============================================================================
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
<PAGE> 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
<PAGE> 2 of 9
PART I FINANCIAL INFORMATION
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
<TABLE>
<CAPTION>
June 30,
---------------------------
1998 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
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
============================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 3 of 9
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in United States dollars)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
June 30, June 30,
1998 1997
-------- --------
(unaudited) (unaudited)
<S> <C> <C>
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
==========================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 4 of 9
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
June 30, June 30,
1998 1997
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
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
===========================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 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:-
<TABLE>
<CAPTION>
June June
30, 1998 30, 1997
-------- --------
<S> <C> <C>
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
==========================
</TABLE>
<PAGE> 6 of 9
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
--------------------------- ---------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
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
========== ==========
</TABLE>
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.
<PAGE> 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.
<PAGE> 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
<PAGE> 9 of 9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 290,282
<SECURITIES> 0
<RECEIVABLES> 601,255
<ALLOWANCES> 19,590
<INVENTORY> 1,685,576
<CURRENT-ASSETS> 2,846,010
<PP&E> 2,653,113
<DEPRECIATION> 1,042,261
<TOTAL-ASSETS> 5,350,958
<CURRENT-LIABILITIES> 1,263,115
<BONDS> 0
0
0
<COMMON> 13,252,497
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,350,958
<SALES> 617,696
<TOTAL-REVENUES> 727,976
<CGS> 163,689
<TOTAL-COSTS> 909,161
<OTHER-EXPENSES> 131,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,417
<INCOME-PRETAX> (476,639)
<INCOME-TAX> 0
<INCOME-CONTINUING> (476,639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (476,639)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
