<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K

         Annual Report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 for the fiscal year ended March 31, 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)

Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each Exchange on
             Title of each class                         which Registered
             -------------------                         ----------------
   COMMON STOCK, PAR VALUE $.01 PER SHARE             BOSTON STOCK EXCHANGE
   WARRANTS TO PURCHASE COMMON STOCK                  BOSTON STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act:
                                                     Name of each Exchange on
             Title of each class                         which Registered
             -------------------                         ----------------
   COMMON STOCK, PAR VALUE $.01 PER SHARE             NASDAQ SMALLCAP MARKET
   WARRANTS TO PURCHASE COMMON STOCK                  NASDAQ SMALLCAP MARKET

     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 [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K

     The aggregate market value of the voting and non-voting common equity held 
by non-affiliates of the registrant based upon the closing sale price of the
registrants' common stock on the Nasdaq SmallCap Market as of July 7, 1997 was
approximately $9,948,089.

     The number of shares outstanding of registrant's common stock as of June
30, 1997 was 5,565,251 shares
============================================================================

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     All references to "dollar" or "$" in this Annual Report are to United
                                 States dollars.


                                     PART I

BUSINESS

THE COMPANY

     The Company was incorporated in Ontario, Canada in June 1990. The Company
designs, assembles and recently commenced limited marketing of high-speed,
high-performance document systems which transmit, receive, print, copy and/or
archive wide format documents, such as blueprints, schematics, newspaper layouts
and other mechanical and engineering drawings. The Company's products include
WIDEfax Scan, a 36" wide format scanner, and WIDEfax Plotter, a 36" wide format
plotter (printer). The Company also markets WIDEfax Modular Unit which
incorporates a WIDEfax Scan module, a WIDEfax Plotter module, optional internal
modems and software to permit the unit to interface with a personal computer and
combine scanning, printing, facsimile and copying functions in one unit. The
Company has only recently commenced commercialization activities which, to date,
have resulted in only limited product sales.

     The Company designed its WIDEfax document systems in response to perceived
market demand for systems which facilitate the efficient management and
transmission of wide format documents, particularly for architectural,
engineering and construction applications. The Company also markets its products
for use by manufacturers in the garment and graphic arts industries, utilities
and government agencies and for applications in newspaper and advertising
industries. Although the markets for the Company's products are highly
specialized and the Company has not conducted any formal market studies as to
the potential demand for wide format document systems, the Company believes that
the markets for wide format document systems are emerging as a result of the
increasing demand for systems which can more efficiently scan, copy, print,
transmit, receive and archive wide format documents. The Company believes that
its products provide attractive alternatives to traditional methods employed to
permit multiple users to view wide format documents, such as the use of an
overnight courier to deliver copies of a document or microfiche reproduction.

     On October 2nd, 1996, the Company formed a research and development 
consortium known as 3994340 Canada Inc., operating as Technologies NovImage 
("NovImage"), with an economic development agency of the Province of Quebec.
The Company is now conducting all of its research and development activities
through NovImage, which activities are expected to qualify for partial funding
from governmental agencies.



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PRODUCTS

     WIDEfax Scan and SLC436-C Color Scanner

         WIDEfax Scan and SLC436-C are wide format scanners capable of scanning
a document up to 36" wide. The Company's scanners interfaces with a personal
computer to enable the user to scan images into the personal computer for
display, editing and archiving. The WIDEfax Scan provided the capacity of
scanning monochromatic images only. As the next generation of the WIDEfax Scan,
the SLC436-C was introduced in May 1996 a low-cost wide format color scanner
capable of scanning 36" by 48" documents at a resolution of 400 dpi in under
thirty seconds for monochrome images, and under eight minutes for full color
images. Deliveries of the SLC436-C commenced during the third quarter of 1996.

         The Company's scanners incorporate the Company's single line contact
scanner technology to capture the image of a wide format document. The contact
scanner consists of a 36" fiber optic array, 8mm "image sensor chips" aligned to
create a 36" length light sensor, a 36" light emitting diode ("LED") array and
software designed to enhance the scanned image by removing deteriorations from
the document being reproduced and interface the scanner with a personal
computer. The fiber optic array acts as a lens and focuses the image on the
image sensor chips which read the image. Because the Company's image sensor
chips contain pixels larger than those of chips used in other scanners, the
Company's contact scanners require less light exposure and, therefore, operate
faster than other scanners. SLC436-C reads an image in increments of 400 dots
per inch ("dpi"), whereas standard format facsimile machines read images in
increments of 200 dpi and other wide format scanners read images in increments
ranging from 138 dpi to 417 dpi. Higher dpi improves the reliability of the
scanned image because the scanner recognizes greater image detail.

         The software incorporated in the SLC436-C improves scanned images by
removing background discoloration and enhancing faded images. This capability
improves the image quality of documents which are stained or which have faded
over time. The Company's enabling software permits SLC436-C to interface with a
personal computer, as well as permit the user to perform a variety of scanning,
editing, viewing and transmission functions.

         Traditional document scanners employ camera based lenses capable of
scanning up to a 12" width document. Traditional wide format scanners employ
multiple camera lenses to capture portions of a document's image and integrate
the images to reproduce a wide format document. The reproduced document can be
distorted by camera based scanners, particularly at the edges, and misaligned as
a result of the use of multiple lenses, thereby limiting the reliability and
usefulness of the reproduced document. The Company believes that its single line
contact scanner technology and software enable its products to scan and
reproduce such documents with improved clarity and accuracy.



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       WIDEfax Plotter

         WIDEfax Plotter is a wide format plotter capable of printing a document
up to 36" wide x 200' in length. WIDEfax Plotter interfaces with a personal
computer to enable the user to print images directly from the personal computer.
WIDEfax Plotter is sold with an optional internal modem which enables WIDEfax
Plotter to receive facsimile transmissions of wide format documents. WIDEfax
Plotter prints wide format documents on thermal paper or other thermal medium,
such as mylar and matte film paper.

         WIDEfax Plotter incorporates thermal print heads which consist of an
array of pixels. When energy passes through a pixel, the pixel heats up and
changes the color of the thermal paper in contact with that pixel to reproduce a
document's image. WIDEfax Plotter reproduces the image of a standard size wide
format document in approximately 30 seconds, in increments of 200 dpi.

         The Company is currently developing a thermal transfer plain paper
plotter which is designed to print an image in increments of 400 dpi. The
Company has developed print heads which will enable the proposed plotter to
print in increments of 400 dpi. This plotter is being designed to incorporate a
thermal transfer ribbon coated with a wax-like printing substance which, when
heated by energy passing through the pixels on the print head, melts onto the
paper to reproduce the document's image. The plotter, without the thermal
transfer ribbon, would function as a thermal plotter. The Company has developed
a prototype of the thermal transfer plain paper plotter and started assembling
the first pre-production models during the third quarter of 1996. The Company
expects first deliveries of the production models in the third quarter of 1997.

     WIDEfax Modular Unit

         WIDEfax Modular Unit consists of a WIDEfax Scan module and WIDEfax
Plotter module which are integrated into one unit. Together, these modules
perform scanning, printing and copying functions. When these modules are
combined with optional internal modems and enabling software to interface with a
personal computer, WIDEfax Modular Unit performs the functions of each module,
as well as those of a wide format copier and facsimile machine. The user of a
WIDEfax Scan or a WIDEfax Plotter can upgrade either machine to a WIDEfax
Modular Unit by purchasing and connecting the other module. Upon introducing
WIDEfax Modular Unit in May 1994, the Company discontinued marketing of its 36"
WIDEfax facsimile machine, which accounted for approximately 89.1% of the
Company's product sales for the year ended March 31, 1994. For the years ended
March 31, 1995, 1996 and 1997 sales of the WIDEfax Modular Unit accounted for
approximately 67.0%, 35.2%and 13.9%, respectively, of the Company's product
sales.

         The Company plans to incorporate the thermal transfer plain paper
plotter, if successfully introduced, into its WIDEfax Modular Unit, as well as
market the plotter as a separate product. The Company believes that
incorporating the thermal transfer plain paper plotter into WIDEfax Modular Unit
will facilitate the positioning of this product as an attractive entry in the
wide format copier market. The Company also plans to sell the 400 dpi print
heads as a separate component to other manufacturers upon introduction of this
plotter. 
 


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       Software

         The Company has developed and markets two applications software
packages, WIDEView, designed to enhance the user's document imaging
capabilities, and SLC-OVLY, which enables the Company's WIDEfax products to
interface with personal computers operating certain CAD software.

         In May 1996 the Company introduced its Image Database File Management
System ("IDF/MS"), a software package designed to provide for wide format
document distribution across the Internet. The IDF/MS provides architects,
engineers and other users remote access to image databases containing wide
format images which previously could not be readily distributed on the Internet.
The Company believes that IDF/MS will be particularly useful to architects,
engineers, and real estate developers in connection with the bidding on proposed
projects by allowing immediate access to engineering documents and plans without
the cost and delay associated with the copying, packaging and delivery of such
documents and plans.

     Accessories

         The Company sells several accessories for use in connection with its
WIDEfax products, including various types of paper and film. Sales of
accessories have not been material to date and are not expected to be material
in the future.


MARKETING AND SALES

         The Company's primary marketing strategy is to sell its products in
targeted commercial markets in which wide format document systems are believed
to have potential for significant applications, principally architectural,
engineering and construction firms, for which reproduction, archiving and
transmission of wide format documents are essential. The Company also markets
its products for use by manufacturers in the garment, and other industries,
utilities and government agencies and applications in newspapers and advertising
industries. The Company believes that its products are used by consumers in
these markets for a variety of applications, including the transmission of
construction plans, architectural drawings, newspaper and advertising layouts
and clothing patterns.

         The Company has established strategic marketing relationships by
engaging independent distributors and dealers to market its products in various
regions throughout the United States and in foreign markets. As of March 31,
1997, the Company had arrangements with approximately 87 distributors, dealers
and sales agents (collectively, "distributors"), of which 72 arrangements are
pursuant to written agreements. The Company's agreements with its distributors
typically are for a term of two to three years and grant the distributor the
right to market the Company's products within a specified territory during the
term of the Agreement, provided that the distributor satisfies minimum purchase
requirements. Most of the Company's distributors have not satisfied the
applicable minimum purchase requirements, in many cases because the Company has
been unable to fulfill all purchase orders from the distributors. The Company
sells products to distributors at discounts ranging from 25% to 40% of the end
user price of the products. For the years ended March 31, 1995, 1996 and 1997,
the Company's five largest distributors accounted for approximately 41.8% ,
32.8% and 49.9%,

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respectively, of the Company's product sales. The Imtec Group Ltd. of England
represents 27.5% of the Company's sales for year ended March 31, 1997. During 
the years ended March 31, 1995, 1996 and 1997, sales by distributors accounted 
for approximately 82.3%, 83.1% and 96.4% of the Company's product sales.

         The Company also markets its products in the United States and Canada
through its in-house marketing staff of seven persons. The Company has one sales
person and one service support engineer at each of its sales offices in Atlanta
Georgia, Cleveland Ohio, Pittsburgh Pennsylvania and Big Bear Lake California;
in addition to its main sales office in Mississauga, Ontario. The staff in each
of these offices is responsible for marketing and servicing the Company's
products in its respective region through dealers and distributors.

         A substantial portion of the Company's sales have been made to foreign
markets, primarily the Middle East and Asia. The following table sets forth, for
the periods indicated, the amount of the Company's sales by geographic region,
expressed as a dollar amount and as a percentage of product sales for such
periods:

<TABLE>
<CAPTION>
                                                  YEAR ENDED MARCH 31,
                                  1995                    1996                   1997
                          -------------------     -------------------     ------------------
REGION                        AMOUNT        %         AMOUNT        %        AMOUNT        %
                          ----------    -----     ----------    -----     ---------    -----
<S>                       <C>           <C>       <C>           <C>       <C>          <C> 
United States .........   $  723,064     44.5     $  730,055     43.8       467,766     27.9
Middle East ...........      394,399     24.3        335,682     20.1       346,595     20.6
Asia ..................      312,233     19.2         80,576      4.8       266,345     15.9
Europe ................       78,879      4.8        464,000     27.9       475,552     28.3
Canada ................      116,666      7.2         56,032      3.4       122,675      7.3
                          ----------    -----     ----------    -----     ---------    -----
     Total ............   $1,625,241    100.0     $1,666,345    100.0     1,678,933    100.0
                          ==========    =====     ==========    =====     =========    =====
</TABLE>


         The Company has started to aggressively market and advertise its
products since the introduction of the SLC436-C color scanner. Within the last
year, along with recruitment of additional sales and service staff, the Company
has placed advertisements in trade publications and participated in major trade
shows. The Company believes that the increased costs of these efforts increase
brand awareness, provide credibility with dealers and distributors and are
necessary steps towards the commercialization of its products.

         The Company entered into three notable distribution relationships
during the year for its scanners. The first two are with the Imtec Group Ltd.
("Imtec") of England, dated November 15, 1996 and Scan Group ("SGI") Ltd. of 
Israel, dated September 8, 1996. These relationships require Imtec and SGI to
sell products based on WideCom's technology under their own brand names. On
terms similar to those with other distributors, the third notable agreement is
with CADigitizing Corporation of Florida, dated February 13, 1997 for the
Chinese market.



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WARRANTY, SERVICE AND MAINTENANCE

         The Company offers a 90-day limited warranty, which can be extended for
a term of up to one-year, covering the workmanship and parts of its products.
During the term of the warranty of products sold by the Company, the Company
will make repairs and replace parts which become defective due to normal use.
During the term of the warranty of products sold by distributors, the Company
will replace parts which become defective due to normal use and the distributor
is responsible for the labor component of servicing the product. The Company
provides a warranty to distributors for a period expiring on the earlier of
twelve months following the distributor's purchase of the product and three
months following the distributor's sale of the product. The Company trains its
in-house service engineers and certain distributors to enable them to service
and maintain the Company's products.

         The Company operates an 800 number telephone line during normal
business hours to respond to distributors and user inquiries about the
operation, service and maintenance of the Company's products. The Company also
has an "E-mail box" which distributors and users can access to receive such
assistance from the Company.


