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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the
quarterly period ended September 30, 1997.
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 Identification No.)
incorporation or organization)
267 MATHESON BOULEVARD EAST, MISSISSAUGA, ONTARIO, CANADA L4Z 1X8
(Address of principal executive offices) (Zip Code)
(905) 712-0505
(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 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 19, 1997, was 5,636,578 shares.
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PART l: 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 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. Research and development grants are cash
payments and credits against taxes payable received or receivable from the
Federal government as an incentive to conduct research and development in
Canada. As no taxes are payable in the quarter, no grants have been recognized.
During the quarter the Company earned $27,674 interest on short -term
investments compared to $49,807 earned in the same period of 1996.
Results of Operations
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
Revenues for the quarter ended September 30, 1997 were $678,718, an increase of
$359,436 or 112.6% as compared to $319,282 for the quarter ended September 30,
1996. Sales for the quarter ended September 30, 1997 were $854,761, an increase
of $495,460 as compared to $359,301 for the quarter ended September 30, 1996.
Sales of the Company's SLC 436 Color Scanner accounted for a majority of the
sales increase.
Operating expenses for the quarter ended September 30, 1997 were $1,077,167, an
increase of $214,831, or 24.9 %, as compared to $862,336 for the quarter ended
September 30, 1996. Research and development expenses decreased from $188,743
for the quarter ended September 30,1996 to $28,288 for the quarter ended
September 30,1997. The Company expects this amount to be substantially reduced
in the future because of its investment in the Research & Development
Consortium. Selling, general and administrative expenses for the quarter ended
September 30,1997 increased by $328,108 and decreased as a percentage of
revenues from 162.8% to 124.9%. The increase in absolute dollars was due to
marketing expenses associated with continued emphasis on product
commercialization, particularly the introduction of the next generation scanner
and the expansion of the Company's administrative and sales staff and offices
in anticipation of large expansion of the Company's operations. The Company
continues to incur legal, administration, and other related costs associated
with its warrant call.
The Company's share of the loss incurred by the research and development
consortium (3994340 Canada Inc.) that had been formed on October 2nd. 1996, for
the quarter ended September 30, 1997 amounted to $67,422 as compared to $92,220
for the quarter ended June 30, 1997.
<PAGE> 2 (CONTINUED)
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 connections 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, 1997 the Company raised
$2,024,101(net) through the conversion of warrants associated with the initial
public offering, to common shares, and $205,180, from the proceeds of the
issuance of 8% Convertible Debentures.
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PART ll.: 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.
Exhibit 27 - Financial Data Schedule
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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.
Dated: November 17, 1997 /s/ Suneet S. Tuli
Suneet S. Tuli, Executive Vice President
Dated: November 17, 1997 /s/ Willem J.Botha
Willem J. Botha, Chief Financial Officer
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THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Assets
Current assets
Cash and short term investments $ 1,440,814 $ 3,407,945
Accounts receivable 891,845 600,451
Research and development grants receivable 271,099 704,123
Prepaid expenses 100,338 -
Receivable from shareholders 32,110 -
Advance to related parties 85,320 -
Inventory (Note 3) 1,752,621 1,425,475
------------------------------
Total current assets 4,574,147 6,137,994
Capital assets (Note 4) 1,655,485 1,820,763
Investment in Joint Venture 1,529,802 -
Investment in affiliate - 504,000
------------------------------
Total assets $ 7,759,434 $ 8,462,757
==============================
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness 316,380 147,835
Accounts payable and accrued liabilities 1,258,464 521,704
8% Convertible debentures (Note 6) 205,180 -
Deferred income taxes - 62,728
------------------------------
Total current liabilities 1,780,024 732,267
------------------------------
Shareholders' equity
Common shares (Note 5) $ 12,622,985 9,532,294
Contributed surplus 159,825 159,825
Retained earnings (deficit) (6,801,738) (1,859,928)
Cumulative translation adjustment (1,662) ( 101,701)
------------------------------
5,979,410 7,730,490
------------------------------
Total liabilities and shareholders' equity $ 7,759,434 $ 8,462,757
==============================
</TABLE>
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<TABLE>
<CAPTION>
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OPERATIONS For The Three For the Three For the Six For the Six
(in United States dollars) Months Ended Months Ended Months Ended Months Ended
(Unaudited) September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Product sales $ 854,761 $ 359,301 $ 1,738,656 $ 845,197
Cost of sales 203,717 89,826 438,369 211,300
--------------------------------------------------------------
Gross profit 651,044 269,475 1,300,287 633,897
Research and development grants - - - -
Interest income 27,674 49,807 91,577 105,833
--------------------------------------------------------------
Net revenue 678,718 319,282 1,391,864 739,730
--------------------------------------------------------------
Expenses
Research and development 28,288 188,743 116,036 408,927
Selling, general and administrative 847,955 519,847 1,813,200 1,092,537
Interest and bank charges 10,595 4,002 14,800 7,126
Management fees 92,367 - 209,982 -
Amortization 97,962 149,744 192,812 266,774
--------------------------------------------------------------
Total operating expenses 1,077,167 862,336 2,346,830 1,775,364
--------------------------------------------------------------
Operating income (loss) (398,449) (543,054) (954,966) (1,035,634)
