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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO.1
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
incorporation or organization) Identification No.)
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 NASDAQ SMALL CAP MARKET
WARRANTS TO PURCHASE COMMON STOCK BOSTON STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
NONE
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 registrant's 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
DESCRIPTION OF BUSINESS
THE COMPANY
The Widecom Group Inc. (the "Company") was incorporated in Ontario,
Canada, June 15, 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 a 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., doing business as Technologies
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.
PRODUCTS
WIDEfax Scan and SLC436-C Color Scanner
The WIDEfax Scan and SLC436-C color scanner are wide format scanners
capable of scanning a document up to 36" wide. The Company's scanners interface
with a personal computer to enable the user to scan images into the personal
computer for display, editing and archiving. The WIDEfax Scan provides the
capacity of scanning monochromatic images only. As the next generation of the
WIDEfax Scan, the SLC436-C was introduced in May of 1996, as a low-cost wide
format color scanner capable of scanning 36" by 48" documents at a resolution of
400 dots per square inch ("dpi") in under thirty seconds for monochrome images,
and under eight minutes for full color images. Deliveries of the SLC436-C color
scanner 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
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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 to 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 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.
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
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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 it is 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.
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
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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%, respectively, of the
Company's product sales. The Imtec Group Ltd. of England represents 27.5% of the
Company's sales for the fiscal 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 27.9 475,551 28.3
Canada 116,666 7.2 56,032 3.4 122,676 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 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. Imtec has agreed to an initial purchase order of 500 units of
the Company's product to be used in Imtec's products for distribution throughout
the World. SGI has agreed to a principal purchase order of 200 Units to be
distributed in the European Market. These relationships allow 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 agreement is with
CADigitizing, a Florida Corporation, dated February 13, 1997, for the Chinese
market, which gives Cadigitizing the exclusive right to distribute the Company's
products into the Peoples Republic of China. Cadigitizing has placed an initial
purchase order for the Company's products in the amount of $900,000.
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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, 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 or 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 a toll free 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, Indo-Widecom
International Ltd., a wholly owned subsidiary of Widecom ("Indo-Widecom") in a
free trade zone in India where the Company's manufacturing operations are
conducted. Quality control and adjustments are also conducted at Indo-Widecom.
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
can increase its manufacturing capabilities on commercially reasonable terms, in
a timely manner or at all.
The Company entered into an agreement on August 24, 1993, with WideCom
R&D (the "Agreement"). Widecom R&D is wholly owned by Lakhbir S. Tuli, a
principal stockholder of the Company and the father of Raja S. Tuli and Suneet
S. Tuli who are both officers and directors of the Company. "See Directors and
Executive officers of the Company." Under the Agreement, WideCom R&D will
identify and recruit on a non-exclusive basis, licensing, sub-contract
manufacture and marketing ventures for the Company and its line of products in
India. A Licensee or marketing venture will purchase equipment from the Company
and manufacture the Company's products in India. Pursuant to the agreement, the
Company will sell component parts to licensees and receive a royalty payment of
5% on the licensee's sales of finished products. The Company is allowed to
purchase completed units assembled by licensees up to a maximum of 50% of the
licensee's production, at a price not exceeding the licensees direct cost and
5% for overhead and profit. The licensee will restrict all resales of the
product in India. The Company will 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.
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,
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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 on October 2,
1996, with an economic development agency of the Province of Quebec, 3994340
Canada Inc., doing business as Technologies NovImage. The Company is now
conducting all of its research and development activities through 3994340 Canada
Inc., doing business as Technologies Novimage (see "Certain Relationships and
Certain Transactions), which activities are expected to qualify for partial
funding from governmental agencies. The research and development activities
conducted by 3994340 Canada Inc., doing business as Technologies Novimage on
behalf of the Company are primarily focused on plotter, scanner and facsimile
technologies.
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, 3994340 Canada Inc., doing business as
Technologies Novimage will commence activities relating to the development of a
color plotter which uses colored thermal transfer ribbons containing a wax-like
printing substance.
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3994340 Canada Inc., doing business as Technologies 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 following primary
colors: magenta, cyan, 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 who are generally contractors.
The system is being designed to enable a subscriber to access a document in the
service's database through 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 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 granted an exclusive license to all of its patents and
technology relating to its scanner and plotter manufacturing and its WideView TM
and SLC-OVLY TM proprietary software (collectively, the "Intellectual Property")
to 3994340 Canada Inc., doing business as Technologies 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 exclusive license and the payment of a 0.5% royalty fee on net
revenue, licensing revenue and net sales to sub-licensees, 3994340 Canada Inc.,
doing business as Technologies 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 3994340 Canada Inc., doing business
as
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Technologies Novimage. 3994340 Canada Inc., doing business as Technologies
Novimage retained such rights with respect to the Province of Quebec, Canada.
See "Certain Relationships and Certain Transactions".
The Company has neither filed for copyright protection of its
proprietary software nor registered the name SLC-OVLY and WideView as a
Trademark with the United States Patent and Trademark Office. The Company holds
a registered trademark with the United State Patent and Trademark Office for the
WIDEfax(R) name only. The Company is not aware of any infringement on the
proprietary rights of others and has not received any notice of claimed
trademark infringement; however, the Company has not conducted any investigation
as to possible trademark infringement and there can be no assurance that third
parties will not assert trademark infringement claims against the Company in
connection with its use of any of its marks, that any such assertion of
infringement will not result in litigation, or that the Company would prevail in
such litigation.
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, Indo-Widecom International, Ltd. 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.
DESCRIPTION OF PROPERTY
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 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, John
Keenan and Vincent DiGiulio ("K&D") 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 K&D. Thereafter, K&D
attempted to transfer an aggregate of 172,860 Common Shares to third parties,
which 172,860 common shares is in excess of the 100,000 common shares
transferred by Mr. Tuli. In November 1993, Raja S. Tuli entered into an
indemnification agreement with the Company pursuant to which Mr. Tuli agreed
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that in the event the Company is required to issue in excess of 100,000 Common
Shares to K&D 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.
K&D 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
K&D are also subject to two additional lawsuits filed by the above-mentioned
third parties to whom K&D attempted to transfer shares. This claim has been
consolidated into the original 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 a
class action 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
Anthony Hand. These actions have also 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 Action. 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 Plaintiff'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 the United States
District Court for the Central District of California. Plaintiffs, Don Johnson,
Walter J. Lack, Thomas V. Girardi, Glenn McCusker and Gino Aiello are alleged to
be holders of the Company's shares and/or warrants. The complaint in this
action, similar to the New York Class Action, 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 the nature of alleged misrepresentation and in
the nature of alleged negligent misrepresentation, alleged breach of contract,
10
<PAGE> 11
alleged breach of fiduciary duty, and alleged violation of California
Corporations Code SS 25400 and 25500. Plaintiffs' seek 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 by the company in the action
in which all material allegations in the complaint are denied and numerous
affirmative defenses are asserted.
11
<PAGE> 12
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Certain 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, at the Company's annual meeting held on January 30, 1997 (the
"Annual Meeting"). At the Annual Meeting the stockholders approved the
following:
(1) the election of the Board of Directors at which four directors
were elected, each to serve until the next annual meeting of
the stockholders;
<TABLE>
<CAPTION>
Name Votes For Votes Against Age
- ---- --------- ------------- ---
<S> <C> <C> <C>
RAJA S. TULI 2,245,846 35,211 31
SUNEET S. TULI 2,245,846 35,211 29
DR. AJIT SINGH 2,245,846 35,211 56
BRUCE D. VALLILLEE 2,245,846 35,211 76 and
</TABLE>
(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. The
amendment to the Plan 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 number of votes cast in connection with the Plan were as follows:
(i) 2,147,871 votes approved the Plan; (ii) 50,111 votes were against the Plan;
and (iii) there were 6,300 abstentions and 76,775 broker non-votes.
12
<PAGE> 13
PART II
MARKET PRICE OF 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 number of holders of record of the Company's common stock and
warrants on June 30, 1997 was 57 and 8, respectively. It is believed that the
actual number of beneficial holders of each class of common stock and warrants
is in excess of 500.
The following sets forth the high and low sales prices for the
Company's Common Stock and warrants, respectively, as reported on the NASDAQ
Small Cap Market.
<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 21/2
Second Quarter (April 1
through June 30, 1996) 13 1/4 7 5/8 9 41/2
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 61/2 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>
13
<PAGE> 14
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
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
YEAR ENDED 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>
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
OVERVIEW
In 1992, the Company commenced marketing its first 36" wide format
facsimile machine on a limited basis, primarily for demonstration purposes, 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. 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 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 $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; however, the Company together with a branch of
the government of the Province of Quebec (Innovatech) became equal
15
<PAGE> 16
shareholders in the Research and Development company, 3994340 Canada Inc., doing
business as Technologies Novimage. The nature of 3994340 Canada Inc., doing
business as Technologies 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 3994340 Canada Inc., doing business as Technologies
Novimage enables the Company to obtain a substantial increase in the amount of
research that can be performed. See "Certain Relationships and related
Transactions."
In 1996, a change in Canadian tax legislation substantially reduced the
amount of subsidy available on research and development performed by publicly
traded companies.
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
of $650,949, compared to $436,747 for 1996, 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 of $2,981,764, $90,322, $115,721 and
$113,552, respectively, during the year, ended March 31, 1997, is primarily
attributable to an increase in selling, general and administrative ("SG&A")
costs, amortization, the write-off of test equipment, an increase in salaries to
Raja S. Tuli and Suneet Tuli, and management fees to Lakhbir S. Tuli in
connection with the building of a manufacturing facility of approximately 24,000
square feet in India and the management of Indo-Widecom, Ltd. See "Description
of Property and Certain Relationships and Related Transactions," respectively.