MANUFACTURING

         The Company subcontracts certain manufacturing operations, such as the
production of Company designed printed circuit boards or machine enclosures, to
outside suppliers. Off-the-shelf items, such as integrated circuits, modems,
rollers, gears and LCD displays, are acquired directly from vendors. The Company
believes that alternative sources of supply for all of its components and custom
parts are readily available on commercially reasonable terms. The Company does
not maintain supply agreements with any of its suppliers or subcontractors and
purchases components and custom parts pursuant to purchase orders in the
ordinary course of business. Most of such components are acquired in the United
States and shipped to the Company's manufacturing facility in a free trade zone
in India where the Company's assembly operations are conducted. Quality control
and adjustments are also conducted at the Company's facility in India.

         While the Company conducts its product assembly in-house, the Company
will need to increase its manufacturing capabilities in the event of any
increased demand for its products. There can be no assurance that the Company on
commercially reasonable terms in a timely manner or at all.

         The Company entered into an agreement in October 1993 with WideCom R&D,
a Company wholly owned by Lakhbir S. Tuli, a principal stockholder of the
Company and the father of Raja S. Tuli and Suneet S. Tuli. Under this agreement,
WideCom R&D will seek to identify and recruit licensees that would import
components purchased from the Company and manufacture the Company's products in
India. The agreement contemplates that the Company will sell component parts to
such licensees and receive a royalty payment of 5% on the licensee's sales of
finished products. The Company intends to monitor the quality of products
initially by supervising and training the licensee in the manufacturing process.
To date, no agreements have been entered into with such licensees.



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COMPETITION

         The markets for document systems are characterized by intense
competition. Although the Company is not aware of any other manufacturer of 36"
facsimile machines, the Company is aware of one manufacturer of 24" facsimile
machines and various manufacturers of wide format copiers, scanners and
plotters. The Company believes it products compete on the basis of resolution,
quality, speed, price and distribution channels. The Company competes with
numerous well-established foreign and domestic companies that market or are
developing wide format document systems. Competitors include Contex Corporation,
Vidar Systems, Inc., and Anatech Corporation in the market for wide format
scanners; Calcomp Corporation, Hewlett Packard Company and Mutoh Corporation in
the market for wide format plotters; Silver Reed Corporation in the market for
wide format facsimile machines; and Xerox, Katsuragawa Company and Oce in the
market for wide format copiers. In addition, the Company also expects that
companies that manufacture and sell standard facsimile machines, copiers,
scanners and plotters could develop, without substantial delay, wide format
document systems directly competitive with the Company's products. Many of these
companies possess substantially greater financial, technical, marketing,
personnel and other resources than the Company and have established reputations
for success in the development and marketing of facsimile machines, plotters,
scanners and copiers and have sufficient budgets to permit them to implement
extensive advertising and promotional campaigns in response to competitors and
to enter new markets.

         In addition, the markets for the Company's products are characterized
by rapidly changing technology and evolving industry standards, often resulting
in product obsolescence or shortened product lifecycles. As a result, the
Company's ability to compete may be dependent upon its ability to continually
enhance and improve its products, to complete development of and introduce into
the marketplace in a timely manner its proposed products and to successfully
develop and market new products. There can be no assurance that the Company will
be able to compete successfully, that competitors will not develop technologies
or products that render the Company's products obsolete or less marketable or
that the Company will be able to enhance successfully its existing products or
develop new products.


RESEARCH AND DEVELOPMENT

         The Company incurred costs for research and development of $656,876,
$732,457 and $614,663 during the years ended March 31, 1995, 1996 and 1997,
respectively. As of March 31, 1997, the Company employed only 2 full-time
research and development design engineers in North America and 9 research
engineers in India, as it moved the bulk of its research and development efforts
to a consortium. "See Certain Relationships and Related Transactions"

         The Company formed a research and development consortium dated October
2nd 1996, NovImage, with an economic development agency of the Province of
Quebec. The Company is now conducting all of its research and development
activities through NovImage (see "Certain Transactions), which activities are
expected to qualify for partial funding from governmental agencies. The
research and development activities conducted by NovImage on behalf of the
Company are primarily focused on plotter, scanner and facsimile technologies.

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         The plotter research is concentrated on improving printer resolution
and developing thermal transfer mechanisms for incorporation into the plain
paper plotter, including color printing capabilities. Scanner research is
focused on the development of color scanning capabilities and the enhancement of
scanner image. Facsimile research is focused on the development of a standard
wide format facsimile communication protocol.

         The Company anticipates that upon introduction of the proposed thermal
transfer plain paper plotter, NovImage will commence activities relating to the
development of a color plotter which uses colored thermal transfer ribbons
containing a wax-like printing substance.

         NovImage is completing the development of a color-scan chip intended to
be incorporated into a 36" contact scanner to provide color scanning
capabilities. This chip is being designed to combine four image sensor chips to
read the primary colors (magenta, cyan and yellow) and black. As a result, such
a scanner is expected to be able to function both as a color scanner and as a
monochrome scanner. The Company expects that a prototype of a color scanner will
be introduced by the fourth quarter of 1997.

         The Company is developing a wide format document "fax-on-demand"
system. The Company anticipates that this system would be used for the
distribution of engineering and construction plans by bid depositories and
tendering document distribution services. The Company anticipates that such
services will create a database of documents, such as construction plans, and
make such documents available to its subscribers, generally contractors. The
system is being designed to enable a subscriber to access a document in the
service's database via the subscriber's personal computer and printing the
selected document to a WIDEfax Plotter at the subscriber's location.


INTELLECTUAL PROPERTY

         The Company relies upon proprietary know-how and employs various
methods to protect the ideas, concepts and documentation of its proprietary
technology, which methods include nondisclosure agreements with its employees
and distributors. However, such methods may not afford complete protection and
there can be no assurance that competitors or customers will not independently
develop such know-how or obtain access to the Company's know-how, ideas,
concepts and documentation. The Company does not hold any patents, although it
has filed patent applications relating to certain aspects of its technology.
There can be no assurance, however, that any patents will be issued to the
Company or, if issued, that such patents would afford the Company a competitive
advantage. In any event, there can be no assurance that future patents, if any,
would not be circumvented or invalidated.

         In addition, certain aspects of the technologies embodied in the
Company's products are generally available to other manufacturers. The Company
is not aware of any infringement on the proprietary rights of others and has not
received any notice of claimed infringement. However, the Company has not
conducted any investigation as to possible infringement and there can be no
assurance that third parties will not assert infringement claims against the
Company in connection with its products, that any such assertion of infringement
will

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<PAGE>   10
not result in litigation, or that the Company would prevail in such litigation
or be able to license any infringed patents of third parties on commercially
reasonable terms. If the Company's technologies were found to infringe another
party's rights, the Company could be required to modify its products or obtain a
license. There can be no assurance that the Company would be able to do so in a
timely manner, upon acceptable terms and conditions, or at all, or that the
Company would have the financial or other resources necessary to successfully
defend a claim of violation of proprietary rights.

         The Company licensed all of its patents and technology relating to its
scanner and plotter manufacturing and its WideView[TRADEMARK] and
SLC-OVLY[TRADEMARK] software (collectively, the "Intellectual Property") to
NovImage for research and development purposes in order to develop improvements,
modifications, additions or alterations to the Intellectual Property and to
develop new products. In exchange for this license and the payment of a 0.5%
royalty fee on net revenue, licensing revenue and net sales to sub-licensees,
NovImage granted the Company an exclusive perpetual worldwide (with the
exception of the Province of Quebec, Canada) license to use such improved
scanner and plotter technology and software to manufacture, distribute, market
and sell the improved scanner, plotter and software, and any new products
developed by NovImage. NovImage retained such rights with respect to the
Province of Quebec, Canada. Please refer to "Certain Transactions".

         The Company has not filed for copyright protection of its software. The
Company holds a registered trademark with the United State Patent and Trademark
Office for the "WIDEfax" trade name.


EMPLOYEES

         As of March 31, 1997, the Company had 188 full time employees,
including 11 research and development engineers, 108 manufacturing employees, 69
sales staff and administrative personnel. One hundred and forty two of such
employees are located in India and are employees of the Company's wholly owned
Indian subsidiary. Neither the Company nor its subsidiary is a party to any
labor agreements and none of their employees are represented by a labor union.
The Company believes its employee relations to be satisfactory.


PROPERTIES

         In February 1996, the Company purchased property in the Noida Export
Processing Zone near New Delhi, India (the "Free Trade Zone") for approximately
$67,500 and is building a manufacturing facility of approximately 24,000 square
feet with estimated construction costs of approximately $360,000. Clean-room
facilities and other special infrastructure within the building is estimated to
cost an additional $240,000 by its completion. The Company expects that the
project will be completed shortly.

         The Company leases 9,000 square feet at 267 Matheson Boulevard,
Mississauga, Ontario, Canada, pursuant to a five-year lease entered into in
1993, and 7,000 square feet in the Free Trade Zone, pursuant to a five-year
lease entered into in 1994. The current annual 

                                       11
<PAGE>   11
rents are $39,375 and $15,200, respectively. Upon completion of construction of
the Company's new manufacturing facility the Company will transfer its
manufacturing operations to the new facility.

         In addition, the Company currently leases a sales office on a
month-to-month basis in Big Bear Lake, California, the Company has a one year
lease for sales offices in Pittsburgh, Pennsylvania, and Cleveland, Ohio, and a
two year lease for a sales office in Atlanta, Georgia. The current annual rental
rates of these facilities are approximately $28,164 in the aggregate.

         The Company believes that its present facilities are adequate for the
Company's current level of operations, however, the Company will need to
increase its manufacturing capabilities in the event of any increased demand for
its products.


LEGAL PROCEEDINGS

         From 1992 to July 1993, Raja S. Tuli engaged two individuals to provide
services relating to the Company's marketing and other activities. In exchange
for performing such services, Mr. Tuli transferred 100,000 Common Shares to such
individuals. Such individuals have attempted to transfer an aggregate of 172,860
Common Shares to third parties. In November 1993, Raja S. Tuli entered into an
indemnification agreement with the Company pursuant to which Mr. Tuli agreed
that, in the event the Company is required to issue in excess of 100,000 Common
Shares to such individuals or any purported transferee of such shares, Mr. Tuli
would return to the Company up to 160,000 Common Shares for cancellation to the
extent the Company is required to issue any such additional shares. The two
individuals, John Keenan and Vincent DiGiulio ("K&D") have filed a lawsuit on
December 20, 1996 in the U.S. District Court for the District Court of Rhode
Island, alleging breach of contract and demanding specific performance,
claiming 300,000 shares and 200,000 warrants. Giving effect to the 8 for 10
stock reverse split the Company had implemented in 1995, the claim would be for
240,000 shares and 160,000 warrants, of which 100,000 shares have been
transferred by Mr. Tuli and the remaining exposure is for an additional 140,000
shares. The Company has filed an answer to the claim, and is in the process of
filing an interpleader counterclaim. One of the two above mentioned individuals
has filed for bankruptcy. The Company, along with these individuals are also
subject to two additional lawsuits filed by above mentioned third parties to
whom these individuals had attempted to transfer shares. This claim has been
consolidated into the original action litigation, and the Company is attempting
to also consolidate the claim by the additional claimant. The Company believes
that a number of additional third parties could also prosecute in this regard.
The Company will continue to attempt the joinder of all such actions arising in
the future in to one Federal Court action. The Department of Business
Regulation for the State of Rhode Island is also continuing an investigation
into these matters.

         On or about February 27, 1997, plaintiff Brett Whiton commenced an
action in on behalf of himself and the class against the Company, Raja S. Tuli
and Suneet S. Tuli. The action is currently pending before, the United States
District Court for the Southern District of New York. The Complaint is based
upon alleged improper conduct with respect to the announcement of the redemption
of certain warrants, which announcement was made on February 10, 1997. On or
about March 15, 1997, two substantially similar class actions were commenced in
the Supreme Court of the State of New York, County of New York, one by Richard
Benjamin and the other by

                                       12
<PAGE>   12
Anthony Hand. These actions, too, have been removed to, and are currently
pending before, the United States District Court for the southern District of
New York. The above three actions (collectively, the "New York Class Actions")
have been consolidated for all purposes.

         On or about May 1st, 1997 the court approved the settlement of the New
York Class Actions. The settlement obligated the Company to reduce the warrant
redemption to half of the publicly held warrants, and reduce the exercise price
to $3.00 from $4.00. Along with payment of the Complainant's legal fees, the
settlement further obligated the Company to appoint an independent director to
its board of directors and recruit an independent Chief Operating Officer. The
Company also agreed to issue one replacement warrant for each warrant held by
warrant holders on February 10th, 1997 and sold by such holders prior to the
close of business on March 5th, 1997. It is not yet possible to quantify the
number of warrants that the Company will be required to issue.

         The Settlement has been preliminarily approved by the Court on a non
opt-out basis and, if finally approved on a non opt-out basis, will resolve all
claims (if any) which may be or have been made by class members. Notice to all
class members has been provided, and a hearing has been scheduled for August 2,
1997 to determine whether the settlement shall be finally approved.

         On or about March 10, 1997, an action was commenced in the Superior
Court of the State of California or the county of Los Angeles. The action was
subsequently removed to, and is currently pending before, United States District
Court for the Central district of California. Plaintiffs are alleged to be
holders of WideCom shares and/or warrants. The complaint in this action, like
the action commenced in the State of New York, is based upon alleged improper
conduct with respect to the announcement of the redemption of certain warrants,
which announcement was made on February 10, 1997. The complaint includes causes
of action for alleged fraud in violation of California civil code SS 1709 and
1710 in the nature of alleged misrepresentation and in the nature of alleged
negligent misrepresentation, alleged breach of contract, alleged breach of
fiduciary duty, and alleged violation of California Corporations Code SS 25400
and 25500, and sought compensatory and general damages, punitive damages, and
injunctive relief. The complaint also demanded an award of pre-judgment and
post-judgment interest, attorneys' fees, expert witness fees, and costs. An
answer has been filed in the action, in which all material allegations in the
complaint are denied and numerous affirmative defenses are asserted.





SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders of the Company
during the fourth fiscal quarter of the Company's fiscal year ended March 31,
1997 except the Annual General Meeting.

The annual meeting of stockholders of the Company, was held on January 30, 1997
at 55 City Centre Drive, Suite 500, Mississauga, Ontario, Canada, at which the
stockholders approved:

                                       13
<PAGE>   13
     (1) The election of the Board of Directors;

At the Meeting, four directors were elected, each to serve until the next annual
meeting of stockholders:

                        RAJA S. TULI,                         31
                        SUNEET S. TULI,                       29
                        DR. AJIT SINGH,                       56
                        BRUCE D. VALLILLEE,                   76

     (2) An amendment to the Company's 1995 Stock Option Plan (the "Plan") to
increase the number of shares of the Company's Common Stock authorized for
issuance under the Plan.

