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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.
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 1-13588
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THE WIDECOM GROUP INC.
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(Exact Name of Registrant as specified in Its Charter)
ONTARIO, CANADA 98-0139939
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
72 DEVON ROAD, UNIT 17, BRAMPTON, ONTARIO, CANADA L6T 5B4
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (905) 712-0505
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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
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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
<TABLE>
<CAPTION>
Page No.
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<S> <C>
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
</TABLE>
PART I FINANCIAL INFORMATION
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
<TABLE>
<CAPTION>
June 30,
1999 2000
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(unaudited) (unaudited)
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<S> <C> <C>
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
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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
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Total assets $ 4,132,040 3,401,294
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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
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Total current liabilities 1,613,517 1,826,682
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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)
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2,518,523 1,574,612
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Total liabilities and shareholders' equity $ 4,132,040 $ 3,401,294
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</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 months ended
June 30, June 30,
1999 2000
(unaudited) (unaudited)
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<S> <C> <C>
Product sales $ 785,398 $ 510,994
Cost of product sales 171,362 112,304
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Gross profit 614,036 398,691
Research and development grants - -
Interest income 1,098 1,027
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Net revenue 615,134 399,718
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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)
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Total operating expenses 636,522 473,341
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Operating income (loss) (21,388) (73,623)
Equity in earnings (loss) of Joint Venture (68,246) (73,639)
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Net earnings (loss) for the period $ (89,634) $ (147,262)
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Loss per common share before
extraordinary item, basic and diluted $ (0.04) $ (0.06)
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Loss per common share, basic
and diluted $ (0.04) $ (0.06)
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Weighted average number of shares outstanding 2,130,290 2,443,730
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Interest paid 3,188 3,518
Income taxes paid - -
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</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 three months ended
June 30, June 30,
1999 2000
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(Unaudited) (Unaudited)
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<S> <C> <C>
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)
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(41,160) 106,763
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Investing activities
Purchase of capital assets (69,194) 798
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(69,194) 798
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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
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87,265 50,308
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Effect of exchange rate changes on cash (73,868) (83,978)
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Net increase (decrease) in cash during the period (96,957) 73,891
Cash and equivalents, beginning of period 156,193 11,314
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Cash and equivalents, end of period $ 59,236 $ 85,205
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</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 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: -
<TABLE>
<CAPTION>
June June
30, 1999 30, 2000
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<S> <C> <C>
Raw materials $ 684,325 $ 597,949
Work in progress 29,178 7,897
Finished goods 449,146 292,531
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Total inventories $1,162,649 $ 898,377
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</TABLE>
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 2000
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Accumulated Accumulated
Cost Amortization Cost Amortization
<S> <C> <C> <C> <C>
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 -
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$2,874,095 $1,376,890 $2,776,526 $1,605,412
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Net book value $1,497,205 $1,171,114
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</TABLE>
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
