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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 December 31, 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
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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)
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
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- ----------------------------------------------------------------------------
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
February 18, 2000 was 2,579,541 shares.
<PAGE> 1 of 9
THE WIDECOM GROUP INC.
FORM 10-QSB
INDEX
Page No.
--------
Part I Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets -
December 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations -
Three and Nine months ended December 31, 1999
and December 31, 1998 4
Consolidated Statements of Cash Flows -
Three and Nine months ended December 31, 1999
and December 31, 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
None.
Signatures 9
<PAGE> 2 of 9
PART I FINANCIAL INFORMATION
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 40,269 $ 130,687
Accounts receivable 743,467 723,509
Deferred financing charges 54,083 -
Prepaid expenses 77,612 92,017
Advance(s) to related parties 201,541 160,273
Inventory (Note 3) 1,398,449 1,734,772
--------------------------
Total current assets 2,515,421 2,841,258
Capital assets (Note 4) 1,362,322 1,418,033
Research and development technology 57,401 -
Investment in affiliates 368,537 722,180
--------------------------
Total assets $ 4,303,681 $ 4,981,471
==========================
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness 260,404 270,457
Accounts payable and accrued liabilities 675,411 779,108
Loan(s) from related parties 287,998 13,333
Convertible debentures (Note 5) 350,000 150,000
--------------------------
Total current liabilities 1,573,813 1,212,898
--------------------------
Shareholders' equity
Common shares $14,501,808 $13,452,497
Contributed surplus 159,825 159,825
Deficit (11,447,306) (9,554,752)
Cumulative translation adjustment (484,459) (288,997)
--------------------------
2,729,868 3,768,573
--------------------------
Total liabilities and shareholders' equity $ 4,303,681 $ 4,981,471
==========================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 3 of 9
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in United States dollars)
<TABLE>
<CAPTION>
For the Three For the Three For the Nine For the Nine
Months ended Months ended Months ended Months ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Product sales $ 684,840 $ 646,081 $2,073,185 $1,914,231
Cost of product sales 171,116 161,520 473,958 493,559
------------------------------------------------------------
Gross profit 513,724 484,561 1,599,227 1,420,672
Research and development grants - 78,235 - 480,630
Interest income 122 1,053 3,965 15,269
------------------------------------------------------------
Net revenue 513,846 563,849 1,603,192 1,916,571
------------------------------------------------------------
Expenses
Selling, general and administrative 500,290 520,498 1,485,168 1,973,682
Interest and bank charges 19,738 11,087 52,905 40,095
Management fees and salaries 67,992 53,691 207,980 210,265
Amortization 73,359 86,839 221,460 264,851
Foreign exchange loss - 21,344 - 70,849
------------------------------------------------------------
Total operating expenses 661,379 693,459 1,967,513 2,559,742
------------------------------------------------------------
Operating loss (147,533) (129,610) (364,321) (643,171)
------------------------------------------------------------
Equity in (loss) of affiliate (60,999) (67,126) (190,650) (263,597)
Legal settlement costs - - - -
------------------------------------------------------------
Earnings (loss) before extraordinary item (208,532) (196,736) (554,971) (906,768)
Extraordinary item, net of tax - - - -
------------------------------------------------------------
Net earnings (loss) for the period $ (208,532) $ (196,736) $ (554,971) $ (906,768)
============================================================
Loss per common share before
extraordinary item, basic and diluted $ (0.09) $ (0.12) $ (0.23) $ (0.56)
============================================================
Loss per common share, basic
and diluted $ (0.09) $ (0.12) $ (0.23) $ (0.56)
============================================================
Weighted average number of shares outstanding 2,438,326 1,623,338 2,438,326 1,623,338
============================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 4 of 9
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
<TABLE>
<CAPTION>
For the nine months ended
----------------------------
December 31, December 31,
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the period before
extraordinary item $ (554,971) $ (906,768)
Add (deduct) items not requiring a cash outlay
Amortization 221,460 264,851
Shares issued to settle lawsuits 197,150 -
