-----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, LKwAyvmB4i6GFcEeXOZi4h2sOGb+p2F3sC8zPmi0ShG31poEVdC5vdOBSvEGI9Zg YXEe7yHtvjHW3gznFEcBfg== 0000910647-99-000197.txt : 19990729 0000910647-99-000197.hdr.sgml : 19990729 ACCESSION NUMBER: 0000910647-99-000197 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990728 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: 99672161 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 FOR 1ST QUARTER ============================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999. -------------- 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 Widecom: (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 Widecom 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 Widecom's common stock as of June 30,1999 was 2,204,471 common shares. THE WIDECOM GROUP INC. FORM 10-QSB INDEX
Page No. -------- Part I Financial Information Item 1 - Financial Statements Consolidated Balance Sheets - June 30, 1999 and June 30, 1998 3 Consolidated Statements of Operations - Three months ended June 30, 1999 And June 30, 1998 4 Consolidated Statements of Cash Flows - Three months ended June 30, 1999 And June 30, 1998 5 Notes to Consolidated Financial Statements 6-7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II Other Information Item 2 Changes in Securities 9 Item 6 Report on Form 8 - K 9 Signatures 10
PART I FINANCIAL INFORMATION THE WIDECOM GROUP INC. CONSOLIDATED BALANCE SHEET (in United States dollars)
June 30, 1999 1998 ---- ---- (unaudited) (unaudited) - ------------------------------------------------------------------------------ Assets Current assets Cash and cash equivalents $ 59,236 $ 290,282 Accounts receivable 549,272 601,255 Prepaid expenses 43,426 93,884 Advance to related parties 201,486 175,013 Inventory (Note 3) 1,162,649 1,685,576 Deferred financing costs 54,068 - ---------------------------- Total current assets 2,070,137 2,846,010 Capital assets (Note 4) 1,497,205 1,610,852 Purchased research and development technology 72,876 - Investment in affiliates 491,822 894,096 ---------------------------- Total assets $ 4,132,040 $ 5,350,958 ============================================================================== Liabilities and Shareholders' Equity Current liabilities Bank indebtedness 219,177 271,315 Accounts payable and accrued liabilities 977,592 841,800 Loan from related parties 66,748 - Convertible debentures (Note 5) 350,000 150,000 ---------------------------- Total current liabilities 1,613,517 1,263,115 ---------------------------- Shareholders' equity Common shares $ 13,871,808 $13,252,497 Contributed surplus 159,825 159,825 Deficit (10,981,968) (9,124,622) Cumulative translation adjustment (531,142) (199,857) ---------------------------- 2,518,523 4,087,843 ---------------------------- Total liabilities and shareholders' equity $ 4,132,040 $ 5,350,958 ==============================================================================
See accompanying notes to the consolidated financial statements. THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in United States dollars)
For the three months ended June 30, June 30, 1999 1998 (unaudited) (unaudited) - ---------------------------------------------------------------------------- Product sales $ 785,398 $ 617,696 Cost of product sales 171,362 163,689 ------------------------- Gross profit 614,036 454,007 Research and development grants - 99,887 Interest income 1,098 10,393 ------------------------- Net revenue 615,134 564,287 ------------------------- Expenses Selling, general and administrative 474,163 714,947 Interest and bank charges 18,126 9,417 Management fees and salaries 69,686 75,493 Amortization 74,547 88,122 Foreign exchange loss - 21,182 ------------------------- Total operating expenses 636,522 909,161 ------------------------- Operating income (loss) (21,388) (344,874) Equity in earnings (loss) of Joint Venture (68,246) (131,765) ------------------------- Earnings (loss) before extraordinary item (89,634) (476,639) Extraordinary item, net of tax - - ------------------------- Net earnings (loss) for the period $ (89,634) $ (476,639) ============================================================================ Loss per common share before extraordinary item, basic and diluted $ (0.04) $ (0.32) ============================================================================ Loss per common share, basic and diluted $ (0.04) $ (0.32) ============================================================================ Weighted average number of shares outstanding 2,130,290 1,488,795 ============================================================================
See accompanying notes to the consolidated financial statements. THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in United States dollars)
