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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 June 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
September 17, 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 -
June 30, 2001 and June 30, 2000 3
Consolidated Statements of Operations -
Three months ended June 30, 2001
and June 30, 2000 4
Consolidated Statements of Cash Flows -
Three months ended June 30, 2001
and June 30, 2000 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)
June 30,
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2000 2001
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<s> <c> <c> <c>
Current Assets Notes
Cash and cash equivalents 85,205 27,749
Accounts receivable 642,486 438,001
Inventory 3 898,377 708,399
Prepaid expenses 37,407 19,817
Advances to related parties 239,723 295,658
Deferred financing costs 30,506 14,811
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Total Current Assets 1,933,704 1,504,435
Capital Assets 4 1,171,114 641,024
Purchased research and
development technology 5 41,409 14,811
Investment in affiliate 6 255,066 84,650
Total Assets 3,401,293 2,244,920
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Liabilities & Stockholders' Equity
Current Liabilities
Bank indebtedness 198,961 168,494
Accounts payable & accrued liabilities 1,030,285 732,251
Loans from related parties 401,651 658,481
Convertible debentures 5 195,785 180,085
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Total Current Liabilities 1,826,682 1,739,311
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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 14,703,589 14,711,179
Contributed surplus 159,825 159,825
Deficit (13,288,802) (14,365,395)
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1,574,612 505,609
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Total Liabilities & Stockholders' Equity 3,401,294 2,244,920
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* 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.
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The WideCom Group Inc.
Consolidated Statements of Operations
(in United States dollars)
For the three months ended
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June 30, June 30,
2000 2001
(Unaudited) (Unaudited)
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<s> <c> <c>
Revenue
Product sales 510,994 85,752
Research and development grants - -
Interest income 1,027 91
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Total Revenue 512,021 85,843
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Expenses
Cost of product sales 112,304 22,166
Research and development 25,910 11,792
Selling, general & administrative 345,866 100,532
Interest and bank charges 10,560 3,368
Management fees & salaries 47,689 39,500
Amortization 59,574 23,627
Financing fees 7,203 -
Foreign exchange loss (gain) (23,462) (2,358)
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Total Expenses 585,644 198,627
Operating loss (73,623) (112,784)
Legal settlement costs - -
Equity in loss of affiliate (73,639) (74,543)
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Net loss for the period (147,262) (187,327)
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Loss per common share, basic
and diluted (0.06) (0.07)
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Weighted average number of shares outstanding* 2,443,730 2,633,585
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* 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.
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The WideCom Group Inc.
Consolidated Statements of Cash Flows
(in United States dollars)
For the three months ended
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June 30, June 30,
2000 2001
(Unaudited) (Unaudited)
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<s> <c> <c>
Cash provided by (used in)
Operating Activities
Loss for the year (147,262) (187,327)
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(Add (deduct) items not requiring a cash outlay
Amortization 59,574 23,627
Foreign exchange loss (gain) (23,462) (2,358)
Share issued to settle lawsuits and corporate
indebtedness -
Equity in loss of affiliate 73,639 74,543
Net changes in non-cash
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Working capital balances related to operations:
Decrease (increase) in accounts receivable (70,333) 10,908
Decrease in research and development grants
receivable - -
Decrease (increase) in inventory (7,962) 35,160
Increase (decrease) in accounts payable and
accrued liabilities 240,905 (1,805)
Increase (decrease) in prepaid expenses (18,335) (245)
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106,764 (47,497)
Investing Activities
Disposal (purchase) of capital assets 797 -
Advances to related parties 1,412
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797 1,412
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Financing Activities
Deferred financing costs incurred -
Increase (decrease) in bank indebtedness 23,286 (1,805)
Shares and warrants issued, net of issue costs - -
Loan from related parties 27,022 12,996
Issuance of convertible debentures - -
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50,308 11,191
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Effect of exchange rate change on cash (83,978) (6,933)
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Net increase (decrease) in cash during the period 73,891 (41,827)
Cash and cash equivalents, beginning of the period 11,314 69,576
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Cash and cash equivalents, end of the period 85,205 27,749
The accompanying notes are an integral part of the consolidated financial
statements.
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The WideCom Group Inc.
Notes to Consolidated Financial Statements (Unaudited)
(in United States dollars)
June 30, 2001
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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 June 30, 2001, and the results of
operations for the three months ended June 30, 2001 and 2000 and cash
flows for the three months ended June 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
Inventories are summarized as follows:
June 30, June 30,
2000 2001
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<s> <c> <c>
Raw material 597,949 577,802
Work-in-progress 7,897 7,659
Finished goods 292,531 122,938
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898,377 708,399
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4. Capital Assets
Capital assets consist of:
June 30, 2000 June 30, 2001
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Accumulated Accumulated
Cost Amortization Cost Amortization
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<s> <c> <c> <c> <c>
Machinery, plant & computer equipment 1,953,130 1,347,879 1,646,001 1,463,619
Furniture and fixtures 103,322 90,104 91,395 77,033
Prototypes and jigs 294,872 167,429 239,494 139,805
Land 57,330 - 45,806 -
Building under construction 367,872 - 298,785 -
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2,776,526 1,605,412 2,321,481 1,680,457
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Net book value 1,171,114 641,024
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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 (see
Note 10(b)(x)) 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. 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.
On December 20, 1996, two individuals, filed a lawsuit in the
United Stated District Court for the District of Rhode Island,
seeking 60,000 shares and 40,000 warrants. This action has
been formally dismissed. An additional three shareholders have
also commenced related litigation, alleging purchases of the
Company's securities from the previously noted two individuals,
who are named as co-defendants. The Company has filed and
received default judgments on its cross-claims against the two
individual co-defendants. As the value of the Company's common
stock has decreased substantially in recent months, it may not
be able to settle the outstanding suits through issuance of
stock. Collectively almost $1 million is claimed by the 3
shareholder suits.
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.
(c) 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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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 June 30, 2001 Compared to Quarter Ended June 30, 2000
Sales for the quarter ended June 30, 2001 were $85,752, a decrease of
$425,242 as compared to $510,994 for the quarter ended June 30, 2000. Net
Revenues for the quarter ended June 30, 2001 were $63,677, a decrease of
$336,040 as compared to $399,717 for the quarter ended June 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 June 30, 2001 were $176,461
a decrease of $296,879, or 63%, as compared to $473,340 for the quarter
ended June 30, 2000. Selling, general and administrative expenses for the
quarter ended June 30, 2001 were $100,532, decreased by $245,334, or 71%
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.
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 June 30, 2001, amounted to $74,543 as
compared to $73,639 for the quarter ended June 30, 2000.
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
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.
September 18, 2001 /s/Suneet S. Tuli
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Date Suneet S. Tuli,
Executive Vice President
September 18, 2001 /s/Raja S. Tuli
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Date President, C.E.O
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