10QSB
1
wide-q1.txt
FORM 10-QSB FOR SEPTEMBER 30, 2001
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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, 2001
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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 _______________
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 Identification No.)
Incorporation or Organization)
37 GEORGE STREET NORTH, SUITE 103, BRAMPTON, ONTARIO, CANADA L6X 1R5
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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 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
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The number of shares outstanding of registrant's common stock as of
December 21, 2001 was 2,633,585 shares.
THE WIDECOM GROUP INC.
FORM 10-QSB
INDEX
The WideCom Group Inc.
Consolidated Financial Statements (Unaudited)
For the quarters ended September 30, 2001 and 2000
Together with Review Engagement Report
TABLE OF CONTENTS
Review Engagement Report 2
Financial Information 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7- 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
Part II Other Information 9
None.
Signatures 10
2 of 9
Page 2
Review Engagement Report
I have reviewed the balance of The Widecom Group Inc. as at September 30, 2001 and the statements of income and retained earnings for the quarter then ended, and the statement of cash flow for the six months then ended. My review was made in accordance with the US generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information to me by the management.
A reviw does not constitute an audit and consequently I do not express an audit opnion on these financial statements.
Based on my review, nothing has come to my attention that causes me to believe that these financial statements are not, in all material respects, in accordance with the US generally accepted accounting principles.
Mississauga, Ontario Charted Accountant
21-Dec-01 /s/ Zafar Husain Siddiqui
PART I FINANCIAL INFORMATION
Page 3
The WideCom Group Inc.
Consolidated Balance Sheet
(in United States dollars)
September 30
2000 2001
Current Assets Notes
Cash and cash equivalents 49854 7771
Accounts receivable 654277 423194
Inventory 3 824478 528457
Prepaid expenses 29554 21263
Advances to related parties 344964 295658
Deferred financing costs 24894 9802
Total Current Assets 1928021 1286145
Capital Assets 4 1088968 620963
Purchased research and
development technology 5 40774 13997
Investment in affiliate 8 174066 0
Total Assets 3231829 1921105
Liabilities & Stockholders' Equity
Current Liabilities
Bank indebtedness 214678 120609
Accounts payable and accrued liabilities 605454 606675
Loans from related parties 537942 737981
Convertible debentures 5 192803 180085
Total Current Liabilities 1550877 1645350
Stockholders' Equity
Common shares
5,000,000* shares authorized of no par value
2,443,730* shares issued and outstanding on
March 31, 2000
2,633,585* shares issued and outstanding on
June 30, 2001 14703589 14711179
Contributed surplus 159825 159825
Deficit -13182464 -14595249
1680950 275755
Total Liabilities & Stockholders' Equity 3231827 1921105
* Adjusted for reverse split of Company's stock (1:4) on January 29, 1999.
The accompanying notes are an integral part of the consolidated financial statements.
Page 4
The WideCom Group Inc.
Consolidated Statements of Operations
(in United States dollars) For the three monFor the six
SeptembeSeptembermonths ended
2000 2001Sept. 30, 2001
(Unaudit(Unaudite(Unaudited)
Revenue
Product sales 381372 147879 233631
Research and development grants 0 0 0
Interest income 102 131 222
Total Revenue 381474 148010 233853
Expenses
Cost of product sales 83533 36211 58377
Research and development 21745 83795 95587
Selling, general and administrative 194134 121106 221638
Interest and bank charges 10189 2985 6353
Management fees and salaries 55479 12458 51958
Amortization 65201 31810 55436
Financing fees 5322 0 0
Foreign exchange loss (gain) 629 4850 2492
Total Expenses 436232 293215 491841
Operating loss -54758 -145205 -257988
Legal settlement costs 0 0 0
Equity in loss of affiliate -78227 -84650 -159193
Net loss for the period -132985 -229855 -417181
Loss per common share, basic
and diluted -0.05 -0.09 -0.16
Weighted average number of shares outsta 2443730 2633585 2633585
* Adjusted for reverse split of Company's stock (1:4) on January 29, 1999.
The accompanying notes are an integral part of the consolidated financial statements.
Page 5
The WideCom Group Inc.
