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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
FILE NO. 333-35547
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3/A
POST EFFECTIVE AMENDMENT NO. 1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE WIDECOM GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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ONTARIO, CANADA 98-0139939
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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72 DEVON ROAD
BRAMPTON, ONTARIO
CANADA L6T 5B4
(905) 712-0505
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
SUNEET S. TULI, EXECUTIVE VICE PRESIDENT
3180 WASHINGTON PIKE
BRIDGEVILLE, PENNSYLVANIA, 15017
(905) 712-0505
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
VICTOR J. DIGIOIA, ESQ.
GOLDSTEIN & DIGIOIA, LLP
369 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE (212) 599-3322
FACSIMILE (212) 557-0295
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plan, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF SHARES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
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Common Stock, no par
value(2)................... 60,000 $ 2.50 $150,000 $ 45.00
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Common Stock, no par
value(3)................... 353,500 $ 1.37 $484,295 $ 147.00
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Common Stock, no par
value(4)................... 219,298 $ 1.14 $250,000 $ 76.00
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Common Stock, no par
value(5)................... 50,000 $ 4.00 $200,000 $ 61.00
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Total.............. 682,798 $946,795 $ 329.00
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(1) Total estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o). Registration Fee based upon the closing bid price
of the Company's common stock on the Nasdaq Small Cap Market on February 10,
1998, ($1.37). The fee of $329.00 has been previously paid.
(2) Represents Shares of Common Stock issuable upon exercise of outstanding
Common Stock purchase warrants held by certain security holders. Pursuant to
Rule 416 of the Act there are also being registered such additional number
of shares of Common Stock as may become issuable pursuant to the
anti-dilution provisions of the Warrants.
(3) Shares of Common Stock held by certain security holders.
(4) Shares of Common Stock issuable upon conversion of $250,000 of 8%
convertible debentures (the "Debentures") to be sold by certain security
holders. The Debentures are convertible at a per share conversion price (the
"Conversion Price") equal to 80% of the average closing bid price of the
Shares (the "Average Bid Price"), as quoted on the National Association of
Securities Dealers Automated Quotation ("Nasdaq") system over the twenty
(20) trading days immediately preceding the date of the Company's receipt of
notice requesting conversion; therefore, as the Average Bid Price and
likewise the Conversion Price, increases or decreases, as the case may be,
the number of shares issuable upon conversion decreases or increases,
respectively. The maximum offering price however, will always remain at
$250,000, the aggregate principal amount of the 8% Debentures. The number of
shares of Common Stock registered reflects an offering price of $1.14 per
share based upon the Average Bid Price. Pursuant to Rule 416 of the Act
there are being registered such additional number of shares of Common Stock
as may become issuable pursuant to the anti-dilution provisions of the
Debentures.
(5) Represents Shares of Common Stock issuable upon exercise of outstanding
Common Stock purchase warrants held by a certain security holder. Pursuant
to Rule 416 of the Act there are also being registered such additional
number of shares of Common Stock as may become issuable pursuant to the
anti-dilution provisions of the Warrants.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SECTION 8(a) MAY
DETERMINE.
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PROSPECTUS
682,798 SHARES
THE WIDECOM GROUP INC.
COMMON STOCK
This Prospectus covers an aggregate of 682,798 shares of common stock, no
par value (the "Shares") of The Widecom Group Inc., an Ontario, Canada
corporation (the "Company"), held by certain securities holders (the "Selling
Security Holders") of which: (i) 110,000 Shares are issuable pursuant to common
stock purchase warrants ("Warrants"); (ii) 350,000 Shares were issued to certain
Selling Security Holders pursuant to certain settlement agreements which settled
two lawsuits in which the Company was a named party; (iii) 3,500 Shares issued
to a certain security holder; and (iv) 219,298 Shares of common stock issuable
upon conversion of $250,000 of 8% convertible debentures subject to adjustments
as provided in the debentures. The Prospectus is intended to be utilized by the
Selling Security Holders in connection with the resale of Shares owned by them.
The Company will bear all the expenses incident to the registration of the
Shares under the Securities Act of 1933, as amended (the "Securities Act"), and
state securities laws, if any, on behalf of the Selling Security Holders. The
Company will not receive any of the proceeds from the sale of the Shares by the
Selling Security Holders; however, any proceeds received from the exercise of
Warrants will be used for working capital. See "Use of Proceeds."
The Company's common stock is traded in the over-the-counter market and is
quoted on the Nasdaq Small Cap Market ("Nasdaq") under the symbol "WIDEF" and on
the Boston Stock Exchange under the symbol "WDE". On February 10, 1998, the
closing bid and asked prices for the Common Stock as reported on Nasdaq were
$1.37 and $1.50, respectively.
The Shares may be sold from time to time by the Selling Security Holders,
or by the transferees of the Shares or Warrants. No underwriting arrangements
have been entered into by the Selling Security Holders. The distribution of the
Shares by the Selling Security Holders and/or their transferees may be effected
in one or more transactions that may take place on the over-the-counter market,
including ordinary brokers transactions, privately negotiated transactions or
through sales to one or more dealers for resale of the Shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Shares may be sold by the
Selling Security Holders either: (i) to a broker or dealer as principal for
resale as such broker or dealer for its account pursuant to this Prospectus
(e.g. in a transaction with a "market maker"); (ii) in brokerage transactions,
including transaction in which the broker solicits purchasers; or (iii) in
privately negotiated transactions pursuant to any applicable exemption under the
Securities Act of 1933, as amended (the "Act"). Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Security Holders in connection with such sales. The Selling Security Holders and
intermediaries through whom such Shares are sold may be deemed "underwriters"
within the meaning of the Act, with respect to the Shares offered.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" PAGE 6
OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is March 2, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements and
other information filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of
the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048; and Chicago Regional Office, Everett McKinley Dirkson
Building, 210 South Dearborn Street, Room 1204, Chicago, Illinois 60604. Copies
of such material may be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission pursuant
to the Exchange Act, are hereby incorporated by reference, except as superseded
or modified herein:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997.
2. The Company's Form 10-K/A No. 1 for the fiscal year ended March 31,
1997.
3. The Company's Form 10-K/A No. 2 for the fiscal year ended March 31,
1997.
4. The Company's Form 10Q for the fiscal quarter ended June 30, 1997.
5. The Company's Form 10Q for the fiscal quarter ended September 30,
1997.
6. The Company's Form 8K, dated February 4, 1998.
7. The Company's Form 8/A, dated December 15, 1995, December 9, 1995,
and December 8, 1995.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated by reference in this
Prospectus and shall be part hereof from the date of filing of such document.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any document described above (other than exhibits). Requests
for such copies should be directed to The Widecom Group, Inc., 72 Devon Road
Brampton, Ontario Canada L6T 5B4. The Company's telephone number is (905)
712-0505.
