-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SxmranXyp7sDoXhqHZx6vnJedmwczSxBp0SpyHy1QDqiJaXlY+Sf7un9oC8rQlaH 4/EEmYuXrRomTr5UcRx/GQ== 0000922023-02-000048.txt : 20021129 0000922023-02-000048.hdr.sgml : 20021128 20021129083753 ACCESSION NUMBER: 0000922023-02-000048 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WIDECOM GROUP INC CENTRAL INDEX KEY: 0000922023 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 980139939 STATE OF INCORPORATION: A6 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13588 FILM NUMBER: 02844461 BUSINESS ADDRESS: STREET 1: 37, GEORGE STREET NORTH STREET 2: SUITE 103, BRAMPTON CITY: ONT, CANADA L6X 1R5 STATE: A6 ZIP: 00000 BUSINESS PHONE: 9057120505 MAIL ADDRESS: STREET 1: 37, GEORGE STREET NORTH STREET 2: SUITE 103, BRAMPTON CITY: ONT, CANADA L6X 1R5 STATE: A6 ZIP: L6X 1R5 10QSB/A 1 wide_sept.txt THIRD QUARTER FINANCIALS -REVISED FILING FINANCIALS FOR THE QARTER ENDED SEPTEMBER 30, 2002 THE WIDECOM GROUP INC. Consolidated Financial Statements (Unaudited) For the quarters ended September 30, 2002 and 2001 Together with Review Engagement Report TABLE OF CONTENTS Accountant's Review Report 3 Consolidated Balance Sheets 4 Consolidated Statements of Operations 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 to 10 Page 2 Z A F A R H U S A I N S I D D I Q U I C H A R T E R E D A C C O U N T A N T 2 Robert Speck Pkwy, Suite 750 Mississauga, Ontario L4Z 1H8 Phone: (905) 677-7777 Fax: (905) 272-5333 INDEPENDENT ACCOUNTANT'S REVIEW REPORT To the Board of Directors of The WideCom Group Inc. I have reviewed the accompanying consolidated Balance Sheet of The WideCom Group Inc. (incorporated in Ontario, Canada) as of September 30, 2002, and the related consolidated statements of operations and cash flows for the period then ended. These consolidated financial statements are the responsibility of the company's management. I conducted my review in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Substantial doubts existed, especially in view of a negative net equity as at September 30,2002, as well as on the date of this report, as to the Company's ability to continue to meet its obligations and commitments and also with regards to its ability to continue to generate sufficient amounts of cash flows from its operations to maintain its solvency for a reasonable period of time without continued, substantial financial support from the personal resources of two of its directors and one key employee who is very closely related to those two directors. Information from management does not provide definitive confirmation of the related willingness and ability of the above mentioned individuals. As more fully explained in Note 7(b), the Company's ability to continue as a going concern may also be jeopardized by a decision by a secured creditor (a financial institution) to enforce its demand for an immediate, full repayment by the company of its indebtedness even though such an action might be considered by management to be unlikely, extreme, unscrupulous, or unwarranted. As mentioned in Note 8(a), the Company is committed to issuing 100,000 common shares to a claimant of alleged infringement of software and trademark ownership rights as part of an out-of-court settlement. As of the date of this report, those shares are yet to be issued. The effects of those to-be-issued shares on the financial statements have not been included. Except for the matters discussed above, based on my review, I am not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. Mississauga, Ontario November 14, 2002 Chartered Accountant. Page 3 The WideCom Group Inc. Consolidated Balance Sheet (in United States dollars) Sep-30 2001 2002 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 - 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 Liabilities & Stockholders' Equity Current Liabilities Bank indebtedness 120,609 111,387 Accounts payable and accrued liabilities 606,675 417,127 Loans from related parties 737,981 878,323 Convertible debentures 5 180,085 181,841 Total Current Liabilities 1,645,350 1,588,678 Stockholders' Equity Common shares 5,000,000* shares authorized of no par value 2,633,585* shares issued and outstanding on Sept 30, 2001 2,633,585* shares issued and outstanding on Sept 30, 2002 14,711,179 14,711,179 Contributed surplus 159,825 159,825 Deficit -14,595,249 -15,070,641 275,755 -199,637 Total Liabilities & Stockholders' Equity 1,921,105 1,389,041 Accompanying notes are integral part of consolidated financial statements. Page 4 The WideCom Group Inc. Consolidated Statements of Operations (in United States dollars) For the three months ended For the six Sep-30 Sep-30 months ended 2001 2002 Sept. 30, 2002 (Unaudited) (Unaudited) (Unaudited) Revenue Product sales 147,879 204,033 343,593 Research and development grants - - - Interest income 131 78 218 Total Revenue 148,010 204,111 343,811 Expenses Cost of product sales 36,211 51,746 88,864 Research and development 83,795 77,127 147,064 Selling, general and administrative 121,106 131,848 241,226 Interest and bank charges 2,985 3,367 6,912 Management fees and 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 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 - - Net loss for the period -229,855 -146,842 -259,989 Loss per common share, basic and diluted -0.09 -0.06 -0.1 Weighted average number of shares outstanding* 2,633,585 2,633,585 2,633,585 Accompanying notes are integral part of consolidated financial statements. Page 5 The WideCom Group Inc. Consolidated Statements of Cash Flows (in United States dollars) For the six months ended Sep-30 Sep-30 2001 2002 (Unaudited) (Unaudited) Cash provided by (used in) Operating Activities Loss for the year -417,182 -259,989 (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 receivables 30,724 3,301 Decrease in research and development grants receivable - - 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 -108,995 -183,820 Investing Activities Disposal (purchase) of capital assets - -436 Advances to related parties 1,412 111,908 1,412 111,472 Financing Activities Deferred financing costs 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 - - 42,806 86,164 Effect of exchange rate change on cash 2,972 -6,746 Net increase (decrease) in cash during the period -61,805 7,070 Cash and cash equivalents, beginning of the period 69,576 18,048 Cash and cash equivalents, end of the period 7,771 25,118 Accompanying notes are integral part of consolidated financial statements. Page 6 The WideCom Group Inc. Notes to Consolidated Financial Statements (Unaudited) (in United States dollars) 30-Sep-02 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 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 Sep-30 Sep-30 Inventories are summarized as follows: 2001 2002 Raw material 442,987 228,805 Work-in-progress 28,218 18,713 Finished goods 57,252 105,634 R & D Inventory - 52,941 528,457 406,093 4. Capital Assets Capital assets consist of: 30-Sep-01 30-Sep-02 Accumulated Accumulated Cost Amortization Cost Amortization Machinery, plant & computer 1,646,001 1,476,163 1,648,168 1,528,777 Furniture and fixtures 91,395 77,692 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 - 2,321,481 1,700,518 2,324,084 1,770,939 Net book value 620,963 553,145 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 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 Page 7 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) 30-Sep-02 5. Convertible Debentures (cont'd) amount 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 initial 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 the accountant's review report, the matter has remained unresolved, pending a firm response from RBC. In the event of a 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) The Company has been served with a claim, with respect to a breach of contract. 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 breach of contract along with copyright and trademark infringement. The claim 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 customs duty levied by the authorities in India. As at year end, this amount was not determinable. Page 8 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. Page 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. November 15, 2002 /s/ Suneet S. Tuli - - ------------------ ---------------------- Date Suneet S. Tuli, Executive Vice President November 15, 2002 /s/Raja S. Tuli - - ------------------ ---------------------- Date President, C.E.O Page 10 -----END PRIVACY-ENHANCED MESSAGE-----