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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 December 31, 2000
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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
February 18, 2001 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 -
December 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
Three and Nine months ended December 31, 2000
and December 31, 1999 4
Consolidated Statements of Cash Flows -
Three and Nine months ended December 31, 2000
and December 31, 1999 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
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PART I FINANCIAL INFORMATION
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
December 31,
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2000 1999
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(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $ 55,373 $ 40,269
Accounts receivable 669,614 743,467
Deferred financing charges 19,799 54,083
Prepaid expenses 4,933 77,612
Advance(s) to related parties 341,780 201,541
Inventory (Note 3) 794,296 1,398,449
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Total current assets 1,885,795 2,515,421
Capital assets (Note 4) 1,046,281 1,362,322
Research and development technology 25,217 57,401
Investment in affiliates 134,652 368,537
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Total assets $ 3,091,945 $ 4,303,681
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Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness 206,525 260,404
Accounts payable and accrued liabilities 523,075 675,411
Loan(s) from related parties 569,393 287,998
Convertible debentures (Note 5) 193,318 350,000
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Total current liabilities $ 1,492,311 $ 1,573,813
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Shareholders' equity
Common shares $ 14,703,589 $ 14,501,808
Contributed surplus 159,825 159,825
Deficit (12,654,955) (11,447,306)
Cumulative translation adjustment (608,825) (484,459)
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1,599,634 2,729,868
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Total liabilities and shareholders' equity $ 3,091,945 $ 4,303,681
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See accompanying notes to the consolidated financial statements.
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THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in United States dollars)
For the Three For the Three For the Nine For the Nine
Months ended Months ended Months ended Months ended
December 31, December 31, December 31, December 31,
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
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Product sales $ 499,903 $ 684,840 $ 1,392,269 $ 2,073,185
Cost of product sales 119,273 171,116 315,110 473,958
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Gross profit 380,630 513,724 1,077,159 1,599,227
R & D grants - - - -
Interest income 1,004 122 2,133 3,965
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Net revenue 381,634 513,846 1,079,292 1,603,192
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Expenses
Selling, general and
Administrative 224,650 500,290 764,650 1,485,168
Interest and bank charges 9,239 19,738 29,988 52,905
Management fees and salaries 84,325 67,992 187,493 207,980
Amortization 63,488 73,359 188,263 221,460
Foreign exchange loss (52,988) - (75,819) -
Research & Development 7,980 - 55,635 -
Finance Fees 5,050 - 17,575 -
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Total operating expenses 341,744 661,379 1,167,785 1,967,513
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Operating profit (loss) 39,890 (147,533) (88,493) (364,321)
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Equity in (loss) of affiliate (38,468) (60,999) (190,334) (190,650)
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Earnings (loss) before
extraordinary item 1,423 (208,532) (278,826) (554,971)
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Net earnings (loss)
for the period 1,423 $ (208,532) $ (278,826) $ (554,971)
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Gain (Loss) per common share
before extraordinary item,
basic and diluted $ 0.00 $ (0.09) $ (0.11) $ (0.24)
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Loss per common share,
basic and diluted $ 0.00 $ (0.09) $ (0.11) $ (0.24)
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Weighted average number
of shares outstanding 2,443,730 2,438,326 2,443,730 2,293,790
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See accompanying notes to the consolidated financial statements.
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THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
For the nine months ended
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December 31, December 31,
2000 1999
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(Unaudited) (Unaudited)
Cash provided by (used in)
Operating activities
Loss for the period before
extraordinary item $(278,826) $ (554,971)
Add (deduct) items not requiring a cash outlay
Amortization 188,263 221,460
Shares issued to settle lawsuits - 197,150
Foreign exchange loss (75,819) -
Equity in loss of affiliate 190,334 190,650
Net changes in non-cash working capital balances
related to operations
(Increase) in accounts receivable (104,893) (173,847)
Decrease in inventory 85,095 (265,006)
Increase (decrease) in accounts payable and
accrued liabilities (257,026) (656,248)
Increase (decrease) in prepaid expenses 13,932 35,298
Advances to Related Parties (105,324) -
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(344,264) (1,005,514)
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Investing activities
Purchase of capital assets 843 (66,336)
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843 (66,336)
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Financing activities
Increase (decrease) in bank indebtedness 33,134 (10,976)
Shares issued for cash - 754,289
Loan from related parties 199,947 235,550
Convertible debentures - 15,000
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233,081 993,863
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Effect of exchange rate changes on cash 154,400 (37,938)
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Net increase (decrease) in cash during
the period 44,059 (115,925)
Cash and equivalents, beginning of period 11,314 156,194
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Cash and equivalents, end of period $ 55,373 40,269
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See accompanying notes to the consolidated financial statements.
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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 December 31, 2000, and the results of operations for
the three months ended December 31, 2000 and 1999, and cash flows for the
nine months ended December 31, 2000. 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 March 31, 2000.
2 Financial Statements
The consolidated financial statements include the accounts of Widecom and
its wholly owned subsidiaries. All significant inter-company balances,
transactions and stockholdings have been eliminated.