No persons have been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering of securities made hereby and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company, the Selling Security Holders or any other person. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any
securities, or the solicitation of a proxy, by anyone, in any jurisdiction to or
from any person to whom it is not lawful to make such offer or solicitation in
such jurisdiction. Neither the delivery of this Prospectus nor any distribution
of securities made hereunder shall under any circumstances create an implication
that there has been no change in the affairs of the Company since the date
hereof or that the information herein is correct as of any time subsequent to
its date.
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PROSPECTUS SUMMARY
The following summary is intended to set forth certain pertinent facts and
highlights from material contained in the body of this Prospectus and the
Company's Report on Form 10-K and 10K/A Amendment No. 1 and Amendment No. 2 for
the fiscal year ended March 31, 1997 (collectively, the "Form 10-K"); and the
Company's quarterly report on Form 10Q for the fiscal quarter ended June 30,
1997, September 30, 1997 and December 31, 1997 (the "Form 10Q"), which are
incorporated herein by reference. The summary is qualified in its entirety by
reference to the more detailed information and consolidated financial statements
appearing elsewhere in this Prospectus and Form 10-K and 10Q. Each prospective
investor is urged to read this Prospectus, the Form 10-K and Form 10Q in their
entirety.
THE COMPANY
General
The Widecom Group Inc., 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 consists of a 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 a 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 color scanner 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.
The Company's scanners incorporate the Company's single line contact
scanner technology to capture the image of a wide format document. The contact
scanner consists of a 36" fiber optic array, 8mm "image sensor chips" aligned to
create a 36" length light sensor, a 36" light emitting diode ("LED") array and
software designed to enhance the scanned image by removing deteriorations from
the document being reproduced and 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 color scanner 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 the SLC436-C color
scanner to interface with a personal computer, as well as to permit the user to
perform a variety of scanning, editing, viewing and transmission functions.
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.
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.
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
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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.
RECENT EVENTS
Private Placement Offering Completed
On May 19, 1997, the Company completed a private offering (the "May Private
Offering") pursuant to Regulation D promulgated under the Securities Act,
wherein the Company raised $250,000 in gross proceeds in connection with the
sale by the Company to Global Bermuda Partnership, a Bermuda limited
Partnership, of five units ("Units"); each Unit is comprised of the following:
(i) one $50,000 principal amount convertible debenture (collectively the
"Debentures") and (ii) a 10,000 common stock purchase warrant. Under the
Debentures, Global Bermuda will have the right, at any time commencing on the
121st day following the date of issuance of the Debentures and prior to the
payment in full of the Debentures, to convert all or part of the unpaid balance
of the Debentures (the amount so converted hereinafter being referred to as a
"Conversion Amount") into Common Stock of the Company at a conversion price (the
"Conversion Price") equal to 80% of the average closing bid price of the
Company's shares, as quoted on Nasdaq system over the twenty (20) trading days
immediately preceding the date of the Company's receipt of notice requesting
conversion. The number of Shares into which any Conversion Amount may be
converted shall equal the quotient obtained by dividing such Conversion Amount
by the Conversion Price. Based upon a conversion price of $1.14, the Debentures
will be converted into 219,298 shares. The warrants noted above are exercisable
over five years and have an exercise price of $4.00 per share, subject to
adjustment in certain circumstances. The Registration Statement, of which this
Prospectus forms a part, includes the shares of common stock issuable upon
exercise of the warrants.
Financial Consulting Agreement
On June 27, 1997, the Company entered into an agreement with Alex Moore &
Co. (the "Consultant") whereby in consideration of certain consultant services
the Consultant received certain warrants from the Company (the "Agreement"). In
November of 1997, the Company and the Consultant agreed to cancel the Agreement,
and the Warrants issued to the consultant were cancelled.
Settlement of Certain Litigation
On June 27, 1997, the Company entered into a settlement agreement with
certain individuals who had filed suit against the Company (collectively, the
"Settling Parties"). The complaint in this action was based upon alleged
improper conduct by the Company with respect to the announcement by the Company
of the redemption of certain warrants, which announcement was made on February
10, 1997. The complaint included causes of action for alleged fraud, in the
nature of alleged misrepresentation and in the nature of alleged negligent
misrepresentation, alleged breach of contract, alleged breach of fiduciary duty,
and alleged violations of the California Corporations Code. The Settling Parties
sought compensatory and general damages, punitive damages, and injunctive
relief. The complaint also demanded an award of pre-judgment and post-judgment
interest, attorneys' fees, expert witness fees, and costs.
Under the terms and conditions of the Settlement Agreement the Settling
Parties received 75,000 shares of the Company's Common Stock, and subject to the
terms and conditions of the Settlement Agreement they may receive an additional
75,000 shares. The Settling Parties also received 50,000 Warrants to purchase
Common Stock at an exercise price of $2.50 per share, which Warrants expire on
August 19, 2000. The Registration Statement, of which this Prospectus forms a
part, includes the 150,000 shares of the Company's Common Stock and the 50,000
shares underlying the Warrants.
On May 1, 1997, the Company, Messrs. Raja and Suneet Tuli, the Company's
President and Vice President, respectively, entered into a Settlement Agreement
with certain individuals in connection with an action alleging improper conduct
with respect to the announcement of the redemption of certain Warrants, which
announcement was made on February 10, 1997. The settlement obligated the Company
to reduce the
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Warrant redemption to half of the publicly held Warrants and reduced the
exercise price of the warrants to $3.00 from $4.00 per share. Moreover, for
class members who held Warrants as of February 10, 1997, and sold such Warrants
prior to the close of business on March 5, 1997, the Company will issue one
replacement Warrant for each Warrant sold. Under certain terms and conditions of
this second settlement agreement, plaintiffs' counsel received 200,000 shares of
the Company's common stock, 46,250 of which were placed in escrow pursuant to
the terms and conditions of the Settlement Agreement. The Registration
Statement, of which this Prospectus forms a part, includes the shares issued to
plaintiffs' counsel.
THE OFFERING
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Common Stock Outstanding
Prior to Offering(1)....................... 5,895,545
Common Stock Outstanding
After the Offering(2)...................... 6,165,876
Risk Factors................................. This Offering involves a high degree of risk.
See "Risk Factors."
Use of Proceeds(3)........................... The Company will not receive any proceeds from
the sale of the Selling Security Holders. The
Company anticipates that proceeds received
from the exercise of any Warrants will be used
for working capital, and general corporate
purposes. See "Use of Proceeds."
