10QSB 1 wide-q1.txt FORM 10-QSB ============================================================================ 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, 2000. -------------- 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 ------- THE WIDECOM GROUP INC. ---------------------------------------------------------------------------- (Exact Name of Registrant as specified in Its Charter) ONTARIO, CANADA 98-0139939 ---------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 72 DEVON ROAD, UNIT 17, BRAMPTON, ONTARIO, CANADA L6T 5B4 ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code (905) 712-0505 -------------- ---------------------------------------------------------------------------- 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 ----- ----- The number of shares outstanding of Widecom's common stock as of June 30, 2000 was 2,582,985 common shares. THE WIDECOM GROUP INC. FORM 10-QSB INDEX
Page No. -------- Part I Financial Information Item 1 - Financial Statements Consolidated Balance Sheets - June 30, 2000 and June 30, 1999 3 Consolidated Statements of Operations - Three months ended June 30, 2000 and June 30, 1999 4 Consolidated Statements of Cash Flows - Three months ended June 30, 2000 and June 30, 1999 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 Signatures 10
PART I FINANCIAL INFORMATION THE WIDECOM GROUP INC. CONSOLIDATED BALANCE SHEET (in United States dollars)
June 30, 1999 2000 ---- ---- (unaudited) (unaudited) ------------------------------------------------------------------------------ Assets Current assets Cash and cash equivalents $ 59,236 $ 85,205 Accounts receivable 549,272 642,486 Prepaid expenses 43,426 37,407 Advance to related parties 201,486 239,723 Inventory (Note 3) 1,162,649 898,377 Deferred financing costs 54,068 30,506 ---------------------------- Total current assets 2,070,137 1,933,705 Capital assets (Note 4) 1,497,205 1,171,114 Purchased research and development technology 72,876 41,409 Investment in affiliates 491,822 255,066 ---------------------------- Total assets $ 4,132,040 3,401,294 ============================================================================== Liabilities and Shareholders' Equity Current liabilities Bank indebtedness 219,177 198,961 Accounts payable and accrued liabilities 977,592 1,030,285 Loan from related parties 66,748 401,651 Convertible debentures (Note 5) 350,000 195,785 ---------------------------- Total current liabilities 1,613,517 1,826,682 ---------------------------- Shareholders' equity Common shares $ 13,871,808 14,703,589 Contributed surplus 159,825 159,825 Deficit (10,981,968) (12,540,436) Cumulative translation adjustment (531,142) (748,366) ---------------------------- 2,518,523 1,574,612 ---------------------------- Total liabilities and shareholders' equity $ 4,132,040 $ 3,401,294 ==============================================================================
See accompanying notes to the consolidated financial statements. THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in United States dollars)
For the three months ended June 30, June 30, 1999 2000 (unaudited) (unaudited) ---------------------------------------------------------------------------- Product sales $ 785,398 $ 510,994 Cost of product sales 171,362 112,304 ------------------------- Gross profit 614,036 398,691 Research and development grants - - Interest income 1,098 1,027 ------------------------- Net revenue 615,134 399,718 ------------------------- Expenses Research and development - 25,910 Selling, general and administrative 474,163 345,866 Interest and bank charges 18,126 10,560 Management fees and salaries 69,686 47,689 Amortization 74,547 59,574 Finance fees - 7,203 Foreign exchange loss - (23,460) ------------------------- Total operating expenses 636,522 473,341 ------------------------- Operating income (loss) (21,388) (73,623) Equity in earnings (loss) of Joint Venture (68,246) (73,639) ------------------------- Net earnings (loss) for the period $ (89,634) $ (147,262) ============================================================================ Loss per common share before extraordinary item, basic and diluted $ (0.04) $ (0.06) ============================================================================ Loss per common share, basic and diluted $ (0.04) $ (0.06) ============================================================================ Weighted average number of shares outstanding 2,130,290 2,443,730 ============================================================================ Interest paid 3,188 3,518 Income taxes paid - - ============================================================================
See accompanying notes to the consolidated financial statements. THE WIDECOM GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in United States dollars)
For the three months ended June 30, June 30, 1999 2000 ---- ---- (Unaudited) (Unaudited) ------------------------------------------------------------------------------------------------ Cash provided by (used in) Operating activities Loss for the period before extraordinary item $ (89,634) $ (147,262) Add (deduct) items not requiring a cash outlay Amortization 74,547 59,574 Foreign exchange loss - (23,460) Shares issued to settle lawsuits 197,150 - Equity in loss of affiliate 68,246 73,639 Net changes in non-cash working capital balances related to operations Decrease (increase) in accounts receivable 18,971 (70,330) Decrease (increase) in inventory 45,052 ( 7,964) Increase (decrease) in accounts payable and accrued liabilities (356,847) 240,904 (Decrease) increase in prepaid expenses 1,355 (18,337) ------------------------- (41,160) 106,763 ------------------------- Investing activities Purchase of capital assets (69,194) 798 ------------------------- (69,194) 798 ------------------------- Financing activities Increase (decrease) in bank indebtedness (52,024) 23,284 Shares issued 124,289 - Issuance of convertible debentures 15,000 - Loan from related parties - 27,024 ------------------------- 87,265 50,308 ------------------------- Effect of exchange rate changes on cash (73,868) (83,978) ------------------------- Net increase (decrease) in cash during the period (96,957) 73,891 Cash and equivalents, beginning of period 156,193 11,314 ------------------------- Cash and equivalents, end of period $ 59,236 $ 85,205 ===============================================================================================
