FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
Commission file number: 1-13589
THE WIDECOM GROUP INC.
(Exact name of registrant as specified in its charter)
ONTARIO 98-0139939
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 CITY CENTER DRIVE, SUITE 500, MISSISSAUGA, ONTARIO, CANADA, L5B 1M3
(Address of principal executive offices, zip code)
905-566-0180
(Registrant's telephone number, including area code)
Indicate by check mark 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 period 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 [ ]
As of August 14, 1996, the Company had 4,494,160 shares of its common
stock, $.01 par value outstanding.
<PAGE> 1
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
See Attachment A.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Company's revenues are derived from product sales, which are recognized
when products are shipped. Prior to January the Company was eligible for
substantial research and development subsidies under certain programs
established by the Canadian and Ontario governments. As of January 1, 1996, such
programs were changed to provide for payment of such subsidies in the form of a
reduction of taxes payable. Because the Company did not record a profit during
the first fiscal quarter of 1996, and therefore no taxes were payable, no
benefit from such government programs have been recognized in the current
quarter.
Results of Operations
Quarter Ended June 30, 1996 Compared to Quarter Ended June 30, 1995
Revenues for the quarter ended June 30, 1996 were $543,033, an increase of
$22,375 or 4.3%, as compared to $520,658 for the quarter ended June 30, 1995.
Sales for the quarter ended June 30, 1996 were $486,892, an increase of $34,792
as compared to $452,100 for the quarter ended June 30, 1995. Sales of the
Company's WIDEfax Scan and 36" WIDEfax Modular Unit accounted for a majority of
the sales increase. For the quarter ended June 30, 1995, sales of the 36"
WIDEfax Modular Unit accounted for approximately 65% of the Company's product
sales. For the quarter ended June 30, 1996, sales of the WIDEfax Scan and
WIDEfax Modular Unit accounted for approximately 52% and 31%, respectively, of
the Company's sales. No revenues were recognized from government sponsored
research programs for the quarter ended June 30, 1996 as compared to $68,558 for
the quarter ended June 30, 1995. During the current quarter the Company
recognized revenue of $56,141 from interest on investments, as compared to no
such earnings during the first fiscal quarter of 1995.
The Company's cost of goods sold increased slightly from approximately
21.3% of product revenues in the quarter ended June 30, 1995 to 25% of product
revenues during the same period of 1996. Operating expenses for the quarter
ended June 30, 1996 were $914,829, an increase of $620,494, or 211%, as compared
to $294,335 for the quarter ended June 30, 1995. Such increase was attributable
primarily to increases in the Company's selling, general and administrative
expenses, research and development expenses, and amortization charges. Selling,
general and administrative expenses for the quarter ended June 30, 1996
increased by 357%, to $573,143, compared to $125,335 during the comparable
quarter of 1995, which has been attributed by management to the Company's
continued emphasis on product commercialization, particularly the introduction
of the next generation WIDEfax Scan and WIDEfax Plotter, and the expansion of
the Company's administrative and sales staff and offices in anticipation of
expanding the Company's operations. Consistent with the Company's previously
stated intention to increase its research and development work, such expenses
increased by 63%, from $135,247 for the quarter ended June 30, 1995 to $220,636
for the same quarter of 1996. Amortization charges , which were only $7,497 in
the first fiscal quarter of 1995 increased to $117,198 in the recently ended
quarter, which reflects the amortization of the Company's increased asset base.
Liquidity and Capital Resources
The Company'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. The
Company has satisfied its working capital requirements principally from revenues
and the proceeds of the Company's initial public offering, which closed in
December 1995. Additionally, the Company received $231,500 (net) through the
exercise of warrants to purchase 60,000 shares at a price of $4.00 per share
during the first fiscal quarter of the current fiscal year.
<PAGE> 2
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Current Report filed on Form 8-K on June 3, 1996, incorporated herein by
reference.
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.