Nasdaq Smallcap Market Symbol:............... "WIDEF"
Boston Stock Exchange Symbol:................ "WDE"
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(1) Does not include: (i) 500,000 shares of Common Stock reserved for issuance
under the Company's 1995 Employee Stock Option Plan, of which 478,500 shares
have been reserved for currently outstanding options and 21,500 shares are
available for future issuances; and (ii) 1,846,322 outstanding warrants and
debentures.
(2) Assumes the exercise of all Warrants and conversion of Debentures registered
hereby at a conversion price of $1.14. Does not include (i) 500,000 shares
of Common Stock reserved for issuance under the Company's 1995 Employee
Stock Option Plan, of which 478,500 shares have been reserved for currently
outstanding options and 21,500 shares are available for future issuances;
and (ii) 1,846,322 outstanding warrants and debentures.
(3) The Company will receive up to approximately $350,000 if all the Warrants
with respect to Shares covered by this Prospectus are exercised. See "Use of
Proceeds."
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RISK FACTORS
The securities offered hereby are speculative in nature and involve a high
degree of risk, including, but not limited to, the risk factors described below.
Each prospective investor should carefully consider the following risk factors
before making an investment decision. This Prospectus contains, in addition to
historical information, forward looking statements (as defined in the Private
Securities Litigation reform Act of 1995) that involve risks and uncertainties.
The statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the Company,
its directors or officers with respect to: (i) future revenues,(ii) product
development, (iii) the future of the wide format document system industry, and
(iv) other matters. The Company's actual results could differ materially from
those anticipated in the forward looking statements as a result of certain
factors, including those discussed below and elsewhere in this Prospectus.
Certain statements in this Prospectus, and the Company's Reports to the
Commission filed under the Securities Exchange Act of 1934 which are
incorporated by reference herein, constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "1995
Reform Act"). The Company desires to avail itself of certain "safe harbor"
provisions of the 1995 Reform Act and is therefore including this special note
to enable the Company to do so. Forward-looking statements included in this
Prospectus or hereafter included in other publicly available documents filed
with the Securities and Exchange Commission, reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties, and other factors which
could cause the Company's actual results, performance (financial or operating)
or achievements to differ from the future results, performance (financial or
operating) achievements expressed or implied by such forward looking statement.
Such future results are based upon management's best estimates based upon
current conditions and the most recent results of operations. These risks
include, but are not limited to, risks associated with recent and accumulated
losses, competition, conflicts of interest, limited operating history,
dependence upon one product line, and other risks detailed in the Company's
Securities and Exchange Commission filings, including its Annual Report on Form
10-K, Form 10-Q as well as recently filed Reports on Form 8-K, if any, each of
which could adversely affect the Company's business and the accuracy of the
forward looking statements contained herein.
1. Limited Relevant Operating History; Limited Revenue and Profit; Future
Operating Results. The Company commenced marketing its first 36( wide format
facsimile machine on a limited basis, primarily for demonstration purposes, in
1992, and other wide format document systems in 1994 and has a limited relevant
operating history upon which an evaluation of the Company's prospects and
performance can be made. The Company is subject to all of the risks, expenses,
delays, problems and difficulties typically encountered in the establishment of
a new business in an industry characterized by intense competition, as well as
those encountered in the shift from development to commercialization of new
products based on innovative technologies. For example, although the Company
announced in December 1996 that it had achieved its initial target production
for its SLC 436 color scanner, the Company has since reduced its production
output in an effort to implement changes intended to reduce the incidence of
manufacturing defects.
Since inception, the Company has generated limited revenues from
operations, achieved limited profitability in the fiscal years 1993 through
1995, sustained a loss of approximately $840,000 for the fiscal year ended March
31, 1996 and a further loss of approximately $4,488,000 for the fiscal year
ended March 31, 1997, and $1,014,370 for the fiscal quarter ended June 30, 1997,
and 465,871 for the fiscal quarter ended September 30, 1997, as well. The
Company would have incurred losses during each of the fiscal years ended March
31, 1993, 1994, 1995, 1996 and 1997 if it had not received revenues from
research and development grants and similar reimbursement programs. Unfavorable
general economic conditions, including any possible future downturns in domestic
or international economies, would materially and adversely affect the Company's
future operating results. There can be no assurance that the Company will be
able to achieve increased levels of revenue in the future or that the Company's
future operations will be profitable.
2. Uncertainty of Revenue from Government Sponsored Programs. To date, a
substantial portion of the Company's revenues have been derived from research
and development grants and reimbursement from
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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 became equal shareholders in a research
and development Company named 3994340 Canada Inc., doing business as
Technologies of NovImage ("NovImage"). The joint venture allows NovImage to
receive grants in excess of 40% of qualified research expenditures. Products
derived from the research are then licensed back to the Company at a nominal
royalty of 0.5% of sales of those products. The formation of NovImage enables
the Company to obtain a substantial increase in the amount of research that can
be performed. See "Certain Relationships and related Transactions Form 10K."
In 1996, a change in Canadian tax legislation substantially reduced the
amount of subsidy available on research and development performed by publicly
traded companies.
3. Working Capital Position. The Company's heavy investment in property,
plant, equipment and inventories, its continuing operating losses and its
$1,850,000 investment in NovImage have substantially reduced the Company's cash
position. As a result, management believes it will be necessary to raise
additional capital in the near future, and is exploring the Company's
alternatives at this time. The inability to obtain additional financing, when
needed and on acceptable terms, would have a material adverse effect on the
Company's operations. To the extent that any future financing involves the sale
of the Company's equity securities, the interests of the Company's then existing
shareholders, including investors in this offering, could be diluted. See
"Recent Events."
4. Highly specialized and Emerging Markets; Uncertainty of Market
Acceptance. Possibility of Differing Industry Standards. The wide format
document systems industry is a highly specialized segment of the document
systems industry and is characterized by emerging and evolving markets and an
increasing number of entrants who have introduced or are developing an array of
new wide format products based on a variety of technologies. Each of these
entrants is seeking to establish its products and technologies as the preferred
method for reproducing, transmitting and storing wide format documents. To the
extent that a competitor establishes its technologies as the preferred method
within the industry, the Company may be required to modify or discontinue its
products. As is typical in the case of emerging and evolving markets, demand and
market acceptance for newly introduced products is subject to a high level of
uncertainty. Since both the sender and recipient of wide format facsimile
transmissions must have a WIDEfax machine in order to accommodate a wide format
document in its existing form, purchasers may be reluctant to purchase the
Company's products until wide scale market acceptance has been achieved.
Achieving market acceptance of the Company's products will require substantial
marketing efforts and expenditures of significant funds to
7
<PAGE> 10
create awareness and demand for the Company's products. In addition, potential
customers may elect to utilize other products which they believe to be more
efficient or have other advantages over the Company's products or may be
reluctant to purchase the Company's products due to significant capital
investment in other wide format document systems. There can be no assurance that
emerging markets for the Company's products will not be limited, that the
Company will have the funds or other resources necessary to achieve its
marketing objective or that the Company's efforts will result in successful
product commercialization or initial or continued market acceptance for its
products.