For the three months ended June 30, June 30, 1999 1998 ---- ---- (Unaudited) (Unaudited) - ------------------------------------------------------------------------------------------------ Cash provided by (used in) Operating activities Loss for the period before extraordinary item $ (89,634) $(476,639) Add (deduct) items not requiring a cash outlay Amortization 74,547 88,122 Foreign exchange loss - 21,182 Shares issued to settle lawsuits 197,150 - Equity in loss of affiliate 68,246 131,765 Net changes in non-cash working capital balances related to operations Decrease (increase) in accounts receivable 18,971 (41,731) Decrease (increase) in inventory 45,052 (311,505) Increase (decrease) in accounts payable and accrued liabilities (356,847) 194,361 (Decrease) increase in prepaid expenses 1,355 (7,961) ------------------------- (41,160) (402,406) ------------------------- Investing activities Purchase of capital assets (69,194) (5,683) ------------------------- (69,194) (5,683) ------------------------- Financing activities Increase (decrease) in bank indebtedness (52,024) 77,899 Shares issued 124,289 - Issuance of convertible debentures 15,000 - ------------------------- 87,265 77,899 ------------------------- Effect of exchange rate changes on cash (73,868) (72,361) ------------------------- Net increase (decrease) in cash during the period (96,957) (402,551) Cash and equivalents, beginning of period 156,193 692,833 ------------------------- Cash and equivalents, end of period $ 59,236 $ 290,282 ===============================================================================================
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 June 30, 1999, and the results of operations for the three months ended June 30, 1999 and 1998 and cash flows for the three months ended June 30, 1999. 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 Widecom's audited consolidated financial statements and notes for the fiscal year ended March 31, 1999. 2 Financial Statements The consolidated financial statements include the accounts of Widecom 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, 1999 30, 1998 -------- -------- Raw materials $ 684,325 $ 908,884 Work in progress 29,178 158,203 Finished goods 449,146 618,489 ------------------------- Total inventories $1,162,649 $1,685,576 =========================
4. Capital Assets Capital assets consist of:
June 30, 1999 June 30, 1998 --------------------------- --------------------------- Accumulated Accumulated Cost Amortization Cost Amortization Machinery, plant and Computer equipment $1,971,670 $1,176,002 $1,868,227 $ 888,893 Furniture and fixtures 111,076 58,551 111,076 45,939 Prototype and jigs 297,444 142,337 297,444 107,429 Land 57,830 - 57,830 - Building under construction 436,075 - 318,536 - ---------------------------------------------------------- $2,874,095 $1,376,890 $2,653,113 $1,042,261 ========================================================== Net book value $1,497,205 $1,610,852 ========== ==========
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, 12,500* warrants were 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 14,742* common shares. The warrants are exercisable over 3 years at an exercise price of $16 per share. The value attributable to the warrants is not material. Included in accounts payable is accrued interest on the debentures of $ 28,630. On April 24, 1998, the debenture holder converted another $50,000 principal plus interest into 17,213* of common shares. The company is currently in default for the repayment of its remaining $150,000 convertible debentures that came due on May 18, 1998. The company also conducted a private placement of ten specific investment units, each comprising 10,000 common shares and a three- year 12% convertible subordinated note in the amount of $20,000. Interest payments are payable quarterly and conversion is available at an exercise price of $1.00 per share. One-half of the principal amount of the note is exercisable during the 30-day period commencing 180 days from the initial closing on February 19, 1999. The remaining principal amount is convertible at anytime following 360 days after the initial closing. Nine and one-half units closed in our preceding quarter, however, one-half unit closed during the first quarter of fiscal 2000. Included in accounts payable is accrued interest on the debentures of $8,000. 6. Contingent Liabilities (a) Widecom has been served with an action claiming breach of contract regarding Widecom's rights under two specific joint venture and development agreements to use and distribute various iterations of software components allegedly the sole property of the claimant. The action claims damages for breach of contract along with copyright and trademark infringement as a result. The claim, as filed, seeks a total of $15.85 Million in damages and is in progress in the Superior Court of Justice in the Province of Ontario. Resolution options remain open and the action is presently scheduled for mediation in the fall of 1999. (c) In December 1996, two individuals filed a lawsuit seeking 60,000 shares and 40,000 warrants. This action has been formally dismissed. An additional three (3) shareholders have also commenced related litigation, alleging purchase of our securities from the previously noted two individuals, who are named as co-defendants. We have filed and received default judgments on our cross-claims against the two individual co- defendants. The total number of shares of common stock claimed under these suits is less than 15,000. Loss, if any, on the above claims 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. RESULTS OF OPERATIONS Widecom's revenues are derived from product sales, which are recognized when products are shipped QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998 Revenues for the quarter ended June 30, 1999 were $ 786,496, an increase of $ 58,520 or 8.0 % as compared to $727,976 for the quarter ended June 30, 1998. Sales for the quarter ended June 30, 1999 were $ 785,398, an increase of $167,702 as compared to $ 617,696 for the quarter ended June 30, 1998. Sales of Widecom's SLC 936 and 1036 Series Scanners accounted for