Date August 15, 1996 /s/ SUNEET S. TULI
------------------- ----------------------------------------
Suneet S. Tuli, Executive Vice President
Date August 15, 1996 /s/ WILLEM J. BOTHA
------------------- ----------------------------------------
Willem J. Botha, Chief Financial Officer
<PAGE> 3
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
June 30, June 30,
1996 1995
------------- -------------
<S> <C> <C>
Assets
Current assets
Cash and short term investments $ 4,508,475 $ 101,548
Term deposits - 97,648
Accounts receivable 721,530 355,768
Research and development grants receivable 706,918 577,010
Inventory 1,169,419 641,522
Advances to related parties 85,052 10,007
------------------------------
Total current assets 7,191,394 1,783,503
Capital assets 1,412,614 356,371
Deferred issue costs of public offering - 678,080
Investment in affiliate 540,000 85,500
------------------------------
Total assets $ 9,144,008 $ 2,903,454
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness $ 131,778 $ 90,918
Accounts payable and accrued liabilities 645,341 690,158
Income taxes payable - 10,502
IOC loan payable - 218,580
Accrued interest on IOC loan payable - 305,241
Loan from non-management shareholders - 264,424
Deferred income taxes 62,977 -
------------------------------
Total current liabilities $ 840,096 $ 1,579,823
------------------------------
Shareholders' equity
Common shares $ 9,532,294 $ 1,107,850
Contributed surplus 159,825 159,825
Retained earnings (deficit) (1,317,812) 134,318
Cumulative translation adjustment (70,395) (78,362)
------------------------------
$ 8,303,912 $ 1,323,631
------------------------------
Total liabilities and shareholders' equity $ 9,144,008 $ 2,903,454
</TABLE>
<PAGE> 4
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
June 30, June 30,
1996 1995
------------- -------------
<S> <C> <C>
Revenue
Product sales $ 486,892 $ 452,100
Research and development grants 68,558
Interest income 56,141
------------------------------
Total revenue $ 543,033 $ 520,658
------------------------------
Expenses
Cost of sales $ 121,723 $ 96,510
Research and development 220,636 135,247
Selling, general and administrative 573,143 125,335
Interest and bank charges 3,851 26,256
Amortization 117,198 7,497
------------------------------
Total expenses $ 1,036,551 $ 294,335
------------------------------
Operating income (loss) $ (493,518) $ 129,813
Net earnings (loss) for the period $ (493,518) $ 129,813
Earnings (loss) per common share before extraordinary
item, primary and fully diluted $ (0.11) $ 0.05
Earnings (loss) per common share primary and fully diluted $ (0.11) $ 0.05
Weighted average number of shares outstanding 4,434,073 2,468,660
</TABLE>
<PAGE> 5
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
June 30, June 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash provided by (used in)
Operating activities
Earnings (loss) for the period before extraordinary item $ (493,518) $ 119,311
Add (deduct) items not requiring a cash outlay Amortization 117,198 7,497
-------------------------------
(376,320) 126,808
Net changes in non-cash working capital balances related
to operations
(Increase) decrease in accounts receivable (195,356) 26,311
Increase in R & D grants receivable (60,235)
Decrease (increase) in inventory (714,482) (41,414)
Increase in accounts payable 253,121 113,490
Increase in income taxes - 10,500
-------------------------------
(1,033,037) 175,460
Investing activities
(Increase) decrease in term deposits - (1,917)
Purchase of capital assets (259,760) (10,574)
Advances to related parties - (11,461)
Advances to shareholder - 7,934
Purchase of shares in affiliate (85,000)
-------------------------------
(259,760) (101,518)
-------------------------------
Financing activities
Increase (decrease) in bank indebtedness (10,790)
Shares issued for cash 231,500 -
Deferred issue costs of public offering (75,195)
Loan payable 21,876
Shares issued for purchase of affiliate 85,500
-------------------------------
231,500 21,391
Effect of exchange rate changes on cash (73,719) 2,687
Net increase (decrease) in cash during the period (1,135,016) 98,020
Cash and equivalents, beginning of period 5,643,491 3,528
-------------------------------
Cash and equivalents, end of period $ 4,508,475 $ 101,548
===============================
</TABLE>
<PAGE> 6
The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
(Unaudited)
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, 1996 and the results of operations for the three
months ended June 30, 1995 and 1996 and cash flows for the three months ended
June 30, 1996. Interim results are not necessarily indicative of results for the
full year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10Q and do not contain certain information included in the
Company's audited consolidated financial statements and notes for the fiscal
year March 31, 1996.
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.
The investments in an affiliate is accounted for on an equity basis and the
$720,000 excess of the purchase price over the underlying value of the assets
has been attributed to goodwill. The goodwill is being amortized over five years
resulting in amortization to date of $180,000.
3. Inventories
Inventories are summarized as follows:-
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
----------- ---------
<S> <C> <C>
Raw materials $ 764,363 $ 532,456
Work in progress 296,300 36,763
Finished goods 108,756 72,303
--------------------------
Total inventories $ 1,169,419 $ 641,522
==========================
</TABLE>
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
--------------------------- --------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Machinery, plant and computer equipment $ 879,575 $ 196,952 $ 323,135 $ 14,820
Furniture and fixtures 150,974 24,199 75,048 26,992
Prototype and jigs 442,661 55,672 - -
Land 67,219
Building under construction 149,008
-----------
$ 1,689,437 $ 276,823 $ 398,183 $ 41,812
===========================================================
Net book value $ 1,412,614 $ 356,371
=========== =========
</TABLE>
<PAGE> 7
The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
(Unaudited)
5. Share Capital
Changes to issued share capital:
In June 1996, 60,000 of the 840,000 Bridge warrants were converted to
Common shares, for proceeds of $231,500.
6. Contingent Liabilities
Statements of claims have been filed against the Company with respect to
the following matters: Claims for non-payment of invoices in the amount of
$185,000. The first claim in the amount of $75,000 has been made by a printer
who provided printing services for the Company. The Company has accrued $40,000
for such claim. The second claim in the amount of $110,000 relates to invoices
for accounting services provided by an accounting firm. The Company has accrued
$35,000 for this claim.
<PAGE> 8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,508,475
<SECURITIES> 0
<RECEIVABLES> 721,530
<ALLOWANCES> 5,349
<INVENTORY> 1,169,414
<CURRENT-ASSETS> 7,141,394
<PP&E> 1,412,614
<DEPRECIATION> 276,823
<TOTAL-ASSETS> 9,144,008
<CURRENT-LIABILITIES> 840,096
<BONDS> 0
0
0
<COMMON> 4,484,160
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,144,008
<SALES> 486,842
<TOTAL-REVENUES> 543,033
<CGS> 121,723
<TOTAL-COSTS> 1,036,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,851
<INCOME-PRETAX> (493,518)
<INCOME-TAX> 0
<INCOME-CONTINUING> (493,518)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (493,518)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