5. Uncertainty of Introduced Product Lines. In 1992, the Company
commenced making 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, 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.
6. Limited Marketing Capabilities and Experience; Dependence upon
Third-Party Marketing Arrangements. The Company has limited marketing
experience and limited financial, personnel and other resources to independently
undertake extensive marketing activities. In light of the foregoing, the Company
has entered into third-party marketing arrangements and intends to rely
primarily on domestic and foreign distributors and dealers to market the
Company's products. The Company will be dependent upon the efforts of such
distributors and dealers and may be dependent upon a limited number of such
distributors and dealers for a significant portion of its revenues. For the
years ended March 31, 1995, March 31, 1996 and March 31, 1997, the Company's
five largest distributors accounted for approximately 45.3%, 37%, and 49.9%,
respectively, of the Company's product sales. The Company has only recently
entered into marketing arrangements with many of its key distributors and
dealers and the Company's prospects will depend to a large extent upon their
efforts and the Company's ability to develop and maintain strategic marketing
relationships with additional distributors and dealers. Certain of the Company's
dealers and distributors represent various product lines generally, and cannot
be expected to increase their sales efforts for the Company's products in the
absence of increased incentives or product demand. The Company will also be
dependent upon such distributors and dealers to provide installation and support
services. To the extent that such third parties provide inadequate service and
support, over which the Company will not have direct control, the Company's
reputation, and its ability to continue to sell additional products would be
adversely affected.
7. Technological Factors; Uncertainty of Product Development and
Commercialization. Although the Company has completed the development of its
WIDEfax machines, which the Company believes perform the principal functions for
which they have been designed, the Company's products have only been recently
commercialized and are currently being utilized by only a limited number of
customers. As a result, there can be no assurance that, upon widespread
commercial use, the Company's products will satisfactorily perform all of the
functions for which they have been designed or that they will be reliable or
durable in extensive applications. The Company may be required to devote
considerable efforts and resources to enhance and refine its wide format
products and to develop additional products. Such efforts remain subject to all
the risks
8
<PAGE> 11
inherent in development and commercialization of new products, including
unanticipated delays, expenses, technical problems or difficulties, as well as
the possible insufficiency of funds to implement efforts, which could result in
abandonment or substantial change in product development or commercialization.
The Company's success will be largely dependent upon its proposed products
meeting targeted cost and performance objectives and the Company's ability to
adapt its products to keep pace with evolving technological advances in the
industry, and may also be dependent upon their timely introduction into the
marketplace. The inability to successfully complete development of a product or
a determination by the Company, for financial, technical or other reasons, not
to complete development or commercialization of any product, particularly in
instances in which the Company has already made significant capital
expenditures, could have a material adverse effect on the Company.
8. Competition; Technological Obsolescence. The markets for document
systems are characterized by intense competition. Although the Company is not
aware of any manufacturer of 36( facsimile machines, the Company is aware of one
manufacturer of 24( facsimile machines and various manufacturers of wide format
copiers, scanners, plotters and printers. The Company competes with numerous
well-established foreign and domestic companies that market or are developing
wide format document systems, as well as those which manufacture standard
facsimile machines, copiers, scanners, plotters, and printers. The Company also
expects that companies that manufacture and sell standard facsimile machines,
copiers, plotters, scanners and printers could develop, without substantial
delay of time, 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, copiers, plotters, scanners and printers and have sufficient
budgets to permit them to implement extensive advertising and promotional
campaigns in response to competitors to enter new markets. The markets for the
Company's products are also characterized by rapidly changing technology and
evolving industry standards, sometimes resulting in product obsolescence or
short product life cycles. 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.
9. Dependence Upon Principal Product; Limited Customer Base. A
substantial portion of the Company's sales has been derived from the sale of the
36" WIDEfax facsimile machines prior to May 1994 and from the WIDEfax Modular
Unit since its introduction in May 1994. Upon the introduction of the WIDEfax
Modular Unit, which is an enhanced modular version of the 36" WIDEfax facsimile
machine, the Company discontinued manufacturing and selling the 36" WIDEfax
facsimile machine. A decline in the sale of the WIDEfax Modular Units would have
a material adverse effect on the Company. For the year ended March 31, 1996 and
March 31, 1997, sales of the WIDEfax Modular Unit accounted for approximately
35.2% and 13.9% respectively, of the Company's product sales. There can be no
assurance that the Company will not be dependent upon non-recurring sales of
WIDEfax Modular Units to a limited number of customers, which sales could
constitute a substantial portion of the Company's revenues.
10. Dependence Upon Third-Party Suppliers. The Company is dependent upon
third-party suppliers and subcontractors for all of its supply of custom and
component parts incorporated into its products. While the Company believes that
alternative sources of supply for most of its components and custom parts are
readily available on commercially reasonable terms, the Company is currently
dependent upon Alberta Microelectronics, Inc., its principal supplier of print
heads. 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. The Company is dependent on the
ability of its suppliers and subcontractors to, among other things, satisfy
performance and quality specifications and dedicate sufficient production
capacity within scheduled delivery times. There can be no assurance that the
Company's suppliers and subcontractors will be able to satisfy the Company's
scheduled delivery requirements demand. Failure or delay by the Company's
suppliers and subcontractors in supplying components or custom parts to
9
<PAGE> 12
the Company would adversely affect the Company's operating margins and the
Company's ability to manufacture and deliver products on a timely and
competitive basis.
11. Foreign Trade Risks. The Company relies on sales to foreign markets
for a substantial portion of its revenues. For the fiscal year ended March 31,
1995, 1996 and 1997, sales of the Company's products to customers in the Middle
East and Asia accounted for approximately 43.5%, 25% and 36.5%, respectively, of
the Company's sales. The Company is seeking to expand product sales in foreign
markets, but there can be no assurance that the Company will be successful or
that such markets will prove to be viable. To the extent that the Company is
able to successfully expand its operations in foreign markets, the Company will
become increasingly subject to risks inherent in foreign trade, including
shipping delays, increased collection risks, trade restrictions, export duties
and tariffs and international political, regulatory and economic developments,
all of which could have an adverse effect on the Company's operating margins and
results of operations and exacerbate the risks inherent in the Company's
business. In addition, the Company conducts a substantial portion of its
business in foreign currency, primarily the Canadian dollar and Indian rupee.
Fluctuations in the exchange rates between the United States dollar and the
Canadian dollar or Indian rupee could have an adverse effect on the Company's
operating results. The Indian rupee has experienced significant devaluation
against the United States dollar and other currencies in recent years. The
Company may seek to limit its exposure to the risk of currency fluctuations by
foreign currency hedging transactions which could expose the Company to
substantial risk of loss.