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 Selling General & Administrative
costs from $751,252 in 1996 to $3,733,016 in 1997 was primarily due to expenses
associated with increased marketing activities and due to increased legal and
public relations fees of approximately $681,353 incurred
16
<PAGE> 17
in raising an additional $1,298,090 as of March 31, 1997, of share capital in
connection with the Company's redemption of all of its publicly traded warrants
relating to its initial public offering. The legal fees were also used to
successfully defend against court challenges made regarding the warrant call,
and additional public relations costs deemed necessary to disseminate the facts
of the warrant call. 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, 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 the management fees.
The Company has written off its carrying value of the goodwill
associated with the acquisition in 1996 of a 49% interest in Corporate
Acquisitions, Ltd. doing business as DS Corporate Marketing, Ltd. This write
off of goodwill amounted to $576,000.
The decrease of $117,794 in research and development costs were offset
by the Company's $121,971 share of the loss incurred by 3994340 Canada Inc.,
doing business as Technologies 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
of $436,747 compared to $359,368 for 1995, is attributable to an increase in
sales of WIDEfax(R) 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 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
17
<PAGE> 18
principally through the issuance of debt and equity securities, government
sponsored research and development grants and reimbursement and cash flow from
operations. On March 31, 1997, the Company had working capital of $1,818,883, as
compared to $6,814,289 on 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. See "Legal
Proceedings". On March 6, 1997, the exercise price was reduced to $3.00, and
excluded one half of the warrants and the date for redemption was extended to
April 4, 1997, after which the exercise price reverted to $4.00 per share for
the unredeemed warrants. On March 31, 1997, 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 of 1997 for which $2,150,499 was received.
The Company's cash requirements in connection with the manufacture and
marketing of its products at Indo-Widecom,Ltd. 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 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 COMPANY
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
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
</TABLE>
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
18
<PAGE> 19
Information Systems, a manufacturer of data communications equipment, most
recently as its Director of Accounting Services. From 1982 to 1985, Mr. Botha
wasan 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. Mr. Botha is a
Chartered Accountant and a resident Canadian national.
Suneet S. Tuli has been Executive Vice President of Sales and Marketing
and 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
19
<PAGE> 20
ordinarily resident in Canada who is a member of a prescribed class of persons,
or (iii) a permanent resident within 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 has received any compensation for such
services as a director. 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 $1,000.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by
the Company to the Named person serving as chief executive officer during the
years ended March 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other
Annual All Other
Compen- Compensatioin
Name And Principal Position Year Salary Bonus sation(1) Restrict Securiti ($)
($) ($) ($) ed Stock es
Awards Under- LTIP
($) Lying Payouts
Options/ ($)
SARs (#)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Raja S. Tuli, President (2) 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.
20
<PAGE> 21
EMPLOYMENT AGREEMENTS
On July 17, 1995, the Company entered into a five year employment
contract with Raja S. Tuli to serve as President of the Company at an annual
base salary of $98,000 per year. Mr. Tuli's compensation will be subject to
annual cost-of-living increases, and be eligible to receive bonuses (up to 50%
of his then current base salary) provided that the Company achieves certain
performance objectives. The Agreement contains a non-disclosure covenant and
prohibits Mr. Tuli from competing with the Company during the term of employment
agreement and for a period of two years thereafter. In connection with entering
in to the Agreement, the Company granted to Mr. Tuli a stock option to purchase
150,000 shares of the Company's Common Stock at an exercise price of $5.00 per
share.
On July 17, 1995, the Company entered into a five year employment
contract with Suneet S. Tuli to serve as Executive Vice President of Sales and
Marketing of the Company at an annual base salary of $92,000 per year. Mr.
Tuli's compensation will be subject to annual cost-of-living increases, and be
eligible to receive bonuses (up to 50% of his then current base salary) provided
that the Company achieves certain performance objectives. The Agreement contains
a non-disclosure covenant and prohibits Mr. Tuli from competing with the Company
during the term of employment agreement and for a period of two years
thereafter. In connection with entering in to the Agreement, the Company granted
to Mr. Tuli a stock option to purchase 150,000 shares of the Company's Common
Stock at an exercise price of $5.00 per share. Amounts paid to the Tulis in 1997
were approximately $173,000 (1996 - $100,000).
21
<PAGE> 22
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information with respect to the named
executive officers concerning individual grants of stock options held as of the
last fiscal year.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
Individual Grants Potential Realizable Value Alternative
----------------- At assumed Annual Rates Of to (f) And
Stock Price Appreciation (g): Grant
For Option Term Date Value
Percent Of
Number of Total
Securities Options/SARs
Underlying Granted To Exercise Of Grant Date
Option/SARs Employees In Base Price Expiration Present Value
Name Granted (#) Fiscal Year ($/sh) Date 5% ($) 10% ($) $
(a) (b) (c) (d) (e) (f) (g) (h)
<S> <C> <C> <C> <C> <C> <C> <C>
RAJA S. TULI 50,000 50% 8.50 6/12/06 $267,000 $672,500 --
SUNEET S. TULI 50,000 50% 8.50 6/12/06 $267,000 $672,500 --
</TABLE>
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.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth certain information concerning the
exercise, if any, of stock options made as of the last fiscal year under the
Company's 1995 and 1996 stock option plan to each of the named executive
officers and the fiscal year - end value of unexercised options of the company.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
--------------------------------------------------------------------------------
Number of Securities Value of Unexercised In-
Shares Underlying Unexercised The-Money Options/SARs At
Acquired Options/SARs At Fiscal Fiscal Year-End (1)
On Value Year-End Exercisable/Unexercisable
Exercise Realized Exercisable/Unexercisable
Name
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C> <C> <C>
Raja S. Tuli 0 $ 0 $ 0 200,000 $ 0 $ 0
Suneet S. Tuli 0 $ 0 $ 0 200,000 $ 0 $ 0
</TABLE>
(1) Market value at March 31, 1997 was 3-7/8.
22
<PAGE> 23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 20, 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>
- --------------------------------------------------------------------------------
Name Amount
And Address And Nature of Percent
Title of of Beneficial Beneficial Of Class
Class Owner Ownership
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Raja S. Tuli(5) 1,250,223(3) 21.2%
Common Lakhbir S. Tuli(5) 515,041 10.6%
Common Suneet S. Tuli(5) 490,240(4) 9.9%
Common Dr. Ajit Singh --- ---
Common Bruce Vallillee --- ---
Common Willem J. Botha --- ---
Common Mark Maltese --- ---
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, and 180,000
by other stockholders (none of which are affiliated with the Company
or Mr. Schattle) respectively, as to which Mr. Tuli and the certain
other stockholders has voting rights pursuant to a stock exchange
agreement. See "Certain Relationships and Related Transactions."
(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.
(5) Lakhbir S. Tuli is the father of Raja S. and Suneet S. Tuli. The Tulis'
disclaim ownership for each others shares of Common Stock.
23
<PAGE> 24
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. "See Legal
Proceedings"
The Company has engaged Lakhbir S. Tuli, the father of Suneet and Raja
Tuli as a management consultant, 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
(Widecom Fax"). Widecom Fax is 70% owned by Lakhbir Tuli, the father of Suneet
and Raji Tuli. WidecomFax sublease is in connection with the Company's
manufacturing facility in India. Annual lease payments by Indo WideCom to
WideCom Fax have remained the same at 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 in
identifying potential management personnel, acquisition candidates and sales
opportunities within the engineering and architectural markets for a monthly fee
of $15,000.
On April 4, 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 to DS 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
24
<PAGE> 25
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 300,000 shares granted Raja Tuli a proxy to vote all of such shares at all
meetings of the Company's stockholders; however, in 1996, 55,110 of Mr.
Schattle's Common Shares were sold by Mr. Schattle. As a result of the
foregoing, Raja Tuli now has a proxy to vote 184,890 of those shares granted to
Raja Tuli pursuant to the Stock Exchange Agreement. See "Security Ownership of
Certain Beneficial Owners and Management."
As of January 30, 1997, the Company announced that it had finalized a
joint venture agreement with Societe Innovatech du Grand Montreal, an
instrumentality of the Province of Quebec, Canada ("Innovatech").The Company
and Innovatech purchased 450 shares of the Class A Common Stock of 3994340
Canada Inc., doing business as Technologies NovImage, for a purchase price of
approximately US $1,875,000 each. The consideration paid by the Company for
the stock of 3994340 Canada Inc., doing business as Technologies Novimage was in
cash and was derived from the Company'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. Tuli, President and Chief Executive Officer of the Company, each acquired 50
shares of the Class A Common Stock of 3994340 Canada Inc., doing business as
Technologies Novimage in exchange for the transfer to 3994340 Canada Inc., doing
business as Technologies Novimage of certain patents, patent applications and
other technology and intellectual property rights of those companies. In
connection with the transaction, the Company granted an exclusive license of all
of its patents, if any, and technology relating to its scanner and plotter
manufacturing and its WideView TM and SLC-OVLY TM software (collectively, the
"Intellectual Property") to 3994340 Canada Inc., doing business as Technologies
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 exclusive license and the payment of a 0.5%
royalty fee on net revenue, licensing revenue and net sales to sub-licensees,
3994340 Canada Inc., doing business as Technologies 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 3994340 Canada Inc., doing business
as Technologies Novimage. 3994340 Canada Inc., doing business as Technologies
Novimage retained such rights with respect to the Province of Quebec, Canada. In
connection with the transaction, the Company also entered into a Stock Exchange
Agreement with Innovatech pursuant to which Innovatech would be permitted, under
certain circumstances, to exchange its shares of 3994340 Canada Inc., doing
business as Technologies Novimage for up to 253,000 shares of common stock of
the Company 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.