3. Inventories
Inventories are summarized as follows:-
December December
31, 2000 31, 1999
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Raw materials $555,142 781,029
Work in progress 44,900 190,384
Finished goods 194,254 427,036
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Total inventories $794,296 $1,398,449
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4. Capital Assets
Capital assets consist of:
December 31, 2000 December 31, 1999
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Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
Machinery, plant and
Computer equipment $1,926,865 $1,430,542 $1,972,208 $1,289,609
Furniture and fixtures 102,020 87,156 111,107 63,801
Prototype and jigs 291,156 175,906 297,525 156,475
Land 56,608 - 57,846 -
Building under-
construction 363,236 - 433,521 -
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$2,739,885 $1,693,604 $2,872,207 $1,509,885
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Net book value $1,046,281 $1,362,322
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5. Loans from Related Parties
During the course of the last fiscal year, Widecom's management and related
consulting companies declined receipt of regularly scheduled compensation to
be treated as non-interest bearing loans from those parties in order to
assist Widecom's daily cash flow position and overall liquidity during the
period. Widecom has chosen to accrue this aggregate indebtedness of $569,393
in this fiscal third quarter.
Widecom initiated a private placement for its wholly owned subsidiary,
PosterNetwork.com. As at December 31, 2000, $82,480 in net proceeds had
been received and is included in Loans from Related Parties pending minimum
subscription under the offering.
6. Convertible Debentures
During the spring of 1999, Widecom completed a private offering of ten
$30,000 units each one comprising 10,000 shares and $20,000 dollars in
convertible notes. The total amount of the offering comprised 100,000
shares and $200,000 in convertible debentures with interest payable
quarterly at 12% per annum. The common shares have all been issued.
In May of 1997, Widecom completed a financing of $250,000 through Global
Bermuda via convertible debentures. All of the five $50,000 units have been
converted in common shares of Widecom. In an agreement dated December 22,
1999, the final three units, inclusive of accrued interest, were exchanged
for 21,310 of Widecom's common shares that are subject to transfer
restrictions of 1,500 shares weekly.
7. Share Capital
As above, in May of 1997, Widecom completed a financing of $250,000 through
Global Bermuda via convertible debentures. All of the five $50,000 units
have now been converted in common shares of Widecom. In an agreement dated
December 22, 1999, the final three units, inclusive of accrued interest,
were exchanged for 21,310 of Widecom's common shares that are subject to
transfer restrictions of a maximum 1,500 shares weekly.
As above, during the spring of 1999, Widecom completed a private offering of
ten $30,000 units each one comprising 10,000 shares and $20,000 dollars in
convertible notes. The total amount of the offering comprised 100,000
shares and $200,000 in convertible debentures with interest payable
quarterly at 12% per annum. The common shares have all been issued. 2,190
shares were also issued to one of the placement underwriters on an exercise
of a placement warrant just after that quarter end.
In January, 2001, as a subsequent event, Widecom issued 50,600 shares to
Societe Innovatech du Grand Montreal in exchange for its then existing share
in Technologies Novimage. Widecom had previously replaced Societe Innovatech
with a new partner, M.S. Judge Systems.
8. Contingent Liabilities
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 two previously noted individuals, who
are named as co-defendants. We have filed and received default judgments on
our cross-claims against the two individuals co-defendants. The total
number of shares of common stock claimed under these suits is less than
45,000.
A Statement of Claim was filed against Widecom in 1998 for breach of sales
and royalty agreement and breach of trademark and copyright issues in the
amount of approximately $15.85 million. Widecom believes it has a good and
meritorious defense to this claim.
Loss, if any, on the above-mentioned claims will be recorded when settlement
is probable and the amount of any such settlement is estimable.
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Widecom's revenues are derived from product sales, which are recognized when
products are shipped.
While Widecom's has received government grants in the past, it does not meet
the required pre-qualification for such grants subsequent to conducting its
public offering. In consideration of this fact, Widecom has shifted its
research and development to an affiliated joint venture based in Montreal,
Canada.
Results of Operations
Quarter Ended December 31, 2000 Compared to Quarter Ended December 31,1999
Sales for the quarter ended December 31, 2000 were $499,903, a decrease of
$184,777 as compared to $684,840 for the quarter ended December 31,
1999. Net Revenues for the quarter ended December 31, 2000 were $381,634, a
decrease of $132,212 as compared to $513,846 for the quarter ended
December 31, 1999. Widecom was unable to take advantage of on-hand
orders for our 72" color scanner due to unforeseen completion and
delivery difficulties. Revenue also declined due to delays in printer
delivery related to ongoing improvements in our paper and ribbon loading
mechanisms.
Operating expenses for the quarter ended December 31, 2000 were $341,744, a
decrease of $319,635, or 48%, as compared to $661,379 for the quarter ended
December 31, 1999. Selling, general and administrative expenses for the
quarter ended December 31, 2000 were $224,650, decreased by $275,640, or 55%
versus the same period in the previous fiscal year. Widecom also continues to
incur legal, administration, and other related costs associated with its
initial public offering and its warrant call.
Widecom's 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 December 31, 2000, amounted to $38,468
as compared to $60,999 for the quarter ended December 31, 1999.
Liquidity and Capital Resources
Widecom's 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 its products. Widecom meets 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.
Widecom's cash requirements in connection with the manufacture and marketing
of its products has been and will continue to be significant. Widecom does
not presently have any material commitments for any additional capital
expenditures. Widecom believes, based on its currently proposed plans and
assumptions, that its contemplated cash requirements for the foreseeable
future will be met. In the event that Widecom's plan 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, delay,
problems or otherwise), Widecom may be required to seek additional financing.
There can be no assurance that any additional financing will be available to
Widecom if needed on commercially reasonable terms, or at all.
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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.
February 20, 2001 /s/Suneet S. Tuli
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Date Suneet S. Tuli,
Executive Vice President
February 20, 2001 /s/Raja S. Tuli
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Date President, C.E.O
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