12. Impact of Currency; Exchange Rates. 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.
13. Risks Associated with Foreign Manufacturing. Substantially all of the
Company's manufacturing activities are conducted in a free trade zone in India
and, as a result, supplies shipped to the Company's manufacturing facility and
completed products shipped from the facility are not subject to Indian duties or
tariffs. In connection therewith, the Company has been and will continue to be
subject to various risks associated with conducting business abroad. India may,
from time to time impose duties, tariffs or quotas or other restrictions on the
Company's imports or exports, or otherwise change regulations relating to the
conduct of business in the free trade zone, or the United States or Canada may
impose increased duties, tariffs and other restrictions on the import or export
of the Company's products or supplies, any of which would adversely affect the
Company's operations.
14. Possible Fluctuations in Operating Results. The Company's operating
results could vary from period to period as a result of the length of the
Company's sales cycle, as well as from purchasing patterns of potential
customers, the timing and introduction of new products and product enhancements
by the Company and its competitors, variations in sales by distribution channel
and non-recurring system sales to a limited number of customers. There can be no
assurance that such factors will not cause significant fluctuations in the
Company's operating results in the future.
15. Lack of Patent Protection; Reliance Upon Trade Secrets. 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 the breadth or degree of protection
future patents, if any, would afford the Company or that any such patents will
not be circumvented or invalidated. 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
10
<PAGE> 13
obtain access to the Company's know-how, ideas, concepts and documentation. 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 defend
successfully a claim of violation of proprietary rights. Failure to do any of
the foregoing could have a material adverse effect on the Company. Furthermore,
if the Company's products or technologies are deemed to infringe patents or
proprietary rights of others, the Company could, under certain circumstances,
become liable for damages, which would have a material adverse effect on the
Company.
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. 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.
16. Dependence on Key Personnel. The success of the Company will be
largely dependent on the personal efforts of Raja S. Tuli, its Chief Executive
Officer and President and Suneet S. Tuli, its Executive Vice President of Sales
and Marketing, and other key personnel. Although the Company has entered into
five-year employment agreements with Messrs. Tuli and Tuli, the loss of the
services of such persons or other key employees could have a material adverse
effect on the Company's business and prospects. The Company has obtained
"key-man" life insurance on the life of Raja Tuli in the amount of CDN
$1,500,000 and on the life of Suneet Tuli in the amount of CDN $1,000,000. The
success of the Company may also be dependent upon its ability to hire and retain
additional qualified technical, financial, marketing and other personnel.
Competition for qualified personnel in the wide format document system industry
is intense and there can be no assurance that the Company will be able to hire
or retain additional qualified personnel.
17. Potential Conflicts of Interest. The Company was organized by Raja,
Suneet and Lakhbir Tuli and has engaged in transactions with entities that are
affiliated with such persons which may involve potential conflicts of interest.
For example, the Company has entered into an Agreement with Widecom R&D, Inc.
("WideCom R&D"), a Company wholly owned by Lakhbir S. Tuli, a principal
stockholder of the Company and father of Raja and Suneet Tuli, pursuant to which
WideCom R&D seeks to recruit licensing and marketing joint ventures and
subcontract manufacturers for the Company in India. Certain terms of this
Agreement, including a provision which requires WideCom R&D to structure its
compensation with licensees, could result in potential conflicts of interest
with the Company. In addition, Indo WideCom International Ltd., the Company's
wholly owned subsidiary, leases the Company's Indian facility from WideCom Fax
and Plotters, Ltd. ("WideCom Fax"), a Company controlled by Lakhbir S. Tuli, and
has engaged WideCom Fax as a non-exclusive distributor in India on the same
terms and conditions as unaffiliated distributors. Moreover, the Company engages
Lakhbir S. Tuli as an independent consultant and, for the years ended March 31,
1996 and 1997, the Company paid Mr. Tuli $54,000 and $115,000 respectively, in
consideration for such services. In connection with the establishment of
NovImage, two companies in which Raja S. Tuli has a beneficial interest in, each
acquired 5% of NovImage solely in exchange for the licensing of their
technologies to NovImage.
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<PAGE> 14
Although management believes these transactions have been advantageous to the
Company, there can be no assurance 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 entirely in favor of the Company.
18. Control by the Tuli Family. At present, Raja, Suneet and Lakhbir
Tuli, in the aggregate, beneficially own approximately 40.3% of the Company's
outstanding Common Stock. Accordingly, such persons, acting together, will most
likely be in a position to control the Company, elect all of the Company's
directors, increase the authorized capital, dissolve, merge, or sell the assets
of the Company and generally direct the affairs of the Company. In addition, the
Ontario Business Corporation Act (the "OBCA") under which the Company is
incorporated, requires that a majority of the members of the Company's Board of
Directors and of any committee of the Board of Directors be resident Canadians.
The OBCA also provides that directors shall not transact business at a meeting
of directors unless a majority of directors present are resident Canadians. The
Company currently has a majority of directors who are residents Canadians.
19. No Dividends. The Company has not paid any cash dividends to date and
does not expect to pay cash dividends in the foreseeable future.
20. Possible Delisting; Penny Stock Regulation. Under Nasdaq rules, in
order to maintain listing on the Nasdaq SmallCap Market, a Company must have,
among other things, $2,000,000 of net tangible assets or market capitalization
of $35,000,000 or $500,000 of net revenue in the latest fiscal year or 2 of 3
previous fiscal years and a minimum bid price of $1.00 per share. In addition,
Nasdaq reserves the right to withdraw or terminate the Company's listing on the
Nasdaq SmallCap Market at any time and for any reason in its discretion. In the
event that the Company is unable to maintain continued quotation on the Nasdaq
SmallCap Market, quotation, if any, of the Common Stock would be in the
over-the-counter market in what are commonly referred to as the "pink sheets" of
the National Quotation Bureau, Inc. or on the National Association of Securities
Dealers OTC Electronic Bulletin Board. As a result, an investor may find it more
difficult to dispose of or obtain accurate quotations as to the price of such
securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. In addition, if the Company's
securities do not meet an exception to the penny stock regulations cited above,
trading in the Company's securities would be covered by Rule 15g-9 promulgated
under the Exchange Act for non-Nasdaq and non-national securities exchange
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000 or $300,000 together with their spouses) must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if the market price is at least $5.00 per share.
If the Company's securities become subject to the regulations applicable to
penny stocks, the market liquidity for the Shares could be adversely affected
because the regulations on penny stocks could limit the ability of
broker/dealers to sell the Company's securities and thus the ability of
purchasers of the Company's securities to sell their securities in the secondary
market.
