,727 1,300,287 Research and development grants 301,285 - 405,799 - Interest income 3,057 27,674 13,281 91,577 ----------------------------------------------------------- Net revenue 771,827 678,718 1,340,807 1,391,864 ----------------------------------------------------------- Expenses Research and development - 28,288 - 116,036 Selling, general and administrative 743,033 847,955 1,458,674 1,813,200 Interest and bank charges 19,418 10,595 29,058 14,800 Management fees and salaries 81,620 92,367 157,254 209,982 Amortization 89,913 97,962 178,072 192,812 Foreign exchange loss 28,163 - 49,505 - ----------------------------------------------------------- Total operating expenses 962,147 1,077,167 1,872,563 2,346,830 ----------------------------------------------------------- Operating income (loss) (190,320) (398,449) (531,756) (954,966) ----------------------------------------------------------- Equity in (loss) of affiliate (67,055) (67,422) (197,333) (159,654) Legal settlement costs - - - (375,000) ----------------------------------------------------------- Earnings (loss) before extraordinary item (257,375) (465,871) (729,089) (1,489,620) Extraordinary item, net of tax - - - - ----------------------------------------------------------- Net earnings (loss) for the period $ (257,375) $ (465,871) $ (729,089) $(1,489,620) ============================================================================================================== Loss per common share before extraordinary item, basic and diluted $ (0.04) $ (0.08) $ (0.12) $ (0.27) ============================================================================================================== Loss per common share, basic and diluted $ (0.04) $ (0.08) $ (0.12) $ (0.27) ============================================================================================================== Weighted average number of shares outstanding 6,162,731 5,565,251 6,162,731 5,565,251 ==============================================================================================================
See accompanying notes to the consolidated financial statements. THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in United States dollars)
For the six months ended September 30, September 30, 1998 1997 (Unaudited) (Unaudited) ==================================================================================================== Cash provided by (used in) Operating activities Loss for the period before extraordinary item $(729,089) $(1,489,620) Add (deduct) items not requiring a cash outlay Amortization 178,072 192,812 Foreign exchange loss 49,505 - Equity in loss of affiliate 197,333 159,654 Net changes in non-cash working capital balances related to operations (Increase) in accounts receivable (50,297) (133,522) Decrease in R & D grants receivable - 425,556 (Increase) in inventory (381,311) (548,621) Increase (decrease) in accounts payable and accrued liabilities 30,529 (96,536) (Increase) decrease in prepaid expenses (6,890) 209 ---------------------------- (712,148) (1,490,068) ---------------------------- Investing activities Purchase of capital assets (58,835) (115,886) ---------------------------- (58,835) (115,886) ---------------------------- Financing activities Increase (decrease) in bank indebtedness 122,971 (14,173) Shares issued for cash 200,000 2,150,499 Loan from related parties 13,333 - Convertible debentures - 250,000 ---------------------------- 336,304 2,386,326 Effect of exchange rate changes on cash 134,695 28,956 ---------------------------- Net increase (decrease) in cash during the period (299,984) 809,328 Cash and equivalents, beginning of period 692,833 631,486 ---------------------------- Cash and equivalents, end of period $ 392,849 $ 1,440,814 ===================================================================================================
See accompanying notes to the consolidated financial statements. 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 September 30, 1998, and the results of operations for the three months ended September 30, 1998 and 1997 and cash flows for the three months ended September 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 10QSB 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:-
September September 30, 1998 30, 1997 ------------------------- Raw materials $1,055,218 $ 911,363 Work in progress 43,842 613,417 Finished goods 631,236 227,841 ------------------------- Total inventories $1,730,296 $1,752,621 =========================
4. Capital Assets Capital assets consist of:
September 30,, 1998 September 30, 1997 -------------------------- -------------------------- Accumulated Accumulated Cost Amortization Cost Amortization Machinery, plant and Computer equipment $1,840,243 $ 929,033 $1,521,841 $ 571,111 Furniture and fixtures 106,477 47,219 180,862 57,902 Prototype and jigs 285,128 111,798 250,252 78,632 Land 55,436 - 60,850 - Building under construction 307,503 - 349,325 - ------------------------------------------------------- $2,594,787 $1,088,050 $2,363,130 $ 707,645 ======================================================= Net book value $1,506,737 $1,655,485 ========== ==========