         At the Meeting, the stockholders approved an amendment to the Plan. The
amendment permits the Company to issue options to purchase up to 500,000 shares
of the Company's Common Stock. To date, the Company has issued options to
purchase up to 200,000 shares of the Company's Common Stock. The Company
anticipates that it will issue options to purchase more shares of Common Stock
than the 300,000 shares that are currently available under the Plan. Any
material amendment to the Plan must be approved by a vote of the stockholders.

                                         14
                                                
<PAGE>   14
                                     PART II

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's common stock and warrants are quoted on the Nasdaq
SmallCap Market under the symbols "WIDEF" and "WIDWF", respectively, and on the
Boston Stock Exchange under the symbols "WDE" and "WDEW". The table below
represents the quarterly high and low closing prices for the Company's common
stock and warrants as reported through July 7, 1997. The prices listed in this
table reflect quotations without adjustment for retail mark-ups, mark-downs, or
commissions. The Company has not paid any cash dividends since inception, and
intends to retain earnings, if any, in the foreseeable future for use in Company
expansion. The approximate number of registered holders of record of the
Company's common stock and warrants at June 30, 1997 was 57 and 8. It is
believed that the actual number of beneficial holders of each class of common
stock and warrants is in excess of 500.

<TABLE>
<CAPTION>

                                                                COMMON STOCK           WARRANTS
                                                                High     Low         High    Low
<S>                                                            <C>      <C>         <C>     <C>
1995
   Fourth Quarter (commencing December 18, 1995)               $ 6 1/2  $    5      $3 1/2  $1 1/2
                                                                                               
1996
   First Quarter (January 1 through March 31, 1996)             12 3/8   4 7/8       9       2 1/2

   Second Quarter (April 1 through June 30, 1996)               13 1/4   7 5/8       9       4 1/2

   Third Quarter (July 1 through September 30, 1996)            11 3/8   8 1/8       7       3 7/8

   Fourth Quarter (October 1, through December 31, 1996)        10       6 1/2       6 1/4   3 3/8
                                                                                               
1997
   First Quarter (January 1 through March 31, 1997)             11 3/8   3 1/4       7       1/4

   Second Quarter (April 1 through June 30, 1997)               4 5/8        2       1 3/4   5/8

  Third Quarter (July 1 through July 7, 1997)                   2 5/8    2 3/8       3/4     3/4
</TABLE>

                                       15
                                          
<PAGE>   15
SELECTED FINANCIAL DATA

STATEMENT OF EARNINGS DATA:

<TABLE>
<CAPTION>
                                                        YEAR ENDED MARCH 31,
                                                        --------------------
                                                  1994           1995          1996            1997
                                                  ----           ----          ----            ----

<S>                                           <C>            <C>            <C>             <C>       
Total Revenue ...........................     $1,858,414     $2,024,289     $2,007,801      $1,820,713
Product Sales ...........................      1,228,294      1,625,241      1,666,345       1,678,933
Research and development grants .........        630,120        390,986        262,322           --
Total Expenses ..........................      1,445,560      1,723,295      3,116,119       5,673,672
Earnings (loss) before extraordinary item        474,295         64,447     (1,025,631)     (4,487,824)
Net Earnings (loss) .....................        526,182         64,447       (839,301)     (4,487,824)
Earnings (loss) per share before
extraordinary item ......................            .19            .02           (.33)          (0.99)
Net Earnings (loss) per share ...........            .21            .02           (.27)          (0.99)
Weighted average shares outstanding .....      2,507,375      2,712,660      3,078,428       4,533,583

BALANCE SHEET DATA:

<CAPTION>
                                                                             MARCH 31,
                                                                             ---------
                                                                 1995           1996          1997
                                                                 ----           ----          ----
<S>                                                          <C>           <C>            <C>
Working Capital .........................                    $  170,968    $ 6,814,289    $ 1,818,883
Total Assets ............................                     2,547,681      9,217,514      6,925,187
Total Liabilities .......................                     1,419,740        588,908      1,681,884
Retained earnings (deficit) .............                        15,007       (824,294)    (5,312,118)
Shareholders' equity ....................                     1,127,941      8,628,606      5,243,303
</TABLE>

        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
                             RESULTS OF OPERATIONS

OVERVIEW

         The Company commenced marking its first 36" wide format facsimile
machine on a limited basis, primarily for demonstration purposes, in 1992 and
other wide format document systems in 1994. As a result, the Company has a
limited relevant operating history upon which an evaluation of the Company's
prospects and performance can be made. Since inception, the Company has
generated limited revenues from operations and has not yet achieved
profitability. The Company's revenues are derived from product sales and
research and development grants and reimbursements from the Canadian government.
The Company recognizes revenues from product sales when products are shipped and
from research and development grants and reimbursements when related expenses
are incurred. The Canadian government audits the Company's requests for
reimbursement for research and development expenses incurred during a calendar
year and makes reimbursement payments typically some months after the Company
has filed the request. Accordingly, the Company's request for reimbursement for
approximately $427,000 attributable to calendar year 1994 (which was filed in
September 1995) has been audited and $420,000 has been received from the
Canadian government in May 1997. The Company has filed a request for
reimbursement for the year ended December 31, 1995 and the three months ended
March 31, 1996 for approximately

                                       16
<PAGE>   16
$255,000 and $123,000 respectively. These requests have not been audited or paid
by the Canadian Government. There is no assurance that the requests will be
approved in their entirety or at all. Denial of all or a portion of such
reimbursement by the Canadian government would result in a change to current
period income and denial of a significant portion of such reimbursement would
have a material adverse effect on the Company's results of operations for such
periods.


GOVERNMENT SPONSORED PROGRAMS

         To date, a substantial portion of the Company's revenues have been
derived from research and development grants and reimbursement from the Canadian
government. Government sponsored programs are designed to encourage and support
the development and exploitation of new technologies by providing partial
reimbursement to Canadian businesses for expenses incurred in connection with
research and development activities. Prior to 1993, the Company received
reimbursement of a percentage of substantially all of its expenses from the
Canadian government, because the Company was classified as a "sole purpose
research and development company." Since 1993, reimbursement of the Company's
expenses from the Canadian government has been limited to reimbursement of a
specified percentage of its research and development expenses and qualified
related support expenses. Companies seeking reimbursement must submit
applications verifying the amounts and nature of research and development
expenditures incurred for audit by the Canadian government. Although the
Canadian government reimbursed the Company for substantially all amounts
requested in 1991 and 1992, the Company did not receive $43,800 (approximately
9.6%) of its requested reimbursement for the calendar year 1993. As of March 31,
1997, the Company had research and development grants receivable of $696,347
representing amounts for which reimbursement has been requested for calendar
1994, calendar 1995 and, three months ended March 31, 1996. Of this amount
$420,000 has subsequently been received

         Other government sponsored research grants and subsidies have been
provided to the Company to fund specific research programs. The majority of such
grants and subsidies have been provided under the Industrial Research Assistance
Program which is administered by the Canadian National Research Council (the
"NRC"). Grants are made on the condition that research and development
activities are performed in Canada and with the prior approval by the NRC of the
scope, content and objectives of the research to be performed. For the years
ended March 31, 1995 and 1996, the Company received payments under such program
of approximately, $18,000 and $66,000, respectively. No grants were received for
the year ending March 31, 1997.

         During the year a change in Canadian Tax legislation substantially
reduced the amount of subsidy available on Research and Development performed by
publicly traded companies. The Company together with a branch of the government
of the Province of Quebec (Inovatech) became equal shareholders in a wholly
Research and Development company (NovImage). The nature of NovImage entitles it
to receive grants in excess of 40% of qualified research expenditures. Products
derived from the research are then licensed back to the Company at a nominal
royalty of 0.5% of sales of those products. The formation of NovImage

                                       17
<PAGE>   17
enables the company to obtain a substantial increase in the amount of research
that can be performed.


IMPACT OF CURRENCY EXCHANGE RATES

         The Company conducts a substantial portion of its business in foreign
currency, primarily the Canadian dollar and, to a lesser extent, the Indian
rupee. To date, fluctuation in foreign currency exchange rates have not had a
significant impact on the Company's results of operations. Fluctuations in the
exchange rates between the United States dollar and the Canadian dollar or
Indian rupee, however, could have an adverse effect on the Company's operating
results in the future. The Company may seek to limit its exposure to the risk of
currency fluctuations by engaging in foreign currency transactions that could
expose the Company to substantial risk of loss. The Company has limited
experience in managing international transactions and has not yet formulated a
strategy to protect the Company against currency fluctuations. There can be no
assurance that fluctuations in foreign currency exchange rates will not have a
significant impact on the Company's future operating results.


RESULTS OF OPERATIONS

Year Ended March 31, 1997 Compared to Year Ended March 31, 1996

         Revenues for the year ended March 31, 1997 were $1,820,713 a decrease
of $187,088, or 9.3%, as compared to $2,007,801 for the year ended March 31,
1996. The decrease was attributable to a decrease in research grants and
reimbursement of $262,322 which was partially offset by an increase in product
sales of $12,588 and interest income of $62,646. -

         The increase in accounts receivable for the year ended March 31, 1997
is attributable to an increase in sales of the Company's Color Scanner during
the end of such period.

         Operating expenses for the year ended March 31, 1997 were $5,673,672,
an increase of $2,557,553, or 82.1%, as compared to $3,116,119 for the year
ended March 31, 1996. Operating expenses also increased as a percentage of
revenues from 155.2% for the year ended March 31, 1996 to 311.6% for the year
ended March 31, 1997. The increase in operating expenses both in absolute
dollars and as a percentage of revenues is primarily attributable to an increase
selling, general and administrative ("SG&A") costs, amortization, the write-off 
of test equipment and an increase in management fees of $2,981,764, $90,322,
$115,721 and $113,552  respectively, during the year ended March 31, 1997. This
increase was off set by the decrease in research and development of $117,794
and non re-occurrence of compensation benefit on stock transaction, debt
discount and finance fees of $166,974, $255,478, and $167,277 respectively
which had occurred in 1996. The increase in SG&A costs was primarily due to
expenses associated with increased marketing activities. The increase in
amortization expenses was due to the increase in the Company's capital assets.
Interest and bank charges for the year ended March 31, 1997

                                       18
<PAGE>   18
decreased by $24,902. Warranty costs of $6,613 were incurred compared to $ nil 
in the year ended March 31, 1996

         Additions to the management team together with the implementation of
employment contracts at the time of public offering resulted in the increase 
in management fees.

         Selling general and administrative costs include an amount of
approximately $681,353 in legal and other costs incurred in raising an
additional $1,298,090 as at March 31, 1997 of share capital through the calling
of the Company's warrants. These costs include legal fees necessary to
successfully defend against court challenges made to the warrant call and
additional public relations costs necessary to disseminate the facts of the
warrant call.

         The Company decided to write off its carrying value of the goodwill
associated with the acquisition of 49% interest in the affiliated company 
because, although the affiliate remains a viable enterprise, the Company does 
not expect to gain substantial benefits from the investment in the immediate 
future. This write off amounted to $576,000.

         Certain test jigs, although still valuable and being used, will become
less useful with the introduction of the color scanners and plain paper
plotters.

         The decrease of $117,794 in research and development costs were offset
by the Company's $121,971 share of the loss incurred by NovImage.

YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995

         Revenues for the year ended March 31, 1996 were $2,007,801, a decrease
of $16,488, or 0.8%, as compared to $2,024,289 for the year ended March 31,
1995. The decrease was attributable to an decrease in research grants and
reimbursement of $128,664 which was partially offset by an increase in product
sales of $41,104 and interest income of $71,072.

         The increase in accounts receivable for the year ended March 31, 1996
is attributable to an increase in sales of WIDEfax Scan during the end of such
period.

         Operating expenses for the year ended March 31, 1996 were $3,116,119,
an increase of $1,392,824, or 80.8%, as compared to $1,723,295 for the year
ended March 31, 1995. Operating expenses also increased as a percentage of
revenues from 85.1% for the year ended March 31, 1995 to 155.2% for the year
ended March 31, 1996. The increase in operating expenses both in absolute
dollars and as a percentage of revenues is primarily attributable to an increase
in costs of products sold, research and development expenditures, selling,
general and administrative ("SG&A") costs, management fees, compensation
benefits on stock exchange, amortization and debt discount and finance fees of
$128,703, $75,581, $270,444, $93,465, $166,974, $270,915, $255,478, and
$167,277, respectively, during the year ended March 31, 1996. The increase in
research and development expenses was primarily due to costs associated with the
development of color scanning capabilities. The increase in SG&A costs was
primarily due to expenses associated with the retention of a financial public
relations firm and increased marketing activities. The increase in amortization
expenses was primarily due to the substantial increase in the Company's capital
assets. The increase in debt discount and finance fees was primarily due to
non-recurring expenses

                                       19
<PAGE>   19
associated with the Company's Bridge Financing in October 1995 (see, "Liquidity
and Capital Resources") and initial public offering in December 1995. Interest
and bank charges for the year ended March 31, 1996 decreased by $32,858 and
decreased as a percentage of revenues from 4.9% to 3.3%.


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.
Until the Company's initial public offering, the Company had 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. At March 31, 1997, the Company had
working capital of $1,818,883, as compared to $6,814,289 at March 31, 1996.

         On February 10 , 1997 the Company announced that it was calling all
1,187,500 of its publicly traded warrants for redemption or to be exercised to
purchase a common share of stock for $4.00. See "Legal Proceedings".

         On March 6, 1997 the exercise price was reduced to $3.00, excluded one
half of the warrants and the date for redemption extended to April 4, 1997,
after which the exercise price reverted to $4.00 per share for the unredeemed
warrants.

         At March 31st, 244,345 warrants were exercised for which $627,893 was
received. The balance of $105,142 was received after March 31, 1997. The
remaining 716,833 warrants were exercised between April 1st and April 4th for
which $2,150,499 was received.

