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 Septembr 30, 2002
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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
September 30, 2002 was 2,633,585 shares.
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THE WIDECOM GROUP INC.
FORM 10-QSB
INDEX
Page No.
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Part I Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 2001 and September 30, 2002 3
Consolidated Statements of Operations -
Three months ended September 30, 2001
and September 30, 2002 4
Consolidated Statements of Cash Flows -
Three months ended September 30, 2001
and September 30, 2002 5
Notes to Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
Part II Other Information
None.
Signatures 9
2 of 9
PART I FINANCIAL INFORMATION
The WideCom Group Inc.
Consolidated Balance Sheet
(in United States dollars)
September 30,
--------------------------
2001 2002
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- --
114:
Current Assets Notes
Cash and cash equivalents 7,771 25,118
Accounts receivable 423,194 229,153
Inventory 3 528,457 421,093
Prepaid expenses 21,263 35,182
Advances to related parties 295,658 125,350
Deferred financing costs 9,802 -
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Total Current Assets 1,286,145 835,896
Capital Assets 4 620,963 553,145
Purchased research and
development technology 5 13,997 -
Investment in affiliate 6 - -
Total Assets 1,921,105 1,389,041
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Liabilities & Stockholders' Equity
Current Liabilities
Bank indebtedness 120,609 111,387
Accounts payable & accrued liabilities 606,675 417,127
Loans from related parties 737,981 878,323
Convertible debentures 5 180,085 181,841
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Total Current Liabilities 1,645,350 1,588,678
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Stockholders' Equity
Common shares
5,000,000* shares authorized
of no par value
2,663,585* shares issued
and outstanding on
September 30, 2001
2,633,585* shares issued
and outstanding on
September 30, 2002 14,711,179 14,711,179
Contributed surplus 159,825 159,825
Deficit (14,595,249) (15,070,641)
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275,755 (199,637)
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Total Liabilities & Stockholders' Equity 1,921,105 1,389,041
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164:
The accompanying notes are an integral part of the consolidated financial
statements.
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The WideCom Group Inc.
Consolidated Statements of Operations
(in United States dollars)
173:
For the three months ended For the six
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Sept 30, Sept 30, months ended
2001 2002 Sept 30, 2002
(Unaudited) (Unaudited) (Unaudited)
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Revenue
Product sales 147,879 204,033 343,593
Research and development grants - - -
Interest income 131 78 218
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Total Revenue 148,010 204,111 343,811
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Expenses
Cost of product sales 36,211 51,746 88,864
Research and development 83,795 77,127 147,064
Selling, general & administrative 121,106 131,848 241,226
Interest and bank charges 2,985 3,367 6,912
Management fees & salaries 12,458 13,906 27,729
Amortization 31,810 14,350 30,692
Financing fees - - -
Obsolete inventory w/off - 54,568 54,568
Foreign exchange loss (gain) 4,850 4,041 6,745
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Total Expenses 293,215 350,953 603,800
Operating loss (145,205) (146,842) (259,989)
Legal settlement costs - - -
Equity in loss of affiliate (84,650) - -
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Net loss for the period (229,855) (146,842) (259,999)
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Loss per common share, basic
and diluted (0.09) (0.06) (0.10)
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Weighted average number of
shares outstanding* 2,633,585 2,633,585 2,633,585
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The accompanying notes are an integral part of the consolidated financial
statements.
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The WideCom Group Inc.
Consolidated Statements of Cash Flows
(in United States dollars)
236:
For the six months ended
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Sept 30, Sept 30,
2001 2002
(Unaudited) (Unaudited)
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Cash provided by (used in)
Operating Activities
Loss for the year (417,182) (259,989)
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(Add (deduct) items not requiring a
cash outlay
Amortization 55,437 30,692
Foreign exchange loss (gain) 2,492 6,745
Equity in loss of affiliate 159,193 -
Net changes in non-cash
- - -----------------------
Working capital balances related to operations:
Decrease (increase) in accounts receivable 30,724 3,301
Decrease in research and development grants receivables - -
Decrease (increase) in inventory 215,102 112,949
Increase (decrease) in accounts payable and
accrued liabilities (155,962) (63,825)
Increase (decrease) in prepaid expenses 1,201 (13,693)
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(108,995) (183,820)
Investing Activities
Disposal (purchase) of capital assets - (436)
Advances to related parties 1,412 111,908
1,412 111,472
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Financing Activities
Deferred financing costs incurred -
Increase (decrease) in bank indebtedness (49,690) 11,652
Shares and warrants issued, net of issue costs - -
Loan from related parties 92,496 74,512
Issuance of convertible debentures - -
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42,806 86,164
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Effect of exchange rate change on cash 2,972 (6,746)
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Net increase (decrease) in cash during the period (61,805) 7,070
Cash and cash equivalents, beginning of the period 69,576 18,048
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Cash and cash equivalents, end of the period 7,771 25,118
The accompanying notes are an integral part of the consolidated financial
statements.