25
<PAGE> 26
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 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
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 3, 1997, with respect to the finalization of a
joint venture agreement with Societe Innovatech du Grand Montreal, an
instrumentality of the Province of Quebec, Canada ("Innovatech"). The Company
and Innovatech purchased 450 Shares of the Class A Common Stock of 3994340
Canada Inc., doing business as Technologies Novimage Inc., a Quebec Corporation
for a purchase price of approximately (US) $1,875,000 each.
Form 8-K, dated February 10, 1997 with respect to the Company's
announcement on February 10, 1997, 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 of the Company
and to American Stock Transfer and Trust Company 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 April 30, 1997, relating to the Company's announcement
on February 10, 1997, that it was calling for redemption all of its
publicly-traded warrants issued in connection with its initial public offering.
On April 10, 1997, the Company announced that the warrant redemption was
complete, and that more than half of the Warrants had been exercised, and that
no warrants would be redeemed.
26
<PAGE> 27
(c) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
10.1 Distributor Agreement between The Widecom Group Inc. and CADigitizing
Corporation, dated May 6, 1997.
Portions of this exhibit has been omitted
pursuant to a request for confidential
treatment.
10.2 Distributor Agreement between The Widecom Group Inc. and Scan Group, dated
September 8, 1996.
Portions of this exhibit has been omitted pursuant to a request for
confidential treatment.
10.3 Distributor Agreement between the Widecom Group Inc. and The Imtec Group
Limited, dated November 15, 1996.
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
21. List of subsidiaries.
23. Consent of BDO Dunwoody, independent accountants.
27. Financial Data Schedule.
(d) Not Applicable.
</TABLE>
27
<PAGE> 28
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: August 18, 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
has been signed by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ RAJA S. TULI President, Chief Executive Officer and
Raja S. Tuli Director (Principal Executive Officer) August 18, 1997
/s/ WILLEM J. BOTHA Treasurer and Chief Financial Officer August 18, 1997
Willem J. Botha (Principal Financial and Accounting
Officer)
/s/ SUNEET S. TULI Executive Vice President of Sales and August 18, 1997
Suneet S. Tuli Marketing, Secretary and Director
/s/ BRUCE D. VALLILLEE Director August 18, 1997
Bruce D. Vallillee
/s/ AJIT SINGH Director August 18, 1997
Ajit Singh
</TABLE>
28
<PAGE> 29
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
29
<PAGE> 30
[BDO DUNWOODY LETTERHEAD]
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.
/s/ BDO Dunwoody
Chartered Accountants
(Internationally BDO Binder)
Toronto, Ontario
July 4, 1997
2
30
<PAGE> 31
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
31
<PAGE> 32
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
32
<PAGE> 33
WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN UNITED STATES DOLLARS)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
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
33
<PAGE> 34
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) (32,033)
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
34
<PAGE> 35
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.
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.
7
35
<PAGE> 36
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.
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
8
36
<PAGE> 37
(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
37
<PAGE> 38
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>
(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)).
10
38
<PAGE> 39
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.
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
Investment in affiliates consists of:
<TABLE>
<CAPTION>
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, an economic
development agency of the Province of Quebec 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 member of the executive of the Company.
39
<PAGE> 40
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 $ 3,400,046
Capital assets 431,048
3,831,094
Current liabilities 84,750
Net assets $ 3,746,344
Revenue
Other Income $ 92,243
Research and development grants 265,677
-----------
357,920
Expenses 628,965
-----------
Net loss for the period $ (271,045)
===========
</TABLE>
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 canceled 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).
40
<PAGE> 41
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
---- ---- ----
(b) Grants
<S> <C> <C> <C>
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.
(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.
41
<PAGE> 42
(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 totaling $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 indemnify 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.
(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 , increased in
January 1997 to 500,000, 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
42
<PAGE> 43
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 (1,099,301) (5,177,824)
Net loss per share
As reported 0.02 (0.27) (0.99)
Pro forma 0.02 (0.36) (1.14)
</TABLE>
The activity of the Company's stock option plan is as follows:
<TABLE>
<CAPTION>
AVERAGE PRICE
PER SHARE OPTIONS
--------- -------
<S> <C> <C>
Balance, April 1, 1995 $ -- --
Granted to management 5.00 200,000
----------- -------
Balance, March 31, 1996
(outstanding and exercisable) 200,000
Granted to management 8.50 100,000
----------- -------
Balance, March 31, 1997 300,000
=======
</TABLE>
(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.
43
<PAGE> 44
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.
(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 1,777,800
-------- --------- -----------
$ 20,000 $ (82,687) $ 63,200
======== ========= ===========
</TABLE>
Income tax provision and recovery is related solely to domestic
operations. Foreign operations are not subject to taxes (see Note 14).
44
<PAGE> 45
(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 taxable
income of future years 258,000 209,000 1,364,000
Share issue costs -- 633,000 686,000
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 carry forwards to reduce federal
taxable income of approximately $3,268,000 which expire 2004. The
Company has net operating loss carry forwards available to reduce
Ontario taxable income of approximately $4,735,000 which expire during
the years 1999 through 2004.
The Company has share issue costs amounting to $2,600,000 which gives
rise to a tax benefit of $686,000. A portion of these costs are
included in the net operating losses carry forwards disclosed above.
When realized the benefit will be recorded as a capital transaction.
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:
45
<PAGE> 46
<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 committed 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>
(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.
46
<PAGE> 47
(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.
(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>
47
<PAGE> 48
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
10.1 Distributor Agreement between The Widecom Group Inc. and CADigitizing
Corporation, dated May 6, 1997.
Portions of this exhibit has been omitted
pursuant to a request for confidential
treatment.
10.2 Distributor Agreement between The Widecom Group Inc. and Scan Group, dated
September 8, 1996.
Portions of this exhibit has been omitted pursuant to a request for
confidential treatment.
10.3 Distributor Agreement between the Widecom Group Inc. and The Imtec Group
Limited, dated November 15, 1996.
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
21. List of subsidiaries.
23. Consent of BDO Dunwoody, independent accountants.
27. Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
REDACTED COPY
The full unredacted copy of this Agreement is subject to a request for
confidential treatment. Confidential portions have been omitted and the full
unredacted copy of this agreement has been filed separately with the Securities
and Exchange Commission.
THE WIDECOM GROUP, INC.
DISTRIBUTOR AGREEMENT
An Agreement made and entered into on May 6, 1997 between
(1) The WideCom Group Incorporated, having its principal place of business
at 267 Matheson Blvd. East, Mississauga, Ontario, Canada L4Z 1X8,
hereinafter referred to as "WideCom", and
(2) CADigitizing Corporation, having its principal place of business at
5712 Bridgeton Ct., Palm Harbor, Florida 34685, hereinafter referred to
as "CADigitizing".
Whereas
(A) WideCom has designed and produces two document scanners known as the
WideCom SLC436Color and the WideCom SLC436+
(B) CADigitizing is engaged in the international distribution of equipment
and supplies for the engineering document market
(C) CADigitizing is desirous of having a source of supply of document
scanners and WideCom is willing to supply such scanners to CADigitizing
1.0 DEFINITIONS
1.1 "Product" shall mean the WideCom SLC436Color Scanner & the WideCom
SLC436+ B & W Scanner.
1.2 "Territory" shall be exclusive for the Products and defined as the
Peoples Republic of China.
2.0 AGREEMENT
2.1 PURCHASE/SUPPLY. CADigitizing agrees to purchase from WideCom and
WideCom agrees to supply Product to CADigitizing on a continuous basis
on the terms and conditions set forth in this Agreement.
2.2 APPOINTMENT. WideCom agrees to appoint CADigitizing as the exclusive
distributor for Product in the Territory and further shall allow
CADigitizing to appoint sub-distributors and dealers for Product in the
Territory as it sees fit.
2.3 TERM. The initial term of this Agreement shall be twenty-four (24)
months and will automatically renew for subsequent twelve (12) month
periods unless either party notifies the other party in writing sixty
(60) days before the renewal date that they do not intent to renew the
Agreement.
2.4 MARKETING. CADigitizing agrees to represent, demonstrate, quote, and
sell Product in an active marketing and sales program.
48
<PAGE> 2
2.5 PRESS RELEASE. CADigitizing and WideCom agree to issue a joint press
release, announcing this Agreement. The date for this press release is
May 2, 1997. CADigitizing and WideCom will mutually agree on the
wording of the press release prior to its issuance.
2.6 PRODUCT LAUNCH EVENT. CADigitizing and WideCom agree to jointly launch
Product in Beijing, China at an event to be organized by CADigitizing.
CADigitizing will arrange a suitable meeting location and invite
approximately two hundred key government and engineering managers to
participate in a Product seminar and capabilities demonstration.
WideCom will provide key WideCom company executives, equipment and
Customer Service Representatives to support this major launch event.
The Product launch will occur May 30, 1997.
2.7 PRODUCT LAUNCH SERVICE TRAINING. WideCom will provide service training
to CADigitizing selected personnel in Beijing, China in CADigitizing
facilities. WideCom will support two weeks of training courses for a
minimum of ten (10) CADigitizing Customer Service Representatives.
CADigitizing Customer Service Representatives will subsequently be
directed to train CADigitizing sub-distributors, dealers and customers
as required.
2.8 SERVICE, INSTALLATION & CUSTOMER TRAINING. CADigitizing will be solely
responsible for insuring proper installation, service and customer
training for the Product.
2.9 TECHNICAL SUPPORT TO DISTRIBUTOR. WideCom agrees to provide technical
support to CADigitizing for Product. WideCom support to CADigitizing
will be provided by WideCom via telephone and on-site visits to China
by WideCom personnel a minimum of three times a year. Based upon
business performance and need, as mutually determined by WideCom and
CADigitizing, WideCom will consider placing WideCom personnel on local
assignment in China to support CADigitizing.
