-----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, FugLNWUXV1NiIamvjOUbcuUYJokSKIa+DdGhkMgguRMTqr4ZjOKgEWBVZMatBRcL zyFSO1kozGi0akdTdfO9mA== 0000910647-99-000067.txt : 19990222 0000910647-99-000067.hdr.sgml : 19990222 ACCESSION NUMBER: 0000910647-99-000067 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990219 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: 99545778 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 10QSB =========================================================================== 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 December 31, 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 registrant's shareholders approved a one for four (1:4) reverse stock split and as a result, the number of shares outstanding of registrant's common stock as of February 17, 1999 was 1,788,649 shares. 1 of 11 THE WIDECOM GROUP INC. FORM 10-QSB INDEX Page No. Part I Financial Information Item 1 - Financial Statements Consolidated Balance Sheets - December 31, 1998 and December 31, 1997 3 Consolidated Statements of Operations - Three and Nine months ended December 31, 1998 and December 31, 1997 4 Consolidated Statements of Cash Flows - Nine months ended December 31, 1998 and December 31, 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 5 Other Information 10 Signatures 11 2 of 11 PART I FINANCIAL INFORMATION THE WIDECOM GROUP INC. CONSOLIDATED BALANCE SHEET (in United States dollars)
December 31, --------------------------- 1998 1997 ---- ---- (unaudited) (unaudited) Assets Current assets Cash and cash equivalents $ 130,687 $ 946,858 Accounts receivable 723,509 840,954 Research and development grants receivable - 261,737 Prepaid expenses 92,017 75,719 Advance to related parties 160,273 113,374 Inventory (Note 3) 1,734,772 1,619,445 -------------------------- Total current assets 2,841,258 3,858,087 Capital assets (Note 4) 1,418,033 1,518,233 Investment in affiliates 722,180 1,361,736 -------------------------- Total assets $ 4,981,471 $ 6,738,056 ========================== Liabilities and Shareholders' Equity Current liabilities Bank indebtedness 270,457 319,821 Accounts payable and accrued liabilities 779,108 1,155,484 Loan from related parties (Note 5) 13,333 - Convertible debentures (Note 6) 150,000 198,094 -------------------------- Total current liabilities 1,212,898 1,673,399 -------------------------- Shareholders' equity Common shares (Note 7) $13,452,497 $12,511,730 Contributed surplus 159,825 159,825 Deficit (9,554,752) (7,311,473) Cumulative translation adjustment (288,997) (295,425) -------------------------- 3,768,573 5,064,657 -------------------------- Total liabilities and shareholders' equity $ 4,981,471 $ 6,738,056 ==========================
See accompanying notes to the consolidated financial statements. 3 of 11 THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in United States dollars)
For the three For the three For the nine For the nine Months ended Months ended Months ended Months ended December 31 December 31, December 31, December 31, 1998 1997 1998 1997 (unaudited) (unaudited) (unaudited) (unaudited) --------------------------------------------------------------- Product sales $ 646,081 $ 821,436 $1,914,231 $ 2,552,102 Cost of product sales 161,520 205,359 493,559 698,980 ------------------------------------------------------------- Gross profit 484,561 616,077 1,420,672 1,853,122 Research and development grants 78,235 - 480,630 - Interest income 1,053 16,365 15,269 107,240 ------------------------------------------------------------- Net revenue 563,849 632,442 1,916,571 1,960,362 ------------------------------------------------------------- Expenses Research and development - 18,671 - 134,898 Selling, general and administrative 520,498 771,733 1,973,682 2,567,294 Interest and bank charges 11,087 6,282 40,095 20,652 Management fees and salaries 53,691 93,091 210,265 302,941 Amortization 86,839 98,107 264,851 281,858 Foreign exchange loss 21,344 - 70,849 - ------------------------------------------------------------- Total operating expenses 693,459 987,884 2,559,742 3,307,643 ------------------------------------------------------------- Operating income (loss) (129,610) (355,442) (643,171) (1,347,281) ------------------------------------------------------------- Equity in (loss) of affiliate (67,126) (117,003) (263,597) (277,073) Legal settlement costs - - - (375,000) ------------------------------------------------------------- Earnings (loss) before extraordinary item (196,736) (472,445) (906,768) (1,999,354) Extraordinary item, net of tax - - - - ------------------------------------------------------------- Net earnings (loss) for the period $ (196,736) $ (472,445) $ (906,768) $(1,999,354) ============================================================= Loss per common share before extraordinary item, basic and diluted $ (0.12) $ (0.34) $ (0.56) $ (1.44) ============================================================= Loss per common share, basic and diluted $ (0.12) $ (0.34) $ (0.56) $ (1.44) ============================================================= Weighted average number of shares outstanding 1,623,338 1,391,313 1,623,338 1,391,313 =============================================================