21. Significant Outstanding Options and Warrants; Potential Adverse Effect
on Market Price of Common Stock. Upon the consummation of this offering, there
will be 2,081,322 Warrants and 219,298 Debentures outstanding to purchase
freely-tradeable shares of Common Stock. Of those warrants, 60,000 are
exercisable at a price of $2.50 per share, 1,756,322 are exercisable at a price
of $4.00 per share, 165,000 are exercisable at $8.25 per share, and 100,000 are
exercisable at $2.125 per share. Additionally, the Company has reserved 21,500
shares of Common Stock for issuance upon the exercise of options which may be
granted under the Company's Stock Option Plan, under which plan, options to
purchase 478,500 shares of Common Stock at a price of $2.125 per share, have
been granted. Although the Company has the right to redeem, for
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<PAGE> 15
$.10 per warrant, 936,322 warrants exercisable at $4.00 per share, and may
choose to do so in light of its current working capital position, heavy downward
pressure on the Company's stock price would likely result as warrant holders
exercised such warrants, and sold the underlying stock, to avoid redemption of
their warrants. To the extent that outstanding options and warrants are
exercised, dilution to the percentage ownership of the Company's stockholders
will occur and any sales in the public market of the Shares underlying such
options and warrants may adversely affect prevailing market prices for the
Shares. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely effected since the holders of
outstanding options and warrants can be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the outstanding
options and warrants.
22. Shares Eligible for Future Sale. Upon the consummation of this
offering, the Company will have 6,165,876 shares of Common Stock outstanding and
2,206,322 shares issuable upon exercise of outstanding warrants and conversion
of debentures, all of which will be freely tradeable without restriction or
further registration under the Securities Act. An additional 2,281,825 shares
(and 929,762 shares of Common Stock issuable upon exercise of certain warrants,
are deemed to be "restricted securities" as that term is defined under Rule 144
promulgated under the Securities Act, and may only be sold pursuant to an
effective registration under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. All such "restricted" shares may be sold pursuant to Rule 144 at
various times in the future. No prediction can be made as to the effect, if any,
that sales of such shares or even the availability of such shares for sale will
have on the market prices prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to raise capital through the sale of additional
equity securities described above.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Security Holders. The Company is not paying any underwriting,
brokerage or other commissions in any form whatsoever in connection with the
offer and sale of the Shares.
However, because certain Shares being sold pursuant to this Prospectus will
be acquired from the Company upon exercise of currently outstanding Warrants,
the Company would receive $350,000 in proceeds if all such Warrants are
exercised, which the Company plans to use for working capital and general
corporate purposes.
SELLING SECURITY HOLDERS
The Company has agreed to register the resale of the Selling Security
Holders' Shares under the Securities Act and to pay all expenses in connection
therewith. An aggregate of 682,798 Selling Security Holders' Shares (consisting
of 353,500 shares of Common Stock and an aggregate of 329,298 shares of Common
Stock issuable upon exercise of warrants and debentures may be offered and sold
pursuant to this Prospectus by the Selling Security Holders. Except as set forth
below, none of the Selling Security Holders has ever held any position or office
with the Company or had any other material relationship with the Company.
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<PAGE> 16
SELLING SECURITY HOLDERS AND
TRANSACTIONS WITH SELLING SECURITY HOLDERS
<TABLE>
<CAPTION>
SHARES/
WARRANTS SHARES/ SHARES/ PERCENTAGE OF
BENEFICIALLY SHARES/ WARRANT SHARES/ SHARES
NAME AND ADDRESS OF SECURITY OWNED PRIOR TO WARRANT SHARES/ OWNED AFTER OWNED AFTER
HOLDER OFFERING OFFERED OFFERING OFFERING(1)
- ---------------------------------- ---------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Stanley R. Goldstein(2)........... 0/5,000 0/5,000 0 *
Victor J. DiGioia(2).............. 0/5,000 0/5,000 0 *
Robert L. Blessey)................ 3,500/0 3,500/0 0 *
Don Johnson, Walter J. Lack,
Thomas V. Girardi, Glenn
McCusker, and Gino Aiello(3).... 150,000/50,000 150,000/50,000 0 *
Chimicles, Jacobsen &
Tikellis(4)..................... 200,000/0 200,000/0 0 *
Global Bermuda Limited
Partnership(5).................. 0/50,000 0/50,000 0 *
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
DEBENTURES SHARES
DEBENTURES OWNED AFTER OWNED AFTER
DEBENTURE HOLDER DEBENTURES OFFERED OFFERING OFFERING
- -------------------------------------------------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Global Bermuda Limited Partnership(6)............. 219,298 219,298 0 *
</TABLE>
- ---------------
* Percentage is less than 1%.
(1) Computed for purposes herein to give effect to the exercise of all Warrants
held by such Selling Security Holder and not any other Selling Security
Holder. Figures are computed based upon 5,895,545 shares of Common Stock
outstanding on February 23, 1998.
(2) Shares issuable upon exercise of Warrants at an exercise price of $2.50 per
share exercisable for a period of five years expiring June 2, 2002. These
Warrants were issued for services rendered.
(3) Includes Shares issuable upon exercise of Warrants at an exercise price of
$2.50 per share exercisable for a period of three years expiring August 19,
2000. Warrants were issued pursuant to the terms and conditions of a
Settlement Agreement.
(4) Shares received by plaintiffs' counsel for legal fees pursuant to the terms
and conditions of a Settlement Agreement.
(5) Shares issuable upon exercise of Warrants at an exercise price of $4.00 per
share exercisable for a period of three years expiring May 19, 2000.
Excludes shares issuable upon conversion of the Debentures referred to in
footnote 6 below.
(6) Shares of Common Stock issuable upon conversion of $250,000 of 8% Debentures
at an exercise price of $1.14 per share. Excludes shares issuable upon
exercise of Warrants referred to in footnote 5 above.
PLAN OF DISTRIBUTION
The Shares of Common Stock held by certain Selling Security Holders and the
Shares underlying the Warrants and Debentures issuable to Selling Security
Holders upon exercise thereof, may be offered and sold from time to time by the
Selling Security Holders as market conditions permit in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then-current market price, or in negotiated transactions. The Shares
offered hereby may be sold by one or more of the following methods, without
limitation: (a) a block trade in which a broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) ordinary brokerage transactions and transactions in
which the broker solicits purchasers; and (d) face-to-face transactions between
sellers and purchasers without a broker-dealer. In effecting sales,
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<PAGE> 17
brokers or dealers engaged by the Selling Stockholder may arrange for other
brokers or dealers to participate. Such brokers or dealers may receive
commissions or discounts from the Selling Security Holders in amounts to be
negotiated immediately prior to the sale. Such brokers and dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, in connection with such sales.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock, no
par value per share. The holders of Common Stock are entitled to one vote for
each share held of record on each matter submitted to a vote of shareholders and
do not have cumulative voting rights. The Common Stock has no conversion rights
and includes no preemptive rights or other rights to subscribe for additional
securities. The holders of the Common Stock will be entitled to receive
dividends, if any, as may be declared by the Board of Directors out of legally
available funds and to share pro rata in any distribution to the shareholders,
including any distribution upon liquidation of the Company. All outstanding
Shares of Common Stock are fully paid and nonassessable.