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, 2000, and the results of operations for the three months ended June 30, 2000 and 1999 and cash flows for the three months ended June 30, 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 ended March 31, 2000. 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: -
June June 30, 1999 30, 2000 -------- -------- Raw materials $ 684,325 $ 597,949 Work in progress 29,178 7,897 Finished goods 449,146 292,531 ------------------------- Total inventories $1,162,649 $ 898,377 =========================
4. Capital Assets Capital assets consist of:
June 30, 1999 June 30, 2000 --------------------------- --------------------------- Accumulated Accumulated Cost Amortization Cost Amortization Machinery, plant and Computer equipment $1,971,670 $1,176,002 $1,953,130 $1,347,879 Furniture and fixtures 111,076 58,551 103,322 90,104 Prototype and jigs 297,444 142,337 294,872 167,429 Land 57,830 - 57,330 - Building under construction 436,075 - 367,872 - ---------------------------------------------------------- $2,874,095 $1,376,890 $2,776,526 $1,605,412 ========================================================== Net book value $1,497,205 $1,171,114 ========== ==========
5. Convertible Debentures In the last quarter of fiscal 1999 through the first quarter of Fiscal 2000, 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 fiscal 1999, however, one-half unit closed during the first quarter of fiscal 2000. Included in accounts payable is accrued interest on the debentures of $ 4,987. 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. The Company is in the process of converting these loans in to equity (see note 8). 7. 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. Widecom's position is strong and resolution options remain open. The action is presently scheduled for mediation in the fall of 2000. (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. 8. Compliance with NASDAQ Small Cap Requirements As at June 30, 2000, the Company did not technically meet the net tangible asset requirement for continued listing on the NASDAQ small cap market. The Company is in the process of converting the loans from related parties to equity as part of the strategy to comply with this ongoing requirement. 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, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999 Revenues for the quarter ended June 30, 2000 were $ 512,021, a decrease of $ 273,377 or 34.8 % as compared to $786,496 for the quarter ended June 30, 1999. Sales for the quarter ended June 30, 2000 were $ 510,994, a decrease of $ 274,404 as compared to $ 785,398 for the quarter ended June 30, 1999. Operating expenses for the quarter ended June 30, 2000 were $ 473,341, a decrease of $ 163,181, or 25.6 %, as compared to $636,522 for the quarter ended June 30, 1999. Selling, general and administrative expenses for the quarter ended June 30, 2000 decreased by $ 128,297 and increased as a percentage of revenues from 60.3 % to 67.5 %. 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 $ 73,639 for the first quarter of fiscal 2001. During the first quarter of fiscal 2001, Widecom earned $ 1,027 interest on short-term investments compared to $1,098 earned in the same period of fiscal 2000. 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. The Company recently announced its establishment of a new wholly-owned subsidiary PosterNetwork.com to which the Company has agreed to transfer its proprietary wide format printing technology and related patents in exchange for all the issued and outstanding shares of such subsidiary. During the quarter ended June 30, 2000, PosterNetwork had commenced a private offering to raise up to $3,000,000 by the sale of additional Common Shares and Warrants to investors. A final determination of the percentage of the Company which will be sold to investors has not been made. PART II.: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. No material change subsequent to the latest annual filing. ITEM 2. CHANGES IN SECURITIES. No material change subsequent to the latest annual filing. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. As at June 30, 2000, the Company did not technically meet the net tangible asset requirement for continued listing on the NASDAQ small cap market. The Company is in the process of converting the loans from related parties to equity as part of the strategy to comply with this ongoing requirement. The related parties have agreed in principle to accept shares of the company in full settlement of the amount of $401,651 due to them. As at June 30, 2000, Innovatech has requested the conversion of 80% of its holdings in 3294340 Canada Inc. (Technologies Novimage) into Widecom common stock. This transaction will close subsequent to this reporting period. ITEM 6. REPORTS ON FORM 8-K and EXHIBITS A Form 8-K, dated May 31, 2000, was filed with the Securities and Exchange Commission in connection with the PosterNetwork.com start-up. A 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: August 21, 2000 -------------- Suneet S. Tuli, Executive Vice President s/Willem J. Botha W.J BOTHA Date: August 21, 2000 --------- Willem J. Botha, Chief Financial Officer