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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1997.
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
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
Incorporation or Organization) Identification No.)
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
267 MATHESON BOULEVARD EAST, MISSISSAUGA, ONTARIO, CANADA, L4Z 1X8
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 18,1998, was 5,895,545 shares.
<PAGE> 1 of 9
THE WIDECOM GROUP INC.
FORM 10-Q
INDEX
Page No.
--------
Part I Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets -
December 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three and nine months ended December 31, 1997
And December 31, 1996 4
Consolidated Statements of Cash Flows -
Nine months ended December 31, 1997
And December 31, 1996 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 8
Item 2 - Reports on Form 8 - K 8
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
---------------------------
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Assets
Current assets
Cash and short term investments $ 946,858 $ 744,136
Accounts receivable 840,954 698,394
Research and development grants receivable 261,737 703,358
Prepaid expenses 75,719 -
Receivable from shareholders 31,001 -
Advance to related parties 82,373 -
Inventory (Note 3) 1,619,445 1,462,211
---------------------------
Total current assets 3,858,087 3,608,099
Capital assets (Note 4) 1,518,233 1,986,253
Investment in Joint Venture 1,361,736 1,786,892
Investment in affiliate - 468,000
---------------------------
Total assets $ 6,738,056 $7,849,244
===========================
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness 319,821 231,051
Accounts payable and accrued liabilities 1,155,484 409,027
8% Convertible debentures (Note 6) 198,094 -
Deferred income taxes - 62,659
---------------------------
Total current liabilities 1,673,399 702,737
---------------------------
Shareholders' equity
Common shares (Note 5) $12,511,730 9,872,294
Contributed surplus 159,825 159,825
Retained earnings (deficit) (7,311,473) (2,800,464)
Cumulative translation adjustment (295,425) (85,148)
--------------------------
5,064,657 7,146,507
--------------------------
Total liabilities and shareholders' equity $ 6,738,056 $7,849,244
==========================
</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 months ended For the nine months ended
--------------------------- -----------------------------
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
(unaudited) (unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Product sales $ 821,436 $ 364,470 $ 2,552,102 $ 1,210,093
Cost of sales 205,359 91,118 698,980 302,524
----------------------------------------------------------
Gross profit 616,077 273,352 1,853,122 907,569
Research and development grants - - - -
Interest income 16,365 12,391 107,240 118,555
----------------------------------------------------------
Net revenue 632,442 285,743 1,960,362 1,026,124
----------------------------------------------------------
Expenses
Research and development 18,671 91,828 134,898 501,666
Selling, general and administrative 771,733 911,711 2,567,294 2,001,125
Interest and bank charges 6,282 4,892 20,652 12,007
Management fees 93,091 - 302,941 -
Amortization 98,107 171,193 281,858 437,639
----------------------------------------------------------
Total operating expenses 987,884 1,179,624 3,307,643 2,952,437
----------------------------------------------------------
Operating income (loss) (355,442) (893,881) (1,347,281) (1,926,313)
----------------------------------------------------------
Equity in earnings (loss) of
Joint Venture (117,003) (49,857) (277,073) (49,857)
Shareholders lawsuit resolutions (Note 7) - - (375,000) -
----------------------------------------------------------
Earnings (loss) before extraordinary
item (472,445) (943,738) (1,999,354) (1,976,170)
Extraordinary item, net of tax - - - -
----------------------------------------------------------
Net earnings (loss) for the period $(472,445) $(943,738) $(1,999,354) $(1,976,170)
==========================================================
Earnings (loss) per common share before
extraordinary item, primary and
fully diluted $ (0.08) $ (0.21) $ (0.36) $ (0.43)
==========================================================
Earnings (loss) per common share
primary and fully diluted $ (0.08) $ (0.21) $ (0.36) $ (0.43)
==========================================================
Weighted average number of shares
outstanding 5,565,251 4,579,073 5,565,251 4,579,073
==========================================================
</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,
1997 1996
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
Cash provided by (used in)
Operating activities
Earnings (loss) for the period before
extraordinary item $(1,999,354) $(1,976,170)
Add (deduct) items not requiring a cash outlay
Amortization 281,858 437,639
Equity in earnings (loss) of Joint Venture 277,073 -
-----------------------------
(1,440,423) (1,538,531)
Net changes in non-cash working capital balances
related to operations