         The Company's cash requirements in connection with the manufacture and
marketing of its products will be significant. Other than in connection with
expansion of its manufacturing capacity the Company does not have any material
commitments for capital expenditures. The Company believes, based on its
currently proposed plans and assumptions relating to its operations, projected
cash flow from operations will be sufficient to satisfy its contemplated cash
requirements for the foreseeable future. In the event that the Company's plans
change, or its assumptions change or prove to be incorrect, or if the projected
cash flow otherwise prove to be insufficient to fund operations (due to
unanticipated expenses, delays, problems or otherwise), the Company could be
required to seek additional financing sooner than currently anticipated. The
Company has no current arrangements with respect to, or sources of, additional
financing and it is not anticipated that existing stockholders will provide 

                                       20
<PAGE>   20
any portion of the Company's future financing requirements. There can be no
assurance that additional financing will be available to the Company when
needed, on commercially reasonable terms, or at all.

                                    PART III

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

       The directors and executive officers of the Company are as follows:

NAME                       AGE  POSITION

Raja S. Tuli.............  31   President, Chief Executive Officer and Director

Willem J. Botha..........  61   Chief Financial Officer and Treasurer

Suneet S. Tuli...........  29   Executive Vice President, Secretary and Director

Mark Maltese.............  45   Vice President of Sales & Marketing

Brig General Baldev Singh  54   Vice President of Manufacturing Operations/India

Dr. Ajit Singh...........  56   Director

Bruce D. Vallillee.......  76   Director


         Raja S. Tuli, founder of the Company, has been President, Chief
Executive Officer and a director of the Company since its inception. From the
Company's inception to August 1993, Mr. Tuli was also Treasurer of the Company.
From 1987 to 1990 Mr. Tuli was President of CaCE Ltd. a family-owned
architectural/construction business. Mr. Tuli received a bachelor of Science
degree in Computer Engineering in 1988 from the University of Alberta. Mr. Tuli
is a resident Canadian national. Mr. Tuli is the brother of Suneet S. Tuli.

         Willem J. Botha has been Chief Financial Officer and Treasurer of the
Company since September 1993. From 1989 to September 1993, Mr. Botha was an
independent accounting consultant. From 1985 to 1989, Mr. Botha was employed by
Motorola Information Systems, a manufacturer of data communications equipment,
most recently as its Director of Accounting Services. From 1982 to 1985, Mr.
Botha was an independent financial consultant. Mr. Botha was the Secretary and
Treasurer and a Director of Alcon Canada Inc., a pharmaceutical company, from
1980 to 1982. From 1976 to 1980, Mr. Botha was the Controller and Chief
Financial Officer for Bell & Howell Limited, a manufacturer of electronic
photographic products, and from 1969 to 1976 Mr. Botha was the Controller for
Wyeth Ltd., a pharmaceuticals company. Mr. Botha received a Certificate in
Theory of Accounting from the University of South Africa, is a Chartered
Accountant and a resident Canadian national.

                                       21
<PAGE>   21
         Suneet S. Tuli has been Executive Vice President of Sales and
Marketing, Secretary since September 1993, and a director of the Company since
October 1992 and was the Marketing manager of the Company from June 1990 to
August 1993. Mr. Tuli received a Bachelor of Science degree in Civil Engineering
from the University of Toronto in April 1990 and is a resident Canadian
national. Mr. Tuli is the brother of Raja S. Tuli.

         Mark Maltese has been Vice President of Sales and Marketing for the
Company since June 1996. Prior to joining the firm, Mr. Maltese was Vice
President of Marketing for SBI, Inc., a start-up company which introduced the
first automatic document feeding system for engineering copiers. From 1986
through 1994, Mr. Maltese was employed by Xerox Corporation, a manufacturer of
printers, scanners, image processing systems, engineering copiers, document
management, and workflow solutions. His last assignment at Xerox was Vice
President and General Manager Systems Business Team within Xerox's Engineering
Systems Division. From 1982 through 1986 Mr. Maltese was a Director of Marketing
for Versatec, a Xerox Company. From 1980 through 1981, Mr. Maltese was a Senior
Product Marketing Manager for Calma, a General Electric Company. Mr. Maltese
received a Bachelor of Science in Information Management Systems from the
University of San Francisco in California. Mr. Maltese is a resident of the
Unites States of America.

         Brigadier General Baldev Singh has been the Company's Vice President of
Manufacturing Operations since November 1993 and is responsible for all of the
Company's manufacturing operations in India. From 1968 through September 1993,
General Singh was a member of the Indian Armed Forces. General Singh received a
Bachelor's degree in Inter Science from Pune University in India, and
subsequently obtained a Master of Sciences degree in Military Sciences from
Allahabad University in India. General Singh is a citizen of India.

         Dr. Ajit Singh has been a director of the Company since October 1992.
Dr. Singh is the Senior Fellow at Queens' College, University of Cambridge in
England, and its Director of Studies in Economics. Since 1987, Dr. Singh has
held the Dr. William M. Scholl Visiting Chair in the Department of Economics at
the University of Notre Dame in the United States. Dr. Singh has been a senior
economic advisor the governments of Mexico and Tanzania, and is the author of
Takeovers, Their Relevance to the Stock market and the Theory of the Firm. Dr.
Singh is the uncle of Raja and Suneet S. Tuli. General Singh and Dr. Singh are
not related.

         Bruce D. Vallillee has been a director of the Company since September
1995. Since April 1994, Mr. Vallillee has been President of Vallillee Wide
Format Products, Ltd. a company engaged in wide format document management and
equipment sales. From 1987 to 1994, Mr. Vallillee was the President of Vallillee
Electronics, Ltd., a company engaged in the distribution of electronic products.
From 1976 to 1987, Mr. Vallillee was Vice President - Sales and Marketing for
ITT / Canon Canada, the Canadian joint venture of ITT Corporation and Canon
Electronics Corp. Mr. Vallillee is a resident Canadian national.

         Under Ontario law, a majority of the directors of the Company must be
resident Canadians. A resident Canadian is defined, generally, to be an
individual who is (i) a Canadian citizen ordinarily resident in Canada, (ii) a
Canadian citizen not ordinarily resident in Canada who is a member of a
prescribed class of persons, or (iii) a permanent resident within 

                                       22
<PAGE>   22
the meaning of the Immigration Act (Canada), and ordinarily resident in Canada.
All directors hold office until the next annual meeting of shareholders and the
election and qualification of their successors. There are currently no standing
committees of the Board of Directors. Officers are elected annually by the Board
of Directors and serve at the discretion of the Board.

         No director of the Company received any compensation for such services
as a director during the Company's year ended March 31, 1997. Directors who are
employees of the Company receive no compensation for serving on the Board of
Directors. Non-employee directors are reimbursed for their out-of-pocket
expenses in attending Board meetings and a per diem of $1,000.

EXECUTIVE COMPENSATION

         The following table sets forth the cash compensation paid or accrued by
the Company to the person serving as chief executive officer during the years
ended March 31, 1995, 1996 and 1997:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                   LONG TERM COMPENSATION
                                                                     ------------------------------------------------
                                  ANNUAL COMPENSATION                         AWARDS                 PAYOUTS
                          -------------------------------------      ------------------------------------------------
                                                        Other                     Securities
                           Year                         Annual       Restricted   Underlying                All other
                          Ended                         Compen-         Stock      Options/      LTIP       Compen-
Name and Principal        March    Salary     Bonus    sation (1)     Awards (2)     SARs       Payouts     sation   
Position                   31,       ($)       ($)       ($)             ($)         (#)          ($)        ($)
-----------               -----    ------     -----    ---------     ----------   -----------   -------     ---------
<S>                       <C>      <C>        <C>      <C>           <C>          <C>           <C>         <C>      
Raja S. Tuli, President    1997    19,100      --        79,360           --          --           --          --
Chief Executive Officer    1996      --        --        79,225           --          --           --          --
                           1995      --        --        31,682           --          --           --          --
                           1994      --        --        28,000           --          --           --          --
- -------------------
</TABLE>

(1) Such amounts were paid by the Company to a consulting company owned by Raja
S. Tuli during the years ended March 31, 1994, 1995, 1996 and 1997.

(2) In July 1995, the Company granted to Raja S. Tuli stock options to purchase
150,000 shares.

         No other executive officer of the Company received compensation and
bonuses which exceed $100,000 during any such year.

         No other executive officer of the Company received compensation and
bonuses which exceed $100,000 during any such year. During the fiscal year ended
March 31, 1996, the Company adopted a stock option plan permitting the issuance
of options to purchase up to 300,000 shares of the Company's common stock.
During that fiscal year, the Company issued 200,000 options under the plan to
the senior officers of the Company at an exercise price of $5.00 per share.
During the fiscal year ended March 31, 1997, the Company amended the plan
permitting the issuance of options to purchase up to 500,000 shares of the
Company's stock.

                                       23
<PAGE>   23
         In July of 1995, the Company adopted the 1995 Stock Option Plan (the
"Plan"). The Plan is designed to attract, retain and motivate persons to provide
services to the Company, and to increase the alignment of their interests with
the interests of the Company's Stockholders.

         The Plan allows the Board, at its discretion, to grant options to
purchase shares of Common Stock of the Company at the fair market value of such
shares on the date the option was granted. Options may be granted to any
"Eligible Person," including directors, officers, employees of the Company or an
affiliate of the Company, or any consultant or insider (as defined in the Plan)
of the Company or any affiliate of the Company. The Board also has the authority
under the Plan to determine the number of shares subject to each option, the
expiration date of each option and the extent to which each option is
exercisable from time to time during its term.

         The options will expire ten years after the date they are granted, or
at such other date as may be provided for in the Plan. Individual option
agreements may allow an optionee who retires or terminates service with the
consent of the Board of Directors to exercise his or her option within six
months of such retirement or termination. If the optionee is terminated for
cause, the optionee may not exercise the option following such termination.

         An aggregate of 300,000 shares of Common stock (subject to adjustment
as provided in the Plan) are currently available under the Plan. Shares subject
to options which terminate unexercised will be available for future option
grants.



SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following table sets forth, as of March 31, 1997, information as to (i) the
Common Stock beneficially owned by all directors, nominees and named executive
officers, (ii) the Common Stock beneficially owned by any person who is known by
the Company to be the beneficial owner of more than five percent of the
Company's Common Stock.


<TABLE>
<CAPTION>
                                                  Amount and
                                                   Nature of            Percentage of
                                                  Beneficial             Outstanding
Name and Address of Beneficial Owner (1)         Ownership (2)          Shares Owned
----------------------------------------         -------------          ------------
<S>                                              <C>                    <C>  
Raja S. Tuli...............................       1,070,222 (3)             21.2%
Lakhbir S. Tuli............................         515,041                 10.6
Suneet S. Tuli.............................         490,240 (4)              9.9
Dr. Ajit Singh.............................           ---                    ---
Bruce Vallillee............................           ---                    ---
Willem J. Botha............................           ---                    ---
Mark Maltese...............................           ---                    ---
</TABLE>

                                       24
<PAGE>   24
<TABLE>
<S>                                               <C>                       <C>
All executive officers and directors
as a group (six persons)...................       2,075,503 (2)(3)(4)       40.3%
- -------------------
</TABLE>
(1) Unless otherwise indicated, the business address of each beneficial owner is
267 Matheson Boulevard East, Mississauga, Ontario, Canada L4Z 1X8.

(2) Except as indicated by footnote, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Each beneficial owner's percentage ownership is
determined by assuming that convertible securities, options or warrants that are
held by such person (but not those held by any other person) and which are
exercisable within 60 days of the date hereof have been exercised.

(3) Includes (i) 150,000 Common Shares issuable upon exercise of currently
exercisable options at a price of $5.00 per share and 50,000 Common Shares
issuable upon exercise of currently exercisable warrant at a price of $8.50 per
share, and (ii) 32,500 shares owned by Diversified Investors Capital Services of
North America, Inc., a New York corporation, 67,500 shares owned by Pyrotech
Limited, a Cayman Islands corporation, and 4,890 shares owned by Donald J.
Schattle, respectively, as to which Mr. Tuli has voting rights pursuant to a
stock exchange agreement.

(4) Includes 50,000 Common Shares issuable upon exercise of currently
exercisable options at a price of $5.00 per share and 50,000 Common Shares
issuable upon exercise of currently exercisable warrant at a price of $8.50 per
share.


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In October 1993, the Company entered into an agreement with WideCom R&D
pursuant to which WideCom R&D would seek to identify and recruit distributors
and sub-contract manufacturers for the Company's products in India. The
agreement provides for WideCom R&D to structure its compensation with any
distributor or sub-contractor it engages and WideCom R&D will not receive any
compensation from the Company. To date, WideCom R&D has not recruited any
distributor or sub-contractor. There can be no assurance that conflicts of
interest will not arise as a result of WideCom R&D structuring its compensation
with potential licensees or sub-contractors.

         From 1992 to July 1993, Raja S. Tuli engaged two individuals to provide
services relating to the Company's marketing and other activities. In exchange
for performing such services, Mr. Tuli transferred 100,000 Common Shares to such
individuals. Such individuals have attempted to transfer an aggregate of 172,860
Common Shares to third parties. In November 1993, Raja S. Tuli entered into an
indemnification agreement with the Company pursuant to which Mr. Tuli agreed
that, in the event the Company is required to issue in excess of 100,000 Common
Shares to such individuals or any purported transferee of such shares, Mr. Tuli
would return to the Company up to 160,000 Common Shares for cancellation to the
extent the Company is required to issue any such additional shares. "Please see
Legal Proceedings"

                                       25
<PAGE>   25
         The Company has engaged Lakhbir S. Tuli as a management consultant,
primarily with respect to the Company's operations in India. As consideration
for his services, the Company paid to Mr. Tuli $38,000, $47,000, $54,000 and
$115,000 during the years ended March 31, 1994, 1995, 1996 and 1997
respectively.

         In October 1993, Indo WideCom International Ltd. ("Indo WideCom"), a
wholly owned subsidiary of the Company, entered into a sublease with WideCom
Fax, a company 70% owned by Lakhbir Tuli ("WideCom Fax"), for the Company's
manufacturing facility in India. Annual lease payments by Indo WideCom to
WideCom Fax equal 480,000 rupees (approximately $15,200). See "Properties."

         During the year ended March 31, 1996, the Company purchased
approximately $323,000 of products from WideCom Fax pursuant to purchase orders,
on similar terms as purchases made by unaffiliated third parties. As of March
31, 1996, WideCom Fax owed approximately $86,700 to the Company for purchases
from the Company during the year ended March 31, 1995.

