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 September 30, 1999
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 17-18, 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 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
November 19, 1999 was 2,542,541 shares.
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 -
September 30, 1999 and September 30, 1998 3
Consolidated Statements of Operations -
Three and Six months ended September 30, 1999
and September 30, 1998 4
Consolidated Statements of Cash Flows -
Three and Six months ended September 30, 1999
and September 30, 1998 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
Item 2 - Changes in Securities 9
Item 2 - Reports on Form 8-K 9
Signatures 9
PART I FINANCIAL INFORMATION
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
<TABLE>
<CAPTION>
September 30,
---------------------------
1999 1998
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 221,637 $ 392,849
Accounts receivable 604,155 585,571
Deferred financing charges 54,083 -
Prepaid expenses 65,110 89,140
Advance to related parties 201,541 167,767
Inventory (Note 3) 1,407,802 1,730,296
----------------------------
Total current assets 2,554,328 2,965,623
Capital assets (Note 4) 1,428,644 1,506,737
Research and development technology 65,242 -
Investment in affiliates 430,308 790,778
----------------------------
Total assets $ 4,478,522 $ 5,263,138
============================
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness 123,280 305,398
Accounts payable and accrued liabilities 894,572 768,554
Loan from related parties 66,766 13,333
Convertible debentures (Note 5) 350,000 150,000
----------------------------
Total current liabilities 1,434,618 1,237,285
----------------------------
Shareholders' equity
Common shares $14,476,808 $13,452,497
Contributed surplus 159,825 159,825
Deficit (11,221,718) (9,377,072)
Cumulative translation adjustment (371,011) (209,397)
3,043,904 4,025,853
----------------------------
Total liabilities and shareholders' equity $ 4,478,522 $ 5,263,138
============================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in United States dollars)
<TABLE>
<CAPTION>
For the three For the three For the six For the six
Months ended Months ended Months ended Months ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Product sales $ 593,692 $ 635,955 $1,378,017 $1,254,050
Cost of product sales 129,603 168,470 300,952 332,323
----------------------------------------------------------
Gross profit 464,089 467,485 1,077,065 921,727
Research and development grants - 301,285 - 405,799
Interest income 2,734 3,057 3,838 13,281
----------------------------------------------------------
Net revenue 466,823 771,827 1,080,903 1,340,807
----------------------------------------------------------
Expenses
Selling, general and administrative 486,915 743,033 961,019 1,458,674
Interest and bank charges 14,893 19,418 33,004 29,058
Management fees and salaries 69,686 81,620 139,372 157,254
Amortization 73,352 89,913 147,798 178,072
Foreign exchange loss - 28,163 - 49,505
----------------------------------------------------------
Total operating expenses 644,846 962,147 1,281,193 1,872,563
----------------------------------------------------------
Operating income (loss) (178,023) (190,320) (200,290) (531,756)
----------------------------------------------------------
Equity in (loss) of affiliate (60,879) (67,055) (129,092) (197,333)
Legal settlement costs - - - -
----------------------------------------------------------
Earnings (loss) before extraordinary
item (238,902) (257,375) (329,382) (729,089)
Extraordinary item, net of tax - - - -
----------------------------------------------------------
Net earnings (loss) for the period $ (238,902) $ (257,375) $ (329,382) $ (729,089)
==========================================================
Loss per common share before
extraordinary item, basic and diluted $ (0.10) $ (0.16) $ (0.14) $ (0.48)
==========================================================
Loss per common share, basic
and diluted $ (0.10) $ (0.16) $ (0.14) $ (0.48)
==========================================================
Weighted average number of shares
outstanding 2,293,790 1,540,683 2,293,790 1,540,683
==========================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
<TABLE>
<CAPTION>
For the six months ended
-----------------------------
September 30, September 30,
1999 1998
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the period before
extraordinary item $(329,382) $(729,089)
Add (deduct) items not requiring a cash outlay
Amortization 147,798 178,072
Shares issued to settle lawsuits 197,150 -
Foreign exchange loss - 49,505
Equity in loss of affiliate 129,092 197,333
Net changes in non-cash working capital balances
related to operations
(Increase) in accounts receivable (35,403) (50,297)
(Increase) in inventory (197,997) (381,311)
Increase (decrease) in accounts payable and
accrued liabilities (437,874) 30,529
Increase (decrease) in prepaid expenses 22,844 (6,890)
--------------------------
(503,772) (712,148)
--------------------------
Investing activities
Purchase of capital assets (66,468) (58,835)
(66,468) (58,835)
Financing activities
Increase (decrease) in bank indebtedness (146,971) 122,971
Shares issued for cash 729,289 200,000
Loan from related parties - 13,333
Convertible debentures 15,000 -
--------------------------
597,318 336,304
--------------------------
Effect of exchange rate changes on cash 38,366 134,695
--------------------------
Net increase (decrease) in cash during the period 65,444 (299,984)
Cash and equivalents, beginning of period 156,193 692,833
--------------------------
Cash and equivalents, end of period $ 221,637 $ 392,849
==========================
</TABLE>
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 September 30, 1999, and the results of operations for the six
months ended September 30, 1999 and 1998 and cash flows for the six months
ended September 30, 1999. 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
the Company's audited consolidated financial statements and notes for the
fiscal year March 31, 1999.