(Increase) in accounts receivable (112,146) (196,575)
Decrease/(Increase) in R & D grants receivable 423,173 -
Increase/(decrease) in inventory (470,958) (1,016,617)
Increase/ (decrease) in accounts payable (157,106) 67,107
(Increase)/ decrease in prepaid expenses 21,927 -
-----------------------------
(1,735,533) (2,684,616)
-----------------------------
Investing activities
Purchase of capital assets (187,470) (1,093,145)
Purchase of equity in Joint Venture - (1,836,750)
-----------------------------
(187,470) (2,929,895)
-----------------------------
Financing activities
Increase (decrease) in bank indebtedness 656 100,593
Shares issued for cash 2,150,499 571,500
Private placements 250,000 -
-----------------------------
2,401,155 672,093
-----------------------------
Effect of exchange rate changes on cash (162,780) 43,063
-----------------------------
Net increase (decrease) in cash during the period 315,372 (4,899,355)
Cash and equivalents, beginning of period 631,486 5,643,491
-----------------------------
Cash and equivalents, end of period $ 946,858 $ 744,136
=============================
</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, 1997, and the results of operations for the three
months ended December 31, 1996 and 1997 and cash flows for the nine months
ended December 31, 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>
December December
31, 1997 31, 1996
-------- --------
<S> <C> <C>
Raw materials $ 728,751 $ 427,464
Work in progress 631,583 551,362
Finished goods 259,111 483,385
--------------------------
Total inventories $1,619,445 $1,462,211
==========================
</TABLE>
<PAGE> 6 of 9
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------- ---------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Machinery, plant and
computer equipment $1,522,895 $ 634,001 $1,670,387 $ 398,505
Furniture and fixtures 108,393 39,113 94,106 27,657
Prototype and jigs 230,858 81,510 440,432 95,923
Land 56,134 - 66,881 -
Building under
construction 354,577 - 236,532 -
----------------------------------------------------------
$2,272,857 $ 754,624 $2,508,338 $ 522,085
==========================================================
Net book value $1,518,233 $1,986,253
========== ==========
</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.
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.
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 $16,365 interest on short-term
investments compared to $12,391 earned in the same period of 1996.
Results of Operations
Quarter Ended December 31, 1997 Compared to Quarter Ended December 31, 1996
Revenues for the quarter ended December 31, 1997 were $837,801, an increase
of $460,940 or 122.3% as compared to $376,861 for the quarter ended December
31, 1996. Sales for the quarter ended December 31, 1997 were $821,436, an
increase of $456,966 as compared to $364,470 for the quarter ended December
31, 1996. Sales of the Company's SLC 436 Color Scanner accounted for a
majority of the sales increase.
Operating expenses for the quarter ended December 31, 1997 were $987,884, a
decrease of $191,740, or 16.2 %, as compared to $1,179,624 for the quarter
ended December 31, 1996. Research and development expenses decreased from
$91,828 for the quarter ended December 31, 1996 to $18,671 for the quarter
ended December 31, 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 December 31,1997, decreased by $139,978 and decreased as a
percentage of revenues from 241.9% to 92.1%. 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 December 31, 1997, amounted to $117,003 as compared to
$49,857 for the quarter ended December 31, 1996.
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. In June 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.
Part II Other Information
Item 2. Changes in Securities.
The Company issued 3,500 common shares to a certain security holder
pursuant to Section 4 (2) of the Securities Act of 1933, as
amended, in consideration of certain consulting services rendered
by the security holder.
Item 6. Reports on Form 8-K.
Exhibits 27 - Financial Data Schedule
The Company's Form 8-K, dated February 4, 1998, in connection with
its change of address of its principal executive offices to 72
Devon Road, Brampton, Ontario, Canada, L6T 5B4.
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 18, 1998 /s/ Suneet S. Tuli
Date Suneet S. Tuli,
Executive Vice President
/s/ Willem J.Botha
Willem J. Botha,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 946,858
<SECURITIES> 0
<RECEIVABLES> 840,954
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,858,087
<PP&E> 2,272,857
<DEPRECIATION> 754,624
<TOTAL-ASSETS> 6,738,056
<CURRENT-LIABILITIES> 1,673,399
<BONDS> 0
0
0
<COMMON> 12,511,730
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,738,056
<SALES> 2,552,102
<TOTAL-REVENUES> 2,659,342
<CGS> 698,980
<TOTAL-COSTS> 4,006,623
<OTHER-EXPENSES> 652,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,652
<INCOME-PRETAX> (1,999,354)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,999,354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,999,354)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