2.10 SERVICE TRAINING. CADigitizing will be solely responsible for, and will
bear all costs of, providing technical support to their customers for
Product.
2.11 DOCUMENTATION. WideCom agrees to provide to CADigitizing one set of
WideCom customer, service, and service training documentation, in
English, covering Product, at no cost.
2.12 PURCHASE ORDERS. Purchase of Product and/or spare parts by CADigitizing
shall be made solely by the issuance of a written purchase order. Each
purchase order shall identify the specific configuration of Product
and/or spare part number, quantity ordered, mode of shipment, requested
delivery date, price, purchase order number, ship to address, and
authorized signature.
2.13 *
2.14 PURCHASE ORDER NON-ACCEPTANCE WideCom will provide CADigitizing written
notice if WideCom is unable to accept any CADigitizing purchase order
within five (5) workdays following WideCom's receipt of said purchase
order.
2.15 PURCHASE PRICE. The purchase price to CADigitizing with respect to each
unit of Product during the term of this Agreement is set forth in
Exhibit 2. All prices are stated in United States dollars.
2.16 PRICE CHANGES. WideCom retains the right to adjust prices set forth in
Exhibit 2 with ninety (90) days written notification to CADigitizing.
*THIS ITEM HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR CONFIDENTIAL TREATMENT
49
<PAGE> 3
2.17 SHIPPING, DUTIES AND INSURANCE COSTS. All prices set forth Exhibit 2,
are exclusive of shipping, duties and insurance costs. All shipping,
duties and insurance costs will appear as an additional item on
WideCom's invoice and are the responsibility of CADigitizing.
2.18 TAXES. All prices set forth in Exhibit 2, are exclusive of all country,
state, and local excise, sales, value-added, use, and similar taxes.
Such taxes, when applicable, will appear as separate additional items
on WideCom's invoice and are the responsibility of CADigitizing.
2.19 DELIVERY, TITLE AND RISK OF LOSS. Product shipped to CADigitizing
pursuant to this Agreement shall be F.O.B. Noida, India. Title shall
pass to CADigitizing upon such delivery to the carrier. CADigitizing
shall assume all risk of loss following such delivery except for loss
resulting from the fault or negligence of WideCom. WideCom shall assist
CADigitizing, in a timely manner, with any claims against the carrier
for damage or loss. CADigitizing shall designate mode of shipping in
its demand order, otherwise, WideCom shall ship by best method, as it
determines.
2.20 PAYMENT. CADigitizing shall submit cash wire payment to WideCom prior
to shipment of Product and/or spare parts.
2.21 SPARE PARTS. WideCom agrees to produce and ship to CADigitizing such
quantities of spare parts required by CADigitizing to maintain all
Products pursuant to this Agreement for a period of five (5) years
after the last shipment of Product purchased under this Agreement.
2.22 TRADEMARKS AND LOGOS. WideCom trademarks and trade names under which
CADigitizing markets Products will remain the exclusive property of
WideCom. This Agreement gives CADigitizing no rights therein except
that during the term of this Agreement WideCom grants to CADigitizing a
restricted license to reproduce such WideCom trademarks and trade names
in publications and under written terms and conditions as may hereafter
be approved in writing by WideCom.
2.23 CONFIDENTIAL INFORMATION. Any confidential information exchanged
between the parties during the term of this Agreement or extension
thereof and which is designated in writing as confidential shall be
held in confidence by the receiving party for at least three years
after expiration or termination of this Agreement. THE PARTIES
UNDERSTAND AND AGREE THAT INFORMATION CONCERNING ANY OF THE TERMS
HEREOF IS CONFIDENTIAL TO EACH OF THEM AND SHALL ONLY BE DISCLOSED TO
THIRD PARTIES, IN WRITING OR ORALLY, UPON THE SPECIFIC PRIOR WRITTEN
AGREEMENT OF THE PARTIES.
3.0 WARRANTY
3.1 WARRANTY. WideCom warrants that all Product sold to CADigitizing
hereunder, all parts contained in such Product, and all spare or
replacement parts purchased by CADigitizing from WideCom therefor shall
be free from defects in workmanship and materials. THE DURATION OF THIS
PRODUCT WARRANTY SHALL BE LIMITED TO NINETY (90) DAYS AFTER EACH SUCH
UNIT OF DERIVED PRODUCT HAS BEEN DELIVERED TO CADIGITIZING'S CUSTOMER
AND IN NO EVENT SHALL THE WARRANTY CONTINUE IN EFFECT AFTER TWELVE (12)
MONTHS FROM THE DATE OF SHIPMENT OF PRODUCT FROM WIDECOM TO
CADIGITIZING.
3.2 DISTRIBUTOR WARRANTY OBLIGATIONS. CADigitizing will be responsible for
all warranty service.
3.3 REMEDY. In the event the Product (or any parts contained therein) or
spare
50
<PAGE> 4
parts or replacement parts shipped to CADigitizing are found to be
defective within the warranty period, CADigitizing shall promptly
notify WideCom of the defect and WideCom shall authorize the return of
the defective Product (or any parts contained therein) or defective
spare part to WideCom's factory for repair or replacement. The shipping
and handling charges from CADigitizing's facility for such returned
Products or parts shall be the responsibility of WideCom. CADigitizing
shall use best efforts to fully cooperate with WideCom and to follow
WideCom's instructions in resolving warranty claims. In the event that
the Product (or any parts contained therein) or spare parts or
replacement parts returned by CADigitizing are found not to be
defective, CADigitizing will be charged for all shipping costs and a
restocking charge equal to the cost paid for the item by the
CADigitizing shall be charged to CADigitizing. WIDECOM'S UNDERTAKING TO
REPLACE SUCH DEFECTIVE PRODUCTS (OR ANY PARTS CONTAINED THEREIN),
AND/OR SPARE PARTS HEREIN IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OR
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE.
3.4 LIMITATIONS ON WARRANTY. THE WARRANTY IN SECTION 3.1 ABOVE IS IN LIEU
OF ALL OTHER WARRANTIES AND REPRESENTATIONS, EXPRESSED OR IMPLIED, AND
ALL OTHER OBLIGATIONS OR LIABILITIES OF WIDECOM WITH RESPECT TO THE
PRODUCT AND ANY SPARE PARTS. OTHER THAN THE WARRANTY IN SECTION 3.1
ABOVE, WIDECOM MAKES NO OTHER WARRANTIES REGARDING QUALITY,
PERFORMANCE, DEFECTS, REPAIRS, DELIVERY AND/OR REPLACEMENT OF THE
PRODUCT AND/OR ANY SPARE PARTS. WIDECOM'S WARRANTY FOR THE PRODUCT
AND/OR ANY SPARE PARTS ALSO WILL NOT APPLY TO: DEFECTS RESULTING FROM
NEGLIGENCE OR MISUSE OF THE PRODUCTS AND/OR SPARE PARTS BY
CADIGITIZING, CADIGITIZING'S AUTHORIZED AGENT OR REPRESENTATIVE, OR
CADIGITIZING'S CUSTOMER; IMPROPER INSTALLATION OR REPAIR OF PRODUCTS
AND/OR SPARE PARTS BY CADIGITIZING, CADIGITIZING'S AUTHORIZED AGENT OR
REPRESENTATIVE, OR CADIGITIZING'S CUSTOMER; THE USE OF ANY PARTS
ACQUIRED FROM THIRD PARTIES; OR PRODUCT OR SPARE PART ALTERATION DONE
WITHOUT WIDECOM'S CONSENT.
3.5 MARKETABLE TITLE. WideCom warrants that it will pass to CADigitizing
good and marketable title to all Product or spare parts therefor
shipped to CADigitizing under this Agreement, free from any security
interest or other lien, mortgage or encumbrances.
4.0 TERMINATION
4.1 TERMINATION FOR CAUSE. Either party may terminate this Agreement upon
written notice of termination to the other party in any of the
following events: (a) the other party materially breaches this
Agreement and such breach remains uncured for sixty (60) days following
written notice of breach by the terminating party; provided, however,
that in the case of a repeat of a material breach earlier cured, the
new cure period will be thirty (30) days; or (b) a petition for relief
under any bankruptcy legislation is filed by or against the other
party, or the other party makes an assignment for the benefit of
creditors, or a receiver is appointed for all or a substantial part of
the other party's assets, and such petition, assignment or appointment
is not dismissed or vacated within thirty (30) days.
4.2 FAILURE TO ACHIEVE PERFORMANCE GOALS. Performance goals for this
Agreement are detailed in Exhibit 1. If CADigitizing is unable to
achieve the performance goals, either party may terminate this
Agreement. Either party terminating under this provision will provide
sixty (60) days written notice to the other party.
4.3 FAILURE TO ADEQUATELY PERFORM DISTRIBUTOR'S RESPONSIBILITIES. If
51
<PAGE> 5
CADigitizing (a) does not properly represent, demonstrate, quote, and
sell Product in an acceptable and active marketing and sales program;
or (b) does not properly install and service Product and/or provide
adequate customer training; or (c) does not perform proper warranty
service; as determined by WideCom, or (d) sells Product outside of
their Territory, WideCom may, at its sole discretion, cancel this
Agreement. WideCom will provide sixty (60) days written notice to
CADigitizing to terminate this Agreement under this provision.
4.4 SURVIVAL. The provisions of this Agreement will, to the extent
applicable, survive the expiration or any termination hereof.
