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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.
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 1-13588
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THE WIDECOM GROUP INC.
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(Exact Name of Registrant as specified in Its Charter)
ONTARIO, CANADA 98-0139939
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (905) 712-0505
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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
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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
<TABLE>
<CAPTION>
Page No.
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<S> <C>
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
</TABLE>
PART I FINANCIAL INFORMATION
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
<TABLE>
<CAPTION>
June 30,
1999 1998
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(unaudited) (unaudited)
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<S> <C> <C>
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
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Total current liabilities 1,613,517 1,263,115
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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)
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2,518,523 4,087,843
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Total liabilities and shareholders' equity $ 4,132,040 $ 5,350,958
==============================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in United States dollars)
<TABLE>
<CAPTION>
For the three months ended
June 30, June 30,
1999 1998
(unaudited) (unaudited)
- ----------------------------------------------------------------------------
<S> <C> <C>
Product sales $ 785,398 $ 617,696
Cost of product sales 171,362 163,689
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Gross profit 614,036 454,007
Research and development grants - 99,887
Interest income 1,098 10,393
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Net revenue 615,134 564,287
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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
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Total operating expenses 636,522 909,161
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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)
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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
============================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
<TABLE>
<CAPTION>
For the three months ended
June 30, June 30,
1999 1998
---- ----
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
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)
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Investing activities
Purchase of capital assets (69,194) (5,683)
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(69,194) (5,683)
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Financing activities
Increase (decrease) in bank indebtedness (52,024) 77,899
Shares issued 124,289 -
Issuance of convertible debentures 15,000 -
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87,265 77,899
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Effect of exchange rate changes on cash (73,868) (72,361)
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Net increase (decrease) in cash during the period (96,957) (402,551)
Cash and equivalents, beginning of period 156,193 692,833
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Cash and equivalents, end of period $ 59,236 $ 290,282
===============================================================================================
</TABLE>
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: -
<TABLE>
<CAPTION>
June June
30, 1999 30, 1998
-------- --------
<S> <C> <C>
Raw materials $ 684,325 $ 908,884
Work in progress 29,178 158,203
Finished goods 449,146 618,489
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Total inventories $1,162,649 $1,685,576
=========================
</TABLE>
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
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Accumulated Accumulated
Cost Amortization Cost Amortization
<S> <C> <C> <C> <C>
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 -
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$2,874,095 $1,376,890 $2,653,113 $1,042,261
==========================================================
Net book value $1,497,205 $1,610,852
========== ==========
</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, 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]
<F*> Adjusted to reflect a one-for-four reverse stock split of Widecom's
common shares effective January 29, 1999.
</FN>
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 59,236
<SECURITIES> 0
<RECEIVABLES> 549,272
<ALLOWANCES> 86,542
<INVENTORY> 1,162,649
<CURRENT-ASSETS> 2,070,137
<PP&E> 2,874,095
<DEPRECIATION> 1,376,890
<TOTAL-ASSETS> 4,132,040
<CURRENT-LIABILITIES> 1,613,517
<BONDS> 0
0
0
<COMMON> 13,871,808
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,132,040
<SALES> 785,398
<TOTAL-REVENUES> 786,496
<CGS> 171,362
<TOTAL-COSTS> 636,522
<OTHER-EXPENSES> 68,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,126
<INCOME-PRETAX> (89,634)
<INCOME-TAX> 0
<INCOME-CONTINUING> (89,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89,634)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