See accompanying notes to the consolidated financial statements. 4 of 11 THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in United States dollars)
For the nine months ended ---------------------------- December 31, December 31, 1998 1997 ------------ ------------ (Unaudited) (Unaudited) Cash provided by (used in) Operating activities Loss for the period before extraordinary item $(906,768) $(1,999,354) Add (deduct) items not requiring a cash outlay Amortization 264,851 281,858 Foreign exchange loss 70,849 - Equity in loss of Joint Venture 263,597 277,073 Net changes in non-cash working capital Balances related to operations (Increase) in accounts receivable (191,317) (112,146) Decrease in R & D grants receivable - 423,173 (Increase) in inventory (380,913) (470,958) Increase (decrease) in accounts payable and accrued liabilities 41,967 (157,106) (Increase) decrease in prepaid expenses (9,860) 21,927 -------------------------- (847,594) (1,735,533) -------------------------- Investing activities Purchase of capital assets (58,749) (187,470) -------------------------- (58,749) (187,470) -------------------------- Financing activities Increase (decrease) in bank indebtedness 86,031 656 Shares issued for cash 200,000 2,150,499 Loan from related parties 13,333 - Convertible debentures - 250,000 -------------------------- 299,364 2,401,155 -------------------------- Effect of exchange rate changes on cash 44,833 (162,780) -------------------------- Net increase (decrease) in cash during the period (562,146) 315,372 Cash and equivalents, beginning of period 692,833 631,486 -------------------------- Cash and equivalents, end of period $ 130,687 $ 946,858 ==========================
See accompanying notes to the consolidated financial statements. 5 of 11 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 December 31, 1998, and the results of operations for the three months ended December 31, 1998 and 1997 and cash flows for the nine months ended December 31, 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:-
December December 31, 1998 31, 1997 -------- -------- Raw materials $1,018,699 $ 728,751 Work in progress 47,697 631,583 Finished goods 668,376 259,111 ------------------------ Total inventories $1,734,772 $1,619,445 ========================
6 of 11 4. Capital Assets Capital assets consist of:
December 31, 1998 December 31, 1997 -------------------------- ------------------------- Accumulated Accumulated Cost Amortization Cost Amortization ---- ------------ ---- ------------ Machinery, plant and Computer equipment $1,838,294 $1,002,900 $1,522,895 $ 634,001 Furniture and fixtures 106,331 50,358 108,393 39,113 Prototype and jigs 284,737 120,642 230,858 81,510 Land 55,360 - 56,134 - Building under - construction 307,211 - 354,577 - ------------------------------------------------------ $2,591,933 $1,173,900 $2,272,857 $ 754,624 ====================================================== Net book value $1,418,033 $1,518,233 ========== ==========
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 $22,028. 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 of 11 7. Share Capital (a) 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. (b) On January 27, 1999, the outstanding common shares of the Company were backsplit 1 for 4. These changes have been treated retroactive to all prior period share information and earnings per share calculations. 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. 8 of 11 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. While the Company has received government grants in the past, it does not meet the required pre-qualification for such grants subsequent to conducting its public offering. In consideration of this, the Company has shifted its research and development to an affiliated joint venture based in Montreal, Canada. During the quarter, the Company earned $1,053 interest on short-term investments compared to $16,365 earned in the same period of 1997. Results of Operations Quarter Ended December 31, 1998 Compared to Quarter Ended December 31,1997 Revenues for the quarter ended December 31, 1998 were $725,369, a decrease of $112,432 or 13.42 % as compared to $ 837,801 for the quarter ended December 31, 1997. Sales for the quarter ended December 31,1998 were $646,081, a decrease of $175,355 as compared to $821,436 for the quarter ended December 31,1997. Operating expenses for the quarter ended December 31,1998 were $693,459, a decrease of $294,425, or 29.80%, as compared to $987,884 for the quarter ended December 31,1997. Research and development expenses decreased from $18,671 for the quarter ended December 31,1997 to nil for the quarter ended December 31,1998. Selling, general and administrative expenses for the quarter ended December 31,1998, decreased by $251,235 and decreased as a percentage of revenues from 92.11% to 71.76%. 