5.0 GENERAL PROVISIONS
5.1 LIMITATION OF LIABILITY. WIDECOM'S LIABILITY ARISING OUT OF THE SALE,
USE OR OPERATION OF THE PRODUCT AND/OR SPARE PARTS BY CADIGITIZING OR
ANY CUSTOMER, WHETHER ON WARRANTY, CONTRACT, NEGLIGENCE OR OTHERWISE
(INCLUDING CLAIMS FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES) SHALL NOT IN
ANY EVENT EXCEED THE COST OF FURNISHING A REPLACEMENT FOR THE DEFECTIVE
PRODUCT AND/OR SPARE PART. THE FOREGOING SHALL CONSTITUTE WIDECOM'S
SOLE LIABILITY TO CADIGITIZING AND/OR CADIGITIZING'S CUSTOMERS.
5.2 RELATIONSHIP OF THE PARTIES. CADigitizing and WideCom agree that each
are independent parties and neither is authorized to make any
commitment or representation on the other's behalf.
5.3 GOVERNMENT COMPLIANCE. Each party will comply fully with all federal,
state and local laws and regulations relating to its obligations under
this Agreement.
5.4 FORCE MAJEURE. Except as otherwise provided herein, WideCom will not be
liable to CADigitizing or CADigitizing's customers for its failure to
perform any of its obligations hereunder during any period in which
such performance is delayed by circumstances beyond WideCom's
reasonable control, provided that WideCom promptly notifies
CADigitizing of the delay.
5.5 HEADINGS. Except for Article I, Definitions, the headings and titles of
the Articles of this Agreement are inserted for convenience only and do
not affect the construction or interpretation of any provision.
5.6 AMENDMENTS. Except price changes as described in section 2.16, this
Agreement may be amended only by a written agreement duly signed by
authorized representatives of both parties.
5.7 ASSIGNMENT. CADigitizing cannot assign this Agreement or any rights and
obligations thereunder to any third party without the express written
permission of WideCom.
5.8 SEVERABILITY. If any provision of this Agreement is held invalid by any
law, rule, order or regulation of any government, or by the final
determination of any state or federal court, such invalidity will not
effect the enforceability of any other provisions not held to be
invalid.
5.9 WAIVER. Any delay by WideCom to exercise any right or remedy under this
Agreement will not be construed to be a waiver of any other right or
remedy hereunder. All of WideCom's rights under this Agreement will be
cumulative and may be exercised separately or concurrently.
5.10 PUBLICITY. Neither party, WideCom or CADigitizing, will publicly
disclose any information concerning this Agreement without prior
written consent of
52
<PAGE> 6
the other party.
5.11 CONTROLLING LAW. This Agreement will be construed under and governed by
the law of the Province of Ontario, Canada.
5.12 NOTICES. Any notice that may be or is required to be given under this
Agreement will be written. Any written notices will be sent by
registered mail or certified mail, postage prepaid, return receipt
requested. All such notices will be deemed to have been given when
received, properly addressed pursuant to the addresses below:
CADIGITIZING CORPORATION THE WIDECOM GROUP, INC.
5712 Bridgeton Ct. 267 Matheson Blvd. East
Palm Harbor, Florida 34685 1X8 Mississauga, Ontario, Canada L4Z
Attention: Charles W. Doane Attention: Suneet Tuli
5.13 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties as to the subject matter hereof and supersedes any and all
prior or written memoranda, understandings and agreements as to such
subject matter.
THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT AND ITS ATTACHMENTS
AND AGREE TO BE BOUND BY ALL OF ITS TERMS AND CONDITIONS.
CADIGITIZING CORPORATION THE WIDECOM GROUP, INC.
By /s/ By /s/
----------------------------- -------------------------------
Charles W. Doane Suneet Tuli
Printed Name Printed Name
Executive Vice President
- ------------------------------- ----------------------------------
Title Title
- ------------------------------- ----------------------------------
Date Date
5712 Bridgeton Ct. 267 Matheson Blvd. East
Mailing Address Mailing Address
Palm Harbor, Florida 34685 Mississauga, Ontario, Canada
L4Z 1X8
- ------------------------------- ----------------------------------
- ------------------------------- ----------------------------------
Mailing Address Mailing Address
813-781-6283 813-781-7973 905-712-0505 905-712-0506
- ------------------------------- ----------------------------------
Phone Fax Phone Fax
53
<PAGE> 7
OMITTED IN ITS ENTIRETY
EXHIBIT 1
This exhibit is filed separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment.
54
<PAGE> 8
OMITTED IN ITS ENTIRETY
EXHIBIT 2
This exhibit is filed separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment.
55
<PAGE> 1
EXHIBIT 10.2
The full unredacted copy of this Agreement is subject to a request for
confidential treatment. Confidential portions have been omitted and the full
unredacted copy of this agreement has been filed separately with the Securities
and Exchange Commission.
THE WIDECOM GROUP INC.
55 CITY CENTRE DRIVE, SUITE 500
MISSISSAUGA, ONTARIO, CANADA L5B 1M3
PH: (905) 712 0505
FAX: (905) 712 0506
PRIVATE-LABEL / OEM AGREEMENT
THIS AGREEMENT is made on the 8th day of September, 1996 between The WideCom
Group Incorporated, a company incorporated under the laws of the Province of
Ontario, Canada whose registered office is at 55 City Centre Drive, Suite 500,
Mississauga, Ontario, Canada, L5B 1M3 (hereinafter called "WideCom"), and Scan
Group (1991) Ltd. whose registered office is at P.O.Box 10525, Haifa Bay 26114,
Israel, Hereinafter called "SGI".
Whereas
(A) SGI manufactures high end wide-format color scanners.
(B) Widecom manufactures low cost wide-format monochrome and color
scanners.
(C) SGI is desirous of reselling Widecom color scanners under its own brand
name, and incorporating Widecom color-scanner engine in a product to be
created by SGI.
(D) Both firms wish to co-operate in joint marketing efforts, and joint
promotions, as necessary.
1. Definitions
1.1 In this agreement:
(a) "Product or Base Product" means the SLC436-Color Scanner
hereto as manufactured and marketed by WideCom from time to
time or as may be amended from time to time by agreement in
writing.
(b) "Pure Direct Competition" means products based on Widecom's
scan engine, that have no difference, or no real value
differentiation, over Widecom's stand alone scanner.
56
<PAGE> 2
(c) "Applications" shall mean the applications of the Production
for purposes other than that of a stand alone scanner.
(d) "OEM" shall mean private labeling or branding of equipment.
2. Product Scope
SGI will take Widecom's base product and create products for the following
applications:
(a) Color separation card and or software, for Windows and Unix
Platforms, as a primary function of the unit.
(b) SCSI interface card and software for Windows and UNIX
Platforms. Note: Widecom will not develop a competitive
SCSI/UNIX interface for at least 3 years, and will resell this
interface to its customers, and offer it to its other OEMs.
(c) Vectorisation on the fly Software and Hardware for Windows and
UNIX Platforms.
SGI may use ATIL to do these product developments, but will
insure that ATIL signs and abides to the non-disclosure and
non-compete agreements.
3. Prospect Protection
Both parties agree not to encroach
upon or undermine the other party's efforts in recruiting
specific dealers, distributors or OEMs. In this regard,
Widecom recognizes that SGI has had an ongoing relationship
with the following firms, and that SGI wishes to approach
such firms with products created from Widecom's base
scan-engine technology, and Widecom will support these
actions within the term defined hereunder
USA: *
Europe: * - Germany
- Germany
- Germany
- Austria
- Slovakia
SGI must show progress in its efforts to recruit these firms
as resellers on a bi-monthly basis, to maintain such
protection. The protection will be for a period of a maximum
of 6 months if SGI has not been able to finalize an agreement
with the above noted firms within that period. Extended
protection beyond the six months will require bi-monthly
updates that show real progress is being made to Widecom's
satisfaction. If any of these firms approach Widecom directly,
and an agreement is entered upon within 5 years of this date
then Widecom will provide SGI an override commission for
purchases by that firm from Widecom. This commission will be
$40.00 per unit.
4. Mutual Marketing Actions
4.1(a) Widecom offers SGI access to one of its U.S. offices (Atlanta, Chicago
or other), where SGI may at its option establish its primary U.S.
*THIS ITEM HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR CONFIDENTIAL TREATMENT.
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facility. Widecom will allow SGI staff temporary access to its
showrooms and meeting rooms in its other facilities, based on mutual
convenience.
4.1(b) If needed, SGI may at its own cost install call forwarding or call
answering services at other offices.
4.1(c) The only costs that Widecom will be responsible for is provision of
space for the primary SGI office, whereas SGI will be responsible for
the rest of its costs (e.x. telephone, e.t.c.).
4.1(d) Widecom will not be obligated to maintain an office for more than one
year, or provide this service beyond this period, unless mutually
agreed.
4.2(a) Widecom intends to participate at the following tradeshows over the
next six months:
Show: Dates Location Booth Size
GovCAD'96 September 23 to 25 Virginia 20x30
A/E/C Systems Fall October 29 to 31 Florida 20x20
AutoFact November 12 to 14 Detroit 20x20
GIS/LIS'96 November 19 to 21 Colorado 10x20
Widecom invites SGI to participate in these tradeshows at Widecom booth.
4.2(b) Widecom will allow SGI one overhead sign on the channel joining two
columns (as depicted in appendix-A). Along with the overhead sign, SGI
can put up two posters on the columns of size 3'x4'. All signage must
be pre-approved by
Widecom, to insure no conflicting message is portrayed. It is
understood that the product that SGI will display can be competitive to other
Widecom products in the booth, as long as such product incorporates Widecom's
scan-engine. Widecom will not be able to provide overhead signage if the booth
is less than 20'x20'.
4.2(c) For the show participation, SGI will be responsible for its own
shipping, drayage or staff costs. Widecom will only be responsible for
providing the space on the booth, carpet, and its standard booth. All
other costs will be borne by SGI. Joint participation in tradeshows
other than the above, will be mutually agreed upon by both parties, as
necessary, on an ongoing basis.