         In March 1995, the Company entered into a three year marketing and
consulting agreement with Schattle & Duquette, an executive search and
management consulting firm partially owned by Donald J. Schattle, a former
director of the Company who resigned effective March 7, 1996, which agreement
commenced upon consummation of the Company's initial public offering in December
1995. Pursuant to the agreement, Schattle & Duquette will assist the Company
indentifying potential management personnel, acquisition candidates and sales
opportunities within the engineering and architectural markets for a monthly fee
of $15,000.

         In April 1995, the Company entered into a stock exchange agreement with
the four stockholders of DS Corporate Marketing Ltd. ("DS"). Pursuant to this
agreement, the Company acquired a 49% equity interest in DS in exchange for the
issuance of 240,000 Common Shares and warrants to purchase 100,000 Common Shares
at a price of $4.00 per share. Upon distribution by DS to its stockholders and
their designees, Donald J. Schattle, a 25% stockholder of DS, received 60,000 of
the 240,000 Common Shares and 25,000 of the warrants to purchase Common Shares
at a price of $4.00 per share. The remaining 180,000 Common Shares and 75,000
warrants were distributed to the other stockholders, none of which are
affiliated with the Company or Mr. Schattle. In connection with the stock
exchange agreement, the holders of all of such 240,000 shares granted Raja Tuli
a proxy to vote all of such shares at all meetings of the Company's
stockholders.

         In May and June 1995, the Company borrowed $25,000 and $15,000,
respectively, from Mr. Schattle. The loans were represented by promissory notes
(the "Schattle Notes") bearing interest at 8% per annum payable in full upon the
earlier of (a) a $5,000,000 public offering by the Company, (b) the sale of the
assets of the Company, (c) the acquisition of the Company, or (d) one year from
the date of the Schattle Notes. The proceeds of the Schattle Notes were used to
pay certain expenses associated with proceeding with preparations for the
initial public offering. The Schattle Notes were repaid with the proceeds of the
Bridge Financing.

                                       26
<PAGE>   26
         In October 1995, the Company borrowed an additional $75,000 from Mr.
Schattle together with $150,000 from two other individuals who purchased Units
in the Bridge Financing. The proceeds of these loans were used to terminate the
Company's obligations under the IOC Agreement. These promissory notes were
retired by the issuance to the holders thereof of an aggregate of 4.5 units in
the Bridge Financing.

         In October 1995, in connection with the Bridge Financing, Mr. Schattle
purchased from the Company 2.3 units, each unit consisting of a $50,000
principal amount Bridge Note, 5,000 Common Shares and 50,000 Bridge Warrants,
for an aggregate consideration of $115,000, on the same terms and conditions as
the other investors in the Bridge Financing.

         In November 1995, the Company entered into an indemnification agreement
with Raja Tuli, Suneet Tuli, Lakhbir Tuli and the Whale Securities Co., L.P.,
the underwriter of the Company's initial public offering ("Whale") pursuant to
which: (i) the Company, Raja Tuli, Suneet Tuli and Lakhbir Tuli, jointly and
severally, agreed to indemnify and hold Whale harmless for any and all losses,
claims, damages, expenses or liabilities it may suffer (including reasonable
legal fees and expenses) as a result of any claim (a "Claim") by Mr. Debs
arising out of or based upon or related to a claim asserted by Mr. Debs (see,
"Legal Proceedings"), (ii) Raja Tuli, Suneet Tuli and Lakhbir Tuli, jointly and
severally, agreed to indemnify the Company for any losses, claims, damages,
expenses or liabilities it may suffer (including legal fees and expenses) as a
result of a Claim, which indemnity may be made in cash or Common Shares, and
(iii) in the event the Company issues any Common Shares or other equity
securities to Mr. Debs or any person or entity claiming through, or designated
by, Mr. Debs, Raja Tuli, Suneet Tuli and Lakhbir Tuli agreed to deliver to the
Company, for cancellation, an equivalent number of Common Shares, each in
proportion to his respective current beneficial ownership interest in the
Company. In February 1996, the Company settled the Debs litigation for $185,000.
In connection therewith Raja Tuli, Suneet Tuli and Lakhbir Tuli each contributed
7,368, 3,760 and 4,959 shares to the Company to be held by the Company as
treasury stock.

         As of January 30, 1997, the Registrant announced that it has finalized
a joint venture agreement with Societe Innovatech du Grand Montreal, an
instrumentality of the Province of Quebec, Canada ("Innovatech"). Each of the
Registrant and Innovatech purchased 450 shares of the Class A Common Stock of
NovImage Inc., a Quebec corporation ("NovImage") for a purchase price of
approximately US $1,875,000 each. The consideration paid by the Registrant for
the stock of NovImage was in cash and was derived from the Registrant's working
capital. In addition, two other corporations, 3294412 Canada Inc., a Quebec
corporation and 3294421 Canada Inc., a Quebec corporation, both of which
corporations are wholly-owned by Raja S. , President and Chief Executive Officer
of the Registrant, each acquired 50 shares of the Class A Common Stock of
NovImage in exchange for the transfer to NovImage of certain patents, patent
applications and other technology and intellectual property rights of those
companies.

         In connection with the transaction, the Registrant licensed all of its
patents and technology relating to its scanner and plotter manufacturing and its
WideView[TRADEMARK] and SLC-OVLY[TRADEMARK] software (collectively, the
"Intellectual Property") to NovImage for research and development purposes in
order to develop improvements, modifications, additions or alterations to the
Intellectual Property and to develop new products. 

                                       27
<PAGE>   27
In exchange for this license and the payment of a 0.5% royalty fee on net
revenue, licensing revenue and net sales to sub-licensees, NovImage granted the
Registrant an exclusive perpetual worldwide (with the exception of the Province
of Quebec, Canada) license to use such improved scanner and plotter technology
and software to manufacture, distribute, market and sell the improved scanner,
plotter and software, and any new products developed by NovImage. NovImage
retained such rights with respect to the Province of Quebec, Canada.

         In connection with the transaction, the Registrant also entered into a
Stock Exchange Agreement with Innovatech pursuant to which Innovatech would be
permitted, under certain circumstances, to exchange its shares of NovImage for
up to 253,000 shares of common stock of the Registrant for which Innovatech
would have demand registration rights.

         Although the Company believes that the foregoing transactions were on
terms no less favorable than would have been available from unaffiliated third
parties in arm's length transaction, there can be no assurance that this is the
case. All future transaction and loans between the Company and its officers,
directors and 5% shareholders will be on terms no less favorable than could be
obtained from independent, third parties and will be approved by a majority of
the independent and disinterested members of the Board of Directors. There can
be no assurance, however, that future transactions or arrangements between the
Company and its affiliates will be advantageous, that conflicts of interest will
not arise with respect thereto or that if conflicts do arise, that they will be
resolved in favor of the Company.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


(a)   (1)   FINANCIAL STATEMENTS

      The following financial statements of The WideCom Group Inc. are included:

            Report of Independent Certified Public Accountants
            Consolidated Balance Sheets as of March 31, 1997, 1996, 1995
            Consolidated Statements of Operations for the years ended March 31,
            1997, 1996, 1995 Consolidated Statements of Shareholders' Equity for
            the years ended March 31, 1997,
                       1996, 1995
            Consolidated  Statements of Cash Flows for the years ended March 31,
                       1997, 1996, 1995
            Summary of Significant Accounting Policies
            Notes to Consolidated Financial Statements

      (2)   OTHER SCHEDULES

                                       28
<PAGE>   28
         All other schedules are omitted since the required information is not
present or is not present in an amount sufficient to require submission of
schedules, or because the information required is included in the financial
statements and notes thereto.

      (3) EXHIBITS

          None.


(b)       REPORTS ON FORM 8-K

          Form 8-K, dated February 10, 1997, with respect to the Company's
announcement that it was calling for redemption all of its publicly traded
warrants issued in connection with its Initial Public Offering.  In addition,
notice was given to all registered warrant holders, that American Stock
Transfer and Trust Company had been removed as warrant agent for purposes of
warrants being called for redemption, and that the First National Bank of
Boston had been appointed to such position.

          Form 8-K, dated February 3, 1997, with respect to the finalization of
a joint venture agreement with Societe Innovatech du Grand Montreal.

          Form 8-K, dated May 1, 1997, in connection with the Company's
announcement that the Warrant Redemption referred to in the Company's 8-K dated
February 10, 1997, was complete, that more than half of the Warrants had been
exercised, and that no warrants would be redeemed.

(c)       EXHIBITS

          See Exhibit Index.

(d)       Not Applicable.



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: July 14, 1997                      THE WIDECOM GROUP INC.


                                         By: /s/ RAJA S. TULI
                                         --------------------
                                         Raja S. Tuli
                                         Chief Executive Officer and President


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
to be signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated





                                       29
<PAGE>   29

<TABLE>
<CAPTION>
NAME                                   TITLE                                           DATE
----                                   -----                                           ----
<S>                                <C>                                              <C>    
/s/ RAJA S. TULI                   President, Chief Executive Officer and
______________________________     Director (Principal Executive Officer)           July 14, 1997 
Raja S. Tuli                                                                        


/s/ WILLEM J. BOTHA                Treasurer and Chief Financial Officer            July 14, 1997
______________________________     (Principal Financial and Accounting  
Willem J. Botha                    Officer)                             
                                   

/s/ SUNEET S. TULI                 Executive Vice President of Sales and            July 14, 1997
______________________________     Marketing, Secretary and Director 
Suneet S. Tuli                     


/s/ BRUCE D. VALLILLEE             Director                                         July 14, 1997
______________________________
Bruce D. Vallillee

/s/ AJIT SINGH                     Director                                         July 14, 1997
______________________________
Ajit Singh
</TABLE>



                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT                                                                                   SEQUENT
 NO.               DESCRIPTION                                                            PAGE NO.
-------            -----------                                                            --------
<S>                <C>                                                                    <C>
   4.              Distributor Agreement with CADigitizing Corporation

  21.              List of subsidiaries

  23.              Consent of BDO Dunwoody, independent accountants

  27.              Financial Data Schedule

</TABLE>


                                       30
<PAGE>   30
                THE WIDECOM GROUP INC.
                CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
                (IN UNITED STATES DOLLARS)
<PAGE>   31
                                   THE WIDECOM GROUP INC.
                                   CONSOLIDATED FINANCIAL STATEMENTS
                                   FOR THE YEARS ENDED
                                   MARCH 31, 1995, 1996 AND 1997
                                   (IN UNITED STATES DOLLARS)


                                                                        CONTENTS
================================================================================

AUDITORS' REPORT                                                               2

CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheets                                                                 3

Statements of Operations                                                       4

Statements of Shareholders' Equity                                             5

Statements of Cash Flows                                                       6

Summary of Significant Accounting Policies                                     7

Notes to Financial Statements                                                 10
<PAGE>   32
================================================================================

                                                                AUDITORS' REPORT

--------------------------------------------------------------------------------



TO THE BOARD OF DIRECTORS OF
THE WIDECOM GROUP INC.

We have audited the consolidated balance sheets of The WideCom Group Inc. as at
March 31, 1995 1996 and 1997 and the consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at March 31, 1995,
1996 and 1997 and the results of its operations and the changes in its cash flow
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.



Chartered Accountants
(Internationally BDO Binder)

Toronto, Ontario
July 4, 1997


                                       2
<PAGE>   33
================================================================================
                                                          THE WIDECOM GROUP INC.
                                                     CONSOLIDATED BALANCE SHEETS
                                                      (IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
MARCH 31                                                                  1995             1996             1997
-----------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>              <C>
ASSETS

   CURRENT ASSETS
      Cash and short term investments (Note 7)                      $    3,528       $5,643,491       $  631,486
      Term deposits (Note 7)                                            95,731             --               --
      Accounts receivable (Note 1)                                     359,368          436,747          650,949
      Receivable from exercise of warrants                                --               --            105,142
      Research and development grants receivable (Note 10(b))          506,680          709,424          696,347
      Inventory (Note 2)                                               588,393          456,128        1,199,386
      Prepaid expenses                                                  15,251           70,692          100,308
      Advances to related parties (Note 3)                              21,043           86,715          117,149
      Deferred income taxes                                                714             --               --
                                                                    ---------------------------------------------
   TOTAL CURRENT ASSETS                                              1,590,708        7,403,197        3,500,767
   CAPITAL ASSETS (Note 4)                                             362,217        1,238,317        1,738,485
   DEFERRED ISSUE COSTS OF PUBLIC OFFERING (Note 5)                    594,756             --               --
   INVESTMENT IN AFFILIATES (Note 6)                                      --            576,000        1,685,935
                                                                    ---------------------------------------------
   TOTAL ASSETS                                                     $2,547,681       $9,217,514       $6,925,187
=================================================================================================================

   LIABILITIES AND SHAREHOLDERS' EQUITY

   CURRENT LIABILITIES
      Bank indebtedness (Note 7)                                    $  101,708       $  132,246      $   329,810
      Accounts payable and accrued liabilities (Note 8)                565,441          393,462        1,352,074
      IOC loan payable (Note 10)                                       214,290             --               --
      Accrued interest on IOC loan payable                             277,953             --               --
      Loans from non-management shareholders (Note 9)                  259,247             --               --
      Deferred income taxes                                              1,101           63,200             --
                                                                    ---------------------------------------------
   TOTAL CURRENT LIABILITIES                                         1,419,740          588,908        1,681,884
                                                                    ---------------------------------------------
SHAREHOLDERS' EQUITY (Note 11)
   Preferred shares
                 23,350   shares authorized on March 31, 1995
                          and no shares authorized on March 31,
                          1996 and 1997
                 23,350   shares issued and outstanding on March
                          31, 1995 and no shares issued and
                          outstanding on March 31, 1996 and 1997       183,276             --               --

   Common shares
             20,000,000   shares authorized of no par value
              2,111,910   shares issued and  outstanding
                          on March 31, 1995
              4,434,073   shares issued and outstanding
                          on March 31, 1996
              4,848,418   shares issued and outstanding
                          on March 31, 1997                            839,074        9,300,794       10,598,884

   Contributed surplus                                                 159,825          159,825          159,825
   Retained earnings (deficit)                                          15,007         (824,294)      (5,312,118)
   Cumulative translation adjustment                                   (69,241)          (7,719)        (203,288)
                                                                    ---------------------------------------------
                                                                     1,127,941        8,628,606        5,243,303
                                                                    ---------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $2,547,681       $9,217,514      $ 6,925,187
=================================================================================================================
</TABLE>

        See accompanying summary of significant accounting policies and
                     notes to these financial statements.