LEGAL MATTERS
Certain legal matters relating to the Common Stock will be passed upon for
the Company by the law firm of Goldstein & DiGioia, LLP ("G&D"), New York, New
York. G&D has relied on the opinion of Marks, Ciraco, Ontario counsel to the
Company relating to all aspects of Ontario and Canadian law. Certain principals
at G&D holds warrants to purchase 10,000 shares at $2.50 per share, which
Warrants are exercisable for a five year period and expire on June 2, 2002, and
have been included in the Registration Statement of which this Prospectus forms
a part.
EXPERTS
The financial statements and schedules of the Company included and
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended March 31, 1997, have been audited by BDO Dunwoody, independent
chartered accountants, to the extent and for the periods indicated in their
reports with respect thereto, and are incorporated herein by reference in
reliance upon their reports given on the authority of said firms as experts in
accounting and auditing.
DISCLOSURE OF COMMISSION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Indemnification may be permitted to directors, officers, employees and
agents of a corporation under certain circumstances and subject to certain
limitations pursuant to Part IX of the Ontario Business Corporation Act and the
Company's By-laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company,
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel, the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by final adjudication of
such issue.
15
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company will bear all expenses in connection with the issuance and
distribution of the Shares, including those set forth below. None of such
expenses will be borne by the Selling Security Holders.
<TABLE>
<CAPTION>
ITEMS AMOUNTS
- ----------------------------------------------------------------------------------- -------
<S> <C>
Securities and Exchange Commission
Registration Fee................................................................... $ 287
Printing and Engraving Expenses.................................................... $15,000*
Accounting Fees and Expenses....................................................... $ 3,000*
Legal Fees and Expenses............................................................ $15,000
Blue Sky Fees and Expenses......................................................... $ 5,000*
Transfer Agent and Registrar Fees.................................................. $ 2,000*
Miscellaneous Fees and Expenses.................................................... $ 1,500*
-------
Total.................................................................... $41,787*
=======
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 6 of the Company's By-Laws limits the personal liability of
directors and officers to the Company or its shareholders for monetary damages
arising from a breach of their fiduciary duty in certain circumstances. Article
6 of the Company's By-Laws also provides that the Company may indemnify its
officers and directors to the fullest extent permitted by the Ontario Business
Corporations Act from any liability and all costs, charges and expenses that
such officer or director sustains in respect to any action, suit or proceeding
that is proposed or commenced against him or her for or in respect the execution
of the duties of his or her office. Part IX of the Ontario Business Corporations
Act authorizes a corporation to indemnify directors and officers unless such
party has been adjudicated in any proceeding not to have acted in good faith in
the reasonable belief that his action was in the best interests of the
corporation. The effect of these provisions is to permit such indemnification by
the Company for liabilities arising under the Securities Act.
ITEM 16. EXHIBITS.
The exhibits designated with an asterisk (*) have previously been filed
with the Commission in connection with the Company's Registration Statement on
Form S-3, File No. 333-35547, and pursuant to 17 C.F.R. Sections 201.24 and
240.12b-32, are incorporated by reference to the document referenced in brackets
following the description of such exhibits. (**) denotes exhibits filed
herewith.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
4.1* Form of 8% Convertible Debentures purchased by Global Bermuda Limited Partnership, a
Bermuda limited Partnership.
4.2* Form of Warrant issued to Global Bermuda Limited Partnership, a Bermuda limited
Partnership.
4.3* Form of Warrant issued by the Company to principals at the law firm of Goldstein &
DiGioia, LLP for services rendered, and to certain individuals pursuant to a
settlement agreement.
5 ** Opinion of Goldstein & DiGioia, LLP., re: legality of shares.
10.1* Financial Consulting Agreement, dated June 2, 1997, by and between The Widecom Group
Inc. and Alex Moore & Co.
10.2* Settlement Agreement, dated May 1, 1997, among Brett Whiton, Richard Benjamin,
Anthony Hand, and the Company, Messrs. Raja and Suneet Tuli.
23 ** Consent of BDO Dunwoody, independent accountants.
</TABLE>
II-1
<PAGE> 19
ITEM 17. UNDERTAKINGS
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10 (a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of a prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a twenty percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Company pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the Company is a foreign private issuer, to file a post-effective
amendment to the Registration Statement to include any financial statements
required by Rule 3-19 of Regulation S-K at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10 (a)(3) of the Securities Act need not be furnished,
provided, that the Company includes in the Prospectus, by means of a
post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the Prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section 10
(a)(3) of the Securities Act or Rule 3-19 of Regulation S-K if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the Company pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the Form F-3.
(b) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the Company's
annual report pursuant to Section 13(a) or 15(b) of the Exchange Act (and where
applicable, each filing of all employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Company hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report, to security holders that are incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the Prospectus, to deliver, or cause to be
delivered to each person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
Prospectus to provide such interim financial information.
II-2
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Brampton, Ontario, Canada, on February 26, 1998.
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 1933, this
registration statement has been signed below by the following persons on behalf
of the Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- ----------------------------------- -------------------
<C> <S> <C>
/s/ RAJA S. TULI President, Chief Executive Officer February 26, 1998
- ------------------------------------- and Director (Principal Executive
Raja S. Tuli Officer)
/s/ WILLEM J. BOTHA Treasurer and Chief Financial February 26, 1998
- ------------------------------------- Officer (Principal Financial and
Willem J. Botha Accounting Officer)
/s/ SUNEET S. TULI Executive Vice President of Sales February 26, 1998
- ------------------------------------- and Marketing, Secretary and
Suneet S. Tuli Director
/s/ BRUCE D. VALLILLEE Director February 26, 1998
- -------------------------------------
Bruce D. Vallillee
/s/ AJIT SINGH Director February 26, 1998
- -------------------------------------
Ajit Singh
</TABLE>
II-3
<PAGE> 21
EXHIBIT INDEX
The exhibits designated with an asterisk (*) have previously been filed
with the Commission in connection with the Company's Registration Statement on
Form S-3, File No. 333-35547, and pursuant to 17 C.F.R. Sections 201.24 and
240.12b-32, are incorporated by reference to the document referenced in brackets
following the description of such exhibits. (**) denotes exhibits filed
herewith.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ---------------------------------------------------------------------------
<C> <S> <C>
4.1* Form of 8% Convertible Debentures purchased by Global Bermuda Limited
Partnership, a Bermuda limited Partnership.