Foreign exchange loss - 70,849
Equity in loss of affiliate 190,650 263,597
Net changes in non-cash working capital balances
related to operations
(Increase) in accounts receivable (173,847) (191,317)
(Increase) in inventory (265,006) (380,913)
Increase (decrease) in accounts payable and
accrued liabilities (656,248) 41,967
Increase (decrease) in prepaid expenses 35,298 (9,860)
---------------------------
(1,005,514) (847,594)
---------------------------
Investing activities
Purchase of capital assets (66,336) (58,749)
---------------------------
(66,336) (58,749)
---------------------------
Financing activities
Increase (decrease) in bank indebtedness (10,976) 86,031
Shares issued for cash 754,289 200,000
Loan from related parties 235,550 13,333
Convertible debentures 15,000 -
---------------------------
993,863 299,364
---------------------------
Effect of exchange rate changes on cash (37,938) 44,833
---------------------------
Net increase (decrease) in cash during
the period (115,925) (562,146)
Cash and equivalents, beginning of period 156,194 692,833
---------------------------
Cash and equivalents, end of period $ 40,269 $ 130,687
===========================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 5 of 9
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 December 31, 1999, and the results of operations for
the three months ended December 31 1999 and 1998, and cash flows for the
nine months ended December 31, 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
Widecom'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 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>
December December
31, 1999 31, 1998
-------- --------
<S> <C> <C>
Raw materials $ 781,029 $1,018,699
Work in progress 190,384 47,697
Finished goods 427,036 668,376
------------------------
Total inventories $1,398,449 $1,734,772
========================
</TABLE>
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------- --------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Machinery, plant and
Computer equipment $1,972,208 $1,289,609 $1,838,294 $1,002,900
Furniture and fixtures 111,107 63,801 106,331 50,358
Prototype and jigs 297,525 156,475 284,737 120,642
Land 57,846 - 55,360 -
Building under-
construction 433,521 - 307,211 -
-------------------------------------------------------
$2,872,207 $1,509,885 $2,591,933 $1,173,900
=======================================================
Net book value $1,362,322 $1,418,033
========== ==========
</TABLE>
<PAGE> 6 of 9
5. Loans from Related Parties
During the course of the last fiscal year, Widecom's management and related
consulting companies declined receipt of regularly scheduled compensation to
be treated as non-interest bearing loans from those parties in order to
assist Widecom's daily cash flow position and overall liquidity during the
period. Widecom has chosen to accrue this aggregate indebtedness of $287,998
in this fiscal third quarter.
6. Convertible Debentures
During the spring of 1999, Widecom completed a private offering of ten
$30,000 units each one comprising 10,000 shares and $20,000 dollars in
convertible notes. The total amount of the offering comprised 100,000
shares and $200,000 in convertible debentures with interest payable
quarterly at 12% per annum. The common shares have all been issued.
In May of 1997, Widecom completed a financing of $250,000 through Global
Bermuda via convertible debentures. All of the five $50,000 units have been
converted in common shares of Widecom. In an agreement dated December 22,
1999, the final three units, inclusive of accrued interest, were exchanged
for 21,310 of Widecom's common shares that are subject to transfer
restrictions of 1,500 shares weekly.
7. Share Capital
As above, in May of 1997, Widecom completed a financing of $250,000 through
Global Bermuda via convertible debentures. All of the five $50,000 units
have now been converted in common shares of Widecom. In an agreement dated
December 22, 1999, the final three units, inclusive of accrued interest,
were exchanged for 21,310 of Widecom's common shares that are subject to
transfer restrictions of a maximum 1,500 shares weekly.
As above, during the spring of 1999, Widecom completed a private offering of
ten $30,000 units each one comprising 10,000 shares and $20,000 dollars in
convertible notes. The total amount of the offering comprised 100,000
shares and $200,000 in convertible debentures with interest payable
quarterly at 12% per annum. The common shares have all been issued. 2,190
shares were also issued to one of the placement underwriters on an exercise
of a placement warrant just after quarter end.
8. Contingent Liabilities
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 two previously noted individuals, who
are named as co-defendants. We have filed and received default judgments on
our cross-claims against the two individuals co-defendants. The total
number of shares of common stock claimed under these suits is less than
15,000.
