10QSB 1 wide-q1.txt FORM 10-QSB FOR JUNE 30, 2001 =========================================================================== 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 ------------- 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 Identification No.) Incorporation or Organization) 37 GEORGE STREET NORTH, SUITE 103, BRAMPTON, ONTARIO, CANADA L6X 1R5 --------------------------------------------------------------------------- (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 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 ----- ----- The number of shares outstanding of registrant's common stock as of September 17, 2001 was 2,633,585 shares. 1 of 9 THE WIDECOM GROUP INC. FORM 10-QSB INDEX Page No. -------- 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 2 of 9 PART I FINANCIAL INFORMATION The WideCom Group Inc. Consolidated Balance Sheet (in United States dollars)
June 30, -------------------------- 2000 2001 ------------------------------------------------------------------------------- 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 --------------------------- 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 ------------------------------------------------------------------------------- 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 --------------------------- Total Current Liabilities 1,826,682 1,739,311 --------------------------- 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) --------------------------- 1,574,612 505,609 --------------------------- Total Liabilities & Stockholders' Equity 3,401,294 2,244,920 -------------------------------------------------------------------------------
* 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. 3 of 9 The WideCom Group Inc. Consolidated Statements of Operations (in United States dollars)
For the three months ended -------------------------- June 30, June 30, 2000 2001 (Unaudited) (Unaudited) ----------------------------------------------------------------------------- Revenue Product sales 510,994 85,752 Research and development grants - - Interest income 1,027 91 ------------------------ Total Revenue 512,021 85,843 ------------------------ 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) ------------------------ Total Expenses 585,644 198,627 Operating loss (73,623) (112,784) Legal settlement costs - - Equity in loss of affiliate (73,639) (74,543) ------------------------ Net loss for the period (147,262) (187,327) --------------------------------------------------------------------------- Loss per common share, basic and diluted (0.06) (0.07) --------------------------------------------------------------------------- Weighted average number of shares outstanding* 2,443,730 2,633,585 ---------------------------------------------------------------------------
* 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. 4 of 9 The WideCom Group Inc. Consolidated Statements of Cash Flows (in United States dollars)
For the three months ended -------------------------- June 30, June 30, 2000 2001 (Unaudited) (Unaudited) -------------------------------------------------------------------------------- Cash provided by (used in) Operating Activities Loss for the year (147,262) (187,327) ----------------- (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 ----------------------- 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) ----------------------- 106,764 (47,497) Investing Activities Disposal (purchase) of capital assets 797 - Advances to related parties 1,412 ----------------------- 797 1,412 ----------------------- 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 - - ----------------------- 50,308 11,191 ----------------------- Effect of exchange rate change on cash (83,978) (6,933) ----------------------- Net increase (decrease) in cash during the period 73,891 (41,827) Cash and cash equivalents, beginning of the period 11,314 69,576 ----------------------- Cash and cash equivalents, end of the period 85,205 27,749
The accompanying notes are an integral part of the consolidated financial statements. 5 of 9 The WideCom Group Inc. Notes to Consolidated Financial Statements (Unaudited) (in United States dollars) June 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 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 --------------------- Raw material 597,949 577,802 Work-in-progress 7,897 7,659 Finished goods 292,531 122,938 -------------------- 898,377 708,399 --------------------
4. Capital Assets Capital assets consist of:
June 30, 2000 June 30, 2001 ------------------------- ------------------------- Accumulated Accumulated Cost Amortization Cost Amortization ----------------------------------------------------- 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 - --------------------------------------------------- 2,776,526 1,605,412 2,321,481 1,680,457 --------------------------------------------------- Net book value 1,171,114 641,024 ---------------------------------------------------
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 6 of 9 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) June 30, 2001 --------------------------------------------------------------------------- 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. 7 of 9 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. 8 of 9 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 ------------------ ---------------------- Date Suneet S. Tuli, Executive Vice President September 18, 2001 /s/Raja S. Tuli ------------------ ---------------------- Date President, C.E.O 9 of 9