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 December 31, 1998, amounted to $67,126 as compared to $117,003 for the quarter ended December 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 December 31, 1998, the Company had working capital of $1,628,360, as compared to $2,184,688 at December 31, 1997. However, the Company had only approximately $130,687 in unrestricted cash available. 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 fourth 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. 9 of 11 Part II Item 5. Other Information. A. At the Annual Meeting of Shareholders held on January 27, 1999, the shareholders approved a proposal to amend the Articles of Incorporation to effect a one-for-four (1:4) reverse stock split ("Reverse Stock Split") of the Company's Common Stock, $.01 par value per share, whereby four shares of Common Stock currently outstanding, will be exchanged for one new share of Common Stock. The Reverse Stock Split was effective on January 29, 1999 ("Effective Date"). All fractional shares resulting from the Reverse Stock Split will be settled in cash. The Reverse Stock Split will not affect the par value of the Common Stock. There are presently 20,000,000 shares of Common Stock, $.01 par value per share, authorized by the Company's Articles of Incorporation. Because the number of authorized shares of Common Stock was not reduced when the Reverse Stock Split was effected, these shares will be available for issuance without any further shareholder approval. As of the Record Date, there were 7,154,598 shares of Common Stock issued and outstanding and 2,462,460 shares of Common Stock reserved for issuance upon the conversion or exercise of various securities of the Company. Currently, the number of shares of Common Stock issued and outstanding is approximately 1,788,649 and the number of shares reserved for issuance is 615,615. B. The Company's shareholders also approved the acquisition of Diprin from the Company's President and Chief Executive Officer, Mr. Raja Tuli, for 125,000 shares of the Company's Common Stock. The Company executed an acquisition agreement with Mr. Tuli on February 9, 1999 and anticipates that the acquisition will be closed within the next 30 days. Diprin, although recently incorporated, was actively researching and developing the portable photo-printer technology, prior to incorporation and Diprin is continuing its research and development activities. Operations will commence upon the completion of the development of the photo-printer. Diprin currently has no operations, previous contracts, revenues or liabilities and was formed by Mr. Tuli to hold the photo- printer technology to facilitate this acquisition and the eventual commencement of operations. Diprin owns all the rights to the photo-printer technology for which a patent application is currently pending. Diprin has 100 shares of common stock outstanding. After the acquisition, the Company will be the sole owner of Diprin. The Company believes that the cost of the portable photo-printer technology, in comparison to the potential revenues derived from sales of the portable photo-printer and the potential revenues derived from consumables that will be marketed with the portable photo-printers, is extremely low. C. On February 1, 1999, the Company has entered into a Stipulation and Order Amending the Settlement Agreement in the case of Brett Whiton, et al., v. The Widecom Group, Inc., Raja S. Tuli and Suneet S. Tuli. In accordance with the Stipulation, the Company will issue and distribute to class members who held warrants as of February 10, 1997, and sold such warrants prior to the close of business on March 5, 1997, one share (pre- split) of the Company's Common Stock for each warrant sold. The Company anticipates that the total number of shares issued under the Stipulation will be approximately 109,466 shares. Exhibits 27 - Financial Data Schedule 10 of 11 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. February 19, 1999 /s/Suneet S. Tuli - ----------------- -------------------- Date Suneet S. Tuli, Executive Vice President February 19, 1999 /s/Raja S. Tuli - ----------------- -------------------- Date Raja S. Tuli President 11 of 11 EX-27 2 FDS FOR 3RD QUARTER
5 9-MOS MAR-31-1998 APR-01-1998 DEC-31-1998 130,687 0 723,509 54,176 1,734,772 2,841,258 2,591,933 1,173,900 4,981,471 1,212,898 0 0 0 13,452,497 0 4,981,471 1,914,231 2,410,130 493,559 2,559,742 263,597 0 40,095 (906,768) 0 (906,768) 0 0 0 (906,768) (0.56) (0.56)
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