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 Commission file number: 1-13589
ended: September 30, 1996
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 November 14, 1996, the Company had 4,494,073 shares of its
common stock, $.01 par value outstanding.
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.
General
The Company's revenues are derived from product sales, which are
recognized when products are shipped. Prior to January, 1996 the company
was eligible for substantial research and development grants. As of January
1, 1996 grants are made as a reduction of taxes payable. As no taxes are
payable in the quarter, no grants have been recognized. This compares to
$86,971 recognized in the same period of the prior fiscal year.
During the quarter the Company earned $49,807 interest on short-term
investments. No interest was earned in the same period of 1995 as no funds
were available for investment.
Results of Operations
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30,
1995
Revenues for the quarter ended September 30, 1996 were $409,108, a
decrease of $148,136 or 26.6%, as compared to $557,244 for the quarter ended
September 30, 1995. Sales for the quarter ended September 30, 1996 were
$359,301, a decrease of $110,972 as compared to $470,273 for the quarter
ended September 30, 1995. For the quarter ended September 30, 1995, sales
of the 36" WIDEfax Modular Unit accounted for approximately 63.2% of the
Company's product sales. For the quarter ended September 30, 1996, sales of
the WIDEfax Scan and WIDEfax Modular Unit accounted for approximately 58.9%
and 29.8%, respectively, of the Company's sales. No revenues were
recognized from government sponsored research programs for the quarter ended
September 30, 1996 as compared to $86,971 for the quarter ended September
30, 1995.
Operating expenses for the quarter ended September 30, 1996 were
$862,336, an increase of $216,990, or 33.6%, as compared to $645,346 for the
quarter ended September 30, 1995. Research and development expenses
decreased from $211,084 for the quarter ended September 30,1995 to $188,743
for the quarter ended September 30, 1996. Selling, general and
administrative expenses for the quarter ended September 30, 1996 increased
by $210,406 and increased as a percentage of revenues from 55.5% to 127.1%.
The increases in absolute dollars and as a percentage of revenues were due
to marketing expenses associated with 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.
Six Months Ended September 30, 1996 Compared to Six Months Ended September
30, 1995
Revenues for the six months ended September 30, 1996 were $951,030, a
decrease of $126,872 or 11.8%, compared to $1,077,902 for the six months
ended September 30, 1995.
Operating expenses for the six months ended September 30, 1996 were
$1,775,364, an increase of $836,683, or 89.0%, compared to $939,681 for the
six months ended September 30, 1995. Operating expenses also increased as a
percentage of revenues from 87.2% for the six months ended September 30,
1995 to 186.7% for the six months ended September 30, 1996. The increases
in absolute dollars and as a percentage of revenues were due to marketing
expenses associated with 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.
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 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. During the quarter ended June 30, 1996 the
Company raised $231,500 (net) upon the conversion of warrants to common
shares.
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.
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.
Date November 13, 1996 /s/ Suneet S. Tuli
--------------------------------------
Suneet S. Tuli,
Executive Vice President
Date November 13, 1996 /s/ Willem J. Botha
--------------------------------------
Willem J. Botha,
Chief Financial Officer
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Assets
- ------
Current assets
Cash and short term investments $ 3,407,945 $ 26,115
Accounts receivable 600,451 431,004
Accounts receivable from affiliated companies - 136,075
Research and development grants receivable 704,123 641,928
Inventory 1,425,475 541,593
---------------------------
Total current assets 6,137,994 1,776,715
Capital assets 1,820,763 343,561
Deferred issue costs of public offering - 760,699
Investment in affiliate 504,000 660,000
---------------------------
Total Assets $ 8,462,757 $3,540,975
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities
Bank indebtedness 147,835 -
Accounts payable and accrued liabilities 521,704 767,054
IOC loan payable - 223,590
Accrued interest on IOC loan payable - 334,596
Loan from non-management shareholders - 310,711
Deferred income taxes 62,728 -
----------------------------
Total current liabilities 732,267 1,635,951
----------------------------
Shareholders' equity
Common shares 9,532,294 1,909,324
Contributed surplus 159,825 159,825
Retained earnings (deficit) (1,859,928) (59,486)
Cumulative translation adjustment (101,701) (104,639)
----------------------------
7,730,490 1,905,024
----------------------------
Total Liabilities and Shareholders' equity $ 8,462,757 $ 3,540,975
</TABLE>
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OPERATIONS