Consolidated Statements of Cash Flows
(in United States dollars) For the six months ended
SeptemberSeptember 30
2000 2001
(Unaudite(Unaudited)
Cash provided by (used in)
Operating Activities
Loss for the year -280250 -417181
(Add (deduct) items not requiring a cash outlay)
Amortization 124775 55437
Foreign exchange loss (gain) -22830 2492
Share issued to settle lawsuits and corporate
indebtedness 0
Equity in loss of affiliate 151866 159193
Net changes in non-cash
Working capital balances related to operations:
Decrease (increase) in receivables -92635 30724
Decrease in research and development grants r 0 0
Decrease (increase) in inventory 53165 215102
Increase (decrease) in accounts payable and accrued
liabilities -174564 -155962
Increase (decrease) in prepaid expenses -10932 1201
-251405 -108994
Investing Activities
Disposal (purchase) of capital assets 840 0
Advances to related parties -110533 1412
-109693 1412
Financing Activities
Deferred financing costs
Increase (decrease) in bank indebtedness 42298 -49690
Shares and warrants issued, net of issue costs 0 0
Loan from related parties 171560 92496
Issuance of convertible debentures 0
213858 42806
Effect of exchange rate change on cash 185780 2972
Net increase (decrease) in cash during the perio 38540 -61804
Cash and cash equivalents, beginning of the peri 11314 69576
Cash and cash equivalents, end of the period 49854 7771
The accompanying notes are an integral part of the consolidated financial statements.
Page 6
The WideCom Group Inc.
Notes to Consolidated Financial Statements (Unaudited)
(in United States dollars)
September 30, 2001
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, 2001, and
the results of operations for the three months ended September 30, 2001 and 2000 and cash flows
for the six months ended September 30, 2001. Interim results are not necessarily indicative of
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, 2001.
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. Inventory
SeptemberSeptember 30
Inventories are summarized as follows: 2000 2001
Raw material 612850 442987
Work-in-progress 42358 28218
Finished goods 169270 57252
824478 528457
4. Capital Assets
Capital assets consist oSeptember 30, 20September 30, 2001
Accumulated Accumulated
Cost AmortizaCost Amortization
Machinery, plant & compu 1923339 1388830 1646001 1476163
Furniture and fixtures 101749 86247 91395 77692
Prototypes and jigs 290381 170150 239494 146663
Land 56457 0 45806 0
Building under construct 362269 0 298785 0
2734195 1645227 2321481 1700518
Net book value 1088968 620963
5. Convertible Debentures
During 1999, the Company conducted a private placement of ten specific investment
units, each comprising 10,000 common shares and a three-year 12% convertible subor-
dinated 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
Page 7
The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
September 30, 2001
5. Convertible Debentures (cont'd)
amount is convertible following 360 days after the initial closing. During the fiscal year ended
March 31, 2000, the Company issued the remaining one-half unit comprising of 5,000
common shares ( see Note 10(b)(x)) and a three-year 12% convertible subordinated note
in the amount of $10,000.
The Company is presently in default on the interest payments on the 12% convertible
debentures. The consequences of this default has not been determined.
6. Loans from Related Parties
The loans from related parties are non-interest bearing, due on demand and were advanced
to the Company in order to assist in certain working capital requirements.
7. Contingent Liabilities
(a) The Company has been served with a claim, with respect to a breach of contract
regarding the Company'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. The claim seeks a total of $15.85
million in damages and is in progress in the Province of Ontario. Management considers
that the prospects of a successful resolution are likely.
Several other claims against the Company are in various stages of litigation. In
management's opinion, these claims are not material and accordingly no provision has
been made in the consolidated financial statements.
Loss, if any, on the above claims will be recorded when settlement is probable and the
amount of the settlement is estimable.
(b) The Company's wholly owned subsidiary, Indo WideCom International Ltd., in India, has
not met export obligations for the fiscal year which may result in additional customs duty
levied by the authorities in India. As at year end, this amount was not determinable.
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The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
September 30, 2001
8. Investment in Affiliate September 30,
2000 2001
3294340 Canada Inc. 174066Nil
In October 1996, the Company entered into a joint venture agreement which resulted in
the purchase of a 45% stake in 3294340 Canada Inc., a Quebec based company, for
approx. $1,875,000. The investee carries on research and development activities in order
to develop improvements, modifications, additions or alteration to the intellectual
property and to develop new products. In connection with the transaction, the Company
also entered into a Stock Exchange Agreement with Societe Innovatech du Grand
Montreal ("Innovatech"), an economic development agency of the government of the
Province of Quebec, pursuant to which Innovatech would be permitted, under certain
circumstances, to exchange its 45% interest for up to 63,250* common shares of the
Company.
