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, 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.)
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
November 16, 2000 was 2,582,985 shares.
THE WIDECOM GROUP INC.
FORM 10-QSB
INDEX
Page No.
--------
Part I Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 2000 and September 30, 1999 3
Consolidated Statements of Operations -
Three and Six months ended September 30, 2000
and September 30, 1999 4
Consolidated Statements of Cash Flows -
Three and Six months ended September 30, 2000
and September 30, 1999 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
Signatures 9
PART I FINANCIAL INFORMATION
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
<TABLE>
<CAPTION>
September 30,
----------------------------
2000 1999
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 49,854 $ 221,637
Accounts receivable 654,277 604,155
Deferred financing charges 24,894 54,083
Prepaid expenses 29,554 65,110
Advance to related parties 344,964 201,541
Inventory (Note 3) 824,478 1,407,802
------------------------------
Total current assets 1,928,021 2,554,328
Capital assets (Note 4) 1,088,968 1,428,644
Research and development technology 40,774 65,242
Investment in affiliates 174,066 430,308
------------------------------
Total assets $ 3,231,828 $ 4,478,522
==============================
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness 214,678 123,280
Accounts payable and accrued liabilities 605,454 894,572
Loan from related parties (Note 6) 537,942 66,766
Convertible debentures (Note 5) 192,803 350,000
------------------------------
Total current liabilities 1,550,878 1,434,618
------------------------------
Shareholders' equity
Common shares $ 14,703,589 $ 14,476,808
Contributed surplus 159,825 159,825
Retained Earnings (Deficit) (12,656,208) (11,221,718)
Cumulative and other comprehensive loss (526,256) (371,011)
1,710,950 3,043,904
------------------------------
Total liabilities and shareholders' equity $ 3,231,828 $ 4,478,522
==============================
</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,
2000 1999 2000 1999
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Product sales $ 381,372 $ 593,692 $ 892,366 $1,378,017
Cost of product sales 83,533 129,603 195,837 300,952
-------------------------------------------------------------
Gross profit 297,839 464,089 696,529 1,077,065
Interest income 102 2,734 1,129 3,838
-------------------------------------------------------------
Net revenue 297,941 466,823 697,658 1,080,903
-------------------------------------------------------------
Expenses
Research & Development 21,745 - 47,655 -
Selling, general and administrative 194,134 486,915 540,000 961,019
Interest and bank charges 10,189 14,893 20,749 33,004
Management fees and salaries 55,479 69,686 103,168 139,372
Amortization 65,201 73,352 124,775 147,798
Finance Fees 5,322 - 12,525 -
Foreign exchange gain (loss) 629 - (22,831) -
-------------------------------------------------------------
Total operating expenses 352,699 644,846 826,041 1,281,193
-------------------------------------------------------------
Operating income (loss) (54,758) (178,023) (128,383) (200,290)
-------------------------------------------------------------
Equity in (loss) of affiliate (78,227) (60,879) (151,866) (129,092)
-------------------------------------------------------------
Earnings (loss) before extraordinary
item (132,986) (238,902) (280,250) (329,382)
-------------------------------------------------------------
Net earnings (loss) for the period $ (132,986) $ (238,902) $ (280,250) $ (329,382)
=============================================================
Loss per common share before
extraordinary item, basic and diluted $ (0.05) $ (0.11) $ (0.10) $ (0.14)
=============================================================
Loss per common share, basic
and diluted $ (0.05) $ (0.11) $ (0.10) $ (0.14)
=============================================================
Weighted average number of shares
outstanding 2,443,730 2,293,790 2,443,730 2,293,790
=============================================================
</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,
2000 1999
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the period before
extraordinary item $(280,250) $(329,382)
Add (deduct) items not requiring a cash outlay
Amortization 124,775 147,798
Shares issued to settle lawsuits - 197,150
Foreign exchange loss (22,831) -
Equity in loss of affiliate 151,866 129,092
Net changes in non-cash working capital balances
related to operations
(Increase) in accounts receivable (92,635) (35,403)
(Increase) in inventory 53,165 (197,997)
Advances to related parties (110,533) -
Increase (decrease) in accounts payable and
accrued liabilities (174,564) (437,874)
Increase (decrease) in prepaid expenses (10,932) 22,844
-------------------------
(361,938) (503,772)
-------------------------
Investing activities
Purchase of capital assets 840 (66,468)
840 (66,468)
Financing activities
Increase (decrease) in bank indebtedness 42,298 (146,971)
Shares issued for cash - 729,289
Loan from related parties 171,560 -
Convertible debentures - 15,000
-------------------------
213,858 597,318
-------------------------
Effect of exchange rate changes on cash 185,780 38,366
-------------------------
Net increase (decrease) in cash during the period 38,540 65,444
Cash and equivalents, beginning of period 11,314 156,193
-------------------------
Cash and equivalents, end of period $ 49,854 $ 221,637
=========================
</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, 2000, and the results of operations for the six
months ended September 30, 2000 and 1999 and cash flows for the six months
ended September 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
the Company'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 the Company
and its wholly owned subsidiary. All significant inter-company balances,
transactions and stockholdings have been eliminated.