--------------------------------------------------------------
Equity in earnings (loss) of Joint Venture (67,422) - (159,654) -
Shareholders lawsuit resolutions (Note 7) - - (375,000) -
--------------------------------------------------------------
Earnings (loss) before extraordinary item (465,871) (543,054) (1,489,620) (1,035,634)
Extraordinary item, net of tax - - - -
--------------------------------------------------------------
Net earnings (loss) for the period $ (465,871) $ (543,054) $ (1,489,620) $ (1,035,634)
==============================================================
Earnings (loss) per common share before extraordinary
item, primary and fully diluted $ (0.08) $ (0.12) $ (0.27) $ (0.23)
==============================================================
Earnings (loss) per common share primary and fully
diluted $ (0.08) $ (0.12) $ (0.27) $ (0.23)
==============================================================
Weighted average number of shares outstanding 5,565,251 4,464,073 5,565,251 4,434,073
==============================================================
</TABLE>
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<TABLE>
<CAPTION>
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six For the Six
(in United States dollars) Months Ended Months Ended
(Unaudited) September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash provided by (used in)
Operating activities
Earnings (loss) for the period before extraordinary item $ (1,489,620) $ (1,035,634)
Add (deduct) items not requiring a cash outlay
Amortization 192,812 266,774
Equity in earnings (loss) of Joint Venture 159,654 -
-----------------------------
(1,137,154) (768,860)
Net changes in non-cash working capital balances related
to operations
(Increase) in accounts receivable (133,522) (96,937)
Decrease/(Increase) in R & D grants receivable 425,556 -
Increase/(decrease) in inventory (548,621) (974,087)
Increase/ (decrease) in accounts payable (96,536) 131,362
(Increase)/ decrease in prepaid expenses 209 -
-----------------------------
(1,490,068) (1,708,522)
-----------------------------
Investing activities
Purchase of capital assets (115,886) (787,284)
-----------------------------
(115,886) (787,284)
-----------------------------
Financing activities
Increase (decrease) in bank indebtedness (14,173) 16,600
Shares issued for cash 2,150,499 231,500
Private placements 250,000 -
-----------------------------
2,386,326 248,100
-----------------------------
Effect of exchange rate changes on cash 28,956 12,160
-----------------------------
Net increase (decrease) in cash during the period 809,328 (2,235,546)
Cash and equivalents, beginning of period 631,486 5,643,491
-----------------------------
Cash and equivalents, end of period $ 1,440,814 $ 3,407,945
=============================
</TABLE>
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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, 1997, and the results of operations
for the three months ended September 30, 1996 and 1997 and cash flows for
the six months ended September 30, 1997. 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, 1997.
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.
3. Inventories
Inventories are summarized as follows:-
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Raw materials $ 911,363 $ 550,700
Work in progress 613,417 705,129
Finished goods 227,841 169,646
---------------------------------
Total inventories $ 1,752,621 $ 1,425,475
=================================
</TABLE>
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The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
(Unaudited)
- ------------------------------------------------------------------------------
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
--------------------------- ---------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Machinery, plant and computer equipment $ 1,521,841 $ 571,111 $ 1,344,159 $ 282,665
Furniture and fixtures 180,862 57,902 151,988 30,911
Prototype and jigs 250,252 78,632 440,910 75,740
Land 60,850 - 66,954 -
Building under construction 349,325 - 206,068 -
---------------------------------------------------------
$ 2,363,130 $ 707,645 $ 2,210,079 $ 389,316
=========================================================
Net book value $ 1,655,485 $ 1,820,763
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</TABLE>
5. Share Capital
During the quarter ended June 30, 1997, 716,833 warrants were exercised
in exchange for 716,833 common shares. The proceeds of this issue, net of
related expenses of $126,398, was $ 2,024,101.
6. Convertible Debentures
During the quarter ended June 30, 1997, the Company issued $250,000 in 8%
Convertible Debentures. The proceeds of this issue, net of related
expenses of $45,250 was $205,180.
7. Shareholders Lawsuit Resolution
As of June 27, 1997 the Company reached a settlement with the plaintiffs
Don Johnson, Walter J. Lack, Thomas V. Girardi, Glenn Mc Cusker, and Gino
Aiello who initiated an action in Los Angeles Superior Court against the
Company, Raja S. Tuli, and unnamed defendant's designated Does 1-100 on
or about March 10, 1997, which action was subsequently removed to the
United States District Court for the Central District of California in
the State of California.
<PAGE> 10
The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
(Unaudited)
- -------------------------------------------------------------------------------
8. Contingent Liabilities
Statement of claim was filed against the Company with respect to the
following matter in 1993:
Claim for non-payment of invoices in the amount of $110,000 relate to
invoices for accounting services provided by an accounting firm. The
Company has accrued $35,000 for this claim.
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,440,814
<SECURITIES> 0
<RECEIVABLES> 891,845
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,574,147
<PP&E> 2,363,130
<DEPRECIATION> 707,434
<TOTAL-ASSETS> 7,759,434
<CURRENT-LIABILITIES> 1,780,024
<BONDS> 0
0
0
<COMMON> 12,622,985
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,759,434
<SALES> 1,738,656
<TOTAL-REVENUES> 1,830,233
<CGS> 438,369
<TOTAL-COSTS> 2,785,199
<OTHER-EXPENSES> 534,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,800
<INCOME-PRETAX> (1,489,620)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,489,620)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,489,620)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