                                       3
<PAGE>   34
================================================================================
                                                          THE WIDECOM GROUP INC.
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                      (IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31                                              1995             1996             1997
-----------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>              <C>
REVENUE
   Product sales                                                   $ 1,625,241      $ 1,666,345      $ 1,678,933
   Research and development grants (Note 10)                           390,986          262,322             --
   Interest income                                                       8,062           79,134          141,780
                                                                   ----------------------------------------------
TOTAL REVENUE                                                        2,024,289        2,007,801        1,820,713
                                                                   ----------------------------------------------
EXPENSES
   Cost of product sales                                               341,704          470,407          452,413
   Research and development                                            656,876          732,457          614,663
   Selling, general and administrative                                 480,808          751,252        3,733,016
   Interest and bank charges                                           100,159           67,301           42,399
   Management fees                                                     114,192          207,657          321,209
   Compensation benefit on stock transaction (Note 11(c))                 --            166,974             --
   Amortization                                                         26,401          297,316          503,359
   Debt discount                                                          --            255,478             --
   Finance fees                                                           --            167,277             --
   Warranty costs                                                        3,155             --              6,613
                                                                   ----------------------------------------------
TOTAL EXPENSES                                                       1,723,295        3,116,119        5,673,672
                                                                   ----------------------------------------------
OPERATING INCOME (LOSS)                                                300,994       (1,108,318)      (3,852,959)

WRITE OFF OF DEFERRED ISSUE COSTS (Note 5)                            (216,547)            --               --
EQUITY IN EARNINGS (LOSS) OF AFFILIATE                                    --               --           (121,971)
WRITEDOWN OF GOODWILL                                                     --               --           (576,000)
                                                                   ----------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM              84,447       (1,108,318)      (4,550,930)
                                                                   ----------------------------------------------
PROVISION FOR (RECOVERY OF) INCOME TAXES (Note 12)
   Current                                                                --               --               --
   Deferred                                                             20,000          (82,687)         (63,106)

                                                                        20,000          (82,687)         (63,106)
                                                                   ----------------------------------------------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM                               64,447       (1,025,631)      (4,487,824)

EXTRAORDINARY ITEM, NET OF TAX (Note 10)                                  --            186,330             --
                                                                   ----------------------------------------------
NET EARNINGS (LOSS) FOR THE YEAR                                   $    64,447      $  (839,301)     $(4,487,824)
=================================================================================================================
EARNINGS (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEM,
   PRIMARY AND FULLY DILUTED                                       $      0.02      $     (0.33)     $     (0.99)
=================================================================================================================
EARNINGS (LOSS) PER COMMON SHARE, PRIMARY AND FULLY
   DILUTED (Note 11(e))                                            $      0.02      $     (0.27)     $     (0.99)
=================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                        2,712,660        3,078,428        4,533,583
=================================================================================================================
</TABLE>


        See accompanying summary of significant accounting policies and
                      notes to these financial statements.

                                       4
<PAGE>   35
================================================================================
                                                          THE WIDECOM GROUP INC.
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                      (IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
------------------------------------------------------------------------------------------------------------------------------
                                                                                     RETAINED     CUMULATIVE            TOTAL
                                        PREFERRED         COMMON    CONTRIBUTED      EARNINGS    TRANSLATION     SHAREHOLDERS'
                                           SHARES         SHARES        SURPLUS      (DEFICIT)    ADJUSTMENT           EQUITY

<S>                                  <C>            <C>            <C>           <C>            <C>               <C>
BALANCE, March 31, 1994              $    183,276   $    839,074   $    159,825  $    (49,440)  $    (59,109)     $  1,073,626

NET EARNINGS FOR THE YEAR                    --             --             --          64,447           --              64,447

FOREIGN CURRENCY
  TRANSLATION ADJUSTMENT                     --             --             --            --          (10,132)          (10,132)
                                     -----------------------------------------------------------------------------------------
BALANCE, March 31, 1995                   183,276        839,074        159,825        15,007        (69,241)        1,127,941

CONVERSION OF PREFERRED
  SHARES (116,750)(Note 11(c))           (183,276)       350,250           --            --             --             166,974

SHARES ISSUED FOR INVESTMENT
  IN AFFILIATE (240,000)                     --          720,000           --            --             --             720,000

SHARES ISSUED ON INITIAL
  PUBLIC OFFERING (1,650,000)                --        8,250,000           --            --             --           8,250,000

WARRANTS ISSUED ON INITIAL
  PUBLIC OFFERING (1,650,000)                --          165,000           --            --             --             165,000

SHARES ISSUED TO UNDERWRITER
  FOR BRIDGE FINANCING (84,000)              --          252,000           --            --             --             252,000

SHARES ISSUED ON EXERCISE OF
  UNDERWRITER'S OPTION (247,500)             --        1,237,500           --            --             --           1,237,500

WARRANTS ISSUED ON EXERCISE OF
  UNDERWRITER'S OPTION (247,500)             --           24,750           --            --             --              24,750

PURCHASE OF WARRANTS BY
  UNDERWRITER (165,000)                      --              165           --            --             --                 165

INITIAL PUBLIC OFFERING COSTS                --       (2,352,945)          --            --             --          (2,352,945)

CONTRIBUTION BY
  SHAREHOLDERS (16,087)                      --         (185,000)          --            --             --            (185,000)

NET LOSS FOR THE YEAR                        --             --             --        (839,301)          --            (839,301)

FOREIGN CURRENCY
  TRANSLATION ADJUSTMENT                     --             --             --            --           61,522            61,522
                                     -----------------------------------------------------------------------------------------
BALANCE, March 31, 1996              $       --     $  9,300,794   $    159,825  $   (824,294)  $     (7,719)     $  8,628,606

EXERCISE OF WARRANTS (414,345)               --        1,413,035           --            --             --           1,413,035

WARRANT EXERCISE COSTS                       --         (114,945)          --            --             --            (114,945)

NET LOSS FOR YEAR                            --             --             --      (4,487,824)          --          (4,487,824)

FOREIGN CURRENCY
  TRANSLATION ADJUSTMENT                     --             --             --            --         (195,569)         (195,569)
                                     -----------------------------------------------------------------------------------------
BALANCE, March 31, 1997              $       --     $ 10,598,884   $    159,825  $ (5,312,118)  $   (203,288)     $  5,243,303
==============================================================================================================================
</TABLE>


        See accompanying summary of significant accounting policies and
                      notes to these financial statements.

                                       5
<PAGE>   36
================================================================================
                                                          THE WIDECOM GROUP INC.
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31                                                        1995             1996             1997
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>              <C>              <C>
CASH PROVIDED BY (USED IN)

OPERATING ACTIVITIES
  Earnings (loss) for the year before extraordinary item                     $    64,447      $(1,025,631)     $(4,487,824)
     Add (deduct) items not requiring a cash outlay
       Amortization                                                               26,401          297,316          503,359
       Compensation benefit on stock transaction                                    --            166,974             --
       Deferred revenue                                                          (13,536)            --               --
       Deferred income taxes                                                      20,000          (82,687)         (63,106)
       Initial public offering costs written off                                 216,547             --               --
       Writedown of goodwill                                                        --               --            576,000
       Equity in earnings (loss) of affiliate                                       --               --            121,971
       Accrued interest on IOC
         loan payable                                                             89,493           56,643             --
     Net changes in non-cash
       working capital balances related to operations
         Increase in accounts receivable                                        (208,552)         (66,333)        (333,048)
         Decrease (increase) in research
           and development grants receivable                                      45,580         (186,971)            --
         Decrease (increase) in inventory                                         36,245          149,578         (764,646)
         Increase (decrease) in accounts payable and accrued liabilities         268,488         (188,861)         982,544
         Increase in prepaid expenses                                            (10,785)         (54,837)         (31,453)
                                                                             ---------------------------------------------

                                                                                 534,328         (934,809)      (3,496,203)
                                                                             ---------------------------------------------

INVESTING ACTIVITIES
  Decrease in term deposits                                                          763           98,331             --
  Purchase of capital assets                                                    (311,549)      (1,029,416)      (1,108,068)
  Advances (repayment) to related parties                                        201,947          (64,859)
  Purchase of equity in joint venture                                               --               --         (1,805,836)
                                                                             ---------------------------------------------

                                                                                (108,839)        (995,944)      (2,945,937)
                                                                             ---------------------------------------------

FINANCING ACTIVITIES
  Increase in bank indebtedness                                                   16,578           27,380          203,456
  Shares and warrants issued                                                        --          7,576,470        1,298,090
  Shares contributed by shareholders                                                --           (185,000)            --
  Loan (repayment) from shareholders                                               9,092         (266,274)            --
  Repayment of Innovation Ontario loan                                              --           (220,110)            --
  Deferred issue costs of public offering                                       (531,741)         610,909             --
                                                                             ---------------------------------------------

                                                                                (506,071)       7,543,375        1,501,546
                                                                             ---------------------------------------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                           (5,162)          27,341          (71,411)
                                                                             ---------------------------------------------

NET INCREASE (DECREASE) IN CASH DURING THE YEAR                                  (85,744)       5,639,963       (5,012,005)

CASH AND EQUIVALENTS, beginning of year                                           89,272            3,528        5,643,491
                                                                             ---------------------------------------------

CASH AND EQUIVALENTS, end of year                                            $     3,528      $ 5,643,491      $   631,486
==========================================================================================================================
</TABLE>


NOTE: SEE NOTE 17 FOR SUPPLEMENTARY INFORMATION


         See accompanying summary of significant accounting policies and
                      notes to these financial statements.

                                       6
<PAGE>   37
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

NATURE OF BUSINESS

The WideCom Group Inc. ("the Company") was incorporated under the laws of
Ontario on June 15, 1990 and its first fiscal year ended on March 31, 1991. The
Company designs, assembles and sells high speed, high performance document
systems which transmit, receive, print, copy and/or archive wide format
documents.

BASIS OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements are stated in United States
dollars, "the reporting currency". The transactions of the Company have been
recorded during the year in Canadian dollars, "the functional currency". The
translation of Canadian dollars into United States dollars amounts have been
made at the year end exchange rates for balance sheet items and the average
exchange rate for the year for revenues, expenses, gains and losses. Translation
adjustments to reporting currency are included in equity.

The financial statements reflect retroactively a backsplit occurring during 1996
(see Note 11(b)(ii)).

These financial statements have been prepared by management in accordance with
accounting principles generally accepted in the United States.

PRINCIPLES OF CONSOLIDATION

These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary Indo WideCom International Ltd. All significant
intercompany transactions and accounts have been eliminated.

INVESTMENT IN AFFILIATES

The investment in affiliates are accounted for on the equity basis.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimated.

INVENTORY

Inventory is valued at the lower of cost, determined on a first-in, first-out
basis, and market value. Market value for raw materials is defined as
replacement and for finished goods as net realizable value.

                                       7
<PAGE>   38
================================================================================
                                                          THE WIDECOM GROUP INC.
                          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

LONG-LIVED ASSETS

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" in the fiscal year 1997. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, and, if deemed impaired, measurement and recording of an
impairment loss be based on the fair value of the asset. The adoption of SFAS
No. 121 had no impact on the Company's financial statements or operations.

CAPITAL ASSETS

Capital assets are recorded at cost. Amortization is provided annually at rates
calculated to amortize the assets over their estimated useful lives as follows:

Plant, machinery and
  computer equipment        -      30% declining balance
Furniture and fixtures      -      20% declining balance
Prototype and jigs          -      20% declining balance

EARNINGS OR LOSS PER SHARE

Earnings or loss per share is based on the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding during each
period. Earnings or loss per share is computed using the treasury stock method,
under which the number of shares outstanding reflects the assumed repurchase of
shares of the Company's common stock with the proceeds from the assumed exercise
of dilutive outstanding stock options. All share and per share data are
retroactively adjusted for stock dividends and stock splits.

The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per
Share", effective for financial statements for both interim and annual periods
ending after December 15, 1997. The Company will adopt this statement in the
third quarter of the fiscal year 1998. The adoption of SFAS No. 128 is not
expected to have a material impact on earnings per share.

STOCK BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to record compensation costs for stock-based employee
compensation plans at fair value. The Company chose to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the measurement date over the amount an employee must pay
to acquire the stock. See Note 11 (d) for a summary of the pro forma net income
and earnings per share determined as if the Company had applied SFAS No. 123.

CASH AND EQUIVALENTS

Cash and cash equivalents include all highly liquid investments with original
maturities of three months or less.




                                       8
<PAGE>   39
================================================================================
                                                          THE WIDECOM GROUP INC.
                          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

REVENUE RECOGNITION

(i)      Product sales are recognized as revenue upon shipment of the product.
         Advance sales revenue is deferred until shipment of the product.

(ii)     Research and development grants are recognized as revenue as the
         related expenditures are incurred.

WARRANTY COSTS

The provision for warranty costs ranges from .25% to 1% of product sales based
on the period of time that the products are under warranty.

FOREIGN CURRENCY TRANSLATION

Balances of the Company denominated in foreign currencies and the accounts of
its foreign subsidiary are translated into the functional currency as follows:

(i)      monetary assets and liabilities at year end rates;

(ii)     all other assets and liabilities at historical rates;

(iii)    revenue and expense transactions at the average rate of exchange
         prevailing during the year; and

(iv)     changes in cash flow at the average rate of exchange prevailing during
         the year.

Exchange gains or losses arising on these translations are reflected in income
in the year except for translation gains and losses which arise in connection
with the translation of the results of the foreign subsidiary's operations which
are included in equity.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged against income in the year of
expenditure.

INCOME TAXES

The Company accounts for income taxes under the asset and liability method as
required by SFAS No. 109, Accounting for Income Taxes. Under the asset and
liability method, deferred income taxes are recognized for the tax consequences
of temporary differences by applying enacted tax rates applicable to future
years to differences between the financial statements carrying amounts and the
tax bases of existing assets and liabilities. When tax credits are available,
they are recognized as reductions of current year's tax expense.

CONCENTRATIONS OF CREDIT RISK AND BUSINESS CONCENTRATION

The Company's receivables are unsecured and are generally due in 30 days.
Currently the Company's customers are primarily local, national and
international users of wide fax document systems. The Company's receivables do
not represent significant concentrations of credit risk as at March 31, 1997,
due to the wide variety of customers, markets and geographic areas to which the
Company's products are sold.

VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments of the Company, including cash,
accounts receivable, bank indebtedness and accounts payable, approximate fair
value because of their short maturity. The fair value of advances to related
parties can not be readily determined because of the nature of their terms.



                                       9
<PAGE>   40
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

1. ACCOUNTS RECEIVABLE

    Accounts receivable consist of:

<TABLE>
<CAPTION>
                                                    1995           1996           1997
                                                --------------------------------------
<S>                                             <C>            <C>            <C>
    Trade accounts receivable                   $364,559       $442,096       $657,046
    Less: Allowance for doubtful accounts          5,191          5,349          6,097
                                                --------------------------------------

                                                $359,368       $436,747       $650,949
                                                ======================================
</TABLE>

2. INVENTORY

<TABLE>
<CAPTION>
                           1995           1996             1997
                       ----------------------------------------
<S>                    <C>           <C>             <C>
   Raw materials       $218,789       $244,524       $1,061,422
   Work in progress     298,720        168,823           48,225
   Finished goods        70,884         42,781           89,739
                       ----------------------------------------

                       $588,393       $456,128       $1,199,386
                       ========================================
</TABLE>

3. ADVANCES TO SHAREHOLDERS AND RELATED PARTIES

  (a) Advances to related parties are non-interest bearing except as noted and
      will be repaid follows:

<TABLE>
<CAPTION>
                                                1995          1996           1997
                                             ------------------------------------
<S>                                          <C>           <C>           <C>
      WideCom Fax and Plotters Ltd.(i)       $21,043       $86,715       $ 85,116
      Shareholders                                --            --         32,033
                                             ------------------------------------
                                              21,043        86,715        117,149
      Less: Current portion                   21,043        86,715        117,149
                                             ------------------------------------
                                             $    --       $    --       $     --
                                             ====================================
</TABLE>



                                       10
<PAGE>   41
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

3. ADVANCES TO SHAREHOLDERS AND RELATED PARTIES (CONTINUED)

         (i)  WideCom Fax and Plotters Ltd.

              Loans were made to a company controlled by a principal stockholder
              to purchase production equipment necessary in the manufacture of
              the Company's product in India.

   (b)   Transactions with companies controlled by, and fees paid to, executive
         officers, the principal shareholders and directors during the year were
         as follows:

<TABLE>
<CAPTION>
                                                 1995             1996             1997
                                            -------------------------------------------
<S>                                        <C>               <C>              <C>
         Sales                              $  23,109        $  37,306        $  13,217
         Consulting fees (Note 13(a))              --          (45,233)        (135,056)
         Capital assets acquired             (224,707)        (323,363)              --
         Purchases                           (115,891)              --               --
         Management fees, salaries
           and commissions                   (114,192)        (207,657)        (378,015)
</TABLE>

         The management fees are paid on a month to month basis to executives
         who comprise senior management of the Company (See also Note 13(c)).

--------------------------------------------------------------------------------

4. CAPITAL ASSETS

   Capital assets consist of:

<TABLE>
<CAPTION>
                                                      1995                            1996                            1997
                                    --------------------------------------------------------------------------------------
                                               ACCUMULATED                     ACCUMULATED                     ACCUMULATED
                                        COST  AMORTIZATION             COST   AMORTIZATION             COST   AMORTIZATION
<S>                                 <C>       <C>                <C>          <C>                <C>          <C>
   Machinery, plant and
   computer equipment               $284,840      $ 29,045       $  699,335     $  143,256       $1,563,728     $  425,596
   Furniture and fixtures            114,935         8,513           99,832         17,589           95,369         29,946
   Prototype and jigs                     --            --          444,231         35,430          415,094        223,782
   Land                                   --            --           67,457             --           61,121             --
   Building under
     construction                         --            --          123,737             --          282,497             --
                                    --------------------------------------------------------------------------------------
                                    $399,775      $ 37,558       $1,434,592     $  196,275       $2,417,809     $  679,324
                                    ======================================================================================

   Net book value                                 $362,217                      $1,238,317                      $1,738,485
                                                  ========================================================================
</TABLE>

   During 1997, prototypes and jigs were written down by approximately $115,000.

--------------------------------------------------------------------------------




                                       11
<PAGE>   42
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)


MARCH 31, 1995, 1996 AND 1997
-------------------------------------------------------------------------------

5. DEFERRED ISSUE COSTS OF PUBLIC OFFERING

   These costs include legal, accounting, advances of the underwriter's expense
   allowance and other related costs of the public offering. Certain costs
   related to previous offerings were written off during 1995 and the remaining
   costs were deducted from the equity raised in the offering during 1996.

6. INVESTMENT IN AFFILIATES

<TABLE>
<CAPTION>
   Investment in affiliates consists of:           1995          1996           1997
                                                   ---------------------------------
<S>                                                <C>       <C.          <C>
   DS Corporate Marketing Ltd. (i)                  $--      $576,000     $       --
   3994340 Canada Inc. (ii)                          --            --     $1,685,935
                                                   ---------------------------------

                                                    $--      $576,000     $1,685,935
                                                   =================================
</TABLE>

   (i)   During 1996 the Company acquired a 49% interest in DS Corporate
         Marketing Ltd. and the original excess of $720,000 over the purchase
         price of the underlying value of the assets was attributed to goodwill.
         Management periodically assesses the carrying value of the goodwill
         based on the expected benefits from this investee and, accordingly,
         during 1997 this investment was written down to $ nil. The Company's
         49% share of assets, liabilities and operating income is not
         significant.

   (ii)  In October 1996, the Company entered into a joint venture agreement
         which resulted in the purchase of a 45% stake in 3994340 Canada Inc., a
         Quebec based company, for approximately $1,875,000. The investee
         carries on research and development activities in order to develop
         improvements, modifications, additions or alterations to the
         intellectual property and to develop new products. In connection with
         the transaction, the Company also entered into a Stock Exchange
         Agreement with Societe Innovatech du Grand Montreal, a instummentality
         of the Province of Quebec, Canada, pursuant to which they would be
         permitted, under certain circumstances, to exchange its 45% interest
         for up to 253,000 common shares of the Company. The Company has a
         commitment to pay a royalty fee based on net revenue (See also Note
         13(d)). The other two companies that each own 5% of the investee are
         controlled by a memeber of the executive of the Company.

   The assets, liabilities, revenue and expenses of 3994340 Canada Inc. for the
   period ended March 31, 1997 are as follows:

<TABLE>
<S>                                     <C>
   Current assets                       $4,707,249
   Capital assets                          596,771
                                        ----------
                                         5,304,020
  Current liabilities                      117,333
                                        ----------

  Net assets                            $5,186,687
                                        ==========

  Revenue
  Sales                                 $  125,535
  Research and development grants          361,564
                                        ----------
                                           487,099
  Expenses                                 855,968
                                        ----------
  Net loss for the period               $(368,869)
                                        =========
</TABLE>

                                       12
<PAGE>   43
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)


MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

7. BANK INDEBTEDNESS

   In 1995 the Company had a line of credit of approximately $125,000 plus
   accrued interest income on specified term deposits. This line bore interest
   at bank prime plus one and one half percent, collateralized by specified term
   deposits and is payable on demand. At March 31, 1995 approximately $101,708
   was utilized. During 1996 this indebtedness was repaid in full and the
   Company cancelled the line. During 1997 the Company obtained an operating
   line of credit which bears interest at prime + 0.75%, is due on demand, and
   is secured by inventory, accounts receivable, and equipment for up to five
   years as well as a general security agreement over all company assets. At
   March 31, 1997, approximately $110,000 was utilized.

   The Company's 1996 bank indebtedness is the result of a bank overdraft in the
   Company's subsidiary. The Company's 1997 bank indebtedness is the result of a
   bank overdraft in the Company's subsidiary as well as a revolving operating
   loan in the Company. The indebtedness of the subsidiary is secured by a
   pledge of fixed deposits with the local bank.

--------------------------------------------------------------------------------

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

   Accounts payable and accrued liabilities consist of:

<TABLE>
<CAPTION>
                                                   1995           1996             1997
                                               ----------------------------------------
<S>                                            <C>            <C>            <C>
   Trade accounts payable                      $137,276       $260,897       $  487,763
   Wages and employee deductions payable         93,533          9,125          200,011
   Accrued liabilities                           10,719        123,440          664,300
   Costs of public offering                     265,123             --               --
   Interest payable (see Note 9)                 58,790             --               --
                                               ----------------------------------------

                                               $565,441       $393,462       $1,352,074
                                               ========================================
</TABLE>

--------------------------------------------------------------------------------

9. LOANS FROM NON-MANAGEMENT SHAREHOLDERS

<TABLE>
<CAPTION>
                                                        1995       1996     1997
                                                   -----------------------------
<S>                                                <C>            <C>       <C>
   Promissory notes payable, interest
   at 8% and 12% per annum, repaid from
   the proceed of the initial public offering
   (see Note 11 (b))                               $ 259,247        $--      $--
                                                   =============================
</TABLE>

   Included in accounts payable at March 31, 1995 was interest of $58,790 (see
   Note 8).


                                       13
<PAGE>   44
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

10.GOVERNMENT ASSISTANCE

   (a)    On December 19, 1991, the Company entered into an agreement with
          Innovation Ontario Corporation ("IOC") whereby IOC granted
          Cdn.$300,000 (U.S. $223,590) to the Company for purposes of funding
          research and development. This amount was recorded as a loan payable.

          Under the IOC agreement, the Company had agreed to pay an amount equal
          to 10% of gross revenues, as defined, commencing May 1, 1992. The
          Company could not advance amounts to affiliates or shareholders, repay
          amounts owing to shareholders, declare dividends or redeem shares
          without the consent of IOC.

          The agreement had been collateralized by a security interest covering
          all the assets of the Company. The Company had the option to terminate
          the agreement at any time by making a payment calculated in accordance
          with an agreed upon formula.

          In October, 1995 the Company settled all amounts outstanding including
          accrued interest of $334,596 for the repayment of principal of
          Cdn.$300,000. Upon such payment all obligations to IOC and IOC's
          security interest in the Company's assets were terminated. The
          settlement resulted in a gain, which has been recorded as an
          extraordinary item, of $186,330 ($334,596 net of tax of $148,266)
          during 1996.

<TABLE>
<CAPTION>
                                            1995           1996      1997
                                        ---------------------------------
<S>                                     <C>            <C>           <C>

   (b)    Grants

         Research and development (1)   $360,140       $186,971       $--
         National Research Council        18,088         66,033        --
         Other government agencies        12,758          9,318        --
                                        ---------------------------------
                                        $390,986       $262,322       $--
                                        =================================
</TABLE>

         (1)   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 at March 31, 1997, research and development grants
               receivable amounted to $696,347. This amount represents
               management's best estimate of grants based on its interpretation
               of current legislation. However, Revenue Canada has not yet
               assessed all claims and therefore the amount ultimately received
               could be materially different than the amount recorded.

--------------------------------------------------------------------------------

11. SHARE CAPITAL

   (a)   Authorized

         20 million common shares

         23,350 preferred shares on March 31, 1995 and no shares on March 31,
         1996 and 1997.

         Of the 4,848,418 shares issued on March 31, 1997, 51,063 of these
         shares have not been registered by the Company's stock transfer agent.


                                       14
<PAGE>   45
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

11. SHARE CAPITAL (CONTINUED)

   (b)   Changes to Issued Share Capital

         (i)      In April 1995, the Company acquired a minority interest in a
                  U.S. based marketing company in exchange for 240,000 shares of
                  the Company's common stock and 100,000 warrants to purchase
                  common shares at $4.00. For the purposes of this acquisition
                  the Company's shares were valued at $3.00 per share.

         (ii)     On September 18, 1995, the outstanding common shares of the
                  Company were backsplit 8 for 10. The number of authorized
                  common shares were changed from unlimited to 20 million. These
                  changes have been treated retroactive to all prior period
                  share information and earnings per share calculations.

         (iii)    On October 13, 1995 the Company consummated a bridge financing
                  for which it issued an aggregate of 84,000 common shares and
                  warrants to purchase 840,000 common shares exercisable during
                  the four year period commencing one year from the date of the
                  initial public offering at a purchase price of $4.00 per
                  share.

         (iv)     On December 15, 1995 the Company completed an initial public
                  offering whereby 1,650,000 common shares were sold for $5 per
                  share and 1,650,000 redeemable warrants for $0.10 per warrant
                  exercisable. The proceeds of this issue, net of underwriting
                  and other issue expenses totalling $2,352,945, was $6,062,055.

         (v)      In January 1996 the underwriter exercised the option granted
                  to them in the terms of the initial public offering to
                  purchase an additional 247,500 common shares and 247,500
                  warrants at $5.00 and $0.10 each respectively for the purposes
                  of covering over allotments.

         (vi)     During 1996, the underwriter purchased 165,000 warrants at a
                  price of $.001 each for an aggregate of $165, which entitles
                  the underwriter to purchase 165,000 common shares at a
                  purchase price of $8.25 per share and also entitles the
                  underwriter to purchase an additional 165,000 of warrants at a
                  purchase price of $0.165 per warrant. The warrants purchased
                  during 1996 are exercisable during the four year period
                  commencing December 15, 1996.

         (vii)    During 1996, the Company settled a lawsuit for $185,000 which
                  the controlling shareholders had jointly and severally agreed
                  to idemnify and hold harmless the Company. The controlling
                  shareholders surrendered to the Company, 16,087 common shares
                  of the Company with a fair market value equal to the amount of
                  the settlement.

         (viii)   During 1997, 414,345 warrants were exercised in exchange for
                  414,345 common shares. The proceeds of this issue, net of
                  related expenses of $114,945, was $1,298,090. This amount
                  includes warrants exercised under the Company's warrant call
                  (see Note 16 (b) and (c)).

   (c)   Preferred Shares

         The preferred shares provided for one-vote per share with increases in
         the votes per share should certain performance criteria be met. In June
         1995, these shares were converted to 116,750 common shares. For the
         purposes of this exchange, the Company's shares were valued at $3.00
         which resulted in a compensation expense of $166,974. On November 14,
         1995, the shareholders approved the cancellation of the authorized
         preferred shares.

                                       15
<PAGE>   46
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

11. SHARE CAPITAL (CONTINUED)

   (d)   Employee Stock Option Plan

         The Company has elected to follow Accounting Principles Board (APB)
         Opinion No. 25, "Accounting for Stock Issued to Employees", and related
         interpretations in accounting for its employee stock options. Under APB
         25, because the exercise price of the Company's employee stock options
         equals the market price of the underlying stock on the date of grant,
         no compensation expense is recognized.