a majority of the sales increase. Operating expenses for the quarter ended June 30, 1999 were $ 636,522, a decrease of $ 272,639, or 30.0 %, as compared to $909,161 for the quarter ended June 30, 1998. Selling, general and administrative expenses for the quarter ended June 30,1999 decreased by $ 240,784 and decreased as a percentage of revenues from 98.2% to 60.3%. The decrease in SG&A cost was primarily due to a leveling off of expenditures and economies undertaken to effect savings as we continued expansion of our distribution channel in the United States. Widecom also continues to incur legal, administration and other related costs associated with Widecom's warrant call and the I.P.O. Widecom's share of the loss incurred by the research and development consortium (3294340 Canada Inc.) that was formed on October 2, 1996, amounted to $ 68,246 for the first quarter of fiscal 2000. During the first quarter of fiscal 2000, Widecom earned $ 1,098 interest on short-term investments compared to $10,393 earned in the same period of 1999. LIQUIDITY AND CAPITAL RESOURCES Widecom's primary cash requirements have been to fund research and development activities, acquisition of equipment and inventories, and marketing expenses incurred in connection with the commercialization of its products. Widecom has historically 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. From February through to April 1999, Widecom conducted a private placement of ten specific investment units of $30,000, each comprising 10,000 common shares and a three-year 12% convertible subordinated note in the amount of $20,000. Interest payments are payable quarterly and conversion is available at an exercise price of $1.00 per share. One-half of the principal amount of the note is exercisable during the 30 day period commencing 180 days from the initial closing on February 19, 1999. The remaining principal amount is convertible at anytime following 360 days after the initial closing. One-half unit closed during the first quarter of fiscal 2000 with gross proceeds of $15,000. Widecom also conducted an additional private placement approved by our board of directors wherein 325,000 common shares of Widecom were offered at $2.00 per share. The offering was fully subscribed with duly executed subscription documentation provided by accredited investors. As of the end of the first quarter of fiscal 2000, Widecom held $615,000 USD in escrow pending closing that concluded on July 9, 1999. PART II.: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. During the month of May in the first quarter of fiscal 2000, Widecom agreed to accept from a principal shareholder the surrender of 4,010 common shares in full satisfaction of an earlier indemnity agreement provided by Widecom on that shareholder's behalf. ITEM 2. CHANGES IN SECURITIES. In April, 1999, Widecom issued an aggregate of 61,618* common shares (40,810* and 20,808*) to two separate consulting companies each independently run by affiliates of Widecom in full satisfaction of the corporate indebtedness to those parties as approved by the Board of Directors. During fiscal 1999, Widecom conducted a private offering to raise funds for investment in Widecom. The units in the offering granted 10,000 shares to each purchaser. In total, ten units were sold with one-half unit closing after Widecom's year-end. 95,000* shares were issued pursuant to the placement between February 1999 and year-end on March 31, 1999. The remaining 5,000* shares were issued in the first quarter of fiscal 2000. The three companies involved are also entitled to a grant of 50,000* warrants to purchase 50,000 common shares at an exercise price of $1.20. In May, 1999, Widecom approved a surrender of 4,010* shares from an affiliate of Widecom in full satisfaction of an indebtedness to Widecom pursuant to an indemnification agreement as approved by the Board of Directors. During the fourth quarter of fiscal 1999, Widecom agreed to convert the warrant entitlements under the previous Whiton settlement into common shares that were subject to the 1:4 reverse stock split. An aggregate of 109,466* common shares were issued pursuant to two separate issuances effected on February 17, 1999 and May 21, 1999 (54,751* and 54,715* respectively). On May 26, 1999, Widecom issued an additional aggregate of 18,748* common shares as the final stage of a settlement agreement of a class action brought by various shareholders of Widecom. [FN] Adjusted to reflect a one-for-four reverse stock split of Widecom's common shares effective January 29, 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. REPORTS ON FORM 8-K and EXHIBITS Form 8-K, dated June 21, 1999, was filed with the Securities and Exchange Commission in connection with the replacement of Widecom's independent auditors. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Widecom has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WIDECOM GROUP INC. s/Suneet S. Tuli SUNEET S. TULI Date: July 28, 1999 -------------- Suneet S. Tuli, Executive Vice President s/Willem J. Botha W.J BOTHA Date: July 28, 1999 --------- Willem J. Botha, Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE-ARTICLE 5
5 3-MOS MAR-31-1999 APR-1-1999 JUN-30-1999 59,236 0 549,272 86,542 1,162,649 2,070,137 2,874,095 1,376,890 4,132,040 1,613,517 0 0 0 13,871,808 0 4,132,040 785,398 786,496 171,362 636,522 68,246 0 18,126 (89,634) 0 (89,634) 0 0 0 (89,634) (0.04) (0.04)
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