The WideCom Group Inc.
Notes to Consolidated Financial Statements (Unaudited)
(in United States dollars)
September 30,2002
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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 30,2002, and the results of
operations for the three months ended September 30,2002 and 2001
and cash flows for the six months ended September 30,2002. 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, 2002.
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
Inventories are summarized as follows:
September 30, September 30,
2001 2002
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Raw material 442,987 228,805
Work-in-progress 28,218 18,713
Finished goods 57,252 105,634
R & D Inventory - 52,941
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528,457 406,093
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4. Capital Assets
Capital assets consist of:
September 30, 2001 September 30, 2002
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Accumulated Accumulated
Cost Amortization Cost Amortization
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Machinery, plant & computer
Equipment 1,648,001 1,476,163 1,648,168 1,528,777
Furniture and fixtures 91,395 77,682 91,395 80,480
Prototypes and jigs 239,494 146,663 239,494 161,682
Land 45,806 - 45,806 -
Building under construction 298,785 - 299,221 -
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2,321,481 1,700,518 2,324,084 1,770,939
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Net book value 620,963 553,145
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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 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
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The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
June 30, 2001
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5. Convertible Debentures (cont'd)
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. Bank indebtedness
(a) The company has an operating line of credit available for
approximately $100,000 which bears interest at Prime rate plus
0.75%, is due on demand, and is secured by a general security
agreement over all Company assets except real property.As at
Sept 30,2002 approximately $99,925 was utilized.
(b) In February 2002, the Royal Bank of Canada (RBC) served through
its attorneys a notice upon the Company demanding immediate
repayment of the outstanding debt. A few weeks later RBC
accepted a settlement offer made by the company's management.
In April 2002, however , RBC reneged, and Widecom threatened
legal action against RBC for breach of contract. In response,
RBC agreed to consider WideCom revised offer(a) to make an
intial payment of $20,000 CAN followed by a monthly payment
of$5,000 CDN until the entire amount has been settled, and (b)
a personal guarantee of $20,000 CDN by one of the executives
of the Company. As of the date of Accountant's review report,
the matter has remained unresolved, pending a firm response
from RBC.
In the event of non-acceptance by RBC of the Company's revised
offer, management may have to resort to legal action against
the bank, the outcome whereof, at the present time (i.e. the
date of the accountant's review report) is extremely hard to
predict.
8. Contingent Liabilities
(a) In the prior years the Company had been served with a claim
with respect to an alleged 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 claimed damages for the breach of
contract along with copy right and trademark infringement. The
claims sought a total of $15.85 million in damages and was in
progress in the Province of Ontario. During the previous
quarter to the quarter being reported on, the claim has been
settled for $CDN 5,000 in cash and 100,000 shares in the
company. These shares have not yet been issued and are not
reflected in these financial statements or in these accompanying
notes elsewhere.
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 customos duty levied by the
authorities in India. As at the year end, this amount was not
determinable.
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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.
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 Sept 30, 2002 Compared to Quarter Ended Sept 30, 2001
Sales for the quarter ended Sept 30, 2002 were $204,033, an increase of
$56,154 as compared to $147,879 for the quarter ended Spet 30, 2001. Net
Revenues for the quarter ended Spet 30, 2002 were $152,365, an increase of
$40,566 as compared to $111,799 for the quarter ended Sept 30, 2001. The
company is making efforts to increase the sales by exploring the market
in other countries.
Operating expenses for the quarter ended Spet 30, 2002 were $299,207
an increase of $42,203, as compared to $257,004 for the quarter
ended Sept 30, 2001. Selling, general and administrative expenses for the
quarter ended Sept 30, 2002 were $131,848, increased by $10,742, or 9%
versus the same period in the previous fiscal year. This increase in
selling, general and administrative expenses is due to higher marketing and
other related expeses for penetrating the products in overseas markets.
Due to best efforts, the company could maintain losses to $146,842 for
the quarter ended Sept 30, 2002 as compared to $145,205 of Sept 30, 2001.
Our cash requirements in connection with manufacturing and marketing
will continue to be significant. We do not have any material commitments
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.
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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.
November 15, 2002 /s/Suneet S. Tuli
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Date Suneet S. Tuli,
Executive Vice President
November 15, 2002 /s/Raja S. Tuli
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Date President, C.E.O