         In July 1995, the board of directors approved an employee stock option
         plan covering options to purchase 300,000 common shares which have been
         issued as follows:

         (i)      Options to purchase 200,000 common shares at an exercise price
                  of $5.00 per share have been issued to two members of
                  management in exchange for the cancellation of previously
                  issued warrants to purchase 200,000 common shares. These
                  options are exercisable commencing one year from the
                  consummation of a public offering and expire in July 2005.

         (ii)     Options to purchase 100,000 common shares at an exercise price
                  of $8.50 were issued to the President and Vice-President in
                  June 1996.

         Pro forma information regarding net income and earnings per share is
         required by SFAS No. 123, and has been determined as if the Company had
         accounted for its employee stock options under the fair value method of
         that statement. The fair value of these options was estimated at the
         date of grant using a Black-Scholees option pricing model with the
         following weighted-average assumptions for March 31, 1997 and 1996,
         respectively: risk-free interest rate of approximately 6.0%; dividend
         yield of 0.0%; volatility factors of the expected market price of the
         Company's common stock of approximately 11.0 % and a weighted-average
         expected life of the option of 5 years.

         The Company's pro forma information follows:

<TABLE>
<CAPTION>
                                YEAR ENDED        YEAR ENDED         YEAR ENDED
                                 MARCH 31,         MARCH 31,          MARCH 31,
                                      1995              1996               1997
                                -----------------------------------------------
<S>                             <C>              <C>                <C>
         Net earnings (loss)
           As reported             $64,447       $  (839,301)       $(4,487,824)
           Pro forma                64,447        (1,649,301)        (4,867,824)

         Net loss per share
           As reported                0.02             (0.27)             (0.99)
           Pro forma                  0.02             (0.54)             (1.07)
</TABLE>

         The activity of the Company's stock option plan is as follows:

<TABLE>
<CAPTION>
                                             AVERAGE PRICE
                                                 PER SHARE           OPTIONS
                                            --------------------------------
<S>                                         <C>
         Balance, April 1, 1995                      $  --                --
         Granted to management                        4.06           200,000
                                            --------------------------------
         Balance, March 31, 1996
           (outstanding and exercisable)                             200,000
         Granted                                      3.81           100,000
                                            --------------------------------

      Balance, March 31, 1997                                        300,000
                                            ================================
</TABLE>



                                       16
<PAGE>   47
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

11. SHARE CAPITAL (CONTINUED)

   (e)   Earnings (Loss) per Common Share

         The computation of earnings per common share and common equivalent
         share is based on the weighted average number of common shares
         outstanding during the year except as noted below plus (in years which
         they have a dilutive effect) the effect of common shares contingently
         issuable pursuant to outstanding warrants. Pursuant to SEC
         requirements, shares issued within a one year period prior to the
         filing of a registration statement relative to an initial public
         offering ("IPO") at a price below the IPO price should be treated as
         outstanding for all reported years.

         The weighted average number of common shares used in calculating
         earnings per common share after retroactive application of the
         backsplit is as follows:

<TABLE>
<CAPTION>
                                                        1995            1996            1997
                                                   -----------------------------------------
         <S>                                       <C>             <C>            <C>
         Shares outstanding at year end            2,111,910       4,434,073       4,848,418
                                                   =========================================
         Weighted average shares outstanding       2,712,660       3,078,428       4,533,583
                                                   =========================================
</TABLE>

--------------------------------------------------------------------------------

12. INCOME TAXES

   (a)   The components of the provision for income taxes on earnings before
         income taxes are as follows:

<TABLE>
<CAPTION>
                                                   1995             1996            1997
                                                ----------------------------------------
         <S>                                    <C>            <C>              <C>
         Current                                $    --        $      --        $     --

         Deferred provision                      25,000         (176,000)        (63,200)

         Ontario research and development
           super allowance                       (5,000)         (20,000)             --
         Change in valuation adjustment              --          113,313              --
                                                ----------------------------------------
                                                $20,000        $ (82,687)       $(63,200)
                                                ========================================
</TABLE>

         The extraordinary item during 1996 is net of taxes of $148,266.

         During 1996, the Company applied issue costs related to the initial
         public offering in the amount of $2,352,945 to reduce shareholders'
         equity. This amount gives rise to a tax benefit of $633,000, however a
         valuation allowance has been recorded for the full amount.

                                       17
<PAGE>   48
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

12. INCOME TAXES (CONTINUED)

   (b)   The reconciliation of income taxes calculated at the statutory rate of
         44.6% to the total tax provision is as follows:

<TABLE>
<CAPTION>
                                                                                1995             1996               1997
                                                                            --------------------------------------------
<S>                                                                         <C>            <C>               <C>
         Income taxes (recovery) at statutory rate                          $ 38,000        $(495,000)       $(2,030,000)
         Small business deduction                                            (13,000)              --                 --
         Items not subject to income tax                                          --          172,000            210,000
         Permanent difference resulting from the Ontario research and
           development incentive deduction                                    (5,000)         (20,000)           (21,000)
                                                                            --------------------------------------------
         Adjustment to valuation adjustment                                       --          260,313          1,841,000
                                                                            $ 20,000        $ (82,687)       $        --
                                                                            ============================================
</TABLE>

         Income tax provision and recovery is related solely to domestic
         operations. Foreign operations are not subject to taxes (see Note 14).

   (c)   Deferred tax liabilities (assets)

         Deferred tax liabilities (assets) have been recorded at current rates
         as follows:

<TABLE>
<CAPTION>
                                                                                 1995               1996               1997
                                                                         -----------------------------------------------
         <S>                                                             <C>              <C>                <C>
         LIABILITIES:
         Research and development costs included in
           inventory, deductible as expense for tax purposes             $ (43,387)       $   (52,000)       $        --
         Deferred financing costs, deductible
           as expense for tax purposes                                     (19,000)                --                 --
         Deferred development costs, deductible
           as expense for tax purposes                                     (17,000)                --                 --
         Excess of amortization on capital assets for tax purposes
           over amortization recorded for accounting purposes              (74,000)           (31,000)                --
                                                                         -----------------------------------------------

                                                                          (153,387)           (83,000)                --
                                                                         -----------------------------------------------
         ASSETS:
         Financing costs                                                        --             59,000             44,000
         Balance of pool of Scientific Research & Development
           available to reduce taxable income for future years                  --            339,000            615,000
         IOC loan interest, not deductible for tax purposes                153,000                 --                 --
         Tax losses available to reduce Provincial
           taxable income of future years                                  258,000            209,000          1,712,000
         Share issue costs                                                      --            633,000            338,000
         Excess of amortization on capital assets for accounting
         purposes over amortization recorded for tax purposes                   --                 --            197,000
                                                                         -----------------------------------------------

                                                                           411,000          1,240,000          2,906,000
                                                                         -----------------------------------------------

         Less: Deferred tax asset valuation allowance                     (258,000)        (1,093,800)        (2,906,000)
                                                                         -----------------------------------------------
         Net tax asset (liability)                                       $    (387)       $   (63,200)       $        --
                                                                         ===============================================
</TABLE>

         The Company has net operating loss carryforwards to reduce federal
         taxable income of approximately $3,268,000 which expire 2004. The
         Company has net operating loss carryforwards available to reduce
         Ontario taxable income of approximately $4,735,000 which expire during
         the years 1999 through 2004.

         The net valuation allowance for 1996 is related to the tax benefit of
         the losses and net operating losses carryforward. The allowance was
         increased in 1997 for the tax benefit of additional losses and
         deductible temporary differences.

                                       18
<PAGE>   49
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

13. COMMITMENTS

   (a)   The Company has entered into a 3 year management and consulting
         agreement for management, marketing, planning and related services with
         a related company controlled by one of the directors to December 1998.
         The Company will pay $180,000 per year, for three consecutive years,
         for a total of $540,000.

   (b)   The Company leases premises, office equipment and motor vehicles under
         operating leases expiring in 2001. The approximate annual rental
         commitments during the lease terms are as follows:

<TABLE>
<S>                                              <C>
         Year ended March 31, 1998               $ 63,000
         Year ended March 31, 1999                 49,000
         Year ended March 31,2000                  27,000
         Year ended March 31, 2001                  6,000
                                                 --------
                                                 $145,000
                                                 ========
</TABLE>

         Approximate rental expense incurred under operating leases is as
         follows:

<TABLE>
<S>                                              <C>
         Year ended March 31, 1995               $135,000
         Year ended March 31, 1996                128,000
         Year ended March 31, 1997                 68,000
</TABLE>

   (c)   The Company has entered into employment contracts with two members of
         management for a total of up to $190,000 in base salary per annum plus
         up to a 50% bonus of base salary provided certain performance
         objectives are met. Amounts paid in 1997 were approximately $173,000
         (1996 - $100,000).

   (d)   The Company is commited to its affiliate, 3994340 Canada Inc., to pay a
         0.5% royalty fee on net revenue, licensing revenue and net sales to
         sub-licensees on scanner and plotter technology created by affiliate on
         behalf of the Company (See also Note 6).

--------------------------------------------------------------------------------

14. SEGMENTED INFORMATION

   (a)   The Company operates in Canada and India in one industry segment. The
         Company's operations and identifiable assets by geographic region are
         as follows:

<TABLE>
<CAPTION>
                                                      CANADA              INDIA       INTERCOMPANY              TOTAL
                                                 --------------------------------------------------------------------
         <S>                                    <C>                 <C>                <C>                <C>
         For the year ended March 31, 1995

         Revenue                                 $ 1,920,849        $   103,440        $        --        $ 2,024,289
         Operating profit                             64,027                420                 --             64,447
         Identifiable assets                       2,412,511            593,527           (458,357)         2,547,681

         For the year ended March 31, 1996

         Revenue                                 $ 1,430,918        $   576,883        $        --        $ 2,007,801
         Operating profit                           (849,219)             9,918                 --           (839,301)
         Identifiable assets                       8,933,132          1,627,339         (1,342,957)         9,217,514

         For the year ended March 31, 1997

         Revenue                                   1,329,446          1,357,171           (865,904)         1,820,713
         Operating profit                         (4,364,854)          (628,877)           505,907         (4,487,824)
         Identifiable assets                       6,719,782          2,872,586         (2,667,181)         6,925,187
</TABLE>


                                       19
<PAGE>   50
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

14. SEGMENTED INFORMATION (CONTINUED)

   (b)   The breakdown of sales by geographic area is as follows:

<TABLE>
<CAPTION>
                                   1995             1996             1997
                             --------------------------------------------
<S>                          <C>              <C>              <C>
         Canada              $  116,666       $   56,032       $  122,676
         United States          723,064          730,055          467,766
         Middle East            394,399          335,682          346,595
         Asia                   312,233           80,576          266,345
         Europe                  78,879          464,000          475,551
                             --------------------------------------------
                             $1,625,241       $1,666,345       $1,678,933
                             ============================================
</TABLE>

   (c)   For the year ended 1997 and 1996 no end user accounted for more than 5%
         of the Company's product sales. In 1997, approximately 49.9% of the
         Company's product sales were made through five distributors, with the
         largest representing approximately 27.5%. For the year ended March 31,
         1996 sales to one major distributor amounted to approximately 9% of
         total product sales.

--------------------------------------------------------------------------------

15. CONTINGENT LIABILITIES

   (a)   A statement of claim has been filed against the Company with respect to
         claims for non-payment of invoices in the amount of $110,000 for
         accounting services provided by an accounting firm. The Company has
         accrued $ 35,000 for this claim.

   (b)   Statement of claims have been filed against the Company alleging breach
         of contract and demanding specific performance, claiming 240,000 shares
         and 160,000 warrants (after the stock back-split). The President had
         transferred 100,000 common shares issued to individuals who provided
         marketing and related services in 1992 and 1993. The individuals had
         attempted to transfer 172,860 common shares to third parties. The
         Company's President has entered into an indemnification agreement with
         the Company whereby he would return up to 160,000 common shares for
         cancellation to the extent the Company is required to issue any such
         additional shares.

   (c)   In February 1997 the Company was served with a class action lawsuit in
         the State of New York by shareholders in connection with potential
         losses that would be suffered on a warrant call (see also Note 16(c)).
         In addition the Company was subsequently served with a lawsuit by 5
         shareholders in the State of California for similar reasons.

         Settlement, if any, on the claims in paragraph (b) and (c) will be
         recorded when settlement is probable and the amount of the settlement
         is estimable.
--------------------------------------------------------------------------------

16. SUBSEQUENT EVENTS

   (a)   On May 1, 1997, the courts gave preliminary approval to a March 7, 1997
         informal agreement to settle, subject to approval of the class, the
         class action lawsuit. The settlement required that the Company change
         certain terms of the warrant redemption, undertake to appoint an
         independent addition to the Board of Directors, hire an independent
         Chief Operating Officer and cover legal costs of the complainant.


                                       20
<PAGE>   51
================================================================================
                                                          THE WIDECOM GROUP INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (IN UNITED STATES DOLLARS)

MARCH 31, 1995, 1996 AND 1997
--------------------------------------------------------------------------------

16. SUBSEQUENT EVENTS (CONTINUED)

   (b)   In April 1997, warrants to purchase 716,833 common shares were
         exercised at an exercise price of $ 3 per share.

   (c)   In June 1997, the Company received $130,000 which is held in escrow in
         connection with a proposed financing in the amount of $250,000.

17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year:

<TABLE>
<CAPTION>
                                                                 1995             1996          1997
                                                          -------------------------------------
<S>                                                       <C>          <C>              <C>
     Interest                                             $7,126       $   56,289       $32,442
                                                          =====================================
     Non monetary transaction during the year

     Shares issued for investment in affiliate            $   --       $  720,000       $    --
     Shares issued in exchange for preferred shares           --          350,250            --
                                                          -------------------------------------
                                                          $   --       $1,070,250       $    --
                                                          =====================================
</TABLE>

                                       21
<PAGE>   52


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT                                                                                   SEQUENT
 NO.               DESCRIPTION                                                            PAGE NO.
-------            -----------                                                            --------
<S>                <C>                                                                    <C>
   4.              Distributor Agreement with CADigitizing Corporation

  21.              List of subsidiaries

  23.              Consent of BDO Dunwoody, independent accountants

  27.              Financial Data Schedule

</TABLE>