4.2(d) SGI will inform Widecom in writing at least 60 days prior to each
tradeshow, of its intent to participate. If SGI fails to attend at a
tradeshow, after confirming its intent to participate, Widecom may
withdraw its invitation to participate in future trade shows.
4.3 Lead sharing: Both parties agree to share leads that are more suited to
the other party's Widecom-based product. That is, for the products that
are in pure direct competition, neither party is obligated to share
leads. Both parties agree to share leads for Widecom- technology-based
products that either party has developed that can better meet the
specific demands of a customer. For example, if the SGI labeled product
contains a special vectorization boards or other related imaging
enhancements, that are not offered by Widecom, and are required by the
customer, then Widecom will pass this lead to SGI.
4.4 SGI agrees to the use of its name and reference in Widecom advertising
and testimonial literature. That is, Widecom wishes to use advertising
and testimonial literature that conceptually says that SGI provides the
best & highest quality color scanner on the market, and uses that to
enhance its credibility, since SGI has chosen the Widecom technology
for its low cost product. This will be created in a manner
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<PAGE> 4
that enhances both SGI & Widecom's stature in the market, and does not
take away or hinder anything from SGI's products that are in
pure-competition with Widecom. Widecom will use this to promote its
technology, and no specific finished product. Each one the
advertisements or literature will have to be approved by SGI.
5. Non-disclosure/Non-compete Both parties have entered into a mutual
non-disclosure agreement, which is attached as appendix-B. SGI affirms
that other than with respect to the proposed business relationship
between the parties, it is neither engaged in nor intends to be engaged
in either directly or in directly any business involving single line
contact scanning module technology. SGI agrees not to enter any such
business during the 5 (five) year period following the date of this
agreement.
6. Production/Sub-contract Widecom will consider favorably the possibility
of producing the new SGI scanner (based on Widecom technology) at their
plant in India. SGI will provide all documentation needed for this
production. The new scanner developed by SGI will be owned solely by
SGI and its production rights will not be allowed to be handed to a
third party.
7. Territory, Commitment, Price & Quality Assurance
7.1 Territory: For the European market, the basic unit that Widecom
supplies is limited in the form of a Color-Separation-Scanner or
SCSI/UNIX-Scanner or Vectorisation-Scanner unit. For the first 12
months, the stand-alone scanner base-unit will not be sold by SGI in
the European market, except for the above noted
application/configuration.
7.2 *
7.3 *
7.4 Product Updates: In case that Widecom will change the specifications of
the scanner in the future, they will update SGI with the full hardware
and software documentation prior to introducing the new product to the
market.
7.5 *
7.5 Quality Assurance: Widecom undertakes to provide to SGI units that will
show image that resolves the test chart created by both parties, and
attached in appendix-C. The scanner specifications will be as follows:
a. The scanner should support scanning in RGB mode of at least 24
bit per pixel.
b. The scanner should be able to produce consistent colors.
c. Scanning area of at least A0 for every color mode.
d. The scanner should scan in true 400 dpi resolution.
8. Termination
8.1 Either party may terminate this agreement forthwith by notice in
writing sent thirty (30) days in advance:
*THIS ITEM HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR CONFIDENTIAL TREATMENT.
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<PAGE> 5
(a) upon bankruptcy, insolvency of liquidation of either party (except
for voluntary liquidation to effect a reconstruction on terms to which
the other party has previously consented to in writing);
(b) upon any material change to the ownership or management of either
party which the other party considers detrimental to its interest;
(c) if either party commits a irremediable breach of the terms of this
agreement.
8.2 Notwithstanding termination of this agreement SGI and ATIL shall remain
bound by the obligations to respect WideCom's confidential information,
non-competition and industrial property rights.
9. Applicable Law: This agreement shall be construed under and governed by
the law of the Province of Ontario, Canada. Further, the parties hereto
agree that any claims or controversy arising between them our of, or in
conjunction with the provisions of this agreement shall be finally
settled in accordance with the rules of conciliation arbitration of the
International Chamber of Commerce. In addition, the parties agree to
comply with the applicable laws of Canada and the territory regarding
disclosure requirements and limitations of payments imposed by subject
territories.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day
and year first above written.
/s/
- --------------------------------------- --------------------------------
On Behalf Of The Scan Group (1991) Ltd. Refoel Moshe
/s/
- --------------------------------------- --------------------------------
On Behalf Of The WideCom Group Inc. Suneet Tuli
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<PAGE> 6
APPENDIX A
Picture of an overhead sign to be used by SGI in connection with certain
tradeshows which the Company has invited SGI to participate in with the use of
the Company's booth.
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<PAGE> 7
APPENDIX B
NON-DISCLOSURE AGREEMENT
Made this 11th day of July 1996
By and among SCAN GROUP LTD., having a place of business at 22 Humusshim St.
P.O. Box 0425 Halfa 26114, Israel; and THE WIDECOM GROUP INC., having a place of
business at 55 City Centre Drive, Suite 500, Mississauga Ontario, Canada.
1. RECITALS. The parties hereto acknowledge that from time to time,
Widecom may make known to Recipient certain confidential information in
furtherance of mutual business interests which is deemed to be
confidential, secret and/or proprietary to Widecom.
2. DEFINITION. "Confidential Information" shall mean all information
designated as "Confidential Information", (as provided in Paragraph 3)
and disclosed by Widecom to Recipient, including, but not limited to,
any electronic configurations, component specification, logic diagrams
and equipment designs associated with the Scanner/Plotter/Facsimile
Project. The term "Confidential Information" shall not include any
information which:
2.1 Is now generally known or available or which hereinafter
through no act or failure on the part of Recipient becomes
generally known or available; and provided that the term
"generally known" shall not include piecemeal reconstruction
or reverse engineering of the "Confidential Information";
2.2 Is hereafter fumished to Recipient by a third party without
restriction on disclosure, where such third party legally
obtained such information and the right to disclose it to
Recipient or
2.3 is independently developed by Recipient without violation of
any legal rights which Widecom may have in such information.
3. DISCLOSURE and PROTECTION.
As to any information provided to Recipient by Widecom, such disclosure
shall be deemed "Confidential Information" if:
a) The confidential information in written or other tangible form
is marked "Confidential" or
b) Information disclosed orally is identified as confidential in
writing to Recipient within 72 hours of meeting and may not be
disclosed in any part prior to said Letter of Identification.
4. Recipient shall use "Confidential Information" for the purpose of this
Agreement only and shall not disclose "Confidential Information" or any
part thereof to any other person, corporation or other organization
without prior written authorization of an officer of Widecom.
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<PAGE> 8
5. This Agreement shall remain in force and effect for two (2) years from
the date of the last transfer of "Confidential Information" between the
parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
SCAN GROUP LTD. THE WIDECOM GROUP INC.
By: /s/ By: /s/
-------------------------------- --------------------------------
Rofoel Moshe Suneet Tuli
TITLE: President TITLE: Executive Vice President
Date: 11/7/96 Date: 11/7/96
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<PAGE> 9
APPENDIX C
It is agreed that units of SLC 436-Color Scanner will be tested by both
companies using the test chart as follow:
Test Chart # .83.001
Test Chart maid by: EDMUND SCINTIFIC
Barlington
New Jersey 08607
USA
- ---------------------------- -------------------------
Scan Group Ltd. Widecom
64
<PAGE> 10
OEM PURCHASE AND SALE AGREEMENT
An Agreement made and entered into on 15 November 1996 between (1) THE WideCom
GROUP INCORPORATED, having its principal place of business at 55 City Centre
Drive, Suite 500, Mississauga, Ontario, Canada L5B 1M3, hereinafter referred to
as "WideCom" and (2) THE IMTEC GROUP LIMITED, having its principal place of
business at 168 Honeypot Lane, Stanmore, Middlesex HA7 lLB, England, hereinafter
referred to as "Imtec"
Whereas
(A) WideCom has designed and produced a Document Scanner known as the
WideCom SLC436
(B) WideCom is engaged in the development of further document scanning
devices, particularly an enhanced version of the SLC436 sensor array
for 400 dots per inch scanning
(C) Imtec is engaged in the manufacture and distribution of equipment and
supplies for the engineering document market
(D) Imtec is desirous of having a source of supply of document scanners and
WideCom is willing to supply such scanners to Imtec
(E) Imtec is desirous of having a source of supply of components and
knowhow related to document scanning devices for incorporation into
machines of Imtec design and manufacture and WideCom is willing to
supply such components and knowhow to Imtec
1. Definitions
(A) "Product" shall mean complete SLC436 scanner, or derivative and related
scanning machines, or a set of the major components used in the
machines, as defined in Appendix 1
(B) "Components" shall mean elements of the 5LC436 scanner, its derivative
and related products, such as the image sensing components, printed
circuit boards, drive motor ,illumination components and software code
as defined in, but not limited to, the list in Appendix 1 of this
Agreement.
(C) "Parent machine" shall mean the WideCom machine such as the SLC436
which uses the parts defined as the "Components"
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<PAGE> 11
(D) "Derived Product" shall mean any Imtec machine which is built using
Components supplied by WideCom under this Agreement.
(E) "Exclusive Territory" mean shall those countries listed in Appendix 2,
paragraph 1
(F) "Non-Exclusive Territory" shall mean the World, save for the Exclusive
Territory.
(G) "Territory" shall mean the Exclusive and the Non-Exclusive Territory.
(H) "Intellectual Property" shall mean patents, trade marks (or
applications therefor) copyright, design rights, know-how an d
confidential information.