(in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
For The Three For the Three For the Six For the Six
Months Ended Months Ended Months End Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Product sales $ 359,301 $ 470,273 $ 845,197 $ 922,373
Cost of sales 89,826 116,204 211,300 212,714
-----------------------------------------------------------
Gross profit 269,475 354,069 633,897 709,659
Research and development grants - 86,971 - 155,529
Interest income 49,807 - 105,833 -
-----------------------------------------------------------
Net revenue 319,282 441,040 739,730 865,188
-----------------------------------------------------------
Expenses
Research and development 188,743 211,084 408,927 346,331
Selling, general and administrative 519,847 309,441 1,092,537 434,776
Interest and bank charges 4,002 30,194 7,126 56,450
Amortization 149,744 94,627 266,774 102,124
-----------------------------------------------------------
Total operating expenses 862,336 645,346 1,775,364 939,681
-----------------------------------------------------------
Operating income (loss) (543,054) (204,306) (1,035,634) (74,493)
-----------------------------------------------------------
Earnings (loss) before extraordinary item (543,054) (204,306) (1,035,634) (74,493)
Extraordinary item, net of tax - - - -
-----------------------------------------------------------
Net Earnings (loss) for the period $ (543,054) $ (204,306) $ (1,035,634) $ (74,493)
Earnings (loss) per common share before
extraordinary item, primary and fully diluted $ (0.12) $ (0.08) $ (0.23) $ (0.03)
Earnings (loss) per common share primary
and fully diluted $ (0.12) $ (0.08) $ (0.23) $ (0.03)
Weighted average number of shares outstanding 4,464,073 2,476,993 4,464,073 2,476,993
</TABLE>
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash provided by (used in)
Operating activities
Earnings (loss) for the period before
extraordinary item $(1,035,634) $ (74,493)
Add (deduct) items not requiring a cash outlay
Amortization 266,774 102,124
Accrued interest on IOC loan payable - 44,004
Compensation benefit on stock transaction - 166,974
---------------------------
(768,860) 238,609
Net changes in non-cash working capital balances
related to operations
(Increase) in accounts receivable (96,937) (173,407)
(Increase) in R & D grants receivable - (125,928)
(Increase) decrease in inventory (974,087) 71,150
Increase in accounts payable 131,362 174,246
---------------------------
(1,708,522) 184,670
Investing activities
Decrease in term deposits - 98,921
Purchase of capital assets (787,284) (19,373)
Advances to related parties - (21,699)
---------------------------
(787,284) 57,849
---------------------------
Financing activities
Increase (decrease) in bank indebtedness 16,600 (104,427)
Shares issued for cash 231,500 -
Deferred issue costs of public offering - (126,280)
Loan from shareholders - 39,585
---------------------------
248,100 (191,122)
---------------------------
Effect of exchange rate changes on cash 12,160 (28,810)
---------------------------
Net increase (decrease) in cash during the period (2,235,546) 22,587
Cash and equivalents, beginning of period 5,643,491 3,528
---------------------------
Cash and equivalents, end of period $ 3,407,945 $ 26,115
</TABLE>
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 September 30, 1996 and the results of
operations for the three months ended September 30, 1995 and 1996 and
cash flows for the six months ended September 30, 1996. Interim
results are not necessarily indicative of results for 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
$216,000.
3. Inventories
Inventories are summarized as follows:-
<TABLE>
<CAPTION>
September September
30, 1996 30, 1995
-------------------------
<S> <C> <C>
Raw materials $ 550,700 $260,834
Work in progress 705,129 210,506
Finished goods 169,646 70,253
------------------------
Total inventories $1,425,475 $541,593
</TABLE>
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
--------------------------- -------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Machinery, plant and
computer equipment $1,344,159 $ 282,665 $346,863 $ 47,286
Furniture and fixtures 87,105 23,064 75,048 31,064
Motor vehicles 64,883 7,847 - -
Prototype and jigs 440,910 75,740 - -
Land 66,954 - - -
Building under
construction 206,068 - - -
-------------------------------------------------------
$2,210,079 $ 389,316 $421,911 $ 78,350
Net book value $1,820,763 $343,561
</TABLE>
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 net 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 3,407,945
<SECURITIES> 0
<RECEIVABLES> 600,451
<ALLOWANCES> 5,349
<INVENTORY> 1,425,475
<CURRENT-ASSETS> 6,137,994
<PP&E> 1,820,763
<DEPRECIATION> 389,316
<TOTAL-ASSETS> 8,462,757
<CURRENT-LIABILITIES> 732,267
<BONDS> 0
0
0
<COMMON> 4,464,073
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,462,757
<SALES> 359,301
<TOTAL-REVENUES> 319,282
<CGS> 89,826
<TOTAL-COSTS> 952,162
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,002
<INCOME-PRETAX> (543,054)
<INCOME-TAX> 0
<INCOME-CONTINUING> (543,054)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (543,054)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