3. Inventories
Inventories are summarized as follows:-
<TABLE>
<CAPTION>
September September
30, 2000 30, 1999
--------- ---------
<S> <C> <C>
Raw materials $612,850 $ 741,547
Work in progress 42,358 8,572
Finished goods 169,270 657,683
--------------------------
Total inventories 824,478 $1,407,802
==========================
</TABLE>
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
--------------------------- ---------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Machinery, plant and
Computer equipment $1,923,339 $1,388,830 $1,972,208 $1,233,151
Furniture and fixtures 101,749 86,247 111,107 61,188
Prototype and jigs 290,381 170,150 297,525 149,458
Land 56,457 - 57,846 -
Building under construction 362,269 - 433,755 -
----------------------------------------------------------
$2,734,195 $1,645,227 $2,872,441 $1,443,797
==========================================================
Net book value $1,088,968 $1,428,644
========== ==========
</TABLE>
5. Convertible Debentures
In late fiscal 1999 and early fiscal 2000, the company 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 the last quarter of 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 $ 5,760.
6. Loans from Related Parties
The Company has initiated a private placement to raise funds for its
wholly owned subsidiary, Posternet.Com. As at September 30, 2000, $82,480
in net proceeds have been received and is included in Loans from related
parties pending minimum subscription under the offering.
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.
Mediation occurred in late September 2000.
(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 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, 2000 COMPARED TO
QUARTER ENDED SEPTEMBER 30, 1999
Product sales for the quarter ended September 30, 2000 were $381,372,
a decrease of $212,320 or 35.7% as compared to $593,692 for the quarter
ended September 30, 1999. Operating expenses for the quarter ended September
30, 2000 were $352,699, a decrease of $292,147, or 45.3%, as compared to
$644,846 for the quarter ended September, 1999. Revenues for the quarter
ending September 30, 2000 were $381,474, a decrease of $214,952 or 36.0%
versus the quarter ended September 30, 1999.
Selling, general and administrative expenses for the quarter ended
September 30, 2000 decreased by $292,781 and decreased as a percentage of
sales from 82.0% to 51.0%. The decrease in selling, general and
administrative expenses continues to be 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. The 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 due to unforeseen production delays.
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 $78,227 for the second quarter of fiscal 2001.
During the second quarter of fiscal 2001, Widecom earned $102
interest on short-term investments compared to $2,734 earned in the same
period of 1999.
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.
In the first two quarters of fiscal 2000,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.
No material change.
ITEM 2. CHANGES IN SECURITIES.
Widecom's additional private placement completed early in fiscal 2000 as
approved by our board of directors resulted in the issuance of 325,000
common shares of Widecom 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 27, 2000 ----------------------------------------
Suneet S. Tuli, Executive Vice President
s/Willem J. Botha /s/Willem J.Botha
Date: November 27, 2000 ----------------------------------------
Willem J. Botha, Chief Financial Officer