5. Loan from Related Parties On September 20, 1998, Lakhbir S. Tuli, an independent consultant for the Company, made a non-interest bearing loan to the Company in the amount of $13,333 US dollars. 6. 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 $18,933. 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. 7. Share Capital On September 9, 1998, Raja S. Tuli, President and Chief Executive Officer, Suneet S. Tuli, Executive Vice President and Secretary of the Company, and Lakhbir S. Tuli, an independent consultant to the Company and the father of Raja and Suneet Tuli, purchased, in the aggregate, 1,176,470 shares of the Company's Common Stock at $.17 cents US$ per share in a private transaction in order to provide the Company with funds for working capital. 8. 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 160,000 warrants (after the reverse stock 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 a legal firm for non-payment of legal services for a 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. 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 which were accrued as the research and development expenses were incurred. As of January 1, 1996 cash grants are only made to certain qualifying companies while non-qualifying companies received grants in the form of reduction against taxes payable. Because there was no certainty that the Company would be recognized as a qualifying Company no income was accrued against research and development expenses incurred for the period from January 1, 1996 to March 31, 1997. The Company's claim for cash re-imbursement has been submitted, audited and paid to the Company during the this quarter. The Company has consequently recognized this revenue in this quarter. During the quarter, the Company earned $3,057 interest on short-term investments compared to $27,674 earned in the same period of 1997. Results of Operations Quarter Ended September 30, 1998 Compared to Quarter Ended September 30, 1997 Revenues for the quarter ended September 30, 1998 were $940,297, an increase of $57,862 or 6.55% as compared to $882,435 for the quarter ended September 30, 1997. Sales for the quarter ended September 30, 1998 were $635,955, a decrease of $218,806 as compared to $854,761 for the quarter ended September 30, 1997. Operating expenses for the quarter ended September 30, 1998 were $962,147, a decrease of $115,020, or 10.67%, as compared to $1,077,167 for the quarter ended September 30, 1997. Research and development expenses decreased from $28,288 for the quarter ended September 30, 1997 to $nil for the quarter ended September 30, 1998. Selling, general and administrative expenses for the quarter ended September 30, 1998, decreased by $104,922 and decreased as a percentage of revenues from 96.09% to 79.02%. 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 (3294340 Canada Inc.) that had been formed on October 2nd. 1996, for the quarter ended September 30, 1998, amounted to $67,055 as compared to $67,422 for the quarter ended September 30, 1997. Liquidity and Capital Resources The Company's primary cash requirements have been to fund research and development activities, acquisition of equipment and inventories and to meeting operations 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 September 30, 1998, the Company had working capital of $1,728,338, as compared to $2,794,123 at September 30, 1997. However, the Company had only approximately $392,849 in unrestricted cash available against current liabilities of $1,200,000. Accordingly, the Company has experienced short-term capital deficiencies during the last fiscal year and has entered into an agreement with an investment banking firm to arrange $1,500,000 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 has been and will continue to be significant. The Company does not presently have any material commitments for any additional capital expenditures. The Company believes, based on its currently proposed plans and assumptions, that the pending financing should satisfy its contemplated cash requirements for the foreseeable future. In the event that Company's plan 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, delay, problems or otherwise), the Company may be required to seek additional financing . There can be no assurance that any additional financing will be available to the Company if needed on commercially reasonable terms, or at all. 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. November 13, 1998 /s/ Suneet S. Tuli - ----------------- -------------------------- Date Suneet S. Tuli, Executive Vice President /s/ Willem J.Botha -------------------------- Willem J. Botha, Chief Financial Officer EX-27 2 FDS ARTICLE 5 FOR 2ND QUARTER
5 6-MOS MAR-31-1999 APR-01-1998 SEP-30-1998 392,849 0 585,571 54,251 1,730,296 2,965,623 2,594,787 1,088,050 5,263,138 1,237,285 0 0 0 13,452,497 0 5,263,138 1,254,050 1,673,130 332,323 1,872,563 197,333 0 29,058 (729,089) 0 (729,089) 0 0 0 (729,089) (0.12) (0.12)
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