During the fiscal year ended March 31, 2000, Innovatech had made a request to convert 80% of
its shares in 329430 Canada Inc. into the Company's common stock.
During the fiscal year ended March 31, 2001, the Company issued 50,600 shares to Innovatech.
As a result of another transaction with M.S. Judge Systems, and with the other shareholders of
329430 Canada Inc., the Company had no further stake in the affiliate.
At the end of September 2001, the asset value of the Company's investment in its affiliate
became nil, and the Company divested itself of its stake in 329430 Canada Inc.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Since inception, we have generated limited revenues from operations
and have not yet achieved significant profitability. Our revenues are
primarily derived from product sales that are recognized for accounting
purposes when products are shipped. We have limited revenue from
operations, significant losses and have a significant deficit. Due to
limited cash resources, we have often relied on cash infusions from
management to meet ongoing obligations. There is no certainly that such
access to funds will be available to us in the future. In order to reduce
our losses, we have significantly reduced Selling, General and
Administrative costs. We expect this to have a reduction on sales.
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While we received government grants in the past, we do not meet the
required pre-qualification for such grants subsequent to conducting its
public offering. In consideration of this fact, we shifted our research
and
development to an affiliated joint venture based in Montreal, Canada.
In February 2000, we established a majority-owned subsidiary,
Posternetwork.COM Inc., to engage in the business line of offering an
online printing service. Posternetwork is currently engaged in
organizational and financing activities.
Results of Operations
Quarter Ended September 30, 2001 Compared to Quarter Ended September 30,
2000
Sales for the quarter ended September 30, 2001 were $147,879, a
decrease of
$233,493 as compared to $381,372 for the quarter ended September 30, 2000.
Net
Revenues for the quarter ended September 30, 2001 were $111,799, a
decrease of
$186,142 as compared to $297,941 for the quarter ended September 30, 2000.
The
decline in revenue was attributed to a decrease in sales and promotional
efforts in order to conserve cash.
Operating expenses for the quarter ended September 30, 2001 were
$257,004
a decrease of $95,695, as compared to $352,699 for the quarter
ended September 30, 2000. Selling, general and administrative expenses
for the
quarter ended September 30, 2001 were $121,106, decreased by $73.028,
versus the same period in the previous fiscal year. This reduction in
selling, general and administrative expenses is a result of our efforts to
preserve our cash resources. Reserch and development cost has been
incresed
to the tune of $62,050 compared to the previous fiscal period of
comparison is
due to the new reserch activities carring on for improvement of product
quality .
Management fees and salaries are reduced by 77% due to voluntary reduction
of remunaration to President and Vice President
Our share of the loss incurred by the research and development
consortium (3294340 Canada Inc.) that had been formed on the second of
October 1996, for the quarter ended September 30, 2001, amounted to
$84,650 as
compared to $78,227 for the quarter ended September 30, 2000. The
accumulated
loss from above investment has crossed the total investment in 3294340 .
Liquidity and Capital Resources
Our 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 our products. We meet our 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.
Our cash requirements in connection with manufacturing and marketing
will continue to be significant. We do not have any material commitments
Page 10
for capital expenditures. We believe, based on our current plans and
assumptions relating to our operations, projected cash flow from
operations
may not be sufficient to satisfy our contemplated cash requirements for
the
foreseeable future. We have relied on investments from management to cover
our short falls in the last fiscal year, such investment may not be
available to us in the future. In the event that our 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), we could be required to seek additional
financing sooner than currently anticipated. There can be no assurance
that
this additional financing will be available to us when needed, on
commercially reasonable terms, or at all.
Nasdaq
The Company's Common Stock was delisted from the Nasdaq Small Cap
Market effective the close of business April 10, 2001 for failure to meet
certain minimum net tangible asset requirements. The stock continues to
trade on the OTC Bulletin Board.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
-See Contingent Liabilities.
ITEM 2. CHANGES IN SECURITIES.
No material change.
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
None
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.
December 21, 2001 /s/Suneet S. Tuli
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Date Suneet S. Tuli,
Executive Vice President
December 21, 2001 /s/Raja S. Tuli
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Date President, C.E.O