(I) "Applications" shall mean the applications of the Product for the
purposes of stand alone scanning, and for integration of the Product
into a device which combines electronic document capture with microfilm
document capture
2. SALES PURCHASE AND DISTRIBUTION
2.1
Imtec agrees to purchase from WideCom and WideCom agrees -to supply the Products
to Imtec on a continuous basis on the terms and conditions set forth-in this
Agreement.
2.2
Widecom agrees to appoint Imtec as its sole and exclusive distributor for the
Product, subject to the Applications and the ordering requirements pursuant to
paragraph 3.1, in the Exclusive Territory subject to clause 2.3 below.
Furthermore WideCom shall grant Imtec non-exclusive distribution rights for
other territories as defined in Appendix 2, paragraph 2. WideCom agrees to allow
Imtec to promote itself as the appointed distributor in the Territory and
further shall allow Imtec to appoint sub-distributors and dealers as it sees
fit. Imtec shall be free to sell the Product to OEM distributors for purposes
other than the Applications, subject to giving notice of contact with any such
OEM distributors to WideCom, and subject to the approval of WideCom which shall
not be unreasonably withheld.
2.3
WideCom shall be free to appoint further distributors to operate within the
Territory subject to the following conditions:
2.3.1
The price of the Product to Imtec shall be no more than the price of the Product
to any other distributor, even if this means that the price to Imtec must be
reduced to meet this condition.
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<PAGE> 12
2.3.2
The performance specification of the Product supplied to any other distributor
shall not exceed the performance specification of the Product supplied to Imtec,
unless the improved specification offered by WideCom is declined by Imtec.
2.3.3
If WideCom grant distribution rights to a third party over territory that
includes the Exclusive Territory then this other distributor must have its own
worldwide marketing organization and shall be granted rights to the rest of the
world in addition to the aforementioned Exclusive Territory.
2.3.4
WideCom shall notify Imtec of any discussions with third parties which reach
agreement of intent to appoint the third party as a distributor within the
Exclusive Territory. Any discussions with third parties shall be held
confidential until there is formal written agreement to proceed with
distribution of the Product. WideCom shall require any third party to agree such
confidentiality in writing.
2.3.5
Where possible WideCom shall give at least six (6) months notice of the
commencement of supply to any other distributor which may operate in the
Exclusive Territory. In the case that a price reduction to Imtec will result,
pursuant to paragraph 2.3.1, then this price reduction shall take effect from
the time at which notice is served. If the period of notice given by WideCom is
less than six (6) months, then Imtec shall be free to adjust any outstanding
purchase orders, notwithstanding the conditions of paragraphs 3 and 4.
2.3.6
WideCom shall be free to appoint further distributors for sale of the Product
for any express purpose not included in the Applications, subject to the
conditions set out above in this clause save for 2.3.3
WideCom agrees to allow Imtec to freely distribute the Imtec Derived Products
without restriction.
WideCom agrees to supply the Components to Imtec on an exclusive basis for the
purposes of integration into Imtec scanner and scanner/microfilm camera
products, and shall not supply the Components to any third party for the
purposes of construction of machines of similar function or application, except
under the conditions set out above.
3. Order Procedures
3.1 *
This order quantity and delivery schedule shall be dependent on the
specification, performance and manufacturing quality of the Mark 2
*THIS ITEM HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR CONFIDENTIAL TREATMENT.
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<PAGE> 13
version of the SLC 436 being judged by Imtec to be of satisfactory standard for
the market in the Exclusive Territory, and to there being no appointment of any
third party distributors pursuant to paragraph 2.3. The order shall also be
subject to amendment following discussions between the parties in the case of
substantial changes in the general market volumes and selling prices within the
Exclusive Territory.
To facilitate the efficient continuing supply of the Products by WideCom, Imtec
will place a firm purchase order for the Products which covers the shipments to
be made in the fourth calendar month following the calendar month in which the
order is placed.
Orders will specify the following items:
a) Order Number and order date
b) Description and Quantity of the Products
c) Unit Price and total price
d) Means of shipment and required delivery time
e) Shipping destination
f) Month of shipping
A purchase order placed by Imtec with WideCom may by agreement in writing be
altered in respect of means of shipment and shipping destination at any time
prior to shipment.
Each purchase order shall be treated as a separate contract between the parties,
and failure to perform any such separate contract shall not alone be reason to
determine performance under this Agreement as a whole.
Imtec shall place further purchase orders for the supply of the Product to
follow on a continuous basis from the initial purchase order. Imtec shall be the
sole and exclusive distributor in the exclusive Territory, save for the
conditions of paragraph 2.3, 50 long as the annual order quantities shall be
sufficient to give Imtec a market share within the Exclusive Territory which is
approximately equal to the market share of WideCom in the North American market
for the same annual periods.
3.2
WideCom shall, without unreasonable delay but in any case within one (I) month
of receipt of a firm purchase order, inform Imtec that WideCom accepts the order
so long as it is in accordance with Section 3.1 and previous reservation orders
as defined in Section 4. WideCom shall not refuse any order from Imtec which is
in accordance with this Agreement.
3.3
In the case of a firm purchase order which includes material terms or
conditions which deviate from those stipulated in this agreement, WideCom may,
at its discretion, either refuse to accept the order or propose to Imtec that
the particular terms or conditions are amended or deleted.
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<PAGE> 14
4. Reservations and forecast
Imtec shall provide WideCom with Reservation orders and a purchase forecast as
follows:
4.1
Imtec shall each month place a reservation order for the Products, which covers
shipments to be made in the fifth calendar month following the calendar month in
which the reservation order is placed. Such reservation orders shall be subject
to agreement by WideCom.
4.2
Imtec may alter the quantity of Products in a reservation order before
converting it to a firm purchase order. This quantity alteration may be an
increase or decrease, but shall not exceed 25% of the original reserved quantity
4.3
Imtec shall each month place a forecast for the purchase of Products, which will
cover the shipments to be made in the six (6) months period commencing with the
sixth (6) month following the month in which the forecast is placed. Such
forecasts are indicative only and do not create an offer to purchase the
Products.
5. Prices and Payment
5.1
The Prices for the Products are defined in Appendix 1. These Prices are FOB
Noida, and shall include adequate protective packing for shipping by normal
methods. These Prices shall be maintained for the first eighteen (18)months
following the date of signing of this Agreement.
Imtec and WideCom will discuss and agree the prices which will take effect
eighteen (18) months from the date of this Agreement and thereafter at eighteen
(18) month intervals. The price of the Product shall not be increased by more
than the percentage change of the UK Retail Price index during the preceding
eighteen (18) month period.
5.2
The Prices defined in Appendix 1 are based on an exchange rate of 1.55 US
Dollars to one Pound Sterling. If the rate of exchange moves outside the range
of 1.45 to 1.65 US Dollars to one pound sterling, then the loss or gain to Imtec
of the exchange rate being outside the range shall be equally shared with
WideCom, such losses or gains being calculated from the upper and lower limits
of the range. The exchange rate used in computing any losses or gains shall be
the spot exchange rate prevailing in London at the time that transfer payments
are made. The parties should issue invoices at quarterly intervals for any
payments due pursuant to the above. Such invoices should be paid by the other
party within thirty (30) days.
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5.3
Payment will be made by Telegraphic Transfer to a bank nominated by WideCom,
within ninety (90) days of receipt of the shipment.
5.4
Payment shall be made in United States Dollars.
6. Delivery
Shipment of the Products shall be made FOB Noida in accordance with the
Incoterms in effect at the date of shipment. Subject to satisfactory inspection
as set out in Section 7, WideCom shall deliver the Products in accordance with
the necessary instructions from Imtec. Any item shall be deemed to have been
delivered to Imtec when title to and risk of such item pass on the basis of
Section 6.2 below. WideCom shall advise Imtec about the specifics of shipment
immediately the information is available.
6.2
Title and risk to any Products to be purchased will pass to Imtec when the
Products are placed on board at FOB port of export in Noida, suitably packed and
marked for delivery as mutually agreed.
7. Quality and Inspection
7.1
The Products to be shipped to Imtec will meet the specific quality requirements
as detailed in Appendix 3. In addition to these requirements all items shipped
shall function correctly, be free from defects such as external scratches,
corrosion, paint defects, and meet normal engineering standards of workmanship
for build quality and finish.
7.2
WideCom will inspect Products prior to shipment to Imtec. Imtec may, at their
discretion, give concessions on quality, but only if the concession is requested
in writing by WideCom and accepted by Imtec in writing prior to shipment.
Products received by Imtec shall be subject to inspection pursuant to the terms
of Section 7.1 within a reasonable time of arrival at their destination. WideCom
will be notified in writing within fifteen (15) days of arrival of any Products
which do not meet satisfactory quality levels, and these Products will be
rejected back to WideCom for replacement, at no cost to Imtec.
7.3
In the event that the Product delivered is consistently not of merchantable
quality, then Imtec reserves the right to cancel any outstanding orders until
quality problems are resolved to their satisfaction. If the problems cannot be
resolved to the satisfaction of Imtec then Imtec may terminate the agreement
pursuant to paragraph 17.
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<PAGE> 16
8. Continuity of Supply
In the event that WideCom is unwilling or unable to supply the Products within
the period of this Agreement, then WideCom shall supply to IIrLtec all the
information and data necessary to allow Imtec to produce the Products. This
information and data shall be supplied free of charge, within 14 days of request
by Imtec, and shall include but not be limited to all documents, drawings,
patent licences, manufacturing rights, supplier information and know how
necessary for the manufacture of the Products.
9. Spare Parts
WideCom shall continue ~o supply reasonable quantities of Components for use as
spare parts for at least five (5) years after the expiry or termination of the
Agreement.