A Statement of Claim was filed against Widecom in 1998 for breach of sales
and royalty agreement and breach of trademark and copyright issues in the
amount of approximately $15.85 million. Widecom believes it has a good and
meritorious defense to this claim.
Loss, if any, on the above-mentioned claims will be recorded when settlement
is probable and the amount of any such settlement is estimable.
<PAGE> 7 of 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Widecom's revenues are derived from product sales, which are recognized when
products are shipped.
While Widecom's has received government grants in the past, it does not meet
the required pre-qualification for such grants subsequent to conducting its
public offering. In consideration of this fact, Widecom has shifted its
research and development to an affiliated joint venture based in Montreal,
Canada.
Results of Operations
Quarter Ended December 31, 1999 Compared to Quarter Ended December 31,1998
Sales for the quarter ended December 31, 1999 were $684,680, an increase of
$38,759 or 6.0 % as compared to $646,081 for the quarter ended December 31,
1998. Net Revenues for the quarter ended December 31, 1999 showed a
decrease of $50,003 or 8.8% as compared to $563,849 for the quarter ended
December 31, 1998. This decrease occurred because our research and development
reimbursements declined from $78,235 to $ nil thereby offsetting the sales
increase of this quarter versus the quarter ended December 31, 1998. Widecom
was unable to take advantage of on-hand orders for our 72" color scanner due
to unforeseen completion and delivery difficulties. Revenue also declined
due to delays in printer delivery related to ongoing improvements in our
paper and ribbon loading mechanisms.
Operating expenses for the quarter ended December 31, 1999 were $661,379, a
decrease of $32,080, or 4.6%, as compared to $693,459 for the quarter ended
December 31, 1998. Selling, general and administrative expenses for the
quarter ended December 31, 1999, decreased by $20,208 or 3.9% versus the
same period in the previous fiscal year. Widecom also continues to incur
legal, administration, and other related costs associated with its initial
public offering and its warrant call.
Widecom's 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 December 31, 1999, amounted to $ 60,999
as compared to $67,126 for the quarter ended December 30, 1998.
Liquidity and Capital Resources
Widecom's 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 its products. Widecom meets 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. At December 31, 1999, Widecom had working capital
of $941,608, as compared to $1,628,360 at December 31, 1998. However,
Widecom had only approximately $40,269 in unrestricted cash available.
Widecom's cash requirements in connection with the manufacture and marketing
of its products has been and will continue to be significant. Widecom does
not presently have any material commitments for any additional capital
expenditures. Widecom believes, based on its currently proposed plans and
assumptions, that its contemplated cash requirements for the foreseeable
future will be met. In the event that Widecom's plan 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, delay,
problems or otherwise), Widecom may be required to seek additional financing.
There can be no assurance that any additional financing will be available to
Widecom if needed on commercially reasonable terms, or at all.
<PAGE> 8 of 9
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
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
Exhibit 27
FINANCIAL DATA SCHEDULE-ARTICLE 5
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.
February 21, 2000 /s/Suneet S. Tuli
- ----------------- ----------------------
Date Suneet S. Tuli,
Executive Vice President
February 21, 2000 /s/Raja S. Tuli
- ----------------- ----------------------
Date President , C.E.O
<PAGE> 9 of 9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 40,269
<SECURITIES> 0
<RECEIVABLES> 743,467
<ALLOWANCES> 106,702
<INVENTORY> 1,398,449
<CURRENT-ASSETS> 2,515,421
<PP&E> 2,872,207
<DEPRECIATION> 1,509,885
<TOTAL-ASSETS> 4,303,681
<CURRENT-LIABILITIES> 1,573,813
<BONDS> 0
0
0
<COMMON> 14,501,808
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,303,681
<SALES> 2,073,185
<TOTAL-REVENUES> 2,077,150
<CGS> 473,958
<TOTAL-COSTS> 1,967,513
<OTHER-EXPENSES> 190,650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,905
<INCOME-PRETAX> (554,971)
<INCOME-TAX> 0
<INCOME-CONTINUING> (554,971)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (554,971)
<EPS-BASIC> $(0.23)
<EPS-DILUTED> $(0.23)
</TABLE>