4.2* Form of Warrant issued to Global Bermuda Limited Partnership, a Bermuda
limited Partnership.
4.3* Form of Warrant issued to principals at the law firm of Goldstein &
DiGioia, LLP, for services rendered, and to certain individuals pursuant to
a Settlement Agreement.
5 ** Opinion of Goldstein & DiGioia, LLP., re: legality of shares.
10.1* Financial Consulting Agreement, dated June 2, 1997, by and between The
Widecom Group Inc. and Alex Moore & Co.
10.2* Settlement Agreement, dated May 1, 1997, among Brett Whiton, Richard
Benjamin, Anthony Hand, and the Company, Messrs. Raja and Suneet Tuli.
23 ** Consent of BDO Dunwoody, independent accountants.
</TABLE>
<PAGE> 1
EXHIBIT 5
Letterhead of
Goldstein & DiGioia, LLP
369 Lexington Avenue
New York, New York 10017
Telephone Number (212) 599-3322
Facsimile (212) 557-0295
February 26, 1998
The Widecom Group Inc.
267 Matheson Boulevard East
Mississaugua, Ontario
Canada, L4Z 1X8
Re: The Widecom Group, Inc.
Amendment No. 1 to
Registration Statement on Form S-3
SEC File No. 333-355471
Ladies/Gentlemen:
We have reviewed Amendment No. 1 to a Registration Statement on Form
S-3, filed on February 17, 1998, (File No. 333-35547)(the "Registration
Statement") under the Securities Act of l933, as amended (the "Act") by The
Widecom Group Inc., an Ontario, Canada corporation (the "Company"). The
Registration Statement has been filed for the purpose of registering the
securities described therein for offer and sale under the Act. All capitalized
terms not defined herein have the meanings ascribed to them in the Registration
Statement.
This opinion has been rendered with respect to: 353,500 of outstanding
shares (the "Shares") of Common Stock, no par value per share; 110,000 Shares
issuable upon exercise of outstanding common stock purchase warrants; and
219,298 Shares issuable upon conversion of $250,000 of 8% convertible
debentures.
In giving this opinion, we have relied on the opinion of the law firm
of Marks, Ciraco, Ontario, counsel to the Company, regarding all aspects of
Ontario and Canadian law, a copy of which is attached hereto as Exhibit A.
In connection with the opinions rendered herein, we have
examined the Certificate of Incorporation of the Company, its By-Laws, and such
other documents, corporate records and questions of law as we have deemed
necessary solely for the purpose of enabling us to render this opinion. On the
basis of such examination, we are of the opinion that:
l. The Company is a corporation duly organized and validly existing
and in good standing under the laws of Ontario, Canada, with corporate power to
conduct the business which it conducts as described in the Registration
Statement.
2. The Company has an authorized capitalization of 20,000,000 shares
of Common Stock, no par value per share.
<PAGE> 2
The Widecom Group Inc.
Page Two
February 26, 1998
3. The outstanding Shares have been duly authorized, sold and paid for
as described in the Registration Statement, and are validly issued, fully paid
and non-assessable.
4. The Shares issuable upon exercise of the Warrants have been duly
authorized and when issued sold and paid for, as described in the Registration
Statement, will be validly issued, fully paid and non-assessable.
5. The Shares issuable upon conversion of the debentures have been
duly authorized and when issued, as described in the Registration Statement,
will be validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Opinions" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Goldstein & DiGioia, LLP
GOLDSTEIN & DIGIOIA, LLP
<PAGE> 3
EXHIBIT A
[MARKS, CIRACO LETTERHEAD]
Delivered by regular mail
February 13, 1998
The Widecom Group Inc.
267 Matheson Boulevard East
Mississaugua, Ontario
Canada, L4Z 1X8
- -and-
Goldstein & DiGioia
369 Lexington Avenue
New York, New York
10017
Dear Sirs/Madames:
Re: The Widecom Group, Inc.
Amendment No. 1 to
Registration Statement on Form S-3
SEC File No. 333-35547
We have reviewed and examined the Certificate of Incorporation of the Company,
By-Laws, and such other documents, notices and forms, corporate records and
questions of law as we have deemed necessary solely for the purpose of enabling
us to render this opinion.
We have not represented the Company on a regular basis and our engagement has
been limited to specific matters on which we have been consulted by the
Company. We advise each of you that the Company has engaged other counsel from
time to time and, as a result, there may be matters of which we have no
knowledge. For each of the foregoing reasons, the opinions contained herein
are limited accordingly. we are members of the Bar of the Province of Ontario
and are not admitted to practice in any other jurisdiction. The opinions
expressed herein relate only to the laws of the Province of Ontario and the
laws of Canada applicable therein and although the Documents call for the
application of foreign law, no opinions are expressed herein with respect to
the laws of any other jurisdiction. On the basis of such organization, we are
of the opinion that:
<PAGE> 4
2
l. The Company is a corporation duly organized validly existing and in good
standing under the laws of the Province of Ontario, Canada, with corporate
power to conduct the business which it conducts as described in the
Registration Statement.
2. The Company has an authorized capitalization of 20,000,000 shares of Common
Stock, no par value per share, pursuant to Articles of Amendment filed the
15th day of September, 1995, and Articles of Amendment filed the 16th day of
November, 1995 with the Ministry of Consumer and Commercial Relations,
Province of Ontario.
3. The outstanding Shares have been duly authorized, sold and paid for as
described in the Registration Statement, and are validly issued, fully paid and
non-assessable.
4. The Shares issuable upon exercise of the Warrants have been duly authorized
and when issued sold and paid for, as described in the Registration Statement,
will be validly issued, fully paid and non-assessable.
5. The Shares issuable upon conversion of the Debentures have been duly
authorized and when issued, as described in the Registration Statement, will be
validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to reference to our firm under the caption "Legal Opinions" in the
Prospectus forming a part of this Form S-3 Amendment No. 1 of The Widecom Group
Inc.
Very truly yours,
MARKS, CIRACO
/s/ William I. Marks
WILLIAM I. MARKS
<PAGE> 1
EXHIBIT 23
CONSENT OF CHARTERED ACCOUNTANTS
The Board of Directors
The WideCom Group Inc.
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated July 4,
1997, relating to the consolidated financial statements of The WideCom Group
Inc., appearing in the Company's Annual Report on Form 10-K for the year ended
March 31, 1997. We also consent to the reference to us under the caption
"Experts" in this Form S-3 Post-Effective Amendment No. 1 of The WideCom Group
Inc.
/s/ BDO DUNWOODY
--------------------------------------
BDO Dunwoody
Chartered Accountants
(Internationally BDO Binder)
Toronto, Canada
February 27, 1998