10. Documentation and Training
WideCom shall provide Imtec with all necessary documentation needed for the
integration of the Components into Imtec Derived Products and allow Imtec to
repair, service and maintain the Products. This documentation shall include
dimension mechanical drawings detailing mounting holes and fixing points,
electrical schematic diagrams of individual circuit boards (with the exception
of the specifications relating to the FPGA circuits, and of the Averaging PCB
for the Colour scanner only), electrical interconnections and all other relevant
data concerning the successful installation of the Components in the Derived
Products.
WideCom shall, before the first delivery of Products, provide a training course
for up to four (4) Imtec engineers regarding the operation, maintenance and
repair of the Products. The training course may be held in either England or
Canada, and at WideCom's expense except for any travel and subsistence expenses
for either WideCom or Imtec staff which will be borne by Imtec.
All documentation and training shall be in the English language.
11. Developments, Improvements and Modifications
11.1
WideCom shall keep Imtec informed of Product developments within the scope of
Section 1 (A) of this Agreement, and shall offer such developments to Imtec
under the terms of this Agreement.
11.2
WideCom shall only introduce modifications to the Products supplied under this
Agreement if these modifications are considered by WideCom and Imtec to be
improvements. All proposed modifications must be formally accepted in writing by
Imtec prior to introduction.
All modifications which affect performance, compatibility with other parts and
physical changes which affect fitting to Imtec Derive& Products must be notified
in writing by WideCom at least four (4) months before delivery.
No price increase as a result of a modification will be accepted by Imtec unless
the increase has been accepted by Imtec in writing.
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<PAGE> 17
12. Warranties
12.1
WideCom shall warrant the quality of material and workmanship of the Products
for a period of twelve (12) months from date of the Bill of Lading of the
shipment. WideCom will within a reasonable period replace any defective Products
free of charge, and send the replacements on a CIF basis, provided that Imtec
has a) sent a written notice of the defect to WideCom, together with a technical
description thereof promptly after the defect is found, or in any case within
twelve months of the shipment of the Component b) Sent the allegedly defective
component to WideCom for inspection, if so requested by WideCom
12.2
WideCom shall not be responsible for any defects caused by transportation or
storage conditions after loading at the FOB port, or for inadequate installation
or maintenance by Imtec.
13. Intellectual Property
If any third party should bring a suit or any other form of legal claim against
Imtec resulting from an alleged infringement of Intellectual Property as a
result of the use or sale of the Products then Imtec shall inform WideCom of
this action in writing without delay and in any case within thirty (30) days of
receipt.
WideCom shall hold Imtec harmless in the case of any claim or suit brought by a
third party concerning infringement of Intellectual Property provided that: a)
The Products have not been altered by Imtec in such a way as t~ have caused the
infringement b) The alleged infringement relates to the Products supplied by
WideCom and not the configuration of these Components in the Imtec designed
Derived Product
14. Trade Marks
Imtec shall be allowed to sell the Products under the Imtec trade mark, and to
sub-license such right to sub-distributors. The Components supplied to Imtec
shall be built into Derived Products manufactured by Imtec, and sold under the
Imtec trade mark or any other trade mark allowed by Imtec under their terms of
distribution of the Derived Product.
15. Confidentiality and Non-Competition
15.1
Each party will hold confidential any information or data from the other party
which relates to the Product and the business between the parties in connection
with this Agreement. The information shall include, but not be limited to, any
design drawings, data, process technology, technical and market know how,
pricing and sales data, and ideas and suggestions related to the Product or the
business. Each party shall hold such information confidential, and shall not
disclose it to any third party without the written permission of the supplying
party, except when the information is required for the maintenance and repair of
the Product by third
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<PAGE> 18
party distributors. Each party shall ensure that confidential information is
only disclosed to those employees who need this information for the business
between the two parties.
15.2
Neither party shall be restricted from disclosing information which becomes
generally known to the public by no fault of either party, or which was known to
a party prior to this Agreement, or which is independently obtained or developed
by one of the parties.
15.3
Imtec affirms that other than with respect to the proposed business relationship
between the two parties, it is neither engaged in nor intends to be engaged in,
either directly or indirectly, any business involving single line contact
scanner technology which involves products which are in direct competition to
the Products, either existing or known to Imtec to be in development. Subject to
Imtec continuing to be the sole and exclusive distributor in the Exclusive
Territory for the Products pursuant to paragraph 2.2, Imtec agrees not to enter
any such business during the five (5) year period following the date of this
Agreement unless Imtec gives WideCom sixty (60) days notice thereof and proves
to WideCom's reasonable satisfaction, prior to such entry, that Imtec is not
utilizing any of the Confidential Information in connection with this Agreement.
16. Product promotion
Imtec shall promote the Products by means of exhibitions, advertising, press
editorial features and other methods. For each six (6) month period thereafter
Imtec shall agree a programme of marketing promotion with WideCom. WideCom
agrees to assist Imtec with subsidies 50% of the cost the floor space of the
agreed trade shows, and 50% of the insertion costs of the agreed advertising
expenditure. Other items of promotional expenditure may also be subsidized,
subject to case by case agreement by WideCom. Imtec will issue invoices for the
agreed subsidies to WideCom at quarterly intervals. Such invoices shall be
payable by WideCom within thirty (30) days.
17. Term
This Agreement shall take effect on the day it is signed by authorized
representatives of both parties. This Agreement shall remain in force for a
period of eight (8) years for the date of signing, unless earlier terminated
pursuant to Section 19. Imtec shall be the sole and exclusive distributor for
the Products, pursuant to paragraph 2, for an initial period of three (3) years,
subject to the provisions of paragraph 2.3. Imtec and WideCom shall meet at
least six (6) months before the end of this period to discuss the renewal of
these sole and exclusive marketing rights, which renewal shall not be withheld
if Imtec is marketing the Product effectively.
An extension to the Agreement may be negotiated at the request of either party
provided that such negotiation shall start not later than nine (9) months prior
to the expiry of this Agreement.
74
<PAGE> 19
18. Force majeure
Neither party shall be liable for delays in or failure of performance due to
causes beyond such party's reasonable control, or Acts of God, strike, lockout
or other interference with work, war declared or undeclared, blockade,
disturbance, fire, legal acts of public authorities, unavailability or delay of
transportation or any other causes beyond the reasonable control of either
party. In the event of any delay or failure the affected party shall promptly
give notice to the other party giving details of the force majeure, and shall
make its best efforts to remove the force majeure as soon as possible.
The performance of the affected party shall be deemed suspended so long as and
to the extent that any force majeure continues, provided however that after one
hundred and twenty (120) consecutive or cumulative days the other party, at its
sole discretion, may terminate the Agreement without liability.
19. Early termination
If any party hereto fails or refuses to perform any of its obligations under the
prime terms of this Agreement and shall continue such failure or refusal for a
period of sixty (60) days after having received written notice thereof , then
the party giving such notice may terminate the Agreement forthwith by sending
written notice to the defaulting party. Written notices will be sent pursuant to
Section 21.
20. Non-Assignability
Neither party may, in whole or in part, assign, transfer, pledge, encumber or
otherwise dispose of this Agreement or any interest, right or obligation created
thereunder to any third party, without the prior consent of the other party to
this Agreement.
21. Notice
All notices specifically required by this Agreement shall be in writing in the
English language and shall be sent by registered airmail or by telex or
facsimile subject to confirmation within 15 days of receipt of such telex or
facsimile, unless otherwise instructed by written notice of the other party:
If to WideCom: WideCom Group Incorporated
55 City Centre Drive,
Suite 500,
Mississauga,
Ontario,
Canada L5B 1M3,
Attention : S. Tuli, Director
Facsimile: 001 416 566 0181
If to Imtec: The Imtec Group Limited
168 Honeypot Lane
Stanmore
Middlesex HA7 lLB
England
Attention : S. Brewster, Director
Facsimile : UK 181 204 9496
Telex : UK 924574 Imtec G
75
<PAGE> 20
The notices shall be deemed to have been duly served, and made unless otherwise
specifically provided for in this Agreement, i) when registered airmail shall
have been deposited in. the mail, postage pre-paid, or ii) when such telex or
facsimile shall have been received by the other party, subject to receipt by
such other party of the confirmation thereof by registered mail, postage
pre-paid, within fifteen (15) days.
22. Disputes
This Agreement shall be governed by the laws of England and both parties submit
to the non-exclusive jurisdiction of English courts, and the rights and
obligations of the parties shall be enforceable accordingly.
In witness whereof, the parties hereto have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
The Imtec Group Ltd Widecom Group Inc
/s/_________________________ /s/________________________
Signed by Starr Brewster Signed by: Suneet S. Tuli
Title: Managing Director Title: Executive Vice President
76
<PAGE> 21
APPENDIX 1
This exhibit is filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.
77
<PAGE> 22
APPENDIX 2
1 EXCLUSIVE TERRITORIES:
United Kingdom Spain
France Portuga1
Holland Sweden
Belgium Denmark
Germany Finland
Italy Norway
Switzerland Greece
Austria Cyprus
Poland Turkey
Czech Republic Malta
Hungary Serbia
Bosnia Eire
Croatia
2 NON EXCLUSIVE TERRITORIES:
All countries not listed in Paragraph 1.
78
<PAGE> 23
APPENDIX 3
This exhibit is filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.
79
<PAGE> 1
EXHIBIT 21
SUBSIDIARY
1. Indo-Widecom International, Ltd., a corporation formed under the laws of
India.
80
<PAGE> 1
EXHIBIT 23
Consent of Independent Chartered Accountants
We hereby consent to the inclusion in The WideCom Group Inc. Annual Report on
Form 10-K for the year ended March 31, 1997, of our auditors' report dated July
4, 1997, and to the references to us in such Form 10-K.
/s/ BDO DUNWOODY
Chartered Accountants
(Internationally BDO Binder)
Toronto, Ontario
July 4, 1997
81
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