2. Financial Statements
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary.
All significant intercompany balances, transactions and stockholdings have
been eliminated.
3. Inventories
Inventories are summarized as follows:-
<TABLE>
<CAPTION>
September September
30, 1999 30, 1998
--------- ---------
<S> <C> <C>
Raw materials $ 741,547 $1,055,218
Work in progress 8,572 43,842
Finished goods 657,683 631,236
--------------------------
Total inventories $1,407,802 $1,730,296
==========================
</TABLE>
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
--------------------------- ---------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Machinery, plant and
Computer equipment $1,972,208 $1,233,151 $1,840,243 $ 929,033
Furniture and fixtures 111,107 61,188 106,477 47,219
Prototype and jigs 297,525 149,458 285,128 111,798
Land 57,846 - 55,436 -
Building under construction 433,755 - 307,503 -
----------------------------------------------------------
$2,872,441 $1,443,797 $2,594,787 $1,088,050
==========================================================
Net book value $1,428,644 $1,506,737
========== ==========
</TABLE>
5. Convertible Debentures
On May 19,1997, the Company completed a private offering of $250,000 of
convertible debentures maturing on May 19, 1998. The convertible debentures
bear interest of 8% per annum. In addition, 12,500* warrants were also
issued in conjunction with these convertible debentures. The holder of the
debentures has the right to convert at a conversion price equal to the lower
of $5 or 80% of the average closing bid price of the Company's shares over
the past 20 trading days. On February 11, 1998, $50,000 principal plus
accrued interest was converted into 14,742* common shares. The warrants are
exercisable over 3 years at an exercise price of $16 per share. The value
attributable to the warrants is not material. Included in accounts payable
is accrued interest on the debentures of $ 31,588.
On April 24, 1998, the debenture holder converted another $50,000 principal
plus interest into 17,213* of common shares. The company is currently in
default for the repayment of its remaining $150,000 convertible debentures
that came due on May 18, 1998.
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 our
preceding quarter, however, one-half unit closed during the first quarter of
fiscal 2000. Included in accounts payable is accrued interest on the
debentures of $13,990.
* Adjusted to reflect a one-for-four reverse stock split of Widcom's
common shares effective January 29, 1999.
6. 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.
Resolution options remain open and the action is presently scheduled for
mediation in December 1999.
(b) 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 as co-defendants. We have filed and received default
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.
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 SEPTEMBER 30, 1999 COMPARED TO
QUARTER ENDED SEPTEMBER 30, 1998
Product sales for the quarter ended September 30, 1999 were $ 593,692,
a decrease of $ 42,263 or 6.6 % as compared to $635,955 for the quarter
ended September 30, 1998. Revenue for the quarter ended September 30, 1998,
was additionally supplemented by a non-recurring Research and Development
grant of $ 301,285. Operating expenses for the quarter ended September 30,
1999 were $ 644,846, a decrease of $ 317,301, or 33.0 %, as compared to
$962,147 for the quarter ended September, 1998.
Selling, general and administrative expenses for the quarter ended
September 30, 1999 decreased by $256,118 and decreased as a percentage of
sales from 116.8% to 82.0%. The decrease in selling, general and
administrative expenses 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. The slight decrease in product sales was a result
of delays in deliveries of copiers and printers, as we implemented
improvements to the paper and ribbon loading mechanisms. We were also unable
to take advantage of orders in-hand for our 72" wide color-scanners, for
which we started to make deliveries after the end of the quarter.
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 $ 60,879 for the second quarter of fiscal 2000.
During the second quarter of fiscal 2000, Widecom earned $ 2,734
interest on short-term investments compared to $3,057 earned in the same
period of 1998.
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.
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, on July 9, 1999, Widecom received
$605,000 USD net proceeds from this private offering.
PART II.: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
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.
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.
s/Suneet S. Tuli /s/Suneet S. Tuli
Date: November 22, 1999 ----------------------------------------
Suneet S. Tuli, Executive Vice President
s/Willem J. Botha /s/Willem J.Botha
Date: November 22, 1999 ----------------------------------------
Willem J. Botha, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 221,637
<SECURITIES> 0
<RECEIVABLES> 604,155
<ALLOWANCES> 86,566
<INVENTORY> 1,407,802
<CURRENT-ASSETS> 2,554,328
<PP&E> 2,872,441
<DEPRECIATION> 1,443,797
<TOTAL-ASSETS> 4,478,522
<CURRENT-LIABILITIES> 1,434,618
<BONDS> 0
0
0
<COMMON> 14,476,808
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,478,522
<SALES> 1,378,017
<TOTAL-REVENUES> 1,381,855
<CGS> 300,952
<TOTAL-COSTS> 1,281,193
<OTHER-EXPENSES> 129,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,004
<INCOME-PRETAX> (329,382)
<INCOME-TAX> 0
<INCOME-CONTINUING> (329,382)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (329,382)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
